UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_][X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ][_] Preliminary Proxy Statement [_] Soliciting Material Pursuant toUnder Rule
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-1214a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
CHINA RESOURCES DEVELOPMENT, INC.China Resources Development, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
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[_] Fee paid previously with preliminary materials.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 Formform or Scheduleschedule and the date of its filing.
1) Amount Previously Paid:previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
________________________________________________________________________________
[LOGO]
-----------------------------------CHINA RESOURCES DEVELOPMENT, INC.
[COMPANY LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held October 12, 2000STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 2003
To the Shareholders:
Notice is hereby givenStockholders of China Resources Development, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of ShareholdersStockholders (the
"Annual Meeting") of CHINA RESOURCES DEVELOPMENT, INC.China Resources Development, Inc., a Nevada corporation
(the "Company"), will be held at the offices of the Company at 5020 Binhe Road, Fu Tian District,
Shenzhen Province, People's Republic of China, on October 12, 2000, at 2:30 p.m., localHong Kong time, on December 18, 2003
at Room 2105, West Tower, Shun Tak Centre, 200 Connaught Road C., Sheung Wan,
Hong Kong, for the following purposes:
1. To consider and ratify the issuance of 244,897 shares of the
Company's Common Stock;
2. To consider and vote upon an amendmentelect two Class I members to the Company's Amendedboard of
directors to hold office until the Company's annual meeting of
stockholders to be held in 2006 and Restated 1995 Stock Option Plan to modifyuntil their successors are
duly elected and qualified;
2. To approve and adopt the pricing procedure for the
exercise of nonqualified stock options and to eliminate the requirement
of shareholder approval for any modification of the Plan that would
materially increase the benefits accruing to participants in theCompany's 2003 Equity Compensation
Plan;
3. To elect directors in Class I;
4. To consider and vote upon the ratification ofratify the appointment of Ernst & YoungHorwath Gelfond Hochstadt
Pangburn, P.C. as independent auditors of the Company's independent accountantsCompany for the
fiscal year ending December 31, 2000;2003; and
5.4. To transact such other business as may properly come before
the Annual Meeting and any adjournmentadjournments or postponementpostponements
thereof.
ShareholdersAll stockholders are cordially invited to attend; however, only
stockholders of record at the close of business on SeptemberNovember 14, 2000,2003 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
or postponementadjournments
thereof.
The Company's annual report on Form 10-K for the year
ended December 31, 1999, is enclosed for your convenience.
Please sign and date the enclosed proxy card and return it promptly in
the accompanying envelope (no postage required if mailed in the United States)
to ensure that your shares will be represented at the Annual Meeting. If you
attend the Annual Meeting, you may vote your shares in person even if you have
previously submitted a proxy.THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE BOARD'S
NOMINEES TO SERVE AS CLASS I DIRECTORS, AND FOR PROPOSALS TWO AND THREE.
By Order of the Board of Directors
/s/ Edward Wong
-----------------------------------
Wong Wah On
---------------------
Corporate Secretary
October 2, 2000Hong Kong
November 19, 2003
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. STOCKHOLDERS
WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING, REVOKE THEIR PROXY
AND VOTE THEIR SHARES IN PERSON.
CHINA RESOURCES DEVELOPMENT, INC.
RoomROOM 2105
West Tower,
Shun Tak Centre
168 -WEST TOWER, SHUN TAK CENTRE
200 Connaught Road Central
Sheung Wan, Hong Kong
----------------------------------CONNAUGHT ROAD C.
SHEUNG WAN, HONG KONG
____________________________________
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERSSTOCKHOLDERS
TO BE HELD ON OCTOBER 12, 2000
This proxy statement and theDECEMBER 18, 2003
____________________________________
INTRODUCTION
The accompanying proxy card are being
furnished in connection with the solicitation of proxiesis solicited by the Boardboard of Directorsdirectors of China
Resources Development, Inc., a Nevada corporationto be voted at the Annual Meeting of Stockholders
to be held on Thursday, December 18, 2003 (the "Company""Annual Meeting"), from holdersand any
adjournments thereof. When such proxy is properly executed and returned, the
shares it represents will be voted at the meeting as directed. If no
specifications are indicated, the shares will be voted in accordance with the
recommendation of the Company's outstandingboard with respect to each matter submitted to our
stockholders for approval. Abstentions and broker non-votes will not be voted,
but will be counted for determining the presence of a quorum.
The cost of preparing and mailing the enclosed proxy materials,
estimated to be approximately $25,000, will be borne by us. We may use the
services of our officers and employees (who will receive no additional
compensation) to solicit proxies. In addition to the use of the mails, proxies
may be solicited by telephone, Mailgram, facsimile, telegraph, cable and
personal interview. We intend to request banks and brokers holding shares of Common Stock,
par value $0.001 per share (the "Common Stock"), and from the holderour
common stock to forward copies of the Company's outstandingproxy materials to those persons for whom
they hold shares and to request authority for the execution of proxies. We will
reimburse banks and brokers for their out-of-pocket expenses. We may also retain
the services of a solicitation firm to aid in the solicitation of proxies. If it
does so, we will pay the fees and expenses of such firm.
This Proxy Statement and the accompanying form of proxy are first being
sent to our stockholders on or about November 19, 2003. A list of stockholders
entitled to vote at the Annual Meeting will be available for examination by any
stockholder for a proper purpose during normal business hours at our offices for
a period of at least ten days preceding the Annual Meeting.
VOTING AT THE ANNUAL MEETING
The shares entitled to vote at the Annual Meeting consist of shares of
our common stock and Series B preferred stock, (the "Preferred
Stock"), forwith each share of each class
entitling the Annual Meeting of Shareholdersholder to be held October 12, 2000, for
the purposes set forth in the accompanying notice (the "Annual Meeting"). The
Company will bear the costs of soliciting proxies from its shareholders. In
addition to soliciting proxies by mail, directors, officers and employees of the
Company, without receiving additional compensation therefor, may solicit proxies
by telephone, by telegram or in person. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of Common Stock held of record
by such persons, and the Company will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. This proxy statement is first being
mailed to shareholders of the Company on or about October 2, 2000.
VOTING AT THE MEETINGone vote. At the close of business on SeptemberNovember 14, 2000,2003,
the record date for determining shareholders entitled to notice of and to vote at the Annual Meeting, (the "Record Date"), there were outstanding and entitled to vote approximately
837,7971,143,823 shares of Common Stockour
common stock and 320,000 shares of Preferred Stock. All of the
outstanding shares of Common Stockour Series B preferred stock issued and
Preferred Stock are entitled to vote on
all matters which properly come before the annual meeting, and each shareholder
will be entitled to one vote for each share of Common Stock or Preferred Stock
held.outstanding.
Each proxy that is properly signed and received prior to the Annual
Meeting will, unless revoked, be voted in accordance with the instructions on
such proxy. If no instruction is indicated, the shares will be voted FOR ratification of the issuance of shares of Common Stock, FOR approval of the
amendment to the Amended and Restated 1995 Stock Option Plan, FOR the
election of the nominees for director listed in this proxy statement, FOR
approval and adoption of the 2003 Equity Compensation Plan, FOR ratification of
the appointment of Ernst & Young,Horwath Gelfond Hochstadt Pangburn, P.C., and FOR the
approval of such other business that may properly come before the Annual Meeting
or any postponement or adjournment thereof. A shareholderstockholder who has given a proxy
may revoke such proxy at any time before it is voted at the Annual Meeting by
delivering a written notice of revocation or duly executed proxy bearing a later
date to theour Corporate Secretary of the Company or by attending the meeting and voting in
person.
A quorum of shareholdersstockholders is necessary to take action at the Annual
Meeting. A majority of the outstanding shares of Common Stockour common stock and Preferred
Stock,preferred
stock, counted together, of the Company, represented in person or by proxy, will constitute a
quorum. Votes cast by proxy or in person at the Annual Meeting, in person or by proxy, will be
tabulated by the inspectorsinspector of election appointed for the Annual Meeting.election. The inspectors of election will determine whether or not a quorum is present at the
Annual Meeting. The inspectorsinspector of election will treat
abstentions as shares of Common Stockcommon stock or Preferred Stockpreferred stock that are present and
entitled to vote for purposes of determining the presence of a quorum.
Under certain circumstances, a
broker or other nominee may have discretionary authority to vote certain shares
of Common Stock if instructions
have not been received from the beneficial owner or other person entitled to
vote. If a broker or nominee indicates on the proxy that it does not have
instructions or discretionary authority to vote certain shares of Common Stock
on a particular matter, those shares will not be considered as present for
purposes of determining whether a quorum is present or whether a matter has been
approved.
The two nominees for director who receive the greatest number of votes
cast in person or by proxy at the Annual Meeting shall be elected directors of the
Company.as Class I
directors. The vote required for adoption of the other proposals herein is the
affirmative vote of a majority of the shares of Common Stockcommon stock and Preferred Stockpreferred
stock, counted together, present in person or represented by proxy at the Annual
Meeting; and, for purposes of determining shareholderstockholder approval of such
proposals, abstentions will be treated as shares of Common Stockcommon stock or Preferred Stockpreferred
stock voted against adoption of such proposals.
CONVENTIONS
Unless otherwise specified, all references in this proxy statement to
"U.S. Dollars," "Dollars," "US$," or "$" are to United States dollars; all
references to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; and all
references to "Renminbi" or "RMB" or "Yuan" are to Renminbi Yuan, which is the
lawful currency of the People's Republic of China ("China" or "PRC"). The
Company and Billion LuckWe
maintain theirour accounts in U.S. Dollars and Hong Kong Dollars, respectively. HARC and itsThe
accounts of our subsidiaries maintain their accountsare maintained in either Hong Kong Dollars or
Renminbi. TheOur consolidated financial statements of the Company and its subsidiaries are prepared in Renminbi.
Translations of amounts from Renminbi to U.S. Dollars and from Hong Kong Dollars
to U.S. Dollars are for the convenience of the reader. Unless otherwise
indicated, any translations from Renminbi to U.S. Dollars or from U.S. Dollars
to Renminbi have been made at the single rate of exchange as quoted by the
People's Bank of China (the "PBOC Rate") on JuneDecember 31, 2002 and September 30,
2000,2003, which was approximately U.S.$1.00 = Rmb8.28.Rmb 8.28. Translations from Hong Kong
Dollars to U.S. Dollars have been made at the single rate of exchange as quoted
by the HongkongHong Kong and Shanghai Banking Corporation Limited on JuneDecember 31, 2002
and September 30, 2000,2003, which was approximately US$1.00 = HK$7.80. The Renminbi
is not freely convertible into foreign currencies and the quotation of exchange
rates does not imply convertibility of Renminbi into U.S. Dollars or other
currencies. All foreign exchange transactions take place either through the Bank
of China or other banks authorized to buy and sell foreign currencies at the
exchange rates quoted by the People's Bank of China. No representation is made
that the Renminbi or U.S. Dollar amounts referred to herein could have been or
could be converted into U.S. Dollars or Renminbi, as the case may be, at the
PBOC Rate or at all.
2
References to "Billion Luck" are to Billion Luck Company Ltd., a
British Virgin Islands company, which is a wholly-owned subsidiary of the
Company.our wholly owned subsidiary.
References to "Company""China Resources", "we", "us", "our" and "Registrant"the like are to
China Resources Development, Inc., and include, unless the context requires
otherwise, the operations of itsour subsidiaries.
References to the "Farming Bureau" are to the Hainan Agricultural
Reclamation General Company, a division of the Ministry of Agriculture, the PRC
government agency responsible for matters relating to agriculture.
References to "First Supply" are to First Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.
References to "Guilinyang Farm" are to Hainan Province Guilinyang State
Farm, a PRC entity which is owned and controlled by the Farming Bureau.
References to "Hainan""HARC" are to Hainan Province of the PRC.
References to "Hainan State Farms" are to the rubber farms in Hainan
controlled by the Farming Bureau.
References to "HARC" are toCihui Industrial Company Limited
(formerly known as Hainan Zhongwei Agricultural Resources Company Limited), a
company organized in the PRC, and our wholly owned subsidiary.
References to "Hainan Weilin" are to Hainan Weilin Timber Limited
Liability Company, a limited liability company organized in the PRC, whose
capital iswas owned 56%58% by Billion Luck, 39% byHARC. On April 30, 2001, HARC disposed of its 58%
interest in Hainan Weilin to the Farming Bureau and 5% by the Company.Bureau.
References to the "PRC" or "China" include all territory claimed by or
under the control of the Central Government, except Hong Kong, Macau, and
Taiwan.
References to "Second Supply""Xilian Mill" are to Second Goods And Materials Supply
And Sales Corporation,Xilian Timber Mill, a company organizedPRC entity
whose capital was owned 12.64% by HARC. On April 30, 2001, HARC disposed of its
interest in Xilian Mill to the PRC and a wholly-owned
subsidiary of HARC.
BENEFICIALFarming Bureau.
3
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS
BENEFICIAL OWNERS OF MORE THAN 5%
OF THE COMPANY'S COMMON STOCKAND MANAGEMENT
The following table sets forth certain information known to us
concerning the knowledgebeneficial ownership of management,shares of our common stock and Series B
preferred stock as of November 14, 2003 by:
o each person or entity who isknown by us to be the beneficial owner of more than 5% of theour
outstanding shares of common stock and preferred stock combined;
o each of our directors and director nominees;
o each of our executive officers; and
o all executive officers and directors as a group.
Unless otherwise indicated, each person has sole investment and voting
power with respect to all shares shown as beneficially owned. Unless otherwise
indicated the Company's Common Stock or Series B Preferred Stock outstanding asaddress of September 14, 2000,each beneficial owner is Room 2105, West Tower, Shun
Tak Centre, 200 Connaught Road C., Sheung Wan, Hong Kong.
Amount and Nature of Beneficial Ownership(4)
--------------------------------------------
Common Stock Preferred Stock Percent
Name and Address of ------------ --------------- of
Beneficial Owner # of Shares % of Class # of Shares % of Class Vote
- ------------------------------------------------------------------------------------------------------------
Ching Lung Po 40,000 3.5% 320,000(1) 100% 24.6%
Tam Cheuk Ho 184,897(2) 16.1% -- -- 12.6%
Wong Wah On 184,897(3) 16.1% -- -- 12.6%
Lam Kwon Sing -- -- -- -- --
Ng Kin Sing -- -- -- -- --
Lo Kin Cheung -- -- -- -- --
Anka Capital Limited 144,897 12.7% -- -- 9.9%
Winsland Capital Limited -- -- 320,000 100% 21.9%
TurstNet Chambers
P.O. Box 3444, Road Town
Tortola, British Virgin Islands
Executive Officers and
Directors as a group
(of 3 persons) 264,897(1)(2)(3) 23.2% 320,000 100% 40.0%
_______________________
(1) Shares registered to Winsland Capital Limited, a company beneficially
owned by Mr. Ching.
(2) Includes 144,897 shares registered to Anka Capital Limited, a company
owned 50% by Mr. Tam. Mr. Tam disclaims beneficial ownership of the number of
shares owned by each such person andAnka Capital Limited, except to the percentageextent of his
pecuniary interest in the shares.
(3) Includes 144,897 shares registered to Anka Capital Limited, a company
owned 50% by Mr. Wong. Mr. Wong disclaims beneficial ownership of the
outstanding shares represented thereby.
Amount and
Name and Address Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class
------------------- ------------------------ -----
Winslandowned by Anka Capital Limited, 33,480 Common Stock 4.00%
TrustNet Chambers 320,000 Series B Preferred 100%
P.O. Box 3444, Road Town
Tortola, British Virgin Islands
Worlder International Company 48,600 Common Stock 5.80%
Limited (2)
21/F., Great Eagle Centre
No. 23 Harbour Road
Hong Kong
E-link Investment Limited 244,897 Common Stock 29.23%
Unit 2301, 23/F, Sup Tower
75 - 83 King's Road
North Point, Hong Kong
- ---------------------------
(1)except to the extent of his
pecuniary interest in the shares.
(4) The inclusion herein of any shares as deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Ofby the 48,600 shares of Common Stock indicated, Worlder International
Company Limited ("Worlder") directly owns 35,100 shares, and the remaining
13,500 shares represent shares of Common Stock owned by Silverich Limited, which
is wholly-owned by Worlder.named
stockholder.
4
SHARE OWNERSHIP OFDIRECTORS AND EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of September 14, 2000, by (i) each
director of the Company, (ii) each executive officer of the Company named in the
summary compensation table, and (iii) allidentifies our directors and executive officers as
of the Companydate of this proxy statement, as a group. All information with respect to beneficial ownership has
been furnished bywell as their ages and the respective director or executive officer (in the case of
shares beneficially owned by each of them). Unless otherwise indicatedpositions in
a
footnote, each stockholder possesses sole voting and investment power with
respect to the shares indicated as beneficially owned.
Amount and
Name of Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Class
---------------- ------------------------ -----which they serve:
Age Position
--- --------
Ching Lung Po 33,480 Common Stock (5) 4.00%
Lin Yu Quan -0- N/A
Tam Cheuk Ho -0- (2) N/A
Wong Wah On 4,320 Common Stock (4) 0.052%
Ng Kin Sing -0- N/A
Wan Ying Lin -0- N/A
Lo Kin Cheung -0- N/A
Li Fei Lie -0- (3) N/A
All executive officers 37,800 Common Stock 4.51%
and directors as a group
- ----------------------------
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Tam Cheuk Ho was granted options to purchase 60 shares of Common Stock under
the Company's Stock Option Plan.
(3) Li Fei Lie was granted options to purchase 1,000 shares of common stock
under the Company's stock option plan.
(4) Brender Services Limited owns 4,320 shares of Common Stock. Brender Services
Limited is beneficially owned by Wong Wah On, the Director, Secretary and
Financial Controller of the Company. In addition, Brender was granted options to
purchase 1,000 shares of Common Stock under the Company's Stock Option Plan, and
Mr. Wong was granted options to purchase 60 shares of Common Stock under the
Plan.
(5) Winsland Capital Limited owns 33,480 shares of Common Stock. Winsland
Capital Limited is beneficially owned by Ching Lung Po, the57 Chairman of the Board of Directors,
of the Company.
FINANCIAL INFORMATION
The following financial informationPresident and management's discussion and
analysis of financial condition and results of operations are excerpted from the
Company's Form 10-Q quarterly report for the quarterly period ended June 30,
2000. This information supplements the information contained in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1999, a copy
of which is provided herewith and incorporated herein by reference.
[Balance of page intentionally left blank]
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Note 2000 1999 2000 2000 1999 2000
-------- -------- -------- -------- -------- --------
RMB RMB US$ RMB RMB US$
NET SALES 2,316 -- 280 3,713 -- 448
COST OF SALES (2,548) -- (308) (3,844) -- (464)
-------- -------- -------- -------- -------- --------
GROSS PROFIT/(LOSS) (232) -- (28) (131) -- (16)
DEPRECIATION (351) -- (42) (551) -- (67)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (3,789) (2,849) (458) (8,238) (5,388) (995)
FINANCIAL INCOME, NET 3,668 192 443 3,708 271 448
OTHER INCOME, NET (2,481) 6,664 (300) 10,538 6,664 1,273
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,185) 4,007 (385) 5,326 1,547 643
INCOME TAXES 187 (620) 23 (1,770) (620) (214)
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE MINORITY INTERESTS (2,998) 3,387 (362) 3,556 927 429
MINORITY INTERESTS 814 (1,874) 98 (3,603) (1,874) (435)
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS (2,184) 1,513 (264) (47) (947) (6)
DISCONTINUED OPERATIONS 2 -- (1,285) -- -- (3,174) --
-------- -------- -------- -------- -------- --------
NET INCOME/(LOSS) (2,184) 228 (264) (47) (4,121) (6)
======== ======== ======== ======== ======== ========
BASIC AND DILUTED
EARNINGS/(LOSS) PER SHARE*
Continuing operations (3.68) 2.55 (0.45) (0.08) (1.60) (0.01)
Discontinued operations -- (2.17) -- -- (5.35) --
-------- -------- -------- -------- -------- --------
(3.68) 0.38 (0.45) (0.08) (6.95) (0.01)
======== ======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING* 592,900 592,900 592,900 592,900 592,900 592,900
======== ======== ======== ======== ======== ========
* The computation of basic and diluted loss per share for the three months
and six months ended June 30, 1999 are based on weighted average number of
shares outstanding as if the one-for-ten reverse stock split, effective on
June 11, 1999, had been completed at the beginning of the period.
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands, except share and per share data)
June 30, December 31, June 30,
2000 1999 2000
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 109,763 31,088 13,256
Marketable securities 981 57,035 119
Trade receivables 159 -- 19
Inventories 4 2,796 1,702 338
Other receivables, deposits and prepayments 13,686 11,781 1,653
Short term loan receivable 45,000 45,000 5,435
Amount due from Farming Bureau 36,426 47,013 4,399
Amounts due from related companies 571 1,500 69
Tax refundable -- 1,382 --
Net assets of discontinued operations -- 70,527 --
-------- -------- --------
TOTAL CURRENT ASSETS 209,382 267,028 25,288
PROPERTY AND EQUIPMENT 5 13,550 9,855 1,636
INVESTMENTS 116,714 116,714 14,096
-------- -------- --------
TOTAL ASSETS 339,646 393,597 41,020
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 801 296 97
Other payables and accrued liabilities 40,497 15,860 4,891
Income taxes payable 457 -- 55
Amounts due to related companies 296 86,781 36
-------- -------- --------
TOTAL CURRENT LIABILITIES 42,051 102,937 5,079
MINORITY INTERESTS 117,189 110,226 14,153
-------- -------- --------
TOTAL LIABILITIES AND MINORITY
INTERESTS 159,240 213,163 19,232
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock, US$0.001 par value:
Authorized - 200,000,000 shares in 2000
Issued and outstanding - 592,900 shares in 2000
and 1999 5 5 1
Preferred stock, authorized -
10,000,000 shares in 2000 and 1999
Series B preferred stock, US$0.001 par value
Authorized - 320,000 shares in 2000 and 1999
Issued and outstanding - 320,000
in 2000 and 1999 3 3 --
Additional paid-in capital 156,632 156,632 18,917
Reserves 26,830 26,830 3,240
Accumulated deficits (3,065) (3,018) (370)
Accumulated other comprehensive loss 1 (18) --
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 180,406 180,434 21,788
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 339,646 393,597 41,020
======== ======== ========
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Amounts in thousands)
Accumulated
Series B Additional Other
Common preferred paid-in Accumulated Comprehensive
stock stock capital Reserves deficits Loss Total
RMB RMB RMB RMB RMB RMB RMB
Balance at January
1,2000 5 3 156,632 26,830 (3,018) (18) 180,434
Net loss -- -- -- -- (47) -- (47)
Currency translation
Adjustment -- -- -- -- -- 19 19
--------
Comprehensive
Income (28)
--------
-------- -------- -------- -------- -------- -------- --------
Balance at June 30,
2000 5 3 156,632 26,830 (3,065) 1 180,406
======== ======== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands)
Six months ended June 30,
-------------------------
2000 1999 2000
-------- -------- --------
RMB RMB US$
Net cash provided by operating activities 71,209 8,350 8,600
INVESTING ACTIVITIES
Purchases of property and equipment (4,246) (3,434) (513)
Proceeds from disposal of an investment 928 -- 112
Proceeds from disposal of property and equipment 1,547 -- 187
Short term loan -- (45,000) --
-------- -------- --------
Net cash used in investing activities (1,771) (48,434) (214)
-------- -------- --------
FINANCING ACTIVITIES
Increase in minority interests 2,187 -- 264
-------- -------- --------
Net cash provided by/(used in) continuing operations 71,625 (40,084) 8,650
Net cash provided by discontinued operations (Note 2) -- 15,572 --
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 71,625 (24,512) 8,650
Cash and cash equivalents, at beginning of period 38,138 129,238 4,606
-------- -------- --------
Cash and cash equivalents, at end of period 109,763 104,726 13,256
======== ======== ========
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month
periods ended June 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
2. DISCONTINUED OPERATIONS AND BUSINESS RESTRUCTURING
In the fourth quarter of 1999, the Company initiated a plan to
restructure its business in Hainan, the PRC. On March 3, 2000, the
Board of Directors of the Company approved a business restructuring
involving HARC and certain subsidiaries of HARC (the "Restructuring").
The Restructuring resulted in the discontinuation of substantially all
of the existing operations of the Company as of December 31, 1999,
including its two principal lines of business, the distribution of
natural rubber and the procurement of materials, supplies and other
agricultural products (collectively the "Rubber and Procurement
Operations"). The financial data related to the Company's indirect
investments in the Rubber and Procurement Operations prior to December
31, 1999 is classified as discontinued operations for all periods
presented. The financial data of the Rubber and Procurement Operations
reflects the historical results of operations and cashflows of the
businesses that were considered part of the business segments of the
Rubber and Procurement Operations during each respective period.
On March 3, 2000, HARC and certain of its subsidiaries entered into an
Assets and Staff Transfer Agreement with the Farming Bureau, pursuant
to which HARC and certain of its subsidiaries transferred all the
assets, liabilities and staff related to the discontinued operations to
the Farming Bureau, effective from January 1, 2000. The consideration
for the net assets transferred was determined based on the lower of
their net book value or their fair value, as determined by an
independent professional valuer, as of December 31, 1999. Based on the
valuation, there were no material differences between the fair value
and the net book value (as determined under US GAAP) of those assets
and liabilities as of December 31, 1999, which was RMB70,527,000.
Net sales of the Rubber and Procurement Operations included in
discontinued operations totaled RMB105,315,000 for the six months ended
June 30, 1999. Loss from discontinued operations of Rubber and
Procurement Operations of RMB4,701,000 for the three months ended June
30, 1999 is reported without set-off of any income tax expenses.
The net assets of the Rubber and Procurement Operations were as
follows:
December 31,
1999
RMB
Current assets 110,703
Property and equipment - net 1,547
Cost method investments 928
Current liabilities (42,651)
-------
Net assets of discontinued operations 70,527
=======
The Company and its subsidiaries accrued certain expenses totaling RMB3
million in relation to the Restructuring in the fourth quarter of 1999.
There were no other significant expenses in relation to the
Restructuring in the six months ended June 30, 2000.
Notwithstanding the discontinuation of the Rubber and Procurement
Operations, the Company has contemplated setting up several new lines
of business as part of the Restructuring. As of June 30, 2000, the
Company has set up two lines of business, namely, supermarket
operations and processing and sale of timber.
3. BUSINESS ACQUISITION
The Company has determined to engage in the information technology
market. As at June 30, 2000, the Company entered into an Acquisition
Agreement to acquire an 80% equity interest in Silver Moon Technologies
Limited, a British Virgin Islands corporation ("Silver Moon"), for
total consideration of US$1,500,000 (the "Purchase Consideration"). The
Company has satisfied the Purchase Consideration by issuing to Silver
Moon's former sole equity owner, E-link Investment Limited ("E-link"),
244,897 shares of the Company's unregistered restricted common stock,
$0.001 par value. The Acquisition Agreement is included in the
Company's Current Report on Form 8-K, dated June 30, 2000. The
principal business of Silver Moon, and its wholly-owned subsidiary, Sky
Creation Technology Limited, a Hong Kong company, is the provision of
online Internet healthcare content, through its website,
medi-china.com, which offers health-related content in both English and
Chinese, with a focus on Chinese herbal medicine and therapies. The
closing date of the acquisition was on July 12, 2000.
4. INVENTORIES
June 30, December 31,
2000 1999
RMB RMB
Raw materials 182 --
Work in progress 1,110 --
Finished goods 1,504 1,702
------ -----
2,796 1,702
===== =====
5. PROPERTY AND EQUIPMENT, NET
June 30, December 31,
2000 1999
RMB RMB
At cost:
Buildings and leasehold improvements 5,906 5,906
Machinery, equipment and motor vehicles 10,638 6,392
c
16,544 12,298
Accumulated depreciation: (2,994) (2,443)
------ ------
Net book value 13,550 9,855
====== ======
6. SEGMENT FINANCIAL INFORMATION
Six months ended
June 30, 2000
RMB
Net sales to external customers:
Supermarket operations, net sales to
unaffiliated customers 2,431
Processed timber, net sales to
Unaffiliated customers 1,282
-------
Total consolidated net sales 3,713
=======
Segment loss:
Supermarket operations (53)
Processed timber (695)
-------
Total segment profit/(loss) (748)
Reconciling items:
Corporate expenses (8,120)
Gain on trading of marketable securities 10,486
Interest income 4,574
Exchange loss (866)
-------
Total consolidated profit before
income taxes 5,326
=======
June 30,
2000
RMB
Segment assets:
Supermarket operations 6,306
Processed timber 8,422
-------
Total segment assets 14,728
Reconciling items:
Corporate assets 208,204
Investments 116,714
-------
Total consolidated assets 339,646
=======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATION
RESULTS OF OPERATIONS
The following table shows the selected unaudited condensed consolidated
income statement data of the Company and its subsidiaries for the three months
and six months ended June 30, 2000 and 1999. The data should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements of
the Company and related notes thereto.
The discussions below are presented in the Company's primary operating
currency, which is the Renminbi Yuan ("RMB"). For information purposes only, the
amounts may be translated into U.S. dollars at an exchange rate of $1.00 =
RMB8.28, which represents the approximate single rate of exchange as quoted by
the People's Bank of China on June 30, 2000. No representation is made that RMB
amounts could have been, or could be, converted into U.S. dollars at that rate
or any other rate.
(Amounts in thousands) Three months ended June 30, Six months ended June 30,
-------------------------- -------------------------
2000 1999 2000 1999
RMB RMB RMB RMB
------ ------ ------ ------
Net sales:
Supermarket operations 1,280 -- 2,431 --
Processed timber 1,036 -- 1,282 --
------ ------ ------ ------
2,316 -- 3,713 --
------ ------ ------ ------
Gross profit/(loss) (232) -- (131) --
Gross profit/(loss) margin (%) (10.02) -- (3.53) --
Income/(loss)from continuing operations
before income taxes (3,185) 4,007 5,326 1,547
Income taxes 187 (620) (1,770) (620)
------ ------ ------ ------
Income/(loss) from continuing operations
before minority interest (2,998) 3,387 3,556 927
Minority interests 814 (1,874) (3,603) (1,874)
------ ------ ------ ------
Income/(loss)from continuing operations (2,184) 1,513 (47) (947)
Discontinued operations -- (1,285) -- (3,174)
------ ------ ------ ------
Net income/(loss) (2,184) 228 (47) (4,121)
====== ====== ====== ======
NET SALES AND GROSS PROFIT
The Company previously engaged in marketing and distribution of natural
rubber and rubber products produced by the Hainan State Farms and non-state
farms in the PRC, and procurement of production materials and supplies,
including chemicals, farm equipment and machinery, automobiles and other
commodities, for use primarily by the Hainan State Farms and other unaffiliated
customers. Pursuant to a Shareholders' Agreement on Business Restructuring dated
March 3, 2000, among the Company, Billion Luck and the Farming Bureau, the
natural rubber distribution business and the procurement of materials and
supplies business ceased effective as of January1, 2000. Pursuant to an Assets
and Staff Transfer Agreement dated March 3, 2000, among the Farming Bureau,
HARC, First Supply, Second Supply and Sales Centre, the assets, liabilities and
staff related to the ceased businesses were transferred to the Farming Bureau
effective as of January 1, 2000. The restructuring resulted in the
discontinuation of substantially all of the existing operations of the Company
as of December 31, 1999. The Company has contemplated setting up several new
lines of business as part of the restructuring. As of June 30, 2000, the Company
has set up two lines of business, the supermarket operation and the processing
and sale of timber. The supermarket operation has gross profit and gross profit
margin of RMB420,000 (US$51,000) and 17.3%, respectively, for the first half of
2000. The sale of processed timber business has a gross loss of RMB551,000
(US$67,000) or 43.0% on sales for the first half of 2000, as the processing
factory is still in the start-up phase and is currently operated at one third of
its full capacity.
For the second quarter of 2000, the supermarket operation has gross
profit and gross profit margin of RMB224,000 (US$27,000) and 17.5%,
respectively, while the processed timber business has a gross loss of RMB455,000
(US$55,000) or 43.9% on sales for the same period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first half of 2000
were RMB8.2 million (US$995,000), compared to RMB5.4 million (US$651,000) for
the corresponding period in 1999. The increase was mainly attributable to
selling and administrative expenses of HARC, which amounted to RMB2.7 million
(US$326,000) for the first half of 1999 and were grouped in the procurement of
materials and supplies business, which is shown as discontinued operations. For
the first half of 2000, selling and administrative expenses of HARC were grouped
as corporate administrative expenses.
Selling, general and administrative expenses for the second quarter of
2000 were RMB3.8 million (US$458,000), compared to RMB2.8 million (US$344,000)
for the corresponding period in 1999. The increase was mainly attributable to
selling and administrative of HARC, which amounted to RMB1.0 million
(US$122,000) for the second quarter of 1999 and were grouped in the procurement
of materials and supplies business, which is shown as discontinued operations.
For the second quarter of 2000, selling and administrative expenses of HARC were
grouped as corporate administrative expenses.
FINANCIAL INCOME, NET
Net financial income increased by more than thirteen times from
RMB271,000 (US$33,000) for the first half of 1999 to RMB3.7 million (US$448,000)
for the corresponding period in 2000. The increase was mainly attributable to
the interest received in the second quarter of 2000 on a RMB45 million (US$5.4
million) short-term loan to an unaffiliated third party, which amounted to
RMB4.2 million (US$507,000). The increase in interest income was partly offset
by an exchange loss amounting to RMB860,000 (US$104,000), arising from the
conversion of Renminbi to Hong Kong dollars.
Net financial income increased by more than nineteen times from
RMB192,000 (US$23,000) for the second quarter of 1999 to RMB3.7 million
(US$443,000) for the corresponding period in 2000. The increase was also
attributable to the reasons aforementioned.
OTHER INCOME, NET
Other income increased from RMB6.7 million (US$805,000) for the first
half of 1999 to RMB10.5 million (US$1.3 million) for the corresponding period in
2000 and from RMB6.7 million (US$805,000) for the second quarter of 1999 to a
loss of RMB2.5 million (US$300,000) for the corresponding period in 2000. Other
income in 1999 represented the dividend income received on a long-term
investment while the other income/(loss) in 2000 mainly represented a net
gain/(loss) on trading of marketable securities.
DISCONTINUED OPERATIONS
Discontinued operations for the first half of 1999 represented a loss
from operations of the discontinued rubber distribution and procurement of
materials and supplies businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's and its subsidiaries' primary liquidity needs are to fund
inventories and trade receivables and to expand business operations. The Company
has financed its working capital requirements primarily through internally
generated cash.
The Company has a working capital surplus of approximately RMB167
million (US$20.2 million) as of June 30, 2000, compared to that of approximately
RMB164 million (US$19.8 million) as of December 31, 1999. Net cash provided by
operating activities for the six months ended June 30, 2000 was approximately
RMB71.2 million (US$8.6 million), as compared to RMB8.4 million (US$1.0 million)
for the corresponding period in 1999. Net cash flows from the Company's
operating activities are attributable to the Company's income and changes in
operating assets and liabilities.
Pursuant to an Assets and Staff Transfer Agreement dated March 3, 2000,
the Farming Bureau purchased assets and assumed liabilities and staff related to
the ceased businesses effective as of January 1, 2000. The purchase price was
the lower of the book value or fair value of the net assets transferred (which
were not materially different), determined as of January 1, 2000, which amounted
to RMB70,527,000 (US$8,518,000).
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1999. The Company believes
that internally generated funds will be sufficient to satisfy its anticipated
working capital needs for at least the next twelve months.
MARKET RISK AND RISK MANAGEMENT POLICIES
All of the Company's sales and purchases are made domestically
and are denominated in Renminbi. Accordingly, the Company and its subsidiaries
do not have material market risk with respect to currency fluctuation. As the
reporting currency of the Company's consolidated financial statements is also
Renminbi, there is no significant translation difference arising on
consolidation. However, the Company may suffer exchange loss when it converts
Renminbi to other currencies, such as Hong Kong dollars or United States
dollars.
The Company's interest income is most sensitive to changes in the
general level of Renminbi interest rates. In this regard, changes in Renminbi
interest rates affect the interest earned on the Company's cash equivalents. As
at June 30, 2000, the Company's cash equivalents are mainly Renminbi, Hong Kong
Dollar and United States Dollar deposits with financial institutions, bearing
market interest rates without fixed term.
As at June 30, 2000, the Company had short-term investments in
marketable securities in Hong Kong stock market with a total market value of
RMB981,000 (US$119,000). These investments expose the Company to market risks
that may cause the future value of these investments to be lower than the
original cost of such investments at the time of purchase.
YEAR 2000 ISSUE
The Year 2000 issue is the result of information technology systems and
embedded systems using a two-digit format, as opposed to four digits, to
indicate the year. The Company and its subsidiaries use a limited amount of
computer software primarily in connection with their accounting and financial
reporting systems. Such programs have been upgraded so that they are year 2000
compatible. In addition to software issues, certain of the computer hardware of
the Company and its subsidiaries have been replaced with more current
technology.
As of June 30, 2000, the Company has not experienced any disruptions or
failures to its normal operations as a result of the transition into calendar
year 2000.
PROPOSAL 1 - RATIFICATION OF THE ISSUANCE OF SHARES OF COMMON STOCK
The Board of Directors of the Company recommends that the shareholders
ratify the issuance of 244,897 shares of the Company's unregistered restricted
common stock, $0.001 par value ("Newly Issued Shares"). Such shares are listed
for trading on The Nasdaq SmallCap Market, except that the shares are restricted
and therefore not freely tradable thereon. The Newly Issued Shares were issued
in connection with the following transaction:
The Board of Directors of the Company, at a special meeting held on
June 30, 2000, voted to approve the acquisition of an 80% equity interest in
Silver Moon Technologies Limited ("Silver Moon"), a British Virgin Islands
corporation, for total consideration of U.S.$1,500,000 (the "Purchase
Consideration"). The principal business of Silver Moon and its wholly-owned
subsidiary, Sky Creation Technology Limited, a Hong Kong company, is the
provision of online Internet healthcare content, through its website,
medi-china.com, which offers health-related content in both English and Chinese,
with a focus on Chinese herbal medicine and therapies. The Company has satisfied
the Purchase Consideration by issuing to Silver Moon's former sole equity owner,
E-link Investment Limited ("E-link"), the Newly Issued Shares. The number of
shares issued was based upon a per share price of $6.125, which was the closing
bid price of the Company's common stock as quoted on The Nasdaq SmallCap Market
on June 29, 2000. Neither E-link nor Silver Moon is affiliated with any officer,
director or significant shareholder of the Company.
The issuance of the Newly Issued Shares to E-link will affect the
existing shareholders by diluting their shares in the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE ISSUANCE OF SHARES OF COMMON STOCK.
PROPOSAL 2 - AMENDMENT OF THE AMENDED AND RESTATED 1995 STOCK OPTION PLAN TO
MODIFY THE PRICING PROCEDURE FOR THE EXERCISE OF NONQUALIFIED STOCK
OPTIONS AND TO ELIMINATE THE REQUIREMENT OF SHAREHOLDER APPROVAL OF ANY
MODIFICATION OF THE PLAN THAT WOULD MATERIALLY
INCREASE THE BENEFITS ACCRUING TO PARTICIPANTS IN THE PLAN
Description of the Plan
The Company adopted the 1995 Stock Option Plan as of March 31, 1995. On
December 30, 1996, the shareholders of the Company adopted an amendment to the
Plan. The Plan allows the Board of Directors, or a committee thereof at the
Board's discretion, to grant stock options to officers, directors, key
employees, consultants and affiliates of the Company. Initially, 2,400,000
shares of Common Stock of the Company could be issued and sold pursuant to
options granted under the Plan. "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), may
be granted to employees, including officers, whether or not they are members of
the Board of Directors, and nonqualified stock options may be granted to any
such employee or officer and to directors, consultants, and affiliates who
perform substantial services for or on behalf of the Company or its
subsidiaries.
The Board of Directors, or a committee appointed by the Board (the
"Committee"), is vested with authority to (i) select persons to participate in
the Plan; (ii) determine the form and substance of grants made under the Plan to
each participant, and the conditions and restrictions, if any, subject to which
grants will be made; (iii) interpret the Plan; and (iv) adopt, amend, or rescind
such rules and regulations for carrying out the Plan as it may deem appropriate.
The Board of Directors has the power to modify or terminate the Plan and from
time to time may suspend, and if suspended may reinstate, any or all of the
provisions of the Plan except that (i) no modification, suspension, or
termination of the Plan may, without the consent of the grantee affected, alter
or impair any grant previously made under the Plan; and (ii) no modification
shall become effective without prior consent of the shareholders of the Company
that would (a) increase the maximum number of shares reserved for issuance under
the Plan, except for certain adjustments allowed by the Plan; (b) change the
classes of employees eligible to participate in the Plan; or (c) materially
increase the benefits accruing to participants in the Plan. The proposed
amendment would eliminate the requirement that the Board of Directors must
obtain the consent of the shareholders of the Company for any modification that
would materially increase the benefits accruing to participants in the Plan (see
below).
The Plan provides that the price per share deliverable upon the
exercise of each Incentive Stock Option shall not be less than 100% of the fair
market value of the shares on the date the option is granted, as the Committee
determines. In the case of the grant of any Incentive Stock Option to an
employee who, at the time of the grant, owns more than 10% of the total combined
voting power of all classes of stock of the Company or any of its subsidiaries,
such price per share, if required by the Code at the time of grant, shall not be
less than 110% of the fair market value of the shares on the date the option is
granted. The price per share deliverable upon the exercise of each nonqualified
stock option shall not be less than the higher of (i) the net tangible assets
per share of the Company as of the end of the fiscal year immediately preceding
the date of such granting; or (ii) 80% of the fair market value of the shares on
the date the option is granted, as the Committee determines. The proposed
amendment would eliminate the "net tangible assets" threshold described in item
(i) in the preceding sentence (see below).
Options may be exercised in whole or in part upon payment of the
exercise price of the shares to be acquired. Payment shall be made in cash or,
in the discretion of the Committee, in shares previously
acquired by the participant or in a combination of cash and shares of Common
Stock. The fair market value of shares of Common Stock tendered on exercise of
options shall be determined on the date of exercise.
As of July 1, 1995, pursuant to the recommendation of a committee of
disinterested persons appointed by the board of directors in accordance with the
terms of the Plan, the board of directors granted options to the following
officers and directors to purchase shares of the Company's Common Stock:
Yiu Yat Hung (former director) 6,000 sharesChief Executive Officer
Tam Cheuk Ho 6,000 shares
Han Jian Zhun (former director) 6,000 shares41 Director and Chief Financial Officer
Wong Wah On 6,000 shares
Li Fei Lie 100,000 shares
In addition, the board40 Director, Secretary and Financial Controller
Lam Kwan Sing 34 Director
Ng Kin Sing 41 Director
Lo Kin Cheung 39 Director
Mr. Ching Lung Po has served as a director of directors granted options to the following employees
and consultant to purchase sharesChina Resources since
February 4, 1998. He was appointed Chairman of the Company's Common Stock:
Brender Services Limited 100,000 shares
Cheung Yu Shum 500,000 shares
Tse Chi Kai 300,000 shares
Ma Sin Ling 500,000 shares
Cheung Siu Yin 10,000 shares
Woo Pui Yan 10,000 shares
Kwok Kwan Hung 386,000 shares
Fu Yang Guang 200,000 shares
Lin Jia Ping 270,000 shares
All of the stock options were issued in accordance with the terms of the Plan at
an exercise price of US$3.78 (the fair market value of the Common Stock as of
July 1, 1995) and would have been exercisable beginning on July 1, 1996, and
until July 1, 2005.
As of May 20, 1996, the board of directors, in accordance with the
recommendation, with respect to stock options granted to directors and officers,
of a committee of disinterested persons appointed by the board of directors in
accordance with the terms of the Plan, reduced the exercise prices of all of the
outstanding options to US$0.42 (the fair market value of the Common Stock as of
May 20, 1996). By virtue of this action, the outstanding options are now
exercisable beginning on May 20, 1997, and until May 20, 2006.
On December 30, 1996, the shareholders of the Company adopted an
amendment to the Plan (a) to change the number of shares of Common Stock subject
to the Plan to that number of shares which would, in the aggregate and if deemed
outstanding, constitute 20% of the Company's then-outstanding shares of Common
Stock, as determined at the time of granting stock options, and (b) to allow
Nonqualified Stock Options, as defined in the Plan, to be exercisable in less
than one year (no currently outstanding options were changed by such amendment).
By virtue of the one-for-ten reverse stock split approved by the shareholders on
December 30, 1996, and made effective by the board of directors on December 31,
1996, the number of shares subject to each outstanding option was reduced by a
factor of ten,January
25, 1999, Chief Executive Officer and the exercise price for the outstanding options was increased
to US$4.20 per share (the fair market valuePresident of the Common Stock as of May 20,
1996, multiplied by ten). Other terms of the outstanding options were not
affected. Also, by virtue of the one-for-ten reverse stock split approved by the
shareholdersCompany on May 28,February 1,
1999 and made effective byJune 1, 1999, respectively. Mr. Ching has also been the Chairman of the
board of directors on
June 11, 1999,and President of OVM International Holding Corp. (Pink
Sheets: OVMI.pk) since September 1996. Mr. Ching has been involved for more than
20 years in the numbermanagement of shares subjectproduction and technology for industrial
enterprises in PRC. He worked in Heilongjiang Suihua Electronic Factory as an
engineer from 1969 to each outstanding option1976 and was further reduced by a factor of ten, and the exercise price for the outstanding
options was increased to US$42.0 per share (the fair market valueHead of the Common
Stock as of May 20, 1996, multiplied by 100). Other terms ofHeilongjiang Suihua
Industrial Science & Technology Research Institute from 1975 to 1976. Mr. Ching
joined the outstanding
options were not affected,Heilongjiang Qingan Factory in 1976 and has been the following stock options, which have been
granted with respect to 24,000 shares of Common Stock, remain outstanding:
Yiu Yat Hung (former director) 60 shares
Tam Cheuk Ho 60 shares
Han Jian Zhun (former director) 60 shares
Wong Wah On 60 shares
Li Fei Lie 1,000 shares
Brender Services Limited 1,000 shares
Cheung Yu Shum 5,000 shares
Tse Chi Kai 3,000 shares
Ma Sin Ling 5,000 shares
Cheung Siu Yin 100 shares
Woo Pui Yan 1000 shares
Kwok Kwan Hung 3,860 shares
Fu Yang Guang 2,000 shares
Lin Jia Ping 2,700 shares
For more information concerning the terms of the PlanGeneral Manager
since 1976. In 1988, Mr. Ching started his own business and the stock
options currently outstanding pursuant thereto, please see "Stock Options" under
Item 12 of the Company's Form 10-K annual report for the fiscal year ended
December 31, 1999, a copy of which is provided herewith and incorporated herein
by reference. A copy of the Plan is attached hereto as Addendix A.
Market Value of the Shares Underlying Options
As of September 14, 2000, the market value of the shares of Common
Stock underlying the options is $6.25 per share based on the closing bid
quotation on such date of the Common Stock as reported by The Nasdaq SmallCap
Market.
U.S. Federal Income Tax Consequences
The following is a brief summary of the general U.S. Federal income tax
consequences to participants and the Company of participation in the Plan. This
summary is not intended to be exhaustive and does not describe foreign, state or
local tax consequences, nor does it describe consequences based on particular
circumstances. For these reasons, each participant should consult with a tax
advisor as to specific questions relating to tax consequences of participation
in the Plan.
Incentive Stock Options. The following general rules are applicable to
holders of Incentive Stock Options ("ISOs") and to the Company for U.S. Federal
income tax purposes under existing law:
1. In general, no taxable income results to the optionee upon
the grant of an ISO or upon the issuance of shares to him upon the exercise of
the ISO, and no tax deduction is allowed to the Company upon either grant or
exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed
of within (i) two years following the date the option was granted or (ii) one
year following the date the shares are transferred to the optionee pursuant to
the ISO exercise, the difference between the amount realized on any subsequent
disposition of the shares and the exercise price will be generally treated as
capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of
before the expiration of one or both of the requisite holding periods (a
"Disqualifying Disposition"), then in most cases the lesser of (i) any excess of
the fair market value of the shares at the time of exercise of the ISO over the
exercise price or (ii) the actual gain on disposition will be treated as
compensation to the optionee and will be taxed as ordinary income in the year of
such disposition.
4. In any year that an optionee recognizes compensation income
on a Disqualifying Disposition of stock acquired by exercising an ISO, the
Company generally will be entitled to a
corresponding deduction for income tax purposes in an amount equal to the amount
of ordinary income recognized, if any, by the optionee.
5. Any excess of the amount realized by the optionee as the
result of a Disqualifying Disposition over the sum of (i) the exercise price and
(ii) the amount of ordinary income recognized under the above rules will be
treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares
will be long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year.
7. In addition to the tax consequences described above, the
exercise of ISOs may result in a further "minimum tax" under the Code. The Code
provides that an "alternative minimum tax" will be applied against a taxable
base which is equal to "alternative minimum taxable income," reduced by a
statutory exemption. In general, the amount by which the value of the Common
Stock received upon exercise of the ISO exceeds the exercise price is included
in the optionee's alternative minimum taxable income. A taxpayer is required to
pay the higher of his regular tax liability or the alternative minimum tax. A
taxpayer who pays alternative minimum tax attributable to the exercise of an ISO
may be entitled to a tax credit against his regular tax liability in later
years.
Nonqualified Stock Options. The following general rules are applicable
to holders of Nonqualified Stock Options ("NQSOs") and to the Company for U.S.
Federal income tax purposes under existing law:
1. The optionee generally does not realize any taxable income
upon the grant of an option, and the Company is not allowed a business expense
deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation
income at the time of exercise of the option in an amount equal to the excess,
if any, of the fair market value of the shares on the date of exercise over the
exercise price.
3. When the optionee sells the shares, he generally will
recognize a capital gain or loss in an amount equal to the difference between
the amount realized upon the sale of the shares and his basis in the shares
(generally, the exercise price plus the amount taxed to the optionee as
compensation income). If the optionee's holding period for the shares exceeds
one year, such gain or loss will be a long-term capital gain or loss.
4. The Company will generally be entitled to a tax deduction
in the year in which, and in an amount equal to, ordinary compensation income is
recognized by the optionee.
Special Rules for Restricted Stock. Officers, directors and 10%
shareholders of the Company may in some instances acquire Common Stock subject
to special rules under Section 83 of the Code because of certain U.S. securities
laws restrictions on resale ("Restricted Stock"). If an optionee acquires
Restricted Stock, the amount included in compensation income (in the case of a
NQSO, or of an ISO if a Disqualifying Disposition of such stock is made) or in
alternative minimum taxable income (in the case of an ISO) generally will be
determined as of some later date, not more than six months after exercise, and
will equal the difference between the amount paid for the Restricted Stock and
its fair market value at that time, unless the optionee files a timely election
under Section 83(b) of the Code electing to determine the amount of income at
the time of exercise.
ERISA. The Plan is not an employee benefit plan which is subject to the
provisions of the U.S. Employee Retirement Income Security Act of 1974, as
amended, and the provisions of 401(a) of the Code are not applicable to the
Plan.
Proposed Amendments to the Plan
The Board of Directors of the Company recommends that the shareholders
adopt an amendment to the Amended and Restated 1995 Stock Option Plan to modify
the pricing procedure for the exercise of nonqualified stock options and to
eliminate the requirement of shareholder approval of any modification of the
Plan that would materially increase the benefits accruing to participants in the
Plan. If the proposed amendment is adopted, Sections 6(a) of the Plan will be
amended as follows (bracketed text indicates deletions):
(a) Price. The price per share deliverable upon the exercise
of each Incentive Stock Option shall not be less than 100% of
the Fair Market Value of the shares on the date the option is
granted, as the Committee determines. In the case of the grant
of any Incentive Stock Option to an employee who, at the time
of the grant, owns more than 10% of the total combined voting
power of all classes of stock of the Company or any of its
subsidiaries, such price per share, if required by the Code at
the time of grant, shall not be less than 110% of the Fair
Market Value of the shares on the date the option is granted.
The price per share deliverable upon the exercise of each
Nonqualified Stock Option shall not be less than [the higher
of (i) the net tangible assets per share of the Company as of
the end of the fiscal year immediately preceding the date of
such grant, or ii] 80% of the Fair Market Value of the shares
on the date the option is granted, as the Committee
determines.
Also, if the proposed amendment is adopted, Section 13 of the Plan will be
amended as follows (bracketed text indicates deletions):
13. Termination and Modification of the Plan.
----------------------------------------
The Board of Directors, without further approval of the
shareholders, may modify or terminate the Plan and from time
to time may suspend, and if suspended, may reinstate any or
all of the provisions of the Plan, except that (i) no
modification, suspension or termination of the Plan may,
without the consent of the grantee affected, alter or impair
any grant previously made under the Plan, and (ii) no
modification shall become effective without prior approval of
the stockholders of the Company that would (a) increase
(except as provided in Section 12) the maximum number of
shares reserved for issuance under the Plan; or (b) change the
classes of employees eligible to be participants[; or (iii)
materially increase the benefits accruing to participants in
the Plan].
With the consent of the grantee affected thereby, the
Committee may amend or modify the grant of any outstanding
option in any manner to the extent that the Committee would
have had the authority to make such grant as so modified or
amended, including without limitation to change the date or
dates as of which an option becomes exercisable. The Committee
shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan
that may be dictated by requirements of Federal or state laws
applicable to the Company or that may be authorized or made
desirable by such laws.
The Board of Directors believes that the adoption of this amendment to
the Plan is in the best interest of the Company and the shareholders. The
amendment will allow the Committee greater flexibility in setting the price of
nonqualified stock options. Also, the elimination of the shareholder approval
requirement will allow the Board of Directors to modify the Plan in an
expeditious and efficient manner.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT TO THE AMENDED AND RESTATED 1995 STOCK OPTION PLAN TO
MODIFY THE PRICING PROCEDURE FOR THE EXERCISE OF NONQUALIFIED STOCK OPTIONS AND
TO ELIMINATE THE REQUIREMENT OF SHAREHOLDER APPROVAL OF ANY MODIFICATION OF THE
PLAN THAT WOULD MATERIALLY INCREASE THE BENEFITS ACCRUING TO PARTICIPANTS IN THE
PLAN.
PROPOSAL 3 - ELECTION OF DIRECTORS
Since the 1999 annual meeting, the Company's Board of Directors was
comprised of seven directors, and, according to Article VIII of the Company's
Articles of Incorporation, the membership of the Board may be increased to no
more than 25 directors or decreased to no fewer than three directors by action
of the Board of Directors. At the 1996 annual meeting, the shareholders approved
an amendment to the Articles of Incorporation to divide the directors into three
classes. One class of directors is to be elected each year for a three-year
term. However, as three classes of directors were newly established the
Class I
directors were elected atShenzhen Hongda Science & Technology Company Limited in Shenzhen, which
manufactures electronic products. Mr. Ching graduated from the 1996 annual meeting for one-year terms,Harbin Military
and Engineering Institute and holds the Class
II directors were elected for two-year terms and the Class III directors were
elected for normal three-year terms. At the annual meeting held in 1997, Messrs.
Tam Cheuk Ho and Wong Wah On were elected to serve in Class I until the annual
meeting to be held in 2000 and until their successors have been duly elected and
qualified. Therefore, in accordance with the Articlestitle of Incorporation and the
actions taken at the 1996 annual meeting, the election of directors in Class I
is to be conducted at the 2000 Annual Meeting.
The nominees for Class I, if elected, will serve a three-year term
until the annual meeting to be held in 2003 and until their successors have duly
elected and qualified. Messrs. Tam Cheuk Ho and Wong Wah On are currently
serving as directors of the Company. Both nominees have consented to being named
herein and have indicated their intention to serve as directors of the Company,
if elected. Unless authority to do so is withheld, the persons named as proxies
will vote the shares represented by such proxies for the election of the
nominees. In case any of the nominees shall become unavailable for election to
the Board of Directors, which is not anticipated, the persons named as proxies
shall have full discretion and authority to vote or refrain from voting for any
other nominees in accordance with their judgment. Vacancies on the Board of
Directors may be filled by the remaining director or directors, even though less
than a quorum, for the unexpired term of such vacant position.
The nominees and certain information about them are set forth below:
Class I Directors:Senior Engineer.
Mr. Tam Cheuk Ho has been a director and the Chief Financial Officer of
the CompanyChina Resources since December 2, 1994. Prior to joining the Company,us, from July 1984
through January 1992, he worked as an audit managerAudit Manager at Ernst & Young, Hong Kong,
and from February 1992 through September 1992, as Financial Controller at Tack
Hsin Holdings Limited, a listed company in Hong Kong, where he was responsible
for accounting and financial functions. From October 1992, through December
1994, Mr. Tam was Finance Director of Hong Wah (Holdings) Limited. He is a
fellow of both the Hong Kong Society of Accountants and the Chartered
Association of Certified Accountants. He is also a certified public accountant
in Hong Kong. He holds a bachelor'sBachelor's degree in Business Administration from the
Chinese University of Hong Kong. Mr. Tam is also a director of Anka Capital
Limited, a privately held corporation, through which he is one of our principal
stockholders.
Mr. Wong Wah On has been a director of the CompanyChina Resources since December
30, 1997. Mr. Wong is also theour Financial Controller and Secretary of the Company and
member of the supervisory committee of HARC.Secretary. He is
responsible for assisting theour Chief Financial Officer with the Company'sour treasury,
accounting and secretarial functions. From July 1988 through October 1992, he was an audit supervisor at
Ernst & Young, Hong Kong. From October 1992 through December 1994,
Mr. Wong was the Deputy Finance Director of Hong Wah (Holdings) Limited. From
July 1988 through October 1992, he was an audit supervisor at Ernst & Young,
Hong Kong. Mr. Wong is also a director of Anka Capital Limited, a privately held
5
corporation, through which he is one of our principal stockholders. He received
a professional diploma in Company Secretaryship and Administration from the Hong
Kong Polytechnic University andUniversity. He is a fellow of both the Chartered Association of
Certified Accountants and the Hong Kong Society of Accountants, and an associate
of the Institute of Chartered Secretaries and Administrators. He is also a
certified public accountant in Hong Kong.
Information Regarding BoardMr. Lam Kwan Sing has been a director of DirectorsChina Resources since March
20, 2003, and Committees
The Company's Boardalso serves as a member of Directors held eight (8) meetings duringour audit committee. From 2002 to
present, Mr. Lam has been the executive director of Pacific Challenge Holdings
Limited, a Hong Kong listed company, where he is responsible for the overall
corporate finance and accounting operations. From 2000 to 2002, Mr. Lam was the
business development manager of China Development Corporation Limited, a Hong
Kong listed company. From 1997 to 2000, he was the business development manager
of Chung Hwa Development Holdings Limited, a Hong Kong listed company. From 1995
to 1997, Mr. Lam was the assistant manager (Intermediaries supervision) of Hong
Kong Securities and Futures Commission. Mr. Lam holds a Bachelor's degree in
Accountancy from the City University of Hong Kong.
Mr. Ng Kin Sing has been a director of China Resources since February
1, 1999, and all other actionsalso serves as a member of our audit committee. From April 1998 to
the Board were taken pursuantpresent, Mr. Ng has been the managing director of Action Plan Limited, a
securities investment company. From November 1995 until March 1998, Mr. Ng was
sales and dealing director for NatWest Markets (Asia) Limited; and from May 1985
until October 1996, he was the dealing director of BZW Asia Limited, an
international securities brokerage house. Mr. Ng holds a Bachelor's degree in
Business Administration from the Chinese University of Hong Kong.
Mr. Lo Kin Cheung has been a director of China Resources since May 30,
2000, and also serves as a member of our audit committee. From September 2001 to
unanimous written
consents. The Boardpresent, Mr. Lo has been the chief financial officer of Directors does not haveLee Fung - Asco Printers
Holdings Limited, a compensation or nominating
committee. The Board has established an audit committee consistingHong Kong listed company, where he is responsible for the
overall corporate financial operations. From March 1998 to August 2001, Mr. Lo
was the executive director of three
"independent" directors, Ng Kin Sing,Wiltec Holdings Limited, a Hong Kong listed
company, where he was responsible for corporate development and day-to-day
operations. From July 1986 until March 1998, Mr. Lo was the principal at Ernst &
Young, Hong Kong. He is a fellow of both the Hong Kong Society of Accountants
and the Chartered Association of Certified Accountants. He holds a Bachelor's
degree of Science from the University of Hong Kong.
At our annual meeting of stockholders held on November 12, 2002,
Messrs. Wan Ying Lin and Lo Kin Cheung. The BoardCheung were elected to serve as a whole operates as a committeeClass III
directors until the annual meeting to nominate directorsbe held in 2005 and to administer the
Company's Amendeduntil their successors
have been duly elected and Restated 1995 Stock Option Plan (except that a committee
of three disinterested persons was formed to act with respect to stock options
issued to directors). Each director other than Li Shunxingqualified. Messrs. Ching Lung Po and Ng Kin Sing
attended allserve as Class II directors until the annual meeting to be held in 2004 and
until their successors have been duly elected and qualified. Messrs. Tam Cheuk
Ho and Wong Wah On, who have been nominated for reelection at the Annual Meeting
that is the subject of this proxy statement, currently serve as Class I
directors. Mr. Wan Ying Lin resigned as a director effective March 1, 2003, and
on March 20, 2003, Mr. Lam Kwan Sing was appointed to fill the vacancy created
by the resignation of Mr. Wan.
Our officers are elected annually at the first board of directors
meeting following the annual meeting of stockholders, and hold office until
their respective successors are duly elected and qualified, unless sooner
displaced.
6
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
- --------
Article VIII of our Articles of Incorporation permits the board of
directors to fix the number of directors at not less than three nor more than
25. At the annual meeting of stockholders held in 1996, an amendment to the
Articles of Incorporation was approved, dividing the directors into three
classes. Pursuant to the amendment, one class of directors is elected each year,
to serve a three-year term.
Two Class I directors will be elected at the Annual Meeting. The
nominees for Class I directors, if elected, will serve until the annual meeting
of stockholders to be held in 2006 and until his successor is duly elected and
qualified. Tam Cheuk Ho and Wong Wah On are the Class I director nominees, each
of whom currently serves as a Class I director.
Both nominees have consented to being named herein and have indicated
their intention to serve as Class I directors, if elected. Unless authority to
do so is withheld, the persons named as proxies will vote the shares represented
by such proxies for the election of the meetingsnamed nominees. In case any of the
nominees become unavailable for election to the board of directors, which is not
anticipated, the persons named as proxies shall have full discretion and
authority to vote or refrain from voting for any other nominees in accordance
with their judgment. Vacancies on the board may be filled by the remaining
director or directors, even though less than a quorum, for the unexpired term of
such vacant position.
The following persons have been nominated for election to our board of
directors:
Served as a
Name Age Positions Director Since
---- --- --------- --------------
Tam Cheuk Ho 41 Director December 1994
Wong Wah On 40 Director December 1997
Information Concerning the Board of Directors
- ---------------------------------------------
During the year ended December 31, 2002, our board of directors held
four meetings. Each member of the board participated in each meeting of the
board.
Committees of the Board of Directors
during the period for- ------------------------------------
Our audit committee, which he was a director. During 1999, Li Shunxing did not attend sixcurrently consists of the
meetings and Ng Kin Sing, did not attend oneLam Kwan
Sing and Lo Kin Cheung, reviews the professional services provided by our
independent auditors, the independence of our auditors from our management, our
annual financial statements and our system of internal accounting controls. The
audit committee also reviews other matters with respect to our accounting,
auditing and financial reporting practices and procedures as it may find
appropriate or may be brought to its attention.
7
Our board of directors has adopted a written audit committee charter, a
copy of which is attached to this proxy statement as Appendix A. Each member of
our audit committee is an "independent director" within the meaning of Rule
4200(a)(14) of the meetings.National Association of Securities Dealers, Inc. Marketplace
Rules. The Boardaudit committee met on four occasions during the year ended December
31, 2002.
We do not have a formal compensation committee. The board of Directors,directors,
acting as a compensation committee, periodically meets to discuss and deliberate
on issues surrounding the terms and conditions of executive officer
compensation, including base salaries, bonuses, awards of stock options and
reimbursement of certain business related costs and expenses.
We do not have a formal nominating committee. The board of directors,
acting as a nominating committee, recommends candidates who will be nominated as
management's slate of directors at each annual meeting of stockholders. The
board of directors will also consider candidates for directors nominated by
shareholders.stockholders. A shareholderstockholder who wishes to submit a candidate for consideration
at the 2001 annual meeting of stockholders to be held in 2004 must notify theour
Corporate Secretary, of the Company in writing, no later than March 1, 2001.June 30, 2004. The
shareholder's written notice
must include information about each proposed nominee, including name, age,
business address, principal occupation, shares beneficially owned and other
information required to be included in proxy solicitations. The nomination
notice must also include the nominating shareholder'sstockholder's name and address, and the
number of shares of stock beneficially owned by the shareholder.
The shareholder must also furnishand a statement that such stockholder
intends to nominate his candidate. A statement from the candidate must also be
furnished, indicating that
the candidate wishescandidate's desire and is ableability to serve as a director.
TheseAdherence to these procedures andis a statement that the shareholder intends to make the nomination, are prerequisitesprerequisite to a stockholder nominatingstockholder's right to
nominate a candidate for director at the annual meeting.
CompensationAudit Committee Report
- ----------------------
The following statement made by our audit committee, shall not be
deemed incorporated by reference into any filing under the Securities Act of
Directors
During 1999, directors1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and shall not otherwise be deemed filed under
either of those Acts.
Our audit committee reviews our financial reporting process on behalf
of the Company did not receive compensationboard of directors. Management has the primary responsibility for the
financial statements and the reporting process including the system of internal
controls.
Management represented to the committee that our consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the committee has reviewed and discussed the consolidated
financial statements with management and the independent auditors. The committee
discussed with the independent auditors matters required to be discussed by
auditing standards generally accepted in the United States.
In addition, the committee has discussed with the independent auditors
the auditor's independence from China Resources and our management, and has
received the written disclosures and letter required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
The audit committee has also discussed with the independent auditors the matters
required to be discussed by SAS 61.
The committee also discussed with our independent auditors the overall
scope and plans for their service as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES DESCRIBED ABOVE.
PROPOSAL 4 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subjectrespective audit. The committee meets with the
independent auditors with and without management present, to ratificationdiscuss the results
of their examinations, the evaluations of our internal controls, and the overall
quality of our financial reporting.
8
In reliance on the reviews and discussions referred to above, the
committee recommended to the board of directors, and the board has approved,
that our audited consolidated financial statements be included in our Annual
Report on Form 10-KSB for the year ended December 31, 2002, for filing with the
Securities and Exchange Commission.
Submitted by the shareholders,Audit Committee
of the Board of Directors:
/s/ Ng Kin Sing
/s/ Lam Kwan Sing
/s/ Lo Kin Cheung
Report of the Board of Directors has
reappointed Ernst & Young, Certified Public Accountants,on Executive Compensation
- ----------------------------------------------------------
The following statement made by the board of directors, sitting as independent
accountantsa
compensation committee, shall not be deemed incorporated by reference into any
filing under the Securities Act or the Exchange Act, and shall not otherwise be
deemed filed under either of those Acts.
We do not have a formal compensation committee. The board of directors,
acting as a compensation committee, periodically meets to auditdiscuss and deliberate
on issues surrounding the consolidated financial statementsterms and conditions of executive officer
compensation, including base salaries, bonuses, awards of stock options and
reimbursement of certain business related costs and expenses.
In determining the compensation of our executive officers, the board of
directors takes into account all factors which it considers relevant, including
business conditions, in general, and in our line of business during the year in
light of such conditions, the market compensation for executives of similar
background and experience, our performance, in general, and the performance of
the Companyspecific executive officer under consideration, including the business area
for which such executive officer is responsible. In light of these factors, the
board of directors determined that the payment of discretionary bonuses to
executive officers was not appropriate for the fiscal year 2000. Ernst & Young has served asended December 31,
2002.
The board of directors also believes that granting equity-based awards
provides an additional incentive to our executive officers to continue in
providing their services and provides an interest aligned with stockholders in
our success. In the Company's Independent Accountants
since Marchfuture, the board of 1995.
If the shareholders should faildirectors intends to ratify the appointmentmake use of
Ernst &
Young as its independent accountants,equity-based compensation, along with other traditional salary and bonus
components of executive compensation packages, to provide incentives to attract
and maintain qualified executive officers.
Submitted by the Board of Directors,
would reconsiderSitting as a Compensation Committee:
/s/ Ching Lung Po
/s/ Tam Cheuk Ho
/s/ Wong Wah On
/s/ Lam Kwan Sing
/s/ Ng Kin Sing
/s/ Lo Kin Cheung
9
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The current board of directors includes Ching Lung Po, Tam Cheuk Ho and
Wong Wah On, each of whom also serves as an executive officer. As a result,
these directors discuss and participate in deliberations of the appointment. Itboard of
directors on matters relating to the terms of executive compensation. In this
regard, a director whose executive compensation is expected that representativesvoted upon by the board of
Ernst & Young will be
present atdirectors must abstain from such vote.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Based solely upon a review of Forms 3, 4, and 5, and amendments
thereto, and reports, furnished to us for the Annual Meeting, will have an opportunityfiscal year ended December 31,
2002, none of our directors, officers, or stockholders beneficially owning more
than 10% of any class of our equity securities failed to make a statement if
they desire to do so and will be available to answer appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
OTHER INFORMATION
For other information regarding the Company, including Executive
Compensation, Financial and Other Information, Management's Discussion and
Analysis of Financial Condition and Results of Operations, Certain Relationships
and Related Transactions and Compliance withfile any forms required
by Section 16(a) of the Securities Exchange Act of 1934 as amended, please seeduring the appropriate Itemsmost recent
fiscal year.
10
EXECUTIVE COMPENSATION
----------------------
Summary Compensation Table
- --------------------------
The following table shows, for each of the Company's Form 10-Kthree years ended December
31, 2002, the cash and other compensation paid by us to our President and Chief
Executive Officer, and each other executive officer whose annual report forcompensation
was $100,000 or more.
Long-Term
Annual Compensation Compensation
------------------- ------------
Other Securities All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
(US$) (US$) (US$) (US$)
- ----------------------------------------------------------------------------------------------------------------
Ching Lung Po, President 2002 133,333 -0- -0- -0- -0-
and Chief Executive Officer 2001 276,923 -0- -0- 40,000 -0-
2000 276,923 -0- -0- -0- -0-
Tam Cheuk Ho, Chief 2002 230,769 -0- -0- -0- -0-
Financial Officer 2001 230,769 -0- -0- 40,000 -0-
2000 230,769 -0- -0- -0- -0-
Wong Wah On, Secretary 2003 153,846 -0- -0- -0- -0-
and Financial Controller 2002 153,846 -0- -0- 40,000 -0-
2001 153,846 -0- -0- -0- -0-
Option/SAR Grants Table
The following table sets forth information with respect to the grant of
options to purchase shares of common stock during the fiscal year ended December
31, 1999, a
copy of which is provided herewith and incorporated herein by this reference.
This proxy statement and the Form 10-K provided herewith may contain
forward-looking statements. Shareholders are cautioned that any such
forward-looking statement is not a guarantee of future performance and involves
risks and uncertainties, and that actual results may differ materially from
those in this proxy statement and the Form 10-K as a result of various factors.
The information contained in this proxy statement and the Form 10-K, including
without limitation the information under the heading, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," identifies
important factors that could cause such differences. With respect2002 to any such
forward-looking statement that includes a statement of its underlying
assumptions or bases, the Company cautions that, while it believes such
assumptions or bases to be reasonable and has formed them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material depending on
the circumstances. When, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
To be considered for inclusion in next year's proxy materials,
shareholder proposals to be presented at the Company's 2001 annual meeting must
be in writing and be received by the Company no later than March 1, 2001.
OTHER BUSINESS
The Board of Directors does not know of any business to be brought
before the Annual Meeting other than the matters described in the Notice of
Annual Meeting. However, if any other matter are properly presented for action,
it is the intention of each person named in the accompanying proxySummary Compensation Table.
Number % Of
Of Shares Total Options
Underlying Granted To Exercise Or
Options Employees In Base Price Expiration
Name Granted Fiscal Year $/Share Date
- ----------------------------------------------------------------------------------------------------------------
Ching Lung Po -- -- -- --
Tam Cheuk Ho -- -- -- --
Wong Wah On -- -- -- --
Aggregated Option Exercises and Fiscal Year-End Option Value Table
- ------------------------------------------------------------------
The following table sets forth information with respect to vote said
proxy in accordance with his judgment on such matters.
INCORPORATION BY REFERENCE
The Company's annual report on Form 10-K for the exercise
of options to purchase shares of common stock during the fiscal year ended
December 31, 1999, is herein incorporated2002 by reference.each person named in the Summary Compensation Table.
Number of Shares Values of Unexercised
Shares ($) Underlying Unexercised In the Money Options
Acquired on Value Options At Year End at Year End (1)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------------------
Ching Lung Po -- -- 40,000/40,000 (2) -0- / -0-
Tam Cheuk Ho -- -- 40,000/40,000 (2) -0- / -0-
Wong Wah On -- -- 40,000/40,000 (2) -0- / -0-
11
ADDENDIX A
CHINA RESOURCES DEVELOPMENT, INC.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
1. Purpose.
-------________________________
(1) Value based on the difference between the closing price of our common
stock on the OTC Bulletin Board of $1.50 per share on December 31,
2002, and the exercise price of the options.
(2) These options were exercised subsequent to December 31, 2002.
Securities Authorized for Issuance Under Equity Compensation Plans
- ------------------------------------------------------------------
The plan shall be knownfollowing table sets forth information relating to our outstanding
stock option plans as The China Resources Development, Inc.,of December 31, 2002:
Number of Securities
Number of Securities to Remaining Available for
Be Issued Upon Weighted-average Future Issuance Under
Exercise Of Outstanding Exercise Price of Equity Compensation
Options, Outstanding Options, Plan (excluding securities
Warrants and Rights Warrants and Rights reflected in column a)
- ------------------------------------------------------------------------------------------------------------------------
Equity Compensation
Plans Approved by
Security Holders 209,455 $2.95 46,455
Equity Compensation
Plans Not Approved by
Security Holders 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Total 209,455 $2.95 46,455
Stock Option Plan
- -----------------
We have adopted a Stock Option Plan (the "Plan""1995 Plan"). as of March 31,
1995. The purpose1995 Plan allows the board of directors, or a committee thereof at the
Plan shall beboard's discretion, to promote
the long-term growth and profitability of China Resources Development,
Inc. (the "Company"), and its subsidiaries by (i) providing certaingrant stock options to our officers, directors, key
employees, directors, consultants and affiliatesaffiliates. Initially, 24,000 shares of the
Companycommon stock
could be issued and its subsidiaries with incentivessold pursuant to improve stockholder
values and contribute to the success of the Company and (ii) enabling
the Company to attract, retain and reward the best available persons
for positions of substantial responsibility. Grants of incentive or
nonqualified stock options or any combination of the foregoing, may be
madegranted under the 1995 Plan.
2. Definitions.
-----------
(a)
"Incentive Stock Option" means an option conforming toOptions" within the requirementsmeaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) "Nonqualified Stock Option" means any stock option other than an
Incentive Stock Option.
(c) "Subsidiary" and "subsidiaries" mean a corporation, may be granted to employees,
including officers, whether or corporations
of which outstanding shares representing 50% or more of the combined
voting power of such corporation or corporationsnot they are owned directly or
indirectly by the Company.
(d) "Disability" means a permanent and total disability as defined in
Section 72(m)(7) of the Code.
(e) "Retirement" means termination of one's employment with the
approval of the Committee.
(f) "Cause" means the occurrence of one of the following:
(i) Conviction for a felony or for any crime or offense lesser
than a felony involving the property of the Company or a
subsidiary.
(ii) Conduct that has caused demonstrable and serious injury
to the Company or a subsidiary, monetary or otherwise, as
evidenced by a final determination of a court or governmental
agency of competent jurisdiction in effect after exhaustion or
lapse of all rights of appeal.
(iii) Gross dereliction of duty or other grave misconduct, as
determined by the Company.
(g) "Competition" is deemed to occur if a participant who has
terminated employment subsequently obtains a position as a full-time or
part-time employee, as a membermembers of the board of directors,
and nonqualified stock options may be granted to any such employee or as a
consultantofficer
and to directors, consultants, and affiliates who perform substantial services
for or advisor withon our behalf or to,for or acquires an ownership interest in
excesson behalf of five percent (5%)our subsidiaries.
The board of a corporation, partnership, firmdirectors, or
other entity that engages in any of the businesses of the Company or
any subsidiary with which the participant was involved in a
management role at any time during the last five years of his
employment with the Company or any subsidiary.
(h) "Change in Control" shall mean an event that would be required to
be reported in response to Item 1 of Form 8-K or any successor form
thereto promulgated under the Securities Exchange Act of 1934
("Exchange Act") if the Company were subject to such Act (or that is so
required if and when the Company is subject to such Act).
(i) "Fair Market Value" of a share of Common Stock of the Company shall
mean, with respect to the date in question, the average of the closing
bid and asked prices as quoted by the National Association of
Securities Dealers through its OTC Bulletin Board or its automated
quotation system ("NASDAQ"); or, if the Company's Common Stock is
listed or admitted to unlisted trading privileges on a national stock
exchange, either (x) the average of the highest and lowest
officially-quoted selling prices on such exchange or (y) the closing
sale price of such stock, as selected by the Committee; or if the
Company's Common Stock is not quoted by the NASD or NASDAQ, traded on
such an exchange, or otherwise traded publicly, the value determined,
in good faith, by the Committee.
3. Administration.
--------------
A. The Plan shall be administered by a the Board of Directors
or by a committee appointed by the Board of Directors
consisting of at least three of its members. No member of the
Committee, while a member, shall be eligibleboard (the
"Committee"), is vested with authority to participate in
the Plan. Subject to the provisions of the Plan, and subject
to ratification of the grant by the Board of Directors (if so
required by applicable state law), the Committee shall be
authorized to (i)(a) select persons to participate in
the Plan,
(ii)Plan; (b) determine the form and substance of grants made under the 1995
Plan to each participant, and the conditions and restrictions, if any, subject
12
to which such grants will be made, (iii)made; (c) interpret the PlanPlan; and (iv)(d) adopt, amend, or
rescind such rules and regulations for carrying out the 1995 Plan as it may deem
appropriate. DecisionsThe board of directors has the Committee on all matters
relatingpower to modify or terminate the
Plan shall be in the Committee's sole
discretion and shall be conclusive and binding on all parties,
including the Company, its stockholders, and the participants
in the Plan, unless otherwise determined by the Board of
Directors. The validity, construction, and effect of the1995 Plan and any rules and regulations relating to the Plan shall be
determined in accordance with applicable Federal and state
laws and rules and regulations promulgated pursuant thereto.
The Committee and shall keep full records and accounts of its
proceedings and transactions, and all such transactions shall
be reported to the Board of Directors. No member of the Board
of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan
or any stock option granted under it.
B. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as
it may determine. Acts by a majority of the Committee, or acts
reduced to and approved in writing by a majority of the
members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall
mean the Board of Directors if no Committee has been
appointed. Fromfrom time to time the Boardmay suspend, and if suspended may reinstate, any
or all of Directors may
increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and
thereafter administer the Plan.
C. Notwithstanding the provisions of paragraph 3.A., stock
options may be granted to members of the Board of Directors;
however, no stock option shall be granted to any person who
is, at the time of the proposed grant, a member of the Board
of Directors unless such grant has been approved by a majority
vote of the other members of the Board of Directors. All
grants of stock options to members of the Board shall in all
other
respects be made in accordance with the provisions of this
Plan applicable to other eligible persons. Member of the Board
of Directors who either (i) are eligible for stock options
pursuant to the Plan or (ii) have been granted stock options
may vote on any matters affecting the administration of the
Plan or the grant of any stock options pursuant to the1995 Plan except that no such member shall act upon the granting to
himself of stock options, but any such member may be counted
in determining the existence of a quorum at any meetingmodification,
suspension, or termination of the Board of Directors during which such action is taken with
respect to1995 Plan may, without the granting to him of stock options.
D. Notwithstanding any other provision of this paragraph 3, in
the event the Company registers any equity security pursuant
to Section 12consent of the
Securities Exchange Actgrantee affected, alter or impair any grant previously made under the 1995 Plan;
and no modification shall become effective without prior consent of 1934, as
amended (the "Exchange Act"), any grantsour
stockholders that would increase the maximum number of stock options to
directors made at any time fromshares reserved for
issuance under the effective date of such
registration until six months after the termination of such
registration shall be made only1995 Plan, except for certain adjustments allowed by the Board1995
Plan; or change the classes of Directors;
provided however, that if a majority of the Board of Directors
isemployees eligible to participate in the 1995
Plan.
The 1995 Plan or in any other stock
option or other stock plan ofprovides that the Company or any of its
affiliates, or has been so eligible at any time within the
preceding year, any grant of stock options to directors must
be made by, or in accordance with the recommendation of, a
committee consisting of three or more persons who may, but
need not be, directors or employees of the Company appointed
by the Board of Directors but having full authority to act in
the matter, none of whom is eligible to participate in this
Plan or any other stock option or other stock plan of the
Company or any of its affiliates, or has been eligible at any
time within the preceding year. The requirements imposed by
the preceding sentence shall also apply with respect to grants
to officers who are not also directors. Once appointed, the
committee shall continue to serve until otherwise directed by
the Board of Directors.
4. Shares Available for the Plan.
-----------------------------
Subject to adjustments as provided in Section 12, the number of shares
of Common Stock of the Company (hereinafter the "shares") which may be
issued pursuant to the Plan is that number of shares which would, in
the aggregate and if deemed outstanding, constitute 20% of the
Company's then-outstanding shares of Common Stock, as determined at the
time of granting stock options. Such shares may represent authorized
but unissued shares. If any grant under the Plan expires or terminates
unexercised, becomes unexercisable or is forfeited as to any shares,
such unpurchased or forfeited shares shall thereafter be available for
further grants under the Plan.
5. Participation.
-------------
Participation in the Plan shall be limited to those officers,
directors, key employees, consultants and affiliates of the Company and
its subsidiaries selected by the Committee. Nothing in the Plan or in
any grant thereunder shall confer any right on an employee to continue
in the employ of the Company or shall interfere in any way with the
right of the Company to terminate an employee at any time.
Incentive or nonqualified stock options, or any combination thereof,
may be granted to such persons and for such number of shares as the
Committee shall determine (such individuals to whom grants are made
being herein called "optionees"). A grant of any type made hereunder in
any one year to an eligible employee shall neither guarantee nor
preclude a further grant of that or any other type to such employee in
that year or subsequent years.
The maximum number of shares with respect to which incentive or
nonqualified options, or any combination thereof, may be granted to any
single individual in any one calendar year shall not exceed 500,000
shares.
6. Incentive and Nonqualified Options.
----------------------------------
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination
thereof. The options granted shall take such form as the Committee
shall determine, subject to the following terms and conditions.
(a) Price. The price per share deliverable upon the
exercise of each Incentive Stock Option shall not be less than 100% of the Fair Market
Valuefair
market value of the shares on the date the option is granted, as the Committee
determines. In the case of the grant of any Incentive Stock Option to an
employee who, at the time of the grant, owns more than 10% of the total combined
voting power of all classes of our stock or the stock of the Company or
any of itsour
subsidiaries, such price per share, if required by the Code at the time of
grant, shall not be less than 110% of the Fair Market
Valuefair market value of the shares on the
date the option is granted. The price per share deliverable upon the exercise of
each Nonqualified
Stock Optionnonqualified stock option shall not be less than the higher of (i) the net tangible
assets per share of the Company as of the end of the fiscal year
immediately preceding the date of such grant, or (ii) 80% of the Fair
Market Valuefair market
value of the shares on the date the option is granted, as the Committee
determines.
(b) Cash Exercise.
Options may be exercised in whole or in part upon payment of the
exercise price of the shares to be acquired. Payment shall be made in cash or,
in the discretion of the Committee, in shares previously acquired by the
participant or in a combination of cash and shares of Common Stock.common stock. The Fair Market Valuefair
market value of shares of Common Stockcommon stock tendered on exercise of options shall be
determined on the date of exercise.
On December 30, 1996, our stockholders adopted an amendment to the 1995
Plan (a) to change the number of shares of common stock subject to the 1995 Plan
to that number of shares which would, in the aggregate and if deemed
outstanding, constitute 20% of our then-outstanding shares of common stock, as
determined at the time of granting stock options, and (b) to allow Nonqualified
Stock Options, as defined in the 1995 Plan, to be exercisable in less than one
year.
As of December 31, 2002, options to purchase 163,000 shares had been
granted under the 1995 Plan. During the fiscal year ended December 31, 2002, no
options were granted under the 1995 Plan and no options were exercised.
Report on Repricing of Options
- ------------------------------
No options were repriced during the year ended December 31, 2002.
Director Compensation
- ---------------------
During the fiscal years ended December 31, 2002 and 2001, our directors
did not receive compensation for their services as such.
Employment and Consulting Agreements
- ------------------------------------
On February 1, 1999, we entered into a Service Agreement with Ching
Lung Po. In accordance with the Service Agreement, Mr. Ching is employed as our
Chief Executive Officer and to perform such duties as the board of directors
shall from time to time determine. Mr. Ching receives a base salary of
HK$2,160,000 (US$276,923) annually, which is adjusted on each anniversary of the
Service Agreement to reflect a change in the applicable consumer price index or
13
such greater amount as our board of directors may determine. The Service
Agreement has a term of two years and is automatically renewed unless earlier
terminated as provided therein. On June 1, 2003, we entered into a Supplemental
Service Agreement with Ching Lung Po, reducing his base salary to HK$240,000
(US$30,769) per annum, with all other terms of the Service Agreement remaining
in full force and effect.
On February 1, 1999, we entered into an Employment Agreement with Tam
Cheuk Ho. In accordance with the Employment Agreement, Mr. Tam is employed as
our Chief Financial Officer and to perform such duties as the board of directors
shall from time to time determine. Mr. Tam receives a base salary of
HK$1,800,000 (US$230,769) annually, which is adjusted on each anniversary of the
Employment Agreement to reflect a change in the applicable consumer price index
or such greater amount as our board of directors may determine. The Employment
Agreement has a term of two years and is automatically renewed unless earlier
terminated as provided therein.
On February 1, 1999, we entered into an Employment Agreement with Wong
Wah On. In accordance with the Employment Agreement, Mr. Wong is employed as our
Financial Controller and Corporate Secretary and to perform such duties as the
board of directors shall from time to time determine. Mr. Wong receives a base
salary of HK$1,200,000 (US$153,846) annually, which is adjusted on each
anniversary of the Employment Agreement to reflect a change in the applicable
consumer price index or such greater amount as our board of directors may
determine. The Employment Agreement has a term of two years and is automatically
renewed unless earlier terminated as provided therein.
Except for the foregoing, we have no employment contracts with any of
our officers or directors and we maintain no retirement, fringe benefit or
similar plans for the benefit of its officers or directors. We may, however,
enter into employment contracts with officers and key employees, adopt various
benefit plans and begin paying compensation to officers and directors as we deem
appropriate to attract and retain the services of such persons.
We do not pay fees to directors for their attendance at meetings of the
board of directors or of committees; however, we may adopt a policy of making
such payments in the future. We reimburse out-of-pocket expenses incurred by
directors in attending board and committee meetings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On January 31, 1994, the Farming Bureau, Guilinyang Farm, and Billion
Luck entered into a Contract On Investment For The Setting Up Of Hainan
Agricultural Resources Company Ltd. pursuant to which such parties agreed to
establish HARC as a limited liability joint stock company under the Rules for
Standardized Incorporated Companies in the PRC and the regulations of Hainan
Province. The agreement provided that HARC's total initial capitalization of
Rmb100 million (US$12 million) in assets and cash was to be contributed as
follows: the Farming Bureau (39%), Guilinyang Farm (5%) and Billion Luck (56%).
On July 15, 1994, the Farming Bureau and HARC entered into a Rental
Agreement for the rental of 532 square meters of a building located in Haikou
City, PRC, in which HARC's corporate headquarters are located. Such rental
agreement is for a period of 10 years at an annual rental of Rmb170,240
(US$20,560) payable in equal semi-annual installments. On July 1, 2001, pursuant
to mutual agreement, both parties agreed to terminate the rental agreement. For
each of the two years ended December 31, 2001 and 2002, HARC paid rental of
Rmb85,000 (US$10,266) and nil, respectively, to the Farming Bureau.
14
On September 1, 2000, China Resources and Anka Consultants Limited, a
private Hong Kong company that is owned by certain of our directors, entered
into an office sharing agreement, based upon which our head office in Hong Kong
is shared on an equal basis between the two parties. The lease was for a period
of 2 years from September 1, 2000 to August 31, 2002 and was renewed for another
two years from September 1, 2002. The office sharing agreement also provides
that China Resources and Anka shall share certain costs and expenses in
connection with its use of the office. For the years ended December 31, 2001 and
2002, we paid rental expenses to Anka Consultants Limited amounted to HK$288,000
(US$37,000) and HK$268,000 (US$34,000), respectively.
On April 30, 2001, Billion Luck, through its nominees, acquired 39%
minority equity interest in HARC from the Farming Bureau, for total
consideration of Rmb129,405,000 (US$15,629,000). Concurrent with the
acquisition, HARC entered into several agreements with the Farming Bureau to
dispose of certain assets, including 24,877,008 shares of Hainan Sundiro
Motorcycle Co. Ltd., for consideration of Rmb70 million (US$8,454,000), a 12.64%
equity interest in Xilian Mill for consideration of Rmb5 million (US$603,865)
and 58% interest in Hainan Weilin for consideration of Rmb3.8 million
(US$459,000).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION
OF THE DIRECTOR NOMINEES.
15
PROPOSAL 2
APPROVAL AND ADOPTION OF THE 2003 EQUITY COMPENSATION PLAN
At the Annual Meeting, stockholders will be requested to approve and
adopt our 2003 Equity Compensation Plan (the "2003 Plan"). In 1995, our board of
directors and stockholders adopted the 1995 Plan as a method of providing
incentives to continued performance by our officers, directors and employees.
Since adoption of the 1995 plan, we rewarded deserving participants through the
grant of options from time-to-time. The number of shares available for issuance
under the 1995 plan has now been depleted.
On October 9, 2003, the board of directors adopted the 2003 Equity
Compensation Plan (the "2003 Plan"). The 2003 Plan is more flexible than the
1995 Stock Option Plan by, among other things, enabling the board to grant
various incentive equity awards not limited to stock options. The board of
directors believes that it is in our best interests to approve and adopt the
2003 Plan and recommends a vote "FOR" the 2003 Plan. A description of the 2003
Plan follows and a complete copy of the 2003 Plan is attached as Appendix B to
this Proxy Statement. Stockholders are urged to review the entire 2003 Plan
prior to determining whether to vote for its approval.
We have reserved a number of shares of common stock equal to 20% of our
issued and outstanding common stock, from time-to-time, for issuance pursuant to
options granted ("Plan Options") or for restricted stock awarded ("Stock
Grants") under the 2003 Plan. Stock Appreciation Rights may be granted as a
means of allowing participants to pay the exercise price of Plan Options. Stock
Grants may be made upon such terms and conditions as the board or committee
designated by the board determines. Stock Grants may include deferred stock
awards under which receipt of Stock Grants is deferred, with vesting to occur
upon such terms and conditions as the board or committee determines.
The purpose of the 2003 Plan is to increase our employees', advisors',
consultants' and non-employee directors' proprietary interest in our company,
and to align more closely their interests with the interests of our
stockholders, as well as to enable us to attract and retain the services of
experienced and highly qualified employees and non-employee directors. The Plan
will be administered by our board of directors or a committee designated by the
board. The board or committee will determine, from time to time, those of our
officers, directors, employees and consultants to whom Stock Grants and Plan
Options will be granted, the terms and provisions of the respective Stock Grants
and Plan Options, the dates such Plan Options will become exercisable, the
number of shares subject to each Plan Option, the purchase price of such shares
and the form of payment of such purchase price. Plan Options and Stock Grants
will be awarded based upon the fair market value of our common stock at the time
of the award All questions relating to the administration of the 2003 Plan, and
the interpretation of the provisions thereof are to be resolved at the sole
discretion of the board or committee.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of common stock owned
by the eligible person and to receive a new Plan Option to purchase shares of
common stock equal in number to the tendered shares. Any Incentive Option
granted under the 2003 Plan must provide for an exercise price of not less than
100% of the fair market value of the underlying shares on the date of such
grant, but the exercise price of any Incentive Option granted to an eligible
employee owning more than 10% of our common stock must be at least 110% of such
fair market value as determined on the date of the grant.
16
The term of each Plan Option and the manner in which it may be
exercised is determined by our board or the committee, provided that no Plan
Option may be exercisable more than 10 years after the date of its grant and, in
the case of an Incentive Option granted to an eligible employee owning more than
10% of our common stock, no more than five years after the date of the grant. In
any case, the exercise price of any stock option granted under the Plan will not
be less than 85% of the fair market value of the common stock on the date of
grant. The exercise price of Non-Qualified Options shall be not less than 100%
of fair market value on the date of grant.
The per share purchase price of shares subject to Plan Options granted
under the 2003 Plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors and key employees of and consultants to us and our
subsidiaries will be eligible to receive Non-Qualified Options under the Plan.
Only our officers, directors and employees who are employed by us or by any of
our subsidiaries thereof are eligible to receive Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will
or by the laws of descent and distribution and, during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, the Plan Option granted may be exercised on the earlier of the expiration
date or 90 days following the date of termination. If the optionee dies during
the term of his employment, the Plan Option granted to him shall lapse to the
extent unexercised on the earlier of the expiration date of the Plan Option or
the date one year following the date of the optionee's death. If the optionee is
permanently and totally disabled, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability. The board or committee may impose
additional terms and conditions on the exercise or any Plan Options or Stock
Grants.
The board of directors may amend, suspend or terminate the 2003 Plan at
any time, except that no amendment shall be made which (a) increases the total
number of shares subject to the 2003 Plan or changes the minimum purchase price
therefore (except in either case in the event of adjustments due to changes in
our capitalization), (b) affects outstanding Plan Options or any exercise right
thereunder, (c) Cashless Exercise.extends the term of any Plan Option beyond ten years, or (d)
extends the termination date of the 2003 Plan.
Unless the Plan shall be earlier suspended or terminated by the board
or committee, the 2003 Plan shall continue until such time as no further awards
are available for grant and all outstanding awards are no longer outstanding;
provided, however, that no Incentive Stock Options may be exercisedmade after ten years
from the effective date of the 2003 Plan. No termination of the 2003 Plan shall
not affect the validity of any Plan Options or Stock Grants previously awarded
thereunder.
No Plan Options or Stock Grants have yet been granted or awarded. Under
rules established by Nasdaq, on which our shares are listed, establishment of
the 2003 Plan requires the affirmative approval of out stockholders at the
Annual Meeting. The 2003 will become effective upon receipt of stockholder
approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE
2003 EQUITY COMPENSATION PLAN.
17
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF HORWATH GELFOND HOCHSTADT
PANGBURN, P.C. AS INDEPENDENT AUDITORS OF THE COMPANY
The appointment of Horwath Gelfond Hochstadt Pangburn, P.C. as our
independent auditors for the fiscal year ending December 31, 2003 will be
submitted for ratification by our stockholders.
Fees to Horwath Gelfond Hochstadt Pangburn, P.C.
- ------------------------------------------------
The following table shows the fees that we paid or accrued for the
audit and other services provided by Horwath Gelfond Hochstadt Pangburn, P.C.
for the 2002 fiscal year and by Ernst & Young for the 2001 fiscal year.
Fiscal 2002 Fiscal 2001
----------- -----------
Audit Fees $49,940 $69,872
Audit-Related Fees -- --
Tax Fees 6,800 7,051
All Other Fees -- --
------- -------
Total $56,740 $76,923
======= =======
Audit Fees -- This category includes the audit of our annual financial
statements, review of financial statements included in our Form 10-QSB Quarterly
Reports and services that are normally provided by the independent auditors in
connection with engagements for those fiscal years. This category also includes
advice on audit and accounting matters that arose during, or as a result of, the
audit or the review of interim financial statements.
Audit-Related Fees -- This category consists of assurance and related
services by the independent auditors that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under "Audit Fees." The services for the fees disclosed under
this category include consultation regarding our correspondence with the SEC and
other accounting consulting.
Tax Fees -- This category consists of professional services rendered by
Horwath Gelfond Hochstadt Pangburn, P.C. for tax compliance and tax advice. The
services for the fees disclosed under this category include tax return
preparation and technical tax advice.
All Other Fees -- This category consists of fees for other
miscellaneous items.
Although the board of directors is submitting the appointment of
Horwath Gelfond Hochstadt Pangburn, P.C. for stockholder approval, it reserves
the right to change the selection of Horwath Gelfond Hochstadt Pangburn, P.C. as
auditors, at any time during the fiscal year, if it deems such change to be in
our best interests, even after stockholder approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF HORWATH GELFOND
HOCHSTADT PANGBURN, P.C. AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2003.
18
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented by such
stockholders at the annual meeting of stockholders to be held in 2004 must be
received by us no later than June 30, 2004, in order to have them included in
the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
Management is not aware of any other matters to be presented for action
at the Annual Meeting. However, if any other matter is properly presented, it is
the intention of the persons named in the enclosed form of proxy to vote in
accordance with their best judgment on such matters.
ADDITIONAL INFORMATION
Our Annual Report on Form 10-KSB (without exhibits), including audited
consolidated financial statements as at and for the years ended December 31,
2002 and 2001, and our Quarterly Report on Form 10-QSB, including unaudited
consolidated financial statements as at and for the three and nine months ended
September 30, 2003, accompany this proxy statement.
19
APPENDIX A
CHINA RESOURCES DEVELOPMENT, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee (the "committee") of
China Resources Development, Inc. (the "Company"). The committee shall review
and reassess the charter at least annually
Members of the committee shall be appointed by the board of directors and may be
replaced by the board of directors. The board of directors shall designate one
member of the committee as its chairperson.
MEMBERSHIP
The committee shall consist of at least three directors. Each member of the
committee shall meet the independence and experience requirements of (a) Section
10A(m)(3) or successor provision of the Securities Exchange Act of 1934 (the
"Exchange Act"), and all rules and regulations promulgated by the SEC and (b)
the rules, regulations and standards imposed by Nasdaq or other marketplace on
which the Company's securities may be listed, from time to time (the
"Independence Requirements").
Each member of the committee shall be financially literate, as determined by the
Company's board of directors in the exercise of its reasonable business
judgment, or must become financially literate within a reasonable period of time
after his or her appointment to the committee. In addition, at least one member
of the committee shall have 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. At least one
member of the committee shall be an "audit committee financial expert," within
the meaning of Item 401(e) of Regulation S-B or other rule of similar
applicability to which the Company is subject.
A-1
Notwithstanding the foregoing, (a) one director who does not meet the
Independence Requirements, who is not an employee of the Company or an immediate
family member of an employee, may be appointed to the committee, if the board of
directors, 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; provided that the board discloses in the
next annual proxy statement subsequent to such determination, the nature of the
relationship and the reasons for that determination, and (b) for so long as the
Company reports under Regulation S-B, the board of directors may provide that
the committee is to consist of not less than two members, a majority of whom
shall satisfy the Independence Requirements.
PROCEDURES
The committee shall meet quarterly, or as often as it otherwise determines.
Special meetings may be convened as the committee deems necessary or
appropriate. A majority of the members of the committee shall constitute a
quorum to transact business. Members of the committee may participate in a
committee meeting by means of telephone conference call or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Except in extraordinary circumstances as determined
by the Chairman of the committee, notice shall be delivered to all committee
members at least 48 hours in advance of the scheduled meeting. Minutes of each
meeting will be kept and distributed to the entire board.
The affirmative vote of a majority of the members of the committee present at
the time of a vote will be required to approve any action of the committee.
Subject to the requirements of any applicable law, rule or regulation, any
action required, or permitted to be taken, at a meeting of the committee may be
taken without a meeting if consent in writing, setting forth the action so
taken, is signed by all of the members of the committee. Such written consent
shall have the same force as a unanimous vote of the committee.
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STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility relating to the Company's financial
statements and the financial reporting process, the systems of internal
accounting and financial controls, the annual independent audit of the Company's
financial statements, and legal compliance and ethics programs as may be
established by management and the board. In so doing, it is the responsibility
of the committee to maintain free and open communication between the committee,
the independent auditors and management of the Company. In discharging its
oversight role, the committee is empowered to investigate any matter brought to
its attention with full access to all books, records, facilities, and personnel
of the Company and the power to retain outside counsel, or other experts for
this purpose.
RESPONSIBILITIES AND PROCESSES
The audit committee shall be directly responsible for the appointment,
compensation, oversight, termination and replacement of the Company's
independent auditor (subject, if applicable, to shareholder ratification), and
shall have the sole authority to approve all audit engagement fees and terms and
all non-audit engagements with the independent auditors. The committee may
consult with management, but, except as expressly provided herein, shall not
delegate these responsibilities.
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances.
The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate.
o The committee shall convey to management and the independent auditors
that the independent auditors are ultimately accountable to the board
and the audit committee, as representatives of the Company's
shareholders.
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o The committee shall discuss with the auditors their independence from
management and the Company and the matters included in the written
disclosures required by the Independence Standards Board and other
applicable laws, rules and regulations. The committee shall ensure its
receipt from the outside auditors of a formal written statement
delineating all relationships between the auditor and the Company,
consistent with ISB Standard 1, and the committee shall be responsible
for engaging in a dialogue with the auditor with respect to any
disclosed relationship or services that may impact the objectivity and
independence of the auditor and for taking or recommending that the
full board take appropriate action to oversee the outside auditor.
o The committee shall discuss with the independent auditors the overall
scope and plans for their respective audits including the adequacy of
staffing and compensation. Also, the committee shall discuss with
management and the independent auditors the adequacy and effectiveness
of the accounting and financial controls, including the Company's
system to monitor and manage business risk, and legal and ethical
compliance programs. Further, the committee shall meet separately with
independent auditors, with and without management present, to discuss
the results of their examinations.
o The committee shall review with management and the independent auditors
the interim financial statements prior to the filing of the Company's
Quarterly Report on Form 10-QSB. Also, the committee shall discuss the
results of the quarterly review and any other matters required to be
communicated to the committee by the independent auditors under
generally accepted auditing standards. The chair of the committee may
represent the entire committee for the purposes of this review.
o The committee shall review with management and the independent auditors
the annual financial statements to be included in the Company's Annual
Report on Form 10-KSB (or the annual report to shareholders if
distributed prior to the filing of Form 10-KSB). Also, the committee
shall discuss the results of the annual audit and any other matters
required to be communicated to the committee by the independent
auditors under generally accepted auditing standards.
o The committee shall review and discuss with management and the
independent auditor (a) major issues regarding accounting principles
and financial statement presentations, including any significant
changes in the Company's selection of application of accounting
principles, and major issues as to the adequacy of the Company's
internal controls and any special audit steps adopted in light of
material control deficiencies, (b) analyses prepared by management
A-4
and/or the independent auditor setting forth significant financial
reporting issues and judgments made in connection with the preparation
of the Company's financial statements, including analyses of the effect
of alternative generally accepted accounting principles ("GAAP")
methods on the financial statements, (c) the types of information to be
disclosed and the types of presentation to be made relating to earning
press releases as well as other financial information and earnings
guidance provided to analysts and rating agencies, and (d) the effect
of regulatory and accounting initiatives, as well as off-balance sheet
structures, on the Company's financial statements.
o The committee shall review and discuss with management and the
independent auditor any report of the independent auditor regarding (a)
all critical accounting policies and practices to be used by the
independent auditor, (b) alternative treatments of financial
information within GAAP that have been discussed with management,
ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent auditor, or
(c) any other material written communications between the independent
auditor and management, including any management letter or schedule of
unadjusted differences.
o The committee shall approve all audit and non-audit engagements of the
Company's independent auditors in advance. The committee shall not
approve any engagements of the Company's outside auditors with respect
to those services set forth in Section 10A(g)(1) through (9) of the
Exchange Act. In the event the Audit Committee approves any non-audit
services by the Company's independent auditors, such approval shall be
disclosed in periodic reports required by Section 13(a) of the Exchange
Act.
o The committee shall make regular reports to the board of directors and
shall review with the board any issues that arise with respect to (a)
the quality or integrity of the Company's financial statements, (b) the
Company's compliance with legal or regulatory requirements that may
have a material impact on the Company's financial statements, or (c)
the performance and independence of the Company's independent auditors.
In addition, the committee annually shall review its own performance.
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o The Committee shall discuss with the independent auditor the matters
required to be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit. In particular, discuss (a) the
adoption of, or changes to, the Company's significant auditing and
accounting principles and practices as suggested by the independent
auditor or management; (b) the management letter provided by the
independent auditor and the Company's response to that letter; and (c)
any audit problems or difficulties encountered in the course of the
audit work, including any restrictions on the scope of activities or on
access to requested information.
o The committee shall obtain assurance from the independent auditor that
each audit of the Company's financial statements has complied with the
requirements of Section 10A of the Exchange Act.
o The committee shall prepare the report required by the rules of the
Securities and Exchange Commission to be included in the Company's
annual proxy statement.
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APPENDIX B
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CHINA RESOURCES DEVELOPMENT, INC.
2003 EQUITY INCENTIVE PLAN
CHINA RESOURCES DEVELOPMENT, INC.
2003 EQUITY INCENTIVE PLAN
1. SECTION PURPOSE; DEFINITIONS.
1.1 Purpose. The purpose of the China Resources Development, Inc. 2003
Equity Incentive Plan is to enable the Company to offer to its employees,
officers, directors and consultants whose past, present and/or potential
contributions to the Company and its Subsidiaries have been, are or will be
important to the success of the Company, an opportunity to acquire a proprietary
interest in the Company. The various types of long-term incentive awards that
may be provided under the Plan will enable the Company to respond to changes in
compensation practices, tax laws, accounting regulations and the size and
diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Agreement" means the agreement between the Company and
the Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" means the Equity Incentive Committee of the
Board or any other committee of the Board that the Board may designate to
administer the Plan or any portion thereof. If no Committee is so designated,
then all references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company,
$.001 par value per share.
(f) "Company" means China Resources Development, Inc., a
corporation organized under the laws of the State of Nevada.
(g) "Deferred Stock" means Common Stock to be received under
an award made pursuant to Section 8, below, at the end of a specified deferral
period.
(h) "Disability" means physical or mental impairment as
determined under procedures established by the Committee for purposes of the
Plan.
(i) "Effective Date" means the date set forth in Section 12.1,
below.
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(j) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on such date, as reported by the exchange or Nasdaq, as the case
may be; (ii) if the Common Stock is not listed on a national securities exchange
or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, but is traded
in the over-the-counter market, the closing bid price for the Common Stock on
such date, as reported by the OTC Bulletin Board or the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under
the Plan.
(l) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active
employment with the Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 9,
below, that is valued in whole or in part by reference to, or is otherwise based
upon, delivery to the SecretaryCommon Stock.
(p) "Parent" means any present or future "parent corporation"
of the Company, as such term is defined in Section 424(e) of an irrevocable written
noticethe Code.
(q) "Plan" means the China Resources Development, Inc. 2003
Equity Incentive Plan, as hereinafter amended from time to time.
(r) "Repurchase Value" shall mean the Fair Market Value in the
event the award to be repurchased under Section 10.2 is comprised of exercise. The date on which such noticeshares of
Common Stock and the difference between Fair Market Value and the Exercise Price
(if lower than Fair Market Value) in the event the award is receiveda Stock Option or
Stock Appreciation Right; in each case, multiplied by the Secretary shall benumber of shares
subject to the date of exerciseaward.
(s) "Restricted Stock" means Common Stock received under an
award made pursuant to Section 7, below, that is subject to restrictions under
said Section 7.
(t) "SAR Value" means the excess of the option, provided that
within five business days ofFair Market Value (on
the delivery of such notice the funds to
pay for exercise of the option are delivered to the Company by a broker
acting on behalf of the optionee either in connection with the sale of
the shares underlying the option or in connection with the making of a
margin loan to the optionee to enable payment ofdate) over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option, multiplied by the
number of shares for which the Stock Appreciation Right is exercised.
(u) "Stock Appreciation Right" means the right to receive from
the Company, on surrender of all or part of the option. In connection with the foregoing, the Company will providerelated Stock Option, without a
copy of the notice of exercise of the option to the aforesaid broker
upon receipt by the Secretary of such notice and will deliver to such
broker, within five business days of the delivery of such noticecash payment to the Company, a certificate or certificates (as requestednumber of shares of Common Stock equal to the SAR
Value divided by the broker)
representingFair Market Value (on the exercise date).
(v) "Stock Option" or "Option" means any option to purchase
shares of Common Stock granted pursuant to the Plan.
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(w) "Stock Reload Option" means any option granted under
Section 5.3 of the Plan.
(x) "Subsidiary" means any present or future "subsidiary
corporation" of the Company, as such term is defined in Section 424(f) of the
Code.
2. SECTION ADMINISTRATION.
2.1 Committee Membership. The Plan shall be administered by the Board
or a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
The Committee members, to the extent possible and deemed to be appropriate by
the Board, shall be "non-employee directors" as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and "outside directors" within the meaning of Section 162(m) of the Code.
2.2 Powers of Committee. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) To select the officers, employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder;
(b) To determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share exercise price or types of consideration
paid upon exercise of such options, such as other securities of the Company or
other property, any restrictions or limitations, and any vesting, exchange,
surrender, cancellation, acceleration, termination, exercise or forfeiture
provisions, as the Committee shall determine);
(c) To determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) To determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) To permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Common Stock;
(f) To determine the extent and circumstances under which
Common Stock and other amounts payable with respect to an award hereunder shall
be deferred that may be either automatic or at the election of the Holder; and
(g) To substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
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2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 11, below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award under the Plan (and to determine the form and substance of
all Agreements relating thereto), and to otherwise supervise the administration
of the Plan. Subject to Section 11, below, all decisions made by the Committee
pursuant to the provisions of the Plan shall be made in the Committee's sole
discretion and shall be final and binding upon all persons, including the
Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload Options or Stock
Appreciation rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
3. SECTION STOCK SUBJECT TO PLAN.
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for issuance under the Plan shall be such number of
shares as is equal to 20% of the total number of shares of Common Stock
outstanding from time-to-time. No award under the Plan shall be invalidated by
reason of a decrease in the number of outstanding shares underlyingof Common Stock;
provided that the option that have been
sold by such broker foraward was made from shares validly available under the optionee.
(d) TermsPlan at
the time the award is made.
Shares of Options. The term during which each optionCommon Stock under the Plan may be
exercised shall be determined by the Committee, but in no event shall
an Incentive Stock Option be exercisableconsist, in whole or in part,
of authorized and unissued shares or treasury shares. If any shares of Common
Stock that have been granted pursuant to a Stock Option cease to be subject to a
Stock Option, or if any shares of Common Stock that are subject to any Stock
Appreciation Right, Restricted Stock, Deferred Stock award, Reload Stock Option
or Other Stock-Based Award granted hereunder are forfeited or any such award
otherwise terminates without a payment being made to the Holder in lessthe form of
Common Stock, such shares shall again be available for issuance in connection
with future grants and awards under the Plan. If a Holder pays the exercise
price of a Stock Option by surrendering any previously owned shares and/or
arranges to have the appropriate number of shares otherwise issuable upon
exercise withheld to cover the withholding tax liability associated with the
Stock Option exercise, then the number of shares available under the Plan shall
be increased by the lesser of (i) the number of such surrendered shares and
shares used to pay taxes; and (ii) the number of shares purchased under such
Stock Option.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
merger, reorganization, consolidation, dividend (other than one yeara cash dividend)
payable on shares of Common Stock, stock split, reverse stock split, combination
or exchange of shares, or other extraordinary or unusual event occurring after
the grant of an award which results in a change in the shares of Common Stock of
the Company as a whole, the Committee shall determine, in its sole discretion,
whether such change equitably requires an adjustment in the terms of any award
or the aggregate number of shares reserved for issuance under the Plan. Any such
adjustments will be made by the Committee, whose determination will be final,
binding and conclusive.
B-4
4. SECTION ELIGIBILITY.
Awards may be made or granted to employees, officers, directors and
consultants who are deemed to have rendered or to be able to render significant
services to the Company or its Subsidiaries and who are deemed to have
contributed or to have the potential to contribute to the success of the
Company. No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant.
5. SECTION STOCK OPTIONS.
5.1 Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options or
Non-Qualified Stock Options, or both types of Stock Options which may be granted
alone or in addition to other awards granted under the case ofPlan. To the extent that
any Stock Option intended to qualify as an Incentive Stock Option does not so
qualify, it shall constitute a separate Nonqualified Stock Option.
5.2 Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Option more thanTerm. The term of each Stock Option shall be fixed
by the Committee; provided, however, that an Incentive Stock Option may be
granted only within the ten-year period commencing from the Effective Date and
may only be exercised within ten years and one day fromof the date it is granted, or,of grant [or five years in
the case of an Incentive Stock Option ten years from the date it is granted; and,
in the case of the grant of an Incentive Stock Optiongranted to an employeeoptionee who, at the time of
the grant, owns Common Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any("10% Stockholder")].
(b) Exercise Price. The exercise price per share of its
subsidiaries, in no eventCommon
Stock purchasable under a Stock Option shall such option be exercisable, if requireddetermined by the CodeCommittee at
the time of grant moreand may not be less than five years from100% of the Fair Market Value on the
day of grant; provided, however, that the exercise price of an Incentive Stock
Option granted to a 10% Stockholder shall not be less than 110% of the Fair
Market Value on the date of the grant.
All rights(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to purchase shares pursuant to an optionsuch terms and conditions as shall unless sooner terminated, expire at the date designatedbe determined by
the Committee. TheCommittee and as set forth in Section 10, below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant, in whole or in part, based
upon such factors as the Committee shall determine the date on which each option
shall become exercisabledetermine.
(d) Method of Exercise. Subject to whatever installment,
exercise and may provide that an option shall become
exercisablewaiting period provisions are applicable in installments. The shares constituting each installmenta particular case,
Stock Options may be purchasedexercised in whole or in part at any time afterduring the term
of the Option, by giving written notice of exercise to the Company specifying
the number of shares of Common Stock to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, which shall be in cash or,
if provided in the Agreement, either in shares of Common Stock (including
Restricted Stock and other contingent awards under this Plan) or partly in cash
and partly in such installment
becomes exercisable,Common Stock, or such other means which the Committee
determines are consistent with the Plan's purpose and applicable law. Cash
payments shall be made by wire transfer, certified or bank check or personal
check, in each case payable to the order of the Company; provided, however, that
the Company shall not be required to deliver certificates for shares of Common
B-5
Stock with respect to which an Option is exercised until the Company has
confirmed the receipt of good and available funds in payment of the purchase
price thereof. Payments in the form of Common Stock shall be valued at the Fair
Market Value on the date prior to the date of exercise. Such payments shall be
made by delivery of stock certificates in negotiable form that are effective to
transfer good and valid title thereto to the Company, free of any liens or
encumbrances. Subject to the terms of the Agreement, the Committee may, in its
sole discretion, at the request of the Holder, deliver upon the exercise of a
Nonqualified Stock Option a combination of shares of Deferred Stock and Common
Stock; provided that, notwithstanding the provisions of Section 8 of the Plan,
such Deferred Stock shall be fully vested and not subject to forfeiture. A
Holder shall have none of the rights of a Stockholder with respect to the shares
subject to the Option until such minimumshares shall be transferred to the Holder upon
the exercise requirementof the Option.
(e) Transferability. Except as is
designatedmay be set forth in the
Agreement, no Stock Option shall be transferable by the Committee. TheHolder other than by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the Holder's lifetime, only by the Holder (or, to the extent
of legal incapacity or incompetency, the Holder's guardian or legal
representative).
(f) Termination by Reason of Death. If a Holder's employment
by the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall thereupon automatically terminate,
except that the portion of such Stock Option that has vested on the date of
death may thereafter be exercised by the legal representative of the estate or
by the legatee of the Holder under the will of the Holder, for a period of one
year (or such other greater or lesser period as the Committee may acceleratespecify at
grant) from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
Committee at the time at
which any optionof grant and set forth in the Agreement, shall thereupon
automatically terminate, except that the portion of such Stock Option that has
vested on the date of termination may thereafter be exercised in wholeby the Holder for
a period of one year (or such other greater or in part. Unless otherwise
provided herein, an optioneelesser period as the Committee
may exercise an option only if he or she
is, and has continuously been sincespecify at the time of grant) from the date of such termination of
employment or until the option was granted,expiration of the stated term of such Stock Option,
whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section
13.3, below, and unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, if a Holder is an employee of the Company
or a subsidiary. Prior to the exercise of the
option and
delivery of the stock represented thereby, the optionee shall have no
rights to any dividends or be entitled to any voting rights on any
stock represented by outstanding options.
(e) Limitations on Grants. If required by the CodeSubsidiary at the time of grant and if such Holder's employment by the
Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the aggregate Fair Market Value (determined as(on the date of
grant of the grant date) of shares forOption) with respect to which such option isIncentive Stock Options become
exercisable for the first time by a Holder during any calendar year may not exceed
US$100,000.
(f) Termination of Employment; Change in Control. If a participant
ceases to be an officer, employee, or director(under all
such plans of the Company and its Parent and Subsidiary) shall not exceed
$100,000.
(j) Buyout and Settlement Provisions. The Committee may at any
time, in its sole discretion, offer to repurchase a Stock Option previously
granted, based upon such terms and conditions as the Committee shall establish
and communicate to the Holder at the time that such offer is made.
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5.3 Stock Reload Option. If a Holder tenders shares of Common Stock to
pay the exercise price of a Stock Option ("Underlying Option"), and/or arranges
to have a portion of the shares otherwise issuable upon exercise withheld to pay
the applicable withholding taxes, the Holder may receive, at the discretion of
the Committee, a new Stock Reload Option to purchase that number of shares of
Common Stock equal to the number of shares tendered to pay the exercise price
and the withholding taxes (but only if such shares were held by the Holder for
at least six months). Stock Reload Options may be any type of option permitted
under the Code and will be granted subject to such terms, conditions,
restrictions and limitations as may be determined by the Committee, from time to
time. Such Stock Reload Option shall have an exercise price equal to the Fair
Market Value as of the date of exercise of the Underlying Option. Unless the
Committee determines otherwise, a Stock Reload Option may be exercised
commencing one year after it is granted and shall expire on the date of
expiration of the Underlying Option to which the Reload Option is related.
6. SECTION STOCK APPRECIATION RIGHTS.
6.1 Grant and Exercise. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Stock Options under
the Plan as a means of allowing such participants to exercise their Stock
Options without the need to pay the exercise price in cash. In the case of a
Nonqualified Stock Option, a Stock Appreciation Right may be granted either at
or after the time of the grant of such Nonqualified Stock Option. In the case of
an Incentive Stock Option, a Stock Appreciation Right may be granted only at the
time of the grant of such Incentive Stock Option.
6.2 Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as shall be determined by the Committee and set forth in the
Agreement, subject to the limitations, if any, imposed by the Code, with respect
to related Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate
and shall no longer be exercisable upon the termination or exercise of the
related Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of shares of Common Stock equal to
the SAR Value divided by the Fair Market Value on the date the Stock
Appreciation Right is exercised.
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Right shall not affect the number of shares of Common Stock
available under for awards under the Plan. The number of shares available for
awards under the Plan will, however, be reduced by the number of shares of
Common Stock acquirable upon exercise of the Stock Option to which such Stock
Appreciation Right relates.
7. SECTION RESTRICTED STOCK.
7.1 Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture ("Restriction Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
awards.
B-7
7.2 Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any subsidiary due to death or Disability, eachportion of the
participant's
optionsRestricted Stock and any securities constituting Retained Distributions that
wasshall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the
Restriction Period with respect to each award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions (i) all
or part of such Restricted Stock shall become vested in accordance with the
terms of the Agreement, subject to Section 10, below, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested,
subject to Section 10, below. Any such Restricted Stock and Retained
Distributions that do not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
8. SECTION DEFERRED STOCK.
8.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which, receipt of the shares will be deferred, and all the
other terms and conditions of the awards.
B-8
8.2 Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period [or
the Additional Deferral Period referred to in Section 8.2 (d) below, where
applicable], share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred
Stock shall not have any rights of a Stockholder by virtue of such award until
the expiration of the applicable Deferral Period and the issuance and delivery
of the certificates representing such Common Stock. The shares of Common Stock
issuable upon expiration of the Deferral Period shall not be deemed outstanding
by the Company until the expiration of such Deferral Period and the issuance and
delivery of such Common Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all or part of such Deferred
Stock shall become vested in accordance with the terms of the Agreement, subject
to Section 10, below. Any such Deferred Stock that does not vest shall be
forfeited to the Company and the Holder shall not thereafter have any rights
with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event
("Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
deathexpiration of the Deferral Period for such Deferred Stock award (or such
installment).
9. SECTION OTHER STOCK-BASED AWARDS.
Other Stock-Based Awards may be awarded, subject to
limitations under applicable law, that are denominated or Disabilitypayable in, valued in
whole or in part by reference to, or otherwise based on, or related to, shares
of Common Stock, as deemed by the Committee to be consistent with the purposes
of the Plan, including, without limitation, purchase rights, shares of Common
Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company. Each other Stock-Based Award shall
become fully vested and exercisable and shall remain so for a
period of one year from the date of termination of employment, but in
no event after its expiration date; and all options grantedbe subject to such participant less than one year prior to deathterms and conditions as may be determined by the Committee.
10. SECTION ACCELERATED VESTING AND EXERCISABILITY.
10.1 Non-Approved Transactions. If any "person" [as such term is used
in Sections 13(d) and 14(d) of the Exchange Act of 1934, as amended ("Exchange
Act")], is or Disability shall be
forfeited.
If a participant ceases to be an officer, employeebecomes the "beneficial owner" (as referred in Rule 13d-3 under
the Exchange Act), directly or directorindirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities in one or more transactions, and the Board does not
authorize or otherwise approve such acquisition, then the vesting periods of any
subsidiaryand all Stock Options and other awards granted and outstanding under the Plan
shall be accelerated and all such Stock Options and awards will immediately and
entirely vest, and the respective holders thereof will have the immediate right
to purchase and/or receive any and all Common Stock subject to such Stock
Options and awards on the terms set forth in this Plan and the respective
agreements respecting such Stock Options and awards.
B-9
10.2 Approved Transactions. The Committee may, in the event of an acquisition of
substantially all of the Company's assets or at least 50% of the combined voting
power of the Company's then outstanding securities in one or more transactions
(including by way of merger or reorganization) which has been approved by the
Company's Board of Directors, (i) accelerate the vesting of any and all Stock
Options and other awards granted and outstanding under the Plan, and (ii)
require a Holder of any award granted under this Plan to relinquish such award
to the Company upon the occurrencetender by the Company to Holder of hiscash in an amount
equal to the Repurchase Value of such award.
11. SECTION AMENDMENT AND TERMINATION.
The Board may at any time, and from time to time, amend alter, suspend
or her
Retirement, eachdiscontinue any of histhe provisions of the Plan, but no amendment, alteration,
suspension or her options granted at least one year prior
to Retirementdiscontinuance shall be made that would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
12. SECTION TERM OF PLAN.
12.1 Effective Date. The Plan shall become fully vestedeffective at such time as it
has been approved by (i) the Company's Board of Directors and exercisable(ii) stockholders
owning more than fifty percent (50%) of the Company's outstanding voting
securities on the record date for determining those stockholders entitled to
vote upon approval of the Plan (the "Effective Date").
12.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time as no further awards may be granted
and shall
remain so for a period of five years fromall awards granted under the date of Retirement, but
inPlan are no event after its expiration date, provided that the participant
does not engage in Competition during that five-year period unless he
receives written consent to do so from the Board.longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options not exercisedmay be made only during the
ten-year period following the Effective Date.
13. SECTION GENERAL PROVISIONS.
13.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, such participant
within 90 days after Retirement will ceaseand shall be subject to qualify as Incentive
Stock Optionsthe terms, of the Agreement executed by
the Company and will be treated as Nonqualified Stock Optionsthe Holder. The Committee may terminate any award made under the
Plan if requiredthe Agreement relating thereto is not executed and returned to be so treatedthe
Company within ten (10) days after the Agreement has been delivered to the
Holder for his or her execution.
13.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
13.3 Employees.
(a) Engaging in Competition With the Company; Disclosure of
Confidential Information. If a Holder's employment with the Company or a
Subsidiary is terminated for any reason whatsoever, and within three months
after the date thereof such Holder either (i) accepts employment with any
competitor of, or otherwise engages in competition with, the Company or (ii)
discloses to anyone outside the Company or uses any confidential information or
B-10
material of the Company in violation of the Company's policies or any agreement
between the Holder and the Company, the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any award
that was realized or obtained by such Holder at any time during the period
beginning on that date that is six months prior to the date such Holder's
employment with the Company is terminated.
(b) Termination for Cause. The Committee may, if a Holder's
employment with the Company or a Subsidiary is terminated for cause, annul any
award granted under the Code. All options
grantedthis Plan to such participant less than one yearemployee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award that was realized or obtained by such
Holder at any time during the period beginning on that date that is six months
prior to Retirementthe date such Holder's employment with the Company is terminated.
(c) No Right of Employment. Nothing contained in the Plan or
in any award hereunder shall be forfeited.
If a participant ceasesdeemed to beconfer upon any Holder who is an officer or
employee of the Company or any subsidiary dueSubsidiary any right to Cause, all of hiscontinued employment with
the Company or her optionsany Subsidiary, nor shall be forfeited.
If a participant ceases to be an officer or employeeit interfere in any way with the right
of the Company or any subsidiary forSubsidiary to terminate the employment of any reasonHolder who
is an employee at any time.
13.4 Investment Representations; Company Policy. The Committee may
require each person acquiring shares of Common Stock pursuant to a Stock Option
or other than death, Disability,
Retirement or Cause, each of his or her options that was exercisable onaward under the date of termination shall remain exercisable for,Plan to represent to and shall
otherwise terminate atagree with the end of, a period of 90 days after the date
of termination of employment, butCompany in
no event after its expiration
date; providedwriting that the participant does not engage in Competition
during such 90-day period unless heHolder is acquiring the shares for investment purposes, without
a view to the distribution thereof. Each person acquiring shares of Common Stock
pursuant to a Stock Option or she receives written consent to
do so fromother award under the Board. All of the participant's options that were not
exercisable on the date of such terminationPlan shall be forfeited.
Notwithstanding anythingrequired to
the contrary herein, if a
participant ceases to be an officer, employee or directorabide by all policies of the Company in effect at the time of such acquisition
and thereafter with respect to the ownership and trading of the Company's
securities.
13.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or any subsidiary,additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of Common Stock and cash otherwise
than under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
13.6 Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for any reason other than Cause, the
Committee at its sole discretion may accelerate the vesting ofFederal income tax
purposes with respect to any option so that it will become fully vested and exercisable as of the
date of such participant's termination of employment. If there is a
Change in Control of the Company, there will be an automatic
acceleration of the vesting of any outstanding option so that it will
become fully vested and exercisable as of the date of the Change in
Control.
7. Withholding of Taxes.
--------------------
The Company may require, as a condition to any grantor other award under the Plan, or
to the delivery of certificates for shares issued hereunder, that the
granteeHolder
shall pay to the Company, in cash,or make arrangements satisfactory to the Committee
regarding the payment of, any federal,Federal, state orand local taxes of any kind
required by law to be withheld or paid with respect to any grantsuch amount. If permitted
by the Committee, tax withholding or any deliverypayment obligations may be settled with
Common Stock, including Common Stock that is part of shares. The Committee, in its sole discretion, may
permit participantsthe award that gives rise
to pay such taxes through the withholding requirement. The obligations of shares
otherwise deliverable to such participant in connection with such grant
or the delivery to the Company of shares otherwise acquired byunder the participant. The Fair Market Value of shares of Common Stock withheld
byPlan
shall be conditioned upon such payment or arrangements and the Company or tendered to the
Company forHolder's employer (if not the satisfaction of tax
withholding obligations under this sectionCompany) shall, be
determined on the date such shares are withheld or tendered. The
Company, to the extent permitted or required by law, shall
have the right to deduct any such taxes from any payment of any kind (including salary or
bonus) otherwise
due to a granteethe Holder from the Company or any federal, state or local taxes of
any kind requiredSubsidiary.
13.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by law to be withheldand construed in accordance with respect to any grant or to
the delivery of shares under the Plan, or to retain or sell without
notice a sufficient numberlaws of the
shares to be issued to such grantee
to cover any such taxes, provided that the Company shall not sell any
such shares if such sale would be considered a sale by such grantee for
purposesState of Section 16 of the Exchange Act.
8. Written Agreement.
-----------------
Each employee to whom a grant is made under the Plan shall enter into a
written agreement with the Company that shall contain such provisions,
consistent with the provisions of the Plan, as may be established by
the Committee.
9. Transferability.
---------------
No optionNevada.
13.8 Other Benefit Plans. Any award granted under the Plan shall not be
transferable by an employee
otherwise than by will or the lawsdeemed compensation for purposes of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code
or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. An option may be exercised only by the optionee or his
guardian or legal representative; provided that Incentive Stock Options
may be exercised by such guardian or legal representative only if
permitted by the Code and any regulations promulgated thereunder.
10. Listing and Registration.
------------------------
If the Committee determines that the listing, registration, or
qualification upon any securities exchange orcomputing benefits under any law of shares
subject to any option is necessary or desirable as a condition of, or
in connection with, the granting of same or the issue or purchase of
shares thereunder, no such option may be exercised in whole or in part
or no shares issued unless such listing, registration or qualification
is effected free of any conditions not acceptable to the Committee.
11. Transfer of Employee.
--------------------
Transfer of an employee from the Company to a subsidiary, from a
subsidiary to the Company, and from one subsidiary to another shall not
be considered a termination of employment. Nor shall it be considered a
termination of employment if an employee is placed on military or sick
leave or such other leave of absence which is considered as continuing
intact the employment relationship; in such a case, the employment
relationship shall be continued until the date when an employee's right
to reemployment shall no longer be guaranteed either by law or by
contract.
12. Adjustments.
-----------
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of
assets, or any other change in the corporate structure or sharesretirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the Committee shall makeavailability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such adjustmentsother plan to awards under this Plan).
B-11
13.9 Non-Transferability. Except as it deems
appropriateotherwise expressly provided in the
number and kind of shares reserved for issuancePlan or the Agreement, no right or benefit under the Plan inmay be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbered or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the number and kind of shares covered by grants made
under the Plan, and in the exercise price of outstanding options. In
the event of any merger, consolidation or other reorganization in which
the Company is not the surviving or continuing corporation, all options
that were granted hereunder and that are outstanding on the date of
such eventsame shall be assumed by the surviving or continuing corporation.
13. Termination and Modification of the Plan.
----------------------------------------void.
13.10 Applicable Laws. The Board of Directors, without further approval of the shareholders,
may modify or terminate the Plan and from time to time may suspend, and
if suspended, may reinstate any or all of the provisions of the Plan,
except that (i) no modification, suspension or termination of the Plan
may, without the consent of the grantee affected, alter or impair any
grant previously made under the Plan, and (ii) no modification shall
become effective without prior approval of the stockholdersobligations of the Company that would (a) increase (except as provided in Section 12) the
maximum number of shares reserved for issuancewith respect to
all Stock Options and awards under the Plan; (b)
change the classes of employees eligible to be participants; or (iii)
materially increase the benefits accruing to participants in the Plan.
With the consent of the grantee affected thereby, the Committee may
amend or modify the grant of any outstanding option in any manner to
the extent that the Committee would have had the authority to make such
grant as so modified or amended, including without limitation to change
the date or dates as of which an option becomes exercisable. The
Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may
be dictated by requirements of federal or state laws applicable to the
Company or that may be authorized or made desirable by such laws.
14. Commencement Date; Termination Date.
-----------------------------------
The date of commencement of the Plan shall be March 31, 1995. Unless
previously terminated, the Plan shall terminate at the close of
business on March 31, 2005.
15. Cash Awards.
-----------
The Committee may authorize cash awards to any participant receiving
shares under the Plan in order to assist such participant in meeting
his or her tax obligations with respect to such shares.
16. Provisions Applicable Solely to Insiders.
----------------------------------------
The following provisions shall apply only to persons who are subject to Section 16(i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the Securities Act
of 1933, as amended and the Securities Exchange Act of 1934, with respect toas amended, and
(ii) the rules and regulations of any securities exchange on which the Common
Stock may be listed.
13.11 Conflicts. If any of the Company ("Insiders"):
(a) No Insiderterms or provisions of the Plan or an
Agreement conflict with the requirements of Section 422 of the Code, then such
terms or provisions shall be permitted to transfer any securities of the
Company acquired by him, exceptdeemed inoperative to the extent permitted by 17 C.F.R.
ss.240.16a-2(d)(1), uponthey so conflict
with such requirements. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
exerciseCode, such provision shall be deemed incorporated herein and therein with the
same force and effect as if such provision had been set out at length herein and
therein. If any of the terms or provisions of any Incentive Stock OptionAgreement conflict with any
terms or Nonqualified Stock Option, until at least six months and one day afterprovisions of the later of (i) the day on whichPlan, then such security is grantedterms or provisions shall be deemed
inoperative to the participant or (ii)extent they so conflict with the day on whichrequirements of the exercise or conversion price
of such security is fixed.
(b) An Insider may electPlan.
Additionally, if any Agreement does not contain any provision required to have shares withheld from a grant madebe
included therein under the Plan, such provision shall be deemed incorporated
therein with the same force and effect as if such provision had been set out at
length therein.
13.12 Non-Registered Stock. The shares of Common Stock to be issued
under this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or tender shares toany applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Common Stock or to assist the Holder in orderobtaining an exemption from the various
registration requirements, or to satisfylist the tax withholding consequences ofCommon Stock on a grant made undernational securities
exchange or any other trading or quotation system, including the Nasdaq National
Market and Nasdaq SmallCap Market.
B-12
INITIAL PLAN
- ------------
Date Plan only
during the period beginning on the third business day following the
date on which the Company releases the financial information specified
in 17 C.F.R. ss.240.16b-3(e)(1)(ii) and ending on the twelfth business
day following such date.
(c) Notwithstanding Section 19 (b)(ii) hereof, an Insider may elect to
have shares withheld from a grant made under the Plan in order to
satisfy tax withholding consequences thereofApproved by providing the Company
with a written election to so withhold at least six months in advance
of the withholding of shares otherwise issuable upon exercise of an
option.
The China Resources Development, Inc., 1995 Stock Option Plan was
amended and restated pursuant to (i) a resolution of the Board of Directors of
the corporation unanimously adopted at a special meeting of the Board held on
November 29, 1996, and (ii) a voteDirectors: October 9, 2003
Date Plan Approved by the shareholders of the corporation
holding at least a majority of each class of stock outstanding and entitled to
vote, at the annual meeting of shareholders held on December 30, 1996.Stockholders:
------------------------
PLAN AMENDMENTS
- ---------------
DATE AMENDMENT DATE AMENDMENT
APPROVED BY APPROVED BY
BOARD OF STOCKHOLDERS, IF SECTION DESCRIPTION OF
DIRECTORS NECESSARY AMENDED AMENDMENT
--------- --------- ------- ---------
B-13
PROXY FORCHINA RESOURCES DEVELOPMENT, INC.
ANNUAL MEETING OF SHAREHOLDERS
October 12, 2000
This Proxy is Solicited on
Behalf of the Board of DirectorsSTOCKHOLDERS
December 18, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CHINA RESOURCES DEVELOPMENT, INC.
The undersigned hereby appoints Ching Lung Po and Li Fei Lie,
or either of them acting singly in the absence of the other, as attorneys and as
proxies,proxy with full power of
substitution and hereby authorizes him to represent and to vote, as designated
below, all of the shares of Common Stock and
Preferred Stockcommon stock of China Resources Development, Inc.
(the "Company"), whichheld of record by the undersigned is entitled to voteon November 14, 2003 at the Annual Meeting of
Shareholders of the
CompanyStockholders to be held at Room 2105, West Tower, Shun Tak Centre, 200 Connaught
Road C., Sheung Wan, Hong Kong, on October 12, 2000,Thursday, December 18, 2003 at 2:30 p.m.,
localHong Kong time, at the offices
of the Company at 5020 Binhe Road, Fu Tian District, Shenzhen Province, People's
Republic of China, and at anyall adjournments thereof, with all powers the undersigned
would possess if personally present. In his or postponements thereof,her discretion, the Proxy is
authorized to vote upon the
matters described in the accompanying Proxy Statement and uponsuch other business thatas may properly come before the
meeting.
Said proxy is directed to vote as
instructed on the matters set forth below and otherwise at his discretion.
Receipt of a copy of the Notice of said meeting and Proxy Statement is hereby
acknowledged.
1. PROPOSAL TO RATIFY THE ISSUANCE of 244,897 shares of the
Company's Common Stock, par value $0.001. (The BoardElection of Directors recommends a
vote FOR)Nominees:
Tam Cheuk Ho and Wong Wah On.
[ ] FOR all nominees [ ] AGAINSTWITHHOLD AUTHORITY [ ] ABSTAINFOR all nominees,
except as noted below:
Nominee exception
----------------------
2. PROPOSAL TO AMENDProposal to authorize and adopt the Amended and Restated 1995 Stock
Option Plan to modify the pricing procedure for the exercise of nonqualified
stock options and to eliminate the requirement of shareholder approval for any
modification of the Plan that would materially increase the benefits accruing to
participants in theCompany's 2003 Equity Compensation
Plan. (The Board of Directors recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ELECTION OF NOMINEES FOR DIRECTORS in Class I. SHAREHOLDERS
MAY WITHHOLD THEIR VOTE FOR ANY NOMINEES BY STRIKING OUT THE NAME OF SUCH
NOMINEE OR NOMINEES:
Tam Cheuk Ho and Wong Wah Oh
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees listedProposal to vote for all nominees listed
4. PROPOSAL TO RATIFY THE SELECTIONratify the appointment of Ernst & Young,
Certified Public Accountants, asHorwath Gelfond Hochstadt
Pangburn, P.C. independent auditors of the Company's independent accountantsCompany for the fiscal year
ending December 31, 2000. (The2003 to serve at the pleasure of the Board of
Directors recommends a vote
FOR)Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To transact such other businessTHIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNEDSTOCKHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL BE VOTED "FOR"
PROPOSALS 1, 2 AND 3.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF 2003 ANNUAL MEETING
AND PROXY STATEMENT FURNISHED IN CONNECTION THEREWITH.
DATED:
---------------------------------
(Signature)
---------------------------------
(Signature if jointly held)
---------------------------------
(Printed name(s))
Please sign exactly as may properly come before
the meetingname appears herein. When shares are held by Joint
Tenants, both should sign, and any adjournment or postponement thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Number of Shares: Name of Owner:
of Common Stock ----------------- ------------------------------
(Please type or print)
Signature:
----------------------------------
Title or Capacity:
(if applicable) --------------------------
(Please type or print)
Date:
----------------------------------------
Name of Owner:
------------------------------
(Please type or print)
Signature:
----------------------------------
Title or Capacity:
(if applicable) --------------------------
(Please type or print)
Date:
----------------------------------------
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR proposals 1 through 5. Iffor signing as attorney, as executor, as
administrator, trustee or guardian, please give your full title as such. If stock is held jointly, each
owner should sign.by a
corporation, please sign in the full corporate name by the president or other
authorized officer. If held by a partnership, please sign in the partnership
name by an authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THETHIS PROXY
CARD PROMPTLY
USINGIN THE ENCLOSED ENVELOPEENVELOPE. THANK YOU.