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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. 1)
Filed by the Registrant [ ]
Filed by a party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only
[ ] Definitive Proxy Statement as permitted by Rule 14a-6(e) (2)
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12.
LOTUS PACIFIC, INC.
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(Name of Registrant as Specified in Its Charter)
T.C.L. INDUSTRIES HOLDINGS (H.K.) CO., LTD.
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on the table below per Exchange Act Rule 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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 form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED MAY __, 2001
PROXY STATEMENT
OF
T.C.L. INDUSTRIES HOLDINGS (H.K.) CO., LTD.
IN OPPOSITION TO THE BOARD OF DIRECTORS
OF
LOTUS PACIFIC, INC.
T.C.L. INDUSTRIES HOLDINGS (H.K.) CO., LTD.
May __, 2001
Dear Fellow Stockholders:
We are the beneficial owners of approximately 15% of the common stock of
Lotus Pacific, Inc. We have been a stockholder since July 1999. Over the past
year or so we have grown increasingly dissatisfied with the Company's
performance. We are particularly dissatisfied with the Company's stock price,
which has plummeted from $12.38 on July 19, 1999 to $0.60 immediately prior to
our having publicly announced that we were actively considering taking action at
Lotus Pacific's 2001 annual meeting of stockholders.
As a result, we are seeking your support to elect a new Board of
Directors and approve certain amendments that would protect such nominees if
elected from attempts by third parties to remove them from office or dilute
their influence over the Company's policies before they have had a fair
opportunity to do their job, which is to implement the changes necessary to
bring about improvement in the performance of the common stock and to enhance
stockholder value. (These amendments could also have certain anti-takeover
effects which pose both advantages and disadvantages for stockholders.)
Accordingly, we are proposing a slate of nominees for director who are
individuals of integrity, experience and diverse disciplines who are committed
to enhancing value for all stockholders. The election of our slate would provide
the Company with a fresh perspective and a fresh focus on the long term
interests of its stockholders.
We are also seeking your support to vote against the Company's Amended
and Restated Certificate of Incorporation that has been recommended by the Board
for adoption by the stockholders and which have anti-takeover effects which pose
both advantages and disadvantages for stockholders. TCL believes that if
adopted, the Amended and Restated Certificate of Incorporation would deprive
stockholders of many of their current rights and only serve to entrench the
Board and management in their current positions.
It is important that your shares be represented and voted at the annual
meeting regardless of the size of your holdings. Whether or not you plan to
attend the annual meeting, please complete, sign, date and return the
accompanying GOLD proxy card in the enclosed envelope in order to make certain
that your shares will be represented at the annual meeting.
If you agree with us that it is time for a change, please sign, date,
and mail the enclosed GOLD proxy card. If you have already returned the proxy
card sent to you by the Company, you may revoke that proxy and vote for our
nominees by marking, signing, dating and mailing a later dated GOLD proxy card.
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If you have any questions or comments, please contact our proxy
solicitors, Georgeson Shareholder Communications Inc., at (800) 223-2064.
Thank you for your consideration of this matter.
Sincerely yours,
T.C.L. INDUSTRIES HOLDINGS (H.K.) CO., LTD.
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PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED MAY ___, 2001
PROXY STATEMENT
OF
T.C.L. INDUSTRIES HOLDINGS (H.K.) CO., LTD.
IN OPPOSITION TO THE BOARD OF DIRECTORS
OF
LOTUS PACIFIC, INC.
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2001 ANNUAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement (the "Proxy Statement") and the accompanying form
of Proxy are being furnished by T.C.L. Industries Holdings (H.K.) Co., Ltd.
("TCL"), to the owners of shares of common stock, par value $.001 (the "Common
Stock"), and the owners of shares of Series A preferred stock, par value $.001
(the "Series A Preferred Stock"), of Lotus Pacific, Inc. (the "Company"), on or
about May __, 2001, in connection with the solicitation by TCL of proxies to be
voted at the Company's 2001 annual meeting of stockholders (the "Annual
Meeting"). The Company has announced that the Annual Meeting will be held on May
18, 2001, at the Company's principal executive offices located at 200 Centennial
Avenue, Suite 201, Piscataway, New Jersey, at 2:00 p.m. Eastern Time.
TCL is soliciting proxies from the holders of shares of Common Stock and
Series A Preferred Stock in order to elect the following individuals
(collectively, the "TCL Nominees") to the Board of Directors of the Company (the
"Board"), at the Annual Meeting: Mr. Li Dong Sheng, Mr. Yan Yong, Mr. Jih-Ming
Lin, Mr. Robert Lo, Mr. Chris Ching, Mr. Chung-I Chiang and Mr. Ren Jian. If
elected, the TCL Nominees will constitute the entire Board. TCL is proposing a
slate of nominees for the Board because it believes a new Board with a new
perspective is needed to enhance stockholder value.
TCL is also soliciting proxies in order to amend the Amended and
Restated By-Laws of the Company (the "By-Laws"). The proposed amendments
(collectively, the "TCL Amendments"), each of which will be voted on as a
separate proposal, are as follows:
(i) Classify the Board of Directors
This amendment would classify the Board into three classes, each of
which, after a transitional arrangement, will serve for three years, with one
class being elected each year.
(ii) Fill Board Vacancies
This amendment would grant to the Board the exclusive power to fill
vacancies created on the Board.
(iii) Removal of Directors for Cause
This amendment would provide that Directors may be removed only for cause
(i.e., willful misconduct in connection with the duties as a director or
conviction of a felony or a misdemeanor involving moral turpitude) by the
approval of the holders of at least 66-2/3% of the voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally in
the election of Directors ("Voting Stock").
(iv) Stockholder Vote Requirement
This amendment would provide that the stockholder vote required to amend
or repeal the foregoing provisions of the By-Laws or to adopt any provision
inconsistent therewith shall be 66 2/3% of the Voting Stock.
TCL is proposing the foregoing amendments to discourage attempts by third
parties to remove the TCL Nominees if elected to the Board or dilute their
influence over the Company's policies before they have had a fair opportunity to
do their job, which is to implement the changes necessary to bring about
improvement in the performance of the Common Stock and to enhance stockholder
value. TCL's proposal of the foregoing amendments is conditioned upon the
election of at least a number of TCL Nominees that would constitute a majority
of the Directors elected at the Annual Meeting. Accordingly, any vote in favor
of TCL's proposal of the foregoing amendments will not be effective unless at
least that number of TCL Nominees that would constitute a majority of the
Directors are elected at the Annual Meeting.
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TCL is also soliciting proxies in order to vote against the Amended and
Restated Certificate of Incorporation (the "Restated Certificate") that has been
recommended by the Board for adoption by the stockholders at the Annual Meeting.
According to the Company's Preliminary Proxy Statement, the Board has included
certain provisions in the Restated Certificate that we believe if adopted would
deprive stockholders of many of their current rights and only serve to entrench
the Board and management in their current positions.
Finally, TCL is also soliciting proxies in order to vote for the
ratification of Larson Allen Weishair & Co., LLP (formerly Schiffman Hughes
Brown) as the Company's independent auditors for the fiscal year ending June
30, 2001.
THIS SOLICITATION IS BEING MADE BY TCL AND NOT ON BEHALF OF THE BOARD.
For further information concerning the reasons for the solicitation, see
"-- Reasons for the Solicitation" below.
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IF YOU AGREE WITH TCL'S PROPOSALS, PLEASE RETURN ONLY TCL'S GOLD
PROXY CARD AND DO NOT RETURN ANY PROXY CARD THAT YOU
RECEIVE FROM THE COMPANY UNDER ANY CIRCUMSTANCES.
IF YOU RETURN BOTH PROXY CARDS THERE IS A DANGER THAT YOUR SHARES
WILL NOT BE VOTED AS YOU DESIRE, BECAUSE A DULY FILED LATER-DATED
PROXY WILL SERVE TO REVOKE THE PRIOR PROXY IN ITS ENTIRETY.
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INFORMATION ABOUT TCL
TCL is one of the largest stockholders in the Company and has been a
stockholder since July 1999. As of the date of this Proxy Statement, TCL is the
beneficial owner of 9,606,671 shares of Common Stock (or approximately 15% of
the shares issued and outstanding). TCL is a private corporation that acts as an
investment holding company. The principal business address of TCL is Rm. 1102,
11/F Chinachem Tsuen Wan Plaza, 457 Castle Peak Road, Tsuen Wan, New
Territories, Hong Kong, PRC.
BACKGROUND AND REASONS FOR THE SOLICITATION
TCL is asking stockholders to elect the seven TCL Nominees to replace
the current Board, to approve the TCL Amendments and to vote against the
Restated Certificate recommended by the Board. Summarized below is the
background and the reasons why TCL thinks it is time to have a new Board in
place, why it feels that it is necessary to adopt certain amendments to the
By-Laws to provide the Board with a fair opportunity to do its job and why it
thinks that it is imperative that the stockholders vote against the Restated
Certificate.
BACKGROUND
TCL acquired its shares in the Company from existing stockholders (and
one then-existing stockholder) in the belief that the Common Stock was
undervalued and represented a favorable investment opportunity. Since the date
of TCL's acquisition of its shares, the share price of the Common Stock has
fallen more than 95 percent, from $12.38 to $0.60 on April 24, 2001. In light
of such poor performance, TCL believes that the Board has not done an adequate
job to improve stockholder value. We note, however, that since we publicly
announced that we were actively considering taking action at the Annual Meeting,
the market price of the Common Stock has risen to $1.48.
The Company announced on November 20, 2000 its first-ever operating
profit for its 2001 fiscal first quarter ended September 30, 2000.(1) In such
announcement, then-President Jeremy Wang commented that "Going forward, [the
first quarter of fiscal 2001] represents a foundation for the beginning of [the
Company's] ability to achieve improved shareholder value." Ironically, despite
such first-ever operating profit and despite Mr. Wang's comments, the share
price of the Common Stock has fallen since November 20, 2000 by 80 percent as of
April 24, 2001. Moreover, according to subsequent filings made by the Company
with the Securities and Exchange Commission (the "SEC"), the Company experienced
an operating loss of $1.08 million for the fiscal second quarter and an
operating loss of $12.3 million for the fiscal third quarter. In addition,
according to the Company's most recent quarterly report, gross margins have
recently experienced a sharp decline from 13% for the nine-month period ended
March 31, 2001 to 6% for the three-month period ended March 31, 2001. Finally,
according to the Company's most recent quarterly report, the Company had a net
loss of $0.12 per share for the fiscal third quarter compared to a net gain of
$0.25 per share for the same period of the prior year. For the nine months ended
March 31, 2001, the Company had a net loss of $0.23 per share compared to a net
gain of $0.11 per share for the same period of the prior year. Such downward
trend in financial performance coupled with the poor performance of the Common
Stock leads TCL to believe that whatever the Board's strategy for improving
stockholder value may be, it is not working.
Because it was taking such a large stake in the Company, during the
negotiation of the acquisition of its shares, TCL felt that it needed
representation on the Board in order to have direct input into the
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(1) The Company's announcement may be found on the Company website at
http://www.lpfc.com. According to such announcement, operating income for the
quarter, including deferred compensation expense and goodwill amortization, was
$1.8 million. (Despite the announcement regarding operating profit, the
announcement states that the net loss for the fiscal first quarter, including
deferred compensation expense and goodwill amortization, was $3.5 million.)
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Company's policies and future direction. However, as the Company was not a
party to the Share Exchange Agreement under which TCL acquired 9,606,671 shares
of Common Stock from stockholders of the Company, such Agreement does not
expressly contain any arrangement between the Company and TCL on this point.
Nevertheless, the Company placed TCL's nominee, Mr. Li Dong Sheng, Chairman of
the Board of TCL, on the slate of nominees that was eventually elected to the
Board at the Company's 2000 Annual Meeting of stockholders. In connection with
Mr. Li's resignation as a Director of the Company on June 5, 2000 due to
conflicting business responsibilities, the Company agreed to replace Mr. Li
with another TCL nominee, Mr. Yan Yong. However, despite TCL's repeated
requests, and the Company's assurances, more than ten months have passed and
the Company has still not placed Mr. Yan on the Board. Further, as indicated in
the proxy materials filed by the Company in connection with the Annual Meeting,
Mr. Yan is not one of the Company's nominees for election to the Board of the
Company at the Annual Meeting. As the second largest stockholder of the
Company, TCL believes that the Board's inaction is unacceptable and constitutes
hostile action toward a major stockholder. When viewed in concert with the
Company's stock price, which has plummeted since July 1999, TCL sees such
inaction as an example of the Board's desire to entrench itself and maintain
control of the Company.
Because TCL is not satisfied with the performance of the Common Stock or
the Company's response to its repeated requests for representation on the Board,
we have decided to take action at the Annual Meeting.
REASONS FOR THE SOLICITATION
- - THE COMPANY'S STOCK PRICE HAS LOST MOST OF ITS MARKET VALUE.
Since July 19, 1999, the share price of the Common Stock has dropped
more than 95 percent, from $12.38 to $0.60 on April 24, 2001. TCL believes that
the market price of the Common Stock, which has plummeted since July 1999 (and
has only since rebounded following our public announcement that we were
actively considering taking action at the Annual Meeting) demonstrates,
convincingly, that whatever strategy the Board has chosen in recent years to
enhance stockholder value has failed. TCL is extremely disappointed with the
dismal market price of the Common Stock. Furthermore, TCL believes that a low
stock price limits the Company's prospects. For instance, the Company's low
stock price impairs its ability to raise capital through the sale of equity or
use its equity as currency for strategic acquisitions without unacceptable
dilution of stockholders. TCL believes that the Company's ability to make
strategic acquisitions is vital to its future.
Over the two years since June 1999, the Standard and Poor's 500, Dow
Jones Industrial Average and Russell 2000 Index have been relatively flat.
However, the market price of the Common Stock has underperformed such
benchmarks by more than 75% during this same two-year period. Further, the
market price of the Common Stock has trailed the NASDAQ Composite Index by more
than 50% during the same two-year period. The downsloping trend of the market
price of the Common Stock during this two-year period remains evident even when
compared to narrower stock market indexes. Over the two years since June 1999,
the market price of the Common Stock has trailed the AMEX Computer Technology
Index by more than 75%, and has trailed the AMEX Internet Index by
approximately 40%. Against this context, TCL believes the market price of the
Common Stock indicates that, whatever the Board's strategy for improving
stockholder value may be, it is not working.
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- - TCL BELIEVES THE COMPANY'S ASSETS ARE PROVIDING AN UNSATISFACTORY RETURN
The continued operation of the Company's assets is not producing a
satisfactory return. Over the trailing twelve months, the return on assets,
which indicates how much return management has earned on all assets available to
it from all sources, of the Company is -25.19%. By comparison, the return on
assets of the Standard and Poor's 500, the benchmark most frequently used to
measure a particular company/stock against the overall equity market, for the
same period is 8.35%. TCL believes this indication of management ineffectiveness
clearly shows that the actions and inactions of the Board with respect to the
management of assets are directly related to the underperformance of the Company
and the Common Stock relative to the overall equity market.
Given the unsatisfactory return on assets, TCL has no reason to believe
that the Company is capable of producing a satisfactory return for the Company's
stockholders. Over the trailing twelve months, the return on equity, which
indicates how much return management has earned on the capital that is actually
owned by the stockholders, for the Company is -39.56%. By comparison, the return
on equity of the Standard and Poor's 500 over the same period is 21.09%.
Further, the return on investment, which indicates how much return management
has earned on all long-term capital (i.e., capital owned by the stockholders and
contributed by long-term creditors), of the Company over the trailing twelve
months is -36.03%. By comparison, the return on investment of the Standard and
Poor's 500 for the same period is 12.34%. TCL believes the Company should
produce at least positive returns on equity and investment.
- - THE TCL NOMINEES WILL REINVIGORATE THE PROCESS AND PROTECT STOCKHOLDER
VALUE.
TCL believes that a new perspective is needed on the Board to
reinvigorate the process of enhancing stockholder value and to ensure that any
strategic transactions are undertaken in the best interest of all stockholders.
TCL believes that the Company's Board should be committed to creating the
greatest possible return on the stockholders' investment. TCL believes that the
election of the TCL Nominees would provide management with the support necessary
to focus the Company on the long-term interests of its stockholders. TCL also
believes that the TCL Nominees are individuals of integrity and experience who
have impeccable credentials in a wide variety of disciplines and are committed
to protecting the interests of the stockholders. We note that two of the TCL
Nominees are Directors of TCL International Holdings, Ltd. ("Holdings"), a Hong
Kong publicly traded consumer electronics and information technology company
(and a subsidiary of TCL). Since November 30, 1999, when Holdings began trading
publicly on the Hong Kong Stock Exchange, the share price of Holdings' common
stock has fallen approximately 50%, from HKD2.90 to HKD1.18 on April 24, 2001.
By contrast, the share price of the Common Stock has fallen approximately 95%,
from $10.75 to $0.60 over the same period.
- - TCL BELIEVES THAT THE COMPANY'S NOMINEES MAY BE CONFLICTED IN
PROTECTING THE INTERESTS OF ALL STOCKHOLDERS.
The slate of nominees proposed by the Company consists of five
individuals related to the Company or entities related to the Company. These
relationships have the potential to interfere with the Company's nominees'
ability to protect the interests of all stockholders. Based on prior filings
made by the Company with the SEC, TCL believes that Mr. James Yao, Chairman of
the Board of the Company since 1997 and a nominee for election to the Board, is
a majority stockholder in Lotus International Holdings Corp. ("LIH"), a
stockholder in the Company, and shares the power to vote LIH's shares of the
Company with Mr. James Liu, a former Vice President and Director of the Company.
Further, we understand that LIH is the sole holder of the outstanding shares of
Series A Preferred Stock. TCL is disturbed that the Company's Proxy Statement
does not reveal, as is required, that Mr. Yao is the beneficial owner of more
than 20% of the Common Stock and the beneficial owner of all of the Series A
Preferred Stock. In light of the Company's unsupportable assertion that the
Series A Preferred Stock has the right to elect two Directors and the effect of
entrenching the Board and management in their current positions which such right
carries, TCL has no choice but to question the independence of the Company's
slate of nominees, and Mr. Yao in particular, to protect the interests of all
stockholders.
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- - THE TCL NOMINEES HAVE THE EXPERIENCE THE COMPANY NEEDS.
The TCL Nominees are individuals of integrity. They have decades
of experience in the areas of consumer electronics, computer products and
corporate finance. The TCL Nominees have been carefully chosen for their depth
of experience in the technology industry. They are highly accomplished people
who are well-experienced at asset management, investment decision making and
capital markets activities. They are capable of thoroughly understanding and
directing the Company's business. Four of the TCL Nominees are independent of
TCL and entities related to TCL.
The TCL Nominees are committed to enhancing value for all stockholders.
If elected, they will embark on a strategy designed to focus management on
realizing the benefits of the current business and exploring and evaluating
alternatives for the Company.
If the TCL Nominees are elected and actual or potential conflicts of
interest arise, the TCL Nominees would support the adoption of screening
procedures or other procedural safeguards routinely adopted by boards of
directors when conflicts of interest arise. Furthermore, if the TCL Nominees are
elected and take office as Directors, they intend to discharge their duties as
Directors of the Company in compliance with all applicable legal requirements,
including the general fiduciary obligations imposed upon corporate directors.
- - THE RESTATED CERTIFICATE RECOMMENDED BY THE BOARD IF ADOPTED WOULD
DEPRIVE STOCKHOLDERS OF THEIR CURRENT RIGHTS.
According to the Company's Proxy Statement, the Board has approved a
resolution adopting the Restated Certificate which would, among other things,
(i) eliminate stockholder action by written consent, (ii) limit the calling of
special meetings of stockholders and (iii) require advance notice of stockholder
nominations for election of Directors and other business to be brought before a
meeting of stockholders. TCL is disappointed that the Company has neglected to
explain in its Proxy Statement why it feels the need at this time to amend the
Company's Certificate of Incorporation in this manner. We note that such
amendments will have anti-takeover effects which pose both advantages and
disadvantages for stockholders. We also note that, like the resolution adopted
by the Board, the adoption of the TCL Amendments will also have certain
anti-takeover effects which pose both advantages and disadvantages to
stockholders. If adopted by the stockholders, this resolution would carve away
at the stockholders' rights and have the potential of entrenching the Board and
management in their current positions. For example, if adopted by the
stockholders, this resolution would prevent stockholders such as TCL who are
dissatisfied with the Company's share price from attempting to remove the Board
and replace them with a new slate of Directors who are committed to enhancing
value for all stockholders.
- - TCL BELIEVES THAT THE COMPANY'S PROXY STATEMENT CONTAINS
MATERIAL DEFICIENCIES AND MISSTATEMENTS WITH RESPECT TO THE SHARES
ENTITLED TO VOTE FOR DIRECTORS.
According to the Company's Proxy Statement, the Restated Certificate
corrects "technical errors" in the Company's Certificate of Incorporation.
Although the Board has failed to offer a description of the "technical errors"
that were in the Company's Certificate of Incorporation, TCL believes that the
Company is using this unsubstantiated explanation to claim that the holders of
the Series A Preferred Stock, as a class, are entitled to elect two Directors to
the Board. TCL has found no evidence that this provision has ever been in the
Company's Certificate of Incorporation or any of the amendments thereto filed
with the Securities and Exchange Commission. Indeed, the Company's Certificate
of Incorporation as amended provides that the holders of the Series A Preferred
Stock have the same voting rights as the holders of the Common Stock. Not only
does the Company's Proxy Statement fail to fully disclose this "technical
correction" or its ramifications, but it also does not indicate who owns these
shares or discuss this apparent modification of the terms of the Series A
Preferred Stock. It is completely unclear to TCL why the Company thinks that the
unnamed holders of the Series A Preferred Stock currently have the right to
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elect two Directors.
- - THE TCL NOMINEES, IF ELECTED, SHOULD HAVE A FAIR OPPORTUNITY TO DO THEIR
JOBS.
If the stockholders choose to elect the TCL Nominees at the Annual
Meeting, TCL believes that it is vital that the will of the stockholders not be
thwarted by attempts by third parties to prematurely remove such Directors or
dilute their influence over the direction of the Company. TCL believes that the
Board elected at the Annual Meeting should have a fair opportunity to do its
job, which is to implement the changes necessary to bring about an improvement
in the performance of the Common Stock and to enhance stockholder value. The
newly-elected Board should not be undermined or threatened by attempts to usurp
its authority. To that end, TCL proposes that the stockholders approve the TCL
Amendments. The proposed amendments, each of which will be voted on as a
separate proposal, would:
- Classify the Board into three classes, each of which, after a
transitional arrangement, will serve for three years, with one
class being elected each year;
- Grant to the Board the exclusive power to fill vacancies created
on the Board;
- Provide that Directors may be removed only for cause (i.e.,
willful misconduct in connection with the duties as a director
or conviction of (a) a felony or (b) a misdemeanor involving
moral turpitude) by the approval of the holders of at least
66-2/3% of the voting power of the then outstanding shares of
capital stock of the Company entitled to vote generally in the
election of Directors ("Voting Stock"); and
- Provide that the stockholder vote required to amend or repeal
the foregoing provisions of the By-Laws or to adopt any
provision inconsistent therewith shall be 66-2/3% of the Voting
Stock.
TCL's objective in proposing the TCL Amendments is to provide the newly-elected
Board with a fair opportunity to do its job. The amendments will prevent the
holders of less than 66-2/3% of the Voting Stock from removing Directors without
cause (i.e., willful misconduct in connection with the duties as a director or
conviction of (a) a felony or (b) a misdemeanor involving moral turpitude), and
will preclude a third party from removing Directors and simultaneously gaining
control of the Board by filling the vacancies created by removal with its own
nominees. Moreover, the provision giving the Board the exclusive right to fill
newly-created directorships would prevent those seeking majority representation
on the Board from obtaining such representation simply by enlarging the Board
and filling the new directorships created thereby with their own nominees. The
provision requiring resolutions involving significant matters to be adopted upon
the affirmative vote of at least 66-2/3% of the Directors would help to assure
the continuity and stability of the Company's affairs and policies, since a
majority of the Directors at any given time will be required to take significant
actions which could potentially disrupt the Company. And finally, the
requirement of a super-majority stockholder vote will prevent stockholders
controlling less than 66-2/3% of the voting power of the Company from avoiding
the requirements of the various TCL Amendments by simply repealing them.
Accordingly, these amendments will limit the ability of third parties and/or
stockholders controlling a majority of the voting power from taking certain
actions designed to change the composition of the newly-elected Board.
For further information regarding the effects of the TCL Amendments,
including its impact on the ability of potential acquirers to gain control of
the Company, see "--TCL Amendments -- Purpose and Effects of the TCL Amendments"
below.
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TCL STRONGLY RECOMMENDS THAT YOU VOTE FOR THE TCL NOMINEES AND THE TCL
AMENDMENTS, AND AGAINST THE RESTATED CERTIFICATE BY MARKING, SIGNING, DATING AND
MAILING THE ENCLOSED GOLD PROXY CARD PROMPTLY IN THE ENVELOPE PROVIDED.
HOLDERS OF RECORD OF SHARES OF COMMON STOCK AND SERIES A PREFERRED STOCK
AS OF APRIL 18, 2001, THE RECORD DATE FOR VOTING AT THE MEETING, ARE URGED TO
SUBMIT A GOLD PROXY CARD EVEN IF YOUR SHARES HAVE BEEN SOLD AFTER THE RECORD
DATE.
IF YOU HAVE PURCHASED SHARES OF COMMON STOCK OR SERIES A PREFERRED STOCK
AFTER THE RECORD DATE AND WISH TO VOTE SUCH SHARES AT THE MEETING, YOU SHOULD
SEEK TO OBTAIN A PROXY FROM THE SELLER OF SUCH SHARES.
IF YOUR SHARES OF COMMON STOCK OR SERIES A PREFERRED STOCK ARE HELD IN
THE NAME OF A BROKERAGE FIRM, BANK OR OTHER NOMINEE ON THE RECORD DATE, ONLY
SUCH NOMINEE CAN VOTE YOUR SHARES AND ONLY UPON RECEIPT OF YOUR SPECIFIC
INSTRUCTIONS. PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND GIVE
INSTRUCTIONS FOR YOUR SHARES TO BE VOTED ON THE GOLD PROXY CARD.
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QUESTIONS CONCERNING THIS PROXY STATEMENT OR THE ACCOMPANYING GOLD
PROXY CARD SHOULD BE DIRECTED TO:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 STATE STREET, 10TH FLOOR
NEW YORK, NY 10004
BANKS AND BROKERS: (212)-440-9800
CALL TOLL FREE: 1-800-223-2064
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VOTING
The Board has fixed the close of business on April 18, 2001 as the
record date (the "Record Date") for the determination of the holders of Common
Stock and Series A Preferred Stock entitled to notice of and to vote at the
Annual Meeting. Stockholders of record as of the Record Date are the only
persons entitled to vote at the Annual Meeting. According to the Company's proxy
statement, as of the Record Date there were issued and outstanding 64,133,795
shares of Common Stock and 4,300 shares of Series A Preferred Stock, the only
securities outstanding of the Company entitled to vote at the Annual Meeting. On
all matters, including the election of Directors, each share of Common Stock
outstanding entitles the holder thereof to one vote. Each share of Series A
Preferred Stock outstanding entitles the holder thereof to one vote.
Directors are elected by a plurality of the votes cast; all other
matters except amendments to the Certificate of Incorporation are authorized if
the majority of the votes cast approve such matters. Amendments to the
Certificate of Incorporation are authorized if a majority of the outstanding
stock entitled to vote thereon, and a majority of the outstanding stock entitled
to vote thereon as a class has been
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voted in favor of the proposed amendment. The presence, in person or by proxy,
of the holders of a majority of the outstanding shares of Common Stock and
Series A Preferred Stock entitled to vote at the Annual Meeting will constitute
a quorum. "Broker non-votes" (i.e., shares of Common Stock and Series A
Preferred Stock represented at the Annual Meeting by proxies held by brokers or
nominees as to which (i) instructions have not been received from the beneficial
owners or persons entitled to vote and (ii) the broker or nominee does not have
discretionary voting power on a particular voting matter) will be counted for
purposes of determining whether there is a quorum. Similarly, a proxy marked
"ABSTAIN" with respect to any matter will not be voted but will be counted as
present. A properly signed proxy marked "WITHHOLD AUTHORITY" with respect to the
election of one or more Directors will not be voted for the Director[s] so
indicated, but it will be counted to determine whether there is a quorum. Since
the election of Directors and the approval of all other matters except
amendments to the Certificate of Incorporation are determined by votes cast
rather than by a percentage of the shares present, "broker non-votes" and
abstentions will not affect the election of Directors or the approval of all
other matters.
Any stockholder giving a proxy will have the right to revoke it at any
time prior to its exercise by (i) giving written notice of revocation to the
Secretary of the Company, (ii) filing a new written appointment of a proxy with
an officer of the Company or (iii) voting in person at the Annual Meeting.
Attendance at the Annual Meeting will not automatically revoke a proxy. All
shares represented by effective proxies will be voted at the Annual Meeting.
Unless contrary instructions are indicated on the enclosed GOLD proxy,
all shares of Common Stock and Series A Preferred Stock represented by valid
proxies received pursuant to this solicitation (which have not been revoked as
described above) will be voted (a) FOR the election of the TCL Nominees, (b) FOR
adoption of the TCL Amendments, (c) AGAINST the adoption of the Restated
Certificate, (d) FOR the appointment of Larson Allen Weishair & Co., LLP
(formerly Schiffman Hughes Brown) as the independent auditors of the Company for
the fiscal year ending June 30, 2001, and (e) at the discretion of the proxy
holder(s), on such other business as may properly come before the Annual
Meeting, including any adjournment(s) or postponements(s) thereof.
IF YOU WISH TO VOTE FOR THE TCL NOMINEES, THE TCL AMENDMENTS AND THE
APPOINTMENT OF LARSON ALLEN WEISHAIR & CO., LLP, AND AGAINST THE RESTATED
CERTIFICATE, YOU MUST SUBMIT THE ENCLOSED GOLD PROXY CARD AND SHOULD NOT SUBMIT
THE COMPANY'S PROXY CARD.
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YOUR VOTE AT THIS YEAR'S ANNUAL MEETING IS ESPECIALLY IMPORTANT.
PLEASE SIGN AND DATE THE ENCLOSED GOLD PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE PROMPTLY.
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PROPOSAL 1
NOMINEES FOR ELECTION AS DIRECTORS
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GENERAL
The By-Laws provide that the number of Directors constituting the whole
Board may be increased or decreased from time to time by action of the
stockholders or of the Directors, except that the number of Directors shall not
be less than three or more than 15. At the 2000 Annual Meeting of stockholders,
eight persons were elected to serve as Directors on the Board until the Annual
Meeting and until his or her successor had been duly elected and qualified, or
until his or her death, resignation or removal. At the 2001 Annual Meeting of
stockholders, seven persons have been nominated by the Company to stand for
election to the Board. The Company's Proxy Statement does not indicate why the
number of directors has been reduced by one.
If the enclosed GOLD proxy card is duly executed and received in time
for the Annual Meeting, and if no contrary specification is made as provided
therein, it will be voted in favor of the election as Directors of the nominees
named below. If the TCL Amendments are adopted at the Annual Meeting, three
Directors will serve as Class I Directors for a term expiring at the 2002 Annual
Meeting of stockholders, two Directors will serve as Class II Directors for a
term expiring at the 2003 Annual Meeting of stockholders and two Directors will
serve as Class III Directors for a term expiring at the 2004 Annual Meeting of
stockholders, or in each case until their successors are duly elected and
qualified or until their death, resignation or removal. If the nominees named
below are elected at the Meeting, Class I will consist of the following
Directors: Ren Jian, Chris Ching and Chung-I Chiang; Class II will consist of
the following Directors: Yan Yong and Robert Lo; and Class III will consist of
the following Directors: Li Dong Sheng and Jih-Ming Lin. In the event that the
TCL Amendments are not adopted at the Annual Meeting, all nominees elected at
the Annual Meeting will serve for a term of one year or until their successors
are duly elected and qualified or until their death, resignation or removal. For
further information concerning the TCL Amendments, see "-- Proposal 2 -- TCL
Amendments" below.
THE TCL NOMINEES
The information below concerning age and principal occupation has been
furnished by the respective TCL Nominees. Apart from any beneficial interest,
none of the TCL Nominees directly owns Common Stock or Series A Preferred Stock.
Mr. Li Dong Sheng, 43, has been Chairman of the board of directors and President
of TCL Holdings Co., Ltd., a People's Republic of China ("PRC") investment and
holdings company (and TCL's parent company), since 1996. Mr. Li is also the
Chairman of the board of directors of TCL International Holdings, Ltd.
("Holdings"), a Hong Kong publicly traded consumer electronics and information
technology company (and a subsidiary of TCL), and the Chairman of the board of
directors of BVI, a 50% shareholder of the Joint Venture (and a subsidiary of
Holdings). Mr. Li has 20 years of experience in the telecommunication equipment
and consumer electronics industry. Mr. Li holds a Bachelor degree in Engineering
from South China University of Technology.
Mr. Yan Yong, 38, has been Executive Director and Chief Financial Officer of
Holdings since March 1999. From December 1997 to February 1999, Mr. Yan served
as Vice President and PRC Country Manager of Tulip Computers (Asia) Ltd., a
subsidiary of a European computer manufacturer. From January 1995 to November
1997, Mr. Yan served as Managing Director of Central Empire Strategic Investment
Ltd., a PRC investment consulting firm. Mr. Yan is also the General Manager of
Shanghai Tianshi Networks Information Limited, a wholly-owned subsidiary of the
Joint Venture. Mr. Yan has 11 years of experience in the computer and consumer
goods industries. Mr. Yan holds an MBA from Stanford University and a Masters
degree in Computer Science from Peking University.
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Mr. Jih-Ming Lin, 50, has been Vice President of Techlab Tech Inc., a Taiwanese
semiconductor manufacturer, since 1998. From 1992 to 1998, Mr. Lin served as
Vice President of National Advantages Computer, Inc., a computer products
manufacturer. Mr. Lin has 15 years of experience in the semiconductor industry.
Mr. Lin is a graduate of Defense Medical Industry in Taiwan.
Mr. Robert Lo, 54, has been Vice General Manager of Robot Computer Inc., a
computer products manufacturer, since April 1999. From December 1994 to February
1999, Mr. Lo served as Vice President of Empert Co., Ltd., a Taiwanese personal
computer sales company.
Mr. Chris Ching, 35, has been Senior Investment Manager of Technology Associates
Management Company, a venture capital fund management company, since August
1999. Mr. Ching has also been an Assistant Professor at the University of Texas
since May 1998, where he has taught courses in corporate finance. From May 1997
to July 1999, Mr. Ching served as Member of Scientific Staff at Nortel Networks,
Inc., a communications equipment supplier. From October 1994 to June 1996, Mr.
Ching served as Financial Analyst at Merrill Lynch & Co., Inc., a financial
services company. Mr. Ching holds a Ph.D. in finance from the University of
Texas at Arlington.
Mr. Chung-I Chiang, 42, has been Senior Engineering Director of Silicon Motion
Inc., a semiconductor company which he co-founded, since January 1996.
Mr. Ren Jian, 38, has been Chief Technology Officer of Holdings since 2000. From
1997 to 2000, Mr. Ren served as Deputy Director of Microsoft China Research &
Development Center. From 1993 to 1997, Mr. Ren served as Project Manager of
Microsoft Inc., a publicly traded developer, manufacturer and licensor of
software products. Mr. Ren has 14 years of experience in the computer and
consumer device industry. Mr. Ren holds a Masters degree in Computer Science
from Peking University.
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TCL RECOMMENDS THAT HOLDERS OF SHARES OF COMMON STOCK AND SERIES
A PREFERRED STOCK VOTE IN FAVOR OF THE TCL NOMINEES LISTED ABOVE AND
NOT VOTE IN FAVOR OF ANY OF THE COMPANY'S NOMINEES.
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PROPOSAL 2
TCL AMENDMENTS
GENERAL
TCL's objective in proposing that the By-Laws be amended is to provide
the Board elected at the Annual Meeting with a fair opportunity to do its job,
which is to implement changes necessary to bring about an improvement in the
performance of the Common Stock and to enhance stockholder value. As more fully
discussed below, TCL believes that the various elements of the TCL Amendments
would, if adopted, effectively reduce the possibility that a third party could
effect a sudden or unexpected change in majority control of the Board. TCL
believes that it is vital that the newly-elected Board not be threatened by
attempts to usurp its authority or weaken its control over the direction of the
Company.
A possible side-effect of the adoption of the TCL Amendments is that it
would be more difficult for a third party to gain control of the Company without
the support of the Board. While TCL is not proposing the TCL Amendments for this
particular purpose and does recognize that such takeovers might in some
circumstances be beneficial to stockholders, it does believe that, as a general
rule, such takeovers are not in the best interests of the Company and its
stockholders insofar as they do not permit the Board
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the strongest possible negotiating position. As more fully discussed below, the
TCL Amendments are not intended to impede a transaction that is approved by the
Board. However, adoption of the TCL Amendments may have significant effects on
the ability of stockholders of the Company to acquire and exercise control, to
change the composition of the Board and to benefit from certain transactions
which are opposed by the Board even though they may be favored by a majority of
the stockholders. Accordingly, stockholders are urged to read carefully the
following sections of this Proxy Statement, which summarize Annex A to this
Proxy Statement, which sets forth the full text of the TCL Amendments, before
voting on the TCL Amendments.
TCL's proposal of the foregoing amendments is conditioned upon the
election of any TCL Nominees such as would constitute a majority of the
Directors elected at the Annual Meeting. Accordingly, any vote in favor of TCL's
proposal of the foregoing amendments will not be effective unless all of the TCL
Nominees are elected at the Annual Meeting or any TCL Nominees are elected at
the Annual Meeting and such TCL Nominees constitute a majority of the Directors
elected at the Annual Meeting. TCL has determined to present the TCL Amendments
to the stockholders at the Annual Meeting for the reasons described in greater
detail below.
IT SHOULD BE NOTED THAT THE EFFECT OF THE PROPOSED AMENDMENTS, IF
ADOPTED, WILL BE TO AFFORD SUBSTANTIAL SECURITY TO THE BOARD IF ELECTED TO
REMAIN IN THEIR POSITIONS AND TO MAKE CHANGES OF CONTROL NOT FAVORED BY THE
BOARD MORE DIFFICULT.
SUMMARY OF PROPOSED AMENDMENTS
The proposed amendments to the By-Laws included in the TCL Amendments,
each of which will be voted on as a separate proposal, would (1) classify the
Board into three classes, each of which, after a transitional arrangement, will
serve for three years, with one class being elected each year; (2) grant to the
Board the exclusive power to fill vacancies created on the Board; (3) provide
that Directors may be removed only for cause (i.e., willful misconduct in
connection with the duties as a director or conviction of (a) a felony or (b) a
misdemeanor involving moral turpitude) by the approval of the holders of at
least 66-2/3% of the voting power of the then outstanding shares of capital
stock of the Company entitled to vote generally in the election of Directors
("Voting Stock"); and (4) provide that the stockholder vote required to amend or
repeal the foregoing provisions of the By-Laws, or to adopt any provision
inconsistent therewith, shall be 66-2/3% of the Voting Stock.
DESCRIPTION OF THE PROPOSED AMENDMENTS
Classification of the Board of Directors. The By-Laws currently provide
that Directors are to be elected to the Board annually for a term of one year.
At the time the By-Laws were adopted, the number of Directors of the Company was
fixed at seven, but the By-Laws provided that this number could be increased or
decreased by action of the stockholders or of the Directors, except that this
number could never be less than three nor more than fifteen. The number of
Directors on the Board is currently fixed at seven. The proposed amendment to
Section 3 of Article III of the By-Laws provides that the Board shall be divided
into three classes of Directors. If the amendment is adopted, the Company's
Directors will be divided into three classes, with three Directors serving for
an initial term expiring at the 2002 Annual Meeting of stockholders, two
Directors serving for an initial term expiring at the 2003 Annual Meeting of
stockholders and two Directors serving for an initial term expiring at the 2004
Annual Meeting of stockholders (or, in all cases, until their respective
successors are duly elected and qualified). Starting with the 2002 Annual
Meeting of stockholders, one class of Directors will be elected each year for a
three-year term. See above "-- Nominees for Election of Directors" as to the
initial composition of each class of Directors if the TCL Nominees are elected
and the TCL Amendments are adopted.
Directors of the Company are now elected by the holders of a plurality
of the votes cast. The classification of Directors, coupled with the other
amendments to the By-Laws discussed below, will have the effect of making it
more difficult to change the over-all composition of the Board. For example,
under
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the By-Laws, stockholders cannot call a special meeting. Thus, to elect
Directors, stockholders either have to cast their vote at an annual meeting or
act through written consent without a meeting. If the TCL Amendments are
approved, at least two annual stockholders' meetings, instead of one, will be
required for stockholders to effect a change in a majority of the Board, unless
the stockholders act by written consent to remove Directors in between annual
meetings. However, given the higher standard necessary to remove a Director --
see "Removal of Directors" below -- and the granting to the Board the exclusive
authority to fill vacancies -- see "Filling of Vacancies on the Board" below --
proposed by the TCL Amendments -- it is unlikely that any such change in the
Board will be able to be effected.
TCL believes that the longer time required to elect a majority of a
classified Board will help to assure the continuity and stability of the
Company's affairs and policies in the future, since a majority of the Directors
at any given time will have prior experience as Directors of the Company. In
addition, as described in greater detail below, TCL has taken note of the fact
that as a byproduct of its adoption, a classified Board may also discourage
potential bidders from making unsolicited bids for the Company or from engaging
in proxy contests, thereby depriving some stockholders of the opportunity to
participate in and potentially benefit from these types of transactions.
However, TCL believes that these potential benefits are outweighed by the
potential negative effects, described below, that these types of transactions
may have on the Company and the stockholders as a whole.
Filling of Vacancies on the Board. Currently, the By-Laws provide that a
vacancy on the Board, including a vacancy created by the removal of Directors
for cause or without cause, may be filled by the remaining Directors, though
less than a quorum. The proposed amendment to Section 3 of Article III of the
By-Laws clarifies such provision and grants to the Board the exclusive power to
fill vacancies created on the Board.
Removal of Directors. The By-Laws currently provide that Directors may
be removed with or without cause by a vote or consent of the majority of the
shares entitled to vote at an election of Directors. The proposed amendment to
Section 12 of Article III of the By-Laws provides that a Director, or the entire
Board, may be removed only for cause by the affirmative vote of the holders of
at least 66-2/3% of the Voting Stock. The proposed amendment defines "cause" as
willful misconduct in connection with the duties of a Director or conviction of
(i) a felony or (ii) a misdemeanor involving moral turpitude.
The foregoing proposed amendments to the By-Laws will preclude the
holders of Voting Stock from removing Directors other than for "cause" (as so
defined) and will preclude the holders of less than 66-2/3% of the Voting Stock
from removing Directors with cause. In addition, they will preclude a third
party from removing Directors and simultaneously gaining control of the Board by
filling the vacancies created by removal with its own nominees. Moreover, the
provision giving the Board the exclusive right to fill newly-created
directorships would prevent those seeking majority representation on the Board
from obtaining such representation simply by enlarging the Board and filling the
new directorships created thereby with their own nominees. Accordingly, these
amendments will limit the ability of stockholders controlling a majority of the
voting power from taking certain actions designed to change the composition of
the Board, whether or not such change is warranted. These amendments may also
have the effect of discouraging accumulations of stock or unsolicited bids by
stockholders interested in effecting a change of control of the Company.
Super-majority Vote of Stockholders for Amendment or Repeal of Proposed
Amendments to the By-Laws. Under the DGCL, the power to amend or repeal the
By-Laws of a Company lies with the stockholders entitled to vote. In addition,
Section 1 of Article VIII of the By-Laws requires the approval of either the
majority of the Board or the majority of the holders of shares entitled to vote
thereon in order to amend or repeal the By-Laws. If the TCL Amendments are
adopted, the concurrence of the holders of at least 66-2/3% of the Voting Stock
would be required for the amendment or repeal of, or the adoption of
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any provision inconsistent with, the amendments included in the TCL Amendments.
The requirement of a super-majority stockholder vote is designed to
prevent stockholders controlling less than 66-2/3% of the voting power of the
Company from avoiding the requirements of the various TCL Amendments by simply
repealing them. The increased voting requirements enable the holders of shares
representing more than 33-1/3% of the voting power of the Company to prevent
certain amendments to the By-Laws, even if such amendments were desired by the
holders of a majority of the outstanding voting power.
TCL AMENDMENTS COULD DISCOURAGE ACQUISITION OFFERS FOR THE COMPANY
Although TCL's objective in proposing the TCL Amendments is to provide
the newly-elected Board with a fair opportunity to do its job, one of the side
effects of their adoption will be that they may also act to decrease the
likelihood of an unsolicited proposal for the acquisition of all or part of the
Company in which the proponent does not seek to negotiate with the Board. While
TCL recognizes that such transactions might in some circumstances be beneficial
to stockholders, it believes that, as a general rule, such transactions are not
in the best interests of the Company and its stockholders if the Board is not
afforded the strongest possible negotiating position.
TCL believes that the imminent threat of removal of incumbent Directors
and the Company's management would severely curtail the Board's ability to
negotiate effectively with such purchasers. The Board and management would be
deprived of the time and information necessary to evaluate a takeover proposal,
to study alternative proposals and to help ensure that the best price is
obtained in any transaction which the Company may ultimately undertake. The TCL
Amendments will help ensure that the Board, if confronted by a proposal from a
third party which has acquired a significant block of Common Stock, will have
sufficient time to review the proposal and any appropriate alternatives.
Takeovers or changes in the Company's Board or management which are
proposed and effected without prior negotiation with the Board are not
necessarily detrimental to the Company and its stockholders. Moreover, the
proposed TCL Amendments will make a proxy contest or the assumption of control
by a holder of a substantial block of the Company's stock or the removal of the
incumbent Board more difficult and could thus increase the likelihood that
incumbent Directors will retain their positions. In addition, since these
amendments, in conjunction with the DGCL, are designed to discourage
accumulations of large blocks of the Company's stock by purchasers whose
objective may be to have such stock repurchased by the Company at a premium,
adoption of these amendments could tend to reduce temporary fluctuations in the
market price of the Company's stock which could result from accumulations of
large blocks of stock. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at temporarily higher market prices. TCL
believes however, that the benefits of protecting the Board's ability to
exercise its discretion to negotiate with or to resist an unfriendly or
unsolicited proposal to take over or restructure the Company and to seek out
appropriate alternatives, if desirable, outweigh these disadvantages.
While it is impossible to predict with any degree of certainty what
impact adoption of the TCL Amendments will have on the potential realizable
value of a stockholder's investment, particularly in light of the myriad of
factors that can and will impact value, TCL does not believe that implementation
of these proposals ultimately will negatively impact stockholder value. It is
conceivable that adoption of the TCL Amendments will discourage potential
acquirers from launching certain types of unsolicited transactions aimed at
taking control of the Company, thereby denying stockholders the opportunity to
sell their shares, potentially at a premium to current market prices, to these
potential bidders. However, TCL has noted that many large U.S. public
corporations have adopted similar classified board structures which have not
deterred acquisitions of these corporations through negotiated transactions. In
fact, as discussed above,
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TCL's purpose in recommending adoption of the TCL Amendments is to encourage
those who seek control of the Company to negotiate with the Board, thereby
giving the Board an opportunity to resist abusive takeover tactics that might
permit a change of control that does not offer the most value to stockholders
and to structure a transaction in which all stockholders are permitted to
participate. As such, TCL believes that adoption of the TCL Amendments may
ultimately enhance the potential realizable value of a stockholder's investment.
The By-Laws currently provide that a plurality of the votes cast in any
election of Directors shall elect Directors. Accordingly, the holders of a
majority of the Voting Stock can now elect all of the Directors being elected at
any annual or special meeting of the Company's stockholders. It should be noted
that the amendments included in the TCL Amendments, if adopted at the Meeting,
will be in effect at all times and will be applicable to all elections of
Directors of the Company. Therefore, removal of incumbent Directors (even if
favored by a majority of stockholders or for reasons such as poor performance)
will be considerably more difficult, if not impossible, if the TCL Amendments
are adopted.
Existing federal and state laws provide some protection to stockholders
in connection with attempts to acquire control of a corporation. Federal
securities laws and regulations generally govern the disclosure required to be
made to stockholders in the process of a solicitation for proxies in a proxy
contest as well as in connection with business combinations. In addition, the
Company is incorporated under the DGCL. Section 203 of the DGCL limits business
combinations involving corporations incorporated in Delaware and any person who
acquires 15% or more of a corporation's voting shares.
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TCL RECOMMENDS THAT HOLDERS OF SHARES OF COMMON STOCK AND SERIES A PREFERRED
STOCK VOTE IN FAVOR OF THE TCL AMENDMENTS DESCRIBED ABOVE.
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PROPOSAL 3
VOTE AGAINST THE RESTATED CERTIFICATE
GENERAL
According to the Company's Proxy Statement, the Board has approved a
resolution adopting a Restated Certificate which would, among other things,
(i) eliminate stockholder action by written consent, (ii) limit the calling of
special meetings of stockholders and (iii) require advance notice of stockholder
nominations for election of Directors and other business to be brought before a
meeting of stockholders and (iv) correct technical errors in the Company's
Certificate of Incorporation. Although the Board has neglected to explain in its
Proxy Statement why it feels the need to amend the Company's Certificate of
Incorporation in this manner, TCL believes that its reasons are obvious -- the
Board is carving away at the stockholders rights in an attempt to entrench
itself and management in their current positions. TCL believes that the Board is
proposing these changes in order to prevent stockholders such as TCL who are
dissatisfied with the Company's share price and direction from attempting to
remove the Board and replace them with a new slate of Directors who are
committed to enhancing value for all stockholders.
DESCRIPTION AND EFFECTS OF THE RESTATED CERTIFICATE
Elimination of Stockholder Action By Written Consent/Limiting the
Calling of Special Meetings of Stockholders: The stockholders currently have the
right to take action without an annual meeting.
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Delaware law permits stockholders of a Delaware corporation to act by
non-unanimous written consent, unless prohibited by the certificate of
incorporation or by-laws of such corporation. The By-Laws provide that
stockholders may take action by written consent if, among other things, "the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted." In addition,
Delaware law permits special meetings of stockholders to be called by the board
of directors or any person authorized by such corporation's by-laws or
certificate of incorporation. Section 2 of Article III of the By-Laws provides
that special meetings of stockholders may be called by the President or the
Board of Directors. Either standing alone or taken together, these two
protections provide stockholders with a certain degree of control over the
Company by giving stockholders a mechanism by which to act, independent of the
Board.
The Restated Certificate proposed by the Board, however, would take
these important protections away. For example, the Restated Certificate provides
that stockholder action can be taken only at an annual or special meeting of
stockholders and prohibits stockholder action by written consent. In addition,
the Restated Certificate provides that "[s]pecial meetings of stockholders can
be called only by the Chief Executive Officer, the Chairman of the Board, a
majority of the Board of Directors, or the holders of at least 40% of the voting
power of the shares of capital stock entitled to vote generally in the election
of Directors."
Advance Notice Provision: Currently, there are no provisions in the
By-Laws or Certificate of Incorporation of the Company which govern the
procedures by which stockholders may nominate individuals for election to the
Board or present business at a meeting of stockholders. As a result,
stockholders such as TCL who are dissatisfied with the Company's recent
performance and who would like to nominate their own slate of individuals to the
Board need simply put the proposal before the stockholders at the Annual
Meeting. The lack of complicated procedures provides stockholders like TCL with
an easy mechanism by which they can get their nominees or proposals, whichever
the case may be, before the stockholders, without interference from the Board
who may have conflicting interests.
The Restated Certificate proposed by the Board, however, would make it
more difficult for stockholders to nominate Directors or put forth proposals
before the stockholders at any meeting. The Restated Certificate (when combined
with the newly-adopted Restated and Amended By-Laws) requires advance notice of
stockholder nominations for election of Directors and other business to be
brought before a meeting of stockholders.
TCL believes that the foregoing proposed amendments to the Company's
Certificate of Incorporation, when viewed in light of the rights currently
afforded to the stockholders under Delaware law and the By-Laws, are an outrage.
Although the Board has offered no explanation in its Proxy Statement as to why
it feels the need at this time to make these changes, it is clear from TCL's
perspective that the Board is trying to make it more difficult for stockholders
like TCL or a third party to propose to elect Directors who will better
represent the interests of all stockholders. TCL believes that given the
Company's current stock price the Board is afraid that stockholders, such as
TCL, will attempt to elect Directors who will better represent the interests of
all stockholders.
Correction of Technical Errors: According to the Company's Proxy
Statement, the Restated Certificate corrects "technical errors" in the Company's
Certificate of Incorporation. Although the Board has failed to offer a
description of the "technical errors" that were in the Company's Certificate of
Incorporation, TCL believes that the Company is using this as a ploy to claim
that the holders of the Series A Preferred Stock, as a class, are entitled to
elect two Directors to the Board. TCL has found no evidence that this provision
has ever been in the Company's Certificate of Incorporation or any of the
amendments thereto filed with the Securities and Exchange Commission. Indeed,
the Company's
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Certificate of Incorporation as amended provides that the holders of the Series
A Preferred Stock have the same voting rights as the holders of the Common
Stock. Not only does the Company's Proxy Statement fail to fully disclose this
"technical correction" or its ramifications, but it also does not indicate who
owns these shares or discuss this apparent modification of the terms of the
Series A Preferred Stock. It is completely unclear to TCL why the Company thinks
that the unnamed holders of the Series A Preferred Stock currently have the
right to elect two Directors and it is completely unclear to TCL why the Company
thinks that it can sneak this by the stockholders.
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TCL RECOMMENDS THAT HOLDERS OF SHARES OF COMMON STOCK AND SERIES A PREFERRED
STOCK VOTE AGAINST THE RESTATED CERTIFICATE BEING PROPOSED BY THE BOARD.
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PROPOSAL 4
VOTE FOR SELECTION OF INDEPENDENT AUDITORS
GENERAL
The firm of Larson Allen Weishair & Co., LLP (formerly Schiffman Hughes
Brown) ("Larson Allen") has been the Company's independent auditors since 1994.
According to the Company's Proxy Statement, the Board has selected Larson Allen
to continue in this capacity for the fiscal year ending June 30, 2001, subject
to ratification by the Company's stockholders.
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TCL RECOMMENDS THAT HOLDERS OF SHARES OF COMMON STOCK AND SERIES A PREFERRED
STOCK VOTE FOR THE RATIFICATION OF LARSON ALLEN AS THE COMPANY'S
INDEPENDENT AUDITORS BASED ON THE DISCLOSURE IN THE COMPANY'S PROXY STATEMENT.
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INFORMATION CONCERNING PERSONS WHO MAY SOLICIT PROXIES
Under the applicable regulations of the Securities and Exchange
Commission, TCL and each of the TCL Nominees is deemed to be a "participant" in
TCL's solicitation of proxies. The following table sets forth the name, business
address and principal occupation of the TCL Nominees and any other person who
may solicit proxies from stockholders of the Company on behalf of TCL
("Participants").
NAME POSITION COMPANY(1) ADDRESS
- ---- -------- ------- -------
Li Dong Sheng Chairman & President TCL Holdings Co., Ltd. No. 6 Er Ling Nan Lu,
Huizhou, Guangdong,
PRC
Yan Yong Executive Director & TCL International Holdings, Ltd. 13/F TCL Tower, 8
Chief Financial Taichung Road, Tsuen
Officer Wan, N.T. Hong Kong
Jih-Ming Lin Vice President Techlab Tech Inc. 19/F, No. 171,
Sung-Teh Road,
Taipei, Taiwan
Robert Lo Vice General Manager Robot Computer Inc. 45545 North Loop
East, Fremont,
California 94538
Chris Ching Senior Investment Technology Associates Management 1111 Jupiter Rd.,
Manager Company Ste. 100B, Plano,
Texas 75074
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Chung-I Chiang Senior Engineering Silicon Motion Inc. 1040 E. Brokaw Rd.,
Director San Jose, California
95131
Ren Jian Chief Technology TCL International Holdings, Ltd. 13/F TCL Tower, 8
Officer Taichung Road, Tsuen
Wan, N.T. Hong Kong
Stacey Q. Sun Vice General Manager Shanghai Tianshi Networks Building 28, 4th
Information Limited Floor, 69 Guiqing
Road, Shanghai
200233, PRC
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(1) The companies named in the table above, to the extent that the Participants
are officers of such companies, are deemed to be associates of such
Participants. The addresses of such associates are as given above.
The following is a summary of all transactions in Company securities by
the Participants over the last two years. Unless otherwise indicated, none of
the Participants other than TCL has purchased or sold Common Stock or Series A
Preferred Stock of the Company within the past two years.
AMOUNT OF
---------
COMMON STOCK
------------
DATE OF PURCHASED (P)
------- -------------
TRANSACTION(1) OR SOLD (S)
- -------------- -----------
8/3/1999 1400 (P)
12/9/1999 200 (S)
12/13/1999 1200 (S)
2/25/2000 1000 (P)
3/14/2000 1000 (S)
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(1) The transactions described in the table above were effected by the wife of
Mr. Yan Yong, who is deemed to be an associate of such Participant.
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Except as described in this Proxy Statement, none of the Participants
nor any of their respective affiliates or associates (together, the "Participant
Affiliates"), (i) directly or indirectly beneficially owns any securities of the
Company or of any subsidiary of the Company or (ii) has had any relationship
with the Company in any capacity other than as a stockholder. Furthermore,
except as described in this Proxy Statement, no Participant or Participant
Affiliate is either a party to any transaction or series of transactions since
June 30, 1999, or has knowledge of any currently proposed transaction or series
of transactions, (i) to which the Company or any of its subsidiaries was or is
to be a party, (ii) in which the amount involved exceeds $60,000, and (iii) in
which any Participant or Participant Affiliate had or will have, a direct or
indirect material interest.
Except as described in this Proxy Statement, no Participant or
Participant Affiliates has entered into any agreement or understanding with any
person respecting any (i) future employment by the Company or its affiliates or
(ii) any transactions to which the Company or any of its affiliates will or may
be a party. Except as described in this Proxy Statement, there are no contracts,
arrangements or understandings by any Participant or Participant Affiliates
within the past year with any person with respect to any capital stock of the
Company.
COST AND METHOD OF SOLICITATION
TCL will bear the cost of this solicitation. While no precise estimate
of this cost can be made at the present time, TCL currently estimates that it
will spend a total of approximately $_______ for its solicitation of proxies,
including expenditures for attorneys, solicitors and advertising, printing,
transportation and related expenses. As of May __, 2001, TCL has incurred proxy
solicitation expenses of approximately $_______. TCL expects to seek
reimbursement from the Company for its expenses in connection with this
solicitation. In addition to soliciting proxies by mail, proxies may be
solicited in person or by telephone or telecopy.
TCL will also reimburse brokers, fiduciaries, custodians and other
nominees, as well as persons holding stock for others who have the right to give
voting instructions, for out-of-pocket expenses incurred in forwarding this
Proxy Statement and related materials to, and obtaining instructions or
authorizations relating to such materials from, beneficial owners of Company
capital stock. TCL will pay for the cost of these solicitations, but these
individuals will receive no additional compensation for these solicitation
services. TCL has retained the proxy solicitation firm of Georgeson Shareholder
Communications Inc. ("Georgeson") at estimated fees of not more than $25,000 in
the aggregate, plus reasonable out-of-pocket expenses, to participate in the
solicitation of proxies and revocations. TCL also has agreed to indemnify
Georgeson against certain liabilities and expenses. TCL estimates that
approximately 20 employees of Georgeson will be involved in the solicitation of
proxies on behalf of TCL.
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ADDITIONAL INFORMATION
Certain information regarding Common Stock and Series A Preferred Stock
held by the Company's Directors, nominees, management and 5% stockholders is
contained in the Company's Proxy Statement and is incorporated herein by
reference. Information concerning the date by which proposals of security
holders intended to be presented at the next annual meeting of stockholders of
the Company must be received by the Company for inclusion in the Company's proxy
statement and form of proxy for that meeting is also contained in the Company's
Proxy Statement and is incorporated herein by reference.
TCL did not prepare, and expresses no opinion as to the accuracy or
completeness of, any information contained herein which is based on, or
incorporated by reference to, the Company's Proxy Statement.
T.C.L. INDUSTRIES HOLDINGS (H.K.) CO., LTD.
May __, 2001
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YOUR VOTE IS IMPORTANT
1. Be sure to vote on the GOLD Proxy card. T.C.L. Industries Holdings
(H.K.) Co., Ltd. urges you NOT sign any proxy card which is sent to you
by the Company.
2. If any of your shares are held in the name of a bank, broker or other
nominee, please contact the person responsible for your account and
direct him or her to vote on the GOLD Proxy "FOR" the TCL Nominees,
"FOR" the TCL Amendments, "FOR" the approval of Larson Allen Weishair &
Co., LLP (f/k/a Schiffman Hughes Brown) and "AGAINST" the adoption of
the Restated Certificate.
3. If you have any questions or need assistance in voting your shares,
please contact:
GEORGESON
SHAREHOLDER
COMMUNICATIONS INC.
17 State Street, 10th Floor
New York, NY 10004
Banks and Brokers: (212) 440-9800
stockholders Call Toll Free: (800) 223-2064
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Annex A
AMENDMENTS TO THE AMENDED AND RESTATED
BY-LAWS OF LOTUS PACIFIC, INC.
1. SECTION 3 OF ARTICLE III OF THE BY-LAWS SHALL BE DELETED IN ITS ENTIRETY AND
A NEW SECTION 3 OF ARTICLE III SHALL BE ADDED AND READ AS FOLLOWS:
Section 3. Election and Term. (a) Subject to the rights of the holders
of any series of preferred stock or any other series or class of stock as set
forth in the Certificate of Incorporation to elect directors under specified
circumstances, the directors shall be divided into three classes, and designated
as Class I, Class II and Class III. Class I directors shall be initially elected
for a term expiring at the 2002 annual meeting of stockholders, Class II
directors shall be initially elected for a term expiring at the 2003 annual
meeting of stockholders and Class III directors shall be initially elected for a
term expiring at the 2004 annual meeting of stockholders. Members of each class
shall hold office until their successors shall have been duly elected and
qualified. At each succeeding annual meeting of stockholders of the Corporation,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election, and
until their successors are elected and qualified. (b) Subject to the rights of
the holders of any series of preferred stock or any other series or class of
stock as set forth in the Certificate of Incorporation to elect additional
directors under specified circumstances, vacancies resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
and newly created directorships resulting from any increase in the authorized
number of directors, may be filled only by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board of Directors,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which they
have been elected expires and until such director's successor shall have been
duly elected and qualified. No decrease in the number of authorized directors
constituting the whole board shall shorten the term of any incumbent director.
2. SECTION 12 OF ARTICLE III OF THE BY-LAWS SHALL BE DELETED IN ITS ENTIRETY
AND A NEW SECTION 12 OF ARTICLE III SHALL BE ADDED AND READ AS FOLLOWS:
Section 12. Removal of Directors. Subject to the rights of the holders
of any series of preferred stock or any other series or class of stock as set
forth in the Certificate of Incorporation to elect additional directors under
specified circumstances, any director may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of at least
66-2/3% of the voting power of the then outstanding shares then entitled to vote
thereon. For purposes of this Section 12, "cause" is defined as (i) willful
misconduct in connection with the duties as a director or (ii) conviction of (a)
a felony or (b) a misdemeanor involving moral turpitude.
3. SECTION 1 OF ARTICLE VIII OF THE BY-LAWS SHALL BE DELETED IN ITS ENTIRETY
AND A NEW SECTION 1 OF ARTICLE VIII SHALL BE ADDED AND READ AS FOLLOWS:
Section 1. These By-Laws may be altered, amended or repealed, in whole
or in part, and new By-Laws may be adopted by the stockholders or by the Board
of Directors at any regular or special meeting or by unanimous written consent
of the Board of Directors or by written consent of the holders of a majority of
shares entitled to vote thereon. Notice of any alteration, amendment or repeal
or the adoption of new By-Laws to be proposed at a meeting of stockholders or
the Board of Directors shall be
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contained in the notice of such meeting of stockholders or Board of Directors,
as the case may be. All such amendments adopted at a meeting of stockholders or
the Board of Directors shall be approved by the holders of a majority of shares
entitled to vote thereon. Notwithstanding the foregoing, the affirmative vote of
the holders of at least 66-2/3% of the voting power of the then outstanding
shares entitled to vote thereon shall be required to alter, amend, repeal or
adopt any provision inconsistent with, Sections 3 and 12 of Article III and this
Section 1 of Article VIII.
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PRELIMINARY COPY, SUBJECT TO COMPLETION
DATED MAY __, 2001
LOTUS PACIFIC, INC.
COMMON STOCK PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
T.C.L. INDUSTRIES HOLDINGS (H.K.) CO., LTD. ("TCL")
The undersigned hereby appoints __________________ and
__________________, and each of them, proxies for the undersigned with full
power of substitution, to vote all shares of Common Stock and Series A Preferred
Stock of Lotus Pacific, Inc. (the "Company") which the undersigned is entitled
to vote at the Company's 2001 Annual Meeting of stockholders, and any
postponements or adjournments thereof (the "Meeting"), hereby revoking all prior
proxies, on the matters set forth below as follows:
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THIS PROXY WILL BE VOTED AS SPECIFIED. IF A CHOICE IS NOT SPECIFIED, THE
PROXY WILL BE VOTED "FOR" THE NOMINEES LISTED BELOW, "FOR" THE TCL
AMENDMENTS AND "AGAINST" THE RESTATED CERTIFICATE.
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[X] Please mark your votes as in this example.
1. Election of Directors Nominees: Li Dong Sheng, Yan Yong, Jih-Ming Lin,
Robert Lo, Chris Ching, Chung-I Chiang,
and Ren Jian
FOR all the nominees listed above WITHHOLD AUTHORITY to vote for all the nominees
listed above
[ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee or nominees, write that
nominee's name in the space provided below.
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2. To Act Upon a Series of Proposed Amendments to the Company's By-Laws
(a) Classify the Board of Directors into three classes, each of which, after a transitional arrangement,
will serve for three years, with one class being elected each year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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(b) Provide that directors may be removed only for cause (i.e., willful misconduct in connection with
the duties as a director or conviction of (a) a felony or (b) a misdemeanor involving moral
turpitude) by the approval of the holders of at least 66-2/3% of the voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally in the election of
directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(c) Grant to the Board the exclusive power to fill vacancies created on the Board.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(d) Provide that the stockholder vote required to amend or repeal the foregoing provisions of the
By-Laws or to adopt any provision inconsistent therewith, shall be 66-2/3% of then outstanding
shares entitled to vote thereon.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To Act Upon Proposed Amendments to the Company's Certificate of Incorporation
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Approve Appointment of Larson Allen Weishair & Co., LLP (formerly Schiffman Hughes Brown) as the Independent
Auditors of the Company for the Fiscal Year Ending June 30, 2001.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. In the discretion of the proxyholders, on any other matters that may properly come before the meeting.
Please sign exactly as your name appears hereon. When shares are held by two or more persons, all of them
should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by the authorized person.
Date______________, 2001 ___________________________
(SIGNATURE)
___________________________
(SIGNATURE IF HELD JOINTLY)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.