1SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES
EXCHANGE ACT OFof the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/[X]
Filed by a Party other than the Registrant / /[_]
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ /[x] Preliminary Proxy Statement [_] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
CHINA RESOURCES DEVELOPMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/[x] No fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ /[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)(1) and 0-11.
(1)________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
(2)________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
(3)________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set(set forth the amount on which the filing fee is
calculated and state how it was determined):
(4)________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
(5)________________________________________________________________________________
5) Total fee paid:
/ /[_] 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)1) Amount Previously Paid:
(2)previously paid:
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(4)4) Date Filed:
2
CHINA RESOURCES DEVELOPMENT, INC.
23/Room 2005, 20/F. OFFICE TOWER, CONVENTION PLAZA
1 HARBOUR ROAD, WANCHAI, HONG KONG, Universal Trade Centre
3-5A Arbuthnot Road, Central, Hong Kong
-----------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 30, 1996To Be Held May 28, 1999
To the Shareholders:
Notice is hereby given that an Annual Meeting of Shareholders (the
"Annual Meeting") of CHINA RESOURCES DEVELOPMENT, INC. (the "Company"), will be
held at the offices of Worlder InternationalHainan Zhongwei Agricultural Resources Company Limited,
21stSixth Floor, Great
Eagle Centre, No. 23 Harbour Road,International Hong Kong,Yun Hotel, 13 Haixiu Avenue, Haikou City, Hainan
Province, People's Republic of China, on December 30, 1996,May 28, 1999, at 3:00 p.m., local time,
for the following purposes:
1. To consider and vote upon a proposal by the Board of Directors to
effect a one-for-ten reverse stock split of the Company's common stock,
par value $0.001 per share;
2. To consider and vote upon an amendment to the Articles of
Incorporation, as revised, of the Company to increase the
share ownership requirement for the calling of special
meetings of the shareholders;elect directors in Class III;
3. To consider and vote upon an amendment to the Articles of
Incorporation, as revised, of the Company to establish three
classes of directors and clarify provisions affecting officers
and directors;
4. To consider and vote upon an amendment to the By-Laws of the
Company to allow the Board of Directors to amend the By-Laws;
5. To consider and vote upon an amendment to the Company's 1995
Stock Option Plan to increase the number of shares of Common
Stock subject thereto and to decrease the required holding
period for non-qualified stock options;
6. To elect directors;
7. To consider and vote upon the ratification of the appointment of
Ernst & Young as the Company's independent accountants for the fiscal
year ending December 31, 1996;1999; and
8.4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
Shareholders of record at the close of business on December 13, 1996,April 30, 1999, are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. The Company's annual report on Form 10-K for the year
ended December 31, 1995,1998, 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. 3
If you
attend the Annual Meeting, you may vote your shares in person even if you have
previously submitted a proxy.
By Order of the Board of Directors,
Zhang Yibing
December 16, 1996/s/ Wong Wah On
------------------------------------
Wong Wah On
Corporate Secretary
-2-May 13, 1999
4
CHINA RESOURCES DEVELOPMENT, INC.
23/Room 2005, 20/F. OFFICE TOWER, CONVENTION PLAZA
1 HARBOUR ROAD, WANCHAI, HONG KONG
----------------------, Universal Trade Centre
3-5A Arbuthnot Road, Central, Hong Kong
----------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON DECEMBER 30, 1996MAY 28, 1999
This proxy statement and the accompanying proxy card are being
furnished in connection with the solicitation of proxies by the Board of
Directors of China Resources Development, Inc., a Nevada corporation (the
"Company"), from holders of the Company's outstanding shares of Common Stock,
par value $0.001 per share (the "Common Stock"), and from the holder of the
Company's outstanding shares of Series B preferred stock (the "Preferred
Stock"), for the Annual Meeting of Shareholders to be held December 30, 1996,May 28, 1999, 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 December 16, 1996.May 13, 1999.
VOTING AT THE MEETING
At the close of business on December 13, 1996,April 30, 1999, 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
82,833,4145,929,004 shares of Common Stock and 3,200,000 shares of Preferred Stock. All of
the outstanding shares of Common Stock 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.
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
approval of the reverse stock split, FOR adoption of two amendments
to the Articles of Incorporation, as amended, of the Company (the "Articles of
Incorporation"), FOR adoption of the amendment to the By-Laws of the Company
(the "By-Laws"), FOR the adoption of an amendment to the Company's 1995 Stock
Option Plan (the "Plan"), FOR the election of the nominees for
director listed in this proxy statement, and FOR ratification of the appointment of
Ernst & Young.Young, and FOR the approval of such other business that may properly
come before the Annual Meeting or any postponement or adjournment thereof. A
shareholder 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 the Secretary of the Company or by
attending the meeting and voting in person.
A quorum of shareholders is necessary to take action at the Annual
Meeting. A majority of the outstanding shares of Common Stock and 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 will
be tabulated by the inspectors of election appointed for the Annual Meeting. The
inspectors of election will determine whether or not a quorum is present at the
Annual Meeting. The inspectors of election will treat abstentions as shares of
Common Stock or Preferred 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
-1-
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
-1-
5 shares will not be
considered as present for purposes of determining whether a quorum is present or
whether a matter has been approved.
The 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. The vote required for adoption of the other proposals herein is the
affirmative vote of a majority of the shares of Common Stock and Preferred Stock
present in person or represented by proxy at the Annual Meeting; and, for
purposes of determining shareholder approval of such proposals, abstentions will
be treated as shares of Common Stock or Preferred Stock voted against adoption
of such proposals.
CONVENTIONS
Unless otherwise specified, all references in this report to "U.S.
Dollars," "Dollars," "U.S.$," or "$" are to United States 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 Luck maintain their accounts in U.S. Dollars and Hong Kong
Dollars, respectively. HARC and the Operating Subsidiaries maintain their
accounts in Renminbi yuan. The financial statements of the Company and its
subsidiaries are prepared in Renminbi. Translations of amounts from Renminbi 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 September 30, 1996, which was U.S.$1.00 = Rmb8.30.
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.
References to "Billion Luck" refer to Billion Luck Company Ltd., a
British Virgin Islands company, which is a wholly-owned subsidiary of the
Company.
References to "Company" and "Registrant" are to China Resources
Development, Inc., and include, unless the context requires otherwise, the
operations of Billion Luck, HARC, First Supply, and Second Supply (all as
hereinafter defined).
References to "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" 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 to Hainan Agricultural Resources Company
Limited, a company organized in the PRC, whose capital is owned 56% by Billion
Luck, 39% by the Farming Bureau and 5% by Guilinyang Farm.
References to "Operating Subsidiaries" are to the consolidated
operations, assets and/or activities, as the context indicates, of First Supply
and Second Supply.
References to the "PRC" or "China" are to the People's Republic of
China and include all territory claimed by or under the control of the Central
Government, except Hong Kong, Macau, and Taiwan.
References to "Second Supply" are to Second Goods And Materials Supply
And Sales Corporation, a company organized in the PRC and a wholly-owned
subsidiary of HARC.
References to "Tons" are to metric tons.
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6
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
BENEFICIAL OWNERS OF MORE THAN 5%
OF THE COMPANY'S COMMON STOCK
The following table sets forth, to the knowledge of management, each
person or entity who is the beneficial owner of more than 5% of the outstanding
shares of the Company's Common Stock outstanding as of December 13, 1996, the
number of shares owned by each such person and the percentage of the
outstanding shares represented thereby.
Amount and
Name and Address Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class
=================== ======================= ========
Everbright Finance & Investment 35,348,000 Common Stock 42.67%
Co. Limited(2)
23/F., Office Tower
Convention Plaza
1 Harbour Road
Wanchai, Hong Kong
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Of the 35,348,000 shares of Common Stock indicated, Everbright Finance &
Investment Co. Limited ("Everbright") directly owns 33,998,000 shares, and the
remaining 1,350,000 shares represent one-half of the 2,700,000 shares of Common
Stock owned by Silverich Limited, which is one-half owned by Everbright and
one-half owned by Worlder International Company Limited.
SHARE OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of December 13, 1996, by (i) each
director of the Company, (ii) each executive officer of the Company named in
the summary compensation table, and (iii) all directors and executive officers
of the Company as a group. All information with respect to beneficial ownership
has been furnished by the respective director or executive officer (in the case
of shares beneficially owned by each of them). Unless otherwise indicated in a
footnote, each stockholder possesses sole voting and investment power with
respect to the shares indicated as beneficially owned.
-3-
7
Amount and
Name of Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Class
---------------- ------------------------ ----------
Yang Jiangang -0- N/A
Li Shunxing -0- N/A
Wang Faren -0- N/A
Yiu Yat Hung 2,160,000 Common Stock(2) 2.61%
Han Jian Zhun -0-(3) N/A
Tam Cheuk Ho -0-(4) N/A
Zhang Yibing -0- N/A
Li Fei Lie -0-(5) N/A
Wong Wah On 432,000 Common Stock(6) 0.52%
All executive officers 2,592,000 Common Stock 3.13%
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) Hong Wah Investment Holdings Limited owns 2,160,000 shares of Common Stock.
Hong Wah Investment Holdings Limited is a Hong Kong company of which Yiu Yat
Hung, the Vice Chairman of the Board of Directors of the Company, is a
director. Additionally, Hong Wah Investment Holdings Limited is beneficially
owned by Yiu Yat On, a brother of Yiu Yat Hung. In addition, Mr. Yiu was
granted options to purchase 6,000 shares of Common Stock under the Company's
Stock Option Plan as described in Proposal 5 below.
(3) Han Jian Zhun was granted options to purchase 6,000 shares of Common Stock
under the Company's Stock Option Plan as described in Proposal 5 below.
(4) Tam Cheuk Ho was granted options to purchase 6,000 shares of Common Stock
under the Company's Stock Option Plan as described in Proposal 5 below.
(5) Li Fei Lie was granted options to purchase 100,000 shares of Common Stock
under the Company's Stock Option Plan as described under in Proposal 5 below.
(6) Brender Services Limited owns 432,000 shares of Common Stock. Brender
Services Limited is beneficially owned by Wong Wah On, the Financial Controller
of the Company. In addition, Brender was granted options to purchase 100,000
shares of Common Stock under the Company's Stock Option Plan, and Mr. Wong was
granted options to purchase 6,000 shares of Common Stock under the Plan, as
described in Proposal 5 below.
(6) Brender Services limited owns 432,000 shares of Common Stock. Brender
Services Limited is beneficially owned by Wong Wah On, the Financial Controller
of the Company. In addition, Brender was granted options to purchase 100,000
shares of Common Stock under the Company's stock Option Plan, and Mr. Wong was
granted options to purchase 6,000 shares of Common Stock under the Plan, as
described under "Stock Options" below.
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8
FINANCIAL INFORMATION
The following financial information 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 September
30, 1996. This information supplements the information contained in the
Company's form 10-K annual report for the fiscal year ended December 31, 1995, a
copy of which is provided herewith and incorporated herein by reference.
FINANCIAL STATEMENTS.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands, except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
Note ------------------------------------------- ---------------------------------------------
1996 1995 1996 1996 1995 1996
RMB RMB US$ RMB RMB US$
(unaudited) (unaudited)
SALES 486,788 709,361 58,649 1,282,507 1,307,500 154,519
COST OF SALES (445,430) (685,638) (53,666) (1,165,224) (1,255,379) (140,388)
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT 41,358 23,723 4,983 117,283 52,121 14,131
DEPRECIATION OF
FIXED ASSETS (484) (625) (58) (1,692) (1,817) (204)
SELLING AND
ADMINISTRATIVE EXPENSES (14,132) (10,962) (1,703) (39,305) (33,690) (4,736)
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME 26,742 12,136 3,222 76,286 16,614 9,191
FINANCIAL INCOME/
(EXPENSES), NET (10,122) (975) (1,220) (31,798) (3,388) (3,831)
OTHER INCOME/
(LOSSES), NET 11,127 2,488 1,341 15,370 17,940 1,852
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 27,747 13,649 3,343 59,858 31,166 7,212
INCOME TAXES (2,335) (2,399) (281) (7,912) (5,011) (953)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE
MINORITY INTERESTS 25,412 11,250 3,062 51,946 26,155 6,259
MINORITY INTERESTS (9,807) (6,106) (1,182) (23,208) (12,913) (2,796)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME FOR THE
PERIOD 15,605 5,144 1,880 28,738 13,242 3,463
========== ========== ========== ========== ========== ==========
PRIMARY EARNINGS 2
PER SHARE 0.531 0.429 0.064 0.978 1.104 0.118
========== ========== ========== ========== ========== ==========
FULLY DILUTED 2
EARNINGS PER SHARE 0.493 0.429 0.059 0.908 1.104 0.109
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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9
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Amounts in thousands)
SEPTEMBER 30, 1996 December 31, 1995 September 30, 1996
------------------ ----------------- ------------------
RMB RMB US$
NOTES (UNAUDITED) (audited) (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 80,670 56,942 9,719
Trade receivables 135,475 31,991 16,322
Other receivables, deposits and 135,671 52,871 16,346
prepayments
Inventories 3 185,350 103,776 22,332
Amounts due from related 253,871 288,503 30,587
companies
Amount due from Farming 48,548 80,427 5,849
Bureau
Other current assets --- 19,448 ---
-------- ------- -------
TOTAL CURRENT ASSETS 839,585 633,958 101,155
FIXED ASSETS 4 21,788 21,491 2,625
INVESTMENTS 12,163 11,963 1,465
GOODWILL 1,055 1,076 127
------- ------- ------
TOTAL ASSETS 874,591 668,488 105,372
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans 292,560 293,000 35,248
Amounts due to related companies 35,709 22,654 4,302
Amounts due to shareholders 299 15,727 36
Accounts payable 149,167 39,876 17,972
Income taxes payable 13,873 10,265 1,672
Other payables and accrued 78,748 21,533 9,488
liabilities
Short term advances -- 86,917 --
------- ------- -----
TOTAL CURRENT 570,356 489,972 68,718
LIABILITIES
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10
SEPTEMBER 30, 1996 December 31, 1995 September 30, 1996
------------------ ----------------- ------------------
RMB RMB US$
NOTES (UNAUDITED) (audited) (unaudited)
MINORITY INTERESTS 97,111 74,067 11,700
------- ------- -------
TOTAL LIABILITIES 667,467 564,039 80,418
======= ======= ======
SHAREHOLDERS' EQUITY
Common Stock, US$0.001
par value: Authorized -
200,000,000 shares in
1996 and 1995 Issued and
outstanding - 76,938,640
shares in 1996 and
12,000,000 shares in
1995 641 101 77
Preferred stock,
authorized - 10,000,000
shares in 1996 and 1995:
Series A preferred
stock, US$1 par value:
Authorized, issued and
outstanding - 6,400,000
shares in 1995 -- 53,930 --
Series B convertible
preferred stock,
US$0.001 par value:
Authorized - 2,500
shares in 1996 and 1995.
Issued and outstanding -
300 shares in 1996 and
370 shares in 1995 -- --- __
Additional paid-in capital 148,288 20,961 17,866
Reserves 8,930 8,930 1,075
Retained earnings 49,265 20,527 5,936
------- ------- -------
TOTAL SHAREHOLDERS' 207,124 104,449 24,954
------- ------- -------
EQUITY
TOTAL LIABILITIES AND 874,591 668,488 105,372
SHAREHOLDERS' EQUITY ======= ======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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11
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands, except share and per share data)
Series B
Series A Convertible Additional
Common Preferred Preferred Paid-In Retained
Stock Stock Stock Capital Reserves Earnings Total
RMB RMB RMB RMB RMB RMB RMB
Balance at December 101 -- -- 1,407 2,657 7,625 11,790
31, 1994
Issuance of 6,400,000 -- 53,930 -- -- -- -- 53,930
shares of Series A
preferred stock
Issuance of 370 shares -- -- -- 19,554 -- -- 19,554
of Series B preferred
stock, net of share
issuance costs
Net income -- -- -- -- -- 19,175 19,175
Transfer to reserves -- -- -- -- 6,273 (6,273) --
-------- -------- --------- --------- -------- ------ -------
Balance at December 101 53,930 -- 20,961 8,930 20,527 104,449
31, 1995
Issuance of 1,283 shares -- -- -- 73,937 -- -- 73,937
of Series B convertible
preferred stock, net of
shares issuance costs
Issuance of 32,938,640 274 -- -- (274) -- -- --
shares of common stock
pursuant to the
conversion of 1,353
shares of series B
convertible preferred
stock
Exchange of 6,400,000 266 (53,930) -- 53,664 -- -- --
shares of Series A
preferred stock into
32,000,000 shares of
restricted common stock
Net income -- -- -- -- -- 28,738 28,738
-------- -------- -------- ------- -------- ------- --------
Balance at September
30, 1996 641 -- -- 148,288 8,930 49,265 207,124
======== ======== ======== ======== ======== ======= ========
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12
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1996 1995 1996
RMB RMB US$
(UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income 28,738 13,242 3,462
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interests 23,208 12,913 2,796
Depreciation and amortization 1,713 1,838 206
Loss on disposal of fixed assets 5 466 1
Decrease/(increase) in assets:
Trade receivables (103,484) (7,500) (12,468)
Other receivables, deposits and prepayments (82,800) (23,731) (9,976)
Inventories (81,574) 16,589 (9,828)
Amount due from Farming Bureau 31,879 (17,772) 3,841
Amounts due from related companies 34,632 (12,083) 4,173
Other current assets 19,448 -- 2,343
Increase/(decrease) in liabilities:
Amounts due to related companies 13,055 (2,129) 1,573
Accounts payable 109,291 11,776 13,168
Income taxes payable 3,608 4,801 435
Other payables and accrued liabilities 57,215 6,620 6,893
Amounts due to Farming Bureau -- (14,978) --
--------- --------- --------
Net cash provided by / (used in) operating
activities 54,934 (9,948) 6,619
--------- --------- --------
CASH FLOWS PROVIDED BY/(USED IN)
INVESTING ACTIVITIES:
Purchases of fixed assets (1,994) (3,530) (240)
Purchases of investments (200) (61) (24)
Reduction of minority interests (164) -- (20)
Additions to construction in progress -- (1,410) --
Proceeds from sale of fixed assets -- 1,500 --
-------- --------- --------
Net cash used in investing activities (2,358) (3,501) (284)
-------- --------- --------
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13
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1996 1995 1996
RMB RMB US$
(UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS PROVIDED BY/(USED IN)
FINANCING ACTIVITIES:
Issue of share capital less share offering costs 73,937 -- 8,908
Loans from shareholders -- 4,170 --
Repayment of loans to shareholders (15,428) -- (1,859)
Repayments of bank borrowings (440) (8,993) (53)
Cash remitted to Farming Bureau -- (1,780) --
Short term advances (86,917) -- (10,472)
Loans to related companies -- (22,573) --
Cash from repayment of loans by
related companies -- 36,635 --
-------- -------- --------
Net cash provided by/(used in) financing activities (28,848) 7,459 (3,476)
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS: 23,728 (5,990) 2,859
Cash and cash equivalents, at beginning of period 56,942 69,157 6,860
-------- --------- --------
Cash and cash equivalents, at end of period 80,670 63,167 9,719
======== ========= ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-10-
14
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 nine-month period ended
September 30, 1996, is not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. The unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1995.
2. EARNINGS PER SHARE:
The computation of primary earnings per share for the three months and
nine months ended September 30, 1996, are based on the weighted average
number of common stock outstanding after giving effect to dilutive
stock options and series B convertible preferred stock, which are
included as common share equivalents using the treasury stock method
and assumed to be converted to common stock, respectively. The average
number of shares of common stock outstanding excludes the 32,000,000
shares of common stock with restricted rights in receiving dividends or
participating in the event of liquidation of the Company, which might
otherwise be payable to holders of the Company's capital stock. The
shares of restricted common stock were issued pursuant to an Exchange
Agreement dated July 22, 1996. The number of shares used in computing
the primary earnings per share and fully diluted earnings per share are
29,395,885 and 31,635,071, respectively.
For the three months and nine months ended September 30, 1995, primary
earnings per share and fully diluted earnings per share are based on an
aggregate of 12,000,000 shares of common stock outstanding.
3. INVENTORIES:
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------- ---------
RMB RMB
(unaudited) (audited)
Inventories comprise:
Finished goods 185,350 103,776
========= =========
4. FIXED ASSETS:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
RMB RMB
(unaudited) (audited)
Cost:
Buildings 5,739 5,739
Plant, machinery and equipment 11,926 10,267
Transportation vehicles and equipment 8,772 8,448
------- -------
26,437 24,454
------- -------
-11-
15
Accumulated depreciation:
Buildings 941 607
Plant, machinery and equipment 2,235 1,563
Transportation vehicles and equipment 1,473 793
------- -------
4,649 2,963
------- -------
Net book value 21,788 21,491
======= =======
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
RMB RMB
(UNAUDITED) (UNAUDITED)
Cash paid during the period for interest expenses 19,959 31,191
====== ======
-12-
16
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 statements data of the Company and its subsidiaries for the three months
and nine months ended September 30, 1995 and 1996. The data should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements of
the Company and related Notes thereto:
(Amounts in thousands)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
RMB RMB RMB RNB
Sales:
Distribution of natural rubber
Procurement of materials and 390,544 668,209 977,964 1,187,236
supplies 96,244 41,152 304,543 120,264
-------- ---------- ---------- ----------
486,788 709,361 1,282,507 1,307,500
-------- ---------- ---------- ----------
Gross profit 41,358 23,723 117,283 52,121
Gross profit margin (%) 8.50 3.34 9.14 3.99
Income before income taxes 27,747 13,649 59,858 31,166
Income taxes (2,335) (2,399) (7,912) (5,011)
-------- ---------- ---------- ----------
Net income 25,412 11,250 51,946 26,155
Minority interests (9,807) (6,106) (23,208) (12,913)
-------- ---------- ---------- ----------
Net income after minority 15,605 5,144 28,738 13,242
interests ======== ========== ========== ==========
-13-
17
SALES AND GROSS PROFIT
The Company's total sales for the nine months ended September 30, 1996,
were comparable to those of 1995. Of the total sales, the natural rubber sales
decreased by 17.6% to Rmb978 million from Rmb1,187 million for the corresponding
period in last year. This decrease was offset by the increase in procurement of
materials and supplies by 153% to Rmb305 million from Rmb120 million for the
corresponding period in last year. The decrease in natural rubber sales was
mainly due to the decrease in the average unit selling price from Rmb13,400 in
1995 to Rmb12,200 in 1996. In addition, the unit sales of rubber for the nine
months ended September 30, 1996, decreased by 5.7% from the corresponding period
in fiscal 1995 because more inventories were held as of September 30, 1996, in
anticipation of the increase in selling price in the fourth quarter when there
is less rubber output. Following the completion of the Company's offshore
private placements on March 8 and July 8, 1996, the net proceeds raised from the
offering were invested into the Company's subsidiaries in Hainan as working
capital to expand the distribution operations. The Company has expanded into the
trading of other agricultural products, such as coffee beans, and the
corresponding sales revenue was included under the procurement of materials and
supplies. The total sales of such agricultural products for the nine months
ended September 30, 1996, amounted to approximately Rmb167 million, with a gross
profit of approximately Rmb33 million, or a gross profit margin of 20%. The
overall gross profit margin also increased significantly from 3.99% in fiscal
1995 to 9.14% in fiscal 1996, which was attributable to the high gross profit
margin from the trading of agricultural products and the purchase discounts
received for rubber distribution.
For the third quarter of fiscal 1996, total sales decreased by 31% to
Rmb487 million from Rmb709 million for the corresponding period in fiscal 1995.
The decrease was due to more rubber inventories being held as of September 30,
1996, in anticipation of the increase in selling price in the fourth quarter, as
previously discussed. The overall gross profit margin also increased to 8.50%
from 3.34% for the corresponding period in fiscal 1995 due to the reasons
mentioned above.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased by 16.7%, or Rmb5.6
million, for the nine months ended September 30, 1996, compared to the same
period in fiscal 1995. The increase was mainly due to increases in salaries and
staff welfare expenses, and additional selling expenses were incurred for the
distribution of the agricultural products.
FINANCIAL EXPENSES, NET
The net financial expenses increased by Rmb28.4 million, from Rmb3.4
million for the nine months ended September 30, 1995, to Rmb31.8 million for the
corresponding period in 1996. The net financial expenses for the third quarter
of fiscal 1996 also increased by Rmb9.1 million as compared with the
corresponding quarter in last year. The increase was due to the fact that less
interest income was received from related companies as a result of the overall
decrease in advances to related companies in fiscal 1996.
OTHER INCOME/(LOSSES), NET
Other income/(losses) mainly represented income from long term
investments, rental income and profits or losses on trading of rubber futures
contracts. The Rmb2.6 million decrease in net income, from Rmb17.9 million
for the nine months ended September 30, 1995, to Rmb15.4 million for the same
period in fiscal 1996, was mainly due to less profits on the trading of rubber
futures contracts in fiscal 1996 compared to those of fiscal 1995.
-14-
18
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are to fund accounts receivable,
inventories, rubber purchase deposits and to expand business operations. The
Company has financed its working capital requirements through a combination of
internally generated cash, short term bank borrowing and issuance of share
capital.
Net cash provided by/(used in) operating activities was Rmb54.9 million
and (Rmb9.9 million) for the nine months ended September 30, 1996 and 1995,
respectively. Net cash flows from the Operating Subsidiaries' operating
activities are attributable to the Operating Subsidiaries' income and changes in
operating assets and liabilities.
During the nine months ended September 30, 1996, the Company issued
1,283 shares of series B convertible preferred stock at US$10,000 per share,
with a gross proceeds of US$12.83 million. As of September 30, 1996, 300 shares
of series B convertible preferred stock were still outstanding.
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1995. The Company believes
that the net proceeds from its capital raising efforts, together with internally
generated funds, will be sufficient to satisfy its anticipated working capital
needs for at least the next 12 months.
-15-
19
CERTAIN FINANCING ACTIVITIES
On March 8, 1996, the Company completed a private offering of shares
of its Series B Convertible Preferred stock, par value $0.001 per share (the
"Shares"), raising gross proceeds of $12,530,000.00. On July 8, 1996, the
Company completed another private offering of Shares, raising gross proceeds of
$4,000,000.00. The offerings were conducted outside of the United States in
reliance upon the exemption from registration provided by Regulation S,
promulgated under the Securities Act of 1933, as amended (the "Act"). The terms
of the Shares are set forth in the Certificate of Designation filed by the
Company with the Secretary of State of Nevada on December 13, 1995, as follows:
Each share of Series B Convertible Preferred Stock shall be
convertible into shares of the Corporation's Common Stock, $.001 par
value (the "Common Stock"), at any time during the two-year period
commencing on the 45th day following the date of the closing of the
sale of such share (the "Conversion Period"), upon delivery to the
Corporation by the record holder thereof of a notice of conversion
(the "Conversion Notice") and the surrender to the Corporation at its
corporate offices at 2440 South Progress Drive, Salt Lake City, Utah
84119, or at any other place designated in writing by the Corporation,
of the certificates for shares of Series B Convertible Preferred Stock
to be so converted. The number of shares of Common Stock issuable upon
conversion of shares of Series B Convertible Preferred Stock shall
equal the number of shares of Series B Convertible Preferred Stock to
be converted, multiplied by $10,000 per share (the "Share Price"),
divided by the Conversion Factor (as hereafter defined). "Conversion
Factor" means the lesser of (a) the product derived by multiplying (i)
the average closing bid price of the Common Stock on the electronic
inter-dealer quotation system operated by Nasdaq, Inc., a subsidiary
of the National Association of Securities Dealers, Inc. (the "NASDAQ
System"), for the five consecutive trading days immediately preceding
the date of the delivery of the Conversion Notice to the Corporation
by (ii) 69%, or (b) the product derived by multiplying (i) the average
closing bid price of the Common Stock on the NASDAQ System for the
five consecutive trading days immediately preceding the date of the
delivery of the Subscription Agreement for the related shares of
Series B Convertible Preferred Stock to the Corporation by (ii) 85%.
Upon the expiration of the Conversion Period, all remaining issued and
outstanding shares of Series B Convertible Preferred Stock shall be
converted as of such expiration date into the appropriate number of
shares of Common Stock in accordance with the above-referenced
formula.
None of the shares of Series B Convertible Preferred Stock shall
entitle the holder thereof to any voting rights whatsoever in
connection therewith. The Series B Convertible Preferred Stock has no
preemptive or other subscription rights and is not subject to any
future calls or assessments. There are no redemption or sinking fund
provisions applicable to shares of Series B Convertible Preferred
Stock, and holders of Series B Convertible Preferred Stock have no
rights whatsoever to dividends or to distributions upon liquidation or
dissolution of the Company.
The Corporation may, at its option and in its sole discretion, issue
any other class or series of preferred stock with rights and
preferences superior to or in parity with the rights and preferences
attributable to the Series B Convertible Preferred Stock.
The Shares have not been and will not be registered under the Act and
may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements. The Company intends to
utilize the funds raised through the offering to finance the expansion of its
rubber distribution operations in the People's Republic of China, to repay
short term debt and to provide working capital for distribution and other
operations. As indicated in the financial information above, most of the Shares
have now been converted into shares of Common Stock.
-16-
20
PROPOSAL 1 - BOARD OF DIRECTORS PROPOSAL TO EFFECT A
ONE-FOR-TEN REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK
The Board of Directors of the Company has approved a resolution to
effect a one-for-ten reverse split of the Company's issued and outstanding
shares of Common Stock (the "Reverse Stock Split"). If the Reverse Stock Split
is approved by shareholders, the Board of Directors will determine the date on
which the Reverse Stock Split will become effective. Each share of Common Stock
issued and outstanding immediately prior to that effective date will be
reclassified as and changed into one-tenth of one share of Common Stock.
The principal effect of the Reverse Stock Split will be to decrease the
number of outstanding shares of Common Stock from 82,833,4145,929,004 (as of DecemberMay 13, 1996)1999)
to approximately 8,283,341592,900 shares (assuming that no post-Reverse Stock Split
shares of Common Stock are issued in lieu of fractional shares and assuming that
no additional shares have been issued or retired subsequent to DecemberMay 13, 1996)1999).
The Common Stock issued pursuant to the Reverse Stock Split will be fully paid
and nonassessable. The respective relative voting rights and other rights that
accompany the Common Stock willw ill not be altered by the Reverse Stock Split,
(other than as a result of payment of cash in lieu of fractional shares, as
discussed below), and
the Common Stock will continue to have a par value of $0.001 per share.
Consummation of the Reverse Stock Split will not alter the number of authorized
shares of the Company's Common Stock, which will remain at 200,000,000, of which
approximately 191,716,659199,407,100 shares of Common Stock would constitute authorized but
unissued and unreserved shares. Also, the 3,200,000 outstanding shares of the
Company's Preferred Stock will not be affected by the proposed reverse stock
split.
Reasons for the Proposed Reverse Stock Split
The Reverse Stock Split is being proposed primarily because the Common
Stock does not currently meet the requirements for continued listing on the
Nasdaq Small-Cap Market. The Nasdaq Small-Cap Market continued listing standards
include a requirement that the closing bid price for a listed company be at
least $1.00 per share. Failure to meet this requirement for 30 consecutive
trading days may result in a company being delisted from the Nasdaq Small-Cap
Market. When the minimum bid price requirement is not met for 30 consecutive
trading days, a company is delisted unless its closing bid price equals or
exceeds $1.00 for at least ten consecutive trading days during a 90-day period
following the notice of non-compliance from The Nasdaq Stock Market, Inc.
("Nasdaq").
As of December 10, 1998, the closing bid price for the Common Stock had
been less than $1.00 for more than 30 consecutive trading days. The Company
received a notification of non-compliance from Nasdaq dated December 10, 1998.
The notification stated that, in order to avoid delisting of the Common Stock
from the Nasdaq Small-Cap Market, the bid price for the Common Stock must close
at or above $1.00 per share for at least ten consecutive trading days before
-2-
March 10, 1999. The Common Stock failed to meet this minimum bid price
requirement during the 90-day period which ended March 10, 1999.
On March 9, 1999, the Company filed a request with the Nasdaq Listing
Qualifications Hearing Department for a hearing to contest the delisting of the
Common Stock. The delisting was stayed pending the hearing. Such hearing will
take place on May 6, 1999. [Outcome of hearing to be inserted in final proxy
statement.]
Additionally, the Board of Directors believes that athe high number of
shares of Common Stock outstanding and its relatively low per-share market price
may impairadversely effect the
development of a trading market for the Common Stock and its
acceptability to certain institutional investors and other members of the
investing public. While the number of shares outstanding should not, by itself,
affect the marketability of a stock, the type of investor who acquires such
stock or the Company's reputation in the financial community, the Company
believes that, in practice, this is not necessarily the case, as certain
investors view low-priced infrequently traded stock as unattractive or, as a matter of policy, are
precluded from purchasing low-priced shares. In addition, certain brokerage
houses, as a matter of policy, will not extend margin credit on stocks trading
at low prices. On the other hand, certain other investors may be attracted to
low-priced stock because of the greater trading volatility sometimes associated
with such securities.
Finally,The Board of Directors believes that it has comeis in the best interests of the
Company and its shareholders to maintain the listing of the Common Stock on the
Nasdaq Small-Cap Market and that the consummation of the proposed Reverse Stock
Split will increase the price per share of Common Stock to in excess of $1.00.
It is anticipated that, if approved by the Company's attentionshareholders, the Reverse
Stock Split will become effective at the close of business on June 11, 1999.
In the event that the National Association of Securities Dealers, Inc.,
has proposed an amendmentReverse Stock Split is not approved by the
Company's shareholders, it is likely that the Common Stock will be delisted by
Nasdaq. If this were to its by-laws governing The Nasdaqoccur, the Common Stock Marketwould be traded on the OTC
Bulletin Board and would be subject to regulations relating to "Penny Stocks"
which would requireimmediately affect the ability of shareholders to resell their stock
and the market value for the Common Stock.
There can be no assurance, even if the Reverse Stock Split is
consummated, that a company listed on its Small-Cap Market
maintain a per-share marketthe bid price per share of Common Stock will increase to in
excess of $1.00, or that, if the bid price per share of Common Stock does
increase to in excess of $1.00, that such bid price will remain at leastor above
$1.00. ThereAccordingly, there can be no assurance that Nasdaq will not delist the
Common Stock even if the Reverse Stock Split is consummated. Additionally, there
can be no assurance that the Reverse Stock Split will not adversely impact the
market price of, or the development of a trading market for, the Common Stock, that the marketabilityStock.
Future Dilution; Anti-Takeover Effects
There may be certain disadvantages suffered by shareholders of the
Common Stock will improveCompany as a result of approval of the Reverse Stock Split orSplit. These disadvantages
include a significant increase in possible dilution to present shareholders'
percentage ownership of the Common Stock because of the additional authorized
shares of Common Stock which would be available for future issuance by the
Company. Current shareholders, in the aggregate, own approximately 3% of current
authorized shares of Common Stock under the Company's present capital structure,
but would own only 0.3% of the authorized shares of Common Stock under the
Company's post-split capital structure, assuming that the approval ofproposed Reverse Stock
Split is consummated.
In addition, because the Preferred Stock is not affected by the Reverse
Stock Split, will otherwise have anythe voting power of the effects described herein.
The certificates presently representing sharesholders of Common Stock willwould be
deemed, atsubstantially reduced, relative to the effective timevoting power of the reverse stock splitholder of the
-3-
Preferred Stock. Each share of Preferred Stock is entitled to represent one-tentha vote equivalent
to one share of Common Stock. Currently, the 3,200,000 outstanding Preferred
Shares constitute approximately 35% of the Company's total outstanding voting
securities (comprised of the outstanding Preferred Stock and Common Stock). If
the proposed Reverse Stock Split is consummated, then the 3,200,000 outstanding
Preferred Shares will constitute approximately 84% of the Company's total
outstanding voting securities.
The proportionate increase in the number of shares of Common Stock
afteravailable for future issuance may also have certain anti-takeover effects. For
example, the effective dateavailability of the Reverse
Stock Split. As soon as is practicable following the effective date of the
Reverse Stock Split, shareholders will be notified and requested to surrender
their current certificates to the Company's stock transfer agent in exchange
for the issuance of new certificates reflecting the Reverse Stock Split. No
fractional shares of Common Stock will be issued, and, in lieu thereof,
shareholders holding a large number of shares of Common Stock for future
issuance might allow the Company's Board of Directors to dilute the percentage
share ownership of persons who might attempt to obtain control over the Company.
Approval of the Reverse Stock Split therefore, may allow the Board of Directors
to frustrate a takeover attempt which might be favorable to shareholders as a
group, and may have the effect of limiting shareholder participation in these
types of transactions. While the Reverse Stock Split may have certain
anti-takeover effects, management is not evenly divisibleaware of any attempts by ten, and shareholders holding less than tenthird persons
to accumulate a large number of shares of Common Stock upon
surrenderand the Board of
their old certificates, will receive cashDirectors is not recommending the Reverse Stock Split in lieu of fractional
shares of Common Stock. The price payableresponse to any
existing attempts by the Company
-17-
21
for the fractional shares of Common Stock will be market price per share of
pre-reverse split Common Stock as of the effective date of the reverse stock
split.
The funds requiredthird parties to purchase the fractional shares are available and
will be paid from the current cash reservesobtain control of the Company.
Registration
The Company's
shareholder list indicates that a portionBoard of the outstanding Common Stock is
registered in the names of clearing agencies and broker nominees. It is,
therefore, not possible to predict with certainty the number of fractional
shares and the total amountDirectors believes that the Company will be required to pay for
fractional share interests. However, it is not anticipated that the funds
necessary to effect the cancellationconsummation of fractional shares will be material.
As of December 13, 1996, approximately 186 persons were holders of
record of Common Stock. The Company does not anticipate that the Reverse
Stock Split and the paymentchanges which would result therefrom will not cause the
Company to terminate registration of cash in lieuthe Common Stock under the Securities
Exchange Act of factional shares will result in a
significant reduction in1934, as amended, or to cease filing reports thereunder, and the number of holders of record of Common Stock. The
Company does not presently intend to seek, either before or after the Reverse
Stock Split, any change in the Company's status as a reporting company for
federal securities law purposes.
Except as described below with respect to cash received in lieu of
fractional share interests, theFederal Income Tax Consequences
The receipt of Common Stock in the Reverse Stock Split should not
result in any taxable gain or loss to shareholders for U.S. federal income tax
purposes. If the Reverse Stock Split is approved, the U.S. tax basis of Common
Stock received as a result of the Reverse Stock Split
(including any fractional share interests to which a shareholder is entitled) will be equal, in the
aggregate, to the basis of the shares exchanged for the Common Stock. For U.S.
federal income tax purposes, the holding period of the shares immediately prior
to the effective date of the Reverse Stock Split will be included in the holding
period of the Common Stock received as a result of the Reverse Stock Split, including any fractional share interests to which a
shareholder is entitled. A shareholder who receives cash in lieu of fractional
shares of Common Stock will be treated as first receiving such fractional
shares and then receiving cash as payment in exchange for such fractional
shares of Common Stock, and such cash payment will likely be treated as a
dividend for U.S. federal income tax purposes.Split.
SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS FOR MORE DETAILED
INFORMATION REGARDING THE EFFECTS OF THE PROPOSED REVERSE SPLIT ON THEIR
INDIVIDUAL TAX STATUS.
Exchange of Certificates
As soon as is practicable following the effective date of the Reverse
Stock Split, shareholders will be notified and requested to surrender their
current certificates to the Company's stock transfer agent in exchange for the
issuance of new certificates reflecting the Reverse Stock Split. Commencing on
the effective date of the Reverse Stock Split, each certificate representing
pre-Reverse Stock Split shares of Common Stock will be deemed for all purposes
to evidence ownership of post-Reverse Stock Split shares of Common Stock. No
fractional shares of Common Stock will be issued, and, in lieu thereof, assuming
approval by the shareholders of the Reverse Stock Split, a whole share will be
issued to any shareholders entitled to a fraction of a share of Common Stock.
-4-
Determination by Board to Abandon Reverse Stock Split
In accordance with Nevada law and notwithstanding approval of the
proposal by shareholders, at any time prior to the effective date of the Reverse
Stock Split, the Board of Directors may, in its sole discretion, abandon the
proposal without any further action by shareholders.
Requisite Vote
Assuming the presence of a quorum, the affirmative vote of the holders
of a majority of the voting power of the outstanding shares of Common Stock and
Preferred Stock, counted together, is necessary for approval of the Reverse
Stock Split.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE PROPOSAL TO EFFECT THE REVERSE STOCK SPLIT.
PROPOSAL 2 - AMENDMENT OF ARTICLES OF
INCORPORATION TO INCREASE SHARE OWNERSHIP
REQUIREMENT FOR CALLING SPECIAL MEETING OF SHAREHOLDERS
The Board of Directors has unanimously approved, and recommends that
the shareholders adopt, an amendment to Article V of the Articles of
Incorporation to increase the share ownership required in order to call a
special meeting of the shareholders. If the proposed amendment is adopted,
Article V will be amended as follows (struck-through text indicates deletions,
text in italics indicates additions):
-18-
22
STOCKHOLDERS MEETING: Meetings of the shareholders shall be
held at such place within or without the State of Nevada as may be
provided by the By-laws of the corporation. Special meetings of the
shareholders may be called by the President or any other executive
officer of the corporation, the Board of Directors, or any member
thereof, or by the record holder or holders of at least [ten
percent (10%)] of all shares entitled to vote
at the meeting. Any action otherwise required to be taken at a
meeting of the shareholders, except election of directors, may be
taken without a meeting if a consent in writing, setting forth the
action so taken, shall be signed by shareholders having at least
a majority of the voting power.
The Board of Directors believes that the increase in the share
ownership required in order to call a special meeting of the shareholders is in
the best interest of the Company and its shareholders because it will reducing
the time and expense to the Company that may result from requests for special
meetings by the holders of relatively small numbers of shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE
SHARE OWNERSHIP REQUIRED IN ORDER TO CALL A SPECIAL MEETING OF THE
SHAREHOLDERS.
PROPOSAL 3 - AMENDMENT OF ARTICLES OF
INCORPORATION TO ESTABLISH THREE CLASSES OF DIRECTORS AND
CLARIFY PROVISIONS APPLICABLE TO DIRECTORS AND OFFICERS
The Board of Directors has unanimously approved, and recommends that
the shareholders adopt, amendments to Article VIII and Article IX of the
Articles of Incorporation to establish three classes of directors with
staggered, three-year terms and to clarify provisions of the Articles of
Incorporation applicable to directors and/or officers. If the proposed
amendment is adopted, the following new sentences will be added at the
beginning of Article VIII:
BOARD OF DIRECTORS: The number of directors of the corporation
shall be a minimum of three and a maximum of 25, approximately
one-third of whom shall be classified as "Class I" directors,
approximately one-third of whom shall be classified as "Class II"
directors and approximately one-third of whom shall be classified as
"Class III" directors. Class I, Class II and Class III directors shall
be elected in consecutive years. Each director shall serve as a
director until the annual meeting of shareholders occurring in the
year three years following his election and until his successor shall
have been elected and qualified. Notwithstanding the foregoing
sentence, Class I directors shall be elected for one-year terms, and
Class II directors shall be elected for two-year terms, at the annual
meeting of shareholders where three classes of directors are initially
established.
Also, if the proposed amendment is adopted, Article IX will be amended as
follows (struck-through text indicates deletions, text in italics indicates
additions, and ellipses indicate omissions of paragraphs of Article IX not
amended):
[] indicates struck-through text; <> indicates italicized text.
-19-
23
OFFICERS: The officers of the corporation shall consist of [a
Board of Directors of not less than three nor more than twenty-five] a
Chairman of the Board of Directors, a President, a Vice President, a
Secretary, [and] a Treasurer , who shall perform such duties and have such
authority as usually pertains to such officers of a corporation or as
may be prescribed by the Board of Directors from time to time.
. . . .
ELECTION: Directors shall be elected at the Annual Meeting of
the Shareholders, and the persons
receiving the highest number of votes shall be declared duly elected
, providing such
numbers shall represent a majority of all votes cast. Within ten (10)
days after the election, the directors shall meet and elect a
President, Vice President, Secretary<,> [and] Treasurer
.
TERM OF OFFICE: [T]he term of office of all [directors
and] officers shall be [one year], provided all directors and officers shall
hold office until their successors are duly elected and qualified.
. . . .
The Company currently has seven directors, all of whom serve one-year
terms. The Board of Directors believes that it is in the best interest of the
Company to provide for staggered terms for directors in order to ensure
experienced leadership for the Company. The proposed amendment would change
Article VIII of the Articles of Incorporation provide that roughly one-third of
the directors be elected each year for a three-year term, except that all of
the directors would be elected at this Annual Meeting and approximately
one-third of those elected will be designated as Class I directors, to serve an
initial one-year term, and approximately one-third of those elected will be
designated as Class II directors, to serve an initial two-year term. The
remaining one-third of the directors elected at this Annual Meeting would be
Class III directors, to serve a normal three-year term in accordance with
Article VIII. The proposed amendment also would make necessary corresponding
changes to Article IX, as well as setting forth the officers currently
appointed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION TO ESTABLISH THREE
CLASSES OF DIRECTORS AND TO CLARIFY PROVISIONS APPLICABLE TO DIRECTORS AND
OFFICERS.
PROPOSAL 4 - AMENDMENT OF BY-LAWS TO ALLOW
AMENDMENTS TO BY-LAWS BY BOARD OF DIRECTORS OR BY
HOLDERS OF A MAJORITY OF A QUORUM OF OUTSTANDING SHARES
The Board of Directors recommends that the shareholders adopt an
amendment to Article XI of the By-Laws to allow the Board of Directors to amend
the By-Laws and to allow a majority of a quorum of the outstanding shares to
amend the By-Laws. If the proposed amendment is adopted, Article XI will be
amended as follows (struck-through text indicates deletions, text in italics
indicates additions):
[] indicates struck-through text; <> indicates italicized text.
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These by-laws may be altered, amended or repealed and new
by-laws may be adopted by a vote of the stockholders representing a majority of
all the shares issued and outstanding[,] at any annual
stockholders' meeting or at any special stockholders' meeting when
the proposed amendment has been set out in the notice of such meeting.
The Board of Directors believes that the adoption of this By-Law
amendment is in the best interest of the Company and its shareholders, as it
will allow the Board of Directors to change the By-Laws without the necessity
of obtaining shareholder approval, and it will allow the holders of a majority
of a quorum of the outstanding shares to change the By-Laws. The amendment
would bring the By-Laws into compliance with Article XII of the Articles of
Incorporation, which gives the Board of Directors "authority to adopt such
by-laws as in their judgment may be deemed necessary or advisable for the
management and transaction of the business of the corporation . . . ."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT TO GIVE THE BOARD OF DIRECTORS AND THE HOLDERS OF A
QUORUM OF THE OUTSTANDING SHARES THE POWER TO AMEND THE BY-LAWS.
PROPOSAL 5 - AMENDMENT OF THE 1995 STOCK OPTION
PLAN TO CHANGE THE NUMBER OF SHARES SUBJECT THERETO AND TO
REDUCE THE REQUIRED HOLDING PERIOD FOR NON-QUALIFIED OPTIONS
The Board of Directors recommends that the shareholders adopt an
amendment to 1995 Stock Option Plan (the "Plan") to change the method by which
the number of shares of Common Stock available for the Plan is determined,
resulting in an increase in such number, and to reduce the required holding
period for non-qualified options. If the proposed amendment is adopted, Section
12 of the Plan will be amended as follows (struck-through text indicates
deletions, text in italics indicates additions):
Shares Available for the Plan.
Subject to adjustments as provided in Section 12, [an aggregate of
2,400,000] shares of Common Stock of the Company
(hereinafter the "shares") may be issued pursuant to the Plan
.
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.
Also, if the proposed amendment is adopted, Section 6(d) of the Plan will be
amended as follows (struck-through text indicates deletions, text in italics
indicates additions):
(d) Terms of Options. The term during which each option may be
exercised shall be determined by the Committee, but in no
event shall an [o]ption be exercisable in
whole or in part in less than one year or, in the case of a
Nonqualified Stock Option, more than ten years and one day
from the date it is granted, or, 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 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, in no event shall such
option be exercisable, if required by the Code at the time of
grant, more than five years from the date of the grant.
[ ] indicates struck-through text; < > indicates italicized text.
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25
For information concerning the terms of the Plan 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, 1995, a copy of which is provided herewith and incorporated herein by
reference. In addition, 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 Stock Option Plan (the "Plan") adopted by the
Company as of March 31, 1995, the board of directors granted options to the
following officers and directors to purchase shares of the Company's Common
Stock:
Yiu Yat Hung 6,000 shares
Tam Cheuk Ho 6,000 shares
Han Jianzhun 6,000 shares
Li Feilie 100,000 shares
In addition, the board of directors granted options to the following employees
and consultant to purchase shares of the Company's Common Stock:
Brender Services Limited 100,000 shares
Wong Wah On 6,000 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.
Stock options have now been granted with respect to all 2,400,000 shares of
Common Stock subject to the Plan, and all stock options remain outstanding.
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 number of shares available for stock option grants to
increase proportionately with the number of shares of Common Stock outstanding.
This "floating" number
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26
will enable the Board of Directors to grant additional stock options to
employees, officers, directors and consultants if increases in outstanding
shares of Common Stock occur. Also, the amendment will allow the Board of
Directors to grant non-qualified stock options with holding periods of less
than one year.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT TO 1995 STOCK OPTION PLAN TO PROVIDE FOR AN INCREASE
IN THE NUMBER OF SHARES SUBJECT THERETO ON A PROPORTIONAL BASIS AND TO ALLOW
THE GRANTING OF NON-QUALIFIED STOCK OPTIONS WITH HOLDING PERIODS OF LESS THAN
ONE YEAR.
PROPOSAL 6 - ELECTION OF DIRECTORS
TheDuring 1998, the Company's Board of Directors is currentlywas comprised of seven
directors, and, itaccording 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. WithAt the adoption1996 annual meeting, the shareholders approved an amendment
to the Articles of Proposal 2 hereinabove, suchIncorporation to divide the directors will be divided into three classes. Typically, oneOne
class willof directors is to be elected each year for a three-year term. However, as
three classes of directors arewere newly established, the Class I directors will bewere
elected at this Annual Meetingthe 1996 annual meeting for one-year terms, the Class II directors
will bewere elected for two-year terms and the Class III directors will bewere elected for
normal three-year terms. At the Annualannual meeting held in 1997, Messrs. Yiu Yat Hung and Tam Cheuk
Ho will be
nominatedand Wong Wah On were elected to serve in Class I until the annual meeting to
be held in 19972000 and until their successors have been duly elected and qualified.
Also,At the annual meeting held in 1998, Messrs. Wang
FarenChing Lung Po and Han Jian Zhun will be nominatedLin Yu Quan were
elected to serve in Class II until the annual meeting to be held in 19982001 and
until their successors have been duly elected and qualified. Finally, Messrs. Yang Jiangang, Li
Shunxing, Ng Kin Sing (who was selected by the Board of Directors to fill the
vacancy created by the resignation of Mr. Zhang Yibing) and Zhang Yibing
will be nominatedWan Ying Lin (who
was selected by the Board of Directors to fill the vacancy created by the
resignation of Mr. Yang Jiangang) continue to serve in Class III until the
annual meeting to be held in 1999 and until their successors have been duly
elected and qualified. AllTherefore, in accordance with the Articles of
Incorporation and the actions taken at the 1996 annual meeting, the election of
directors in Class III is to be conducted at the 1999 Annual Meeting.
The nominees for Class III, if elected, will serve a three-year term
until the annual meeting to be held in 2002 and until their successors have duly
elected and qualified. Messrs. Wan and Ng are currently serving as directors of
the Company, allCompany. Both nominees have consented to being named herein and all 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:-5-
Class III Directors:
Mr. Yiu Yat Hung, 44,Wan Ying Lin has been a Vice Chairman of the Board of
Directorsdirector of the Company since December, 1994. He is also the Vice-ChairmanFebruary 4,
1998. Since September of the Board of Directors of Hainan Agricultural Resources Company Limited
("HARC"), and since June, 1988,1996, Mr. Wan has been the ChairmanDirector and Deputy General
Manager of OVM International Holding Corp. (OTCBB: OVMI), which is included in
the OTC Bulletin Board operated by the National Association of Securities
Dealers, Inc. Mr. Wan graduated from the Guangxi Liuzhou Institute of Medical
Specialty, specializing in administration and management. From January 1986
through December 1987, he was the manager of Lam Ko Mould Company, in charge of
the BoardChina marketing and development division in Hong Kong. From January 1988
through February 1993, Mr. Wan worked as the marketing manager of Directors
and Managing Director ofWai Tong
Trading Company in Hong Wah Investment Holdings Limited, aKong. In 1993, he joined the Hong Kong incorporated private group of companies andPrestressing
Concrete Engineering Company Limited, where he serves as manager.
Mr. Ng Kin Sing has been a shareholderdirector of the Company. From
January, 1990 through December, 1992, Mr. Yiu was the Chairman of Shenzhen Hong
Wah IndustrialCompany since February 1,
1999, and Commerce Company, Ltd., a Sino-foreign limited liability
joint stock company,
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and was responsible for the formulation of that entity's investment strategy.
Mr. Yiu has more than 12 years of experience in the financial, commerce and
industrial fields in both the PRC and Hong Kong. Mr. Yiu is currentlyalso serves as a member of the Chinese General ChamberBoard's audit committee. Mr. Ng is the
managing director of Commerce Hong KongAction Plan Limited, a securities investment company. From
November 1995 until March 1998, Mr. Ng was sales and the Federation of Hong
Kong Industries. Mr. Yiu is also the Vice Chairman of the Shenzhen Association
of Enterprises with Foreign Investment and a standing committee member of the
China Association of Enterprises with Foreign Investment.
Mr. Tam Cheuk Ho, 34, has been a Director and the Chief Financial
Officer of the Company since December, 1994. Prior to joining the Company,
from July, 1984 through January, 1992, he worked as Audit Manager at Ernst &
Young, Hong Kong,dealing director for
NatWest Markets (Asia) Limited; and from February, 1992 through September, 1992, as Financial
Controller at Tack Hsin Holdings Limited, a listed company in Hong Kong, whereMay 1995 until October 1996, he was responsible for accounting and financial functions. From October, 1992,
through December, 1994,the
dealing director of BZW Asia Limited, an international securities brokerage
house. Mr. Tam was Finance Director of Hong Wah Investment
Holdings Limited. He is an associate of the Hong Kong Society of Accountants
and a fellow of the Chartered Association of Certified Accountants. He is also
a certified public accountant in Hong Kong. HeNg holds a Bachelor'sbachelor's degree in Business Administrationbusiness administration from the
Chinese University of Hong Kong.
CLASS II DIRECTORS:
Mr. Wang Faren, 49, has been a Vice Chairman of theInformation Regarding Board of Directors of the Company since December, 1994. He is also the Chairman of the Board of
Directors of HARC. Mr. Wang joined the Farming Bureau in 1968 and worked for 13
years at the Hainan State Farms. Mr. Wang joined the top management of the
Farming Bureau in 1986 as its Deputy Director. He became a Director of the
Farming Bureau in October, 1991, and remains in that position today. Mr. Wang
graduated from South China Tropical Species Research Institute, an agricultural
engineering institute, and received extensive training on agricultural
engineering, botany and tropical plantation. Mr. Wang has more than 25 years of
experience in agricultural production and management.
Mr. Han Jian Zhun, 48, has been a Director of the Company since
December, 1994, and the Vice President since March 15, 1995. He is also the
President and General Manager of HARC. Mr. Han joined the Farming Bureau in
1968 and has consistently addressed agriculture production and management
issues. Mr. Han joined the top management of the Farming Bureau in 1986 and
became the Deputy Director in 1991. Mr. Han was also the General Manager of Ba
Ye State Rubber Farms from 1990 through 1991. Mr. Han is heavily involved in
industrial management of the Farming Bureau.
CLASS III DIRECTORS:
Mr. Yang Jiangang, 35, has been the Chairman of the Board of Directors
of the Company since December, 1994. He is also a Director of HARC. Mr. Yang
joined the Bank of China Head Office Beijing in 1983 and worked in the Treasury
Division there from 1983 through 1993. He was transferred in January, 1990, to
the Head Office to be the Deputy Manager of the Fixed Income Division, where he
was in charge of fixed income investment
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28
of foreign exchange reserves of the PRC. In June, 1992, Mr. Yang was relocated
to the Bank of China London Branch where he was in charge of treasury
operations until April, 1993. He resigned from the Bank of China in April,
1993, and joined China Everbright Holdings Company Limited, which is a PRC
state-owned enterprise with a number of overseas subsidiaries, as Deputy
General Manager of the Finance Department. In October, 1993, Mr. Yang became
the Deputy General Manager of Everbright Finance & Investment Co. Limited
("Everbright"), a wholly-owned Hong Kong subsidiary of China Everbright
Holdings Company Limited and a shareholder of the Company, and is presently the
Director and Deputy General Manager. Mr. Yang graduated from Beijing
International Relationship Institute with a Bachelor's degree.
Mr. Li Shunxing, 45, has been the President of the Company since
December, 1994, and a Director since March 15, 1995. He is also a Director of
HARC. He has been the Director and General Manager of Worlder International
Company Limited, a shareholder of the Company, and Director and Deputy General
Manager of Worlder Shipping Limited, both of which are Hong Kong based,
wholly-owned subsidiaries of SINOTRANS GROUP, a PRC state-owned enterprise,
since September, 1992. From June, 1990 through August, 1992, Mr. Li was the
Director and Executive Deputy General Manager of Cheemimet Finance Ltd. Hong
Kong in charge of finance, property development and investment matters. For
over 15 years, he has been working with conglomerates in China and their
subsidiaries abroad under the Ministry of Foreign Trade and Economic
Corporation and has extensive experience in corporate management, finance,
investment and foreign trade. Mr. Li graduated from the University of
International Business & Economics, Beijing, in 1976 with a Bachelor's degree.
Mr. Zhang Yibing, 30, has been a Director and the Secretary of the
Company since December, 1994. He is also a Director of HARC. Mr. Zhang joined
Bank of China Beijing Head Office in 1987, working in the Treasury and Asset
Liability Sector. Mr. Zhang was assigned to Bank of China Sydney Branch in 1988
where he was in charge of foreign exchange and money market areas of the
treasury. In March, 1991, Mr. Zhang was transferred to the Bank of China
Beijing Head office where he was the Assistant Manager of Fixed Income Division
until December, 1992, when he resigned from the Bank and joined China
Everbright Holdings Co., Ltd. as Finance Manager. Mr. Zhang became the
Corporate Finance Manager of Everbright, a wholly-owned subsidiary of China
Everbright Holdings Co. Ltd. and a shareholder of the Company, in October,
1993, and, in March, 1994, was appointed the Senior Manager of Everbright,
where he was in charge of investment and lending. In February 1995, Mr. Zhang
became a director of Everbright. Mr. Zhang graduated from Beijing Foreign
Languages Institute with a Bachelor's Degree.
INFORMATION REGARDING BOARD OF DIRECTORS AND COMMITTEESCommittees
The Company's Board of Directors held fiveeight (8) meetings during 1995,1998,
and all other actions of the Board were taken pursuant to unanimous written
consents. The Board of Directors does not have an audit,a compensation or nominating
committee. The Board has established an audit committee consisting of two
"independent" directors, Ng Kin Sing and Wan Ying Lin. The Board as a whole
operates as a committee to nominate directors and to administer the Company's
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 attended all of the meetings of the Board of Directors during the
period for which he was a director.
The Board of Directors, acting as a nominating committee, will consider
candidates for director nominated by shareholders. A shareholder who wishes to
submit a candidate for consideration at the 19972000 annual meeting must notify the
Secretary of the Company in writing no later than March 2, 1997.1, 2000. 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 in proxy solicitations. The
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29
nomination notice must also include the nominating shareholder's name and
address and the number of shares of stock beneficially owned by the shareholder.
The shareholder must also furnish a statement from the candidate indicating that
the candidate wishes and is able to serve as a director. These procedures, and a
statement that the shareholder intends to make the nomination, are prerequisites
to a stockholder nominating a candidate at the annual meeting.
COMPENSATION OF DIRECTORSCompensation of Directors
During 1995,1998, directors of the Company did not receive compensation for
their service as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES DESCRIBED ABOVE.
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PROPOSAL 73 - APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to ratification by the shareholders, the Board of Directors has
reappointed Ernst & Young, Certified Public Accountants, as independent
accountants to audit the consolidated financial statements of the Company for
the year 1996.1999. Ernst & Young has served as the Company's Independent Accountants
since March of 1995.
On March 16, 1995, the Company executed an engagement letter with the
certified public accounting firm of Ernst & Young, which detailed the scope of
work to be performed by Ernst & Young during the next year. After executing the
letter agreement with Ernst & Young to serve as independent auditors for the
Company, the Company terminated its relationship with the certified public
accounting firm of H. J. Swart & Company, P.A. (the "Former Accountants"), by
letter from the Company's counsel dated March 21, 1995. The Company's decision
to change accountants was approved by the Company's Board of Directors.
The Former Accountants' reports on the Company's financial status for
the years ended December 31, 1992, and December 31, 1993, did not contain an
adverse opinion or a disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope, or accounting principles. Since the engagement of
the Former Accountants in 1993 and until the dismissal of the Former
Accountants, there were no disagreements with the Former Accountants on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the Former Accountants, would have caused it to make reference
to the subject matter of the disagreements in connection with its reports.
The Company filed a Form 8-K current report dated March 16, 1995,
setting forth the above information. The Company, through its counsel,
delivered a copy of the Form 8-K to the Former Accountants on March 21, 1995,
and requested that the Former Accountants review the disclosures contained
therein and provide a response as promptly as possible so the Company could
file the response within ten business days after the filing of the Form 8-K.
The Company received a response from the Former Accountants by letter dated
March 22, 1995, in which the Former Accountants indicated that they agreed with
the disclosures and statements made by the Company in the Form 8-K. The Company
then amended the previously filed Form 8-K by filing a Form 8-K/A to include
the response of the Former Accountants, which was attached thereto as an
exhibit.
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30
If the shareholders should fail to ratify the appointment of Ernst &
Young as its independent accountants, the Board of Directors would reconsider
the appointment. It is expected that representatives of Ernst & Young will be
present at the Annual Meeting, will have an opportunity 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 Beneficial
Ownership of Certain Shareholders, 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 with Section 16(a) of the Securities Exchange Act of 1934, as
amended, please see the appropriate Items of the Company's Form 10-K annual
report for the fiscal year ended December 31, 1995,1998, 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 herein and in the Form 10-K, including without limitation the
information under the heading, "Management's discussionDiscussion and Analysis of
Financial Condition and Results of Operations," identifies important factors
that could cause such differences. With respect 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 behalfbelief will result or be
achieved or accomplished.
SHAREHOLDER PROPOSALS FOR 19972000 ANNUAL MEETING
To be considered for inclusion in next year's proxy materials,
shareholder proposals to be presented at the Company's 19972000 annual meeting must
be in writing and be received by the Company no later than March 2, 1997.1, 2000.
-7-
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 proxy to vote said
proxy in accordance with his judgment on such matters.
-27--8-
31
APPENDIX
PROXY FOR ANNUAL MEETING
OF SHAREHOLDERS
DECEMBER 30, 1995
THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORSMay 28, 1999
This Proxy is Solicited on
Behalf of the Board of Directors
The undersigned hereby appoints Li ShunxingChing Lung Po and Yang JiangangTam Cheuk
Ho, or either of them acting singly in the absence of the other, as attorneys
and as proxies, with full power of substitution, to vote all shares of Common
Stock and Preferred Stock of China Resources Development, Inc. (the "Company"),
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of the Company to be held on December 30, 1996,May 28, 1999, at 3:00 p.m., local time, at the
offices of Worlder
InternationalHainan Zhongwei Agricultural Resources Company Limited, located at
21stSixth Floor, Great Eagle Centre, No. 23
Harbour Road,International Hong Kong,Yun Hotel, 13 Haixiu Avenue, Haikou City, Hainan
Province, People's Republic of China, and at any adjournments or postponements
thereof, upon the matters described in the accompanying Proxy Statement and upon
other business that 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 EFFECT A ONE-FOR-TEN REVERSE STOCK SPLIT of the
Company's common stock, par value $0.001 per share. (The Board of Directors
recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION, as
revised, of the Company to increase the share ownership requirement for the
calling of special meetings of the shareholders. (The Board of Directors
recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION, as
revised, of the Company to establish three classes of directors and clarify
provisions affecting officers and directors. (The Board of Directors recommends
a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO AMEND THE BY-LAWS OF THE COMPANY to allow the
Board of Directors to amend the By-Laws. (The Board of Directors recommends a
vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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5. PROPOSAL TO AMEND THE COMPANY'S 1995 STOCK OPTION PLAN to
increase the number of shares of Common Stock subject thereto and to decrease
the required holding period for non-qualified stock options. (The Board of
Directors recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. ELECTION OF NOMINEES FOR DIRECTORS in the following classes.Class III.
SHAREHOLDERS MAY WITHHOLD THEIR VOTE FOR ANY NOMINEES BY STRIKING OUT THE NAME
OF SUCH NOMINEE OR NOMINEES:
CLASS I: Yiu Yat Hung, Tam Cheuk Ho
CLASS II: Wang Faren, Han Jian Zhun
CLASS III: Yang Jiangang, Li Shunxing, Zhang YibingNg Kin Sing, Wan Ying Lin
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees listed to vote for all nominees listed
(except as marked)
7.3. PROPOSAL TO RATIFY THE SELECTION of Ernst & Young,
Certified Public Accountants, as the Company's independent accountants for the
fiscal year ending December 31, 1996.1999. (The Board of Directors recommends a vote
FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8.4. To transact such other business as may properly come before
the meeting 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: ________________________________
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33_________________________________
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 8.4. If signing as attorney, executor, trustee or
guardian, please give your full title as such. If stock is held jointly, each
owner should sign.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
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