Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 under ss. 240.14a-12
CHINA DIGITAL WIRELESS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] 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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
CHINA DIGITAL WIRELESS, INC.
429 Guangdong Road
Shanghai, China 200001
(86-21) 6336-8686
November 1, 2005
Dear Stockholders:
You are cordially invited to attend the China Digital Wireless, Inc.
Annual Meeting of Stockholders to be held on December 1, 2005, at 10:00 a.m.
(local time) at 429 Guangdong Road, Shanghai, China 200001.
The following Notice of Annual Meeting and Proxy Statement describe the
matters you are being asked to vote on. At the meeting, we will also report on
China Digital Wireless, Inc.'s operations and respond to any of your questions.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend, it is
important that your shares be represented. Please sign, date and mail the
enclosed proxy card as soon as possible in the enclosed postage prepaid envelope
to ensure that your vote is counted. If you attend the meeting, you will, of
course, have the right to vote your shares in person.
Very truly yours,
/s/ Tai Caihua
Tai Caihua
President and
Chairman of the Board
CHINA DIGITAL WIRELESS, INC.
429 Guangdong Road
Shanghai, China 200001
(86-21) 6336-8686
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Thursday, December 1, 2005
-------------------
To the Stockholders:
The Annual Meeting of the Stockholders of China Digital Wireless, Inc.,
a Nevada corporation, will be held on December 1, 2005 at 429 Guangdong Road,
Shanghai, China 200001, at 10:00 a.m. (local time) to:
1. elect thirteen directors to serve for the ensuing year and until their
successors are duly elected and qualified;
2. ratify the selection of Grobstein, Horwath & Company, LLP as the
Company's independent auditors for the fiscal year ending December 31,
2005; and
3. transact such other business as may properly come before the meeting or
any adjournment thereof.
Only stockholders of record at the close of business on October 13,
2005 will be entitled to notice of, and to vote at, the Annual Meeting and any
adjournments thereof.
The Company's Proxy Statement follows this Notice of Annual Meeting.
Financial and other information concerning China Digital is contained in the
enclosed Annual Report on Form 10-KSB for the fiscal year ended December 31,
2004.
By Order of the Board of Directors
/s/ Chris Lu Li
Chris Lu Li
Secretary
Shanghai, China
November 1, 2005
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT TO THE COMPANY AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED STAMPED AND ADDRESSED ENVELOPE. THIS WILL ENSURE THE PRESENCE OF A
QUORUM AT THE ANNUAL MEETING. GIVING THIS PROXY DOES NOT AFFECT YOUR RIGHT TO
REVOKE IT LATER OR VOTE YOUR SHARES IN PERSON IN THE EVENT THAT YOU ATTEND THE
MEETING.
CHINA DIGITAL WIRELESS, INC.
429 Guangdong Road
Shanghai, China 200001
(86-21) 6336-8686
-------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 1, 2005
-------------------
This Proxy Statement is furnished by the board of directors of China
Digital Wireless, Inc., a Nevada corporation (the "Company" or "China Digital"),
to the holders of common stock, no par value, of the Company (the "Common
Stock"). The board of directors solicits your proxy for use at the 2005 Annual
Meeting of Stockholders (the "Annual Meeting"), to be held at 10:00 a.m. (local
time) on December 1, 2005, at 429 Guangdong Road, Shanghai, China 200001. The
proxy materials will be first sent or given to stockholders on or about November
1, 2005.
GENERAL
Annual Report
Our annual report, filed on form 10-KSB, for the fiscal year ended
December 31, 2004 is enclosed with this Proxy Statement.
Voting Securities and Quorum
Only stockholders of record as of the close of business on October 13,
2005 will be entitled to vote at the meeting and any adjournment of that
meeting. As of October 13, 2005, there were 17,147,268 shares of our issued and
outstanding common stock. Stockholders may vote in person or by proxy. Each
holder of shares of our common stock is entitled to one (1) vote for each share
of stock held on the proposals presented in this Proxy Statement. Our Bylaws
provide that 33% of all the shares of the stock entitled to vote, whether
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the meeting. Abstentions and broker non-votes
(defined below) will be counted as present for purposes of determining the
presence of a quorum. For a discussion of the issued and outstanding shares, see
"Security Ownership of Certain Beneficial Owners and Management."
Solicitation of Proxies
The cost of soliciting proxies will be borne by the Company. We will
solicit stockholders by mail through our regular employees, and will request
banks and brokers, and other custodians, nominees and fiduciaries, to solicit
their customers who have the Company's stock registered in the names of such
customers and will reimburse them for their reasonable, out-of-pocket costs. In
addition, the Company may use the services of our officers, directors and others
to solicit proxies, personally or by telephone, without additional compensation.
Voting of Proxies
All valid proxies received prior to the Annual Meeting and not properly
revoked will be voted. If you properly complete and return your proxy, and do
not revoke it, the proxy holders will vote your shares in accordance with your
instructions.
If your properly completed proxy gives no instructions, the proxy
holders will vote your shares FOR the election as directors of those thirteen
nominees named in this Proxy Statement, FOR the proposal to ratify the
appointment of Grobstein, Horwath & Company, LLP as independent public
accountants for the Company, and in their judgment on all other matters that may
properly come before the Annual Meeting.
For the purpose of determining the vote required for approval of
matters to be voted on at the Annual Meeting, shares held by stockholders who
abstain from voting on a matter will be treated as being "present" and "entitled
to vote" on the matter, and, therefore, an abstention (withholding a vote as to
all matters) has the same legal effect as a vote against the matter. However, in
the case of a broker non-vote or where a stockholder withholds authority from
his proxy to vote the proxy as to a particular matter, such shares will not be
treated as "present" or "entitled to vote" on the matter, and, therefore, a
broker non-vote or the withholding of a proxy's authority will have no effect on
the outcome of the vote on the matter. A "broker non-vote" refers to shares of
our common stock represented at the Annual Meeting in person or by proxy by a
broker or nominee where such broker or nominee (1) has not received voting
instructions on a particular matter from the beneficial owners or persons
entitled to vote and (2) the broker or nominee does not have discretionary
voting power on such matter.
The enclosed form of proxy provides a method for you to withhold
authority to vote for any one or more of the nominees for director while
granting authority to vote for the remaining nominees. The names of all nominees
are listed on the proxy card. If you wish to grant authority to vote for all
nominees, check the box marked FOR. If you wish to withhold authority to vote
for all nominees, check the box marked WITHOUT AUTHORITY. If you wish your
shares to be voted for some nominees and not for one or more of the others,
check the box marked FOR and indicate the nominee(s) for whom you are
withholding the authority to vote by listing such nominee(s) in the space
provided. If you check the box marked WITHHOLD AUTHORITY, your shares will
neither be voted for nor against a director but will be counted for quorum
purposes. Proxies and ballots will be received and tabulated by Securities
Transfer Corporation, P.O. Box 701629, Dallas, TX 75370, the Company's transfer
agent.
The favorable vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the Annual Meeting is required for the
approval of matters presented at the Annual Meeting, except that with regard to
the election of directors, the thirteen individuals receiving the greatest
number of votes shall be deemed elected even though not receiving a majority.
Revocability of Proxies
You may revoke your proxy at any time before it is voted by:
o filing a written notice of revocation with our Corporate
Secretary at our principal executive office located at 429
Guangdong Road, Shanghai, China 200001;
o filing with our Corporate Secretary at our principal executive
office located at 429 Guangdong Road, Shanghai, China 200001 a
properly executed proxy showing a later date; or
o attending the meeting and voting in person, but please note
that attendance at the meeting will not, by itself, revoke
your proxy.
MATTERS TO COME BEFORE THE ANNUAL MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
Thirteen directors are 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. The accompanying proxy will be voted in favor of the
following persons to serve as directors unless you indicate to the contrary on
the proxy. We expect 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, each
proxy will be voted for the election of another nominee to be designated by the
board of directors to fill any such vacancy.
The following persons have been nominated by the Company's board of
directors to be elected as directors at the Annual Meeting:
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Name Age Title
--------------------- -------- -----------------------------------------
Tai Caihua 48 President and Chairman of the Board
Shi Ying 45 Director
Huang Tianqi 33 Director, Chief Technology Officer
Jing Weiping 42 Director
Mao Ming 43 Director
Song Jing 33 Director
Fu Sixing 44 Director, Chief Executive Officer
Yu Ruijie 45 Director
Zhang Xiaodong 37 Director
Huang Wei 43 Director
Jiang Hong Ming 51 Director
Juchen Li 40 Director
Yuan Feng 48 Director
Information about the Nominees
Tai Caihua has served as our President, and Chairman of our board of
directors since June 23, 2004. Mr. Tai has been (i) the President and sole
director of our wholly owned subsidiary, Sifang Holdings, since February 2004;
(ii) Chairman of the board of directors of Sifang Holdings' wholly owned
subsidiary, TCH Data Technology Co., Ltd., since our inception in May 2004;
(iii) director and General Manager of Shanghai Tianci Industry (Group) Co.,
Ltd., one of our affiliates, since January 1994 and (iv) a director of Sifang
Information, one of our affiliates, since December 2001. Mr. Tai holds a Masters
of Business Administration from the Macau University of Science and Technology.
Shi Ying has served as a member of our board of directors since June
24, 2004. Ms. Shi has been the Head of Operations and a member of the board of
directors of TCH since our inception in May 2004. For the past eight years she
has headed the operations department of Sifang Information. Ms. Shi graduated
from the Shanghai Sports College with a Bachelors degree.
Huang Tianqi has served as our Chief Technology Officer since June 23,
2004 and a member of our board of directors since June 24, 2004. Mr. Huang has
served as Chief Technology Officer of Sifang Holdings and Vice-General Manager,
Chief Technology Officer and a director of TCH since their inceptions in
February 2004 and May 2004, respectively. Mr. Huang also serves as the
Vice-General Manager and a member of the board of directors of Sifang
Information. Before becoming Vice-General Manager, Mr. Huang was the Chief
Technology Officer at Sifang Information for seven years. Mr. Huang graduated
from Nanjing University of Posts and Telecommunications with a Bachelors Degree
and from Shanghai Jiao Tong University with a Masters of Science Degree.
Jing Weiping has served as a member of our board of directors since
June 24, 2004. Mr. Jing has served as a member of the board of directors of TCH
since our inception in May 2004 and as a director of Sifang Information since
2001. Mr. Jing has served as the Manager of the Technology Assurance Department
of Sifang Information for the past five years. Mr. Jing received his Bachelors
Degree from Dong Hua University.
Mao Ming has served as a member of our board of directors since June
24, 2004. He has been (i) the General Manager and a member of the board of
directors of TCH since our inception in May 2004; and (ii) the General Manager
and a director of Sifang Information since January 1998. Mr. Mao graduated from
China PLA Measurement College with a Bachelors Degree and from the Macau
University of Science and Technology with a Masters of Business Administration.
Song Jing has served as a member of our board of directors since June
24, 2004. Mr. Song has served as Vice-General Manager and a member of the board
of directors of TCH since our inception in May 2004 and as General Manager of
Shanghai Shan Tian Telecommunication Co., Ltd., an affiliate of ours, since
November 2003. Previously, Mr. Song served as director and General Manager of
Shanghai Zhong Si Hua Hao Co., Ltd. for one year and Assistant General Manager
of both Shanghai Hua Si Trading Co., Ltd. and Shanghai Qi Shi Trading Co., Ltd
for five years. Mr. Song holds a Masters of Business Administration from Joseph
L. Rotman School of Management, University of Toronto.
-3-
Fu Sixing has served as our Chief Executive Officer since June 23, 2004
and a member of our board of directors since June 24, 2004. Mr. Fu has served as
Executive Manager of Sifang Holdings and as the Head of the Research and
Development Department and a director of TCH since their inceptions in February
2004 and May 2004, respectively. During the past seven years, Mr. Fu has served
as (i) the Assistant to the General Manager of Shanghai Tianci Industry (Group)
Co., Ltd.; (ii) a director and the General Manager of Shanghai Sifang Health
Technology Co., Ltd. and (iii) Directorate Secretary of Sifang Information. Mr.
Fu received a Bachelors of Science in Physics from Nanjing University, a Masters
of Social Science in Economics from Huadong Normal University and a Doctorate of
Business Administration from the University of Southern California.
Yu Ruijie has served as a member of our board of directors since June
24, 2004. Mr. Yu has served (i) as Head of the Systems Department and a director
of TCH since our inception in May 2004 and (ii) as the Head of the Systems
Department of Sifang Information since January 1994. Mr. Yu received a Bachelors
Degree in Computer Science from Shanghai University of Engineering Science.
Zhang Xiaodong has served as a member of our board of directors since
June 24, 2004. Mr. Zhang has served as the Head of the Projection Department of
TCH since our inception in May 2004. Mr. Zhang also serves as a director and the
Head of the Projection Department of Sifang Information. For the past nine
years, Mr. Zhang has served as Head of the Wireless Engineering Department at
Sifang Information. Mr. Zhang graduated from Shanghai Jiao Tong University with
a Bachelors Degree and received a Masters Degree from the Macao University of
Science and Technology.
Huang Wei has served as a member of our board of directors since June
24, 2004. Ms. Huang has served as (i) the Vice-General Manager of TCH since our
inception in May 2004 and (ii) Vice-General Manager and a director of Sifang
Information since 1993. Ms. Huang graduated from Nanjing University of Air Force
and Politics with a Bachelors Degree in Logistics.
Jiang Hong Ming has served as a member of our board of directors and a
member of the audit committee of the board of directors since April 2005. Mr.
Jiang worked as a certified public accountant at Shanghai Hua Cheng Certified
Public Accountants from 1998 to 2003 and has been a director at Shanghai Hua
Cheng Certified Public Accountants since 2003. Mr. Jiang graduated from Shanghai
TV Cable University.
Yuan Feng has served as a member of our board of directors and a member
of the audit committee of the board of directors since April 2005. Mr. Yuan has
been the General Manager of Shanghai Guan Tong Telecommunication Technology Ltd.
since 1996 Mr. Yuan received a Bachelors Degree in Telecommunications from
Chinese PLA Telecommunication Engineering College.
Juchen Li has served as a member of our board of directors and a member
of the audit committee of the board of directors since April 2005. Mr. Juchen
founded Beijing Mon Long Software Developing Ltd. in 1997 and has served as that
company's chairman and chief technology officer. In 1985, Mr. Juchen received a
Bachelors Degree in Computer Science from Chinese PLA Armored Force College, and
worked as a teacher at that college from 1985 to 1997.
The board of directors recommends that stockholders vote "FOR" the
nominees named in this Proxy Statement. The thirteen individuals receiving the
greatest number of votes shall be deemed elected even if they do not receive a
majority vote.
DIRECTOR AND OFFICER INFORMATION
General
In addition to the officers of the Company who are listed above under
"Proposal 1. Election of Directors," Qian Fang, 45, has served as our Chief
Financial Officer since January 1, 2005. Ms. Fang has served as Manager of
Accounting of TCH since 1999. Ms. Fang graduated from China Cable-TV University
with a Bachelors Degree in Accounting and is a Certified Public Accountant.
-4-
Officers will hold their positions at the pleasure of the board of
directors, absent any employment agreement, of which none currently exists.
There is no arrangement or understanding between any of the directors or
officers of the Company and any other person pursuant to which any director or
officer was or is to be selected as a director or officer, and there is no
arrangement, plan or understanding as to whether non-management stockholders
will exercise their voting rights to continue to elect the current directors to
the Company's board. There are also no arrangements, agreements or
understandings between non-management stockholders that may directly or
indirectly participate in or influence the management of the Company's affairs.
Family Relationships
Except as set forth in this proxy statement, there are no family
relationships among our directors or officers. Mr. Tai Caihua, President and a
member of our board of directors, is married to Ms. Shi Ying, a member of our
board of directors. Ms. Ying is also a sibling of Huang Wei, a member of our
board of directors.
The Board of Directors and its Committees
During the year ended December 31, 2004, our board of directors held
six meetings. No member of our board of directors attended fewer than 75% of the
meetings. We currently do not have a policy with respect to board members'
attendance at annual meetings.
Stockholder Communications with the Board of Directors
Any stockholder or interested party who wishes to communicate with our
Board of Directors or any specific directors may write to China Digital
Wireless, Inc., Board of Directors, 429 Guangdong Road, Shanghai, China, 200001.
The mailing envelope must contain a clear notation indicating that the enclosed
letter is a "Stockholder-Board Communication." All such letters must identify
the author as a stockholder and clearly state whether the intended recipients
are all members of the board or just certain specified individual directors. The
Company will receive and circulate such letters to the appropriate director or
directors.
Compensation and Nominating Committee Functions
We currently do not have standing nominating or compensation
committees. We believe that the entire board of directors is best suited to
performing the functions of a compensation committee, including reviewing and
approving our salary and benefits policies (including stock options), including
compensation of executive officers.
In the absence of a nominating committee, the entire board of directors
performs the functions of a nominating committee and participates in the
consideration of director nominees. We do not have a nominating committee
because we feel that the entire board of directors can best perform this
function. We do not currently have a written nominating committee charter or
similar document.
Process for Identifying and Evaluating Nominees for the Board of Directors
Our board of directors may employ a variety of methods for identifying
and evaluating director nominees. If vacancies are anticipated or arise, our
board of directors considers various potential candidates which may come to our
attention through current board members, professional search firms, stockholders
or other persons. These candidates may be evaluated by our board of directors at
any time during the year.
Our board of directors considers candidates recommended by stockholders
when the nominations are properly submitted as described in "Consideration of
Stockholder Nominees" below. Following verification of the stockholder status of
persons proposing candidates, our board of directors will make an initial
analysis of the qualifications of any candidate recommended by stockholders or
others to determine whether the candidate is qualified for service on the board,
before deciding to undertake a complete evaluation of the candidate. If our
board of directors determines that additional consideration is warranted, it may
-5-
use a third-party search firm to gather additional information about the
prospective nominee's background and experience. Other than the verification of
compliance with procedures and stockholder status, and the initial analysis
performed before undertaking a complete evaluation, our board of directors will
treat a potential candidate nominated by a stockholder like any other potential
candidate.
In evaluating a director candidate, our board of directors will review
his or her qualifications including capability, availability to serve, conflicts
of interest, general understanding of business, understanding of the Company's
business, markets and technology, educational and professional background,
personal accomplishment and other relevant factors. Our board of directors has
not established any specific minimum qualification standards for director
nominees, although from time to time the board of directors may identify certain
skills or attributes as being particularly desirable to help meet specific needs
that have arisen. Our board of directors may also interview prospective nominees
in person or by telephone. After completing this evaluation, the board of
directors will determine the nominees.
Consideration of Stockholder Nominees
Our board of directors considers director candidates recommended by
stockholders. Candidates recommended by stockholders are evaluated on the same
basis as are candidates recommended by our board of directors. Any stockholder
wishing to recommend a candidate for nomination by the board of directors should
provide the following information in a letter addressed to the board of
directors in care of our Secretary: (i) the name and address of the stockholder
recommending the person to be nominated; (ii) a representation that the
stockholder is a holder of record of stock of the Company, including the number
of shares held and the period of holding; (iii) a description of all
arrangements or understandings between the stockholder and the recommended
nominee; (iv) information as to any plans or proposals of the type required to
be disclosed in Schedule 13D and any proposals that the nominee proposes to
bring to the board of directors if elected; (v) any other information regarding
the recommended nominee that would be required to be included in a proxy
statement filed pursuant to Regulation 14A pursuant to the Securities Exchange
Act of 1934 and (vi) the consent of the recommended nominee to serve as a
director of the Company if elected. Additional information may be requested to
assist our board of directors in determining the eligibility of a proposed
candidate to serve as a director. In addition, the notice must meet any other
requirements contained our bylaws. Stockholders may nominate candidates directly
by complying with our bylaws and applicable law, including the deadlines
described under "Proposals of Stockholders," below.
Audit Committee
The board of directors established an audit committee in April 2005.
The audit committee consists of three independent members, Jiang Hong Ming, Yuan
Feng and Juchen Li, who are independent within the meaning of the Nasdaq listing
standards. At least one member of the audit committee, Jian Hong Ming, is
financial expert, as that term is defined for purposes of the American Stock
Exchange, Inc. Listed Company Manual. The audit committee reviews and recommends
to the directors the independent auditors to be selected to audit the financial
statements of the Company; meets with the independent auditors and financial
management of the Company to review the scope of the proposed audit procedures
to be utilized; reviews with the independent auditors, the Company's internal
auditor, and financial and accounting personnel, the internal accounting and
financial controls of the Company, and elicits any recommendations for the
improvement thereof; reviews the financial statements of the Company and reports
the results of the annual audit to the board of directors.
The charter of the audit committee is attached as Exhibit A to this
proxy statement.
-6-
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee serves as the representative of the board of
directors for general oversight of our financial accounting and reporting,
systems of internal control, audit process, and compliance with standards of
business conduct. The board of directors has adopted a Charter for the Audit
Committee, which can be found in Appendix A to this Proxy Statement. Management
of the Company has primary responsibility for preparing financial statements of
the Company as well as the Company's financial reporting process. Grobstein,
Horwath & Company, LLP, acting as independent auditors, is responsible for
expressing an opinion on the conformity of the Company's audited financial
statements with generally accepted accounting principles.
In this context, the Audit Committee hereby reports as follows:
(1) The Audit Committee has reviewed and discussed the audited
financial statements for fiscal year 2004 with the Company's management.
(2) The Audit Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communications with Audit Committees.
(3) The Audit Committee has received the written disclosures and the
letter from the independent auditors required by Independence Standards Board
No. 1, Independence Discussions with Audit Committees, and has discussed with
Grobstein, Horwath & Company, LLP the matter of that firm's independence.
(4) Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the board of directors of
the Company, and the board of directors has approved, that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2004, for filing with the Securities and Exchange
Commission. Biographical information on each member of the Audit Committee is
set forth above.
Audit Committee
Jiang Hong Ming
Juchen Li
Yuan Feng
-7-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 2005, the
beneficial ownership of our common stock by (i) each director and executive
officer of China Digital, (ii) each person known to China Digital to be the
beneficial owner of five percent or more of the outstanding shares of our common
stock, and (iii) all directors and officers of China Digital as a group. Unless
otherwise indicated, the person or entity listed in the table is the beneficial
owner of, and has sole voting and investment power with respect to, the shares
indicated.
Amount and Nature of Beneficial Ownership (1)
Number Percent of
Name and Address(2) of Shares (3) Voting Stock (4)
------------------- ------------- ----------------
Tai Caihua (5) 10,430,963 60.8%
Shi Ying (6) 10,430,963 60.8%
Chinamerica Fund, LP (7) 1,468,750 8.6%
Mao Ming 413,480 2.4%
Song Jing 413,480 2.4%
Fu Sixing 275,652 1.6%
Huang Tianqi 275,652 1.6%
Huang Wei 275,652 1.6%
Jing Weiping 275,652 1.6%
Yu Ruijie 275,652 1.6%
Zhang Xiaodong 275,652 1.6%
Jiang Hong Ming 0 --
Juchen Li 0 --
Yuan Feng 0 --
Qian Fang 0 --
Directors and executive officers
as a group (14 persons) 12,911,445 75.3%
------------------------------------
(1) On September 30, 2005, there were 17,147,268 shares of our common stock
outstanding. Each person named above has sole investment and voting
power with respect to all shares of our common stock shown as
beneficially owned by the person, except as otherwise indicated below.
(2) Unless otherwise indicated, the address of each stockholder is c/o
China Digital Wireless, Inc., 429 Guangdong Road, Shanghai, China
200001.
(3) Under applicable rules promulgated by the SEC pursuant to the
Securities Exchange Act of 1934, as amended, or the Exchange Act, a
person is deemed the "beneficial owner" of a security with regard to
which the person, directly or indirectly, has or shares (a) the voting
power, which includes the power to vote or direct the voting of the
security, or (b) the investment power, which includes the power to
dispose or direct the disposition of the security, in each case
irrespective of the person's economic interest in the security. Under
these SEC rules, a person is deemed to beneficially own securities
which the person has the right to acquire within 60 days, including
through (x) the exercise of any option or warrant or (y) the conversion
of another security.
(4) In determining the percent of our common stock owned by a person (a)
the numerator is the number of shares of our common stock beneficially
owned by the person, including shares the beneficial ownership of which
may be acquired within 60 days upon the exercise of options or warrants
or conversion of convertible securities, and (b) the denominator is the
total of (i) the 17,147,268 shares of our common stock outstanding on
September 30, 2005 and (ii) any shares of our common stock which the
person has the right to acquire within 60 days upon the exercise of
options or warrants or conversion of convertible securities. Neither
the numerator nor the denominator include shares which may be issued
upon the exercise of any other options or warrants or the conversion of
any other convertible securities.
(5) Includes 1,791,743 shares held by Mr. Tai's wife, Shi Ying. Mr. Tai
disclaims beneficial ownership of those shares.
(6) Includes 8,639,220 shares held by Ms. Shi's husband, Tai Caihua. Ms.
Shi disclaims beneficial ownership of those shares.
(7) According to a Schedule 13D filed with the SEC on August 23, 2005, the
principal address of Chinamerica Fund, LP is 2909 St. Andrews Drive,
Richardson, Texas 75082.
-8-
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid to our chief
executive officer for services rendered in all capacities to the Company during
the noted periods. No other executive officers received salary and bonus
compensation in excess of $100,000 during fiscal 2004.
Summary Compensation Table
Annual Long Term
Compensation Compensation
Awards
---------------------
Securities Underlying
Name and Principal Position Year Salary ($) Options (#)
-------------------------------- ---- ---------- ---------------------
Tai Caihua(1) 2004 $28,992 --
Chief Executive Officer/Director
Timothy P. Halter (2) 2004 -- 131,722(4)
Chief Executive Officer/Director
2004 -- --
Glenn Little (3) 2003 -- --
Chief Executive Officer/Director 2002 -- --
---------------------------------------
(1) Began service as Chief Executive Officer and a director of the Company
in June 2004.
(2) Appointed Chief Executive Officer in March 2004 and resigned as an
officer and director of the Company in June 2004.
(3) Resigned as Chief Executive Officer and a director of the Company in
March 2004.
(4) On February 23, 2004, the company sold 987,915 shares of restricted
common stock for gross proceeds of $300,000, pursuant to a subscription
agreement, to Halter Financial Group, Inc., an entity owned by Timothy
P. Halter, a former member of the Board of Directors and the Company's
former Chief Executive Officer. Additionally, in consideration for
agreeing to serve as an officer and director of the Company, Timothy P.
Halter was granted a warrant to purchase up to 131,722 shares of common
stock of the company (as adjusted for stock splits).
Stock Option Grants in Last Fiscal Year
The following table sets forth information for each of the executive
officers of the Company named in the Summary Compensation Table with respect to
options granted during fiscal 2004 to such officers.
Percent of
Total
Number of Options
Securities Granted
Underlying to Employees Exercise or
Options in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
Tai Caihua -- -- -- --
Timothy P. Halter 131,722(1) 100% $0.40 February 23, 2007
Glenn Little -- -- -- --
----------------------------
(1) On February 23, 2004, the company sold 987,915 shares of restricted common
stock for gross proceeds of $300,000, pursuant to a subscription agreement, to
Halter Financial Group, Inc., an entity owned by Timothy P. Halter, a former
member of the Board of Directors and the Company's former Chief Executive
Officer. Additionally, in consideration for agreeing to serve as an officer and
director of the Company, Timothy P. Halter was granted a warrant to purchase up
to 131,722 shares of common stock of the company (as adjusted for stock splits).
-9-
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information for each of the named
executive officers with respect to option exercises during fiscal 2004. No
options were held by any of the named executive officers as of December 31,
2004.
Shares
Acquired on Value
Exercise Realized
Name (#) ($)
Tai Caihua -- --
Timothy P. Halter 131,722(1) $157,579.03
Glenn Little -- --
----------------------------
(1) On February 23, 2004, the company sold 987,915 shares of restricted common
stock for gross proceeds of $300,000, pursuant to a subscription agreement, to
Halter Financial Group, Inc., an entity owned by Timothy P. Halter, a former
member of the Board of Directors and the Company's former Chief Executive
Officer. Additionally, in consideration for agreeing to serve as an officer and
director of the Company, Timothy P. Halter was granted a warrant to purchase up
to 131,722 shares of common stock of the company (as adjusted for stock splits).
Compensation of Directors
Our directors are not paid for attendance at meetings of the board of
directors nor for their service on any committee of the board.
PROPOSAL 2. RATIFICATION OF SELECTION OF AUDITORS
The board of directors will request that the stockholders ratify its
selection of Grobstein, Horwath & Company, LLP, independent auditors, to examine
the consolidated financial statements of China Digital for the fiscal year
ending December 31, 2005. Grobstein, Horwath & Company, LLP examined the
consolidated financial statements of the Company for the fiscal year ended
December 31, 2004. The affirmative vote of a majority of the shares represented
at the meeting is required for the ratification of the Board's selection of
Grobstein, Horwath & Company, LLP as the Company's independent auditors for the
fiscal year ending December 31, 2005.
The board of directors recommends that stockholders vote "FOR" the
ratification of the selection of Grobstein, Horwath & Company, LLP as
independent auditors of the Company.
-10-
INDEPENDENT PUBLIC ACCOUNTANTS
On January 4, 2005, the board of directors approved resolutions to
replace our independent registered public auditors, BDO Shanghai Zhonghua
Certified Public Accountant, with Grobstein, Horwath & Company, LLP, which we
appointed effective as of January 6, 2005. Representatives of Grobstein, Horwath
& Company are expected to be present at the annual meeting and will have an
opportunity to make a statement and to respond to appropriate questions raised
by stockholders at the annual meeting or submitted in writing prior thereto.
During June 2004, we completed a stock exchange transaction with the
stockholders of Sifang Holdings Co. Ltd., or Sifang, resulting in Sifang
becoming our wholly owned subsidiary. This stock exchange transaction also
resulted in a recapitalization of the company with Sifang becoming the survivor
of the transaction for accounting purposes. Upon this recapitalization, our
independent public accountant, S.W. Hatfield, CPA, resigned effective July 9,
2004. As a result of S.W. Hatfield's resignation, our board of directors
appointed BDO Shanghai Zhonghua Certified Public Accountant as our independent
public accountant.
On January 4, 2005, the board of directors approved resolutions to
replace our independent registered public auditors, BDO Shanghai Zhonghua
Certified Public Accountant, with Grobstein, Horwath & Company, LLP, which we
appointed effective as of January 6, 2005.
S.W. Hatfield audited our financial statements for the fiscal year
ended December 31, 2003. S.W. Hatfield's report for that period did not contain
an adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope or accounting principles. During our fiscal year
ended December 31, 2003 and from January 1, 2004 through July 9, 2004, there
were no disagreements with S.W. Hatfield on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of S.W. Hatfield, would have caused
them to make reference to the subject matter in their report.
BDO Shanghai Zhonghua audited Sifang's financial statements for the
fiscal year ended December 31, 2003. BDO Shanghai Zhonghua's reports for that
period did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. During our fiscal year ended December 31, 2003 through January 6,
2005, there were no disagreements with BDO Shanghai Zhonghua Certified Public
Accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
the satisfaction of BDO Shanghai Zhonghua Certified Public Accountant, would
have caused them to make reference to the subject matter in their report.
Fees Paid to Independent Public Accountants for 2004 and 2003
Audit Fees
The aggregate audit fees for 2004 were approximately $170,632. The
amounts include fees of approximately $56,483 for professional services rendered
by Grobstein, Horwath & Company, LLP in connection with the audit of our
consolidated financial statements as of and for the fiscal year ended December
31, 2004, fees of approximately $110,212 for professional services rendered by
BDO Shanghai Zhonghua Certified Public Accountant in connection with reviews of
our unaudited consolidated interim financial statements for the third quarter of
year 2004 and for the audit of our consolidated financial statements as of and
for the fiscal year ended December 31, 2003, and fees of approximately $3,937
for professional services rendered by S.W. Hatfield in connection with the
reviews of our unaudited consolidated interim financial statements for the first
and second quarters of fiscal year 2004.
The aggregate audit fees for 2003 were approximately $152,396. The
amounts include fees for professional services rendered by BDO Shanghai Zhonghua
Certified Public Accountant in connection with the audit of our consolidated
financial statements for the fiscal year ended December 31, 2003 and reviews of
our unaudited consolidated interim financial statements for the first, second
and third quarters of 2003, and for professional services rendered by S.W.
Hatfield.
-11-
Audit-Related Fees
There were no audit-related fees billed by Grobstein, Horwath &
Company, LLP or BDO Shanghai Zhonghua Certified Public Accountant for other
services rendered to the Company for the 2003 or 2004 fiscal years. S.W.
Hatfield billed no audit-related fees in 2003; however, S.W. Hatfield billed
$1,225 in audit-related fees in 2004.
Tax Fees
The were no tax fees billed by Grobstein, Horwath & Company, LLP, BDO
Shanghai Zhonghua Certified Public Accountant or S.W. Hatfield for services
rendered to the Company for the 2003 or 2004 fiscal years. S.W. Hatfield billed
$150 in each of 2003 and 2004 for tax services.
All Other Fees
There were no additional aggregate fees billed by Grobstein, Horwath &
Company, LLP, BDO Shanghai Zhonghua Certified Public Accountant or S.W. Hatfield
for other services rendered to the Company for the 2003 or 2004 fiscal years.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
The audit committee pre-approves all audit and non-audit services
provided by the independent auditors prior to the engagement of the independent
auditors with respect to such services. The Company's independent auditors may
be engaged to provide non-audit services only after the audit committee has
first considered the proposed engagement and has determined in each instance
that the proposed services are not prohibited by applicable regulations and the
auditors' independence will not be materially impaired as a result of having
provided these services. In making this determination, the audit committee takes
into consideration whether a reasonable investor, knowing all relevant facts and
circumstances, would conclude that the auditors' exercise of objective and
impartial judgment on all issues encompassed within the auditors' engagement
would be materially impaired. The audit committee may delegate its approval
authority to pre-approve services provided by the independent auditors to one or
more of the members of the audit committee, provided that any such approvals are
presented to the audit committee at its next scheduled meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the normal course of our business, we have incurred debt from
related parties and loaned money to related parties, including Sifang
Information Technology Co. ("Sifang Information"), for financing purposes. In
2002, we borrowed funds from Sifang Information to start our mobile phone
distribution business. At December 31, 2002, the outstanding balance of the loan
was $604,062, and interest expense incurred on the borrowed amount was $36,245.
During 2003, we paid off all outstanding balances and loaned certain amounts to
Sifang Information, which amounts were repaid by Sifang Information before year
end. We continued to borrow funds from and lend funds to Sifang Information,
however, as of December 31, 2003, all such amounts had been repaid. Interest
expense incurred on amounts borrowed from Sifang Information for the year ended
December 31, 2003 was $12,082.
We purchased a building located at 689 Laoshandong Road, Shanghai,
People's Republic of China 200120, from our related party, Shanghai Fude
Industry Co., for a price of $910,925. This building now houses our technical
team and our servers.
During the 2004 fiscal year, TCH Data Technology Co., Ltd. ("TCH"), a
wholly owned subsidiary of Sifang Holdings Company Limited ("Sifang Holdings"),
purchased local brand mobile phones from Shanghai Sifang Telecommunication Co.
Ltd. ("Sifang Telecom") valued at $390,340, and all these mobile phones were
sold to retailers in 2004. Sifang Holdings is a wholly-owned subsidiary of the
China Digital. Sifang Telecom is related to China Digital through common
ownership with a major stockholder of the Company.
-12-
Sifang Information holds a 51% equity interest in Shanghai Shantian
Telecommunication Co. Ltd. ("Shantian"). During the 2004 fiscal year, TCH sold
Samsung GSM mobile phones valued at $9,178,674 at a 4% gross profit margin to
Shantian. Accounts receivable include $1,583,512 due from Shantian. During the
2004 fiscal year, TCH also sold mobile phones to other related parties, which
included Tianci Industry and Tianci Group, for $136,310 and $576,707 at gross
profit margins of 17% and 16% respectively. One President and a board member,
Mr. Tai Caihua, has a majority interest in Tianci Industry and Tianci Group.
On July 16, 2004, the Tianci Group entered into an agency agreement
with TCH to sell CDMA mobile phones owned by China Unicom. TCH obtains the same
commission structure that Tianci Group earns from China Unicom. For each phone
sold, TCH receives $15.70 per unit, sales commission of $3.62 per SIM card. TCH
recognized commission income of $204,214 in the year ended December 31, 2004
from the Tianci Group, which is recorded in service revenues, net on the income
statement.
In accordance with terms contained in signed service agreements between
TCH and Sifang Information giving TCH the right to use Sifang Information's
facility (which may not be owned by foreign investors at the present time under
Chinese law) to transmit the reformatted information, we paid service fees of
approximately $567,000 in each of the 2003 and 2004 fiscal years. The service
agreements are in effect for ten years and became effective on June 1, 2004. We
expect the annual payments for the services to approximate $567,000 per year.
During the 2004 fiscal year, Sifang Information also provided other management
support and marketing services to TCH for $36,462 and none for the year ended
December 31, 2003. TCH earned information service revenues net of costs from
China Mobile / China Unicom that were passed through from Sifang Information and
are recorded in Service revenue, net on the income statement. For the 2004
fiscal year, the total revenues generated were $846,416 and total costs of
services were $421,476 and none for the 2003 fiscal year. TCH earned paging
service revenues net of costs that were passed through from Sifang Information
and are recorded in Service revenue, net on the income statement. For the 2004
fiscal year, the total revenues generated were $964,869 and total cost of
services were $533,199 and none for the year ended December 31, 2003. TCH
launched a smart card project as a joint cooperation project with Sifang
Information in June 2004. However, the project was abandoned in the fourth
quarter of 2004 due to government regulations. No revenue was generated from the
project in 2004.
Sifang Information signed a lease agreement with Shanghai Tianci Real
Estate Co. Ltd. ("Tianci Real Estate") to lease its apartment for office use,
which was assumed by TCH as a part of the carve out transaction. The original
lease term was from May 1, 2003 to April 30, 2008. The lease agreement was
terminated on September 30, 2004. The related rental expense for the years ended
December 31, 2003 and 2004 was $20,540 and $30,810, respectively. Tianci Real
Estate is related to China Digital through common ownership with a major
stockholder of the Company.
As a result of our spin-off transaction in 2004, cash collections
received and payments made Sifang Information on behalf of TCH, resulted in a
net receivable of $2,910,956 due from Sifang Information at December 31, 2004.
The amount due from related party also consists of $501,000 relating to the
value added information services provided to Sifang Information and sold to
China Unicom and another $371,000 relating to the paging revenues that are
collected by Sifang Information on behalf of TCH. In the first quarter of 2005,
TCH collected $3.2 million from Sifang Information. We believe that the
collection of the remaining balance of $582,956 from Sifang Information is
reasonably assured and accordingly, no allowance has been recorded as of
December 31, 2004. We also advanced US$1,205,000 to provide Sifang Information's
needs for working capital in order to complete spin-off procedures in the PRC.
The outstanding balance was fully collected in March 2005.
On February 23, 2004, we sold 987,915 shares of restricted common stock
for gross proceeds of $300,000, pursuant to a subscription agreement, to Halter
Financial Group, Inc., an entity owned by Timothy P. Halter, a former member of
the Board of Directors and the Company's former Chief Executive Officer.
Additionally, in consideration for agreeing to serve as an officer and director
of the Company, Timothy P. Halter was granted a warrant to purchase up to
131,722 shares of common stock of the Company (as adjusted for stock splits).
The warrant was exercised on June 14, 2004, and we received gross proceeds of
$40,000 upon exercise.
On February 23, 2004, we agreed to pay Little and Company Investment
Securities, an entity owned by Glenn A. Little, our former controlling
stockholder, officer and director, $30,000 in consulting fees related to the
transaction discussed in the previous paragraph and in consideration for
maintaining the corporate entity. To formalize this obligation, we issued a
$30,000 non-interest bearing promissory note maturing on February 23, 2005.
-13-
Concurrent with the transaction discussed in the previous paragraph, we and
Little and Company Investment Securities executed an Exchange Agreement whereby
we issued 98,792 shares of common stock in satisfaction of the outstanding
promissory note.
On June 23, 2004, we entered into a Stock Purchase Agreement with
Halter Financial Group, Inc. pursuant to which we sold 166,667 shares of common
stock of the Company in exchange for $190,000. Timothy P. Halter is the sole
stockholder and President of Halter Financial Group, Inc. Pursuant to the Stock
Purchase Agreement, we granted to Halter Financial Group, Inc. an option to
require the Company to purchase up to 166,667 shares of common stock of the
Company at a price of $1.14 per share, such option being exercisable at any time
after the date that is six months after the Company filed a registration
statement on Form SB-2 with the SEC, (which registration statement was declared
effective on February 8, 2005) registering the shares purchased by Halter
Financial Group, Inc., up to and including the earlier of (i) the date that such
registration statement is declared effective by the SEC or (ii) Halter Financial
Group, Inc.'s shares are eligible for resale under Rule 144 under the Securities
Act of 1933.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and certain other stockholders to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Officers,
directors and certain other stockholders are required by regulation to furnish
us with copies of all Section 16(a) forms they file. To the best of our
knowledge (based solely upon a review of the Forms 3, 4 and 5 filed and
information furnished to us by such persons), during 2004, the only delinquent
filing was a report on Form 5 for Glenn Little filed February 25, 2004,
reporting his initial beneficial ownership of securities that should have been
reported on a Form 3 upon Mr. Little's becoming a director and officer of the
Company in May 1995.
CODE OF ETHICS
We have adopted a corporate code of ethics. We believe our code of
ethics is reasonably designed to deter wrongdoing and promote honest and ethical
conduct; provide full, fair, accurate, timely and understandable disclosure in
public reports; comply with applicable laws; ensure prompt internal reporting of
code violations; and provide accountability for adherence to the code. A copy of
our code of ethics is attached as Appendix B to this proxy statement.
PROPOSALS OF STOCKHOLDERS
Stockholder proposals that are (a) intended for inclusion in next
year's proxy statement, or (b) to be presented at next year's Annual Meeting
without inclusion in the Company's proxy materials, must be directed to our
Corporate Secretary, 429 Guangdong Road, Shanghai, China 200001, and must be
received by June 22, 2006. Any stockholder proposal for next year's Annual
Meeting submitted after June 22, 2006 will not be considered filed on a timely
basis with the Company.
10-KSB REPORT AVAILABLE
A copy of the Company's annual report on Form 10-KSB, as filed with the
Securities and Exchange Commission, will be available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room in Washington, D.C.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room.
OTHER BUSINESS
At the date of this Proxy Statement, the board of directors knows of no
matter that will be presented for consideration at the annual meeting other than
those described in this Proxy Statement. If any other matter properly comes
before the annual meeting, the persons appointed as proxies will vote on such
matter in their discretion.
CHINA DIGITAL WIRELESS, INC.
By Order of the Board of Directors
/s/ Tai Caihua
Tai Caihua
President
Shanghai, China
November 1, 2005
-14-
[FRONT]
PROXY
FOR ANNUAL MEETING OF THE STOCKHOLDERS
CHINA DIGITAL WIRELESS, INC.
This Proxy Is Solicited On Behalf Of The Board of Directors
The undersigned hereby appoints Tai Caihua and Yu Ruijie (collectively, the
"Proxies"), and each of them, with full power of substitution, as proxies to
vote the shares which the undersigned is entitled to vote at the Annual Meeting
of the Company to be held at 429 Guangdong Road, Shanghai, China 200001, on
December 1, 2005 at 10:00 a.m. (local time) and at any adjournments thereof.
1. Election of Directors: [_] FOR all nominees [_] WITHHOLD
listed below except AUTHORITY
as marked (to the to vote for all
contrary below) the nominees
listed below
Tai Caihua, Shi Ying, Huang Tianqi, Jing Weiping, Mao Ming, Song Jing, Fu
Sixing, Yu Ruijie, Zhang Xiaodong, Huang Wei, Jiang Hong Ming, Yuan Feng, and
Juchen Li.
INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW
_______________________________________________
2. [_] FOR [_] AGAINST [_] ABSTAIN Proposal to ratify the selection of
Grobstein, Horwath & Company, LLP as the Company's independent auditors for
the fiscal year ending December 31, 2005.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
[REVERSE]
This proxy when properly signed will be voted in the manner directed herein
by the undersigned stockholder. If NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
____________________________________________
Signature
____________________________________________
Signature, if held jointly
Dated: ____________________, 2005
IMPORTANT - PLEASE SIGN AND RETURN PROMPTLY.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee, or
guardian, please give full title as such. If
a corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by an authorized person.
APPENDIX A
----------
CHINA DIGITAL WIRELESS, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Organization
There shall be a committee of the Board of Directors to be known as the
Audit Committee. The Audit Committee shall be composed of at least three (3)
Directors, or some lesser number as may be authorized by law, rule or
regulation, including a Chairperson, designated by the Board of Directors to
one-year terms. Each member of the Audit Committee shall meet the independence
requirements of the United States Securities and Exchange Commission (the "SEC")
and be independent of the management of the Company and are free of any
relationship that, in the opinion of the Board of Directors, would interfere
with their exercise of independent judgement as committee members. The Board of
Directors shall designate the Chairperson.
All members of the Audit Committee must be able to read and understand
fundamental financial statements, including a balance sheet, income statement,
and cash flow statement. Additionally, at least one member of the Audit
Committee must be financially sophisticated due to past employment experience in
finance or accounting, requisite professional certification in accounting, or
other comparable experience or background which results in the individual's
financial sophistication, including but not limited to being or having been a
chief executive officer, chief financial officer, or other senior officer with
financial oversight responsibilities.
Except for Board of Directors and Audit Committee fees, a member of the
Audit Committee shall not be permitted to accept any fees paid directly or
indirectly for services as a consultant, legal advisor or financial advisor or
any other fees prohibited by the rules of the SEC and the American Stock
Exchange. In addition, no member of the Audit Committee may be an affiliated
person of the Company or any of its subsidiaries. An affiliated person means a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.
The Audit Committee shall meet at least quarterly. The Audit Committee
may meet by telephone conference call or by any other means permitted by law or
the Company's Bylaws. A majority of the members of the Audit Committee shall
constitute a quorum, and the Audit Committee shall act on the affirmative vote
of a majority of members present at a meeting at which a quorum is present.
Without a meeting, the Audit Committee may act by unanimous written consent of
all members. The Audit Committee shall keep written minutes of its meetings,
which shall be recorded or filed with the books and records of the Company.
The Audit Committee may ask members of management, employees, outside
counsel, the independent accountants, internal auditors or others whose advice
and counsel are relevant to the issues then being considered by the Audit
Committee, to attend any meetings and to provide such pertinent information as
the Audit Committee may request.
Statement of Policy
The Audit Committee shall provide assistance to the directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the company, and the quality and integrity of financial reports of the company.
In so doing, it is the responsibility of the Audit Committee to maintain free
and open communication between the directors, the independent auditors, and the
financial management of the Company.
Responsibilities
The Audit Committee's responsibilities include: (a) assisting the Board
of Directors in its oversight responsibilities regarding (1) the integrity of
the Company's financial statements, (2) the Company's compliance with legal and
regulatory requirements, (3) the independent accountant's qualifications and
independence and (4) the performance of the Company's internal audit function;
(b) preparing the report required by the SEC for inclusion in the Company's
annual proxy statement; (c) appointing, retaining, compensating, evaluating and
terminating the Company's independent accountants; (d) approving audit and
non-audit services to be performed by the independent accountants; and (e)
performing such other functions as the Board of Directors may from time to time
assign to the Audit Committee.
In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and shareholders that the
corporate accounting and reporting practices of the Company are in accordance
with all requirements and are of the highest quality.
In carrying out these responsibilities, the Audit Committee will:
o Review and recommend to the directors the independent auditors
to be selected to audit the financial statements of the
Company and its divisions and subsidiaries.
o Meet with the independent auditors and financial management of
the Company to review the scope of the proposed audit for the
current year and the audit procedures to be utilized, the
adequacy of the independent auditor's compensation, and at the
conclusion thereof review such audit, including any comments
or recommendations of the independent auditors.
o Review with the independent auditors, the Company's internal
auditor, and financial and accounting personnel, the adequacy
and effectiveness of the accounting and financial controls of
the company, and elicit any recommendations for the
improvement of such internal controls or particular areas
where new or more detailed controls or procedures are
desirable.
o Periodically review Company policy statements to determine
their adherence to the Company's Code of Conduct and Ethics.
o Review the financial statements contained in the annual report
to shareholders with management and the independent auditors
to determine that the independent auditors are satisfied with
the disclosure and content of the financial statements to be
presented to the shareholders.
o Review with financial management and the independent auditors
the results of their timely analysis of significant financial
reporting issues and practices, including changes in, or
adoptions of, accounting principles and disclosure practices.
o Provide sufficient opportunity for the internal and
independent auditors to meet with the members of the Audit
Committee without members of management present. Among the
items to be discussed in these meetings are the independent
auditors' evaluation of the company's financial, accounting,
and auditing personnel, and the co-operation that the
independent auditors received during the course of audit.
o Review accounting and financial human resources and succession
planning within the Company.
o Report the results of the annual audit to the Board of
Directors.
o Review the nature and scope of other professional services
provided to the company by the independent auditors and
consider the relationship to the auditors' independence.
o Submit the minutes of all meetings of the Audit Committee to
the Board of Directors.
o Investigate any matter brought to its attention within the
scope of its duties, with the power to retain outside counsel
for this purpose if, in its judgment, that is appropriate.
o Conduct quarterly meetings with management and the auditors to
review operating results and financial reporting issues.
o Establish and conduct procedures for the receipt, retention
and treatment of complaints from the employees on accounting,
internal accounting controls or auditing matters, as well as
for confidential, anonymous submissions by employees of
concerns regarding questionable accounting or auditing
matters.
o Provide for appropriate funding for payment of: (i)
compensation to the auditors for the preparation and issuance
of an audit report or for performing other audit, review or
attest services; (ii) compensation to any advisors employed by
the Audit Committee; and (iii) ordinary administrative
expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
Minutes
A member of the Audit Committee or a designee shall record the minutes
of each meeting of the Audit Committee. The minutes of each meeting shall be
provided to each member of the Audit Committee for approval within two weeks of
such meeting and promptly thereafter to the entire Board of Directors. The
Company shall maintain a book of the minutes for the Audit Committee.
APPENDIX B
----------
China Digital Wireless, Inc.
Code of Conduct and Ethics
This Code of Conduct and Ethics (this "Code") of China Digital Wireless,
Inc. (the "Company") outlines expected behaviors of all of our directors,
officers and employees, including our senior executive and financial officers.
This Code addresses responsibility for proper behavior and the standards to
which we hold corporate officers and employees. Also included is a listing of
our standards and values. This Code does not cover every issue that may arise,
but it sets out basic principles to guide the directors, officers and employees
of the Company.
All Company directors, officers and employees should conduct themselves
accordingly and seek to avoid even the appearance of improper behavior in any
way relating to the Company. Any director or officer who has any questions about
this Code should consult the chief executive officer ("CEO"), the chief
financial officer ("CFO"), or general counsel as appropriate in the
circumstances. If an employee has any questions about this Code, the employee
should ask his or her supervisor how to handle the situation.
Scope
This Code is intended to deter wrongdoing and to promote the following:
o honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
o full, fair, accurate, timely and understandable disclosure in reports
and documents the Company files with, or submits to, the Securities
and Exchange Commission (the "SEC") and in other public communications
made by the Company;
o compliance with applicable governmental rules and regulations and the
rules of any exchange or quotation system on which the Company's
securities are listed or quoted;
o prompt internal reporting of violations of this Code to the
appropriate person or persons identified in this Code; and
o accountability for adherence to this Code.
Responsibility for Proper Behavior
Every person affiliated with the Company, from entry-level positions
through senior management and our Board of Directors (the "Board"), plays a role
in our compliance efforts. As such, every person has a responsibility to know
what is in this Code, how the compliance program works, and what steps to take
if something appears contrary to this Code.
Since we take our compliance responsibilities seriously, we may have to
take swift and deliberate action if we feel that a member of the team is not
living up to their compliance responsibilities. This action can range from a
simple warning to correct behavior, up to and including termination if errant
behavior remains uncorrected. Therefore, it is important for everyone to
understand his or her compliance responsibilities.
Compliance with Laws, Rules and Regulations
All directors, officers and employees must respect and obey all laws, rules
and regulations applicable to the Company's business, including local laws in
the areas in which the Company operates.
Conflicts of Interest
The Company expects that its employees, officers and directors will avoid
conflicts of interest and that they will not act in a manner detrimental to the
Company during the course of their tenure with the Company.
A conflict of interest exists when an individual's private interest
interferes in any way - or appears to conflict - with the interests of the
Company. A conflict of interest situation can arise when a director, officer or
employee takes actions or has interests that may make it difficult to perform
his or her work on behalf of the Company in an objective and effective manner.
Conflicts of interest may also arise when a director, officer or employee, or a
member of his or her family, receives improper personal benefits as a result of
his or her position with the Company. Loans to, or guarantees of obligations of,
employees and their family members may create conflicts of interest.
Service to the Company should never be subordinated to personal gain and
advantage. Conflicts of interest, whenever possible, should be avoided. In
particular, clear conflict of interest situations involving directors, officers
and employees may include the following:
o any significant ownership interest in any supplier or customer;
o any consulting or employment relationship with any customer, supplier,
or competitor;
o any outside business activity that detracts from an individual's
ability to devote appropriate time and attention to his or her
responsibilities to the Company;
o the receipt of non-nominal gifts or excessive entertainment from any
organization with which the Company
has current or prospective business dealings;
o being in the position of supervising, reviewing or having any
influence on the job evaluation, pay, or benefit of any family member;
and
o selling anything to the Company or buying anything from the Company,
except on the same terms and conditions as comparable directors,
officers, or employees are permitted to so purchase or sell.
It is almost always a conflict of interest for a Company officer or
employee to work simultaneously for a competitor, customer, or supplier. No
officer or employee may work for a competitor as a consultant or board member.
The best policy is to avoid any direct or indirect business connection with the
Company's customers, suppliers, and competitors, except on the Company's behalf.
Conflicts of interest are prohibited as a matter of Company policy, except
under guidelines approved by the Board of Directors. Conflicts of interest may
not always be clear, and further review and discussions may be appropriate. Any
director or officer who becomes aware of a conflict or potential conflict should
bring it to the attention of the CEO, the CFO or general counsel, as
appropriate. Any employee who becomes aware of a conflict or potential conflict
should bring it to the attention of a supervisor, manager or other appropriate
personnel.
Directors, officers and employees are prohibited from taking for themselves
personally or directing to a third party any opportunity that is discovered
through the use of corporate property, information or position without the
consent of the Board of Directors. No director, officer or employee may use
corporate property, information or position for improper personal gain, and no
director, officer or employee may compete with the Company directly or
indirectly. Directors, officers and employees owe a duty to the Company to
advance its legitimate interests when the opportunity to do so arises.
Insider Trading
Directors, officers and employees who have access to confidential
information relating to the Company are not permitted to use or share that
information for stock trading purposes or for any other purpose except the
conduct of the Company's business. All non-public information about the Company
should be considered confidential information. To use non-public information for
personal financial benefit or to "tip" others who might make an investment
decision on the basis of this information is not only unethical and against
Company policy but is also illegal. Directors, officers and employees also
should comply with insider trading standards and procedures adopted by the
Company.
SEC rules and regulations prohibit trading securities while in possession
of material non-public information relating to such securities or disclosing
material non-public information to enable another person to trade on such
information. The term "trading" refers to all purchases and sales of securities
for value, including purchases effected through stock option exercises, and the
term "securities" includes not only common stock, but also preferred stock,
bonds, notes, options, warrants, puts, calls and other equity and debt
instruments.
Competition and Fair Dealing
Stealing proprietary information, possessing trade secret information that
was obtained without the owner's consent, or inducing such disclosures by past
or present employees of other companies is prohibited. Each director, officer
and employee should endeavor to respect the rights of and deal fairly with the
Company's customers, suppliers, service providers, competitors and employees. No
director, officer or employee should take unfair advantage of anyone relating to
the Company's business or operations through manipulation, concealment or abuse
of privileged information, misrepresentation of material facts or any unfair
dealing practice.
To maintain the Company's reputation, compliance with the Company's quality
processes and safety requirements is essential. In the context of ethics,
quality requires that the Company's services meet reasonable customer
expectations. All inspection and testing documents must be handled in accordance
with all applicable regulations.
Discrimination and Harassment
The Company will not tolerate any illegal discrimination or harassment of
any kind. Examples include derogatory comments based on racial or ethnic
characteristics and unwelcome sexual advances.
Health and Safety
The Company strives to provide each employee with a safe and healthful work
environment. Each officer and employee has responsibility for maintaining a safe
and healthy workplace for all employees by following safety and health rules and
practices, and by reporting accidents, injuries and unsafe equipment, practices
or conditions.
Violence and threatening behavior are not permitted. Officers and employees
should report to work in a condition to perform their duties, free from the
influence of illegal drugs or alcohol. The use of illegal drugs in the workplace
will not be tolerated.
Confidentiality
Directors, officers and employees must maintain the confidentiality of
confidential information entrusted to them by the Company or its customers,
suppliers, joint venture partners or others with whom the Company is considering
a business or other transaction, except when disclosure is authorized by an
executive officer or required or mandated by laws or regulations. Confidential
information includes all non-public information that might be useful or helpful
to competitors or harmful to the Company or its patients and suppliers, if
disclosed. It also includes information that suppliers and patients have
entrusted to the Company, as well as information about the Company's business
plans, financial results or forecasts, or other operational information. The
obligation to preserve confidential information continues even after employment
ends.
Protection and Proper Use of Company Assets
All directors, officers and employees should endeavor to protect the
Company's assets and ensure their efficient use. Theft, carelessness and waste
have a direct impact on the Company's profitability. Any suspected incident of
fraud or theft should be immediately reported for investigation. Company assets
should be used for legitimate business purposes and should not be used for
non-Company business.
The obligation to protect the Company's assets includes its proprietary
information. Proprietary information includes intellectual property, such as
trade secrets, patents, trademarks and copyrights, as well as business,
marketing and service plans, designs, databases, records, salary information and
any unpublished financial data and reports. Unauthorized use or distribution of
this information would violate Company policy. It could also be illegal and
result in civil or even criminal penalties.
Payments to Government Personnel
The U.S. Foreign Corrupt Practices Act prohibits giving anything of value,
directly or indirectly, to officials of foreign governments or foreign political
candidates in order to obtain or retain business. It is strictly prohibited to
make illegal payments to government officials of any country.
In addition, the U.S. government has a number of laws and regulations
regarding business gratuities that may be accepted by U.S. government personnel.
The promise, offer or delivery to an official or employee of the U.S. government
of a gift, favor or other gratuity in violation of these rules would not only
violate Company policy but could also be a criminal offense. State and local
governments, as well as foreign governments, may have similar rules.
Corporate Disclosures
All directors, officers and employees should support the Company's goal to
have full, fair, accurate and timely disclosure in the reports required to be
filed by the Company with the SEC. Each director, officer and employee should
promptly bring to the attention of the CEO, the CFO or the Company's Audit
Committee, as appropriate, any of the following:
o any material information to which such individual may become aware
that affects the disclosures made by the Company in its public filings
or would otherwise assist the CEO, the CFO and the Audit Committee in
fulfilling their responsibilities with respect to such public filings;
o any information the individual may have concerning (a) significant
deficiencies in the design or operation of internal controls that
could adversely affect the Company's ability to record, process,
summarize and report financial data, or (b) any fraud, whether or not
material, that involves management or other employees who have a
significant role in the Company's financial reporting, disclosures or
internal controls;
o any information the individual may have concerning any violation of
this Code, including any actual or apparent conflicts of interest
between personal and professional relationships, involving any
management or other employees who have a significant role in the
Company's financial reporting, disclosures or internal controls; and
o any information the individual may have concerning evidence of a
material violation of the securities or other laws, rules or
regulations applicable to the Company and the operation of its
business, by the Company or any agent thereof, or of any violation of
this Code.
Amendments and Waivers of This Code
Any amendment to this Code and any waiver of this Code for directors or
executive officers may be made only by the Board of Directors or a committee of
the Board, and will be promptly disclosed to stockholders as required by
applicable laws or rules and regulations, including the rules of the SEC and any
exchange or quotation system on which the Company's securities are listed or
quoted. Such amendments or waivers may be posted on the Company's website at
www.chinadigitalwireless.com.
Reporting Any Illegal or Unethical Behavior
Directors and officers are encouraged to talk to the CEO, the CFO or
general counsel, and employees are encouraged to talk to supervisors, managers,
or other appropriate personnel, when in doubt about the best course of action in
a particular situation. Directors, officers and employees should report any
observed illegal or unethical behavior and any perceived violations of laws,
rules, regulations or this Code to appropriate personnel. It is the policy of
the Company not to allow retaliation for reports of misconduct by others made in
good faith. Directors, officers and employees are expected to cooperate in
internal investigations of misconduct.
Enforcement
The Board of Directors shall determine, or designate appropriate persons to
determine, appropriate actions to be taken in the event of violations of this
Code. Such actions shall be reasonably designed to deter wrongdoing and to
promote accountability for adherence to this Code. These procedures may include
(a) written notices to the individual involved that the Board has determined
that there has been a violation, (b) censure by the Board, (c) demotion or
re-assignment of the individual involved, (d) suspension with or without pay or
benefits (as determined by the Board), and (e) termination of the individual's
employment or position. In determining the appropriate action in a particular
case, the Board of Directors or such designee shall take into account all
relevant information, including the nature and severity of the violation,
whether the violation was a single occurrence or repeated occurrences, whether
the violation appears to have been intentional or inadvertent, whether the
individual in question had been advised prior to the violation as to the proper
course of action, and whether or not the individual in question had committed
other violations in the past.