HENG FAI CHINA INDUSTRIES, INC.
650 West Georgia Street
P.O. Box 11586
Vancouver, B.C. Canada V6B 4N8
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 1997
To the Stockholders of Heng Fai China Industries, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Heng Fai China Industries, Inc. ("Company"), a Delaware corporation, to be held
at the Dumont Plaza Hotel, 150 East 34th Street, New York, New York 10016, on
Friday, May 23, 1997, at 10:30 a.m. local time, for the following purposes:
1. To elect three members to the Board of Directors of the Company to
serve until their respective successors are elected and qualified;
2. To approve an amendment to the Company's Certificate of Incorporation
(i) increasing the authorized number of preferred stock; and (ii)
decreasing the par value of the Company's preferred stock;
3. To ratify and approve the Company's 1997 Stock Option Plan;
4. To ratify and approve the issuance of the Company's Common Stock to
certain officers and directors of the Company;
5. To ratify the selection by the Company of Deloitte Touche Tohmatsu
International, independent public accountants, to audit the financial
statements of the Company for the year ending December 31, 1997; and
6. To transact such other matters as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on April 22, 1997 (the
"Record Date"), are entitled to notice of and to vote at the meeting.
A proxy statement and proxy are enclosed herewith. If you are unable to
attend the meeting in person you are urged to sign, date and return the enclosed
proxy promptly in the enclosed addressed envelope which requires no postage if
mailed within the United States. If you attend the meeting in person, you may
withdraw your proxy and vote your shares. Also enclosed herewith is the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
By Order of the Board
of Directors
/s/ Robert H. Trapp
Robert H. Trapp, Secretary
Dated: April 22, 1997
<PAGE>
PROXY STATEMENT
HENG FAI CHINA INDUSTRIES, INC.
650 West Georgia Street
P.O. Box 11586
Vancouver, B.C. Canada V6B 4N8
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies for use at the annual meeting ("Annual Meeting") of stockholders of Heng
Fai China Industries, Inc. ("Company"), to be held on Friday, May 23, 1997, and
at any adjournments thereof. The accompanying proxy is solicited by the Board of
Directors of the Company ("Board of Directors" or "Board") and is revocable by
the stockholder by notifying the Company's secretary at any time before it is
voted, or by voting in person at the Annual Meeting. This proxy statement and
accompanying proxy will be distributed to stockholders beginning on or about May
1, 1997. The principal executive offices of the Company are located at 650 West
Georgia Street, P.O. Box 11586, Vancouver, B.C. Canada V6B 4N8, telephone (604)
685-8318.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on April 22, 1997, are
entitled to receive notice of, and vote at the Annual Meeting. As of April 22,
1997, the number and class of stock outstanding and entitled to vote at the
meeting was 13,686,814 shares of common stock, par value $.01 per share ("Common
Stock"). Each share of Common Stock is entitled to one vote on all matters. No
other class of securities will be entitled to vote at the meeting. There are no
cumulative voting rights.
The affirmative vote of at least a majority of the shares represented and
voting at the Annual Meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
necessary for approval of Proposal Nos. 2, 3, 4 and 5. A quorum is
representation in person or by proxy at the Annual Meeting of a majority of the
outstanding shares of the Company.
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PROPOSALS TO SHAREHOLDERS
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Each nominee to the Board of Directors will serve until the next Annual
Meeting of stockholders, or until his earlier resignation, removal from office,
death or incapacity.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the election of Fai H. Chan, Robert H. Trapp and Ronald M. Lau. Information is
furnished below with respect to all nominees.
The following information with respect to the principal occupation or
employment of the nominees, the name and principal business of the corporation
or other organization in which such occupation or employment is carried on and
other affiliations and business experience during the past five years has been
furnished to the Company by the respective nominees:
FAI H. CHAN has been the president and a director of the Company since June
1994 and has served as the Company's chief executive officer since June 1995.
Since January 1995, Mr. Chan has been an executive director and director of Hua
Jian International Finance Company Limited (a member of China Huaneng Holdings).
Since June 1993, Mr. Chan has been a director of Inter-Asia Equities, Inc., a
Canadian company. Since September 1992, Mr. Chan has also been an executive
director and director of Heng Fung Holdings Co., Ltd., a public company in Hong
Kong which is listed on the Hong Kong Stock Exchange. Since March 1988, Mr. Chan
has been the chairman of the board of directors of American Pacific Bank, a bank
in Oregon, and between April 1991 and April 1993, he was the chief executive
officer of such bank.
ROBERT H. TRAPP has been has been the secretary, treasurer and director of
the Company since June 1994. Since May 1995, Mr. Trapp has been a director of
Heng Fung Holding Co., Ltd., a public company in Hong Kong which is listed on
the Hong Kong Stock Exchange. Mr. Trapp has since April 1994, been the corporate
secretary and since February 1995 has been a director of Inter-Asia Equities,
Inc., a Canadian company. Since July 1991, he has also been the Canadian
operational manager for Pacific Concord Holding (Canada) Ltd., responsible for
management, marketing and financial reporting operations of such company to
Pacific Concord Holding Ltd. of Hong Kong. Between March and June 1991, Mr.
Trapp was a securities trainee at Pacific International Securities in Vancouver,
B.C., Canada. Between September 1985 and June 1989, Mr. Trapp served as an
executive officer and a director of Inter-Asia Equities, Inc.
RONALD M. LAU has been a director of the Company since July 1995. Since
June 1995, Mr. Lau has been the financial controller of Heng Fung Holdings Co.,
Ltd., a public company in Hong Kong which is listed on the Hong Kong Stock
Exchange. Prior thereto, from August 1991 until October 1994, Mr. Lau worked as
an auditor at Deloitte Touche Tohmatsu in Hong Kong.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 1 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" ALL THREE OF THE
ABOVE-NAMED NOMINEE DIRECTORS OF THE COMPANY.
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MANAGEMENT
The current executive officers and directors of the Company are set forth
below:
Name Age Position
---- --- --------
Fai H. Chan 51 President, Chief Executive Officer, Director
Robert H. Trapp 41 Secretary, Treasurer and Director
Ronald M. Lau 27 Director
FAI H. CHAN has been the president and a director of the Company since June
1994 and has served as the Company's chief executive officer since June 1995.
Since January 1995, Mr. Chan has been an executive director and director of Hua
Jian International Finance Company Limited (a member of China Huaneng Holdings).
Since June 1993, Mr. Chan has been a director of Inter-Asia Equities, Inc., a
Canadian company. Since September 1992, Mr. Chan has also been an executive
director and director of Heng Fung Holdings Co., Ltd., a public company in Hong
Kong which is listed on the Hong Kong Stock Exchange. Since March 1988, Mr. Chan
has been the chairman of the board of directors of American Pacific Bank, a bank
in Oregon, and between April 1991 and April 1993, he was the chief executive
officer of such bank.
ROBERT H. TRAPP has been has been the secretary, treasurer and director of
the Company since June 1994. Since May 1995, Mr. Trapp has been a director of
Heng Fung Holding Co., Ltd., a public company in Hong Kong which is listed on
the Hong Kong Stock Exchange. Mr. Trapp has since April 1994, been the corporate
secretary and since February 1995 has been a director of Inter-Asia Equities,
Inc., a Canadian company. Since July 1991, he has also been the Canadian
operational manager for Pacific Concord Holding (Canada) Ltd., responsible for
management, marketing and financial reporting operations of such company to
Pacific Concord Holding Ltd. of Hong Kong. Between March and June 1991, Mr.
Trapp was a securities trainee at Pacific International Securities in Vancouver,
B.C., Canada. Between September 1985 and June 1989, Mr. Trapp served as an
executive officer and a director of Inter-Asia Equities, Inc.
RONALD M. LAU has been a director of the Company since July 1995. Since
June 1995, Mr. Lau has been the financial controller of Heng Fung Holdings Co.,
Ltd., a public company in Hong Kong which is listed on the Hong Kong Stock
Exchange. Prior thereto, from August 1991 until October 1994, Mr. Lau worked as
an auditor at Deloitte Touche Tohmatsu in Hong Kong.
INFORMATION CONCERNING BOARD MEETINGS
The Company's Board of Directors met twice during the fiscal year ended
December 31, 1996. All of the incumbent directors attended all of the meetings.
INFORMATION CONCERNING COMMITTEES OF THE BOARD
The Board of Directors has not established any committees.
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EXECUTIVE COMPENSATION
Summary Compensation Table
During the period ended December 31, 1996, Heng Fai Management, Inc., a
wholly owned subsidiary of the Company, paid $500,000 in consulting and
management fees to Tight Hold Investment Limited, a company wholly owned by Fai
H. Chan, the Company's chief executive officer. No other officers and directors
of the Company earned in excess of $100,000 during the fiscal year ended
December 31, 1996.
Option/SAR Grants in Last Fiscal Year
There were no options granted during the fiscal year ended December 31,
1996.
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values
No options were exercised during the fiscal year ended December 31, 1995
and there are no unexercised options as of the fiscal year ended December 31,
1996.
Employment Agreements
The Company entered into an employment agreement with Tight Hold Investment
Limited ("Tight Hold"), a company wholly owned by Fai H. Chan, president and
chief executive officer of the Compay. The duration of said agreement is ten
years commencing November 1, 1996. The Company shall pay compensation of
$500,000 per year at a rate of $41,667.67 per month. If the Company meets
certain milestones during the term of the agreement, additional compensation
will be paid to Tight Hold.
Compensation of Directors
Directors do not receive compensation for attendance at meetings of the
Board of Directors. All directors are entitled to reimbursement of reasonable
travel and lodging expenses related to attending meetings of the Board of
Directors.
Stock Option Plans
As of December 31, 1997, the Company's Board of Directors had not approved
any stock option plans.
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PERFORMANCE GRAPH
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
ANNUAL RETURN PERCENTAGE
Years Ending
Company\Index Name Dec 92 Dec 93 Dec 94 Dec 95 Dec 96
================================================================================
HENG FAI CHINA INDS INC 293.75 49.21 -20.21 225.00 -89.43
S&P MIDCAP 400 INDEX 11.91 13.95 -3.58 30.94 19.20
CONSTRUCTION(CEMNT&AGG)-MID -9.99 32.27 -28.21 13.92 14.49
INDEXED RETURNS
Years Ending
Base
Period
Company/Index Name Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 Dec 96
================================================================================
HENG FAI CHINA INDS INC 100 393.75 587.51 468.78 1523.53 161.03
S&P MIDCAP 400 INDEX 100 111.91 127.53 122.96 161.00 191.91
CONSTRUCTION(CEMNT&AGG)-MID 100 90.01 119.06 85.47 97.37 111.49
5
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TOTAL SHAREHOLDERS RETURNS
[THE FOLLOWING TABLE REPRESENTS A LINE CHART IN THE PRINTED MATERIAL]
Base
Period
Company/Index Name Dec 91 Dec 92 Dec 93 Dec 94 Dec 95 Dec 96
================================================================================
HENG FAI CHINA INDS INC 100 393.75 587.51 468.78 1523.53 161.03
S&P MIDCAP 400 INDEX 100 111.91 127.53 122.96 161.00 191.91
CONSTRUCTION(CEMNT&AGG)-MID 100 90.01 119.06 85.47 97.37 111.49
6
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Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth, as of April 7, 1997, the record and
beneficial ownership of Common Stock of the Company by each officer and
director, all officers and directors as a group, and each person known to the
Company to own beneficially or of record five percent or more of the outstanding
shares of the Company:
Shares
Officers, Directors and Beneficially Percent of Shares
Principal Stockholders Owned(1) Beneficially Owned
- ---------------------- ------------ ------------------
Fai H. Chan 6,072,886(2) 43.4%
Robert H. Trapp 100,000 *
Ronald M. Lau 100,000 *
Ebly Profit Limited 2,000,000 14.6%
24 Raffles Place
18-01/03 Clifford Center
Singapore
All directors, 6,272,886 48.8%
executive officers
as a group (3 persons)
- ----------
*Less than 1%
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire such shares within 60 days of April 7, 1997. For
purposes of computing the percentage of outstanding shares of Common Stock
held by each person or group of persons named above, any security which
such person or persons has or have the right to acquire within such date is
deemed to be outstanding but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, the Company believes based on information supplied
by such persons, that the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock which they
beneficially own.
(2) Includes (i) 3,300,000 shares of Common Stock owned of record directly by
Mr. Chan; (ii) 37,500 shares of Common Stock and 37,500 shares of Common
Stock underlying Warrants owned of record by Inter-Asia Equities, Inc.
("Inter-Asia"); and (iii) 258,943 shares of Common Stock and 258,943 shares
of Common Stock underlying Warrants owned by the Excess Pension Fund, Inc.
(the "Fund"). Mr. Chan is an officer, director and stockholder of
Inter-Asia and a beneficial owner of the Fund. Also includes 2,180,000
shares of Common Stock owned of record by Mr. Chan's wife, Keow Y. Chan.
Mr. Chan disclaims beneficial ownership of such shares.
7
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company maintains deposits in accounts at American Pacific Bank. Fai H.
Chan (an officer, director and stockholder of the Company) is an officer of such
bank.
The Company owns 7,492,000 shares of common stock of Heng Fung Holdings
Company Limited. Messrs. Chan, Trapp and Lau (officers, directors and
stockholders of the Company) are directors of such company.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon review of Forms 3, 4 and 5 furnished to the Company
pursuant to Rule 16a-3 of the Securities Exchange Act of 1934 (the "Exchange
Act"), it is the Company's belief that any such forms required to be filed
pursuant to Section 16(a) of the Exchange Act were timely filed, as necessary,
by the officers, directors and stockholders required to file the same.
8
<PAGE>
PROPOSAL NO. 2
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Background
The Company's Board of Directors has unanimously authorized, and recommends
that the shareholders consent to the filing of an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
preferred stock, and decreasing the par value of the preferred stock. The Board
has approved (i) increasing the number of authorized shares of the Company's
preferred stock from 500,000 shares to 25,000,000 shares; and (ii) decreasing
the par value of the preferred stock from $10.00 to $5.00 ("Preferred Stock").
The terms, preferences, conditions, voting rights, classes, conversion rights
and designations of the Preferred Stock are to be made in the sole discretion of
the Board. A copy of the amendment to the Company's Certificate of Incorporation
implementing such increases is annexed hereto as Exhibit "A". The authorized
capital stock of the Company currently consists of 30,500,000 shares, 30,000,000
of which have been designated as Common Stock, $.01 par value and 500,000 of
which have been designated as preferred stock, $10 par value. As of April 7,
1997, 13,686,814 shares of Common Stock and 379,520 shares of preferred stock
were outstanding.
Reasons for the Increases
The Company presently does not believe that it has sufficient shares of
available Preferred Stock necessary to (i) consummate planned acquisitions of
additional businesses; (ii) allow for future acquisitions; and (iii) raise
additional capital. The Company also believes that by decreasing the par value
of the Preferred Stock, the Company will not incur substantial Delaware
franchise taxes.
The Company believes that it is in its best interest to have sufficient
additional shares of its Preferred Stock available in order to meet future
financing needs, participate in potential future acquisition opportunities, as
well as for other corporate purposes. By having sufficient number of shares of
Preferred Stock authorized, the terms of which the Company's Board would be in a
position to designate, the Board believes that the Company will be able to
quickly participate in certain transactions which would be unavailable to the
Company if the Company had to first obtain the approval of its shareholders to
increase the Company's capital structure. Furthermore, the Board believes that
its ability to designate and issue additional shares of Preferred Stock may
allow the Company to participate in private or public offerings of its
securities at times when general economic and financing conditions are
favorable. Proceeds of any such offerings could be used to participate in
further investment or acquisition opportunities or other transactions which the
Company's Board believes will benefit the Company's shareholders.
Upon approval by the shareholders of this proposal, the Board of Directors
would be empowered to issue approximately 17,000,000 shares of Common Stock and
24,500,000 shares of Preferred Stock at such times, to such persons, and for
such consideration as the Board of Directors may determine to be in the best
interest of the Company. Future issuance of shares by the Board could result in
significant dilution to existing shareholders. No further authorization from
shareholders would be necessary prior to the issuance of any shares of Common
Stock or Preferred Stock, unless applicable laws and regulations or the rules of
any securities exchange association on which the Company's securities may then
be listed or quoted shall require such approval. The Board of Directors would
also be authorized to divide shares of Preferred Stock into classes or series
within any class or classes and to determine the designation and number of
shares of any such class in a relative rights, preferences and limitations of
the shares of any class or series.
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<PAGE>
The Board's ability to designate the voting and other rights with respect
to the Preferred Stock may frustrate persons or entities seeking to gain control
of the Company. Potentially, a series of stock could be issued to create voting
impediments or otherwise frustrate persons or entities seeking to effect a
merger or otherwise to gain control of the Company. Also, a series of Preferred
Stock could be privately placed with purchasers who may side with the existing
management of the Company and imposing a hostile tender offer or other change of
control. Issuance of series of Preferred Stock as an anti-takeover device may
preclude stockholders from taking advantage of the situation which may be
favorable to their interests. In the event of any issuance of such a series of
Preferred Stock, the voting rights, if any, to be accorded to the holders of
such stock will be determined by the Board at the time of issuance.
No Right of Appraisal
Under the General Corporation Law of the State of Delaware, the proposal to
increase the number of authorized shares of Preferred Stock of the Company and
decreasing the par value of the Preferred Stock does not require the Company to
provide dissenting shareholders with the right of appraisal and the Company will
not provide shareholders with such right.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
10
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF THE COMPANY'S
1997 STOCK OPTION PLAN
General
On April 21, 1996, the Board of Directors ("Board" or "Board of
Directors") of the Company approved the 1997 Stock Option Plan ("Plan"), a copy
of which plan is annexed as Exhibit B to this Proxy Statement. The Plan is
intended to comply with the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended. Approval of the Plan is subject to the ratification by
the shareholders at the Annual Meeting. The Plan provides for the issuance of up
to 2,000,000 employee stock options ("Stock Options" or "Options") over a 10
year period commencing on the date the Plan is ratified by the Company's
shareholders.
The class of employees eligible for participation in the Plan consist of
the Company's (including subsidiaries) employees, key consultants and
professionals, and non-employee directors. Once the Plan has been approved by
the Shareholders, the Board of Directors has the ability to allocate the Options
among the various eligible employees at the Board's discretion except to the
extent that the Company has previously entered into employment agreements with
such employees providing for the issuance of the Options.
The Plan provides for the grant of both incentive and non-statutory Stock
Options. Incentive Stock Options ("Incentive Stock Options") granted under the
Plan are intended to qualify as "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code ("Code"). Non-statutory Stock Options
("Non-statutory Stock Options") granted under the Plan are not intended to
qualify as Incentive Stock Options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of incentive and
Non-statutory Stock Options. The Plan also authorizes the issuance of stock
appreciation rights to eligible parties.
The Board of Directors believes that its ability to grant Options under the
Plan will advance the interests of the Company by strengthening its ability to
attract and retain in its employ people of desired training, experience and
ability, and to furnish additional incentives to its eligible employees upon
whose judgment, initiative and efforts the Company is largely dependent for the
successful conduct of its operations.
Administration
The Plan is administered by the Board of Directors of the Company and by
the Company's Stock Option Committee. The Board and the committee have the power
to construe and interpret the Plan and, subject to the provisions of the Plan,
to determine the persons to whom and the dates on which Options will be granted,
the number of shares to be subject to each Option, the time or times during the
term of each Option within which all or a portion of such Option may be
exercised, the exercise price, the type of consideration and other terms of the
Option. The Board of Directors is authorized to delegate administration of the
Plan to a committee composed of not fewer than two members of the Board.
Eligibility
Employees, officers, directors, professionals and consultants are eligible
to receive Stock Options under the Plan. No Incentive Stock Option may be
granted under the Plan to any person who at the time of the grant, owns (or is
deemed to own) stock possessing more than 10% of the total combined voting power
of the Company or any affiliate of the Company, unless the Option exercise price
is at least 110% of the fair market value of the Common Stock subject to the
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Option on the date of grant, and the term of the Option does not exceed five
years from the date of grant. For Incentive Stock Options granted under the
Plan, the aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such Options are exercisable for
the first time by an Optionee during any calendar year (under all such plans of
the Company and its subsidiaries) may not exceed $100,000.
Stock Subject to the Plan
If Options granted under the Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such Options again
becomes available for issuance under the Plan.
Terms of Options
The following is a description of the permissible terms of Options under
the Plan. Individual Option grants may be more restrictive as to any or all of
the permissible terms described below.
Exercise Price; Payment. The exercise price of Incentive Stock Options
under the Plan may not be less than the fair market value of the Common
Stock subject to the Option on the date of the Option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory Options under the Plan may
not be less than 85% of the fair market value of the Common Stock subject
to the Option on the date of the Option grant.
The exercise price of Options granted under the Plan must be paid either:
(a) in cash at the time the Option is exercised; or (b) at the discretion
of the Board, (i) by delivery of other Common Stock of the Company, (ii)
pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the Plan may become exercisable in
cumulative increments ("vest") as determined by the Board. The Board has
the power to accelerate the time during which an Option may be exercised,
provided that no Incentive Stock Option shall be exercisable within one
year from the date of grant. To the extent provided by the terms of an
Option, an Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by a cash payment upon
exercise, by authorizing the Company to withhold a portion of the Common
Stock otherwise issuable to the Optionee, by delivering already-owned stock
of the Company or by a combination of these means.
Term. The maximum term of Options under the Plan is ten years, except that
in certain cases (see "Eligibility") the maximum term is five years.
Options under the Plan terminate three months after the Optionee ceases to
be employed by or serve as a director or consultant to the Company or any
affiliate of the Company, unless (a) the termination of such relationship
is due to such person's permanent and total disability (as defined in the
Code), in which case the Option may be exercised at any time within one
year of such termination; (b) the Optionee dies while employed by or
serving as a director or consultant to the Company or any affiliate of the
Company, in which case the Option may be exercised (to the extent the
Option was exercisable at the time of the Optionee's death) within one year
of the Optionee's death by the person or persons to whom the rights to such
Option pass by will or by the laws of descent and distribution; or (c) the
Option by its terms specifically provides otherwise.
Adjustment Provisions
If there is any change in the Common Stock subject to the Plan or subject
to any Option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure of otherwise), the Plan and Options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to any person during a calendar year, and the class, number
of shares and price per share of Common Stock subject to such outstanding
Options.
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Duration, Amendment and Termination
The Board may amend, suspend or terminate the Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Plan will terminate on February 18, 2007 if approved by the
shareholders.
The Board may also amend the Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) increase the number of shares reserved for Options
under the plan; (b) materially modify the requirements as to eligibility for
participation under the plan; or (c) materially increase the benefits accruing
to participants under the plan. The Board may submit any other amendment to the
Plan for stockholder approval.
Restrictions on Transfer
Under the Plan, an Option may not be transferred by the Optionee otherwise
than by will or by the laws of descent and distribution. During the lifetime of
an Optionee, an Option may be exercised only by the Optionee.
Federal Income Tax Information
Incentive Stock Options. Incentive Stock Options under the Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"Incentive Stock Options" under the Code
There generally are no federal income tax consequences to the Optionee or
the Company by reason of the grant or exercise of an Incentive Stock Option.
However, the exercise of an Incentive Stock Option may increase the Optionee's
alternative minimum tax liability, if any.
If an Optionee holds Common Stock acquired through exercise of an Incentive
Stock Option for at least two years from the date on which the Option is granted
and at least one year from the date on which the shares are transferred to the
Optionee upon exercise of the Option, any gain or loss on a disposition of such
Common Stock will be long-term capital gain or loss. Generally, if the Optionee
disposes of the Common Stock before the expiration of either of these holding
periods (a "disqualifying disposition"), at the time of disposition the Optionee
will realize taxable ordinary income equal to the lesser of (a) the excess of
the Common Stock's fair market value on the date of exercise over the exercise
price, or (b) the Optionee's actual gain, if any, on the purchase and sale. The
Optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss which will be long-term or short-term depending on
whether the Common Stock was held for more than one year. Long term capital
gains currently are generally subject to lower tax rates than ordinary income.
Slightly different rules may apply to Optionees who acquire stock subject to
certain repurchase Options or who are subject to Section 16(b) of Exchange Act.
To the extent the Optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled (subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Non-statutory Stock Options. Non-statutory Stock Options granted under the
Plan generally have the following federal income tax consequences.
There are no tax consequences to the Optionee or the Company by reason of
the grant of a Non-statutory Stock Option. Upon exercise of a Non-statutory
Stock Option, the Optionee normally will recognize taxable ordinary income
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equal to the excess of the Common Stock's fair market value on the date of
exercise over the Option exercise price. Generally, with respect to employees,
the Company is required to withhold from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the Optionee. Upon disposition of the Common Stock, the Optionee
will recognize a capital gain or loss equal to the difference between the
selling price and the sum of the amount paid for such Common Stock plus any
amount recognized as ordinary income upon exercise of the Option. Such gain or
loss will be long or short-term depending on whether the Common Stock was held
for more than one year. Slightly different rules apply to the Optionees who
acquire Common Stock subject to certain repurchase Options or who are subject to
Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a table year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to Stock Options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year. The Company does not currently
anticipate that Section 162(m) will be applicable to its operations. However, in
the event that the Company determines that 162(m) may become applicable with
respect to compensation to be paid to an officer of the Company, the Company may
choose to administer the Plan and make grants under the Plan in a manner which
would exempt compensation related to an Option granted under the Plan exempt
from the Section 162(m) limitation.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
14
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF STOCK ISSUANCE TO
AFFILIATES OF THE COMPANY
On January 24, 1997, the Company approved the issuance of an aggregate of
1,700,000 shares of Common Stock to Fai H. Chan (1,300,000 shares), Ronald M.
Lau (100,000 shares), Robert H. Trapp (100,000 shares), and Y. K. Chan (200,000
shares). Except for Y. K. Chan, all of the above parties are directors of the
Company. The consideration to be paid by each aforesaid party is $.60 per share,
or an aggregate of $1,020,000. Prior to the issuance of such shares, the
Company's directors owned approximately 36% of the outstanding shares of Common
Stock. Subsequent to the issuance, the Company's directors own approximately 45%
of the outstanding shares of Common Stock.
On January 24, 1997, the high and low bid prices of the Company's Common
Stock as reported by the NASDAQ OTC Electronic Bulletin Board were $1.09 and
$1.16 respectively. In setting the $.60 per share purchase price, the Board
considered, among other factors, the market price of the Company's Common Stock
in January 1997 (the date that the transaction was approved by the Company's
Board), the fact that the Common Stock issued in the transaction will be
restricted shares as defined in the Securities Act of 1933, as amended (the
"Act") and will not be available for public resale for a period of one year from
issuance, the Company's book value, its future business potential, and the
Company's present financial needs. However the $.60 per share price can not be
deemed to result from an arms length negotiation as all Company directors are
involved.
Since the issuance of these shares of Common Stock will benefit the
directors of the Company, and is considered to be a transaction with management,
the Board has elected to submit this proposal for approval by the shareholders
of the Company, even though Delaware law may not require such approval. The
Company believes that shareholder approval of this proposal may prove a
significant obstacle to subsequent challenges to this transaction. Moreover the
good faith approval by the shareholders of this transaction will prohibit future
challenges to the transaction solely on the grounds that (i) the transaction was
one between the Company and another corporation in which the directors of the
Company possess a financial interest in; (ii) interested directors participated
in the Board meeting which approved the transaction; or (iii) the votes of
interested directors were counted in approving the transaction.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 4 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
15
<PAGE>
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF AUDITORS
The firm of Deloitte Touche Tohmatsu International ("DTT") audited the
consolidated balance sheets of the Company and its subsidiaries for the fiscal
years ended December 31, 1996, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three fiscal years in the period ended December 31, 1996. The Board
of Directors have appointed DTT as independent auditors of the Company for the
fiscal year ending 1997, subject to ratification by the stockholders.
During the prior three years ended December 31, 1996, the Company has had
no disagreements with the accountants on matters of accounting principles or
practices, financial statement disclosures or auditing scope or procedure which,
if not resolved to their accountant's satisfaction, would have caused them to
make reference to such matters in their reports.
The affirmative vote of at least a majority of the shares represented and
voting at the Annual Meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
necessary for approval of Proposal No. 5. Under Delaware law, there are no
rights of appraisal or dissenter's rights which arise as a result of a vote to
ratify the selection of auditor's.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 5 TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
STOCKHOLDERS' PROPOSALS
It is anticipated that the Company's 1997 Annual Meeting of Stockholders
will be held in October, 1997. Stockholders who seek to present proposals at the
Company's next Annual Meeting of Stockholders must submit their proposals to the
Secretary of the Company on or before December 1, 1997.
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<PAGE>
GENERAL
Unless contrary instructions are indicated on the proxy, all shares of
Common Stock represented by valid proxies received pursuant to this solicitation
(and not revoked before they are voted) will be voted FOR Proposal No. 2 and for
the election of all directors nominated.
The Board of Directors knows of no business other than that set forth above
to be transacted at the meeting, but if other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the shares of
Common Stock represented by the proxies in accordance with their judgment on
such matters. If a stockholder specifies a different choice on the proxy, his or
her shares of Common Stock will be voted in accordance with the specification so
made.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL IN, SIGN
AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE PREPAID ENVELOPE PROVIDED, NO
MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
By Order of the Board of Directors,
Robert H. Trapp, Secretary
Dated: April 21, 1997
17
<PAGE>
EXHIBIT A
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HENG FAI CHINA INDUSTRIES, INC.
-----------------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
-----------------------------------------
We, Fai H. Chan and Robert H. Trapp, president and secretary, respectively,
of Heng Fai China Industries, Inc. (the "Corporation"), a corporation existing
under the laws of the State of Delaware do hereby certify as follows:
FIRST: That the Certificate of Incorporation, as amended, of said
corporation has been amended as follows:
1. By striking out the whole of Article FOURTH as it now exists and
inserting in lieu thereof a new Article FOURTH to read in its entirety as
follows:
FOURTH: This Corporation is authorized to issue two classes of shares
of stock to be designated, respectively, common stock and preferred
stock. The total number of shares of common stock which the
Corporation is authorized to issue is 30,000,000, and the par value of
each share of said common stock shall be $.01. The total number of
shares of preferred stock which the Corporation is authorized to issue
is 25,000,000, and the par value of each share of said preferred stock
shall be $5.00. The preferred stock may be issued from time to time in
one or more series. The Board of Directors is hereby authorized, by
filing a certificate pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations or restrictions of any wholly unissued series of preferred
stock, and to establish from time to time the number of shares
consisting any such series or any of them, and to increase or decrease
the number of shares of any series subsequent to the issuance of
shares of such series, but not below the number of shares of such
series outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior
to the adoption of the resolution originally fixing the number of
shares of such series.
<PAGE>
SECOND: That such amendment has been duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State
of Delaware ("G.L.C.") by obtaining the written consent of the holders of
the majority of the stock of Environmental Alternatives Corp. entitled to
vote at a meeting of stockholders pursuant to Section 228 of the G.L.C.
IN WITNESS THEREOF, we, the undersigned, have executed and subscribed
the certificate this ___ day of May 1997.
______________________________
Fai H. Chan, President
ATTEST:
______________________________
Robert H. Trapp
<PAGE>
EXHIBIT B
<PAGE>
EMPLOYEE STOCK OPTION PLAN
HENG FAI CHINA INDUSTRIES, INC.
1997 STOCK OPTION PLAN
1. Purpose
The purpose of the 1997 Stock Option Plan ("Plan") is to provide a method
whereby selected key employees, selected key consultants, professionals and non
employee directors of Heng Fai China Industries, Inc. (the "Corporation") and
its subsidiaries may have the opportunity to invest in shares of the
Corporation's Common Stock ("Common Stock" or "Shares"), thereby giving them a
proprietary and vested interest in the growth and performance of the
Corporation, and in general, generating an increased incentive to contribute to
the Corporation's future success and prosperity, thus enhancing the value of the
Corporation for the benefit of shareholders. Further, the Plan is designed to
enhance the Corporation's ability to attract and retain individuals of
exceptional managerial talent upon whom, in large measure, the sustained
progress, growth, and profitability of the Corporation depends.
2. Administration
The Plan shall be administered by the Corporation's Board of Directors
("the Board") or if so designated by resolution of the Board by a Committee
composed of not less than two individuals ("Committee"). From time to time the
Board, or if so designated the Committee, may grant stock options ("Stock
Options" or "Options") to such eligible parties and for such number of Shares as
it in its sole discretion may determine. A grant in any year to an eligible
Employee (as defined in Section 3 below) shall neither guarantee nor preclude a
grant to such Employee in subsequent years. Subject to the provisions of the
Plan, the Board, shall be authorized to interpret the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, to determine the
terms and provisions of the Option agreements described in Section 5(h) thereof
to make all other determinations necessary or advisable for the administration
of the Plan. The Board, or if so designated the Committee, may correct any
defect, supply any omissions or reconcile any inconsistency in the Plan or in
any Option in the manner and to the extent it shall deem desirable. The
determinations of the Board in the administration of the Plan, as described
herein, shall be final and conclusive. The validity, construction, and effect of
Plan and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware.
3. Eligibility
The class of employees eligible to participate under the Plan shall
include, employees of the Corporation, key consultants or professionals and
non-employee directors of the Company and its subsidiaries (collectively and
individually, "Employees"). Nothing in the Plan or in any agreement thereunder
shall confer any right on an Employee or key vendor of goods and services to
continue in the employ of the Corporation or shall interfere in any way with the
right
<PAGE>
of the Corporation or its subsidiaries, as the case may be, to terminate his
employment at any time.
4. Shares Subject to the Plan
Subject to adjustment as provided in Section 7, an aggregate of 2,000,000
shares of Common Stock shall be available for issuance under the Plan. The
shares of Common Stock deliverable upon the exercise of Options may be made
available from authorized but unissued Shares or Shares reacquired by the
Corporation, including Shares purchased in the open market or in private
transactions. If any Option granted under the Plan shall terminate for any
reason without having been exercised or settled in Common Stock or in cash
pursuant to related Common Stock appreciation rights, the Shares subject to, but
not delivered under, such Option shall be available for other Options.
5. Grant Term and Conditions of Options
The Board or if so designated the Committee, may from time to time after
consultation with management select employees to whom Stock Options shall be
granted. The Options granted may be incentive Stock Options ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code, as
amended (the "Code"), or non-statutory Stock Options ("Non-statutory Stock
Options"), whichever the Board, or if so designated the Committee, shall
determine, subject to the following terms and conditions:
(a) Price. The purchase price per share of Common Stock deliverable upon
exercise of each Incentive Stock Option shall not be less than 100 percent
of the Fair Market Value of the Common Stock on the date such Option is
granted. Provided, however, that if an Incentive Stock Option is issued to
an individual who owns, at the time of grant, more than ten percent (10%)
of the total combined voting power of all classes of the Company's Common
Stock, the exercise price of such Option shall be at least 110% of the Fair
Market Value of the Common Stock on the date of grant and the term of the
Option shall not exceed five years from the date of grant. The Option price
of Shares subject to Non-statutory Stock Options shall be determined by the
Board of Directors or Committee in its absolute discretion at the time of
grant of such Option, provided that such price shall not be less than 85%
of the Fair Market Value of the Common Stock at the time of grant. For
purposes of this plan, Fair Market Value shall be: (i) the average of the
closing Bid and Ask prices for the Common Stock on the date in question.
(b) Payment. Options may be exercised only upon payment of the purchase
price thereof in full. Such payment shall be made in such form of
consideration as the Board or Committee determines and may vary for each
Option. Payment may consist of cash, check, notes, delivery of shares of
Common Stock having a fair market value on the date of surrender equal to
the aggregate exercise price, or any combination of such methods or other
means of payment permitted under the Delaware General Corp. Law.
2
<PAGE>
(c) Term of Options. The term during which each Option may be exercised
shall be determined by the Board, or if so designated the Committee,
provided that an Incentive Stock Option shall not be exercisable in whole
or in part more than 10 years from the date it is granted. All rights to
purchase Common Stock pursuant to an Option shall, unless sooner
terminated, expire at the date designated by the Board or, if so designated
the Committee.
The Board, or if so designated the Committee, shall determine the date on
which each Option shall become exercisable and may provide that an Option
shall become exercisable in installments. The Shares comprising each
installment may be purchased in whole or in part at any time after such
installment becomes purchasable, except that the exercise of Incentive
Stock Options shall be further restricted as set forth herein. The Board,
or if so designated the Committee, may in its sole discretion, accelerate
the time at which any Option may be exercised in whole or in part, provided
that no Option shall be exercisable until one year after grant.
(d) Limitations on Grants. The aggregate Fair Market Value (determined at
the time the Option is granted) of the Common Stock with respect to which
the Incentive Stock Option is exercisable for the first time by an Optionee
during any calendar year (under all plans of the Company and its parent or
any subsidiary of the Corporation) shall not exceed $100,000. The foregoing
limitation shall be modified from time to time to reflect any changes in
Section 422 of the Code and any regulations promulgated thereunder setting
forth such limitations.
(e) Termination of Employment.
(i) If the employment of an Employee by the Company or a subsidiary
corporation of the Company shall be terminated voluntarily by the Employee
or for cause by the Company, then his Option shall expire forthwith. Except
as provided in subparagraphs (ii) and (iii) of this Paragraph (e), if such
employment shall terminate for any other reason, then such Option may be
exercised at any time within three (3) months after such termination,
subject to the provisions of subparagraph (iv) of this Paragraph (e). For
purposes of this subparagraph, an employee who leaves the employ of the
Company to become an employee of a subsidiary corporation of the Company or
a corporation (or subsidiary or parent corporation of the corporation)
which has assumed the Option of the Company as a result of a corporate
reorganization, etc., shall not be considered to have terminated his
employment.
(ii) If the holder of an Option under the Plan dies (a) while employed
by, or while serving as a non-employee Director for, the Company or a
subsidiary corporation of the Company, or (b) within three (3) months after
the termination of his employment or services other than voluntarily by the
employee or non-employee Director, or for cause, then such Option may,
subject to the provisions of subparagraph (iv) of this Paragraph (e), be
exercised by the estate of the employee or non-employee Director or by a
person
3
<PAGE>
who acquired the right to exercise such Option by bequest or inheritance or
by reason of the death of such employee or non-employee Director at any
time within one (1) year after such death.
(iii) If the holder of Option under the Plan ceases employment because
of permanent or total disability (within the meaning of Section 22 (e) (3)
of the Code) while employed by the Company or a subsidiary corporation of
the Company, then such Option may, subject to the provisions of
subparagraph (iv) of this paragraph e, be exercised at any time within one
year after his termination of employment due to disability.
(iv) An Option may not be exercised pursuant to this Paragraph (e),
except to the extent that the holder was entitled to exercise the Option at
the time of termination of employment, termination of Directorship, or
death, and in any event may not be exercised after the expiration of the
Option. For purpose of this Paragraph (e), the employment relationship of
an employee of the Company or of a subsidiary corporation of the company
will be treated as continuing intact while he is on military or sick leave
or other bona fide leave of absence (such as temporary employment by the
Government) if such leave does not exceed ninety (90) days, or, if longer,
so long as his right to reemployment is guaranteed either by statute or by
contract.
(f) Nontransferability of Options. No Option shall be transferable by a
Holder otherwise than by will or the laws of descent and distribution, and
during the lifetime of the Employee to whom an Option is granted it may be
exercised only by the employee, his guardian or legal representative if
permitted by Section 422 and related sections of the Code and any
regulations promulgated thereunder.
(g) Listing and Registration. Each Option shall be subject to the
requirement that if at any time the Board, or if so designated the
Committee, shall determine, in its discretion, the listing, registration or
qualification of the Common Stock subject to such Option upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as
a condition of, or in connection with, the granting of such Option or the
issue or purchase of Shares thereunder, no such Option may be exercised in
whole or in part unless such listing, registration, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Board, or if so designated the Committee.
(h) Option Agreement. Each Employee to whom an Option is granted shall
enter into an agreement with the Corporation which shall contain such
provisions, consistent with the provisions of the Plan, as may be
established by the Board, or if so designated the Committee.
(i) Withholding. Prior to the delivery of certificates for shares of Common
Stock, the Corporation or a subsidiary shall have the right to require a
payment from an Employee to cover any applicable withholding or other
employment taxes due upon the
4
<PAGE>
exercise of an Option. An Optionee may make such payment either (i) in
cash, (ii) by authorizing the Company to withhold a portion of the stock
otherwise issuable to the Optionee, (iii) by delivering already-owned
Common Stock, or (iv) by any combination of these means.
6. Stock Appreciation Rights
The Board or Committee may grant stock appreciation rights ("SARs") in
connection with all or any part of an Option granted under the Plan, either
concurrently with the grant of the Option or at any time thereafter, and may
also grant SARs independently of Options.
(a) SARs Granted in Connection with an Option. An SAR granted in connection
with an Option entitles the Optionee to exercise the SAR by surrendering to the
Company, unexercised, the underlying Option. The Optionee receives in exchange
from the Company an amount equal to the excess of (x) the Fair Market Value on
the date of surrender of the underlying Option (y) the exercise price of the
Common Stock covered by the surrendered portion of the Option.
When an SAR is exercised, the underlying Option, to the extent surrendered,
ceases to be exercisable, and the number of Shares available for issuance under
the Plan is reduced correspondingly.
An SAR is exercisable only when and to the extent the underlying Option is
exercisable and expires no later than the date on which the underlying Option
expires. Notwithstanding the foregoing, neither an SAR nor a related Option may
be exercised during the first six (6) months of its respective term: provided,
however, that this limitation will not apply if the Optionee dies or is disabled
within such six (6) month period.
(b) Independent SARs. The Board or the Committee may grant SARs without
related Options. Such an SAR will entitle the Optionee to receive from the
company on exercise of the SAR an amount equal to the excess of (x) the fair
market value of the Common Stock covered by the exercised portion of the SAR, as
of the date of such exercise, over (y) the fair market value of the Common Stock
covered by the exercised portion of the SAR as of the date on which the SAR was
granted.
SARs shall be exercisable in whole or in part at such times as the Board or
the Committee shall specify in the Optionee's SAR grant or agreement.
Notwithstanding the foregoing, an SAR may not be exercised during the first six
(6) months of its term: provided, however, that this limitation will not apply
if the Optionee dies or is disabled within such six (6) month period.
(c) Payment on Exercise. The Company's obligations arising upon the
exercise of an SAR may be paid in cash or Common Stock, or any combination of
the same, as the Board
5
<PAGE>
or the Committee may determine. Shares issued on the exercise of an SAR are
valued at their fair market value as of the date of exercise.
(d) Limitation on Amount paid on SAR Exercise. The Board or the Committee
may in its discretion impose a limit on the amount to be paid on exercise of an
SAR. In the event such a limit is imposed on an SAR granted in connection with
an Option, the limit will not restrict the exercisability of the underlying
Option.
(e) Persons Subject to 16(b). An Optionee subject to Section 16(b) of the
Securities Exchange Act of 1934, may only exercise an SAR during the period
beginning on the third and ending on the twelfth business day following the
Company's public release of quarterly or annual summary statements of sales and
earnings and in accordance with all other provisions of Section 16(b).
(f) Non-Transferability of SARs. An SAR is non-transferable by the Optionee
other than by will or the laws of descent and distribution, and is exercisable
during the Optionee's lifetime only by the Optionee, or, in the event of death,
by the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance.
(g) Effect on Shares in Plan. When an SAR is exercised, the aggregate
number of shares of Common Stock available for issuance under the Plan will be
reduced by the number of underlying shares of Common Stock as to which the SAR
is exercised.
7. Adjustment of and Changes in Common Stock
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of Shares, merger, consolidation, distribution of assets,
or any other changes in the corporate structure or Shares of the Corporation,
the Board, or if so designated the Committee, shall make such adjustments as it
deems appropriate in the number and kind of Shares and SARs authorized by the
Plan, in the number and kind of Shares covered by the Options granted and in the
exercise price of outstanding Options and SARs.
8. Mergers, Sales and Change of Control
In the case of (i) any merger, consolidation or combination of the
Corporation with or into another corporation (other than a merger, consolidation
or combination in which the Corporation is the continuing corporation and which
does not result in its outstanding Common Stock being converted into or
exchanged for different securities, cash or other property, or any combination
thereof) or a sale of all or substantially all of the business or assets of the
Corporation or (ii) a Change in Control (as defined below) of the Corporation,
each Option or SAR then outstanding for one year or more shall (unless the
Board, or if so designated the Committee, determines otherwise), receive upon
exercise of such Option or SAR an amount equal to the excess of the Fair Market
Value on the date of such exercise of (a) the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
6
<PAGE>
combination in respect of a share of Common Stock, in the cases covered by
clause (i) above, or (b) the final tender offer price in the case of a tender
offer resulting in a Change in Control or (c) the value of the Common Stock
covered by the Option or SAR as determined by the Board, or if so designated the
Committee, in the case of a Change in Control by reason of any other event, over
the exercise price of such Option, multiplied by the number of shares of Common
Stock with respect to which such Option or SAR shall have been exercised
provided that in each event the amount payable in the case of an Incentive Stock
Option shall be limited to the maximum permissible amount necessary to preserve
the Incentive Stock Option status. Such amount may be payable fully in cash,
fully in one or more of the kind or kinds or property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more such
kind or kinds of property, all in the discretion of the Board or if so
designated the Committee.
Any determination by the Board, or if so designated the Committee, made
pursuant to this Section 8 may be made as to all outstanding Options and SARs or
only as to certain Options and SARs specified by the Board, or if so designated
the Committee and any such determination shall be made (a) in cases covered by
clause (i) above, prior to the occurrence of such event, (b) in the event of a
tender or exchange offer, prior to the purchase of any Common Stock pursuant
thereto by the offeror and (c) in the case of a Change in Control by reason of
any other event, just prior to or as soon as practicable after such Change in
Control.
A "Change in Control" shall be deemed to have occurred if (a) any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, shall own beneficially 25% or more of the Common Stock outstanding,
or (b) if following (i) a tender or exchange offer for voting securities of the
Corporation, or (ii) a proxy contest for the election of directors of the
Corporation, the persons who were directors of the Corporation immediately
before the initiation of such event cease to constitute a majority of the Board
of Directors of the Corporation upon the completion of such tender or exchange
offer or proxy contest or within one year after such completion.
9. No Rights of Shareholders
Neither an Employee nor the Employee's legal representative shall be, or
have any of the rights and privileges of, a shareholder of the Corporation in
respect of any Shares purchasable upon the exercise of any Option, in whole or
in part, unless and until certificates for such Shares shall have been issued.
10. Plan Amendments
The plan may be amended by the Board, as it shall deem advisable or to
conform, to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of shareholders:
(i) increase the aggregate number of Shares available for Options except as
permitted by Section 7; (ii) Materially increase the benefits accruing to
participants under this Plan; (iii) extend the maximum period during which an
Option
7
<PAGE>
may be exercised; or (iv) change the Plan's eligibility requirements. Any
discrepancy between the Board and any committee regarding this Plan shall be
decided in any manner directed by the Board.
11. Term of Plan
The Plan shall become effective upon its approval by the Corporation
shareholders. No Options or SARs shall be granted under the Plan after the date
which is ten years after the date on which the Plan was approved by the
Corporation shareholders.
8
<PAGE>
HENG FAI CHINA INDUSTRIES, INC.
Annual Meeting of Stockholders -- Friday, May 23, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Fai H. Chan and Robert H. Trapp and each of
them, with power of substitution, as proxies to represent the undersigned at the
Annual Meeting of Stockholders to be held at the Dumont Plaza Hotel, 150 East
34th Street, New York, New York 10016, on Friday, May 23, 1997 at 10:30 a.m.
local time and at any adjournment thereof, and to vote the shares of stock the
undersigned would be entitled to vote if personally present, as indicted on the
reverse side hereof.
The shares represented by the proxy will be voted as directed. If no
contrary instruction is given, the shares will be voted FOR Proposal Nos. 2, 3,
4, 5 and for the election of Fai H. Chan, Robert H. Trapp and Ronald M. T. Lau
as directors.
Please mark boxes in blue or black ink.
1. Proposal No. 1 - Election of Directors.
Nominees: Fai H. Chan, Robert H. Trapp and Ronald M. T. Lau.
AUTHORITY
FOR withheld
all as to all
nominees nominees
[ ] [ ]
For, except authority withheld as to the following nominee(s):
________________________________________________________________
2. Proposal No. 2 for approval to amend the Company's Certificate of
Incorporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal No. 3 for the ratification and approval of the Company's 1997
Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Proposal No. 4 for the ratification of the issuance of Common Stock to
Company affiliates.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
21
<PAGE>
5. Proposal No. 5 for the ratification of the Company's independent
accountants, Deloitte Touche Tohmatsu International.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Please date, sign as name appears at left, and return promptly. If the stock is
registered in the name of two or more persons, each should sign. When signing as
Corporate Officer, Partner, Executor, Administrator, Trustee, or Guardian,
please give full title. Please note any change in your address alongside the
address as it appears in the Proxy.
Dated: _____________
_____________________________________
(Signature)
_____________________________________
(Print Name)
SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
