SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of the Securities Exchange Act of 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
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 Rule 14a-11(c) or Rule 14a-12
PACIFICNET INC.
---------------
(Name of Registrant as Specified In Its Charter)
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[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class 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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________________________________________________________________________________
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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.:
________________________________________________________________________________
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________________________________________________________________________________
(4) Date Filed:
________________________________________________________________________________
PACIFICNET INC.
-----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 24, 2003
-----------------------------
TO THE STOCKHOLDERS OF PACIFICNET INC:
The Annual Meeting of the Stockholders of PacificNet Inc., a Delaware
corporation (the "Company'), will be held on December 24, 2003, at 10:00 a.m.
(Hong Kong time), at the Company's executive offices located at Room 3813, Hong
Kong Plaza, 188 Connaught Road West, Hong Kong, for the following purposes:
1. To elect eight (8) directors to the Board of Directors of the
Company to serve until the next annual meeting of stockholders
and until their successors are duly elected and qualified;
2. To ratify previous issuances of shares of the Company's common
stock, par value $0.0001(the "Common Stock") to directors and
officers of the Company as compensation for services provided
to the Company;
3. To amend the Company's 1998 stock option plan (the "1998
Plan") to increase the number of shares that may be granted as
stock option awards under the 1998 Plan;
4. To ratify the appointment of Clancy and Co., P.L.L.C., as the
Company's independent auditors; and
5. To transact any other business as may properly be presented at
the Annual Meeting or any adjournment or postponement thereof.
Stockholders of record at the close of business on November 7, 2003
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of matters to be considered at the Annual
Meeting.
YOUR VOTE IS IMPORTANT. YOU ARE REQUESTED TO CAREFULLY READ THE PROXY STATEMENT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/s/ Victor Tong
-----------------------------------
Name: Victor Tong
Title: Secretary and Executive
Director of PacificNet Inc.
Hong Kong
Dated: November 24, 2003
2
PACIFICNET INC.
-----------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 24, 2003
-----------------------------
INTRODUCTION
Your proxy is solicited by the Board of Directors of PacificNet Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on December 24, 2003, at 10:00 a.m. (Hong Kong Time), at
the Company's executive offices located at Room 3813, Hong Kong Plaza, 188
Connaught Road West, Hong Kong, and at any adjournment thereof (the "Annual
Meeting"), for the following purposes:
1. To elect eight (8) directors to the Board of Directors of the
Company to serve until the next annual meeting of stockholders
and until their successors are duly elected and qualified;
2. To ratify previous issuances of shares of the Company's common
stock, par value $0.0001 per share (the "Common Stock") to
directors and officers of the Company as compensation for
services provided to the Company;
3. To amend the Company's 1998 stock option plan (the "1998
Plan") to increase the number of shares that may be granted as
stock option awards under the 1998 Plan;
4. To ratify the appointment of Clancy and Co., P.L.L.C. as the
Company's independent auditors; and
5. To transact any other business as may properly be presented at
the Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has set November 7, 2003 as the record date (the
"Record Date") to determine those holders of Common Stock, who are entitled to
notice of, and to vote at the Annual Meeting. The Company expects that the
Notice of Annual Meeting, Proxy Statement and form of proxy will first be mailed
to stockholders on or about November 24, 2003.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE?
You can vote your shares of Common Stock if our records show that you
owned the shares on the Record Date. As of the close of business on the Record
Date, a total of 6,162,977 shares of Common Stock are entitled to vote at the
Annual Meeting. Each share of Common Stock is entitled to one (1) vote on
matters presented at the Annual Meeting.
HOW DO I VOTE BY PROXY?
Follow the instructions on the enclosed proxy card to vote on each
proposal to be considered at the Annual Meeting. Sign and date the proxy card
and mail it back to us in the enclosed envelope.
The enclosed proxy, when properly signed and returned to the Company,
will be voted by the proxy holders at the Annual Meeting as directed by the
proxy. Proxies which are signed by stockholders but which lack any such
specification will be voted in favor of the proposals set forth in the Notice of
Annual Meeting.
3
WHAT IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The matters described in this proxy statement are the only matters we
know of that will be voted on at the Annual Meeting. If other matters are
properly presented at the meeting, the proxy holders will vote your shares as
they see fit.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. A proxy card may be revoked by a stockholder at any time before
its exercise at the Annual Meeting by giving Victor Tong, our Secretary, a
written notice revoking your proxy card or a duly executed proxy bearing a later
date, or by attendance at the Annual Meeting and electing to vote in person.
CAN I VOTE IN PERSON AT THE ANNUAL MEETING RATHER THAN BY COMPLETING THE PROXY
CARD?
Although we encourage you to complete and return the proxy card to
ensure that your vote is counted, you can attend the Annual Meeting and vote
your shares in person.
HOW ARE VOTES COUNTED?
We will hold the Annual Meeting if holders of a majority of the shares
of Common Stock entitled to vote in person or by proxy either sign and return
their proxy cards or attend the meeting. If you sign and return your proxy card,
your shares will be counted to determine whether we have a quorum even if you
abstain or fail to vote on any of the proposals listed on the proxy card.
The election of directors under proposal 1 will be by the affirmative
vote of a plurality of the shares of Common Stock presented in person or
represented by proxy at the Annual Meeting. Proposals 2, 3 and 4 shall be
approved upon the affirmative vote of a majority of the shares of Common Stock
presented in person or represented by proxy at the Annual Meeting. Unless
otherwise stated, the enclosed proxy will be voted in accordance with the
instructions thereon.
Brokers holding shares of the Company's Common Stock in street name who
do not receive instructions are entitled to vote on the election of Directors
and the ratification of the Company's independent auditors. Under applicable
Delaware law, "broker non-votes" on any other non-routine proposal, such as
Proposals 2 and 3 (where a broker submits a proxy but does not have authority to
vote a customer's shares on such proposal) would not be considered entitled to
vote on that proposal and will, therefore, have no legal effect on the vote of
that particular matter.
WHO PAYS FOR THIS PROXY SOLICITATION?
We do. In addition to sending you these materials, some of our
employees may contact you by telephone, by mail, by fax, by email, or in person.
None of these employees will receive any extra compensation for doing this.
GENERAL INFORMATION ABOUT THE PROPOSAL
WHAT PROPOSALS ARE STOCKHOLDERS BEING ASKED TO CONSIDER AT THE UPCOMING ANNUAL
MEETING?
In proposal 1, we are seeking the election of eight (8) directors to
serve on the board of directors of the Company until the next Annual Meeting of
Stockholders and until their successors are elected and qualified.
In proposal 2, we are seeking ratification of previous issuances of
shares of the Company's Common Stock to directors and officers of the Company as
compensation for services provided to the Company.
In proposal 3, we are seeking approval to amend the 1998 Plan to
increase the number of shares that may be granted as stock option awards under
the 1998 Plan.
4
In proposal 4, we are seeking ratification of the appointment of Clancy
and Co., P.L.L.C. as the Company's independent auditors.
WHY IS PACIFICNET SEEKING STOCKHOLDER APPROVAL FOR THESE PROPOSALS?
PROPOSAL NO. 1: The Delaware General Corporate Law requires
corporations to hold elections for directors each year.
PROPOSALS NO. 2: The NASD Marketplace Rules require that we obtain
stockholder approval for proposal no. 2. We are subject to NASD Marketplace
Rules because our common stock is listed on the Nasdaq SmallCap Market. NASD
Marketplace Rule 4350(i)(1)(A) requires stockholder approval of any arrangement
made pursuant to which stock may be acquired by officers or directors.
PROPOSAL NO. 3: As a result of potential issuances of Common Stock in
connection with potential strategic arrangements, the percentage of shares of
Common Stock available for issuance in the total stock option pool will
decrease. The Company desires to maintain for issuance in its stock option pool,
a number equal to at least 15% of the total number of shares of Common Stock
issued and outstanding. Accordingly, the Company is requesting approval of this
proposal.
PROPOSAL NO. 4. The Company appointed Clancy and Co., P.L.L.C. to serve
as the Company's independent auditors during fiscal year 2002. The Company
elects to have its stockholders ratify such appointment.
5
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders entitled to notice of, and to vote at the Annual Meeting
and any adjournment thereof, are stockholders of record at the close of business
on the Record Date. Persons who are not stockholders of record on the Record
Date will not be allowed to vote at the Annual Meeting. At the close of business
on the Record Date there were 6,162,977 shares of Common Stock issued and
outstanding. We have issued no other voting securities as of the Record Date.
Each share of Common Stock is entitled to one (1) vote on each matter to be
voted upon at the Annual Meeting. Holders of Common Stock are not entitled to
cumulate their votes for the election of directors.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of November 7, 2003 the number of
shares of our Common Stock beneficially owned by (i) each person who is known by
us to be the beneficial owner of more than five percent of the Company's Common
Stock; (ii) each director and nominee for election to the Board of Directors;
(iii) each of the named executive officers in the Summary Compensation Table;
and (iv) all directors and executive officers as a group. Unless otherwise
indicated, the stockholders listed in the table have sole voting and investment
power with respect to the shares indicated.
NUMBER OF % OF COMMON
SHARES STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNED(2)
------------------------------------------------------------------------------------- ---------------- ---------------
Kin Shing Li (3) 1,750,000 25.9%
c/o PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Sino Mart Management Ltd. (4) 1,000,000 16.2%
c/o ChoSam Tong, PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West,
Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
ChoSam Tong (5) 1,007,000 16.3%
PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
PacificNet Communications Limited - Macao Commercial Offshore (6) 800,000 13.0%
Commercial Centre I Tak, Rua de Pequim No, 126, 6th Floor, Macau
------------------------------------------------------------------------------------- ---------------- ---------------
Tony Tong (7) 190,391 3.1%
PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
ShaoJian (Sean) Wang (8) 39,400 *
PacificNet Inc., 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
------------------------------------------------------------------------------------- ---------------- ---------------
Victor Tong (9) 35,200 *
PacificNet Inc., 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
------------------------------------------------------------------------------------- ---------------- ---------------
Richard Chi Ho Lo (10) 19,000 *
PacificNet, PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong
Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Yue (Justin) Tang (11) 7,000 *
PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
David Fisher (12) 5,000 *
PacificNet Inc., 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
------------------------------------------------------------------------------------- ---------------- ---------------
Yongjun (Charles) Fu (13) 5,000 *
PacificNet Inc., 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
------------------------------------------------------------------------------------- ---------------- ---------------
Jin Yue (14)
PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong 0 N/A
------------------------------------------------------------------------------------- ---------------- ---------------
Wing Kee Eng Lee (15)
PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong 0 N/A
------------------------------------------------------------------------------------- ---------------- ---------------
Peter Wang (16)
PacificNet, Room 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong 0 N/A
------------------------------------------------------------------------------------- ---------------- ---------------
ALL DIRECTORS AND OFFICERS AS A GROUP (12 PERSONS) 1,307,991 19.4%
------------------------------------------------------------------------------------- ---------------- ---------------
6
* Indicates less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to the shares shown. Except as indicated by footnote and
subject to community property laws where applicable, to our knowledge, the
stockholders named in the table have sole voting and investment power with
respect to all common stock shares shown as beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options, warrants or
convertible securities (in any case, the "Currently Exercisable Options"). Each
beneficial owner's percentage ownership is determined by assuming that the
Currently Exercisable Options that are held by such person (but not those held
by any other person) have been exercised and converted.
(3) Information obtained from the Schedule 13D/A filed by Mr. Kin Shing Li on
October 14, 2003.
(4) Sino Mart Management Ltd. is owned by Mr. ChoSam Tong, the father of Mr.
Tony Tong.
(5) Mr. ChoSam Tong is currently President of China Operations and a director of
the Company. Includes shares of common stock of Sino Mart Management Ltd., which
is owned by Mr. ChoSamTong.
(6) Information obtained from the Schedule 13D filed by PacificNet
Communications Limited - Macao Commercial Offshore on May 12, 2003.
(7) Mr. Tony Tong is currently the Chairman, CEO, and an executive director of
the Company. Excludes 1,000,000 shares owned by Sino Mart Management Ltd., as to
which shares Mr. Tony Tong disclaims beneficial ownership.
(8) Mr. Shao Jian (Sean) Wang is the Chief Financial Officer of the Company.
(9) Mr. Victor Tong is currently Vice President of the Company and an executive
director of the Company. He is the brother of Mr. Tony Tong. Excludes 1,000,000
shares owned by Sino Mart Management Ltd., as to which shares Mr. Victor Tong
disclaims beneficial ownership.
(10) Mr. Richard Chi Ho Lo is an independent director of the Company.
(11) Mr. Yue (Justin) Tang is an independent director of the Company.
(12) Mr. David Fisher is a director of the Company.
(13) Mr. Yong Jun (Charles) Fu is an independent director of the Company.
(14) Mr. Jin Yue is a director nominee
(15) Mr. Wing Kee Eng Lee is a director nominee.
(16) Mr. Peter Wang is a director nominee.
7
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth aggregate information regarding the
Company's equity compensation plans in effect as of December 31, 2002:
NUMBER OF SECURITIES TO BE NUMBER OF SECURITIES
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE REMAINING AVAILABLE FOR
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING FUTURE ISSUANCE UNDER
WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
------------------------------------- ------------------------------ ----------------------------- ----------------------------
EQUITY COMPENSATION PLANS APPROVED 312,600 $0.88 1,354,067
BY SECURITY HOLDERS
------------------------------------- ------------------------------ ----------------------------- ----------------------------
EQUITY COMPENSATION PLANS NOT N/A N/A N/A
APPROVED BY SECURITY HOLDERS
------------------------------------- ------------------------------ ----------------------------- ----------------------------
TOTAL 312,600 $0.88 1,354,067
------------------------------------- ------------------------------ ----------------------------- ----------------------------
8
PROPOSAL 1
ELECTION OF DIRECTORS
Eight (8) director nominees are seeking to be elected at the Annual
Meeting, to hold office until the next Annual Meeting of Stockholders and until
their successors are elected and qualified. Messrs. ChoSam Tong, Richard C.H. Lo
and Yongjun (Charles) Fu will not seek re-election for another term as directors
of the Company. Management expects that each of the nominees will be available
for election, but if any of them is not a candidate at the time the election
occurs, it is intended that such proxy will be voted for the election of another
nominee to be designated by the Board of Directors to fill any such vacancy.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
Set forth below are the names of the directors, executive officers and
key employees of the Company as of November 7, 2003.
Name Age Title
---- --- -----
Tony I. Tong 35 Chairman, Chief Executive Officer and President
Victor Tong 33 Vice President of N. America Operations, Secretary and
Director
ChoSam Tong 63 President of China Operations and Director
ShaoJian (Sean) Wang 38 Chief Financial Officer, Vice President of International
Business and Director
Richard C.H. Lo 36 Independent Director
Yue (Justin) Tang 32 Independent Director
Yongjun (Charles) Fu 40 Independent Director
David Fisher 53 Director
Jin Yue 36 Independent Director Nominee
Wing Kee Eng Lee 50 Independent Director Nominee
Peter Wang 49 Independent Director Nominee
Executive officers of the Company are appointed at the discretion of
the Board of Directors with no fixed term. There are no family relationships
between or among any of the executive officers or directors of the Company other
than the relationship between Mr. Tony Tong, Mr. Victor Tong and Mr. ChoSam
Tong.
INFORMATION ABOUT DIRECTOR NOMINEES
Set forth below is certain information with respect to each director
nominee.
Mr. Tony Tong, age 35, is the Chairman, CEO, Executive Director, and
founder of PacificNet. From 1995 to 1997, Mr. Tong served as the Chief
Information Officer of DDS Inc., a leading SAP-ERP consulting company in the
USA, whichwas later acquired by CIBER, Inc. (NYSE: CBR). From 1993 to 1994, Mr.
Tong worked for Information Advantage, Inc. (Nasdaq:IACO), a leading business
intelligence, Data-Mining and CRM technology provider serving Fortune 500
clients. IACO consummated an IPO on Nasdaq in 1997 and was later acquired by
Sterling Software and Computer Associates (NYSE:CA). From 1992 to 1993, Mr. Tong
worked as a Business Process Re-engineering Consultant at Andersen Consulting
(now Accenture, NYSE:ACN). From 1990 to 1991, Mr. Tong worked for ADC
Telecommunications (Nasdaq:ADCT), a global supplier of telecom equipment. Mr.
Tong's R&D achievements include being the inventor and patent holder of US
Patent Number 6,012,066 (granted by US Patent and Trademark Office) titled
"Computerized Work Flow System, an Internet-based workflow management system for
automated web creation and process management." Mr. Tong also serves on the
board of advisors of Fortune Telecom (listed on Hong Kong Stock Exchange:
8040.HK), a leading distributor of mobile phones, PDAs, telecom services, and
accessories in China and Hong Kong. Mr. Tong is a frequent speaker on technology
investment in China, and was invited to present at the Fourth APEC International
Finance & Technology Summit in 2001. Mr. Tong graduated with Bachelor of
Mechanical/Industrial Engineering Degree from the University of Minnesota and
served on the Computer Engineering Department Advisory Board and was an Adjunct
Professor at the University of Minnesota, USA.
9
Mr. Victor Tong, age 33, currently is the Vice President of North
American Operations, Secretary and a Director of the Company. Mr. Victor Tong
was formerly the President of KeyTech, a leading information technology
consulting company based in Minneapolis, Minnesota. In 1994, Victor co-founded
Talent Information Management ("TIM"). The Company was originally founded as an
operating division of TIM. Mr. Victor Tong gained his consulting, systems
integration, and technical expertise in client/server systems through his
experience at Andersen Consulting, American Express Financial Advisors (IDS),
3M, and the Superconductivity Center at the University of Minnesota. He was
awarded as one of the "CityBusiness 40 Under 40" in 1999 as one of the 40 people
under 40 years of age who are the next generation of Twin Cities business and
community leaders. Mr. Tong graduated with honors with a Bachelor of Science in
Physics from the University of Minnesota, USA. Victor Tong is the brother of
Tony Tong.
Mr. ShaoJian (Sean) Wang, age 38, is the Chief Financial Officer and
Vice President of International Business for the Company. Mr. Wang is also
Director of Thian Bing Investments Pte Ltd - a Singapore based investment
holding company, a Director on the board of Alliance PKU Co. Ltd - a company
owned and controlled by Guanghua School of Management, Peking University;
Director of the board of Portcullis International Group - a Singapore based
investment consulting company; and Director and Partner of the Overseas Chinese
Scholar Fund, a leading venture capital firm headquartered in Zhongguancun
Beijing and Guangzhou, China. Mr. Wang started his professional career as a
Market/Financial analyst with Ecolab Inc. (NYSE:ECL) in 1987, where he moved
quickly to become Territory Manager and Marketing Manager. In 1990, Mr. Wang was
posted to Ecolab's Asia Pacific regional headquarters as Business Development
Manager. In 1992, Mr. Wang was appointed to Country Manager of Ecolab for
Indonesia. Mr. Wang is an investor and Director in Alliance PKU Co. Ltd. which
owns two premier companies in China. Alliance PKU Consulting is a leading
management consulting firm in China, and Beidabiz & E-learning Co. (a venture of
Peking University) is a well-known online education provider. Mr. Wang also
advises some local governments in China. The Municipal government of Yantai
appointed him as the city's representative for investment. He worked with the
Wei Fang government on setting up the Agricultural Development Park. Mr. Wang
attended Peking University and received his MBA degree at the Carlson School of
Management, University of Minnesota, and a B.S. in Economics at Hemline
University.
Mr. Yue (Justin) Tang, age 32, is Chairman and Chief Executive Officer
of eLong, Inc. (www.eLong.com), a leading online travel service company in
China. From 2000 to 2001, Mr. Tang served as President and Executive Director of
Asia.com, a pan-Asian Internet and wireless company that Mr. Tang co-founded
through the merger with elong.com, Inc. and was a subsidiary of Mail.com (now
Easylink Service Corporation, Nasdaq:EASY), a NASDAQ listed company. In 1999,
Mr. Tang co-founded elong.com, a mainland China Internet portal, and served as
its Chairman and Chief Executive Officer. Prior to eLong.com, he was Vice
President at Oscar Gruss & Son Incorporated, a New York-based investment banking
firm, and was responsible for setting up an investment banking, research and
institutional sales operation specializing in advising emerging growth
companies. He also worked for Brookehill Partners, Inc., and Merrill Lynch &
Co., and has six years of experience in venture capital and investment banking.
Mr. Tang studied at Nanjing University in China and received his Bachelor of
Science degree from Concordia College, Minnesota.
Mr. Jin Yue, age 36, is an independent director nominee. Mr. Yue served
as a Managing Director in charge of strategic alliances and investments for
Woncore Communications Co., Ltd., a leading telecommunication service provider
in China from 2002 to 2003. Previously, he co-founded China Cluster Ltd., a
network technology and equipment company. Prior to China Cluster, Mr. Jin was an
executive of the venture capital group, responsible for strategic investment in
China, under SCMP Holdings, a leading media company in Hong Kong. Mr. Jin
received his MBA from Yale University and BS degree from Tsinghua University in
Beijing.
Mr. David F. Fisher, age 53, is a director of PacificNet. From 1999 to
2003, Mr. Fisher served as Commissioner of Administration and Office of
Technology for the State of Minnesota, and chief technical advisor to Governor
Jesse Ventura. Mr. Fisher also served on the Minnesota Secretary of State
Executive Council, as a member of the Minnesota Governor's Cabinet, and was
responsible for the general management and operations of the Minnesota state
government, overseeing 1,000 full time employees with an annual budget of $250
million. He is responsible for establishing and executing statewide policy and
operations for government telecommunications and information technology. From
1994 to 1999, Mr. Fisher served as Vice President and General Counsel and
Corporate Secretary of ADC Telecommunications, Inc. (Nasdaq:ADCT), a
10
multinational telecommunications equipment manufacturer and distributor. While
at ADCT, Mr. Fisher managed a legal, contract and regulatory staff of
twenty-seven, managed more than two dozen complex acquisition transactions,
which included negotiating business joint ventures, alliances and contract
relationships. From 1980 to 1994, Mr. Fisher served as Vice President,
International and Associate General Counsel for the Pillsbury Company, a
multinational consumer foods producer and distributor based in Minneapolis,
Minnesota, USA. Prior to that, Mr. Fisher was a trial attorney with Henson &
Efron, P.A., and engaged in general legal practice in corporate commercial
transactions, acquisitions and divestitures, litigation, securities, and
employment law, contract drafting and negotiation, and antitrust compliance. Mr.
Fisher has served on the board of directors of Minnesota Technology, Inc., and
on the International and Public Policy Committees of the Telecommunications
Industry Association. Mr. Fisher is an adjunct professor of law at the Hamline
University School of Law. Mr. Fisher received his Juris Doctor, Magna Cum Laude,
Valedictorian, at the Washburn University School of Law, and Bachelor of Arts at
the University of Minnesota. Mr. Fisher was a Bush Foundation Fellow and studied
public policy at Kennedy School of Government, Harvard University.
Mr. Wing Kee Eng, Lee age 50, is an independent director nominee. Mr.
Lee joined Global Link Communications Holdings Limited (HKSE:8060.HK) in May
2002. Mr. Lee has over 20 years of experience in the telecommunications
industry. Mr. Lee pursued his career with Harris Corporation (NYSE:HRS) where he
had been a visiting engineer, senior engineer and the head of sales of the Pan
Asia Pacific region. During the period of 1996 to 1998, Mr. Lee was also the
vice president of the marketing department of Marin Telecommunications Corp., an
unlisted telecom operator.
Mr. Peter Wang, age 49, is an independent director nominee. Mr. Wang
served as a Chief Executive Officer in China Quatum Communications Ltd. Mr. Wang
has more than 20 years of experience in telecommunication and technology area
with strong background of R&D, operation, and corporate management. Having
already built a highly successful, multi-billion dollar telecom venture in
China, Unitech Telecom (now named UTStarcom, NASDAQ: UTSI), Mr. Wang is credited
with (i) investing innovative technology for the local access in China; (ii)
creating market access and brand recognition for a start-up business in China;
(iii) building management, engineering and sales teams to bring many products to
market. With his vision, UTStarcom successfully launched its digital access,
fiber access, and wireless access products. Under his management, UTStarcom made
the first digital loop carrier system and installed the first PHS (Personal
Handyphone System) system in China. As an entrepreneur, he has successfully
co-founded and built other ventures in the US, including World Communication
Group and World PCS, Inc. Before forming his own companies, he has worked at
AT&T Bell Labs and Racal-Milgo Information System. With AT&T Bell Labs, he
worked on Network Evolution Planning and representing AT&T Network System
Division served on Network Management Protocol Forum. With Racal-Milgo, he
worked on network management system architecture as a senior engineer. As part
of the technologically trained community in China, he was elected Deputy
Chairman of the Association of Privately Owned High-tech Enterprises in China.
He has been elected president of first Chinese PACS User and Providers Forum
that promotes the international PCS standard worldwide. He also served on the
boards of directors of many U.S. and Chinese companies, specifically Joray
Enterprises Inc., Phoenix Tech Ltd. and World Communication Group. Mr. Wang has
BS in Computer Science and a MS in Electrical Engineering from University of
Illinois, as well as an MBA in Marketing from Southeast-Nova University.
The Board of Directors will vote the proxies "FOR" the election of all
of the above-named nominees unless you indicate that the proxy shall not be
voted for all or any one of the nominees. Nominees receiving a plurality of the
votes cast will be elected as directors. If for any reason any nominee should,
prior to the Annual Meeting, become unavailable for election as a director, the
proxies will be voted for such substitute nominee, if any, as may be recommended
by management. In no event, however, shall the proxies be voted for a greater
number of persons than the number of nominees named.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE EIGHT NOMINEES FOR DIRECTOR SET FORTH HEREIN.
11
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
Based on the Company's review of copies of Forms 3, 4 and 5 filed with
the Securities and Exchange Commission (the "SEC") or written representations
from certain reporting persons, we believe that during fiscal year 2002, all
officers, directors, and greater than ten-percent beneficial owners timely
complied with the applicable filing requirements of Section 16(a) of the
Securities Exchange Act of 1934, except for Messrs. Tony Tong, Victor Tong,
ChoSam Tong, ShaoJian (Sean) Wang, Richard Chi Ho Lo, Yue (Justin) Tang, Yong
Jun (Charles) Fu and David Fisher, each of whom did not file their Form 3 on a
timely basis.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held six meetings during 2002. No director
attended less than 75% of the meetings of the Board and any committee of which
the director was a member.
The Board of Directors has designated two standing committees, the
Audit Committee and the Compensation Committee.
AUDIT COMMITTEE
The Board of Directors adopted a written charter for the Audit
Committee. The Audit Committee's charter states that the responsibilities of the
Audit Committee shall include: nominating the Company's independent auditors and
reviewing any matters that might impact the auditors' independence from the
Company; reviewing plans for audits and related services; reviewing audit
results and financial statements; reviewing with management the adequacy of the
Company's system of internal accounting controls, including obtaining from
independent auditors management letters or summaries on such internal accounting
controls; determining the necessity and overseeing the effectiveness of the
internal audit function; reviewing compliance with the U.S. Foreign Corrupt
Practices Act and the Company's internal policy prohibiting insider trading in
its Common Stock; reviewing compliance with the SEC requirements for financial
reporting and disclosure of auditors' services and audit committee members and
activities; reviewing related-party transactions for potential conflicts of
interest; and reviewing with corporate management and internal and independent
auditors the policies and procedures with respect to corporate officers' expense
accounts and perquisites, including their use of corporate assets. The Audit
Committee met one time during 2002.
The Audit Committee Members during fiscal 2002 consisted of David
Bussmann, Patrick Ko, Richard Lo, Max Tong and Shu Wang. As a result of the
election of directors at our 2002 Annual Meeting held on December 30, 2002, our
audit committee currently consists of Messrs. Yue (Justin) Tang, Richard Chi Ho
Lo and Yong Jun (Charles) Fu, who are all independent directors.
COMPENSATION COMMITTEE
The Compensation Committee's charter states that it is the
responsibility of the Compensation Committee to make recommendations to the
Board of Directors with respect to all forms of compensation paid to our
executive officers and to such other officers as directed by the Board and any
other compensation matters as from time to time directed by the Board. Our stock
option plan, however, is currently administered by the full Board of Directors.
The Compensation Committee met one time during 2002.
The Compensation Committee Members during fiscal 2002 consisted of
David Bussmann, Patrick Ko, Richard Lo, Max Tong and Shu Wang. As a result of
the election of directors at our 2002 Annual Meeting, our compensation committee
currently consists of Messrs. Yue (Justin) Tang, Richard Chi Ho Lo and Yong Jun
(Charles) Fu, who are all independent directors.
12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or to be paid
by the Company, as well as certain other compensation paid or accrued, during
each of the Company's last three fiscal years to each named executive officer.
Long Term Compensation
Annual Compensation Awards Payouts
-------------------------------- -------------------- ---------
Restricted
Fiscal Stock Stock All Other
Name/Principal Position Year Salary ($) Bonus ($) Other ($) Award ($) Options LTIP ($) Comp. ($)
----------------------- ---- ---------- --------- --------- --------- ------- -------- ---------
Tony Tong, CEO (3) 2002 $110,000 - - $57,900 206,000 - -
2001 $106,226 - $15,384 (4) - 50,000 - $53,333 (2)
2000 $41,666 $20,000 $12,650 (1) - - - $425 (2)
Charles Mueller, CFO (3)(5) 2002 $41,500 - - $15,000 - - -
2001 $160,000 - - - 55,000 - $8,280 (2)
2000 $51,981 $20,000 - - - - $1,500 (2)
____________________
(1) Mr. Tony Tong received a housing/auto rental allowance of $2,530/month.
(2) Represents amounts received for life and health insurance coverage.
(3) Denotes executives and key employees of the Company subsequent to the
reverse merger transaction entered into by the Company on July 27, 2000.
Compensation amounts for the 2000 fiscal year are for the period subsequent
to the reverse merger transaction of the Company (July 28, 2000 through
December 31, 2000).
(4) Effective October 19, 2001 through December 31, 2001, Mr. Tony Tong ceased
receiving compensation under an employment agreement and received
non-salaried compensation totaling $12,160. On December 30, 2002, the
Company entered into a new Executive Employment Contract with Tony Tong.
(5) Effective February 1, 2002, Mr. Mueller resigned as CFO of the Company and,
effective April 17, 2002, Mr. Mueller resigned as Secretary and Director of
the Company.
13
OPTION GRANTS DURING 2002 FISCAL YEAR
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise or Expiration
Name Granted Fiscal Year Base Price Date
---- ------- ----------- ---------- ----
Tony Tong 3,000 1.4% $1.90 May 14, 2005
Tony Tong 200,000 94.07% $0.50 October 30, 2005
Tony Tong 3,000 1.4% $1.75 December 30, 2005
OPTION EXERCISES DURING 2002 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There were no options exercised during the 2002 fiscal year.
COMPENSATION OF DIRECTORS
DIRECTORS' FEES. All of the Company's directors are reimbursed for
out-of-pocket expenses relating to attendance at meetings. Each director is also
entitled to US$500 for each board meeting that such director attends in person,
by conference call, or by committee action and US$200 for each committee
meeting.
ANNUAL RETAINER FEE. Each director is paid an annual retainer fee of
US$5,000. Such retainer fee is paid semi-annually in arrears.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
On December 30, 2002, the Company entered into an Executive Employment
Contract with Tony Tong to serve as President and Chief Executive Officer, which
was amended on April 1, 2003. The amended employment agreement provides for Mr.
Tong to earn an annual base salary of $100,000 in cash or stock.
14
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist the Board of Directors in its
oversight of the Company's financial reporting process. The Board of Directors,
in its business judgment, has determined that all members of the committee are
"independent" as required by applicable listing standards of the Nasdaq
SmallCapThe Committee operates pursuant to a Charter that was approved by the
Board in fiscal 2000. As set forth in the Charter, management of the Company is
responsible for the preparation, presentation and integrity of the Company's
financial statements, accounting and financial reporting principles and internal
controls and procedures designed to assure compliance with accounting standards
and applicable laws and regulations. The independent auditors are responsible
for auditing the Company's financial statements and expressing an opinion as to
their conformity with generally accepted accounting principles.
In the performance of this oversight function, the Committee has reviewed and
discussed the audited financial statements with management and the independent
auditors. The Committee has discussed with the independent auditors the matters
required to be discussed by Statement of Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEE, as currently in effect. Finally, the
Committee has received written disclosures and the letter from the independent
auditors required by Independence Standard Board Standard No. 1, INDEPENDENCE
DISCUSSIONS WITH AUDIT COMMITTEES, as currently in effect, and has considered
whether the provision of non-audit services by the independent auditors to the
Company is compatible with maintaining the auditor's independence and has
discussed with the auditors the auditors' independence.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting, are not experts in the fields of accounting
or auditing, including in respect of auditor independence. Members of the
Committee rely without independent verification on the information provided to
them and on the representations made by management and the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal control
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
consideration and discussions referred to above do not assure that the audit of
the Company's financial statements has been carried out in accordance with
generally accepted accounting principles or that the Company's auditors are in
fact "independent".
Based upon the reports, review and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Committee
referred to above and in the Charter, the Committee recommended to the Board
that the audited financial statements be included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2002, as filed with the
Securities and Exchange Commission.
The Audit Committee
Yue (Justin) Tang
Richard C.H. Lo
Yongjun (Charles) Fu
Independent Directors, PacificNet Inc.
March 25, 2003
15
INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the General Corporation
Law of the State of Delaware. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. The Company has entered into indemnification agreements with
its officers and directors containing provisions that may require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms.
16
PROPOSAL 2
RATIFICATION OF PREVIOUS ISSUANCES, AND FUTURE ISSUANCES
OF SHARES OF COMMON STOCK TO DIRECTORS AND OFFICERS
During the fiscal year ended December 31, 2002, the Company issued
shares of Common Stock to its directors as compensation for their services. The
number of shares issued to each of the directors (post 1-for-5 reverse split,
dated January 6, 2003) is as follows:
DIRECTOR NUMBER OF SHARES
----------------------------------- -----------------------------------
Tony Tong 68,007
----------------------------------- -----------------------------------
Victor Tong 18,200
----------------------------------- -----------------------------------
ChoSam Tong 4,000
----------------------------------- -----------------------------------
ShaoJian (Sean) Wang 23,400
----------------------------------- -----------------------------------
Richard C. H. Lo 13,000
----------------------------------- -----------------------------------
Yue (Justin) Tang 4,000
----------------------------------- -----------------------------------
Yongjun (Charles) Fu 2,000
----------------------------------- -----------------------------------
David Fisher 2,000
----------------------------------- -----------------------------------
The board of directors previously approved the payment of fees to each
director for his participation on the board. At the time the directors received
these shares, the Company maintained a director compensation policy pursuant to
which each director of the Company is paid an annual retainer fee of $10,000 in
the form of shares of Common Stock. The annual retainer fee is paid
semi-annually in arrears. The number of shares of common stock that was issued
was based on the average closing market price over the ten trading days prior to
the end of the six month period that the retainer fee is due. The average
closing price used to calculate the number of shares issued on November 7, 2002
was $0.15 (pre-split).
Pursuant to NASD Marketplace Rule 4350(i)(1)(A), the Company must
obtain approval of its stockholders to establish any arrangement pursuant to
which stock may be acquired by officers and directors. As a Nasdaq SmallCap
company, the Company is required to obtain such approval to issue Common Stock
to its directors for the payment of the annual retainer fee. Accordingly, the
Company seeks ratification of the issuance of these shares to the directors, and
approval for the future issuance of shares of Common Stock to the directors for
the annual retainer fee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
17
PROPOSAL 3
PROPOSAL TO AMEND THE COMPANY'S 1998 STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES THAT MAY BE
GRANTED AS STOCK OPTION AWARDS
In September 1998, the Company's Board of Directors unanimously
approved the Company's 1998 Stock Option Plan (the "1998 Plan") and in December
1998, the Company's stockholders approved the 1998 Plan. The purpose of the 1998
Plan is to enable the Company to attract and retain top-quality employees,
officers, directors and consultants and to provide such employees, officers,
directors and consultants with an incentive to promote the success of the
Company. The Company is seeking approval to amend the 1998 Plan to increase the
number of shares of Common Stock that may be granted as stock option awards
under the 1998 Plan from 1,666,667 to 2,000,000.
DESCRIPTION OF THE 1998 PLAN
The following summary of the 1998 Plan, assuming stockholder approval
of the amendment to the 1998 Plan, is qualified in its entirety by reference to
the Company's full text of the amended 1998 Plan as it appears as Annex I to
this Proxy Statement. The 1998 Plan would provide for the grant to directors,
officers, employees and consultants of the Company (including its subsidiaries)
of options to purchase up to an aggregate of 2,000,000 shares of Common Stock.
The 1998 Plan may be administered by the Board of Directors or a committee of
the Board of Directors (in either case, the "Committee"), which has complete
discretion to select the optionees and to establish the terms and conditions of
each option, subject to the provisions of the 1998 Plan. Options granted under
the 1998 Plan may be "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified options.
The exercise price of incentive stock options may not be less than 100%
of the fair market value of the Common Stock as of the date of grant (110% of
the fair market value if the grant is to an employee who owns more than 10% of
the total combined voting power of all classes of capital stock of the Company).
The Code currently limits to $100,000 the aggregate value of Common Stock that
may be acquired in any one year pursuant to incentive stock options under the
1998 Plan or any other option plan adopted by the Company. Nonqualified options
may be granted under the 1998 Plan at an exercise price of not less than 100% of
the fair market value of the Common Stock on the date of grant (110% of the fair
market value if the grant is to a director, officer or employee who owns more
than 10% of the voting power of all classes of stock of the Company or any
Parent or subsidiary). Nonqualified options also may be granted without regard
to any restriction on the amount of Common Stock that may be acquired pursuant
to such options in any one year.
Subject to the limitations contained in the 1998 Plan, options granted
under the 1998 Plan will become exercisable at such times and in such
installments (but not less than 20% per year) as the Committee shall provide in
the terms of each individual stock option agreement. The Committee must also
provide in the terms of each stock option agreement when the option expires and
becomes unexercisable, and may also provide the option expires immediately upon
termination of employment for any reason. No option held by directors, executive
officers or other persons subject to Section 16 of the Securities Exchange Act
of 1934, as amended, may be exercised during the first six months after such
option is granted.
18
Unless otherwise provided in the applicable stock option agreement,
upon the termination of employment of an employee, all options that were then
vested shall remain exercisable until the expiration of the term of the option
set forth in the stock option agreement. If no time period is specified in the
stock option agreement then the option shall remain exercisable for twelve (12)
months following termination of employment. Any options which were not
exercisable on the date of such termination would immediately terminate
concurrently with the termination of employment.
Unless otherwise provided in the applicable stock option agreement,
upon the death or disability of an optionee, all options that were then vested
shall remain exercisable until such period of time as is specified in the stock
option agreement, but in no event later than the expiration of the term of such
option as set forth in the stock option agreement. If no time period is
specified in the stock option agreement then the option shall remain exercisable
for twelve (12) months following the optionee's death or disability.
The Board of Directors may at any time amend, alter, suspend or
terminate the Plan. No amendment, alteration, suspension or termination of the
Plan will impair the rights of any optionee, unless mutually agreed otherwise
between the optionee and the Committee, which agreement must be in writing and
signed by the optionee and the Company. Termination of the Plan will not affect
the Committee's ability to exercise the powers granted to it hereunder with
respect to options granted under the Plan prior to the date of such termination.
Options granted under the 1998 Plan may not be exercised more than ten
years after the grant (five years after the grant if the grant is an incentive
stock option to an employee who owns more than 10% of the total combined voting
power of all classes of capital stock of the Company). Options granted under the
1998 Plan are not transferable and may be exercised only by the respective
grantees during their lifetime or by their heirs, executors or administrators in
the event of death. Under the 1998 Plan, shares subject to cancelled or
terminated options are reserved for subsequently granted options. The number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends. The 1998 Plan is effective for ten years, unless
sooner terminated or suspended.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Incentive stock options granted under the 1998 Plan will be afforded
favorable federal income tax treatment under the Code. If an option is treated
as an incentive stock option, the optionee will recognize no income upon grant
or exercise of the option unless the alternative minimum tax rules apply. Upon
an optionee's sale of the shares (assuming that the sale occurs at least two
years after grant of the option and at least one year after exercise of the
option), any gain will be taxed to the optionee as long-term capital gain. If
the optionee disposes of the shares prior to the expiration of the above holding
periods, then the optionee will recognize ordinary income in an amount generally
measured as the difference between the exercise price and the lower of the fair
market value of the shares at the exercise date or the sale price of the shares.
Any gain or loss recognized on such a premature sale of the shares in excess of
the amount treated as ordinary income will be characterized as capital gain or
loss.
All other options granted under the 1998 Plan will be nonstatutory
stock options and will not qualify for any Annual tax benefits to the optionee.
An optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. However, upon exercise of the nonstatutory
stock option, the optionee will recognize ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of each share over its exercise price. Upon an optionee's resale of such
shares, any difference between the sale price and the fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
generally qualify for long-term capital gain or loss treatment if the shares
have been held for more than one year. Recently enacted legislation provides for
reduced tax rates for long-term capital gains based on the taxpayer's income and
the length of the taxpayer's holding period.
The foregoing does not purport to be a complete summary of the federal
income tax considerations that may be relevant to holders of options or to the
Company. It also does not reflect provisions of the income tax laws of any
municipality, state or foreign country in which an optionee may reside, nor does
it reflect the tax consequences of an optionee's death.
The 1998 Plan may be amended, altered, suspended or terminated by the
Board at any time; provided however, that the Board shall obtain stockholder
approval of any amendment to the 1998 Plan to the extent necessary and desirable
to comply with U.S. state corporate laws, U.S. federal and state securities
laws, the Internal Revenue Code of 1986, as amended, the Nasdaq SmallCap Market
or any other market in which the Company's Common Stock may be traded, and the
applicable laws of any other country or jurisdiction where options are granted
under the Plan. No amendment, alteration, suspension or termination of the Plan
shall impair the rights of any optionee, unless mutually agreed otherwise
between the optionee and the Board.
19
PRINCIPAL DIFFERENCES
The 1998 Plan is amended to increase the number of shares that may be
granted as stock option awards to 2,000,000 as compared to 1,666,667 under the
current 1998 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND
THE COMPANY'S 1998 PLAN TO INCREASE THE NUMBER OF SHARES THAT MAY BE GRANTED AS
STOCK OPTION AWARDS.
20
PROPOSAL 4
RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Clancy and Co., P.L.L.C. has served as our independent
auditors since 2001. The Board of Directors has appointed Clancy and Co.,
P.L.L.C. to continue as our independent auditors for the fiscal year ending
December 31, 2003. A representative of Clancy and Co., P.L.L.C.'s Hong Kong
cooperation partner, HLB Hodgson Impey Cheng, is expected to be present at the
Annual Meeting to respond to appropriate questions from stockholders and to make
a statement if such representative desires to do so.
AUDIT FEES
Audit fees billed to the Company by Clancy and Co., P.L.L.C. for its
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2002 and for its review of the financial statements included in the
Company's Quarterly Reports on Form 10-QSB filed with the Securities and
Exchange Commission for that fiscal year totaled approximately $50,000. Audit
fees billed to the Company by Arthur Andersen, Deloitte Touche Tohmatsu and
Clancy and Co., P.L.L.C., for the audit of the Company's annual financial
statements for the fiscal year ended December 31, 2001 and for its review of the
financial statements included in the Company's Quarterly Reports on Form 10-QSB
filed with the Securities and Exchange Commission for that fiscal year totaled
approximately $57,000.
AUDIT-RELATED FEES
There are no audit-related fees to disclose.
TAX FEES
HLB Hodgson Impey Cheng's tax fee for the fiscal year ended December
31, 2001 was $3,500. The Company has not yet been billed for tax fees for the
fiscal year ended December 31, 2002.
ALL OTHER FEES
There are no other fees to disclose.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
21
MISCELLANEOUS
2004 STOCKHOLDER PROPOSALS
Rule 14a-4 of the SEC proxy rules allows the Company to use
discretionary voting authority to vote on matters coming before an annual
meeting of stockholders if the Company does not have notice of the matter at
least 45 days before the date corresponding to the date on which the Company
first mailed its proxy materials for the prior year's annual meeting of
stockholders or the date specified by an overriding advance notice provision in
the Company's By-Laws. The Company's By-Laws do not contain such an advance
notice provision. For the Company's 2004 Annual Meeting of Stockholders,
stockholders must submit such written notice to the Secretary of the Company on
or before October 10, 2004. Stockholders of the Company wishing to include
proposals in the proxy material for the 2004 Annual Meeting of Stockholders must
submit the same in writing so as to be received by Victor Tong, the Secretary of
the Company on or before July 28, 2004. Such proposals must also meet the other
requirements of the rules of the SEC relating to stockholder proposals.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at
the Annual Meeting, except matters discussed in the Proxy Statement. If any
other matters properly come before the meeting, it is intended that the shares
represented by proxies will be voted in accordance with the judgment of the
persons voting the proxies.
WHERE YOU CAN FIND MORE INFORMATION
We file annual and quarterly reports, proxy statements and other
information with the SEC. Stockholders may read and copy any reports, statements
or other information that we file at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information about the public reference rooms. Our
public filings are also available from commercial document retrieval services
and at the Internet Web site maintained by the SEC at http://www.sec.gov. The
Company's annual report on Form 10-KSB was mailed along with this proxy
statement.
STOCKHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE THEIR SHARES AT THE
ANNUAL MEETING. NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED NOVEMBER 24, 2003. STOCKHOLDERS SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE.
By Order of the Board of Directors
/s/ Victor Tong
---------------------------------------
Name: Victor Tong
Title: Secretary and Executive Director
November 24, 2003
22
PACIFICNET INC. PROXY
FOR ANNUAL MEETING TO BE HELD ON DECEMBER 24, 2003
The undersigned stockholder of PacificNet Inc., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement and hereby appoints Tony Tong, Victor Tong and
ShaoJian (Sean) Wang, or any of them, proxies and attorneys-in-fact, with full
power to each of substitution and revocation, on behalf and in the name of the
undersigned, to represent the undersigned at the 2003 Annual Meeting of
Stockholders of the Company to be held at 10:00 a.m. (Hong Kong Time) at the
Company's executive offices located at Room 3818, Hong Kong Plaza, 188 Connaught
Road West, Hong Kong on December 24, 2003, or at any adjournment or postponement
thereof, and to vote, as designated below, all shares of common stock of the
Company which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below.
The Board of Directors recommends that you vote "FOR" each proposal.
--------------------------------------------------------------------
1.
Elect eight (8) 1. Tony Tong 2. Victor Tong 3. ShaoJian (Sean) Wang
Directors 4. Yue (Justin) Tang 5. Jin Yue 6. David Fisher
7. Wing Kee Eng Lee 8. Peter Wang
|_| FOR all nominees listed above (except those |_| WITHHOLD AUTHORITY to vote for all nominees
whose names or numbers have been written on listed above.
the line below)
---------------------------------------------------
2. Proposal to ratify the previous issuance of shares of the Company's
common stock to directors and officers of the Company as compensation
for services provided to the Company.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to amend the Company's 1998 stock option plan to increase the
number of shares that may be granted as stock option awards under the
1998 Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Proposal to ratify the appointment of Clancy and Co., P.L.L.C., as the
Company's independent auditors.
|_| FOR |_| AGAINST |_| ABSTAIN
5. To transact any other business as may properly be presented at the
Annual Meeting or any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED "FOR" EACH PROPOSAL SPECIFICALLY IDENTIFIED ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date: _____________, 2003 ____________________________________________
____________________________________________
PLEASE DATE AND SIGN ABOVE exactly as name
appears at the left, indicating, where
proper, official position or representative
capacity. For stock held in joint tenancy,
each joint owner should sign.
23
ANNEX I
AMENDED 1998 STOCK OPTION PLAN
------------------------------
PACIFICNET INC. STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of this Stock Option Plan (the "Plan") is
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall be
administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options are granted under the Plan.
(c) "Board" means the Board of Directors of the Company
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board in
accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company
(g) "Company" means PacificNet Inc., a Delaware corporation.
(h) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "Director" means a member of the Board of Directors of the Company.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider (defined below) shall not cease to be an Employee in the case of (i)
any leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
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i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
(r) "Option Grant" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Grant is subject to the terms and conditions of the Plan.
(s) "Option Exchange Program" means a program whereby outstanding
Options are exchanged for Option with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option.
(u) "Optionee" means the holder of an outstanding Option granted under
the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this PacificNet Inc. Stock Option Plan.
(x) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
of 1934, as amended.
(y) "Service Provider" means an Employee, Director or Consultant.
(z) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 11 below.
(aa) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the
Plan, the maximum aggregate number of Shares which may be subject to option and
sold under the Plan is 2,000,000 shares. The Shares may be authorized but
unissued, or reacquired Common Stock. If an Option expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of an Option, shall not be returned to the Plan and shall not
become available for future distribution under the Plan.
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4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. The Plan shall be administered by the Board or a
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may from
time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of Option Grants for use under the Plan;
(v) to determine the terms and conditions, of any Option granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by Optionees to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xi) to construe and interpret the terms of the Plan and awards
granted and pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Service Providers.
Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Grant as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
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Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option shall confer upon any Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate such relationship at any time, with or
without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the Option
Grant; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Grant.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of(l) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
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9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable according to the terms hereof at such times and
under such conditions as determined by the Administrator and set forth in the
Option Grant. Except in the case of Options granted to Officers, Directors and
Consultants, Options shall become exercisable at a rate of no less than 20% per
year over five (5) years from the date the Options are granted. Unless the
Administrator provides otherwise, vesting of Options granted hereunder shall be
tolled during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share. An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Grant) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Grant and the Plan. Shares issued upon
exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 11 of the Plan. Exercise of an Option in any manner shall
result in a decrease in the number of Shares thereafter available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Grant (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Grant). In the absence of a specified time in the
Option Grant, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Grant (of
at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Grant). In the absence of a specified time in
the Option Grant, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the
Option may be exercised within such period of time as is specified in the Option
Grant (or at least six (6) months) to the extent that the Option is vested on
the date of death (but in no event later than the expiration of the term of such
Option as set forth in the Option Grant) by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance. In the
absence of a specified time in the Option Grant, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to the entire Option, the
Shares covered by the unvested portion of the Option shall immediately revert to
the Plan. If the Option is not so exercised within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
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(e) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. The Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until fifteen (15) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
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12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee to whom an Option is
so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
14. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery of
such Shares shall comply with Applicable Laws and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
15. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
16. RESERVATION OF SHARES. The Company, during the term of this Plan, shall
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options outstanding, and, in the case of an individual who
acquires Shares pursuant to the Plan, during the period such individual owns
such Shares, copies of annual financial statements. The Company shall not be
required to provide such statements to key employees whose duties in connection
with the Company assure their access to equivalent information.
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