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 Filed By A Party Other Than The Registrant
Check
the appropriate box:
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[
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Preliminary
Proxy Statement
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[
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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[
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Definitive
Additional Materials
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[
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Soliciting
Material Pursuant to Rule 14a-11(c) or Rule
14a-12
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PACIFICNET
INC.
(Name
of Registrant as Specified In Its Charter)
Payment
of Filing Fee (Check the appropriate box):
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[X]
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No
fee required
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[
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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TITLE
OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION
APPLIES:
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________________________________________________________________________________
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(2)
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AGGREGATE
NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
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________________________________________________________________________________
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(3)
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PER
UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED PURSUANT
TO
EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE FILING
FEE IS
CALCULATED AND STATE HOW IT WAS DETERMINED):
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________________________________________________________________________________
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(4)
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PROPOSED
MAXIMUM AGGREGATE VALUE OF TRANSACTION:
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________________________________________________________________________________
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(5)
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TOTAL
FEE PAID:
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________________________________________________________________________________
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[
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Fee
previously paid with preliminary materials.
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[
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the form or schedule and the date of its filing.
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(1)
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AMOUNT
PREVIOUSLY PAID:
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________________________________________________________________________________
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(2)
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FORM,
SCHEDULE OR REGISTRATION STATEMENT NO.:
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________________________________________________________________________________
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(3)
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FILING
PARTY:
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________________________________________________________________________________
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(4)
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DATE
FILED:
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________________________________________________________________________________
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EXPLANATORY
NOTE
The
recently filed Proxy Statement was modified to change the number of issued
and
outstanding shares of common stock entitled to vote as of the record date
from
12,032,684 to 11,671,836. This change is reflected on page 1 under the
section
entitled “General Information About Voting - Who Can Vote?” and on page 3 under
the section entitled “Outstanding Shares and Voting Rights.”
Also
the
Security Ownership of Management and Certain
Beneficial Owners table on page 3 has been modified, as necessary, to
revise the
percentages set forth in the column entitled “% of Common Stock Beneficially
Owned” to reflect the correct percentages as a result of the change in the
number
of
issued and outstanding shares of common stock entitled to vote as of
the record
date from 12,032,684 to 11,671,836.
PACIFICNET INC.
(Name
of Registrant as Specified In Its Charter)
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON DECEMBER 4, 2006
TO
THE STOCKHOLDERS OF PACIFICNET INC:
The
Annual Meeting of the Stockholders of PacificNet Inc., a Delaware corporation
(the “Company”), will be held on December 4, 2006, at 1:00 p.m. (Beijing time),
at the Company's executive offices located at Room
2309, Building A, TimeCourt, No.6 Shuguang Xili, Chaoyang District, Beijing,
China 100028, for the following purposes:
1.
To elect seven (7) directors to the Board of Directors of the Company to serve
until the next annual meeting of stockholders and until their successors are
duly elected and qualified;
2.
To ratify the appointment of Clancy and Co., P.L.L.C., as the Company's
independent auditors;
3.
To
consider and act upon a proposal to amend the Company’s 2005 Stock Option Plan;
and
4.
To transact any other business as may properly be presented at the Annual
Meeting or any adjournment or postponement thereof.
Stockholders
of record at the close of business on October 26, 2006 (the "Record Date")
are
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof.
Your
attention is directed to the Proxy Statement accompanying this Notice for a
more
complete statement of matters to be considered at the Annual
Meeting.
YOUR
VOTE IS IMPORTANT. YOU ARE REQUESTED TO CAREFULLY READ THE PROXY STATEMENT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
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By
Order of the Board of Directors,
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/s/
Victor Tong
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Name:
Victor Tong
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Title:
President, and Executive
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Director
of PacificNet Inc.
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Dated:
October 26, 2006
PACIFICNET INC.
PROXY
STATEMENT
FOR
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON DECEMBER 4, 2006
INTRODUCTION
Your
proxy is solicited by the Board of Directors of PacificNet Inc., a Delaware
corporation (the “Company”), for use at the Annual Meeting of Stockholders to be
held on December 4, 2006, at 1:00 p.m. (Beijing Time), at the Company's
executive offices located at Room
2309, Building A, TimeCourt, No.6 Shuguang Xili, Chaoyang District, Beijing,
China 100028 and
at any adjournment thereof (the "Annual Meeting"), for the following
purposes:
1.
To elect seven (7) directors to the Board of Directors of the Company to serve
until the next annual meeting of stockholders and until their successors are
duly elected and qualified;
2.
To ratify the appointment of Clancy and Co., P.L.L.C. as the Company's
independent auditors;
3.
To
consider and act upon a proposal to amend the Company’s 2005 Stock Option Plan
(the “Plan”); and
4.
To transact any other business as may properly be presented at the Annual
Meeting or any adjournment or postponement thereof.
The
Board of Directors has set October 26, 2006 as the record date (the "Record
Date") to determine those holders of Common Stock, who are entitled to notice
of, and to vote at, the Annual Meeting. The Company expects that the Notice
of
Annual Meeting, Proxy Statement and form of proxy will first be mailed to
stockholders on or about November 2, 2006.
GENERAL
INFORMATION ABOUT VOTING
WHO
CAN VOTE?
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You
can vote your shares of Common Stock if our
records show that you owned the shares on the Record Date. As of
the close
of business on the Record Date, a total of 11,671,836 shares of
Common
Stock were outstanding and are entitled to vote at the Annual Meeting.
Each share of Common Stock is entitled to one (1) vote on matters
presented at the Annual
Meeting.
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HOW
DO I VOTE BY PROXY?
Follow
the instructions on the enclosed proxy card to vote on each proposal to be
considered at the Annual Meeting. Sign and date the proxy card and mail it
back
to us in the enclosed envelope.
The
enclosed proxy, when properly signed and returned to the Company, will be voted
by the proxy holders at the Annual Meeting as directed by the proxy. Proxies
which are signed by stockholders but which lack any such specification will
be
voted in favor of the proposals set forth in the Notice of Annual
Meeting.
WHAT
IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The
matters described in this proxy statement are the only matters we know of that
will be voted on at the Annual Meeting. If other matters are properly presented
at the meeting, the proxy holders will vote your shares as they see
fit.
1
Yes.
A proxy card may be revoked by a stockholder at any time before its exercise
at
the Annual Meeting by giving Mike Fei, our Secretary, a written notice revoking
your proxy card, or a duly executed proxy bearing a later date, or by attendance
at the Annual Meeting and electing to vote in person.
CAN
I VOTE IN PERSON AT THE ANNUAL MEETING RATHER THAN BY COMPLETING THE PROXY
CARD?
Although
we encourage you to complete and return the proxy card to ensure that your
vote
is counted, you can attend the Annual Meeting and vote your shares in
person.
HOW
ARE VOTES COUNTED?
We
will hold the Annual Meeting if holders of a majority of the shares of Common
Stock entitled to vote in person or by proxy either sign and return their proxy
cards or attend the meeting. If you sign and return your proxy card, your shares
will be counted to determine whether we have a quorum even if you abstain or
fail to vote on any of the proposals listed on the proxy card.
The
election of directors under proposal 1 will be by the affirmative vote of a
plurality of the shares of Common Stock represented in person or by proxy at
the
Annual Meeting. Proposals 2 and 3 shall be approved upon the affirmative vote
of
a majority of the shares of Common Stock represented in person or by proxy
at
the Annual Meeting. An abstention with respect to Proposal 2 or Proposal 3,
will
have the effect of a vote “AGAINST” such proposal. Unless otherwise stated, the
enclosed proxy will be voted in accordance with the instructions
thereon.
Brokers
holding shares of the Company's Common Stock in street name who do not receive
instructions are entitled to vote on the election of Directors and the
ratification of the Company's independent auditors. ”Broker non-votes" where a
broker submits a proxy but does not have authority to vote a customer's shares
on any non-routine proposal, such as the amendment to the Plan, would not be
considered entitled to vote on that proposal and therefore, will have no legal
effect on the vote of that particular matter.
WHO
PAYS FOR THIS PROXY SOLICITATION?
We
do. In addition to sending you these materials, some of our employees may
contact you by telephone, by mail, by fax, by email, or in person. None of
these
employees will receive any extra compensation for doing this.
GENERAL
INFORMATION ABOUT THE PROPOSALS
WHAT
PROPOSALS ARE STOCKHOLDERS BEING ASKED TO CONSIDER AT THE UPCOMING ANNUAL
MEETING?
In
proposal 1, we are seeking to elect seven (7) directors to serve on the board
of
directors of the Company until the next Annual Meeting of Stockholders and
until
their successors are elected and qualified.
In
proposal 2, we are seeking ratification of the appointment of Clancy and Co.,
P.L.L.C. as the Company's independent auditors.
In
proposal 3, we
are
seeking the approval of an amendment to the Company’s Plan.
WHY
IS PACIFICNET SEEKING STOCKHOLDER APPROVAL FOR THESE PROPOSALS?
PROPOSAL
NO. 1: The Delaware General Corporate Law requires corporations to hold
elections for directors each year.
PROPOSAL
NO. 2. The Company appointed Clancy and Co., P.L.L.C. to serve as the Company's
independent auditors during fiscal year 2006. The Company elects to have its
stockholders ratify such appointment.
PROPOSAL
NO. 3. The Board has decided to amend the Company’s Plan to (1) provide for the
issuance of stock appreciation rights (SARs) to persons eligible to receive
awards under the Plan, (2) limit the number of awards, in any calendar year,
that may be granted to a person under the Plan, and (3) update the Plan to
comply with current applicable laws. Pursuant to the terms of the Plan, the
Board must receive stockholder approval for any amendment to the Plan to the
extent it is necessary or desirable to comply with applicable laws.
2
OUTSTANDING SHARES AND VOTING RIGHTS
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Stockholders
entitled to notice of, and to vote
at, the Annual Meeting and any adjournment thereof, are stockholders
of
record at the close of business on the Record Date. Persons who
are not
stockholders of record on the Record Date will not be allowed to
vote at
the Annual Meeting. At the close of business on the Record Date
there were
11,671,836 shares of Common Stock outstanding and entitled to vote.
We have no other voting securities were outstanding and entitled
to vote
as of the Record Date. Each share of Common Stock is entitled to
one (1)
vote on each matter to be voted upon at the Annual Meeting. Holders
of
Common Stock are not entitled to cumulate their votes for the election
of
directors.
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DELIVERY
OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS
Only
one
annual report and this proxy statement will be delivered to multiple
stockholders sharing an address unless we have received contrary instructions
from one or more of the stockholders. Upon written or oral request the Company
will deliver a separate copy of the annual report and this proxy statement
to a
stockholder at a shared address to which a single copy of the annual report
and
proxy statement was delivered. If you wish to receive a separate copy of the
annual report or this proxy statement, please notify the Company by calling
or
sending a letter to Mike Fei, Secretary at the Company’s executive offices
located at Room 2309, Building A, TimeCourt, No.6 Shuguang Xili, Chaoyang
District, Beijing, China 100028. PacificNet’s telephone number is +86 (10)
59225000.
SECURITY
OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The
following table sets forth as of October 26, 2006 the number of shares of our
Common Stock beneficially owned by (i) each person who is known by us to be
the
beneficial owner of more than five percent of the Company's Common Stock; (ii)
each director and nominee for election to the Board of Directors; (iii) each
of
the named executive officers in the Summary Compensation Table; and (iv) all
directors and executive officers as a group. Unless otherwise indicated, the
stockholders listed in the table have sole voting and investment power with
respect to the shares indicated.
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Name
And Address
Of
Beneficial Owner
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Number
Of Shares
Beneficially
Owned (1)
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%
Of Common Stock
Beneficially
Owned
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Sino
Mart Management Ltd. (2)
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16E,
Mei On Industrial Bldg, 17 Kung Yip Street, Kwai Chung, NT, Hong
Kong
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1,851,160
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15.9%
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Kin
Shing Li (3)
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Rm
3813, Hong Kong Plaza, 188 Connaught Road West, Hong Kong
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1,150,000
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9.9%
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ChoSam
Tong (4)
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16E,
Mei On Industrial Bldg, 17 Kung Yip Street, Kwai Chung, NT, Hong
Kong
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1,861,160
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15.9%
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Tony
Tong (5)
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347,391
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2.9%
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Victor
Tong (6)
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175,400
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1.5%
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Joseph
Levinson
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-0-
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*
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ShaoJian
(Sean) Wang(7)
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88,000
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*
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Michael
Chun Ha (8)
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10,000
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*
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Peter
Wang (8)
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11,000
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*
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Jeremy
Goodwin (8)
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6,000
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*
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Jin
Tao
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10,000
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*
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ALL
DIRECTORS AND OFFICERS AS A GROUP (8 PERSONS)
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647,791
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5.4%
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_______________
3
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*
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Indicates
less than one percent.
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**
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Unless
otherwise indicated, the address for each beneficial owner is: c/o
PacificNet Inc., Room 2309, Building A, TimeCourt, No. 6 Shuguang
Xili,
Chaoyang District, Beijing, China 100028.
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(1)
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Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission and generally includes voting or investment power
with
respect to the shares shown. Except as indicated by footnote and
subject
to community property laws where applicable, to our knowledge, the
stockholders named in the table have sole voting and investment power
with
respect to all common stock shares shown as beneficially owned by
them. A
person is deemed to be the beneficial owner of securities that can
be
acquired by such person within 60 days upon the exercise of options,
warrants or convertible securities (in any case, the "Currently
Exercisable Options"). Each beneficial owner's percentage ownership
is
determined by assuming that the Currently Exercisable Options that
are
held by such person (but not those held by any other person) have
been
exercised and converted.
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(2)
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Sino
Mart Management Ltd. is owned by Mr. ChoSam Tong, the father of Mr.
Tony
Tong.
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(3)
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Information
obtained from the Schedule 13D/A filed by Mr. Kin Shing Li on October
14,
2003.
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(4)
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Includes
shares of common stock of Sino Mart Management Ltd., which is owned
by Mr.
ChoSam Tong. Also includes 10,000 shares issuable upon exercise of
Currently Exercisable Options owned by Mr. ChoSam Tong.
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(5)
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Excludes
1,861,160 shares owned by Mr. ChoSam Tong, as to which shares Mr.
Tony
Tong disclaims beneficial ownership. Includes 163,000 shares issuable
upon
exercise of Currently Exercisable Options.
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(6)
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Excludes
1,861,160 shares owned by Mr. ChoSam Tong, as to which shares Mr.
Victor
Tong disclaims beneficial ownership. Includes 153,000 shares issuable
upon
exercise of Currently Exercisable Options.
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(7)
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Includes
59,000 shares issuable upon exercise of Currently Exercisable Options.
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(8)
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Represents
shares issuable upon exercise of Currently Exercisable Options.
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ELECTION
OF DIRECTORS
Seven
(7) director nominees are seeking to be elected at the Annual Meeting, to hold
office until the next Annual Meeting of Stockholders and until their successors
are elected and qualified. Management expects that each of the nominees will
be
available for election, but if any of them is not a candidate at the time the
election occurs, it is intended that such proxy will be voted for the election
of another nominee to be designated by the Board of Directors to fill any such
vacancy.
MANAGEMENT
DIRECTORS,
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
Set
forth below are the names of the directors, executive officers and key employees
of the Company as of October 26, 2006.
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Name
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Age
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Title
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Tony
I. Tong
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38
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Chairman,
Chief Executive Officer, and Director
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Victor
Tong
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35
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President,
and Director
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Joseph
Levinson
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30
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Chief
Financial Officer
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Mike
Fei
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38
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Company
Secretary and General Counsel
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ShaoJian
(Sean) Wang
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41
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Director
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Michael
Chun Ha(2)(3)
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36
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Independent
Director
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Peter
Wang(1)(3)
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51
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Independent
Director
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Jeremy
Goodwin(1)(3)
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33
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Independent
Director
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Tao
Jin(1)(2)(3)
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38
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Independent
Director
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______________
(1)
Member of the Audit Committee
(2)
Member of the Nominating Committee
(3)
Member of the Compensation Committee
Executive
officers of the Company are appointed at the discretion of the Board of
Directors with no fixed term. There are no family relationships between or
among
any of the executive officers or directors of the Company other than the
relationship between Mr. Tony Tong and Mr. Victor Tong.
4
INFORMATION ABOUT DIRECTOR NOMINEES
Set
forth below is certain information with respect to each director
nominee.
Mr.
Tony Tong, aged 38, is the Chairman, CEO, Executive Director, and co-founder
of
PacificNet since 1999. From 1995 to 1997, Mr. Tong served as the Chief
Information Officer of DDS Inc., a leading SAP-ERP consulting company in the
USA, which was later acquired by CIBER, Inc. (NYSE: CBR). From 1993 to 1994,
Mr.
Tong worked for Information Advantage, Inc. (Nasdaq:IACO), a leading business
intelligence, Data-Mining and CRM technology provider serving Fortune 500
clients. IACO consummated an IPO on Nasdaq in 1997 and was later acquired by
Sterling Software and Computer Associates (NYSE:CA). From 1992 to 1993, Mr.
Tong
worked as a Business Process Re-engineering Consultant at Andersen Consulting
(now Accenture, NYSE:ACN). From 1990 to 1991, Mr. Tong worked for ADC
Telecommunications (Nasdaq:ADCT), a global supplier of telecom equipment. Mr.
Tong's R&D achievements include being the inventor and patent holder of US
Patent Number 6,012,066 (granted by US Patent and Trademark Office) titled
"Computerized Work Flow System, an Internet-based workflow management system
for
automated web creation and process management." Mr. Tong also serves on the
board of advisors of Fortune Telecom (listed on Hong Kong Stock Exchange:
0110.HK), a leading distributor of mobile phones, PDAs, telecom services, and
accessories in China and Hong Kong. Mr. Tong is a frequent speaker on technology
investment in China, and was invited to present at the Fourth APEC International
Finance & Technology Summit in 2001. Mr. Tong is the Vice Chairman (PRC) of
Hong Kong Call Centre Association, a Fellow of Hong Kong Institute of Directors,
a consultant on privatization and securitization for China's State-owned Assets
Supervision and Administration Commission (SASAC), and a frequent speaker for
LexisNexis, a licensed Continued Professional Development (CPD) trainer, on
China investment. Mr. Tong graduated with Bachelor of Mechanical/Industrial
Engineering Degree from the University of Minnesota and served on the Computer
Engineering Department Advisory Board and was an Adjunct Professor at the
University of Minnesota, USA.
Mr.
Victor Tong, aged 35, is the President of PacificNet, and has served on our
board as an Executive Director since 2002. Mr. Victor Tong gained his
consulting, systems integration, and technical expertise through his experience
at Andersen Consulting (now Accenture, NYSE:ACN), American Express Financial
Advisors (IDS), 3M, and the Superconductivity Center at the University of
Minnesota. In 1994, Victor co-founded Talent Information Management ("TIM"),
a
leading internet application development and consulting company in Minnesota.
PacificNet.com was originally founded as an operating division of
TIM. In 1997, Mr. Tong successfully sold GoWeb internet consulting division
of
TIM to Key Investment, a leading technology and media investment company owned
by Vance Opperman, a billionaire in Minnesota who founded West Publishing.
Mr.
Tong became the President of KeyTech, a leading information technology
consulting company based in Minnesota. In 1999, he was recognized in "City
Business 40 Under 40" as one of the future business and community leaders in
Minnesota. Mr. Tong won the Student Commencement Speaker Award while graduated
with honors with a Bachelor of Science in Physics from the University of
Minnesota. Mr. Tong was an adjunct professor at the College of Software of
Beihang University, one of the top software colleges in China. Victor Tong
is
the brother of Tony Tong.
Mr.
Joseph Levinson, aged 30, joined PacificNet as Chief Financial Officer in
September 2006. Mr. Levinson first came to China 10 years ago to take an
executive position at Hong Kong-listed China Strategic Holdings ("CSH",
HKSE:0235.HK), one of the earliest foreign venture capital firms involved in
China. His responsibilities at CSH included its subsidiary China Tire (formerly
listed as NYSE: TIR), one of the first mainland Chinese companies to list on
the
New York Stock Exchange, as well as other overseas listed companies. After
CSH,
Mr. Levinson worked at KPMG and later Deloitte and Touche. At age 24, Mr.
Levinson became the youngest manager in Deloitte's New York office. After
gaining experience as a manager in New York at the Big-4, Levinson left to
devote himself to opportunities in China. In the last 5 years, Mr. Levinson
has
held senior positions in Chinese companies, including CFO of a China-based
media
company, a consultant for various Chinese companies seeking to list overseas,
and most recently, as the CFO of an OTCBB-listed Chinese pharmaceutical company.
Mr. Levinson has been a CPA since 1996. He completed his bachelors degree in
1994 in 2.5 years, graduating summa cum laude, and scored in the top 1% of
the
November 1994 CPA exam
Mr.
Mike
Fei, aged 38, is the Company Secretary and General Counsel for PacificNet.
Mr.
Fei joined PacificNet in 2004 as in-house PRC Chief Legal Counsel for
PacificNet's China Operations. Mr. Fei is a Member of the All-China Bar
Association and holds a Master of Law degree from the University of New South
Wales of Australia. Mr. Fei has 8 years of experience in the legal profession
and dealt with more than 200 cases of litigation and arbitration which related
to the issues of foreign investment, bankruptcy, merging, commercial contract
and debt disputes.
Mr.
ShaoJian (Sean) Wang, aged 41, has served on our board as a Director since
2002.
From 2002 to May 2006, Mr. Wang also served as Chief Financial Officer of
PacificNet. Mr.
Wang
is now President and Chief Operating Officer of Hurray! Holding Co.,
Ltd.(Nasdaq:HRAY), a NASDAQ-listed Chinese VAS company. Previously, Mr. Sean
Wang was COO and acting Chief Financial Officer (CFO) at GoVideo and Opta
Corporation, a public listed consumer electronics company in the US controlled
by TCL, a leading consumer electronics maker in China. From 1987 to 2002, he
served as a country manger at Ecolab, Inc. and as the managing director at
Thian
Bing Investments PTE, Ltd. From 1993 to 2002, Mr.
Wang served as managing director of Thian Bing Investments PTE, Ltd. where
he
managed the Singapore-based company's multi-million dollar investment operations
and identified strategic and investment opportunities. From 1987 to 1993, Mr.
Wang held a number of increasingly important positions with Minnesota-based
Ecolab Inc., culminating in his serving as general manager for the company's
Indonesia operations. Mr.
Sean
Wang attended Peking University and received a BS in Economics from Hamline
University and an MBA from Carlson School of Management, University of
Minnesota.
5
Mr. Peter Wang, aged 51, has served on our board as an Independent Director since December 24, 2003. Mr. Wang is currently the Chairman and CEO of China Biopharma, Inc. (www.chinabiopharma.com.cn, OTCBB:CPBC, formerly Techedge Inc.), a fast growing developer, producer and distributor of human vaccine products in China, including human vaccines against influenza, hemorrhagic fever, and Japanese Encephalitis. Mr. Wang was a co-founder of Unitech Telecom (now named UTStarcom, NASDAQ:UTSI). Under his management, UTStarcom created the first digital loop carrier system and installed the first PHS system in China. As an entrepreneur, he has successfully co-founded and built other ventures in the US, including World Communication Group and World PCS, Inc. Mr. Wang has more than 20 years of experience in communication products and services. Mr. Wang is Co-Chairman of Business Advisory Council of the National Republican Congressional Committee. In 2004, Mr. Wang received the Outstanding 50 Asian Americans In Business award for his entrepreneurial achievement and technology leadership in the telecommunications industry. Mr. Wang holds a B.S. in Math & Computer Science and a M.S. in Electrical Engineering from University of Illinois, as well as an MBA in Marketing from Southeast-Nova University.
Mr.
Michael Chun Ha, aged 36, has served on our board as an Independent Director
since December 24, 2003. Mr. Ha graduated from the Faculty of Law, University
of
Hong Kong in 1994 with a bachelor degree in law and was admitted as a solicitor
of the High Court of the Hong Kong Special Administrative Region in 1997 and
a
solicitor of the Supreme Court of England and Wales in 1998. From 1995 to 2002,
Mr. Ha worked as lawyer in a number of international and Hong Kong prestigious
law firms, specialize and has extensive experience in the areas of corporate
finance, securities offerings, takeovers, cross-border mergers and acquisitions,
venture capital, corporate restructuring, regulatory and compliance issues,
project finance, and general commercial transactions and services in Hong Kong
and the People's Republic of Hong Kong. In 2002, Mr. Ha commence his own
practice in the trade name of "Ha and Ho Solicitors" and the firm is specialize
in the areas of general commercial transactions, corporate finance and civil
and
criminal litigations. Mr. Ha is also the company secretary of, Shanxi Central
Pharmaceutical International Company Limited, a Hong Kong main board listed
company from year 2000 and a director of a private investment company, Metro
Concord Investment Limited, from year 2002.
Mr.
Tao Jin, aged 38, has served on our board as an Independent Director since
January 6, 2005. Mr. Jin is a resident partner at Jun He Law Offices
(www.JunHe.com), a leading Chinese law firm specializing in commercial legal
practice with over 160 lawyers and offices in Beijing, Shanghai, Shenzhen,
Dalian, Haikou and New York. Founded in April 1989, Jun He was one of the first
private law firms formed in China, and has been a pioneer in the re-established
Chinese legal profession with a focus in representing foreign clients in
business activities throughout China. Over the past few years, Jun He has been
honored a number of times as one of the best law firms in China by the Ministry
of Justice of China. With a team of more than 160 well-trained lawyers, Jun
He
is one of the largest and most established law firms in China. Prior to joining
Jun He, Mr. Jin served as Vice President and Assistant General Counsel of J.P.
Morgan Chase Bank, as the head legal counsel for capital markets transactions
in
Asia, and for JPMorgan's M&A transactions in China. Mr. Jin joined Jun He as
a partner in 2005. From 1999 to 2002, Mr. Jin served as a Senior New York
Qualified Lawyer for Sullivan & Cromwell, which represented China Unicom,
PetroChina and China Telecom in their IPO's and dual listings in New York and
Hong Kong. From 1996 to 1999, Mr. Jin served as Associate Lawyer for Cleary,
Gottlieb Steen & Hamilton, which represented various Fortune 500 companies
and investment banks in public and private securities offerings and M&A
activities. Mr. Jin received his Juris Doctor in 1996 with high honors from
Columbia University, and received B.S. in Psychology in 1990 from Beijing
University.
The
proxies will be voted "FOR" the election of all of the above-named nominees
unless you indicate that the proxy shall not be voted for all or any one of
the
nominees. Nominees receiving a plurality of the votes cast will be elected
as
directors. If for any reason any nominee should, prior to the Annual Meeting,
become unavailable for election as a director, the proxies will be voted for
such substitute nominee, if any, as may be recommended by management. In no
event, however, shall the proxies be voted for a greater number of persons
than
the number of nominees named.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE
SEVEN NOMINEES FOR DIRECTOR SET FORTH HEREIN.
6
COMPLIANCE
WITH SECTION 16(a) OF EXCHANGE ACT
Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires our executive officers, directors and persons who beneficially own
more
than 10% of a registered class of our equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports
of
changes in ownership of our common stock and other equity securities. Such
executive officers, directors, and greater than 10% beneficial owners are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
filed by such reporting persons.
Based
solely on our review of such forms furnished to us and written representations
from certain reporting persons, we believe that the following executive officers
and directors failed to timely file reports under Section 16 of the Exchange
Act
during the fiscal year ended December 31, 2005:
|
·
|
Tony
Tong did not file one Form 4 reporting the exercise of stock options
and
three Form 4's each reporting the grant of stock options; and did
not file
a Form 5 for the year ended December 31,
2005;
|
|
·
|
Victor
Tong did not file one Form 4 reporting the exercise of a stock option
and
four Form 4's each reporting the grant of stock options, and did
not file
a Form 5 for the year ended December 31,
2005;
|
|
·
|
Shaojian
Wang did not file two Form 4's each reporting the exercise of stock
options and three Form 4's each reporting the grant of stock options,
and
did not file a Form 5 for the year ended December 31, 2005;
|
|
·
|
Michael
Chun Ha did not timely file one Form 4 reporting the exercise of
an option
and three Form 4's each reporting the grant of stock options, and
did not
timely file file a Form 5 for the year ended December 31, 2005;
|
|
·
|
Peter
Wang did not file three Form 4's each reporting the grant of stock
options, and did not timely file a Form 5 for the year ended December
31,
2005; and
|
|
·
|
Jeremy
Goodwin did not file three Form 4's each reporting the grant of stock
options, and did not timely file a Form 5 for the year ended December
31,
2005; and
|
|
·
|
Tao
Jin did not file three Form 4's each reporting the grant of stock
options,
and did not file a Form 5 for the year ended December 31, 2005.
|
BOARD
AND COMMITTEE MEETINGS
The
Board of Directors held seven meetings during 2005. No director attended fewer
than 75% of the meetings of the Board and any committee of which the director
was a member.
The
Board of Directors has a Nominating Committee, an Audit Committee, and a
Compensation Committee. The Board of Directors encourages all of its members
to
attend the Company's annual meeting, whether in person or by telephone
conference call, so that each director may listen to any concerns that
stockholders may have that are raised at an annual meeting. Continued lack
of
attendance at annual meetings without a valid excuse will be considered by
the
Nominating Committee when determining those Board members who will be
recommended to the Board of Directors for re-election. Two of the Board members
attended the 2004 Annual Meeting held on December 30, 2005.
NOMINATING
COMMITTEE
At
a board of directors meeting on September 23, 2005, the Board of Directors
approved a Nominating Committee, adopted a Nominating Committee Charter, and
elected two independent directors, Mr. Michael Ha and Mr. Tao Jin, to serve
on
the Nominating Committee. The Nominating Committee Charter is not available
on
the Company’s website. A copy of the Nominating Committee Charter was included
in the proxy statement for the Annual Meeting held on December 30, 2005.
7
PROCESS
FOR IDENTIFYING AND EVALUATING NOMINEES FOR DIRECTORS
The
Nominating Committee will accept recommendations for potential nominees for
director from any reasonable source, including current Board members, officers,
stockholders, employees, professional search firms or other persons. Anyone
wishing to recommend an individual for the Board of Directors should forward
the
name, address and biographical information of a potential nominee to the
Nominating Committee of the Board of Directors of PacificNet Inc, c/o PacificNet
Beijing office: Room 2309, Building A, TimeCourt, No.6 Shuguang Xili, Chaoyang
District, Beijing, China 100028 The Nominating Committee will evaluate a
potential nominee by personal interview, such interview to be conducted by
one
or more members of the Nominating Committee, and/or any other method the
Nominating Committee deems appropriate, which may, but need not, include
a
questionnaire. The Nominating Committee may solicit or receive information
concerning potential nominees from any source it deems appropriate. The
Nominating Committee need not engage in an evaluation process unless (i)
there
is a vacancy on the Board of Directors, (ii) a director is not standing for
re-election, or (iii) the Nominating Committee does not intend to recommend
the
nomination of a sitting director for re-election.
QUALIFICATIONS
OF CANDIDATES
A
nominee to the Board of Directors must have such experience in business or
financial matters as would make such nominee an asset to the Board of Directors
and may, under certain circumstances, be required to be "independent", as such
term is defined in the Nasdaq Marketplace Rules and applicable SEC regulations.
The Board of Directors may consider those factors it deems appropriate in
evaluating
director
nominees, including judgment, skill, diversity, strength of character,
experience with businesses and organizations comparable in size or scope to
the
Company, experience and skill relative to other Board members, and specialized
knowledge or experience. Depending upon the current needs of the Board, certain
factors may be weighed more or less heavily. In considering candidates for
the
Board, they evaluate the entirety of each candidate's credentials and do not
have any specific minimum qualifications that must be met by a nominee. They
will not evaluate candidates differently based on who has made the
recommendation.
PROCESS
FOR SENDING COMMUNICATIONS TO THE BOARD OF DIRECTORS.
The
Board of Directors maintains a process for stockholders to communicate with
the
Board. Stockholders wishing to communicate with the Board or any individual
director must mail a communication addressed to the Board or the individual
director to the Board of Directors, c/o PacificNet Beijing office: Room 2309,
Building A, TimeCourt, No.6 Shuguang Xili, Chaoyang District, Beijing, China
100028 or send an e-mail to BoardofDirectors@PacificNet.com. Any such
communication must state the number of shares of common stock beneficially
owned
by the stockholder making the communication. All of such communications will
be
forwarded to the full Board of Directors or to any individual director or
directors to whom the communication is directed unless the communication is
clearly of a marketing nature or is unduly hostile, threatening, illegal, or
similarly inappropriate, in which case we have the authority to discard the
communication or take appropriate legal action regarding the
communication.
AUDIT
COMMITTEE
The
Board of Directors adopted a written charter for the Audit Committee. The Audit
Committee's charter states that the responsibilities of the Audit Committee
shall include: nominating the Company's independent auditors and reviewing
any
matters that might impact the auditors' independence from the Company; reviewing
plans for audits and related services; reviewing audit results and financial
statements; reviewing with management the adequacy of the Company's system
of
internal accounting controls, including obtaining from independent auditors
management letters or summaries on such internal accounting controls;
determining the necessity and overseeing the effectiveness of the internal
audit
function; reviewing compliance with the U.S. Foreign Corrupt Practices Act
and
the Company's internal policy prohibiting insider trading in its Common Stock;
reviewing compliance with the SEC requirements for financial reporting and
disclosure of auditors' services and audit committee members and activities;
reviewing related-party transactions for potential conflicts of interest; and
reviewing with corporate management and internal and independent auditors the
policies and procedures with respect to corporate officers' expense accounts
and
perquisites, including their use of corporate assets. The Audit Committee met
four times during 2005.
The
Board of Directors has established an audit committee in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit
Committee are Messrs. Tao Jin, Jeremy Goodwin, and Peter Wang, each of whom
are
independent as defined in The Nasdaq National Market listing standards currently
in effect. None of the Audit Committee members is a current officer or employee
of the Company or any of its affiliates.
The
Board of Directors has determined that all of the members of the audit committee
qualify as an "audit committee financial expert" under the Securities and
Exchange Commission's definition.
8
REPORT
OF THE AUDIT COMMITTEE (1)
The
role of the Audit Committee is to assist the Board of Directors in its oversight
of the Company's financial reporting process. The Board of Directors, in its
business judgment, has determined that all members of the committee are
"independent" as required by applicable listing standards of the Nasdaq National
Market. The Committee operates pursuant to a Charter that was approved by the
Board in fiscal 2000. As set forth in the Charter, management of the Company
is
responsible for the preparation, presentation and integrity of the Company's
financial statements, accounting and financial reporting principles and internal
controls and procedures designed to assure compliance with accounting standards
and applicable laws and regulations. The independent auditors are responsible
for auditing the Company's financial statements and expressing an opinion as
to
their conformity with generally accepted accounting principles.
In
the performance of this oversight function, the Committee has reviewed and
discussed the audited financial statements with management and the independent
auditors. The Committee has discussed with the independent auditors the matters
required to be discussed by Statement of Auditing Standards No. 61, Communication
With Audit Committee,
as currently in effect. Finally, the Committee has received written disclosures
and the letter from the independent auditors required by Independence Standard
Board Standard No. 1, Independence
Discussions With Audit Committees,
as currently in effect, and has considered whether the provision of non-audit
services by the independent auditors to the Company is compatible with
maintaining the auditor's independence and has discussed with the auditors
the
auditors' independence.
The
members of the Audit Committee are not professionally engaged in the practice
of
auditing or accounting, are not experts in the fields of accounting or auditing,
including in respect of auditor independence. Members of the Committee rely
without independent verification on the information provided to them and on
the
representations made by management and the independent accountants. Accordingly,
the Audit Committee's oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or appropriate internal control and procedures designed
to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's consideration and discussions referred to
above do not assure that the audit of the Company's financial statements has
been carried out in accordance with generally accepted accounting principles
or
that the Company's auditors are in fact "independent".
Based
upon the reports, review and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Committee referred
to
above and in the Charter, the Committee recommended to the Board that the
audited financial statements be included in the Company's Annual Report on
Form
10-KSB for the year ended December 31, 2005, as filed with the Securities and
Exchange Commission.
Jeremy
Goodwin
Tao
Jin
Peter
Wang
April
15, 2006
|
(1)
|
The
material in the Audit Committee Report is not soliciting material,
is not
deemed filed with the SEC and is not incorporated by reference in
any
filing of the Company under the Securities Act of 1933, or the Securities
Exchange Act of 1934, whether made before or after the date of this
proxy
statement and irrespective of any general incorporation language
in such
filing.
|
9
COMPENSATION
COMMITTEE
The
Compensation Committee's charter states that it is the responsibility of the
Compensation Committee to make recommendations to the Board of Directors with
respect to all forms of compensation paid to our executive officers and to
such
other officers as directed by the Board and any other compensation matters
as
from time to time directed by the Board. Our stock option plan, however, is
currently administered by the full Board of Directors. The Compensation
Committee met one time during 2005. Our
compensation committee currently consists of Messrs. Jeremy Goodwin, Michael
Chun Ha, Tao Jin, and Peter Wang, who are all independent
directors.
CODE
OF
ETHICS
On
May
14, 2003, we adopted a code of ethics that applies to our Chief Executive
Officer and Chief Financial Officer, and other persons who perform similar
functions. Our Code of Ethics is intended to be a codification of the business
and ethical principles which guide us, and deter wrongdoing, to promote honest
and ethical conduct, to avoid conflicts of interest, and to foster full, fair,
accurate, timely and understandable disclosures, compliance with applicable
governmental laws, rules and regulations, the prompt internal reporting of
violations and accountability for adherence to this Code.
The
following table sets forth all cash compensation paid or to be paid by the
Company, as well as certain other compensation paid or accrued, during each
of
the Company's last three fiscal years to each named executive
officer.
|
Long
Term Compensation
|
||||||||||||||
|
Annual
Compensation
|
Awards
|
|||||||||||||
|
Name/Principal
Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Other
($)
|
Restricted
Stock
Award
($)
|
Stock
Options
|
All
Other
Comp.
($)(2)
|
|||||||
|
Tony
Tong, CEO
|
2005
|
$70,000
|
-
|
-
|
-
|
66,000
|
$8,000
|
|||||||
|
2004
|
$70,000
|
-
|
$24,000(1)
|
-
|
75,000
|
$4,000
|
||||||||
|
2003
|
$100,000
|
-
|
-
|
-
|
120,000
|
$3.000
|
||||||||
____________
(1)
This
amount represents a housing allowance.
(2)
Represents medical and life insurance premiums paid by the Company. Mr. Tong
has
no arrangement to receive any cash surrender amount under the life insurance
policy.
OPTION
GRANTS DURING 2005 FISCAL YEAR (INDIVIDUAL GRANTS)
|
Individual
Grants
|
Potential
Realizable Value At
Assumed
Annual
Rates
of Stock Price
Appreciation
For Option
Term (3)
|
|||||||||||
|
Name/Principal
Position
|
Number
of Securities Underlying Options/SARs
Granted
(1)
|
Percent
of Total Options/SARs
Granted
to Employees
In
Fiscal Year (2)
|
Exercise
of
Base
Price
|
Expiration
Date
|
5%
($)
|
10%($)
|
||||||
|
Tony
Tong, CEO
|
66,000
|
9.7%
|
$6.50
|
7/26/09
|
$521,452
|
$628,099
|
||||||
(1)
All
options were granted pursuant to our 1999 Stock Plan, as amended in 2002 and
2003. The options have a ten-year term and vest and become exercisable over
four
years. In the event of a change in control of the Company, the options will
be
substituted by the successor corporation or will fully vest and become
exercisable for a period of fifteen days.
(2)
Based
on an aggregate of 2,000,000 shares subject to options granted to our employees
in 2005.
(3)
Potential realizable values are computed by (a) multiplying the number of shares
of Common Stock subject to a given option by the exercise price, (b) assuming
that the aggregate stock value from that calculation compounds at the annual
5%
or 10% rate shown in the table for the entire four-year term of the option
and
(c) subtracting from that result the aggregate option exercise price. The 5%
and
10% assumed annual rates of stock price appreciation are mandated by the rules
of the SEC and do not represent our estimate or projection of future Common
Stock prices.
10
AGGREGATED
OPTION EXERCISES DURING 2005 FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The
following table sets forth information for our executive officers relating
to
the number and value of securities underlying exercisable and unexercisable
options they held at December 31, 2005 and sets forth the number of shares
of
Common Stock acquired and the value realized upon exercise of stock options
held
as of December 31, 2005 by our named executive officers.
|
Name
|
Shares
Acquired
on
Exercise
|
Value
Realized
($)(1)
|
No.
of Securities Underlying
Unexercised
Options
|
Value
($) of Unexercised
In-the-Money
Options
at
Fiscal Year End
12/31/03
(2)
|
||||||||
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||
|
Tony
Tong, CEO
|
6,000
|
$29,700
|
145,000
|
66,000
|
$677,650
|
$12,120
|
||||||
(1)
The
"Value Realized" is based on the closing price of our Common Stock as quoted
on
NASDAQ on the date of exercise, minus the per share exercise price, multiplied
by the number of shares issued upon exercise of the option.
(2)
The
value of unexercised in-the-money options is calculated based on the difference
between the closing price of $6.77 per share as quoted on NASDAQ on December
31,
2005, and the exercise price for the shares, multiplied by the number of shares
underlying the option. The actual value of unexercised options fluctuate
depending on the price of our Common Stock.
EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
On
December 30, 2002, the Company entered into an Executive Employment Contract
with Tony Tong to serve as President and Chief Executive Officer. The employment
agreement provides for Mr. Tong to earn an annual base salary of $100,000 in
cash, plus $60,000 in stock compensation annually. Mr. Tong is also eligible
for
an annual bonus for each fiscal year of the Company during the term of his
contract based on performance standards as the Board or compensation committee
designates. Mr. Tong is entitled to receive a monthly housing allowance of
$2,500, monthly automobile allowance of $500, tax preparation expenses of $2,000
per year, and cash bonus based on net profit of the Company.
COMPENSATION
OF DIRECTORS
DIRECTORS'
FEES. All of the Company's directors are reimbursed for out-of-pocket expenses
relating to attendance at meetings. Each director is also entitled to US$200
for
each board meeting that such director attends in person, by conference call,
or
by committee action and US$100 for each committee meeting, payable by cash,
common stock or stock options of the Company, at the option of the
Company.
ANNUAL
RETAINER FEE. Each director is paid an annual retainer fee of US$10,000 in
the
form of common stock or stock option of the Company, at the option of the
Company. Such retainer fee is paid annually in arrears. The number of shares
of
common stock issued is based on the average closing market price over the ten
trading days prior to the end of the six month period that the retainer fee
is
due.
Members
of our Compensation Committee of the Board of Directors were Messrs. Goodwin,
Ha, Tao and Wang. No member of our Compensation Committee was, or has been,
an
officer or employee of the Company or any of our subsidiaries. No member of
the
Compensation Committee has a relationship that would constitute an interlocking
relationship with executive officers or directors of the Company or another
entity.
11
COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION (2)
The
purpose of the Compensation Committee is to assist the Board in determining
the
compensation of the Chief Executive Officer, Chief Financial Officer and other
officers of the Company. The goal of the Compensation Committee’s policies on
executive compensation is to ensure that an appropriate relationship exists
between executive compensation and the creation of stockholder value, while
at
the same time attracting, motivating and retaining executives. In furtherance
of
this purpose, the Compensation Committee has the following duties and
responsibilities with respect to executive compensation:
|
·
|
Annually
review the Company’s corporate goals and objectives relevant to the
compensation of the Company’s executive officers, including the Chief
Executive Officer and Chief Financial Officer;
|
|
·
|
Evaluate
the executive officers’ performance in light of such goals and objectives;
|
|
·
|
Determine
and approve the officer’s compensation level based on this evaluation;
|
|
·
|
Determine
and approve the long-term incentive component of the officer’s
compensation based on the Company’s performance, the value of similar
incentive awards to the officers at comparable companies and the
awards
given to the officers in past years;
|
|
·
|
Annually
review and make recommendations to the Board with respect to non-CEO
and
non-CFO compensation;
|
|
·
|
Make
recommendations to the Board regarding approval, disapproval,
modification, or termination of existing or proposed employee benefit
plans; and
|
|
·
|
Prepare
a report on executive compensation as required to be included in
the
Company’s proxy statement or annual report on Form 10-K, Form 10-KSB or
equivalent, filed with the
SEC.
|
THE
COMPENSATION COMMITTEE
Michael
Chun Ha
Jeremy
Goodwin
Tao
Jin
Peter
Wang
____________________
|
(2)
|
The
material in the Compensation Committee Report is not soliciting material,
is not deemed filed with the SEC and is not incorporated by reference
in
any filing of the Company under the Securities Act of 1933, or the
Securities Exchange Act of 1934, whether made before or after the
date of
this proxy statement and irrespective of any general incorporation
language in such filing.
|
12
STOCK
PRICE PERFORMANCE PRESENTATION
The
following chart compares the cumulative total stockholder return on the
Company’s shares of Common Stock with the cumulative total stockholder return of
(i) the Nasdaq Global Market Index and (ii) a peer group index
consisting of companies reporting under the Standard Industrial Classification
Code 3669 (Communications Equipment):
The
material in this chart is not soliciting
material, is not deemed filed with the SEC and is not incorporated by reference
in any filing of the Company under the Securities Act of 1933, as amended or
the
Exchange Act, whether made before or after the date of this proxy statement
and
irrespective of any general incorporation language in such filing.
REQUIRED
VOTE
Election
of the directors requires a plurality vote of the shares presented in person
or
represented by proxy at the Annual Meeting.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE ELECTION OF
THE
SEVEN NOMINEES FOR DIRECTOR SET FORTH HEREIN.
13
RATIFICATION
OF THE APPOINTMENT OF THE
INDEPENDENT
PUBLIC ACCOUNTANTS
The
firm of Clancy and Co., P.L.L.C. has served as our independent auditors since
2001. The Board of Directors has appointed Clancy and Co., P.L.L.C. to continue
as our independent auditors for the fiscal year ending December 31, 2006. A
representative of Clancy and Co., P.L.L.C.'s Hong Kong cooperation partner,
HLB
Hodgson Impey Cheng, is expected to be present at the Annual Meeting to respond
to appropriate questions from stockholders and to make a statement if such
representative desires to do so.
Fees
of Independent Auditor
Aggregate
fees billed to us by Clancy
and Co., P.L.L.C. during
the fiscal years ended December 31, 2005 and 2004 were:
|
2005
|
2004
|
||
|
Audit
Fees
|
$182,400
|
$70,000
|
|
|
Audit
Related Fees
|
-
|
-
|
|
|
Tax
Fees
|
-
|
||
|
All
Other Fees
|
-
|
-
|
|
|
Total
|
$182,400
|
$70,000
|
Audit
Fees
This
category includes aggregate fees billed by our independent auditors for the
audit of our annual financial statements, audit of management’s assessment and
effectiveness of internal controls over financial reporting, review of financial
statements included in our quarterly reports on Form 10-QSB and services that
are normally
provided by the auditor in connection with statutory and regulatory filings
for
those fiscal years.
Audit-Related
Fees
This
category consists of services by our independent auditors that, including
accounting consultations on transaction related matters, are reasonably related
to the performance of the audit or review of our financial statements and are
not reported above under Audit Fees.
Tax
Fees
This
category consists of professional services rendered for tax compliance and
preparation of our corporate tax returns and other tax advice.
All
Other Fees
There
are
no other fees to disclose.
Pre-Approval
Policies and Procedures
The
Audit
Committee’s prior approval is required for all auditing services and non-audit
services. However, in the event the aggregate amount of non-audit services
constitutes 5% or less of the total revenues paid by the Company to its external
auditor during the fiscal year in which non-audit services are provided, and
PacificNet did not recognize that these services were non-audit services at
the
time of the engagement and the Committee is promptly notified of this fact
by
the Company, such non-audit services shall be approved; provided the Audit
Committee (or one or more members of the Audit Committee who are also members
of
the Board of Directors to whom approval authority has been delegated by the
Audit Committee)approves such non-audit services prior to their completion.
The
Audit
Committee reviewed and approved all audit and non-audit services provided by
Clancy
and Co., P.L.L.C. during the fiscal year ended December 31, 2005, and
concluded that these services were compatible with Clancy and Co., P.L.L.C
maintaining its independence.
REQUIRED
VOTE
Ratification
of the appointment of the independent public accounts requires affirmative
vote
of a majority of the shares represented in person or by proxy at the Annual
Meeting, provided a quorum exists.
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
RATIFICATION OF
THE
APPOINTMENT OF THE INDEPENDENT PUBLIC ACCOUNTANTS.
14
PROPOSAL
3
PROPOSAL
TO AMEND THE PACIFICNET
2005
STOCK OPTION PLAN
PacificNet
is seeking approval of its stockholders to amend its 2005 Stock Option Plan
(the
“Plan”). The purposes of the Plan are to (i) promote the interests of the
Company by affording an incentive to certain employees to remain in the employ
of the Company and to use their best efforts in its behalf, and (ii) aid the
Company in attracting, maintaining, and developing capable management personnel
of a caliber required to insure the Company’s continued success, by means of
offering to such persons an opportunity to acquire or increase their proprietary
interest in the Company through the granting of options to purchase the
Company’s common stock, and the granting of other forms of equity-based
compensation, pursuant to the terms of the Plan.
Description
of the Proposed Amendments to the Plan
The
following summary of the proposed amendments to the Plan, is qualified in its
entirety by reference to the Company's full text of the amended Plan as it
appears as Annex II to this Proxy Statement. The amended 2005 Plan provides
for
the grant by the Company to any director, officer, employees and consultant
of
awards to purchase up to an aggregate of 2,000,000 shares of Common Stock.
The
2005 Plan may be administered by the Board of Directors or a committee of the
Board of Directors (in either case, the "Committee"), which has complete
discretion to select the persons who will receive awards under the Plan and
to
establish the terms and conditions of each award.
Material
Amendments to the Plan
The
Board
of Directors has approved the following material amendments to the Plan
to:
(1)
allow
for the grant of stock appreciation rights, or SARs, to eligible persons under
the Plan;
(2)
limit
the number of awards that can be granted to an eligible person under the Plan,
in any calendar year, to grants covering no more than 500,000 shares of common
stock; and
(3)
update the Plan to comply with changes to Sections 409A and 162(m) of the
Internal Revenue Code of 1986, as amended, and applicable authorities
promulgated thereunder, that have been enacted since the Plan was approved
by
the Company’s stockholders
Stock
Appreciation Rights. The
Plan
has been amended to allow for the grant of stand-alone SARs and stapled SARs
as
follows:
“11.
STOCK
APPRECIATION RIGHTS.
Two
types of Stock Appreciation Rights (“SARs”) shall be authorized for issuance
under the Plan: (1) stand-alone SARs and (2) stapled SARs. The Grant Agreement
awarding an SAR shall be in such form and shall contain such terms and
conditions as the Administrator shall deem appropriate and shall not include
terms which cause the Grant to be considered nonqualified deferred compensation
subject to the provisions of Section 409A of the Code. The terms and conditions
of Stock Appreciation Right Grant Agreements need not be identical, but each
Grant Agreement shall include (through incorporation of provisions hereof by
reference in the Grant Agreement or otherwise) the substance of each of the
following provisions:
(a)
Stand-alone SARs. Stand-alone SARs shall cover a specified number of underlying
Shares of Common Stock and shall be redeemable upon such terms and conditions
as
the Administrator may establish. Upon redemption of the stand-alone SAR, the
Holder shall be entitled to receive a distribution from the Company in an amount
equal to the excess of (i) the aggregate Fair Market Value on the redemption
date of the Shares of Common Stock underlying the redeemed right over (ii)
the
aggregate base price of such underlying Shares at the time of Grant. The
distribution shall be in cash or stock as specified in the Grant Agreement
unless distribution in stock is necessary to avoid application of Code Section
409A, in which case the distribution shall be in stock. The number of shares
of
Common Stock underlying each stand-alone SAR and the base price of such Shares
shall be determined by the Administrator in its sole discretion at the time
the
stand-alone SAR is granted. In no event, however, may the base price be less
than one hundred percent (100%) of the Fair Market Value of the underlying
Shares of Common Stock on the grant date.
(b)
Stapled SARs. Stapled SARs shall only be granted concurrently with an Option
to
acquire the Same number of shares of Common Stock as the number of such shares
underlying the stapled SARs. Stapled SARs shall be redeemable upon such terms
and conditions as the Administrator may establish and shall grant a holder
the
right to elect among (i) the exercise of the concurrently granted Option
for
Shares of Common Stock, whereupon the number of Shares subject to the stapled
SARs shall be reduced by an equivalent number, (ii) the redemption of such
stapled SARs in exchange for a distribution from the Company in an amount
equal
to the excess of the Fair Market Value on the redemption date of the number
of
vested Shares which the holder redeems over the aggregate exercise/base price
for such vested Shares, whereupon the number of shares of Common Stock subject
to the concurrently granted Option shall be reduced by any equivalent number,
or
(iii) a combination of (i) and (ii). The distribution under alternative (ii)
shall be in cash or stock as specified in the Grant Agreement unless
distribution in stock is necessary to avoid application of Code Section 409A,
in
which case the distribution shall be in stock. The exercise/base price of
such
Shares shall be determined by the Administrator at the time the Option and
Stapled SAR is granted; however, in no event, may the exercise/base price
be
less than one hundred percent (100%) of the Fair Market Value of the underlying
Shares on the grant date.
15
(c)
No
Shareholder or Secured Rights. The Holder of an SAR shall have no rights of
a
stockholder with respect to Shares covered by the SAR unless and until the
SAR
is exercised and Shares are issued to the Holder. Prior to receipt of a cash
distribution or Shares pursuant to an SAR, such Grant shall represent an
unfunded unsecured contractual obligation of the Company and the Company shall
be under no obligation to set aside any Shares or other assets to fund such
obligation. Prior to vesting and exercise, the Holder shall have no greater
claim to the Common Stock underlying such SAR or any other assets of the Company
than any other unsecured general creditor and such rights may not be sold,
pledged, assigned or transferred in any manner other than by will or by the
laws
of intestate succession.
Limitation
on number of Awards. Among
other things, in order for the grant of stock options and SARs to qualify as
performance-based compensation and be excluded from the Company’s corporate
income tax deduction cap of $1,000,000 per year for its Named Executive
Officers, as set forth in Section 162(m) of the Code, the stockholders must
approve the maximum number of shares of common stock that can be issued to
any
one person under the Plan in any calendar year. The Company has added Section
5(b)to the Plan to provide no Service Provider or Employee shall be granted,
in
any calendar year, options or SARs covering more than 500,000
shares.
Compliance
with recently enacted applicable laws. The
Plan
has been amended to comply with Section 409A of the Code, which amendments
included, without limitation, adding a new Section 4(d) as follows:
“(d)
Notwithstanding any other provision of the Plan, the Administrator shall have
no
authority to issue or amend a Grant under the Plan under terms and conditions
which would cause such Grant to be considered nonqualified “deferred
compensation” subject to the provisions of Code Section 409A. Accordingly, by
way of example but not limitation, no Options or Stock Appreciation Rights
shall
be issued with an exercise or base price below Fair Market Value on the date
of
Grant and no Grant Agreement shall provide for any deferral feature constituting
a deferral of compensation under Section 409A of the Code.”
Federal
Income Tax Consequences.
The
following is a general summary of the federal income tax consequences under
current tax law of stock options. It does not purport to cover all of the
special rules, including special rules relating to participants subject to
Section 16(b) of the Exchange Act and the exercise of an SAR.
Stock
Appreciation Rights.
Generally, no taxable income is realized upon the grant of an SAR. Upon
exercise, the holder of the SAR is taxed at ordinary income tax rates on the
amount of any cash and the fair market value of any stock received.
EQUITY
COMPENSATION PLAN
The
following table sets forth aggregate information regarding the Company’s equity
compensation plans in effect as of December 31, 2005:
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
($)
|
|
Remaining
available for further issuance under equity compensation
plans
|
|
|
|
Equity
compensation plans approved by security holders (under 1998 Stock
Option
Plan) (1)
|
1,360,100
|
|
3.99
|
|
0
|
|
|
Equity
compensation plans approved by security holders (under 2005 Stock
Option
Plan) (2)
|
155,600
|
|
6.59
|
|
1,844,400
|
|
|
Equity
compensation plans not approved by security holders
|
N/A
|
|
N/A
|
|
N/A
|
|
_______________
(1)
Reflects options granted and available for issuance under the 1998 Stock Option
Plan.
(2)
Reflects options granted and available for issuance under the 2005 Stock Option
Plan.
REQUIRED
VOTE
Approval
of the amendments to the 2005 Stock Option Plan requires the affirmative vote
of
a majority of the shares present in person or represented by proxy at the Annual
Meeting, provided a quorum exists.
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
THE
AMENDMENTS
TO THE 2005 STOCK OPTION PLAN.
16
2007
STOCKHOLDER PROPOSALS
Rule
14a-4 of the SEC proxy rules allows the Company to use discretionary voting
authority to vote on matters coming before an annual meeting of stockholders
if
the Company does not have notice of the matter at least 45 days before the
date
corresponding to the date on which the Company first mailed its proxy materials
for the prior year's annual meeting of stockholders or the date specified by
an
overriding advance notice provision in the Company's By-Laws. The Company's
By-Laws do not contain such an advance notice provision. For the Company's
Annual Meeting of Stockholders to be held in 2007, stockholders must submit
such
written notice to Mike Fei, the Secretary of the Company, at the Company’s
executive offices, on or before September 18, 2007.
Stockholders
of the Company wishing to include proposals in the proxy material for the Annual
Meeting of Stockholders to be held in 2007, must submit the same in writing
so
as to be received by Mike Fei, the Secretary of the Company at the Company’s
executive offices, on or before July 5, 2007. Such proposals must also meet
the
other requirements of the rules of the SEC relating to stockholder
proposals.
OTHER
BUSINESS
Management
is not aware of any matters to be presented for action at the Annual Meeting,
except matters discussed in the Proxy Statement. If any other matters properly
come before the meeting, it is intended that the shares represented by proxies
will be voted in accordance with the judgment of the persons voting the
proxies.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual and quarterly reports, proxy statements and other information with
the SEC. Stockholders may read and copy any reports, statements or other
information that we file at the SEC's public reference rooms in Washington,
D.C., New York, New York, and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information about the public reference rooms. Our
public filings are also available from commercial document retrieval services
and at the Internet Web site maintained by the SEC at http://www.sec.gov. The
Company's Annual Report on Form 10-KSB was mailed along with this proxy
statement.
STOCKHOLDERS
SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT TO VOTE
THEIR SHARES AT THE ANNUAL MEETING. NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT.
THIS PROXY STATEMENT IS DATED OCTOBER 26, 2006. STOCKHOLDERS SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THAT DATE.
By
Order of the Board of Directors
/s/
Victor Tong
Name:
Victor Tong
Title:
President, and Executive Director
October
26, 2006
17
APPENDIX
I
PACIFICNET
INC.
AUDIT
COMMITTEE CHARTER
AS
AMENDED NOVEMBER 25, 2002
|
1
|
RESPONSIBILITY
|
The
PacificNet Inc. (“PacificNet”) Audit Committee (“Committee”) was established to
assist the Board of Directors in carrying out its oversight responsibilities
that relate to PacificNet’s accounting and financial reporting processes, audits
of PacificNet’s financial statements, internal controls, and compliance with
laws, regulations and ethics. This policy reaffirms that the Committee’s duties
are oversight in nature and that the primary responsibility for financial
reporting, internal control, and compliance with laws, regulations, and ethics
standards rests with PacificNet’s executive management and that PacificNet’s
external auditors are responsible for auditing PacificNet’s financial
statements. The foregoing notwithstanding, the Committee, in its capacity as
the
Audit Committee of the Board of Directors, has direct responsibility for the
appointment, compensation and oversight of the work of any registered public
accounting firm employed by PacificNet (including resolution of disagreements
between management and the auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work. The Committee
does not provide any expert or special assurances as to PacificNet’s financial
statements or any professional certification as to the external auditors work.
The
Committee has the power to conduct or authorize investigations into any matters
within the Committee’s scope of responsibilities and to establish procedures
concerning the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls or auditing matters and confidential,
anonymous employee submissions of concerns regarding questionable accounting
or
auditing matters. The Committee is empowered to retain independent counsel,
accountants, or others to assist it in the conduct of any investigation. The
President, the Chief Financial Officer or the Corporate Secretary of PacificNet
shall provide, or arrange to provide, such other information, data and services
as the Committee may request. The Committee shall conduct such interviews or
discussions as it deems appropriate with personnel of PacificNet, and/or others
whose views would be considered helpful to the Committee.
The
Committee’s prior approval is required for all auditing services and non-audit
services. However, in the event the aggregate amount of non-audit services
constitutes 5% or less of the total revenues paid by PacificNet to its external
auditor during the fiscal year in which non-audit services are provided, and
PacificNet did not recognize that these services were non-audit services at
the
time of the engagement and the Committee is promptly notified of this fact
by
PacificNet; provided the Committee (or one or more members of the Committee
who
are also members of the Board of Directors to whom approval authority has been
delegated by the Committee) approves such non-audit services prior to their
completion.
The
Committee believes its policies and procedures should remain flexible in order
to best react to changing conditions and that the following duties of the
Committee are set forth as a guide with the understanding that the Committee
may
diverge from this guide as appropriate given the circumstances:
|
1
|
Financial
Reporting
|
Committee
procedures shall include:
1 Selection
of
Outside Auditors
The
Committee has the ultimate authority and responsibility to select, evaluate,
and
where appropriate, replace the outside auditor. The outside auditors are
ultimately accountable to the Audit Committee and the entire Board for such
auditors’ review of the financial statements and controls of PacificNet. On an
annual basis, the Audit Committee should review and discuss with the auditors
all significant relationships they have with PacificNet to determine their
independence. The Committee shall submit its recommended appointment (or
reappointment) or termination of outside auditors to the Board of
Directors.
I-1
The
Committee’s review shall include:
|
-
|
Review
and prior approval of all audit services and non-audit services.
(In the
event the Committee approves an audit service within the scope
of an
auditor’s engagement, that audit service shall be deemed to have been
pre-approved.)
|
|
-
|
Opinions
on the performance of the outside auditors by appropriate management.
|
|
-
|
Inquiring
if the outside auditors face any significant litigation or disciplinary
actions by the Securities and Exchange Commission (“Commission”) or
others.
|
|
-
|
Inquiring
whether the chief executive officer of PacificNet’s outside auditors was
employed by a registered independent public accounting firm and
participated in any capacity in PacificNet’s audit during the one-year
period preceding the commencement of an audit of PacificNet.
|
|
-
|
Receiving
from the auditors, on a periodic basis, a formal written statement
delineating all relationships between the auditors and PacificNet
consistent with Independence Standards Board Statement 1 (“ISB No. 1”);.
|
|
-
|
Obtaining
written disclosure from the outside auditors describing all relationships
between the outside auditors and PacificNet that bear on independence
and
objectivity.
|
|
-
|
Discussing
auditor independence with its outside auditors and recommending
that the
Board of Directors take
appropriate action regarding any independence issues. |
|
-
|
Discussing
with PacificNet’s Chief Executive Officer and Chief Financial Officer
certifications in PacificNet’s periodic reports concerning disclosures of
significant control deficiencies and any fraud by management.
|
|
-
|
Auditor
engagement letters and estimated fees.
|
|
-
|
Consideration
of the report of the outside auditors’ latest peer review conducted
pursuant to a professional quality
control program. |
|
-
|
Review
of management’s letter of representation and consideration of any
significant operational or reporting issues
that may affect the financial statements. |
|
-
|
Review
of proposed non-audit services and consideration of the possible
effect
that these services could have on the
independence of the outside auditors. |
|
-
|
Facilitating
and maintaining an open avenue of communication with PacificNet’s outside
auditors.
|
|
-
|
Ensuring
the Committee is informed in a timely manner by PacificNet’s outside
auditors of (1) all critical accounting policies and practices
the outside
auditors intend to use for the audit; (2) discussion with PacificNet’s
management of all alternative treatments of financial information
within
generally accepted accounting principles (“GAAP”), the ramifications of
the use thereof and the outside auditors’ preferred treatment; and (3)
other material written communications between the outside auditors
and
PacificNet’s management to include any management letter or schedule of
audit adjustments.
|
2 Meeting
with
PacificNet’s general counsel, if any, and outside counsel when appropriate, to
discuss legal matters that may have a significant impact on PacificNet’s
financial statements.
I-2
3 Regarding
PacificNet’s financial statements, the Committee will:
|
-
|
Review
PacificNet’s audited annual financial statements and outside auditors’
opinions with respect to the statements, including the nature of
any
changes in accounting principles or their application.
|
|
-
|
Review
PacificNet’s interim quarterly financial statements and outside auditors’
views with respect to the statements, including the nature of any
changes
in accounting principles or their application.
|
|
-
|
Review
significant accounting policies, policy decisions and changes,
along with
significant accounting, reporting or operational issues.
|
|
-
|
Review
the financial statements to be issued with management and with
the outside
auditors to determine whether the outside auditors are satisfied
with the
disclosure and content of the financial statements to be presented
to the
shareholders prior to the release of the quarterly financial report
to
shareholders.
|
|
-
|
Make
a recommendation to the Board of Directors regarding the inclusion
of
interim and annual financial statements in PacificNet’s SEC filings based
on its review of such financial statements with management and
the outside
auditors.
|
|
-
|
Ensure
that management maintains reliability and integrity of accounting
policies
and financial reporting and that management establishes and maintains
processes to assure adequate systems of internal control.
|
|
-
|
Disclose
in PacificNet’s annual proxy or information statement, the existence of
the Committee and the Committee charter and the extent to which
the
Committee has satisfied its responsibilities during the prior year
in
compliance with its charter.
|
|
-
|
Disclose
the Committee’s approval of any non-audit services in PacificNet’s
periodic reports filed with the Commission.
|
|
-
|
Review
the management letter issued by the outside auditors and management’s
response.
|
|
-
|
Review
fees paid for audit and consulting services, respectively.
|
4 Annually
review and examine those matters which relate to a financial review of
PacificNet’s Investment Policies.
5 Submit
findings of importance, conclusions, recommendations, and items that require
follow-up or action to the Board of Directors.
6 Annually
review and update the Audit Committee Charter and submit the Charter to the
full
Board of Directors for approval.
7 Maintain
minutes or other records of meetings and activities of the Committee.
I-3
|
2
|
Monitoring
of Internal Controls
|
The
Committee is responsible for obtaining and understanding PacificNet’s key
financial reporting risk areas and internal control structure. The Committee
monitors the internal control process by reviewing information provided in
the
Business Conduct Questionnaire and Annual Certification reporting made by each
PacificNet employee, discussions with the chief financial and accounting
officers and such other persons as the Committee deems appropriate, and
discussions with and reports issued by outside auditors.
|
3
|
Compliance
with Laws, Regulations, and Ethics
|
The
Committee shall review reports and other information to gain reasonable
assurance that PacificNet is in compliance with pertinent laws and regulations,
is conducting its affairs ethically, and is maintaining effective controls
against conflict of interest and fraud.
Committee
procedures shall include:
1 Review
PacificNet’s policies relating to compliance with laws, regulations, ethics, and
conflict of interest.
2 Review
significant cases of conflict of interest, misconduct, or fraud and the
resolution of such cases.
3 Review
PacificNet’s policies and processes for compliance with U.S. and foreign country
export control’s, laws and regulations.
4 Review
PacificNet’s policies and processes for compliance with the Foreign Corrupt
Practices Act and the USA Patriot Act.
5 Review
compliance reports received from regulators and consider legal and regulatory
matters that may have a material impact on the financial statements.
6 Review
outside auditors’ reports that relate to the monitoring of compliance with
PacificNet’s policies on business ethics.
7 Review
policies and procedures covering officers’ expense accounts and perquisites,
including their use of corporate assets, and consider the results of any review
of these areas by internal or outside auditors.
8 Review
the disclosure included in PacificNet’s periodic reports concerning whether at
least one member of the Committee is a “financial expert” (as defined in Part
III below) and, if no member of the Committee is a “financial expert”, why no
such expert has been appointed to the Committee.
|
2
|
OVERSIGHT
OF OUTSIDE AUDITOR FUNCTIONS
|
The
Committee shall schedule meetings as necessary to receive and discuss reports
from staff, other committees, and consultants. Particular emphasis will be
given
by the Committee to significant control deficiencies, and actions taken by
management to correct them. The Committee may request through the Chief
Financial Officer that the outside auditors perform special studies,
investigations, or other services in matters of interest or concern to the
Committee.
The
Committee’s oversight of outside audit coverage is covered under section I.A.
above.
I-4
|
3
|
COMMITTEE
MEMBERSHIP
|
The
Committee shall be composed of three or more Directors, each of whom shall
be
independent. To be considered independent, a Committee member may not (other
than in his capacity as a member of the Committee, the Board or another
committee of the Board) accept any consulting, advisory or other compensatory
fee from PacificNet or be an affiliated person of PacificNet or any of its
subsidiaries. Each member shall comply with the requirements promulgated by
The
Nasdaq Stock Market, Inc. and the Commission, and shall be free of any
relationship that, in the opinion of the Board of Directors, would interfere
with his or her exercise of independent judgment. All members of the Committee
will have a general understanding of basic finance practices and accounting
practices and policies, and at least one member must have the requisite
accounting or related financial management expertise to be deemed a “financial
expert”, as that term is defined by the Commission, having through education and
experience as a public accountant, or auditor or a principal financial officer,
comptroller or principal accounting officer or a position performing similar
functions, an understanding of GAAP and financial statements, experience in
the
preparation or auditing of financial statements of generally comparable issuers
and the application of such principles in connection with the accounting for
estimates, accruals and reserves, and experience with internal accounting
controls and an understanding of audit committee functions. The Committee
members may enhance their familiarity with finance and accounting by
participating in educational programs conducted by PacificNet or an outside
consultant. The Chairman and other members of the Committee shall be appointed
by the Board of Directors.
Vacancies
occurring in the Committee may be filled by appointment of the Chairman of
the
Board, but no member of the Committee shall be removed except by vote of a
majority of Directors present at any regular or special meeting of the Board.
The
Secretary of the Committee shall be appointed by the majority vote of the
Committee. The Secretary of the Committee shall prepare minutes of the meetings,
maintain custody of copies of data furnished to and used by the Committee,
and
generally assist the Committee in connection with preparation of agendas,
notices of meetings and otherwise.
|
4
|
CONDUCT
OF BUSINESS
|
All
meetings require the presence of a majority of the members of the Committee
to
conduct business. Each Committee member shall have one vote. All actions or
determinations by the Committee must be by majority vote of the members present.
The Board of Directors shall have overall authority over all Committee actions.
|
5
|
COMPENSATION
|
The
compensation of members of the Committee may be determined from time to time
by
resolution of the Board of Directors. Members of the Committee shall be
reimbursed for all reasonable expenses incurred in attending such meetings.
|
6
|
TIME
AND PLACE OF MEETINGS
|
Committee
meetings shall be held quarterly or more frequently as necessary at an agreed
upon location. The Committee may ask members of management or others to attend
the meeting and to provide pertinent information as necessary. As part of its
job to foster open communication, the Audit Committee should meet at least
annually with management, the director of the internal auditing department
and
the outside auditors separately to discuss any matters that the Audit Committee
or each of these groups believe should be discussed privately. In addition,
the
Audit Committee or at least its Chairperson should meet with the outside
auditors and management quarterly to review PacificNet’s financial statements
consistent with the Audit Committee’s duties and responsibilities set forth
herein.
|
7
|
PRESENTATION
OF REPORTS TO THE BOARD OF DIRECTORS
|
The
Committee shall make an annual presentation to the Board of Directors within
three months after the receipt of the outside auditors opinion on PacificNet’s
financial statement. The presentation shall provide an overview of the
Committee’s activities, findings of importance, conclusions, recommendations,
and items that require follow-up or action by the Board. Presentations may
be
made at more frequent intervals if deemed necessary by the Committee or as
requested by the Board of Directors.
I-5
APPENDIX
II
AMENDED
2005 STOCK OPTION PLAN
PACIFICNET
INC. STOCK OPTION PLAN
1.
PURPOSE
OF THE PLAN. The purpose of this Stock Option Plan (the "Plan") is to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Grants under
the Plan may be Incentive Stock Options, Nonstatutory Stock Options or Stock
Appreciation Rights, as determined by the Administrator at the time of grant.
2.
DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Administrator"
means the Board or any of its Committees as shall be administering the Plan
in
accordance with Section 4 hereof.
(b) "Applicable
Laws" means the requirements relating to grants and administration of stock
option plans or stock appreciation rights under U.S. state corporate laws,
U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of
any other country or jurisdiction where Options are granted under the Plan.
(c) "Board"
means the Board of Directors of the Company
(d) "Code"
means the Internal Revenue Code of 1986, as amended, and applicable authorities
promulgated thereunder.
(e) "Committee"
means a committee of Directors appointed by the Board in accordance with Section
4 hereof.
(f) "Common
Stock" means the Common Stock of the Company
(g) "Company"
means PacificNet Inc., a Delaware corporation.
(h) "Consultant"
means any person who is engaged by the Company or any Parent or Subsidiary
to
render consulting or advisory services to such entity.
(i) "Director"
means a member of the Board of Directors of the Company.
(j) "Disability"
means total and permanent disability as defined in Section
22(e)(3) of
the
Code.
(k) "Employee"
means any person, including Officers and Directors, employed by the Company
or
any Parent or Subsidiary of the Company. A Service Provider shall not cease
to
be an Employee in the case of (i) any leave of absence approved by the Company
or (ii) transfers between locations of the Company or between the Company,
its
Parent, any Subsidiary, or any successor. For purposes of Incentive Stock
Options, no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held
by
the Optionee shall cease to be treated as an Incentive Stock Option and shall
be
treated for tax purposes as a Nonstatutory Stock Option. Neither service as
a
Director nor payment of a director's fee by the Company shall be sufficient
to
constitute "employment" by the Company.
(l) "Exchange
Act" means the Securities Exchange Act of 1934, as amended.
II-1
(m) "Fair
Market Value" means, as of any date, the value of Common Stock determined as
follows:
i) If
the
Common Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be
the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading
day
prior to the time of determination, as reported in The Wall Street Journal
or
such other source as the Administrator deems reliable;
ii) If
the
Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall be the mean between the
high bid and low asked prices for the Common Stock on the last market trading
day prior to the day of determination; or
iii) In
the
absence of an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Administrator in accordance
with Applicable Laws.
(n) “Grant”
means a grant of Options or Stock Appreciation Rights under the terms of the
Plan
(o) “Grant
Agreement” means a written agreement between the Company and a Holder evidencing
the terms and conditions of an individual Grant. The Grant Agreement shall
be
subject to the terms and conditions of the Plan
(p) “Holder”
means the holder of an outstanding Grant granted under the Plan.
(q) "Incentive
Stock Option" means an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code.
(r) "Nonstatutory
Stock Option" means an Option not intended to qualify as an Incentive Stock
Option.
(s) "Officer"
means a person who is an officer of the Company within the meaning of Section
16
of the Exchange Act and the rules and regulations promulgated thereunder.
(t) "Option"
means a stock option granted pursuant to the Plan.
(v) "Optioned
Stock" means the Common Stock subject to an Option.
(w) "Optionee"
means
the Holder of an outstanding Option granted under the Plan.
(x) "Parent"
means a "parent corporation," whether now or hereafter existing, as defined
in
Section 424(e) of the Code.
(y) "Plan"
means this PacificNet Inc. Stock Option Plan.
(z)
"Section
16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended.
(aa) "Service
Provider" means an Employee, Director or Consultant.
(bb) "Share"
means a share of the Common Stock, as adjusted in accordance with Section 12
of
the Plan.
(cc) "Stock
Appreciation Right" or "SAR" means a stock appreciation right granted in
accordance with Section 11 of the Plan.
(dd) "Subsidiary"
means a "subsidiary corporation," whether now or hereafter existing, as defined
in Section 424(f) of
the
Code.
II-2
3. STOCK
SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the
maximum aggregate number of Shares which may be subject to Grants under the
Plan
is 2,000,000 shares. The Shares may be authorized but unissued, or reacquired
Common Stock. If a Grant expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan,
upon
exercise of a Grant, shall not be returned to the Plan and shall not become
available for future distribution under the Plan.
4. ADMINISTRATION
OF THE PLAN.
(a) ADMINISTRATOR.
The Plan shall be administered by the Board or a Committee appointed by the
Board, which Committee shall be constituted to comply with Applicable Laws.
(b) POWERS
OF
THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of
a
Committee, the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, the Administrator shall
have the authority in its discretion:
(i) to
determine the Fair Market Value in compliance with Applicable Laws;
(ii) to
select
the Service Providers to whom Grants may from time to time be granted hereunder;
(iii) to
determine the number of Shares to be covered by each such award granted
hereunder;
(iv) to
approve forms of Grant Agreements for use under the Plan;
(v) to
determine the terms and conditions, of any Grant hereunder. Such terms and
conditions include, but are not limited to, the exercise or base price, the
time
or times when Grants may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option, SAR or the Common Stock
relating thereto, based in each case on such factors as the Administrator,
in
its sole discretion, shall determine;
(vi) to
determine whether and under what circumstances an Option may be settled in
cash
under subsection 9(e) instead of Common Stock;
(vii) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for the
purpose of qualifying for preferred tax treatment under foreign tax laws;
(viii) to
allow
Optionees to satisfy withholding tax obligations by electing to have the Company
withhold from the Shares to be issued upon exercise of an Option that number
of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined. All elections
by
Optionees to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may deem necessary or advisable;
(ix) to
construe and interpret the terms of the Plan and awards granted and pursuant
to
the Plan.
(c) Effect
of
Administrator's Decision. All decisions, determinations and interpretations
of
the Administrator shall be final and binding on all Holders of
Grants.
(d) Notwithstanding
any other provision of the Plan, the Administrator shall have no authority
to
issue or amend a Grant under the Plan under terms and conditions which would
cause such Grant to be considered nonqualified “deferred compensation” subject
to the provisions of Code Section 409A. Accordingly, by way of example but
not
limitation, no Options or Stock Appreciation Rights shall be issued with an
exercise or base price below Fair Market Value on the date of Grant and no
Grant
Agreement shall provide for any deferral feature constituting a deferral of
compensation under Section 409A of the Code.
II-3
5. ELIGIBILITY.
(a) Nonstatutory
Stock Options and Stock Appreciation Rights may be granted to Service Providers.
Incentive Stock Options may be granted only to Employees.
(b) Each
Option shall be designated in the Grant Agreement as either an Incentive Stock
Option or a Nonstatutory Stock Option. However, notwithstanding such
designation, to the extent that the aggregate Fair Market Value of the Shares
with respect to which Incentive Stock Options are exercisable for the first
time
by the Optionee during any calendar year (under all plans of the Company and
any
Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.
(c)
No Service Provider or Employee shall be granted, in any calendar year, Options
or Stock Appreciation Rights covering more than 500,000 Shares. The foregoing
limitation shall be adjusted proportionately in connection with any change
in
the Company’s capitalization as described in Section 12. For purposes of this
Section, if an Option is canceled or modified in the same calendar year it
was
granted (other than in connection with a transaction described in Section 12),
the canceled or modified Option shall be counted against the limit set forth
in
this Section. For this purpose, if the exercise price of an Option is reduced,
the transaction shall be treated as a cancellation of the Option and the grant
of a new Option. For purposes of this section, if a Stock Appreciation Right
is
canceled or its base price reduced, the canceled or modified Stock Appreciation
Right shall be counted against the limit set forth in this section. For this
purpose, if the base price of the Stock Appreciation Right is reduced, the
transaction shall be treated as a cancellation of the Stock Appreciation Right
and the grant of a new Stock Appreciation Right.
(d) Neither
the Plan nor any Grant shall confer upon any Holder any right with respect
to
continuing the Holders's relationship as a Service Provider with the Company,
nor shall it interfere in any way with his or her right or the Company's right
to terminate such relationship at any time, with or without cause.
6. TERM
OF
PLAN. The Plan shall become effective upon its adoption by the Board. It shall
continue in effect for a term of ten (10) years
unless sooner terminated under Section 15 of the Plan.
7. TERM
OF
GRANT. The term of each Grant shall be stated in the Grant Agreement; provided,
however, that the term shall be no more than ten (10) years from the date of
grant thereof. In the case of an Incentive Stock Option granted to an Optionee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any
Parent or Subsidiary, the term of the Option shall be five (5) years from the
date of grant or such shorter term as may be provided in the Grant Agreement.
8. OPTION
EXERCISE PRICE AND CONSIDERATION.
(a) The
per
share exercise price for the Shares to be issued upon exercise of an Option
shall be such price as is determined by the Administrator, but shall be subject
to the following:
(i)
In
the
case of an Incentive Stock Option
(A) granted
to an Employee who, at the time of grant of such Option, owns stock representing
more than ten percent (10%) of
the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per
Share
on the date of grant.
(B) granted
to any other Employee, the per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the date of grant.
(ii) In
the
case of a Nonstatutory Stock Option
II-4
(A) granted
to a Service Provider who, at the time of grant of such Option, owns stock
representing more than ten percent (10%) of the voting power of all classes
of
stock of the Company or any Parent or Subsidiary, the exercise price shall
be no
less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted
to any other Service Provider, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding
the
foregoing, Options may be granted with a per Share exercise price other than
as
required above pursuant to a merger or other corporate transaction in compliance
with Applicable Laws.
(b) The
consideration to be paid for the Shares to be issued upon exercise of an Option,
including the method of payment, shall be determined by the Administrator at
the
time of grant. Such consideration may consist of (l) cash, (2) check, (3)
promissory note, (4) other Shares which (x) in the case of Shares acquired
upon
exercise of an Option, have been owned by the Optionee for more than six months
on the date of surrender, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which such
Option shall be exercised, (5) consideration received by the Company under
a
cashless exercise program implemented by the Company in connection with the
Plan, or (6) any combination of the foregoing methods of payment. In making
its
determination as to the type of consideration to accept, the Administrator
shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE
OF OPTION.
(a) Procedure
for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be
exercisable according to the terms hereof at such times and under such
conditions as determined by the Administrator and set forth in the Grant
Agreement. Except in the case of Options granted to Officers, Directors and
Consultants, Options shall become exercisable at a rate of no less than 20%
per
year over five (5) years from the date the Options are granted. Unless the
Administrator provides otherwise, vesting of Options granted hereunder shall
be
tolled during any unpaid leave of absence. An Option may not be exercised for
a
fraction of a Share. An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the
Grant Agreement) from the person entitled to exercise the Option, and (ii)
full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the
Administrator and permitted by the Grant Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or,
if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except
as
provided in Section 12 of the Plan. Exercise of an Option in any manner shall
result in a decrease in the number of Shares thereafter available, both for
purposes of the Plan and for sale under the Option, by the number of Shares
as
to which the Option is exercised.
(b) Termination
of Relationship as a Service Provider. If an Optionee ceases to be a Service
Provider, such Optionee may exercise his or her Option within such period of
time as is specified in the Grant Agreement (of at least thirty (30) days)
to
the extent that the Option is vested on the date of termination (but in no
event
later than the expiration of the term of the Option as set forth in the Grant
Agreement). In the absence of a specified time in the Grant Agreement, the
Option shall remain exercisable for three (3) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as
to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator,
the
Option shall terminate, and the Shares covered by such Option shall revert
to
the Plan.
(c) Disability
of Optionee. If an Optionee ceases to be a Service Provider as a result of
the
Optionee's Disability, the Optionee may exercise his or her Option within such
period of time as is specified in the Grant Agreement (of at least six (6)
months) to the extent the Option is vested on the date of termination (but
in no
event later than the expiration of the term of such Option as set forth in
the
Grant Agreement). In the absence of a specified time in the Grant Agreement,
the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If on the date of termination, the Optionee is not vested as to
his
or her entire Option, the Shares covered by the unvested portion of the Option
shall revert to the Plan. If after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(d) Death
of
Optionee. If an Optionee dies while a Service Provider, the Option may be
exercised within such period of time as is specified in the Grant Agreement
(or
at least six (6) months) to the extent that the Option is vested on the date
of
death (but in no event later than the expiration of the term of such Option
as
set forth in the Grant Agreement) by the Optionee's estate or by a person who
acquires the right to exercise the Option by bequest or inheritance. In the
absence of a specified time in the Grant Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If,
at
the time of death, the Optionee is not vested as to the entire Option, the
Shares covered by the unvested portion of the Option shall immediately revert
to
the Plan. If the Option is not so exercised within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
II-6
(e) Application
to Incentive Stock Options. In the case of an Incentive Stock Option, if the
specified exercise period after termination of employment exceeds limitations
specified in Code Section 422, such Incentive Stock Option shall automatically
cease to be treated as an Incentive Stock Option and shall be treated for
federal income tax purposes as a Non-Qualified Stock Option from and after
the
day which exceeds three (3) months following such termination, or such other
applicable limitation.
(f) Buyout
Provisions. The Administrator may at any time offer to buy out for a payment
in
cash or Shares, an Option previously granted, based on such terms and
conditions, in compliance with Applicable Laws, as the Administrator shall
establish and communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY
OF OPTIONS. The Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. STOCK
APPRECIATION RIGHTS.
Two
types of Stock Appreciation Rights (“SARs”) shall be authorized for issuance
under the Plan: (1) stand-alone SARs and (2) stapled SARs. The Grant Agreement
awarding an SAR shall be in such form and shall contain such terms and
conditions as the Administrator shall deem appropriate and shall not include
terms which cause the Grant to be considered nonqualified deferred compensation
subject to the provisions of Section 409A of the Code. The terms and conditions
of Stock Appreciation Right Grant Agreements need not be identical, but each
Grant Agreement shall include (through incorporation of provisions hereof by
reference in the Grant Agreement or otherwise) the substance of each of the
following provisions:
(a) Stand-alone
SARs. Stand-alone SARs shall cover a specified number of underlying Shares
of
Common Stock and shall be redeemable upon such terms and conditions as the
Administrator may establish. Upon redemption of the stand-alone SAR, the Holder
shall be entitled to receive a distribution from the Company in an amount equal
to the excess of (i) the aggregate Fair Market Value on the redemption date
of
the Shares of Common Stock underlying the redeemed right over (ii) the aggregate
base price of such underlying Shares at the time of Grant. The distribution
shall be in cash or stock as specified in the Grant Agreement unless
distribution in stock is necessary to avoid application of Code Section 409A,
in
which case the distribution shall be in stock. The number of shares of Common
Stock underlying each stand-alone SAR and the base price of such Shares shall
be
determined by the Administrator in its sole discretion at the time the
stand-alone SAR is granted. In no event, however, may the base price be less
than one hundred percent (100%) of the Fair Market Value of the underlying
Shares of Common Stock on the grant date.
(b) Stapled
SARs. Stapled SARs shall only be granted concurrently with an Option to acquire
the same number of shares of Common Stock as the number of such shares
underlying the stapled SARs. Stapled SARs shall be redeemable upon such terms
and conditions as the Administrator may establish and shall grant a holder
the
right to elect among (i) the exercise of the concurrently granted Option for
Shares of Common Stock, whereupon the number of Shares subject to the stapled
SARs shall be reduced by an equivalent number, (ii) the redemption of such
stapled SARs in exchange for a distribution from the Company in an amount equal
to the excess of the Fair Market Value on the redemption date of the number
of
vested Shares which the holder redeems over the aggregate exercise/base price
for such vested Shares, whereupon the number of shares of Common Stock subject
to the concurrently granted Option shall be reduced by any equivalent number,
or
(iii) a combination of (i) and (ii). The distribution under alternative (ii)
shall be in cash or stock as specified in the Grant Agreement unless
distribution in stock is necessary to avoid application of Code Section 409A,
in
which case the distribution shall be in stock. The exercise/base price of such
Shares shall be determined by the Administrator at the time the Option and
Stapled SAR is granted; however, in no event, may the exercise/base price be
less than one hundred percent (100%) of the Fair Market Value of the underlying
Shares on the grant date.
(c) No
Shareholder or Secured Rights. The Holder of an SAR shall have no rights of
a
stockholder with respect to Shares covered by the SAR unless and until the
SAR
is exercised and Shares are issued to the Holder. Prior to receipt of a cash
distribution or Shares pursuant to an SAR, such Grant shall represent an
unfunded unsecured contractual obligation of the Company and the Company shall
be under no obligation to set aside any Shares or other assets to fund such
obligation. Prior to vesting and exercise, the Holder shall have no greater
claim to the Common Stock underlying such SAR or any other assets of the Company
than any other unsecured general creditor and such rights may not be sold,
pledged, assigned or transferred in any manner other than by will or by the
laws
of intestate succession.
12. ADJUSTMENTS
UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) Changes
in Capitalization. Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each outstanding Grant,
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Grants have yet been made or which have been
returned to the Plan upon cancellation or expiration of a Grant, as well as
the
price per share of Common Stock covered by each such outstanding Grant, shall
be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company. The conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect
to,
the number or price of shares of Common Stock subject to an Option.
II-7
(b) Dissolution
or Liquidation. In the event of the proposed dissolution or liquidation of
the
Company, the Administrator shall notify each Holder as soon as practicable
prior
to the effective date of such proposed transaction. The Administrator in its
discretion may provide for a Holder to have the right to exercise his or her
Option or SAR until fifteen (15) days prior to such transaction as to all of
the
Stock covered thereby, including Shares as to which the Grant would not
otherwise be exercisable. In addition, the Administrator may provide that any
Company repurchase option applicable to any Shares purchased upon exercise
of a
Grant shall lapse as to all such Shares, provided the proposed dissolution
or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, a Grant will terminate immediately
prior to the consummation of such proposed action.
(c) Merger
or
Asset Sale. In the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each
outstanding Grant shall be assumed or an equivalent option or right substituted
by the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume
or
substitute for the Grant, the Holder shall fully vest in and have the right
to
exercise the Grant as to all of the covered stock, including Shares as to which
it would not otherwise be vested or exercisable. If a Grant becomes fully vested
and exercisable in lieu of assumption or substitution in the event of a merger
or sale of assets, the Administrator shall notify the Holder in writing or
electronically that the Grant shall be fully exercisable for a period of fifteen
(15) days from the date of such notice, and the Grant shall terminate upon
the
expiration of such period. For the purposes of this paragraph, the Grant shall
be considered assumed if, following the merger or sale of assets, the option
or
right confers the right to purchase or receive, for each Share of covered stock
subject to the Grant immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in
the merger or sale of assets by holders of Common Stock for each Share held
on
the effective date of the transaction (and if holders were offered a choice
of
consideration, the type of consideration chosen by the holders of a majority
of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Grant, for each Share of covered stock subject to the Grant,
to
be solely common stock of the successor corporation or its Parent equal in
fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
13. TIME
OF
GRANTS. The date of a Grant shall, for all purposes, be the date on which the
Administrator makes the determination awarding such Grant, or such other date
as
is determined by the Administrator in accordance with Applicable Laws. Notice
of
the determination shall be given to each Employee to whom a Grant is made within
a reasonable time after the date of such Grant.
14. AMENDMENT
AND TERMINATION OF THE PLAN.
(a) Amendment
and Termination. The Board may at any time amend, alter, suspend or terminate
the Plan.
(b) Shareholder
Approval. The Board shall obtain shareholder approval of any Plan amendment
to
the extent necessary and desirable to comply with Applicable Laws.
(c) Effect
of
Amendment or Termination. No amendment, alteration, suspension or termination
of
the Plan shall impair the rights of any outstanding Grant Holder, unless
mutually agreed otherwise between the Holder and the Administrator, which
agreement must be in writing and signed by the Holder and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Grants granted under the
Plan
prior to the date of such termination.
15. CONDITIONS
UPON ISSUANCE OF SHARES.
(a) Legal
Compliance. Shares shall not be issued pursuant to the exercise of a Grant
unless the exercise of such Grant and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) Investment
Representations. As a condition to the exercise of a Grant, the Administrator
may require the person exercising such Grant to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
16. INABILITY
TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from
any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue
or
sell such Shares as to which such requisite authority shall not have been
obtained.
17. RESERVATION
OF SHARES. The Company, during the term of this Plan, shall at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy
the
requirements of the Plan.
18. SHAREHOLDER
APPROVAL. The Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months after the date the Plan is adopted. Such
shareholder approval shall be obtained in the degree and manner required under
Applicable Laws.
19. INFORMATION
TO OPTIONEES AND PURCHASERS. The Company shall provide to each Holder and to
each individual who acquires Shares pursuant to the Plan, not less frequently
than annually during the period such Holder or purchaser has one or more Grants
outstanding, and, in the case of an individual who acquires Shares pursuant
to
the Plan, during the period such individual owns such Shares, copies of annual
financial statements. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.
II-8
PACIFICNET
INC. PROXY
FOR
ANNUAL MEETING TO BE HELD ON DECEMBER 4, 2006
The
undersigned stockholder of PacificNet Inc., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement and hereby appoints Tony Tong and Victor Tong,
or
either of them, proxies and attorneys-in-fact, with full power to each of
substitution and revocation, on behalf and in the name of the undersigned,
to
represent the undersigned at the 2006 Annual Meeting of Stockholders of the
Company to be held at 1:00 p.m. (Hong Kong Time) at the Company's executive
offices located at Room 2309, Building A, TimeCourt, No. 6 Shuguang Xili,
Chaoyang District, Beijing China 10028 on December 4, 2006, or at any
adjournment or postponement thereof, and to vote, as designated below, all
shares of common stock of the Company which the undersigned would be entitled
to
vote if then and there personally present, on the matters set forth below.
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH
PROPOSAL.
| 1. Elect seven (7) | ||||
|
Directors
|
Tony
Tong
|
Victor
Tong
|
ShaoJian
(Sean) Wang
|
|
|
Tao
Jin
|
Peter
Wang
|
Michael
Chun Ha
|
||
|
Jeremy
Goodwin
|
||||
|
[
]
|
FOR
all nominees listed above (except those
|
[ ] |
WITHHOLD
AUTHORITY to
|
|
|
whose
names or numbers have been written on
|
vote
for all nominees
|
|
|
|
the
line below)
|
listed
above
|
2.
Proposal to ratify the appointment of Clancy and Co., P.L.L.C., as the Company's
independent auditors.
|
[
] FOR
|
[
] AGAINST
|
[
] ABSTAIN
|
3.
Proposal to approve the amendments to the Company’s 2005 Stock Option
Plan.
|
[
] FOR
|
[
] AGAINST
|
[
] ABSTAIN
|
4. To transact any other business as may properly be presented at the Annual Meeting or any adjournment or postponement thereof.
THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION
IS
GIVEN, WILL BE VOTED "FOR" EACH PROPOSAL SPECIFICALLY IDENTIFIED
ABOVE.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
|
Date:__________,
2006
|
___________________________________________
|
|
|
___________________________________________
|
||
|
PLEASE
DATE AND SIGN ABOVE exactly as name appears at the left, indicating,
where
proper, official position or representative capacity. For stock held
in
joint tenancy, each joint owner should
sign.
|