Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Xin Net Corp.
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1)Title of each class of securities to which transaction applies:
Common
-----------------------------------------------------------------
2)Aggregate number of securities to which transaction applies:
21,360,010
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3)Per unit price or other underlying value of transaction computed pursuant to
Exchange Act rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
-----------------------------------------------------------------
4)Proposed maximum aggregate value of transaction:
N/A
-----------------------------------------------------------------
-1-
Xin Net Corp.
#830-789 W. Pender St.
Vancouver, B.C. Canada V6C 1H2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER ______, 2001
Notice is hereby given that the Annual Meeting of Shareholders of Xin Net
Corp., (hereinafter referred to as "the Company") will be held at #830-789 West
Pender St., Vancouver, B.C. V6C 1H2, at 10:00 AM, local time, on November , 2001
for the following purposes:
1. To elect seven directors to hold office until the next annual
meeting of shareholders and qualification of their respective
successors.
2. To approve an Employee Stock Award Plan for the Company.
3. To ratify the designation of Clancy & Co. as Independent
Accountants for the annual period ending December 31, 2001.
4. To approve the "Assets Transfer Agreement" signed on June 22,
2001, which transfers Company ISP assets to Beijing Sino Soft
Intel Information Technology Ltd.
5. To authorize the spin out of shares of Xin Net International
Corp., as a distribution by way of a dividend, pro-rata to the
shareholders of the Company on the basis of one share of Xin Net
International Corp. for each one share of the Company owned as of
the record date for this meeting.
6. To authorize the Board of Directors to change the name of Xin Net
Corp. to a new name at the discretion of the Board of Directors.
7. To transact such other business as may properly come before the
Annual Meeting or any postponement of or adjournment thereof.
The Board of Directors has fixed the closing of business on October _____,
2001, as the record date for the determination of shareholders entitled to
notice of and to vote at this meeting or any adjournment thereof. The stock
transfer books will not be closed.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 2000 and Interim Report for 2nd Quarter 2001 accompany this Notice
of Annual Meeting and Proxy Statement.
All stockholders, whether or not they expect to attend the Meeting in
person, are requested to complete, date, sign, and return the enclosed form of
proxy in the accompanying pre-addressed envelope. The proxy may be revoked by
the person executing the proxy by filing with the Secretary of the Company an
instrument of revocation or duly executed proxy bearing a later date, or by
electing to vote in person at the Meeting.
/s/ Marc Hung
----------------------------------
Xin Net Corp.
Marc Hung, President
-2-
PROXY STATEMENT
Xin Net Corp.
#830-789 West Pender St.
Vancouver, BC Canada V6C 1H2
ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD
On November ______, 2001
This Proxy Statement is being furnished to the shareholders of Xin Net
Corp., a Florida corporation, in connection with the solicitation by the Board
of Directors of proxies to be used at the Annual Meeting of Shareholders to be
held at 10:00 AM, local time, November , 2001 at #830-789 West Pender Street,
Vancouver, BC Canada. The Proxy Statement is first being sent or given to
shareholders on or about October , 2001.
PROXIES ARE BEING SOLICITED BY THE BOARD OF DIRECTORS.
WE ARE ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED TO SEND US A PROXY.
VOTING RIGHTS
Stockholders of record of the Company as of the close of business on
October , 2001 have the right to receive notice of and to vote at the Annual
Meeting. On September 30, 2001, the Company had issued the outstanding
21,360,010 shares of Common Stock (the "Common Stock"), the only class of voting
securities outstanding. Each share of Common Stock is entitled to one (1) vote
for as many separate nominees as there are directors to be elected and for or
against all other matters presented. For action to be taken at the Annual
Meeting, a minimum of ten percent (10%) of the shares entitled to vote must be
represented at the Annual Meeting in person or by proxy. Shares of stock may not
be voted cumulatively. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the Annual Meeting.
Abstentions will be counted in tabulations of the votes cast on proposals,
whereas broker non-votes will not be counted for purposes of determining whether
a proposal has been approved.
EXPENSE OF MAILING
The expense of preparing and mailing of this Proxy Statement to
shareholders of the Company is being paid for by the Company. The Company is
also requesting brokers, custodians, nominees and fiduciaries to forward this
Proxy Statement to the beneficial owners of the shares of common stock of the
Company held of record by such persons. The Company will not reimburse such
persons for the cost of forwarding.
-3-
PROXIES
In voting their Common Stock, stockholders may vote in favor of or
against the proposal to approve the proposals on the agenda or may abstain from
voting. Stockholders should specify their choice on the accompanying proxy card.
All properly executed proxy cards delivered pursuant to this solicitation and
not revoked will be voted at the Meeting in accordance with the directions
given. If no specific instructions are given with regard to the matter to be
voted upon, then the shares represented by a signed proxy card will be voted
"FOR" the approval of the proposals and in the discretion of such proxies to any
other procedural matters which may properly come before the Meeting or any
adjournments thereof. All proxies delivered pursuant to this solicitation are
revocable at any time before they are voted at the option of the persons
executing them by (i) giving written notice to the Secretary of the Company,
(ii) by delivering a later dated proxy card, or (iii) by voting in person at the
Meeting. All written notices of revocation and other communications with respect
to revocations of proxies should be addressed to Ernest Cheung, Secretary, Xin
Net Corp., #830-789 W. Pender St., Vancouver BC Canada V6C 1H2.
HOLDERS OF COMMON STOCK ARE REQUIRED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO THE COMPANY IN THE
ACCOMPANYING PRE-ADDRESSED ENVELOPE.
The person named as proxy is Marc Hung, a director of the Company.
In addition to the solicitation of proxies by mail, the Company, through
its directors, officers, and employees, may solicit proxies from stockholders
personally or by telephone or other forms of communication. The Company will not
reimburse anyone for out-of-pocket costs and expenses incurred in the
solicitation of proxies. The Company also will request brokerage houses,
nominees, fiduciaries, and other custodians to forward soliciting materials to
beneficial owners, and the Company will not reimburse such persons for their
expenses incurred in doing so.
INTEREST OF PERSONS IN MATTERS TO BE ACTED UPON
No director or shareholder owning 10% or more of the outstanding shares
has indicated her or his intent to oppose any action to be taken at the
meeting. No current officer or director or shareholder has any interest in any
matter to be voted upon, except that all officers and directors may be deemed
beneficiaries under the Employee Stock Award Plan proposed for adoption. Three
(3) of the nominees for election as directors are nominated by Protectserve
Pacific Ltd. ("PSP"), a privately-owned Hong Kong company which Xin Net Corp.
has acquired (please see narrative under proposal #5). These persons, namely
Justin Kwei, Wilson Yim and Suzanne Yim, are the sole shareholders of PSP and
stand to benefit from Xin Net Corp. shareholders' approval of Proposal #5, in
that such approval will enable the closing of a formal agreement for Xin Net
Corp. to acquire 100% ownership of PSP. This agreement has been executed on
October 1, 2001 and has the potential, contingent on PSP net income for the
12-month period ending August 31, 2002, of giving to these three (3) persons a
controlling majority of Xin Net Corp. shares.
-4-
VOTING SECURITIES AND BENEFICIAL OWNERSHIP
As of the call date of the meeting, October _____, 2001 the total number of
common shares outstanding and entitled to vote was 21,360,010.
The holders of such shares are entitled to one vote for each share held
on the record date. There is no cumulative voting on any matter on the agenda of
this meeting. No additional shares will be issued subsequent to call date and
prior to meeting.
RECORD DATE
Stock transfer records will remain open. October ______, 2001 shall be the
record date for determining shareholders entitled to vote and receive notice of
the meeting.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of September 30, 2001,
with respect to the shares of common stock of the Company owned by (i) owners of
more than 5% of the outstanding shares of common stock, (ii) each director of
the Company, and (iii) all directors and officers of the Company as a group.
Unless otherwise indicated, all shares are held by the person named and are
subject to sole voting and investment are by such person.
Title Name and Amount and Percent
of Address of Nature of of
Class Beneficial Owner Beneficial Interest Class
----- ---------------- ------------------- -----
Common Xiao-qing Du
#2754 Adanac St. 2,760,000 12.9%
Vancouver, BC V5K 2M9
Common Richco Investors, Inc. 2,749,500 12.9%
789 W. Pender St., #830
Vancouver, BC Canada V6C 1H2
Common Ernest Cheung (1) 2,749,500 12.9%
Secretary and Director
789 W. Pender St., #830
Vancouver, BC Canada V6C 1H2
Common Maurice Tsakok (1) 2,749,500 12.9%
789 W. Pender St., #830
Vancouver, BC Canada V6C 1H2
Common Marc Hung 118,000 .5%
789 W. Pender St., #830
Vancouver, BC Canada V6C 1H2
Officers and Directors as a Group 5,627,500 26.3%
-5-
(1) Through Richco Investors, Inc. of which Ernest Cheung and Maurice Tsakok are
officers, directors, and shareholders.
VOTING REQUIRED FOR APPROVAL
I. Ten percent (10%) or more of the shares of common stock outstanding
at the record date must be represented at the Annual Meeting in person or by
proxy in order for a quorum to be present, but if a quorum should not be
present, the meeting may be adjourned without further notice to shareholders,
until a quorum is assembled. Each shareholder will be entitled to cast one vote
at the Annual Meeting for each share of common stock registered in such
shareholder's name at the record date.
II. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Each share of Common Stock entitles the holder thereof to one vote on all
matters to come before the Annual Meeting. Holders of shares of Common Stock are
not entitled to cumulative voting rights.
III. The favorable vote of a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting is
necessary to:
- elect the nominees for directors of the Company;
- to approve the Employee Stock Award Plan;
- to ratify the designation of Clancy & Co. as Independent
Accountants for the annual period ending December 31, 2001;
- to approve the ISP "Assets Transfer Agreement" with Beijing Sino
Soft Intel Information Technology Ltd. signed on June 22, 2001;
- to authorize the spin out of shares of Xin Net International
Corp., as a distribution by way of a dividend, pro-rata to the
shareholders of the Company on the basis of one share of Xin Net
International Corp. for each one share of the Company owned as of
the record date for this meeting.
- to change the name of the Company from Xin Net Corp. to a new
name at the discretion of the Board of Directors.
- and to transact such other business as may properly come before
the Annual Meeting or any postponement of or adjournment thereof.
REMUNERATION AND OTHER TRANSACTIONS WITH MANAGEMENT
EXECUTIVE COMPENSATION
(a) Officers' Compensation.
Compensation paid by the Company for all services provided up to June 30,
2001(1) to each of the executive officers and (2) to all officers as a group.
-6-
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Cash Compensation Security Grants
---------------------------------------------------------------------------------------------------------------
Name and Year Salary Bonus Annual Restricted Securities Long Term LTIP All Other
Principal Compensation Stock Underlying Compensation/ Payments Compensation
Position /Other($) Awards Options/ Options
SARs(#)
(SHARES)
---------------------------------------------------------------------------------------------------------------
Xiao-qing Du
President of 1998 20,000 0 0 0 0 0 0 0
Infornet 1999 27,474 0 16,000 0 1,068,000(3) 0 0 0
Subsidiary 2000 30,000 0 0 0 0 0 0 0
2001 16,042 0 0 0 0 0 0 0
(CDN)
---------------------------------------------------------------------------------------------------------------
Marc Hung 1998 0 0 0 0 0 0 0 0
President 1999 0 0 17,500 0 262,000(2) $4,500 0 0
2000 0 0 29,500 0 0 0 0 0
2001 0 0 26,000 0 0 0 0 0
(CDN)
---------------------------------------------------------------------------------------------------------------
Ernest Cheung 1998 0 0 0 0 0 0 0 0
Secretary 1999 0 0 8,000 0 435,000(1) 0 0 0
2000 0 0 24,000 0 0 0 0 0
2001 0 0 12,000 0 0 0 0 0
(CDN)
---------------------------------------------------------------------------------------------------------------
Officers as 1998 20,000 0 0 0 0 0 0
A Group 1999 27,474 0 41,500 0 1,765,000 0 0 0
2000 30,000 0 53,500 0 0 0 0 0
2001 16,042 0 38,000 0 0 0 0 0
(CDN) (CDN)
(1)Ernest Cheung received 50,000 options to buy 50,000 shares at $1.30 per
share, plus Richco Investors, Inc. of which Mr. Cheung is an officer and
director, and Mr. Tsakok is an officer and director, received 385,000 units for
its services in structuring the private placement. The "unit" is defined in the
section "Certain Relationship and Related Transactions".
(2) 262,000 options to buy 262,000 shares at $1.30 per share.
(3) See Note (g) under "Stock purchase options" following Summary
Compensation Tables of Directors.
There have been no Option/SAR grants or exercises in the last fiscal year
reportable under Reg. S-B, 402(c) or (d).
(b) Directors' Compensation
Directors who are also officers of Xin Net Corp. receive no cash
compensation for services as a director. However, the directors will be
-7-
reimbursed for out-of-pocket expenses incurred in connection with attendance at
board and committee meetings. The Company has granted options to directors under
its Stock Incentive Plan subsequently adopted.
SUMMARY COMPENSATION TABLE OF DIRECTORS
(TO JUNE 30, 2001)
Cash Compensation Security Grants
----------------------------------------------------------------------------------------------------------------
Name and Year Annual Meeting Consulting Number Securities LTIP All Other
Principal retainer Fees ($) Fees/Other of Underlying Payments Compensation
Position Fees ($) Fees($) Shares (#) Options/SARs(#)
(SHARES)
----------------------------------------------------------------------------------------------------------------
Xiao-qing Du, 1998 0 0 0 0 0 0 0
Director 1999 0 0 0 0 1,068,000 (3) 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Jing Liang, 1998 0 0 0 0 0 0 0
Director 1999 0 0 0 0 0 0 0
(resigned in 1999)
----------------------------------------------------------------------------------------------------------------
Marc Hung 1999 0 0 0 0 262,000 (2) 0 $4,500
Director 2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Ernest Cheung, 1998 0 0 0 0 0 0 0
Director 1999 0 0 0 0 435,000 (1) 0 0
2000 0 0 0 0 0 0 0
2001 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Maurice Tsakok 1999 0 0 14,000 CDN 0 647,000 (4) 0 0
Director 2000 0 0 24,000 CDN 0 0 0 0
2001 0 0 12,000 CDN 0 0 0
----------------------------------------------------------------------------------------------------------------
Directors as a 1999 0 0 14,000 CDN 0 2,027,000 0 0
group 2000 0 0 24,000 CDN 0 0 0 0
2001 0 0 12,000 CDN 0 0 0 0
----------------------------------------------------------------------------------------------------------------
(1)See note (1) under Compensation Table of Executives
(2)See note (2) under Compensation Table of Executives
(3)See note (3) under Compensation Table of Executives
(4)262,000 options to buy 262,000 shares at $1.30 per share plus 385,000
units to Richco Investors, Inc. (See Note (1) under Compensation
Table of Executives)
There have been no Option/SAR grants or exercises in the last fiscal year
reportable under Reg. S-B, 402(c) or (d).
(e) Termination of Employment and Change of Control Arrangements. None.
(f) Stock purchase options:
On February 26, 1999, stock options for a total of 480,000 shares at $.40
per share were granted to officers and employees (or persons who became
-8-
officers) that had contributed to the success of the company in the past: Marc
Hung (150,000 shares) and Xin Wei (330,000 shares) (Note: Mr. Wei is not an
officer of the Company, but an employee of Infornet Investment Corp.) All share
options were exercised as of April 6, 1999.
On November 12, 1999 the Company granted 2,136,000 options to purchase
shares at $1.30 per share to entities/persons who contributed to the successful
results achieved by the Company in 1999, as follows:
a. 262,000 options to Gemsco Management Ltd. (owned beneficially by
director Maurice Tsakok) for designing and implementing the Company's corporate
website, advising on technological matters, researching the technology sector
and for services as a director.
b. 262,000 options to Farmind Link Corp. for their role as advisor on
strategic issues, technology market trends, and financial and capital market
issues.
c. 262,000 options to Sinhoy Management Ltd. (owned beneficially by officer
and director Marc Hung) for their contributions to the general management of the
Company, investor relations, technological matters and for services as a
director.
d. 212,000 options to Lancaster Pacific Investment, Ltd. for their
contributions in the areas of regulatory matters, Chinese market conditions and
strategies aimed at penetrating the market.
e. 50,000 options to Ernest Cheung for services rendered as secretary and
director of the Company.
f. 20,000 options to Yonderiche International Consultants Ltd. for services
rendered in matters regarding Chinese government policies and regulations.
g. 1,068,000 options to Weststar Holdings Limited (owned beneficially by
Xiao-qing Du, a director and president of Infornet Investment Corp., and Xin
Wei, a director and secretary of Infornet Investment Corp. and president of XIN
HAI) and employees of Xin Hai Technology Development Ltd., as a group, for the
successful continued development of the business in China and achieving
excellent operational results during the year. The breakdown of the 1,068,000
options is to be determined at a later date.
The average closing price for the five trading days ended on November 12,
1999 was $1.28 per share. The closing price on November 12, 1999 was $1.187 per
share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 26, 1999, Marc Hung, who was neither an officer nor director
but since has become President and Director, was granted and exercised (in
March, 1999) an option to purchase 150,000 shares of common stock at $.40 per
share. The option to purchase shares was granted to him for services rendered
since July 1998 as advisor to the Company in matters relating to management,
technology and strategies.
On February 26, 1999, Kun Wei, a shareholder, was granted and exercised (in
March) an option to purchase 330,000 shares of common stock at $.40 per share.
The option to purchase shares was granted to him for contributing to the success
of the joint venture, in particular with regards to technology development and
-9-
implementation. Kun Wei is Vice President of Xin Hai Technology Development,
Ltd. and the brother of Xin Wei.
On February 26, 1999, Xin Wei, a shareholder, who is President of Xin Hai
Technology Development, Ltd., the Company's joint venture Partner, was granted
and exercised (in March 1999) an option to purchase 330,000 shares of common at
$.40 per share. The option to purchase shares was granted to him for
contributing to the success of the joint venture, in particular with regards to
general management of Xin Hai Technology Development Ltd., business development
and governmental relations.
In May 1999, Marc Hung, President and Director of the Company, purchased
80,000 units of the private placement at the $1.00 offering price. Richco
Investors, Inc., a public company of which both Messrs. Ernest Cheung and
Maurice Tsakok are directors, officers and shareholders, purchased 700,000 units
in the private placement at $1.00 per unit in May 1999.
On September 17, 1999 385,000 units were issued to Richco Investors, Inc.
as a consulting fee for services rendered in structuring the unit placement.
The units consisted of one share and a warrant ("A" Warrant) to purchase an
additional unit at $2.00 per unit, such additional unit consisting of one share
and a warrant ("B" Warrant) to purchase an additional share at $5.00 per share.
On March 15, 2001 the Company amended both the Series "A" and Series "B"
warrants as follows:
- The exercise price of the Series "A" warrants is adjusted to $1.00 each and
their term is extended to the earlier of (a) March 31, 2003 and (b) the 90th day
after the day on which the weighted average trading price of Xin Net Corp.'s
shares exceeds $1.25 per share for ten consecutive days;
- Upon exercise of one Series "A" warrant at $1.00, the holder will receive
one Xin Net Corp. common share and one Series "B" warrant;
- The exercise price of the Series "B" warrants is adjusted to $1.50 each and
their term is extended to the earlier of (a) March 31, 2004 and (b) one year
after the 90th day occurrence described above.
On November 12, 1999 the Company granted 2,136,000 options to purchase
shares at $1.30 per share to entities/persons who contributed to the successful
results achieved by the Company in 1999, as described above under "Stock
Purchase Options."
The Company has made loans to the joint venture since the year 1999. These
loans bear 0% interest and are payable on demand. At June 30, 2001 the
cumulative amount of the loans was $3,153,484.
On June 22, 2001 the Company, through its Chinese joint venture partner Xin
Hai Technology Development Ltd, signed an agreement to transfer ISP assets to
Beijing Sino Soft Intel Information Technology Ltd. for USD 700,000 equivalent
in Renminbi, plus other considerations. The text of the agreement is appended to
this proxy as Exhibit B.
On July 31, 2001 the Company signed a letter of intent to acquire 100%
ownership of privately-owned Protectserve Pacific Ltd (PSP). On October 1, 2001,
-10-
a formal agreement has been executed. PSP is based in Hong Kong and is an
innovative developer and provider of web-based surveillance and monitoring &
control systems. The text of the agreement is appended to this proxy as Exhibit
C1.
Committees and Meetings
The Board held numerous meetings during the fiscal year ended December
31,2000 and to this date in 2001. The Board has standing Audit and Compensation
Committees. The Audit Committee conducted its business during the regular
meetings of the Board of Directors during the last fiscal year and in addition,
conferred from time to time as necessary. The Compensation Committee, in
addition to meetings as part of the regular meetings of the Board, also
conferred from time to time as necessary. The Board has no standing nominating
committee. All directors attended more than 75% of the Board meetings and the
meetings of the Board committees on which such directors served.
The Audit Committee of the Board presently consists of Mr. Cheung and
Mr. Hung. The Audit Committee has the responsibility to review the scope of the
annual audit, recommend to the Board the appointment of the independent
auditors, and meet with the independent auditors for review and analysis of the
Company's systems, the adequacy of controls and the sufficiency of financial
reporting and accounting compliance.
Messrs. Cheung and Hung currently serve on the Compensation Committee.
The Compensation Committee will administer the Company's Employee Stock Award
Plan (the "Plan") and determines the compensation to be paid to each of the
Company's executive officers, employees, and Directors.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Securities and Exchange Commission requires disclosure where an
executive officer of a company served or serves as a director or on the
compensation committee of an entity other than the Company and an executive
officer of such other entity served or serves as a director or on the
compensation committee of the Company. The Company does not have any such
interlocks. Decisions as to executive compensation are made by the Compensation
Committee. Messrs. Cheung and Hung are members of the Compensation Committee.
Indemnification of Directors and Officers
As permitted by the Florida Business Corporation Act, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach or alleged breach of
their duty of care. In addition, as permitted by the Florida Business
Corporation Act, the Bylaws of the Company provide generally that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Florida law, including those circumstances in which indemnification would
otherwise be discretionary.
The Company has entered into indemnification agreements with each of
its directors and executive officers that provide the maximum indemnity allowed
-11-
to directors and executive officers by the Florida Business Corporation Act and
the Bylaws, as well as certain additional procedural protections. In addition,
the indemnification agreements provide generally that the Company will advance
expenses incurred by directors and executive officers in any action or
proceeding as to which they may be indemnified.
The indemnification provision in the Bylaws, and the indemnification
agreements entered into between the Company and its directors and executive
officers, may be sufficiently broad to permit indemnification of the officers
and directors for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act").
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
ANNUAL REPORT AND INTERIM 2nd QUARTER 2001 REPORT
The Company's Annual Report on Form 10-KSB for the year ended December
31, 2000 (the "Form 10-KSB") and Interim Report 2nd Quarter 2001 are being
furnished simultaneously herewith. The Form 10-KSB and 2nd Quarter Interim
Report are not considered a part of this Proxy Statement.
The Company will also furnish to any stockholder of the Company a copy
of any exhibit to the Form 10-KSB as listed thereon, upon request and upon
payment of the Company's reasonable expenses of furnishing such exhibit.
Requests should be directed to Ernest Cheung, Secretary, at #830, 789 W. Pender
St., Vancouver, BC Canada V6C 1H2.
BOARD OF DIRECTORS AND OFFICERS
Four of the persons listed below, namely Marc Hung, Ernest Cheung,
Xiao-Qing (Angela) Du and Maurice Tsakok are Officers and the members of the
Board of Directors as of this date. The other three, whose name are annotated
with an asterisk (*), namely Justin Kwei, Wilson Yim and Suzanne Yim, are not
directors or officers of the Company, but are PSP nominees for election to the
Board as per the purchase agreement signed on October 1, 2001 to acquire 100%
ownership by the Company of privately-owned Hong Kong-based Protectserve Pacific
Ltd. All seven persons are nominees for Directors for the following term.
-12-
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Period of
Service As
An Officer Or
Name Age Position(s) Director
----------------------- -------- ------------------------ -------------------
Marc Hung 56 President & Director Annual
Ernest Cheung 50 Secretary & Director Annual
Xiao-qing (Angela) Du 30 Director Annual
Maurice Tsakok 49 Director Annual
Justin Kwei* 48 Director Annual
Wilson Yim* 45 Director Annual
Suzanne Yim* 47 Director Annual
The principal occupations of each director and officer of the Company
for at least the past five years are as follows:
MANAGEMENT EXPERIENCE
XIAO-QING (ANGELA) DU, President of subsidiary Infornet Investment Corp. and
Director, age 30, was President and Director of our company from 1996 to April
1999. She received a Bachelor of Science in International Finance in 1992 from
East China Normal University. She received a Master of Science in Finance and
Management Science in 1996 from the University of Saskatchewan Canada. She has
been Business Manager of China Machinery & Equipment I/E Corp. (CMEC) from 1992
to 1994. She is now President of Infornet Investment CORP., our wholly
owned subsidiary in Canada, and remains a director of our Company. She is a
director of Xin Net International Corp.
ERNEST CHEUNG, Secretary and Director, age 50, has been Secretary of our
company since May 1998. He received a B.A. in Math in 1973 from University of
Waterloo Ontario. He received an MBA in Finance and Marketing from Queen's
University, Ontario in 1975. From 1991 to 1993 he was Vice President of Midland
Walwyn Capital, Inc. of Toronto, Canada, now known as Merrill Lynch Canada. From
1992 until 1995 he served as Vice President and Director of Tele Pacific
International Communications Corp. He has also served as President for Richco
Investors, Inc. since 1995. He has been a director of our Company since 1996. He
is currently a Director of Agro International Holdings, Inc. since 1997, Spur
Ventures, Inc. since 1997, Richco Investors, Inc. since 1995 and Drucker
Industries, Inc. since 1997. In 2000, he became President and a Director of
China NetTV Holdings, Inc. He is a director of Xin Net International Corp.
MARC HUNG, B.A.Sc.(E.E.), M.A.Sc. (E.E.) University of Montreal (1969 &
1971), President and Director, age 56, has been President of our company since
April 6, 1999. From May 1992 to April 1997, Marc Hung was director of Power
System Technology, a division of Institut de Recherche en Electricite du Quebec
(IREQ), Hydro-Quebec's Research Institute. His main tasks consisted of general
management, networking, promotion of the division's technological products and
services and negotiations with potential partners for spinning off promising
innovations. The field of responsibility included, amongst others, software
products and services, software engineering and telecommunications technology.
From May 1997 to June 1998, he was loaned by Hydro-Quebec to the Canadian Centre
for Magnetic Fusion (CCFM), a fundamental research entity formed by
Hydro-Quebec, the Institut National de Recherche Scientifique (INRS) and (up to
March 1997) Atomic Energy of Canada Ltd. Besides general management, his main
-13-
mandate was to develop and propose a plan for the commercialization of the
Centre's innovative products and services. From 1999 to date he has been
President and principal of Sinhoy Management, Ltd. From July 1998 to March 1999,
Mr. Hung was on sabbatical for personal reasons, but acted as a consultant to
Xin Net. In 2000, he became a Director of China NetTV Holdings, Inc. He is a
director of Xin Net International Corp.
MAURICE TSAKOK, Director (since 1997), age 49, was employed from 1994 to
1996 by Sagit Mutual Funds, a mutual fund company, who as a vice-president was
responsible for computer operations and research on global technology companies.
From 1997 to present, he acted as a consultant on the high-tech industry and
provides technical analysis on high-tech companies. He holds a Mechanical
Engineering degree (1974 University of Minnesota) as well as an MBA specializing
in Management Information Systems (MIS) (1976 Hofstra University). In 2000, he
became a Director of China NetTV Holdings, Inc. He is a director of Xin Net
International Corp.
JUSTIN KWEI, age 48, is the President and co-founder of Protectserve
Pacific Ltd. He has over 20 years of experience in diversified
business-to-business & end-user marketing, as well as extensive business
management. He has a strong record of consistent profit contributions in
identifying and developing new markets, implementing new product strategies to
achieve sales and company objectives. Prior to his present position with
ProtectServe, he held many senior sales and management positions with
multinational companies. He was North Asia Commercial Director for SITA
Information Networking Computing B.V. from 1996 to 2001. From 1990 to 1996 he
was Greater China Director for Anixter Hong Kong Ltd, the wholly-owned
subsidiary of US publicly listed global networking and distribution company,
Anixter Inc. He also held keys sales positions with major IT vendors including
Digital Equipment Corp, Data General and Cable & Wireless in the 80's. He
received B. Adm and MBA degrees from the University of Ottawa, Ontario, Canada
in 1976 and 1978 respectively. In January 2001, he was accredited as Honorary
Consul of the Republic of Rwanda for Hong Kong SAR and Macau SAR.
WILSON YIM, age 45, is the Chief Technology Officer and co-founder of
Protectserve Pacific Ltd. He has over 15 years of extensive experience in IT
development and project management, covering all aspects of the development
cycle from analysis and specifications to support and facilities management.
From 1998-2000, he was the managing director of Web Net H.K. Ltd, a leading
e-commerce company specializing in the development of internet, intranet and
web-hosting applications. From 1990 to 1998, he was technical director for
Suntech Ltd, a RF pager and VCD manufacturer. His main task consisted of systems
and product design in real-time communication systems, hardware, software and
operating systems. Since 1980, he also held senior technical positions in
Toronto, Canada. From 1980-1985, he was technologist and project manager for
International Aeradio Ltd and was responsible for the design and implementation
of RF telecommunication and security systems. From 1995-1990 he was technical
vice-president for Anocomptech ATM Ltd, a Toronto listed company manufacturing
and marketing personal computer across Canada. He received in 1979 a
Technologist High Diploma from Seneca College of Applied Science & Technology,
majoring in RF Telecommunication.
SUZANNE YIM, age 47, received a Technologist Diploma from Seneca
College of Applied Science & Technology with major in RF Telecommunication in
1979. She has over 12 years experience in electronic products quality control
and equipment calibrations. From 1981 to 1989, she was product engineer at
Litton Systems Canada Ltd. and was responsible for testing and qualifying Litton
Systems Airborne search and rescue radar unit. She was in charge of product
-14-
reliability and quality control of the Cruise Missile Internal Navigation
Guidance System. From 1991 to 1993, she was electronic engineer at Philips CEF
Hong Kong, working in the calibration laboratory. Her main tasks consisted of
technical analysis and calibration of electronic and mechanical equipment. From
1994 to present, she has been a school teacher of Science and English in Hong
Kong.
The directors of the Company hold office until the next annual meeting
of the shareholders and until their successors have been duly elected and
qualified.
The officers of the Company are elected at the annual meeting of the
Board of Directors and hold office until their successors are chosen and
qualified or until their death, resignation, or removal.
Proposal #1
NOMINATION AND ELECTION OF DIRECTORS
The Company's Bylaws currently provide for the number of directors of
the Company to be established by resolution of the Board of Directors and that
number is four (4) and will become seven (7) as per the agreement to acquire
100% ownership of Protectserve Pacific Ltd. executed on October 1, 2001. The
Board has nominated seven (7) persons. At this Annual Meeting, a Board of seven
(7) directors will be elected. Except as set forth below, unless otherwise
instructed, the proxy holders will vote the proxies received by them for
Management's nominees named below. In the event that any Management nominee
shall become unavailable, or if other persons are nominated, the proxy holders
will vote in their discretion for a substitute nominee. It is not expected that
any nominee will be unavailable. The term of office of each person elected as a
director will continue until the next Annual Meeting of Stockholders or until a
successor has been elected and qualified.
The proxies solicited hereby cannot be voted for a number of persons
greater than the number of nominees named below. The Certificate of
Incorporation of the Company does not permit cumulative voting. A plurality of
the votes of the holders of the outstanding shares of Common Stock represented
at a meeting at which a quorum is presented may elect directors.
The business experience of each director nominee is discussed under
"Management Experience" in this Proxy Statement.
THE DIRECTORS NOMINATED BY MANAGEMENT ARE:
Marc Hung
Ernest Cheung
Xiao-qing (Angela) Du
Maurice Tsakok
Justin Kwei
Wilson Yim
Suzanne Yim
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" MANAGEMENT'S NOMINEES.
-15-
Proposal #2
EMPLOYEE STOCK AWARD PLAN
On October 3, 2000 the Board unanimously approved an Employee Stock
Award Plan, subject to stockholder approval, for 15% of shares outstanding, all
of which shares will be available for grant to directors and selected employees,
advisors and consultants of the Company. The Board believes that the Plan is
necessary for the Company to compete effectively in its market by attracting and
retaining key talent with stock options.
The following summary does not purport to be a complete statement of
the Plan's terms and is subject to and qualified in its entirety by reference to
Exhibit A.
Under the Plan, only employees, directors, advisors and consultants
of the Company or any subsidiary (including, without limitation, independent
contractors who are not members of the Board) are eligible to receive grants of
Options by the Compensation Committee. The Plan is administered by the
Compensation Committee of the Board, which selects the employees to whom options
will be granted, determines the number of shares to be made subject to each
grant, and prescribes other terms and conditions, including the type of
consideration to be paid to the Company for the grant of each option and vesting
schedules in connection with each grant.
Set forth below is an explanation of the Plan and a summary of its
principal terms. The text of the Plan is set forth in Exhibit A to this Proxy
Statement.
Shares Subject to the Employee Stock Award Plan
The maximum number of option grants is set at 15% of shares outstanding.
The authorized shares issuable in connection with the Plan are subject to
adjustment in the event of stock dividends, mergers or other reorganizations and
other situations.
If any option granted under the Plan expires or is canceled or otherwise
terminated, the shares allocable to the unexercised portion of such option shall
again be available for additional option grants.
Participants
All directors, employees, advisors and consultants of the Company are
eligible to receive options under the Plan either by automatic grant for the
Board made pursuant to the Plan or if selected by the Compensation Committee.
Terms of Stock Options
The exercise price of NSOs under the Plan shall not be less than 100% of
the fair market value of a share of the Company's Common Stock on the date of
grant. The exercise price of all NSOs granted to a nonemployee director shall be
equal to 100% of the fair market value of a share of the Company's Common Stock
on the date of grant.
-16-
The exercise price of ISOs granted to the Company's employees shall not
be less than 100% of the fair market value of a share of the Company's Common
Stock on the date of grant.
The term of any Option granted under the Plan shall not exceed ten (10)
years from the date of grant.
The Compensation Committee shall have sole discretion in determining the
award amounts.
The Compensation Committee: (1) administers the Plan, and except for
automatic grants for the Board made pursuant to the Plan (2) determines the
number of shares and options to be granted under the Plan, and the timing,
vesting, and other terms of such grants, including, without limitation, the
purchase price for each award or sale of shares and the exercise price of each
option.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of the
Plan is intended to be a summary of applicable federal law. State and local tax
consequences may differ. Because the federal income tax rules governing options
and related payments are complex and subject to frequent change, optionees are
advised to consult their tax advisors prior to exercise of options or
dispositions of stock acquired pursuant to option exercise.
ISOs and NSOs are treated differently for federal income tax purposes.
ISOs are intended to comply with the requirements of Section 422 of the Internal
Revenue Code. NSOs need not comply with such requirements.
An employee is not taxed on the grant or exercise of an ISO. The
difference between the exercise price and the fair market value on the exercise
date of the shares acquired under an ISO will, however, be a preference item for
purposes of the alternative minimum tax. If an optionee holds the shares
acquired upon exercise of an ISO for at least two (2) years following grant and
at least one (1) year following exercise, the optionee's gain, if any, upon a
subsequent disposition of such shares is long-term capital gain. If such shares
are held longer than 18 months, the long-term capital gains rate is generally
20%. The measure of the gain is the difference between the proceeds received on
disposition and the optionee's basis in the shares (which generally equals the
exercise price).If an optionee disposes of stock acquired pursuant to exercise
of an ISO before satisfying the one (1)- and two (2)-year holding periods
described above, the optionee may recognize both ordinary income and capital
gain in the year of disposition. The amount of the ordinary income will be
limited to the difference between the fair market value of the stock on the
-17-
exercise date and the option exercise price. Any remaining gain on the
disposition will be capital gain and will be long-term capital gain if the stock
had been held for at least one (1) year following the date of exercise. The
Company is not entitled to an income tax deduction on the grant or exercise of
an ISO if there is no disposition of the shares prior to the satisfaction of the
holding period requirements described above. If the holding periods are not
satisfied, the Company will be entitled to a deduction in the year the optionee
disposes of the shares, in an amount equal to the ordinary income recognized by
the optionee.
An employee is not taxed on the grant of an NSO. On exercise, however,
the optionee recognizes ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
The Company is entitled to an income tax deduction in the year of exercise in
the amount recognized by the optionee as ordinary income. Any gain on subsequent
disposition of the shares is long-term capital gain if the shares are held for
at least one (1) year following exercise. The Company does not receive a
deduction for this gain.
New Plan Benefits
The Compensation Committee has full discretion to determine the number
and amount of options to be granted to employees under the Plan. Therefore, the
benefits and amounts that will be received by each of the officers named in the
Summary Compensation Table above, the executive officers as a group, the
directors who are not executive officers as a group, and all other employees
under the Plan are not presently determinable.
The number of options to be received by each nonemployee director
pursuant to the terms of the Plan, subject to stockholder approval, are
determined by the Compensation Committee.
Required Approval
For action to be taken at the Annual Meeting, a quorum must be present.
To be considered approved, the Plan must receive the affirmative vote of the
holders of a majority of the shares represented and voting at the Annual
Meeting.
Unless marked to the contrary, proxies received will be voted "FOR" the
approval of the company's Employee Stock Award Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE COMPANY'S EMPLOYEE
STOCK AWARD PLAN.
Proposal #3
INDEPENDENT PUBLIC ACCOUNTANTS
Clancy and Co., PLLC, Independent Public Accountants, of Phoenix,
Arizona, have been engaged as the Certifying accountants for the period through
fiscal year 2001 and shareholders are asked to ratify such engagement.
Ratification of the appointment of Clancy and Co, PLLC, as the Company's
independent public accountants for the fiscal year ending December 31, 2001 will
require the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting. In
the event the stockholders do not ratify the appointment of Clancy and Co.,
PLLC, for the fiscal year 2001, such appointment will be reconsidered by the
Board.
-18-
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of Clancy and Co., PLLC, as independent
accountants for the Company's fiscal year ending December 31, 2001.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
COMPANY'S INDEPENDENT ACCOUNTANTS.
Proposal #4
On May 18, 2001 the Board of Directors decided that the Company's
business in China will focus on domain name registration and web-hosting
services, and will discontinue Internet access provision (ISP) services as soon
as practicable. The ISP business in China faced stiff competition, mainly from
government-owned telephone companies, and accounted for a very large share of
Company operating losses in the fiscal year ended December 31, 2000 and in the
fiscal quarters ended March 31, 2001 and June 30, 2001. The Company filed a Form
8-K "Current Report" with the Securities and Exchange Commission (SEC) regarding
this decision on May 23, 2001. On June 22, 2001 the Board of Directors
authorized the Company's joint venture partner, Xin Hai Technology Development
Ltd., to sign an agreement to sell Company ISP assets to Beijing Sino Soft for
USD 700,000 in cash plus other considerations. The agreement was signed on June
22, 2001. An English summary and an English translation of the agreement were
filed with the SEC on July 12, 2001. The summary is reproduced here and the
agreement is included as Exhibit B of the Proxy Statement. A pro forma Balance
Sheet to June 30, 2001 after disposal of ISP assets is also included as Exhibit
B1. The statutes of the State of Florida, the jurisdiction of incorporation of
the Company, require that the agreement be approved by Company shareholders.
Summary of Asset Transfer Agreement dated June 22, 2001. The Company has
entered into an Assets Transfer Agreement under which it has agreed to transfer
all the assets of the ISP operations in China to Beijing Sino Soft Intel
Information Technology, Ltd. of Beijing. The transfer includes all transferable
permits, equipment, agency contracts, customers, accounts, employees and
operations.
The price for the transfer of assets by the Company is $700,000 (USD)
payable to the Company in Renminbi at the official exchange rate, as follows:
$350,000 payable as a deposit upon signing with $350,000 to be paid upon receipt
of shareholder approval of the asset transfer by Company shareholders. (Xin Hai
has subsequently agreed to different terms regarding payment terms. A sum of
$500,000 has been received to date and the balance of $200,000 is to be received
after Xin Net Corp. shareholders' approval of the Agreement).
The Company has agreed to assign Logo, lines, numbers, locations and
all accounts and assets and has agreed not to compete in China in the ISP
business. No fixed debt is assumed by purchaser, but ongoing contracts for
Internet access provision, etc. will be assumed by buyer.
Business Conducted
------------------
Xin Net's business is as described in its 10KSB/A filed May 2, 2001,
SEC file number 000-26559, which is incorporated herein by this reference. Xin
Net Corp. is selling its Internet Service Provider business segment to Sino
soft, if approved by shareholders, and its remaining business as described in
the 10KSB/A above-referenced will be its domain name registration and web design
& hosting business, through its wholly owned subsidiary, Xin Net International,
-19-
and its recently acquired PSP division in Hong Kong which provides web-based
surveillance and monitoring & control systems.
In the event that shareholders approve the spin out by dividend pro
rata of the shares of Xin Net International, Inc., the wholly owned subsidiary,
the remaining business of Xin Net Corp. will be its security systems business,
PSP.
The audited financials of the operations of the security systems
business, PSP, are attached hereto as Exhibit C2 and such would represent the
financials of the remaining on-going operations of the company.
Beijing Sino Soft Intel Information Technology LTD. is an ISP provider
in China which operates ISP centers in Chinese large population cities.
Shareholders of Xin Net Corp will not own any interest in Beijing Sino Soft.
Terms of the Transaction
There is no tender offer involved in the proposed transactions. The
proposed transaction is not interdependent upon any other transaction.
I. Sale of Xin Net Corp's Internet Service Provider Assets in China
to Sino Soft, Inc., a Chinese Internet Service Provider.
The assets consist of the ISP telephone numbers, subscribers,
equipment, domains, personnel as may be rehired by Sino Soft,
hosting agreements, licenses, software, and goodwill. The
purchase price is $700,000, $500,000 of which has been paid, and
$200,000 of which shall be paid upon shareholder approval of the
transaction.
II. No consideration is being offered to security holders of Xin Net
Corp.
III. Xin Net Corp. Is engaging in the transaction for several reasons:
A. The ISP operations have lost money on operations since
inception.
B. Substantial additional capital which is unavailable to the
company would be necessary to continue operations, with no
assurance of reaching profitability.
C. The sale allows the company to recoup $700,000 of its
investment.
D. The paying subscriber base for profitability for ISPs has
proven extremely costly to obtain and retain in China.
IV. The vote required by Xin Net corp. shareholders to approve the
transaction is the affirmative vote of the holders of a majority
of the shares represented and voting at the Annual Meeting at
which a quorum must be present.
V. No material differences in rights of security holders will result
from the proposed sale transaction.
VI. The transaction will be treated as a disposal of assets of
discontinued operations and will result in a gain of $405,840.
VII. There will be no Federal income tax consequences of the
transaction due to the overall operational net loss of the
company.
No securities are being purchased from any officer, director, or
affiliate of the company.
No security holders are being treated differently in any way.
Dissenting shareholders are not entitled to any appraisal rights for
the transaction under Florida law or any other law.
-20-
There are no provisions for unaffiliated shareholders to grant them
access to corporate files or obtain counsel or appraisal services at the expense
of the company.
The transaction has no effect on the trading or listing eligibility of
the company's securities at this time.
-21-
For action to be taken at the Annual Meeting, a quorum must be present.
To be considered approved, the agreement to sell Company ISP assets to Beijing
Sino Soft must receive the affirmative vote of the holders of a majority of the
shares represented and voting at the Annual Meeting.
Unless marked to the contrary, proxies received will be voted "FOR"
approval of the agreement to sell the Company's ISP assets to Beijing Sino Soft.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AGREEMENT SIGNED ON JUNE 22, 2001 TO SELL THE COMPANY'S ISP ASSETS TO BEIJING
SINO SOFT.
Proposal #5
On July 31, 2001 the Company has signed a letter of intent to acquire
100% ownership of ProtectServe Pacific Ltd. (PSP), an innovative developer and
provider of state-of-the-art web-based surveillance, monitoring & control
systems.
Subsequently on August 3, 2001 the Company filed a Form 8-K "Current
Report" with the Securities and Exchange Commission disclosing this letter of
intent and also announcing the Company's intent to transfer its current business
assets and liabilities, except for cash US $800,000, to a new US-incorporated
company. The Company has incorporated Xin Net International Corp. in the State
of Nevada for this purpose. The Company now seeks shareholders' approval to
distribute by way of a dividend this new company's shares, on a pro-rata basis,
to the Company shareholders as of the record date for the annual general
meeting. The business reasons for this restructuring are: a) to allow the
acquisition of a new business venture; b) to allow retention by existing
shareholders of the full value of the existing business of the company by
spinning off the subsidiary as a dividend to these shareholders (and not to
holders of shares to be issued in the PSP acquisition transaction) and c) to
raise new funds for the ongoing operations. A consolidated pro forma balance
sheet of Xin Net International Corp. is shown as Exhibit C.
Summary of Acquisition Agreement for PSP
----------------------------------------
The Company has executed a formal agreement on October 1, 2001 to
acquire 100% of PSP. It plans to transfer the current business to Xin Net
International Corp. before the date of the Annual Shareholder Meeting. The
closing of the PSP acquisition agreement is however conditional to shareholders
approving the spin-off. If shareholders do not approve of the spin-off, the
acquisition agreement, as executed, cannot be closed, and may have to be voided
or modified. The PSP agreement is included as Exhibit C1. PSP audited financial
report from inception to June 30, 2001 (Exhibit C2), PSP business plan (Exhibit
C3)and a pro forma consolidated financial statement after disposal of ISP
assets, spin-off of remaining business to Xin Net International Corp. and
acquisition of PSP (Exhibit C4), are also included as Exhibits.
Terms of the Transaction
------------------------
There is no tender offer involved in the proposed transaction. The
proposed transaction is dependent upon the approval of Proposal #4.
I. Spin off by Pro Rata Distribution by way of a dividend of the
shares of the Wholly Owned Subsidiary, Xin Net International,
Inc.
-22-
The company proposes to spin off its wholly owned subsidiary Xin
Net International, Inc., pro rata, to the shareholders of the
company as a dividend to shareholders, if the transaction is
approved by shareholders. The business which has been transferred
by the company to its wholly owned subsidiary, is its domain name
registration and web design & hosting business in China. The pro
forma financial statements of the domain name registration and
web design & hosting segment of business is contained on Exhibit
C. The company believes that with reduced operations costs, the
domain name registration business has an opportunity to continue
to generate revenues on a break even or profitable basis in the
future.
II. Consideration is being offered to Xin Net Corp. (the company's
shareholders) in the form of a distribution by way of a dividend
of one share of Xin Net International, Inc. For each share of Xin
Net Corp. owned.
III. Xin Net Corp is engaging in the transaction for several reasons:
A. The domain name registration and web design & hosting
business of the company has grown as the Internet business
has grown in China and has the chance to continue to grow.
B. The operations of the domain name registration and web
design & hosting business has the potential of operating at
a profit, without large additional capital infusions.
C. The shareholders have the opportunity to receive pro rata
ownership as a distribution by way of a dividend in the
subsidiary, of a stand alone business: domain name
registration, web design & hosting.
IV. The vote required to approve the transaction is the affirmative
vote of the holders of a majority of the shares represented and
voting at the Annual Meeting at which a quorum must be present.
V. No material differences in rights of security holders will result
from the proposed sale transaction.
VI. The transaction will be treated as a distribution to
shareholders, pro rata.
VII. The tax treatment of the dividend cannot be determined on an
individual basis, because it is dependent upon the tax laws
recognizing income in the shareholders country of residence and
the laws determining basis for the shareholder in the country of
residence. Under US Internal Revenue Code, Section 355, the
transaction would not be treated as taxable so long as the
criteria of Section 355 IRC are met, which the proposed
transaction is designed to meet.
No securities are being purchased from any officer, director, or
affiliate of the company.
No security holders are being treated differently in any way.
Dissenting shareholders are not entitled to any appraisal rights for
the transaction under Florida law or any other law.
There are no provisions for unaffiliated shareholders to grant them
access to corporate files or obtain counsel or appraisal services at the expense
of the company.
The transaction has no effect on the trading or listing eligibility of
the company's securities at this time.
-23-
Selected Financial Data
Xin Net Corp. and subsidiaries
Pro forma information - Schedule 14A Item 10
Six months ended Twelve months ended
June 30, 2001 December 31, 2000
Historical Pro forma Pro forma
(unaudited) (unaudited) Historical (unaudited)
----------- ------------ ---------- ----------
Book value per share $ 0.04 $ 0.06 $ 0.10 $ 0.00
Cash dividends declared per share 0.00 0.00 0.00 0.00
Income (loss) per share from continuing operations (0.04) 0.00 (0.11) 0.00
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Six months ended
June 30, 2001 Years ended December 31,
Stated in U.S. dollars (Unaudited) 2000 1999 1998 1997
ASSETS
Current Assets
Cash and Short term deposits $ 1,903,780 $2,619,288 $5,293,429 $336,189 $337,366
Investments 1,318 1,333 219,185 - -
Accounts Receivables 518,411 604,971 - - 28,062
Other Receivables 7,283 6,631 223,466 37,376 -
Inventory - 36,156 99,206 - -
Prepaid Expenses 88,341 46,146 16,361 2,614 -
Deferred Costs 488,143 465,185 - - -
--------------------------------------------------------------------
Total Current Assets 3,007,276 3,779,710 5,851,647 376,179 365,428
Property and Equipment, Net 1,055,513 1,125,128 422,620 227,427 188,309
Organizational Costs, Net - - 923 969 1,031
--------------------------------------------------------------------
Total Assets $ 4,062,789 $4,904,838 $6,275,190 $604,575 $554,768
====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued Liabilities $ 748,935 $ 511,693 $ 162,041 $ 20,504 $ 12,975
Unearned Revenue 2,216,705 2,112,760 118,739 33,312 -
Security Deposit 100,000 - - - -
Other advances - - - 20,000 -
Capital Lease Obligation, Current Portion 92,560 61,442 58,920 - -
--------------------------------------------------------------------
3,158,200 2,685,895 339,700 73,816 12,975
Capital Lease Obligation, Noncurrent Portion - 62,463 126,269 - -
Stockholders' Equity
Common Stock 21,360 21,360 21,360 14,075 14,075
Additional Paid In Capital 7,214,045 7,214,045 7,214,025 862,990 822,490
Accumulated Deficit (6,178,290) (4,926,669) (1,318,945) (234,918) (183,399)
Accumulated Other Comprehensive Income (152,526) (152,256) (107,219) (111,388) (111,373)
--------------------------------------------------------------------
Total Stockholders' Equity 904,589 2,156,480 5,809,221 530,759 541,793
--------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 4,062,789 $4,904,838 $6,275,190 $604,575 $554,768
====================================================================
XIN NET CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months
ended
June 30, 2001 Years ended December 31,
Stated in U.S. dollars (unaudited) 2000 1999 1998 1997
Revenue
Domain Name Registration $ 1,087,878 $ 884,298 $ 37,412 $ - $ -
E-Solutions 456,120 1,017,992 43,291 - -
----------------------------------------------------------------------------
1,543,998 1,902,290 80,703 - -
Cost of Revenue
Domain Name Registration 502,355 405,051 18,822 - -
E-Solutions 25,269 352,781 - - -
----------------------------------------------------------------------------
527,624 757,832 18,822 - -
Gross Profit 1,016,374 1,144,458 61,881 - -
Expenses
Advertising and promotion 238,948 1,108,040 148,736 - -
Amortization 93,972 149,117 10,836 - -
General and administrative 538,844 1,211,938 144,527 - -
Salaries, wages and benefits 812,363 747,798 36,229 - -
Telephone and communication 182,557 340,019 59,816 - -
----------------------------------------------------------------------------
1,866,684 3,556,912 400,144 - -
----------------------------------------------------------------------------
Operating Loss (850,310) (2,412,454) (338,263) - -
Other Income
Interest income 41,517 154,011 173,013 4,845 7,221
----------------------------------------------------------------------------
Loss from Continuing Operations (808,793) (2,258,443) (165,250) 4,845 7,221
Loss from Discontinued Operations -
Internet Access Card services (442,828) (1,349,281) (918,777) (56,364) (184,534)
----------------------------------------------------------------------------
Net Loss Available to Common
Stockholders $ (1,251,621) $(3,607,724) $(1,084,027) $ (51,519) $ (177,313)
============================================================================
Basic and Diluted Loss from Continuing
Operations per Share $ (0.04) $ (0.11) $ (0.01) $ 0.00 $ 0.00
============================================================================
Basic and Diluted Weighted Average
Common Shares Outstanding 21,360,010 21,360,003 18,655,082 14,075,000 12,127,082
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
AUTHORIZE THE SPIN OUT OF SHARES OF XIN NET INTERNATIONAL CORP., AS A
DISTRIBUTION BY WAY OF A DIVIDEND, PRO-RATA TO THE SHAREHOLDERS OF THE COMPANY
ON THE BASIS OF ONE SHARE OF XIN NET INTERNATIONAL CORP. FOR EACH ONE SHARE OF
THE COMPANY OWNED AS OF THE RECORD DATE FOR THIS MEETING.
Proposal #6
The "Xin Net" name and the "Xinnet" brand name are closely associated
with the Company's current Internet-related services business. This association
is safeguarded by the transfer of the current business to a subsidiary, Xin Net
International Corp., which has "Xin Net" as part of its name. To maintain "Xin
Net Corp." as the name of the Company after the transfer will not only be a
source of confusion, but will impede the Company name from reflecting its new
surveillance and monitoring & control systems business. For this reason, the
Board of Directors wishes to change the Company name to a new name, to be
determined by the Board of Directors, and at a time the Board deems appropriate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR "APPROVAL" TO CHANGE THE
COMPANY NAME AT THE BOARD'S DISCRETION.
SHAREHOLDER PROPOSALS
Shareholders are entitled to submit proposals on matter appropriate for
shareholder action consistent with regulations of the Securities and Exchange
Commission. Should a shareholder intend to present a proposal at next year's
annual meeting, it must be received by the secretary of the Company at #830-789
W. Pender St., Vancouver, BC Canada V6C 1H2, not later than 60 days after fiscal
year end, in order to be included in the Company's proxy statement and form of
proxy relating to that meeting. It is anticipated that the next annual meeting
will be held in June, 2002.
Other Matters. Management knows of no business that will be presented
for consideration at the Annual Meeting other than as stated in the Notice of
Annual Meeting. If, however, other matters are properly brought before the
Annual Meeting, it is the intention of the persons named in the accompanying
form of proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
Dated: October 12, 2001
By Order of the Board of Directors
/s/ Marc Hung
By: ----------------------------------
Marc Hung, President
EXHIBIT A
2000 STOCK OPTION PLAN OF XIN NET CORP.
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan is established on October 3, 2000, effective on approval by
shareholders, to offer directors and selected employees, advisors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, by purchasing Shares of the Company's
Common Stock. The Plan provides both for the direct award or sale of Shares and
for the grant of Options to purchase Shares. Options granted under the Plan may
include Nonstatutory Options as well as ISOs intended to qualify under section
422 of the Code.
The Plan is intended to comply in all respects with Rule 16b-3 (or its
successor) under the Exchange Act and shall be construed accordingly.
SECTION 2. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a committee of the Board of Directors, as
described in Section 3(a).
(d) "Company" shall mean Xin Net Corp., a Florida corporation.
(e) "Employee" shall mean (i) any individual who is a common-law
employee of the Company or of a Subsidiary, (ii) an Outside Director and (iii)
an advisor, a consultant or an independent contractor who performs services for
the Company or a Subsidiary and who is not a member of the Board of Directors.
Service as an Outside Director shall be considered employment for all purposes
of the Plan, except as provided in Subsections (a) and (b) of Section 4.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(h) "Fair Market Value" shall mean the market price of Stock,
determined by the Committee as follows:
(i) If Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the
closing price reported for such date by the applicable
composite- transactions report;
(ii) If Stock was traded over-the-counter on the date in
question and was traded on the Nasdaq system or the Nasdaq
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National Market, then the Fair Market Value shall be equal to
the last-transaction price quoted for such date by the Nasdaq
system or the Nasdaq National Market;
(iii) If Stock was traded over-the-counter on the date in
question but was not traded on the Nasdaq system or the Nasdaq
National Market, then the Fair Market Value shall be equal to
the mean between the last reported representative bid and
asked prices quoted for such date by the principal automated
inter-dealer quotation system on which Stock is quoted or, if
the Stock is not quoted on any such system, by the "Pink
Sheets" published by the National Quotation Bureau, Inc.; and
(iv) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in
good faith on such basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.
(i) "ISO" shall mean an employee incentive stock option described in
section 422(b) of the Code.
(j) "Nonstatutory Option" shall mean an employee stock option not
described in sections 422(b) or 423(b) of the Code.
(k) "Offeree" shall mean an individual to whom the Committee has
offered the right to acquire Shares under the Plan (other than upon exercise of
an Option).
(l) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(m) "Optionee" shall mean an individual who holds an Option.
(n) "Outside Director" shall mean a member of the Board of Directors
who is not a common-law employee of the Company or of a Subsidiary.
SECTION 3. ADMINISTRATION.
(a) Committee Membership. The Plan shall be administered by the
Committee. The "Committee" shall mean the full Board of Directors and/or a
committee designated by the Board of Directors, which is authorized to
administer the Plan under this Section. The Committee's membership shall enable
the Plan to qualify under Rule 16b-3 with regard to the grant of Shares and
Options under the Plan to persons who are subject to Section 16 of the Exchange
Act. Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Shares or Options under the
Plan to persons subject to Section 16 of the Exchange Act.
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(b) Committee Procedures. The Committee shall designate one of its
members as chairman. The Committee may hold meetings at such times and places as
it shall determine. The acts of a majority of the Committee members present at
meetings at which a quorum exists, or acts reduced to or approved in writing by
all Committee members, shall be valid acts of the Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of
the Plan;
(iv) To determine when Shares are to be awarded or offered
for sale and when Options are to be granted under the Plan;
(v) To select the Offerees and Optionees;
(vi) To determine the number of Shares to be offered to each
Offeree or to be made subject to each Option;
(vii) To prescribe the terms and conditions of each award or
sale of Shares, including (without limitation) the Purchase
Price, and to specify the provisions of the Stock Purchase
Agreement relating to such award or sale;
(viii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price, to
determine whether such Option is to be classified as an ISO or
as a Nonstatutory Option, and to specify the provisions of the
Stock Option Agreement relating to such Option;
(ix) To amend any outstanding Stock Purchase Agreement or
Stock Option Agreement, subject to applicable legal
restrictions and, to the extent such amendments adverse to the
Offeree's or Optionee's interest, to the consent of the
Offeree or Optionee who entered into such agreement;
(x) To prescribe the consideration for the grant of each
Option or other right under the Plan and to determine the
sufficiency of such consideration; and
(xi) To take any other actions deemed necessary or advisable
for the administration of the Plan.
All decisions, interpretations and other actions of the Committee shall
be final and binding on all Offerees, all Optionees, and all persons deriving
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their rights from an Offeree or Optionee. No member of the Committee shall be
liable for any action that he or she has taken or has failed to take in good
faith with respect to the Plan, any Option, or any right to acquire Shares under
the Plan.
SECTION 4. ELIGIBILITY.
(a) General Rules. Only Employees (including, without limitation,
advisors, consultants and independent contractors who are not members of the
Board of Directors) shall be eligible for designation as Optionees or Offerees
by the Committee. In addition, only Employees who are common-law employees of
the Company or a Subsidiary shall be eligible for the grant of ISOs. Employees
who are Outside Directors shall only be eligible for the grant of the
Nonstatutory Options described in Subsection (b) below.
(b) Outside Directors. Any other provision of the Plan notwith-
standing, the participation of Outside Directors in the Plan shall be subject to
the following restrictions:
(i) Outside Directors shall receive no grants other than the
Nonstatutory Options described in this Subsection (b).
(ii) All Nonstatutory Options granted to an Outside Director
under this Subsection (b) shall also become exercisable in
full in the event of the termination of such Outside
Director's service because of death, Total and Permanent
Disability or voluntary retirement at or after age 65.
(iii) The Exercise Price under all Nonstatutory Options
granted to an Outside Director under this Subsection (b) shall
be equal to 100 percent of the Fair Market Value of a Share on
the date of grant, payable in one of the forms described in
Subsection (a), (b), (c) or (d) of Section 8.
(iv) Nonstatutory Options granted to an Outside Director under
this Subsection (b) shall terminate on the earliest of (A) the
10th anniversary of the date of grant, (B) the date 120 days
after the termination of such Outside Director's service for
any reason other than death or Total and Perm- anent
Disability or (C) the date 6 months after the termi- nation of
such Outside Director's service because of death or Total and
Permanent Disability.
The Committee may provide that the Nonstatutory Options that otherwise would be
granted to an Outside Director under this Subsection (b) shall instead be
granted to an affiliate of such Outside Director. Such affiliate shall then be
deemed to be an Outside Director for purposes of the Plan, provided that the
service-related vesting and termination provisions pertaining to the
Nonstatutory Options shall be applied with regard to the service of the Outside
Director.
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SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares or treasury Shares. The aggregate number of Shares which may
be issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 15% of Shares outstanding, subject to adjustment
pursuant to Section 9. The number of Shares which are subject to Options or
other rights outstanding at any time under the Plan shall not exceed the number
of Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated, the
Shares allocable to the unexercised portion of such Option or other right shall
again be available for the purposes of the Plan. In the event that Shares issued
under the Plan are reacquired by the Company pursuant to a forfeiture provision,
a right of repurchase or a right of first refusal, such Shares shall again be
available for the purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Purchase Agreement. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Offeree and the Company. Such award or sale shall
be subject to all applicable terms and conditions of the Plan and may be subject
to any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Offeree within 60 days after the grant of such right was
communicated to the Offeree by the Committee. Such right shall not be
transferable and shall be exercisable only by the Offeree to whom such right was
granted.
(c) Purchase Price. The Purchase Price of Shares to be offered under
the Plan shall not be less than 100 percent of the Fair Market Value of such
Shares. Subject to the preceding sentence, the Purchase Price shall be
determined by the Committee at its sole discretion. The Purchase Price shall be
payable in a form described in Section 8.
(d) Withholding Taxes. As a condition to the award, sale or vesting
of Shares, the Offeree shall make such arrangements as the Committee may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that arise in connection with such Shares. The Committee may permit
the Offeree to satisfy all or part of his or her tax obligations related to such
Shares by having the Company withhold a portion of any Shares that otherwise
would be issued to him or her or by surrendering any Shares that previously were
acquired by him or her. The Shares withheld or surrendered shall be valued at
their Fair Market Value on the date when taxes otherwise would be withheld in
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cash. The payment of taxes by assigning Shares to the Company, if permitted by
the Committee, shall be subject to such restrictions as the Committee may
impose, including any restrictions required by rules of the Securities and
Exchange Commission.
(e) Restrictions on Transfer of Shares. Any Shares awarded or sold
under the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 9. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100 percent
of the Fair Market Value of a Share on the date of grant. The Exercise Price of
a Nonstatutory Option shall not be less than 100 percent of the Fair Market
Value of a Share on the date of grant. Subject to the preceding two sentences,
the Exercise Price under any Option shall be determined by the Committee at its
sole discretion. The Exercise Price shall be payable in a form described in
Section 8.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with the disposition of Shares acquired by exercising an Option. The Committee
may permit the Optionee to satisfy all or part of his or her tax obligations
related to the Option by having the Company withhold a portion of any Shares
that otherwise would be issued to him or her or by surrendering any Shares that
previously were acquired by him or her. Such Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
The payment of taxes by assigning Shares to the Company, if permitted by the
Committee, shall be subject to such restrictions as the Committee may impose,
including any restrictions required by rules of the Securities and Exchange
Commission.
(e) Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
vesting of any Option shall be determined by the Committee at its sole
discretion. A Stock Option Agreement may provide for accelerated exercisability
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in the event of the Optionee's death, Total and Permanent Disability or
retirement or other events. The Stock Option Agreement shall also specify the
term of the Option. The term shall not exceed 10 years from the date of grant.
Subject to the preceding sentence, the Committee at its sole discretion shall
determine when an Option is to expire.
(f) Nontransferability. During an Optionee's lifetime, such Optionee's
Option(s) shall be exercisable only by him or her and shall not be transferable,
unless permitted by the Stock Option Agreement. In the event of an Optionee's
death, such Optionee's Option(s) shall not be transferable other than by will,
by a beneficiary designation executed by the Optionee and delivered to the
Company, or by the laws of descent and distribution.
(g) Termination of Service (Except by Death). If an Optionee's Service
terminates for any reason other than the Optionee's death, then such Optionee's
Option(s) shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (e) above;
(ii) The date 120 days after the termination of the Optionee's Service
for any reason other than Total and Permanent Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Total and Permanent Disability.
The Optionee may exercise all or part of his or her Option(s) at any time before
the expiration of such Option(s) under the preceding sentence, but only to the
extent that such Option(s) had become exercisable before the Optionee's Service
terminated or became exercisable as a result of the termination. The balance of
such Option(s) shall lapse when the Optionee's Service terminates. In the event
that the Optionee dies after the termination of the Optionee's Service but
before the expiration of the Optionee's Option(s), all or part of such Option(s)
may be exercised (prior to expiration) by his or her designated beneficiary (if
applicable), by the executors or administrators of the Optionee's estate or by
any person who has acquired such Option(s) directly from the Optionee by bequest
or inheritance, but only to the extent that such Option(s) had become
exercisable before the Optionee's Service terminated or became exercisable as a
result of the termination.
(h) Leaves of Absence. For purposes of Subsection (g) above, Service
shall be deemed to continue while the Optionee is on military leave, sick leave
or other bona fide leave of absence (as determined by the Committee). The
foregoing notwithstanding, in the case of an ISO granted under the Plan, Service
shall not be deemed to continue beyond the first 90 days of such leave, unless
the Optionee's reemployment rights are guaranteed by statute or by contract.
(i) Death of Optionee. If an Optionee dies while he or she is in
Service, then such Optionee's Option(s) shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (e) above;
or
(ii) The date six months after the Optionee's death.
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All or part of the Optionee's Option(s) may be exercised at any time
before the expiration of such Option(s) under the preceding sentence by his or
her designated beneficiary (if applicable), by the executors or administrators
of the Optionee's estate or by any person who has acquired such Option(s)
directly from the Optionee by bequest or inheritance, but only to the extent
that such Option(s) had become exercisable before the Optionee's death or became
exercisable as a result of the Optionee's death. The balance of such Option(s)
shall lapse when the Optionee dies.
(j) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 9.
(k) Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, impair such Optionee's rights or
increase his or her obligations under such Option.
(l) Restrictions on Transfer of Shares. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
SECTION 8. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in lawful money of the United States of
America at the time when such Shares are purchased, except as follows:
(i) In the case of Shares sold under the terms of a Stock
Purchase Agreement subject to the Plan, payment shall be made
only pursuant to the express provisions of such Stock Purchase
Agreement. However, the Committee (at its sole discretion) may
specify in the Stock Purchase Agreement that payment may be
made in one or all of the forms described in Subsections (e),
(f) and (g) below.
(ii) In the case of an ISO granted under the Plan, payment
shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. However, the Committee (at
its sole discretion) may specify in the Stock Option Agreement
that payment may be made pursuant to Subsections (b), (c),
(d), (f) or (g) below.
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(iii) In the case of a Nonstatutory Option granted under the
Plan, the Committee (at its sole discretion) may accept
payment pursuant to Subsections (b), (c), (d), (f) or (g)
below.
(b) Surrender of Stock. To the extent that this Subsection (b) is
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or his or her representative for more than 12 months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.
(c) Exercise/Sale. To the extent that this Subsection (c) is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker approved by the
Company to sell Shares and to deliver all or part of the sales proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
(d) Exercise/Pledge. To the extent that this Subsection (d) is
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(e) Services Rendered. To the extent that this Subsection (e) is
applicable, Shares may be awarded under the Plan in consideration of services
rendered to the Company or a Subsidiary prior to the award. If Shares are
awarded without the payment of a Purchase Price in cash, the Committee shall
make a determination (at the time of the award) of the value of the services
rendered by the Offeree and the sufficiency of the consideration to meet the
requirements of Section 6(c).
(f) Promissory Note. To the extent that this Subsection (f) is
applicable, a portion of the Purchase Price or Exercise Price, as the case may
be, of Shares issued under the Plan may be payable by a full-recourse promissory
note, provided that (i) the par value of such Shares must be paid in lawful
money of the United States of America at the time when such Shares are
purchased, (ii) the Shares are security for payment of the principal amount of
the promissory note and interest thereon and (iii) the interest rate payable
under the terms of the promissory note shall be no less than the minimum rate
(if any) required to avoid the imputation of additional interest under the Code.
Subject to the foregoing, the Committee (at its sole discretion) shall specify
the term, interest rate, amortization requirements (if any) and other provisions
of such note.
(g) Other Forms of Payment. To the extent that this Subsection (g) is
applicable, payment may be made in any other form approved by the Committee,
consistent with applicable laws, regulations and rules.
SECTION 9. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
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of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of (i) the number of Shares available for
future grants under Section 5, (ii) the number of Nonstatutory Options to be
granted to Outside Directors under Section 4(b), (iii) the number of Shares
covered by each outstanding Option or (iv) the Exercise Price under each
outstanding Option.
(b)Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide, without limitation, for
the assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation), for payment of a cash settlement equal to the difference between
the amount to be paid for one Share under such agreement and the Exercise Price,
or for the acceleration of their exercisability followed by the cancellation of
Options not exercised, in all cases without the Optionees' consent. Any
cancellation shall not occur until after such acceleration is effective and
Optionees have been notified of such acceleration. In the case of Options that
have been outstanding for less than 12 months, a cancellation need not be
preceded by an acceleration.
(c) Reservation of Rights. Except as provided in this Section 9, an
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 10. SECURITIES LAWS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange on which the
Company's securities may then be listed.
SECTION 11. NO RETENTION RIGHTS.
Neither the Plan nor any Option shall be deemed to give any individual
a right to remain an employee, consultant or director of the Company or a
Subsidiary. The Company and its Subsidiaries reserve the right to terminate the
service of any employee, consultant or director at any time, with or without
cause, subject to applicable laws, the Company's certificate of incorporation
and by-laws and a written employment agreement (if any).
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SECTION 12. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective upon approval by shareholders. The Plan shall terminate automatically
15 years after its initial adoption by the Board of Directors on October 3,
2000, and may be terminated on any earlier date pursuant to Subsection (b)
below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may,
subject to applicable law, amend, suspend or terminate the Plan at any time and
for any reason. An amendment to the Plan shall require stockholder approval only
to the extent required by applicable law.
(c) Effect of Amendment or Termination. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors on October 3,
2000 subject to approval by the Company's stockholders at a duly noticed
shareholders' meeting, the Company has caused its authorized officer to execute
the same.
XIN NET CORP.
By /s/ Marc Hung
-----------------------
President
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EXHIBIT B
ISP ASSETS TRANSFER AGREEMENT
This Assets Transfer Agreement (hereafter "Agreement") made by both parties on
June 22, 2001 in Beijing.
THE PARTIES:
Party A (Transferor): Beijing Xin Hai Technology Development Ltd.
Registered Address: Room 1858, New Century Office Tower, No.6
Southern Road, Capital Gymnasium, Beijing
Legal Representative: Mingming Lu
Party B (Transferee): Beijing Sino Soft Intel Information
Technology Ltd.
Registered Address: 2nd floor, No. 9 A, East Tucheng Rd,
Heping Street, Chaoyang District, Beijing.
Legal Representative: Xia Gao
Recital:
1. Party A possesses certain ISP assets including equipment and related
operating equipment that is capable of providing ISP services to the
general public prior to the effective date of this Agreement. Party A
wishes to transfer the above mentioned assets, related permits,
software, contracts, and subscribers to Party B according to the terms
of this Agreement.
2. Party B wishes to accept the above mentioned operating assets and
intangible assets including related permits, software, contracts, and
subscribers.
3. Party A agrees not to re-enter the Internet access business (i.e. ISP
services) in the future.
Through friendly negotiation, the parties come to the following agreement:
ARTICLE 1 DEFINITION
Other than specifically specified, the following terms shall have the same
meaning throughout the Agreement including all supplements and addendum:
Transfer Assets: referring to all of the Transferor's equipment and
related operating equipment that is capable of providing ISP
services to the general public prior to the effective date
of this Agreement, including related permits, software,
contracts, and subscribers.
Transfer Equipment: referring to all the fixed equipment listed in Supplement 1
of the Agreement.
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Subscribers: referring to all the Transferor's ISP customers until the
effective day of the Agreement.
Technical Information:
referring to basic technical information related to the
Transfer Equipment listed in Supplement 1, and documentation
that ensures the proper operation of the Transfer Equipment
such as usage and maintenance specifications, the ISP
related operations and financial data, and subscriber
information.
Related Services: referring to the related permits and rights that accompany
the transfer as listed in Supplement 2 of this Agreement.
Employees: referring to the Transferor's employees with formal
employment contract that are associated with the Transfer
Assets as listed is in Supplement 3 of the Agreement.
ARTICLE 2 TRANSFER ASSETS
2.1 In accordance with the provisions of this Agreement, the Transferor
agrees to transfer the above-mentioned assets to the Transferee, and
the Transferee agrees to accept such assets from the Transferor.
2.2 The Parties agree that the price of Transfer Assets to be US$700,000.
The Transferor agrees to accept payment in Renminbi with the official
exchange rate of the day as the basis of conversion.
2.3 The Transferor will provide assistance to the Transferee throughout
the transfer process.
2.4 This Agreement is subject to the approval of Xin Net shareholders at
the next General Meeting.
ARTICLE 3 TRANSFER PROCEDURE
3.1 The Transferee will assume operations of the Transfer Equipment at the
effective date of this Agreement; transfer of technical and other
intangibles should commence so as the Transferee can assume full
operations.
3.2 The Transferee will within 5 days examine and verify that the Transfer
Equipment corresponds to Supplement 1 of this Agreement. After which
an acceptance memorandum will be executed by both parties.
3.3 The Transferor will perform the process of transferring the Related
Services as listed in Supplement 2 immediately after the effective
date of the Agreement.
3.4 Unless with written notice from the Transferee, the Transferor is
responsible for all expenses (including but not limit to equipment
maintenance, insurance, and other operating expenses) prior to the
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transfer of the Transfer Equipment and Technical Information to the
Transferee.
3.5 The Transferee agrees to pay a guarantee deposit of US$ 350,000 to the
Transferor on the day of signing of this Agreement. The US$ 350,000
balance will be paid after approval is obtained from Xin Net
shareholders at the next General Meeting.
3.6 After the Transferee makes a payment, the Transferor will transfer
proportional ownership of the Transfer Assets to the Transferee. It is
after the Transferee has made all the payments that it will have total
ownership of the Transfer Assets .
ARTICLE 4 EMPLOYEES
4.1 To facilitate a smooth transfer, the parties agree that the Transferee
will continue to retain all the Transferor's employees related to the
ISP business, relieving the Transferor from all related employment
contracts.
4.2 The Transferor will provide detail information of each employee
including but not limited to their employment contract, job
description and responsibility, wages, bonus, benefit, insurance,
incentive method and other related information.
4.3 The Transferor will be responsible for the cancellation of the
existing employment contracts and try its best to entice the employee
to accept a new contract with the Transferee. The Transferor is
responsible for all employment costs prior to the effective date of
the Agreement.
4.4 The Transferee will offer six-month employment contract without
probation to employees that would like to continue with the Transferee
with the same wages and benefits. The Transferee also guarantees that
employees will not be let go without cause for six months.
ARTICLE 5 TERMINATION
5.1 After the effect date of this Agreement, if either party breaches its
responsibility, declaration or guarantee as defined in the Agreement
or has made a false or misleading declaration, then the other party
has the right to unilaterally terminate the Agreement without
liability.
5.2 When either party unilaterally terminates the Agreement according to
the above article, it should give a written notice to the other party
and the Agreement is considered to be terminated as soon as the notice
is given.
ARTICLE 6 WARRANTIES
6.1 The Transferor hereby makes the following warranties to the
Transferee:
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A. General items:
A1. The Transferor is a legal limited corporation set up based
on the Chinese Laws and has the right and ability to execute
and implement this Agreement.
A2. The Transferor has obtained all the permission and
authorization for executing and implementing this Agreement
unless indicated otherwise in this Agreement.
B. Ownership of Transfer Assets
B1. The Transferor has legal ownership and utilization rights
for all the Transfer Assets.
B2. There is no lien, mortgage, leasehold, and permission or
other burden or third party right or other restriction that
affects the Transfer Assets as defined in this Agreement.
B3. When the Transferor transfers the ownership of the Transfer
Assets to the Transferee according to the terms of this
Agreement, the Transferee will have the proportional
ownership and full utilization right for the Transfer
Assets. Execution of the ownership and utilization rights
will not conflict with any laws, regulations, or any third
party rights. From the effective date of this Agreement up
to the day the Transferee completes all the payments and
obtains full ownership of the Transfer Assets, all revenues
and expenses related to the operations of the Transfer
Assets accrue to the Transferee. At the same time the
Transferee will take proportional ownership of the Transfer
Assets. Unless with permission of the Transferor, the
Transferee cannot engage in any dealings with the portion of
the Transfer Assets in any manner that the Transferee does
not own. B4. After the effective date of this Agreement, all
revenues generated by Transfer Assets accrue to the
Transferee. If any revenue gets into the Transferor`s
account due to delays caused by transferring agency
contracts, the Transferor will credit the revenues to the
Transferee on a timely basis.
D. Technical Information
The Transferor has not granted any rights of the Technical Information,
confidential information or other utilization right to a third party. It
has no infringed on any third party right or other intellectual property by
using Technical Information. Therefore, the Transferee will not infringe
any third party right or other intellectual property by using the Technical
Information from the Transferor.
E. Lawsuit
The Transferor is not a party to any lawsuit or arbitration related to the
Transfer Assets. It also does not foresee any lawsuit or arbitration
related with the Transfer Assets.
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F. Tax
F1. Before the effective date of the Agreement, the Transferor
is responsible for all taxes that it should or may bear to
the different governing bodies.
F2. After the Transferee has obtained ownership and operation
rights of the Transfer Assets, it does not have to bear any
taxes related with Transfer Assets before the effective date
as mentioned above.
6.2 The Transferee hereby makes the following warranties to the
Transferor: The Transferee is a legal limited corporation set up based
on the Chinese Laws and has the right and ability to execute and
implement this Agreement. The Transferee has obtained all the
permission and authorization for executing and implementing this
Agreement unless indicated otherwise in this Agreement.
ARTICLE 8 COVENANT
8.1 The Transferor hereby makes the following covenants to the Transferee:
(1) The Transferor agrees to keep the Transfer Assets in good
working order prior to transferring to the Transferee. The
Transferor will maintain the assets and ensure the Transfer
Assets are in good working condition (as listed in
Supplement 1, except normal wear and tear);
(2) The Transferor guarantees that the Transferee owns the sole
user rights to the Transfer Assets from the transfer day
according to this Agreement. This however, does not affect
the Transferee's right on future claims by the Transferee
under terms of this Agreement. If disputes occur with any
third party concerning the user rights of the Transfer
Assets, it is the Transferor's responsibility to resolve the
dispute and bear all the compensation, expenses and other
responsibilities related to the dispute. If the Transferee
suffers any loss due to such third party dispute, the
Transferor is liable to compensate the Transferee for such
loss.
(3) The Transferor guarantees to finish transferring Part 1 of
Supplement 2 in a timely manner and use its best efforts to
assist the Transferee to complete Part 2 of Supplement 2.
(4) The Transferor guarantees that during interim transferring
period all the transferring procedures are legal.
8.2 The Transferee hereby makes the following covenants to the Transferor:
(1) The Transferee promises to make all the payments to the
Transferor within the stated time according to the terms of
this Agreement.
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(2) After the effective date of the Agreement, the Transferee
will continue to provide services unconditionally according
to the existing agreements between the Transferor and its
subscribers.
ARTICLE 9 BREACH OF AGREEMENT
9.1 Any of the following constitutes breach by either party:
(1) Being in breach of any of the responsibilities in this
Agreement;
(2) Being in breach of any of the warranties and covenants in
this Agreement;
(3) Any false declarations, warranties and covenants;
(4) The operating data from January to March provided by the
Transferor is severely misstated.
9.2 If either party is in breach of the Agreement after the Agreement is
effective, the other party has the right to ask for remedy within a
certain time period; or delay asset transfer or delay payment or
terminate the Agreement. It also has the right to claim compensation
and penalty from the breach party.
9.3 If either party is in breach of the Agreement after all assets have
been transferred or full payment has been made according to the terms
of the Agreement, the other party has the right to claim compensation
and penalty from the breach party.
9.4 If the Agreement is terminated due to severe breach of the Agreement
by one party, the breach party should pay 10% of the total amount of
the Contract to the other party for compensation.
9.4 If both Parties are at fault, then each party is responsible for its
own actions.
ARTICLE 10 DISPUTE SETTLEMENT
Any disputes arising from the execution of or in connection with the
Agreement shall be settled through friendly consultations between both
Parties. In case no settlement can be arrived through consultations,
the dispute shall be submitted to Beijing Arbitration Commission for
arbitration. The arbitration decision is final and binding for both
parties.
ARTICLE 11 NOTICE
Any notice or other connection between the parties must be in written
format and may be delivered by person or sent by fax, express or
registered post. The sender should pay postage.
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ARTICLE 12 EFFECTIVE DATES AND OTHERS
12.1 The condition of the Agreement to be effective: Execution by legal
representatives or authorized representatives of both parties and
sealed with both corporate seals.
12.2 Both Parties agree:
The Agreement will take effect on June 22, 2001. Prior to the
effective day, the Transferor owns and bears all the liabilities and
rights related with Transfer Assets. From the effective date of this
Agreement up to the day the Transferee completes all the payments and
obtains full ownership of the Transfer Assets, all revenues and
expenses related to the operations of the Transfer Assets accrue to
the Transferee. At the same time the Transferee will take proportional
ownership of the Transfer Assets. After the Transferee completes all
payments, the Transferee will retain full ownership of the Transfer
Assets with all its rights and privileges.
12.3 The parties will cover any omissions with Supplementary Agreements.
This Agreement and all the Supplements is deemed to have the same
legal force.
Party A: Party B:
Legal Representative: Mingming Lu Legal Representative: Xia Gao
Date: June 22, 2001 Date: June 22, 2001
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EXHIBIT B1
XIN NET CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET TO JUNE 30, 2001(Unaudited)
AFTER DISPOSAL OF ISP ASSETS
BASIS OF PRESENTATION
The following pro forma consolidated balance sheet is presented to illustrate
the effects of the disposal of internet access card services on Xin Net Corp.
("the Company"). The pro forma consolidated balance sheet has been derived from,
and should be read in conjunction with, the historical consolidated financial
statements, including notes thereto, of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2001 filed with SEC on August 13, 2001.
The following pro forma consolidated balance sheet assumes that the Company has
disposed its internet access card services as of June 30, 2001. The pro forma
consolidated statement of operations has not been included because the only
effect is a gain directly attributable to the transaction and has been reflected
in the pro forma consolidated balance sheet. The historical statement of
operations of the Company for the six months ended June 30, 2001 has already
reflected the operating results of the continuing operations for the period. The
gain would be the same if the transaction occurred at the beginning of the year
or during the six month period ended June 30, 2001.
The pro forma financial information has been prepared in accordance with U.S.
GAAP.
The pro forma consolidated balance sheet is presented for information purpose
only and is not necessarily indicative of the future financial condition or
operating results of the Company.
DISPOSAL OF INTERNET ACCESS CARD SERVICES
On June 22, 2001, the joint venture partner of the Company, Xin Hai Technology
Development Ltd., has signed an agreement to sell its internet access card
services with related assets to a private company in Beijing, People's Republic
of China for a sales proceeds of $700,000. $100,000, $50,000, $150,000 and
$200,000 have been received as security deposit for the transaction on June 22,
2001, July 12, 2001, August 17, 2001 and September 18, 2001 respectively. The
agreement is subject to payments being made by the other party at specified
dates and to the approval of the Company's shareholders at the Annual General
Meeting planned for November 2001.
PRO FORMA ASSUMPTIONS
The pro forma consolidated balance sheet incorporates the following pro forma
assumptions :
a. Shareholders of the Company have approved the disposal of internet
access card services.
b. The other party has made payment of the balance, $200,000, to acquire
the internet access card services.
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XIN NET CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2001 (Unaudited)
Xin Net Corp. Pro forma Xin Net Corp.
historical (a) adjustments pro forma
----------------- ----------------- ----------------
ASSETS
Current Assets
Cash and Short Term Deposits $ 1,903,780 (b,c) $ 600,000 $ 2,503,780
Investments 1,318 - 1,318
Accounts Receivables 518,411 (d) (290,016) 228,395
Other Receivables 7,283 - 7,283
Prepaid Expenses 88,341 - 88,341
Deferred Costs 488,143 - 488,143
----------------- ----------------- ----------------
Total Current Assets 3,007,276 309,984 3,317,260
Property and Equipment, Net 1,055,513 (d) (320,771) 734,742
----------------- ----------------- ----------------
Total Assets $ 4,062,789 $ (10,787) $ 4,052,002
================= ================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued
Liabilities $ 748,935 $ - $ 748,935
Unearned Revenue 2,216,705 (d) (316,627) 1,900,078
Security Deposit 100,000 (b,e) (100,000) -
Capital Lease Obligation, Current
Portion 92,560 - 92,560
----------------- ----------------- ----------------
3,158,200 (416,627) 2,741,573
Stockholders' Equity
Common Stock 21,360 - 21,360
Additional Paid In Capital 7,214,045 - 7,214,045
Accumulated Deficit (6,178,290) (f) 405,840 (5,772,450)
Accumulated Other Comprehensive Income (152,526) - (152,526)
----------------- ----------------- ----------------
Total Stockholders' Equity 904,589 405,840 1,310,429
----------------- ----------------- ----------------
Total Liabilities and Stockholders' Equity $ 4,062,789 $ (10,787) $ 4,052,002
================= ================= ================
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XIN NET CORP.
NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2001 (Unaudited)
(a) Reflects the historical financial position of the Company at June 30, 2001.
The pro forma consolidated balance sheet includes the following adjustments :
(b) To record the receipt of $400,000 received from the other party as security
deposit.
(c) To record the receipt of the balance of payment, $200,000, received from the
other party.
(d) To record the disposal of the following assets and liabilities in relation
to the internet access card services :
Assets
Property and equipment $ 320,771
Accounts receivable 290,016
Liabilities
Unearned revenue $ 316,627
(e) To transfer the security deposit for calculation of gain on disposal of
internet access card services.
(f) To record the gain on disposal of the internet access card services.
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EXHIBIT C
XIN NET INTERNATIONAL CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET TO JUNE 30, 2001 (Unaudited)
BASIS OF PRESENTATION
The following pro forma consolidated balance sheet is presented to illustrate
the effects on Xin Net International Corp. ("the Company") upon the transfer of
assets and liabilities from Xin Net Corp. ("XNET"). The pro forma consolidated
balance sheet has been derived from, and should be read in conjunction with, the
historical consolidated financial statements, including notes thereto, of XNET's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 filed with SEC
on August 13, 2001.
The following pro forma consolidated balance sheet assumes that XNET has
disposed its internet access card services and has spun off its remaining
business to the Company as of June 30, 2001. The pro forma consolidated
statement of operations has not been included because the Company has not
commenced operations at the beginning of year 2001 or during the six-month
period ended June 30, 2001.
The pro forma financial information has been prepared in accordance with U.S.
GAAP.
The pro forma consolidated balance sheet is presented for information purpose
only and is not necessarily indicative of the financial position or results of
operations of the Company that would have occurred had the transfer of assets
and liabilities from XNET been consummated as of the dates indicated. In
addition, the pro forma consolidated balance sheet is not necessarily indicative
of the future financial condition or operating results of the Company.
DISPOSAL OF INTERNET ACCESS CARD SERVICES
On June 22, 2001, the joint venture partner of the XNET, Xin Hai Technology
Development Ltd., has signed an agreement to sell its internet access card
services with related assets to a private company in Beijing, People's Republic
of China for a sales proceeds of $700,000. $100,000, $50,000, $150,000 and
$200,000 have been received as security deposit for the transaction on June 22,
2001, July 12, 2001, August 17, 2001 and September 18, 2001 respectively. The
agreement is subject to payments being made by the other party at specified
dates and to the approval of the XNET's shareholders at the Annual General
Meeting planned for November 2001.
SPIN OFF OF REMAINING BUSINESS AND ACQUISITION OF PROTECTSERVE PACIFIC LIMITED
On July 31, 2001, XNET has signed a letter of intent to acquire 100% ownership
of ProtectServe Pacific Limited ("PSP"), a privately-owned company based in Hong
Kong. Prior to a formal agreement being signed, the Company has made loans of
$300,000 to PSP in order to allow it to begin implementing its expansion plan.
On October 1, 2001, a formal agreement to purchase PSP has been signed. After
obtaining approval from XNET's shareholders to spin off its remaining business
assets and liabilities, except for cash $800,000, to the Company and to
distribute the common shares received from the Company as a distribution by way
of a dividend to XNET's shareholders, XNET will issue 4.2 million restricted
common shares to the shareholders of PSP, in exchange of 100% of ownership of
PSP. In addition, contingent upon performance criteria, XNET will grant to the
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shareholders of PSP stock purchase options at a nominal price of $0.001 per
option. The exact amount of such options to be granted, to a maximum of
18,031,800, will be determined by the level of net income achieved by PSP for
the 12-month period ending on August 31, 2002.
If the net income of PSP can achieve the determined level for the 12-month
period ending on August 31, 2002, the shareholders of PSP will control
approximately 51% of the issued share capital of XNET upon exercising their
share purchase options.
The Company will issue 21,360,010 common shares in exchange for the assets and
liabilities transferred in from XNET.
The Company's authorized share capital is 100 million common shares with a par
value of $0.001 each and 25 million preferred shares with a par value of $0.001
each. The board of directors will determine the terms of the preferred shares
upon their issuance.
PRO FORMA ASSUMPTIONS
The pro forma consolidated balance sheet incorporates the following pro forma
assumptions :
c. Shareholders of XNET have approved the disposal of its internet access
card services and the spin off of remaining business of XNET, except
for cash $800,000, to the Company.
d. The other party has made payment of the balance, $200,000, to XNET for
acquiring the internet access card services.
e. The following assets and liabilities, at their net book value, have
been transferred from XNET to the Company:
Assets
Cash and short term deposits $ 1,703,780
Investments 1,318
Accounts receivables 228,395
Other receivables 7,283
Prepaid expenses 88,341
Deferred costs 488,143
Property and equipment 734,742
Liabilities
Accounts payables and accrued liabilities $ 748,935
Unearned revenue 1,900,078
Capital lease obligation 92,560
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f. The Company has issued 21,360,010 common shares to XNET for the assets and
liabilities transferred in and XNET has distributed them to its
shareholders as distribution by way of a dividend.
XIN NET INTERNATIONAL CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2001 (Unaudited)
Xin Net
International
Xin Net Corp. Pro forma Corp.
historical (a) adjustments pro forma
------------------ ------------------- --------------
ASSETS
Current Assets
Cash and Short Term Deposits $ 1,903,780 (b,c,g) $ (200,000) $ 1,703,780
Investments 1,318 (g) - 1,318
Accounts Receivables 518,411 (d,g) (290,016) 228,395
Other Receivables 7,283 (g) - 7,283
Prepaid Expenses 88,341 (g) - 88,341
Deferred Costs 488,143 (g) - 488,143
------------------ ------------------- --------------
Total Current Assets 3,007,276 (490,016)
2,517,260
Property and Equipment, Net 1,055,513 (d,g) (320,771) 734,742
------------------ ------------------- --------------
Total Assets $ 4,062,789 $ (810,787) $ 3,252,002
================== =================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued
Liabilities $ 748,935 (g) $ - $ 748,935
Unearned Revenue 2,216,705 (d,g) (316,627) 1,900,078
Security Deposit 100,000 (b,e) (100,000) -
Capital Lease Obligation, Current
Portion 92,560 (g) - 92,560
------------------ ------------------- --------------
3,158,200 (416,627) 2,741,573
Stockholders' Equity
Common Stock 21,360 (h) - 21,360
Additional Paid In Capital 7,214,045 (h) (6,724,976) 489,069
Accumulated Deficit (6,178,290) (f,h) 6,178,290 -
Accumulated Other Comprehensive
Income (152,526) (f,h) 152,526 -
------------------ ------------------- --------------
Total Stockholders' Equity 904,589 (394,160) 510,429
------------------ ------------------- --------------
Total Liabilities and Stockholders'
Equity $ 4,062,789 $ (810,787) $ 3,252,002
================== =================== ==============
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XIN NET INTERNATIONAL CORP.
NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2001 (Unaudited)
(a) Reflects the historical financial position of XNET as at June 30, 2001.
The pro forma consolidated balance sheet includes the following adjustments :
(b) To record the receipt of $400,000 received by XNET from the other party as
security deposit.
(c) To record the receipt of the balance of payment, $200,000, received by XNET
from the other party.
(d) To record the disposal by XNET of the following assets and liabilities in
relation to the internet access card services :
Assets
Property and equipment $ 320,771
Accounts receivable 290,016
Liabilities
Unearned revenue $ 316,627
(e) To transfer the security deposit received by XNET for calculation of its
gain on disposal of internet access card services.
(f) To record the gain on disposal of the internet access card services by
XNET.
(g) To reflect the transfer of the following assets and liabilities, at their
net book value, to the Company from XNET :
Assets
Cash and short term deposits $ 1,703,780
Investments 1,318
Accounts receivables 228,395
Other receivables 7,283
Prepaid expenses 88,341
Deferred costs 488,143
Property and equipment 734,742
Liabilities
Accounts payables and accrued liabilities $ 748,935
Unearned revenue 1,900,078
Capital lease obligation 92,560
(h) To adjust the shareholders' equity to reflect the issuance of common shares
for the assets and liabilities transferred in from XNET.
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EXHIBIT C1
SHARE EXCHANGE AGREEMENT
BETWEEN XIN NET CORP. AND PROTECTSERVE PACIFIC LTD.
THIS AGREEMENT dated for reference the 1st day of October, 2001.
BETWEEN:
KWEI CHI PING, JUSTIN, of Flat A, 16th Floor, Cornell Court, 56
King's Road, North Point, Hong Kong;
AND
KWEI LAM WAI YING, KATHERINE, of Flat A, 16th Floor, Cornell
Court, 56 King's Road, North Point, Hong Kong;
AND
YIM CHUN KEUNG, WILSON, of Flat H, 20th Floor, Block 8, Melody
Garden, 2 Wa Chui Road, Tuen Mun N.T., Hong Kong
(hereinafter collectively called the "Vendors")
AND:
XIN NET CORP., a Florida corporation with a registered office in
the State of Florida, USA, located at Corporate Creations
Enterprises, Inc. of 4521 PGA Boulevard, #211, Palm Beach
Gardens, Florida, 33418, and a head office within British
Columbia located at Suite 830 - 789 West Pender Street, Vancouver
(hereinafter called the "Purchaser" or "Xin Net")
AND:
PROTECTSERVE PACIFIC LIMITED., a company duly incorporated under
the laws of Hong Kong and having an office and place of business
at 1101 China Insurance Group Building, 141 Des Voeux Road,
Central Hong Kong
(hereinafter called the "Company" or "PSP")
WITNESSES THAT WHEREAS:
A. The Vendors are the legal and/or beneficial owners of an aggregate of
5,623,036 shares in the capital of the Company (the "Shares"), allocated as
follows:
Kwei Chi Ping, Justin 3,092,670
Kwei Lam Wai Ying, Katherine 1,124,607
Yim Chun Keung, Wilson 1,405,759
Total 5,623,036
B. The Vendors have each agreed to sell and the Purchaser has agreed to
purchase the Shares upon the terms and conditions herein set forth;
NOW THEREFORE in consideration of the premises, the covenants and agreements and
warranties hereinafter set forth, it is hereby agreed as follows:
SALE AND PURCHASE
1. Based on and relying upon the representations and warranties herein, the
Vendors hereby each agree to sell the Shares to the Purchaser and the
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Purchaser hereby agrees to purchase the Shares from the Vendors on the
terms and conditions herein contained.
2. The purchase price payable by the Purchaser to the Vendors for the Shares
shall be US$1,571,640 (the "Purchase Price") payable on the Closing Date by
the issuance of 4,200,000 restricted common shares in the capital stock of
the Purchaser (the "Exchangeable Shares") as per the allocation table set
out in Schedule "A", to be issued in exchange for the Shares held by the
Vendors in the Company.
3. The Exchangeable Shares will be issued pursuant to exemptions under
Regulation S promulgated under the US Securities Act 1933 and under the
Securities Act of British Columbia.
GRANT OF STOCK PURCHASE OPTIONS
4. The Purchaser agrees to grant, pro rata, to the Vendors, stock purchase
options, each option entitling, upon the exercise of the options, the
holder to receive one common share in the capital stock of the Purchaser at
the price of US$0.001 per share. The stock purchase option will expire on
the fifth anniversary from the date of grant. The exact number of stock
purchase options to be granted will be determined according to a formulae
provided in Schedule "B" to this Agreement which is based on the perform-
ance of PSP and geared towards a PSP net (after tax) profit threshold of
HK$13,000,000 calculated according to US Generally Accepted Accounting
Principles (the "US GAAP") for the 12 month operating period ending on
August 31, 2002. The date of grant will be within 10 days from the date
that PSP produces an auditors report providing the results of PSP's perform
-ance and net profits according to US GAAP.
5. In addition to the stock purchase options referred to in Section 4 of this
Agreement, the Purchaser further agrees to grant to the management and
employees of PSP stock options in the event that PSP's net (after tax)
profit calculated according to the US GAAP, shall be more than
HK$13,000,001 for the 12 months ending on August 31, 2002. The amount,
price and expiry date of additional stock options shall be determined by
the board of Directors in accordance with the Purchasers' stock option
plan. The date of grant will be the same date discussed in Section 4 of
this Agreement.
CASH COMMITTMENT
6. The Purchaser agrees that upon successful Closing the Purchaser will
contribute to PSP cash of approximately US$800,000 in US funds or in RMB
equivalent for PSP's acquisition, expansion and management expenditures on
an "as required" basis and upon approval by both Parties. Considering the
need of funds by PSP before Closing, the Purchaser may provide to PSP part
of such cash contribution before Closing. Any such cash contribution made
by the Purchaser prior to the Closing Date of this Agreement, however,
shall be in the form of secured loans made by the Purchaser to PSP.
7. PSP agrees to report to the Purchaser, prior to the Closing Date of this
Agreement, its operating cash flow position on a bi-weekly basis and any
contract or capital expenditure commitment exceeding US$50,000 will need
the Purchaser's approval.
-2-
BUY BACK SHARES
8. The Parties agree that in the event that PSP's net (after tax) profit
calculated according to US GAAP shall be less than HK$3,000,000 for the 12
months ending on August 31, 2002, the Purchaser will have the right to buy
back from the Vendors, pro rata, certain common shares of the Purchaser
issued to the Vendor on the Closing Date at the rate of $US$0.001 per
share. The exact number of common shares to be bought back by the Purchaser
will be determined according to the formulae provided in Schedule "B" to
this Agreement. The Parties agree that within 5 days of written notice from
the Purchaser each Vendor will execute and deliver to the Purchaser all
transfer documents necessary to transfer the Vendors' shares, to be bought
back by the Purchaser, free and clear of all charges, liens and
encumbrances, and forthwith upon receipt and registration of all documents
necessary to transfer to the Purchaser the shares to be bought back by the
Purchaser free and clear of all charges, liens and encumbrances, the
Purchaser shall deliver to each Vendor a certified cheque payable to the
Vendor in the amount of the purchase price specified in the written notice.
COMPANY AND VENDORS' REPRESENTATIONS AND WARRANTIES
9. The Company and the Vendors, jointly and severally, represent and warrant
to the Purchaser, to the best of their knowledge, information and belief
after making due inquiry that:
(a) the Company is a company duly incorporated in Hong Kong on September
25, 2000 under Companies Ordinance under the name of Global
Surveillance Communications Limited and, effective January 15, 2001,
changed its name to ProtectServe Pacific Limited. The Company is not a
reporting company and is a valid and subsisting company in good
standing with all regulatory authorities;
(b) the authorized capital of the Company consists of 6,000,000 Shares with
a par value of HK$1.00 per share, of which there are 5,623,036 Shares
issued and outstanding;
(c) attached hereto as Schedule "H" are true and complete copies of the
Company's audited financial statements for the period from date of
incorporation to June 30, 2001 (the "Company's Financial Statements").
The Company's Financial Statements have been prepared in accordance
with the Statements of Auditing Standards issued by the Hong Kong
Society of Accountants and present fairly the financial position,
results of operations and statements of changes in the Company's
financial position for the period indicated.
(d) since June 30, 2001, the Company's business has been operated
substantially in accordance with all laws, rules, regulations, orders
of competent regulatory authorities, and there has not been:
(i) any event or change in circumstances that has had, or which the
Company may expect to have, a material adverse effect on the
Company or its business;
(ii) any change in liabilities of the Company that has had, or which
the Company may expect to have, a material adverse effect on the
Company or its business;
-3-
(iii) any incidence, assumption or guarantee of any indebtedness for
borrowed money by the Company;
(iv) any payments by the Company in respect of any indebtedness of the
Company for borrowed money or in satisfaction of any liabilities
of the Company, other than in the ordinary course of business;
(v) the creation, assumption or sufferance of the existence of any
lien on any assets reflected on the Company Financial Statements;
(vi) any grant of any severance, continuation or termination pay to
any director, officer, stockholder or employee of the Company;
or any entering into of an employment, deferred compensation
or other similar agreement, or amendment or variation to any
such existing agreement;
(vii) any change by the Company in its accounting principles, methods
or practices or in the manner it keeps its books and records;
(viii) any distribution, dividend or bonus by the Company to any of
its respective officers, directors, stockholders or
affiliates, or any of their respective affiliates or
associates; and
(ix) any material capital expenditure or commitment by the Company
or material sale, assignment, transfer, lease or other
disposition of or agreement to sell, assign, transfer lease or
otherwise dispose of any asset or property by the Company
other than in the ordinary course of business.
(e) the Shares are free and clear of all liens, claims, charges and
encumbrances of every nature and kind whatsoever;
(f) the Shares are duly authorized, validly issued and outstanding as
fully paid and non-assessable shares;
(g) the Vendors are the sole registered and/or beneficial owners of the
Shares and have due and sufficient right and authority to transfer the
legal and beneficial title and ownership of the Shares to the
Purchaser, and each of the Vendors and the Company has due and
sufficient right, power and authority (including any and all necessary
corporate and/or shareholder authorizations) to enter into this
Agreement on the terms and conditions herein set forth, and this
Agreement, when executed and delivered by the Vendors and Company, will
constitute a legal and binding obligation of each such party
enforceable against it in accordance with its terms;
(h) no person, firm or corporation has any agreement or option or a right
capable of becoming an agreement for the purchase of the Shares or any
other shares in the capital of the Company owned by the Vendors or any
right capable of becoming an agreement for the purchase, subscription
or issuance of any of the unissued shares in the capital of the
Company;
(i) the Company has the full corporate power and authority to carry on the
business presently being carried on by it and as proposed to be
carried on by it;
-4-
(j) the Company holds all licenses and permits as may be requisite for
carrying on its business in the manner in which it has heretofore been
carried on.
(k) there are no material liabilities, contingent or otherwise, other than
as set forth in Schedule "H" attached hereto;
(l) at the Time of Closing, the Company shall not have any liabilities,
contingent or otherwise, other than those liabilities set forth as of
September 25th, 2001 in Schedule "C" attached hereto, except that the
Company may have further liabilities incurred in its normal course of
business for the period from September 25th, 2001 to the Date of
Closing;
(m) the books and records of the Company fairly and correctly set out and
disclose in all material respects, in accordance with Hong Kong
generally accepted accounting principles, the financial position of the
Company as at the date hereof and all material financial transactions
of the Company relating to its business have been accurately recorded
in such books and records;
(n) no payments of any kind have been made or authorized to or on behalf of
the Vendors or any of them or to or on behalf of officers, directors or
shareholders of the Company or under any management agreements with the
Company which are not recorded in the books or records of the Company
or which have not been disclosed in writing to the Purchaser other than
payments made in the normal course of business;
(o) there is no basis for and there are no actions, suits, judgments,
investigations or proceedings outstanding or pending or to the
knowledge of the Company or the Vendors, jointly or severally,
threatened against or affecting the Company at law or in equity or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau or agency;
(p) to the best of the Vendors' knowledge, the Company is not in breach of
any laws, ordinances, statutes, regulations, by-laws, orders or decrees
to which it is subject or which apply to it;
(q) the Company is not a party to any collective agreement with any labour
union or other association or employees and no attempt has been made to
organize or certify the employees of the Company as a bargaining unit;
(r) there are no pensions, profit sharing, group insurance or similar plans
or other deferred compensation plans affecting the Company;
(s) the Company is not indebted to any employee of the Company or other
workers engaged in the business of the Company for any wages or
salaries and the Company has not received or been notified of any
general wage claims;
(t) the Company is the sole beneficial owner and has good and marketable
title to all its properties and assets free and clear of all liens,
mortgages, pledges, deeds of trust, conditional sale agreements,
encumbrances, charges or claims of every kind and nature whatsoever;
(u) the Company has not experienced nor is it aware of any occurrence or
event which has had, or might reasonably be expected to have, a
materially adverse affect on its business or the results of its
operations;
-5-
(v) neither the Vendors nor any officer, director, employee or shareholder
of the Company is now indebted or under obligation to the Company on
any account whatsoever; and other than those set forth in Schedule "C"
attached hereto the Company is not indebted or under obligation to the
Vendors or any officer, director, employee or shareholder of the
Company.
10. The Vendors hereby jointly and severally represent and warrant to the
Purchaser as follows that:
(a) the Vendors have the capacity to protect their own interests in
connection with the acquisition of the common shares of the Purchaser
and are capable of evaluating the merits and risks of an investment in
the Purchaser by reason of their business and financial knowledge and
experience;
(b) the Vendors are acquiring the shares of common stock of the Purchaser
for investment for their own account, not as a nominee or agent, and
not with the view to, or for resale in connection with, any
distribution thereof. The Vendors understand that the shares of common
stock of the Purchaser have not been, and will not be, registered under
the US Securities Act 1933, as amended (the "Securities Act"), by
reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy
of the Vendors' representations as expressed herein;
(c) each Vendor acknowledges that the shares of common stock of the
Purchaser must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration
is available. Each Vendor is aware of the restrictions and limitations
on resale of the shares of common stock of the Purchaser into the
United States or to a US Person pursuant to the provisions of
Regulation S promulgated under the Securities Act. In addition, each
Vendor is aware of the provisions of Rule 144 promulgated under the
Securities Act ("Rule 144") which permit limited resales in the US of
shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a
public market for the shares of common stock of the Purchaser, the
availability of certain current public information about the Purchaser,
the resale occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being effected through a
"broker's transaction" or in transactions directly with a "market
maker" and the number of shares being sold during any three-month
period not exceeding specified limitations;
(d) each Vendor also acknowledges that the shares of common stock of the
Purchaser must be held indefinitely unless subsequently registered
under the Securities Act (British Columbia) (the "BC Act") or unless an
exemption from such registration is available. Each Vendor is aware
that the shares of common stock of the Purchaser are subject to
restriction on transferability and resale and may not be transferred or
resold in British Columbia or to British Columbia residents except as
permitted by the Securities Act (British Columbia) (the "BC Act") and
Regulations made under the BC Act;
(e) each of the Vendors has had an opportunity to discuss the Purchaser's
business, management and financial affairs with the Company's
management and has also had an opportunity to ask questions of the
Purchaser's officers, which questions were answered to the Vendors'
-6-
satisfaction. Each Vendor has been furnished with or has had access to
such information as a sophisticated investor would customarily require
to evaluate the merits and risks of the proposed investment together
with such additional information as is necessary to verify the accuracy
of the information supplied. The Vendors represent and acknowledge that
they have been solely responsible for their own due-diligence
investigation of the Purchaser and its management and business, for
their own analysis of the merits and risks of this investment, and for
their own analysis of the terms of the investment, and that in taking
any action or performing any role relative to the proposed investment,
they have acted solely in their own interest, and that neither they nor
any of their agents or employees has acted as an agent, employee,
partner or fiduciary of any other person, or as an agent of the
Purchaser, or as an issuer, underwriter, broker, dealer or investment
advisor relative to this investment;
(f) each of the Vendors understands that the Purchaser has limited
operating history and is in the process of transferring its current
business assets and liabilities as referred to in Section 12(p) and
Section 12(q) of this Agreement, and that investment in the Purchaser
involves substantial risks. The Vendors further understand that the
acquisition of the shares of common stock of the Purchaser will be a
highly speculative investment. Each of the Vendors is able, without
impairing his financial condition, to hold the shares of common stock
of the Purchaser for an indefinite period of time and to suffer a
complete loss of his investment;
(g) each of the Vendors agrees to indemnify and hold harmless the Purchaser
and its officers, directors and agents for any costs, liabilities or
losses caused by any misstatement of material fact by such Vendor with
respect to the representations and warranties contained in this Section
or any other written information provided to the Purchaser by such
Vendor in connection with the investment contemplated by this
Agreement; and
(h) each Vendor represents and warrants to the Purchaser that he is not a
US Person as defined in Regulation S as promulgated under the
Securities Act and that the buy order for the common shares of the
Purchaser originated by each Vendor outside of the US.
COMPANY AND VENDORS' COVENANTS
11. The Company and the Vendors jointly and severally covenant and agree that:
(a) the representations and warranties contained in this Agreement shall be
true at and as of the Time of Closing as if such representations and
warranties were made as of such time;
(b) the Company and the Vendors will permit the Purchaser or whoever it
directs on its behalf to examine the records, statements and accounts
of the Company on regular business days and during regular business
hours up to and including the Closing Date and make such audit of the
books of account of the Company and physical verification of the
inventory of the Company as the Purchaser may see fit;
(c) the representations, warranties, covenants and agreements contained
herein shall survive the Closing Date and notwithstanding the Closing
of the purchase and sale herein contemplated, shall continue in full
force and effect;
-7-
(d) the Company and the Vendors will, jointly and severally, prior to
Closing, take all steps and proceedings and execute such further
assurances and documents as may be required to obtain the transfer and
registration of the Shares into the name of the Purchaser provided that
all terms and conditions to be observed and performed by the Purchaser
at the Time of Closing have been observed and performed;
PURCHASERS' REPRESENTATIONS AND WARRANTIES
12. As an inducement to the Company and each of the Vendors to enter into this
Agreement and to consummate the transactions provided for herein, the
Purchaser represents and warrants to the Company and each of the Vendors,
to the best of its knowledge, information and belief after making due
inquiry that:
(a) the Purchaser was incorporated on September 6, 1996 under the laws of
the State of Florida under the name of Placer Technologies, Inc, and,
effective on July 24, 1998, changed its name to Xin Net Corp.;
(b) the Purchaser is duly incorporated, validly existing and in good
standing under the laws of the State of Florida;
(c) the Purchaser is now and as of the Closing Date will be traded on the
OTC Bulletin Board;
(d) it has full and absolute right, power and authority to enter into this
Agreement on the terms and conditions herein set forth, to carry out
the transactions contemplated hereby and, to transfer on the Closing
Date to the Vendors all legal and beneficial ownership in and to the
Exchangeable Shares;
(e) this Agreement once duly executed and delivered by the Purchaser will
constitute a legal, valid and binding obligation of the Purchaser;
enforceable against the Purchaser in accordance with its terms;
(f) no proceedings have been taken or authorized by the Purchaser, or to
the knowledge of the Purchaser, by any person, with respect to the
bankruptcy, insolvency, liquidation, dissolution or winding-up of the
Purchaser or with respect to any amalgamation, merger, consolidation,
arrangement or reorganization relating to the Purchaser;
(g) the authorized capital stock of the Purchaser consists of 50,000,000
shares of US $0.001 par value common stock of which 21,360,010 are
issued and outstanding;
(h) all of the issued and outstanding shares of the Purchaser have been
duly and validly authorized and issued in accordance with applicable
laws and are validly outstanding, fully paid and non-assessable;
(i) there are 5,884,990 Series "A" and 10 Series "B" Share Purchase
Warrants of the Purchaser issued and outstanding. Each Series "A" Share
Purchase Warrant entitles the holder to purchase, on the earlier of (1)
March 21, 2003 and (2) the 90th day after the day on which the weighted
average trading price of the Purchaser's shares exceeds US$1.25 per
share for 10 consecutive days, one additional unit at a price of
US$1.00 per unit, each unit consisting of one common share of the
Purchaser and one Series "B" Share Purchase Warrant. Each Series "B"
-8-
Share Purchase Warrant entitles the holder to purchase one additional
common share of the Purchaser at a price of $1.50 on the earlier of (i)
March 31, 2004 and (ii) one year after the occurrence of (i)(2)
described above in this section;
(j) there are 2,136,000 stock options granted by the Purchaser
outstanding. Each stock option entitles the holder to purchase common
shares of the Purchaser at US$1.30 per share. The stock options expire
on November 12, 2004;
(k) all of the Exchangeable Shares which will be issued to the Vendors
hereunder in compliance with applicable laws and the articles of the
Purchaser, and will be issued fully paid and non-assessable, and free
and clear of all liens, charges, encumbrances and trading restrictions
other than as may be imposed by applicable U.S. Federal and State laws;
(l) the Purchaser has five wholly owned subsidiaries:
(a) Infornet Investment Limited (a Hong Kong corporation);
(b) Infornet Investment Corp. (a Canadian corporation);
(c) Xinbiz Corp. (a British Virgin Islands corporation);
(d) Xinbiz (HK) Limited (a Hong Kong corporation); and
(e) Xin Net International Corp. (a Nevada corporation).
On August 25, 1997, through its wholly owned subsidiary Infornet
Investment Limited, under the laws of the Peoples' Republic of China,
the Purchaser formed an 80% cooperative joint venture called Xinnet
Telecom Corp., Ltd. with Xin Hai Technology Development Ltd. (a
Peoples' Republic of China Corporation) as a 20% partner for a term of
twenty years. The joint venture agreement was amended on April 13, 2000
to give Infornet Investment Limited control over the joint venture for
another fifteen years after the recovery of total investment and
interest from external financing in the joint venture
(m) the officers and directors of the Purchaser are as follows:
Name Position
Xiao-Qing Du Director
S.Y. Marc Hung Director and President
Ernest Cheung Director and Secretary
Maurice Tsakok Director
(n) attached hereto as Schedule "D" are true and complete copies of the
Purchasers audited financial statements for the fiscal year ended on
December 31, 2000 as contained in the Purchasers' Form 10-KSB and
Unaudited Financial Statements as of March 31 and June 30, 2001
contained in the Purchaser's Form 10-QSB Interim Reports for the 1st
and 2nd Quarter, 2001, respectively (the "Purchaser's Financial
Statements"). The Purchaser's Financial Statements have been prepared
in accordance with the US Generally Acceptable accounting principles
and present fairly the financial position, results of operations and
statements of changes in the Purchaser's financial position for the
period indicated;
(o) no adverse material changes in the affairs of the Purchaser have
occurred since June 30, 2001;
-9-
(p) the Purchaser is currently in the business of providing internet
access and content services, domain name registration and other
value-added services, such as e-commerce and advertising. On June 22,
2001 the Board of Directors authorized the Purchaser's Joint Venture
partner, Xin Hai Technology Development Ltd. in China to sign an
Agreement to sell the Purchaser's assets of Internet access provision
("ISP") to Bejing Sino Soft Intel Information Technology Ltd. (the
"ISP Transaction"). The Purchaser filed on June 27, 2001 a Form 8-K
"Current Report" and on July 12, 2001 a Form 8-K "Amended Current
Report" with the US Securities and Exchange Commission("SEC")
regarding this decision. The Purchaser will request shareholders
approval of the ISP Transaction at its Annual General Meeting of 2001,
which is planned to be held in October or November, 2001 (the "AGM");
(q) the Purchaser is also in the process of transferring its current
business assets [other than the ISP assets referred in Section 12(p)]
and liabilities, except for cash of US$800,000 (which will be used to
manage and expand PSP operation) to Xin Net International Corp., a
wholly owned subsidiary of the Purchaser referred to in Section 12(l)
in exchange of the shares of the Xin Net International Corp. to be
distributed by way of dividend to the Purchasers shareholders as of the
record date for the AGM on a share for share basis (the "Spin- Off").
On August 3, 2001 the Purchaser filed a Form 8-K "Current Report" with
the SEC with the Purchaser's intent to carry out the Spin-Off described
herein. The Purchaser will request shareholders approval of the
Spin-Off at its AGM;
(r) there are no liabilities, contingent or otherwise of the Purchaser
which are not disclosed or reflected in its Financial Statements set
forth in Schedule "D" attached hereto;
(s) at the time of Closing, the Purchaser shall not have any liabilities,
contingent or otherwise, other than those liabilities set forth as of
September 25th, 2001 in Schedule "E" attached hereto, except that the
Purchaser may have further liabilities incurred in its normal course of
business for the period from September 25th, 2001 to the Date of
Closing;
(t) there is no litigation, proceeding, or investigation pending or
threatened against the Purchaser, nor does the Purchaser know, or have
grounds to know, of any basis for any litigation, proceeding or
investigation against the Purchaser, except as disclosed in writing to
the Vendors;
(u) since June 30, 2001, the Purchaser's business has been operated
substantially in accordance with all laws, rules, regulations, orders
of competent regulatory authorities, and there has not been:
(i) any event or change in circumstances that has had, or which
the Purchaser may expect to have, a material adverse effect on
the Purchaser or its business;
(ii) any change in liabilities of the Purchaser that has had, or
which the Purchaser may expect to have, a material adverse
effect on the Purchaser or its business;
(iii) any incidence, assumption or guarantee of any indebtedness for
borrowed money by the Purchaser;
-10-
(iv) any payments by the Purchaser in respect of any indebtedness
of the Purchaser for borrowed money or in satisfaction of any
liabilities of the Purchaser, other than in the ordinary
course of business;
(v) the creation, assumption or sufferance of the existence of any
lien on any assets reflected on the Purchaser Financial
Statements;
(vi) any grant of any severance, continuation or termination pay to
any director, officer, stockholder or employee of the
Purchaser; or any entering into of an employment, deferred
compensation or other similar agreement, or amendment or
variation to any such existing agreement;
(vii) any change by the Purchaser in its accounting principles,
methods or practices or in the manner it keeps its books and
records;
(viii) any distribution, dividend or bonus by the Purchaser to any of
its respective officers, directors, stockholders or
affiliates, or any of their respective affiliates or
associates; and
(ix) any material capital expenditure or commitment by the
Purchaser or material sale, assignment, transfer, lease or
other disposition of or agreement to sell, assign, transfer
lease or otherwise dispose of any asset or property by the
Purchaser other than in the ordinary course of business, the
ISP Transaction and the Spin-Off referred to in Section 12(p)
and 12(q) of this Agreement.
(v) the Purchaser does not own or lease any real property or material
assets other than those set forth in Schedule "F" attached hereto;
(w) there are no contracts or indebtedness between the Purchaser and any of
its shareholders, or affiliates or associates of any of its
shareholders other than those set forth in Schedule "I" attached
hereto;
(x) there are no material contracts to which the Purchaser is a party other
than those set forth in Schedule "G" attached hereto;
(y) the operation of the Purchaser's business has not violated or infringed
any U.S. Federal or State laws or regulations;
(z) all tax returns and reports of the Purchaser required by law to be
filed prior to the date hereof have been filed and are substantially
true, complete and correct, and all taxes and other government charges
have been paid or accrued in the Purchaser Financial Statements;
(aa)the information contained in the documents, certificates and written
statements (including this Agreement and the attachments thereto)
furnished by the Purchasers to the Vendors are true and complete in all
material respects and do not omit to state any material fact necessary
in order to make the statements therein; and
(bb)there is no fact known to the Purchaser that has not been disclosed to
the Vendors in writing that could reasonably have a material adverse
effect on the Purchaser.
-11-
Purchasers Covenants
13. The Purchaser covenants and agrees as follows:
(a) the management of the Purchaser will recommend for election, at
the AGM of the Purchaser, the following persons as the directors
and officers of the Purchaser:
Name Position
---- --------
S.Y. Marc Hung Director, President
Ernst Cheung Director, Secretary
Maurice Tsakok Director
Xiao-Qing Du Director
Kwei Chi Ping, Justin Director
Yim Lam Thuy Hong, Suzanne Director
Yim Cheun Keung, Wilson Director
of which Kwei Chi Ping, Justin, Yim Cheun Keung, Wilson and Yim
Lam Thuy Hong, Suzanne are nominated by PSP.
(b) PSP will be entitled to nominate two (2) additional directors if
it achieves the HK$13,000,000 net (after tax) profit for the 12
month operating period ending August 31, 2002 as referred to in
Section 4 of this Agreement.
(c) PSP will be entitled until August 31, 2002 to operate its
business without any interference from the Purchaser except that
the Purchaser will have the right to examine PSP's records,
statements and accounts as referred to in Sections 11 (b) of this
Agreement.
(d) on the Closing Date, and provided that all terms and conditions
to be observed and performed by the Vendors at the Time of
Closing have been observed and performed, the Purchaser will
issue the Exchangeable Shares to the Vendors, such Exchangeable
Shares to be issued free and clear of any liens, encumbrances and
charges, but subject to applicable trading restrictions imposed
by U.S. and British Columbia securities legislation, and imposed
under such other securities legislation applicable in each
jurisdiction where any of the Vendors are resident;
(e) in addition to the US$800,000 contribution referred to in Section
6 of this Agreement, any proceeds from Xin Net stock purchase
options and/or warrants which are exercised after the date of
this Agreement shall be retained by the Purchaser as funds for
expanding PSP business and/or working capital for PSP business.
CONDITIONS PRECEDENT FOR THE VENDORS
14. The joint and several obligations of the Vendors to carry out the terms of
this Agreement and to complete the sale contemplated herein is subject to
the following conditions:
(a) the Purchaser shall have performed and satisfied each of its
obligations hereunder required to be performed and satisfied by it on
or prior to the Closing Date and each of the representations and
warranties of the Purchaser contained herein shall have been true and
correct and contained no misstatement or omission that would make any
such representation or warrant misleading when made, and shall be true
and correct and contain no misstatement or omission that would make any
such representation or warranty misleading at and as of the Closing
Date with the same force and effect as if made as of the Closing Date;
-12-
(b) the transactions contemplated by this Agreement shall not violate any
applicable law and there shall be no pending actions or proceedings by
any State, U.S. Federal or State regulatory authority or by any other
person challenging or seeking to materially restrict or prohibit the
transfer and exchange contemplated hereby or the consummation of the
transactions contemplated by this Agreement;
(c) the Purchaser's Board of Directors, by proper and sufficient vote
respectively, shall have approved this Agreement and the transactions
contemplated hereby;
CONDITIONS PRECEDENT FOR THE PURCHASER
15. All obligations of the Purchaser under this Agreement are subject to the
fulfillment on or prior to Closing, of each of the following conditions to
the satisfaction of the Purchaser's solicitor:
(a) the Purchaser has received regulatory approval of this Agreement, if
required;
(b) the shareholders of the Purchaser approved the ISP Transaction and the
Spin-Off at the AGM. The Purchaser has completed the ISP Transaction
and the Spin-Off referred to in Section 12(p) and 12(q) of this
Agreement respectively;
(c) all covenants, warranties and agreements of the Company and the Vendors
to be performed on or before the Closing Date pursuant to the terms and
conditions of this Agreement have been duly performed;
(d) the Vendors shall transfer the Shares to the Purchaser and such Shares
shall be registered on the books of the Company in the name of the
Purchaser at the Time of Closing; and
(e) the representations and warranties of the Company and the Vendors set
forth in this Agreement shall be true and correct as of the date of the
Agreement and shall be true and correct as at the Date of Closing as if
made by the Vendors on the Closing Date.
16. The Company and the Vendors jointly and severally agree that the foregoing
conditions in section 15 are inserted for the exclusive benefit of the
Purchaser and may be waived by the Purchaser in whole or in part at any
time.
17. In the event any of the conditions set forth in section 15, are not met by
the Closing Date for whatever reason, the Purchaser at his option, may
elect not to proceed with the purchase of the Shares contemplated herein
without prejudice to any other rights and remedies.
SHARE CERTIFICATE LEGENDS
18. It is understood that the certificates evidencing the Purchaser's shares of
common stock may bear one or more legends in substantially the following
forms, as well as any other legend required by the laws of any applicable
jurisdiction:
-13-
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE U.S. OR TO US PERSONS IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. HEDGING TRANSACTIONS FOR SUCH SECURITIES
MAY NOT BE MADE UNLESS IN COMPLIANCE WITH SUCH ACT.
THE SHARES ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD IN THE U.S. OR TO US PERSONS EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
The Purchaser need not record a transfer of the shares, unless the
conditions specified in any applicable legends are satisfied. The Purchaser
may also instruct its transfer agent not to record the transfer of any of
the shares unless the conditions specified in the applicable legends are
satisfied.
19. The legend relating to the Securities Act endorsed on a stock certificate
pursuant to this Agreement and the stop transfer instructions with respect
to the shares represented by such certificate shall be removed and the
Purchaser shall issue a certificate without such legend to the holder of
such shares if such shares are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder provides to the Purchaser an opinion of counsel
reasonably satisfactory to the Purchaser, or a no-action letter or
interpretive opinion of the staff of the Securities and Exchange Commission
(the "SEC") to the effect that a public sale, transfer or assignment of
shares may be made without registration and without compliance with any
restriction such as Rule 144.
CLOSING
20. The sale and purchase of the Shares shall be closed within 10 days from the
date that the Purchaser has received the regulatory approval referred to in
Section 15 (a) of this Agreement and the Purchaser has completed the ISP
Transaction and the Spin-Off referred to in Sections 12(p) and 12(q) of
this Agreement or on such other date agreed by all of the parties
hereunder, at the office of the Purchaser, or at any other place agreed to
by all of the Parties, which date and time are referred to herein as the
"Date of Closing", the "Closing Date", the "Closing" and the "Time of
Closing".
21. At Closing, the Vendors shall deliver to the Purchaser:
(a) share certificates duly endorsed for transfer of 5,623,036 Shares,
constituting the totality of Shares issued and outstanding at Closing
Date, with a par value of HK$1.00 per share in the capital of the
Company into the Purchaser's name representing the Shares;
(b) certified copies of resolutions of the directors of the Company
authorizing and approving the transfer of the Shares, registration of
the Shares in the name of the Purchaser, authorizing the issue of new
share certificates representing the Shares in the name of the
Purchaser, and entry of the name and address of the Purchaser into the
Register of Members and Register of Directors of the Company;
-14-
(c) all corporate records and books of account of the Company, including,
without limitation, the minute book, corporate seal, share register
books, share certificate books and annual reports of the Company;
(d) certified copies of such resolutions of the shareholders and directors
of the Company as are to be passed to authorize the execution, delivery
and implementation of this Agreement and of all documents to be
delivered by the Vendor pursuant thereto;
(e) a certificate signed by the Company and the Vendors that all covenants,
warranties and agreements of the Vendors pursuant to the terms of this
Agreement have been duly performed and that the representations and
warranties of the Vendors set forth in this Agreement are true and
correct as at the Date of Closing;
22. At Closing the Purchaser shall deliver to the Vendor the following:
(a) share certificates representing the Exchangeable Shares in the names
and denominations set out in Schedule "A" hereto;
(b) certified copies of resolutions of the directors of the Purchaser
authorizing and approving the issuance of the Exchangeable Shares,
registration of the Exchangeable Shares in the name of the Vendors in
accordance with Schedule "A" hereto and authorizing the issue of the
new share certificates representing such Exchangeable Shares;
(c) all corporate records and books of account of the Company, including
without limitation, the minute book;
(d) certified copies of such resolutions of the directors of the Purchaser
as are to be passed to authorize the execution, delivery and
implementation of this Agreement and of all documents to be delivered
to the Vendors pursuant thereto; and
(e) a certificate signed by a duly authorized officer of the Purchaser that
all covenants, warranties and agreements of the Purchaser pursuant to
the terms of this Agreement have been duly performed and that the
representations and warranties of the Purchaser set forth in this
Agreement are true and correct as at the Closing;
INDEMNITY
23. The Purchaser shall be indemnified and held harmless by the Company and the
Vendors in respect of any and all damages incurred by the Purchaser as a
result of any inaccuracy or misrepresentation in or breach of any
representation or warranty, covenant or agreement made in this Agreement by
the Company and the Vendors.
24. The Vendors shall each be indemnified and held harmless by the Purchaser in
respect of any and all damages incurred by any of such Vendors as a result
of any inaccuracy or misrepresentation in or breach of any representation,
warranty, covenant or agreement made by the Purchaser in this Agreement.
-15-
SURVIVAL OF REPRESENTATION, WARRANTIES AND COVENANTS
25. Except as hereinafter provided, all representations, warranties, covenants,
agreements and obligations of the parties hereto shall survive the Closing
and shall expire one year following the Closing Date.
GENERAL
26. This Agreement shall be governed by and be construed in accordance with the
laws of the State of Florida, USA.
27. Any notice to be given to a party hereto shall be in writing and signed by
or on behalf of such party and shall be given to the other party by
delivery thereto, or by sending by prepaid registered mail, telex,
facsimile, telegram or cable to the address of the other as hereinbefore
set forth or to such other address of which notice is given, and any notice
shall be deemed not to have been sufficiently given until it is received.
Any notice or other communication contemplated herein shall be deemed to
have been received on the day delivered, if delivered; on the seventh
business day following the mailing thereof, if sent by registered mail; and
on the business day following the transmittal thereof, if sent by telex,
facsimile, telegram or cable. If normal mail, telex, facsimile, telegram or
cable service shall be interrupted by strike, slow down, force majeure or
other cause, the party sending the notice shall utilize any of the other
such services which have not been so interrupted or shall deliver such
notice in order to ensure prompt receipt of same by the other party.
28. The parties shall execute such further assurances and other documents and
instruments and do such further and other things as may be necessary to
implement and carry out the intent of this Agreement.
29. The provisions herein contained constitute the entire agreement between the
parties hereto and supersede all previous expectations, understandings,
communications, representations and agreements whether verbal or written
between parties.
30. This Agreement may be amended by a written instrument signed by the party
against whom enforcement of the amendment is sought and any waivers made on
the part of the Purchaser with respect to any terms or conditions herein
must be in writing and signed by them.
31. If any provision of this Agreement is unenforceable or invalid for any
reason whatever, such unenforceability or invalidity shall not effect the
enforceability or validity of the remaining provisions of this Agreement
and such provision shall be severable from the remainder of this Agreement.
32. Time shall be of the essence hereof.
33. The headings appearing in this Agreement are inserted for convenience of
reference only and shall not affect the interpretation of this Agreement.
34. This Agreement shall enure to the benefit of and be binding upon the
parties and their successors and permitted assigns.
35. This Agreement may be executed in as many counterparts as may be necessary
or by facsimile and each such agreement or facsimile so executed shall be
deemed to be an original and such counterparts together shall constitute
one and the same Agreement.
-16-
IN WITNESS WHEREOF the parties hereto have caused this indenture to be executed
as of the day and year first above written.
Signed, sealed and delivered by )
KWEI CHI PING, JUSTIN in the presence of: )
____________________________ )
Witness Name ) ________________________
________________________________ ) KWEI CHI PING, JUSTIN
Witness Address )
________________________________ )
)
________________________________ )
Witness Occupation )
Signed, sealed and delivered by )
KWEI LAM WAI YING, KATHERINE in the presence
of: )
)
________________________________ )
Witness Name ) ________________________
________________________________ ) KWEI LAM WAI YING, KATHERINE
Witness Address )
________________________________ )
)
________________________________ )
Witness Occupation )
-17-
Signed, sealed and delivered by )
YIM CHUN KEUNG, WILSON in the presence of: )
)
________________________________ )
Witness Name ) ________________________
________________________________ ) YIM CHUN KEUNG, WILSON
Witness Address )
________________________________ )
)
________________________________ )
Witness Occupation )
XIN NET CORP.
Per:
--------------------------------
Authorized Signatory
--------------------------------
Authorized Signatory
PROTECTSERVE PACIFIC LIMITED
Per:
---------------------------------
Authorized Signatory
---------------------------------
Authorized Signatory
-18-
SCHEDULE "A"
Share Allocation Table for shares of the Purchaser to be issued to the Vendors
Name No. of Shares
Kwei Chi Ping, Justin 2,310,000
Kwei Lam Wai Ying, Katherine 840,000
Yim Chun Keung, Wilson 1,050,000
---------
Total 4,200,000
SCHEDULE "B"
Formulae For Determining Number of Xin Net
Stock Purchase Options to be Granted
and Xin Net Common Shares to be Bought Back
(a) Stock Purchase Option to be Granted:
---------------------------------------------------------- -----------------------------------------------
PSP Net (after tax) Profit (US GAAP) for 12
Month Period to be Granted Ended 08/31/2002 Stock Purchase Options
---------------------------------------------------------- -----------------------------------------------
HK$3,000,000 - 11,000,000 0 - 16,000,000 stock options pro-rated
---------------------------------------------------------- -----------------------------------------------
HK$11,000,001 - 13,000,000 18,031,800 stock options
---------------------------------------------------------- -----------------------------------------------
(b) Xin Net Common Shares to be Bought Back:
---------------------------------------------------------- -------------------------------------------------------
PSP Net (after tax) Profit (US GAAP) for 12 Month Period Number of Common Shares to be Bought Back
Ended 08/31/2002
---------------------------------------------------------- -------------------------------------------------------
Loss or zero 4,200,.000 shares
---------------------------------------------------------- -------------------------------------------------------
HK$1 - 2,000,000 4,200,000 - 2,200,000 shares pro-rated
---------------------------------------------------------- -------------------------------------------------------
HK$2,000,001 - 3,000,000 2,200,000 - 1 shares pro-rated
---------------------------------------------------------- -------------------------------------------------------
SCHEDULE "C"
Current Material Liabilities of PSP
As of September 25, 2001, PSP has no current material liabilities, contingent or
otherwise except for:
Long-term debt in the amount of US$68,741 with no interest bearing, owed to the
shareholders. There are no specific payment terms for the debt.
A loan in the amount of US$300,000 from Xin Net corp. The loan, which carries an
interest of 8% per annum, is payable on demand.
SCHEDULE "D"
Form 10-KSB including Financial Statements of Xin Net
for the year ended December 31, 2000 and Form
10-QSB Interim Reports for 1st Quarter, 2001 and
2nd Quarter, 2001
SCHEDULE "E"
Current Liabilities of Xin Net
As at September 25, 2001, Xin Net had no current liabilities, contingent or
otherwise, except for the following:
Accounts Payable and accrued liabilities $ 648,886
Unearned revenue $ 1,940,751
Security Deposit (from Sino Soft) $ 300,000
Obligation under capital lease $ 80,793
----------
$2,970,430
----------
SCHEDULE "F"
Current Real Properties or Material Assets
Owned or Leased by Xin Net
As at October 1, 2001 Xin Net had no current real property or material asset
owned or leased by Xin Net except for the following:
(a) Property and Equipment Owned:
- Office Equipment
- Equipment
- Computer Software
- Furniture
(b) Leases:
(1) Xin Net through its wholly owned subsidiary, Internet Investment
Corp. leases computer equipment with a rental of approximately
US$5,330 per month to June 30, 2002. The liability includes
imputed interest at an average rate of 6.12% per annum.
(2) Xin Net leases office space under various operating leases
expiring through July, 2002. The rental equipment commitment for
2001 is US$206,648 and for 2002 is US$47,838.
SCHEDULE "G"
Material Contracts of Xin Net
As at October 1, 2001 Xin Net has no material contracts except for the
following:
1. Joint Venture Agreement between Infornet Investment Limited (Xin Net's
wholly owned subsidiary) and Xin Hai Technology Development Ltd. (a Peoples
Republic of China Corporation) dated August 25, 1997 and amended April 13,
2000.
2. Registrar Accreditation Agreement between Xin Net Corp. and ICANN (Internet
Corporation for Assigned Names and Numbers) dated December 21, 1999.
3. Registrar License Agreement (RLA) between Xin Net Corp. and Network
solutions, Inc. dated June 16, 2000.
SCHEDULE "H"
Audited Financial Statement of the Company for the period from
date of Incorporation to June 30, 2001
SCHEDULE "I"
Contracts or Indebtedness Between the Purchaser and any of its
Shareholders, or Affiliates or Associates of Any of its Shareholders
1. Promissory Note dated June 30, 2001 for US$2,292,729 from Xin Net Telecom
Corp. Ltd. to Xin Net Corp.
2. Promissory Note date June 30, 2001 for US$860,755 from Xin Net Telecom
Corp. Ltd. to Infornet Investment Corp.
EXHIBIT C2
PROTECTSERVE PACIFIC LTD.
AUDITED FINANCIAL REPORT FROM INCEPTION TO JUNE 30, 2000
PROTECTSERVE PACIFIC LIMITED
(FORMERLY KNOWN AS GLOBAL SURVEILLANCE COMMUNICATIONS LIMITED)
REPORT AND FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 25, 2000 (DATE OF INCEPTION) TO JUNE 30, 2001
CONTENTS PAGE
---------------------------------------------------------------------------
Report of Independent Auditors F-1
Statement of Earnings F-2
Balance Sheet F-3
Statement of Cash Flow F-4
Statement of Stockholders' Equity F-5
Notes to the Financial Statements F-6
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF PROTECTSERVE PACIFIC LIMITED
(FORMERLY KNOWN AS GLOBAL SURVEILLANCE COMMUNCATIONS LIMITED)
(Incorporated in Hong Kong with limited liability)
We have audited the accompanying balance sheet of Profectserve Pacific Limited
as of June 30, 2001 and the related statements of income, stockholders' equity
and cash flows for the period from date of inception (September 25, 2000)
through June 30, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Hong Kong. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Protectserve Pacific Limited at
June 30, 2001, and the results of its operations and cash flows for the period
indicated, in conformity with generally accepted accounting principles in the
United States of America.
/s/ Simon Choy & Co.
Simon Choy & Co.
Certified Public Accountants
Hong Kong, August 31, 2001
F-1
PROTECTSERVE PACIFIC LIMITED
STATEMENT OF EARNINGS
FOR THE PERIOD FROM DATE OF INCEPTION (SEPTEMBER 25, 2000)
TO JUNE 30, 2001
Stated in USD
-------------------------------------------------------------------------------------------------------
Sales $ 531,173
Cost of sales 163,073
---------------------
Gross profit 368,100
Expenses
Amortization 36,355
General and administrative expenses 41,539
Salaries and wages 148,494
---------------------
226,388
---------------------
Income from operations before income taxes 141,712
Income taxes (22,674)
---------------------
Net income $ 119,038
=====================
Earnings per share - basic and diluted $ 11.90
=====================
Weighted average common shares outstanding - basic and diluted 10,000
=====================
See accompanying notes to financial statements
F-2
PROTECTSERVE PACIFIC LIMITED
BALANCE SHEET
JUNE 30, 2001
Stated in USD
------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 164,651
Accounts receivable 335,462
---------------------
Total current assets 500,113
Property and equipment, net (Note 3) 440,467
---------------------
TOTAL ASSETS $ 940,580
=====================
LIABILITIES AND STROCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued liabilities $ 7,943
Income taxes payable (Note 5) 22,674
---------------------
Total current liabilities 30,617
Loan from shareholders (Note 4) 68,741
---------------------
Total liabilities 99,358
STOCKHOLDERS' EQUITY
Common stock, $0.1282 par value; 1,282
Authorized, issued and fully paid 10,000 shares
Capital Reserve (Note 6) 720,902
Retained earnings 119,038
---------------------
Total stockholders' equity 841,222
---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 940,580
=====================
See accompanying notes to financial statements
F-3
PROTECTSERVE PACIFIC LIMITED
STATEMENT OF CASH FLOW
FOR THE PERIOD FROM DATE OF INCEPTION (SEPTEMBER 25, 2000)
TO JUNE 30, 2001
Stated in USD
--------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 119,038
Adjustments to reconcile net income to net cash provided
by operating activities
Expenses paid and contributed by shareholders 244,080
Amortization 36,355
Changes in current assets and liabilities
Accounts receivable (335,462)
Accrued liabilities 7,943
Income taxes payable 22,674
---------------------
Net cash provided by operating activities 94,628
CASH FLOWS FROM FINANCING ACTIVITIES
Advance from shareholders 68,741
Proceeds from issuance of common stocks 1,282
---------------------
Net cash from financing activities 70,023
---------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 164,651
CASH AND CASH EQUIVALENTS, DATE OF INCEPTION (September 25, 2000) -
---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 164,651
=====================
Supplementary Information
Cash paid for:
Interest $ -
=====================
Income taxes $ -
=====================
Non-cash investing and financing activities:
Property and equipment contributed by shareholders $ 476,822
=====================
See accompanying notes to financial statements
F-4
PROTECTSERVE PACIFIC LIMITED
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DATE OF INCEPTION (SEPTEMBER 25, 2000) TO JUNE 30, 2001
Stated in USD
------------------------------------------------------------------------------------------------------------------
Common Stock Additional Retained Total
Shares Amount Paid In Earnings
Capital
------------------------------------------------------------------------------------------------------------------
Common stock issued for cash $10,000 $1,282 $ - $ - $ 1,282
at $0.1282 per share
Capital Contributions (non-cash) 720,902 720,902
Net Income 119,038 119,038
-----------------------------------------------------------------------------
Balance as at June 30, 2001 $10,000 $1,282 $ 720,902 $ 119,038 $ 841,222
=============================================================================
See accompanying notes to financial statements
F-5
PROTECTSERVE PACIFIC LIMITED
NOTES TO FINANCIAL STATEMEMTS
JUNE 30, 2001
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Protectserve Pacific Limited (the Company) was incorporated in Hong Kong under
the Companies Ordinance on September 25, 2000. The Company changed its name from
Global Surveillance Communications Limited to Protectserve Pacific Limited on
January 15, 2001. The Company commenced business on February 1, 2001. The
Company's year end is December 31.
The Company is in the business of developing and marketing computer hardware and
web-based surveillance monitoring and control systems. The Company markets its
products primarily to distributors and agents, which serve practically all
industries with a need for security and protection.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The financial statements are presented in US Dollars and
have been prepared in accordance with generally accepted accounting principles
in the United States of America.
Cash and Cash Equivalents - Cash and cash equivalents include all highly liquid
investments with an original maturity of three months or less when acquired.
Foreign Currency Translation - The functional currency of the Company is the
Hong Kong Dollars and the financial records are maintained and the financial
statements are prepared in Hong Kong Dollars. Foreign currency transactions
during the period are translated into U.S. Dollars at the exchange rate ruling
at the translation dates. Gains and losses resulting from foreign currency
transactions are included in the statement of income. Assets and liabilities
denominated in foreign currencies at the balance sheet date are translated into
U.S. Dollars at period-end exchange rates. Exchange rates between U.S. Dollars
and Hong Kong Dollars were fairly stable during the period presented, and thus,
there was no net adjustment to stockholders equity. The rate ruling at June 30,
2001 was each U.S. Dollar to 7.80 Hong Kong Dollars, the official rate of
exchange.
Use of Estimates - The financial statements were prepared in conformity with
accounting principles generally accepted in the United States that require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk - The Company has three customers that each account
for more than 10% of sales. As of August 10, 2001, the entire outstanding
amounts were received from the customers.
F-6
Revenue Recognition - The Company recognizes revenue upon shipment of computer
hardware and web-based surveillance monitoring and control systems to the
customer. Accounts receivable is shown net of allowance for doubtful accounts
and is estimated as a percentage of accounts receivable based on prior
experience. Credit risk in minimal as evaluation of customers' financial
position is performed regularly. Collateral is not required as a condition of
credit. Due to the short period of operations, no allowance for doubtful
accounts has been recorded in these financial statements.
Property and Equipment - Property and Equipment is recorded at cost.
Amortization is provided over the following estimated useful lives, ranging from
five to seven years, using the straight-line method.
Computer Software Costs - In accordance with AICPA Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," the Company capitalizes certain costs incurred for the
development of internal use software. These costs include the costs incurred to
obtain computer software from third parties and the costs associated with
coding, software configuration, upgrades and enhancements. These costs are
amortized on a straight-line basis over the remaining estimated economic lives
of the assets.
Advertising costs - Advertising costs are expensed when incurred.
Long-Lived Assets - The Company periodically reviews its long-lived assets for
impairment based upon the estimated undiscounted cash flows expected to result
from the use of the assets and their eventual disposition. When events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, the asset is written down to its net realizable value.
Earnings Per Share - Basic and diluted earnings per share were computed in
accordance with following Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." Basic net earnings per share is computed by
dividing net earnings available to common shareholders (numerator) by the
weighted average number of common shares outstanding (denominator) during the
period. Diluted net earnings per share gives effect to all dilutive potential
common shares outstanding during the period. Basic and diluted earnings per
share are the same for the period presented in these financial statements.
F-7
Income Taxes - The Company accounts for income taxes using the liability method,
which requires an entity to recognize deferred tax liabilities and assets.
Deferred income taxes are recognized based on the reported differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements that will result in taxable or deductible amounts in future
years. Further, the effects of enacted tax laws or rate changes are included as
part of deferred tax expenses or benefits in the year that covers the enactment
in the near-future date. A valuation allowance is provided when there is an
uncertainty that a deferred tax benefit will be realized.
Fair Values of Financial Instruments - The carrying amounts of certain financial
instruments, including cash, accounts receivable, and accrued liabilities
approximate their fair values as of June 30, 2001, because of the relatively
short-term maturity of these instruments. The fair value of the Company's
related party payables cannot be determined due to the nature of the
transaction.
Recent Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board issued the following SFAS's:
SFAS No. 141, "Business Combinations," which requires all business combinations
initiated after June 30, 2001, to be accounted for under the purchase method of
accounting for which the date of acquisition is July 1, 2001 or later. This
statement does not affect the financial statements.
SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. This statement also addresses how
goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. This statement is
required to be applied starting with fiscal years beginning after December 15,
2001. This statement will require the Company to reassess the useful lives of
its previously recognized intangible assets and adjust the amortization period.
Additionally, any previously recognized intangible asset that is deemed to have
an indefinite useful life would cease being amortized. Impairment losses for
goodwill and indefinite-lived intangible assets that arise due to the initial
application of this Statement are reported as resulting from a change in
accounting principle.
F-8
SFAS No. 143, "Accounting for Asset Retirement Obligations," which discusses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs, which is effective for financial statements issued for fiscal years
beginning after June 15, 2002. This statement does not affect the financial
statements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
Equipment $ 125,268
Computer Software Costs 351,554
-----------------
Property and equipment 476,822
Less : amortization (36,355)
-----------------
Net book value $ 440,467
=================
Amortization charged to operations during the period was $36,355.
NOTE 4 - LOAN FROM SHAREHOLDERS
Loan from shareholders of $68,741 represents funds advanced for working capital,
which are noninterest bearing with no set repayment terms.
NOTE 5 - INCOME TAXES
Tax in the statement of income represents current year income tax at an
effective rate of 16%, or $22,674. There is no deferred tax asset or liability
included in these financial statements.
NOTE 6 - CAPITAL RESERVE
Capital Reserve represents additional contribution made by shareholders but not
yet registered as required by the Hong Kong Companies Ordinance.
F-9
EXHIBIT C3
PROTECTSERVE PACIFIC LTD. BUSINESS PLAN
EXECUTIVE SUMMARY
ProtectServe Pacific Ltd. (PSP) is an innovative developer and provider of
Surveillance Monitoring Control Systems, Data Acquisition Systems, Internet
Services and Wireless Communication Systems.
PSP engaged in the sales and marketing of innovative products that aims to
protect and enhance the " Lifestyle" and Well-being" in the new Millennium age.
PSP has rapidly grown to become a dynamic and leading supplier of remote visual
management systems with extensive application in various industries. The
company's vision is to become the Asian leading data and video surveillance
company.
PSP offers a broad range of video and audio monitoring systems under a brand
name " GeniusEye" which are used for various purposes such as security
surveillance, remote business management, monitoring of unmanned premises and
equipment and traffic control. GeniusEye Systems enable users to observe and
monitor through personal computers what is happening in remote sites via phone
lines, ISDN, GSM, Intranet and Internet. The systems also integrate digital
video and audio recording, remote camera control and intelligent alarm
functions.
The founders of the PSP are dedicated entrepreneurs with extensive experience in
research and business operations. The strong R&D team comprises qualified
professionals and experts in signal processing, telecommunication and digital
technologies. The marketing team is well experienced in innovative product
promotion, brand building and international marketing.
PSP's directors believe that external fund raising will enhance the Company's
profile and expand its capital base for future growth and development. The
Directors currently intend to sell the entire shareholding interest or the
complete business interest in the company as a going concern.
1. COMPANY BACKGROUND
ProtectServe Pacific Ltd ( PSP ) was incorporated on September 2000 and
commenced its business on March 2001. It was set up as an innovative developer
and provider of the State-of-the-Art web-based Surveillance Internet Monitoring
Systems.
Since the formation of PSP, the Company have pursued a vision that Real-time
Surveillance, Monitoring, Control, Safety, Security, and Remote Diagnostics via
the Internet and wireless device communication will become increasingly accepted
and adopted into many industries, businesses, and consumer's every-day lives.
PSP has focused its efforts on protecting and serving the Well Being of all
entities; including government, general industry, business sectors, and private
residences, for an endless list of applications. PSP uses leading edge
technologies to harness the power of the Internet and Wireless Communication to
offer "Lifestyle Service", and real-time peace of mind, on a global basis. The
Company has rapidly grown to become a dynamic and leading supplier of remote
visual management systems with extensive application in various industries.
The Company has developed "GeniusEye" web-based surveillance software and
equipments. The focus of "GeniusEye" is effective utilization of digital video
as the most informative channel of today's security systems. An effective
solution was possible using object-oriented turnkey system. The architecture of
"GeniusEye" is developed in a way that gives `you the ability to construct
security systems of any scale and complexity. The "GeniusEye" products allow
people to visually monitor remote locations anywhere, anytime through phone
lines, Internet or wireless network. They extend people's vision beyond
territorial boundaries and open up innovative applications especially in the
Internet and Mobile world. System components can communicate using a full
arsenal of the known communication mediums. The system works on Windows
NT/98/2000 platforms. It's complete plug and play hassle-free security
equipment. The Company offer custom configuration to integrate customer's
existing analog/digital security devices.
PSP currently offers it's low-cost, high-performance technology and products
that allow enterprises, professional, management companies and home users to
capture, record, manage and surveillance video and audio contents over the
Internet or Intranet as well as PSDN lines. These products and services are
targeted at the booming desktop and notebook, video and audio communications
market, creating solutions that are easy to use, with the highest performance at
affordable prices.
2. INDUSTRY OVERVIEW
According to the Company's record, the applications of the GeniusEye Systems by
existing users are mainly in the areas of remote business management which
include retail operation management, remote manufacturing/ warehousing operation
management, property/building management and monitoring of unmanned premises and
equipment. Along with the advancement of technology, in particular the Internet
industry, the Company believes that the applications of GeniusEye Systems can be
extended, especially in the area of e-promotion, e-commerce and m-commerce.
General Business Management
Retail operation management
One of the common applications of the GeniusEye Systems is for management of
retail operations. With the GeniusEye Systems, image from surveillance cameras,
which are installed at the retail stores at different locations, are transmitted
to the personal computer in a remote administration office. The manager of the
retail stores can therefore monitor and control the activities and operations in
different retail stores without making on-site visit physically. A remote audio
and video monitoring system is particularly cost-effective for large retail
chains which generally take up a great deal of management time for commuting
from one store to another. As regards small retail chains or single store
businesses which are very often owner-operated or have limited workforce, a
remote audio and video monitoring system enables a single human operator to
effectively monitor a significant area of interests, keep track of happenings,
people and their interactions at multiple stores.
According to statistics published by the Census and Statistics Department of
Hong Kong, there were over 60,000 retail establishments in Hong Kong as at the
end of 2000. PSP believes that the penetration rate of remote audio and video
monitoring systems amongst retail establishments is very low and there remains
significant business potential for the Geniuseye Systems.
Manufacturing/Warehousing operation management
PSP believes that it is common for cooperation with manufacturing operations to
locate their trading or administrative offices in central or commercial business
districts whilst establishing their manufacturing and warehousing operations in
different areas where operating cost, particularly rent and wages, are lower.
This phenomenon is particularly common in Hong Kong where a lot of companies
have relocated their production facilities and/or warehouse across the border to
the PRC where wages and rent are relatively lower. PSP considers that such
strategy has provided significant business potential for the remote audio and
video monitoring system which enables the management to monitor the office and
manufacturing operation via personal computers without regard to where they are
physically located. The remote monitoring system also enables the management to
monitor and control the inventory flow through the warehouses, as well as serves
as a security alarm system.
According to statistics published by Census and Statistics Department of Hong
Kong, there were 22,581 establishments in Hong Kong as at the end of June 2000
which had manufacturing operations. Due to the relatively high cost of operating
operations of most Hong Kong-based companies are located elsewhere outside Hong
Kong. PSP also believes that the penetration rate of remote audio and video
monitoring systems amongst these establishments is very low and there remains
significant business potential for the GeniusEye Systems.
Property/ Building management
Using the conventional CCTV security alarm systems, video images are usually
transmitted to a designated guard center which is located at the property being
monitored and where the security guards are stationed. By way of GeniusEye
Systems, video data captured are transmitted to the monitor at a central control
console which can be located anywhere within or far away from the property being
monitored. The remote video monitoring system is particularly an effective means
for central building management where multi-block housing estates are the
targets for monitoring. It can also be used by property management companies
which are contracted to manage more than one compound at different locations.
Such a system also enable certain property management functions to be performed
from a remote control center, such as opening or closing a gate, turning on or
off a fountain, or controlling the lighting or air-conditioning of residents'
clubhouse. GeniusEye Systems may even be used to monitor and measure the
performance and productivity of on-site staff.
According to the list of licensed security companies in Hong Kong published by
the Security and Guarding Services Industry Authority, there were approximately
500 property management companies in Hong Kong as at January 2001 which, PSP
believes, are all potential users of the GeniusEye Systems.
Monitoring unmanned premises and equipment
Remote audio and video monitoring systems have been used by utility companies in
monitoring unmanned premises and equipment, such as water supply systems, power
plants located at remote areas, unmanned sites or restricted zones.
PSP considers that the applications of GeniusEye Systems can further be extended
for use by educational institutes and government agencies respectively in
monitoring and controlling activities such as unmanned equipment in
laboratories, progress of construction works in remote sites, and traffic
conditions etc.
The Internet Industry
Internet technology enables commercial entities, educational institution,
government agencies as well as individuals in different geographic locations to
communicate, access and share information; and provides global e-commerce to
communicate, access and share information; and provides global e-commerce
platforms to the community for conducting and exploring new business
opportunities. Meanwhile, Internet applications are widely used in e-mail, data
transfer, online information retrieval, advertising and e-commerce.
Internet has demonstrated a rapid growth in popularity towards the end of last
decade, and the trend is expected to continue in the new millennium. According
to Computer Industry Almanac ("CIA"), there were about 320 million Internet
users worldwide at year end 2000 and estimates over 720 million users by year
end 2005.
The rapid development of the Internet has altered the fundamental economic
structure under which consumers and businesses conduct transactions. PSP
believes that e-commerce is going to have a profound effect on the way how
people live and work. The Internet offers a convenient means for e-commerce
activities as transaction can be conduced almost anywhere and at anytime.
E-commerce can occur at any stage of the supply chain, whether within an
organization, between businesses, and between businesses to consumers. PSP
expects that as the Internet becomes more popular, consumers and businesses will
increasingly engage in online offering, evaluating, selecting and purchasing of
goods and services, and hence increasing the demand for the GeniusEye Systems
which enable real-time video image to be broadcast via the Internet.
Intranet
An Intranet is basically a private network environment that uses the Internet as
the backbone for their communications. Usually Intranets are used for
communication within a specific company or between a company and its key
suppliers or customers. Intranet networks are isolated from the external
Internet by security firewalls. Intranet users communicate with servers using
user-friendly web browsers from any networked platform or location. Connectivity
is simple, inexpensive and seamless. The most common reason for having Intranet
is to provide basic applications and file sharing in a simple and cost effective
fashion.
PSP believes that the growth in the popularity of the Intranet will provide
increasing opportunities for web-based GeniusEye Systems.
The Wireless Generation
Industry analysts are predicting a surge in the number of wireless data
subscribers over the next several years as the Internet industry enters into the
3G. The 3G wireless networks are characterized by high data transmission rates:
a minimum of 144kbps in all radio environments and up to 2Mbps in low-mobility
and indoor environments. The 3G standards will be deployed in carrier networks
in a phased approach over the next several years. Wireless network service
providers around the world can migrate their existing digital cellular networks
to 3G network infrastructures over time.
It is anticipated that within the next few years, wireless handsets and
appliances will become pervasive platforms for accessing the Internet. PSP
believes that the technology of the GeniusEye Systems can be adapted for use in
these wireless and handheld devices, and hence providing good opportunities for
the Company.
General Statistics
In addition to expanding the Hong Kong market, PSP are also planning to explore
PRC market in the next six months by setting up offices in Guangzhou, Shanghai
and Beijing.
As the GeniusEye Systems enable users to observe and monitor through personal
computers what is happening in remote sites via phone lines, GSM and the
Internet, PSP believes that the growing trend of telephone lines, Internet
subscribers and mobile phone subscribers is an indication of the market
potential of the GeniusEye Systems.
3. PRODUCT RANGE
PSP is principal engaged in the design, development and marketing of remote
video and audio monitoring systems. Its complete scalability makes GeniusEye the
most customizable and flexible security solution on the market today.
GeniusEye iDVR x1 Software (Support Single CCD or USB Camera)
GeniusEye iDVR x4 Software (Support 4 CCD Cameras)
GeniusEye iDVR x8 Software (Support 8 CCD Cameras)
GeniusEye iDVR x12 Software (Support 12 CCD Cameras)
GeniusEye iDVR x16 Software (Support 16 CCD Cameras)
GeniusEye iDVR-PRO x12 Software with max 240 frame per second (Support 12 CCD
Cameras)
GeniusEye Genius Boxes with built-in hardware and software support 1-16 CCD
cameras
More technical details can be referred to our web site: www.protectserve.com.hk
4. SALES AND MARKETING
Sales
The users of GeniusEye Systems range from small local companies to multinational
enterprises and organizations which are engaged in various business sectors
including retail chain, utilities companies, financial institutions, government
authorities and educational institutes. The five largest customers were either
dealers or distributors of the Company.
The Company's local sales are made either on cash-on-delivery basis or on credit
terms of up to 30 days. For sales to PRC distributors or overseas customers, the
Company demands full payment in advanced by telegraphic transfer. Where
customers have established a favorable payment record, the Company may accept
30% deposit by telegraphic transfer before shipment, with the balance being
settled immediately on arrival of the shipment or on credit terms of up to 30
days. The Company did not experience any bad or doubtful debts so far.
In general, the Company is able to deliver or ship its products within seven
days from confirmation of purchase orders.
Marketing
PSP should consider the commitment to promoting the awareness for the Company's
brand name, in particular " GeniusEye" has been a significant factor
contributing to the Company's success. Following series of marketing and
promotion programs, the Company trademarks " GeniusEye" have become recognized
brand name for remote surveillance systems. To maintain the reputation of and
awareness for the Company's products, PSP will continue its marketing effort,
particularly in the following areas:
- to advertise on relevant trade journals, popular magazines and newspapers;
- to attend trade exhibitions of relevant industries ;
- to provide extensive technology information to its distributors and dealers
by way of seminars and training courses so that they possess knowledge on
the GeniusEye Systems and their functionality;
- to provide after-sales technical and maintenance support to users of the
GeniusEye Systems either directly or through the Company's distributors and
dealers; and
- to generate more publicity for the GeniusEye Systems by press release and
media interviews
Furthermore, PSP has established Internet website, www. Protectserve.com.hk
where existing and potential customers can obtain up-to-date information
regarding the Company and its products, including a demonstration of the
GeniusEye Systems. PSP believes that such information will help to create more
interest in and awareness of the Company's products
5. COMPETITION
PSP believes that the image compression and video transmission technologies,
being the underlying technologies of the GeniusEye Systems or similar remote
monitoring systems is at the leading edge of the market which forms a high
barrier to entry by companies without strong research and development capability
and that the market of such products is still relatively undeveloped. The only
direct competition among other market participants is " TeleEye" which has
similar operational history and competes in similar market segments. They are
publicly listed company on GEM board with trading Symbol 8051.
The following comparison chart illustrates the features and specification of
both products.
COMPARSION CHART OF GENIUSEYE iDVRx4 vs TELEEYE PRO
--------------------------------------------------------------------------------------------------------
GeniusEye iDVR TeleEye PRO
--------------------------------------------------------------------------------------------------------
Head-Counting Surveillance YES NO
Sensor (Motion Detect Recording, no sensor required) YES Sensors required
Additional software purchase
Internet/Intranet Remote Monitoring YES required
Web Browser Remote Monitoring (change settings through View ONLY, no system settings
internet browser) YES allowed
Video recording at the scene YES NO
Download recorded files through internet browser YES NO
Telephone Line Remote Monitoring YES YES
Password Protection YES YES
Disk Space Management YES YES
System Log File YES YES
Burglar Alarm at the scene YES YES
Faxing images of Suspected Intruder YES NO
Alarm to Mobile Phone (Send Alarm message to Mobile
phone or Telephone) YES NO
Send Alarm Digits to Digital Pager YES NO
E-mail images of Suspected Intruder to mail box YES NO
Send images of Suspected Intruder to FTP server YES NO
Alarm alert from remote computer YES YES
Digital Answer Machine YES NO
vMplayer YES YES
Film Editing (edit, cut/paste, brighten the recorded
films to increase the quality) YES NO
Video Resolution (640x480) YES YES
Available in Additional purchase of PTZ
Remote Pan/Tilt/Zoom control Sept controller
External sensor connection such Available in
smoke detector and fire alarm Sept YES
Price Comparison use iDVR 4 vs TeleEye Pro
( List Price ) $8,800 $12,990
--------------------------------------------------------------------------------------------------------
PSP considers that GeniusEye has better features and price over TeleEye and the
Company should grow , build up and take over a significant market share against
TeleEye in the next couple of years.
6. BUSINESS OBJECTIVES
It is the Company's mission to be a leading technological developer and supplier
of remote video and audio monitoring systems in the Asia market. PSP has
identified the following key strategies to achieve its mission:
a. To explore new market by establishing joint ventures or branch offices in
the high potential markets such as PRC;
b. To expand the size of the market for remote video monitoring systems in
Hong Kong and PRC by marketing and advertising campaigns;
c. To expand its Asia distribution network and strengthen the sales and
marketing capabilities of major distributors in high potential markets;
d. To develop " KIDOGRAM" website and Genius Box leasing program to
Kindergarten
e. To develop the "Live video on Internet " market
f. To develop the " Live video on Mobile " market
g. To continue its commitment in research and development in order to expand
PSP's product range as well as to enhance the features of the GeniusEye
Systems
7. IMPLEMENTATION PLAN
For the period from the Latest Practicable Date to December 31, 2001
Sales and Marketing Products Development Resources Deployment
----------------------------------- ---------------------------- ------------------------------
* Continue business development - Launch iDVRx4, x8 - Increase technical staff
activities in Hong Kong and versions software and engineers in June
PRC
* Set up office and Tech Center - Launch iDVRx16 in May - Total number of full time
in Guangzhou and Beijing expected to be 20 by the
end of 2001
* Attend Trade fairs and - Launch KIDOGRAM websites
Exhibitions in major cities of to kindergartens in
PRC September
- Lunch Genius Box leasing
program in October
----------------------------------- ---------------------------- ------------------------------
8. FINANCIAL SUMMARY
INCOME STATEMENT
For the period from 25th Sept, 2000 (date of incorporation) to 30th June, 2001
(stated in HK$)
---------------------------------------------- ----------------------------
Turnover 4,143,151.52
Cost Of Sales 1,271,966.93
---------------------------------------------- ----------------------------
Gross Profits 2,871,184.59
Expenses 1,765,826.40
---------------------------------------------- ----------------------------
Profits For The Period 1,105,358.20
---------------------------------------------- ----------------------------
The Company's turnover increased 23 times in six months to HK$4.14million for
period ended 30th June, 2001 from approximately HK$175K for the period ended
28th February, 2001. Such marked growth in turnover represented the increase of
the Company's sales transaction and expansion in the range of new products.
The Company's profit margin for the period ended 30th June, 2001 is 69.3% of
turnover. This is mainly attributable to the launch of new products which
commanded a higher profit margin and the economies of scale resulted from the
continuous growth of the company's turnover.
For the audited period, the key components of the Company's operation expenses
were salaries and related cost which represented approximately 43% of the
Company's turnover and is considered relatively lower in the industry.
For the same reason as described above, the Company's net profit margin for the
period ended 30th June, 2001 represents 27% of the turnover.
VALUATION
The Valuation Report has been produced by Tony Kwok Tung Ng & Co, Certified
Public Accountants to assist PSP to form the basis of negotiation to sell the
entire shareholding interest or the complete business interest in the company as
a going concern.
Their value opinion have relied upon the prospectus and public information of
TeleEye Holdings Ltd which is the direct competitor of the company with similar
operational and competes in similar market segments
The report indicates that the fair market value of the shares of PSP as at Sep.
3, 2001 is HK $ 70,000,000 ( Hong Kong dollars seventy million )
9. BUSINESS FORECAST
PSP has budgeted a significant growth in the next two years. The new budget is
based upon a significant demand and market reception for GeniusEye's products
since March 2001. Taking into account of the short history of the actual
operation, PSP has prorated and projected the net income to a 24 months
financial year by extension without consideration of seasonality and growth.
The current targeted net income for twelve months July 2001 to June 2002 and the
financial performance is expected to grow substantially to no less that HK$19
millions and such grow will continue for the next two years. The Company has
projected net income performance ending as at end of June 2003 will exceed HK$34
million
PROTECTSERVE 5 MONTHS ACTUAL SALES RECORD VESUS TELEEYE TRADING RECORD
------------------------------------------------- -------------------------------------------------
ProtectServe 5 months sales record TeleEye Trading Record *
(HK$'000) (HK$'000)
Feb-June 2001 1998 1999 2000
------------------ ------------------------------ -------------- ---------------- ----------- -----
Turnover 4,143 7,294 12,907 16,440
Cost of Sales (1,271) 30% (1,908) (92,856) (3,539) 22%
Gross Profit 2,871 70% 5,386 10,051 12,901 78%
Expenses (1,766) 43% (3,826) (6,334) (7,488) 46%
Profit before tax 1,105 27% 1,560 3,717 5,413 33%
------------------ ------------ ----------------- -------------- ---------------- ----------- -----
Source: TeleEye Holdings Ltd IPO prospectus
INCOME STATEMENT FORECAST
------------------------ ---------------------------------- ------------------------------------
July 2001-- June 2002 (HK$'000) July 2001-- June 2003 (HK$'000)
------------------------ --------------- ------------------ ------------------- ----------------
Turnover 63,085 96,724
Cost of Sales (24,047) 38% (33,079) 34%
Gross Profit 39,038 62% 63,645 66%
Operating Expenses (19,865) 31% (23,251) 24%
Profit before tax 19,173 31% 40,394 42%
------------------------ --------------- ------------------ ------------------- ----------------
BASES AND ASSUMPTIONS :
2001-2002
- Turnover for the period of July 2001 to June 2002 based on 3,200 software
licenses sold and 870 Genius boxes leasing . - Software licenses revenue
forecast based on the actual licenses sold in 5 months (1096 units)
Increase number of the sales forces and additional funding expand the
market shares.
- Cost of sales is based on historical costs and projected sales mix.
2002-2003
- Turnover for the period of July 2002 to June 2003 based on 4,800 software
licenses sold and 1,320 Genius boxes leasing.
- Decrease in cost of sales due to the cost of license reduced after 5,000
licenses sold.
EXHIBIT C4
PRO FORMA CONSOLIDATED FINANCIAL STATEMENT OF XIN NET CORP.
JUNE 30, 2001(Unaudited)
AFTER DISPSAL OF ISP
ASSETS, SPIN OFF OF REMAINING BUSINESS TO
XIN NET INTERNATIONAL CORP.
AND ACQUISITION OF PSP
BASIS OF PRESENTATION
The following pro forma consolidated financial statements are presented to
illustrate the effects of disposal of internet access card services, spin off of
the remaining business and acquisition of ProtectServe Pacific Limited ("PSP")
on Xin Net Corp. ("the Company"). The pro forma consolidated financial
statements have been derived from, and should be read in conjunction with, the
historical consolidated financial statements, including notes thereto, of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
filed with SEC on August 13, 2001 and the audited financial statements,
including notes thereto, of PSP for the period ended June 30, 2001 as contained
elsewhere in this PRE 14C.
The following pro forma consolidated financial statements assume that the
Company has disposed its internet access card services, spun off its remaining
business and acquired PSP as of June 30, 2001. The pro forma consolidated
statement of operations will be the same if the disposal of internet access card
services, spin off of remaining business and acquisition of PSP has been
consummated at the beginning of the year or during the six-month period ended
June 30, 2001.
The pro forma financial information has been prepared in accordance with U.S.
GAAP.
The pro forma consolidated financial statements are presented for information
purpose only and is not necessarily indicative of the financial position or
results of operations of the Company that would have occurred had the disposal
of internet access card services, spin off of remaining business and acquisition
of PSP been consummated as of the dates indicated. In addition, the pro forma
consolidated financial statements are not necessarily indicative of the future
financial condition or operating results of the Company.
DISPOSAL OF INTERNET ACCESS CARD SERVICES
On June 22, 2001, the joint venture partner of the Company, Xin Hai Technology
Development Ltd., has signed an agreement to sell its internet access card
services with related assets to a private company in Beijing, People's Republic
of China for a sales proceeds of $700,000. $100,000, $50,000, $150,000 and
$200,000 have been received as security deposit for the transaction on June 22,
2001, July 12, 2001, August 17, 2001 and September 18, 2001 respectively. The
agreement is subject to payments being made by the other party at specified
dates and to the approval of the Company's shareholders at the Annual General
Meeting planned for November 2001.
SPIN OFF OF REMAINING BUSINESS AND ACQUISITION OF PSP
On July 31, 2001, the Company has signed a letter of intent to acquire 100%
ownership of PSP, a privately-owned company based in Hong Kong. Prior to a
formal agreement being signed, the Company has made loans of $300,000 to PSP in
order to allow it to begin implementing its expansion plan. On October 1, 2001,
a formal agreement to purchase PSP has been signed. After obtaining approval
from the Company's shareholders to spin off its remaining business assets and
liabilities, except for cash $800,000, to a company called Xin Net International
Corp. ("XNETI") and to distribute the common shares received from XNETI as
distribution by way of a dividend to the Company's shareholders, the Company
will issue 4.2 million restricted common shares to the shareholders of PSP, in
exchange for 100% ownership of PSP. In addition, contingent upon performance
criteria, the Company will grant to the shareholders of PSP stock purchase
options at a nominal price of $0.001 per option. The exact amount of such
options to be granted, to a maximum of 18,031,800, will be determined by the
level of net income achieved by PSP for the 12-month period ending on August 31,
2002.
If the net income of PSP can achieve the determined level for the 12-month
period ending on August 31, 2002, the shareholders of PSP will control
approximately 51% of the issued share capital of the Company upon exercising
their share purchase options.
The acquisition of PSP will be accounted for as a reverse takeover with PSP
being identified as the acquirer.
XNETI will issue 21,360,010 common shares in exchange for the assets and
liabilities transferred in from the Company.
PRO FORMA ASSUMPTIONS
The pro forma consolidated financial statements incorporate the following pro
forma assumptions:
g. Shareholders of the Company have approved the disposal of its internet
access card services and the spin off of remaining business of the
Company, except for cash $800,000, to XNETI.
h. The other party has made payment of the balance, $200,000, to the
Company for acquiring the internet access card services.
i. The following assets and liabilities, at their net book value, have
been transferred from the Company to XNETI:
Assets
Cash and short term deposits $ 1,703,780
Investments 1,318
Accounts receivables 228,395
Other receivables 7,283
Prepaid expenses 88,341
Deferred costs 488,143
Property and equipment 734,742
Liabilities
Accounts payables and accrued liabilities $ 748,935
Unearned revenue 1,900,078
Capital lease obligation 92,560
j. XNETI has issued 21,360,010 common shares to the Company for the assets
and liabilities transferred and the Company has distributed them to its
shareholders as distribution by way of a dividend.
(e) The Company has issued 4.2 million common shares to the shareholders of
PSP for acquisition of 100% ownership of PSP.
(f) PSP commenced business operations on February 1, 2001. PSP did not have
any transaction from date of inception (September25, 2000) to January
31, 2001.
XIN NET CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2001 (Unaudited)
ProtectServe
Pacific Limited Xin Net Corp. Pro forma Xin Net Corp.
historical (a) historical (b) adjustments pro forma
----------------- --------------- -------------- --------------
ASSETS
Current Assets
Cash and Short Term Deposits $ 164,651 $1,903,780(e,f,j) $(1,103,780) $ 964,651
Investments - 1,318 (j) (1,318) -
Accounts Receivables 335,462 518,411 (g,j) (518,411) 335,462
Other Receivables - 7,283 (j) (7,283) -
Prepaid Expenses - 88,341 (j) (88,341) -
Deferred Costs - 488,143 (j) (488,143) -
----------------- --------------- -------------- --------------
Total Current Assets 500,113 3,007,276 (2,207,276) 1,300,113
Property and Equipment, Net 440,467 1,055,513 (g,j) (1,055,513) 440,467
----------------- --------------- -------------- --------------
(3,262,789)
Total Assets $ 940,580 $4,062,789 $(3,262,789) $1,740,580
================= =============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Other Accrued
Liabilities $ 7,943 $ 748,935 (j) $ (748,935) $ 7,943
Income taxes payable 22,674 - - 22,674
Unearned Revenue - 2,216,705 (g,j) (2,216,705) -
Security Deposit - 100,000 (e,h) (100,000) -
Capital Lease Obligation, Current
Portion - 92,560 (j) (92,560) -
----------------- --------------- -------------- --------------
30,617 3,158,200 (3,158,200) 30,617
Loan from shareholder 68,741 - - 68,741
Stockholders' Equity
Common Stock 1,282 21,360 (k) 2,918 25,560
Additional Paid In Capital 720,902 7,214,045 (k) (6,438,323) 1,496,624
Retained earnings (Deficit) 119,038 (6,178,290) (i,k) 6,178,290 119,038
Accumulated Other Comprehensive Income - (152,526) (k) 152,526 -
----------------- --------------- -------------- --------------
Total Stockholders' Equity 841,222 904,589 (104,589) 1,641,222
----------------- --------------- -------------- --------------
Total Liabilities and Stockholders' Equity $ 940,580 $4,062,789 $(3,262,789) $1,740,580
================= =============== ============== ==============
XIN NET CORP.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 (Unaudited)
ProtectServe
Pacific
Limited Xin Net Corp Pro forma Xin Net Corp.
historical historical
(c) (d) adjustments pro forma
-------------- -------------- -------------- ---------------
Revenue
Domain Name Registration $ - $1,087,878 (k)$ (1,087,878) $ -
E-Solutions - 456,120 (k) (456,120) -
Surveillance monitoring and control
systems 531,173 - - 531,173
-------------- -------------- -------------- ---------------
1,543,998 (1,543,998) 531,173
531,173
Cost of Revenue
Domain Name Registration - 502,355 (k) (502,355) -
E-Solutions - 25,269 (k) (25,269) -
Surveillance monitoring and control
systems 163,073 - - 163,073
-------------- -------------- -------------- ---------------
163,073 527,624 (527,624) 163,073
Gross Profit 368,100 1,016,374 (1,016,374) 368,100
Expenses
Advertising and promotion - 238,948 (k) (238,948) -
Amortization 36,355 93,972 (k) (93,972) 36,355
General and administrative 41,539 538,844 (k) (538,844) 41,539
Salaries, wages and benefits 148,494 812,363 (k) (812,363) 148,494
Telephone and communication - 182,557 (k) (182,557) -
-------------- -------------- -------------- ---------------
226,388 1,866,684 (1,866,684) 226,388
-------------- -------------- -------------- ---------------
Operating Profit (Loss) 141,712 (850,310) 850,310 141,712
Other Income
Interest income - 41,517 (k) (41,517) -
-------------- -------------- -------------- ---------------
Operating profit (loss) from Continuing
Operations 141,712 (808,793) 808,793 141,712
Provision for income taxes (22,674) - - (22,674)
-------------- -------------- -------------- ---------------
Income (Loss) from continuing operations (808,793) 808,793 119,038
119,038
Loss from Discontinued Operations -
Internet Access Card services - (442,828) (k) 442,828 -
-------------- -------------- -------------- ---------------
Net Profit (Loss) Available to Common
Stockholders $ 119,038 $(1,251,621) $1,251,621 $ 119,038
============== ============== ============== ===============
Basic and Diluted Loss from Continuing
Operations per Share $ 11.90 $ (0.04) $ 0.00
============== ============== ===============
Basic and Diluted Weighted Average
Common Shares Outstanding 10,000 21,360,010 25,560,010
============== ============== ===============
XIN NET CORP.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 (Unaudited)
(a) Reflects the historical financial position of PSP as at June 30, 2001.
(b) Reflects the historical financial position of XNET as at June 30, 2001.
(c) Reflects the historical operating results of PSP for the period from
September 25, 2000 to June 30, 2001.
(d) Reflects the historical operating results of the Company for the six
months ended June 30, 2001.
The pro forma consolidated financial statements include the following
adjustments:
(e) To record the receipt of $400,000 received by XNET from the other party
as security deposit.
(f) To record the receipt of the balance of payment, $200,000, received by
XNET from the other party.
(g) To record the disposal by XNET of the following assets and liabilities
in relation to the internet access card services :
Assets
Property and equipment $ 320,771
Accounts receivable 290,016
Liabilities
Unearned revenue $ 316,627
(h) To transfer the security deposit received by XNET for calculation of its
gain on disposal of internet access card services.
(i) To record the gain on disposal of the internet access card services by
XNET.
(j) To reflect the transfer of the following assets and liabilities, at
their net book value, in exchange for common shares of XNETI and the
subsequent spin-off of XNETI to shareholders of the Company : -
Assets
Cash and short term deposits $ 1,703,780
Investments 1,318
Accounts receivables 228,395
Other receivables 7,283
Prepaid expenses 88,341
Deferred costs 488,143
Property and equipment 734,742
Liabilities
Accounts payables and accrued liabilities $ 748,935
Unearned revenue 1,900,078
Capital lease obligation 92,560
(k) To record the issuance of 4.2 million of common shares of the Company
to acquire 100% of the outstanding shares of PSP.
-------------------------------------------------------------------------------
XIN NET CORP.
#830-789 W. Pender St, Vancouver, BC, Canada V6C 1H2
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS, November , 2001
The undersigned hereby appoints Marc Hung proxy, with full power of
substitution, for and in the name or names of the undersigned, to vote all
shares of Common Stock of Xin Net Corp. held of record by the undersigned at the
Annual Meeting of Stockholders to be held on November , 2001, at 10:00 AM, at
#830-789 W. Pender Street, Vancouver, BC Canada V6C 1H2, and at any adjournment
thereof, upon the matters described in the accompanying Notice of Annual Meeting
and Proxy Statement, receipt of which is hereby acknowledged, and upon any other
business that may properly come before, and matters incident to the conduct of,
the meeting or any adjournment thereof. Said person is directed to vote on the
matters described in the Notice of Annual Meeting and Proxy Statement as
follows, and otherwise in their discretion upon such other business as may
properly come before, and matters incident to the conduct of, the meeting and
any adjournment thereof.
1. To elect a Board of seven (7) directors to hold office until the next
annual meeting of stockholders or until their respective successors
have been elected and qualified:
Nominees: Marc Hung, Ernest Cheung, Xiao-qing (Angela) Du,
Maurice Tsakok, Justin Kwei, Wilson Yim, and Suzanne Yim.
[_] FOR: nominees listed above (except as marked to the con-
trary below).
[_] WITHHOLD authority to vote for nominee(s) specified below
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), write
the applicable name(s) in the space provided below.
--------------------- --------------------- --------------------
2. To approve the adoption of the Employee Stock Award Plan of Xin Net Corp.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To ratify the designation of Clancy and Co., PLLC, as independent
accountants for the period ending December 31, 2001:
[_] FOR [_] AGAINST [_] ABSTAIN
4. To approve the agreement signed on June 22, 2001 to sell Company ISP assets
to Beijing Sino Soft Intel Information Technology Ltd.
[_] FOR [_] AGAINST [_] ABSTAIN
5. To authorize the spin off of shares of Xin Net International Corp., as a
distribution by way of a dividend, pro-rata to the shareholders of the
Company on the basis of one share of Xin Net International Corp. for each
one share of the Company owned as of the record date for this meeting.
[_] FOR [_] AGAINST [_] ABSTAIN
6. To authorize the Board of Directors to change the name of the Company at its
discretion.
[_] FOR [_] AGAINST [_] ABSTAIN
7. To transact such other business as may properly come before the Annual
Meeting.
[_] FOR [_] AGAINST [_] ABSTAIN
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND RETURN THIS PROXY
CARD IN THE ENCLOSED ENVELOPE.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS
INDICATED, WILL BE VOTED "FOR" THE STATED PROPOSALS.
----------------------------------------
Signature of Stockholder
----------------------------------------
Signature if held jointly
Dated: __________________________ , 2001
IMPORTANT: If shares are
jointly owned, both owners
should sign. If signing as
attorney, executor,
administrator, trustee,
guardian or other person
signing in a representative
capacity, please give your
full title as such. If a
corporation, please sign in
full corporate name by
President or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.