SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of the Securities Exchange Act of 1934
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PACIFICNET INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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PACIFICNET INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 2004
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 30, 2004, at 1:00 p.m.
(Hong Kong time), at the Company's executive offices located at Room 601 New
Bright Building, 11 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong, for the
following purposes:
1. To elect seven (7) 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 approve a new stock option plan, the Company's 2005 stock option plan (the
"2005 Plan");
3. To ratify the appointment of Clancy and Co., P.L.L.C., as the Company's
independent auditors; and
4. 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 16, 2004 (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 30, 2004
2
PACIFICNET INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 2004
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 30, 2004, at 1:00 p.m. (Hong Kong Time), at the Company's
executive offices located at Room 601 New Bright Building, 11 Sheung Yuet Road,
Kowloon Bay, Kowloon, Hong Kong, and at any adjournment thereof (the "Annual
Meeting"), for the following purposes:
1. To elect seven (7) 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 approve a new stock option plan, the Company's 2005 stock option plan (the
"2005 Plan");
3. To ratify the appointment of Clancy and Co., P.L.L.C. as the Company's
independent auditors; and
4. 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 16, 2004 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 30, 2004.
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 8,420,762 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.
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.
3
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 and 3 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 Proposal 2
(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 seven (7) 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 approval to adopt the 2005 Stock Option Plan.
In proposal 3, 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.
PROPOSAL NO. 2: In order for the Company to have the authority under the 2005
Plan to issue incentive stock options, the Company must obtain stockholder
approval of the 2005 Plan.
PROPOSAL NO. 3. 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.
4
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 8,420,762 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 16, 2004 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
------------------------------------------------------------------------------------- ---------------- ---------------
Sino Mart Management Ltd. (2) 1,250,000 14.84%
16E, Mei On Industrial Bldg, 17 Kung Yip Street, Kwai Chung, NT, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Kin Shing Li (3) 1,150,000 13.66%
Rm 3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
ChoSam Tong (4) 1,257,000 14.93%
16E, Mei On Industrial Bldg, 17 Kung Yip Street, Kwai Chung, NT, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Tony Tong (5) 212,891 2.52%
------------------------------------------------------------------------------------- ---------------- ---------------
ShaoJian (Sean) Wang(6) 22,500 *
------------------------------------------------------------------------------------- ---------------- ---------------
Victor Tong (7) 57,700 *
------------------------------------------------------------------------------------- ---------------- ---------------
Richard Chi Ho Lo(8) 41,500 *
------------------------------------------------------------------------------------- ---------------- ---------------
Michael Chun Ha (9) 27,500 *
------------------------------------------------------------------------------------- ---------------- ---------------
David Fisher (10) 7,500 *
------------------------------------------------------------------------------------- ---------------- ---------------
Peter Wang (11) 22,500 *
------------------------------------------------------------------------------------- ---------------- ---------------
Jeremy Goodwin 0 *
------------------------------------------------------------------------------------- ---------------- ---------------
ALL DIRECTORS AND OFFICERS AS A GROUP (7 PERSONS) 392,091 4.65%
------------------------------------------------------------------------------------- ---------------- ---------------
5
* Indicates less than one percent.
** Unless otherwise indicated, the address for each beneficial owner is: c/o
PacificNet Inc. , 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
(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. 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.
(2) Information obtained from the Schedule 13D/A filed by Mr. Kin Shing Li on
October 14, 2003.
(3) Sino Mart Management Ltd. is owned by Mr. ChoSam Tong, the father of Mr.
Tony Tong.
(4) Includes shares of common stock of Sino Mart Management Ltd., which is owned
by Mr. ChoSam Tong.
(5) Excludes 1,250,000 shares owned by Sino Mart Management Ltd., as to which
shares Mr. Tony Tong disclaims beneficial ownership. Includes 22,500 shares
issuable upon exercise of Currently Exercisable Options.
(6) Represents shares issuable upon exercise of Currently Exercisable Options.
(7) Excludes 1,250,000 shares owned by Sino Mart Management Ltd., as to which
shares Mr. Victor Tong disclaims beneficial ownership. Includes 22,500 shares
issuable upon exercise of Currently Exercisable Options.
(8) Includes 22,500 shares issuable upon exercise of Currently Exercisable
Options.
(9) Includes 22,500 shares issuable upon exercise of Currently Exercisable
Options.
(10) Represents shares issuable upon exercise of Currently Exercisable Options.
(11) Represents 22,500 shares issuable upon exercise of Currently Exercisable
Options.
6
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth aggregate information regarding the Company's
equity compensation plans in effect as of December 31, 2003:
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 1,725,600 $2.32 1,725,600
BY SECURITY HOLDERS
------------------------------------- ------------------------------ ----------------------------- ----------------------------
EQUITY COMPENSATION PLANS NOT N/A N/A N/A
APPROVED BY SECURITY HOLDERS
------------------------------------- ------------------------------ ----------------------------- ----------------------------
TOTAL 1,725,600 $2.32 1,725,600
------------------------------------- ------------------------------ ----------------------------- ----------------------------
7
PROPOSAL 1
ELECTION OF DIRECTORS
Seven (7) 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. Mr. David Fisher will not seek re-election
for another term as director 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 16, 2004.
NAME AGE TITLE
---- --- -----
Tony I. Tong 36 Chairman, Chief Executive Officer
Victor Tong 33 President, Secretary and Director
ShaoJian (Sean) Wang 39 Chief Financial Officer, Director
Richard C.H. Lo 37 Independent Director
Michael Chun Ha 34 Independent Director
Peter Wang 50 Independent Director
David Fisher 53 Independent Director (retiring)
Jeremy Goodwin 36 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 and Mr. Victor Tong.
INFORMATION ABOUT DIRECTOR NOMINEES
Set forth below is certain information with respect to each director nominee.
Mr. Tony Tong, age 36, 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, which was 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 the 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:
0110.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 is the Vice Chairman (PRC) of Hong
Kong Call Centre Association, a Fellow of Hong Kong Institute of Directors, a
consultant on privatization and securitization for China's State-Owned Assets
Supervision and Administration Commission (SASAC), and a frequent speaker for
LexisNexis, a licensed Continued Professional Development (CPD) trainer, on
China investment. 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.
Mr. Victor Tong, age 33, currently is the President, Secretary and an Executive
Director of the Company. Mr. Victor Tong gained his consulting, systems
integration, and technical expertise in client/server systems through his
experience at Andersen Consulting (now Accenture), American Express Financial
Advisors (IDS), 3M, and the Superconductivity Center at the University of
Minnesota. In 1994, Victor co-founded Talent Information Management ("TIM"). The
Company was originally founded as an operating division of TIM. As the managing
partner, Mr. Tong sold GoWeb consulting division of TIM to a billionaire in
Minnesota USA in late 1997 and became the President of KeyTech, a leading
information technology consulting company based in Minnesota. In 1999, he was
recognized in "CityBusiness 40 Under 40" as one of the future business and
community leaders in Minnesota. Mr. Tong won the Student Commencement Speaker
Award while graduated with honors with a Bachelor of Science in Physics from the
University of Minnesota. Mr. Tong is a guest professor at College of Software of
Beihang University, one of the top software colleges in China. Victor Tong is
the brother of Tony Tong.
8
Mr. ShaoJian (Sean) Wang, age 39, is the Chief Financial Officer, Vice President
of International Business and an Executive Director 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. Richard Chi Ho Lo, age 37, is the Chief Executive Officer of Fulldiamond
Limited, an investment and consulting firm in financial, real estate and venture
advisory work. He is currently director of several start-up companies in Hong
Kong and the United States. Mr. Lo is the former Managing Director of Associated
Capital Limited and former Executive Director of two publicly listed companies
in HK. Mr. Lo holds a B.A. degree from the University of California, Los Angeles
(UCLA) and obtained his MBA in Finance and Investment from the University of
Hull in England.
Mr. Peter Wang, age 49, is an independent Director. 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.
Mr. Michael Chun Ha, aged 34, solicitor, is an independent director. Mr. Ha
graduated from the Faculty of Law, University of Hong Kong in 1994 with a
bachelor degree in law and was admitted as a solicitor of the High Court of the
Hong Kong Special Administrative Region in 1997 and a solicitor of the Supreme
Court of England and Wales in 1998. From 1995 to 2002, Mr. Ha worked as lawyer
in a number of international and Hong Kong prestigious law firms, specialize and
has extensive experience in the areas of corporate finance, securities
offerings, takeovers, cross-border mergers and acquisitions, venture capital,
corporate restructuring, regulatory and compliance issues, project finance, and
general commercial transactions and services in Hong Kong and the People's
Republic of Hong Kong. In 2002, Mr. Ha commence his own practice in the trade
name of "Ha and Ho Solicitors" and the firm is specialize in the areas of
general commercial transactions, corporate finance and civil and criminal
litigations. Mr. Ha is also the company secretary of, Shanxi Central
Pharmaceutical International Company Limited, a Hong Kong main board listed
company from year 2000 and a director of a private investment company, Metro
Concord Investment Limited, from year 2002.
Jeremy Goodwin, aged 36, is a director nominee. Mr. Goodwin is a Vice President
with Global Capital Group. He began his career in 1995 as an intern at Mees
Pierson Investment Finance S.A. in Geneva, Switzerland where he provided
administrative support to the fund raising/private placement team. Noteworthy
transactions executed by the group included assistance on the placements of the
$1.2 Billion Carlyle Partners II Limited Partnership. In 1997 he went to work
for the then parent institution, ABN Amro, in Beijing, China where he
9
established the Global Clients desk representing the bank's multinational
clients to sovereign regulatory agencies and local financial institutions while
monitoring their working capital needs. During his time there, the office was
approved by the Central Bank of China to operate as a fully licensed branch.
Noteworthy transactions executed by the group included assistance in the
business development and project management for the Royal Dutch Shell Oil
project and the Beijing Capital International Airport listing on the Hong Kong
Stock Exchange arranged by the Hong Kong office of ABN Amro Rothschild. He also
assisted the Singapore Debt Capital Markets team in the business development
origination of Sovereign Euro Debt Issuances for the Ministry of Finance and the
State Development Bank in Beijing for the People's Republic of China. In 1999,
He went to work for ING Barings in London as an International Associate working
directly for the business manager to the CEO. One of his primary assignments was
in Hong Kong with the ING Beijing Investment arm of Baring Private Equity
Partners, a joint venture with the Beijing Municipal Government established in
1994 at the decree of then Chinese Premier Zhu Rong Ji and widely considered the
first domestic Chinese Private Equity fund. Mr. Goodwin received his BS from
Cornell University in 1996 in conjunction with the Institute of Higher
International Studies in Geneva, Switzerland. He later pursued his advanced
degree with Princeton University with a concentration in Chinese affairs which
he completed at the prestigious Nanjing Chinese Studies Center of the Johns
Hopkins School of Advanced International Studies. Jeremy is fluent in written
and spoken Mandarin Chinese, French and has working knowledge of Dutch.
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 SEVEN NOMINEES FOR DIRECTOR SET FORTH HEREIN.
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 2003, 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 Mr. Peter Wang, who did not file his
Form 3 on a timely basis.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held four meetings during 2003. 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 an Audit Committee and a Compensation
Committee. The Board of Directors does not have a Nominating Committee. The
entire Board of Directors assumes the duties that would be delegated to a
Nominating Committee. The Company does not have a policy with regard to Board
members' attendance at annual meetings of stockholders.
NOMINATING COMMITTEE
The Board of Directors does not have a standing Nominating Committee.
The independent directors of the Board of Directors fulfills the role of a
Nominating Committee. The Board of Directors does not have a charter governing
its duties with respect to the nomination process. The Board of Directors has
four members who are independent as defined in The Nasdaq Stock Market listing
standards currently in effect.
The Board of Directors accepts director nominations made by
stockholders. The Board of Directors may consider those factors it deems
appropriate in evaluating director nominees, including judgment, skill,
diversity, strength of character, experience with businesses and organizations
comparable in size or scope to the Company, experience and skill relative to
other Board members, and specialized knowledge or experience. Depending upon the
current needs of the Board, certain factors may be weighed more or less heavily.
In considering candidates for the Board, they evaluate the entirety of each
candidate's credentials and do not have any specific minimum qualifications that
must be met by a nominee. They will consider candidates from any reasonable
source, including current Board members, stockholders, professional search firms
or other persons. They will not evaluate candidates differently based on who has
made the recommendation.
10
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 four times during 2003.
The Board of Directors has established an audit committee in accordance
with Section 3(a)(58(A) of the Securities Exchange Act of 1934. The members of
the Audit Committee are Messrs. Michael Chun Ha, Richard Chi Ho Lo and Peter
Wang, each of whom are independent as defined in the TheNasdaq SmallCap Market
listing standards currently in effect. None of the Audit Committee members is a
current officer or employee of the Company or any of its affiliates.
The Board of Directors has determined that all of the members of the
audit committee qualify as an "audit committee financial expert" under the
Securities and Exchange Commission's definition.
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, 2003, as filed with the
Securities and Exchange Commission.
THE AUDIT COMMITTEE
Michael Chun Ha
Richard C.H. Lo
Peter Wang
11
INDEPENDENT DIRECTORS, PACIFICNET INC.
March 25, 2004
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 2004.
Our compensation committee currently consists of Messrs. Michael Chun Ha,
Richard Chi Ho Lo and Peter Wang, who are all independent directors.
PROCESS FOR SENDING COMMUNICATIONS TO THE BOARD OF DIRECTORS.
The Board of Directors maintains a process for stockholders to
communicate with the Board. Stockholders wishing to communicate with the Board
or any individual director must mail a communication addressed to the Board or
the individual director to the Board of Directors, c/o PacificNet Inc., 860 Blue
Gentian Road, Suite 360, Eagan, MN 55121-1575, USA, or send an e-mail to
BoardofDirectors@PacificNet.com. Any such communication must state the number of
shares of common stock beneficially owned by the stockholder making the
communication. All of such communications will be forwarded to the full Board of
Directors or to any individual director or directors to whom the communication
is directed unless the communication is clearly of a marketing nature or is
unduly hostile, threatening, illegal, or similarly inappropriate, in which case
we have the authority to discard the communication or take appropriate legal
action regarding the communication.
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
------------------------- ------------- ------------------------------------ ------------------------------ --------------
Restricted Stock All Other
Name/Principal Position Fiscal Year Salary ($) Bonus ($) Other ($) Stock Award ($) Options Comp. ($)
------------------------- ------------- ----------- ----------- ------------ ----------------- ------------ --------------
Tony Tong, CEO 2003 $100,000 - - - 120,000
------------------------- ------------- ----------- ----------- ------------ ----------------- ------------ --------------
2002 $110,000 - - $57,900 206,000 -
------------------------- ------------- ----------- ----------- ------------ ----------------- ------------ --------------
2001 $106,226 - $15,384 50,000 $53,333 (1)
------------------------- ------------- ----------- ----------- ------------ ----------------- ------------ --------------
(1) Represents amounts received for life and health insurance coverage.
OPTION GRANTS DURING 2003 FISCAL YEAR
(INDIVIDUAL GRANTS)
----------------------- ----------------------------- ---------------------------- ------------------- -----------------------
Percent of Total Options
Number of Securities Granted to Employees in Exercise or Expiration
Name Underlying Options Granted Fiscal Year Base Price Date
----------------------- ----------------------------- ---------------------------- ------------------- -----------------------
Tony Tong, CEO 70,000 64% $2.2 June 23, 2006
Tony Tong, CEO 50,000 36% $4.25 November 26, 2006
----------------------- ----------------------------- ---------------------------- ------------------- -----------------------
AGGREGATED OPTION EXERCISES DURING 2003 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
--------------------- ----------------- -------------- ------------------------------------- ---------------------------------
SHARES NO. OF SECURITIES VALUE ($) OF UNEXERCISED IN-THE
ACQUIRED ON VALUE UNDERLYING MONEY OPTIONS AT FISCAL YEAR
NAME EXERCISE REALIZED($) UNEXERCISED OPTIONS/ END 12/31/03 (1)
--------------------- ----------------- -------------- ------------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------- ----------------- -------------- ----------------- ------------------- ---------------- ----------------
Tony Tong, CEO 200,000 $394,000 6,000 120,000 $21,090 $274,300
--------------------- ----------------- -------------- ----------------- ------------------- ---------------- ----------------
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. The employment
agreement provides for Mr. Tong to earn an annual base salary of $100,000 in
cash, plus $60,000 in stock compensation annually until April 1, 2005. Mr. Tong
is also eligible for an annual bonus for each fiscal year of the Company during
the term of his contract based on performance standards as the Board or
compensation committee designates. Mr. Tong is entitled to receive a monthly
housing allowance of $2,500, monthly automobile allowance of $500, tax
preparation expenses of $2,000 per year, and cash bonus based on net profit of
the Company.
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 paid a sign-on
bonus of 10,000 shares of common stock of the Company. 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, payable by cash, common stock or stock options of the Company, at the
option of the Company.
ANNUAL RETAINER FEE. Each director is paid an annual retainer fee of US$10,000
in the form of common stock or stock option of the Company. Such retainer fee is
paid semi-annually in arrears. The number of shares of common stock issued is
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.
13
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.
14
PROPOSAL 2
PROPOSAL TO APPROVE THE COMPANY'S 2005 STOCK OPTION PLAN
The Company is seeking approval to adopt the PacificNet, Inc. 2005 Stock Option
Plan (the "2005 Plan"). The purpose of the 2005 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.
DESCRIPTION OF THE PROPOSED 2005 PLAN
The following summary of the proposed 2005 Plan, is qualified in its entirety by
reference to the Company's full text of the proposed 2005 Plan as it appears as
Annex I to this Proxy Statement. The 2005 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 2005 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 2005 Plan. Options
granted under the 2005 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 2005 Plan
or any other option plan adopted by the Company. Nonqualified options may be
granted under the 2005 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 2005 Plan, options granted under the
2005 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.
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 2005 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 2005
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 2005 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 2005 Plan is effective for ten years, unless sooner
terminated or suspended.
15
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Incentive stock options granted under the 2005 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 2005 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 2005 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 2005 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT THE
COMPANY'S 2005 PLAN.
16
PROPOSAL 3
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,
2003 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 Clancy and Co., P.L.L.C., for the 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-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, 2002
was $3,500. The Company has not yet been billed for tax fees for the fiscal year
ended December 31, 2003.
ALL OTHER FEES
There are no other fees to disclose.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
17
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 8, 2005. Stockholders of the
Company wishing to include proposals in the proxy material for the 2005 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 27, 2005. 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,
2004. 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 30, 2004
18
ANNEX I
2005 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:
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
19
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 Options 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. The maximum number of
shares with respect to which Options may be issued to any single person in one
calendar year is 500,000
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;
20
(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 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.
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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.
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.
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(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. To the extent the Optionee is not vested as to his or her Option on
the date he or she ceases to be a Service Provider, his or her Option shall
terminate and 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
vested portion of Option shall remain exercisable for twelve (12) months
following the Optionee's termination. To the extent the Optionee is not vested
as to his or her Option on the date he or she ceases to be a Service Provider,
his or her Option shall terminate and 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. To the
extent that, at the time of death, the Optionee is not vested as to the entire
Option, the Option shall terminate and 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.
(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.
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(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.
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. Without limiting the foregoing, outstanding options may be repriced
downward without shareholder approval.
(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.
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(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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PACIFICNET INC. PROXY
FOR ANNUAL MEETING TO BE HELD ON DECEMBER 30, 2004
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 2004 Annual Meeting of
Stockholders of the Company to be held at 1:00 p.m. (Hong Kong Time) at the
Company's executive offices located at Room 601 New Bright Building, 11 Sheung
Yuet Road, Kowloon Bay, Kowloon, Hong Kong on December 30, 2004, 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.
1. Tony Tong 2. Victor Tong 3. ShaoJian (Sean) Wang
Elect seven (7) 4. Richard CH Lo 5. Peter Wang 6. Michael Chun Ha
Directors 7. Jeremy Goodwin
|_| FOR all nominees listed above |_| WITHHOLD AUTHORITY to vote
(except those whose names or for all nominees listed above.
numbers have been written on
the line below)
----------------------------------
2. Proposal to approve the Company's 2005 stock option plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to ratify the appointment of Clancy and Co., P.L.L.C., as the
Company's independent auditors.
|_| FOR |_| AGAINST |_| ABSTAIN
4. 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: _____________, 2004 _________________________________
_________________________________
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.
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