SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 2000.
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______ .
Commission file number: 000-29865
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CATHAYONE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0489616
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 Pinto Lane, Las Vegas, Nevada 89106
----------------------------------------
(Address of principal executive office including Zip Code)
(702) 378-6864
(Issuer's telephone number)
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 X No
------ -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not 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 [ ].
The issuer's total consolidated revenues for the year ended December 31, 2000,
were $0
The aggregate market value of the registrant's Common Stock, $0.001 par value
(the only class of voting stock), held by non-affiliates was approximately
$12,869,905 based on the average closing bid and asked prices for the Common
Stock on May 8, 2001.
At March 31, 2001, the number of shares outstanding of the registrant's Common
Stock, $0.001 par value (the only outstanding class of voting stock), was
29,689,158.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business...........................................3
Item 2. Description of Property...........................................5
Item 3. Legal Proceedings................................................5
Item 4. Submission of Matters to a Vote of Security-Holders...............6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..........6
Item 6. Management's Discussion and Analysis or Plan of Operation.........8
Item 7. Financial Statements.............................................10
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................11
PART III
Item 9. Directors and Executive Officers.................................11
Item 10. Executive Compensation...........................................13
Item 11. Security Ownership of Certain Beneficial Owners and Management...13
Item 12. Certain Relationships and Related Transactions...................15
Item 13. Exhibits, List and Reports on Form 8-K...........................15
Signatures....................................................................16
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development History
CathayOne, Inc. (the "Company") is a publicly traded Delaware corporation which
was originally incorporated in the State of Utah on August 6, 1984, under the
name North American Clothing Company, Inc.
As of June 30, 2000, a majority of the shareholders of the Company authorized a
change in the Company's state of incorporation from Utah to Delaware, and the
merger of the Company into its wholly-owned subsidiary, CathayOne Inc.,
CathayOne Inc. being the surviving company. The redomiciling of the Company to
the State of Delaware and the concurrent change of the Company's name to
CathayOne Inc. occurred on August 9, 2000.
The Company's principal executive office is located at 2100 Pinto Lane, Las
Vegas, Nevada 89106 and its telephone number is (702)378-6864.
Business of the Issuer.
A. Principal Products and Services
The Company's stated business purpose is to manage, take a majority position in,
and/or make strategic investments in technological and service companies in the
entertainment, Internet and e-commerce industries. While located in the United
States, the Company has positioned itself to take advantage of the appetite for
foreign content entertainment, the fast-growing broadband multimedia information
dissemination opportunities, and Internet content services market in China.
Management believes that the best returns for investments in the next decade
will be in the People's Republic of China, Hong Kong, Macao and Taiwan
(collectively, "Greater China").
The Greater China market is increasingly looking outward, both in its appetite
for foreign content entertainment, as well as in its utilization of Internet
applications. The Company believes it can capitalize on the growth in
information technology, and will initially focus on developing companies in the
following markets: entertainment, including music, theater and sporting events;
business-to-government-to-business e- commerce; Internet content;
business-to-business e-commerce; Internet software application; Internet content
origination; and Internet information services.
The Company will further seek to acquire a majority--and/or a significant
minority equity interest where a strategic relationship can be established--in a
limited number of companies in the above industry sectors with emphasis in
Greater China. It seeks well-managed entities with existing revenue flows and
either existing cash flow or the likelihood of achieving positive cash flow over
the short term. The Company may take an active role in providing guidance and
introducing strategic relationships and, in certain circumstances, may take an
active role in the management of the companies in which it invests. The Company
will provide its North American expertise in management, new technologies, and
financial acumen to companies in China. As the companies mature, the Company
will seek to enhance value and liquidity for its shareholders by bringing these
3
companies to the public market, arranging merger and acquisition opportunities,
or negotiating private transactions for them. In the alternative, the Company
may take an equity position or enter into joint ventures with such companies.
B. Distribution
The Company is still in the developmental phase and has not, to this date,
embarked on any consistent attempts to market or distribute its products in the
Greater China region or elsewhere. The Company has performed no formal market
studies related to its proposed products and services in the Greater China
region. However, the Company has been involved in limited in house research to
determine the types of music and entertainment which might be marketed
successfully in the Greater China region.
C. Competition
The Company will be involved in intense competition with other business
entities, many of which will have a competitive edge over the Company by virtue
of their stronger financial resources and prior experience in business. There is
no assurance that the Company will be successful in obtaining additional
suitable business opportunities, or that it will be able to successfully operate
its current proposed businesses.
The market for the provision of Internet entertainment products and/or services
to individuals and businesses is extremely competitive and highly fragmented.
There may be substantial barriers to entry in mainland China and other foreign
countries where the Company seeks to operate, and the Company expects that
competition will intensify as these markets become more open to products on the
internet. The Company believes that the primary competitive factors determining
success in this market are a reputation for reliability and service, effective
customer support, pricing, creative marketing, and geographic coverage. Other
important factors include the timing of introductions of new products and
services and industry and general economic trends. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations.
In order to respond to expected changes in the competitive environment, the
Company may, from time to time, make price, service or marketing decisions or
make acquisitions that could possibly harm its business. Developing new
technologies may also increase competitive pressures on the Company by enabling
its competitors to offer a lower cost service.
D. Dependence on Major Customers
The Company's business plan does not envision dependence on one or a few major
customers
E. Governmental Regulation
The Company is subject to the same federal, state and local laws as other
companies providing entertainment and internet products and services. Today,
there are relatively few laws specifically directed toward online products and
services. However, due to the increasing popularity and use of the Internet and
online services, it is possible that laws and regulations may be adopted with
respect to the Internet or online products and services. These laws and
regulations could cover issues such as online contracts, user privacy, freedom
of expression, pricing, fraud, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Applicability to the Internet of existing laws governing issues such as property
4
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy are uncertain. Several jurisdictions have
proposed legislation that would limit the uses of personal user information
gathered online or require online services to establish privacy policies.
While located in the United States, the Company has positioned itself to take
advantage of foreign content entertainment, the fast-growing broadband
multimedia information dissemination opportunities, and Internet content
services market in foreign markets. Management intends to build its business in
the People's Republic of China, Hong Kong, Macao and Taiwan (collectively,
"Greater China"). In all of these countries, businesses face varying degrees of
government regulation. Mainland China is heavily regulated. Because the Company
is in a start-up mode, it is presently impossible to predict the government
regulation, if any, to which the Company may be subject. The use of assets
and/or conduct of businesses which the Company may acquire could subject it to
environmental, public health and safety, land use, trade, or other governmental
regulations and state or local taxation. The Company is presently attempting to
ascertain the effects of such government regulation on the prospective business
of the Company. Under the present circumstances, the Company is in the
development stage. Therefore, it is not feasible to predict with any degree of
accuracy the impact of government regulation on the Company's operations. The
inability to ascertain the effect of government regulation on the Company's
prospective business activity creates a high degree of risk.
F. Regulatory Overview
Due to the increasing popularity and use of the Internet, it is possible that
additional laws and regulations may be adopted with respect to the Internet.
Such new laws or regulations may cover issues such as content, privacy, pricing,
encryption standards, consumer protection, electronic commerce, taxation,
copyright infringement and other intellectual property issues. The Company
cannot predict the impact, if any, that any future regulatory changes or
development may have on its business, financial condition and results of
operations. Changes in the regulatory environment relating to the Internet,
including regulatory changes that directly or indirectly affect the ability to
market products or services, or increase the likelihood or scope of competition,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
G. Employees
The Company has three full time employees. Part time employees are hired from
time to time depending on increased marketing or additional projects in which
the Company may be involved.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no real property. The Company rents, on a month to month basis,
approximately 175 square feet of office space, located at 2100 Pinto Lane, Las
Vegas, Nevada 89106, from Jeff and Mary Albregts for $500 per month.
ITEM 3. LEGAL PROCEEDINGS
Capital Lake S.A. v. CathayOne, Inc., Case No. 01-CV-1266 (SAS) filed in the
United States District Court for the Southern District of New York. The case
involves a claim to entitlement to a $300,000 finder's fee/brokerage commission.
The Company denies liability and is defending the action. The case is in its
early stages. No discovery has occurred. The Company is unable to express an
5
opinion on the outcome at this time, although the Company does feel it has a
meritorious defense to the claim.
There are no other pending legal claims against the Company.
The Company is aware of a claim being asserted by its former legal counsel for
fees in the approximate amount of $379,000, which amount is contested by the
Company. The Company is attempting to settle this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last 3 months of the fiscal year ended December 31, 2000, no matters
were submitted by the Company to a vote of its shareholders
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Equity.
The Company's common stock is quoted on the Electronic Bulletin Board under the
symbol, "CATH." Trading in the common stock in the over-the-counter market has
been limited and sporadic and the quotations set forth below are not necessarily
indicative of actual market conditions. Further, these prices reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and may
not necessarily reflect actual transactions. The high and low bid prices for the
common stock for each quarter of the years ended December 31, 2000 and 1999 and
for the first quarter ending March 31, 2001 are as follows:
YEAR QUARTER ENDING HIGH LOW
1999 March 31, $6.13 $5.44
June 30, $5.00 $4.00
September 30, $4.50 $2.00
December 31, $5.00 $1.13
2000 March 31, $5.44 $5.00
June 30, $5.00 $4.00
September 30, 2 $7.42 $6.75
December 31, $7.37 $1.37
On March 31, 2001, The number of issued and outstanding shares of the Company's
common stock was 35,289,158, and the approximate number of holders of record of
the Company's common stock was 178. No cash dividends were paid during the
fiscal years ending December 31, 2000 and 1999.
6
Recent Sales of Unregistered Securities.
The following is a list of all securities sold by the Company within the period
covered by this report, except for those previously reported on Form 10-QSB,
including, where applicable, the identity of the person who purchased the
securities, title of the securities, and the date sold.
On July 10, 2000, the Company issued 1,000 shares of common stock to Russell L.
Harrison for conversion of preferred shares of the Company pursuant to section
4(2) of the Securities Act of 1933 in an isolated private transaction by the
Company which did not involve a public offering. The Company made this offering
based on the following factors: (1) The issuance was an isolated private
transaction by the Company which did not involve a public offering, being made
to the offeree for conversion of preferred shares; (2) there was only one
offeree who was issued stock for conversion of preferred shares; (3) the offeree
did not resell the stock but has continued to hold it since the date of issue;
(4) there were no subsequent or contemporaneous public offerings of the stock;
(5) the stock was not broken down into smaller denominations; and (6) the
negotiations for the sale of the stock took place directly between the offeree
and the Company.
On July 31, 2000, the Company issued 25,050,000 shares of common stock to the 23
individuals and entities listed below in exchange for 100% of the issued and
outstanding stock of CMD Capital Ltd. and CathayBancorp.com Ltd. pursuant to
section 4(2) of the Securities Act of 1933 in an isolated private transaction by
the Company which did not involve a public offering. The Company made this
offering based on the following factors: (1) The issuance was an isolated
private transaction by the Company which did not involve a public offering,
being made to 23 offerees as part of the acquisition by the Company of 100% of
the issued and outstanding shares of CMD Capital Ltd. and CathayBancorp.com
Ltd.; (2) there were only 23 offerees who was issued stock for stock and
services; (3) the offerees did not resell the stock but have continued to hold
it since the date of issue; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offerees and the Company.
NAME NUMBER OF SHARES
Source Tech Ltd. 1,250,000
Cathayonline Technologies (HK) Ltd. 1,750,000
The Vision Group 750,000
Wilshire Holdings, Inc 1,000,000
Quantum Special Equity Fund 1,000,000
Jessica & Ariella Inc. 75,000
Big Apple Management 200,000
Limad Enterprises Ltd. 325,000
SNET Communications (HK) Ltd. 5,420,000
Yu Long 500,000
Ting Kan Nok 3,630,000
---------------------------------------------------------------------
David Cooperberg 500,000
---------------------------------------------------------------------
500,000
Phillip Flaherty
David Ng 500,000
Owen Li 250,000
Sandybrook Tradings Ltd. 75,000
Dalton Group Investment 750,000
Peter Lau 500,000
Shanghai Net Technologies (HK) Co Ltd. 4,500,000
Bernie Cohen 300,000
World Tender Ltd. 500,000
Lothian Bancorp Ltd. 450,000
Renbury Industries Ltd. 325,000
---------------------------------------------------------------------
On November 14, 2000, the Company issued 25,000 shares of common stock at $1.00
per share to Seth Shaw for services rendered to the Company pursuant to section
4(2) of the Securities Act of 1933 in an isolated private transaction by the
Company which did not involve a public offering. The Company made this offering
based on the following factors: (1) The issuance was an isolated private
transaction by the Company which did not involve a public offering, being made
to the offeree for services; (2) there was only one offeree who was issued stock
for services; (3) the offeree did not resell the stock but has continued to hold
it since the date of issue; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.
On November 27, 2000, the Company issued 200,000 shares of common stock at $2.50
per share to Ed Van Maanen for cash pursuant to section 4(2) of the Securities
Act of 1933 in an isolated private transaction by the Company which did not
involve a public offering. The Company made this offering based on the following
factors: (1) The issuance was an isolated private transaction by the Company
which did not involve a public offering, being made to the offeree for cash; (2)
there was only one offeree who was issued stock for cash; (3) the offeree did
not resell the stock but has continued to hold it since the date of issue; (4)
there were no subsequent or contemporaneous public offerings of the stock; (5)
the stock was not broken down into smaller denominations; and (6) the
negotiations for the sale of the stock took place directly between the offeree
and the Company.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION
8
Plan of Operation
The Company's stated business purpose is to manage, take a majority position in,
and/or make strategic investments in technological and service companies in the
entertainment, Internet and e-commerce industries. While located in the United
States, the Company has positioned itself to take advantage of the appetite for
foreign content entertainment, the fast-growing broadband multimedia information
dissemination opportunities, and Internet content services market in China. The
Company's principal objective is to maximize shareholder value. Management
believes that the best returns for investments in the next decade will be in the
People's Republic of China, Hong Kong, Macao and Taiwan (collectively, "Greater
China").
The Greater China market is increasingly looking outward, both in its appetite
for foreign content entertainment, as well as in its utilization of Internet
applications. The Company believes it can capitalize on the growth in
information technology, and will initially focus on developing companies in the
following markets: entertainment, including music, theater and sporting events;
business-to-government-to-business e-commerce; Internet content;
business-to-business e-commerce; Internet software application; Internet content
origination; and Internet information services.
The Company will further seek to acquire a majority and/or a significant
minority equity interest where a strategic relationship can be established--in a
limited number of companies in the above industry sectors with emphasis in
Greater China. It seeks well-managed entities with existing revenue flows and
either existing cash flow or the likelihood of achieving positive cash flow over
the short term. The Company may take an active role in providing guidance and
introducing strategic relationships and, in certain circumstances, may take an
active role in the management of the companies in which it invests. The Company
will provide its North American expertise in management, new technologies, and
financial acumen to companies in China. As the companies mature, the Company
will seek to enhance value and liquidity for its shareholders by bringing these
companies to the public market, arranging merger and acquisition opportunities,
or negotiating private transactions for them. In the alternative, the Company
may take an equity position or enter into joint ventures with such companies.
The Company has no current plans to perform any product research and development
during the coming year.
The Company has no current plans to spend any significant amount in the coming
year on Plant or Equipment.
At the present time, it is not anticipated that the Company will have any
significant increase in the number of employees working for the Company.
Going Concern
The Company's auditors have expressed an opinion as to the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern is subject to the ability of the Company to obtain a profit and/or
obtaining the necessary funding from outside sources. Management's plan to
address the Company's ability to continue as a going concern, includes: (1)
obtaining funding from the sale of the Company's securities; (2) increasing
sales, and (3) obtaining loans and grants from various financial institutions
where possible. Although management believes that it will be able to obtain the
necessary funding to allow the Company to remain a going concern through the
methods discussed above, there can be no assurances that such methods will prove
successful.
9
ITEM 7. FINANCIAL STATEMENTS
The following pages numbered F-1 through F-15 contain audited financial
statements and accompanying notes as prepared by the Company's independent
auditors.
10
CONSOLIDATED AUDITED FINANCIAL STATEMENTS
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
December 31, 2000
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT.................................................F-3
CONSOLIDATED BALANCE SHEET...................................................F-4
CONSOLIDATED STATEMENT OF OPERATIONS.........................................F-5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT..............................F-6
CONSOLIDATED STATEMENT OF CASH FLOWS ........................................F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..................................F-8
F-2
(Letterhead of Bongiovanni & Associates)
555 S. Powerline Road
Pompano Beach, Florida 33069
(954) 975-9601 Office
(954) 979-6695 fax
To the Board of Directors and Stockholders:
Cathayone, Inc.
2100 Pinto Lane
Las Vegas, Nevada 89106
We have audited the accompanying consolidated balance sheet of Cathayone, Inc. &
subsidiaries (a development stage company) as of December 31, 2000 and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the period of March 1, 2000 (Date of Reorganization) to December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. We were not able to confirm
litigation, claims and assessments (both asserted and unasserted) with the
Company's legal counsel. In addition, we were unable to determine the validity
of certain related accruals and disclosures through the use of alternative
procedures.
In our opinion, except for the effects of such adjustment, if any, as might have
been determined to be necessary had we been able to determine the validity of
accruals and related disclosures, the consolidated financial statements referred
to in the first paragraph present fairly, in all material respects, the
consolidated financial position of Cathayone, Inc. & subsidiaries (a development
stage company) as of December 31, 2000 and the consolidated results of its
operations and its cash flows for the period of March 1, 2000 (Date of
Reorganization) through December 31, 2000 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has suffered recurring
losses and has yet to generate an internal cash flow that raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are described in Note J. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
May 1, 2001
/s/ Bongiovani & Associates
-------------------------
Bongiovani & Associates
F-3
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
At December 31, 2000
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 37,187
Prepaid Expenses
500
------------------
TOTAL CURRENT ASSETS 37,687
------------------
FIXED ASSETS
Furniture and Office Equipment 5,946
Accumulated Depreciation
(850)
------------------
Net Fixed Assets 5,096
TOTAL ASSETS $ 42,783
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses - Note I 1,044,701
Due to Related Parties - Note C 776,177
------------------
TOTAL CURRENT LIABILITIES 1,820,878
------------------
COMMITMENTS AND CONTINGENCIES - NOTE I
STOCKHOLDERS' DEFICIT
Common Stock ($.001 par value, 100,000,000 shares
authorized: 29,489,158 issued and outstanding) 29,489
Preferred Stock ($.001 par value, 5,000,000 shares
authorized: none issued and outstanding) -0-
Additional Paid-in-Capital 2,667,349
Deficit Accumulated During Development Stage (4,474,933)
------------------
TOTAL STOCKHOLDERS' DEFICIT (1,778,095)
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 42,783
DEFICIT
==================
See notes to audited financial statements and auditors' report
F-4
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Operations
For the Period of March 1, 2000 (Date of Reorganization)
to December31, 2000*
OPERATING EXPENSES:
Advertising $ 84,006
Bad Debt - Note G 10,000
Consulting - Note H 503,682
Depreciation 850
General and Administrative - Note C 33,301
Impairment of Intangibles - Note F 2,000,000
Insurance 43,081
Office Expenses 5,019
Payroll and Related Taxes 12,202
Professional Fees - Notes C and H 760,632
Public Trading 17,067
Rent 42,742
Research and Development - Notes C and E 910,870
Travel 8,859
Utilities 12,022
-----------------
TOTAL EXPENSES 4,444,333
-----------------
OPERATING LOSS (4,444,333)
-----------------
OTHER EXPENSE:
Interest Expense - Note H (30,600)
TOTAL OTHER EXPENSE (30,600)
-----------------
LOSS BEFORE TAXES (4,474,933)
INCOME TAX (PROVISION) BENEFIT - NOTE D -0-
-----------------
NET LOSS $ (4,474,933)
=================
Net Loss Per Common Share
Basic & Fully Diluted $ (0.15)
=================
Weighted Average Common
Shares Outstanding 29,304,407
=================
*Also cumulative-to-date since inception
See notes to audited financial statements and auditors' report
F-5
(A Development Stage Company)
Consolidated Statement of Stockholders' Deficit
For the Period of March 1, 2000 (Date of Reorganization)
to December 31, 2000
Deficit
Accumulated
Common Common Additional During
Shares Stock Paid-in Development
('000) $.001 Par Capital Stage
------------------------------- ------------------ ---------------
Balances, March 1, 2000* -0- -0- -0- -0-
Retroactive restatement (recapitalization)
of equity due to reverse merger 25,958 25,958 -0- -0-
Common stock issued to related party
for interest in subsidiary 2,800 2,800 -0- -0-
Common stock issued under
private placement 206 206 514,624 -0-
Common stock issued for services 25 25 123,225 -0-
Common stock issued for acquisition of
subsidiary and licensing rights 500 500 1,999,500 -0-
Waiver of interest on amounts due to
related parties -0- -0- 30,000 -0-
Net loss for period -0- -0- -0- (4,474,933)
--------------- -------------- --------------- ---------------
Balances, December 31, 2000 29,489 $29,489 $2,667,349 ($4,474,933)
=============== ============== =============== ===============
* Includes retroactive change in capital structure during 2000.
See notes to audited financial statements and auditors' report
F-6
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the Period of March 1, 2000 (Date of Reorganization)
to December 31, 2000*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,474,933)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 850
Equity adjustment in connection with reorganization - Note H 28,758
Common stock issued for services - Note H 123,250
Impairment of intangible asset - Note F 2,000,000
Interest waived on related party balances - Note H 30,000
(Increase) in operating assets:
Prepaid expenses (500)
Increase in operating liabilities:
Amounts due related party for services rendered - Note C 301,107
Accounts payable and accrued expenses - Note I 1,044,701
------------------
NET CASH USED IN OPERATING ACTIVITIES (946,767)
------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for furniture and office equipment (5,946)
------------------
NET CASH USED IN INVESTING ACTIVITIES (5,946)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock - Note H 514,830
Advances from related parties - Note C 475,070
------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 989,900
------------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 37,187
------------------
CASH AND CASH EQUIVALENTS:
Beginning of period -0-
------------------
End of period $ 37,187
==================
*Also cumulative-to-date since inception
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 600
==================
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 123,250
==================
See notes to audited financial statements and auditors' report
F-7
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following items comprise the significant accounting policies of the Company.
These policies reflect industry practices and conform to generally accepted
accounting principles.
Business Activity - Cathayone, Inc. & subsidiaries (the "Company") is currently
a development stage corporation whose purpose is to identify, acquire, and
develop favorable business opportunities within the Asian marketplace. The
Company was originally incorporated in the State of Utah on August 6, 1984,
under the name North America Clothing Company, Inc. Since inception, the Company
has had several names: North America Clothing Company (Aug. 1984- Sept. 1992);
K. Randolph Corporation (Sept. 1992- Feb. 1995); and Premier Brands, Inc. (Feb.
1995- 2000). On or about August 15, 2000, pursuant to its plan of
reorganization, the Company changed its name to Cathayone, Inc. and moved it
state of incorporation to Delaware.
The Company's plans of reorganization was treated as a reverse merger whereby
the Company issued the majority of its common stock to Cathay Bancorp Ltd
'Bancorp' in exchange for all of Bancorp's then issued and outstanding shares.
The transaction has been accounted for under the purchase method of accounting
in accordance with Accounting Principles Board (APB) opinion No. 16, with
Bancorp being identified as the acquirer for accounting purposes. The merger was
treated as a tax-free reorganization for federal and state income tax purposes.
The Company has formed new entities in the Asian markets established as wholly
owned subsidiaries to assist in achieving its plan of operations. To date,
material operations have commenced only in the Cathay Bancorp, Ltd. and Capital
Entertainment subsidiaries.
The Company is headquartered in Las Vegas, Nevada where it maintains its
administrative offices.
The Company is currently in a development stage and is in the process of raising
additional capital. There is no assurance that the Company will ever achieve a
profitable level of operations.
The Company intends to focus primarily on entertainment-based products and
services within international markets. Inherent in the Company's entertainment
related business plan are various risks and uncertainties, including its limited
operating history, recent developments of its market and unproved acceptance of
its products and services, unproven business model and risks associated with
technological change. There can be no assurance that the Company will be
successful in developing their business plan.
F-8
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT')
Basis of Presentation - The consolidated financial statements included herein
include the accounts of Cathayone, Inc. and subsidiaries prepared under the
accrual basis of accounting. Significant inter-company accounts and transactions
have been eliminated. Accounts denominated in foreign currencies have been
re-measured using the U.S. dollar as the functional currency.
Cash and Cash Equivalents - For purposes of the Statement of Cash Flows, the
Company considers highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Management's Use of Estimates - The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities, disclosures of contingent assets and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue Recognition - Revenue is recognized when products are shipped provided
collection of the related receivable is reasonably likely. The Company performs
ongoing credit evaluations of its customers. The Company has not generated any
revenue to date.
Comprehensive Income (Loss) - The Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting and display
of comprehensive income and its components in the financial statements. There
were no items of comprehensive income (loss) applicable to the Company during
the period covered in the consolidated financial statements.
Research and Development - Research and development expenses consist primarily
of expenditures for outside third-party consultants which are used in testing
and the development of the Company's products. The expenses include testing at
outside laboratories, supplies associated with the design of internet portals,
and other costs that do not remain with the developed products. All research and
development costs are expensed as incurred.
Uninsured Deposits - At various times during the year, the Company maintained a
bank account that exceeded federally insured limits.
F-9
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT')
Net Loss per Common Share - Net loss per common share has been calculated by
dividing the net loss for the period presented by the weighted average number of
common shares for the respective period. Common stock equivalents have not been
considered in the calculation since their effect would be anti-dilutive.
Fixed Assets - Fixed assets are recorded at cost and include expenditures that
substantially increase the productive lives of the existing assets. Maintenance
and repair costs are expensed as incurred. Depreciation is provided using the
straight-line method. Depreciation of furniture and office equipment is
calculated over the management prescribed recovery periods that range from 5 to
7 years.
When a fixed asset is disposed of, its cost and related accumulated depreciation
are removed from the accounts. The difference between undepreciated cost and
proceeds from disposition is recorded as a gain or loss.
Long-Lived Assets - In accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standard No.121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the carrying
value of intangible assets and other long-lived assets is reviewed by management
on a regular basis for the existence of facts or circumstances, both internally
and externally, that may suggest impairment. To date, impairment of $2,000,000
has been indicated relating to the purchase of an Internet venture. Should there
be impairment in the future, the Company will recognize the amount of the
impairment based on discounted expected future cash flows from the impaired
asset(s).
Income Taxes - Income taxes are provided in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting and net operating loss
carry-forwards.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that, some portion or all of the deferred
tax asset will not be realized. Deferred tax assets and liabilities are adjusted
for the effect of changes in tax laws and rates on the date of enactment.
F-10
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which the Company has adopted. The
Statement, deferred by SFAS No, 138, is effective for calendar year companies'
fiscal years beginning after January 1, 2001, and establishes standards for
accounting and reporting for derivative instruments and hedging activities.
Statement of Financial Accounting Standards No.133 does not have an impact on
its financial statements because the Company does not currently hold any
derivative instruments.
In March, 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. The Company adopted this SOP but the adoption of
the SOP does not have a material impact on the Company's consolidated financial
statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP is effective for fiscal years beginning after December 15,
1998. The SOP requires costs of start-up activities and organization costs to be
expensed as incurred. The Company has adopted SOP 98-5, whereby these costs have
been expensed in these consolidated financial statements when incurred.
The FASB has issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," an amendment of FASB Statement No. 65, which the Company
has not been required to adopt as of December 31, 2000. Statement No. 65, as
amended by FASB Statements No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", and No. 125, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities", require that after the
securitization of a mortgage loan held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed security as a trading
security. This statement further amends Statement No. 65 to require that after
the securitization of mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests based on its ability and
intent to sell or hold those investments. This Statement is effective for fiscal
years after December 15, 1998 and does not have a material impact on the
Company.
F-11
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE C - RELATED PARTY TRANSACTIONS
Due to Related Parties
The total amount presented as due to related parties at December 31, 2000 is the
net outstanding balances of advances and cash payments from CathayOnline, Inc.
and its subsidiaries, a beneficial shareholder of the Company which also has a
director in common. The amount is comprised of $475,070 in cash advances and
another $301,107 due for services rendered as described below.
The balances are unsecured and carry an interest rate of 8%, however, all
interest through December 31, 2000 has been waived by CathayOnline, Inc.
Related Party Expenses
Certain accounting, administrative support, and Internet development services
are provided by CathayOnline, Inc. and subsidiaries. Charges for these services
are based on estimates of payroll and benefits of involved staff and other
department costs that were approximately $301,107 for the period from March 1,
2000 (date of reorganization) through December 31, 2000 and are included under
'Due to Related Parties' in the accompanying consolidated balance sheet.
NOTE D - INCOME TAXES
No provision for income taxes has been recorded in the accompanying consolidated
financial statements as a result of the Company's net operating loss. The
Company has unused tax loss carry-forwards from 2000 of approximately $1,450,000
to offset future taxable income. Such carry-forwards expire in years beginning
2015. A deferred tax asset as a result of these tax loss carry-forwards is
approximately $490,000 at December 31, 2000. The Company has reduced the
deferred tax asset resulting from its tax loss carry-forwards by a valuation
allowance of an equal amount as the realization of the deferred tax asset is
uncertain. The Company's reorganization during 2000 removed income tax loss
carry-forwards that had accumulated prior to 2000.
NOTE E - INVESTMENT IN JOINT VENTURE
During the period ended December 31, 2000, the Company entered into a joint
venture with Capital Cultural Company, Inc. which is called Capital
Entertainment Ltd, a related party, for the development of certain entertainment
projects within the Asian markets. The Company has a 50% interest in the joint
venture.
F-12
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE E - INVESTMENT IN JOINT VENTURE (CONT')
As of the date of this report, the joint venture has not generated any revenues
and all expenses paid by the Company toward the joint venture have been included
under 'Research and Development' in the accompanying consolidated financial
statements.
NOTE F - INTANGIBLE ASSETS
During the period from March 1, 2000 (date of reorganization) through December
31, 2000 the Company recorded $2,000,000 goodwill associated with acquisition of
CMD Capital Ltd. and its related licensing rights. The amount represented the
fair market value of the 500,000 shares issued in connection with the
acquisition. The Company has elected to record impairment on the goodwill for
the full amount in the accompanying consolidated financial statements in
accordance with SFAS No. 121 due primarily to a change in business climate that
raises doubt as to the assets cost recovery.
NOTE G- BAD DEBT EXPENSE
The Company loaned $10,000 to an unrelated individual during the year. The note
was non-interest bearing and due on demand. The Company has made a bad debt
provision for the note as collection attempts have been unsuccessful thus far.
The entire amount is included under 'Bad Debt Expense' in the accompanying
consolidated financial statements.
NOTE H - EQUITY
On March 1, 2000, the Company enacted a plan of reorganization to reverse merge
into Cathay Bancorp Ltd. 'Bancorp,' a Hong Kong corporation. Pursuant to the
plan, the Company issued approximately 24,550,000 new shares of its common
stock, which resulted in a change of control. Additionally, the Company elected
a new management team. Consulting and professional fees during the period were
$503,682 and $459,726, respectively primarily due to this reorganization and
development of the Company's new business plan.
During the period from March 1, 2000 (date of reorganization) through December
31, 2000, the Company issued 206,000 shares of its common stock in several
private placements in exchange for $514,830.
Also during the period, the Company issued 25,000 shares of its common stock to
a consultant for services rendered which had a market value of $123,250.
F-13
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE H - EQUITY (CONT')
In connection with its acquisition of CMD Capital Ltd., the Company issued
500,000 shares of its common stock to SNET Communications (HK) for its interests
and licensing rights in CMD Capital Ltd. The stock was valued at $4.00 per share
for an aggregate market value of $2,000,000.
The Company also imputed interest of $30,000 on its amounts due related parties.
Interest had been waived through December 31, 2000 and is included in additional
paid-in-capital in the accompanying consolidated financial statements.
NOTE I - COMMITMENTS AND CONTIGENCIES
Commitments
The Company has committed to provide funding of $5,000,000 within the next year
towards the development of e-commerce and entertainment projects undertaken by
its CMD subsidiary. The Company has not made payments towards this commitment as
of the date of this report.
The Company has committed to provide funding of $10,000,000 within the next year
towards the development of the joint venture described in Note E. During the
period ended December 31, 2000, the Company has contributed approximately
$911,970 towards this commitment, which is primarily included in 'Research and
Development' in the accompanying consolidated financial statements. The Company
is currently in default of the remaining payments, however, it intends to remedy
the situation during 2001.
The Company has committed to paying $700,000 and issuing 250,000 shares to a
related third party, contingent upon the third party's completion of certain
entertainment projects. The Company does not deem these amounts payable as of
December 31, 2000 and the Company is uncertain when such amount would be
payable, if ever.
The Company has entered into employment agreements with three officers of the
Company. Pursuant to the agreements, which were consummated between June and
August of 2000, the Company will pay $120,000 per year, or an aggregate annual
total amount of $360,000, for three years. The officers will also be entitled to
annual compensation increases of 10% and each officer can purchase up to 675,000
shares of the Company's common stock at $.001 per share. None of the common
stock options have been exercised as of the date of this report.
F-14
CATHAYONE, INC. & SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Period of March 1, 2000 (Date of Reorganization) to December 31, 2000
NOTE I - COMMITMENTS AND CONTIGENCIES (CONT')
Pending and Threatened Litigation
The Company is the defendant in litigation whereby the plaintiff is alleging the
Company owes $300,000 in commissions for money raised in one of the Year 2000
private placements. The Company is vigorously contesting the lawsuit. Management
and legal counsel cannot predict the outcome of the lawsuit or estimate the
amount of any loss that may result. Accordingly, no provision for any contingent
liability has been made in the accompanying consolidated financial statements.
The Company has also been made aware that a large creditor may seek legal action
to collect approximately $379,000 in unpaid invoices claimed by them for
services rendered as of December 31, 2000. The Company is currently disputing a
portion of the total invoices claimed by the creditor. The Company has accrued
the full amount from the creditor as of December 31, 2000 in accordance with
FASB Interpretation No. 14. (See Note K).
NOTE J - GOING CONCERN
As shown in the accompanying consolidated financial statements, the Company has
incurred losses from operations and other circumstances that have placed
substantial doubt as to whether the Company can continue as a going concern. The
ability of the Company to continue as a going concern is dependent on developing
operations, increasing revenues, and obtaining new capital. Management has
enacted a plan of seeking capital raising partners and strategic joint venture
relationships that may add value to the Company and its stockholders.
NOTE K - SUBSEQUENT EVENT
Subsequent to December 31, 2000, the Company issued 200,000 shares of its common
stock as payment towards professional services.
F-15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There were no changes in accountants or disagreements between the Company and
its accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers.
The directors and executive officers of the Company are as follows:
Name Age Position
--------------------------------------------------------------------------------
Peter Lau 46 Director, and Chief Executive Officer
S. David Cooperberg 52 Director, and President
Phillip Flaherty 43 Director, and Treasurer
Brian Ransom 39 Director
Peter Lau, Age 46. Mr. Lau is CEO and a Director of the Company. He served as
Chief Financial Officer of CathayOnline, Inc., an Internet company, from
November, 1999 until July 25, 2000, and served as Secretary of CathayOnline From
1999 to 2000, and on its Board of Directors from 1999 to April 2001. From 1999
to 2001, he served as the Managing Director of Corporate Finance, Manager of
Special Projects, and Managing Director of United States operations for American
Fronteer Financial, Inc., a United States registered securities brokerage firm,
and Heng Fung Capital, Inc. and Heng Fung Equities, Inc., Hong Kong merchant
banking companies with offices in Hong Kong and the United States. From 1994
through 1996, Mr. Lau served as the Managing Director of Corporate Finance for
Ridgewood Capital LLC, where he provided corporate financial and advisory
services, negotiated and arranged equity and debt financing, and developed new
business. Mr. Lau also is a director of Advanced Environmental Technology Inc.
Mr. Lau is a certified public accountant by training and has been employed by
Deloitte & Touche LLP as an accountant and a senior management consultant. Mr.
Lau was awarded a Bachelors degree in accounting from University of Hartford in
1976 and a masters degree in accounting from the University of Hartford in 1978.
S. David Cooperberg, Age 52. Mr. Cooperberg is President and a Director of the
Company. Since 1995, Mr. Cooperberg has been Managing Director of Ridgewood
Group International Limited, a New York based investment bank. Mr. Cooperberg
has devised cross-border financing structures for projects in both the public
and private sectors, including arenas subject to public regulations. From
1989-94, he was Vice President, Finance of Paloma Partners, a $2 billion equity
private investment partnership. For the preceding 12 years, Mr. Cooperberg was
Senior Manager for The Royal Bank of Canada. Mr. Cooperberg received an AB in
English with honors from Dartmouth College and an MBA in international business
and finance from the College of Chicago. He also holds a Licence en science
economiques appliquees from Universite de Louvain, Belgium.
11
Phillip Flaherty, Age 43. Mr. Flaherty is Treasurer and a Director of the
Company. Mr. Flaherty founded Sage Lobo Consulting in 1996 and has served as its
President since its inception. Sage Lobo is a consulting firm specializing in
financing, marketing, structural and strategic challenges within Nevada,
California and the Pacific Rim business climates. From 1993 until he founded
Sage Lobo, Mr. Flaherty served in various executive capacities culminating as
President and Managing Director of Sheraton Desert Inn Resort and Casino, an ITT
company.
Brian W. Ransom, Age 39. Mr. Ransom is a Director of the Company. Mr. Ransom has
served as President and a member of the Board of Directors of CathayOnline since
December 1998. From 1991 until joining CathayOnline, Mr. Ransom was self
employed and acted as an independent consultant to and negotiator for North
American and European companies. He consulted on matters relating to corporate
structuring, corporate finance, foreign exchange and interest rate risk control
management and negotiation of strategic relationships between corporations and
corporations and governments. All directors serve until their successors have
been duly elected and qualified.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is aware of four persons who during the fiscal year ended December 31,
2000 were directors, officers, or beneficial owners of more than ten percent of
the Common Stock of the Company, and who failed to file, on a timely basis,
reports required by Section 16(a) of the Securities Exchange Act of 1934 during
such transitional year as follows:
Peter Lau, S. David Cooperberg, Phillip L. Flaherty and Brian Ransom were
directors of the Company during the year 2000. They made no Section 16(a)
compliance filings during the year ended December 31, 2000. They each further
failed to timely file a Form 5 for the year ended December 31, 2000.
Ting Kan Nok, William Wong, Shanghai Net Technologies (HK) Co LTD, and SNET
Communications (HK) LTD were each legal and/or beneficial owners of in excess of
ten percent (10%) of the issued and outstanding shares of the Company's common
stock during the year 2000. They made no Section 16(a) compliance filings during
the year ended December 31, 2000. They each further failed to timely file a Form
5 for the year ended December 31, 2000.
[THIS SPACE INTENTIONALLY LEFT BLANK
12
ITEM 10. EXECUTIVE COMPENSATION
Except as noted in the table below, no compensation in excess of $100,000 was
awarded to, earned by, or paid to any executive officer of the Company during
2000 and 1999. The following table and the accompanying notes provide a summary
of compensation paid during the past two fiscal years concerning cash and
noncash compensation paid or accrued by the Company's president.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------------------- --------------------------------------------------------
Awards Payouts
----------------------------- -----------------------
Restrict
Other ed Securities
Annual Stock Underlying All Other
Compen Award( Options LTIP Compens
Name and Principal Salary Bonus sation s) SARs(1) payouts ation
Position Year ($) ($) ($) ($) (#) ($) ($)
Peter S. Lau, CEO 2000 120,000 - - 675,000
S. David
Cooperberg,
President 2000 120,000 675,000
Phillip L. Flaherty, 2000 120,000 675,000
Treasurer
Except as set forth above, the Company has not granted stock options or stock
appreciation rights to any executive officer or director of the Company.
Warrants allowing the purchase of up to 675,000 shares each of the Company's
common voting stock at a price of $0.001 per share (par value) were issued to
Peter S. Lau, S. David Cooperberg and Phillip L. Flaherty under the terms of
their respective employment contracts.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, $.001 par value ("Common Stock") as of
March 31, 2001, (i) by each person who is known by the Company to be the
beneficial owner of more than 5% of its Common Stock; (ii) by each of the
Company's directors and officers; and (iii) by all of the Company's directors
and officers as a group:
--------
(1) Warrants were issued to Peter S. Lau, S. David Cooperberg and Phillip L.
Flaherty to purchase 675,000 shares of stock at a price of $0.001(par value) as
part of their respective employment contracts. (See exhibits 10.6- 10.8.)
13
Title of Class Name and Address of Beneficial Owner Nature of Amount of Percent
Ownership Ownership Of
Class
--------------------- ------------------------------------ --------- ------------ ----------
Common Stock Peter Lau Legal 500,000 1.4%
($0.001 par value) 40 Parl Ave #198
New York, NY 10016
--------------------- ------------------------------------ --------- ------------ ----------
Common Stock S. David Cooperberg Legal 500,000 1.4%
($0.001 par value) 236 West 27th, 3rd Floor
New York, NY 10001
--------------------- ------------------------------------ --------- ------------ ----------
Common Stock Phillip L. Flaherty Legal 500,000 1.4%
($0.001 par value) 604 Heartline Dr.
Las Vegas, NV 89145
--------------------- ------------------------------------ --------- ------------ ----------
Common Stock Brian Ransom Beneficial 1,750,000 4.9%
($0.001 par value) 1108, 543 Granville (CathayOnline,
Vancouver, B.C. Inc.)
Canada V6C 1X8
--------------------- ------------------------------------ --------- ------------ ----------
Common Stock Ting Kan Nok Legal 3,630,000 10.3%
($0.001 par value) Flat H 21st Floor
Tower 6, Pierhead Garden
Tuenmun, Hong Kong
--------------------- ------------------------------------ --------- ------------ ----------
Common Stock Sage Wolf, Inc. Legal 3,000,000 8.5%
($0.001 par value)
Common Stock Shanghai Net Technologies (HK) Co Ltd Legal 4,500,000 12.8%
($0.001 par value) 3F Robinson Road 1st Floor
Hong Kong
--------------------- ------------------------------------ --------- ------------ ----------
Common Stock William Wong Beneficial 4,500,000 12.8%
($0.001 par value) 3F Robinson Road 1st Floor (Shanghai Net
Hong Kong Technologies)
Common Stock SNET Communications (HK) LTD Legal 5,420,000. 15.4%
($0.001 par value) 1103 China Bldg
--------------------- ------------------------------------ --------- ------------ ----------
29 Queens Road Central
Hong Kong
Common Stock All officers and directors as a group (4 Legal & 3,250,000 9.2%
($0.001 par value) individuals) Beneficial
--------------------- ------------------------------------ --------- ------------ ----------
14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 2000, CathayOnline, Inc., a corporation with
two directors in common with the Company (Peter S. Lau and Brian Ransom) loaned
monies to the Company in the sum of 475,070, and advanced services to the
Company which are valued at $301,107. These amounts are unsecured and carry an
annual interest rate of eight percent (8%). CathayOnline has waived payment of
all interest accrued through December 31, 2000.
(See Notes to Financial Statements.)
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B are
listed in the Index to Exhibits beginning on page 10 of this Form 10-KSB, which
are incorporated herein by reference.
Reports on Form 8-K. The Company filed no reports on Form 8-K during the fourth
quarter of the year 2000.
[THIS SPACE INTENTIONALLY LEFT BLANK]
15
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, this __th day of May, 2001.
CathayOne, Inc.
/s/ Peter Lau
---------------------------------
Peter Lau, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Peter Lau
----------------------
Peter Lau Chief Executive Officer and Director May 16, 2001
/s/ S. David Cooperberg
----------------------
S. David Cooperberg President and Director May 16, 2001
/s/ Phillip L. Flaherty
----------------------
Phillip L. Flaherty Treasurer and Director May 16, 2001
/s/ Brian Ransom
----------------------
Brian Ransom Director May 16, 2001
Index to Exhibits
16
Exhibit Page Description
------ ---- -------------
3.1 * Articles of Incorporation of the Company, as amended. (Incorporated
herein by reference from the Company's Registration Statement on
Form 10-SB, filed on March 8, 2000, and the Company's Quarterly
Report on Form 10-QSB for the Quarter ended June 30, 2000.)
3.2 * Bylaws of the Company. (Incorporated herein by reference from the
Company's Registration Statement on Form 10-SB, filed on March 8,
2000.)
10.1 * Joint Venture Contract between CMD Capital Limited and China
Investment Journal, dated April 22, 2000. (Incorporated by reference
from Form 10-QSB filed August 15, 2000.)
10.2 * Exchange Agreement, dated June 14, 2000, among the Company and
SNet and ShanghaiNet. (Incorporated by reference from Form 8-K
filed July 7, 2000.)
10.3 * Compensation Agreement between Bancorp, a wholly-owned
subsidiary of the Company, and SNet, dated June 15, 2000.
(Incorporated by reference from Form 10-QSB filed August 15,
2000.)
10.4 * Sino-Foreign Cooperative Joint Venture Contract, dated June 28,
2000, among Cathay Entertainment, SNet and CCC. (Incorporated
by reference from Form 8-K filed July 7, 2000.)
10.5 * Share Purchase Agreement, dated June 30, 2000, among CTL, SNet,
Ting Kan Nok, CMD, Bancorp and the Company. (Incorporated by
reference from Form 8-K filed July 7, 2000.)
10.6 18 Employment Agreement between Peter S. Lau and the Company
dated July 26, 2000.
10.7 19 Employment Agreement between S. David Cooperberg and the
Company dated July 17, 2000.
10.8 26 Employment Agreement between Phillip L. Flaherty and the
Company dated August 17, 2000.
23 40 Consent of Auditor
* Incorporated by reference from previous filings as noted.
17
EMPLOYMENT AGREEMENT
PETER S LAU
AGREEMENT dated this 26th day of July 2000, between Premier Brands, Inc., a Utah
corporation (including its successors in interest, alternatively "Cathay" or the
"Company"), and Mr. Peter S. Lau ("Mr. LAU" or the "Executive").
WHEREAS:
The Company desires to retain the services of Mr. LAU as a director and as
its Chief Executive Officer and President on terms and conditions provided in
this Agreement; and
Mr. LAU desires to render such services to the Company on the terms and
conditions provided in this Agreement;
THEREFORE in consideration for the mutual premises and covenants contained
herein, it is agreed as follows:
1. Employment and Duties. During the Term (as described in Section 2 hereof)
of this Agreement, Mr. LAU agrees to serve as Chief Executive Officer and
President of Cathay, performing such duties and services during the Term,
as the Board of Directors of Cathay (the "Board") may reasonably request.
For the duration of the Term, Cathay shall nominate Mr. LAU as a director
for purposes of all votes taken for the election of Cathay=s directors. Mr.
LAU hereby accepts all of such engagements, all upon and subject to the
terms and conditions hereinafter set forth.
During the Term, Mr. LAU shall devote reasonable time, attention, and
energy to providing, and shall diligently and faithfully perform, the
services requested by Cathay pursuant to this Section 1 and shall use his
best efforts to promote the business and interests of the Company. During
the Term, Mr. LAU may serve on corporate, civic or charitable boards or on
committees, and may manage personal investments or other business affairs,
so long as such activities do not significantly interfere with the
performance of Mr. LAU's responsibilities as an employee of Cathay in
accordance with this Agreement and do not result in the breach of any
fiduciary duties to the Company.
2. Term. Subject to earlier termination as provided hereinafter, and also
subject to 3.d below, the term of Mr. LAU's employment this Agreement shall
begin on 1st day of August July 2000 and shall thereafter be on a three (3)
year renewable basis as agreed by both parties. This Agreement shall be
automatically renewed unless terminated in accordance with the terms and
conditions hereof or if renegotiated and executed by the parties hereto no
later than ninety (90) days prior to the end of the then-current Term. Upon
the termination of Mr. LAU=s employment, he shall, upon written request
from Cathay, resign as a director of Cathay.
3. Compensation. In exchange for the services that Mr. LAU provides to Cathay
and its subsidiaries, Mr. LAU shall be remunerated in the following manner:
18
a. Annual compensation equal to US$120,000 paid monthly in equal
installments, effective as of the 1st day of June 2000 (provided that
Mr. LAU shall not attain the offices set forth in Section 1 until the
date specified in Section 2, the salary paid to Mr. LAU in the interim
hereby being deemed by the parties hereto to be a signing bonus); such
compensation will be increased by 10% per annum commencing June 1,
2001 and on each anniversary thereafter (based on the then immediately
preceding year=s salary) for the duration of this Agreement and all
renewals hereof, unless agreed to the contrary;
b. Option(s), in such names and denominations as Mr. LAU reasonably shall
request, the form of which is attached hereto as Exhibit A ("Option"),
to purchase up to an aggregate of 675,000 shares (the "Option Shares")
of the Company's common stock, par value $.001 per share ("Common
Stock").
c. Provisions Governing the Option and the Option Shares. The following
provisions shall govern the Option and the Option Shares:
(i) Neither the Option nor the Option Shares have been registered
under the Securities Act of 1933, as amended (the Act), or
registered or qualified under any state securities laws. The
Option and Option Shares are and will be restricted securities as
such term is defined under the Act. The Option and the Option
Shares are being and will have been issued in a transaction
exempt from the registration requirements of the Act and the
registration or qualification requirements of applicable state
securities laws. The Option and the Option Shares are being and
will have been acquired by Mr. LAU for investment purposes only
and not with a view to distribution or resale and may not be made
subject to a security interest, pledged, hypothecated, sold or
otherwise transferred unless such Option and Option Shares are
subsequently registered under the Act and qualified or registered
under applicable state securities laws or an exemption from
registration and qualification is available for such transfer and
that, except as otherwise provided in this Agreement, the Company
is under no obligation to register or qualify the Shares. The
Company may require an opinion to the effect that such transfer
is exempt from such registration or qualification from Mr. LAU's
counsel prior to consenting to or authorizing the registration of
any transfer of the Option or the Option Shares in reliance on an
exemption from registration or qualification. Certificates
evidencing the Option and the Option Shares, if and when issued
(and if such Option Shares have not been registered at the time
of issuance), shall bear any legend as may be required by or
appropriate under applicable federal and state laws. The transfer
agent for the Company's class of Common Stock shall be instructed
to place a stop transfer order on the stock books of the Company
restricting the transfer of the Option Shares if this provision
is violated. Mr. LAU represents and Options that he understands
the foregoing clauses and acknowledges the accuracy thereof.
(ii) The Company has agreed to register the Option Shares as provided
in the Option and Mr. LAU agrees to abide by all terms of the
Option with respect to the resale of the Option Shares after
registration thereof under the Act.
(iii)Mr. LAU and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of the Shares
with federal and state laws.
(iv) The Company covenants and agrees that the Option, upon issuance
in accordance with the terms hereof, shall constitute the legal
and binding obligation of the Company, and the Option and the
Option Shares, upon exercise of the Option from time to time in
accordance with the terms of the Option, shall be duly
authorized, validly issued and outstanding and fully-paid and
non-assessable securities of the Company.
19
d. Should the Company establish any subsidiary companies, including any
second-tier or lower-tier subsidiaries, Mr. LAU shall be eligible to
be elected an officer of such subsidiary(ies) and shall be entitled to
receive compensation from such subsidiaries separate from and in
addition to his compensation from the Company as reflected herein.
Should the Company dispose of any part of its interest in such
subsidiary(ies) whether via initial public offering, sale to or merger
into or acquisition by a third party, or any other matter which
generates asset value to the Company, Mr. LAU shall be entitled to
receive shares or other appropriate material benefit as accrues to the
Company, as delineated in the Subsidiary Participation Agreement.
e. Should the Company generate investment advisory fees in the course of
its business, Mr. LAU shall be entitled to receive a share of such
fees separate from and in addition to his compensation from the
Company as reflected herein, as delineated in the Investment Advisory
Fee Agreement.
f. Mr. LAU shall be eligible to participate in a share of the profits of
the Company as delineated in the Management Profit-Sharing Agreement.
g. Mr. LAU shall be eligible to receive other such bonuses and
compensation as the Board may so dictate, provided, however, that
nothing in this paragraph shall be deemed to entitle Mr. LAU to any
other such bonus or compensation except for that specifically provided
for herein.
h. Mr. LAU additionally shall be entitled to perquisites of office
commensurate with his position with the Company, including but not
limited to: five (5) weeks= vacation, medical, dental and life
insurance, a cellular telephone, a laptop computer, membership in a
country club and in a health and fitness club. All expenses associated
with such perquisites will be borne by the Company, including all
personal income taxes, if any, that otherwise would be payable by Mr.
LAU in relation thereto.
4. Confidentiality of Information and Duty of Nondisclosure; Covenant Not to
Compete.
a. The Executive acknowledges and
agrees that the Executive's employment by the Company under this
Agreement necessarily involves the Executive's access to certain trade
secrets and other confidential information pertaining to the
sell-through distribution of all formats of home video and/or computer
systems including, without limitation, videocassette, DVD digital,
DIVX, video disc, 8 mm or laser, optical, linear or any other disc or
other device now known or hereafter developed that, when used in
combination with or as part of another piece of electronic, mechanical
or other apparatus attached to a television set or monitor, enables
film, tape, disc, or other materials to be perceived visually, with or
without sound (the "Business"). Accordingly, the Executive agrees that
at all times during the Term of this Agreement and thereafter, the
Executive will not, directly or indirectly, without the express
authority of the Company, unless required by law or directed by
applicable legal authority having jurisdiction over the Executive,
disclose to or use for the benefit of any person, corporation or other
entity (other than the Company), or the Executive, (i) any trade,
technical, operational, management or other secrets, any customer
lists or other confidential or secret data, or any other proprietary,
confidential or secret information of the Company to the extent that
same relate to the Business or (ii) any confidential information
concerning any of the financial arrangements, financial positions,
competitive status, customer or suppliers matters, internal
organizational matters, technical capabilities, or other business
affairs of or relating to the Company. The Executive acknowledges that
all of the foregoing constitutes proprietary information, which is the
exclusive property of the Company.
20
b. Except as otherwise expressly consented to or approved in writin by
the Company, during the Term and for a period of three (3) months
after the Term expires or is terminated pursuant hereto, unless the
Executive is terminated without cause, the Executive shall not,
directly or indirectly, alone or acting as an employee, owner,
partner, consultant, advisor, creditor, investor, principal or agent
of any corporation or other business entity (including not-for-profit
entities), whether or not with compensation:
(i) Engage in the United States of America, or in any other place in
which the Company has conducted the Business, in any venture or
activity in competition with any aspect of the Business;
(ii) Solicit any past, present or future customers of the Company or
any of its affiliates for business in any way relating to any
aspect of the Business;
(iii)Request, directly or indirectly, that any customers of the
Company or any of its affiliates, or other persons sharing a
business relationship with the Company or any of its affiliates,
curtail or cancel their business with the Company or any of its
affiliates, or otherwise take action which might be to the
material disadvantage of the Company or any of its affiliates; or
(iv) Induce or attempt to influence any other employee or consultant
of the Company or any of its affiliates to terminate the
Executive's employment or consultancy with the Company or any of
its affiliates.
c. If the Executive violates any of the restrictions contained in
Section 4(b) hereof, the restrictive period provided for
in such Section shall be increased by the period of time from the
commencement of any such violation until the time such violation shall
be cured by the Executive to the satisfaction of the Company.
d. In the event that either the length of time or the geographical
area set forth in this Section 4 hereof is deemed too
restrictive or otherwise unenforceable in any court proceeding, the
court may reduce such restrictions to those which it deems reasonable
and enforceable under the circumstances.
e. Nothing contained in this Section 4, whether express or implied,
shall prevent the Executive from being a holder for
the purposes of investment only of securities of a class then being
traded or quoted, as applicable, on (a) a recognized U.S. or
international stock exchange, or (b) the National Market System, Nasdaq
SmallCap Market or Over-the-Counter Bulletin Board of the National
Association of Securities Dealers Automated Quotation System, amounting
to twenty (20%) percent or less of such class.
f. The Executive agrees and acknowledges that the company does not
have any adequate remedy at law for the breach
by the Employee of any of the provisions of this Section 4 and agrees
that the Company will be entitled to injunctive relief (without any
bond or other security being required) to bar the Executive from such
breach in addition to any other remedies which might be available to
the Company at law or in equity under applicable law.
g. The termination of this Agreement or of the employment of the
Executive (hereunder or otherwise) shall not operate
to terminate the provisions of this Section 4, which shall remain in
full force and effect and binding on the Executive notwithstanding any
such termination. In addition, the provisions of this Section 4 shall
be read and construed and shall have effect as separate, severable and
independent provisions or restrictions, and shall be enforceable
accordingly.
21
5. Expenses. Mr. LAU may incur reasonable budgeted expenses for
promoting Cathay's business, including
expenses for entertainment, travel, telephone, and similar items, including
business class air travel and first class hotel accommodations. Cathay will
reimburse Mr. LAU for all such expenses upon Mr. LAU's periodic
presentation of an itemized account of such expenditures. Mr. LAU shall
participate in the budgeting process, but Cathay shall have final
discretion as to the reasonableness of expenses incurred.
6. Termination without cause. Cathay may not terminate this Agreement without
cause, except that the Company may terminate Executive=s employment at any
time at its sole discretion upon one hundred eighty (180) days= notice;
provided that if the employment is so terminated upon 180 days= notice, the
Company shall promptly pay the Executive the lesser of (a) one year=s
salary and (b) salary equal to what the Executive would have received
through the end of the then-current Term. Cathay may terminate Mr. LAU with
cause without giving any notice. "Cause" shall mean a willful breach of
this Agreement, gross negligence in performing his obligations hereunder,
or conviction of a felony (or a plea of no lo contendere in such criminal
action). Mr. LAU may, without cause, terminate this Agreement by giving 60
days' written notice to Cathay. In such event, Mr. LAU shall continue to
render his services and shall be paid his regular compensation up to the
date of termination. This clause 6 is subject to clause 3(d).
7. Death during employment. If Mr. LAU dies during the Term, Cathay shall pay
to Mr. LAU 's estate the compensation that would otherwise be payable to
Mr. LAU up to the end of the month following the calendar month in which
his death occurs. This clause 7 is subject to clause 3(d).
8. Disability. In the event of disability of the Executive, the Company will
continue to pay the Executive during the period of his disability;
provided, however, that if the disability continues for a period of three
(3) months, the Company may terminate this Agreement. Following such
termination, the Company will continue to pay the Executive all
compensation due him under Clause 3 above. Such compensation will include
any awards and any accrued amounts under all compensation of employee
benefit plans, which shall be payable on a pro- rated basis for the year in
which the disability occurs, through the date of termination in accordance
with the applicable provisions of any then existing plan, practice, policy
or program established by the Company for employees. "Disability" shall be
defined as any illness of injury which prevents the Executive from
performing the essential functions of his employment with reasonable
accommodation, as determined in good faith by the Company=s Board of
Directors (other than Mr. LAU, if then a director). The Company shall be
responsible for determining the essential functions of the Executive's
employment consistent with the terms of this Agreement. This clause 8 is
subject to clause 3 (b).
9. Internal Revenue Code Section 280G. Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 9 (a "Payment"))
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties imposed with respect to such taxes), the Executive
shall receive a Gross-Up Payment equal to the Excise Tax imposed upon the
Payment(s), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and excise tax imposed
upon the Gross- Up Payment.
a. The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification 22
shall be given as soon as practicable but not later than ten (10)
business days after the Executive is informed in writing of such claim
and shall apprize the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall not
pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to suc claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii)cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and
pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest
and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9, the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forge any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis from any
Excise Tax or income tax (including interest of penalties with
respect thereto) imposed with respect to such advance; and
provided, further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
b. If, after the receipt by the Executive of an amount advance by the Company
pursuant to Section 9, the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9) promptly pay to the Company
the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9, a
determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
23
10. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the commercial arbitration rules and supplementary
procedures for international commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The
governing law shall be the laws of the United States, and the state of New
York, and said Agreement shall be construed and governed in accord with
such laws. The Arbitration shall take place in the state of New York, New
York, and the arbitration shall be conducted in English.
11. Notices. Any notice required or desired to be given under thi Agreement
shall be deemed given if in writing and sent by certified mail, return
receipt requested, to Mr. LAU 's residence or to Cathay's principal office,
as the case may be.
12. Waiver of breach. Cathay's waiver of a breach of any provision of this
Agreement by Mr. LAU shall not operate or be construed as a waiver of any
subsequent breach by Mr. LAU of the same or any other provision. No waiver
shall be valid unless in writing and signed by an authorized officer of
Cathay. Mr. LAU's waiver of a breach of any provision of this Agreement by
Cathay shall not operate or be construed as a waiver of any subsequent
breach by Cathay. No waiver shall be valid unless in writing and signed by
Mr. LAU.
13. Assignment. Cathay's rights and obligations, including those obligations of
Cathay's potential future subsidiary(ies), under this Agreement shall inure
to the benefit of, and shall be binding upon, Cathay's successors and
assigns. Mr. LAU may, if such direction is made to Cathay in writing,
assign, transfer and/or sell any benefits that he is entitled to receive to
any entity or person that he may so choose at any time or from time to
time.
14. Entire agreement. This Agreement contains the entire understanding of the
parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
15. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
16. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
[The remainder of this page intentionally left blank]
24
IN WITNESS HEREOF the parties have executed this Agreement effective the date
first above written
Premier Brands, Inc. Mr. Peter S. Lau
By: /s/ Premier Brands, Inc. /s/Peter S. Lau
---------------------------------- -----------------------
Its Duly Authorized Representative
25
EMPLOYMENT AGREEMENT
S. DAVID COOPERBERG
AGREEMENT dated this 17th day of July 2000, between Premier Brands, Inc., a Utah
corporation (including its successors in interest, alternatively "Cathay" or the
"Company"), and Mr. S. David Cooperberg ("Mr. COOPERBERG" or the "Executive").
WHEREAS:
The Company desires to retain the services of Mr. COOPERBERG as a director
and as its Executive Director on terms and conditions provided in this
Agreement; and
Mr. COOPERBERG desires to render such services to the Company on the terms
and conditions provided in this Agreement;
THEREFORE in consideration for the mutual premises and covenants contained
herein, it is agreed as follows:
1. Employment and Duties. During the Term (as described in Section 2 hereof)
of this Agreement, Mr. COOPERBERG agrees to serve as the interim President
and, upon the Company entering into an agreement with another individual to
serve as its Chief Executive Officer, thereafter as the Executive Director
performing such duties and services during the Term, as the Board of
Directors of Cathay (the "Board") may reasonably request. For the duration
of the Term, Cathay shall nominate Mr. COOPERBERG as a director for
purposes of all votes taken for the election of Cathay's directors. Mr.
COOPERBERG hereby accepts all of such engagements, all upon and subject to
the terms and conditions hereinafter set forth.
During the Term, Mr. COOPERBERG shall devote reasonable time, attention,
and energy to providing, and shall diligently and faithfully perform, the
services requested by Cathay pursuant to this Section 1 and shall use his
best efforts to promote the business and interests of the Company. During
the Term, Mr. COOPERBERG may serve on corporate, civic or charitable boards
or on committees, and may manage personal investments or other business
affairs, so long as such activities do not significantly interfere with the
performance of Mr. COOPERBERG's responsibilities as an employee of Cathay
in accordance with this Agreement and do not result in the breach of any
fiduciary duties to the Company.
2. Term. Subject to earlier termination as provided hereinafter, and also
subject to 3.d below, the term of Mr. COOPERBERG's employment this
Agreement shall begin on June 1, 2000, and shall thereafter be on a three
(3) year renewable basis as agreed by both parties, provided that the
anniversary and renewal date hereof shall be June 1st. This Agreement shall
be automatically renewed unless terminated in accordance with the terms and
conditions hereof or if renegotiated and executed by the parties hereto no
later than ninety (90) days prior to the end of the then-current Term. Upon
the termination of Mr. COOPERBERG's employment, he shall, upon written
request from Cathay, resign as a director of Cathay.
3. Compensation. In exchange for the services that Mr. COOPERBERG provides to
Cathay and its subsidiaries, Mr. COOPERBERG shall be remunerated in the
following manner:
26
a. Annual compensation equal to US$120,000 paid monthly in equal
installments, effective as of the 1st day of June 2000; such
compensation will be increased by 10% per annum commencing June 1,
2001 and on each anniversary thereafter (based on the then immediately
preceding year's salary) for the duration of this Agreement and all
renewals hereof, unless agreed to the contrary;
b. Option(s), in such names and denominations as Mr. COOPERBERG
reasonably shall request, the form of which is attached hereto as
Exhibit A ("Option"), to purchase up to an aggregate of 675,000 shares
(the "Option Shares") of the Company's common stock, par value $.001
per share ("Common Stock").
c. Provisions Governing the Option and the Option Shares. The following
provisions shall govern the Option and the Option Shares:
(i) Neither the Option nor the Option Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or
registered or qualified under any state securities laws. The
Option and Option Shares are and will be restricted securities as
such term is defined under the Act. The Option and the Option
Shares are being and will have been issued in a transaction
exempt from the registration requirements of the Act and the
registration or qualification requirements of applicable state
securities laws. The Option and the Option Shares are being and
will have been acquired by Mr. COOPERBERG for investment purposes
only and not with a view to distribution or resale and may not be
made subject to a security interest, pledged, hypothecated, sold
or otherwise transferred unless such Option and Option Shares are
subsequently registered under the Act and qualified or registered
under applicable state securities laws or an exemption from
registration and qualification is available for such transfer and
that, except as otherwise provided in this Agreement, the Company
is under no obligation to register or qualify the Shares. The
Company may require an opinion to the effect that such transfer
is exempt from such registration or qualification from Mr.
COOPERBERG's counsel prior to consenting to or authorizing the
registration of any transfer of the Option or the Option Shares
in reliance on an exemption from registration or qualification.
Certificates evidencing the Option and the Option Shares, if and
when issued (and if such Option Shares have not been registered
at the time of issuance), shall bear any legend as may be
required by or appropriate under applicable federal and state
laws. The transfer agent for the Company's class of Common Stock
shall be instructed to place a stop transfer order on the stock
books of the Company restricting the transfer of the Option
Shares if this provision is violated. Mr. COOPERBERG represents
and Options that he understands the foregoing clauses and
acknowledges the accuracy thereof.
(ii) The Company has agreed to register the Option Shares as provided
in the Option and Mr. COOPERBERG agrees to abide by all terms of
the Option with respect to the resale of the Option Shares after
registration thereof under the Act.
(iii)Mr. COOPERBERG and the Company agree to execute such other
documents and instruments as counsel for the Company reasonably
deems necessary to effect the compliance of the issuance of the
Shares with federal and state laws.
(iv) The Company covenants and agrees that the Option, upon issuance
in accordance with the terms hereof, shall constitute the legal
and binding obligation of the Company, and the Option and the
Option Shares, upon exercise of the Option from time to time in
accordance with the terms of the Option, shall be duly
authorized, validly issued and outstanding and fully-paid and
non-assessable securities of the Company.
d. Should the Company establish any subsidiary companies, including any
second-tier or lower-tier subsidiaries, Mr. COOPERBERG shall be
eligible to be elected an officer of such subsidiary(ies) and shall be
entitled to receive compensation from such subsidiaries separate from
and in addition to his compensation from the Company as reflected
herein. Should the Company dispose of any part of its interest in such
subsidiary(ies) whether via initial public offering, sale to or merger
into or acquisition by a third party, or any other matter which
generates asset value to the Company, Mr. COOPERBERG shall be
27
entitled to receive shares or other appropriate material benefit as
accrues to the Company, as delineated in the Subsidiary Participation
Agreement.
e. Should the Company generate investment advisory fees in the course of
its business, Mr. COOPERBERG shall be entitled to receive a share of
such fees separate from and in addition to his compensation from the
Company as reflected herein, as delineated in the Investment Advisory
Fee Agreement.
f. Mr. COOPERBERG shall be eligible to participate in a share of the
profits of the Company as delineated in the Management Profit-Sharing
Agreement.
g. Mr. COOPERBERG shall be eligible to receive other such bonuses and
compensation as the Board may so dictate, provided, however, that
nothing in this paragraph shall be deemed to entitle Mr. COOPERBERG to
any other such bonus or compensation except for that specifically
provided for herein.
h. Mr. COOPERBERG additionally shall be entitled to perquisites of office
commensurate with his position with the Company, including but not
limited to: five (5) weeks' vacation, medical, dental and life
insurance, a cellular telephone, a laptop computer, membership in a
country club and in a health and fitness club. All expenses associated
with such perquisites will be borne by the Company, including all
personal income taxes, if any, that otherwise would be payable by Mr.
COOPERBERG in relation thereto.
4. Confidentiality of Information and Duty of Nondisclosure Covenant Not to
Compete.
a The Executive acknowledges and agrees that the Executive's employment
by the Company under this Agreement necessarily involves the
Executive's access to certain trade secrets and other confidential
information pertaining to the sell-through distribution of all formats
of home video and/or computer systems including, without limitation,
videocassette, DVD digital, DIVX, video disc, 8 mm or laser, optical,
linear or any other disc or other device now known or hereafter
developed that, when used in combination with or as part of another
piece of electronic, mechanical or other apparatus attached to a
television set or monitor, enables film, tape, disc, or other
materials to be perceived visually, with or without sound (the
"Business"). Accordingly, the Executive agrees that at all times
during the Term of this Agreement and thereafter, the Executive will
not, directly or indirectly, without the express authority of the
Company, unless required by law or directed by applicable legal
authority having jurisdiction over the Executive, disclose to or use
for the benefit of any person, corporation or other entity (other than
the Company), or the Executive, (i) any trade, technical, operational,
management or other secrets, any customer lists or other confidential
or secret data, or any other proprietary, confidential or secret
information of the Company to the extent that same relate to the
Business or (ii) any confidential information concerning any of the
financial arrangements, financial positions, competitive status,
customer or suppliers matters, internal organizational matters,
technical capabilities, or other business affairs of or relating to
the Company. The Executive acknowledges that all of the foregoing
constitutes proprietary information, which is the exclusive property
of the Company.
b Except as otherwise expressly consented to or approved i writing by
the Company, during the Term and for a period of three (3) months
after the Term expires or is terminated pursuant hereto, unless the
Executive is terminated without cause, the Executive shall not,
directly or indirectly, alone or acting as an employee, owner,
partner, consultant, advisor, creditor, investor, principal or agent
of any corporation or other business entity (including not-for-profit
entities), whether or not with compensation:
(i) Engage in the United States of America, or in any other place in
28
which the Company has conducted the Business, in any venture or
activity in competition with any aspect of the Business;
(ii) Solicit any past, present or future customers o the Company or
any of its affiliates for business in any way relating to any
aspect of the Business;
(iii)Request, directly or indirectly, that any customers of the
Company or any of its affiliates, or other persons sharing a
business relationship with the Company or any of its affiliates,
curtail or cancel their business with the Company or any of its
affiliates, or otherwise take action which might be to the
material disadvantage of the Company or any of its affiliates; or
(iv) Induce or attempt to influence any other employee or consultant
of the Company or any of its affiliates to terminate the
Executive's employment or consultancy with the Company or any of
its affiliates.
c. If the Executive violates any of the restrictions contained in Section
4(b) hereof, the restrictive period provided for in such Section shall
be increased by the period of time from the commencement of any such
violation until the time such violation shall be cured by the
Executive to the satisfaction of the Company.
d. In the event that either the length of time or the geographical area
set forth in this Section 4 hereof is deemed too restrictive or
otherwise unenforceable in any court proceeding, the court may reduce
such restrictions to those which it deems reasonable and enforceable
under the circumstances.
e. Nothing contained in this Section 4, whether express or implied, shall
prevent the Executive from being a holder for the purposes of
investment only of securities of a class then being traded or quoted,
as applicable, on (a) a recognized U.S. or international stock
exchange, or (b) the National Market System, Nasdaq SmallCap Market or
Over-the-Counter Bulletin Board of the National Association of
Securities Dealers Automated Quotation System, amounting to twenty
(20%) percent or less of such class.
f. TheExecutive agrees and acknowledges that the company does not have
any adequate remedy at law for the breach by the Employee of any of
the provisions of this Section 4 and agrees that the Company will be
entitled to injunctive relief (without any bond or other security
being required) to bar the Executive from such breach in addition to
any other remedies which might be available to the Company at law or
in equity under applicable law.
g. The termination of this Agreement or of the employment of the
Executive (hereunder or otherwise) shall not operate to terminate the
provisions of this Section 4, which shall remain in full force and
effect and binding on the Executive notwithstanding any such
termination. In addition, the provisions of this Section 4 shall be
read and construed and shall have effect as separate, severable and
independent provisions or restrictions, and shall be enforceable
accordingly.
29
5. Expenses. Mr. COOPERBERG may incur reasonable budgeted expenses for
promoting Cathay's business, including expenses for entertainment, travel,
telephone, and similar items, including business class air travel and first
class hotel accommodations. Cathay will reimburse Mr. COOPERBERG for all
such expenses upon Mr. COOPERBERG's periodic presentation of an itemized
account of such expenditures. Mr. COOPERBERG shall participate in the
budgeting process, but Cathay shall have final discretion as to the
reasonableness of expenses incurred.
6. Termination without cause. Cathay may not terminate this Agreement without
cause, except that the Company may terminate Executive's employment at any
time at its sole discretion upon one hundred eighty (180) days' notice;
provided that if the employment is so terminated upon 180 days' notice, the
Company shall promptly pay the Executive the lesser of (a) one year's
salary and (b) salary equal to what the Executive would have received
through the end of the then-current Term. Cathay may terminate Mr.
COOPERBERG with cause without giving any notice. "Cause" shall mean a
willful breach of this Agreement, gross negligence in performing his
obligations hereunder, or conviction of a felony (or a plea of no lo
contendere in such criminal action). Mr. COOPERBERG may, without cause,
terminate this Agreement by giving 60 days' written notice to Cathay. In
such event, Mr. COOPERBERG shall continue to render his services and shall
be paid his regular compensation up to the date of termination. This clause
6 is subject to clause 3(d).
7. Death during employment. If Mr. COOPERBERG die during the Term, Cathay
shall pay to Mr. COOPERBERG 's estate the compensation that would otherwise
be payable to Mr. COOPERBERG up to the end of the month following the
calendar month in which his death occurs. This clause 7 is subject to
clause 3(d).
8. Disability. In the event of disability of the Executive, the Company will
continue to pay the Executive during the period of his disability;
provided, however, that if the disability continues for a period of three
(3) months, the Company may terminate this Agreement. Following such
termination, the Company will continue to pay the Executive all
compensation due him under clause 3 above. Such compensation will include
any awards and any accrued amounts under all compensation of employee
benefit plans, which shall be payable on a pro-rated basis for the year in
which the disability occurs, through the date of termination in accordance
with the applicable provisions of any then existing plan, practice, policy
or program established by the Company for employees. "Disability" shall be
defined as any illness of injury which prevents the Executive from
performing the essential functions of his employment with reasonable
accommodation, as determined in good faith by the Company's Board of
Directors (other than Mr. COOPERBERG, if then a director). The Company
shall be responsible for determining the essential functions of the
Executive's employment consistent with the terms of this Agreement. This
clause 8 is subject to clause 3 (b).
9. Internal Revenue Code Section 280G. Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 9 (a "Payment"))
would be subject to the excise tax imposed by Section 4999 of the Internal
30
Revenue Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties imposed with respect to such taxes), the Executive
shall receive a Gross-Up Payment equal to the Excise Tax imposed upon the
Payment(s), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and excise tax imposed
upon the Gross-Up Payment.
a. The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but not later than ten (10)
business days after the Executive is informed in writing of such claim
and shall apprize the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall not
pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii)cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and
pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest
and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9, the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forge any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis from any
Excise Tax or income tax (including interest of penalties with
respect thereto) imposed with respect to such advance; and
provided, further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
31
b. If, after the receipt by the Executive of an amount advance by the
Company pursuant to Section 9, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
9) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9, a determination is made that the
Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the commercial arbitration rules and supplementary
procedures for international commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The
governing law shall be the laws of the United States, and the state of New
York, and said Agreement shall be construed and governed in accord with
such laws. The Arbitration shall take place in the state of New York, New
York, and the arbitration shall be conducted in English.
11. Notices. Any notice required or desired to be given under this Agreement
shall be deemed given if in writing and sent by certified mail, return
receipt requested, to Mr. COOPERBERG 's residence or to Cathay's principal
office, as the case may be.
12. Waiver of breach. Cathay's waiver of a breach o any provision of this
Agreement by Mr. COOPERBERG shall not operate or be construed as a waiver
of any subsequent breach by Mr. COOPERBERG of the same or any other
provision. No waiver shall be valid unless in writing and signed by an
authorized officer of Cathay. Mr. COOPERBERG's waiver of a breach of any
provision of this Agreement by Cathay shall not operate or be construed as
a waiver of any subsequent breach by Cathay. No waiver shall be valid
unless in writing and signed by Mr. COOPERBERG.
13. Assignment. Cathay's rights and obligations, including those obligations of
Cathay's potential future subsidiary(ies), under this Agreement shall inure
to the benefit of, and shall be binding upon, Cathay's successors and
assigns. Mr. COOPERBERG may, if such direction is made to Cathay in
writing, assign, transfer and/or sell any benefits that he is entitled to
receive to any entity or person that he may so choose at any time or from
time to time.
14. Entire agreement. This Agreement contains the entire understanding of the
parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
15. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
32
16. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
[The remainder of this page intentionally left blank]
33
IN WITNESS HEREOF the parties have executed this Agreement effective the date
first above written.
Premier Brands, Inc. Mr. S. David Cooperberg
By: /s/ Premier Brands, Inc. /s/ S. David Cooperberg
---------------------------------- ------------------------------
Its Duly Authorized Representative
34
EMPLOYMENT AGREEMENT
PHILLIP LEE FLAHERTY
AGREEMENT dated this 17th day of August 2000, between Premier Brands, Inc., a
Utah corporation (including its successors in interest, alternatively "Cathay"
or the "Company"), and Mr. Phillip Lee Flaherty ("Mr. FLAHERTY" or the
"Executive").
WHEREAS:
The Company desires to retain the services of Mr. FLAHERTY as a director
and as Chief Executive Officer of its subsidiary, Cathay Entertainment Ltd
("Entertainment"), on the terms and conditions provided in this Agreement; and
Mr. FLAHERTY desires to render such services to the Company on the terms
and conditions provided in this Agreement;
THEREFORE in consideration for the mutual premises and covenants contained
herein, it is agreed as follows:
1. Employment and Duties. During the Term (as described in Section 2 hereof)
of this Agreement, Mr. FLAHERTY agrees to serve as Chief Executive Officer
of Entertainment, performing such duties and services during the Term, as
the Board of Directors of Cathay (the "Board") may reasonably request. For
the duration of the Term, Cathay shall nominate Mr. FLAHERTY as a director
for purposes of all votes taken for the election of Cathay's directors. Mr.
FLAHERTY hereby accepts all of such engagements, all upon and subject to
the terms and conditions hereinafter set forth.
During the Term, Mr. FLAHERTY shall devote reasonable time, attention, and
energy to providing, and shall diligently and faithfully perform, the
services requested by Cathay pursuant to this Section 1 and shall use his
best efforts to promote the business and interests of the Company. During
the Term, Mr. FLAHERTY may serve on corporate, civic or charitable boards
or on committees, and may manage personal investments or other business
affairs, so long as such activities do not significantly interfere with the
performance of Mr. FLAHERTY's responsibilities as an employee of Cathay in
accordance with this Agreement and do not result in the breach of any
fiduciary duties to the Company.
2. Term. Subject to earlier termination as provide hereinafter, and also
subject to 3.d below, the term of Mr. FLAHERTY's employment this Agreement
shall begin on the 1st day of August 2000 and shall thereafter be on a
three (3) year renewable basis as agreed by both parties. This Agreement
shall be automatically renewed unless terminated in accordance with the
terms and conditions hereof or if renegotiated and executed by the parties
hereto no later than ninety (90) days prior to the end of the then-current
Term. Upon the termination of Mr. FLAHERTY's employment, he shall, upon
written request from Cathay, resign as a director of Cathay.
35
3. Compensation. In exchange for the services tha Mr. FLAHERTY provides to
Cathay and its subsidiaries, Mr. FLAHERTY shall be remunerated in the
following manner:
a. Annual compensation equal to US$120,000 paid monthly in equal
installments, effective as of the 1st day of August 2000; such
compensation will be increased by 10% per annum commencing August 1
2001 and on each anniversary thereafter (based on the then immediately
preceding year's salary) for the duration of this Agreement and all
renewals hereof, unless agreed to the contrary;
b. Warrant(s), in such names and denominations as Mr. FLAHERTY reasonably
shall request, the form of which is attached hereto as Exhibit A
("Warrant"), to purchase up to an aggregate of 675,000 shares (the
"Warrant Shares") of the Company's common stock, par value $.001 per
share ("Common Stock").
c. Provisions Governing the Warrant and the Warran Shares. The following
provisions shall govern the Warrant and the Warrant Shares:
(i) Neither the Warrant nor the Warrant Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or
registered or qualified under any state securities laws. The
Warrant and Warrant Shares are and will be restricted securities
as such term is defined under the Act. The Warrant and the
Warrant Shares are being and will have been issued in a
transaction exempt from the registration requirements of the Act
and the registration or qualification requirements of applicable
state securities laws. The Warrant and the Warrant Shares are
being and will have been acquired by Mr. FLAHERTY for investment
purposes only and not with a view to distribution or resale and
may not be made subject to a security interest, pledged,
hypothecated, sold or otherwise transferred unless such Warrant
and Warrant Shares are subsequently registered under the Act and
qualified or registered under applicable state securities laws or
an exemption from registration and qualification is available for
such transfer and that, except as otherwise provided in this
Agreement, the Company is under no obligation to register or
qualify the Shares. The Company may require an opinion to the
effect that such transfer is exempt from such registration or
qualification from Mr. FLAHERTY's counsel prior to consenting to
or authorizing the registration of any transfer of the Warrant or
the Warrant Shares in reliance on an exemption from registration
or qualification. Certificates evidencing the Warrant and the
Warrant Shares, if and when issued (and if such Warrant Shares
have not been registered at the time of issuance), shall bear any
legend as may be required by or appropriate under applicable
federal and state laws. The transfer agent for the Company's
class of Common Stock shall be instructed to place a stop
transfer order on the stock books of the Company restricting the
transfer of the Warrant Shares if this provision is violated. Mr.
FLAHERTY represents and warrants that he understands the
foregoing clauses and acknowledges the accuracy thereof.
(ii) The Company has agreed to register the Warrant Shares as provided
in the Warrant and Mr. FLAHERTY agrees to abide by all terms of
the Warrant with respect to the resale of the Warrant Shares
after registration thereof under the Act.
(iii)Mr. FLAHERTY and the Company agree to execute such other
documents and instruments as counsel for the Company reasonably
deems necessary to effect the compliance of the issuance of the
Shares with federal and state laws.
36
(iv) The Company covenants and agrees that the Warrant, upon issuance
in accordance with the terms hereof, shall constitute the legal
and binding obligation of the Company, and the Warrant and the
Warrant Shares, upon exercise of the Warrant from time to time in
accordance with the terms of the Warrant, shall be duly
authorized, validly issued and outstanding and fully-paid and
non-assessable securities of the Company.
d. Should the Company establish any subsidiary companies, including any
second-tier or lower-tier subsidiaries, Mr. FLAHERTY shall be eligible
to be elected an officer of such subsidiary(ies) and
37
shall be entitled to receive compensation from such subsidiaries
separate from and in addition to his compensation from the Company as
reflected herein. Should the Company dispose of any part of its
interest in such subsidiary(ies) whether via initial public offering,
sale to or merger into or acquisition by a third party, or any other
matter which generates asset value to the Company, Mr. FLAHERTY shall
be entitled to receive shares or other appropriate material benefit as
accrues to the Company, as delineated in the Subsidiary Participation
Agreement.
e. Mr. FLAHERTY shall be eligible to participate i a share of the profits
of the Company as delineated in the Management Profit-Sharing
Agreement.
f. Mr.FLAHERTY shall be eligible to receive other such bonuses and
compensation as the Board may so dictate, provided, however, that
nothing in this paragraph shall be deemed to entitle Mr. FLAHERTY to
any other such bonus or compensation except for that specifically
provided for herein.
g. Mr. FLAHERTY additionally shall be entitled to perquisites of office
commensurate with his position with the Company, including but not
limited to: five (5) weeks' vacation, medical, dental and life
insurance, a cellular telephone, a laptop computer, membership in a
country club and in a health and fitness club. All expenses associated
with such perquisites will be borne by the Company, including all
personal income taxes, if any, that otherwise would be payable by Mr.
FLAHERTY in relation thereto.
4. Confidentiality of Information and Duty of Nondisclosure Covenant Not to
Compete.
a The Executive acknowledges and agrees that the Executive's employment
by the Company under this Agreement necessarily involves the
Executive's access to certain trade secrets and other confidential
information pertaining to the businesses of the Company and its
affiliates (collectively, the "Business"). Accordingly, the Executive
agrees that at all times during the Term of this Agreement and
thereafter, the Executive will not, directly or indirectly, without
the express authority of the Company, unless required by law or
directed by applicable legal authority having jurisdiction over the
Executive, disclose to or use for the benefit of any person,
corporation or other entity (other than the Company), or the
Executive, (i) any trade, technical, operational, management or other
secrets, any customer lists or other confidential or secret data, or
any other proprietary, confidential or secret information of the
Company to the extent that same relate to the Business or (ii) any
confidential information concerning any of the financial arrangements,
financial positions, competitive status, customer or suppliers
matters, internal organizational matters, technical capabilities, or
other business affairs of or relating to the Company. The Executive
acknowledges that all of the foregoing constitutes proprietary
information, which is the exclusive property of the Company.
b Except as otherwise expressly consented to or approved i writing by
the Company, during the Term and for a period of three (3) months
after the Term expires or is terminated pursuant hereto, unless the
Executive is terminated without cause, the Executive shall not,
directly or indirectly, alone or acting as an employee, owner,
partner, consultant, advisor, creditor, investor, principal or agent
of any corporation or other business entity (including not-for-profit
entities), whether or not with compensation:
(i) Engage in the United States of America, or in any other place in
which the Company has conducted the Business, in any venture or
activity in competition with any aspect of the Business;
(ii) Solicit any past, present or future customers o the Company or
any of its affiliates for business in any way relating to any
aspect of the Business;
(iii)Request, directly or indirectly, that any customers of the
Company or any of its affiliates, or other persons sharing a
business relationship with the Company or any of its affiliates,
38
curtail or cancel their business with the Company or any of its
affiliates, or otherwise take action which might be to the
material disadvantage of the Company or any of its affiliates; or
(iv) Induce or attempt to influence any other employee or consultant
of the Company or any of its affiliates to terminate his, her or
its employment or engagement as consultant with the Company or
any of its affiliates.
c. If the Executive violates any of the restrictions contained in Section
4(b) hereof, the restrictive period provided for in such Section shall
be increased by the period of time from the commencement of any such
violation until the time such violation shall be cured by the
Executive to the satisfaction of the Company.
d. In the event that either the length of time or the geographical area
set forth in this Section 4 hereof is deemed too restrictive or
otherwise unenforceable in any court proceeding, the court may reduce
such restrictions to those which it deems reasonable and enforceable
under the circumstances.
e. Nothing contained in this Section 4, whether express or implied, shall
prevent the Executive from being a holder for the purposes of
investment only of securities of a class then being traded or quoted,
as applicable, on (a) a recognized U.S. or international stock
exchange, or (b) the National Market System, NASDAQ Small Cap Market
or Over-the-Counter Bulletin Board of the National Association of
Securities Dealers Automated Quotation System, amounting to twenty
(20%) percent or less of such class.
f. The Executive agrees and acknowledges that the company does not have
any adequate remedy at law for the breach by the Executive of any of
the provisions of this Section 4 and agrees that the Company will be
entitled to injunctive relief (without any bond or other security
being required) to bar the Executive from such breach in addition to
any other remedies which might be available to the Company at law or
in equity under applicable law.
g. The termination of this Agreement or of the employment of the
Executive (hereunder or otherwise) shall not operate to terminate the
provisions of this Section 4, which shall remain in full force and
effect and binding on the Executive notwithstanding any such
termination. In addition, the provisions of this Section 4 shall be
read and construed and shall have effect as separate, severable and
independent provisions or restrictions, and shall be enforceable
accordingly.
5. Expenses. Mr. FLAHERTY may incur reasonable budgeted expenses for promoting
Cathay's business, including expenses for entertainment, travel, telephone,
and similar items, including business class air travel and first class
hotel accommodations. Cathay will reimburse Mr. FLAHERTY for all such
expenses upon Mr. FLAHERTY's periodic presentation of an itemized account
of such expenditures. Mr. FLAHERTY shall participate in the budgeting
process, but Cathay shall have final discretion as to the reasonableness of
expenses incurred.
39
6. Termination without cause. Cathay may not terminate this Agreement without
cause, except that the Company may terminate Executive's employment at any
time at its sole discretion upon one hundred eighty (180) days' notice;
provided that if the employment is so terminated upon 180 days' notice, the
Company shall promptly pay the Executive the lesser of (a) one year's
salary and (b) salary equal to what the Executive would have received
through the end of the then-current Term. Cathay may terminate Mr. FLAHERTY
with cause without giving any notice. "Cause" shall mean a willful breach
of this Agreement, gross negligence in performing his obligations
hereunder, or conviction of a felony (or a plea of no lo contendere in such
criminal action). Mr. FLAHERTY may, without cause, terminate this Agreement
by giving 60 days' written notice to Cathay. In such event, Mr. FLAHERTY
shall continue to render his services and shall be paid his regular
compensation up to the date of termination. This clause 6 is subject to
clause 3(d).
7. Death during employment. If Mr. FLAHERTY dies during the Term, Cathay shall
pay to Mr. FLAHERTY 's estate the compensation that would otherwise be
payable to Mr. FLAHERTY up to the end of the month following the calendar
month in which his death occurs. This clause 7 is subject to clause 3(d).
8. Disability. In the event of disability of the Executive, the Company will
continue to pay the Executive during the period of his disability;
provided, however, that if the disability continues for a period of three
(3) months, the Company may terminate this Agreement. Following such
termination, the Company will continue to pay the Executive all
compensation due him under Clause 3 above. Such compensation will include
any awards and any accrued amounts under all compensation of employee
benefit plans, which shall be payable on a pro-rated basis for the year in
which the disability occurs, through the date of termination in accordance
with the applicable provisions of any then existing plan, practice, policy
or program established by the Company for employees. "Disability" shall be
defined as any illness of injury, which prevents the Executive from
performing the essential functions of his employment with reasonable
accommodation, as determined in good faith by the Company's Board of
Directors (other than Mr. FLAHERTY, if then a director). The Company shall
be responsible for determining the essential functions of the Executive's
employment consistent with the terms of this Agreement. This clause 8 is
subject to clause 3 (d).
9. Internal Revenue Code Section 280G. Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 9 (a "Payment"))
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties imposed with respect to such taxes), the Executive
shall receive a Gross-Up Payment equal to the Excise Tax imposed upon the
Payment(s), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and excise tax imposed
upon the Gross-Up Payment.
40
a. The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but not later than ten (10)
business days after the Executive is informed in writing of such claim
and shall apprize the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall not
pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive
in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii)cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and
pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest
and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9, the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forge any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis from any
Excise Tax or income tax (including interest of penalties with
respect thereto) imposed with respect to such advance; and
provided, further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
b. If, after the receipt by the Executive of an amount advance by the
Company pursuant to Section 9, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
9) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9, a determination is made that the
Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
41
10. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the commercial arbitration rules and supplementary
procedures for international commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The
governing law shall be the laws of the United States, and the state of New
York, and said Agreement shall be construed and governed in accord with
such laws. The Arbitration shall take place in the state of New York, New
York, and the arbitration shall be conducted in English.
11. Notices. Any notice required or desired to be given under this Agreement
shall be deemed given if in writing and sent by certified mail, return
receipt requested, to Mr. FLAHERTY 's residence or to Cathay's principal
office, as the case may be.
12. Waiver of breach. Cathay's waiver of a breach o any provision of this
Agreement by Mr. FLAHERTY shall not operate or be construed as a waiver of
any subsequent breach by Mr. FLAHERTY of the same or any other provision.
No waiver shall be valid unless in writing and signed by an authorized
officer of Cathay. Mr. FLAHERTY's waiver of a breach of any provision of
this Agreement by Cathay shall not operate or be construed as a waiver of
any subsequent breach by Cathay. No waiver shall be valid unless in writing
and signed by Mr. FLAHERTY.
13. Assignment. Cathay's rights and obligations, including those obligations of
Cathay's potential future subsidiary(ies), under this Agreement shall inure
to the benefit of, and shall be binding upon, Cathay's successors and
assigns. Mr. FLAHERTY may, if such direction is made to Cathay in writing,
assign, transfer and/or sell any benefits that he is entitled to receive to
any entity or person that he may so choose at any time or from time to
time.
14. Entire agreement. This Agreement contains the entire understanding of the
parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
15. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
16. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
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42
IN WITNESS HEREOF the parties have executed this Agreement effective the date
first above written.
Premier Brands, Inc. Mr. Phillip Lee Flaherty
By: /s/ Premier Brands, Inc. /s/ Phillip Lee Flaherty
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Its Duly Authorized Representative Duly Authorized Representative
43
(Letterhead of Bongiovanni & Associates)
555 S. Powerline Road
Pompano Beach, Florida 33069
(954) 975-9601 Office
(954) 979-6695 fax
To the Board of Directors and Stockholders:
Cathayone, Inc.
2100 Pinto Lane
Las Vegas Nevada 89106
May 14, 2001
Cathayone, Inc.
2100 Pinto Lane
Las Vegas Nevada 89106
Gentlemen:
We hereby consent to the use of our audit report of CathayOne, Inc. and
subsidiaries dated May 1, 2001 for the year ended December 31, 2000 in the Form
10-KSB/A of CathayOne, Inc. dated May 14, 2001.
/s/ Bongiovanni & Associates
-----------------------------------