SCHEDULE 14A INFORMATION
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 Under ss. 240.14a-12
Cyber Merchants Exchange, Inc.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
___________________________________________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
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):
___________________________________________________________________
4) Proposed maximum aggregate value of transaction:
___________________________________________________________________
5) Total fee paid:
___________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _______________________________________________
2) Form Schedule or Registration Statement No.:___________________________
3) Filing Party:__________________________________________________________
4) Date Filed:____________________________________________________________
[C-ME LETTERHEAD]
October 28, 2002
Dear Shareholder:
You are cordially invited to attend the 2002 Annual Meeting of Shareholders
of Cyber Merchants Exchange, Inc. to be held at 10:00 a.m. Pacific Daylight Time
on Friday, December 6, 2002, at the executive offices of the company located at
600 South Lake Avenue, Suite 208, Pasadena, California, 91106.
The accompanying Notice of the 2002 Annual Meeting of Shareholders and
Proxy Statement describe the matters to be presented at the Annual Meeting. The
Board of Directors recommends that shareholders vote in favor of each of the
matters presented.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, please mark, sign, date and return the Proxy Card in the enclosed
self-addressed and stamped envelope, or by facsimile at (626) 793-5096, as soon
as possible. Your stock will be voted in accordance with the instructions you
have given in the Proxy Card. You may still attend the Annual Meeting and vote
in person even if you have previously voted by proxy.
I look forward very much to seeing you on December 6th.
Sincerely,
/s/ Frank S. Yuan
Frank S. Yuan
Chairman of the Board and
Chief Executive Officer
2
NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
OF CYBER MERCHANTS EXCHANGE, INC.
TO BE HELD AT 10:00 A.M. ON DECEMBER 6, 2002
To the Shareholders of Cyber Merchants Exchange, Inc.:
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Shareholders of Cyber
Merchants Exchange, Inc., a California corporation, will be held at 10:00 a.m.
Pacific Daylight Time on Friday, December 6, 2002, at the executive offices of
the company located at 600 South Lake Avenue, Suite 208, Pasadena, California,
91106, and all adjournments and postponements thereof, for the following
purposes:
1. To elect six directors to serve until the 2003 Annual Meeting of
Shareholders or until their successors are duly elected and qualified;
2. To ratify the Board's selection of Squar, Milner, Reehl, & Williamson
LLP, Certified Public Accountants, as the company's independent
auditors for the fiscal year ending June 30, 2003;
3. To ratify and approve the Board of Director's adoption of the 1996 Stock
Option Plan;
4. To ratify and approve the Board of Director's adoption of the 1999 Stock
Option Plan;
5. To ratify and approve the Board of Director's adoption of the 2001 Stock
Option Plan;
6. To ratify and approve the Board of Director's action to terminate the
Lock-Up Agreement dated November 13, 1998; and
7. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice. The Board of Directors of Cyber Merchants Exchange has
fixed October 11, 2002 as the record date for determining shareholders entitled
to receive notice of, and to vote at, the Annual Meeting or any adjournment or
postponement thereof. Only shareholders of record at the close of business on
that date will be entitled to notice of and to vote at the Annual Meeting.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON,
BUT EVEN IF YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN
THE ENVELOPE PROVIDED, OR BY FACSIMILE AT (626) 793-5096, TO ENSURE YOUR
REPRESENTATION. SHAREHOLDERS ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON
EVEN IF THEY HAVE PREVIOUSLY VOTED BY PROXY.
By Order of the Board of Directors,
/s/ Luz Jimenez
Luz Jimenez
Secretary
Pasadena, California
October 28, 2002
3
CYBER MERCHANTS EXCHANGE, INC.
600 South Lake Avenue, Suite 208
Pasadena, California, 91106
Tel: (626) 793-5000
Fax: (626) 793-5096
________________________________________________________________________________
PROXY STATEMENT
FOR THE
2002 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 6, 2002
GENERAL
This Proxy Statement is furnished to the shareholders of Cyber Merchants
Exchange, Inc. ("C-Me"), a California corporation, in connection with the
solicitation of proxies by the Board of Directors of C-Me. The proxies are to be
voted at the 2002 Annual Meeting of Shareholders of C-Me (the "Annual Meeting")
to be held at the executive offices of the company located at 600 South Lake
Avenue, Suite 208, Pasadena, California, 91106, at 10:00 a.m. Pacific Daylight
Time on Friday, December 6, 2002, and any adjournment or postponement thereof,
for the purposes set forth in the accompanying Notice. The Board is not aware of
any other matters to be presented at the Annual Meeting. If any other matter
should be presented at the Annual Meeting upon which a vote properly may be
taken, shares represented by all duly executed proxies received by C-Me will be
voted with respect thereto in accordance with the best judgment of the persons
designated as the proxies. This Proxy Statement and the accompanying form of
proxy have been mailed to shareholders on or about October 28, 2002.
The cost of the solicitations will be borne by C-Me, including the costs of
preparing, assembling, printing and mailing this Proxy Statement, the Proxy Card
and any additional information furnished to shareholders. No additional
compensation will be paid to directors, officers or other regular employees for
their services in connection with this proxy solicitation.
ANNUAL REPORT
An Annual Report to Shareholders, containing financial statements for the fiscal
year ended June 30, 2002, accompanies this Proxy Statement. Shareholders are
referred to the Annual Report for financial and other information about the
activities of C-Me. The Annual Report is not incorporated by reference into this
Proxy Statement and is not deemed to be a part hereof.
C-Me will furnish to you a copy of the report on Form 10-KSB for the fiscal year
ended June 30, 2002, and any exhibit described in the list accompanying the Form
10-KSB, upon the payment, in advance, of the specified reasonable fees related
to C-Me's furnishing of such document(s). Requests for copies of the Form 10-KSB
and/or exhibit(s), or additional copies of C-Me's Annual Report, should be
directed to Manager of Investor Relations, Cyber Merchants Exchange, Inc., 600
S. Lake Avenue, Suite 208, Pasadena, CA 91106 or by calling toll-free
1.888.564.6263. In the alternative, you may find the Form 10-KSB and the
exhibits to the Form 10-KSB on the Security and Exchange Commission's web-site
at www.sec.gov.
RECORD DATE AND VOTING RIGHTS
Only holders of record of C-Me's shares of common stock, no par value per share
("Common Stock"), at the close of business on October 11, 2002 (the "Record
Date") will be entitled to notice of, and to vote at, the Annual Meeting. On the
Record Date, C-Me had 7,472,673 shares of Common Stock outstanding. Each share
of Common Stock is entitled to one vote at the Annual Meeting.
1
The following table summarizes the voting requirements for the six proposals:
PROPOSAL VOTE REQUIRED
- --------------------------------------------------------------------------------
Proposal No. 1:Election of six Unless notice is given at the beginning of
directors. the Annual Meeting to cumulate votes (as
discussed below), a plurality of the votes
of shares of Common Stock present or
represented and entitled to vote at the
Annual Meeting is required. If there is no
cumulative voting, persons controlling a
majority of the shares of Common Stock present
or represented and entitled to vote at the
Annual Meeting can elect all of the
directors.
- --------------------------------------------------------------------------------
Proposal No. 2: Ratification The votes of persons controlling a majority
of the Board's appointment of the shares of Common Stock present or
of Squar, Milner, Reehl, & represented and entitled to vote at the
Williamson LLP as C-Me's Annual Meeting must be cast FOR ratification.
auditors for fiscal year
ending June 30, 2003.
- --------------------------------------------------------------------------------
Proposal No. 3: Ratification The votes of persons controlling a majority
and approval of the Board's of the shares of Common Stock present or
adoption of the 1996 Stock represented and entitled to vote at the annual
Option Plan. Meeting must be cast FOR ratification and
approval.
- --------------------------------------------------------------------------------
Proposal No. 4: Ratification The votes of persons controlling a majority
and approval of the Board's of the shares of Common Stock present or
adoption of the 1999 Stock represented and entitled to vote at the Annual
Option Plan. Meeting must be cast FOR ratification and
approval.
- --------------------------------------------------------------------------------
Proposal No. 5: Ratification The votes of persons controlling a majority
and approval of the Board's of the shares of Common Stock present or
adoption of the 2001 Stock represented and entitled to vote at the Annual
Option Agreement. Meeting must be cast FOR ratification and
approval.
- --------------------------------------------------------------------------------
Proposal No. 6: Ratification The votes of persons controlling a majority
and approval of the Board's of the shares of Common Stock present or
action to terminate the Lock- represented and entitled to vote at the Annual
Up Agreement dated November Meeting must be cast FOR ratification and
13, 1998. approval.
CUMULATIVE VOTING
If any C-Me shareholder who is entitled to vote at the Annual Meeting gives
notice at the beginning of the meeting of the shareholder's intention to
cumulate his or her votes with respect to the election of directors, all of the
shareholders will be entitled to cumulate votes for the election of candidates
at the Annual Meeting. Cumulative voting enables a shareholder to give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are normally
entitled, or to distribute the shareholder's votes on the same principle among
as many candidates as the shareholder desires.
2
QUORUM
A majority of C-Me's issued and outstanding shares of Common Stock present in
person or represented by proxy constitutes a quorum for the transaction of
business at the Annual Meeting. Broker non-votes occur when a person holding
shares through a bank or brokerage account does not provide instructions as to
how his or her shares should be voted and the broker does not exercise
discretion to vote those shares on a particular matter. Abstentions and broker
non-votes will be included in determining the presence of a quorum at the Annual
Meeting. However, an abstention or broker non-vote will not have any effect on
the outcome for the election of directors or the other proposals.
LIST OF SHAREHOLDERS ENTITLED TO VOTE
At least 10 days before the Annual Meeting, the Secretary of C-Me will make a
complete list of the shareholders entitled to vote at the Annual Meeting
arranged in alphabetical order, with the address of and number of shares held by
each shareholder. The list will be kept on file at the principal offices of C-Me
and will be subject to inspection by any shareholder of C-Me at any time during
normal business hours. The list will also be present for inspection at the
Annual Meeting.
ATTENDANCE AND VOTING AT THE ANNUAL MEETING
If you own shares of record, you may attend the Annual Meeting and vote in
person, regardless of whether you have previously voted on a Proxy Card. If you
own shares through a bank or brokerage firm account, you may attend the Annual
Meeting, but in order to vote your shares at the meeting, you must obtain a
"legal proxy" from the bank or brokerage firm that holds your shares. You should
contact your account representative to learn how to obtain a "legal proxy". C-Me
encourages you to vote your shares in advance of the Annual Meeting date by one
of the methods described above, even if you plan on attending the Annual
Meeting. You may change or revoke your proxy at the Annual Meeting as described
below even if you have already voted.
PROXY VOTING
Shares for which Proxy Cards are properly executed and returned will be voted at
the Annual Meeting in accordance with the directions noted thereon or, in the
absence of directions, will be voted "FOR" the election of each of the nominees
to the Board of Directors named on the following page, and "FOR" the other
proposals to be voted on at the Annual Meeting. It is not expected that any
matters other than those referred to in this Notice and Proxy Statement will be
brought before the Annual Meeting. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their
discretion with respect to such matters.
The manner in which your shares may be voted by proxy depends on how your shares
are held. If you own shares of record, meaning that your shares of Common Stock
are represented by certificates or book entries in your name so that you appear
as a shareholder on the records of C-Me's stock transfer agent, a Proxy Card for
voting those shares will be included with this Proxy Statement. You may vote
those shares by completing, signing and returning the Proxy Card in the enclosed
envelope.
If you own shares through a bank or brokerage firm account, you may instead
receive a voting instruction form with this Proxy Statement, which you may use
to instruct how your shares should be voted. Just as with a proxy, you may vote
those shares by completing, signing and returning the voting instruction form in
the enclosed envelope. Many banks and brokerage firms have arranged for Internet
or telephonic voting of shares and provide instructions for using those services
on the voting instruction form. If your bank or brokerage firm uses ADP Investor
Communication Services, you may vote your shares via the Internet at
www.proxyvote.com or by calling the toll-free number on your voting instruction
- -----------------
form.
Brokers holding shares of record for their customers generally are not entitled
to vote on certain matters unless their customers give them specific voting
3
instructions. If the broker does not receive specific instructions, the broker
will note this on the proxy form or otherwise advise C-Me that it lacks voting
authority.
REVOCABILITY OF PROXY
Any shareholder holding shares of record may revoke a previously granted proxy
at any time before it is voted by delivering to the Secretary of C-Me a written
notice of revocation or a duly executed Proxy Card bearing a later date or by
attending the Annual Meeting and voting in person. Any shareholder holding
shares through a bank or brokerage firm may revoke a previously granted proxy or
change previously given voting instructions by contacting the bank or brokerage
firm, or by obtaining a "legal proxy" from the bank or brokerage firm and voting
at the Annual Meeting.
DATE AND TIME OF OPENING AND CLOSING OF THE POLLS
The date and time of the opening of the polls for the Annual Meeting shall be
10:00 a.m. on December 6, 2002. The time of the closing of the polls for voting
shall be announced at the Annual Meeting. No ballot, proxies or votes, nor any
revocations or changes to a vote, shall be accepted after the closing of the
polls unless a court of equity, upon application by a shareholder, determines
otherwise.
VOTING AT THE ANNUAL MEETING
The Inspector of Elections will tabulate votes cast by proxy or in person at the
Annual Meeting with the assistance of C-Me's transfer agent. The Inspector of
Elections will also determine whether a quorum is present. Each shareholder of
record at the close of business on October 11, 2002, is entitled to one vote for
each share then held on each matter submitted to a vote of shareholders.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The directors and executive officers of C-Me do not have any substantial
interest in the matters to be acted upon at the Annual Meeting except that: (i)
certain directors and officers have a direct interest in the ratification by the
shareholders of the Board's adoption of the 1996, 1999 and 2001 stock option
plans from which the directors and officer have been granted stock options; and
(ii) to the extent the directors and executive officers have shares of stock
restricted from resale by the Lock-Up Agreement with C-Me, they will benefit
from the termination of the Lock-Up Agreement.
4
- --------------------------------------------------------------------------------
PROPOSAL NO. 1: ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
NOMINEES FOR THE BOARD OF DIRECTORS
The Board of Directors of C-Me has proposed that the following six nominees be
elected at the Annual Meeting, each of whom shall hold office for one year or
until his or her successor shall have been elected and qualified: Donald McNabb;
Frank Yuan; Charles H. Rice; Deborah Shamaley; John Busey; and James Vandeberg.
All nominees have consented to being named as nominees and have agreed to serve
if elected.
Unless otherwise instructed, it is the intention of the persons named as proxies
on the accompanying Proxy Card to vote shares represented by properly executed
proxies for the election of such nominees. Although the Board of Directors
anticipates that the six nominees will be available to serve as directors of
C-Me, if any of them should be unwilling or unable to serve, it is intended that
the proxies will be voted for the election of such substitute nominee or
nominees as may be designated by the Board of Directors.
As provided in the Articles of Incorporation of C-Me, the directors are to serve
a one-year term. Absent his or her death, resignation or removal, a director
shall continue to serve despite the expiration of the director's term until his
or her successor shall have been elected and qualified or until there is a
decrease in the number of directors.
A shareholder submitting a proxy may vote for all or any of the nominees for
election to the Board of Directors or may withhold his or her vote from all or
any of such nominees. Directors are elected by a plurality of votes.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each director,
executive officer and nominee of C-Me as of the date of this Proxy Statement.
Name Age Position Term
---- --- -------- ----
Donald C. McNabb 60 Nominee
Frank S. Yuan 54 Chairman of the Board July 1996 to present
and Chief Executive
Officer and Nominee
Charles H. Rice 60 Director and Nominee July 1996 to present
Deborah Shamaley 44 Director and Nominee July 1996 to present
John F. Busey 55 Director and former October 1999 to present
President and Nominee
James L. Vandeberg 58 Director and Nominee June 2001 to present
Luz M. Jimenez 31 Secretary and June 2001 to present
Controller
The directors serve for a one year term or until their successors have been
elected and qualified. Mary B. McNabb resigned as a director of C-Me effective
October 8, 2002. Ms. McNabb is the wife of Donald McNabb, a nominee to serve as
a director on C-Me's Board.
5
There are no family relationships among any of the directors and executive
officers of C-Me. All of the executive officers identified above serve at the
discretion of the Board and have consented to act as executive officers of C-Me.
Biographical information regarding each of the directors, executive officers and
nominees for election to the Board of Directors is set forth below.
Donald C. McNabb, Sr. - Nominee
- -------------------------------
Donald McNabb brings more than 34 years experience in international
manufacturing, marketing and law. As founder and former President of Quadri
Corporation, a manufacturer of computer memory systems, Mr. McNabb led the
company to become one of the leading manufacturers of military memory systems.
Quadri maintained sales offices throughout Europe with manufacturing facilities
in Mexico, Hong Kong and Korea. Quadri was sold in 1978. Mr. McNabb also founded
Safari Arms, which became the ninth largest pistol manufacturer in the U.S. and
the largest manufacturer of custom parts in the world. Safari pioneered the use
of investment casting in firearm manufacturing and developed a world-wide
marketing organization. Safari was sold in 1988. Subsequent to Safari, Mr.
McNabb established real estate brokerage offices in California and Arizona
specializing in commercial properties and tax deferred exchanges. Mr. McNabb now
practices law with offices in San Diego and Phoenix. He attended Capitol
Institute, Arizona State University, and graduated Summa Cum Laude with a Juris
Doctorate from Western Sierra School of Law. He also holds national designations
in both commercial and international real estate.
Frank S. Yuan - Nominee
- -----------------------
Combining decades of experience in the apparel, banking, real estate, insurance
and computer industries, Frank Yuan has developed and started multiple new
businesses in more than 30 years since emigrating to the U.S from Taiwan. Before
starting C-Me, Mr. Yuan founded a multi-million dollar men's apparel private
label & wholesale company, a "Knights of Round Table" sportswear line, a
"Uniform Code" sweater line, and a men's clothing retail store chain. Mr. Yuan
also founded UNI-Fortune, a real-estate development company, and co-founded
United National Bank, Evertrust Bank, Western Cities Title Insurance Company and
Serv-American National Title Insurance. Mr. Yuan received a B.A. degree in
economics from Fu-Jen Catholic University in Taiwan and a M.B.A. degree from
Utah State University.
Charles H. Rice - Nominee
- -------------------------
Charles H. Rice is a retired Senior International and Domestic buyer from Sears
Robuck and Montgomery Wards. His more than 30 years of buying experience,
reputation, contacts & product sourcing knowledge bring C-Me tremendous benefits
and a head start in the retail industry. Since 1995, he has served as a
manufacturer's representative and consultant to Deer Creek Enterprises, Ltd., a
consulting business focused on the apparel industry. Mr. Rice holds a B.S.
degree in business and economics from the University of Delaware.
Deborah Shamaley - Nominee
- --------------------------
Deborah Shamaley, a chain store and apparel-jobbing entrepreneur, has 20 years
of retail and wholesale apparel experience. Ms. Shamaley co-founded The Apparel
Group ("TAG"). TAG imported and sold women's apparel wholesale to more than
1,800 retailers, including Nordstrom's, J.C. Penney's, Sears, and Burlington
Coat Factory. TAG also owned and operated a 23 apparel store-chain under the
name $11.99 Puff. Ms. Shamaley sold the company in 1996. Currently, Ms. Shamaley
is an active franchise partner of a full service 25 location Italian Restaurant
Chain called "Johnny Carino's Country Italian". Since 1995, Ms. Shamaley has
also been involved as an owner in Shamaley Ford car dealership one of the
largest in El Paso, Texas.
John F. Busey - Nominee
- -----------------------
John Busey, a former president of C-Me, has more than two decades of experience
in strategic, operational and financial planning and management with the former
Carter Hawley Hale Stores, the multi-billion dollar department and specialty
holding company which operated under the following names: The Broadway, Neiman
Marcus, Contempo Casuals, Emporium, Weinstock's, Bergdorf Goodman, Holt Renfrew
- - Canada, Waldenbooks, John Wanamaker, Thalhimers, and Sunset House. As
president of Carter Hawley Hale Stores finance subsidiary, and vice president
and treasurer of the company, Mr. Busey was responsible for all finance, banking
and investment functions, including mergers, acquisitions and divestitures, an
6
initial public offering, and corporate restructuring and recapitalization. From
1995 until joining C-Me as President in 1999, Mr. Busey focused his energy on
the non-profit efforts of the Southern California Housing Development
Corporation, assisting local cities with development of affordable housing. Mr.
Busey received a B.S. degree in finance and economics from the Menlo School of
Business and a M.B.A. from the University of Southern California. He also
completed the Executive Financial Management Program at the Stanford University
Graduate School of Business.
James L. Vandeberg - Nominee
- ----------------------------
James Vandeberg has been practicing corporate and securities law for more than
20 years. He has significant experience advising both Internet and retail
companies on securities, financings, mergers and acquisitions, and general
corporate matters, including IPOs, SEC compliance, and investor relations'
issues. His retail experience includes 14 years as Corporate Counsel and
Secretary at the former Carter Hawley Hale Stores, a holding company for the
multi-billion dollar department and specialty retail stores which operated under
the following names: The Broadway, Neiman Marcus, Contempo Casuals, Emporium,
Weinstock's, Bergdorf Goodman, Holt Renfrew - Canada, Waldenbooks, John
Wanamaker, Thalhimers, and Sunset House. In addition, Mr. Vandeberg serves on
the board of directors of Information Highway.com, Inc. (OTC:BB IHWY), IAS
Communications, Inc. (OTC:BB IASCA), and REGI US, Inc. (OTC:BB RGUS). He
received a B.A. degree in accounting from the University of Washington and a
J.D. from New York University.
Luz M. Jimenez
- --------------
Luz Jimenez brings 12 years of accounting experience in the apparel, Internet,
and e-commerce industries. She has been working for C-Me since its inception in
July 1996 as the Office Manager. In June 2001, she became C-Me's Controller and
in October 2001 she was appointed Corporate Secretary of the company. Prior to
working for C-Me, Ms. Jimenez worked for UNI Imports, an apparel importing and
wholesale business, starting in 1987.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors has, as standing committees, an Executive Committee, a
Compensation Committee and an Audit Committee. During the fiscal year ended June
30, 2002, the Board of Directors held four regular meetings and three special
meetings. All directors attended 80% or more of the total meetings of the Board
and committees of the Board on which they served.
The Executive Committee consists of Mr. Frank Yuan and Mr. Charles H. Rice.
Mr. Donald McNabb is expected to be appointed to this Committee if elected as a
director at the Annual Meeting. The Executive Committee has authority to take
any action other than the appointment of auditors, election and removal of
directors and appointment of officers, which can be taken only by the entire
Board. During the fiscal year ended June 30, 2002, the Executive Committee held
seven meetings.
During the fiscal year ended June 30, 2002, the Compensation Committee
consisted of two independent directors, Ms. Deborah Shamaley and Mr. Charles H.
Rice. Mr. Donald McNabb is expected to be appointed as a member of the
Compensation Committee if elected as a director at the Annual Meeting. The
principal functions of the Compensation Committee are to establish the
compensation of executive officers, review management organization and
development, review significant employee benefit programs and to administer the
C-Me's Stock Option Plan.
During the fiscal year ended June 30, 2002, the Audit Committee consisted
of two independent directors (as that term is defined in Rule 4200 (a)(14) of
the NASD's listing standards): Mr. Charles H. Rice and Ms. Mary McNabb, and one
non-independent director, Mr. James Vandeberg. Ms. McNabb has resigned as a
director and Mr. Vandeberg will resign as a member of the Audit Committee. Mr.
Donald McNabb is expected to be appointed as a member of the Compensation
Committee if elected as a director at the Annual Meeting. The Audit Committee is
responsible for aiding management in the establishment and supervision of C-Me's
financial controls, evaluating the scope of the annual audit, reviewing audit
results, consulting with management and C-Me's independent accountants prior to
the presentation of financial statements to the shareholders and, if
appropriate, initiating inquiries into aspects of C-Me's financial affairs. The
Audit Committee held two meetings during the fiscal year ended June 30, 2002.
7
The Board of Directors authorized the Audit Committee to adopt a written
Charter, which the Committee did on August 9, 2000. A copy of the Audit
Committee Charter accompanies this Proxy Statement as Appendix A.
C-Me does not have a Nominating Committee. The Board of Directors, as a whole,
identifies and screens candidates for membership on C-Me's Board.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee operates under a written charter adopted by the Audit
Committee, a copy of which accompanies this Proxy Statement as Appendix A.
The purpose of the Audit Committee is to assist the Board of Directors in its
general oversight of C-Me's financial reporting, internal controls and audit
functions. The Audit Committee members are not professional accountants or
auditors, and their functions are not intended to duplicate or certify the
activities of management and the independent auditor. The Committee provides
advice, counsel and direction to management and the auditors on the basis of
information it receives, discussions with management and the auditors and the
experience of the Committee's members in business, financial and accounting
matters.
The Audit Committee has met and reviewed C-Me's audited financial statements as
of and for the year ended June 30, 2002, with C-Me's management, which has the
primary responsibility for preparing C-Me's financial statements. C-Me's
independent auditors, Squar, Milner, Reehl & Williamson, LLP, are responsible
for performing an independent audit of C-Me's financial statements in accordance
with auditing standards generally accepted in the United States and issuing a
report thereon.
The Audit Committee has discussed with Squar, Milner, Reehl & Williamson, LLP
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communicating with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants. The Audit Committee
has received and reviewed the written disclosures and the letter from Squar,
Milner, Reehl & Williamson, LLP required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the Independence
Standards Board, and has discussed with Squar, Milner, Reehl & Williamson, LLP
their independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to C-Me's Board of Directors that the audited financial statements
referred to above be included in C-Me's Annual Report for the year ended June
30, 2002 for filing with the Securities and Exchange Commission.
Respectfully submitted by the Audit Committee of the Board of Directors of C-Me:
Charles H. Rice
James L. Vandeberg
Mary B. McNabb
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
To C-Me's knowledge, the following table sets forth information with respect to
the beneficial ownership of its outstanding Common Stock as of the record date,
October 11, 2002, by: (i) each person known by C-Me to beneficially own more
than 5% of its Common Stock; (ii) each of its executive officers; (iii) each of
its directors; and (iv) all of its executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Unless otherwise indicated, the address for those
listed below is c/o Cyber Merchants Exchange, Inc., 600 South Lake Avenue, Suite
208, Pasadena, California, 91106. Except as indicated by footnote, and subject
8
to applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them. The number of shares of Common Stock outstanding
used in calculating the percentage for each listed person includes the shares of
Common Stock underlying options held by such persons that are exercisable within
60 days of October 11, 2002, but excludes shares of Common Stock underlying
options held by any other person. The number of shares of C-Me's Common Stock
outstanding as of October 11, 2002 was 7,472,673. Except as otherwise noted, the
amounts reflected below are based upon information provided to C-Me and in
filings with the Securities and Exchange Commission.
|----------------------------------------------|-------------------|-----------|
| | |PERCENT OF |
|NAME OF BENEFICIAL OWNER | NUMBER OF SHARES |OUTSTANDING|
|----------------------------------------------|-------------------|-----------|
|Frank S. Yuan, Chairman of the Board and CEO | 3,118,000 (1) | 38.96% |
|----------------------------------------------|-------------------|-----------|
|James L. Vandeberg, Director | 15,315 (2) | * |
|----------------------------------------------|-------------------|-----------|
|Deborah Shamaley, Director | 330,000 (3) | 4.40% |
|----------------------------------------------|-------------------|-----------|
|Charles H. Rice, Director | 90,000 (4) | 1.20% |
|----------------------------------------------|-------------------|-----------|
|John F. Busey, Director | 5,000 (5) | * |
|----------------------------------------------|-------------------|-----------|
|Donald C. McNabb Sr., Nominee | 50,000 (6) | * |
|----------------------------------------------|-------------------|-----------|
|Luz Jimenez, Secretary and Controller | 37,500 (7) | * |
|--------------------------------------------- |-------------------|-----------|
|ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP | | |
| (7 Persons) | 3,645,815 | 44.70% |
|----------------------------------------------|-------------------|-----------|
* Indicates less than one percent of the issued and outstanding Common Stock as
of October 11, 2002.
(1) Includes 2,588,000 shares of Common Stock held directly by Frank Yuan.
Also includes 530,000 shares of Common Stock issuable within 60 days upon
exercise of stock options.
(2) Includes 15,315 shares of Common Stock issuable within 60 days upon
exercise of stock options.
(3) Includes 300,000 shares of Common Stock directly owned by Ms. Shamaley.
Also includes 30,000 shares of Common Stock issuable within 60 days upon
exercise of stock options.
(4) Includes 60,000 shares of Common Stock directly owned by Mr. Rice.
Also includes 30,000 shares of Common Stock issuable within 60 days
upon exercise of stock options.
(5) Includes 5,000 shares of Common Stock issuable within 60 days upon
exercise of stock options.
(6) Includes 50,000 shares of Common Stock issuable within 60 days upon
exercise of stock options held by Mr. McNabb's wife, Mary McNabb, a
former director of C-Me.
(7) Includes 15,000 shares of Common Stock directly owned by Ms. Jimenez.
Also includes 22,500 shares of Common Stock issuable within 60 days upon
exercise of stock options.
CHANGE IN CONTROL
C-Me is not aware of any arrangement that would upset the control mechanisms
currently in place over the corporation. Although it is conceivable that a third
party could attempt a hostile takeover of C-Me, it has not received notice of
any such effort.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of June 30, 2002 with respect to
compensation plans under which C-Me is authorized to issue shares of its Common
Stock, aggregated as follows:
o all compensation plans previously approved by security holders; and
o all compensation plans not previously approved by security holders.
9
- ---------------|----------------------|---------------------|------------------|
| (a) | (b) | (c) |
- ---------------|----------------------|---------------------|------------------|
| | | Number of |
| | | securities |
| | | remaining |
| | | available for |
| | | future issuance |
| | | under equity |
| Number of securities | | compensation |
| to be issued upon | Weighted-average | plans (excluding |
| exercise of | exercise price of | securities |
| outstanding options, | outstanding options,| reflected in |
Plan Category | warrants and rights | warrants and rights | column (a)) |
| | | |
- ---------------|----------------------|---------------------|------------------|
Equity | | | |
compensation | | | |
plans approved | | | |
by security | | | |
holders | 0 | 0 | 0 |
- ---------------|----------------------|---------------------|------------------|
Equity | | | |
compensation | | | |
plans not | | | |
approved by | | | |
security | | | |
holders(1) | 1,697,052 (2) | $4.59 | 0 |
| | | |
- ---------------|----------------------|---------------------|------------------|
| | | |
Total | 1,697,052 | $4.59 | 0 |
| | | |
- ---------------|----------------------|---------------------|------------------|
(1) C-Me's Board of Directors has recommended that the company's
shareholders ratify and approve C-Me's 1996, 1999 and 2001 stock option
plans at the Annual Meeting, which include 1,427,885 of securities to
be issued upon exercise of outstanding options, warrants and rights
with a weighted-average exercise price of $3.54. There are 1,822,115
securities remaining available for future issuance under equity
compensation plans. A summary of the material terms of each of the
stock option plans is provided under Proposal Nos. 3, 4 and 5,
respectively, of this Proxy Statement.
(2) Includes warrants issued to Burlington Coat Factory Warehouse
Corporation ("BCF"), Factory 2-U Stores, Inc. ("F2U"), Imperial Bank,
and to various broker dealers as follows:
Burlington Coat Factory - On October 15, 1997, C-Me granted
BCF a warrant to purchase shares of Common Stock of C-Me equaling 10%
of the issued and outstanding Common Stock of C-Me on a fully diluted
basis on the date of grant (maximum of 828,118 shares as of June 30,
2002). As of June 30, 2002, the exercise price ranged from $4.00 to
$9.00 per share. The warrant expired on October 15, 2002 and is
therefore no longer outstanding. The warrant is exercisable for a
period of five years from the date of grant and has standard piggy-back
registration rights.
Imperial Bank - On February 10, 1999, C-Me granted Imperial
Bank a warrant to purchase 20,000 shares of Common Stock of C-Me at
$8.00 per share, or the initial public offering price, whichever is
less. The warrant will expire on February 10, 2004.
Factory 2-U Stores - On May 25, 2000, C-Me granted F2U a
warrant pursuant to a joint marketing and cooperation agreement. The
warrant entitles F2U to purchase 838,119 shares of Common Stock of
C-Me at $4.878 per share, which equaled 10% of the issued and
outstanding shares of Common Stock of C-Me immediately following the
closing of its private placement in June 2000 and the price at which
the shares sold in the private placement. The warrant is exercisable
for a period of five years from the date of grant, or May 25, 2005,
and has standard piggy-back registration rights.
Broker-Dealers - C-Me issued Common Stock warrants, subject
to certain conditions and restrictions as defined in warrant
agreements, to broker-dealers who sold shares of Common Stock in C-Me's
registered offering in 1999. The exercise price of the warrants is 165%
of C-Me's initial public offering price ($13.20 per share). As of June
30, 2002, there were 10,815 warrants outstanding under these
agreements. The warrants will expire on May 13, 2004.
10
EXECUTIVE COMPENSATION
The following table sets forth the compensation that C-Me has paid to its Named
Executive Officers for the three fiscal years ended June 30, 2002, 2001 and
2000, respectively. With the exception of Mr. Frank Yuan, no executive officer
or director received more than $100,000 in annual compensation during the year
ended June 30, 2002. The table does not reflect certain personal benefits, which
in the aggregate are less than ten percent of each Named Executive Officer's
salary and bonus. C-Me does not currently have a long-term compensation plan and
does not grant any long-term compensation to its executive officers. No other
compensation was granted for the periods covered.
- ---------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------ ----------------------------------
Awards Pay-Outs
--------------------- ---------
Other Securities All
Annual Restricted Under- Other
Name and Fiscal Compen- Stock lying LTIP Compen-
Principal Year Salary Bonus sation Award(s) Options/ Payouts sation
Position Ended ($) ($) ($) ($) SARs (#) ($) ($)
- ---------------------------------------------------------------------------------------------
FRANK S. 2002 $150,000 $0 $0 $0 5,000 $0 $0
YUAN 2001 $ $ $ $ -0- $ $
Chairman 2000 $ $ $ $ 525,000 $ $
and CEO(1)
- ---------------------------------------------------------------------------------------------
STOCK OPTION GRANTS
The following table sets forth information with respect to options to purchase
Common Stock granted to each of C-Me's Named Executive Officers during its most
recent fiscal year ended June 30, 2002:
- --------------------------------------------------------------------------------
Number of Percent of Total
Securities Options/SARs Exercise or Base
Underlying Granted to Price
Options/SARs Employees in ($/Share)
Name Granted Fiscal Year (1) Expiration Date
- --------------------------------------------------------------------------------
FRANK S. 5,000 2.25% $0.20/share 12/21/11
YUAN
Chairman
and CEO
- --------------------------------------------------------------------------------
(1) The total number of stock options granted to employees of C-Me during the
fiscal year ended June 30, 2002 was 222,500.
EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES
No stock options were exercised by the Named Executive Officers during the
fiscal year ended June 30, 2002.
COMPENSATION OF DIRECTORS
All directors are reimbursed for any reasonable expenses incurred in the course
of fulfilling their duties as directors of C-Me.
11
C-Me has also compensated its directors with stock options for their service as
directors. During the fiscal year ended June 30, 2002, the following C-Me
directors received nonqualified stock options from C-Me's 2001 Stock Option Plan
for their service as directors, each receiving an option to purchase 5,000
shares of Common Stock: Mr. Frank Yuan; Mr. Charles H. Rice; Ms. Deborah
Shamaley; Mr. John Busey; and Mr. James Vandeberg. Ms. Mary McNabb received a
nonqualified stock option to purchase 20,000 shares of Common Stock from C-Me's
2001 Stock Option Plan. Also during the fiscal year ended June 30, 2002, Ms.
McNabb received a nonqualified stock option from C-Me's 1999 Stock Option Plan
to purchase 30,000 shares of Common Stock. C-Me anticipates granting additional
stock options to its directors as compensation for their service as directors.
EMPLOYMENT CONTRACTS
C-Me does not currently have any employment contracts with its executive
officers or any other employee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
C-Me's directors, executive officers and persons who own more than ten percent
of its Common Stock to file with the Securities Exchange Commission and the
company reports on Forms 3, Forms 4 and Forms 5 reflecting transactions
affecting beneficial ownership. Based solely upon C-Me's review of copies of
such forms received by it, C-Me believes that, during fiscal year ended June 30,
2002, all persons complied with such filing requirements except that the
following persons did not timely file Forms 3, Forms 4 and Forms 5 reporting
transactions affecting their beneficial ownership. These forms were filed after
their due dates as follows:
Number of Transactions Not
Name of Reporting Person Number of Late Reports Reported on a Timely Basis
- ------------------------ ---------------------- --------------------------
Frank S. Yuan Form 5 1
Charles H. Rice Form 5 1
Deborah Shamaley Form 5 1
John F. Busey Form 5 1
Mary B. McNabb Form 5 2
James L. Vandeberg Form 5 1
Luz Jimenez Form 3; Form 5 2
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions with management or other parties occurred since the beginning of
C-Me's last fiscal year that would otherwise be reported under this section.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE NAMED ABOVE.
- --------------------------------------------------------------------------------
PROPOSAL NO. 2: RATIFY APPOINTMENT OF INDEPENDENT AUDITORS FOR 2003
- --------------------------------------------------------------------------------
Squar, Milner, Reehl & Williamson, LLP of Newport Beach, California, served as
C-Me's independent auditors for the fiscal year ended June 30, 2002, and has
been selected by the Board of Directors to continue as its independent auditors
for the fiscal year ending June 30, 2003.
Although the appointment of Squar, Milner, Reehl, & Williamson, LLP is not
required to be submitted to a vote of the shareholders, the Board believes it
12
appropriate as a matter of policy to request that the shareholders ratify the
appointment of the independent public accountant for the fiscal year ending June
30, 2003. In the event that the votes in opposition to ratification exceed the
votes in favor of ratification, the adverse vote will be considered as a
direction to the Board of Directors of C-Me to select other auditors for the
fiscal year ending June 30, 2003.
A representative from Squar, Milner, Reehl & Williamson, LLP is expected to be
present at the Annual Meeting. The representative will have the opportunity to
make a statement and will be able to respond to appropriate questions submitted
either orally or in writing at the meeting.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Effective August 15, 2001, the Board of Directors of C-Me approved a change of
accountants dismissing BDO Seidman, LLP ("BDO") of Los Angeles, California, and
engaging Corbin and Wertz of Irvine, California, as its principal independent
accountants to audit its financial statements.
C-Me believes, and has been advised by BDO that it concurs with such belief,
that, for the fiscal year ended June 30, 2000 and in the subsequent periods
through the date of dismissal, C-Me and BDO did not have any disagreement on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of BDO would have caused it to make reference in connection with
its report on C-Me's financial statements to the subject matter of the
disagreement. The report of BDO on C-Me's financial statements for the fiscal
year ended June 30, 2000 did not contain an adverse opinion or a disclaimer of
opinion. Prior to engaging Corbin & Wertz on August 15, 2001, C-Me, or someone
on its behalf, did not consult with the new accountants regarding the
application of accounting principles to a specific completed or contemplated
transaction, or the type of audit opinion that might be rendered on C-Me's
financial statements, and no written or oral advice was provided by the new
accountants that was an important factor considered by C-Me in reaching a
decision as to an accounting, auditing or financial reporting issue. C-Me has
furnished the above disclosure, made in response to Item 304(a) of Regulation
S-B, to both BDO Seidman, LLP and Corbin & Wertz for their review.
Effective January 30, 2002, the Board of Directors of C-Me approved a change of
accountants dismissing Corbin & Wertz of Irvine, California, and engaging Squar,
Milner, Reehl & Williamson, LLP of Newport Beach, California, as its principal
independent accountants to audit its financial statements.
C-Me believes, and has been advised by Corbin & Wertz that it concurs with such
belief, that, for the fiscal year ended June 30, 2001 and in the subsequent
periods through the date of dismissal, C-Me and Corbin & Wertz did not have any
disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Corbin & Wertz would have caused it to make
reference in connection with its report on C-Me's financial statements to the
subject matter of the disagreement. The report of Corbin & Wertz on C-Me's
financial statements for the fiscal year ended June 30, 2001 did not contain an
adverse opinion or a disclaimer of opinion. Prior to engaging Squar, Milner,
Reehl & Williamson, LLP on January 30, 2002, C-Me, or someone on its behalf, did
not consult with the new accountants regarding the application of accounting
principles to a specific completed or contemplated transaction, or the type of
audit opinion that might be rendered on C-Me's financial statements, and no
written or oral advice was provided by the new accountants that was an important
factor considered by C-Me in reaching a decision as to an accounting, auditing
or financial reporting issue. C-Me has furnished the above disclosure, made in
response to Item 304(a) of Regulation S-B, to both Squar, Milner, Reehl &
Williamson, LLP and Corbin & Wertz for their review.
FEES PAID TO PRINCIPAL INDEPENDENT ACCOUNTANTS
During the fiscal year ended June 30, 2002, Squar, Milner, Reehl & Williamson,
LLP and Corbin & Wertz, Independent Accountants, billed C-Me the fees set forth
below in connection with services rendered by those firms to C-Me.
13
AUDIT FEES. For professional services rendered by Squar, Milner, Reehl
& Williamson, LLP for the audit of C-Me's financial statements for the fiscal
year ended June 30, 2002, Squar, Milner, Reehl & Williamson, LLP billed C-Me
fees in the aggregate amount of $34,100. For reviews of unaudited financial
statements included in C-Me's Quarterly Reports on Form 10-QSB for the fiscal
year ended June 30, 2002, Squar, Milner, Reehl & Williamson, LLP billed C-Me
fees in the aggregate amount of $5,400. For professional services rendered by
Corbin & Wertz for reviews of the unaudited financial statements included in
C-Me's Quarterly Reports on Form 10-QSB for the fiscal year ended June 30, 2002,
Corbin & Wertz billed C-Me fees in the aggregate amount of $4,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. For the
fiscal year ended June 30, 2002, neither Squar, Milner, Reehl & Williamson, LLP
nor Corbin & Wertz rendered professional services to C-Me in connection with (i)
directly or indirectly operating, or supervising the operation of C-Me's
information system or managing its local area network, (ii) designing or
implementing a hardware or software system that aggregates source data
underlying C-Me's financial statements or generates information that is
significant to C-Me's financial statements taken as a whole or (iii) assessing,
designing and implementing internal accounting controls and risk management
controls. Therefore, neither Squar, Milner, Reehl & Williamson, LLP nor Corbin &
Wertz billed C-Me fees for such types of services because no such services were
rendered.
ALL OTHER FEES. For professional services other than those described
above rendered by Squar, Milner, Reehl & Williamson, LLP and Corbin & Wertz to
C-Me for the fiscal year ended June 30, 2002, Corbin & Wertz billed C-Me fees in
the aggregate amount of $6,380 for auditor communications, coordination and
re-issuance of its audit report concerning the audited financial statements of
C-Me for the fiscal year ended June 20, 2001.
Pursuant to Item 9(e)(4) of Schedule 14A, the Audit Committee has considered the
provision of services provided in the above referenced items and has determined
that the provision of these services is compatible with maintaining the
principal auditor's independence.
There were no hours expended on the principal auditor's engagement to audit C-Me
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal auditor's full-time,
permanent employees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 2.
If the shareholders do not ratify the Board's selection of Squar, Milner, Reehl
& Williamson, LLP, the adverse vote will be considered as a direction to the
Board to select other auditors for the fiscal year ending June 30, 2003.
- --------------------------------------------------------------------------------
PROPOSAL NO. 3: RATIFY AND APPROVE THE BOARD'S ADOPTION OF THE 1996 STOCK OPTION
PLAN
- --------------------------------------------------------------------------------
C-Me's stockholders are being asked to act upon a proposal to ratify and approve
the 1996 Stock Option Plan (the "1996 Plan"). C-Me's Board of Directors adopted
the 1996 Plan in September 1996.
Ratification of the 1996 Plan requires the approval of a majority of the shares
represented in person or by proxy and voting at the Annual Meeting. Although the
1996 Plan does not require shareholder approval, C-Me is seeking ratification
and approval as a matter of good corporate practice. If the shareholders do not
ratify and approve the 1996 Plan, C-Me's Board of Directors will consider what
should be done in light of C-Me's need to use stock options to attract, retain
and motivate its employees. A general description of the principal terms of the
1996 Plan is set forth below. Unless otherwise marked, all properly signed and
returned proxies will be voted FOR Proposal No. 3.
14
MATERIAL FEATURES OF THE 1996 PLAN
A copy of the 1996 Plan is attached as Appendix B to this Proxy Statement and
the description of the 1996 Plan set forth below is qualified in its entirety by
reference to the full text of the 1996 Plan. In addition, C-Me makes no
guarantee as to the tax consequences described below with respect to the grant
or exercise of an option, or sale of the stock covered by an option.
PURPOSE. The purpose of the 1996 Plan is to provide a means whereby
directors and selected employees, officers, agents, consultants and independent
contractors of C-Me, or any subsidiary thereof, may be granted nonqualified
stock options to purchase shares of Common Stock in order to attract and retain
the services or advice of such directors, employees, officers, agents,
consultants, and independent contractors and to provide an additional incentive
for such persons to exert maximum efforts for the success of C-Me and its
affiliates by encouraging stock ownership in the Company.
The maximum number of shares of Common Stock with respect to which awards may be
presently granted pursuant to the 1996 Plan is 250,000 shares. Shares issuable
under the 1996 Plan may be either treasury shares or authorized but unissued
shares. The number of shares available for issuance will be subject to
adjustment to prevent dilution in the event of stock splits, stock dividends or
other changes in the capitalization of C-Me.
ADMINISTRATION. Subject to compliance with Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act"), the 2002 Plan shall be administered
by the Board of Directors of C-Me (the "Board") or, in the event the Board shall
appoint and/or authorize a committee to administer the 1996 Plan, by such
committee. All references in the 1996 Plan to the "Committee" are to such
separate Committee, if any is established, or if none is then in existence, then
to the Board as a whole. Except for the terms and conditions explicitly set
forth in the 1996 Plan, and subject to applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Committee has the authority,
in its discretion, to determine all matters relating to the options to be
granted under the Plan, including, without limitation, selection of the
individuals to be granted options, the number of shares to be subject to each
option, the exercise price per share, the timing of grants and all other terms
and conditions of the options. In determining the employees to whom stock
options shall be granted and the number of shares subject to such stock options,
the Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contribution to the success of
C-Me or its subsidiary, and such other factors as the Committee in its
discretion shall deem relevant. An employee who has been granted an option under
the 1996 Plan may be granted an additional option or options under the 1996 Plan
if the Committee shall so determine. Subject to the provisions of the 1996 Plan,
the Committee has complete authority to interpret the 1996 Plan, to prescribe,
amend, and rescind rules and regulations relating to it and to make other
determinations necessary or advisable in the administration of the Plan.
EXERCISE OF OPTIONS. The exercise price is determined by the Committee
at the time of the stock option grant; provided, however, any such determined
price shall not be less than the Fair Market Value of the Common Stock. Options
granted under the 1996 Plan may be exercised in whole at any time, or in part
from time to time with respect to whole vested shares only, within the period
permitted for the exercise thereof. Options shall be exercised by written notice
of intent to exercise the option with respect to a specified number of shares
delivered to C-Me at its principal office in the State of California,
accompanied by payment in full of the amount of the option price for the number
of shares of Common Stock with respect to which the option is then exercised.
VESTING. The options granted under the 1996 Plan vest as follows: (a)
fifty percent (50%) after two (2) years of full-time continuous employment with
C-Me; and (b) fifty percent (50%) after three (3) years of full-time continuous
employment with C-Me. Alternatvely, the 1996 Plan provides that a stock option
may be exercised with respect to: (1) fifty percent (50%) of the underlying
shares either: (i) six (6) months after C-Me's first public offering is declared
effective, or (ii) the first day after the expiration of any holdback or similar
15
period that may be imposed upon C-Me by the its underwriter(s) in such public
offering, whichever is later; and (2) fifty percent (50%) of the underlying
shares either: (x) one (1) year after C-Me's first public offering is declared
effective, or (y) one (1) year after the expiration of any holdback or similar
period that may be imposed upon C-Me by its underwriter(s) in such public
offering, whichever is later.
Notwithstanding any provisions contained elsewhere the 1996 Plan to the
contrary, stock options granted under the 1996 Plan may in no event be exercised
unless and until the optionee shall have remained in the full-time continuous
employ of C-Me for twelve (12) consecutive months from and after the date of the
stock option grant.
TRANSFERS. No option granted under the 1996 Plan is transferable or
assignable by an optionee other than by will or the laws of descent and
distribution. During the lifetime of an optionee, the option is exercisable only
by the optionee. No option can be pledged or hypothecated in any way and no
option can be subject to execution, attachment, or similar process except with
the written consent of the Committee.
ADJUSTMENTS. In the event that the outstanding shares of C-Me's Common
Stock hereafter are changed into or exchanged for a different number or kind of
shares or other securities of C-Me or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend: (a) the aggregate
number and kind of shares subject to stock options which may be granted under
the 1996 Plan are to be adjusted appropriately; and (b) rights under outstanding
options granted under the 1996 Plan both as to the number of subject shares and
the option price, are to be adjusted appropriately; provided, however, that if,
in connection with a reorganization, there exists an agreement which
specifically provides for the change, conversion, or exchange of shares under
outstanding and unexercised options for securities of another company, then the
Committee will adjust the shares under such outstanding and unexercised options
in a manner not inconsistent with the reorganization agreement. All adjustments
and determinations shall be made solely by the Committee, whose decisions as to
what adjustments or determinations shall be made, and the extent thereof, shall
be final, binding and conclusive.
TERMINATION OF EMPLOYMENT. If an optionee's employment with C-Me
terminates at any time after the grant of the option by the optionee for any
reason other than by death or disability, then the optionee has the right,
during the period ending 90 days after such termination, to exercise the option
to the extent that it was exercisable at the date of such termination of
employment and shall not have been theretofore exercised. If an optionee's
employment with C-Me shall be terminated at any time after the grant of the
option by C-Me for any reason, then any unexercised and vested option terminates
on the tenth anniversary of the date of grant of the option. In the event of the
death of an optionee who was at the time of death employed by C-Me and who had
been in continuous employment since the date of grant of the option, any
unexercised vested option terminates on the tenth anniversary of the date of
grant of the option. Under these circumstances, a vested option will be
exercisable at any time prior to such termination by the optionee's estate, or
by such person or persons who have acquired the right to exercise the option by
the bequest or by inheritance or by reason of the death of the optionee. In the
event an optionee must terminate his or her employment with C-Me by reason of a
disability (within the meaning of Section 22(e)(3) of the Code) and if the
optionee had been in continuous employment with C-Me since the date of grant of
the option, then any unexercised and vested option terminates on the tenth
anniversary of the date of grant of the option.
CALL OPTION. In the event an optionee's employment with C-Me is
terminated, whether voluntary or involuntary, with or without cause for any
reason whatsoever or for no reason (the "Call Option Event"), C-Me has the
irrevocable right and option to purchase (the "Call Option") from such optionee
and/or from his or her spouse, donees or legal representative all of the shares
purchased by such optionee pursuant to a stock option granted under the 1996
Plan (the "Purchased Shares"), and the optionee shall have the obligation to
sell the Purchased Shares upon and to the extent of C-Me's exercise of the Call
Option. The purchase price to be paid for each of the Purchased Shares upon and
to the extent of the Call Option is exercised shall be the greater of: (1) the
highest price per share which C-Me obtains from selling its common shares during
the period ending on the last day of the month preceding the date the Call
Option is exercised and commencing six (6) months prior to thereto (the "Pricing
Period"); or (2) the fair market value of one share of Common Stock of C-Me as
16
of the last quarter of the fiscal year preceding the date the Call Option is
exercised, as determined by an independent appraiser selected and paid for by
C-Me.
TERM. The 1996 Plan terminates on September 30, 2006. The Board may at
any time, upon recommendation of the Committee, terminate the 1996 Plan prior to
September 30, 2006, and may at any time and from time to time and in any
respect, amend or modify the 1996 Plan; provided that no termination, amendment,
or modification of the 1996 Plan will in any manner affect any stock option
previously granted under the 1996 Plan without consent of the optionee.
CLASSES OF PERSONS ELIGIBLE TO PARTICIPATE
All employees of C-Me and its subsidiaries are eligible to participate in the
1996 Plan. The Committee may grant stock options to any eligible employee in
accordance with such determination as the Committee from time to time in its
sole discretion shall make.
GRANTS UNDER THE 1996 PLAN
The following table discloses all stock options that have been granted to each
of the following under the 1996 Plan as of June 30, 2002.
|---------------------------------------|--------------------------------------|
| | |
| | |
| | 1996 Stock Option Plan |
| | |
| | |
| |-------------------|------------------|
|Name and Position | Dollar Value ($) | Number of Units |
|---------------------------------------|-------------------|------------------|
|Frank S. Yuan, CEO | (1) | 10,000 |
|---------------------------------------|-------------------|------------------|
|Executive Group (2) | (1) | 25,000 |
|---------------------------------------|-------------------|------------------|
|Non-Executive Director Group | (1) | 75,000 |
|---------------------------------------|-------------------|------------------|
|Non-Executive Officer Employee Group | (1) | 95,000 |
|---------------------------------------|-------------------|------------------|
|Consultants and Advisors | (1) | 0 |
|---------------------------------------|-------------------|------------------|
(1) This amount is to be determined at a later date.
(2) This amount includes options granted to Frank S. Yuan, CEO.
U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
The following is a brief summary of certain of the United States federal income
tax consequences relating to nonqualified stock options granted to optionees
based on federal income tax laws currently in effect. This summary applies to
the stock options granted and is not intended to provide or supplement tax
advice to the optionees. The summary contains general statements based on
current United States federal income tax statutes, regulations and currently
available interpretations thereof. This summary is not intended to be exhaustive
and does not describe state, local or foreign tax consequences or the effect, if
any, of gift, estate and inheritance taxes. The stock options are not qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
As a general rule, no federal income tax is imposed on the optionee upon the
grant of a nonqualified stock option such as those granted by C-Me under its
stock option plans, and C-Me is not entitled to a tax deduction by reason of
such grant. Generally, upon the exercise of a nonqualified stock option, the
optionee will be treated as receiving compensation taxable as ordinary income in
the year of exercise in an amount equal to the excess of the fair market value
of the shares of stock at the time of exercise over the option price paid for
such shares. Upon the exercise of a nonqualified stock option, C-Me may claim a
deduction for compensation paid at the same time and in the same amount as
compensation income is recognized by the optionee assuming any federal income
tax reporting requirements are satisfied, and subject to the application of
Section 162(m) of the Code, which may limit the deduction to C-Me.
Upon a subsequent disposition of the shares received upon exercise of a
nonqualified stock option, any difference between the fair market value of the
shares at the time of exercise and the amount realized on the disposition would
be treated as capital gain or loss.
17
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL NO. 3.
If the shareholders do not ratify the Board of Directors adoption of the 1996
Plan: (1) C-Me will remain contractually bound to the stock option agreements
with each of the optionees based upon the previous approval of the grant and
issuance of the stock options by the Board of Directors; and (2) it may
complicate C-Me's ability to have its Common Stock listed on a stock market or
exchange in the future.
- --------------------------------------------------------------------------------
PROPOSAL NO. 4: RATIFY AND APPROVE THE BOARD'S ADOPTION OF THE 1999 STOCK OPTION
PLAN
- --------------------------------------------------------------------------------
C-Me's stockholders are being asked to act upon a proposal to ratify and approve
the 1999 Stock Option Plan (the "1999 Plan"). C-Me's Board of Directors adopted
the 1999 Plan in October 1999.
Ratification of the 1999 Plan requires the approval of a majority of the shares
represented in person or by proxy and voting at the Annual Meeting. Although the
1999 Plan does not require shareholder approval, C-Me is seeking ratification
and approval as a matter of good corporate practice. A general description of
the principal terms of the 1999 Plan is set forth below. Unless otherwise
marked, all properly signed and returned proxies will be voted FOR Proposal No.
4.
MATERIAL FEATURES OF THE 1999 PLAN
A copy of the 1999 Plan is attached as Appendix C to this Proxy Statement and
the description of the 1999 Plan set forth below is qualified in its entirety by
reference to the full text of the 1999 Plan. In addition, C-Me makes no
guarantee as to the tax consequences described below with respect to the grant
or exercise of an option, or sale of the stock covered by an option.
PURPOSE. The purpose of this Plan is to provide additional incentives
to key employees, officers, directors and consultants of C-Me, and any of its
subsidiaries, thereby helping to attract and retain the best available personnel
for positions of responsibility with those corporations and otherwise promoting
the success of the business activities of such corporations. It is intended that
options issued under the 1999 Plan constitute nonqualified stock options.
SHARES RESERVED. The maximum number of shares of Common Stock with
respect to which awards may be presently granted pursuant to the 1999 Plan is
2,000,000 shares. However, no more than 250,000 of such shares may be issued to
consultants. During the term of the 1999 Plan, C-Me will at all times reserve
and keep available a sufficient number of shares of its Common Stock to satisfy
the requirements of the 1999 Plan. Shares issuable under the 1999 Plan may be
either treasury shares or authorized but unissued shares. If any outstanding
stock option expires or becomes unexercisable for any reason without having been
exercised in full, the shares of Common Stock allocable to the unexercised
portion of such stock option will again become available for other stock option
grants. The number of shares available for issuance will be subject to
adjustment to prevent dilution in the event of stock splits, stock dividends or
other changes in the capitalization of C-Me.
ADMINISTRATION. The 1999 Plan is administered by the Board directly,
acting as a Committee of the whole, or if the Board elects, by a separate
Committee appointed by the Board for that purpose and consisting of at least two
Board members, all of whom must be nonemployee directors. All references in the
Plan to the "Committee" are to such separate Committee, if any is established,
or if none is then in existence, then to the Board as a whole. Once appointed,
any such Committee must continue to serve until otherwise directed by the Board.
From time to time the Board may increase the size of the Committee and appoint
additional members thereto, remove members (with or without cause), appoint new
18
members in substitution therefore, and fill vacancies (however caused). At all
times, the Board has the power to remove all members of the committee and
thereafter to directly administer the 1999 Plan as a Committee of the whole.
Except for the terms and conditions explicitly set forth in the 1999 Plan, and
subject to applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code") the Committee shall have the authority, in its discretion
to:
(1) Determine the persons to whom stock options are to be
granted, the times of grant, and the number of shares to be represented by each
option;
(2) interpret the 1999 Plan;
(3) authorize any person or persons to execute and deliver
stock option agreements or to take any other actions deemed by the Committee
to be necessary or appropriate to effectuate the grant of options by the
Committee; and
(4) make all other determinations and take all other
actions which the Committee deems necessary or appropriate to administer the
1999 Plan in accordance with its terms and conditions.
EXERCISE OF OPTIONS. Each option may be exercised in whole or in part;
provided, that only whole shares may be issued pursuant to the exercise of any
option. The option exercise price under the 1999 Plan for shares of Common Stock
to be issued upon exercise of a stock option is the weighted average closing
price of the Common Stock for the thirty (30) calendar days prior to the date of
grant.
VESTING. The grant date of a stock option, for all purposes, is the
date the Committee makes the determination granting the stock option, as set
forth in the option agreement. All stock options shall vest as follows: (i) for
consultants, 100% upon completion of the project by the consultant and
acceptance of the project by C-Me; (ii) for newly hired employees, 25% shall
vest 6 months after the date of employment and 4.16% per month thereafter; (iii)
for existing employees; 4.16% per month commencing with date of grant.
ADJUSTMENTS. The 1999 Plan provides for adjustment in the number of
shares reserved and in the shares covered by each outstanding option in the
event of a stock dividend or stock split and may provide, in the Committee's
discretion, for vesting of options and removal of restrictions on options in the
event of certain corporate transactions, including a change of ownership or
control of C-Me. Generally, a change in control will occur for purposes of the
1999 Plan in the event of the acquisition by any person of beneficial ownership
of 50% or more of C-Me's voting stock, other than an acquisition directly from
C-Me or as part of a business combination approved by the Board.
TERM OF OPTIONS. An option granted under the 1999 Plan is not
exercisable after the expiration of ten (10) years from the date such option is
granted. The term of each option granted is determined by the Committee in its
discretion.
TERMINATION OF EMPLOYMENT. In the event of the death of an optionee who
at the time of his death was an employee and who had been in continuous status
as an employee since the date of grant of the option, the option terminates on
the earlier of (i) six (6) months after the date of death of the optionee, or
(ii) the expiration date otherwise provided in the optionee's option agreement.
Under these circumstances, the option will be exercisable at any time prior to
such termination by the optionee's estate, or by such person or persons who have
acquired the right to exercise the option by bequest or by inheritance or by
reason of the death of the optionee.
If an optionee's status as an employee is terminated at any time during the
option period by reason of a disability (within the meaning of Section 22(e)(3)
of the Code) and if the optionee had been in continuous status as an employee at
all times between the date of grant of the option and the termination of his
status as an employee, the option terminates on the earlier of (i) one (1) year
after the date of termination of his or her status as an employee, or (ii) the
expiration date otherwise provided in the optionee's option agreement.
19
If an optionee's status as an employee is terminated at any time after the grant
of an option by the optionee for any reason other than death or disability, and
not by C-Me, the option terminates on the earlier of (i) thirty (30) days
following termination of status as an employee, or (ii) the expiration date
otherwise provided in the option agreement. If an optionee's status as an
employee is terminated at any time after the grant of an option by C-Me for any
reason, then the option terminates on the date of termination of status as an
employee.
TRANSFERS. No option granted under the 1999 Plan may be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the optionee, only by the optionee.
TERM OF PLAN. The 1999 Plan was effective on the date of adoption of
the Plan by the Board, or October 1, 1999. Unless sooner terminated as provided
in the 1999 Plan, the 1999 Plan will terminate on the tenth (10th) anniversary
following the date of adoption of the 1999 Plan, or October 1, 2009.
CLASSES OF PERSONS ELIGIBLE TO PARTICIPATE
All employees, officers, directors and consultants of C-Me and its subsidiaries
are eligible to participate in the 1999 Plan. The grant of stock options under
the 1999 Plan is entirely discretionary with the Committee, and the adoption of
the 1999 Plan does not confer upon any person any right to receive any stock
option unless and until granted by the Committee, in its sole discretion.
Neither the adoption of the 1999 Plan nor the grant of any stock option to any
person confers any right to continued employment, nor does it interfere in any
way with that person's right or that of the C-Me to terminate the person's
employment at any time.
GRANTS UNDER THE 1999 PLAN
The following table discloses all stock options that have been granted to each
of the following under the 1999 Plan as of June 30, 2002.
|----------------------------------------|-------------------------------------|
| | |
| | 1999 Stock Option Plan |
| | |
| | |
| |--------------------|----------------|
| Name and Position | Dollar Value ($) | Number of Units|
|----------------------------------------|--------------------|----------------|
| Frank S. Yuan, CEO | (1) | 515,000 |
|----------------------------------------|--------------------|----------------|
| Executive Group (2) | (1) | 535,000 |
|----------------------------------------|--------------------|----------------|
| Non-Executive Director Group | (1) | 145,315 |
|----------------------------------------|--------------------|----------------|
| Non-Executive Officer Employee Group | (1) | 37,420 |
|----------------------------------------|--------------------|----------------|
| Consultants and Advisors | (1) | 525,750 |
|----------------------------------------|--------------------|----------------|
(1) This amount is to be determined at a later date.
(2) This amount includes options granted to Frank S. Yuan, CEO.
U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
See the section under Proposal No. 3 above entitled "U.S. Federal Income Tax
Consequences Relating to Stock Options", which is incorporated herein by
reference.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL NO. 4.
If the shareholders do not ratify the Board of Directors adoption of the 1999
Plan: (1) C-Me will remain contractually bound to the stock option agreements
with each of the optionees based upon the approval of the grant and issuance of
the stock options by the Board of Directors; and (2) it may complicate C-Me's
ability to have its Common Stock listed on a stock market or exchange in the
future.
20
- --------------------------------------------------------------------------------
PROPOSAL NO. 5: RATIFY AND APPROVE THE BOARD'S ADOPTION OF THE 2001 STOCK OPTION
PLAN
- --------------------------------------------------------------------------------
C-Me's stockholders are being asked to act upon a proposal to ratify and approve
the 2001 Stock Option Plan (the "2001 Plan"). C-Me's Board of Directors adopted
the 2001 Plan in December 2001.
Ratification of the 2001 Plan requires the approval of a majority of the shares
represented in person or by proxy and voting at the Annual Meeting. Although the
2001 Plan does not require shareholder approval, C-Me is seeking ratification
and approval as a matter of good corporate practice. If the shareholders do not
ratify and approve the 2001 Plan, C-Me's Board of Directors will consider what
should be done in light of C-Me's need to use stock options to attract, retain
and motivate its employees. A general description of the principal terms of the
2001 Plan is set forth below. Unless otherwise marked, all properly signed and
returned proxies will be voted FOR Proposal No. 5.
MATERIAL FEATURES OF THE 2001 PLAN
A copy of the 2001 Plan is attached as Appendix D to this Proxy Statement and
the description of the 2001 Plan set forth below is qualified in its entirety by
reference to the full text of the 2001 Plan. In addition, C-Me makes no
guarantee as to the tax consequences described below with respect to the grant
or exercise of an option, or sale of the stock covered by an option.
PURPOSE. The purpose of the 2001 Plan is to provide additional
incentives to key employees, officers, directors and consultants of C-Me, and
any of its subsidiaries, thereby helping to attract and retain the best
available personnel for positions of responsibility with those corporations and
otherwise promoting the success of the business activities of such corporations.
It is intended that options issued under the 2001 Plan constitute nonqualified
stock options.
SHARES RESERVED. The maximum number of shares of Common Stock with
respect to which awards may be presently granted pursuant to the 2001 Plan is
1,000,000 shares. During the term of the 2001 Plan, C-Me will at all times
reserve and keep available a sufficient number of shares of its Common Stock to
satisfy the requirements of the 2001 Plan. Shares issuable under the 2001 Plan
may be either treasury shares or authorized but unissued shares. If any
outstanding stock option expires or becomes unexercisable for any reason without
having been exercised in full, the shares of Common Stock allocable to the
unexercised portion of such stock option will again become available for other
stock option grants. The number of shares available for issuance will be subject
to adjustment to prevent dilution in the event of stock splits, stock dividends
or other changes in the capitalization of C-Me.
ADMINISTRATION. The 2001 Plan is administered by the Board directly,
acting as a Committee of the whole, or if the Board elects, by a separate
Committee appointed by the Board for that purpose and consisting of at least two
Board members, all of whom must be nonemployee directors. All references in the
Plan to the "Committee" are to such separate Committee, if any is established,
or if none is then in existence, then to the Board as a whole. Once appointed,
any such Committee must continue to serve until otherwise directed by the Board.
From time to time the Board may increase the size of the Committee and appoint
additional members thereto, remove members (with or without cause), appoint new
members in substitution therefore, and fill vacancies (however caused). At all
times, the Board has the power to remove all members of the committee and
thereafter to directly administer the 2001 Plan as a Committee of the whole.
Except for the terms and conditions explicitly set forth in the 2001 Plan, and
subject to applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code") the Committee shall have the authority, in its discretion
to:
21
(1) Determine the persons to whom stock options are to
be granted, the times of grant, and the number of shares to be represented by
each option;
(2) interpret the 2001 Plan;
(3) authorize any person or persons to execute and
deliver stock option agreements or to take any other actions deemed by the
Committee to be necessary or appropriate to effectuate the grant of options by
the Committee; and
(4) make all other determinations and take all other
actions which the Committee deems necessary or appropriate to administer the
2001 Plan in accordance with its terms and conditions.
EXERCISE OF OPTIONS. Each option may be exercised in whole or in part;
provided, that only whole shares may be issued pursuant to the exercise of any
option. The option exercise price for the shares of Common Stock to be issued
under the 2001 Plan is the average of the closing bid prices of C-Me's Common
Stock as reported on the National Association of Securities Dealers Automated
Quotation System for the National Market, ("NASDAQ") or, if such security is not
listed or admitted to trading on the NASDAQ, on the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported by
the National Association of Security Dealers, Inc., or a similar generally
accepted reporting service, as the case may be.
VESTING. The grant date of a stock option, for all purposes, is the
date the Committee makes the determination granting the stock option, as set
forth in the option agreement. The vesting schedule for stock options granted
under the 2001 Plan is determined by the Committee in its discretion and is
provided in each option agreement.
ADJUSTMENTS. The 2001 Plan provides for adjustment in the number of
shares reserved and in the shares covered by each outstanding option in the
event of a stock dividend or stock split and may provide, in the Committee's
discretion, for vesting of options and removal of restrictions on options in the
event of certain corporate transactions, including a change of ownership or
control of C-Me. Generally, a change in control will occur for purposes of the
2001 Plan in the event of the acquisition by any person of beneficial ownership
of 50% or more of C-Me's voting stock, other than an acquisition directly from
C-Me or as part of a business combination approved by the Board.
TERM OF OPTIONS. An option granted under the 2001 Plan is not
exercisable after the expiration of ten (10) years from the date such option is
granted. The term of each option granted is determined by the Committee in its
discretion.
TERMINATION OF EMPLOYMENT. In the event of the death of an optionee who
at the time of his or her death was an employee and who had been in continuous
status as an employee since the date of grant of the option, any unexercised and
vested option terminates on the tenth anniversary of the date of grant of the
option. Under these circumstances, the option will be exercisable at any time
prior to such termination by the optionee's estate, or by such person or persons
who have acquired the right to exercise the option by bequest or by inheritance
or by reason of the death of the optionee. Any Common Stock subject to an
unvested option shall revert back into the pool of Common Stock established
under the 2001 Plan and shall be available for grant pursuant to a new option.
If an optionee's status as an employee is terminated at any time during the
option period by reason of a disability (within the meaning of Section 22(e)(3)
of the Code) and if the optionee had been in continuous status as an employee at
all times between the date of grant of the option and the termination of
optionee's status as an employee, any unexercised and vested option terminates
on the tenth anniversary of the date of grant of the option. Any Common Stock
subject to an unvested option shall revert back into the pool of Common Stock
established under the 2001 Plan and shall be available for grant pursuant to a
new option.
Unless otherwise determined by the Committee or otherwise stated in an option
agreement, if an optionee's status as an employee is terminated by the employee
22
at any time after the grant of a stock option for any reason other than death or
disability, then any unexercised and vested option terminates 90 days following
optionee's termination of status as an employee. Any Common Stock subject to an
unvested option shall revert back into the pool of Common Stock established
under the 2001 Plan and shall be available for grant pursuant to a new option.
Unless otherwise determined by the Committee or otherwise stated in any option
agreement, if an optionee's status as an employee is terminated by C-Me and such
termination is not for "cause", any unexercised and vested option terminates on
the tenth anniversary of the date of grant of the option. Any Common Stock
subject to an unvested option shall revert back into the pool of Common Stock
established under the 2001 Plan and shall be available for grant pursuant to a
new option. Unless otherwise determined by the Committee or otherwise stated in
any option agreement, if an optionee's status as an employee is terminated by
C-Me, and such termination is for "cause" (such termination being referred to as
a "Termination for Cause") at any time after the grant of an option by C-Me,
then all options (both vested and unvested) shall terminate on the date of
termination of optionee's status as an employee and any Common Stock subject to
such options shall revert back into the pool of Common Stock established under
the Plan and shall be available for grant pursuant to a new option. Termination
for Cause under the 2001 Plan means a termination due to objective evidence of
any of the following: (i) material dishonesty related to employment; (ii) fraud;
(iii) conviction of a felony; or (iv) misappropriation of material Company
assets or business opportunities. An optionee's attempted resignation to avoid a
Termination for Cause shall not be effective if the conduct that ultimately
results in the Termination for Cause occurred prior to the attempted
resignation.
TRANSFERS. Except as permitted by the Committee, no stock option
granted under the 2001 Plan may be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
optionee, only by the optionee.
TERM OF PLAN. The 2001 Plan was effective on the date of adoption of
the Plan by the Board, or December 21, 2001. Unless sooner terminated as
provided in the 2001 Plan, the 2001 Plan will terminate on the tenth (10th)
anniversary following the date of adoption of the 2001 Plan, or December 21,
2011.
CLASSES OF PERSONS ELIGIBLE TO PARTICIPATE
All employees, officers, directors and consultants of C-Me and its subsidiaries
are eligible to participate in the 2001 Plan. The grant of stock options under
the 2001 Plan is entirely discretionary with the Committee, and the adoption of
the 2001 Plan does not confer upon any person any right to receive any stock
option unless and until granted by the Committee, in its sole discretion.
Neither the adoption of the 2001 Plan nor the grant of any stock option to any
person confers any right to continued employment, nor does it interfere in any
way with that person's right or that of the C-Me to terminate the person's
employment at any time.
GRANTS UNDER THE 2001 PLAN
The following table discloses all stock options that have been granted to each
of the following under the 2001 Plan as of June 30, 2002.
|---------------------------------------|--------------------------------------|
| | |
| | 2001 Stock Option Plan |
| | |
| | |
| |--------------------|-----------------|
| Name and Position | Dollar Value ($) | Number of Units |
|---------------------------------------|--------------------|-----------------|
| Frank S. Yuan, CEO | (1) | 5,000 |
|---------------------------------------|--------------------|-----------------|
| Executive Group (2) | (1) | 7,500 |
|---------------------------------------|--------------------|-----------------|
| Non-Executive Director Group | (1) | 90,000 |
|---------------------------------------|--------------------|-----------------|
| Non-Executive Officer Employee Group | (1) | 17,500 |
|---------------------------------------|--------------------|-----------------|
| Consultants and Advisors | (1) | 0 |
|---------------------------------------|--------------------|-----------------|
(1) This amount is to be determined at a later date.
(2) This amount includes options granted to Frank S. Yuan, CEO.
23
U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
See the section under Proposal No. 3 above entitled "U.S. Federal Income Tax
Consequences Relating to Stock Options", which is incorporated herein by
reference.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL NO. 5.
If the shareholders do not ratify the Board of Directors adoption of the 2001
Plan: (1) C-Me will remain contractually bound to the stock option agreements
with each of the optionees based upon the approval of the grant and issuance of
the stock options by the Board of Directors; and (2) it may complicate C-Me's
ability to have its Common Stock listed on a stock market or exchange in the
future.
- --------------------------------------------------------------------------------
PROPOSAL NO. 6: RATIFY AND APPROVE THE BOARD'S ACTION TO TERMINATE THE LOCK-UP
AGREEMENT
- --------------------------------------------------------------------------------
You are being asked to ratify action taken by C-Me's Board of Directors to
terminate the Lock-Up Agreement dated November 13, 1998.
BACKGROUND
Prior to conducting its first registered offering of its Common Stock pursuant
to a Form SB-2 registration statement filed with the Securities and Exchange
Commission on August 3, 1998 (File No. 333-60487), as amended, the shareholders
of C-Me at the time and C-Me mutually agreed that it was in the best interest of
C-Me for the shareholders to restrict the sale of their C-Me shares following
the registered offering.
In April 1999, 32 of the Company's 38 shareholders, collectively controlling
5,173,000 shares of C-Me's then-outstanding 5,750,000 shares of Common Stock,
entered into a Lock-Up Agreement. By signing the Lock-Up Agreement, the
shareholders agreed to trading restrictions dependent on trading price. Shares
were to be released from lock-up and sold, subject to compliance with all
applicable securities laws, in the following amounts when the two-week
weighted-average trading price of the Company's Common Stock achieved the
following levels:
Two-Week Percentage of Holder's
Weighted-Average Shares (Cumulative)Released
Trading Price From Lock-Up
----------------------------- -----------------------------
$10.00 Up to 10%
$15.00 Up to 20%
$20.00 Up to 30%
$25.00 Up to 40%
$30.00 Up to 50%
Trading restrictions on all shares under the Lock-Up Agreement were to be lifted
after the two-week weighted-average trading price of C-Me's Common Stock
exceeded $30. C-Me indicated that it will not permit any modifications or
amendments, except on a non-discriminatory basis to all shareholders subject to
the Lock-Up Agreement.
Since the close of the registered offering in 1999, only ten percent (10%) of
the shares of Common Stock subject to the Lock-Up Agreement have been released
for resale. This is a much lower number than C-Me anticipated would be released
due to the low stock price of C-Me's Common Stock.
24
Many of the shareholders who are party to the Lock-Up Agreement have requested
the release of their shares from the Lock-Up Agreement. Many have owned their
shares for more than 2 years. C-Me's management has recommended that the Lock-Up
Agreement be terminated and, on August 27, 2002, the Board of Directors approved
the termination of the Lock-Up Agreement and recommended approval by C-Me's
shareholders at the Annual Meeting.
A copy of the Lock-Up Agreement accompanies this Proxy Statement as Appendix E.
EFFECT OF TERMINATING THE LOCK-UP AGREEMENT
There are approximately 5.1 million shares currently restricted from resale by
the Lock-Up Agreement. Even if the Lock-Up Agreement is terminated, the majority
of shares that will be released from the Lock-Up Agreement will continue to be
subject to the requirements of Rule 144. The following table shows which shares
will continue to be restricted from resale under Rule 144 after the Lock-Up
Agreement is terminated.
Rule 144
Shareholder Group Number of Shares Restricted?
----------------- ---------------- -----------
Affiliates 2,963,000 Yes
Nonaffiliates 2,137,000 No
In general, a sale under Rule 144 after holding shares for more than one year
but less than two years requires compliance with the following material
conditions:
o public information - we must be current in our requirement to file our
quarterly and annual reports with the SEC, as well as any reports
required to be filed on Form 8-K for material events;
o volume limitation - during any three-month period a shareholder may not
sell more than one percent of our total outstanding shares, as shown on
our most recent quarterly or annual report;
o manner of sale - the shares must be sold in a market transaction
through a broker or market maker, generally without solicitation of a
buyer; and
o notice - except for certain de minimis sales, the seller must file a
Form 144 with the SEC.
Sales of unregistered securities by an affiliate must always comply with these
four conditions. After holding their shares for more than two years,
shareholders that are not affiliates may sell their shares without having to
comply with these conditions. Rule 144 has a number of exceptions and
complications, and any sale under Rule 144 requires an opinion of counsel
reasonably satisfactory to us.
Except for the Lock-Up Agreement, there are no contractual restrictions
prohibiting the sale of any of C-Me's outstanding shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL NO. 6.
If shareholders do not ratify and approve the Board's action to terminate the
Lock-Up Agreement, the Lock-Up Agreement will not be terminated.
------------------------------------
PROPOSALS OF SHAREHOLDERS
A shareholder proposal is a shareholder's recommendation or requirement that
C-Me and/or its Board of Directors take certain action, which the shareholder
intends to present at a meeting of C-Me's shareholders. The proposal should
state as clearly as possible the course of action that the shareholder believes
C-Me should follow and should be accompanied by a supporting statement. The
proposal, including the accompanying supporting statement, may not exceed 500
words.
25
Requirements for Shareholder Proposals to be Considered for Inclusion
in C-Me's Proxy Materials. Proposals received from shareholders are given
careful consideration by C-Me in accordance with Rule 14a-8 under the Securities
Exchange Act of 1934, as amended. Shareholder proposals are eligible for
consideration for inclusion in C-Me's proxy statement for the 2003 Annual
Meeting of Shareholders if they are received by C-Me on or before June 30, 2003.
Any shareholder proposal should be directed to the attention of the Secretary of
C-Me, at 600 South Lake Avenue, Suite 208, Pasadena, California, 91106.
Requirements for Shareholder Proposals to be Brought Before the Annual
Meeting. In order for a shareholder proposal submitted outside of Rule 14a-8 to
be considered "timely" within the meaning of Rule 14a-4(c), such proposal must
be received by C-Me on or prior to September 15, 2003 (not more than 90, but not
less than 60, days prior to the date of the Annual Meeting). C-Me will have
discretionary authority with respect to shareholder proposals submitted for
consideration at the 2003 Annual Meeting of Shareholders that are not "timely"
within the meaning of Rule 14a-4(c). C-Me reserves the right to reject, rule out
of order, or take other appropriate action with respect to any proposal that
does not comply with these and other applicable requirements.
ADDITIONAL INFORMATION
Shareholders should direct communications regarding change of address, transfer
of stock ownership or lost stock certificates to: U.S. Stock Transfer Corp.,
Attn: Syed A. Hussaini,1745 Gardena Ave., Suite 200, Glendale, CA 91204-2991.
C-Me's transfer agent may also be reached by telephone at (818) 502-1404 or by
facsimile at (818) 502-0674.
OTHER MATTERS
C-Me knows of no other matters that are likely to be brought before the Annual
Meeting. If, however, other matters not presently known or determined properly
come before the Annual Meeting, the persons named as proxies in the enclosed
Proxy Card or their substitutes will vote such proxy in accordance with their
discretion with respect to such matters.
By Order of the Board of Directors
/s/ Frank S. Yuan
Frank S. Yuan
Chairman of the Board and
Chief Executive Officer
October 28, 2002
THE BOARD HOPES THAT SHAREHOLDERS WILL ATTEND THIS MEETING. WHETHER OR NOT YOU
PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY IN
THE ACCOMPANYING ENVELOPE. SHAREHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR
SHARES PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
26
INDEX TO APPENDICES
Appendix Description
- -------- --------------------------------------------------------------
A Audit Committee Charter
B 1996 Stock Option Plan
C 1999 Stock Option Plan
D 2001 Stock Option Plan
E Lock-Up Agreement
27
APPENDIX A
----------
AUDIT COMMITTEE CHARTER
OF
CYBER MERCHANTS EXCHANGE, INC.
This Audit Committee Charter ("Charter") is the duly adopted governing
document of the Cyber Merchants Exchange, Inc. ("Company") audit committee
("Committee"), a duly constituted committee of the Company's Board of Directors
("Board").
1. RESPONSIBILITIES OF THE COMMITTEE. The scope of the Committee's
responsibilities shall include the following:
1.1. General Oversight. To assist the Board in fulfilling its
-----------------
oversight responsibilities by reviewing the financial information which will be
provided to the shareholders and others, the systems of internal controls which
management and the Board have established, and the audit process;
1.2. Independent Auditors. To select, evaluate, and, where
--------------------
appropriate, replace the independent auditor (or to nominate the independent
auditor to be proposed for shareholder approval in any proxy statement);
1.3. Statement on Independence. To ensure receipt from the
-------------------------
independent auditors of a formal written statement delineating all relationships
between the auditor and the Company, consistent with Independence Standards
Board Standard 1;
1.4. Assessment of Independence. To actively engage in a
--------------------------
dialogue with the auditor with respect to any disclosed relationships or
services that may impact the objectivity and independence of the auditor; and
1.5. Oversight of Independence. To take, or recommend that the
-------------------------
full Board take, appropriate action to oversee the independence of the
independent auditor.
2. COMPOSITION OF THE COMMITTEE. Subject to subsections 2.1
through 2.3, the Committee shall be comprised of at least three members,
each such member being an independent director, and each of whom is able
to read and understand fundamental financial statements, including a
company's balance sheet, income statement, and cash flow statement or will
become able to do so within a reasonable period of time after his or her
appointment to the audit committee.
2.1. Independent Directors. Independent directors are not
---------------------
officers of the Company and are, in the view of the Board, free of any
relationship that would interfere with the exercise of independent judgment.
The following persons shall not be considered independent:
a. A director who is employed by the Company or any of its
affiliates for the current year or any of the past three years;
b. A director who accepts any compensation from the
Company or any of its affiliates in excess of $60,000 during the previous
fiscal year, other than compensation for Board service, benefits under a
tax-qualified retirement plan, or non-discretionary compensation;
c. A director who is a member of the immediate family of
an individual who is, or has been in any of the past three years, employed by
the Company or any of its affiliates as an executive officer. Immediate
family includes a person's spouse, parents, children, siblings,
mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law,
daughter-in-law, and anyone who resides in such person's home;
A-1
d. A director who is a partner in, or a controlling
shareholder or an executive officer of, any for-profit business organization
to which the Company made, or from which the Company received, payments (other
than those arising solely from investments in the Company's securities) that
exceed 5% of the Company's or business organization's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the past three
years;
e. A director who is employed as an executive of another
entity where any of the Company's executives serve on that entity's compensation
committee.
2.2. Financial Experience. At least one member of the
---------------------
Committee shall have past employment experience in finance or accounting,
requisite professional certification in accounting, or any other comparable
experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
2.3. Special Circumstances. One director who is not
-----------------------
independent as defined in subsection 2.1 and is not a current employee or an
immediate family member of such employee, may be appointed to the Committee, if
the Board, under exceptional and limited circumstances, determines that
membership on the Committee by the individual is required by the best interests
of the Company and its shareholders, and the Board discloses, in the next annual
proxy statement subsequent to such determination, the nature of the relationship
and the reasons for that determination.
3. SPECIFIC DUTIES OF THE COMMITTEE. In meeting its
responsibilities, the Committee is expected to:
3.1. Accountability of Independent Auditor. Communicate to the
-------------------------------------
independent auditor its ultimate accountability to the Board and the Committee,
as representatives of the shareholders.
3.2. Specific Responsibilities. Accomplish its specific
-------------------------
responsibilities set forth in subsections 1.2 through 1.5;
3.3. General Oversight. In connection with its general oversight
-----------------
responsibility,
a. Provide an open avenue of communication between the
independent auditor and the Board;
b. Review and update the Committee's Charter annually;
c. Inquire of management and the independent auditor about
significant risks or exposures and assess the steps management has taken to
minimize such risk to the Company;
d. Consider, in consultation with the independent auditor,
the audit scope and plan of the independent auditor;
e. Consider with management and the independent auditor
the rationale for employing audit firms other than the principal independent
auditor;
f. Consider and review with the independent auditor:
1. The adequacy of the Company's internal controls
including computerized information system controls and security; and
2. Any related significant findings and
recommendations of the independent auditor together with management's responses
thereto;
A-2
g. Review with management and the independent auditor at
the completion of the annual examination:
1. The Company's annual financial statements and
related footnotes;
2. The independent auditor's audit of the financial
statements and its report thereon;
3. Any significant changes required in the
independent auditor's audit plan;
4. Any serious difficulties or disputes with
management encountered during the course of the audit; and
5. Other matters related to the conduct of the audit
which are to be communicated to the Committee under generally accepted auditing
standards;
h. Consider and review with management:
1. Significant findings during the year and
management's responses thereto;
2. Any difficulties encountered in the course of the
audit, including any restrictions on the scope of the independent auditor's work
or access to required information; and
3. Any changes required in the planned scope of the
independent auditor's plan;
i. Review filings with the SEC and other published
documents containing the Company's financial statements and consider whether the
information contained in these documents is consistent with the information
contained in the financial statements;
j. Review policies and procedures with respect to
officers' expense accounts and perquisites, including their use of corporate
assets, and consider the results of any review of these areas by the independent
auditor;
k. Review legal and regulatory matters that may have a
material impact on the financial statements, related Company compliance
policies, and programs and reports received from regulators;
l. Meet with the independent auditor and management in
separate executive sessions to discuss any matters that the Committee or these
groups believe should be discussed privately with the Committee;
m. Report Committee actions to the Board with such
recommendations as the Committee may deem appropriate;
n. Prepare a letter that complies with Item 7 of Schedule
14A under the Securities Exchange Act of 1934 for inclusion in the annual report
and/or proxy statement that describes the Committee's composition and
responsibilities, and how they were discharged;
o. Meet in connection with each regularly scheduled
meeting of the Board or more frequently as circumstances require, and the
Committee may ask members of management or others to attend the meeting and
provide pertinent information as necessary; and
A-3
p. Perform such other functions as assigned by law, the
Company's articles of incorporation or bylaws, or the Board.
4. MISCELLANEOUS. The duties and responsibilities of a member of
the Committee are in addition to those duties set out for a member of the Board.
Meetings of the Committee shall be noticed and conducted in accordance with the
provisions of the Company's articles of incorporation and bylaws governing
committees. This Charter may be amended from time to time by act of the
Committee, subject to the provisions of the Company's articles of incorporation
and bylaws governing committees.
IN WITNESS WHEREOF, the undersigned hereby evidence the adoption of
this Audit Committee Charter as of the last date set forth next to their
signatures below.
/s/ Howard Moore 8/9/00 /s/ Charles H. Rice 8/9/00
- -------------------------- -------- -------------------------- --------
(Signature) Date (Signature) Date
Howard Moore Charles H. Rice
- -------------------------- --------------------------
(Print Name) (Print Name)
/s/ Philip Hawley 8/9/00
- -------------------------- --------
(Signature) Date
Philip Hawley
- --------------------------
(Print Name)
A-4
APPENDIX B
1996 STOCK OPTION PLAN
WORLD WIDE MAGIC NET, INC.
STOCK OPTION PLAN
ARTICLE I
1. DEFINITIONS
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
1.1. "Board" shall mean the Board of Directors of the Company.
1.2. "Code" manes the Internal Revenue Code of 1986, as amended.
1.3. "Committee" shall mean a committee appointed by the Board to
administer the Plan.
1.4. "Company" shall mean World Wide Magic Net, Inc., a California
Corporation.
1.5. "Option" shall mean an option to purchase Stock granted pursuant
to the provision of Article VI hereof.
1.6. "Optionee" shall mean an employee to whom an Option has been
granted hereunder.
1.7. "Plan" shall mean the 1996 World Wide Magic Net, Inc. Stock
Option Plan, the terms of which are set forth herein.
1.8. "Reorganization" shall mean any statutory merger, statutory
consolidation, sale of all or substantially all of the assets of the Company, or
sale, pursuant to an agreement with the Company, of securities of the Company
pursuant to which the Company is or becomes a wholly-owned subsidiary of another
company after the effective date of the Reorganization.
1.9. "Stock" shall mean the common shares of the Company or, in the
event that the outstanding common shares are hereafter changed into or exchanged
for shares of a different stock or securities of the Company or some other
corporation, such other stock or securities.
1.10. "Subsidiary" shall mean any corporation, the majority of the
outstanding capital stock of which is owned, directly or indirectly, by the
Company.
ARTICLE II
2. THE PLAN
2.1. Name. This plan shall be known as the "1996 World Wide Magic
----
Net, Inc. Stock Option Plan."
2.2. Purpose. The purpose of the Plan is to advance the interests of
-------
the Company and its shareholders by affording to all employees of the Company
and its Subsidiaries an opportunity to acquire or increase their proprietary
interest in the Company by the grant to such employees of Options under the
terms set forth herein. By thus encouraging such employees to become owners of
the Company Shares, the Company seeks to motivate, retain, and attract those
highly competent individuals upon whose judgment, initiative, leadership and
B-1
continued efforts the success of the Company in large measure depends. The
options granted hereunder are not "incentive stock options" within the meaning
of Section 422 of the Code.
2.3. Effective Date. The Plan shall become effective as of September
--------------
30, 1996.
ARTICLE III
3. PARTICIPANTS
All employees of the Company and its Subsidiaries shall be eligible to
participate in the Plan. The Committee may grant Options to any eligible
employee in accordance with such determination as the Committee from time to
time in its sole discretion shall make.
ARTICLE IV
4. ADMINISTRATION
4.1. Duties and Powers of Committee. The Plan shall be administered by
------------------------------
the Committee. The Committee shall elect one of its members as its chairperson
and shall hold its meetings at such times and places as it may determine. The
Committee may appoint a secretary and shall keep minutes of its meetings.
Subject to the express provisions of the Plan, the Committee shall have sole
discretion and authority to determine from among eligible employees those to
whom and the time or times at which Options may be granted and the number of
shares of Stock to be subject to each Option. In determining the employees to
whom Options shall be granted and the number of shares subject to such Options,
the Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contribution to the success of
the Company or its Subsidiary, and such other factors as the Committee in its
discretion shall deem relevant. An employee who has been granted an option under
the Plan may be granted an additional option or options under the Plan if the
Committee shall so determine. Subject to the provisions of the Plan, the
Committee shall also have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it and to make
other determinations necessary or advisable in the administration of the Plan.
4.2. Majority Rule. A majority of the members of the Committee shall
--------------
constitute a quorum, and any action taken by a majority present at a meeting at
which a quorum is present or any action taken without a meeting evidenced by a
writing executed by all of the members of the Committee shall constitute the
action of the Committee.
4.3. Company Assistance. The Company shall supply full and timely
-------------------
information to the Committee on all matters relating to eligible employees,
their employment, death, retirement, disability or other termination of
employment, and such other pertinent facts as the Committee may require. The
Company shall furnish the Committee with such clerical and other assistance as
is necessary in the performance of the Committee's duties.
4.4. Reliance on Reports. Each member of the Committee shall be fully
-------------------
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and its Subsidiaries and upon any
other information furnished in connection with the Plan by any person or persons
other than himself. In no event shall any person who is or shall have been a
member of the Committee be liable for any determination made or other action
taken or any omission to act in reliance upon any such report or information or
for any action, including the furnishing of information, taken or failure to
act, if in good faith.
4.5. Indemnification. The Company shall indemnify and hold harmless
---------------
each person who is or shall have been a member of the Committee against and from
any and all loss, expense, liability or costs (including reasonable attorneys'
fees) that may be imposed upon or reasonably incurred by him in connection with
or resulting from any claim, action, suit, or proceedings to which he may be a
party or in which he may be involved by reason of any action taken or failure to
act under the Plan, and against and from any and all amounts paid by him in any
such action, suit or proceeding, provided he shall have given the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to hand and defend on his own behalf. The right of indemnification
set forth shall not be exclusive of any other rights of indemnification to which
such person may be entitled under the Company's Articles of Incorporation or
B-2
Bylaws, as a matter of law, or otherwise, or any power that the Company may have
to indemnify him or hold him harmless. It is the Company's intention that all
expenses incurred in connection with the administration of the Plan shall be
borne by the Company rather than by any member of the Committee.
ARTICLE V
5. SHARES OF STOCK SUBJECT TO PLAN
5.1. Limitations. The shares subject to this Plan are common shares
-----------
of the Company. Such shares may be either authorized and issued shares or
shares issued and thereafter acquired by the Company.
5.2. Options Granted Under Plan. Shares of Stock with respect to which
--------------------------
an Option granted hereunder shall have been exercised shall not, for as long as
such shares are issued and outstanding, again be available for Options
hereunder. If Options granted hereunder shall terminate for any reason without
being wholly exercised, new Options may be granted hereunder covering the number
of shares to which such Option termination relates.
5.3. Antidilution. In the event that the outstanding shares of Stock
------------
hereafter are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend:
(a) The aggregate number and kind of shares subject to Options
which may be granted hereunder shall be adjusted appropriately; and
(b) Rights under outstanding Options granted hereunder both
as to the number of subject shares and the Option price, shall be adjusted
appropriately;
provided; however, that if, in connection with a Reorganization, there exists an
agreement (the "Reorganization Agreement") which specifically provides for the
change, conversion, or exchange of shares under outstanding and unexercised
Options for securities of another company, then the Committee shall adjust the
shares under such outstanding and unexercised Options in a manner not
inconsistent with the Reorganization Agreement. All adjustments and
determinations shall be made solely by the Committee, whose decisions as to what
adjustments or determinations shall be made, and the extent thereof, shall be
final, binding and conclusive. Adjustments made under this Paragraph 5.3 may
provide for the elimination of fractional shares.
5.4. Unsecured Obligation. Optionees under this Plan shall not have
---------------------
any interest in any fund or specific asset of the Company by reason of this
Plan. No trust fund shall be created in connection with the Plan or any grant
of Options hereunder.
ARTICLE VI
6. OPTIONS
6.1. Option Grant. Nothing contained in the Plan or in any resolutions
------------
adopted or to be adopted by the Committee, the Board or the shareholders of the
Company shall constitute the granting of any Option hereunder. The granting of
an Option pursuant to the Plan shall take place only when the Committee shall
have resolved to grant such Option and such resolution shall be evidenced by a
writing, substantially in the form attached hereto as Exhibit A, and delivered
to the employee to whom such Option is to be granted.
6.2. Option Price. The per share Option price of the Stock subject
-------------
to each Option shall be determined by the Committee at the time of the Option
grant; provided, however, any such determined price shall not be less than the
Fair Market Value.
6.3 Option Period. To the extent exercisable as herein provided,
-------------
each Option granted hereunder must be exercised as provided in Section 6.5.
B-3
6.4. Option Vesting. The Optionee's rights to the Optioned Shares shall
--------------
vest as follows:
(a) fifty percent (50%) of the Optioned Shares after two (2)
years of full-time continuous employment with the Company (or its Subsidiaries)
(the "First Vested Shares"); and
(b) fifty percent (50%) of the Optioned Shares after three (3)
years of full-time continuous employment with the Company (or its Subsidiaries)
(the "Second Vested Shares").
6.5. Option Exercise.
---------------
(a) Notwithstanding any provisions contained elsewhere herein
to the contrary, Options granted hereunder may in no event be exercised unless
and until the Optionee shall have remained in the full-time continuous employ of
the Company (or its Subsidiaries) for twelve (12) consecutive months from and
after the date of the Option grant.
(b) Subject to Section 6.5(a) above and except as otherwise
provided below in this Section 6.5(b), an Option may be exercised with respect
to:
(1) fifty percent (50%) of the Optioned Shares either: (i)
six (6) months after the Company's first public offering is declared effective,
or (ii) the first day after the expiration of any holdback or similar period
that may be imposed upon the Company by the Company's underwriter(s) in such
public offering, whichever is later (the "First Exercisable Shares"); and
(2) fifty percent (50%) of the Optioned Shares either: (x)
one (1) year after the Company's first public offering is declared effective, or
(y) one (1) year after the expiration of any holdback or similar period that may
be imposed upon the Company by the Company's underwriter(s) in such public
offering, whichever is later (the "Second Exercisable Shares").
The Optionee must exercise his/her right to purchase the First Exercisable
Shares and the Second Exercisable Shares within three (3) months after the
occurrence of (b)(1)(i), (b)(2)(x), or (b)(2)(y) as the case may be. For
purposes of this paragraph 6.5(b), the term "public offering" shall mean an
offer by the Company to sell all or a portion of its authorized but unissued
common stock, no par value, to the public through one or more underwriters on a
firmly underwritten basis, where the offering and consequent sale shall be made
pursuant to: (i) a registration statement required by the Securities Act of
1933, as amended, and the rules and regulations of the Securities and Exchange
Commission (the "SEC") and filed with the SEC; and (ii) a prospectus prepared in
connection with such offering.
(c) Subject to Sections 6.5(a) and 6.5(b) above, Options may
be exercised in whole at any time, or in part from time to time with respect to
whole Vested Shares only, within the period permitted for the exercise thereof.
Options shall be exercised by written notice, substantially in the form attached
hereto as Exhibit B, of intent to exercise the Option with respect to a
specified number of shares delivered to the Company at its principal office in
the State of California, accompanied by payment in full to the Company at said
office of the amount of the Option price for the number of shares of Stock with
respect to which the Option is then exercised. In addition to and at the time of
payment of the Option price, the Optionee shall pay to the Company in cash the
full amount of all federal and state withholding or other employment taxes
applicable to the taxable income of such Optionee resulting from such exercise
as determined by the Company. If allowed by the Committee, in its sole
discretion, the Optionee may elect to pay such federal and state withholding or
other employment taxes by having the Company withhold shares having an aggregate
Fair Market Value equal to the amount required to be withheld. An election by
Optionee to have shares withheld for this purpose shall be subject to the
following restrictions:
(1) if an Optionee has received multiple grants, a separate
election must be made for each grant;
(2) the election must be made simultaneously with the
exercise of the Option; and
(3) the election will be irrevocable.
B-4
(d) Notwithstanding Section 6.5(b) above, after the Options
have vested pursuant to Section 6.4 and to the extent the Options have vested,
the Optionee may exercise the Option at any time and at the Optionee's
discretion.
(e) Unless the options and shares subject to the Plan shall
have been registered under the Securities Act of 1933, as amended, or the
Company has determined that such registration is unnecessary, each Optionee
exercising an Option under the Plan may be required by the Company to give a
representation in writing that he is acquiring such shares for his own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
6.6 Effect of Death or Other Termination of Employment.
--------------------------------------------------
(a) Subject to Section 6.5(a) hereof:
(1) if an Optionee's employment with the Company (or its
Subsidiaries) shall be terminated at any time after the grant of the Option by
the Optionee for any reason other than by death or disability, then the
Optionee shall have the right, during the period ending 90 days after such
termination, to exercise such Option to the extent that it was exercisable at
the date of such termination of employment and shall not have been theretofore
exercised. If an Optionee's employment with the Company (or its Subsidiaries)
shall be terminated at any time after the grant of the Option by the Company
for any reason, then any unexercised and vested Option terminates on the tenth
anniversary of the date of grant of the Option.
(2) in the event of the death of an Optionee who was at the
time of death employed by the Company and who had been in continuous employment
since the date of grant of the Option, any unexercised vested Option
terminates on the tenth anniversary of the date of grant of the Option.
Under these circumstances, a vested Option will be exercisable at any time
prior to such termination by the Optionee's estate, or by such person or
persons who have acquired the right to exercise the Option by the bequest or by
inheritance or by reason of the death of the Optionee.
(3) in the event an Optionee must terminate his or her
employment with the Company by reason of a disability (within the meaning of
Section 22(e)(3) of the Code) and if the Optionee had been in continuous
employment with the Company since the date of grant of the Option, then any
unexercised and vested Option terminates on the tenth anniversary of the date
of grant of the Option.
6.7. Nontransferrability of Option. No Option shall be transferable or
-----------------------------
assignable by an Optionee other than by will or the laws of descent and
distribution. During the lifetime of an Optionee the Option shall be exercisable
only by the Optionee. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the written consent of the Committee.
6.8. Rights as Shareholder. An Optionee or a transferee of an Option
----------------------
shall have no rights as a shareholder with respect to any shares subject to such
Option prior to the purchase of such shares by exercise of such Option and
payment in full of the purchase price of such shares as provided herein.
6.9. Abandonment of Option. An Optionee may at any time elect in
---------------------
writing to abandon an Option with respect to the number of shares as to which
the Option shall not have been exercised.
6.10. Proceeds. The proceeds received by the Company from the sale of
--------
common stock pursuant to the exercise of Options granted under the Plan shall be
added to the Company's general funds and used for general corporate purposes.
6.11. Call Option.
-----------
(a) Call Option Events. In the event an Optionee's employment
------------------
with the Company (or its Subsidiaries) is terminated, whether voluntary or
involuntary, with or without cause for any reason whatsoever or for no reason
(the "Call Option Event"), the Company shall have the irrevocable right and
B-5
option to purchase (the "Call Option") from such Optionee and/or from his
spouse, donees or legal representative (each of whom shall be deemed the
Optionee for the purposes of this Section 6.11 as the context requires) all of
the shares purchased by such Optionee pursuant to an Option granted under the
Plan (the "Purchased Shares"), and the Optionee shall have the obligation to
sell the Purchased Shares upon and to the extent of the Company's exercise of
the Call Option, all on the terms and conditions as set forth in this Section
611.
(b) Exercise. The Company shall exercise the Call Option, if
--------
at all, by written notice to the Optionee delivered by registered or certified
mail or by hand delivery within two (2) years after the termination of the
Optionee's employment with the Company (or its Subsidiaries) as described in
paragraph 6.11(a) above. Said notice shall include the number of the Purchased
Shares the Company wishes to purchase from the Optionee and the price to be paid
therefore. The failure of the Company to provide timely notice shall be deemed a
waiver of its rights under the Call Option.
(c) Purchase Price. The purchase price to be paid for each of
--------------
the Purchased Shares upon and to the extent of the Call Option is exercised
shall be the greater of:
(1) The highest price per share which the Company obtains
from selling its common shares during the period ending on the last day of the
month preceding the date the Call Option is exercised and commencing six (6)
months prior to thereto (the "Pricing Period");
or
(2) The fair market value of one share of common stock of
the Company as of the last quarter of the fiscal year preceding the date the
Call Option is exercised, as determined by an independent appraiser selected and
paid for by the Company.
(d) Payment of Purchase Price. The Company shall pay the
---------------------------
purchase price within thirty (3) days of the expiration of the Pricing Period.
The Company may elect to pay the purchase price in (i) one lump sum or (ii) not
more than twelve (12) equal installments, without interest.
ARTICLE VII
7. STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for shares
of Stock purchased upon the exercise of any Option granted hereunder or any
portion thereof prior to the fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges, if any, on which the Stock is then listed;
(b) The Completion of any registration or other qualification
of such shares under any federal or state law or under the rulings of
regulations of the SEC or any other governmental regulatory body, which the
Committee shall in its sole discretion deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency which the Committee shall in its sole
discretion determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee from time to time may establish for
reasons of administrative convenience; and
(e) The addition of such legends to the certificate as are
determined by the Company as being required under federal and state securities
laws.
B-6
ARTICLE VII
8. TERMINATION, AMENDMENT, AND MODIFICATION OF PLAN
The plan shall terminate on, and no option shall be granted thereunder
after, September 30, 2006. The Board may at any time, upon recommendation of the
Committee, terminate the Plan prior to September 30, 2006, and may at any time
and from time to time and in any respect, amend or modify the Plan; provided
that no termination, amendment, or modification of the Plan shall in any manner
affect any Option theretofore granted under the Plan without consent of the
Optionee.
ARTICLE IX
9. MISCELLANEOUS
9.1. Governing Law. This Plan shall be governed by and construed in
-------------
accordance with the laws of the State of California.
9.2. Employment. Nothing in the Plan or in any Option granted
----------
hereunder is intended to create any right on the part of an Optionee to
employment with the Company (or its Subsidiaries) for any period of time,
in any capacity, or at any rate of compensation.
9.3. Other Compensation Plan. The adoption of the Plan shall not
-----------------------
affect any other stock option or incentive or other compensation plans in effect
for the Company or any Subsidiary, nor shall the Plan preclude the Company or
any Subsidiary from establishing any other forms of incentive or other
compensation for employees of the Company or any Subsidiary.
9.4. Plan Binding on Successors. The plan shall be binding upon the
--------------------------
successors and assigns of the Company.
9.5. Singular, Plural, Gender. Whenever used herein, nouns in the
--------------------------
singular shall include the plural, and the masculine pronoun shall include the
feminine and neuter.
9.6. Captions Nor Part of Plan. Captions of Articles and Sections
-------------------------
hereof are inserted for convenience and reference. Such captions are not a
part of this Plan and shall not be deemed in any manner to modify, explain,
enlarge or restrict any of the provisions hereof.
B-7
EXHIBIT A
WORLD WIDE MAGIC NET, INC.
NOTICE OF GRANT OF OPTION UNDER
THE 1996 WORLD WIDE MAGIC NET, INC.
STOCK OPTION PLAN
Date: __________________
Name
Address
City, State, Zip
Subject to your acceptance, World Wide Magic Net, Inc. (the "Company")
hereby grants to you an Option to purchase________________________ ( )
common shares of the Company at an Option price of forty cents ($0.40) per
share, all on the terms and conditions set forth in the 1996 World Wide Magic
Net, Inc. Stock Option Plan.
Please acknowledge your receipt of this Notice of Grant of Option and a
copy of the 1996 World Wide Magic Net, Inc. Stock Option Plan, and your
acceptance thereof, by signing the enclosed copy of this Notice as indicated
below and returning it to the Company's Chief Financial Officer.
CYBER MERCHANTS EXCHANGE, INC.
By:
-----------------------------------
Frank S. Yuan
Its: Chairman and CEO
ACCEPTANCE
The undersigned represents and acknowledges that by his/her signature
below, he/she has received a copy of the 1996 World Wide Magic Net, Inc. Stock
Option Plan (the "Plan"), has reviewed it in its entirety and is familiar with
the terms and provisions thereof, and accepts the Option subject to all the
terms and conditions of the Plan.
-------------------------------------
B-8
EXHIBIT B
---------
ELECTION TO EXERCISE OPTION GRANTED UNDER
THE 1996 WORLD WIDE MAGIC NET, INC. STOCK OPTION PLAN
Cyber Merchants Exchange, Inc.
Attn: Secretary
600 South Lake Ave., Suite 405
Pasadena, California 91106
The undersigned hereby exercises the Option granted and elects to
purchase (_____) common shares of World Wide Magic Net, Inc. (the "Company")
pursuant to the Notice of Grant of Option dated __________________. Enclosed is
the sum of as payment for the shares so purchased.
The undersigned hereby represents and acknowledges that he/she has
received a copy of the 1996 World Wide Magic Net, Inc. Stock Option Plan (the
"Plan"), has reviewed it in its entirety and is familiar with the terms and
provisions thereof. By his/her signature below, the undersigned hereby
acknowledges and agrees that (i) the shares being purchased are, in all
respects, subject to the terms and conditions of the Plan, (ii) he/she is bound
by all of the terms and conditions of the Plan, and (iii) all decisions or
interpretations of the Committee upon any questions or issues arising under the
Plan or under the Notice of Grant of Option shall be binding, conclusive and
final.
The undersigned represents and warrants that (i) he/she the sole owner
and holder of the Option and has not transferred or assigned to any third person
or entity any interest therein and is entitled to exercise the Option under the
terms of the Plan, (ii) he/she is purchasing the above shares for investment
only, and not with a view to distribution involving a public offering, and (iii)
until the stock certificate evidencing the shares is issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), he/she is not entitled to any rights as a stockholder.
The undersigned understands that he/she may suffer adverse tax
consequences as a result of the purchase of the shares. The undersigned
represents that he/she has had an on opportunity to obtain the advice of counsel
prior to executing this Election to Exercise Option and that he/she is not
relying on the Company for tax advice.
As an express condition precedent to the effectiveness of this exercise
of Option, the undersigned shall satisfy all applicable federal, state and local
income and employment tax withholding obligations and deliver to the Company the
full amount of such obligations or make other arrangements acceptable to the
Company to satisfy such obligations. In addition, to the extent that the
undersigned's purchase and receipt of the shares subject to the Option results
in taxable income to the undersigned, the undersigned shall report and include
in income on his/her state and federal income tax returns with respect to the
year in which the Option is exercised, all such income that results from the
exercise of the Option, and the undersigned agrees to indemnify and hold the
Company harmless from any loss, liability, costs, expenses (including reasonable
attorneys fees), penalties or interest that the Company may incur as a result of
the undersigned's failure to perform the foregoing obligations.
Dated:
---------------------
Submitted by: Accepted by:
WORLD WIDE MAGIC NET, INC.
- -----------------------------
(Signature)
Address:
By:
- ----------------------------- -----------------------------
Its:
- ----------------------------- -----------------------------
B-9
APPENDIX C
Cyber Merchants Exchange, Inc. dba c-me.com
1999 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to provide additional
-------
incentives to key employees, officers, directors and consultants of Cyber
Merchants Exchange, Inc., and any of its Subsidiaries, thereby helping to
attract and retain the best available personnel for positions of responsibility
with those corporations and otherwise promoting the success of the business
activities of such corporations. It is intended that Options issued under this
Plan constitute nonqualified stock options.
2. DEFINITIONS. As used herein, the following definitions apply:
-----------
(a) "1934 Act" means the Securities Exchange Act of 1934,
as amended.
(b) "Board" means the Board of Directors of the Employer.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" means the Employer's common stock.
(e) "Committee" means the Board or the Committee appointed
by the Board in accordance with Section 4(a).
(f) "Continuous Status as an Employee" means the absence
of any interruption or termination of service as an Employee;
Continuous Status as an Employee will not be considered interrupted in
the case of sick leave, military leave, or any other approved leave of
absence.
(g) "Consultant" means any person who is not an employee
or officer of Employer who serves as a consultant of the Employer
or any Subsidiary of the Employer which is hereafter organized or
acquired by the Employer
(h) "Employee" means any person employed by or serving as
an employee, officer or director of the Employer or any Subsidiary of
the Employer which is hereafter organized or acquired by the Employer.
(i) "Employer" means Cyber Merchants Exchange, Inc., a
California corporation.
(j) "Nonemployee Director" has the meaning set forth in
Rule 16b-3 under the 1934 Act.
(k) "Option" means a stock option granted under the Plan.
(l) "Optioned Stock" means the Common Stock subject to an
Option.
(m) "Optionee" means any person who receives an Option.
(n) "Plan" means this 1999 Stock Option Plan.
C-1
(o) "Subsidiary" means any bank or other corporation of
which not less than fifty percent (50%) of the voting shares are held
by the Employer or a Subsidiary, whether or not such corporation now
exists or is hereafter organized or acquired by the Employer or a
Subsidiary.
3. STOCK SUBJECT TO OPTIONS.
------------------------
(a) Number of Shares Reserved. The maximum number of shares
--------------------------
which may be optioned and sold under the Plan is two million
{2,000,000) shares of Common Stock of the Employer, subject to
adjustment as provided in Section 6(j). However no more than two
hundred fifty thousand (250,000) of such shares may be issued to
Consultants. During the term of this Plan, the Employer will at all
times reserve and keep available a sufficient number of shares of its
Common Stock to satisfy the requirements of the Plan.
(b) Expired Options. If any outstanding Option expires or
----------------
becomes unexercisable for any reason without having been exercised in
full, the shares of Common Stock allocable to the unexercised portion
of such Option will again become available for other Option grants.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) The Committee. The Plan is administered by the Board
--------------
directly, acting as a Committee of the whole, or if the Board elects,
by a separate Committee appointed by the Board for that purpose and
consisting of at least two Board members, all of whom must be
Nonemployee Directors. All references in the Plan to the "Committee"
are to such separate Committee, if any is established, or if none is
then in existence, then to the Board as a whole. Once appointed, any
such Committee must continue to serve until otherwise directed by the
Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereto, remove members (with
or without cause), appoint new members in substitution therefor, and
fill vacancies (however caused). At all times, the Board has the power
to remove all members of the Committee and thereafter to directly
administer the Plan as a Committee of the whole.
(b) Meetings; Reports. The Committee shall select one of its
------------------
members as chairman, and hold meetings at such times and places as the
chairman or a majority of the Committee may determine. All actions of
the Committee must be either by (i) a majority vote of the members of
the full Committee at a meeting of the Committee, or (ii) by unanimous
written consent of all members of the full Committee without a meeting.
At least annually, the Committee must present a written report to the
Board indicating the persons to whom Options have been granted since
the date of the last such report, and in each case the date or dates of
Options granted, the number of shares optioned, and the Option price
per share.
(c) Powers of the Committee. Subject to all provisions and
------------------------
limitations of the Plan, the Committee has the authority and
discretion to:
(1) Determine the persons to whom Options are to be
granted, the times of grant, and the number of shares to be
represented by each Option;
(2) Interpret the Plan;
(3) Authorize any person or persons to execute and
deliver Option agreements or to take any other actions deemed
by the Committee to be necessary or appropriate to effectuate
the grant of Options by the Committee; and
(4) Make all other determinations and take all other
actions which the Committee deems necessary or appropriate to
administer the Plan in accordance with its terms and
conditions.
(d) Final Authority; Limitation of Liability. The Committee's
-----------------------------------------
decisions, determinations and interpretations are final and binding on
all persons, including all Optionees and any other holders or persons
interested in any Options, unless otherwise expressly determined by a
vote of the majority of the entire Board. No member of the Committee or
of the Board may be held liable for any action or determination made in
good faith with respect to the Plan or any Option.
C-2
5. ELIGIBILITY; LIMITATION OF RIGHTS. The grant of Options under the
---------------------------------
Plan is entirely discretionary with the Committee, and the adoption of the Plan
does not confer upon any person any right to receive any Option or Options
unless and until granted by the Committee, in its sole discretion. Neither the
adoption of the Plan nor the grant of any Options to any person or Optionee will
confer any right to continued employment, nor shall the same interfere in any
way with that person's right or that of the Employer (or any Subsidiary) to
terminate the person's employment at any time.
6. OPTION TERMS; CONDITIONs. All Option grants under the Plan must
-------------------------
be (i) approved in advance by the Committee; and (ii) documented in written
Option agreements in such form as the Committee approves from time to time. All
Option agreements must comply with, and are subject to the following terms and
conditions:
(a) Number of Shares. Each Option agreement must state the
----------------
number of shares subject to Option. Any number of Options may be
granted to a single eligible person at any time and from time to time.
(b) Option Price. The Option price for the shares of Common
-------------
Stock to be issued under the Option will be the weighted average
closing price of the Common Stock for the thirty (30) calendar days
prior to the date of grant.
(c) Consideration; Manner of Exercise. The Option price is
-----------------------------------
payable either (i) in U.S. dollars upon exercise of the Option, or
(ii) if approved by the Board, in other consideration including
without limitation Common Stock of the Employer, services, or other
property. An Option is deemed to be exercised when written notice of
exercise has been given to the Employer in accordance with the terms
of the Option by the person entitled to exercise the Option, together
with full payment for the shares of Common Stock subject to said
notice.
(d) Term of Option. Under no circumstances may an Option
---------------
granted under the Plan be exercisable after the expiration of ten
(10) years from the date such Option is granted. The term of each
Option must be determined by the Committee in its discretion.
(e) Date of Grant; Vesting, Holding Period. The grant date of an
--------------------------------------
Option, for all purposes, is the date the Committee makes the
determination granting the Option, as set forth in the Option
agreement. All Options shall vest as follows:
(i) For Consultants, 100% upon completion of the project
by Consultant and acceptance of the project by Employer.
(ii) For newly hired Employees, 25% shall vest 6 months
after the date of employment of Employee and 4.16% per month
thereafter.
(iii)For existing Employees; 4.16% per month
commencing with date of grant.
Shares of Common Stock obtained upon the exercise of any Option may not
be sold by any Optionee that is subject to Section 16 of the 1934 Act
until six (6) months have elapsed since the date of the Option grant.
(f) Death of Optionee. In the event of the death of an
-------------------
Optionee who at the time of his death was an Employee and who had been
in Continuous Status as an Employee since the date of grant of the
Option, the Option terminates on the earlier of (i) six (6) months
after the date of death of the Optionee, or (ii) the expiration date
otherwise provided in the Option agreement. Under these circumstances,
the Option will be exercisable at any time prior to such termination by
the Optionee's estate, or by such person or persons who have acquired
the right to exercise the Option by bequest or by inheritance or by
reason of the death of the Optionee.
(g) Disability of Optionee. If an Optionee's status as an
-----------------------
Employee is terminated at any time during the Option period by reason
of a disability (within the meaning of Section 22(e)(3) of the Code)
and if the Optionee had been in Continuous Status as an Employee at all
times between the date of grant of the Option and the termination of
C-3
his status as an Employee, the Option terminates on the earlier of (i)
one (1) year after the date of termination of his status as an
Employee, or (ii) the expiration date otherwise provided in the Option
agreement.
(h) Termination of Status as an Employee. If an Optionee's
-------------------------------------
status as an Employee is terminated at any time after the grant of an
Option by the Optionee for any reason other than death or disability,
as provided in Sections 6(f) and 6(g), and not by the Company, as
provided below, the Option terminates on the earlier of (i) thirty (30)
days following termination of status as an Employee, or (ii) the
expiration date otherwise provided in the Option agreement. If an
Optionee's status as an Employee is terminated at any time after the
grant of an Option by the Company for any reason, then the Option
terminates on the date of termination of status as an Employee.
(i) Nontransferability of Options. No Option granted under the
-----------------------------
Plan may be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent
or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
(j) Adjustments Upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the shareholders of the Employer, the number of
shares of Common Stock covered by each outstanding Option, the number
of shares of Common Stock available for grant of additional Options,
and the price per share of Common Stock specified in each outstanding
Option, must be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from any stock
split or other subdivision or consolidation of shares, the payment of
any stock dividend (but only on the Common Stock) or any other increase
or decrease in the number of such shares of Common Stock effected
without receipt of consideration by the Employer; provided, however,
that conversion of any convertible securities of the Employer will not
be deemed to have been "effected without receipt of consideration."
Any adjustments as a result of a change in the Employer's
capitalization will be made by the Committee, whose determination in
that respect is final, binding and conclusive. Except as otherwise
expressly provided in this Section 6(j), no Optionee shall have any
rights by reason of any stock split or the payment of any stock
dividend or any other increase or decrease in the number of shares of
Common Stock. Except as otherwise expressly provided in this Section
6(j), any issue by the Employer of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not
affect the number of shares or price of Common Stock subject to any
Options, and no adjustments in Options shall be made by reason thereof.
The grant of an Option under the Plan does not in any way affect the
right or power of the Employer to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure.
(k) Conditions Upon Issuance of Shares. Shares of Common Stock
----------------------------------
may not be issued with respect to an Option granted under the Plan
unless the exercise of the Option and the issuance and delivery of such
shares pursuant thereto complies with all applicable provisions of law,
including, applicable federal and state securities laws.
As a condition to the exercise of an Option, the Employer may
require the person exercising such Option to represent and warrant at
the time of exercise that the shares of Common Stock are being
purchased only for investment and without any present intention to sell
or distribute such Common Stock if, in the opinion of counsel for the
Employer, such a representation is required by any relevant provisions
of law.
All Shares of Common Stock issued pursuant to the Plan will be
"Restricted Securities" as defined in Rule 144 promulgated under the
Securities Act of 1933, as amended.
(l) Change of Control, Merger, Sale of Assets, Etc. In the
---------------------------------------------------
event of the sale or other transfer of the outstanding shares of stock
of the Employer in one transaction or a series of related transactions
or a merger or reorganization of the Employer with or into any other
corporation, where immediately following the transaction, those persons
who were shareholders of the Employer immediately before the
transaction control less than 50% of the voting power of the surviving
organization (a "change of control event") or in the event of a
proposed sale of substantially all of the assets of the Employer, or in
C-4
the event of a proposed dissolution or liquidation of the Employer
(collectively, "sale transaction") all outstanding Options that are not
then fully exercisable become exercisable immediately before the date
of closing of any change of control event or sale transaction or such
earlier date as the Committee may fix.
(m) Substitute Stock Options. In connection with the
---------------------------
acquisition or proposed acquisition by the Employer or any Subsidiary,
whether by merger, acquisition of stock or assets, or other
reorganization transaction, of a business any employees of which have
been granted options, the Committee is authorized to issue, in
substitution of any such unexercised stock options, a new Option under
this Plan which confers upon the Optionee substantially the same
benefits as the old option
(n) Tax Compliance. The Employer, in its sole discretion, may
--------------
take any actions that it reasonably believes to be required in order to
comply with any local, state, or federal tax laws relating to the
reporting or withholding of taxes attributable to the grant or exercise
of any Option or the disposition of any shares of Common Stock issued
upon exercise of an Option, including, but not limited to: (i)
withholding from any Optionee exercising an Option a number of shares
of Common Stock having a fair market value equal to the amount required
to be withheld by Employer under applicable tax laws, and (ii)
withholding from any form of compensation or other amount due an
Optionee or holder of shares of Common Stock issued upon exercise of an
Option any amount required to be withheld by Employer under applicable
tax laws. Withholding or reporting is considered required for purposes
of this Section 6(n) if any tax deduction or other favorable tax
treatment available to Employer is conditioned upon such reporting or
withholding.
(o) Other Provisions. Option agreements executed under the
-----------------
Plan may contain such other provisions as the Committee deems
advisable, provided that they are not inconsistent with any of the
other terms and conditions of the Plan or applicable laws.
7. TERM OF THE PLAN. The Plan is effective on the date of adoption
----------------
of the Plan by the Board. Unless sooner terminated as provided in Section 8, the
Plan will terminate on the tenth (10th) anniversary of its effective date.
Options may be granted at any time after the effective date and prior to the
date of termination of the Plan.
8. AMENDMENT; EARLY TERMINATION. The Board may terminate or amend
-----------------------------
the Plan at any time and in such respects as it deems advisable, although no
amendment or termination would affect any previously-granted Options, which
would remain in full force and effect notwithstanding any amendment or
termination of the Plan Shareholder approval of any amendments to the Plan must
be obtained whenever required by applicable law(s).
C-5
CYBER MERCHANTS EXCHANGE, INC.
NOTICE OF GRANT OF OPTION UNDER
THE 1999 CYBER MERCHANTS EXCHANGE, INC.
STOCK OPTION PLAN
Date:____________
Name
Address
City, State Zip
Subject to your acceptance, Cyber Merchants Exchange, Inc. (the "Company")
hereby grants to you an Option to purchase up to____________(____________)
common shares of the Company at an Option price of__________________________
(_____________) per share, all on the terms and conditions set forth per the
1999 Cyber Merchants Exchange, Inc. Stock Option Plan.
Please acknowledge your receipt of this Notice of Grant of Option and
the 1999 Cyber Merchants Exchange, Inc. Stock Option Plan, and your acceptance
thereof, by signing the enclosed copy of this Notice as indicated below and
returning it to the Company's Secretary.
CYBER MERCHANTS EXCHANGE, INC.
BOARD OF DIRECTORS' SUB-COMMITEE
By: By:
-------------------------- ----------------------------
Howard Moore Charles H. Rice
Its: Chairman Its: Member
-------------------------- -----------------------
By: By:
-------------------------- ----------------------------
Philip Hawley Frank S. Yuan
Its: Member Its: Chairman & C.E.O.
-------------------------- -----------------------
ACCEPTANCE
The undersigned represents and acknowledges that by his/her signature
below, he/she has received a copy of the 1999 Cyber Merchants Exchange, Inc.
Stock Option Plan (the "Plan"), has reviewed it in its entirety and is familiar
with the terms and provisions thereof, and accepts the Option subject to all the
terms and conditions of the Plan.
---------------------------------
C-6
EXHIBIT B
ELECTION TO EXERCISE OPTION GRANTED UNDER
THE 1999 CYBER MERCHANTS EXCHANGE, INC. STOCK OPTION PLAN
Cyber Merchants Exchange, Inc.
Attn: Secretary
600 South Lake Ave., Suite 405
Pasadena, California 91106
The undersigned hereby exercises the Option granted and elects to purchase
______________________(______________)common shares of Cyber Merchants Exchange,
Inc. (the "Company") pursuant to the Notice of Grant of Option dated___________.
Enclosed is the sum of $______________ as payment for the shares so purchased.
The undersigned hereby represents and acknowledges that he/she has received
a copy of the 1999 Cyber Merchants Exchange, Inc. Stock Option Plan (the
"Plan"), has reviewed it in its entirety and is familiar with the terms and
provisions thereof. By his/her signature below, the undersigned hereby
acknowledges and agrees that (i) the shares being purchased are, in all
respects, subject to the terms and conditions of the Plan, (ii) he/she is bound
by all of the terms and conditions of the Plan, and (iii) all decisions or
interpretations of the Committee upon any questions or issues arising under the
Plan or under the Notice of Grant of Option shall be binding, conclusive and
final.
The undersigned represents and warrants that (i) he/she the sole owner and
holder of the Option and has not transferred or assigned to any third person or
entity any interest therein and is entitled to exercise the Option under the
terms of the Plan, (ii) he/she is purchasing the above shares for investment
only, and not with a view to distribution involving a public offering, and (iii)
until the stock certificate evidencing the shares is issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), he/she is not entitled to any rights as a stockholder.
The undersigned understands that he/she may suffer adverse tax consequences
as a result of the purchase of the shares. The undersigned represents that
he/she has had an on opportunity to obtain the advice of counsel prior to
executing this Election to Exercise Option and that he/she is not relying on the
Company for tax advice.
As an express condition precedent to the effectiveness of this exercise of
Option, the undersigned shall satisfy all applicable federal, state and local
income and employment tax withholding obligations and deliver to the Company the
full amount of such obligations or make other arrangements acceptable to the
Company to satisfy such obligations. In addition, to the extent that the
undersigned's purchase and receipt of the shares subject to the Option results
in taxable income to the undersigned, the undersigned shall report and include
in income on his/her state and federal income tax returns with respect to the
year in which the Option is exercised, all such income that results from the
exercise of the Option, and the undersigned agrees to indemnify and hold the
Company harmless from any loss, liability, costs, expenses (including reasonable
attorneys fees), penalties or interest that the Company may incur as a result of
the undersigned's failure to perform the foregoing obligations.
Dated:
--------------------
Submitted by: Accepted by:
CYBER MERCHANTS EXCHANGE, INC.
- ---------------------------
(Signature)
Address:
By:
- --------------------------- --------------------------
Its:
- --------------------------- --------------------------
C-7
APPENDIX D
CYBER MERCHANTS EXCHANGE, INC., d.b.a. c-me.com
2001 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to provide additional
-------
incentives to key employees, officers, directors and consultants of CYBER
MERCHANTS EXCHANGE, INC., and any of its Subsidiaries, thereby helping to
attract and retain the best available personnel for positions of responsibility
with those corporations and otherwise promoting the success of the business
activities of such corporations. It is intended that Options issued under this
Plan constitute nonqualified stock options, unless otherwise specified.
2. DEFINITIONS. As used herein, the following definitions apply:
-----------
(a) "1934 Act" means the Securities Exchange Act of 1934,
as amended.
(b) "Board" means the Board of Directors of the Employer.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" means the Employer's common stock.
(e) "Committee" means the Board or the Committee appointed
by the Board in accordance with Section 4(a).
(f) "Continuous Status as an Employee" means the absence of
any interruption or termination of service as an Employee; Continuous
Status as an Employee will not be considered interrupted in the case
of sick leave, military leave, or any other approved leave of absence.
(g) "Consultant" means any person who is not an employee or
officer of Employer who serves as a consultant of the Employer or any
Subsidiary of the Employer that is hereafter organized or acquired by
the Employer
(h) "Employee" means any person employed by or serving as
an employee, officer or director of the Employer or any Subsidiary of
the Employer that is hereafter organized or acquired by the Employer.
(i) "Employer" means Cyber Merchants Exchange, Inc., d.b.a.
c-me.com, a California corporation.
(j) "Nonemployee Director" has the meaning set forth in
Rule 16b-3 under the 1934 Act.
(k) "Option" means a stock option granted under the Plan.
(l) "Optioned Stock" means the Common Stock subject to an
Option.
(m) "Optionee" means any person who receives an Option.
(n) "Plan" means this 2001 Stock Option Plan.
D-1
(o) "Subsidiary" means any bank or other corporation of
which not less than fifty percent (50%) of the voting shares are held
by the Employer or a Subsidiary, whether or not such corporation now
exists or is hereafter organized or acquired by the Employer or a
Subsidiary.
3. STOCK SUBJECT TO OPTIONS.
------------------------
(a) Number of Shares Reserved. The maximum number of shares
-------------------------
that may be optioned and sold under the Plan is one million (1,000,000)
shares of Common Stock of the Employer, subject to adjustment as
provided in Section 6(j). During the term of this Plan, the Employer
will at all times reserve and keep available a sufficient number of
shares of its Common Stock to satisfy the requirements of the Plan.
(b) Expired Options. If any outstanding Option expires or
---------------
becomes unexercisable for any reason without having been exercised in
full, the shares of Common Stock allocable to the unexercised portion
of such Option will again become available for other Option grants.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) The Committee. The Plan is administered by the Board
--------------
directly, acting as a Committee of the whole, or if the Board elects,
by a separate Committee appointed by the Board for that purpose and
consisting of at least two Board members, all of who must be
Nonemployee Directors. All references in the Plan to the "Committee"
are to such separate Committee, if any is established, or if none is
then in existence, then to the Board as a whole. Once appointed, any
such Committee must continue to serve until otherwise directed by the
Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereto, remove members (with
or without cause), appoint new members in substitution therefor, and
fill vacancies (however caused). At all times, the Board has the power
to remove all members of the Committee and thereafter to directly
administer the Plan as a Committee of the whole.
(b) Meetings; Reports.The Committee shall select one of its
-----------------
members as chairman, and hold meetings at such times and places as the
chairman or a majority of the Committee may determine. All actions of
the Committee must be either by (i) a majority vote of the members of
the full Committee at a meeting of the Committee, or (ii) by unanimous
written consent of all members of the full Committee without a meeting.
At least annually, the Committee must present a written report to the
Board indicating the persons to whom Options have been granted since
the date of the last such report, and in each case the date or dates of
Options granted, the number of shares optioned, and the Option price
per share.
(c) Powers of the Committee. Subject to all provisions
------------------------
and limitations of the Plan, the Committee has the authority and
discretion to:
(1) Determine the persons to whom Options are to be
granted, the times of grant, the number of shares to be
represented by each Option, and the vesting schedule of the
Options;
(2) Interpret the Plan;
(3) Authorize any person or persons to execute and
deliver Option agreements or to take any other actions
deemed by the Committee to be necessary or appropriate to
effectuate the grant of Options by the Committee; and
(4) Make all other determinations and take all other
actions that the Committee deems necessary or appropriate to
administer the Plan in accordance with its terms and
conditions.
D-2
(d) Final Authority; Limitation of Liability. The
-----------------------------------------
Committee's decisions, determinations and interpretations are final and
binding on all persons, including all Optionees and any other holders
or persons interested in any Options, unless otherwise expressly
determined by a vote of the majority of the entire Board. No member of
the Committee or of the Board may be held liable for any action or
determination made in good faith with respect to the Plan or any
Option.
(e) Approval of Grants to Committee Composed of Non-Employee
--------------------------------------------------------
Directors. Any grant of Options to a member of a Committee composed of
---------
Non-Employee Directors shall be approved of by the full Board of
Directors. The full Board of Directors shall then be construed as the
Committee for purposes of administering the Plan with respect to such
Options.
5. ELIGIBILITY; LIMITATION OF RIGHTS. The grant of Options under the
---------------------------------
Plan is entirely discretionary with the Committee, and the adoption of
the Plan does not confer upon any person any right to receive any
Option or Options unless and until granted by the Committee, in its
sole discretion. Neither the adoption of the Plan nor the grant of any
Options to any person or Optionee will confer any right to continued
employment, nor shall the same interfere in any way with that
person's right or that of the Employer (or any Subsidiary) to
terminate the person's employment at any time.
6. OPTION TERMS; CONDITIONS. All Option grants under the Plan
--------------------------
must be (i) approved by the Committee; and (ii) documented in written
Option agreements in such form as the Committee approves from time to
time. All Option agreements must comply with, and are subject to the
following terms and conditions:
(a) Number of Shares. Each Option agreement must state the
----------------
number of shares subject to Option. Any number of Options may be
granted to a single eligible person at any time and from time to time.
(b) Exercise Price. The Option exercise price for the shares
---------------
of Common Stock to be issued under the Plan will be the average of the
closing bid prices of the Company's Common Stock as reported on the
National Association of Securities Dealers Automated Quotation System
for the National Market, ("NASDAQ") or, if such security is not listed
or admitted to trading on the NASDAQ, on the principal national
security exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by the National Association
of Security Dealers, Inc., or a similar generally accepted reporting
service, as the case may be (the "Closing Bid Price").
(c) Consideration; Manner of Exercise. The Exercise Price is
----------------------------------
payable either (i) in U.S. dollars, or (ii) if approved by the Board,
in other consideration including, without limitation, Common Stock of
the Employer, Group, or other property. An Option is deemed to be
exercised when written notice of exercise has been given to the
Employer in accordance with the terms of the Option by the person
entitled to exercise the Option, together with full payment for the
shares of Common Stock subject to said notice.
(d) Term of Option. Under no circumstances may an Option granted
--------------
under the Plan be exercisable after the expiration of ten (10)
years from the date such Option is granted. The term of each
Option must be determined by the Committee in its discretion.
(e) Date of Grant; Vesting; Holdings Period. The grant date of
---------------------------------------
an Option, for all purposes, is the date the Committee, or an
authorized agent of the Committee, makes the determination granting the
Option, as set forth in the Option agreement. Shares of Common Stock
obtained upon the exercise of any Option may not be sold by any
Optionee that is subject to Section 16 of the 1934 Act until six (6)
months have elapsed since the date of the Option grant. The vesting
schedule for all Options shall be determined by the Committee in its
discretion and shall be stated in the Option agreement.
D-3
(f) Death of Optionee. In the event of the death of an
-------------------
Optionee who at the time of his or her death was an Employee and who
had been in Continuous Status as an Employee since the date of grant of
the Option, any unexercised and vested Option terminates on the tenth
anniversary of the date of grant of the Option. Under these
circumstances, the Option will be exercisable at any time prior to such
termination by the Optionee's estate, or by such person or persons who
have acquired the right to exercise the Option by bequest or by
inheritance or by reason of the death of the Optionee. Any Optioned
Stock subject to an unvested Option shall revert back into the pool of
Common Stock established under the Plan and shall be available for
grant pursuant to a new Option.
(g) Disability of Optionee. If an Optionee's status as an
-----------------------
Employee is terminated at any time during the Option period by reason
of a disability (within the meaning of Section 22(e)(3) of the Code)
and if the Optionee had been in Continuous Status as an Employee at all
times between the date of grant of the Option and the termination of
Optionee's status as an Employee, any unexercised and vested Option
terminates on the tenth anniversary of the date of grant of the Option.
Any Optioned Stock subject to an unvested Option shall revert back into
the pool of Common Stock established under the Plan and shall be
available for grant pursuant to a new Option.
(h) Termination of Status as an Employee.
------------------------------------
(i) Unless otherwise determined by the Committee or
otherwise stated in an Option agreement, if an Optionee's status as an
Employee is terminated by the Employee at any time after the grant of
an Option for any reason other than death or disability, as provided in
Sections 6(f) and 6(g), then any unexercised and vested Option
terminates ninety (90) days following Optionee's termination of status
as an Employee. Any Optioned Stock subject to an unvested Option shall
revert back into the pool of Common Stock established under the Plan
and shall be available for grant pursuant to a new Option.
(ii) Unless otherwise determined by the Committee or
otherwise stated in any Option agreement, if an Optionee's status as an
Employee is terminated by the Company and such termination is not for
"cause" as provided in Section 6(h)(iii), any unexercised and vested
Option terminates on the tenth anniversary of the date of grant of the
Option. Any Optioned Stock subject to an unvested Option shall revert
back into the pool of Common Stock established under the Plan and shall
be available for grant pursuant to a new Option.
(iii) Unless otherwise determined by the Committee or
otherwise stated in any Option agreement, if an Optionee's status as an
Employee is terminated by the Company, and such termination is for
"cause" (such termination being referred to as a "Termination for
Cause") at any time after the grant of an Option by the Company, then
all Options (both vested and unvested) shall terminate on the date of
termination of Optionee's status as an Employee and any Optioned Stock
subject to such Options, shall revert back into the pool of Common
Stock established under the Plan and shall be available for grant
pursuant to a new Option. Termination for Cause shall mean a
termination due to objective evidence of any of the following: (i)
material dishonesty related to employment; (ii) fraud; (iii) conviction
of a felony; or (iv) misappropriation of material Company assets or
business opportunities. An Optionee's attempted resignation to avoid a
Termination for Cause shall not be effective if the conduct that
ultimately results in the Termination for Cause occurred prior to the
attempted resignation.
(i) Nontransferability of Options. Except as permitted by the
-----------------------------
Committee, no Option granted under the Plan may be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
(j) Adjustments Upon Changes in Capitalization. Subject to any
------------------------------------------
required action by the shareholders of the Employer, the number of
shares of Common Stock covered by each outstanding Option, the number
of shares of Common Stock available for grant of additional Options,
and the price per share of Common Stock specified in each outstanding
D-4
Option, must be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from any stock
split or other subdivision or consolidation of shares, the payment of
any stock dividend (but only on the Common Stock) or any other increase
or decrease in the number of such shares of Common Stock effected
without receipt of consideration by the Employer; provided, however,
that conversion of any convertible securities of the Employer will not
be deemed to have been "effected without receipt of consideration."
Any adjustments as a result of a change in the Employer's
capitalization will be made by the Committee, whose determination in
that respect is final, binding and conclusive. Except as otherwise
expressly provided in this Section 6(j), no Optionee shall have any
rights by reason of any stock split or the payment of any stock
dividend or any other increase or decrease in the number of shares of
Common Stock. Except as otherwise expressly provided in this Section
6(j), any issue by the Employer of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not
affect the number of shares or price of Common Stock subject to any
Options, and no adjustments in Options shall be made by reason thereof.
The grant of an Option under the Plan does not in any way affect the
right or power of the Employer to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure.
(k) Conditions Upon Issuance of Shares. Shares of Common
----------------------------------
Stock may not be issued with respect to an Option granted under
the Plan unless the exercise of the Option and the issuance and
delivery of such shares pursuant thereto complies with all applicable
provisions of law, including, applicable federal and state securities
laws.
As a condition to the exercise of an Option, the Employer may
require the person exercising such Option to represent and warrant at
the time of exercise that the shares of Common Stock are being
purchased only for investment and without any present intention to sell
or distribute such Common Stock if, in the opinion of counsel for the
Employer, such a representation is required by any relevant provisions
of law.
(l) Change of Control, Merger, Sale of Assets, Etc. In
---------------------------------------------------
the event of the sale or other transfer of the outstanding shares of
stock of the Employer in one transaction or a series of related
transactions or a merger or reorganization of the Employer with or
into any other corporation, where immediately following the
transaction, those persons who were shareholders of the Employer
immediately before the transaction control less than 50% of the
voting power of the surviving organization (a "change of control
event") or in the event of a proposed sale of substantially all of
the assets of the Employer, or in the event of a proposed dissolution
or liquidation of the Employer (collectively, "sale transaction"),
unless otherwise determined by the Committee or otherwise stated in an
instrument evidencing an Option, all outstanding Options that have
not been exercised shall be extinguished and revert to the Plan
immediately before the date of closing of any change of control
event or sale transaction or such earlier date as the Committee may
fix. The Employer shall notify each holder of outstanding Options at
least five (5) business days prior to the closing date of a change of
control event or sale transaction in writing delivered to the
holder's last known address.
(m) Substitute Stock Options. In connection with the
-------------------------
acquisition or proposed acquisition by the Employer or any Subsidiary,
whether by merger, acquisition of stock or assets, or other
reorganization transaction, of a business any employees of which have
been granted options, the Committee is authorized to issue, in
substitution of any such unexercised stock options, a new Option under
this Plan or any successor plan (whether created by the Company or its
acquirer) which confers upon the Optionee substantially the same
benefits as the old option.
(n) Tax Compliance.The Employer, in its sole discretion, may
--------------
take any actions that it reasonably believes to be required in order to
comply with any local, state, or federal tax laws relating to the
reporting or withholdings of taxes attributable to the grant or
exercise of any Option or the disposition of any shares of Common Stock
issued upon exercise of an Option, including, but not limited to: (i)
withholdings from any Optionee exercising an Option a number of shares
of Common Stock having a fair market value equal to the amount required
D-5
to be withheld by Employer under applicable tax laws, and (ii)
withholdings from any form of compensation or other amount due an
Optionee or holder of shares of Common Stock issued upon exercise of an
Option any amount required to be withheld by Employer under applicable
tax laws. Withholdings or reporting is considered required for purposes
of this Section 6(n) if any tax deduction or other favorable tax
treatment available to Employer is conditioned upon such reporting or
withholdings.
(o) Other Provisions. Option agreements executed under the
----------------
Plan may contain such other provisions as the Committee deems
advisable, provided that they are not inconsistent with any of the
other terms and conditions of the Plan or applicable laws.
7. TERM OF THE PLAN. The Plan is effective on the date of adoption
----------------
of the Plan by the Board. Unless sooner terminated as provided in Section 8, the
Plan will terminate on the tenth (10th) anniversary of its effective date.
Options may be granted at any time after the effective date and prior to the
date of termination of the Plan.
8. AMENDMENT; EARLY TERMINATION. The Board may terminate or amend
----------------------------
the Plan at any time and in such respects as it deems advisable, although no
amendment or termination would affect any previously-granted Options, which
would remain in full force and effect notwithstanding any amendment or
termination of the Plan. Shareholder approval of any amendments to the Plan must
be obtained whenever required by applicable law(s) or stock market regulations.
9. INABILITY TO OBTAIN AUTHORITY. The inability of the Employer to
-------------------------------
obtain authority to issue and sell shares under the Plan from any regulatory
body having jurisdiction, which authority is considered by the Employer's
counsel to be necessary to the lawful issuance and sale of the shares under the
Plan, will relieve the Employer of any liability in respect of the failure to
issue or sell those shares.
10. SHAREHOLDER RATIFICATION. The adoption of the Plan shall be
-------------------------
subject to ratification by the affirmative vote of the holders of a majority of
the shares of Common Stock represented in person or by proxy at a duly convened
meeting of the shareholders of the Employer, which ratification must occur
within twelve (12) months before or after the date of adoption of the Plan by
the Board.
* * * *
CERTIFICATE OF ADOPTION
I certify that the foregoing plan was adopted by the Board on .
----------
--------------------------------
James L. Vandeberg
Corporate Secretary
Cyber Merchants Exchange, Inc.,
d.b.a. c-me.com
D-6
APPENDIX E
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT ("Agreement") is made on the date noted below
("Effective Date") by and between the undersigned Shareholder(s) ("Shareholder")
and Cyber Merchants Exchange, Inc. ("C-ME"), with offices at 320 South Garfield
Avenue, Suite 318, Alhambra, California 91801:
RECITALS
WHEREAS, the Company will be pursuing a public offering of its stock
pursuant to a SB-2 registration statement filed with the Securities and Exchange
Commission on August 3, 1998 (the "Offering");
WHEREAS, the Shareholder and C-ME mutually agree that it is in the best
interest if the Shareholder refrains from selling any shares acquired by the
Shareholder as of result of its investments in the two previous private
placements conducted by the Company after the Company's stock becomes freely
tradeable as a result of the Offering or any amendments thereto, Rule 144, any
other applicable rule or by operation of law;
NOW, THEREFORE, in consideration of the foregoing promises and the
mutual promises contained herein, the Shareholder agrees to be bound by the
trading restriction set forth below;
1. Shareholder agrees that, as permitted by law, after the Offering is
completed and the shares of the Company's stock pursuant to the Offering begin
trading, the shareholders shall be permitted to sell the following percentages
of stock held by them if the two-week weighted average trading price of the
Company's stock equals or exceeds the price noted below:
|---------------------------------------|--------------------------------------|
| Percentage of Stock | Two-Week Weighted Average |
| Permitted to be Sold | Trading price |
|---------------------------------------|--------------------------------------|
| Up to 10% | $10 |
|---------------------------------------|--------------------------------------|
| Up to 20% | $15 |
|---------------------------------------|--------------------------------------|
| Up to 30% | $20 |
|---------------------------------------|--------------------------------------|
| Up to 40% | $25 |
|---------------------------------------|--------------------------------------|
| Up to 50% | $30 |
|---------------------------------------|--------------------------------------|
| Unlimited | $30+ |
|---------------------------------------|--------------------------------------|
2. Shareholder further agrees that, except as provided above, he/she/it
agrees not to sell, make any short sale of, or otherwise dispose or transfer for
value or otherwise engage in any of the foregoing transactions with respect to
any securities of the Company until the Company completes a firmly underwritten
registered public offering and only after the expiration of any lock-up or
market stand-off period imposed by the underwriter in such offering.
IN WITNESS WHEREOF, Shareholder and C-ME have caused this Agreement to
be signed as of the date executed below.
CYBER MERCHANTS EXCHANGE, INC.
Dated: By: -------------------------
Frank S. Yuan, President
SHAREHOLDER
Dated: By:
------------------------- -------------------------
(Print Name/Title)
SHAREHOLDER
Dated: By:
------------------------- -------------------------
(Print Name/Title)
E-1
CYBER MERCHANTS EXCHANGE, INC.
Fold and Tear Here
- ------------------------------------------------------------------------------------------------
| |
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF |PLEASE |
CYBER MERCHANTS EXCHANGE, INC., d.b.a. C-ME.com |DETACH |
2002 ANNUAL MEETING OF SHAREHOLDERS - DECEMBER 6, 2002 |HERE |
| |
The undersigned shareholder of CYBER MERCHANTS EXCHANGE, INC., a California |You |
corporation, (the "Company") hereby acknowledges receipt of the Notice of Annual |Must |
Meeting of Shareholders and Proxy Statement, each dated October 28, 2002, and |Detach |
hereby appoints Frank S. Yuan, as proxy and attorney-in-fact with full power of |This |
substitution, on behalf and in the name of the undersigned, to represent the |Portion |
undersigned at the 2002 Annual Meeting of Shareholders of the Company to be held |of the |
on December 6, 2002, at adjournment(s) or postponement(s) thereof, and to vote |Proxy |
all shares of Common Stock that the undersigned would be entitled to vote if |Card |
then and there personally present, on the matters set forth below: |Before |
|Returning |
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE. |It in the |
Please sign exactly as your name appears on the stock certificate. When shares |Enclosed |
are held by joint tenants, both should sign. When signing as attorney, executor, |Envelope |
administrator, trustee, or guardian, please give full title as such. If a | |
corporation, please sign in full corporate name by the President or other | |
authorized officer. If a partnership, please sign in partnership name by an | |
authorized person. THIS PROXY WILL BE VOTED FOR THE PROPOSALS IF NO | |
SPECIFICATION IS MADE. | |
| |
PROPOSAL NO. 1 - ELECTION OF DIRECTORS, ELECT SIX DIRECTORS, EACH TO HOLD | |
OFFICE FOR ONE YEAR OR UNTIL HIS OR HER SUCCESSOR SHALL HAVE BEEN ELECTED. | |
| |
Nominees: Frank S. Yuan Donald C. McNabb, Sr. James Vandeberg | |
Charles H. Rice Deborah Shamaley John F. Busey | |
| |
|_| For all nominees listed above |_| Withhold authority for all nominees | |
listed above | |
| |
Instruction: To withhold authority to vote for any Nominee, write that | |
Nominee's name on the line immediately below. | |
| |
| |
| |
| |
PROPOSAL NO. 2 - RATIFY AND APPROVE THE BOARD OF DIRECTOR'S SELECTION OF SQUAR, | |
MILNER, REEHL, & Williamson as Auditors of the Company for fiscal year ending | |
June 30, 2003. | |
| |
|_| For |_| Against |_| Abstain | |
| |
CONTINUED AND TO BE SIGNED ON REVERSE SIDE | |
| |
Fold and Tear Here
- -------------|---------------------------------------------------------------------------------|
| PROPOSAL NO. 3 - TO RATIFY AND APPROVE THE BOARD OF DIRECTORS' ADOPTION |
| OF THE 1996 STOCK OPTION PLAN. |
PLEASE | |
DETACH | |_| For |_| Against |_| Abstain |
HERE | |
| PROPOSAL NO. 4 - TO RATIFY AND APPROVE THE BOARD OF DIRECTORS' ADOPTION |
You | OF THE 1999 STOCK OPTION PLAN. |
Must | |
Detach | |_| For |_| Against |_| Abstain |
This | |
Portion | PROPOSAL NO. 5 - TO RATIFY AND APPROVE THE BOARD OF DIRECTORS' ADOPTION |
of the | OF THE 2001 STOCK OPTION PLAN. |
Proxy | |
Card | |_| For |_| Against |_| Abstain |
Before | |
Returning | PROPOSAL NO. 6 - TO RATIFY AND APPROVE THE BOARD OF DIRECTORS' ACTION |
It in the | TO TERMINATE THE LOCK-UP AGREEMENT DATED NOVEMBER 13, 1998. |
Enclosed | |
Envelope | |_| For |_| Against |_| Abstain |
| |
| NOTE: This Proxy should be marked, dated and signed by the |
| shareholder(s) exactly as his or her name appears on the stock |
| certificate, and returned in the enclosed envelope. |
| THIS PROXY WILL BE VOTED AS DIRECTED AND AS SAID PROXIES DEEM |
| ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING OR |
| ANY POSTPONEMENT(S)OR ADJOURNMENTS(S) THEREOF. IF NO CONTRARY OBJECTION |
| IS INDICATED, THIS PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE. |
| |
| DATED:_________________, 2002 |
| |
| ____________________________________ |
| Print name(s) exactly as shown on |
| Stock Certificate |
| |
| ____________________________________ |
| (Signature) |
| |
| ____________________________________ |
| (Signature) |
| |
| |