UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14C
Definitive Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
Check the appropriate box:
Filed by the Registrant x Filed by a Party other than the Registrant o Check the
appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
Company Name: CHINA DIRECT TRADING CORPORATION, A FLORIDA CORPORATION
Payment of filing fee (check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14c-5(g)and 0-11
(1) Title of each class of securities to which transaction applies: Common
Stock, $0.0001 par value. (2) Aggregate number of securities to which
transaction applies: N/A (3) Per unit price/underlying value pursuant to
Exchange Act Rule 0-11: N/A (4) Proposed maximum aggregate value of transaction:
N/A (5) Total fee paid: N/A
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identifies the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number or the form or
schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
1
CHINA DIRECT TRADING CORPORATION
10400 GRIFFIN ROAD
COOPER CITY, FLORIDA 33328
(954) 252-3440
May 11, 2007
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY,
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
Dear Shareholders:
The enclosed information statement is being furnished to shareholders
of record as of May 10, 2007, of China Direct Trading Corporation ("Company" or
"CHDT"), a Florida corporation, in connection with the following proposals: (1)
approval of an amendment to the Articles of Incorporation of the Company for the
sole purpose of changing the Company's name from "China Direct Trading
Corporation" to "CHDT Corporation"; and (2) election of directors. All of the
foregoing proposals were approved on May 7, 2007, by action by written consent
of a majority of all shareholders ("Majority Shareholder Action") entitled to
vote on the record date.
Our board of directors has reviewed and unanimously approved all of
the above proposals.
Holders of approximately 70% of our common stock have executed a
written consent in favor of the proposal described herein. However, under
federal law the proposals will not be effected until at least 20 days after a
Definitive Information Statement has first been sent to shareholders who have
not previously consented.
By Order of the Board of Directors,
/s/Stewart Wallach
Chief Executive Officer & President
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14C PROMULGATED THERETO
CHINA DIRECT TRADING CORPORATION
CONTENTS PAGE
- --------------------------------------------------------------------------------
Introduction 4
General 4
Q&A 5
Business 6
Notices 7
Item 1. Information Required by Items of Schedule 14A
A. No Time, Place or Date for Meeting of Shareholders 8
B. Dissenters' Rights 8
C. The Voting Securities and Principal Shareholders 8
Security Ownership of Certain Beneficial Owners & Management 9
D. Management of the Company
Current Officers and Directors 10
Compensation of Officers and Directors 11
Summary Compensation Table 12
Summary Stock Option Table 13
Current Board of Directors 14
Independent Directors 14
Policy Regarding Board Attendance 14
Directors who Resigned in FY 2007 and First Quarter 2007 14
Role of Directors in Corporate Governance 15
Audit Committee 15
Compensation Committee 15
Compensation Committee Interlocks and Insider Participation 16
Report of Audit Committee 16
Nominating Committee 17
Committee Charters 17
Code of Ethics 17
Director Meetings in Fiscal Year 2006 18
Section 16(a) Beneficial Ownership Reporting Compliance 18
Federal Income Tax Consequences 18
Change of Control Agreements 20
Special Non-Qualified Stock Option Grant 20
Communications with Directors 21
3
E. Proposals- Reasons and Benefits of the Transaction Amend
Articles to Change Name 21
Election of Directors 21
D&O Insurance 24
Item 2. Statements that Proxies are not Solicited 24
Item 3. Interest of Certain Persons 24
Policy and Procedures for Review, Approval or
Ratification Transaction with Related Person 25
Promoters 26
Item 4. Other and General Information 26
Item 5. Documents Incorporated By Reference 27
Exhibits 27
INTRODUCTION
The majority shareholders of this Securities and Exchange Act of 1934
Registrant, China Direct Trading Corporation, have taken an corporate action by
majority shareholders without a meeting of the holders of the Common Stock
(hereinafter, "Majority Shareholder Action") pursuant to Florida Statutes
Section 607.0704 and for the purposes of approving: (1) amendment of the
Articles of Incorporation of the Company to change the name of the Company from
"China Direct Trading Corporation" to "CHDT Corporation"; and (2) election of
each of the Company nominees for election to the Board of Directors, those
nominees being Stewart Wallach, Howard Ullman, Jeffrey Postal, Laurie Holtz,
Larry Sloven and Jeffrey Guzy, all incumbent directors as of May 7, 2007, for
election to the Company Board of Directors for a term ending in 2008 when their
successors are elected and assume office.
This Definitive Information Statement is being filed pursuant to
Section 14(c) of the Securities Exchange Act of 1934, as amended ("1934 Act" or
"Exchange Act") and provided to the Company's shareholders pursuant to Rule 14c.
GENERAL
The date on which this Information Statement was first sent to our
stockholders is on or around May 11, 2007. Inasmuch as we will have provided
4
this Information Statement to our stockholders of record on said mailing date,
no additional action will be undertaken pursuant to such written consent.
Shareholders who did not consent to the Proposals are not entitled to
dissenter's rights under Florida law. The Proposals will each be effective no
sooner than twenty (20) days after said mailing date. The actual approval
process for the name change of the Company may, since it involves federal, state
and NASD OTC Regulation requirements, may take 20 to 40 days.
This Information Statement has been prepared by our management, and the
entire cost of furnishing this Information Statement will be borne by us. We
will request brokerage houses, nominees, custodians, fiduciaries and other like
parties to forward this Information Statement to the beneficial owners of our
voting securities held of record by them and we will reimburse such persons for
out-of-pocket expenses incurred in forwarding such material.
The Florida law provides in substance that unless the Company's
Articles of Incorporation provides otherwise, stockholders may take action
without a meeting of stockholders and without prior notice if a consent or
consents in writing, setting forth the action so taken, is signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to take such action at a meeting at which all shares entitled to
vote thereon were present.
QUESTIONS AND ANSWERS
Q. Why did I receive this Information Statement?
A. Applicable laws require us to provide you information regarding the Proposals
and Majority Shareholder Action - even though your vote is neither required nor
requested for the Proposals to become effective.
Q. What will I receive when the Proposals are effective?
A. The Proposals have already been approved, and you will not receive anything
further. The name change will take at least 20 days to become effective and may
take 20 to 40 days to become effective.
Q. Why am I not being asked to vote?
A. The holders of a majority of the issued and outstanding shares of Common
Stock have already approved the Proposals by a written consent in lieu of a
stockholders' meeting. Such approval, together with the approval of the
Company's Board of Directors, is sufficient under Florida law, and no further
approval by our stockholders is required.
Q. What do I need to do now?
A. Nothing. This Information Statement is purely for your information and does
not require or request you to do anything.
Q. Whom can I contact with questions?
A. If you have any questions about any of the actions to be taken by the
Company, please contact Gerry McClinton, Secretary, at Company, (954) 252-3440
or 10400 Griffin Road, #109, Cooper City, Florida 33328.
Q. Why is the Company name being changed?
5
A. The Company's management believes that the current name does not accurately
reflect the current business of the Company. While using Chinese manufacturing
sources will remain key to the Company's business lines, the primary business
focus of the Company from April 2007 onwards will be distribution of consumer
goods through North American distributors and retailers. Further, the Company
uses its subsidiaries' trade names and trade marks in the marketing and sales of
their respective products. The Company name is not used in such marketing and
sales efforts. The use of "China" in the name is no longer appropriate, in the
opinion of the Company, based on the current business lines and model of the
Company. "CHDT" is being selected because the trading symbol of the Company on
the OTC Bulletin Board is "CHDT."
Q. When will the name change occur and will it cause a change in the trading
symbol of the Company?
A. The name change's effective date is subject to NASD, state and federal
securities law filing and notice requirements that will delay the name change's
effectiveness date for 20 to 40 days after the date of this Information
Statement. We have asked NASD OTC Regulation not to change our trading symbol,
and based on conversations with NASD OTC Regulation, no change in our trading
symbol of "CHDT.OB" will be required.
Q. With the name change, do I need to exchange or tender my stock certificates
for new stock certificates with the new name?
A. No. Your "China Direct Trading Corp." stock certificates will continue to
represent your equity ownership interest in the Company. The name change has not
changed the legal existence or continuity of the Company. The Company will issue
new stock certificates with the new name whenever a shareholder or his or her or
its broker tenders its stock certificate to a stock transfer agent for a trading
transaction and that transaction results in the issuance of a new stock
certificate.
Q. Will the CUSIP Number of the Common Stock change?
A. No. We have contacted the CUSIP Service Bureau and no change in CUSIP is
required for our name change. The CUSIP will remain 16938E 10 2 for the Common
Stock.
Q. Why did Stewart Wallach replace Howard Ullman as the Chief Executive Officer
and President?
A. The Company's Board of Directors, including Howard Ullman, believes that
Stewart Wallach is a more experienced and effective executive and operations
executive than Mr. Ullman and that Mr. Wallach is better qualified to lead the
Company in its pursuit of improved and sustained financial performance and in
respect of the Company's current business line.
6
BUSINESS
We are a Florida corporation and a public holding company engaged
through our two operating, wholly-owned subsidiaries in: (1) the sale of low
technology consumer goods and (2) building supplies, in each case manufactured
abroad, especially in the Peoples' Republic of China, in North America. We
generally sell the products either directly to business clients or through
regional and national distributors or retailers. We are a fully reporting 1934
Act company, with our common stock quoted on the Over-the-Counter Bulletin Board
under the symbol "CHDT.OB."
Information about us can be found in our December 31, 2006 Form 10KSB,
as filed with the Commission on April 18, 2007, September 30, 2006 Form 10-QSB
filed with the Commission on November 15, 2006; June 30, 2006 Form 10-QSB filed
with the Commission on August 24, 2006; March 30, 2006 Form 10-QSB filed with
the Commission on May 15, 2006; Form 8-K's filed with the Commission on May 4,
2007, April 30, 2007 (Amendment); April 25, 2007; February 28, 2007 (Amendment);
and February 1, 2007. Additional information about us can be found in our public
filings that can be accessed electronically by means of the SEC's home page on
the Internet at http://www.sec.gov, or at other Internet sites such as
http://www.freeedgar.com, as well as by such other means from the public
reference rooms or offices of the SEC.
NOTICES
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR FORWARD LOOKING STATEMENTS. This Information Statement contains
statements that are not historical facts. These statements are called
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements involve important known and unknown risks, uncertainties and other
factors and can be identified by phrases using "estimate,"
"anticipate,""believe,""project,""expect,""intend,""predict,""potential,
""future, "may," "should" and similar expressions or words. Our future results,
performance or achievements may differ materially from the results, performance
or achievements discussed in the forward-looking statements. There are numerous
factors that could cause actual results to differ materially from the results
discussed in forward-looking statements, including:
o With major customers and/or suppliers: an adverse change in our
relationships with major customers and/or suppliers would have a
negative impact on our earnings and financial position ;
Economic, trade or political disputes between U.S. and China;
General economic conditions;
Competition from other companies in our industry, especially
Chinese manufacturers; and
o Factors that we have discussed in previous public reports and
other documents filed with the Securities and Exchange Commission.
7
This list provides examples of factors that could affect the results
described by forward-looking statements contained in this Information Statement.
However, this list is not intended to be exhaustive; many other factors could
impact our business and it is impossible to predict with any accuracy which
factors could result in which negative impacts. Although we believe that the
forward-looking statements contained in this Information Statement are
reasonable, we cannot provide you with any guarantee that the anticipated
results will be achieved. All forward-looking statements in this Information
Statement are expressly qualified in their entirety by the cautionary statements
contained in this section and you are cautioned not to place undue reliance on
the forward-looking statements contained in this Information Statement. In
addition to the risks listed above, other risks may arise in the future, and we
disclaim any obligation to update information contained in any forward-looking
statement.
ITEM 1. INFORMATION REQUIRED BY ITEMS OF SCHEDULE 14A
A. NO TIME, PLACE OR DATE FOR MEETING OF SHAREHOLDERS
There WILL NOT be a meeting of shareholders and none is required under
applicable Florida statutes when an action has been approved by majority
shareholders without a meeting. This Information Statement is first being mailed
on or about May 11, 2007, to the holders of Common Stock as of the Record Date
on May 10, 2007. There are 292 shareholders of record as of May 10, 2007.
B. DISSENTERS' RIGHTS.
Under Florida law, our shareholders do not have dissenters' rights in
connection with any of the actions that were approved as disclosed in this
Information Statement.
C. THE VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS THEREOF.
Proposals 1 and 2 were approved by the action of a majority of all
shareholders entitled to vote on the record date. This is Majority Shareholder
Action, pursuant to Florida Statutes 607-0704. The vote required for approval
was 50% (of all entitled shareholders) plus one vote, a simple majority. The
actual affirmative vote was approximately 70% of all shares issued and
outstanding as of May 10, 2007. The proposals are not effective before first
completion of this Section 14(c) compliance, and second the mailing or delivery
of a Definitive Information Statement to shareholders at least 20 days prior to
the date that this corporate action may take place.
ON MAY 10, 2007, THE RECORD DATE, THERE WERE 564,865.869 SHARES OF
COMMON STOCK ISSUED AND OUTSTANDING. EACH SHARE OF COMMON
STOCK ENTITLES THE HOLDER THEREOF TO ONE VOTE ON EACH MATTER
THAT MAY COME BEFORE A MEETING OF THE SHAREHOLDERS.
8
D. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The sole class of voting equity securities of the Company as of May 10,
2007, that are issued and outstanding is the Common Stock, $0.0001 par value per
share, or "Common Stock". The table on the following page sets forth, as of May
10, 2007, certain information with respect to the Common Stock beneficially
owned by (i) each Director, nominee and executive officer of the Company; (i)
each person who owns beneficially more than 5% of the common stock; and (iii)
all Directors, nominees and executive officers as a group. The table below also
shows ownership as of May 10, 2007 of shares of Series B Convertible Redeemable
Preferred Stock, $0.10 par value, or the "Preferred Stock," which shares have no
voting rights. There were 564,865,869 shares of Common Stock outstanding on May
10, 2007 and 915,030 shares of Preferred Stock were outstanding as of May 10,
2007.
OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
AS OF MAY 10, 2007 (1)
- --------------------------------- ------------------- ----------------- ---------------- ------------------
NAME, ADDRESS & TITLE SHARES OF COMMON % OF SHARES OF % OF SHARES
STOCK OUTSTANDING PREFERRED OUTSTANDING
SHARES STOCK
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Stewart Wallach, CEO & (3)
President 14,274,942 -0- 0 0%
350 Jim Moran Blvd. #121
Deerfield Beach, Florida 33442
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Howard Ullman,
Chairman (2) 287,626,178 51% 660,030 72%
10400 Griffin Rd., #109
Cooper City, Florida 33328
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Gerry McClinton, COO & Secretary
10400 Griffin Road, #109 500,000 Less than 1% -0- 0%
Cooper City, Florida 33328
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Jeffrey Postal, Director 9,000,000 Less Than 1% 250,000 27%
10400 Griffin Rd., #109
Cooper City, Florida 33328
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Lorenzo Lamadrid (4)
1424 West 28 St.
Miami Beach, Florida 33140 6,990,000 Less Than 1% -0- 0%
- --------------------------------- ------------------- ----------------- ---------------- ------------------
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Laurie Holtz, Director
1826 West 23 Street -
Island 3 3,295,000 Less Than 1% 5,000 Less than 1%
Miami Beach, Florida 33140
9
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Jeffrey Guzy (5)
3130 19th Street North 50,000 Less than 1% -0- 0%
Arlington, Virginia 22201
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Larry Sloven, Director (6)
10400 Griffin Rd. #109 -0- 0% -0- 0%
Cooper City, Florida 33328
- --------------------------------- ------------------- ----------------- ---------------- ------------------
ALL OFFICERS &
DIRECTORS AS A
GROUP 322,366,120 57% 915,030 100%
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Bart Fisher (7)
9009 Potomac Forest Drive 30,480,185(9) 5% -0- 0%
Great Falls, Virginia 22066
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Margaret Fisher (8)
9009 Potomac Forest Drive 43,925,000 8% -0- 0%
Great Falls, Virginia 22066
- --------------------------------- ------------------- ----------------- ---------------- ------------------
388,771,305 69% 915,030 100%
TOTAL:
- --------------------------------- ------------------- ----------------- ---------------- ------------------
Notes to Table
(1) Unless otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) Mr. Ullman was Chief Executive Officer and President of the Company until
April 20, 2007.
(3) Mr. Wallach was appointed Chief Executive Officer and
President of the Company on April 20, 2007.
Preferred Stock was acquired in Company's acquisition of Capstone Industries,
Inc. in September 2006.
(4) Mr. Lamadrid resigned as a director on April 23, 2007.
(5) Mr. Guzy was appointed a director on May 3, 2007, to fill the board
vacancy created by Mr. Lamadrid's resignation as a director on April 22,
2007.
(6) Mr. Sloven was appointed as a director on May 3, 2007 to fill an existing
vacancy on the Company Board of Directors.
(7)
(8) Bart Fisher is the spouse
of Margaret Fisher. Bart Fisher was an officer and director of the Company in
2002. If the ownership of Bart Fisher is combined with his spouse's holdings,
then Bart Fisher may be deemed to be an "affiliate" of the Company under the
rules of the Securities Exchange Act of 1934, as amended, and on the basis of
owning more than 10% of the Company's outstanding shares of Common Stock.
(9) Position includes 3,518,234 shares of Common Stock owned by Mr. Fisher's
profit sharing plan.
10
The number of shares beneficially owned by each director or executive
officer is determined under rules of the Commission and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which the individual has
the sole or shared voting power or investment power and also any shares that the
individual has the right to acquire within 60 days of the date hereof through
the exercise of any stock option or other right. Unless otherwise indicated,
each person has the sole investment and voting power (or shares such powers with
his or her spouse) with respect to the shares set forth in the table.
E. MANAGEMENT OF THE COMPANY
CURRENT OFFICERS. The current officers of the Company are:
Stewart Wallach was appointed as Chief Executive Officer of the Company
on April 23, 2007. Mr. Wallach is also the senior executive officer and director
of Capstone.
Howard Ullman, Chairman of the Board of the Company. Mr. Ullman was
Chief Executive Officer, President and Chairman of the Board of the Company from
December 1, 2003 until his resignation from the Chief Executive Officer and
President positions on April 23, 2007. He remains the senior executive of the
Company's wholly-owned subsidiary Souvenir Direct, Inc. Mr. Ullman founded SDI.
Mr. Ullman is also the senior executive officer of the Company's wholly-owned
subsidiary, Overseas Building Supply, LLC, a Florida limited liability company,
since its formation in February 2004.
Gerry McClinton is the Secretary of the Company. Mr. McClinton is also
a senior officer of Capstone.
G. M cClinton was President of Capstone Industries 2005 -2007. General Manager
Capstone Industries, Inc. 2000-2005
Sagaz Industries Inc 1998 -2000. CFO . In charge of the Production/Accounting
and Systems team that transitioned the Sagaz automotive consumers products
company into the Pennzoil Quakerstate Corporation.
1995 -1998. V.P. of Operations. Responsibile for the production
activities of 500 assocaites producing Automotive Consumer products division.
Established manufacturing plants in Mexico.
1990 - 1995 Company Controller.
1980-1990 Firedoor Corporation. CFO. A national manufaturer of security and
firedoors to the construction industry.
College : University of Northern Ireland , Belfast U.K.
Degree. Institute of Cost and Management Accountants. (I.C.M.A.)
11
COMPENSATION OF OFFICERS.
Stewart Wallach is the Chief Executive Officer and President of the
Company since April 20, 2007. He is entitled to receive $225,000 per annum for
services as a senior executive officer of the Company. On May 7, 2007, the
Company issued a ten-year non-qualified, non-statutory stock option for 107,400
"restricted" shares of Common Stock to Stewart Wallach as incentive
compensation. The exercise price is $0.029 per share, that being the then
current fair market value, also the Bid price, of the Common Stock as quoted on
http:www.otcbb.com. This grant was approved by the Compensation Committee and
the disinterested directors on the Company Board of Directors.
Howard Ullman is the Chairman of the Board of the Company and is Chief
Executive Officer, President and Chairman of the Board of Director of its
wholly-owned subsidiary, Souvenir Direct, Inc. or "SDI." The Company intends to
dissolve SDI in 2007 since its operations have been consolidated into Capstone.
Mr. Ullman was the Chief Executive Officer and President of the Company from
December 1, 2003 until he resigned as Chief Executive Officer and President on
April 23, 2007. The Company signed a five-year employment agreement with Mr.
Ullman in 2004 whereby he will be employed by the Company as Chief Executive
Officer and President. Under his revised employment agreement, Mr. Ullman is
entitled to an annual cash salary of $175,000. Historically, Mr. Ullman has
deferred all of his cash salary and received "restricted" shares of Common Stock
in lieu of cash compensation (based on the closing bid price of the Common Stock
on the trading day that the shares are issued to the Mr. Ullman). Such stock is
usually paid in semi-annual installments during the year that the underlying
cash compensation is due and payable to Mr. Ullman.
Gerry McClinton is the Chief Operating Officer of the Company and
Secretary of the Company. He is also a senior officer of Capstone.
Stock-Based Compensation. The Company typically issues "restricted"
shares of Common Stock to Mr. Ullman in lieu of cash compensation, which
conversion rate are usually set at closing bid price of Common Stock (as quoted
on http://www.otcbbb.com) on the date of the stock grant. The Company also
issues stock options under the 2005 Equity Plan and non-plan, non-qualified
stock options. See the table below for a summary of option grants in FY 2006.
The Company changed operations management in April 2007 and has been issuing
non-qualified stock options to new members of the executive operations team as
incentive compensation.
12
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by
or paid to, our chief executive officer and our other executive officers earning
in excess of $100,000 for services rendered in all capacities during fiscal
years ended December 31, 2006, 2005 and 2004. We provide certain perquisites and
other personal benefits to some or all of our executives. The unreimbursed
incremental cost to us of providing perquisites and other personal benefits did
not exceed, as to any of the executives for any year, the lesser of $50,000 or
10% of the total salary and bonus paid to such executive for such year.
NAME & PRINCIPAL ANNUAL COMPENSATION LONG TERM COMPENSATION
POSITION
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
YEAR SALARY BONUS ALL OTHER SECURITIES STOCK
COMPENSATION UNDERLYING GRANTS
OPTIONS
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
Howard Ullman (1)
Chief Executive Officer,
President and Officer 2006 $200,000 -0- -0- 1,000,000
(adjusted to
$175,000 for
2007)
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
2005 $200,000 -0- -0-
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
2004 $200,000 -0- -0-
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
Stewart Wallach (2)
Chief Executive Officer
& Chairman of Capstone
Industries, Inc. 2006 $70,000
(Capstone -0- -0- -0- -0-
only) (3)
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
2005 N/A N/A N/A N/A N/A
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
2004 N/A N/A N/A N/A N/A
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
Gerry (3)
McClinton, COO &
Secretary of Company and 2006 $85,000 -0- -0- -0- -0-
President of Capstone (Capstone
Industries, Inc. only) (4)
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
2005 N/A N/A N/A N/A N/A
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
2004 N/A N/A N/A N/A N/A
- -------------------------- ---------- ---------------- ------------ ------------------- ----------------- ------------
Notes to Table
(1) Mr. Ullman resigned as Chief Executive Officer and President of the
Company on April 20, 2007 in order to allow the appointment of Stewart
Wallach.
(2) Mr. Wallach and Mr. McClinton were not officers or directors of the
Company in 2005 or 2004.
(3) Salary as Chief Executive Officer of Capstone. Mr. Wallach was not an
officer of the Company until April 23, 2007. Mr. McClinton's 2007
annual salary is $150,000 for Chief Operating Officer of the Company.
(4) Salary as President of Capstone. Mr. McClinton received no salary as
Secretary of the Company in 2006.
13
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option grants during the fiscal year
ended December 31, 2006 to each of the executive officers named in the Summary
Compensation Table above.
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
Name (6) No. of % of Total Exercise or Expiration Restricted No. of
Securities Options Granted Base Price Date Stock Grants Securities
underlying to Employee in ($/Share) underlying
Options FY 2006 Options
Granted Granted
prior to
1/1/2005
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
Howard Ullman (1) -0- -0- -0- -0- 1,000,000
(5) shares of -0-
Common Stock
(4)
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
Jeffrey Postal
Director -0- -0- -0-
-0- 1,600,000 -0-
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
Stewart Wallach (2) -0- -0- -0- -0- -0- -0-
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
Gerry McClinton (3)
-0- -0- -0- -0- -0- -0-
- --------------------- --------------- ----------------- ---------------- -------------- ---------------- -------------
Notes to the Table
(1) Mr. Ullman resigned as Chief Executive Officer and President of the Company
on April 23, 2007.
(2) Mr. Wallach was appointed as Chief Executive Officer and President on April
23, 2007. The Company granted Mr. Wallach a non-qualified stock option on
April 23, 2007 for 107.4 million shares of Common Stock at an exercise
price of $0.029 per share. The option has a ten-year term.
(3) Mr. McClinton was granted a non-qualified stock option for 28.1 million
shares of Common Stock at an exercise price of $0.029 per share. The option
has a ten-year term.
(4) The shares of Common Stock are "restricted securities" under Rule 144 of the
Securities Act of 1933, as amended.
(5) Mr. Ullman had an option for 1.985 million shares of Common Stock at an
exercise price of $0.01 per share, which was exercised in 2006.
(6) In October 2003, former officers Paul Richter and Pam Milan were granted
non-qualified options for 25,000 and 15,000 shares of Common
Stock, respectively. The exercise price is $0.05 per share for both
options and the term of the options is 10 years.
CURRENT BOARD OF DIRECTORS.
The background information on the directors is set forth below under
"Item 1. D. Proposal One: Election of Directors." Each Director's term is for
one year. The incumbent and current Board of Directors are:
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Howard Ullman, who is the Chairman of the Board. Mr. Ullman has been a
director since December 4, 2003.
Laurie Holtz. Mr. Holtz has been a director since January 2004.
Jeffrey Postal. Mr. Postal has been a director since January 2004.
Lorenzo Lamadrid. Mr. Lamadrid was appointed as a director in January
2005. He resigned from the Board of Directors, effective April 23, 2007.
Jeffrey Guzy was appointed as a director on May 3, 2007. Mr. Guzy is
deemed an "independent director."
Larry Sloven was appointed as a director on May 3, 2007. Mr. Sloven is
deemed an "independent director."
INDEPENDENT DIRECTORS
The Company is a "controlled company" under NASDAQ and New York Stock
Exchange corporate governance rules, that is a company where 50% or more of the
voting power is owned by a person or a group, and does not currently have to
meet requirements for a board of directors with a majority of "independent
directors." Nonetheless, the Company has an internal policy under which it is
striving to have a Board of Directors consisting of 50% or more "independent
directors." Only Jeffrey Guzy qualifies as an "independent director" under the
listing standards of The Nasdaq Stock Market, New York Stock Exchange or
American Stock Exchange. No other director qualifies as an "independent
director" under those rules.
POLICY REGARDING BOARD ATTENDANCE
Company directors are expected to attend all annual and special board
meetings per Company policy. An attendance rate of less than 75% over any 12
month period is grounds for removal from the Board of Directors.
DIRECTORS WHO RESIGNED IN FISCAL YEAR 2006 AND FIRST QUARTER OF FISCAL YEAR 2007
Lorenzo Lamadrid resigned as a director, effective April 23, 2007.
There was no dispute between Mr. Lamadrid and the Company at the time of his
resignation.
ROLE OF THE BOARD OF DIRECTORS IN CORPORATE GOVERNANCE.
The Board of Directors is responsible for overseeing the Chief
Executive Officer and other senior management in order to assure that such
officers are competent and ethical in running the Company on a day-to-day basis
and to assure that the long-term interests of the shareholders are being served
by such management. The directors must take a pro-active focus and approach to
their obligation in order to set and enforce standards to ensure that the
15
Company is committed to business success through maintenance of the highest
standards of responsibility and ethics.
The Company has adopted a Code of Ethics, which is posted on the
Company's Website. The contents of the Company Website are not incorporated
herein by reference and that Website provided in this Information Statement is
intended to be an inactive textual reference only.
AUDIT COMMITTEE.
The Audit Committee was established in accordance with Section
3(a)(58)(A) of the Exchange Act. It is primarily responsible for overseeing the
services performed by the Company's independent auditors, evaluating the
Company's accounting policies and its system of internal controls and reviewing
significant financial transactions. The members of the Audit Committee are
Lorenzo Lamadrid and Jeffrey Postal in fiscal year 2006. Mr. Lamadrid resigned
as a director, effective April 23, 2007. Jeffrey Guzy was appointed as a
director and a member of the Audit Committee on May 3, 2007. Larry Sloven was
appointed as a director and a member of the Audit Committee on May 3, 2007. The
Company believes that Mr. Guzy is an independent directors under applicable
Nasdaq and New York Stock Exchange standards. Mr. Sloven is not deemed to meet
those standards because of his company's product development and outsourcing
contract with the Company. The Company is looking for independent directors to
fill the Audit Committee and, until such candidates are found, Mr. Sloven is
being asked to sit as a member of the Audit Committee.
COMPENSATION COMMITTEE.
The Compensation Committee is primarily responsible for reviewing the
compensation arrangements for the Company's executive officers, including the
Chief Executive Officer, and for administering the Company's stock-based
compensation plans. The Compensation Committee was established January 2005. The
Compensation Committee held three meetings in fiscal year 2006. Lorenzo Lamadrid
was the sold director member of the Compensation Committee in fiscal year 2006.
Director members of the Compensation Committee in fiscal year 2006 and until
April 23, 2007 was Lorenzo Lamadrid, who was deemed to be an independent
director by the Company under applicable standards. Jeffrey Guzy was appointed
to replace Mr. Lamadrid as a director and member of the Compensation Committee
on May 3, 2007. Mr. Larry Sloven was appointed a member of the Compensation
Committee on May 3, 2007. The Company believes that Mr. Guzy is an independent
director under applicable Nasdaq and New York Stock Exchange standards. Mr.
Sloven is not deemed to meet those standards because of his company's product
development and outsourcing contract with the Company. The Company is looking
for independent directors to fill the Compensation Committee and, until such
candidates are found, Mr. Sloven is being asked to sit as a member of the
Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Mr. Jeffrey Guzy
and Mr. Larry Sloven, none of whom are employees of the Company and all of whom
are considered "independent" directors by the Company (despite an April 2007
16
sourcing and development agreement between the Company and Mr. Sloven's company
for Capstone's licensed products. There were no interlocks or insider
participation between any member of the Board of Directors or Compensation
Committee and any member of the board of directors or compensation committee of
another company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS SHALL NOT BE DEEMED "SOLICITING MATERIAL" OR TO BE "FILED" WITH THE
COMMISSION, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE INTO ANY
FUTURE FILING UNDER THE SECURITIES ACT OF 1933 OR SECURITIES EXCHANGE ACT OF
1934, EACH AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES IT BY REFERENCE INTO SUCH FILING.
OBJECTIVES
It is the Company's objective to pursue compensation structures with the
public shareholders' interests and the Company's business objectives, reward
outstanding performance, be externally competitive and internally equitable, and
attract and retain best available executive talent. We seek to achieve this goal
through a straightforward compensation package that relies on equity
compensation and limits cash compensation and perquisites.
REPORT OF AUDIT COMMITTEE.
THE FOLLOWING IS THE REPORT OF THE AUDIT AND FINANCE COMMITTEE (THE
"AUDIT COMMITTEE") WITH RESPECT TO THE COMPANY'S AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006. THE INFORMATION CONTAINED IN THIS
REPORT SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE "FILED" WITH THE
SECURITIES AND EXCHANGE COMMISSION, NOR SHALL SUCH INFORMATION BE INCORPORATED
BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE
EXTENT THAT THE COMPANY, IF AT ALL, SPECIFICALLY INCORPORATES SUCH INFORMATION
BY REFERENCE IN SUCH FILING.
The Audit Committee (the "AUDIT COMMITTEE") consisted of two members in
fiscal year 2006: Lorenzo Lamadrid, an independent director under the NASDAQ and
SEC audit committee structure and membership requirements, and Laurie Holtz, who
is not an employee or consultant of the Company but is the father-in-law of
Howard Ullman, the Company's Chairman of the Board, largest holder of Common
Stock and former Chief Executive Officer and President. Mr. Holtz is a forensic
auditor and qualified to serve on the Audit Committee. While the Company has
made an ongoing effort to recruit qualified, independent directors, it has been
unsuccessful until April 2007 in these efforts. The most significant factor in
the Company's past inability in recruiting independent directors has been the
lack of D&O Insurance coverage until summer of 2006 and the Company's ongoing
status as a "penny stock" company. With D&O insurance, the Company is confident
that it will be able to recruit one or more independent directors who satisfying
applicable standards from the SEC and NASD. The goal of the Company is to add
two more independent directors to the Board in fiscal year 2007 and prior to the
effectiveness of Sarbanes-Oxley Act of 2002 requirements.
17
The Audit Committee operates under a written charter adopted by the
Board. A copy of the charter can be found on the Company's website.
The Audit Committee is primarily responsible for assisting the Board of
Directors of the Company in fulfilling its oversight responsibility by reviewing
the financial information that will be provided to shareholders and others,
appointing the independent auditor, reviewing the services performed by the
Company's independent registered public accounting firm and internal audit
department, evaluating the Company's accounting policies and its system of
internal controls that management and the Board have established, and reviewing
significant financial transactions. The Audit Committee does not itself prepare
financial statements or perform audits, and its members are not auditors or
certifiers of the Company's financial statements.
The Audit Committee had two meetings in fiscal year 2006, both conducted
after general board meetings.
In fulfilling its oversight responsibility of appointing and reviewing
the services performed by the Company's independent registered public accounting
firm, the Audit Committee carefully reviews the policies and procedures for the
engagement of the independent auditor, including the scope of the audit, audit
fees, auditor independence matters and the extent to which the independent
auditor may be retained to perform non-audit related services.
The Audit Committee is scheduled to review and discuss the audited
financial statements for the fiscal year ended December 31, 2007, with the
Company's management and Robison Hill & Company, the Company's independent
during the week of May 14, 2007 or shortly thereafter.
NOMINATING COMMITTEE
The Company does not currently have a nominating committee, but it
intends to re-establish a nominating committee prior to December 31, 2007.
COMMITTEE CHARTERS.
The Audit and Compensation Committees operate under written charters
adopted by the Board of Directors. These charters are posted on the Company
Website.
CODE OF ETHICS.
The Company has a code of ethics that applies to all of the Company's
employees, including its principal executive officer, principal financial
officer and principal accounting officer, and its Board. A copy of this code is
available on the Company's website. The Company intends to disclose any changes
in or waivers from its code of ethics by posting such information on its website
or by filing a Form 8-K.
DIRECTOR MEETINGS IN FISCAL YEAR 2006.
The Board of Directors had nine meetings in fiscal year 2006. During
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fiscal year 2006, all of the directors attended 75% or more of all meetings of
the Board which were held during the period of time that such person served on
the Board or such committee, except Susan Xu, who attended no board or committee
meetings. The Company's board of directors did not nominate and did not re-elect
Ms. Xu to a director position for fiscal year 2007.
DIRECTOR COMPENSATION.
Directors are to be compensated through the 2005 Equity Plan set
forth below in fiscal year 2006. No directors have received or are entitled to
receive any cash compensation in fiscal year 2006. Outside of the 2005 Equity
Plan, each director received a stock grant of 1 million "restricted" shares of
Company Common Stock in June 2006 as compensation for director services in 2006.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of securities ownership and changes in such ownership with the
SEC. Executive officers, directors and greater than ten percent shareholders
also are required by rules promulgated by the SEC to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company or written representations that no Forms 5 were required, the Company
believes that all Section 16(a) filing requirements were met during fiscal year
2006 by the Company's directors and officers; except: (1) Messrs. Lamadrid,
Holtz and Postal each filed Form 4's to report issuance of Series B Convertible
Redeemable Stock on March 14, 2006 in each instances where the transaction date
in each case was listed as February 21, 2006, but the delay in filing the Form
4's was due to a delay in the closing of the underlying transaction and a
subsequent delay in issuance of the stock certificates to the reporting persons
in each case; and (2) Mr. Lamadrid filed a Form 4 on November 17, 2006 for a
stock grant with a October 11, 2006 transaction date; and (3) Mr. Ullman filed a
Form 4 on November 7, 2006 with a October 11, 2006 transaction date; and (4) Mr.
Postal filed a Form 4 on or about May 8, 2007 for a stock grant and private
purchase of stock from another shareholder, both transaction occurred prior to
May 2007.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the U.S. federal income tax
consequences applicable to awards granted under the 2005 Equity Plan based on
the federal income tax laws in effect on the date of this proxy statement. This
summary is not intended to be exhaustive and does not address all matters
relevant to a particular participant based on his or her specific circumstances.
The summary expressly does not discuss the income tax laws of any state,
municipality, or non-U.S. taxing jurisdiction, or the gift, estate, excise
(including the rules applicable to deferred compensation under Internal Revenue
Code Section 409A), or other tax laws other than federal income tax law. The
following is not intended or written to be used, and cannot be used, for the
purposes of avoiding taxpayer penalties. Because individual circumstances may
vary, the Company advises all participants to consult their own tax advisor
concerning the tax implications of awards granted under the 2005 Equity Plan.
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A recipient of a stock option or stock appreciation right will not have
taxable income upon the grant of the stock option or stock appreciation right.
For non-statutory stock options and stock appreciation rights, the participant
will recognize ordinary income upon exercise in an amount equal to the
difference between the fair market value of the shares and the exercise price on
the date of exercise. Any gain or loss recognized upon any later disposition of
the shares generally will be a capital gain or loss.
The acquisition of shares of Common Stock upon exercise of an incentive
stock option will not result in any taxable income to the participant, except,
possibly, for purposes of the alternative minimum tax. The gain or loss
recognized by the participant on a later sale or other disposition of such
shares will either be long-term capital gain or loss or ordinary income,
depending upon whether the participant holds the shares for the legally-required
period (two years from the date of grant and one year from the date of
exercise). If the shares are not held for the legally-required period, the
participant will recognize ordinary income equal to the lesser of (i) the
difference between the fair market value of the shares on the date of exercise
and the exercise price, and (ii) the difference between the sales price and the
exercise price.
For awards of stock grants, the participant will not have taxable income
upon the receipt of the award (unless the participant elects to be taxed at the
time the stock is granted rather than when it becomes vested). The stock grants
will generally be subject to tax upon vesting as ordinary income equal to the
fair market value of the shares at the time of vesting less the amount paid for
such shares (if any).
A participant is not deemed to receive any taxable income at the time an
award of restricted stock units is granted. When vested restricted stock units
are settled and distributed, the participant will recognize ordinary income
equal to the amount of cash and/or the fair market value of shares received less
the amount paid for such restricted stock units.
If the participant is an employee or former employee, the amount a
participant recognizes as ordinary income in connection with any award is
subject to withholding taxes (not applicable to incentive stock options) and the
Company is allowed a tax deduction equal to the amount of ordinary income
recognized by the participant. Internal Revenue Code Section 162(m) contains
special rules regarding the federal income tax deductibility of compensation
paid to the Company's chief executive officer and to each of the Company's other
four most highly compensated executive officers. The general rule is that annual
compensation paid to any of these specified executives will be deductible only
to the extent that it does not exceed $1,000,000.
CHANGE OF CONTROL AGREEMENTS
The only agreement with a change of control provision is Howard
Ullman's employment agreement, dated November 1, 2006, with the Company, which
agreement has a change y, employment is terminated by reason of a change of
control of the Company: a lump sum payment equal to the greater of: the sum of
(a) one-year's base salary at the annual base salary rate that Mr. Ullman was
earning as of the date of termination of employment and (c) the bonus
payment(s), if any, Mr. Ullman received in the preceding fiscal year; and the
sum of (aa) the base salary of Mr. Ullman (currently, $175,000 per annum) that
he would have earned had he remained employed through the remainder of the term
20
of the employment agreement (which expires November 1, 2011) multiplied by the
number of years remaining in term of the employment under the employment
agreement (and adjusted on a pro rata basis for any partial year remaining in
the Employment Period). In the event of a change of control, the Company would
also continue to pay for any in effect the health and dental insurance benefits
as follows: If Mr. Ullman is eligible for continued health insurance benefits
under the federal law known as COBRA and Executive timely elects COBRA coverage
and makes timely payment of required premiums, the Company will reimburse
Executive the cost of such COBRA coverage until the earlier of (a) eighteen (18)
months from the termination date or (b) the date on which the Mr. Ullman obtains
health insurance coverage from a subsequent new employer. If Mr. Ullman is not
eligible, the earlier of (x) eighteen (18) months from the termination date of
his employment or which the Mr. Ullman obtains health insurance coverage from a
subsequent employer.
Under Mr. Ullman's November 1, 2006 employment agreement, a "Change of
Control" shall be deemed to have occurred when any person, other than Mr. Ullman
or his respective affiliates, associates, or estate, becomes, after the date of
grant, the beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the Company's
then-outstanding securities.
Although the non-qualified stock option grants described below were not
intended by the Company to be a "change of control" arrangement, the
non-qualified stock options do potentially defeat or discourage any attempt to
takeover or acquire control of the Company by potentially increasing the voting
power of the incumbent management.
SPECIAL NON-QUALIFIED STOCK OPTION GRANT.
The granted non-qualified stock option to Stewart Wallach on May 7, 2007
for 107.3 million shares at an exercise price of $0.029 per share. The option
has a ten year term. The Company also issued a non-qualified stock option to
Gerry McClinton on May 7, 2007. These grants were made outside of the 2005
Equity Plan.
The Company has not approved any awards that are conditioned on
shareholder approval of the 2005 Equity Plan.
As of May 7, 2007, the fair market value of a share of Company Common
Stock was $0.029 per share.
COMMUNICATIONS WITH DIRECTORS
Any director may be contacted by writing to him care of: Secretary,
China Direct, 10400 Griffin Road, #109, Cooper City, Florida 33328.
Communications to all directors or the non-employee directors as a group may be
sent to the same address. The Company promptly forwards, without screening, all
such correspondence to the indicated directors.
E. PROPOSALS
PROPOSAL ONE. AMEND THE ARTICLES OF INCORPORATION TO CHANGE NAME
21
OF COMPANY. By Majority Action and approval of the Company's Board of Directors,
the Company's Articles of Incorporation are being amended to change the name of
the Company from "China Direct Trading Corporation" to "CHDT Corporation."
The reason for the name change is that the Company's current business
lines and models are not primarily based on trading with China, but consist of
distribution of low-technology consumer goods in North America. While China
remains a primary manufacturer source for those products, the Company has
decided not to pursue trading consulting work in China and, as such, the name
"China Direct Trading" is not, in the opinion of the Company, an accurate
reflection of the Company's current business lines and strategic plan. Further,
the Company is concerned that the growing number of companies with the name
"China", including "China Direct", will cause investors and others to confuse
the Company with other companies, many of which are Chinese-based companies that
have merged into U.S. public shell companies.
The name change was approved by Majority Action on May 37, 2007 and
will become effective within 20 to 40 days after the date of this Information
Statement.
PROPOSAL TWO: ELECTION OF DIRECTORS. The background of the director
nominees for election to the Board of Directors is set forth below. Each of the
nominees is currently a director of the Company.
The Company's Board of Directors nominated the following persons on
April 27, 2007, to stand for election to the Company's Board of Directors until
their successors are elected and assume office in fiscal year 2008. The
following slate was approved by Majority Shareholder Action on May 7, 2007. The
nominees and their respective backgrounds are:
STEWART WALLACH is the Chief Executive Officer of the Company since
April 23, 2007, a director of the Company since September 22, 2006, and the
founder and Chief Executive Officer and Chairman of the Board of Capstone, a
wholly owned subsidiary of the Company since September 20, 2006. Mr. Wallach
formed and sold Systematic Marketing, Inc., which developed and marketed
products to mass markets, to Sagaz Industries, Inc., an automotive parts
producer for consumers. He served as president of Sagaz Industries for 10 years
before forming CAP. In 1998, Mr. Wallach co-founded Examsoft Worldwide, Inc.,
which has developed and successfully delivered software technology solving
security challenges of laptop-based examinations for major educational
institutions and state bar examiners. From 2002, he, through Systematic
Development Inc., has provided executive management services to Gatekeeper
Business Solutions to assist in its growth. Gatekeeper Business Solutions is a
company providing leading-edge technology for effective labor management and
payroll services software to small and medium-sized businesses. Mr. Wallach
currently is a shareholder and director of Systematic Development Incorporated
and Examsoft Worldwide, Inc., serves as a director for Gatekeeper Business
Solutions and is Chief Executive Officer at Capstone Industries, Inc. He is 55
years old.
HOWARD ULLMAN was the Chief Executive Officer, President and
Chairman of the Board of Directors from January 2003 until October 27, 2003 and
then from December 1, 2003 until April 20, 2007. Mr. Ullman remains the Chairman
22
of the Board of Directors of the Company. He voluntarily resigned all of those
offices on October 27, 2003 in order to avoid any potential conflicts of
interest when the Company was negotiating to purchase Mr. Ullman's Souvenir
Direct, Inc. or "SDI." Upon the acquisition of 100% of SDI capital stock by the
Company on or about December 1, 2003, Mr. Ullman was reappointed as Chief
Executive Officer, President and Chairman of the Board of the Company on or
about December 1, 2003. He resigned as the Chief Executive Officer and President
on April 20, 2007 in order to allow the appointment of Stewart Wallach to those
offices. Mr. Ullman is the senior executive officer of Overseas Building Supply,
LC, a wholly-owned subsidiary of the Company. He is 48 years old.
He has spent the last 23 years in the souvenir, gift and
promotional market with China. He was re-appointed as Chief Executive Officer,
President and Chairman of the Board of the Company on December 1, 2003He
founded, operated and successfully sold (1) Magnet World, an overseas
manufacturer of magnets in 1984; (2) Fason, an importer of magnets in 1996; and
(3) Magnet Hut, a magnet retailer, in 2000. During 1984, Mr. Ullman moved
American magnet technology to China to establish a successful joint venture
manufacturing company in the Ghangzhou province of China that has sold more than
200 million magnets to more than 400 large volume buyers in over 75 countries.
In 1997, he launched China Direct Trading Company to leverage his Far East
supplier network and to broaden his product line into thousands of customized
gift items ranging from mugs, key chains, and glassware to hats and lapel pins.
Mr. Ullman has owned and operated companies on every level of the supply chain
in these industries. Mr. Ullman will provide the expertise required to turn CBQ,
Inc. into a world class China trading company in many different lines of
importation. Mr. Ullman earned his Bachelor's degree in Economics from Tulane
University in 1982.
LAURIE HOLTZ is a certified public accountant practicing in the
greater Miami, Florida region for over 30 years. Mr. Holtz was a pioneer in
development of forensic accounting and has worked as a forensic auditor in a
number of cases over the years. He is the father-in-law of Howard Ullman. Mr.
Holtz has served on the Board of Directors since January 2004. Mr. Holtz is 74
years old.
JEFFREY POSTAL has served as a director of the Company since
January 2004. He is a businessman and dentist in the Miami, Florida region. Mr.
Postal owns or founded: Sportacular Art, a company that is licensed by the NFL,
MLB and NHL to design and manufacture sports memorabilia for retail distribution
in the U.S.; Weston Sports management, which arranges appearance of athletes at
major retail companies around the country; DJP Consulting, a marketing
consulting company servicing companies conducting business on the Internet; and
DataStream Card Services, which provides billing solutions for companies
conducting business on the Internet. He is also the principal of two dental
treatment cents, one being one of the largest cranio-facial pain and trauma
centers in the State of Florida. Mr. Postal received a DMD from Temple
University in 1984. Mr. Postal is 50 years old.
JEFFREY GUZY was appointed to the Company's Board of Directors on May
3, 2007, to replace Mr. Lamadrid. Mr. Guzy has a MBA in Strategic Planning and
Management from The Wharton School of the University of Pennsylvania, M.S. in
Electrical Engineering from Penn State University, a B.S. in Electrical
Engineering from Penn State University and a Associate Degree in Theology from
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Georgetown University. He has served as an executive, manager or consultant in
business development, sales, customer service or management in the
telecommunications industry, specifically with IBM Corp., RCA Corp., with Sprint
International, Bell Atlantic Video Services, Loral Cyberstar and Facilicomm
International. He has also started his own telecommunications company providing
Internet services in Western Africa. Mr. Guzy is 54 years old.
LARRY SLOVEN. Mr. Sloven was appointed as a director on May 3, 2007. He
is the president of Asian Outsource Design Group/ISL or "AODG", which has a
sourcing and development agreement with Capstone for Capstone's licensed
hardware and automotive accessory programs. A U.S. Citizen, Mr. Sloven has
resided in Hong Kong for over 18 years. He is a member of the American Chamber
of Commerce in Hong Kong. He just finished a five year term as a Director of the
American Club in Hong Kong and Chaired the Development Committee which was
responsible for re engineering five major multi-million dollar re-development
projects for the premier club in Asia.
Mr. Sloven's company is a product development and purchasing agent for
CHDT's Capstone subsidiary, and a purchasing agent for Dick's sporting goods
chain. He also helped develop a private label hardware and accessory line for
Circuit City, Inc. and a camcorder and cellular phone battery line for Spectrum
Brands, Inc. (formerly, "Rayovac Corp."). In 1993, Mr. Sloven helped set up a
joint venture factory producing cellular battery packs for AT&T along with the
first cellular alkaline battery pack for Duracell. He participated in the
outsourcing of the production of the one hour NMH-fast charger for the Duracell
Corporation. In the mid 1990's, he helped set up a JV with Rayovac and the
largest alkaline consumer battery factory in China. Mr. Sloven also assisted in
the outsourcing of video games for Atari, arranging for Chinese manufacture of
The Stanley Works' garage door motors and products.
FORMER DIRECTORS WHO RESIGNED OR ARE NOT BEING NOMINATED FOR RE-ELECTION
LORENZO C. LAMADRID. Mr. Lamadrid was appointed as a director on
January 6, 2005. Mr. Lorenzo resigned from the Company's Board of Directors,
effective April 23, 2007, in order to devote more time to his business affairs.
He attended all Company board of director meetings in fiscal year 2006.
SUSAN XU was appointed as a director on January 6, 2005 to fill a
vacancy on the Board. She was a director of the Company from January 14, 2000
until December 4, 2003, when she resigned to allow new management to assume
operational control of the Company as part of the acquisition of Souvenir
Direct, Inc. in December 2003. She is not being re-nominated to the Company
board of directors because she has been unable to attend board meetings in
fiscal 2006 and that attendance record would be unlikely to improve in fiscal
year 2007.
D&O INSURANCE.
The Company obtained directors and officers liability insurance in
24
fiscal year 2006. The Company believes that its current directors and officers
liability insurance to be adequate to attract qualified directors and officers
and cover potential liabilities.
By the Majority Shareholder Action, representing the written consent of
shareholders owning approximately 70% of the issued and outstanding shares of
Company Common Stock entitled to vote thereon. The above nominees were elected
to the Board of Directors for a term that will end in fiscal year 2008 when
their successors are elected and assume office.
ITEM 2. STATEMENTS THAT PROXIES ARE NOT SOLICITED.
WE ARE NOT ASKING FOR A PROXY AND SHAREHOLDERS ARE
NOT REQUESTED TO SEND US A PROXY.
ITEM 3. INTEREST OF CERTAIN PERSONS.
Ownership table above reports all equity ownership of officers,
directors, principal shareholders (owning more than 5% or more of the
outstanding shares of Common Stock) affiliates of the Company.
On June 29, 2006, the Company executed a $250,000 note payable to the
Howard Ullman, then Chief Executive Officer and President of the Company. The
note carries an interest rate of 7% per annum and is payable if full, with
accrued interest, on June 30, 2007. The proceeds from this note were used to
advanced funds to CPS. As of December 31, 2006, the total amount payable on the
note was $258,750, including $8,750 of accrued interest. The Company may, at its
option, pay the entire unpaid principal and accrued interest (but not less than
the entire amount) with "restricted shares" (as defined in Rule 144) of Company
common stock. However, the Company may not pay off the principal and accrued
interest with shares of common stock, if such issuance would cause the Company
to issue a number of shares that would equal or exceed 18% of the shares of
stock issued and outstanding as of the conversion date. The value of each share
of stock to be issued in the conversion of stock for debt shall be $.10 per
share.
On September 15, 2006, the Company executed a $750,000 promissory note
payable to the Howard Ullman, then Chief Executive Officer and President of the
Company, secured by the accounts receivable of the note holder. The note carries
an interest rate of 8% per annum. Interest is payable each calendar quarter,
commencing with the quarter ended December 31, 2006. All principal is payable if
full, with accrued interest, on December 31, 2008. At the option of the note
holder, any quarterly interest or the principal may be paid in cash or in shares
of the Company's common stock or a combination of cash or shares. Any shares
issued shall have a value of $ .08 per share for purposes of calculating the
amount of principal or interest paid by the issuance of each share. The proceeds
from this note were used to funds to Capstone acquisition. As of December 31,
2006, the total amount payable on the note was $767,589, including $17,589 of
accrued interest. The carrying amount of the collateral, the Company's accounts
receivable, was $560,475 as of December 31, 2006.
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From time to time, certain directors of the Company have loaned money
to the Company to fund the acquisition of another company or operating assets of
another company. Company believes that the terms of such loans were commercially
reasonable in light of the lack of suitable collateral and historically erratic
cash flow of the Company's operations.
POLICIES AND PROCEDURES FOR REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS
WITH RELATED PERSONS
The Company expects to adopt a written policy for related-person
transactions in the next two weeks. "Related-person transaction" means a
transaction, arrangement or relationship (or any series of similar transactions,
arrangements or relationships) in which we and any "related person" are
participants involving an amount that exceeds $40,000. Transactions involving
compensation for services that are (1) provided to us as an employee, director,
consultant or similar capacity by a related person and (2) are reviewed and
approved by the Compensation Committee will not be covered by this policy. A
related person will be any executive officer, director or a holder of more than
five percent of our common stock, including any of their immediate family
members and any entity owned or controlled by such persons.
Under the policy, where a transaction has been identified as a
related-person transaction, the Company must present information regarding the
proposed related-person transaction to our Compensation Committee of the Board
of Directors for approval or ratification. The presentation must include a
description of, among other things, the material facts, the direct and indirect
interests of the related persons, the benefits of the transaction to us and
whether any alternative transactions are available. It is the duty of every
member of Company management to alert the Company of any related-person
transactions in advance. The Company will rely on information supplied by such
persons as well independent inquiries to identify related-person transactions.
The Compensation Committee will consider the following, among other, factors:
1) Risks, benefits and costs of related-person transaction;
2) Related-person transaction impact on independence of Company Board of
Directors; 3) Impact of related-person transaction on interests of Company's
public shareholders; 4) Whether alternative sources for the services, products
or benefits is available at the same or better
terms and conditions as the related-person transaction;
5) Fairness of the related-person transaction in terms of
commercial reasonableness and local industry standards; and
6) Influence that any related-person transaction would impart on
a third party over the Company and its management.
Any director of the Company with any interest in the related-person
transaction must recuse himself from all deliberations and votes.
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PROMOTERS
The Company has hired awareness firms and public relations firms in the
past five fiscal years. The Company does not pay for, encourage, promote, engage
others to perform or tolerate SPAM or similar activities in the promotion of the
Company or its Common Stock. Further, officers and directors of the Company have
from time to time engaged in public relations and investor relations work for
the Company. Otherwise, the Company is not aware of any promoters working for
the Company in the past five years (unless otherwise disclosed in our SEC
filings).
ITEM 4. OTHER AND GENERAL INFORMATION.
Our Annual Report on Form 10-KSB, for the year ended December 31, 2006,
including audited financial statements as of that date, and our Quarterly Report
on Form 10-QSB for the quarters ended September 30, 2006, June 30, 2006 and
March 30, 2006, are available from us on request. Further information is
available by request or can be access on the Internet. We are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith file annual and quarterly
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Reports, proxy statements and other information filed by
CHDT can be accessed electronically by means of the SEC's home page on the
Internet at http://www.sec.gov or at other Internet sites such as
http://www.freeedgar.com or http://www.otcbb.com. All documents filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Information Statement shall be deemed to be incorporated by
reference into this Information Statement and to be a part hereof from the dates
of filing such documents or reports. Any statement contained herein or in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Information Statement to the extent that a
statement contained herein or in any other subsequently filed document which is
also incorporated or deemed to be incorporated herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Information Statement.
You can read and copy any materials that we file with the SEC at the
SEC'S Public Reference Room at 100 F Street, N.E., Lobby Level, Washington, D.C.
20549. A copy of any public filing is also available, at no charge, from the
Company's Secretary, Gerry McClinton. Requests to the Company should be sent to
Gerry McClinton, Secretary, China Direct Trading Corp., 10400 Griffin Road,
#109, Cooper City, Florida 33330, Telephone: (954) 252-3440.
ITEM 5. DOCUMENTS INCORPORATED BY REFERENCE.
(a) The Company's Annual Report on Form 10-KSB for the year
ended December 31, 2006, is hereby incorporated by reference.
(b) The Company's Quarterly Report on Form 10-QSB's for the
quarter ended September 30, 2006, June 30, 2006 and March 31, 2006, are hereby
incorporated by reference.
(c) The Company's Form 8-K's filed with the Commission on April
30, 2007; April 25, 2007; February 28, 2007 (Amendment); February 1, 2007,
respectively.
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By the order of the Board of Directors
By /s/Stewart Wallach
Stewart Wallach
Chief Executive Officer & President
Dated: May 10, 2007
EXHIBIT LIST
3.1.1 Amendment to Articles of Incorporation of China Direct Trading
Corporation, a Florida corporation, dated May 3, 2007
3.1.2 Certificate of Designation for Series B Convertible Redeemable
Preferred Stock, $0.10 par value per share.
10.1 November 1, 2006 Employment Agreement between Howard Ullman
and China Direct Trading Corp.
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