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.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
|_| 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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|X| Fee paid previously by written 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: $85.00
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2) Form Schedule or Registration Statement No.: FORM 14 A
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3) Filing Party: CYBER MERCHANTS EXCHANGE, INC.
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4) Date Filed: NOVEMBER 19, 2004
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY , 2005
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January , 2005
TO OUR SHAREHOLDERS:
I am pleased to invite you to attend the Annual Meeting of Stockholders of Cyber
Merchants Exchange, Inc. as detailed below:
DATE AND TIME January , 2005 at 10:00 a.m.
PLACE Cyber Merchants Exchange
4349 Baldwin Ave., Unit A
El Monte, CA. 91731
ITEMS OF BUSINESS
I. To approve a one for eight and one-half reverse stock split of the
Company stock;
II. To approve the transfer of all of the assets and liabilities of the
Company to ASAP Show Inc., a wholly owned subsidiary of the Company;
III. To approve the distribution of 8,500,000 shares of common stock of
ASAP Show Inc. to the shareholders of the Company;
IV. To approve the sale of 7,000,000 shares of common stock of the Company
for $425,000 to Keating Reverse Merger Fund LLC;
V. To transact such other business as may properly come before the
meeting or any adjournment thereof.
RECORD DATE Only shareholders of record at the close of business on
January , 2005, the record date for the meeting, are
entitled to receive notice of and to vote at the Annual
Meeting or any adjournments thereof.
VOTING BY PROXY To assure your representation at the meeting, you are
urged to vote your shares by designating your proxies as
promptly as possible.
All of the Company's shareholders are invited to attend the Annual Meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING,
PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE PRE-ADDRESSED ENVELOPE
PROVIDED WITH THIS NOTICE OR FAX IT TO (626) 636-2536. NO ADDITIONAL POSTAGE IS
REQUIRED IF THE PROXY CARD IS MAILED IN THE UNITED STATES. IF YOU ATTEND THE
ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU WISH.
By Order of the Board of Directors,
/s/ Luz Jimenez
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Luz Jimenez
SECRETARY
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January , 2005
DEAR SHAREHOLDERS:
You are invited to attend the Annual Meeting of Shareholders of Cyber Merchants
Exchange, Inc. to be held at 10:00 a.m. Pacific Time on January , 2005 at the
executive offices of the Company located at 4349 Baldwin Ave., Unit A, El Monte,
CA. 91731.
The accompanying Notice of the Annual Meeting of Shareholders and Proxy
Statement describe proposals comprising a reorganization of the Company to be
presented at the Annual Meeting. The Board of Directors recommends that
shareholders vote in favor of the reorganization proposals.
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) 636-2536, 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 will look forward to meeting you at our Annual Meeting on January , 2005.
Sincerely,
/s/ Frank S. Yuan
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Frank S. Yuan
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
CYBER MERCHANTS EXCHANGE, INC.
4349 Baldwin Ave., Unit A
El Monte, CA. 91731
Tel: (626) 636-2530
Fax: (626) 636-2536
PROXY STATEMENT
DATE, TIME AND PLACE OF ANNUAL MEETING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Cyber Merchants Exchange, Inc. (the
"Company") for use at the Annual Meeting of Shareholders to be held at the
Company, 4349 Baldwin Ave., Unit A, El Monte, CA. 91731 on January , 2005 at
10:00 a.m., local time, and at any adjournments thereof, for the purposes set
forth herein and in the accompanying Notice. The record date for the meeting is
the close of business on January , 2005. All holders of record of the Company's
common stock on the record date are entitled to notice of the meeting and to
vote at the meeting and any meetings held upon adjournment of that meeting. The
approximate date of mailing of this Proxy statement and the accompanying proxy
is January , 2005.
THE REORGANIZATION
The Board of Directors has approved and has submitted to shareholders
proposals for a reorganization of the Company (the "Reorganization"). Each of
the proposals must be approved by the shareholders for the Reorganization to
take effect. The proposals are the following:
1. A one for eight and one-half reverse stock split of the Company
stock (the "Reverse Split");
2. The transfer of all of the assets and liabilities (the
"Transfer") of the Company to ASAP Show Inc., a wholly owned
subsidiary of the Company ("ASAP");
3. The distribution of 8,500,000 shares of common stock of ASAP to
the shareholders of the Company (the "Distribution");
4. The sale of 7,000,000 shares of common stock of the Company to
Keating Reverse Merger Fund LLC for $425,000 (the "Investment");
If the Reorganization is approved, the shareholders of the Company will own
stock in ASAP in the same proportion as their present ownership of the Company.
ASAP will operate the trade show business currently operated by the Company.
Shareholders of the Company will also own 12.5% of the Company with Keating
Reverse Merger Fund LLC owning 87.5%. The Company will become a blank check
company whose plan is to merger with another company.
PROXY INFORMATION
A proxy form is enclosed. Whether or not you plan to attend the meeting in
person, please date, sign and return the enclosed proxy card, as promptly as
possible, in the postage prepaid
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envelope provided to insure that your shares will be voted at the meeting. You
may revoke your proxy at any time prior to its use by filing with the Secretary
of the Company an instrument revoking it or a duly executed proxy bearing a
later date, or by attending the meeting and voting in person. Unless you
instruct otherwise in the proxy, any proxy, if not revoked, will be voted at the
meeting FOR the Reorganization proposals.
RECORD DATE AND VOTING
RECORD DATE
The record date for the Annual Meeting is the close of business on January
, 2005. If the shareholders of record on January , 2005 present, in person or
represented by their proxies, at the meeting hold a majority of the Company's
outstanding stock entitled to vote, a quorum will exist for the transaction of
business at the meeting. Shareholders of record, who abstain from voting,
including brokers holding their customers' shares who cause abstentions to be
recorded, are counted as present for quorum purposes.
SHAREHOLDER LIST
At least 10 days before the Annual Meeting, the officer or agent in charge
of the stock transfer books for the shares of the Company will make a complete
list of the shareholders entitled to vote at the meeting arranged in
alphabetical order, with the address and number of shares held by each
shareholder. The list will be kept on file at the principal offices of the
Company and will be subject to inspection by any shareholder at any time during
usual business hours. The list will be present for inspection at the Annual
Meeting.
PROXIES
Each shareholder entitled to vote at the Annual Meeting may vote by proxy
executed in writing by the shareholder or by his or her duly authorized
attorney-in-fact, but no proxy can be voted or acted upon after six months from
its date, unless the proxy provides for a longer period. The proxy must be filed
with the Inspector of Elections of the Company before or at the time of the
Annual Meeting.
The following constitute valid means by which a shareholder may authorize
another person to act for him or her as proxy:
(1) A shareholder may execute a writing authorizing another person or
persons to act for him or her as proxy. The proxy may be limited to specific
proposals. Execution may be accomplished by the signing of the writing by the
shareholder or his or her authorized officer, director, employee or agent or by
causing his or her signature to be affixed to the writing by any reasonable
means including, but not
limited to, a facsimile signature.
(2) A shareholder may authorize another person or persons to act for him or
her as proxy by transmitting or authorizing the transmission of a telegram,
cablegram or other means of electronic transmission to the person who will be
the holder of the proxy or to a proxy solicitation
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firm, proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy. The transmission must either set
forth or be submitted with information from which it can be determined that it
was authorized by the shareholder.
The cost of soliciting proxies will be borne by the Company. The
Company will reimburse brokerage firms and other persons representing beneficial
owners of shares for their reasonable out-of-pocket expenses regarding these
solicitations. Certain of the Company's directors, officers and regular
employees, without additional compensation, may solicit proxies personally or by
telephone, electronic mail, facsimile or telegram. The Company will pay no
additional compensation to its officers, directors and employees for these
activities.
DATE AND TIME OF OPENING AND CLOSING OF THE POLLS
The date and time of the opening of the polls for the Annual Meeting of
the Shareholders of the Company shall be 10:00 a.m. on January , 2005. 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, upon application by a
shareholder, determines otherwise.
VOTING
The Inspector of Elections will tabulate votes cast by proxy or in
person at the Annual Meeting with the assistance of the Company'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 January , 2005
is entitled to one vote for each share then held on each matter submitted to a
vote of shareholders. Brokers holding shares of record for their customers
generally are not entitled to vote on certain matters unless their customers
give them specific voting instructions. If the broker does not receive specific
instructions, the broker will note this on the proxy form or otherwise advise
the Company that it lacks voting authority.
The voting requirements for the approval of the Reorganization
proposals at the Annual Meeting are as follows:
o A shareholder submitting a Proxy may vote FOR or AGAINST or
ABSTAIN from voting for approval of the Reverse Split, the
Transfer, the Distribution and the Investment. All of the Reverse
Split, the Transfer, the Distribution and the Investment must be
approved for any of them to be effective and for the
Reorganization to take effect. If any one of these proposals is
not approved, none of them will take effect.
o If a submitted proxy is properly signed but unmarked in respect
of approval of a proposal, the proxy agents named in the proxy
will vote all the shares represented thereby FOR approval of the
proposal.
o In accordance with California corporations law and the Company's
Bylaws, each of the proposals submitted to the shareholders of
the Company requires a quorum consisting of a majority of the
Company's issued and outstanding shares entitled to vote, and a
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favorable vote of a majority of the Company's issued and
outstanding shares entitled to vote on the proposal present at
the Annual Meeting. An abstention from voting on any of these
matters by a shareholder, while included for purposes of
calculating a quorum for the meeting, has the effect of voting
AGAINST the particular proposal. In addition, although broker
"non-votes" will be counted for purposes of attaining a quorum,
they will have the effect of voting AGAINST approval of the
proposals.
VOTING SECURITIES AND PRINCIPAL HOLDERS THERE OF
As of December 9, 2004, the Company had 7,472,673 shares of its common
stock issued and outstanding. Each share of record on January , 2005 will be
entitled to one vote at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 9, 2004 certain
information known to the Company regarding the beneficial ownership of the
Company's common stock, and as adjusted to reflect the share ownership for (i)
each executive officer or director of the Company who beneficially owns shares;
(ii) each shareholder known to the Company to beneficially own five percent or
more of the outstanding shares of its common stock; and (iii) all executive
officers and directors as a group. The Company believes that the beneficial
owners of the common stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. The individuals listed in
the table are accessible at the following address: 4349 Baldwin Ave., Unit A, El
Monte, and CA. 91731.
PRINCIPAL STOCKHOLDERS
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AMOUNT AND NATURE OF PERCENTAGE OF COMMON
NAME BENEFICIAL OWNER SHARES OUTSTANDING
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<c>
(I) DIRECTORS AND EXECUTIVE OFFICER
Frank S. Yuan - CEO and Chairman (1) 3,170,000 33.69%
James Vandeberg, Director (2) 45,315 0.48%
Deborah Shamaley, Director (3) 355,000 3.78%
Charles Rice, Director (4) 115,000 1.23%
Luz Jimenez - Controller (5) 66,563 0.72%
(II) ALL DIRECTORS AND OFFICERS AS A GROUP 3,751,878 39.90%
TOTAL OUTSTANDING SHARES (6) 9,403,140 100.00%
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(1) Includes 2,450,000 shares of common stock held. Also, includes 720,000
shares of vested stock options.
(2) Includes 45,315 shares of vested stock options.
(3) Includes 300,000 shares of common stock held. Also, includes 55,000
shares of vested stock options.
(4) Includes 60,000 shares of common stock held. Also, includes 55,000
shares of vested stock options.
4
(5) Includes 15,000 shares of common stock held. Also, includes 51,563
shares of vested stock options.
(6) Includes 926,978shares of vested stock options
CHANGE IN CONTROL
Except as provided for in the Securities Purchase Agreement referred to
in the Investment, the Company is not aware of any arrangement that would upset
the control mechanisms currently in place. Although it is conceivable that a
third party could attempt a hostile takeover of the Company, the Company has not
received notice of any such effort.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors and officers of the Company are required by Section 16 of the
Securities Exchange Act of 1934 to report to the Securities and Exchange
Commission their transactions in, and beneficial ownership of, the Company's
common stock, including any grants of options to purchase common stock. To the
best of the Company's knowledge, for the period from July 1, 2003, to June 30,
2004, all reports were filed on a timely basis.
BOARD 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, 2004, the Board of Directors held two regular meetings and
four 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 Frank Yuan, Charles Rice and
Deborah Shamaley. The Executive Committee has authority to take any action other
than 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, 2004, the Executive Committee held three meetings.
The Compensation Committee consists of Deborah Shamaley, Frank Yuan and
Charles Rice. 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 administer the
Company's Stock Option Plans. The Compensation Committee held two meetings
during the fiscal year ended June 30, 2004.
AUDIT COMMITTEE REPORT
The Audit Committee held four (4) meetings during fiscal year 2004. The
consolidated financial statements of the Company for fiscal year ended June 30,
2004, have been examined by Squar, Milner, Reehl & Williamson, LLP as the
Company's independent auditors. The Audit
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Committee has appointed Corbin and Company as the Company's independent auditors
for the fiscal year ending June 30, 2005.
The Audit Committee hereby reports as follows:
(1) The Audit Committee has reviewed and discussed the audited
consolidated financial statements with management and the
independent auditors;
(2) The Audit Committee has discussed with Squar, Milner, Reehl &
Williamson, LLP, the Company's independent auditors for fiscal
year 2004, the matters required to be discussed by Statement on
Auditing Standards No. 61, as amended, modified or supplemented;
(3) The Audit Committee has received the written disclosure and
letter from Squar, Milner, Reehl & Williamson, LLP, required by
Independence Standards Board Standard No. 1 and has discussed
with Squar, Milner, Reehl & Williamson, LLP, their independence;
and
(4) In reliance on the foregoing review and discussions, the Audit
Committee recommended to the Company's Board of Directors that
the audited consolidated financial statements be included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2004 for filing with the Securities and Exchange
Commission.
The following table sets forth the fees paid by the Company for
professional services rendered by Squar, Milner, Reehl & Williamson,
LLP for the audit of the annual financial statements for fiscal years
2004 and 2003 and fees billed for other services rendered by Squar,
Milner, Reehl & Williamson, LLP:
TYPE OF SERVICES RENDERED 2003 2004
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Audit Fees $43,000 $41,000
Audit-Related Fees $ 3,500 $ 3,500
Tax Fees $ 0 $ 0
All Other Fees $ 0 $ 0
The Company does not have a Nominations Committee. The Board of
Directors, as a whole, identifies and screens candidates for membership on the
Company's Board.
(1) Audit Committee
The Audit Committee is governed by a written charter, a copy of which charter
accompanies this Proxy Statement as Appendix A (Page A-1). The Audit Committee
selects our independent auditors, reviews the results and scope of the audit and
other services provided by our independent auditors, reviews our financial
statements for each quarterly period and reviews and evaluates our internal
control functions. The Audit Committee was established by the directors of Cyber
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Merchants Exchange, Inc. on August 9, 2000. Charles Rice serves as the Audit
Committee Chairman. Mr. Rice is an independent audit committee member according
to the definition used by NASDAQ for audit committee independence, and is an
audit committee qualified financial expert. James Vandeberg and Deborah Shamaley
are other members of the audit committee.
(2) Pre-Approval Policies and Procedures
The Audit Committee has sole authority to approve any audit and significant
non-audit services to be performed by its independent accountants. Such approval
is required prior to the related services being performed.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table sets forth the compensation we have paid to each
executive officer and all executive officers as a group, for the fiscal year
ended June 30, 2004, annual compensation, including salary and bonuses paid by
the Company to the Chief Executive Officer. No other executive officers received
more than $100,000 in the fiscal year ended June 30, 2004. The Company does not
currently have a long-term compensation plan and does not grant any long-term
compensation to its executive officers or employees. The table does not reflect
certain personal benefits, which in the aggregate are less than ten percent of
the named executive officer's salary and bonus. No other compensation was
granted for the fiscal year ended June 30, 2004.
SUMMARY COMPENSATION TABLE
Long Term Compensation
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Annual Compensation Awards Payouts
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Name Other Restricted Securities
and Annual Stock Underlying
Principal Compensation Award(s) Options/ LTIP All Other
Position Year Salary ($) Bonus ($) ($) ($) SARs (#) (1) Payouts ($) Compensation ($)
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Yuan, Frank 2004 $150,000 N/A $0 N/A 5,000 N/A $0
(CEO) 2003 $150,000 N/A $0 N/A 5,000 N/A $0
2002 $150,000 N/A $0 N/A 5,000 N/A $0
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(1) Consists of grants of stock options under the Company's 1996, 1999, and
2001 Stock Option Plans.
The following table sets forth certain information concerning grants of
stock options pursuant to the 1996, 1999 and 2001 Stock Option Plans to the
named executive officer during the year ended June 30, 2004
OPTION / SAR GRANTS IN LAST FISCAL YEAR
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% of Total
Number of Options /
Securities SARS
Underlying Granted to
Options / SARS Employees in Exercise or Base
Name Granted Fiscal Year (1) Price ($/Sh) Expiration Date
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Yuan, Frank (CEO) 140,000 26% $0.20 09/18/13 (2)
Yuan, Frank (CEO) 40,000 7% $0.20 09/18/13 (2)
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(1) Options to purchase an aggregate of 545,000 shares of Common Stock
were granted to employees, including the named executive officer,
during the fiscal year ended June 30, 2004. Stock options granted are
under the terms of the 1996, 1999, and 2001 Stock Option Plans.
Generally, vesting of granted stock options is based on the following
schedule: 25% of grant vests 6 months after the grant, then at 4.16%
per month, to be completely vested in two years.
(2) 140,000 shares were granted based on the 1999 stock option plan.
Vesting of granted stock options is based on 25% of grant vests 6
months after the grant, then at 4.16% per month, to be completely
vested in two years. 40,000 shares were granted based on the 2001
stock option plan. The options vested upon grant
The following table sets forth certain information concerning
exercises of stock options pursuant to the 1996 and/or 1999 Stock Option Plans
by the named executive officer during the year ended June 30, 2004 and stock
options held at year end.
AGGREGATED OPTION / SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION / SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options / SARs Options / SARs
At FY-End (#) at FY-End ($)
Shares Acquired Exercisable / Exercisable /
Name On Exercise (#) Value Realized ($) Unexercisable Unexercisable *
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Yuan, Frank (CEO) 0 $0 720,000/0 $237/$0
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o On June 30, 2004, the average of the high and low price of the stock
trading on the OTC BB was $0.25.
THE 1996 STOCK OPTION PLAN
The Company's 1996 stock option plan (the "1996 Plan") provides for
granting of stock options to employees, and non-employee directors. The Company
has reserved 250,000 shares of common stock for issuance under the 1996 Plan.
The Board of Directors determines the terms and conditions of grants of stock
options. Generally, one-half of the granted option is exercisable after the
employee's first year of employment. The remaining option is exercisable after
the end of the employee's third year of employment. The option granted will
expire within three months after termination of employment. In connection with
the Reorganization, all outstanding options will be cancelled and the 1996 Plan
will be terminated.
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THE 1999 STOCK OPTION PLAN
The Company's 1999 stock option plan (the "1999 Plan") provides for
granting of stock options to employees, officers, directors, and other entities
that have made contributions to the Company. The Company has reserved 2,000,000
shares of common stock for issuance under the 1999 Plan. The Board of Directors
determines the terms and conditions of granting stock options. Generally, the
vesting period is two years allocating as follows: the first 25% of options
granted is exercisable after the first six months of employment, then 4.16% is
vested each month thereafter. The 1999 Plan provides for the useful life of the
options granted to be 10 years starting from the granting date. The options
granted will be expired within one month after the termination of employment.
During the year ended June 30, 2004 the Company granted a total of
290,000 options to employees, directors, officers, consultants, attorneys,
finders, and outside sales representatives. The exercise price of options
granted was $0.20 (the fair market value of the Company's common stock on the
date of grant). The Company applies APB Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its stock
option plans. As a result, the Company recognized non-cash stock-based
compensation expense of $0 for the year ended June 30, 2004. In connection with
the Reorganization, all outstanding options will be cancelled and the 1999 Plan
will be terminated.
THE 2001 STOCK OPTION PLAN
The Company's 2001 stock option plan ("2001 Plan") provides for the
granting of stock options to employees, officers, director, and other entities
who have made contributions to the Company. The Company has reserved 2,000,000
shares of common stock for issuance under the 2001 Plan. The Board of Directors
determines the terms and conditions of granting stock options. Generally, the
vesting period is two years, allocated as follows: the first 25% of options
granted are exercisable after the first six months of employment, then 4.16% are
vested each month thereafter. The 2001 Plan provides for the useful life of the
options granted to be 10 years starting from the date of grant. The options
granted expire within three months after the termination of employment.
During the year ended June 30, 2004, the Company granted options to
purchase an aggregate of 330,000 shares of restricted common stock under the
2001 Plan at exercise prices of $0.20 - $0.51 per share (estimated fair market
value of the Company's common stock on the date of grant), to various employees
of the Company. The options vest through December 2005 and are exercisable
through December 2013. In connection with the Reorganization, all outstanding
options will be cancelled and the 2001 Plan will be terminated.
COMPENSATION OF DIRECTORS
All directors are reimbursed for any reasonable expenses incurred in the course
of fulfilling their duties as directors of the Company.
The Company has compensated its directors with stock options for their service
as directors.
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During the fiscal year ended June 30, 2004, Company directors received the
following nonqualified stock options from the 2001 Stock Option Plan for their
service as directors.
DIRECTOR OPTIONS
-------- -------
Don McNabb 5,000 (1)
Mary McNabb 5,000 (1)
Charles Rice 12,500
James Vandeberg 15,000
Deborah Shamaley 12,500
Frank Yuan 45,000
(1) No longer directors of the Company
APPROVAL OF PLAN OF REORGANIZATION
On November 19, 2004 the Company entered into a Securities Purchase
Agreement (the "SPA") with Keating Reverse Merger Fund, LLC ("Keating") and
Frank Yuan, Chairman of the Board and Chief Executive Officer of the Company
("Yuan") providing for the investment by Keating of $425,000 in the Company. As
a condition to the Investment, the Reorganization as set forth in this proxy
statement must be approved and completed. The Investment by Keating will provide
the Company with working capital and allow the Company to grow its trade show
business. At the same time, the Reorganization will allow the stockholders of
the Company to participate in the growth of the trade show business through the
spin-off of a subsidiary of the Company which owns and operates the trade show
business. Following the Reorganization, the Company will be majority owned by
Keating and will seek a business combination with an operating company.
The Board of Directors of the Company approved the Reorganization on
November 9, 2005 and recommended that its components be submitted to the
shareholders for approval. Each of the components of the Reorganization must be
approved for the Reorganization to be effective. The components of the
Reorganization are as follows:
o a one for eight and one-half reverse stock split of the Company stock;
o the transfer of all of the assets and liabilities of the Company to
ASAP;
o the distribution by the Company of 8,500,000 shares of common stock of
ASAP (representing all of the issued and outstanding shares of ASAP)
to the shareholders of the Company;
o the purchase of 7,000,000 shares of common stock of the Company by
Keating for $425,000.
THE STOCK BONUS
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If the Reorganization is approved, the Company will issue 1,027,327
shares (the "Stock Bonus") to certain key employees and directors of the
Company. The Stock Bonus is not subject to shareholder approval. The individuals
currently have stock options in the Company which will be cancelled as part of
the Reorganization. Because of the price of the Company's stock, none of these
options have ever been exercised. In addition, the employees have not received
any significant pay increases in recent years. Directors have never been paid
fees for services on the Board. The issuance of the Stock Bonus shares is meant
to partially compensate these individuals for their significant contributions to
the Company. Based upon the per share price of the Investment, the value of the
Stock Bonus is $7,338. The Stock Bonus will be taxable to the recipients.
The following table summarizes the Stock Bonus to Directors and Officers:
- ----------------------------------------------------------------------------------------
PROPOSED BONUS AFTER 8.5 TO 1 CASH VALUE OF
NAME AFFILIATION SHARES SPLIT REVERSE STOCK BONUS*
- ----------------------------------------------------------------------------------------
Charles Rice Director 127,500 15,000 $ 900.00
- ----------------------------------------------------------------------------------------
Deborah Shamaley Director 127,500 15,000 $ 900.00
- ----------------------------------------------------------------------------------------
James Vandeberg Director 85,000 10,000 $ 600.00
- ----------------------------------------------------------------------------------------
Luz Jimenez Controller 51,000 6,000 $ 360.00
- ----------------------------------------------------------------------------------------
Frank Yuan Director/CEO 330,327 38,862 $ 2,331.72
- ----------------------------------------------------------------------------------------
Total 721,327 84,862 $ 5,091.72
- ----------------------------------------------------------------------------------------
*Value per share is based upon Keating's Investment of $425,000 for 7 million
shares which is the equivalent of $0.06 per share
THE REVERSE SPLIT
After the issuance of the Stock Bonus shares, the Company will have
8,500,000 shares outstanding. Upon giving effect to the Reverse Split, the
Company will have approximately 1,000,000 shares outstanding. The Reverse Split
will allow for special treatment of certain stockholders to preserve round lot
(100 shares or more) stockholders, which the Company believes will make it more
attractive for a subsequent business combination with an operating company.
Under the terms of the Reverse Split, stockholders holding between 100 and 850
shares will receive 100 shares after the Reverse Split. Stockholders holding
less than 100 common shares will not be affected by the Reverse Split. No
fractional shares will be issued for any fractional share
11
interest created by the Reverse Split. Stockholders will receive a full common
share for any fractional share interests created by the Reverse Split.
There are no tax consequences to shareholders as a result of the
Reverse Split.
CREATION OF ASAP
The Company formed ASAP as a wholly-owned subsidiary and owns all
8,500,000 shares of ASAP currently outstanding. The initial officers and
directors of ASAP are the current officers and directors of the Company. Each of
the following persons are the directors of ASAP to serve until the next Annual
Meeting of ASAP's stockholders and until their successors shall be elected and
qualify.
NAME OF DIRECTOR AGE POSITIONS HELD WITH COMPANY
---------------- --- ---------------------------
Charles Rice 62 Director since 1996
Deborah Shamaley 46 Director since 1996
James Vandeberg 60 Director since 2001
Frank S. Yuan 56 Chairman of the Board since 1996
Chief Executive Officer since 1996
There are no family relationships among any of the directors and
executive officers.
The following sets forth certain biographical information concerning
each director:
CHARLES RICE. Charles Rice, Senior International and Domestic buyer, is
retired from Sears Roebuck and Montgomery Ward. His 30 plus years of buying
experience, reputation, contacts and product sourcing knowledge bring the
Company tremendous benefits and a head start in the retail industry. Mr. Rice
holds a B.S. degree in business and economics from the University of Delaware.
DEBORAH SHAMALEY. Deborah Shamaley, a chain store and apparel-jobbing
entrepreneur, has 20 years of retail and wholesale apparel experience. Mrs.
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, Mrs. Shamaley is a franchise partner of a full service Italian
restaurant chain called "Johnny Carino's Country Italian," for 25 locations.
Mrs. Shamaley has also been involved in Shamaley Ford car dealership, one of the
largest in El Paso, Texas since 1995.
12
JAMES VANDEBERG. James Vandeberg has been an attorney in private
practice specializing in corporate finance for the past 11 years. He brings more
than 20 years of Corporate Counsel and Secretary experience to the Company. He
has significant experience advising both internet and retail companies on
securities, financings, mergers and acquisitions, and general corporate matters,
including IPO's, 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 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 for
Information Highway.com, Inc. (OTC: BB IHWY), IAS Communications, Inc. (OTC: BB
IASCA), and REGI US, Inc. (OTC: BB RGUS). He received his B.A. in accounting
from the University of Washington and his J.D. from New York University.
FRANK S. YUAN. Combining decades of experience in the apparel, banking,
real estate, insurance and computer industries, Frank Yuan has developed and
started multiple new ventures in his 30 plus years as an immigrant in the United
States. Before the Company, Mr. Yuan founded multi-million dollars of business
in men's apparel private label & wholesale company, a "Knights of Round Table"
sportswear line, a "Uniform Code" sweater line, and 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.
TRANSFER OF TRADE SHOW BUSINESS TO ASAP
ASAP will focus on operating the trade show business currently being
operated by the Company. The $425,000 Investment contemplated as part of the
Reorganization and cash on hand will be used to pay all of the liabilities of
the Company at the closing of the transactions contemplated under the SPA. ASAP
will continue to operate its trade show twice a year in Las Vegas, four shows in
China, and manage Material World global pavilion in Miami, FL. In connection
with those trade shows, ASAP will accumulate cash from revenues between now and
the date of the trade shows. In addition, ASAP will have a revolving $500,000
line of credit from Frank Yuan, the Chairman and Chief Executive Officer of the
Company (the "Yuan Line of Credit"). The Yuan Line of Credit bears interest at
8% per annum and expires on September 1, 2005. With the $425,000 investment, the
cash accumulated from the trade shows and the Yuan Line of Credit, ASAP will
have sufficient cash resources to grow its business and meet the liabilities and
obligations with respect to the operations through at least December 2005.
As a further condition of the Investment, the Company and ASAP will
enter into a transfer agreement ("Transfer Agreement") whereby all of the assets
of the Company will be transferred to ASAP and all liabilities, obligations and
contracts of the Company (known and unknown, fixed or contingent or otherwise)
will be assumed by ASAP. In exchange the Company will receive 8,500,000 shares
of ASAP common stock. No third party consents to the assumption of contracts by
ASAP are required. The Transfer Agreement is subject to the approval of Keating
and, as a condition of the Investment, the Company must have no liabilities,
obligations, debts, contracts or
13
agreements of any kind or nature.
In order to provide incentive compensation for ASAP's employees and
directors, ASAP will adopt as part of the Reorganization the 2005 Stock Option
Plan for employees and members of the Board of Directors. There will be
2,000,000 shares of common stock of ASAP available for grant pursuant to the
2005 Stock Option Plan. There are no current plans for the issuance of stock
options.
Corbin and Company will be appointed independent accountants for ASAP.
THE DISTRIBUTION
The Company will distribute the 8,500,000 shares of ASAP to its
shareholders on a pro-rata basis. As a result, stockholders of the Company
immediately prior to the Reorganization will own same number of shares in ASAP
as they owned in the Company prior to the Reorganization.
The shares distributed as part of the Distribution will be "restricted
securities" meaning that they may not be publicly traded. ASAP will not file a
Form 10SB with the Securities and Exchange Commission to register the shares of
ASAP's common stock under Section 12(g) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), which would subject ASAP to the reporting
requirements of the Exchange Act. The ASAP shares will not be eligible to trade
on the Over-The-Counter Bulletin Board. In addition ASAP will not make available
information that would allow a broker to file a Form 15c2-11 to trade the shares
of ASAP on the Pink Sheets. Management of ASAP believes that it is not in the
best interests of the shareholders to incur the expense involved with being a
publicly held company including filing periodic reports, annual audits and
compliance with Sarbanes-Oxley.
The distribution of the shares of ASAP's common stock will be taxable
to the Company's shareholders.
THE INVESTMENT
Subject to the approval of the Company's stockholders, and further
subject to completion of the Reverse Split, the transactions under the Transfer
Agreement and the Distribution, each to the satisfaction of Keating, Keating
will purchase 7,000,000 shares of common stock of the Company for $425,000. As a
result of this Investment, Keating will own 87.5% of the outstanding shares of
the Company and the current stockholders of the Company (including the
recipients of the Stock Bonus) will own the remaining 12.5% of the outstanding
shares of the Company. The transactions of the SPA are also subject to a number
of other conditions including, without limitation, the approval of the SPA and
the transactions contemplated thereunder by the Company's stockholders, the
Company having no liabilities of any kind or nature, the Company being current
in its filings with the SEC, completion of due diligence satisfactory to
Keating, and the Company's common stock being quoted on and trading on the
Over-The-Counter Bulletin Board.
In considering the Investment, the Board of Directors considered
several factors including
14
the illiquidity of the Company's common stock, the pricing and structure of
similar transactions and the lack of options available to the Company to obtain
financing. The Company had tried unsuccessfully to obtain financing through a
private placement. The only financing available to the Company other than the
Investment is the Yuan Loan. The Board of Directors of the Company did not
obtain a fairness opinion from an investment banking firm when it considered the
Investment.
In connection with the closing of the transactions under the SPA, the
current directors and officers of the Company will resign and Kevin Keating will
be appointed the sole director and officer of the Company. Information about Mr.
Keating is as follows:
Kevin R. Keating is an investment executive and for the past nine years
has been the Branch Manager of the Vero Beach, Florida, office of Brookstreet
Securities Corporation. Brookstreet is a full-service, national network of
independent investment professionals. Mr. Keating services the investment needs
of private clients with special emphasis on equities. For more than 35 years, he
has been engaged in various aspects of the investment brokerage business. Mr.
Keating began his Wall Street career with the First Boston Company in New York
in 1965. From 1967 through 1974, he was employed by several institutional
research boutiques where he functioned as Vice President Institutional Equity
Sales. From 1974 until 1982, Mr. Keating was the President and Chief Executive
Officer of Douglas Stewart, Inc., a New York Stock Exchange member firm. Since
1982, he has been associated with a variety of firms as a registered
representative servicing the needs of individual investors. Mr. Keating serves
as an officer and director for a number of public companies.
Mr. Keating's past experience with "blank check" companies includes the
following:
1. Mr. Keating has been an officer and director of Wentworth I, Inc.
since April 2001. Wentworth I is currently a reporting blank check
company.
2. Mr. Keating has been an officer and director of Wentworth II, Inc.
since April 2001. Wentworth II is currently a non-reporting blank
check company.
3. Mr. Keating became an officer and director of Wentworth III, Inc. in
April 2001. Wentworth III was acquired by Catalyst Lighting Group,
Inc. in August 2003, current ticker symbol CYSL.
4. Mr. Keating became an officer and director of iVideoNow, Inc. in
January 2002. iVideoNow was acquired by 99 Cent Stuff, Inc. in
September 2003, current ticker symbol NNCT.
5. Mr. Keating became an officer and director of Prologue in September
2003. Prologue was acquired by uWink, Inc. in December 2003, current
ticker symbol UWNK.
6. Mr. Keating became an officer and director of Micro Interconnect
Technology, Inc. in October 2003. Micro was acquired by Lanbo
Financial Group Ltd. in November 2004, current ticker symbol LNBO.
15
7. Mr. Keating became an officer and director of Enchanted Village, Inc.
in January 2004. Enchanted Village was acquired by SORL Auto Parts,
Inc. in May 2004, current ticker symbol SAUP.
8. Mr. Keating became an officer and director of Sunningdale, Inc. in
April 2004. Sunningdale was acquired by Advanced Aluminium Group Ltd.
in October 2004, current ticker symbol ADGR.
9. Mr. Keating became an officer and director of Purezza Group, Inc. in
April 2004, current ticker symbol PRZA. Purezza is currently a blank
check company.
10. Mr. Keating became an officer and director of Chiste Corporation in
May 2004, current ticker symbol CSTC. Chiste is currently a blank
check company.
11. Mr. Keating became an officer and director of Qorus.com, Inc. in June
2004, current ticker symbol QRUS. Qorus is currently a blank check
company.
THE COMPANY'S PLAN OF OPERATIONS FOLLOWING REORGANIZATION
Following the Reorganization, the Company's plan of operations is based
on identifying and attracting a suitable privately held company, one that has
both a business history and operating assets, with which to effect a business
combination. Keating has no present plans for a transaction for the Company
following the Reorganization.
The Company's purpose is to seek, investigate and, if such investigation
warrants, acquire an interest in an operating business presented to it by
persons or firms who or which desire to seek the advantages of an issuer who has
complied with the reporting requirements of Exchange Act. The Company will not
restrict its search to any specific business, industry, or geographical
location, and may participate in a business venture of virtually any kind or
nature. This discussion of the proposed business is purposefully general and is
not meant to be restrictive of the Company's virtually unlimited discretion to
search for and enter into a potential business combination. Management
anticipates that it may be able to participate in only one potential business
combination because the Company has nominal assets and limited financial
resources.
The Company may seek a business combination with entities which have recently
commenced operations, or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. The Company
may acquire assets and establish wholly owned subsidiaries in various businesses
or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in which to
participate will be complex and extremely risky. Due to general economic
conditions, rapid technological advances being made in some industries and
shortages of available capital, the Company's management believes that there are
numerous firms seeking the benefits of an issuer who has complied with the
16
reporting requirements of the Exchange Act. Such benefits may include
facilitating or improving the terms on which additional equity financing may be
sought, providing for incentive stock options or similar benefits to key
employees, and providing liquidity (subject to restrictions of applicable
statutes) for shareholders. Potentially, available business opportunities may
occur in many different industries and at various stages of development, all of
which will make the task of comparative investigation and analysis of such
business opportunities extremely difficult and complex. The Company has, and
will continue to have, limited capital with which to provide the owners of
business opportunities with any significant cash or other assets. However, the
Company's management believes the Company will be able to offer owners of
acquisition candidates the opportunity to acquire a controlling ownership
interest in an issuer who has complied with the reporting requirements of the
Exchange Act without incurring the cost and time required to conduct an initial
public offering.
The analysis of new business opportunities will be undertaken by, or
under the supervision of, the officers and directors of the Company. The
Company's management intends to concentrate on identifying preliminary
prospective business opportunities which may be brought to its attention through
present associations of the Company's officers and directors, or by the
Company's shareholders. The Company may engage financial advisors and investment
banking firms to assist it in identifying and analyzing prospective business
opportunities. Due to the limited financial resources of the Company, it is
likely that these advisors and firms will be compensated, generally on a success
basis, in the form of cash and the Company's stock.
In analyzing prospective business opportunities, management will
consider such matters as the available technical, financial and managerial
resources; working capital and other financial requirements; history of
operations, if any; prospects for the future; nature of present and expected
competition; the quality and experience of management services which may be
available and the depth of that management; the potential for further research,
development or exploration; specific risk factors not now foreseeable but which
then may be anticipated to impact the proposed activities of the Company; the
potential for growth or expansion; the potential for profit; the public
recognition of acceptance of products, services or trades; name identification;
and other relevant factors. Officers and directors of the Company expect to
interview or meet with management and key personnel of the business opportunity
as part of their investigation. To the extent possible, the Company intends to
utilize written reports and personal investigation to evaluate the above
factors, including such reports and investigations prepared by its financial
advisors.
As part of the Company's compliance with the reporting requirements of
the Exchange Act, the Company intends to furnish information about significant
acquisitions, including audited financial statements for the target company,
covering one, two or three years depending upon the revenue and other attributes
of the target company. Consequently, acquisition prospects that do not have or
are unable to obtain the required audited statements will not be appropriate for
acquisition candidates.
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation, reorganization, joint
venture, or licensing agreement with another corporation or entity. The Company
may alternatively purchase the capital stock or the operating assets of an
existing business.
17
The structure of the business combination will depend on, among other
factors:
o the nature of the target business,
o the Company's needs and desires and the needs and desires of those persons
controlling the target business,
o the management of the target business and
o the Company's relative negotiating strength compared to the strength of the
persons controlling the target business.
It is possible that, after the Company successfully consummates a
merger or acquisition with an unaffiliated entity, that entity may desire to
employ or retain one of the Company's officers or directors for the purposes of
providing services to the surviving entity. However, the Company has adopted a
policy whereby the offer of any post-transaction employment to current officers
or directors will not be a consideration in the Company 's decision to undertake
any proposed transaction. Each member of the Company's management has agreed to
disclose to the Board of Directors any discussions concerning possible
employment by any entity that proposes to undertake a transaction with the
Company and further, to abstain from voting on the transaction. Therefore, as a
practical matter, if each member of the Board of Directors is offered employment
in any form from any prospective merger or acquisition candidate, the proposed
transaction will not be approved by the Board of Directors as a result of the
inability of the Board of Directors to affirmatively approve the transaction.
The transaction would then be subject to the approval of a majority of the
Company's existing shareholders.
Any merger or acquisition can be expected to have a significant
dilutive effect on the percentage of shares held by the Company's existing
stockholders. The target businesses that the Company will likely consider will,
in all probability, have significantly more assets than the Company has.
Therefore, in all likelihood, the Company's management will offer a controlling
interest in the Company to the owners of the target business. While the actual
terms of a transaction to which the Company may be a party cannot be predicted,
the Company expects that the parties to the business transaction will find it
desirable to avoid the creation of a taxable event and thereby structure the
acquisition in a so-called "tax-free" reorganization under Sections 368(a)(1) or
351 of the Internal Revenue Code. In order to obtain tax-free treatment under
the Internal Revenue Code, the owners of the acquired business may need to own
80% or more of the voting stock of the surviving entity. As a result, the
Company's stockholders would retain 20% or less of the issued and outstanding
shares of the surviving entity, which would result in significant dilution in
their ownership percentage of the entity after the combination and may also
result in a reduction in the net tangible book value per share of the Company's
existing stockholders. In addition, all or a majority of the Company's current
directors and officers will probably, as part of the terms of the acquisition
transaction, resign as directors and officers.
To complete a merger or acquisition, the Company may also have to
compensate certain
18
advisors, finders and investment banking firms for services rendered in
connection with the identification of private company targets and the
negotiation and completion of the transaction. Due to the Company's limited
resources, it is expect that all or a portion of this compensation will be in
the form of the Company's common stock, which will have a further dilutive
effect on the percentage of shares held by the Company's existing stockholders.
The Company will remain an insignificant player among the firms which
engage in business combinations. There are many established venture capital and
financial concerns which have significantly greater financial and personnel
resources and technical expertise than the Company has. In view of the Company's
limited financial resources and limited management availability, the Company
will continue to be at a significant disadvantage compared to other venture
capital and financial concerns that compete with the Company. The Company will
also be competing for acquisition opportunities with other public shell
companies that do not have an operating business.
The Company's activities following a business combination with a target
company will be dependent on the nature of the acquired business, as well as the
interest acquired. It may be expected that the acquired business will present
various risks to the Company's existing stockholders. We cannot yet
appropriately assess the risks of the business at the present time, even in
general terms, as we have not restricted the Company's search for a potential
target company to any one particular field of endeavor.
APPOINTMENT OF THE COMPANY'S INDEPENDENT ACCOUNTANT
As a condition of the Reorganization, Corbin and Company will be
appointed independent accountants for the Company, and such appointment must be
accepted.
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials for the
Company's 2005 annual meeting of shareholders, the Company must receive written
notice of any shareholder proposal by June 30, 2005. The Company did not receive
notice of any shareholder proposal or nominations of persons for election to the
Board of Directors relating to the 2004 Annual Meeting. All proposals and
nominations should be directed to the Company principal executive offices at
4349 Baldwin Ave., Unit A, El Monte, CA. 91731, Attention: Manager of Investor
Relations.
OTHER MATTERS
A copy of the Company's 2004 Annual Report is included with this Proxy
Statement.
All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given. Any Proxy in which no direction is specified will be voted in
favor of the Reorganization.
19
The Board of Directors does not intend to bring any matters before the
Annual Meeting other than as stated in this Proxy Statement and is not aware
that any other matters will be presented for action at the meeting. Should any
other matters be properly presented, the person named in the enclosed form of
Proxy will vote the Proxy with respect thereto in accordance with their best
judgment, pursuant to the discretionary authority granted by the Proxy.
By Order of the Board of Directors,
/s/ Frank S. Yuan
---------------------------------
Frank S. Yuan
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
January , 2005
20
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;
A-1
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;
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
A-2
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;
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
A-3
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
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.
A-4
[CYBER MERCHANTS LOGO OMITTED]
CYBER MERCHANTS EXCHANGE
www.c-me.com
A-5
CYBER MERCHANTS EXCHANGE, INC.
V DETACH PROXY CARD HERE V
- --------------------------------------------------------------------------------
CYBER MERCHANTS EXCHANGE, INC.
PLEASE INDICATE YOUR VOTES BELOW BY THIS PROXY WILL BE VOTED AS
CHECKING THE APPROPRIATE SELECTION DIRECTED AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS
1. APPROVAL OF THE REVERSE STOCK SPLIT MAY COME BEFORE THE MEETING OR ANY
POSTPONEMENT(S) OR ADJOURNMENT(S)
THEREOF. IF NO CONTRARY OBJECTION
IS INDICATED, THIS PROXY WILL BE
|_| FOR |_| AGAINST |_| ABSTAIN VOTED FOR THE PROPOSALS LISTED
ABOVE.
APPROVAL OF THE TRANSFER
I/WE DO |_| OR DO NOT |_| EXPECT TO ATTEND
|_| FOR |_| AGAINST |_| ABSTAIN THIS MEETING
APPROVAL OF THE DISTRIBUTION Please date and sign exactly as
your name(s) appear(s). When
|_| FOR |_| AGAINST |_| ABSTAIN signing As attorney, executor,
administrator, trustee, or
APPROVAL OF THE INVESTMENT guardian, please give Full title as
such. If more than one trustee, all
|_| FOR |_| AGAINST |_| ABSTAIN should sign. All Joint owners
should sign. WHETHER OR NOT YOU
PLAN TO ATTEND THIS MEETING, PLEASE
SIGN AND RETURN THIS PROXY AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED POS-
TAGE-PAID ENVELOPE.
Dated: , 2005
-------------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature
IN THEIR DISCRETION, THE PROXY HOLDERS ARE THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR
PROPERLY COME BEFORE THE MEETING TO ITS EXERCISE.
PLEASE DETACH HERE
You Must Detach This Portion of the Proxy Card
Before Returning it in the Enclosed Envelope
- --------------------------------------------------------------------------------
V DETACH PROXY CARD HERE V
- --------------------------------------------------------------------------------
CYBER MERCHANTS EXCHANGE, INC.
PROXY
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY , 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of CYBER MERCHANTS EXCHANGE, INC., a
California corporation, (the "Company") hereby acknowledges receipt of
the Notice of Annual Meeting of Shareholders and Proxy Statement, each
dated January , 2005, and hereby appoints Frank S. Yuan, as proxy and
attorney-in-fact with full power of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual
Meeting of Shareholders of the Company to be held on January , 2005, at
adjournment(s) or postponement(s) thereof, and to vote all shares of
Common Stock that the undersigned would be entitled to vote if then and
there personally present, on the matters set forth below:
PLEASE MARK SIGN, DATE AND RETURN THE PROX CARD USING THE ENCLOSED
ENVELOPE. Please sign exactly as your name appears on the stock
certificate. When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. If a corporation, please sign
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 EACH OF THE PROPOSALS IF NO SPECIFICATION
IS MADE.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)