UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X][_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[x][X] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the [ ] Definitive Proxy StatementSS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
[_] Definitive Additional Materials
by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12Definitive Proxy Statement
[_] Definitive Additional Materials
CHINA RESOURCES DEVELOPMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x][X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)(4) and 0-11.
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials:
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[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the formForm or scheduleSchedule and the date of its filing.
1) Amount previously paid:Previously Paid:
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4) Date Filed:
CHINA RESOURCES DEVELOPMENT, INC.
Room 2005, 20/F., Universal Trade Centre
3-5A Arbuthnot Road, Central, Hong Kong________________________________________________________________________________
[LOGO]
-----------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 28, 1999October 12, 2000
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 Hainan Zhongwei Agricultural ResourcesShenzhen Xubu Investment Company Limited, Sixth Floor, International Hong Yun Hotel, 13 Haixiu Avenue, Haikou City, Hainan5020 Binhe
Road, Fu Tian District, Shenzhen Province, People's Republic of China, on
May 28, 1999,October 12, 2000, at 3:002:30 p.m., local time, for the following purposes:
1. To consider and vote upon a proposal byratify the Boardissuance of Directors to
effect a one-for-ten reverse stock split244,897 shares of
the Company's commonCommon Stock;
2. To consider and vote upon an amendment to the Company's
Amended and Restated 1995 Stock Option Plan to modify the pricing
procedure for the exercise of nonqualified stock par value $0.001 per share;
2.options and to
eliminate the requirement of shareholder approval for any modification
of the Plan that would materially increase the benefits accruing to
participants in the Plan;
3. To elect directors in Class III;
3.I;
4. 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, 1999;2000; and
4.5. 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 April 30, 1999,September 14, 2000,
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, 1998,1999, is enclosed for your convenience.
Please sign and date the enclosed proxy card and return it promptly in
the accompanying envelope (no postage required if mailed in the United States)
to ensure that your shares will be represented at the Annual Meeting. If you
attend the Annual Meeting, you may vote your shares in person even if you have
previously submitted a proxy.
By Order of the Board of Directors,
/s/ Wong Wah On
-----------------------------------------------------------------------------
Wong Wah On
Corporate Secretary
May 13, 1999October 2, 2000
CHINA RESOURCES DEVELOPMENT, INC.
Room 2005, 20/F., Universal Trade Centre
3-5A Arbuthnot Road, Central, Hong Kong
----------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 28, 1999OCTOBER 12, 2000
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 May 28, 1999,October 12, 2000, for
the purposes set forth in the accompanying notice (the "Annual Meeting"). The
Company will bear the costs of soliciting proxies from its shareholders. In
addition to soliciting proxies by mail, directors, officers and employees of the
Company, without receiving additional compensation therefor, may solicit proxies
by telephone, by telegram or in person. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of Common Stock held of record
by such persons, and the Company will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith. This proxy statement is first being
mailed to shareholders of the Company on or about May 13, 1999.October 2, 2000.
VOTING AT THE MEETING
At the close of business on April 30, 1999,September 14, 2000, 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
5,929,004837,797 shares of Common Stock and 3,200,000320,000 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
ratification of the issuance of shares of Common Stock, FOR approval of the
reverse stock split,amendment to the Amended and Restated 1995 Stock Option Plan, FOR the election
of the nominees for director listed in this proxy statement, FOR ratification of
the appointment of Ernst & 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
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 proxy statement to
"U.S. Dollars," "Dollars," "US$," or "$" are to United States dollars; all
references to "Hong Kong Dollars" or "HK$" are to Hong Kong dollars; and all
references to "Renminbi" or "RMB" or "Yuan" are to Renminbi Yuan, which is the
lawful currency of the People's Republic of China ("China" or "PRC"). The
Company and Billion Luck maintain their accounts in U.S. Dollars and Hong Kong
Dollars, respectively. HARC and the Operating Subsidiaries maintain their
accounts in Renminbi. The financial statements of the Company and its
subsidiaries are prepared in Renminbi. Translations of amounts from Renminbi to
U.S. Dollars and from Hong Kong Dollars to U.S. Dollars are for the convenience
of the reader. Unless otherwise indicated, any translations from Renminbi to
U.S. Dollars or from U.S. Dollars to Renminbi have been made at the single rate
of exchange as quoted by the People's Bank of China (the "PBOC Rate") on June
30, 2000, which was approximately U.S.$1.00 = Rmb8.28. Translations from Hong
Kong Dollars to U.S. Dollars have been made at the single rate of exchange as
quoted by the Hongkong and Shanghai Banking Corporation Limited on June 30,
2000, which was approximately US$1.00 = HK$7.80. The Renminbi is not freely
convertible into foreign currencies and the quotation of exchange rates does not
imply convertibility of Renminbi into U.S. Dollars or other currencies. All
foreign exchange transactions take place either through the Bank of China or
other banks authorized to buy and sell foreign currencies at the exchange rates
quoted by the People's Bank of China. No representation is made that the
Renminbi or U.S. Dollar amounts referred to herein could have been or could be
converted into U.S. Dollars or Renminbi, as the case may be, at the PBOC Rate or
at all.
References to "Billion Luck" are 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 Zhongwei 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 the Company.
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" 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.
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 or Series B Preferred Stock outstanding as
of September 14, 2000, 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
of Beneficial Owner Beneficial Ownership (1) Class
------------------- ------------------------ -----
Winsland Capital Limited 33,480 Common Stock 4.00%
TrustNet Chambers 320,000 Series B Preferred 100%
P.O. Box 3444, Road Town
Tortola, British Virgin Islands
Worlder International Company 48,600 Common Stock 5.80%
Limited (2)
21/F., Great Eagle Centre
No. 23 Harbour Road
Hong Kong
E-link Investment Limited 244,897 Common Stock 29.23%
17/F., Kwanchart Tower
6 Tonnochy 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 48,600 shares of Common Stock indicated, Worlder International
Company Limited ("Worlder") directly owns 35,100 shares, and the remaining
13,500 shares represent shares of Common Stock owned by Silverich Limited, which
is wholly-owned by Worlder.
SHARE OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of September 14, 2000, by (i) each
director of the Company, (ii) each executive officer of the Company named in the
summary compensation table, and (iii) 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.
Amount and
Name of Nature Percent of
Beneficial Owner Beneficial Ownership (1) Class
---------------- ------------------------ -----
Li Fei Lie -0- (3) N/A
Lin Yu Quan -0- N/A
Tam Cheuk Ho -0- (2) N/A
Lo Kin Cheung -0- N/A
Wong Wah On 4,320 Common Stock (4) 0.05%
Ching Lung Po 33,480 Common Stock (5) 4.00%
Wan Ying Lin -0- N/A
Ng Kin Sing -0- N/A
All executive officers 37,800 Common Stock 4.51%
and directors as a group
- ----------------------------
(1) The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of these shares.
(2) Tam Cheuk Ho was granted options to purchase 60 shares of Common Stock under
the Company's Stock Option Plan.
(3) Li Fei Lie was granted options to purchase 1,000 shares of common stock
under the Company's Stock Option Plan.
(4) Brender Services Limited owns 4,320 shares of Common Stock. Brender Services
Limited is beneficially owned by Wong Wah On, the Director, Secretary and
Financial Controller of the Company. In addition, Brender was granted options to
purchase 1,000 shares of Common Stock under the Company's Stock Option Plan, and
Mr. Wong was granted options to purchase 60 shares of Common Stock under the
Plan.
(5) Winsland Capital Limited owns 33,480 shares of Common Stock. Winsland
Capital Limited is beneficially owned by Ching Lung Po, the Chairman of the
Board of Directors of the Company.
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 June 30,
2000. This information supplements the information contained in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1999, a copy
of which is provided herewith and incorporated herein by reference.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Note 2000 1999 2000 2000 1999 2000
-------- -------- -------- -------- -------- --------
RMB RMB US$ RMB RMB US$
NET SALES 2,316 -- 280 3,713 -- 448
COST OF SALES (2,548) -- (308) (3,844) -- (464)
-------- -------- -------- -------- -------- --------
GROSS PROFIT/(LOSS) (232) -- (28) (131) -- (16)
DEPRECIATION (351) -- (42) (551) -- (67)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (3,789) (2,849) (458) (8,238) (5,388) (995)
FINANCIAL INCOME, NET 3,668 192 443 3,708 271 448
OTHER INCOME, NET (2,481) 6,664 (300) 10,538 6,664 1,273
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,185) 4,007 (385) 5,326 1,547 643
INCOME TAXES 187 (620) 23 (1,770) (620) (214)
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE MINORITY INTERESTS (2,998) 3,387 (362) 3,556 927 429
MINORITY INTERESTS 814 (1,874) 98 (3,603) (1,874) (435)
-------- -------- -------- -------- -------- --------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS (2,184) 1,513 (264) (47) (947) (6)
DISCONTINUED OPERATIONS 2 -- (1,285) -- -- (3,174) --
-------- -------- -------- -------- -------- --------
NET INCOME/(LOSS) (2,184) 228 (264) (47) (4,121) (6)
======== ======== ======== ======== ======== ========
BASIC AND DILUTED
EARNINGS/(LOSS) PER SHARE*
Continuing operations . (3.68) 2.55 (0.45) (0.08) (1.60) (0.01)
Discontinued operations -- (2.17) -- -- (5.35) --
-------- -------- -------- -------- -------- --------
(3.68) 0.38 (0.45) (0.08) (6.95) (0.01)
======== ======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING* 592,900 592,900 592,900 592,900 592,900 592,900
======== ======== ======== ======== ======== ========
* The computation of basic and diluted loss per share for the three months
and six months ended June 30, 1999 are based on weighted average number of
shares outstanding as if the one-for-ten reverse stock split, effective on
June 11, 1999, had been completed at the beginning of the period.
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
(Amounts in thousands, except share and per share data)
June 30, December 31, June 30,
2000 1999 2000
RMB RMB US$
Notes (Unaudited) (Note) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 109,763 31,088 13,256
Marketable securities 981 57,035 119
Trade receivables 159 -- 19
Inventories 4 2,796 1,702 338
Other receivables, deposits and prepayments 13,686 11,781 1,653
Short term loan receivable 45,000 45,000 5,435
Amount due from Farming Bureau 36,426 47,013 4,399
Amounts due from related companies 571 1,500 69
Tax refundable -- 1,382 --
Net assets of discontinued operations -- 70,527 --
------------ ------------ ------------
TOTAL CURRENT ASSETS 209,382 267,028 25,288
PROPERTY AND EQUIPMENT 5 13,550 9,855 1,636
INVESTMENTS 116,714 116,714 14,096
------------ ------------ ------------
TOTAL ASSETS 339,646 393,597 41,020
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 801 296 97
Other payables and accrued liabilities 40,497 15,860 4,891
Income taxes payable 457 -- 55
Amounts due to related companies 296 86,781 36
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 42,051 102,937 5,079
MINORITY INTERESTS 117,189 110,226 14,153
------------ ------------ ------------
TOTAL LIABILITIES AND MINORITY
INTERESTS 159,240 213,163 19,232
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, US$0.001 par value:
Authorized - 200,000,000 shares in 2000 and 1999
Issued and outstanding - 592,900 shares in 2000
and 1999 5 5 1
Preferred stock, authorized -
10,000,000 shares in 2000 and 1999
Series B preferred stock, US$0.001 par value:
Authorized - 320,000 shares in 2000 and 1999
Issued and outstanding - 320,000 shares
in 2000 and 1999 3 3 --
Additional paid-in capital 156,632 156,632 18,917
Reserves 26,830 26,830 3,240
Accumulated deficits (3,065) (3,018) (370)
Accumulated other comprehensive loss 1 (18) --
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 180,406 180,434 21,788
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 339,646 393,597 41,020
============ ============ ============
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Amounts in thousands)
Accumulated
Series B Additional Other
Common preferred paid-in Accumulated Comprehensive
stock stock capital Reserves deficits Loss Total
RMB RMB RMB RMB RMB RMB RMB
Balance at January
1, 2000 5 3 156,632 26,830 (3,018) (18) 180,434
Net loss -- -- -- -- (47) -- (47)
Currency translation
Adjustment -- -- -- -- -- 19 19
--------
Comprehensive
Income (28)
--------
-------- -------- -------- -------- -------- -------- --------
Balance at June 30,
2000 5 3 156,632 26,830 (3,065) 1 180,406
======== ======== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Amounts in thousands)
Six months ended June 30,
--------------------------------
2000 1999 2000
-------- -------- --------
RMB RMB US$
Net cash provided by operating activities 71,209 8,350 8,600
INVESTING ACTIVITIES
Purchases of property and equipment (4,246) (3,434) (513)
Proceeds from disposal of an investment 928 -- 112
Proceeds from disposal of property and equipment 1,547 -- 187
Short term loan -- (45,000) --
-------- -------- --------
Net cash used in investing activities (1,771) (48,434) (214)
-------- -------- --------
FINANCING ACTIVITIES
Increase in minority interests 2,187 -- 264
-------- -------- --------
Net cash provided by/(used in) continuing operations 71,625 (40,084) 8,650
Net cash provided by discontinued operations (Note 2) -- 15,572 --
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 71,625 (24,512) 8,650
Cash and cash equivalents, at beginning of period 38,138 129,238 4,606
-------- -------- --------
Cash and cash equivalents, at end of period 109,763 104,726 13,256
======== ======== ========
See notes to condensed consolidated financial statements.
CHINA RESOURCES DEVELOPMENT, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month
periods ended June 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
2. DISCONTINUED OPERATIONS AND BUSINESS RESTRUCTURING
In the fourth quarter of 1999, the Company initiated a plan to
restructure its business in Hainan, the PRC. On March 3, 2000, the
Board of Directors of the Company approved a business restructuring
involving HARC and certain subsidiaries of HARC (the "Restructuring").
The Restructuring resulted in the discontinuation of substantially all
of the existing operations of the Company as of December 31, 1999,
including its two principal lines of business, the distribution of
natural rubber and the procurement of materials, supplies and other
agricultural products (collectively the "Rubber and Procurement
Operations"). The financial data related to the Company's indirect
investments in the Rubber and Procurement Operations prior to December
31, 1999 is classified as discontinued operations for all periods
presented. The financial data of the Rubber and Procurement Operations
reflects the historical results of operations and cashflows of the
businesses that were considered part of the business segments of the
Rubber and Procurement Operations during each respective period.
On March 3, 2000, HARC and certain of its subsidiaries entered into an
Assets and Staff Transfer Agreement with the Farming Bureau, pursuant
to which HARC and certain of its subsidiaries transferred all the
assets, liabilities and staff related to the discontinued operations to
the Farming Bureau, effective from January 1, 2000. The consideration
for the net assets transferred was determined based on the lower of
their net book value or their fair value, as determined by an
independent professional valuer, as of December 31, 1999. Based on the
valuation, there were no material differences between the fair value
and the net book value (as determined under US GAAP) of those assets
and liabilities as of December 31, 1999, which was RMB70,527,000.
Net sales of the Rubber and Procurement Operations included in
discontinued operations totaled RMB105,315,000 for the six months ended
June 30, 1999. Loss from discontinued operations of Rubber and
Procurement Operations of RMB4,701,000 for the three months ended June
30, 1999 is reported without set-off of any income tax expenses.
The net assets of the Rubber and Procurement Operations were as
follows:
December 31,
1999
RMB
Current assets 110,703
Property and equipment - net 1,547
Cost method investments 928
Current liabilities (42,651)
--------
Net assets of discontinued operations 70,527
=========
The Company and its subsidiaries accrued certain expenses totaling RMB3
million in relation to the Restructuring in the fourth quarter of 1999.
There were no other significant expenses in relation to the
Restructuring in the six months ended June 30, 2000.
Notwithstanding the discontinuation of the Rubber and Procurement
Operations, the Company has contemplated setting up several new lines
of business as part of the Restructuring. As of June 30, 2000, the
Company has set up two lines of business, namely, supermarket
operations and processing and sale of timber.
3. BUSINESS ACQUISITION
The Company has determined to engage in the information technology
market. As at June 30, 2000, the Company entered into an Acquisition
Agreement to acquire an 80% equity interest in Silver Moon Technologies
Limited, a British Virgin Islands corporation ("Silver Moon"), for
total consideration of US$1,500,000 (the "Purchase Consideration"). The
Company has satisfied the Purchase Consideration by issuing to Silver
Moon's former sole equity owner, E-link Investment Limited ("E-link"),
244,897 shares of the Company's unregistered restricted common stock,
$0.001 par value. The Acquisition Agreement is included in the
Company's Current Report on Form 8-K, dated June 30, 2000. The
principal business of Silver
Moon, and its wholly-owned subsidiary, Sky Creation Technology Limited,
a Hong Kong company, is the provision of online Internet healthcare
content, through its website, medi-china.com, which offers
health-related content in both English and Chinese, with a focus on
Chinese herbal medicine and therapies. The closing date of the
acquisition was on July 12, 2000.
4. INVENTORIES
June 30, December 31,
2000 1999
RMB RMB
Raw materials 182 -
Work in progress 1,110 -
Finished goods 1,504 1,702
-------- --------
2,796 1,702
======== ========
5. PROPERTY AND EQUIPMENT, NET
June 30, December 31,
2000 1999
RMB RMB
At cost:
Buildings and leasehold improvements 5,906 5,906
Machinery, equipment and motor
vehicles 10,638 6,392
-------- --------
16,544 12,298
Accumulated depreciation: (2,994) (2,443)
-------- --------
Net book value 13,550 9,855
======== ========
6. SEGMENT FINANCIAL INFORMATION
Six months ended
June 30, 2000
RMB
Net sales to external customers:
Supermarket operations, net sales to
unaffiliated customers 2,431
Processed timber, net sales to
Unaffiliated customers 1,282
----------
Total consolidated net sales 3,713
==========
Segment loss:
Supermarket operations (53)
Processed timber (695)
----------
Total segment profit/(loss) (748)
Reconciling items:
Corporate expenses (8,120)
Gain on trading of marketable securities 10,486
Interest income 4,574
Exchange loss (866)
----------
Total consolidated profit before
income taxes 5,326
==========
June 30,
2000
RMB
Segment assets:
Supermarket operations 6,306
Processed timber 8,422
----------
Total segment assets 14,728
Reconciling items:
Corporate assets 208,204
Investments 116,714
----------
Total consolidated assets 339,646
==========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATION
RESULTS OF OPERATIONS
The following table shows the selected unaudited condensed consolidated
income statement data of the Company and its subsidiaries for the three months
and six months ended June 30, 2000 and 1999. The data should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements of
the Company and related notes thereto.
The discussions below are presented in the Company's primary operating
currency, which is the Renminbi Yuan ("RMB"). For information purposes only, the
amounts may be translated into U.S. dollars at an exchange rate of $1.00 =
RMB8.28, which represents the approximate single rate of exchange as quoted by
the People's Bank of China on June 30, 2000. No representation is made that RMB
amounts could have been, or could be, converted into U.S. dollars at that rate
or any other rate.
(Amounts in thousands) Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
RMB RMB RMB RMB
Net sales:
Supermarket operations 1,280 - 2,431 -
Processed timber 1,036 - 1,282 -
---------- ---------- ---------- ----------
2,316 - 3,713 -
---------- ---------- ---------- ----------
Gross profit/(loss) (232) - (131) -
Gross profit/(loss) margin (%) (10.02) - (3.53) -
Income/(loss) from continuing operations
before income taxes (3,185) 4,007 5,326 1,547
Income taxes 187 (620) (1,770) (620)
---------- ---------- ---------- ----------
Income/(loss) from continuing operations
before minority interest (2,998) 3,387 3,556 927
Minority interests 814 (1,874) (3,603) (1,874)
---------- ---------- ---------- ----------
Income/(loss) from continuing operations (2,184) 1,513 (47) (947)
Discontinued operations - (1,285) - (3,174)
---------- ---------- ---------- ----------
Net income/(loss) (2,184) 228 (47) (4,121)
========== ========== ========== ==========
NET SALES AND GROSS PROFIT
The Company previously engaged in marketing and distribution of natural
rubber and rubber products produced by the Hainan State Farms and non-state
farms in the PRC, and procurement of production materials and supplies,
including chemicals, farm equipment and machinery, automobiles and other
commodities, for use primarily by the Hainan State Farms and other unaffiliated
customers. Pursuant to a Shareholders' Agreement on Business Restructuring dated
March 3, 2000, among the Company, Billion Luck and the Farming Bureau, the
natural rubber distribution business and the procurement of materials and
supplies business ceased effective as of January1, 2000. Pursuant to an Assets
and Staff Transfer Agreement dated March 3, 2000, among the Farming Bureau,
HARC, First Supply, Second Supply and Sales Centre, the assets, liabilities and
staff related to the ceased businesses were transferred to the Farming Bureau
effective as of January 1, 2000. The restructuring resulted in the
discontinuation of substantially all of the existing operations of the Company
as of December 31, 1999. The Company has contemplated setting up several new
lines of business as part of the restructuring. As of June 30, 2000, the Company
has set up two lines of business, the supermarket operation and the processing
and sale of timber. The supermarket operation has gross profit and gross profit
margin of RMB420,000 (US$51,000) and 17.3%, respectively, for the first half of
2000. The sale of processed timber business has a gross loss of RMB551,000
(US$67,000) or 43.0% on sales for the first half of 2000, as the processing
factory is still in the start-up phase and is currently operated at one third of
its full capacity.
For the second quarter of 2000, the supermarket operation has gross
profit and gross profit margin of RMB224,000 (US$27,000) and 17.5%,
respectively, while the processed timber business has a gross loss of RMB455,000
(US$55,000) or 43.9% on sales for the same period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first half of 2000
were RMB8.2 million (US$995,000), compared to RMB5.4 million (US$651,000) for
the corresponding period in 1999. The increase was mainly attributable to
selling and administrative expenses of HARC, which amounted to RMB2.7 million
(US$326,000) for the first half of 1999 and were grouped in the procurement of
materials and supplies business, which is shown as discontinued operations. For
the first half of 2000, selling and administrative expenses of HARC were grouped
as corporate administrative expenses.
Selling, general and administrative expenses for the second quarter of
2000 were RMB3.8 million (US$458,000), compared to RMB2.8 million (US$344,000)
for the corresponding period in 1999. The increase was mainly attributable to
selling and administrative of HARC, which amounted to RMB1.0 million
(US$122,000) for the second quarter of 1999 and were grouped in the procurement
of materials and supplies business, which is shown as discontinued operations.
For the second quarter of 2000, selling and administrative expenses of HARC were
grouped as corporate administrative expenses.
FINANCIAL INCOME, NET
Net financial income increased by more than thirteen times from
RMB271,000 (US$33,000) for the first half of 1999 to RMB3.7 million (US$448,000)
for the corresponding period in 2000. The increase was mainly attributable to
the interest received in the second quarter of 2000 on a RMB45 million (US$5.4
million) short-term loan to an unaffiliated third party, which amounted to
RMB4.2 million (US$507,000). The increase in interest income was partly offset
by an exchange loss amounting to RMB860,000 (US$104,000), arising from the
conversion of Renminbi to Hong Kong dollars.
Net financial income increased by more than nineteen times from
RMB192,000 (US$23,000) for the second quarter of 1999 to RMB3.7 million
(US$443,000) for the corresponding period in 2000. The increase was also
attributable to the reasons aforementioned.
OTHER INCOME, NET
Other income increased from RMB6.7 million (US$805,000) for the first
half of 1999 to RMB10.5 million (US$1.3 million) for the corresponding period in
2000 and from RMB6.7 million (US$805,000) for the second quarter of 1999 to a
loss of RMB2.5 million (US$300,000) for the corresponding period in 2000. Other
income in 1999 represented the dividend income received on a long-term
investment while the other income/(loss) in 2000 mainly represented a net
gain/(loss) on trading of marketable securities.
DISCONTINUED OPERATIONS
Discontinued operations for the first half of 1999 represented a loss
from operations of the discontinued rubber distribution and procurement of
materials and supplies businesses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's and its subsidiaries' primary liquidity needs are to fund
inventories and trade receivables and to expand business operations. The Company
has financed its working capital requirements primarily through internally
generated cash.
The Company has a working capital surplus of approximately RMB167
million (US$20.2 million) as of June 30, 2000, compared to that of approximately
RMB164 million (US$19.8 million) as of December 31, 1999. Net cash provided by
operating activities for the six months ended June 30, 2000 was approximately
RMB71.2 million (US$8.6 million), as compared to RMB8.4 million (US$1.0 million)
for the corresponding period in 1999. Net cash flows from the Company's
operating activities are attributable to the Company's income and changes in
operating assets and liabilities.
Pursuant to an Assets and Staff Transfer Agreement dated March 3, 2000,
the Farming Bureau purchased assets and assumed liabilities and staff related to
the ceased businesses effective as of January 1, 2000. The purchase price was
the lower of the book value or fair value of the net assets transferred (which
were not materially different), determined as of January 1, 2000, which amounted
to RMB70,527,000 (US$8,518,000).
There has been no other significant change in financial condition and
liquidity since the fiscal year ended December 31, 1999. The Company believes
that internally generated funds will be sufficient to satisfy its anticipated
working capital needs for at least the next twelve months.
MARKET RISK AND RISK MANAGEMENT POLICIES
All of the Company's sales and purchases are made domestically and are
denominated in Renminbi. Accordingly, the Company and its subsidiaries do not
have material market risk with respect to currency fluctuation. As the reporting
currency of the Company's consolidated financial statements is also Renminbi,
there is no significant translation difference arising on consolidation.
However, the Company may suffer exchange loss when it converts Renminbi to other
currencies, such as Hong Kong dollars or United States dollars.
The Company's interest income is most sensitive to changes in the general level
of Renminbi interest rates. In this regard, changes in Renminbi interest rates
affect the interest earned on the Company's cash equivalents. As at June 30,
2000, the Company's cash equivalents are mainly Renminbi, Hong Kong Dollar and
United States Dollar deposits with financial institutions, bearing market
interest rates without fixed term.
As at June 30, 2000, the Company had short-term investments in
marketable securities in Hong Kong stock market with a total market value of
RMB981,000 (US$119,000). These investments expose the Company to market
risks that may cause the future value of these investments to be lower than the
original cost of such investments at the time of purchase.
YEAR 2000 ISSUE
The Year 2000 issue is the result of information technology systems and
embedded systems using a two-digit format, as opposed to four digits, to
indicate the year. The Company and its subsidiaries use a limited amount of
computer software primarily in connection with their accounting and financial
reporting systems. Such programs have been upgraded so that they are year 2000
compatible. In addition to software issues, certain of the computer hardware of
the Company and its subsidiaries have been replaced with more current
technology.
As of June 30, 2000, the Company has not experienced any disruptions or
failures to its normal operations as a result of the transition into calendar
year 2000.
PROPOSAL 1 - BOARD OF DIRECTORS PROPOSAL TO EFFECT A
ONE-FOR-TEN REVERSE STOCK SPLITRATIFICATION OF THE COMPANY'SISSUANCE OF SHARES OF COMMON STOCK
The Board of Directors of the Company has approved a resolution to
effect a one-for-ten reverse splitrecommends that the shareholders
ratify the issuance of 244,897 shares of the Company's unregistered restricted
common stock, $0.001 par value ("Newly Issued Shares"). Such shares are listed
for trading on The Nasdaq SmallCap Market, except that the shares are restricted
and therefore not freely tradable thereon. The Newly Issued Shares were issued
in connection with the following transaction:
The Board of Directors of the Company, at a special meeting held on
June 30, 2000, voted to approve the acquisition of an 80% equity interest in
Silver Moon Technologies Limited ("Silver Moon"), a British Virgin Islands
corporation, for total consideration of U.S.$1,500,000 (the "Purchase
Consideration"). The principal business of Silver Moon and outstandingits wholly-owned
subsidiary, Sky Creation Technology Limited, a Hong Kong company, is the
provision of online Internet healthcare content, through its website,
medi-china.com, which offers health-related content in both English and Chinese,
with a focus on Chinese herbal medicine and therapies. The Company has satisfied
the Purchase Consideration by issuing to Silver Moon's former sole equity owner,
E-link Investment Limited ("E-link"), the Newly Issued Shares. The number of
shares issued was based upon a per share price of $6.125, which was the closing
bid price of the Company's common stock as quoted on The Nasdaq SmallCap Market
on June 29, 2000. Neither E-link nor Silver Moon is affiliated with any officer,
director or significant shareholder of the Company.
The issuance of the Newly Issued Shares to E-link will effect the
existing shareholders by diluting their shares in the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE ISSUANCE OF SHARES OF COMMON STOCK.
PROPOSAL 2 - AMENDMENT OF THE AMENDED AND RESTATED 1995 STOCK OPTION PLAN TO
MODIFY THE PRICING PROCEDURE FOR THE EXERCISE OF NONQUALIFIED STOCK OPTIONS
AND TO ELIMINATE THE REQUIREMENT OF SHAREHOLDER APPROVAL OF ANY MODIFICATION
OF THE PLAN THAT WOULD MATERIALLY INCREASE THE BENEFITS ACCRUING TO
PARTICIPANTS IN THE PLAN
Description of the Plan
The Company adopted the 1995 Stock Option Plan as of March 31, 1995. On
December 30, 1996, the shareholders of the Company adopted an amendment to the
Plan. The Plan allows the Board of Directors, or a committee thereof at the
Board's discretion, to grant stock options to officers, directors, key
employees, consultants and affiliates of the Company. Initially, 2,400,000
shares of Common Stock of the Company could be issued and sold pursuant to
options granted under the Plan. "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Reverse Stock Split""Code"). If the Reverse Stock Split
is approved by shareholders,, may
be granted to employees, including officers, whether or not they are members of
the Board of Directors, willand nonqualified stock options may be granted to any
such employee or officer and to directors, consultants, and affiliates who
perform substantial services for or on behalf of the Company or its
subsidiaries.
The Board of Directors, or a committee appointed by the Board (the
"Committee"), is vested with authority to (i) select persons to participate in
the Plan; (ii) determine the form and substance of grants made under the Plan to
each participant, and the conditions and restrictions, if any, subject to which
grants will be made; (iii) interpret the Plan; and (iv) adopt, amend, or rescind
such rules and regulations for carrying out the Plan as it may deem appropriate.
The Board of Directors has the power to modify or terminate the Plan and from
time to time may suspend, and if suspended may reinstate, any or all of the
provisions of the Plan except that (i) no modification, suspension, or
termination of the Plan may, without the consent of the grantee affected, alter
or impair any grant previously made under the Plan; and (ii) no modification
shall become effective without prior consent of the shareholders of the Company
that would (a) increase the maximum number of shares reserved for issuance under
the Plan, except for certain adjustments allowed by the Plan; (b) change the
classes of employees eligible to participate in the Plan; or (c) materially
increase the benefits accruing to participants in the Plan. The proposed
amendment would eliminate the requirement that the Board of Directors must
obtain the consent of the shareholders of the Company for any modification that
would materially increase the benefits accruing to participants in the Plan (see
below).
The Plan provides that the price per share deliverable upon the
exercise of each Incentive Stock Option shall not be less than 100% of the fair
market value of the shares on the date the option is granted, as the Committee
determines. In the case of the grant of any Incentive Stock Option to an
employee who, at the time of the grant, owns more than 10% of the total combined
voting power of all classes of stock of the Company or any of its subsidiaries,
such price per share, if required by the Code at the time of grant, shall not be
less than 110% of the fair market value of the shares on which the Reverse Stock Split will become effective. Eachdate the option is
granted. The price per share deliverable upon the exercise of each nonqualified
stock option shall not be less than the higher of (i) the net tangible assets
per share of Common Stock
issuedthe Company as of the end of the fiscal year immediately preceding
the date of such granting; or (ii) 80% of the fair market value of the shares on
the date the option is granted, as the Committee determines. The proposed
amendment would eliminate the "net tangible assets" threshold described in item
(i) in the preceding sentence (see below).
Options may be exercised in whole or in part upon payment of the
exercise price of the shares to be acquired. Payment shall be made in cash or,
in the discretion of the Committee, in shares previously acquired by the
participant or in a combination of cash and outstanding immediately prior to that effective date will be
reclassified as and changed into one-tenth of one shareshares of Common Stock. The principal effectfair
market value of the Reverse Stock Split will be to decrease the
number of outstanding shares of Common Stock from 5,929,004 (astendered on exercise of May 13, 1999)
to approximately 592,900 shares (assuming that no post-Reverse Stock Split
sharesoptions shall be
determined on the date of Common Stock are issued in lieuexercise.
As of fractional shares and assuming that
no additional shares have been issued or retired subsequent to May 13, 1999).
The Common Stock issuedJuly 1, 1995, 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 w ill not be alteredrecommendation of a committee of
disinterested persons appointed by the Reverse Stock Split, andboard of directors in accordance with the
Common Stock will continue to have a par value of $0.001 per share.
Consummationterms of the Reverse Stock Split will not alterPlan, the numberboard of authorizeddirectors granted options to the following
officers and directors to purchase shares of the Company's Common Stock, which will remain at 200,000,000,Stock:
Yiu Yat Hung (former director) 6,000 shares
Tam Cheuk Ho 6,000 shares
Han Jian Zhun (former director) 6,000 shares
Wong Wah On 6,000 shares
Li Fei Lie 100,000 shares
In addition, the board of which
approximately 199,407,100 shares of Common Stock would constitute authorized but
unissueddirectors granted options to the following employees
and unreserved shares. Also, the 3,200,000 outstandingconsultant to purchase shares of the Company's Preferred Stock will not be affected byCommon Stock:
Brender Services Limited 100,000 shares
Cheung Yu Shum 500,000 shares
Tse Chi Kai 300,000 shares
Ma Sin Ling 500,000 shares
Cheung Siu Yin 10,000 shares
Woo Pui Yan 10,000 shares
Kwok Kwan Hung 386,000 shares
Fu Yang Guang 200,000 shares
Lin Jia Ping 270,000 shares
All of the proposed reverse stock split.
Reasons foroptions were issued in accordance with the Proposed Reverse Stock Split
The Reverse Stock Split is being proposed primarily becauseterms of 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 bidPlan at
an exercise 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 delistingUS$3.78 (the fair market value of the Common Stock fromas 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 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 requestboard of directors, in accordance with the
Nasdaq Listing
Qualifications Hearing Department forrecommendation, with respect to stock options granted to directors and officers,
of a hearing to contestcommittee of disinterested persons appointed by the delistingboard of directors in
accordance with the terms of the Common Stock. The delisting was stayed pendingPlan, reduced the hearing. Such hearing will
take place on May 6, 1999. [Outcomeexercise prices of hearing to be inserted in final proxy
statement.]
Additionally, the Board of Directors believes that the high number of
shares of Common Stock outstanding and its relatively low per-share market price
may adversely effect the trading market for the Common Stock and its
acceptability to certain institutional investors and other membersall 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 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 attractedoptions to low-priced stock because of the greater trading volatility sometimes associated
with such securities.
The Board of Directors believes that it is in the best interests of the
Company and its shareholders to maintain the listingUS$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 the
Nasdaq Small-Cap MarketMay 20, 1997, and thatuntil May 20, 2006.
On December 30, 1996, 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 shareholders, the Reverse
Stock Split will become effective at the close of business on June 11, 1999.
In the event that the Reverse 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 occur, the Common Stock would be traded on the OTC
Bulletin Board and would be subject to regulations relating to "Penny Stocks"
which would immediately 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 the 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 or above
$1.00. Accordingly, 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 trading market for, the Common Stock.
Future Dilution; Anti-Takeover Effects
There may be certain disadvantages suffered by shareholders of the Company as a result of approval of the Reverse Stock Split. 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 proposed Reverse Stock
Split is consummated.
In addition, because the Preferred Stock is not affected by the Reverse
Stock Split, the voting power of the holders of Common Stock would be
substantially reduced, relativeadopted an
amendment to the voting power of the holder of the
-3-
Preferred Stock. Each share of Preferred Stock is entitledPlan (a) to a 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 inchange the number of shares of Common Stock available for future issuance may also have certain anti-takeover effects. For
example,subject
to the availabilityPlan to that number of a large numbershares which would, in the aggregate and if deemed
outstanding, constitute 20% of the Company's then-outstanding shares of Common
Stock, for future
issuance mightas determined at the time of granting stock options, and (b) to allow
Nonqualified Stock Options, as defined in the Company's Board of DirectorsPlan, to dilute the percentage
share ownership of persons who might attempt to obtain control over the Company.
Approvalbe exercisable in less
than one year (no currently outstanding options were changed by such amendment).
By virtue of the Reverseone-for-ten reverse stock split approved by the shareholders on
December 30, 1996, and made effective by the board of directors on December 31,
1996, the number of shares subject to each outstanding option was reduced by a
factor of ten, and the exercise price for the outstanding options was increased
to US$4.20 per share (the fair market value of the Common Stock Split therefore, may allowas of May 20,
1996, multiplied by ten). Other terms of the Boardoutstanding options were not
affected. Also, by virtue of Directorsthe one-for-ten reverse stock split approved by the
shareholders on May 28, 1999, and made effective by the board of directors on
June 11, 1999, the number of shares subject to frustrateeach outstanding option was
further reduced by a takeover attemptfactor of ten, and the exercise price for the outstanding
options was increased to US$42.0 per share (the fair market value of the Common
Stock as of May 20, 1996, multiplied by 100). Other terms of the outstanding
options were not affected, and the following stock options, which might be favorablehave been
granted with respect 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 aware of any attempts by third persons
to accumulate a large number of24,000 shares of Common Stock, remain outstanding:
Yiu Yat Hung (former director) 60 shares
Tam Cheuk Ho 60 shares
Han Jian Zhun (former director) 60 shares
Wong Wah On 60 shares
Li Fei Lie 1,000 shares
Brender Services Limited 1,000 shares
Cheung Yu Shum 5,000 shares
Tse Chi Kai 3,000 shares
Ma Sin Ling 5,000 shares
Cheung Siu Yin 100 shares
Woo Pui Yan 1000 shares
Kwok Kwan Hung 3,860 shares
Fu Yang Guang 2,000 shares
Lin Jia Ping 2,700 shares
For more information concerning the terms of the 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, 1999, a copy of which is provided herewith and incorporated herein
by reference. A copy of the Plan is attached hereto as Addendix A.
Market Value of the Shares Underlying Options
As of September 14, 2000, the market value of the shares of Common
Stock underlying the options is $6.25 per share based on the closing bid
quotation on such date of the Common Stock as reported by The Nasdaq SmallCap
Market.
U.S. Federal Income Tax Consequences
The following is a brief summary of the general U.S. Federal income tax
consequences to participants and the Company of participation in the Plan. This
summary is not intended to be exhaustive and does not describe foreign, state or
local tax consequences, nor does it describe consequences based on particular
circumstances. For these reasons, each participant should consult with a tax
advisor as to specific questions relating to tax consequences of participation
in the Plan.
Incentive Stock Options. The following general rules are applicable to
holders of Incentive Stock Options ("ISOs") and to the Company for U.S. Federal
income tax purposes under existing law:
1. In general, no taxable income results to the optionee upon
the grant of an ISO or upon the issuance of shares to him upon the exercise of
the ISO, and no tax deduction is allowed to the Company upon either grant or
exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed
of within (i) two years following the date the option was granted or (ii) one
year following the date the shares are transferred to the optionee pursuant to
the ISO exercise, the difference between the amount realized on any subsequent
disposition of the shares and the exercise price will be generally treated as
capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of
before the expiration of one or both of the requisite holding periods (a
"Disqualifying Disposition"), then in most cases the lesser of (i) any excess of
the fair market value of the shares at the time of exercise of the ISO over the
exercise price or (ii) the actual gain on disposition will be treated as
compensation to the optionee and will be taxed as ordinary income in the year of
such disposition.
4. In any year that an optionee recognizes compensation income
on a Disqualifying Disposition of stock acquired by exercising an ISO, the
Company generally will be entitled to a corresponding deduction for income tax
purposes in an amount equal to the amount of ordinary income recognized, if any,
by the optionee.
5. Any excess of the amount realized by the optionee as the
result of a Disqualifying Disposition over the sum of (i) the exercise price and
(ii) the amount of ordinary income recognized under the above rules will be
treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares
will be long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year.
7. In addition to the tax consequences described above, the
exercise of ISOs may result in a further "minimum tax" under the Code. The Code
provides that an "alternative minimum tax" will be applied against a taxable
base which is equal to "alternative minimum taxable income," reduced by a
statutory exemption. In general, the amount by which the value of the Common
Stock received upon exercise of the ISO exceeds the exercise price is included
in the optionee's alternative minimum taxable income. A taxpayer is required to
pay the higher of his regular tax liability or the alternative minimum tax. A
taxpayer who pays alternative minimum tax attributable to the exercise of an ISO
may be entitled to a tax credit against his regular tax liability in later
years.
Nonqualified Stock Options. The following general rules are applicable
to holders of Nonqualified Stock Options ("NQSOs") and to the Company for U.S.
Federal income tax purposes under existing law:
1. The optionee generally does not realize any taxable income
upon the grant of an option, and the Company is not allowed a business expense
deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation
income at the time of exercise of the option in an amount equal to the excess,
if any, of the fair market value of the shares on the date of exercise over the
exercise price.
3. When the optionee sells the shares, he generally will
recognize a capital gain or loss in an amount equal to the difference between
the amount realized upon the sale of the shares and his basis in the shares
(generally, the exercise price plus the amount taxed to the optionee as
compensation income). If the optionee's holding period for the shares exceeds
one year, such gain or loss will be a long-term capital gain or loss.
4. The Company will generally be entitled to a tax deduction
in the year in which, and in an amount equal to, ordinary compensation income is
recognized by the optionee.
Special Rules for Restricted Stock. Officers, directors and 10%
shareholders of the Company may in some instances acquire Common Stock subject
to special rules under Section 83 of the Code because of certain U.S. securities
laws restrictions on resale ("Restricted Stock"). If an optionee acquires
Restricted Stock, the amount included in compensation income (in the case of a
NQSO, or of an ISO if a Disqualifying Disposition of such stock is made) or in
alternative minimum taxable income (in the case of an ISO) generally will be
determined as of some later date, not more than six months after exercise, and
will equal the difference between the amount paid for the Restricted Stock and
its fair market value at that
time, unless the optionee files a timely election under Section 83(b) of the
Code electing to determine the amount of income at the time of exercise.
ERISA. The Plan is not an employee benefit plan which is subject to the
provisions of the U.S. Employee Retirement Income Security Act of 1974, as
amended, and the provisions of 401(a) of the Code are not applicable to the
Plan.
Proposed Amendments to the Plan
The Board of Directors is not recommending the Reverse Stock Split in response to any
existing attempts by third parties to obtain control of the Company.
RegistrationCompany recommends that the shareholders
adopt an amendment to the Amended and Restated 1995 Stock Option Plan to modify
the pricing procedure for the exercise of nonqualified stock options and to
eliminate the requirement of shareholder approval of any modification of the
Plan that would materially increase the benefits accruing to participants in the
Plan. If the proposed amendment is adopted, Sections 6(a) of the Plan will be
amended as follows (bracketed text indicates deletions, text in italics
indicates additions):
(a) Price. The price per share deliverable upon the exercise
of each Incentive Stock Option shall not be less than 100% of
the Fair Market Value of the shares on the date the option is
granted, as the Committee determines. In the case of the grant
of any Incentive Stock Option to an employee who, at the time
of the grant, owns more than 10% of the total combined voting
power of all classes of stock of the Company or any of its
subsidiaries, such price per share, if required by the Code at
the time of grant, shall not be less than 110% of the Fair
Market Value of the shares on the date the option is granted.
The price per share deliverable upon the exercise of each
Nonqualified Stock Option shall not be less than [the higher
of (i) the net tangible assets per share of the Company as of
the end of the fiscal year immediately preceding the date of
such grant, or (ii)] 80% of the Fair Market Value of the
shares on the date the option is granted, as the Committee
determines.
Also, if the proposed amendment is adopted, Section 13 of the Plan will be
amended as follows (bracketed text indicates deletions, text in italics
indicates additions):
13. Termination and Modification of the Plan.
----------------------------------------
The Board of Directors, without further approval of the
shareholders, may modify or terminate the Plan and from time
to time may suspend, and if suspended, may reinstate any or
all of the provisions of the Plan, except that (i) no
modification, suspension or termination of the Plan may,
without the consent of the grantee affected, alter or impair
any grant previously made under the Plan, and (ii) no
modification shall become effective without prior approval of
the stockholders of the Company that would (a) increase
(except as provided in Section 12) the maximum number of
shares reserved for issuance under the Plan; or (b) change the
classes of employees eligible to be participants[; or (iii)
materially increase the benefits accruing to participants in
the Plan].
With the consent of the grantee affected thereby, the
Committee may amend or modify the grant of any outstanding
option in any manner to the extent that the Committee would
have had the authority to make such grant as so modified or
amended, including without limitation to change the date or
dates as of which an option becomes exercisable. The Committee
shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan
that may be dictated by requirements of Federal or
state laws applicable to the Company or that may be authorized
or made desirable by such laws.
The Board of Directors believes that the consummationadoption of this amendment to
the Plan is in the best interest of the Reverse
Stock SplitCompany and the changes which would result therefromshareholders. The
amendment will not causeallow the Company to terminate registrationCommittee greater flexibility in setting the price of
nonqualified stock options. Also, the elimination of the Common Stock under the Securities
Exchange Act of 1934, as amended, or to cease filing reports thereunder, and 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.
Federal 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 Splitshareholder approval
requirement 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.
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,allow the Board of Directors may,to modify the Plan 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 Stockan
expeditious and Preferred Stock, counted together, is necessary for approval of the Reverse
Stock Split.efficient manner.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ADOPTION OF THE AMENDMENT TO THE AMENDED AND RESTATED 1995 STOCK OPTION PLAN TO
MODIFY THE PRICING PROCEDURE FOR THE EXERCISE OF NONQUALIFIED STOCK OPTIONS AND
TO ELIMINATE THE REQUIREMENT OF SHAREHOLDER APPROVAL OF ANY MODIFICATION OF THE
PLAN THAT WOULD MATERIALLY INCREASE THE BENEFITS ACCRUING TO PARTICIPANTS IN THE
PLAN.
PROPOSAL TO EFFECT THE REVERSE STOCK SPLIT.
PROPOSAL 23 - ELECTION OF DIRECTORS
During 1998,Since the 1999 annual meeting, the Company's Board of Directors was
comprised of seven directors, and, according to Article VIII of the Company's
Articles of Incorporation, the membership of the Board may be increased to no
more than 25 directors or decreased to no fewer than three directors by action
of the Board of Directors. At the 1996 annual meeting, the shareholders approved
an amendment to the Articles of Incorporation to divide the directors into three
classes. One class of directors is to be elected each year for a three-year
term. However, as three classes of directors were newly established, the Class I
directors were elected at the 1996 annual meeting for one-year terms, the Class
II directors were elected for two-year terms and the Class III directors were
elected for normal three-year terms. At the annual meeting held in 1997, Messrs.
Tam Cheuk Ho and Wong Wah On were elected to serve in Class I until the annual
meeting to be held in 2000 and until their successors have been duly elected and
qualified. At the annual meeting held in 1998, Messrs. Ching Lung Po and Lin Yu Quan were
elected to serve in Class II until the annual meeting to be held in 2001 and
until their successors have been duly elected and qualified. Messrs. 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 Wan 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. Therefore, in accordance with the Articles of Incorporation and the
actions taken at the 1996 annual meeting, the election of directors in Class IIII
is to be conducted at the 19992000 Annual Meeting.
The nominees for Class III,I, if elected, will serve a three-year term
until the annual meeting to be held in 20022003 and until their successors have duly
elected and qualified. Messrs. WanTam Cheuk Ho and NgWong Wah On are currently
serving as directors of the Company. Both nominees have consented to being named
herein and have indicated their intention to serve as directors of the Company,
if elected. Unless authority to do so is withheld, the persons named as proxies
will vote the shares represented by such proxies for the election of the
nominees. In case any of the nominees shall become unavailable for election to
the Board of Directors, which is not anticipated, the persons named as proxies
shall have full discretion and authority to vote or refrain from voting for any
other nominees in accordance with their judgment. Vacancies on the Board of
Directors may be filled by the remaining director or directors, even though less
than a quorum, for the unexpired term of such vacant position.
The nominees and certain information about them are set forth below:
-5-
Class IIII Directors:
Mr. Wan Ying LinTam Cheuk Ho 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, and from February 1992 through
September 1992, as Financial Controller at Tack Hsin Holdings Limited, a listed
company in Hong Kong, where he was responsible for accounting and financial
functions. From October 1992 through December 1994, Mr. Tam was Finance Director
of Hong Wah (Holdings) Limited. He is a fellow of both the Hong Kong Society of
Accountants and the Chartered Association of Certified Accountants. He is also a
certified public accountant in Hong Kong. He holds a bachelor's degree in
Business Administration from the Chinese University of Hong Kong.
Mr. Wong Wah On has been a director of the Company since February 4,
1998. Since SeptemberDecember 30,
1997. Mr. Wong is also the Financial Controller and Secretary of 1996, Mr. Wan has been the DirectorCompany and
Deputy General
Managermember of OVM International Holding Corp. (OTCBB: OVMI), whichthe supervisory committee of HARC. He is included inresponsible for assisting the
OTC Bulletin Board operated byChief Financial Officer with the National Association of Securities
Dealers, Inc. Mr. Wan graduated from the Guangxi Liuzhou Institute of Medical
Specialty, specializing in administrationCompany's treasury, accounting and management.secretarial
functions. From January 1986October 1992 through December 1987,1994, Mr. Wong was the Deputy
Finance Director of Hong Wah (Holdings) Limited. From July 1988 through October
1992, he was the manager of Lam Ko Mould Company, in charge of
the China marketing and development division inaudit supervisor at Ernst & Young, Hong Kong. From January 1988
through February 1993, Mr. Wan worked as the marketing manager of Wai Tong
TradingHe received a
professional diploma in Company in Hong Kong. In 1993, he joinedSecretaryship and Administration from the Hong
Kong Prestressing
Concrete Engineering Company Limited, where he serves as manager.
Mr. Ng Kin Sing has beenPolytechnic University and is a directorfellow of the Company since February 1,
1999,Chartered Association of
Certified Accountants, the Hong Kong Society of Accountants, and the Institute
of Chartered Secretaries and Administrators. He is also serves as a member of the Board's audit committee. Mr. Ng is the
managing director of Action Plan Limited, a securities investment company. From
November 1995 until March 1998, Mr. Ng was sales and dealing director for
NatWest Markets (Asia) Limited; and from May 1995 until October 1996, he was the
dealing director of BZW Asia Limited, an international securities brokerage
house. Mr. Ng holds a bachelor's degreecertified public
accountant in business administration from the
Chinese University of Hong Kong.
Information Regarding Board of Directors and Committees
The Company's Board of Directors held eight (8) meetings during 1998,1999,
and all other actions of the Board were taken pursuant to unanimous written
consents. The Board of Directors does not have 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
Amended and Restated 1995 Stock Option Plan (except that a committee of three
disinterested persons was formed to act with respect to stock options issued to
directors). Each director other than Li Shunxing and Ng Kin Sing attended all of
the meetings of the Board of Directors during the period for which he was a
director. During 1999, Li Shunxing did not attend six of the meetings and Ng Kin
Sing did not attend one of the meetings.
The Board of Directors, acting as a nominating committee, will consider
candidates for directordirectors nominated by shareholders. A shareholder who wishes to
submit a candidate for consideration at the 20002001 annual meeting must notify the
Secretary of the Company in writing no later than March 1, 2000.2001. 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
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 Directors
During 1998,1999, 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.
-6-
PROPOSAL 34 - 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 1999.2000. Ernst & Young has served as the Company's Independent Accountants
since March of 1995.
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, 1998,1999, a
copy of which is provided herewith and incorporated herein by this reference.
This proxy statement and the Form 10-K provided herewith may contain
forward-looking statements. Shareholders are cautioned that any such
forward-looking statement is not a guarantee of future performance and involves
risks and uncertainties, and that actual results may differ materially from
those in this proxy statement and the Form 10-K as a result of various factors.
The information contained in this proxy statement and the Form 10-K, including
without limitation the information under the heading, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," identifies
important factors that could cause such differences. With 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
belief will result or be achieved or accomplished.
SHAREHOLDER PROPOSALS FOR 20002001 ANNUAL MEETING
To be considered for inclusion in next year's proxy materials,
shareholder proposals to be presented at the Company's 20002001 annual meeting must
be in writing and be received by the Company no later than March 1, 2000.
-7-2001.
OTHER BUSINESS
The Board of Directors does not know of any business to be brought
before the Annual Meeting other than the matters described in the Notice of
Annual Meeting. However, if any other matter are properly presented for action,
it is the intention of each person named in the accompanying proxy to vote said
proxy in accordance with his judgment on such matters.
-8-INCORPORATION BY REFERENCE
The Company's annual report on Form 10-K for the year ended December
31, 1999, is herein incorporated by reference.
ADDENDIX A
CHINA RESOURCES DEVELOPMENT, INC.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
1. Purpose.
-------
The plan shall be known as The China Resources Development, Inc., Stock
Option Plan (the "Plan"). The purpose of the Plan shall be to promote
the long-term growth and profitability of China Resources Development,
Inc. (the "Company"), and its subsidiaries by (i) providing certain
officers, key employees, directors, consultants, and affiliates of the
Company and its subsidiaries with incentives to improve stockholder
values and contribute to the success of the Company and (ii) enabling
the Company to attract, retain and reward the best available persons
for positions of substantial responsibility. Grants of incentive or
nonqualified stock options, or any combination of the foregoing, may be
made under the Plan.
2. Definitions.
-----------
(a) "Incentive Stock Option" means an option conforming to the
requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) "Nonqualified Stock Option" means any stock option other than an
Incentive Stock Option.
(c) "Subsidiary" and "subsidiaries" mean a corporation or corporations
of which outstanding shares representing 50% or more of the combined
voting power of such corporation or corporations are owned directly or
indirectly by the Company.
(d) "Disability" means a permanent and total disability as defined in
Section 72(m)(7) of the Code.
(e) "Retirement" means termination of one's employment with the
approval of the Committee.
(f) "Cause" means the occurrence of one of the following:
(i) Conviction for a felony or for any crime or offense lesser
than a felony involving the property of the Company or a subsidiary.
(ii) Conduct that has caused demonstrable and serious injury to the
Company or a subsidiary, monetary or otherwise, as evidenced by a final
determination of a court or governmental agency of competent
jurisdiction in effect after exhaustion or lapse of all rights of
appeal.
(iii) Gross dereliction of duty or other grave misconduct, as
determined by the Company.
(g) "Competition" is deemed to occur if a participant who has
terminated employment subsequently obtains a position as a full-time or
part-time employee, as a member of the board of directors, or as a
consultant or advisor with or to, or acquires an ownership interest in
excess of five percent (5%) of, a corporation, partnership, firm or
other entity that engages in any of the businesses of the Company or
any subsidiary with which the participant was involved in a management
role at any time during the last five years of his employment with the
Company or any subsidiary.
(h) "Change in Control" shall mean an event that would be required to
be reported in response to Item 1 of Form 8-K or any successor form
thereto promulgated under the Securities Exchange Act of 1934
("Exchange Act") if the Company were subject to such Act (or that is so
required if and when the Company is subject to such Act).
(i) "Fair Market Value" of a share of Common Stock of the Company shall
mean, with respect to the date in question, the average of the closing
bid and asked prices as quoted by the National Association of
Securities Dealers through its OTC Bulletin Board or its automated
quotation system ("NASDAQ"); or, if the Company's Common Stock is
listed or admitted to unlisted trading privileges on a national stock
exchange, either (x) the average of the highest and lowest
officially-quoted selling prices on such exchange or (y) the closing
sale price of such stock, as selected by the Committee; or if the
Company's Common Stock is not quoted by the NASD or NASDAQ, traded on
such an exchange, or otherwise traded publicly, the value determined,
in good faith, by the Committee.
3. Administration.
--------------
A. The Plan shall be administered by a the Board of Directors
or by a committee appointed by the Board of Directors
consisting of at least three of its members. No member of the
Committee, while a member, shall be eligible to participate in
the Plan. Subject to the provisions of the Plan, and subject
to ratification of the grant by the Board of Directors (if so
required by applicable state law), the Committee shall be
authorized to (i) select persons to participate in the Plan,
(ii) determine the form and substance of grants made under the
Plan to each participant, and the conditions and restrictions,
if any, subject to which such grants will be made, (iii)
interpret the Plan and (iv) adopt, amend, or rescind such
rules and regulations for carrying out the Plan as it may deem
appropriate. Decisions of the Committee on all matters
relating to the Plan shall be in the Committee's sole
discretion and shall be conclusive and binding on all parties,
including the Company, its stockholders, and the participants
in the Plan, unless otherwise determined by the Board of
Directors. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be
determined in accordance with applicable Federal and state
laws and rules and regulations promulgated pursuant thereto.
The Committee and shall keep full records and accounts of its
proceedings and transactions, and all such transactions shall
be reported to the Board of Directors. No member of the Board
of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan
or any stock option granted under it.
B. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as
it may determine. Acts by a majority of the Committee, or acts
reduced to and approved in writing by a majority of the
members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the
Committee shall mean the Board of Directors if no Committee
has been appointed. From time to time the Board of Directors
may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and
thereafter administer the Plan.
C. Notwithstanding the provisions of paragraph 3.A., stock
options may be granted to members of the Board of Directors;
however, no stock option shall be granted to any person who
is, at the time of the proposed grant, a member of the Board
of Directors unless such grant has been approved by a majority
vote of the other members of the Board of Directors. All
grants of stock options to members of the Board shall in all
other respects be made in accordance with the provisions of
this Plan applicable to other eligible persons. Member of the
Board of Directors who either (i) are eligible for stock
options pursuant to the Plan or (ii) have been granted stock
options may vote on any matters affecting the administration
of the Plan or the grant of any stock options pursuant to the
Plan, except that no such member shall act upon the granting
to himself of stock options, but any such member may be
counted in determining the existence of a quorum at any
meeting of the Board of Directors during which such action is
taken with respect to the granting to him of stock options.
D. Notwithstanding any other provision of this paragraph 3, in
the event the Company registers any equity security pursuant
to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), any grants of stock options to
directors made at any time from the effective date of such
registration until six months after the termination of such
registration shall be made only by the Board of Directors;
provided however, that if a majority of the Board of Directors
is eligible to participate in the Plan or in any other stock
option or other stock plan of the Company or any of its
affiliates, or has been so eligible at any time within the
preceding year, any grant of stock options to directors must
be made by, or in accordance with the recommendation of, a
committee consisting of three or more persons who may, but
need not be, directors or employees of the Company appointed
by the Board of Directors but having full authority to act in
the matter, none of whom is eligible to participate in this
Plan or any other stock option or other stock plan of the
Company or any of its affiliates, or has been eligible at any
time within the preceding year. The requirements imposed by
the preceding sentence shall also apply with respect to grants
to officers who are not also directors. Once appointed, the
committee shall continue to serve until otherwise directed by
the Board of Directors.
4. Shares Available for the Plan.
-----------------------------
Subject to adjustments as provided in Section 12, the number of shares
of Common Stock of the Company (hereinafter the "shares") which may be
issued pursuant to the Plan is that number of shares which would, in
the aggregate and if deemed outstanding, constitute 20% of the
Company's then-outstanding shares of Common Stock, as determined at the
time of granting stock options. Such shares may represent authorized
but unissued shares. If any grant under the Plan expires or terminates
unexercised, becomes unexercisable or is forfeited as to any shares,
such unpurchased or forfeited shares shall thereafter be available for
further grants under the Plan.
5. Participation.
-------------
Participation in the Plan shall be limited to those officers,
directors, key employees, consultants and affiliates of the Company and
its subsidiaries selected by the Committee. Nothing in the Plan or in
any grant thereunder shall confer any right on an employee to continue
in the employ of the Company or shall interfere in any way with the
right of the Company to terminate an employee at any time.
Incentive or nonqualified stock options, or any combination thereof,
may be granted to such persons and for such number of shares as the
Committee shall determine (such individuals to whom grants are made
being herein called "optionees"). A grant of any type made hereunder in
any one year to an eligible employee shall neither guarantee nor
preclude a further grant of that or any other type to such employee in
that year or subsequent years.
The maximum number of shares with respect to which incentive or
nonqualified options, or any combination thereof, may be granted to any
single individual in any one calendar year shall not exceed 500,000
shares.
6. Incentive and Nonqualified Options.
----------------------------------
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination
thereof. The options granted shall take such form as the Committee
shall determine, subject to the following terms and conditions.
(a) Price. The price per share deliverable upon the exercise of each
Incentive Stock Option shall not be less than 100% of the Fair Market
Value of the shares on the date the option is granted, as the Committee
determines. In the case of the grant of any Incentive Stock Option to
an employee who, at the time of the grant, owns more than 10% of the
total combined voting power of all classes of stock of the Company or
any of its subsidiaries, such price per share, if required by the Code
at the time of grant, shall not be less than 110% of the Fair Market
Value of the shares on the date the option is granted.
The price per share deliverable upon the exercise of each Nonqualified
Stock Option shall not be less than the higher of (i) the net tangible
assets per share of the Company as of the end of the fiscal year
immediately preceding the date of such grant, or (ii) 80% of the Fair
Market Value of the shares on the date the option is granted, as the
Committee determines.
(b) Cash Exercise. Options may be exercised in whole or in part upon
payment of the exercise price of the shares to be acquired. Payment
shall be made in cash or, in the discretion of the Committee, in shares
previously acquired by the participant or a combination of cash and
shares of Common Stock. The Fair Market Value of shares of Common Stock
tendered on exercise of options shall be determined on the date of
exercise.
(c) Cashless Exercise. Options may be exercised in whole or in part
upon delivery to the Secretary of the Company of an irrevocable written
notice of exercise. The date on which such notice is received by the
Secretary shall be the date of exercise of the option, provided that
within five business days of the delivery of such notice the funds to
pay for exercise of the option are delivered to the Company by a broker
acting on behalf of the optionee either in connection with the sale of
the shares underlying the option or in connection with the making of a
margin loan to the optionee to enable payment of the exercise price of
the option. In connection with the foregoing, the Company will provide
a copy of the notice of exercise of the option to the aforesaid broker
upon receipt by the Secretary of such notice and will deliver to such
broker, within five business days of the delivery of such notice to the
Company, a certificate or
certificates (as requested by the broker) representing the number of
shares underlying the option that have been sold by such broker for the
optionee.
(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 Incentive Stock Option 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. All rights to purchase shares pursuant to an option shall,
unless sooner terminated, expire at the date designated by the
Committee. The Committee shall determine the date on which each option
shall become exercisable and may provide that an option shall become
exercisable in installments. The shares constituting each installment
may be purchased in whole or in part at any time after such installment
becomes exercisable, subject to such minimum exercise requirement as is
designated by the Committee. The Committee may accelerate the time at
which any option may be exercised in whole or in part. Unless otherwise
provided herein, an optionee may exercise an option only if he or she
is, and has continuously been since the date the option was granted, an
employee of the Company or a subsidiary. Prior to the exercise of the
option and delivery of the stock represented thereby, the optionee
shall have no rights to any dividends or be entitled to any voting
rights on any stock represented by outstanding options.
(e) Limitations on Grants. If required by the Code at the time of grant
of an Incentive Stock Option, the aggregate Fair Market Value
(determined as of the grant date) of shares for which such option is
exercisable for the first time during any calendar year may not exceed
US$100,000.
(f) Termination of Employment; Change in Control. If a participant
ceases to be an officer, employee, or director of the Company or any
subsidiary due to death or Disability, each of the participant's
options that was granted at least one year prior to death or Disability
shall become fully vested and exercisable and shall remain so for a
period of one year from the date of termination of employment, but in
no event after its expiration date; and all options granted to such
participant less than one year prior to death or Disability shall be
forfeited.
If a participant ceases to be an officer, employee or director
of the Company or any subsidiary upon the occurrence of his or her
Retirement, each of his or her options granted at least one year prior
to Retirement shall become fully vested and exercisable and shall
remain so for a period of five years from the date of Retirement, but
in no event after its expiration date, provided that the participant
does not engage in Competition during that five-year period unless he
receives written consent to do so from the Board. Notwithstanding the
foregoing, Incentive Stock Options not exercised by such participant
within 90 days after Retirement will cease to qualify as Incentive
Stock Options and will be treated as Nonqualified Stock Options under
the Plan if required to be so treated under the Code. All options
granted to such participant less than one year prior to Retirement
shall be forfeited.
If a participant ceases to be an officer or employee of the
Company or any subsidiary due to Cause, all of his or her options shall
be forfeited.
If a participant ceases to be an officer or employee of the
Company or any subsidiary for any reason other than death, Disability,
Retirement or Cause, each of his or her options that was
exercisable on the date of termination shall remain exercisable for,
and shall otherwise terminate at the end of, a period of 90 days after
the date of termination of employment, but in no event after its
expiration date; provided that the participant does not engage in
Competition during such 90-day period unless he or she receives written
consent to do so from the Board. All of the participant's options that
were not exercisable on the date of such termination shall be
forfeited.
Notwithstanding anything to the contrary herein, if a
participant ceases to be an officer, employee or director of the
Company or any subsidiary, for any reason other than Cause, the
Committee at its sole discretion may accelerate the vesting of any
option so that it will become fully vested and exercisable as of the
date of such participant's termination of employment. If there is a
Change in Control of the Company, there will be an automatic
acceleration of the vesting of any outstanding option so that it will
become fully vested and exercisable as of the date of the Change in
Control.
7. Withholding of Taxes.
--------------------
The Company may require, as a condition to any grant under the Plan or
to the delivery of certificates for shares issued hereunder, that the
grantee pay to the Company, in cash, any federal, state or local taxes
of any kind required by law to be withheld with respect to any grant or
any delivery of shares. The Committee, in its sole discretion, may
permit participants to pay such taxes through the withholding of shares
otherwise deliverable to such participant in connection with such grant
or the delivery to the Company of shares otherwise acquired by the
participant. The Fair Market Value of shares of Common Stock withheld
by the Company or tendered to the Company for the satisfaction of tax
withholding obligations under this section shall be determined on the
date such shares are withheld or tendered. The Company, to the extent
permitted or required by law, shall have the right to deduct from any
payment of any kind (including salary or bonus) otherwise due to a
grantee any federal, state or local taxes of any kind required by law
to be withheld with respect to any grant or to the delivery of shares
under the Plan, or to retain or sell without notice a sufficient number
of the shares to be issued to such grantee to cover any such taxes,
provided that the Company shall not sell any such shares if such sale
would be considered a sale by such grantee for purposes of Section 16
of the Exchange Act.
8. Written Agreement.
-----------------
Each employee to whom a grant is made under the Plan shall enter into a
written agreement with the Company that shall contain such provisions,
consistent with the provisions of the Plan, as may be established by
the Committee.
9. Transferability.
---------------
No option granted under the Plan shall be transferable by an employee
otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code
or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. An option may be exercised only by the optionee or his
guardian or legal representative; provided that Incentive Stock Options
may be exercised by such guardian or legal representative only if
permitted by the Code and any regulations promulgated thereunder.
10. Listing and Registration.
------------------------
If the Committee determines that the listing, registration, or
qualification upon any securities exchange or under any law of shares
subject to any option is necessary or desirable as a condition
of, or in connection with, the granting of same or the issue or
purchase of shares thereunder, no such option may be exercised in whole
or in part or no shares issued unless such listing, registration or
qualification is effected free of any conditions not acceptable to the
Committee.
11. Transfer of Employee.
--------------------
Transfer of an employee from the Company to a subsidiary, from a
subsidiary to the Company, and from one subsidiary to another shall not
be considered a termination of employment. Nor shall it be considered a
termination of employment if an employee is placed on military or sick
leave or such other leave of absence which is considered as continuing
intact the employment relationship; in such a case, the employment
relationship shall be continued until the date when an employee's right
to reemployment shall no longer be guaranteed either by law or by
contract.
12. Adjustments.
-----------
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of
assets, or any other change in the corporate structure or shares of the
Company, the Committee shall make such adjustments as it deems
appropriate in the number and kind of shares reserved for issuance
under the Plan, in the number and kind of shares covered by grants made
under the Plan, and in the exercise price of outstanding options. In
the event of any merger, consolidation or other reorganization in which
the Company is not the surviving or continuing corporation, all options
that were granted hereunder and that are outstanding on the date of
such event shall be assumed by the surviving or continuing corporation.
13. Termination and Modification of the Plan.
----------------------------------------
The Board of Directors, without further approval of the shareholders,
may modify or terminate the Plan and from time to time may suspend, and
if suspended, may reinstate any or all of the provisions of the Plan,
except that (i) no modification, suspension or termination of the Plan
may, without the consent of the grantee affected, alter or impair any
grant previously made under the Plan, and (ii) no modification shall
become effective without prior approval of the stockholders of the
Company that would (a) increase (except as provided in Section 12) the
maximum number of shares reserved for issuance under the Plan; (b)
change the classes of employees eligible to be participants; or (iii)
materially increase the benefits accruing to participants in the Plan.
With the consent of the grantee affected thereby, the Committee may
amend or modify the grant of any outstanding option in any manner to
the extent that the Committee would have had the authority to make such
grant as so modified or amended, including without limitation to change
the date or dates as of which an option becomes exercisable. The
Committee shall be authorized to make minor or administrative
modifications to the Plan as well as modifications to the Plan that may
be dictated by requirements of federal or state laws applicable to the
Company or that may be authorized or made desirable by such laws.
14. Commencement Date; Termination Date.
-----------------------------------
The date of commencement of the Plan shall be March 31, 1995. Unless
previously terminated, the Plan shall terminate at the close of
business on March 31, 2005.
15. Cash Awards.
-----------
The Committee may authorize cash awards to any participant receiving
shares under the Plan in order to assist such participant in meeting
his or her tax obligations with respect to such shares.
16. Provisions Applicable Solely to Insiders.
----------------------------------------
The following provisions shall apply only to persons who are subject to
Section 16 of the Securities Exchange Act of 1934 with respect to
securities of the Company ("Insiders"):
(a) No Insider shall be permitted to transfer any securities of the
Company acquired by him, except to the extent permitted by 17 C.F.R.
ss.240.16a-2(d)(1), upon the exercise of any Incentive Stock Option or
Nonqualified Stock Option, until at least six months and one day after
the later of (i) the day on which such security is granted to the
participant or (ii) the day on which the exercise or conversion price
of such security is fixed.
(b) An Insider may elect to have shares withheld from a grant made
under the Plan or tender shares to the Company in order to satisfy the
tax withholding consequences of a grant made under the Plan, only
during the period beginning on the third business day following the
date on which the Company releases the financial information specified
in 17 C.F.R. ss.240.16b-3(e)(1)(ii) and ending on the twelfth business
day following such date.
(c) Notwithstanding Section 19 (b)(ii) hereof, an Insider may elect to
have shares withheld from a grant made under the Plan in order to
satisfy tax withholding consequences thereof by providing the Company
with a written election to so withhold at least six months in advance
of the withholding of shares otherwise issuable upon exercise of an
option.
The China Resources Development, Inc., 1995 Stock Option Plan was
amended and restated pursuant to (i) a resolution of the Board of Directors of
the corporation unanimously adopted at a special meeting of the Board held on
November 29, 1996, and (ii) a vote by the shareholders of the corporation
holding at least a majority of each class of stock outstanding and entitled to
vote, at the annual meeting of shareholders held on December 30, 1996.
PROXY FOR ANNUAL MEETING
OF SHAREHOLDERS
May 28, 1999October 12, 2000
This Proxy is Solicited on
Behalf of the Board of Directors
The undersigned hereby appoints Ching Lung Po and Tam Cheuk
Ho,Li Fei Lie,
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 May 28, 1999,October 12, 2000, at 3:002:30 p.m., local time, at the offices
of Hainan Zhongwei Agricultural ResourcesShenzhen Xubu Investment Company Limited, located at
Sixth Floor, International Hong Yun Hotel, 13 Haixiu Avenue, Haikou City, Hainan5020 Binhe Road, Fu Tian District,
Shenzhen 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 SPLITRATIFY THE ISSUANCE of 244,897 shares of the
Company's common stock,Common Stock, par value $0.001 per share.$0.001. (The Board of Directors recommends a
vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO AMEND the Amended and Restated 1995 Stock
Option Plan to modify the pricing procedure for the exercise of nonqualified
stock options and to eliminate the requirement of shareholder approval for any
modification of the Plan that would materially increase the benefits accruing to
participants in the Plan. (The Board of Directors recommends a vote FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ELECTION OF NOMINEES FOR DIRECTORS in Class III.I. SHAREHOLDERS
MAY WITHHOLD THEIR VOTE FOR ANY NOMINEES BY STRIKING OUT THE NAME OF SUCH
NOMINEE OR NOMINEES:
Ng Kin Sing, Wan Ying LinTam Cheuk Ho and Wong Wah Oh
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees listed to vote for all nominees listed
3.4. PROPOSAL TO RATIFY THE SELECTION of Ernst & Young,
Certified Public Accountants, as the Company's independent accountants for the
fiscal year ending December 31, 1999.2000. (The Board of Directors recommends a vote
FOR)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4.
5. 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:_________________________________
--------------------------------------
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 4.5. 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