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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
CHECK THE APPROPRIATE BOX:
|_| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
(Name of Registrant as Specified in Its Charter)
N/A
(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:
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KIWA BIO-TECH PRODUCTS GROUP CORPORATION
415 West Foothill Blvd, Suite 206
Claremont, California 91711-2766
August 9, 2006
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Kiwa Bio-Tech Products Group Corporation, a Delaware corporation, to be held on
Tuesday, September 12, 2006, at 10:00 a.m. local time at our executive office
located at Room 516, Block A, Tai Li Ming Yuan Building, Jia 1, Waiguanxie
Street, Chaoyang District, Beijing, People's Republic of China.
The matters to be acted upon at the Annual Meeting of Stockholders are
described in the accompanying Notice of Annual Meeting and Proxy Statement. At
the meeting, we will also report on our operations and respond to any questions
you may have.
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
IN ORDER 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/ Wei Li
Wei Li
Chief Executive Officer and
Chairman of the Board
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, SEPTEMBER 12, 2006
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
415 West Foothill Blvd, Suite 206
Claremont, California 91711-2766
Dear Stockholders:
The Annual Meeting of the Stockholders of Kiwa Bio-Tech Products Group
Corporation, a Delaware corporation, will be held on Tuesday, September 12, 2006
at 10:00 a.m. local time at our executive office located at Room 516, Block A,
Tai Li Ming Yuan Building, Jia 1, Waiguanxie Street, Chaoyang District, Beijing,
People's Republic of China. The purpose of the annual meeting is to consider and
vote upon each of the proposals outlined in this proxy statement, including the
proposal to:
1. Elect four nominees as directors to serve a one-year term on the Board of
Directors set to expire at the 2007 annual meeting of stockholders and
until their respective successors are elected and qualified;
2. Approve an amendment to our 2004 Stock Incentive Plan to increase the
number of shares reserved for issuance under the plan from 1,047,907 to
3,047,907 shares and to implement certain other changes.
3. Ratify the selection and appointment of Mao & Company CPAs, Inc. as our
independent auditors for the fiscal year ending December 31, 2006;
4. Approve an amendment to our certificate of incorporation to increase the
number of authorized shares of our common stock from 100,000,000 to
200,000,000 shares; and
5. 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 August 4, 2006
will be entitled to notice of, and to vote at, the annual meeting and any
adjournments thereof.
Our Proxy Statement is enclosed. Financial and other information
concerning the company is contained in the enclosed Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2005.
By Order of the Board of Directors
/s/ Yvonne Wang
Yvonne Wang
Secretary
August 9, 2006
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 SHOULD ATTEND THE MEETING.
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, SEPTEMBER 12, 2006
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
415 West Foothill Blvd, Suite 206
Claremont, California 91711-2766
TABLE OF CONTENTS
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PAGE
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GENERAL INFORMATION......................................................................................1
PROPOSAL 1: ELECTION OF DIRECTORS........................................................................3
Information Regarding the Board of Directors and its Committees.......................................4
Compensation of Directors.............................................................................5
Section 16(A) Beneficial Ownership Compliance........................................................6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................................6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................................7
PROPOSAL 2: APPROVAL OF AMENDMENTS TO 2004 STOCK PLAN....................................................8
Executive Officers Information........................................................................8
Summary Compensation Table............................................................................8
Employment Contracts and Termination of Employment and Change of Control Arrangements.................9
2004 Stock Incentive Plan.............................................................................9
2004 Stock Plan Increase.............................................................................12
PROPOSAL 3: RATIFICATION OF INDEPENDENT AUDITORS........................................................13
Audit and Other Fees.................................................................................13
Ratification of Selection of Independent Auditors....................................................13
PROPOSAL 4: APPROVAL OF INCREASE IN AUTHORIZED SHARES OF COMMON STOCK...................................14
STOCKHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING OF STOCKHOLDERS.......................................16
OTHER BUSINESS..........................................................................................16
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, SEPTEMBER 12, 2006
GENERAL INFORMATION
This Proxy Statement is furnished by the Board of Directors of Kiwa
Bio-Tech Products Group Corporation, a Delaware corporation, to holders of
shares of our common stock, in connection with the solicitation of proxies by
the Board of Directors for use at our 2006 Annual Meeting of Stockholders, to be
held at 10:00 a.m. local time on Tuesday, September 12, 2006, at our executive
office located at Room 516, Block A, Tai Li Ming Yuan Building, Jia 1,
Waiguanxie Street, Chaoyang District, Beijing, People's Republic of China. These
proxy materials are first being mailed to stockholders on or about August 9,
2006.
References herein to "we", "us", "our" or "the Company" refer to Kiwa
Bio-Tech Products Group Corporation and its wholly-owned subsidiaries unless the
context specifically states or implies otherwise.
COMPANY BACKGROUND
We were originally incorporated in the state of Utah on June 14, 1933,
under the name Tintic Gold Mining Company, to perform mining operations in Utah.
Pursuant to an Agreement and Plan of Merger dated as of March 11, 2004, Kiwa
Bio-Tech Products Group Ltd., a British Virgin Islands international business
company, became Tintic Gold Mining Company's wholly-owned subsidiary. The
Tintic/Kiwa merger resulted in a change of control of Tintic Gold Mining
Company, with former Kiwa Bio-Tech Products Group Ltd. stockholders owning
approximately 89% of Tintic Gold Mining Company on a fully diluted basis.
Subsequent to the Tintic/Kiwa merger, Tintic Gold Mining Company changed its
name to Kiwa Bio-Tech Products Group Corporation. On July 22, 2004, we
reincorporated in the state of Delaware.
ANNUAL REPORT
Our annual report for the fiscal year ended December 31, 2005 is enclosed
with this proxy statement.
VOTING SECURITIES
Only stockholders of record as of the close of business on August 4, 2006
will be entitled to vote at the meeting and any adjournment thereof. As of July
25, 2006, the number of outstanding shares of common stock of the Company was
64,285,930. Each holder of shares of our common stock is entitled to one vote
for each share of common stock held with respect to the proposals presented in
this proxy statement.
VOTING OF PROXIES
All valid proxies received prior to the annual meeting will be voted. All
shares represented by a proxy will be voted, and where a stockholder specifies
by means of the proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so made.
In the absence of specific instructions, proxies will be voted by the
individuals named in the proxy "FOR" the election of each of the four specified
director nominees, "FOR" each of the other three proposals and in the discretion
of the proxies named in the proxy card on all other matters that may properly
come before the annual meeting.
As indicated on the enclosed proxy card, with respect to the election of
directors, you may vote "FOR" all or some of the nominees or your vote may be
"WITHHELD" with respect to one or more of the nominees. For each of three other
proposals hereinafter, you may vote "FOR," "AGAINST" or "ABSTAIN."
VOTES REQUIRED FOR APPROVAL OF PROPOSALS
Assuming that a quorum of stockholders is present at the annual meeting,
the four director nominees receiving the greatest number of votes shall be
elected to the Board of Directors, even without receiving a majority of the
votes cast. The affirmative vote of holders of a majority of our outstanding
shares of common stock is required to approve the proposal to amend the
certificate of incorporation. The affirmative vote of holders of a majority of
the shares of common stock present in person or by proxy and entitled to vote
thereon at the annual meeting is required for other proposals.
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, other than to affect the existence of a
quorum. 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) does not
have discretionary voting power on such matter.
QUORUM
Our bylaws provide that a majority 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 will be counted as present for purposes of determining the presence of
a quorum.
REVOCABILITY OF PROXIES
Any person giving a proxy in response to this solicitation has the power
to revoke it at any time before it is voted. Proxies may be revoked by any of
the following actions:
o delivering a written notice of revocation to our Corporate Secretary
at our principal executive office located at 415 West Foothill Blvd,
Suite 206 Claremont, California 91711-2766;
o delivering a properly executed proxy showing a later date to our
Corporate Secretary at our principal executive office located at 415
West Foothill Blvd, Suite 206 Claremont, California 91711-2766; or
o attending the meeting and voting in person (attendance at the
meeting will not, by itself, revoke a proxy).
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 stock of the Company registered in the names of such
persons and will reimburse them for their reasonable, out-of-pocket costs. In
addition, we may use the services of our officers, directors, and others to
solicit proxies, personally or by telephone, without additional compensation.
-2-
PROPOSAL 1: ELECTION OF DIRECTORS
Four 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, or until their earlier resignation or removal. (Following
resignation of James Zhan from the Board of Directors as of December 31, 2005,
the Board, acting by resolution pursuant to the Company's bylaws, reduced the
number of positions on the Board to four members.) The accompanying proxy will
be voted in favor of the following persons to serve as directors unless the
stockholder indicates 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, it is intended that the proxy will be voted for
the election of another nominee to be designated by the Board of Directors to
fill any such vacancy. All of the director nominees are currently directors of
the Company.
The following persons have been nominated to be elected as directors at
the annual meeting:
NAME AGE TITLE
-------------- --- -------------------------------------------------
Wei Li 44 Chief Executive Officer and Chairman of the Board
Lian jun Luo 36 Chief Financial Officer and Director
Da chang Ju 65 Director
Yun long Zhang 42 Director
WEI LI became our Chief Executive Officer and Chairman of the Board on
March 12, 2004. Prior to the Tintic/Kiwa merger, Mr. Li was the acting Chief
Executive Officer of Kiwa Bio-Tech Products Group Ltd. since January 1, 2004.
Mr. Li founded Kiwa Bio-Tech Products Group Ltd. to capitalize on the growth of
the ag-biotechnology industry in China. Prior to founding Kiwa Bio-Tech Products
Group Ltd., Mr. Li founded China Star Investment Group ("China Star"), an entity
which provides integrated financing services and/or venture investments to
growth businesses in China. Mr. Li served as President of China Star from June
1993 to January 2004. In 1989, Mr. Li founded Xinhua International Market
Development Ltd., a company which engaged in investing in China's high tech,
pharmaceutical, medical device, media, entertainment and real estate industries.
Mr. Li holds a B.S. in finance from Hunan Finance and Economics University.
LIAN JUN LUO became our Chief Financial Officer on March 12, 2004, and one
of our directors on March 27, 2004. Mr. Luo served as the Chief Executive
Officer of Kiwa Bio-Tech Products Group Ltd. from October 2002 to March 2004.
From January 2002 to October 2002, Mr. Luo served as the Chief Financial Officer
of China Star. From August 2000 to December 2001, Mr. Luo served as manager of
Security Department and Assistant of President at Jilin HengFa Group Ltd., a
Chinese drug manufacturing company, responsible for the company's preparation
for an aborted IPO and for merger and acquisition activities. From May 1998 to
July 2000, Mr. Luo worked as manager of Investment Department and Associate
General Manager for Hongli Enterprise Ltd, a Chinese investment company on
merger and acquisition transactions. Mr. Luo obtained his law degree from China
University of Politics Science and Law in 1993. Mr. Luo is a certified public
accountant and lawyer in China.
DA CHANG JU became one of our directors on March 12, 2004. From 1987 to
1999, when he retired, Mr. Ju worked as General Manager of XinShen Company, an
investment firm in China. He was responsible for the company's daily operations
and investment decision making. He served as a member of Kiwa Bio-Tech Products
Group Ltd.'s Board of Directors since 2003 and a member of the Board of
Directors of China Star from 1999 to 2000. Mr. Ju holds a B.S. in mathematics
from Capital Normal University in Beijing, China.
YUN LONG ZHANG became one of our directors on March 27, 2004. From May
2000 to present, Mr. Zhang has been the General Manager of China Star,
responsible for the group's daily operations. From 1994 to 2000, Mr. Zhang
served as the head of the Investment Department at China National Economic and
Systems Reform Research and Services Center, an economic reform think tank for
the central government. Mr. Zhang holds a degree in statistics.
-3-
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE NOMINEES
NAMED IN THIS PROXY STATEMENT. THE FOUR INDIVIDUALS RECEIVING THE GREATEST
NUMBER OF VOTES SHALL BE DEEMED ELECTED EVEN IF THEY DO NOT RECEIVE A MAJORITY
VOTE.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
During 2005, the Board of Directors was composed of five members,
including Messrs Wei Li, Lian jun Luo, James Zhan, Da chang Ju and Yun long
Zhang. All board actions require the approval of a majority of the directors in
attendance at a meeting at which a quorum is present.
On December 31, 2005, Mr. James Zhan tendered his resignation as Director
and we formally notified Mr. James Zhan that we had accepted his resignation on
March 31, 2006. Pursuant to resolution dated May 12, 2006 and acting in
accordance with our bylaws, the Board of Directors reduced the number of
positions on the Board of Directors to four members.
During 2005, our Board of Directors held 7 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.
We do not have a standing audit, nominating or compensation committee. As
a small, development-stage company, we believe that all of our directors acting
together, as opposed to a subset of them acting by means of a committee, is the
most efficient and effective framework for us to perform the functions otherwise
associated with audit, nominating and compensation committees.
NOMINATING COMMITTEE FUNCTIONS
Since we do not have a nominating committee, all of the members of the
Board of Directors participate in the consideration of director nominees. The
Board of Directors has determined that one of its members is independent under
the independence standards of the Nasdaq Stock Market. 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 Recommendations" 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 pursuant to the criteria summarized herein 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 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 and technology, educational and professional background, personal
accomplishment and other relevant factors. Our Board of Directors has not
established any specific 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.
-4-
CONSIDERATION OF STOCKHOLDER RECOMMENDATIONS
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 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 our stock, 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 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 "Stockholder Proposals for the 2007 Annual Meeting of
Stockholders", below.
AUDIT COMMITTEE FUNCTIONS
Since we do not have an audit committee, the entire Board of Directors
acts as the audit committee. The Board of Directors has determined that none of
its members qualify as an audit committee financial expert as defined in Item
401(e) of Regulation S-B of the Securities and Exchange Act of 1934. We have not
been able to identify a suitable candidate for our Board of Directors that would
qualify as an audit committee financial expert. We do not currently have a
written audit committee charter or similar document.
CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics that is applicable
to all employees, consultants and members of the Board of Directors, including
the Chief Executive Officer, Chief Financial Officer and Secretary. This code
embodies our commitment to conduct business in accordance with the highest
ethical standards and applicable laws, rules and regulations. We will provide
any stockholder a copy of the code, without charge, upon written request to our
Secretary.
STOCKHOLDER COMMUNICATIONS WITH BOARD OF DIRECTORS
Any stockholder or interested party who wishes to communicate with our
Board of Directors or any specific directors may write to Kiwa Bio-Tech Products
Group Corporation, Board of Directors, 415 West Foothill Blvd, Suite 206
Claremont, California 91711-2766.
The mailing envelope must contain a clear notation indicating that the
enclosed letter is a "Stockholder-Board Communication" or "Stockholder-Director
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
certain specified individual directors. We will receive and make copies of all
such letters and circulate them to the appropriate director or directors.
COMPENSATION OF DIRECTORS
At this time, we do not have any arrangement or policy for compensation of
directors for their services on our Board of Directors. If any, when we do
compensate directors, we do not anticipate paying employee directors additional
compensation for their service above their compensation as an employee.
-5-
In 2005, there were no other arrangements pursuant to which any director
was compensated for services provided as a director.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and certain persons holding more than 10% of a registered
class of our common stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of our common
stock. Officers, directors and certain other shareholders are required by the
Securities and Exchange Commission to furnish us with copies of all Section
16(a) forms they file. To the best our knowledge, based solely upon a review of
the copies of such reports, all of the required filings were made on a timely
basis during 2005.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 25, 2006 certain information
with respect to the beneficial ownership of our common stock by (i) each of our
directors and executive officers, (ii) each person who is known by us to
beneficially own more than 5% of our outstanding common stock, and (iii) all of
our directors and executive officers as a group. The numbers for each
stockholder listed below include shares of our common stock issuable upon the
exercise of options or any other rights beneficially owned by such person or
entity that are exercisable within 60 days of July 25, 2006. Percentage
ownership is calculated based on 64,285,930 shares of our common stock
outstanding as of July 25, 2006. None of the shares listed below are issuable
pursuant to stock options, stock appreciation rights ("SARs") or warrants.
NAME NUMBER OF SHARES PERCENT OF CLASS
-------------------------------------------------------------- ---------------- ----------------
Wei Li (1).................................................... 12,356,672 19.22%
Da chang Ju (2)............................................... 10,062,088 15.65%
Lian jun Luo.................................................. 308,916 *
Yun long Zhang................................................ 308,916 *
Johnson Shun-Pong Lau ....................................... 196,000 *
All Star Technology Inc. (1).................................. 12,356,672 19.22%
InvestLink (China) Limited (2)................................ 10,062,088 15.65%
De jun Zou.................................................... 3,089,168 4.81%
Times Crossword Investment Ltd. (3)........................... 3,089,168 4.81%
Yi Mao (3).................................................... 3,089,168 4.81%
All officers and directors as a group (7 persons)............. 29,410,928 39.70%
* Less than 1%.
(1) Consists of shares held by All Star Technology Inc., a British Virgin
Islands international business company. Wei Li exercises voting and
investment control over the shares held by All Star Technology Inc. Wei Li
is a principal stockholder of All Star Technology Inc. and may be deemed
to beneficially own such shares, but disclaims beneficial ownership in
such shares held by All Star Technology Inc. except to the extent of his
pecuniary interest therein.
(2) Consists of 7,812,088 shares of common stock held directly by InvestLink
(China) Limited ("Investlink") and 2,250,000 shares of common stock held
by InvestLink as custodian for Gui sheng Chen. InvestLink has the sole
power to vote or direct the vote and dispose or direct the disposition of
10,062,088 shares but disclaims beneficial ownership of such shares except
to the extent of its pecuniary interest therein. Da chang Ju exercises
voting and investment control over the shares held by InvestLink. Da chang
Ju is a principal stockholder of InvestLink and may be deemed to
beneficially own such shares, but disclaims beneficial ownership in such
shares held by InvestLink except to the extent of his pecuniary interest
therein.
(3) Mr. Yi Mao exercises voting and investment control over the shares held by
Times Crossword Investment, Ltd.
-6-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CHINA STAR INVESTMENT GROUP
China Star is a company which is 28% owned by Wei Li., our Chairman of the
Board and Chief Executive Officer. Mr. Yun long Zhang, one of our directors, is
also General Manager of China Star and is responsible for its daily operations.
In 2005, we entered into three advance agreements with China Star for
combined advances of $199,514. The advances were unsecured, bore interest at 12%
per annum and were initially due in 180 days from the date of draw down. In
conjunction with the advance agreements we also granted detachable warrants to
China Star to purchase an aggregate of 997,571 shares of common stock.
On March 31, 2006, the Company entered into an advance agreement with
China Star for advances of $38,655. The advances were drawn down in stages over
the first quarter of 2006. The advances were unsecured, bore interest at 12% per
annum and were initially due 180 days from the date of draw down. The Company
also granted additional detachable warrants to China Star to purchase an
aggregate of 193,276 shares of common stock. During the second quarter of 2006,
China Star advanced to us an additional $25,529. During the first half of 2006
we have repaid $277,578 to China Star. As of June 30, 2006, the outstanding
balance due to China Star was $49,572. The due dates on the remaining balance of
the advances have been extended to September 30, 2006.
The Company previously rented an office in the United States under a
commercial lease agreement with China Star with an aggregate monthly lease
payment of approximately $2,560. The lease expired in June 2005 and was replaced
by another operating lease with a third party. Pursuant to the lease agreement,
rent expense for the six and three months ended June 30, 2005 was $15,360 and
$7,680, respectively.
MR. WEI LI
Mr. Li is the Chairman of our Board of Directors and our Chief Executive
Officer. As of June 30, 2006, we owe Mr. Li approximately $60,446 for borrowed
money and $11,256 in respect of a car lease, as described further below.
On May 23, 2005, we entered into a loan agreement with Mr. Li for various
advances amounting to the aggregate of $156,685. The advances were unsecured,
bore interest at 12% per annum, and were due 180 days from the date of draw
down. In conjunction with the advances we granted 783,423 shares of detachable
warrants to Mr. Li.
During the first half of 2006, Mr. Li advanced to us an additional $11,648
to the Company, and we repaid $143,063 to him in June 2006. As of June 30, 2006,
the remaining balance due to Mr. Li under the cash advances was $60,446. The due
date of the remaining balance has been extended to September 30, 2006.
Mr. Li also executed without any compensation from the Company a guarantee
of repayment of four convertible loans amounted to $670,000 in total, of which
$350,000 was retired and $320,000 remains outstanding as of June 30, 2006. In
addition, Mr. Li has pledged without any compensation from the Company all
Company stock beneficially owned by him to secure our obligations under the
Securities Purchase Agreement, Convertible Notes, and Warrants described below
under Proposal 4.
In December 2004, we entered into an agreement with Mr. Li, pursuant to
which he leases to us a motor vehicle. The monthly rental payment is $1,876,
during the fiscal year of 2005 and the first half year of 2006, the amount of
the accrued liability owing to Mr. Li under the lease is $22,512 and $11,256
respectively. So far we have made no payments to Mr. Li under this obligation.
-7-
PROPOSAL 2: APPROVAL OF AMENDMENTS TO 2004 STOCK PLAN
EXECUTIVE OFFICERS INFORMATION
During 2005, our executive officers included Messrs. Wei Li, Lian jun Luo,
Johnson Shun-Pong Lau, Qi Wang and James Zhan. Mr. James Zhan resigned as Vice
president and Secretary of the Company on December 31, 2005, at the same time
when he resigned as a director.
Information with respect to Messrs. Wei Li, Chief Executive Officer, and
Lian jun Luo, Chief Financial Officer is set forth above.
Mr. Johnson Lau became our Chief Operating Officer on July 19, 2005. He
worked in the audit department of the Hong Kong and Beijing offices of Deloitte
Touche Tohmatsu for over seven years. Mr. Lau holds a bachelor's degree of
commerce from Monash University, Australia which he received in 1996. He is a
Certified Public Accountant in Hong Kong Institute of Certified Public
Accountants (HKICPA) and a Certified Practicing Accountant of CPA Australia.
Mr. Qi Wang became our Vice President - Technical on July 19, 2005. He has
served as a Professor and Advisor for Ph.D. students in the Department of Plant
Pathology, China Agricultural University ("CAU") since January 2005. Prior to
that, he served as assistant professor and lecturer at CAU from 97. He obtained
his master degree and Ph.D. in agricultural science from CAU in July 1994 and
July 1997, respectively. Mr. Wang holds a bachelor's degree of science from
Inner Mongolia Agricultural University received in July 1989. He is a committee
member of various scientific institutes in China, including the National
Research and Application Center for Increasing-Yield Bacteria, Chinese Society
of Plant Pathology, Chinese Association of Animal Science and Veterinary
Medicine and so on.
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 Board of Directors. 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.
SUMMARY COMPENSATION TABLE
Our Chief Executive Officer did not earn any compensation during 2005 and
2004. We had no officers or directors in 2004 and 2005 whose total annual salary
and bonus during 2005 and 2004 exceeded $100,000.
ANNUAL COMPENSATION
NAME AND PRINCIPAL SALARY BONUS ALL OTHER SECURITIES UNDERLYING
POSITION YEAR ($) ($) COMPENSATION ($) OPTIONS
------------------ ---- ------ ----- ---------------- ---------------------
Wei Li(1) 2005 - - - -
2004 - - - -
---------------------
(1) Appointed Chief Executive Officer and Director of the Company in June
2004.
OPTIONS GRANTS AND EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
We did not grant any stock options or stock appreciation rights to any
executive officers during 2005. There were no option exercises during 2005 and
no stock options or stock appreciation rights were held by any of our executive
officers as of the end of our last fiscal year.
-8-
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We entered into employment agreements with each of two key employees,
Messrs. Lian jun Luo and Bin Qu, on March 18, 2003. The employment agreements
have since expired.
On March 18, 2003 we entered into an employment agreement with our Chief
Financial Officer, Mr. Luo, commencing on October 10, 2002. The agreement had a
three year term and was not renewed when it expired, however, Mr. Luo continued
employment with us on the same salary terms. It is expected that a new agreement
will be negotiated with Mr. Luo in the near future. Under the 2003 agreement,
Mr. Luo was entitled to and received an annual base salary of RMB 144,000 each
year and shares of our common stock equal to 1% of the total number of shares
outstanding on each of October 1, 2003, 2004 and 2005. The total number of
shares issued to Mr. Luo under the 2003 agreement was 1,305,562 shares. Under
the employment agreement Mr. Luo was also eligible for an annual performance
bonus of RMB 56,000. The bonus for the first employment year was paid to Mr. Luo
at the first half of 2005; the bonuses for the second and third employment years
were paid to Mr. Luo in July 2006.
Mr. Bin Qu's agreement has a three-year term commencing on March 1, 2003.
Mr. Qu resigned on April 21, 2006. Under the 2003 agreement, Mr. Qu was entitled
to an annual base salary of RMB 144,000 each year and shares of our common stock
equal to 1% of the total number of shares outstanding on each of March 1, 2004,
2005 and 2006. Prior to our reverse merger in March 2004, Mr. Qu was issued
308,916 shares for the first year of his employment. When Mr. Ou resigned he
agreed to waive his shares for the second and third employment year.
Except as set forth above, we do not have employment agreements with any
other members of management or key personnel. In addition, there are no
compensatory plans or arrangements with respect to a named executive officer
that would result in payments or installments in excess of $100,000 upon the
resignation, retirement or other termination of such executive officer's
employment with us or from a change-in-control.
2004 STOCK INCENTIVE PLAN
On May 10, 2004, our Board of Directors determined that it was in our best
interest to provide equity incentives to certain of our directors, officers and
employees and/or consultants and adopted, subject to stockholder approval, our
2004 Stock Incentive Plan (the "Stock Plan"). On June 3, 2004, our stockholders
approved the Stock Plan. This key aspect of our compensation program is designed
to attract, retain, and motivate the highly qualified individuals required for
our long-term success. As of July 25, 2006, we had not made any grants under the
Stock Plan.
A general description of the Stock Plan is set forth below. This
description is qualified in its entirety by the terms of the Stock Plan, a copy
of which, as proposed to be amended, is attached to this proxy statement as
APPENDIX A.
SUMMARY DESCRIPTION OF THE PLAN
NUMBER OF SHARES AUTHORIZED AND MAXIMUM INDIVIDUAL PARTICIPATION. The
Stock Plan reserves 1,047,907 shares of our common stock for the issuance of
options and other stock awards. If the amendment to the Stock Plan is approved,
3,047,907 shares of common stock will be reserved for options and other stock
awards. Currently under the Stock Plan, not more than 350,000 options or other
stock awards may be granted to any participant in any fiscal year. Under the
proposed amendment to the Stock Plan, this limit would be increased to 500,000.
PLAN ADMINISTRATION. Either the Board or a committee of the Board may
administer the Stock Plan. Currently, the Stock Plan is administered by the
Board.
ELIGIBILITY. Employees, consultants and directors who are selected by the
Board are eligible to receive options or stock purchase rights under the Stock
Plan subject to limitations set forth therein; provided, however, that only
employees are eligible to be granted options intended to qualify as "incentive
stock options" under the Internal Revenue Code of 1986, as amended (the "Code").
-9-
TERM AND AMENDMENT OF THE PLAN. The Stock Plan was effective as of May 10,
2004. No awards may be granted on or after May 10, 2014. The Board may suspend
or terminate the Stock Plan at any time. The Board may amend the Stock Plan as
its deems necessary and intends to make any amendments necessary to comply with
changes in the income tax or securities laws of the United States or the State
of Delaware.
STOCK OPTION AWARDS. Stock options awarded may be either "incentive stock
options" as defined in Section 422 of the Code or nonstatutory stock options
because they fall outside Section 422's requirements. The options generally
expire 10 years after the date of grant and are not all available for exercise
immediately upon grant. The exercise price of ISOs may not be less than the fair
market value on the date of grant, while nonstatutory stock options must have an
exercise price of at least 85% of the fair market value on the date of grant.
Options vest, in the case of an optionee who is not an officer, director or
consultant of the company, at least as rapidly as 20% per year over the
five-year period commencing on the grant date.
STOCK PURCHASE RIGHTS. Stock purchase rights awarded to any participant
automatically expire if not exercised by the participant within 30 days after we
communicate the grant of such right to the participant. The exercise price of
stock purchase rights may not be less than 85% of the fair market value of the
shares of stock on either the date of grant or the date of purchase of the stock
purchase right. Each stock purchase agreement may provide that we may repurchase
stock purchased pursuant to stock purchase rights at the purchase price (as
adjusted from time to time), within 90 days after the termination of the
participant's service with us. The repurchase right lapses at least as rapidly
as 20% per year over the five-year period commencing when the stock is
purchased.
TRANSFER RESTRICTIONS. The Stock Plan provides that with the exception of
permitted transfers of non-qualified stock options, a participant may not
assign, sell or transfer options other than by will or by operation of the laws
of descent and distribution. The Board, in its sole discretion, may permit the
transfer of a non-qualified stock option by gift to a family member or by
transfer instrument to a trust, provided that the option is to be passed to
beneficiaries upon death of the participant. Our standard stock option agreement
restricts transfer of options as outlined above and allows exercise after
termination under limited circumstances.
ADJUSTMENTS. If there is any change in our capitalization, including,
among other things, stock dividends and stock splits, then the number of shares
of stock available under the plan, the number of shares of stock covered by
outstanding rights and the exercise price or purchase price of any stock option
or purchase right in effect prior to such change shall be proportionately
adjusted by the Board to reflect any change.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
The U.S. federal income tax consequences of awards under the Stock Plan to
us and our employees, officers, directors, and consultants are complex and
subject to change. The following discussion is only a summary of the general
U.S. federal tax treatment of award issued under the Stock Plan. This summary
does not address the tax consequences of awards under the Stock Plan with
respect to any state, local or foreign taxing jurisdiction or under any
applicable tax treaty. This summary is based on Code, published revenue rulings,
administrative and judicial decisions, and existing and proposed Treasury
regulations (all as of the date hereof and all of which are subject to change,
possibly with retroactive effect).
Under new Code Section 409A, enacted as part of the American Jobs Creation
Act of 2004, recipients of certain equity compensation awards (including
nonstatutory stock options with exercise prices below the fair market value of
the underlying stock as of the date of grant, and certain types of stock
appreciation rights and stock bonuses) may be subject to a burdensome taxation
regime. If Section 409A were to apply to awards under the Stock Plan, the
affected participants may be required to recognize ordinary income for tax
purposes earlier than the times otherwise applicable as described in the
discussion below and to pay substantial penalties. The Stock Plan allows for the
issuance of certain of these types of awards for purposes of giving us maximum
flexibility. However, we do not intend to issue any awards that would be subject
to Section 409A. Furthermore, the Board and the compensation committee generally
have the authority to amend the Stock Plan as they deem necessary to comply with
applicable laws, including Section 409A. Therefore, the following discussion
does not specifically address the potential impact of Section 409A on the
various awards.
-10-
INCENTIVE STOCK OPTIONS. An optionee does not realize taxable income upon
the grant or exercise of an incentive stock option under the Stock Plan. If no
disposition of shares issued to an optionee pursuant to the exercise of an
incentive stock option is made by the optionee within two years from the date of
grant or within one year from the date of exercise, then (a) upon sale of such
shares, any amount realized in excess of the option price (the amount paid for
the shares) is taxed to the optionee as long-term capital gain and any loss
sustained will be a long-term capital loss and (b) no deduction is allowed to
the company for federal income tax purposes. Notwithstanding the foregoing, the
exercise of incentive stock options gives rise to an adjustment in computing
alternative minimum taxable income that may result in alternative minimum tax
liability for the optionee.
If shares of common stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of the two-year and one-year
holding periods described above (a "disqualifying disposition") then (a) the
optionee realizes ordinary income in the year of disposition in an amount equal
to the excess (if any) of the fair market value of the shares at exercise (or,
if less, the amount realized on a sale of such shares) over the option price
thereof and (b) the company is entitled to recognize a salary expense for such
amount. Any further gain realized is taxed as a short-term or long-term capital
gain and does not result in any deduction to the company. A disqualifying
disposition in the year of exercise will generally avoid the alternative minimum
tax consequences of the exercise of an incentive stock option.
NONSTATUTORY STOCK OPTIONS. If the exercise price of a nonstatutory stock
option is equal to or exceeds the fair market value of the underlying stock at
the time of grant, no income is generally realized by the optionee at the time a
nonstatutory option is granted. Upon exercise, (a) ordinary income is realized
by the optionee in an amount equal to the difference between the option price
and the fair market value of the shares on the date of exercise and (b) the
company is entitled to recognize a compensation expense for the same amount.
Upon disposition of the shares, appreciation or depreciation after the date of
exercise is treated as a short-term or long-term capital gain or loss and will
not result in any expense by the company.
If the exercise price of a nonstatutory stock option is less than the fair
market value of the underlying stock at the time of grant, Code Section 409A may
impose significant adverse tax consequences to optionees who are granted these
"in-the-money" stock options. Although the Stock Plan allows us the flexibility
to issue "in-the-money" nonstatutory stock options, we do not intend to issue
any such options. Therefore, the foregoing discussion applies only to
nonqualified stock options with exercise prices equal to or in excess of the
fair market value of the underlying stock at the time of grant.
RESTRICTED STOCK. Generally, the holder of restricted stock will recognize
ordinary compensation income at the time the stock becomes vested. The amount of
ordinary compensation income recognized will be equal to the excess, if any, of
the fair market value of the stock on the date it becomes vested over any amount
paid by the holder in exchange for stock. The income recognized upon the vesting
of restricted stock generally will be subject to U.S. income tax withholding and
employment taxes.
In the year that the recipient of a stock award recognizes ordinary
taxable income in respect of restricted stock, we will be entitled to a
deduction for federal income tax purposes equal to the amount of ordinary income
that the recipient is required to recognize, provided that the deduction is not
otherwise disallowed under the Code.
STOCK BONUS. Generally, the recipient of a stock bonus will recognize
ordinary compensation income at the time the stock bonus is received. The amount
of ordinary compensation income recognized will be equal to the excess, if any,
of the fair market value of the stock on the date it is received over any amount
paid by the recipient in exchange for the stock. However, if the stock received
is subject to future vesting based on the recipient's performance of services,
the tax consequences discussed above with respect to restricted stock will apply
to the holder and the company. The income recognized with respect to a stock
bonus generally will be subject to U.S. income tax withholding and employment
taxes.
-11-
In the year that the recipient of a stock bonus recognizes ordinary
taxable income in respect of the stock, we will be entitled to a deduction for
federal income tax purposes equal to the amount of ordinary income that the
recipient is required to recognize, provided that the deduction is not otherwise
disallowed under the Code.
NEW PLAN BENEFITS
The grant of awards under the Stock Plan is discretionary and neither the
number of shares subject to awards nor the types of awards under the Stock Plan
to any particular eligible recipient or group of eligible recipients is
presently determinable.
EQUITY COMPENSATION INFORMATION
The following table provides information about shares issued and shares
remaining available for future issuance under our Stock Plan and other equity
compensation arrangements, not including the increase in the number of shares
available for issuance under our Stock Plan for which we are seeking stockholder
approval pursuant to this proxy statement.
(A) (B) (C)
----------------------- -------------------- -----------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF FUTURE ISSUANCE UNDER
SECURITIES TO BE WEIGHTED-AVERAGE EQUITY COMPENSATION
ISSUED UPON EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
-------------------------------------- ----------------------- -------------------- -----------------------
Equity compensation plans approved by 0 -- 1,047,907
security holders......................
Equity compensation arrangements not
approved by security holders.......... 1,614,478 0 0
---------------------------------------------------------------- -------------------- -----------------------
TOTAL....... 1,614,478 0 1,047,907*
*3,047,907 if amendment to the Stock Plan is approved.
2004 STOCK PLAN INCREASE
The Board of Directors has approved an amendment to the Stock Plan to
increase the number of shares authorized under the plan from 1,047,907 to
3,047,907, an increase of 2,000,000 shares. The company has decided to increase
the limit on the number of options or other stock awards issuable to any
participant in a single fiscal year from 350,000 to 500,000.
RECOMMENDATION OF THE BOARD
The Board of Directors recommends that you vote "FOR" the approval of the
amendments to the Stock Plan. The amendments are intended to enable us to
achieve the following objectives:
(1) To execute our operation plan we may need more than 1,047,907 options
currently approved under the Stock Plan. It is important for the Board to
have continued ability to offer stock-based incentive compensation to
substantially all of our eligible employees and non-employee participants.
In addition, the grant of options will save labor cost in cash; and
(2) The ability to maintain a market competitive stock-based incentive program
by making available various stock compensation awards. The various awards
available under the Stock Plan will give us greater flexibility to respond
to market-competitive changes in equity compensation practices. Stock
options priced at the full fair market value of common stock on the date
of grant are our main form of equity compensation to our broad-based
employee population and nonemployee participants.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENTS TO
OUR 2004 STOCK PLAN.
-12-
PROPOSAL 3: RATIFICATION OF INDEPENDENT AUDITORS
AUDIT AND OTHER FEES
AUDIT FEES
The aggregate audit fees for 2005 were approximately $67,500. The amounts
include fees of approximately $45,000 for professional services rendered by Mao
& Company, CPAs, Inc. ("Mao") in connection with the audit of our consolidated
financial statements as of and for the 2005 fiscal year and fees of
approximately $22,500 for professional services rendered by Grobstein, Horwath &
Company LLP ("GHC") in connection with reviews of our unaudited consolidated
interim financial statements for the first, second and third quarters of 2005.
The aggregate audit fees for 2004 were approximately $95,500. The amounts
include fees for professional services rendered by GHC in connection with the
audit of our consolidated financial statements for the 2004 fiscal year and
reviews of our Quarterly Reports on Form 10-QSB for the first, second and third
quarters of 2004 fiscal year.
AUDIT-RELATED FEES
There were no audit-related fees billed by Mao or GHC for other services
rendered to us for the 2005 fiscal year.
Audit-related fees for 2004 for assurance and related services by GHC were
$63,527. The amount includes fees for auditing the financial statements in
relation to our Registration Statement on Form SB-2 and to the reverse merger on
March 12, 2004 and not reported under the caption Audit Fees.
TAX FEES
There were no fees for tax services billed by Mao or GHC for other
services rendered to the Company for the 2005 fiscal year.
Tax fees for 2004 for professional services rendered by GHC were $5,000.
The amount includes fees for tax compliance, authority, audit support and
planning services.
ALL OTHER FEES
There were no additional aggregate fees billed by Mao for 2005 or by GHC
for 2004 for other services rendered to the Company. Since we do not have a
formal audit committee, our entire Board of Directors serves as our audit
committee. We have not adopted pre-approval policies and procedures with respect
to the Company's accountants, but our Board of Directors approved the engagement
of each of Mao and GHC before their respective engagements.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
On March 13, 2006, GHC resigned as our certifying accounting firm. GHC's
audit report on our consolidated financial statements for the years ended
December 31, 2004 and 2003 contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles, except that GHC's report, submitted with our Annual Report on Form
10-KSB filed April 13, 2005, included an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. At no time
during the period that GHC was our certifying accountant were there any
disagreements with us on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of GHC, would have caused GHC
to make reference to the subject matter of such disagreements in connection with
its report on our financial statements. In addition, no reportable events, as
defined in Item 304(a)(1)(v) of Regulation S-B, occurred during our two most
recent fiscal years and the subsequent interim period through the date of GHC's
resignation.
-13-
Effective March 14, 2006, our board of directors approved the selection
and appointment of Mao as our certifying accounting firm for the fiscal year
ending December 31, 2005. Mao has issued the audit report our consolidated
financial statements for the year ended December 31, 2005 (see enclosed the
Annual Report on Form 10-KSB).
Our Board of Directors has also appointed Mao & Company CPAs, Inc. as our
independent auditors for the fiscal year ending December 31, 2006.
We do not expect representatives of Mao to be present at the annual
meeting.
Under the Sarbanes-Oxley Act of 2002 and the rules of the Securities and
Exchange Commission regarding auditor independence, the engagement of the
company's independent accountant to provide audit or non-audit services for the
company must either be approved by the audit committee before the engagement or
entered into pursuant to pre-approval policies and procedures established by the
audit committee. Our Board of Directors (functioning as the audit committee) has
not established any pre-approval policies or procedures and therefore all audit
or non-audit services performed for the company by the independent accountant
must be approved in advance of the engagement by the Board of Directors. Under
limited circumstances, certain de minimus non-audit services may be approved by
the Board of Directors retroactively. All services provided to the company by
the independent accountants in 2005 were approved in advance of the engagement
by the Board of Directors and no non-audit services were approved retroactively
by the Board of Directors pursuant to the exception for certain de minimus
services described above.
The affirmative vote of a majority of the shares represented at the
meeting is required for the ratification of the selection and appointment by the
Board of Directors of Mao as the Company's independent auditors for the fiscal
year ending December 31, 2006.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION AND APPOINTMENT OF MAO & COMPANY,
CPAS, INC. AS INDEPENDENT AUDITORS OF THE COMPANY.
PROPOSAL 4: APPROVAL OF INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
We are currently authorized under our Restated Certificate of
Incorporation to issue 100,000,000 shares of common stock and 20,000,000 shares
of preferred stock. Our Board of Directors proposes to increase the number of
authorized shares of common stock to 200,000,000 shares. Our Board of Directors
believes that the proposed increase to the authorized number of shares of common
stock is necessary for our continued success and growth. The proposed
certificate of amendment (the "Certificate of Amendment") will amend the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of common stock, from 100,000,000 shares to 200,000,000
shares. The Certificate of Amendment would not affect the authorized number of
shares of preferred stock, which will remain at 20,000,000.
-14-
The additional shares of common stock that we are seeking authorization
for may be used for such corporate purposes as the Board of Directors may
determine from time to time to be necessary or desirable. These purposes may
include, without limitation: raising capital through the sale of common stock;
acquiring other businesses in exchange for shares of common stock; and
attracting and retaining employees by the issuance of additional securities
under the Stock Plan and other employee equity compensation arrangements. We are
required by contract to seek a significant increase in our authorized common
stock pursuant to a Securities Purchase Agreement entered into on June 29, 2006
with six institutional investors for the issuance and sale of 6% secured
Convertible Notes, in the aggregate principal amount of U.S. $2,450,000,
convertible into shares of our common stock, and Warrants to purchase 12,250,000
shares of our common stock. The Securities Purchase Agreement, the Convertible
Notes, the Warrants and related transaction documents are more fully described
in our Current Report on Form 8-K filed with the SEC on July 5, 2006.
The closing for the sale of the Convertible Notes is to occur in three
stages. A first sale of Convertible Notes with a principal amount of $857,500
closed on June 29, 2006. All 12,250,000 Warrants were issued at that time.
Additional Convertible Notes with a principal amount of $735,000 are to be
issued and sold within two days of the filing of a registration statement under
the Securities Act of 1933 covering the common stock issuable upon conversion of
the Convertible Notes and exercise of the Warrants. Additional Convertible Notes
with a principal amount of $857,500 are to be issued and sold within two days of
the registration statement being declared effective.
The outstanding principal amount of the Convertible Notes is convertible
into shares of our common stock pursuant to a conversion price that is based on
an average of the trading price of our common stock on the OTC Bulletin Board.
The conversion price is discounted 50% from such trading price before the
registration statement is filed, 45% after it is filed if filed before September
12, 2006, and 40% if the registration statement becomes effective within 120
days after it is filed. The conversion price is also adjusted for certain
subsequent issuances of any of our equity securities at prices below the
conversion price then in effect. The Convertible Notes contain a volume
limitation that prohibits the holder from converting further Convertible Notes
if by doing so would cause the holder and its affiliates to hold more than 4.99%
of our outstanding common stock. In addition, the holder agrees that it will not
convert more than $120,000 principal amount of Convertible Notes per calendar
month.
The exercise price of the Warrants is $0.45 per share, subject to
anti-dilution adjustments pursuant to a broad-based weighted average formula for
subsequent issues of our equity securities below the trading price of the
shares. The Purchase Agreement requires us to maintain a reserve of authorized
common stock equal to 110% of the number of shares issuable upon full conversion
of the Convertible Notes and exercise of the Warrants. The Purchase Agreement
imposes financial penalties if the authorized number of shares of common stock
is insufficient to satisfy the reserve requirements. The Convertible Notes and
the Warrants also impose financial penalties on us if we fail to timely deliver
common stock upon conversion of the Convertible Notes and exercise of the
Warrants, respectively. One of the purposes that we are seeking an increase in
our authorized shares is to have sufficient shares to meet the reserve
requirements.
Because the Conversion Price of the Notes at any point in time is based on
the trading price of our common stock, it is not possible to calculate the exact
number of shares issuable upon conversion of the Convertible Notes in the
future. For illustration purposes, the conversion price of the Convertible Notes
calculated for July 25, 2006 was $0.18, At that conversion price the Convertible
Notes outstanding as of July 25, 2006 could be converted into 9,527,778 shares
of common stock and if all of the Convertible Notes were issued, they could be
converted into 27,222,222 shares of common stock. As of July 25, 2006 there were
64,285,930 shares of common stock issued and outstanding, and in addition to the
Convertible Notes and Warrants, there are outstanding options, rights or
warrants, convertible loans and stock subscription and other stock commitments
issuable for approximately 27,200,200 shares of common stock. (The conversion or
exercise terms of some of these securities are based on the Company's stock
price, and therefore the exact number of shares issuable pursuant to those
securities varies from day to day.)
-15-
If the Certificate of Amendment, is approved the Board of Directors will
have the authority to issue additional shares of common stock up to the
200,000,000 authorized amount without further stockholder approval, except as
may be required for a particular transaction by applicable law, regulatory
agencies or any other rules which we may be subject to.
Our Board of Directors believes that the authorized number of shares of
common stock should be increased to provide the Board of Directors with the
ability to issue additional shares of common stock to satisfy our contractual
obligations and for the other potential corporate purposes described above,
without having to incur the delay and expense incident to holding a special
meeting of the stockholders to approve an increase in the authorized shares of
common stock at that time.
The authorization of the additional shares of common stock by this
proposal would not have any immediate dilutive effect on the proportionate
voting power or other rights of existing stockholders, but, to the extent that
the additional authorized shares are issued in the future, it will decrease
existing stockholders' percentage equity ownership and, depending on the price
at which they are issued, could be dilutive to existing stockholders and have a
negative effect on the trading price of our common stock. Because the common
stock issuable in conjunction with the Convertible Notes is based on a discount
to the trading price, all common stock issued upon conversion of the Convertible
Notes will be dilutive to existing stockholders on a market capitalization
basis. Under the Restated Certificate of Incorporation, stockholders do not have
preemptive rights with respect to the issuance of shares of common stock, which
means that current stockholders do not have a prior right to purchase any new
issue of common stock in order to maintain their proportionate ownership of
common stock.
OTHER CONSIDERATIONS
The increase in the number of authorized shares of common stock could have
unintended effects. For example, if our Board of Directors issues additional
shares in the future, such issuance could dilute the stock ownership and voting
power of, or increase the cost to, a person seeking to obtain control of the
Company, thereby deterring or rendering more difficult a merger, tender offer,
proxy contest or other extraordinary transaction. To the extent that it impedes
any such attempts, the Certificate of Amendment may serve to perpetuate our
management. The Certificate of Amendment is not being proposed in response to
any known effort or threat to acquire control of the Company and is not part of
a plan by management to adopt a series of amendments to the Restated Certificate
of Incorporation and our bylaws that would thwart such efforts.
THE BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL OF THE CERTIFICATE OF AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK OF THE COMPANY. YOUR PROXY WILL BE SO VOTED UNLESS
YOU SPECIFY OTHERWISE.
STOCKHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING OF STOCKHOLDERS
Stockholders who, in accordance with SEC Rule 14a-8, wish to present
proposals for inclusion in the proxy materials to be distributed in connection
with next year's annual meeting must submit their proposals so that they are
received at the Company's principal executive offices no later than the close of
business on December 29, 2006.
In accordance with our bylaws, in order to be properly brought before the
2007 Annual Meeting of Stockholders, a stockholder's notice of the matter the
stockholder wishes to present, or the person or persons the stockholder wishes
to nominate as a director, must be delivered to or mailed and received by the
Company's Secretary at its principal executive offices not less than 60 days nor
more than 180 days prior to the 2007 Annual Meeting of Stockholders. However, if
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to the stockholders, notice of the matter the stockholder
wishes to present, or the person or persons the stockholder wishes to nominate
as a director, must be so received not later than the close of business on the
tenth day following the day on which the notice of the meeting date was mailed
or public disclosure was made. To be in proper form, a stockholder's notice must
include the specified information concerning the proposal or nominee as
described in our bylaws.
-16-
Please send notices of intention to present proposals at the 2007 Annual
Meeting of Stockholders to the Company's Secretary, 415 West Foothill Blvd,
Suite 206 Claremont, California 91711-2766. The Company reserves the right to
reject, rule out of order, or take other appropriate action with respect to any
proposal that does not comply with these and other applicable requirements.
OTHER BUSINESS
The Board of Directors does not currently intend to bring any other
business before the meeting, and so far as is known to the Board, no matters are
to be brought before the meeting except as specified in the notice of the
meeting. However, as to any other business which may properly come before the
meeting, the proxy holders will vote any shares represented by proxies in their
discretion.
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
By Order of the Board of Directors
Yvonne Wang
Secretary
Claremont, California
August 9, 2006
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[FRONT]
PROXY
FOR ANNUAL MEETING OF THE STOCKHOLDERS
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Wei Li and Yvonne Wang (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 our executive office located at Room 516, Block A,
Tai Li Ming Yuan Building, Jia 1, Waiguanxie Street, Chaoyang District, Beijing,
P.R.C., on Tuesday, September 12, 2006 at 10:00 a.m. local time and at any
adjournments thereof.
1. Election of Directors: FOR WITHHOLD AUTHORITY FOR all Nominees
all Nominees for all Nominees EXCEPT
|_| |_| |_|
Nominees:
(1) Wei Li
(2) Lian jun Luo
(3) Da chang Ju Instruction: To withhold authority to vote for any individual nominee,
(4) Yun long Zhang mark "For All Nominees Except" and write the name of the nominee(s) below:
--------------------------------------------------------------------------
2. Approve amendment to FOR AGAINST ABSTAIN
2004 Stock Incentive |_| |_| |_|
Plan
3. Ratify the appointment of FOR AGAINST ABSTAIN
Mao & Company, CPAs, Inc. |_| |_| |_|
as the Company's independent auditors
for the fiscal year ending
December 31, 2006
4. Approve amendment to Certificate FOR AGAINST ABSTAIN
of Incorporation increasing |_| |_| |_|
authorized common stock to
200,000,000 shares
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 and will be voted in the
manner directed herein by the undersigned stockholder. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" EACH OF THE NOMINEES SET FORTH IN PROPOSAL 1 AND
"FOR" PROPOSALS 2 THROUGH 4 AND IN THE DISCRETION OF THE PROXIES AS TO ANY OTHER
MATTERS THAT PROPERLY COME BEFORE THE ANNUAL MEETING.
____________________________________________
Signature
____________________________________________
Signature, if held jointly
Dated: ____________________, 2006
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"
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
2004 STOCK INCENTIVE PLAN
Amended as of [ ]
Amendment Approved by the Board of Directors on July [ ], 2006
Amendment Approved by the Shareholders of the Company on [ ]
SECTION 1: GENERAL PURPOSE OF PLAN
The name of this plan is the Kiwa Bio-Tech Products Group Corporation 2004
Stock Incentive Plan (the "PLAN"). The purpose of the Plan is to enable Kiwa
Bio-Tech Products Group Corporation, a Delaware corporation (the "COMPANY"), and
any Parent or any Subsidiary to obtain and retain the services of the types of
Employees, Consultants and Directors who will contribute to the Company's long
range success and to provide incentives which are linked directly to increases
in share value which will inure to the benefit of all shareholders of the
Company.
SECTION 2: DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
"ADMINISTRATOR" shall have the meaning as set forth in SECTION 3, hereof.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means (i) failure by an Eligible Person to substantially perform
his or her duties and obligations to the Company (other than any such failure
resulting from his or her incapacity due to physical or mental illness); (ii)
engaging in misconduct or a fiduciary breach which is or potentially is
materially injurious to the Company or its shareholders; (iii) commission of a
felony; (iv) the commission of a crime against the Company which is or
potentially is materially injurious to the Company; or (v) as otherwise provided
in the Stock Option Agreement or Stock Purchase Agreement. For purposes of this
Plan, the existence of Cause shall be determined by the Administrator in its
sole discretion.
"CHANGE IN CONTROL" shall mean:
(1) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if more than
80% of the combined voting power (which voting power shall be calculated by
assuming the conversion of all equity securities convertible (immediately or at
some future time) into shares entitled to vote, but not assuming the exercise of
any warrant or right to subscribe to or purchase those shares) of the continuing
or Surviving Entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned, directly or indirectly, by
persons who were not shareholders of the Company immediately prior to such
merger, consolidation or other reorganization; PROVIDED, HOWEVER, that in making
the determination of ownership by the shareholders of the Company, immediately
after the reorganization, equity securities which persons own immediately before
the reorganization as shareholders of another party to the transaction shall be
disregarded; or
(2) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means a committee of the Board designated by the Board to
administer the Plan.
"COMPANY" means Kiwa Bio-Tech Products Group Corporation, a corporation
organized under the laws of the State of Delaware (or any successor
corporation).
"CONSULTANT" means a consultant or advisor who is a natural person and who
provides bona fide services to the Company, a Parent or a Subsidiary; provided
such services are not in connection with the offer or sale of securities in a
capital-raising transaction and do not directly or indirectly promote or
maintain a market for the Company's securities.
"DATE OF GRANT" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant or, if a different date
is set forth in such resolution as the Date of Grant, then such date as is set
forth in such resolution.
"DIRECTOR" means a member of the Board.
"DISABILITY" means that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment; provided, however, for purposes of determining the term of an
ISO pursuant to SECTION 6.6 hereof, the term Disability shall have the meaning
ascribed to it under Code Section 22(e)(3). The determination of whether an
individual has a Disability shall be determined under procedures established by
the Plan Administrator.
"ELIGIBLE PERSON" means an Employee, Consultant or Director of the
Company, any Parent or any Subsidiary.
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"EMPLOYEE" shall mean any individual who is a common-law employee
(including officers) of the Company, a Parent or a Subsidiary.
"EXERCISE PRICE" shall have the meaning set forth in SECTION 6.3 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" shall mean the fair market value of a Share,
determined as follows: (i) if the Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Fair Market Value of a share of Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in the Stock) on the last market trading day prior to the day of
determination, as reported in the WALL STREET JOURNAL or such other source as
the Administrator deems reliable; (ii) if the Stock is quoted on the Nasdaq
System (but not on the Nasdaq National Market) or any similar system whereby the
stock is regularly quoted by a recognized securities dealer but closing sale
prices are not reported, the Fair Market Value of a share of Stock shall be the
mean between the bid and asked prices for the Stock on the last market trading
day prior to the day of determination, as reported in the WALL STREET JOURNAL or
such other source as the Administrator deems reliable; or (iii) in the absence
of an established market for the Stock, the Fair Market Value shall be
determined in good faith by the Administrator and such determination shall be
conclusive and binding on all persons.
"ISO" means a Stock Option intended to qualify as an "incentive stock
option" as that term is defined in Section 422(b) of the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an Employee
of the Company, a Parent or Subsidiary, who satisfies the requirements of such
term as defined in Rule 16b-3(b)(3)(i) promulgated by the Securities and
Exchange Commission.
"NON-QUALIFIED STOCK OPTION" means a Stock Option not described in Section
422(b) of the Code.
"OFFEREE" means a Participant who is granted a Purchase Right pursuant to
the Plan.
"OPTIONEE" means a Participant who is granted a Stock Option pursuant to
the Plan.
"OUTSIDE DIRECTOR" means a member of the Board who is not an Employee of
the Company, a Parent or Subsidiary, who satisfies the requirements of such term
as defined in Treasury Regulations (26 Code of Federal Regulation Section
1.162-27(e)(3)).
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.
-3-
"PARTICIPANT" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in SECTION 3, to receive grants of
Rights.
"PLAN" means this Kiwa Bio-Tech Products Group Corporation 2004 Stock
Incentive Plan, as the same may be amended or supplemented from time to time.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 7.3.
"PURCHASE RIGHT" means the right to purchase Stock granted pursuant to
SECTION 7.
"RIGHTS" means Stock Options and Purchase Rights.
"REPURCHASE RIGHT" shall have the meaning set forth in SECTION 8.7 of the
Plan.
"SERVICE" shall mean service as an Employee, Director or Consultant.
"STOCK" means Common Stock, par value $0.001 per share, of the Company.
"STOCK OPTION" or "OPTION" means an option to purchase shares of Stock
granted pursuant to SECTION 6.
"STOCK OPTION AGREEMENT" shall have the meaning set forth in SECTION 6.1.
"STOCK PURCHASE AGREEMENT" shall have the meaning set forth in SECTION
7.1.
"SUBSIDIARY" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company, if each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.
"SURVIVING ENTITY" means the Company if immediately following any merger,
consolidation or similar transaction, the holders of outstanding voting
securities of the Company immediately prior to the merger or consolidation own
equity securities possessing more than 50% of the voting power of the
corporation existing following the merger, consolidation or similar transaction.
In all other cases, the other entity to the transaction and not the Company
shall be the Surviving Entity. In making the determination of ownership by the
shareholders of an entity immediately after the merger, consolidation or similar
transaction, equity securities which the shareholders owned immediately before
the merger, consolidation or similar transaction as shareholders of another
party to the transaction shall be disregarded. Further, outstanding voting
securities of an entity shall be calculated by assuming the conversion of all
equity securities convertible (immediately or at some future time) into shares
entitled to vote.
-4-
"TEN PERCENT SHAREHOLDER" means a person who on the Date of Grant owns,
either directly or through attribution as provided in Section 424 of the Code,
Stock constituting more than 10% of the total combined voting power of all
classes of stock of his or her employer corporation or of any Parent or
Subsidiary.
SECTION 3: ADMINISTRATION
3.1 ADMINISTRATOR. The Plan shall be administered by either (i) the Board
or (ii) the Committee (the group that administers the Plan is referred to as the
"ADMINISTRATOR").
3.2 POWERS IN GENERAL. The Administrator shall have the power and
authority to grant to Eligible Persons, pursuant to the terms of the Plan, (i)
Stock Options, (ii) Purchase Rights or (iii) any combination of the foregoing.
3.3 SPECIFIC POWERS. In particular, the Administrator shall have the
authority: (i) to construe and interpret the Plan and apply its provisions; (ii)
to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine when Rights are to be granted under the Plan; (v) from time to
time to select, subject to the limitations set forth in this Plan, those
Eligible Persons to whom Rights shall be granted; (vi) to determine the number
of shares of Stock to be made subject to each Right; (vii) to determine whether
each Stock Option is to be an ISO or a Non-Qualified Stock Option; (viii) to
prescribe the terms and conditions of each Stock Option and Purchase Right,
including, without limitation, the Exercise Price, Purchase Price and medium of
payment, vesting provisions and repurchase provisions, and to specify the
provisions of the Stock Option Agreement or Stock Purchase Agreement relating to
such grant or sale; (ix) to amend any outstanding Rights for the purpose of
modifying the time or manner of vesting, the Purchase Price or Exercise Price,
as the case may be, subject to applicable legal restrictions and to the consent
of the other party to such agreement; (x) to determine the duration and purpose
of leaves of absences which may be granted to a Participant without constituting
termination of their employment for purposes of the Plan; (xi) to make decisions
with respect to outstanding Stock Options that may become necessary upon a
change in corporate control or an event that triggers anti-dilution adjustments;
(xii) to the extent permitted by law, by resolution adopted by the Board, to
authorize one or more officers of the Company to do one or both of the
following: (a) designate eligible officers and employees of the Company or any
of its subsidiaries to be recipients of Awards and (b) determine the number of
such Awards to be received by such officers and employees, provided that the
resolution so authorizing such officer or officers shall specify the total
number of Awards such officer or officers may award; and (xiii) to make any and
all other determinations which it determines to be necessary or advisable for
administration of the Plan.
-5-
3.4 DECISIONS FINAL. All decisions made by the Administrator pursuant to
the provisions of the Plan shall be final and binding on the Company and the
Participants.
3.5 THE COMMITTEE. The Board may, in its sole and absolute discretion,
from time to time, and at any period of time during which the Company's Stock is
registered pursuant to Section 12 of the Exchange Act shall, delegate any or all
of its duties and authority with respect to the Plan to the Committee whose
members are to be appointed by and to serve at the pleasure of the Board. From
time to time, the Board may increase or decrease the size of the Committee, add
additional members to, remove members (with or without cause) from, appoint new
members in substitution therefor, and fill vacancies, however caused, in the
Committee. The Committee shall act pursuant to a vote of the majority of its
members or, in the case of a committee comprised of only two members, the
unanimous consent of its members, whether present or not, or by the unanimous
written consent of the majority of its members and minutes shall be kept of all
of its meetings and copies thereof shall be provided to the Board. Subject to
the limitations prescribed by the Plan and the Board, the Committee may
establish and follow such rules and regulations for the conduct of its business
as it may determine to be advisable. During any period of time during which the
Company's Stock is registered pursuant to Section 12 of the Exchange Act, all
members of the Committee shall be Non-Employee Directors and Outside Directors.
3.6 INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as Directors or members of the Committee, and to the extent
allowed by applicable law, the Administrator and each of the Administrator's
consultants shall be indemnified by the Company against the reasonable expenses,
including attorney's fees, actually incurred in connection with any action, suit
or proceeding or in connection with any appeal therein, to which the
Administrator or any of its consultants may be party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted under the Plan, and against all amounts paid by the Administrator or any
of its consultants in settlement thereof (provided that the settlement has been
approved by the Company, which approval shall not be unreasonably withheld) or
paid by the Administrator or any of its consultants in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Administrator or any of its consultants did not act in good faith and in a
manner which such person reasonably believed to be in the best interests of the
Company, and in the case of a criminal proceeding, had no reason to believe that
the conduct complained of was unlawful; PROVIDED, HOWEVER, that within 60 days
after institution of any such action, suit or proceeding, such Administrator or
any of its consultants shall, in writing, offer the Company the opportunity at
its own expense to handle and defend such action, suit or proceeding.
-6-
SECTION 4: STOCK SUBJECT TO THE PLAN
4.1 STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
SECTION 9, 3,047,907 shares of Common Stock shall be reserved and available for
issuance under the Plan. Stock reserved hereunder may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
4.2 BASIC LIMITATION. The maximum number of shares with respect to which
Options, awards or sales of Stock may be granted under the Plan to any
Participant in any one calendar year shall be 500,000 shares. The number of
shares that are subject to Rights under the Plan shall not exceed the number of
shares that then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available a
sufficient number of shares to satisfy the requirements of the Plan.
4.3 ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that shares issued under
the Plan are reacquired by the Company pursuant to the terms of any forfeiture
provision or right of repurchase, such shares shall again be available for the
purposes of the Plan.
SECTION 5: ELIGIBILITY
Eligible Persons who are selected by the Administrator shall be eligible
to be granted Rights hereunder subject to limitations set forth in this Plan;
PROVIDED, HOWEVER, that only Employees shall be eligible to be granted ISOs
hereunder.
SECTION 6: TERMS AND CONDITIONS OF OPTIONS.
6.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company
(the "STOCK OPTION AGREEMENT"). Such Option shall be subject to all applicable
terms and conditions of the Plan and may be subject to any other terms and
conditions which are not inconsistent with the Plan and which the Administrator
deems appropriate for inclusion in a Stock Option Agreement.
The provisions of the various Stock Option Agreements entered into under
the Plan need not be identical.
6.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of shares of Stock that are subject to the Option and shall provide for the
adjustment of such number in accordance with SECTION 9, hereof. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Non-Qualified
Stock Option.
6.3 EXERCISE PRICE.
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6.3.1 IN GENERAL. Each Stock Option Agreement shall state the price
at which shares subject to the Stock Option may be purchased (the "EXERCISE
PRICE"), which shall, with respect to Incentive Stock Options, be not less than
100% of the Fair Market Value of the Stock on the Date of Grant. In the case of
Non-Qualified Stock Options, the Exercise Price shall be determined in the sole
discretion of the Administrator; provided, however, that the Exercise Price
shall be no less than 85% of the Fair Market Value of the shares on the Date of
Grant of the Non-Qualified Stock Option.
6.3.2 TEN PERCENT SHAREHOLDER. A Ten Percent Shareholder shall not
be eligible for designation as an Optionee or Purchaser, unless (i) the Exercise
Price of a Non-Qualified Stock Option is at least 110% of the Fair Market Value
of a Share on the Date of Grant, or (ii) in the case of an ISO, the Exercise
Price is at least 110% of the Fair Market Value of a Share on the Date of Grant
and such ISO by its terms is not exercisable after the expiration of five years
from the Date of Grant.
6.3.3 NON-APPLICABILITY. The Exercise Price restriction applicable
to Non-Qualified Stock Options required by SECTIONS 6.3.1 and 6.3.2(I) shall be
inoperative if a determination is made by counsel for the Company that such
Exercise Price restrictions are not required in the circumstances under
applicable federal or state securities laws.
6.3.4 PAYMENT. The Exercise Price shall be payable in a form
described in SECTION 8 hereof.
6.4 WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise or with the disposition of
shares acquired by exercising an Option.
6.5 EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option becomes exercisable. In the case of an
Optionee who is not an officer of the Company, a Director or a Consultant, an
Option shall become exercisable at least as rapidly as 20% per year over the
five-year period commencing on the Date of Grant. Subject to the preceding
sentence, the exercise provisions of any Stock Option Agreement shall be
determined by the Administrator, in its sole discretion.
6.6 TERM. The Stock Option Agreement shall specify the term of the Option.
No Option shall be exercised after the expiration of ten years after the date
the Option is granted. In the case of an ISO granted to a Ten Percent
Shareholder, the ISO shall not be exercised after the expiration of five years
after the date the ISO is granted. Unless otherwise provided in the Stock Option
Agreement, no Option may be exercised (i) three months after the date the
Optionee's Service with the Company, its Parent or its Subsidiaries terminates
if such termination is for any reason other than death, Disability or Cause,
(ii) one year after the date the Optionee's Service with the Company and its
subsidiaries terminates if such termination is a result of death or Disability,
and (iii) if the Optionee's Service with the Company and its Subsidiaries
terminates for Cause, all outstanding Options granted to such Optionee shall
expire as of the commencement of business on the date of such termination. The
Administrator may, in its sole discretion, waive the accelerated expiration
provided for in (i) or (ii). Outstanding Options that are not vested at the time
of termination of employment for any reason shall expire at the close of
business on the date of such termination.
-8-
6.7 LEAVES OF ABSENCE. For purposes of SECTION 6.6 above, to the extent
required by applicable law, Service shall be deemed to continue while the
Optionee is on a bona fide leave of absence. To the extent applicable law does
not require such a leave to be deemed to continue while the Optionee is on a
bona fide leave of absence, such leave shall be deemed to continue if, and only
if, expressly provided in writing by the Administrator or a duly authorized
officer of the Company, Parent or Subsidiary for whom Optionee provides his or
her services.
6.8 MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Administrator may modify, extend or assume
outstanding Options (whether granted by the Company or another issuer) or may
accept the cancellation of outstanding Options (whether granted by the Company
or another issuer) in return for the grant of new Options for the same or a
different number of shares and at the same or a different Exercise Price.
Without limiting the foregoing, the Administrator may amend a previously granted
Option to fully accelerate the exercise schedule of such Option (including
without limitation, in connection with a Change in Control). The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair the Optionee's rights or increase the Optionee's obligations
under such Option. However, a termination of the Option in which the Optionee
receives a cash payment equal to the difference between the Fair Market Value
and the Exercise Price for all shares subject to exercise under any outstanding
Option shall not be deemed to impair any rights of the Optionee or increase the
Optionee's obligations under such Option.
SECTION 7: TERMS AND CONDITIONS OF AWARDS OR SALES
7.1 STOCK PURCHASE AGREEMENT. Each award or sale of shares of Stock under
the Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
7.2 DURATION OF OFFERS. Unless otherwise provided in the Stock Purchase
Agreement, any right to acquire shares of Stock under the Plan (other than an
Option) shall automatically expire if not exercised by the Purchaser within 30
days after the grant of such right was communicated to the Purchaser by the
Company.
7.3 PURCHASE PRICE.
-9-
7.3.1 IN GENERAL. Each Stock Purchase Agreement shall state the
price at which the Stock subject to such Stock Purchase Agreement may be
purchased (the "PURCHASE PRICE"), which, with respect to Stock Purchase Rights,
shall be determined in the sole discretion of the Administrator; PROVIDED,
HOWEVER, that the Purchase Price shall be no less than 85% of the Fair Market
Value of the shares of Stock on either the Date of Grant or the date of purchase
of the Purchase Right.
7.3.2 TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not
be eligible for designation as a Purchaser unless the Purchase Price (if any) is
at least 100% of the Fair Market Value of a Share.
7.3.3 NON APPLICABILITY. The Purchase Price restrictions required by
SECTIONS 7.3.1 and 7.3.2 shall be inoperative if a determination is made by
counsel for the Company that such Purchase Price restrictions are not required
in the circumstances under applicable federal or state securities laws.
7.3.4 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
in a form described in SECTION 8.
7.4 WITHHOLDING TAXES. As a condition to the purchase of shares, the
Purchaser shall make such arrangements as the Board may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such purchase.
SECTION 8: PAYMENT; RESTRICTIONS
8.1 GENERAL RULE. The entire Purchase Price or Exercise Price of shares
issued under the Plan shall be payable in full by, as applicable, cash or check
for an amount equal to the aggregate Purchase Price or Exercise Price for the
number of shares being purchased, or in the discretion of the Administrator,
upon such terms as the Administrator shall approve, (i) in the case of an
Option, by a copy of instructions to a broker directing such broker to sell the
Stock for which such Option is exercised, and to remit to the Company the
aggregate Exercise Price of such Options (a "CASHLESS EXERCISE"), (ii) in the
case of an Option or a sale of Stock, by paying all or a portion of the Exercise
Price or Purchase Price for the number of shares being purchased by tendering
Stock owned by the Optionee, duly endorsed for transfer to the Company, with a
Fair Market Value on the date of delivery equal to the aggregate Purchase Price
of the Stock with respect to which such Option or portion thereof is thereby
exercised or Stock acquired (a "STOCK-FOR-STOCK EXERCISE") or (iii) by a
stock-for-stock exercise by means of attestation whereby the Optionee identifies
for delivery specific shares of Stock already owned by Optionee and receives a
number of shares of Stock equal to the difference between the Option shares
thereby exercised and the identified attestation shares of Stock (an
"ATTESTATION EXERCISE").
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8.2 WITHHOLDING PAYMENT. The Purchase Price or Exercise Price shall
include payment of the amount of all federal, state, local or other income,
excise or employment taxes subject to withholding (if any) by the Company or any
parent or subsidiary corporation as a result of the exercise of a Stock Option.
The Optionee may pay all or a portion of the tax withholding by cash or check
payable to the Company, or, at the discretion of the Administrator, upon such
terms as the Administrator shall approve, by (i) cashless exercise or
attestation exercise; (ii) stock-for-stock exercise; (iii) in the case of an
Option, by paying all or a portion of the tax withholding for the number of
shares being purchased by withholding shares from any transfer or payment to the
Optionee ("STOCK WITHHOLDING"); or (iv) a combination of one or more of the
foregoing payment methods. Any shares issued pursuant to the exercise of an
Option and transferred by the Optionee to the Company for the purpose of
satisfying any withholding obligation shall not again be available for purposes
of the Plan. The Fair Market Value of the number of shares subject to Stock
Withholding shall not exceed an amount equal to the applicable minimum required
tax withholding rates.
8.3 SERVICES RENDERED. At the discretion of the Administrator, shares of
Stock may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award.
8.4 PROMISSORY NOTE. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, in the discretion of the Administrator, upon
such terms as the Administrator shall approve, all or a portion of the Exercise
Price or Purchase Price (as the case may be) of shares issued under the Plan may
be paid with a full-recourse promissory note; PROVIDED, HOWEVER, that payment of
any portion of the Exercise Price by promissory note shall not be permitted
where such loan would be prohibited by applicable laws, regulations and rules of
the Securities and Exchange Commission and any other governmental agency having
jurisdiction. However, in the event there is a stated par value of the shares
and applicable law requires, the par value of the shares, if newly issued, shall
be paid in cash or cash equivalents. The shares shall be pledged as security for
payment of the principal amount of the promissory note and interest thereon. The
interest rate payable under the terms of the promissory note shall not be less
than the minimum rate (if any) required to avoid the imputation of additional
interest under the Code. Subject to the foregoing, the Administrator (at its
sole discretion) shall specify the term, interest rate, amortization
requirements (if any) and other provisions of such note. Unless the
Administrator determines otherwise, shares of Stock having a Fair Market Value
at least equal to the principal amount of the loan shall be pledged by the
holder to the Company as security for payment of the unpaid balance of the loan
and such pledge shall be evidenced by a pledge agreement, the terms of which
shall be determined by the Administrator, in its discretion; PROVIDED, HOWEVER,
that each loan shall comply with all applicable laws, regulations and rules of
the Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.
8.5 EXERCISE/PLEDGE. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so allows, in the discretion of the Administrator, upon such
terms as the Administrator shall approve, payment may be made all or in part by
the delivery (on a form prescribed by the Administrator) of an irrevocable
direction to pledge shares to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan proceeds
to the Company in payment of all or part of the Exercise Price and any
withholding taxes.
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8.6 WRITTEN NOTICE. The purchaser shall deliver a written notice to the
Administrator requesting that the Company direct the transfer agent to issue to
the purchaser (or to his designee) a certificate for the number of shares of
Common Stock being exercised or purchased or, in the case of a cashless exercise
or share withholding exercise, for any shares that were not sold in the cashless
exercise or withheld.
8.7 REPURCHASE RIGHTS. Each Stock Purchase Agreement may provide that the
Company may repurchase the Participant's Rights as provided in this SECTION 8.7
(the "REPURCHASE RIGHT").
8.7.1 REPURCHASE PRICE. The Repurchase Right shall be exercisable at
a price equal to the Purchase Price.
8.7.2 EXERCISE OF REPURCHASE RIGHT. A Repurchase Right may be
exercised only within 90 days after the termination of the Participant's Service
for cash or for cancellation of indebtedness incurred in purchasing the shares;
PROVIDED, HOWEVER, the Repurchase Right shall lapse at least as rapidly as to
20% of the Restricted Stock purchased hereunder each year over a period of five
years from the date the Restricted Stock is purchased.
8.8 TERMINATION OF REPURCHASE RIGHT. Each Stock Purchase Agreement shall
provide that the Repurchase Rights shall have no effect with respect to, or
shall lapse and cease to have effect when a determination is made by counsel for
the Company that such Repurchase Rights are not permitted under applicable
federal or state securities laws.
8.9 NO TRANSFERABILITY. Except as provided herein, a Participant may not
assign, sell or transfer Rights, in whole or in part, other than by will or by
operation of the laws of descent and distribution.
8.9.1 PERMITTED TRANSFER OF NON-QUALIFIED OPTION. The Administrator,
in its sole discretion may permit the transfer of a Non-Qualified Option (but
not an ISO or Stock Purchase Right) as follows: (i) by gift to a member of the
Participant's immediate family or (ii) by transfer by instrument to a trust
providing that the Option is to be passed to beneficiaries upon death of the
trustor (either or both (i) or (ii) referred to as a "PERMITTED TRANSFEREE").
For purposes of this SECTION 8.9.1, "IMMEDIATE FAMILY" shall mean the Optionee's
spouse (including a former spouse subject to terms of a domestic relations
order); child, stepchild, grandchild, child-in-law; parent, stepparent,
grandparent, parent-in-law; sibling and sibling-in-law, and shall include
adoptive relationships.
8.9.2 CONDITIONS OF PERMITTED TRANSFER. A transfer permitted under
this SECTION 8.9 hereof may be made only upon written notice to and approval
thereof by Administrator. A Permitted Transferee may not further assign, sell or
transfer the transferred Option, in whole or in part, other than by will or by
operation of the laws of descent and distribution. A Permitted Transferee shall
agree in writing to be bound by the provisions of this Plan.
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SECTION 9: ADJUSTMENTS; MARKET STAND-OFF
9.1 EFFECT OF CERTAIN CHANGES.
9.1.1 STOCK DIVIDENDS, SPLITS, ETC. If there is any change in the
number of outstanding shares of Stock by reason of a stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification, then
(i) the number of shares of Stock available for Rights, (ii) the number of
shares of Stock covered by outstanding Rights and (iii) the Exercise Price or
Purchase Price of any Stock Option or Purchase Right, in effect prior to such
change, shall be proportionately adjusted by the Administrator to reflect any
increase or decrease in the number of issued shares of Stock; PROVIDED, HOWEVER,
that any fractional shares resulting from the adjustment shall be eliminated.
9.1.2 LIQUIDATION, DISSOLUTION, MERGER OR CONSOLIDATION. In the
event of a dissolution or liquidation of the Company, or any corporate
separation or division, including, but not limited to, a split-up, a split-off
or a spin-off, or a sale of substantially all of the assets of the Company; a
merger or consolidation in which the Company is not the Surviving Entity; a
reverse merger in which the Company is the Surviving Entity, but the shares of
Company stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or the transfer of more than 80% of the then outstanding
voting stock of the Company to another person or entity, then, the Company, to
the extent permitted by applicable law, but otherwise in its sole discretion may
provide for: (i) the continuation of outstanding Rights by the Company (if the
Company is the Surviving Entity); (ii) the assumption of the Plan and such
outstanding Rights by the Surviving Entity or its parent; (iii) the substitution
by the Surviving Entity or its parent of Rights with substantially the same
terms for such outstanding Rights; or (iv) the cancellation of such outstanding
Rights without payment of any consideration, provided that if such Rights would
be canceled in accordance with the foregoing, the Participant shall have the
right, exercisable during the later of the ten-day period ending on the fifth
day prior to such merger or consolidation or ten days after the Administrator
provides the Rights holder a notice of cancellation, to exercise the vested
portion of such Rights in whole or in part, or, if provided for by the
Administrator using its sole discretion in a notice of cancellation, to exercise
such Rights in whole or in part without regard to any vesting provisions in the
Rights agreement.
9.1.3 FURTHER ADJUSTMENTS. Subject to SECTION 9.1.2, the
Administrator shall have the discretion, exercisable at any time before a sale,
merger, consolidation, reorganization, liquidation or Change in Control, to take
such further action as it determines to be necessary or advisable, and fair and
equitable to Participants, with respect to Rights. Such authorized action may
include (but shall not be limited to) establishing, amending or waiving the
type, terms, conditions or duration of, or restrictions on, Rights so as to
provide for earlier, later, extended or additional time for exercise and other
modifications, and the Administrator may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Administrator may take such action before or after granting
Rights to which the action relates and before or after any public announcement
with respect to such sale, merger, consolidation, reorganization, liquidation or
Change in Control that is the reason for such action.
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9.1.4 PAR VALUE CHANGES. In the event of a change in the Stock of
the Company as presently constituted which is limited to a change of all of its
authorized shares with par value, into the same number of shares without par
value, or a change in the par value, the shares resulting from any such change
shall be "Stock" within the meaning of the Plan.
9.2 DECISION OF ADMINISTRATOR FINAL. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Administrator, whose determination in that respect shall be
final, binding and conclusive; PROVIDED, HOWEVER, that each ISO granted pursuant
to the Plan shall not be adjusted in a manner that causes such Stock Option to
fail to continue to qualify as an ISO without the prior consent of the Optionee
thereof.
9.3 NO OTHER RIGHTS. Except as hereinbefore expressly provided in this
SECTION 9, no Participant shall have any rights by reason of any subdivision or
consolidation of shares of Company stock or the payment of any dividend or any
other increase or decrease in the number of shares of Company stock of any class
or by reason of any of the events described in SECTION 9.1, above, or any other
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class; and, except as provided in this SECTION 9,
none of the foregoing events shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock subject to
Rights. The grant of a Right pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structures or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or part of its
business or assets.
9.4 MARKET STAND-OFF. Each Stock Option Agreement and Stock Purchase
Agreement may provide that, in connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended, the Participant
shall agree not to sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the repurchase of, or otherwise dispose or transfer for
value or otherwise agree to engage in any of the foregoing transactions with
respect to any Stock without the prior written consent of the Company or its
underwriters, for such period of time from and after the effective date of such
registration statement as may be requested by the Company or such underwriters
(the "MARKET STAND-OFF").
SECTION 10: AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Plan at any time and for any
reason. At the time of such amendment, the Board shall determine, upon advice
from counsel, whether such amendment will be contingent on shareholder approval.
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SECTION 11: GENERAL PROVISIONS
11.1 GENERAL RESTRICTIONS.
11.1.1 NO VIEW TO DISTRIBUTE. The Administrator may require each
person acquiring shares of Stock pursuant to the Plan to represent to and agree
with the Company in writing that such person is acquiring the shares without a
view towards distribution thereof. The certificates for such shares may include
any legend that the Administrator deems appropriate to reflect any restrictions
on transfer.
11.1.2 LEGENDS. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Administrator may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
laws, and the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
11.1.3 NO RIGHTS AS SHAREHOLDER. Except as specifically provided in
this Plan, a Participant or a transferee of a Right shall have no rights as a
shareholder with respect to any shares covered by the Rights until the date of
the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in SECTION 9.1, hereof.
11.2 OTHER COMPENSATION ARRANGEMENTS. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
11.3 DISQUALIFYING DISPOSITIONS. Any Participant who shall make a
"DISPOSITION" (as defined in Section 424 of the Code) of all or any portion of
an ISO within two years from the date of grant of such ISO or within one year
after the issuance of the shares of Stock acquired upon exercise of such ISO
shall be required to immediately advise the Company in writing as to the
occurrence of the sale and the price realized upon the sale of such shares of
Stock.
11.4 REGULATORY MATTERS. Each Stock Option Agreement and Stock Purchase
Agreement shall provide that no shares shall be purchased or sold thereunder
unless and until (i) any then applicable requirements of state or federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel and (ii) if required to do so by the Company, the
Optionee or Offeree shall have executed and delivered to the Company a letter of
investment intent in such form and containing such provisions as the Board or
Committee may require.
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11.5 RECAPITALIZATIONS. Each Stock Option Agreement and Stock Purchase
Agreement shall contain provisions required to reflect the provisions of SECTION
9.
11.6 DELIVERY. Upon exercise of a Right granted under this Plan, the
Company shall issue Stock or pay any amounts due within a reasonable period of
time thereafter. Subject to any statutory obligations the Company may otherwise
have, for purposes of this Plan, thirty days shall be considered a reasonable
period of time.
11.7 OTHER PROVISIONS. The Stock Option Agreements and Stock Purchase
Agreements authorized under the Plan may contain such other provisions not
inconsistent with this Plan, including, without limitation, restrictions upon
the exercise of the Rights, as the Administrator may deem advisable.
SECTION 12: INFORMATION TO PARTICIPANTS
To the extent necessary to comply with California law, the Company each
year shall furnish to Participants its balance sheet and income statement unless
such Participants are limited to key Employees whose duties with the Company
assure them access to equivalent information.
SECTION 13: EFFECTIVE DATE OF PLAN
The effective date of this Plan is May 10, 2004. Our stockholders approved
the Stock Plan on June 3, 2004, and approved amendments to the Plan on [ ].
SECTION 14: TERM OF PLAN
The Plan shall terminate automatically on May 10, 2014, but no later than
prior to the 10th anniversary of the effective date. No Right shall be granted
pursuant to the Plan after such date, but Rights theretofore granted may extend
beyond that date. The Plan may be terminated on any earlier date pursuant to
SECTION 10 hereof.
SECTION 15: EXECUTION.
The undersigned Secretary of the Company certifies that on [ ], the
stockholders of the Company approved the Plan, as amended, by the requisite
vote.
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
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By: Yvonne Wang
Its: Company Secretary
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