<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CREATIVE MASTER INTERNATIONAL, INC.
-----------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CREATIVE MASTER INTERNATIONAL, INC.
CASEY IND. BLDG., 8TH FLOOR
18 BEDFORD RD., TAIKOKTSUI
KOWLOON, HONG KONG
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 16, 1999
Notice is hereby given that the Annual Meeting of Stockholders of Creative
Master International, Inc., a Delaware corporation (the "Company"), will be
held at the Beverly Wilshire Hotel, 9500 Wilshire Boulevard, Beverly Hills,
California, 90212 on July 16, 1999, at 1:30 P.M., local time, for the
following purposes, as more fully described in the attached proxy statement:
(1) To elect five directors of the Company to serve until the next annual
meeting of stockholders and until their successors are duly elected and
qualified.
(2) To authorize the Company to enter into indemnity agreements with its
directors and officers.
(3) To approve an amendment to Article II, Section 2 of the Company's bylaws
to allow a flexible annual meeting date.
(4) To approve an amendment to Article IX of the Company's bylaws to allow the
Board of Directors to unilaterally amend the bylaws.
(5) To ratify an amendment to the Company's 1998 Stock Option Plan to increase
the number of shares covered by the plan from 420,000 to 650,000.
(6) To ratify the appointment by the Board of Directors of Arthur Andersen &
Co. as the Company's independent public accountants for the fiscal year
ending December 31, 1999.
(7) To transact such other business as may properly be brought before the
Annual Meeting or any and all adjournments thereof.
Your attention is directed to the accompanying Proxy Statement. Stockholders
of record at the close of business on June 16, 1999 will be entitled to notice
of and to vote at the meeting and any adjournment thereof.
Please sign, date and complete the enclosed proxy and return it promptly in
the accompanying pre-addressed envelope, whether or not you expect to attend
the Annual Meeting. A majority of the outstanding shares of common stock must
be represented (in person or by proxy) at the Annual Meeting in order that
business may be transacted. Therefore, your promptness in returning the
enclosed proxy will help to ensure a quorum is present. A stockholder who
executes and returns the accompanying proxy may revoke it at any time before
it is voted at the Annual Meeting by following the procedures set forth in the
attached Proxy Statement.
By Order of the Board of Directors
Shing Kam Ming
Secretary
Kowloon, Hong Kong
June 18, 1999
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE
IN ORDER TO ENSURE THAT YOUR SHARES ARE REPRESENTED.
<PAGE>
CREATIVE MASTER INTERNATIONAL, INC.
Casey Ind. Bldg., 8th Floor
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
PROXY STATEMENT
Annual Meeting of Stockholders
July 16, 1999
General
The enclosed proxy is solicited by the Board of Directors of Creative Master
International, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders of the Company (the "Annual Meeting") to be
held at 1:30 P.M. on Friday, July 16, 1999, at the Beverly Wilshire Hotel,
9500 Wilshire Boulevard, Beverly Hills, California, 90212, and at any
adjournment or postponement thereof. This Proxy Statement and the accompanying
proxy card are first being mailed to the stockholders of the Company on or
about June 22, 1999.
The cost of this solicitation, including the cost of preparing and mailing
the Notice of Annual Meeting, this Proxy Statement, and the enclosed proxy,
will be borne by the Company. It is anticipated that brokerage houses,
fiduciaries, nominees, and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of stock held in
their names. Directors, officers, or employees of the Company may solicit
proxies by telephone or in person without additional compensation.
Outstanding Securities and Voting Rights
Only holders of record of the Company's common stock (the "Common Stock") at
the close of business on June 16, 1999 will be entitled to vote at the Annual
Meeting. On that date, the Company had 4,999,322 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote at the Annual
Meeting with respect to each matter to be voted on. Holders of Common Stock
are not entitled to cumulate votes in the election of directors. Under
applicable law and the Company's certificate of incorporation and bylaws, if a
quorum is present at the Annual Meeting: (i) the five nominees for election to
the Board of Directors who receive the greatest number of votes cast for the
election of directors by the shares present in person or represented by proxy
shall be elected directors, (ii) matters 2, 5 and 6 listed in the accompanying
Notice of Annual Meeting of Stockholders will be approved if a majority of the
votes cast on the matter are cast in favor of such matter, and (iii) matters 3
and 4 listed in the accompanying Notice of Annual Meeting of Stockholders will
be approved if a majority of the shares entitled to vote are cast in favor of
such matter.
The presence at the Annual Meeting, either in person or by proxy, of the
holders of a majority of the shares of Common Stock outstanding on the record
date is necessary to constitute a quorum for the transaction of business.
Abstentions will be counted for purposes of determining the presence of a
quorum and will have the same effect as negative votes. Broker non-votes also
will count towards establishing a quorum. Broker non-votes will not affect the
outcome of matters 2, 5 and 6, but will have the same effect as a negative
vote for matters 3 and 4. Neither abstentions nor broker non-votes will have
any effect upon the outcome of voting with respect to the election of
directors.
Proxy Voting
Shares for which proxy cards are properly executed and returned will be
voted at the Annual Meeting in accordance with the directions noted thereon,
or in the absence of directions to the contrary, will be voted "FOR" the
election of the nominees to the Board of Directors named herein, "FOR" the
proposal to authorize the Company to enter into indemnity agreements with its
directors and officers, "FOR" the proposal to amend Article II, Section 2 of
the Company's bylaws to allow a flexible annual meeting date, "FOR" the
proposal to
1
<PAGE>
amend Article IX of the Company's bylaws to allow the Board of Directors to
unilaterally amend the bylaws, "FOR" the proposal to ratify the amendment to
the Company's 1998 Stock Option Plan to increase the number of shares covered
by the plan from 420,000 to 650,000, and "FOR" the proposal to ratify the
appointment by the Board of Directors of Arthur Andersen & Co. as the
Company's independent public accountants for the fiscal year ending December
31, 1999. It is not expected that any matter other than those referred to in
this Proxy Statement will be brought before the Annual Meeting. If, however,
other matters are properly presented, the persons named as proxies will vote
in accordance with their discretion with respect to such matters.
Revocation
Any stockholder giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of the Company a written notice of revocation
or a duly executed proxy card bearing a later date, or by attending the Annual
Meeting and voting in person.
ELECTION OF DIRECTORS
At the Annual Meeting, five directors, who will constitute the entire Board
of Directors, are to be elected to serve until the next Annual Meeting of
Stockholders and until their successors are elected and qualified. All
nominees for the Board of Directors currently serve as directors and have
consented to being named herein and have agreed to serve if elected. The
nominees are as follows:
Carl Ka Wing Tong
Leo Sheck Pui Kwok
Chou Kong Seng
Steve Gordon
Clayton K. Trier
Management proxies will be voted "FOR" the election of all of the above-
named nominees unless the stockholder indicates that the proxy shall not be
voted for all or any one of the nominees. Nominees receiving the highest
number of affirmative votes cast, up to the number of directors to be elected,
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
FIVE PERSONS NOMINATED FOR DIRECTOR HEREIN.
2
<PAGE>
Management of the Company
The executive officers, directors and key employee of the Company and their
ages and positions as of May 31, 1999 are as follows:
<TABLE>
<CAPTION>
Executive Officers
and Directors(1) Age Position
------------------ --- --------
<C> <C> <S>
Carl Ka Wing Tong... 48 President, Chief Executive Officer and Chairman of
the Board
Leo Sheck Pui Kwok.. 43 Chief Operating Officer and Director
John Rempel......... 43 Chief Financial Officer and Asst. Secretary
Henry Hai-Lin Hu.... 54 Executive Vice-President--Marketing
Shing Kam Ming...... 37 Senior Vice-President, Controller, and Secretary
Paul Mo............. 48 Senior Vice-President--Marketing Services
Denny Cheng......... 38 Vice-President--Marketing Service, Engineering
Chou Kong Seng...... 44 Director
Steve Gordon........ 44 Director
Clayton K. Trier.... 47 Director
<CAPTION>
Other Key Employee
------------------
<C> <C> <S>
Albert Chui......... 49 Assistant Vice President--Quality Assurance
</TABLE>
- --------
(1) Each of the executive officers of the Company also serves in various
corresponding capacities with Creative Master Limited, the Company's
wholly-owned Hong Kong subsidiary ("CML"), or subsidiaries of CML.
Carl Ka Wing Tong has been the Chairman, Chief Executive Officer and
President since December 1997. He also served as Secretary from December 1997
to September 1998 and as Chief Financial Officer from September 1998 to
November 1998. He also serves as a director of Acma Strategic Holdings
Limited. Mr. Tong co-founded CML in 1986. From 1993 to 1995, he also served as
Chief Financial Officer of ZIC Holdings Limited, the holding company of
Zindart Industrial Co. Ltd., a manufacturer of toys and collectibles. Prior to
founding CML, from 1985 to 1987, Mr. Tong was Vice President of Citibank
N.A.'s Institutional Banking, Specialized Finance Group. In addition, from
1977 to 1985, Mr. Tong was a certified public accountant with Arthur Andersen
& Co. in United Kingdom and Hong Kong, where his last position was Senior
Manager, Audit Division. He is a certified public accountant in Hong Kong and
a chartered accountant in the United Kingdom.
Leo Sheck Pui Kwok has been the Chief Operating Officer and a director of
the Company since December 1997. Mr. Kwok co-founded CML in 1986. Before
founding CML, Mr. Kwok worked for the Hallmark Group in Asia from 1980 to
1987, where his last position was as the Chief Merchandise Manager.
John Rempel has been Chief Financial Officer of the Company since November
1998 and Assistant Secretary of the Company since February 1999. Prior to
joining the Company, from 1995 to November 1998, Mr. Rempel founded and
managed the consulting division of Infocan Computer (HK) Limited, an
information technology solution provider, specializing in financial and
material requirements planning system design and implementation. Between 1990
and 1995, Mr. Rempel was the Chief Financial Officer of a division of Lai Sun
Group, a publicly-listed company in Hong Kong. He is a Canadian Chartered
Accountant and a Fellow of the Hong Kong Society of Accountants. Prior to
1981, Mr. Rempel served with Arthur Andersen & Co. in Canada and Bermuda.
Henry Hai-Lin Hu has been Executive Vice-President--Marketing of the Company
since September 1998. Prior to joining the Company, from 1996 through 1998 Mr.
Hu served in executive management positions with various Hong Kong toy
manufacturers. Mr. Hu also served as the Chairman and Chief Executive Officer
of Zindart Industrial Co., Ltd. from 1993 until 1996.
Shing Kam Ming has been the Senior Vice-President of the Company since
January 1998 and Secretary of the Company since February 1999. He also served
as Chief Financial Officer until September 1998, when he was appointed
Controller. Mr. Shing joined Creative Master Limited in March 1993 as
Manager--Finance and Administration.
3
<PAGE>
Paul Mo has served as the Company's Senior Vice-President--Marketing
Services since August 1996. He also served as Secretary of the Company from
October 1998 to February 1999. Mr. Mo joined the Company as director of
Engineering in November 1994 and helped establish the Company's first Dongguan
factory. Prior to joining the Company, from 1992 to 1994 he was a General
Manager of Sinomex (Hong Kong).
Denny Cheng has served as Vice-President--Marketing Services, Engineering
since November 1996. Before joining the Company, Mr. Cheng served as an
Engineering Manager with Sinomex (Hong Kong), from 1993 to 1996.
Chou Kong Seng has been a director of the Company since December 1997. Mr.
Chou has been the Finance Director of Acma Ltd., a company listed on the
Singapore stock exchange since 1994. He also serves as a director of Acma
Strategic Holdings Limited, a principal stockholder of the Company. Before
joining Acma Ltd., he was a senior manager with KPMG Peat Marwick LLP in
Singapore.
Steve Gordon has been a director of the Company since February 1999. Mr.
Gordon has been a principal of, and performed the functions of chief executive
officer for, TFS Limited, a direct response marketing and fulfillment services
company, since 1995. Before joining TFS Limited, Mr. Gordon served as a
Division Director of MBI, Inc., from 1985 to 1995, where he was responsible
for certain die-cast products.
Clayton K. Trier has been a director of the Company since February 1999.
Since 1997, Mr. Trier has been a private investor. Mr. Trier also currently
serves as a director of Pentacon, Inc (NYSE: JIT). From 1993 through 1997, Mr.
Trier served as the Chairman and Chief Executive Officer of U.S. Delivery
Systems, a NYSE-listed local delivery company with offices nationwide. He
founded U.S. Delivery Systems in 1993. U.S. Delivery Systems was acquired by
Corporate Express Inc. in March 1996. From 1987 to 1991, Mr. Trier was co-
Chief Executive Officer and President of Allwaste, Inc., a NYSE-listed company
engaged in waste management. Mr. Trier was a Certified Public Accountant with
Arthur Andersen & Co. in Houston, Texas and Hong Kong from 1974 to 1987, and
was a partner there from 1983 to 1987.
Albert Chui has served as Assistant Vice-President--Quality Assurance and
Training since 1996. Before joining the Company, Mr. Chui served as a plant
manager with Sunshine Toys Manufacturing Limited from 1995 to 1996. In
addition, Mr. Chui worked as a quality manager with Artin Industries Company
Limited from 1993 to 1994.
Board of Directors Meetings and Committees
During the fiscal year ended December 31, 1998, the Board of Directors met
four times. Each incumbent director who was a director during the past fiscal
year attended more than 75% of the aggregate of all meetings of the Board of
Directors. The Board of Directors established audit and compensation
committees in February 1999. The audit committee reviews the scope of the
audit findings by the Company's independent auditors and other accounting
related matters. The Company's audit committee currently consists of Mr.
Gordon and Mr. Trier. The compensation committee recommends and reviews the
compensation to executive officers of the corporation; the Company's stock
option plan, however, is currently administered by the full Board of
Directors. The Company's compensation committee currently consists of Mr.
Tong, Mr. Gordon, and Mr. Trier. The Company has no other standing committees
of its Board of Directors.
4
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth certain information regarding compensation
earned by each person who served as the Company's Chief Executive Officer
during the year ended December 31, 1998 and one other executive officer
(together, the "named executive officers") whose compensation exceeded
$100,000 for that year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Awards--
Compensation Securities
Name and Principal ------------------- Other Annual Underlying
Position Year Salary Bonus Compensation Options/SARS(#)
- ------------------ ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Carl Ka Wing Tong....... 1998 $177,000(1) -- -- 112,500 shares
President and Chief 1997 $115,000(2) -- -- --
Executive Officer 1996 $ 88,000(2) -- -- --
Leo Sheck Pui Kwok...... 1998 $ 77,000 $27,000 $84,000(3) 82,500 shares
Chief Operating Officer 1997 $ 46,000 $ 4,000 $61,000(3) --
1996 $ 43,200 -- $44,000(3) --
</TABLE>
- --------
(1) Represents $116,000 in compensation paid to Acma Strategic Holdings
Limited for consulting services and $61,000 in fees paid to Carl Tong &
Associate Management Consultancy Limited. See "Certain Relationships and
Related Transactions--Tong Consulting Arrangement."
(2) Represents compensation paid to Acma Strategic Holdings Limited for
consulting services. See "Certain Relationships and Related Transactions--
Tong Consulting Arrangement."
(3) Represents a residence allowance. See "Employment Agreements."
Option Grants in 1998
The following table sets forth information concerning the grant of stock
options during 1998 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percentage of
Total Options
Number of Granted
Securities Underlying to Employees Exercise Expiration
Name Options Granted in Fiscal Year Price ($/sh) Date
- ---- --------------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
Carl Ka Wing Tong....... 112,500(1) 33.04% $5.00 12/23/06
Leo Sheck Pui Kwok...... 82,500(1) 24.23% $5.00 12/23/06
</TABLE>
- --------
(1) These options will vest and become exercisable as to 25% of the shares on
June 23, 1999. The remaining options will vest and become exercisable
monthly pro rata over a 42-month period from June 23, 1999 to December 23,
2002.
Option Exercises in 1998 and Fiscal Year-End Option Values
No options were exercised by the named executive officers during 1998.
5
<PAGE>
AGGREGATE FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options At
Held At Fiscal Year-End(#) Fiscal Year-End($)(1)
------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Carl Ka Wing Tong....... 0 112,500 -- $112,500
Leo Sheck Pui Kwok...... 0 82,500 -- $ 82,500
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value per shared based on the closing price of $6.00 reported by
the Nasdaq National Market on December 31, 1998.
Compensation of Directors
The Company reimburses each director for reasonable expenses incurred in
attending meetings of the Company's Board of Directors and pays each non-
employee director a fee of $1,300 for each meeting attended by such director.
Outside directors who serve on board committees are paid a fee of $300 for
each committee meeting attended. Directors also are eligible to receive grants
of options under the Company's 1998 Stock Option Plan. Concurrent with the
Company's public offering on December 23, 1999, the Company granted to each of
Mr. Gordon and Mr. Trier stock options to purchase 7,500 shares of common
stock at an exercise price of $5.00 per share.
In 1996, the Company entered into a one-year, annually renewable consulting
agreement with TFS Limited. Steve Gordon, a director of the Company, is the
principal owner of and performs the functions of chief executive officer for
TFS Limited. See "Certain Relationships and Related Transactions--TFS
Consulting Agreement."
Employment Agreements
The Company was party to a consulting agreement with Acma Strategic Holdings
Limited (which was terminated as of December 23, 1998), which in turn entered
into a consulting agreement with Carl Tong & Associate Management Consultancy
Limited, a company beneficially owned by Carl Ka Wing Tong, pursuant to which
Mr. Tong acted as Managing Director of Acma Strategic Holdings Limited and
performed certain other duties, including acting as the President and Chief
Executive Officer of the Company. The terms of these agreements are described
under "Certain Relationships and Related Transactions--Tong Consulting
Arrangement."
The Company also is party to a consulting agreement with Business Plus
Consultants Limited, which is beneficially owned by Henry Hai-Lin Hu, under
which Mr. Hu serves as Executive Vice-President--Marketing of the Company. See
"Certain Relationships and Related Transactions--Hu Consulting Agreement" for
a discussion of the terms of Mr. Hu's agreement.
Consulting arrangements such as the Company's arrangements with Messrs. Tong
and Hu are commonplace in Hong Kong.
In January 1996, the Company entered into a service agreement with Leo Sheck
Pui Kwok pursuant to which he was appointed as an executive officer of the
Company, effective as of February 1, 1996, for a term of three years. The
appointment automatically renews for a one-year term on each anniversary
beginning on February 1, 2000, unless either party provides six months written
notice to terminate the agreement. Mr. Kwok receives a salary of $46,000 per
year and a bonus of up to 2.5% of the Company's net after-tax profits on a
consolidated basis, provided the Company achieves certain net income targets.
In addition, the Company provides Mr. Kwok with a residence allowance.
In January 1997, CML, the Company's wholly owned Hong Kong subsidiary,
adopted a defined contribution pension plan which is available to all of the
Company's Hong Kong employees with at least three months of continuous
service. Participating employees may make monthly contributions to the pension
plan of
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<PAGE>
up to 5% of each employee's base salary, with matching contributions by the
Company. The Hong Kong employees (or their beneficiaries) are entitled to
receive their entire contribution and the Company's matching contributions,
with accrued interest thereon, upon retirement or death of the employee. Upon
resignation or termination (other than for serious misconduct), employees are
entitled to receive their entire contributions to the pension plan, with
accrued interest thereon, plus the vested portion of the Company's matching
contributions. A participating employee becomes fully vested with respect to
30% of the Company's matching contributions to the pension plan after
completing three years of service with the Company and becomes vested with
respect to an additional 10% of the Company's matching contributions for each
year of continuous service thereafter through year ten. CML's subsidiaries,
Excel Master Limited and Carison Engineering Limited, have each adopted
substantially identical pension plans for their employees.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as
of May 31, 1999 by (i) each person known by the Company to beneficially own 5%
or more of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each of the named executive officers, and (iv) all directors
and executive officers of the Company as a group.
The information set forth in the table and accompanying footnotes has been
furnished by the named beneficial owners. An asterisk denotes beneficial
ownership of less than 1%.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership
Name and Address (Number of Shares)(1) Percent of Class
- ---------------- ----------------------- ----------------
<S> <C> <C>
Carl Ka Wing Tong(2)................. 288,281 5.7%
Casey Ind. Bldg., 8th Floor
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
Leo Sheck Pui Kwok(3)................ 587,046 11.7%
Casey Ind. Bldg., 8th Floor
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
Chou Kong Seng(4).................... -- --
Steve Gordon(5)...................... 8,500 *
Clayton K. Trier(5).................. 17,500 *
Acma Ltd.(6)......................... 2,364,430 47.3%
17 Jurong Port Road
Singapore 619092
All directors and executive officers
as group (10 persons)(7)............ 932,622 18.3%
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the shares shown. Except as indicated by
footnote and subject to community property laws where applicable, to the
Company's knowledge, the stockholders named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Includes 30,134 shares issuable upon the exercise of stock options which
will be exercisable within 60 days of May 31, 1999. Mr. Tong is a Managing
Director and 10% shareholder of Acma Strategic Holdings Limited. As such,
Mr. Tong shares investment and voting power with respect to the shares
shown as beneficially owned by Acma Strategic Holdings Limited (see note 6
below). Mr. Tong disclaims beneficial ownership of such shares, however.
(3) Of the shares shown, 564,948 are held of record by Superego, Inc., a
British Virgin Islands company beneficially owned by Mr. Kwok. Includes
22,098 shares issuable to Mr. Kwok upon the exercise of stock options
which will be exercisable within 60 days of May 31, 1999.
7
<PAGE>
(4) Mr. Chou is a director of Acma Ltd. and, as such, may be deemed to share
voting and investment power over the shares shown as beneficially owned by
Acma Ltd. Mr. Chou disclaims such beneficial ownership.
(5) Includes 7,500 shares issuable upon the exercise of currently exercisable
stock options.
(6) The shares shown as being owned by Acma Ltd. consist of 1,838,157 shares
held of record by Acma Strategic Holdings Limited and an additional
526,273 shares held of record by Acma Investments Pte., Ltd., a wholly-
owned subsidiary of Acma Ltd. Acma Investments Pte., Ltd. is a 90%
shareholder of Acma Strategic Holdings Limited.
(7) Includes 88,527 shares issuable upon the exercise of stock options which
will be exercisable within 60 days of May 31, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Hu Consulting Agreement
In August 1998, the Company entered into a consulting agreement with
Business Plus Consultants Limited, which is beneficially owned by Henry Hai-
Lin Hu, the Company's Executive Vice-President--Marketing. For its services
and the services of Mr. Hu, the Company has agreed to pay Business Plus a
commission equal to 7.5% of all additional revenues of the Company generated
by Business Plus, with a guaranteed monthly minimum fee of approximately
$5,000, and all out-of-pocket expenses. The agreement has a two-year term and
will continue thereafter unless terminated by either party upon three months
prior written notice.
Tong Consulting Arrangement
In January 1996, the Company entered into a consulting agreement with Acma
Strategic Holdings Limited, one of the principal stockholders of the Company,
under which Acma Strategic was to receive an annual consulting fee of
approximately $106,000. Acma Strategic is a private investment Company whose
only investment is its ownership of Common Stock of the Company. Mr. Tong is a
director and 10% shareholder of Acma Strategic. In addition, under the terms
of the agreement, the Company, at its discretion, paid Acma Strategic a
performance bonus of up to 2.5% of the Company's consolidated net after-tax
profits. During 1996, 1997 and 1998, the Company paid consulting fees in the
amounts of $88,000, $115,000 and $116,000, respectively, to Acma Strategic for
consulting services provided pursuant to this consulting agreement.
Acma Strategic entered into a consulting agreement with Carl Tong &
Associate Management Consultancy Limited ("Associate Management"), a Company
beneficially owned by Mr. Tong, pursuant to which Mr. Tong serves as a
director of Acma Strategic and performs such other duties as requested by Acma
Strategic, including acting as President and Chief Executive Officer of the
Company. Associate Management received all amounts paid by the Company to Acma
Strategic during 1996, 1997 and 1998. The Company discontinued its arrangement
with Acma Strategic upon completion of the public offering on December 23,
1998, and Associate Management assumed the duties previously performed by Acma
Strategic.
TFS Consulting Agreement
In 1996, the Company entered into a one-year, annually renewable consulting
agreement with TFS Limited. Steve Gordon, a director of the Company, is the
principal owner of and performs the functions of chief executive officer for
TFS Limited. The Company paid $179,000 to TFS Limited in 1998.
Loans to CML
Messrs. Kwok and Tong had outstanding certain non-interest bearing loans to
CML in the amounts of $614,000 and $316,000, respectively, as of December 31,
1996, and $612,000 and $316,000, respectively, as of December 31, 1997. The
loans were repayable on demand. As of September 30, 1998, the outstanding
balances of the loans were approximately $438,000 and $232,000, respectively.
As of October 1, 1998, the principal
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amount of the outstanding loans from Messrs. Kwok and Tong were converted into
non-interest bearing term loans which will be due and payable in six equal
semi-annual installments commencing March 31, 1999 and ending September 30,
2001. In addition, in 1997, Acma Strategic advanced $9,000 on CML's behalf,
which was repaid, without any interest, in January 1998.
Loans from CML
During 1995, 1996 and 1997, Mr. Tong borrowed certain amounts from CML. The
maximum balance of such loans at any one time was $124,000. The loans were
non-interest bearing and were repayable on demand. All loan transactions
ceased upon the completion of the Company's exchange reorganization in
December 1997. The loans were repaid in full in September 1998.
Guarantees of Company Debt
As of December 31, 1998, the Company had credit facilities with Hang Seng
Bank, Banque Nationale de Paris, Bank of China and Commonwealth Finance
Corporation Limited of $258,000, $356,000, $65,000 and $1,291,000,
respectively, some of which Messrs. Tong and Kwok personally guarantee. The
facilities also are secured by a mortgage on certain real property owned by
Mr. Tong. Additionally, Acma Strategic guarantees certain of the Company's
debt. As of December 31, 1998, the Company had outstanding balances under such
facilities of $249,000, $356,000, $0 and $455,000, respectively. The Company
is currently attempting to eliminate the guarantees of Messrs. Tong and Kwok
and Acma Strategic.
APPROVAL OF INDEMNITY AGREEMENTS
The Board of Directors has adopted a resolution approving the use of an
indemnity agreement to be entered into between the Company and each director
and officer of the Company. The form of this indemnity agreement (the
"Agreement") is attached to this Proxy Statement as Exhibit A.
The Company plans to enter into the Agreement with each current director and
officer of the Company (and of each subsidiary of the Company). The Company
also plans to enter into the Agreement with any future directors and officers.
The Board of Directors believes the Agreement would be fully enforceable
regardless of stockholder approval. Nonetheless, because Board members will be
parties to the Agreement, the Board has decided to submit the Agreement to
stockholders for consideration pursuant to the Delaware General Corporation
Law Section 144(a)(2). The use of the Agreement will be approved if a majority
of the shares present and entitled to vote at the annual meeting are voted in
favor of the approval. Even if this proposal is not approved by the required
vote, stockholders who vote in favor of adopting the Agreement may be estopped
from later asserting a claim that the Agreement is invalid. If the
stockholders fail to approve this proposal, the Board will reconsider its
decision to enter into the Agreements, but the Board will not be obligated to
discontinue its use of the Agreement.
The Board's action is in response to (i) the risk of litigation and related
expenses directed against directors and officers of publicly held companies;
and (ii) the potential inability to continue to attract and retain qualified
directors and officers in light of these circumstances. The Board believes
that the use of indemnity agreements is customary among Delaware corporations
such as the Company.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company where indemnification under this provision
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for indemnification by
any director or officer.
The proposed Agreement attempts to provide the maximum protection allowed
under Delaware law. The Agreement will have retroactive effect by indemnifying
directors for actions taken by them prior to adoption of the Agreement.
Although the enforceability of the provisions of the Agreement has not been
tested in court and remains subject to public policy considerations, the Board
of Directors believes that such provisions are permitted under Delaware law.
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Summary of Indemnity Agreement
Below is a detailed summary of the provisions of the Agreement, which is
qualified in its entirety by the exact language of the Agreement attached as
Exhibit A.
Indemnification in Third-Party Proceedings. The Company shall indemnify the
indemnitee against expenses, judgments, fines, penalties or amounts paid in
settlement actually and reasonably incurred by the indemnitee in connection
with any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than a proceeding by or in
the right of the Company) if the indemnitee acted in good faith and in a
manner the indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the indemnitee's conduct was
unlawful.
Indemnification in Proceedings by or in the Right of the Company. The
Company shall indemnify the indemnitee against expenses and amounts paid in
settlement, actually and reasonably incurred by the indemnitee in connection
with a proceeding by or in the right of the Company to procure a judgment in
its favor if the indemnitee acted in good faith and in a manner the indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company and its stockholders. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which the indemnitee shall have been adjudged liable to the Company in the
performance of the indemnitee's duty to the Company and its stockholders
unless and only to the extent that the court in which such action or
proceeding is or was pending shall determine upon application that, in view of
all the circumstances of the case, the indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent that the court
shall determine proper.
No Presumption from Termination. The termination of any proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the indemnitee
did not act in good faith and in a manner which the indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, and,
with respect to any criminal proceeding, had reasonable cause to believe that
the indemnitee's conduct was unlawful.
Determination of Right to Indemnification. Upon receipt of a written claim
addressed to the Board of Directors for indemnification, the Company shall
indemnify the indemnitee with respect to such written claim to the full extent
permitted by law. If a claim is not paid in full by the Company within 30 days
including amounts expended (or incurred and reasonably expected to be
expended) after such written claim has been received by the Company, the
indemnitee may at any time thereafter bring suit against the Company to
recover the unpaid amount of the claim and, unless such action is dismissed by
the court as frivolous or brought in bad faith, the indemnitee shall be
entitled to be paid the expense of prosecuting such claim. Neither the failure
of the Company (including its Board of Directors, independent legal counsel,
or its stockholders) to make a determination prior to the commencement of such
action that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct under
applicable law, nor an actual determination by the Company (including its
Board of Directors, independent legal counsel or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of
conduct. The Company shall have the burden of proof concerning whether the
indemnitee has or has not met the applicable standard of conduct.
Advances. The expenses incurred by the indemnitee in defending and
investigating any proceeding shall be paid by the Company in advance of the
final disposition of such proceeding within 30 days after receiving from the
indemnitee the copies of invoices presented to the indemnitee for such
expenses, if the indemnitee shall provide an undertaking to the Company to
repay such amount to the extent it is ultimately determined that the
indemnitee is not entitled to indemnification. In determining whether or not
to make an advance hereunder, the ability of the indemnitee to repay shall not
be a factor. In a proceeding brought by the Company directly, in its own right
(as distinguished from an action brought derivatively or by any receiver or
trustee), the Company shall not be required to make the advances if the Board
of Directors believes, in its sole discretion, that the indemnitee has not met
the standards of conduct which make it permissible under applicable law to
indemnify the indemnitee and the advancement of expenses would not be in the
best interests of the Company and its stockholders.
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Partial Indemnity. If the indemnitee is entitled to indemnification or
advancement by the Company of some expenses or liabilities incurred by him or
her in the investigation, defense, settlement or appeal of a proceeding, but
is not entitled to indemnification or advancement of the total amount thereof,
the Company shall nevertheless indemnify or pay advancements to the indemnitee
for the portion of such expenses or liabilities to which the indemnitee is
entitled.
Liability Insurance. The Company will use its best efforts to obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") of at least $3 million in aggregate coverage and which
provides the indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if the indemnitee is a
director; or of the Company's officers, if the indemnitee is not a director of
the Company but is an officer. The Company shall have no obligation to obtain
or maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance
are disproportionate to the amount of coverage provided, the coverage provided
by such insurance is limited by exclusions so as to provide an insufficient
benefit, or the indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
Defense of Claim. In the event that the Company becomes obligated to pay the
expenses of any proceeding against the indemnitee and the Company or any other
person entitled to indemnification by the Company is a party to the
proceeding, the Company shall be entitled to assume the defense of such
proceeding, with counsel approved by the indemnitee, which approval shall not
be unreasonably withheld, upon the delivery to the indemnitee of written
notice of its election to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AUTHORIZING THE
COMPANY TO ENTER INTO INDEMNITY AGREEMENTS WITH ITS DIRECTORS AND OFFICERS
APPROVAL OF AMENDMENTS TO THE BYLAWS
The Board of Directors has proposed two amendments to the bylaws of the
Company, which will be acted upon separately at the Annual Meeting. The
affirmative vote of a majority of the shares entitled to vote is required to
approve each of these amendments to the bylaws.
Timing of Annual Meeting of Stockholders
Article II, Section 2 of the bylaws currently provides a fixed date for the
annual meeting of stockholders. The current language is as follows:
2. Annual Meetings. The annual meeting of the shareholders of the
Corporation shall be held at 2:00 p.m. on the last Tuesday of the third
month in each year after the close of the fiscal year of the Corporation,
if such date is not a legal holiday and if a legal holiday, then on the
next business day following at the same hour, at which time the
shareholders shall elect a Board of Directors, and transact such other
business as may properly come before the meeting.
The Board of Directors has proposed an amendment to allow for flexibility in
the choice of meeting date. The Board of Directors believes that most publicly
traded corporations use a flexible meeting date, and that a fixed dated is
unnecessarily restrictive. The Board of Directors intends to set future annual
meeting dates that are convenient for its officers and directors. The proposed
language is as follows:
2. Annual Meetings. An annual meeting of stockholders shall be held for
the election of directors at such date and time, as may be designated by
resolution of the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THIS PROPOSED AMENDMENT TO THE BYLAWS
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Bylaw Amendment Power
Article IX of the bylaws currently requires stockholder approval for any
amendment to the bylaws. The current language is as follows:
1. By Shareholders. All by-laws of the Corporation shall be subject to
revision, amendment or repeal, and new by-laws may be adopted from time to
time by a majority of the shareholders who are at such time entitled to
vote in the election of directors.
2. By Directors. The Board of Directors shall adopt a resolution setting
forth the amendment proposed declaring its advisability, and either calling
a special meeting of the stockholders entitled to vote in respect thereto
for the consideration of such amendment or directing that the amendment
proposed be considered at the next annual meeting of stockholders. Such
special or annual meeting shall be called and held upon notice. This notice
shall set forth such amendment in full or a brief summary of the changes to
be effected thereby, as the directors shall deem advisable. At the meeting
a vote of the stockholders entitled to vote thereon shall be taken for and
against the proposed amendment. If a majority of the outstanding stock
entitled to vote thereon and a majority of the outstanding stock of each
class entitled to vote thereon as a class has been voted in favor of the
amendment, a certificate setting forth the amendment and certifying that
such amendment has been duly adopted in accordance with this section shall
be executed, acknowledged, filed and recorded and shall become effective.
The Company's restated certificate of incorporation grants the Board of
Directors the power to "make, alter, amend, change, add to or repeal the
bylaws of the Corporation . . ." without the assent or vote of stockholders.
The Board of Directors believes that it is desirable for it to have the power
to unilaterally amend the bylaws, because seeking stockholder approval can be
time consuming and expensive. The proposed language is as follows:
These by-laws may be altered or repealed, and new by-laws made, by the
Board of Directors, but the stockholders may make additional by-laws and
may alter and repeal any by-laws whether adopted by them or otherwise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THIS PROPOSED AMENDMENT TO THE BYLAWS
RATIFICATION OF AMENDMENT TO THE STOCK OPTION PLAN
In 1998, the Company's Board of Directors adopted and its stockholders
approved the Company's 1998 Stock Option Plan (the "1998 Plan") under which
420,000 shares of Common Stock were reserved for purchase thereunder. The 1998
Plan was subsequently amended by the Board of Directors in December 1998. As
of May 31, 1999, options were outstanding under the 1998 Plan to purchase a
total of 340,500 shares of Common Stock, and only an additional 79,500 shares
remained available for future grants under the 1998 Plan.
In June 1999, the Board of Directors approved an amendment to the 1998 Plan
to increase the number of shares available under the plan by 230,000 shares.
Under the terms of the 1998 Plan, the amendment did not require the approval
of the Company's stockholders. Nevertheless, unless the amendment is approved
by holder of a majority of the shares of common stock present at the annual
meeting, either in person or by proxy, any options granted in excess of the
420,000 shares approved by the stockholders would not be eligible for
treatment as incentive stock options ("ISOs"). Consequently the Board is
asking stockholders to approve the amendment in order to allow the flexibility
to grant additional ISOs under the 1998 Plan.
The 1998 Plan is designed to attract and retain the best available personnel
for positions of responsibility and to provide incentives to such personnel to
promote the success of the business. The Board believes the amendment is
necessary to ensure that sufficient shares are available under the 1998 Plan
to reward and motivate existing employees and to attract new employees in the
future.
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Description of 1998 Plan
The 1998 Plan provides for the grant to directors, officers, employees and
consultants of the Company (including its subsidiaries) of options to purchase
shares of Common Stock. The 1998 Plan may be administered by the Board of
Directors or a committee of the Board of Directors (in either case, the
"Committee"), which has complete discretion to select the optionees and to
establish the terms and conditions of each option, subject to the provisions
of the 1998 Plan. Options granted under the 1998 Plan may be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Common Stock as of the date of grant (110% of the
fair market value if the grant is to an employee who owns more than 10% of the
total combined voting power of all classes of capital stock of the Company).
The Code currently limits to $100,000 the aggregate value of Common Stock that
may be acquired in any one year pursuant to incentive stock options under the
1998 Plan or any other option plan adopted by the Company. Nonqualified
options may be granted under the 1998 Plan at an exercise price of not less
than 100% of the fair market value of the Common Stock on the date of grant.
Nonqualified options also may be granted without regard to any restriction on
the amount of Common Stock that may be acquired pursuant to such options in
any one year.
Subject to the limitations contained in the 1998 Plan, options granted under
the 1998 Plan will become exercisable at such times and in such installments
(but not less than 20% per year) as the Committee shall provide in the terms
of each individual stock option agreement. The Committee must also provide in
the terms of each stock option agreement when the option expires and becomes
unexercisable, and may also provide that the option expires immediately upon
termination of employment for any reason.
Unless otherwise provided in the applicable stock option agreement, upon
termination of employment of an optionee, all options that were then
exercisable would terminate three months (three years in the case of
termination by reason of death or disability) following termination of
employment. Any options which were not exercisable on the date of such
termination would immediately terminate concurrently with the termination of
employment.
The Board of Directors may at any time amend, alter, suspend or terminate
the 1998 Plan. No amendment, alteration, suspension or termination of the 1998
Plan will impair the rights of any optionee, unless mutually agreed otherwise
between the optionee and the Committee, which agreement must be in writing and
signed by the optionee and the Company. Termination of the 1998 Plan will not
affect the Committee's ability to exercise the powers granted to it hereunder
with respect to options granted under the Plan prior to the date of such
termination.
Options granted under the 1998 Plan may not be exercised more than ten years
after the grant (five years after the grant if the grant is an incentive stock
option to an employee who owns more than 10% of the total combined voting
power of all classes of capital stock of the Company). Options granted under
the 1998 Plan are not transferable and may be exercised only by the respective
grantees during their lifetime or by their heirs, executors or administrators
in the event of death. Under the 1998 Plan, shares subject to cancelled or
terminated options are reserved for subsequently granted options. The number
of options outstanding and the exercise price thereof are subject to
adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. The 1998 Plan is effective
for ten years, unless sooner terminated or suspended.
Certain Federal Income Tax Consequences
Incentive stock options granted under the 1998 Plan will be afforded
favorable federal income tax treatment under the Code. If an option is treated
as an incentive stock option, the optionee will recognize no income upon grant
or exercise of the option unless the alternative minimum tax rules apply. Upon
an optionee's sale of the shares (assuming that the sale occurs at least two
years after grant of the option and at least one year after exercise of the
option), any gain will be taxed to the optionee as long-term capital gain. If
the optionee disposes
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of the shares prior to the expiration of the above holding periods, then the
optionee will recognize ordinary income in an amount generally measured as the
difference between the exercise price and the lower of the fair market value
of the shares at the exercise date or the sale price of the shares. Any gain
or loss recognized on such a premature sale of the shares in excess of the
amount treated as ordinary income will be characterized as capital gain or
loss.
All other options granted under the 1998 Plan will be nonstatutory stock
options and will not qualify for any special tax benefits to the optionee. An
optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. However, upon exercise of the
nonstatutory stock option, the optionee will recognize ordinary income for
federal income tax purposes in an amount generally measured as the excess of
the then fair market value of each share over its exercise price. Upon an
optionee's resale of such shares, any difference between the sale price and
the fair market value of such shares on the date of exercise will be treated
as capital gain or loss and will generally qualify for long-term capital gain
or loss treatment if the shares have been held for more than one year.
Recently enacted legislation provides for reduced tax rates for long-term
capital gains based on the taxpayer's income and the length of the taxpayer's
holding period.
The foregoing does not purport to be a complete summary of the federal
income tax considerations that may be relevant to holders of options or to the
Company. It also does not reflect provisions of the income tax laws of any
municipality, state or foreign country in which an optionee may reside, nor
does it reflect the tax consequences of an optionee's death.
Participation in the 1998 Plan
Stockholders should be aware that each of the Company's executive officers
and non-employee directors are eligible for option grants under the 1998 Plan.
If the proposal is not approved by holders of a majority of the shares of
common stock present at the meeting, either in person or by proxy, additional
options granted under the 1998 Plan will not be eligible for ISO treatment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION
OF THE AMENDMENT TO THE STOCK OPTION PLAN
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has adopted a resolution appointing Arthur Andersen &
Co. as the Company's independent public accountants for the fiscal year ending
December 31, 1999. Stockholder ratification of the selection of Arthur
Andersen & Co. as the Company's independent public accountants is not required
by the Company's bylaws or otherwise. Nevertheless, the Board is submitting
the selection of Arthur Andersen & Co. to the stockholders for ratification as
a matter of good corporate practice. If the stockholders fail to ratify the
selection, the Board will reconsider whether or not to retain that firm. Even
if the selection is ratified, the Board in its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if it determines that such a change could be in the best interests of the
Company and its stockholders. The Company does not expect representatives from
Arthur Andersen & Co. to be present at the annual meeting.
Effective April 30, 1998, Greenberg & Company, LLC, which had been the
Company's auditor prior to the exchange reorganization, resigned as the
independent accountants of the Company. The Company's Board of Directors
approved the appointment of Arthur Andersen & Co. as its new independent
accountants on April 30, 1998. Greenberg & Company, LLC's report on the
Company's financial statements for the past two years did not contain an
adverse opinion or disclaimer, and was not modified as to uncertainty, audit
scope or accounting principles during that period. The Company did not have
any disagreements with Greenberg & Company, LLC on any matter of accounting
principles, financial statements, auditing scope or procedure during that
period.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF ARTHUR ANDERSEN & CO. AS INDEPENDENT PUBLIC ACCOUNTANTS
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COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the directors,
certain officers, and persons who own more than 10% of a registered class of
the Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors, and greater than 10% stockholders are required by the
Commission's regulations to furnish the Company with copies of all Section
16(a) forms they file. Because the reporting obligations were not triggered
until December 23, 1998 when the Company completed a public offering of its
common stock, no reports were required to be filed during the year ended
December 31, 1998.
STOCKHOLDER PROPOSALS AT THE NEXT ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals submitted for inclusion in the Company's Proxy
Statement and form of proxy relating to the Company's 2000 Annual Meeting of
Stockholders must be received by February 22, 2000. If the Company is not
notified of a stockholder proposal by May 8, 2000, then the proxies held by
management of the Company may provide the discretion to vote against such
stockholder proposal, even though such proposal is not discussed in the Proxy
Statement. Stockholder proposals should be submitted to John Rempel, Chief
Financial Officer, Creative Master International, Inc., Casey Ind Bldg., 8th
Floor, 18 Bedford Rd., Taikoktsui, Kowloon, Hong Kong.
OTHER MATTERS
The Company knows of no other matters that are likely to be brought before
the Annual Meeting. If, however, other matters not now known or determined
properly come before the Annual Meeting, the persons named as proxies in the
enclosed proxy card or their substitutes will vote such proxy in accordance
with their discretion with respect to such matters.
By Order of the Board of Directors,
June 18, 1999 Shing Kam Ming
Secretary
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EXHIBIT A
CREATIVE MASTER INTERNATIONAL, INC.
FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of
, by and between Creative Master International, Inc., a
Delaware corporation (the "Company"), and , a [director,
director nominee and/or officer] of the Company (the "Indemnitee").
RECITALS
A. The Company and the Indemnitee recognize that the present state of the
law is too uncertain to provide the Company's directors and officers with
adequate and reliable advance knowledge or guidance with respect to the legal
risks and potential liabilities to which they may become personally exposed as
a result of performing their duties for the Company;
B. The Company and the Indemnitee are aware of the growth in the number of
lawsuits filed against corporate directors and officers in connection with
their activities in such capacities and by reason of their status as such;
C. The Company and the Indemnitee recognize that the cost of defending
against such lawsuits, whether or not meritorious, is often beyond the
financial resources of most directors and officers of the Company;
D. The Company and the Indemnitee recognize that the legal risks and
potential liabilities, and the threat thereof, associated with proceedings
filed against the directors and officers of the Company bear no reasonable
relationship to the amount of compensation received by the Company's directors
and officers;
E. The Company believes, therefore, that the interest of the Company's
stockholders would be best served by a combination of (i) such liability
insurance as the Company may reasonably obtain pursuant to the Company's
obligations hereunder and (ii) a contract with its directors and officers,
including the Indemnitee, to indemnify them to the fullest extent permitted by
law (as in effect on the date hereof, or, to the extent any amendment may
expand such permitted indemnification, as hereafter in effect) against
personal liability for actions taken in the performance of their duties to the
Company;
F. The Company's Bylaws authorize the indemnification of corporate agents of
the Company;
G. The Board of Directors of the Company has concluded that, to retain and
attract talented and experienced individuals to serve as directors and
officers of the Company and to encourage such individuals to take the business
risks necessary for the success of the Company, it is necessary for the
Company to contractually indemnify its directors and officers to the fullest
extent permitted by law, and to assume for itself liability for expenses and
damages in connection with claims against such directors and officers in
connection with their service to the Company, and has further concluded that
the failure to provide such contractual indemnification could result in great
harm to the Company and its stockholders;
H. The Company desires and has requested the Indemnitee to serve or continue
to serve as a director and/or officer of the Company, free from undue concern
for the risks and potential liabilities associated with such services to the
Company; and
I. The Indemnitee is willing to serve, or continue to serve, the Company,
provided, and on the expressed condition, that he or she is furnished with the
indemnification provided for herein.
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AGREEMENT
NOW, THEREFORE, the Company and the Indemnitee agree as follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this Agreement, all direct and
indirect costs and expenses of any type or nature whatsoever (including,
without limitation, any fees and disbursements of the Indemnitee's counsel,
accountants and other experts and other out-of-pocket costs) actually and
reasonably incurred by the Indemnitee in connection with the investigation,
preparation, defense or appeal of a proceeding; provided, however, that
Expenses shall not include judgments, fines, penalties or amounts paid in
settlement of a proceeding.
(b) "Proceeding" means, for the purposes of this Agreement, any
threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (including an action brought by or
in the right of the Company) in which the Indemnitee may be or may have been
involved as a party or otherwise, by reason of the fact that the Indemnitee is
or was a director and/or officer of the Company, by reason of any action taken
by him or her or of any inaction on his or her part while acting as such
director and/or officer or by reason of the fact that he or she is or was
serving at the request of the Company as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director and/or officer of the foreign or
domestic corporation or association which was a predecessor to the Company or
of another enterprise at the request of such predecessor whether or not he or
she is serving in such capacity at the time any liability or expense is
incurred for which indemnification or reimbursement can be provided under this
Agreement.
2. Agreement to Serve. In consideration of the protection afforded by this
Agreement, if the Indemnitee is a director, he or she agrees to serve to the
best of his or her abilities until the earlier of (i) the time when the
Indemnitee fails to be reelected to the Board and qualified or (ii) such time
as he or she tenders his or her resignation in writing. If the Indemnitee is
an officer, he or she agrees to serve to the best of his or her abilities at
the will of the Company or under separate contract, if such contract exists,
for so long as the Indemnitee is duly appointed or employed or until such time
as he or she tenders his or her resignation in writing. Nothing contained in
this Agreement is intended to create in the Indemnitee any right to continued
employment or any requirement of a continuing relationship.
3. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify the Indemnitee
against Expenses, judgments, fines, penalties or amounts paid in settlement
actually and reasonably incurred by the Indemnitee in connection with a
Proceeding (other than a Proceeding by or in the right of the Company) if the
Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe the Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify the Indemnitee against Expenses and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee in connection with a
Proceeding by or in the right of the Company to procure a judgment in its
favor if the Indemnitee acted in good faith and in a manner the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company and its stockholders. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which the Indemnitee shall have been adjudged liable to the Company in the
performance of the Indemnitee's duty to the Company and its stockholders
unless and only to the extent that the court in which such action or
proceeding is or was pending shall determine upon application that, in view of
all the circumstances of the case, the Indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent that the court
shall determine proper.
(c) No Presumption. The termination of any Proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Indemnitee did not act in
good faith and in a manner which the Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal Proceeding, had reasonable cause to believe that the Indemnitee's
conduct was unlawful.
A-2
<PAGE>
(d) Scope. Notwithstanding any other provision of this Agreement, the
Company shall indemnify the Indemnitee to the fullest extent permitted by law,
notwithstanding that such indemnification is not specifically authorized by
other provisions of this Agreement, the Company's Certificate of
Incorporation, the Company's Bylaws or by statute.
4. Determination of Right to Indemnification. Upon receipt of a written
claim addressed to the Board of Directors for indemnification pursuant to
Section 3, the Company shall indemnify the Indemnitee with respect to such
written claim to the full extent permitted by law. If a claim under Section 3
is not paid in full by the Company within 30 days including amounts expended
(or incurred and reasonably expected to be expended) after such written claim
has been received by the Company, the Indemnitee may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim and,
unless such action is dismissed by the court as frivolous or brought in bad
faith, the Indemnitee shall be entitled to be paid the expense of prosecuting
such claim. Neither the failure of the Company (including its Board of
Directors, independent legal counsel, or its stockholders) to make a
determination prior to the commencement of such action that indemnification of
the Indemnitee is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct under applicable law, nor an actual
determination by the Company (including its Board of Directors, independent
legal counsel or its stockholders) that the Indemnitee has not met such
applicable standard of conduct, shall create a presumption that the Indemnitee
has not met the applicable standard of conduct. The Company shall have the
burden of proof concerning whether the Indemnitee has or has not met the
applicable standard of conduct.
5. Advancement and Repayment of Expenses. The Expenses incurred by the
Indemnitee under Section 3 in defending and investigating any Proceeding shall
be paid by the Company in advance of the final disposition of such Proceeding
within 30 days after receiving from the Indemnitee the copies of invoices
presented to the Indemnitee for such Expenses, if the Indemnitee shall provide
an undertaking to the Company to repay such amount to the extent it is
ultimately determined that the Indemnitee is not entitled to indemnification.
In determining whether or not to make an advance hereunder, the ability of the
Indemnitee to repay shall not be a factor. Notwithstanding the foregoing, in a
Proceeding brought by the Company directly, in its own right (as distinguished
from an action brought derivatively or by any receiver or trustee), the
Company shall not be required to make the advances called for hereby if the
Board of Directors believes, in its sole discretion, that the Indemnitee has
not met the standards of conduct which make it permissible under applicable
law to indemnify the Indemnitee and the advancement of Expenses would not be
in the best interests of the Company and its stockholders.
6. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification or advancement by the Company
of some or a portion of any Expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, penalties, and amounts paid
in settlement) incurred by him or her in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to indemnification
or advancement of the total amount thereof, the Company shall nevertheless
indemnify or pay advancements to the Indemnitee for the portion of such
Expenses or liabilities to which the Indemnitee is entitled.
7. Notice to Company by the Indemnitee. The Indemnitee shall notify the
Company in writing of any matter with respect to which the Indemnitee intends
to seek indemnification hereunder as soon as reasonably practicable following
the receipt by the Indemnitee of written notice thereof, provided that any
delay in so notifying the Company shall not constitute a waiver by the
Indemnitee of his or her rights hereunder. The written notification to the
Company shall be addressed to the Board of Directors and shall include a
description of the nature of the Proceeding and the facts underlying the
Proceeding and be accompanied by copies of any documents in the Indemnitee's
possession which have been filed with the court in which the Proceeding is
pending. In addition, the Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within the
Indemnitee's power.
A-3
<PAGE>
8. Maintenance of Liability Insurance.
(a) The Company hereby agrees that so long as the Indemnitee shall
continue to serve as a director and/or officer of the Company and thereafter
so long as the Indemnitee shall be subject to any possible Proceeding, the
Company, subject to Section 8(b), shall use its best efforts to obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") of at least $3 million in aggregate coverage and which
provides the Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if the Indemnitee is a
director; or of the Company's officers, if the Indemnitee is not a director of
the Company but is an officer.
(b) Notwithstanding the foregoing, the Company shall have no obligation
to obtain or maintain D&O Insurance if the Company determines in good faith
that such insurance is not reasonably available, the premium costs for such
insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide
an insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company. If the Company makes such
a determination, it will immediately notify the Indemnitee in writing.
(c) Notice to Insurers. If, at the time of the receipt of a notice of a
claim pursuant to Section 7 hereof, the Company has D&O Insurance in effect,
the Company shall give prompt notice of the commencement of such Proceeding to
the insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts
payable as a result of such Proceeding in accordance with the terms of such
policies.
9. Defense of Claim. In the event that the Company shall be obligated under
Section 5 hereof to pay the Expenses of any Proceeding against the Indemnitee
and the Company or any other person entitled to indemnification by the Company
is a party to the Proceeding, the Company shall be entitled to assume the
defense of such Proceeding, with counsel approved by the Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to the
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to the Indemnitee under
this Agreement for any fees of counsel subsequently incurred by the Indemnitee
with respect to the same Proceeding, provided that (i) the Indemnitee shall
have the right to employ his or her counsel in any such Proceeding at the
Indemnitee's expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, or (B) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of such defense
or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such Proceeding, then the fees and expenses of the Indemnitee's
counsel shall be at the expense of the Company.
10. Attorneys' Fees. In the event that the Indemnitee or the Company
institutes an action to enforce or interpret any terms of this Agreement, the
Company shall reimburse the Indemnitee for all of the Indemnitee's reasonable
fees and expenses in bringing and pursuing such action or defense, unless as
part of such action or defense, a court of competent jurisdiction determines
that the material assertions made by the Indemnitee as a basis for such action
or defense were not made in good faith or were frivolous.
11. Continuation of Obligations. All agreements and obligations of the
Company contained herein shall continue during the period the Indemnitee is a
director and/or officer of the Company, or is or was serving at the request of
the Company as a director, officer, fiduciary, employee or agent of a
corporation, partnership, joint venture, trust or other enterprise, and shall
continue thereafter so long as the Indemnitee shall be subject to any possible
proceeding by reason of the fact that the Indemnitee served in any capacity
referred to herein.
12. Successors and Assigns. This Agreement establishes contract rights that
shall be binding upon, and shall inure to the benefit of, the successors,
assigns, heirs and legal representatives of the parties hereto.
A-4
<PAGE>
13. Non-exclusivity.
(a) The provisions for indemnification and advancement of expenses set
forth in this Agreement shall not be deemed to be exclusive of any other
rights that the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or Bylaws, the vote of the Company's stockholders
or disinterested directors, other agreements or otherwise, both as to action
in his or her official capacity and action in another capacity while occupying
his or her position as a director and/or officer of the Company.
(b) In the event of any changes, after the date of this Agreement, in any
applicable law, statute, or rule which expand the right of a Delaware
corporation to indemnify its officers and directors, the Indemnitee's rights
and the Company's obligations under this Agreement shall be expanded to the
full extent permitted by such changes. In the event of any changes in any
applicable law, statute or rule, which narrow the right of a Delaware
corporation to indemnify a director or officer, such changes, to the extent
not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.
14. Subrogation. In the event of any payment under this Agreement by the
Company to or on behalf of the Indemnitee, the Company shall be subrogated to
the extent of such payment to all of the rights of recovery of the Indemnitee,
who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to enforce such
rights.
15. Severability. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or refrain from doing any act in
violation of applicable law, rule or regulation. The Company's inability,
pursuant to court order, to perform its obligations under this Agreement or
the modification of this Agreement by any regulatory agency through
administrative action shall not constitute a breach of this Agreement. The
provisions of this Agreement shall be severable as provided in this Section
15. If this Agreement or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the Company shall nevertheless
indemnify the Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the
balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
16. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware. To the extent permitted by
applicable law, the parties hereby waive any provisions of law which render
any provision of this Agreement unenforceable in any respect.
17. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed
by certified or registered mail with postage prepaid, on the third business
day after the mailing date. Addresses for notice to either party are as shown
on the signature page of this Agreement, or as subsequently modified by
written notice.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
A-5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year set forth above.
CREATIVE MASTER INTERNATIONAL, INC.
By:_____________________________________
Carl Ka Wing Tong
President and Chief Executive
Officer
Address: Casey Ind. Bldg., 8th Floor,
18 Bedford Rd., Taikoktsui
Kowloon, Hong Kong
INDEMNITEE:
_____________________________________
(Signature)
_____________________________________
(Name--Please print)
_____________________________________
_____________________________________
_____________________________________
(Address)
A-6
<PAGE>
PROXY CREATIVE MASTER INTERNATIONAL, INC.
Proxy For Annual Meeting of Stockholders
This Proxy Is Solicited on Behalf of the Board of Directors of Creative Master
International, Inc.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement, each dated June 18, 1999, and hereby
revokes all prior proxies and appoints Carl Ka Wing Tong and Leo Sheck Pui Kwok
(the "Proxies"), and each of them, with full power of substitution, as the
proxy of the undersigned to represent the undersigned and to vote all shares of
Common Stock of Creative Master International, Inc. which the undersigned would
be entitled to vote if personally present at the Annual Meeting of
Stockholders, to be held on July 16, 1999, at 1:30 P.M., local time at the
Beverly Wilshire Hotel, 9500 Wilshire Boulevard, Beverly Hills, California,
90212, and at any adjournments thereof.
1. ELECTION OF FIVE DIRECTORS Election of five directors, each to hold office
until his or her successor shall have been elected or qualified. Nominees: Carl
Ka Wing Tong, Leo Sheck Pui Kwok, Chou Kong Seng, Steve Gordon, and Clayton K.
Trier. Instruction: To withhold authority to vote for any nominee, write that
nominee's name in this space.
<TABLE>
<S> <C>
[_] FOR the nominees listed above [_] WITHHOLD AUTHORITY
except as indicated above to vote for all nominees
</TABLE>
2. INDEMNITY AGREEMENTS Authorizing Company to enter into indemnity agreements
with its directors and officers.
<TABLE>
<S> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
3. AMENDMENT TO ARTICLE II, SECTION 2 OF THE BYLAWS Approval of an amendment to
Article II, Section 2 of the Company's bylaws to allow a flexible annual
meeting date.
<TABLE>
<S> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
4. AMENDMENT TO ARTICLE IX OF THE BYLAWS Approval of an amendment to Article IX
of the Company's bylaws to allow the Board of Directors to unilaterally amend
the bylaws.
<TABLE>
<S> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
5. AMENDMENT TO STOCK OPTION PLAN Ratification of the amendment to the
Company's 1998 Stock Option Plan to increase the number of shares covered by
the plan from 420,000 to 650,000.
<TABLE>
<S> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
<PAGE>
6. INDEPENDENT PUBLIC ACCOUNTANTS Ratification of the appointment of Arthur
Andersen & Co. as the Company's independent public accountants for the fiscal
year ending December 31, 1999.
<TABLE>
<S> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
</TABLE>
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. Unless direction is given, this proxy
will be voted "FOR" the election of the nominees to the Board of Directors
named herein, "FOR" the proposal to authorize the Company to enter into
indemnity agreements with its directors and officers, "FOR" the proposal to
amend Article II, Section 2 of the Company's bylaws to allow a flexible annual
meeting date, "FOR" the proposal to amend Article IX of the Company's bylaws to
allow the Board of Directors to unilaterally amend the bylaws, "FOR" the
proposal to ratify the amendment to the Company's 1998 Stock Option Plan to
increase the number of shares covered by the plan from 420,000 to 650,000, and
"FOR" the proposal to ratify the appointment by the Board of Directors of
Arthur Andersen & Co. as the Company's independent public accountants for the
fiscal year ending December 31, 1999. Should any other matter requiring a vote
of the stockholders arise, the persons named in this Proxy or their substitutes
shall vote in accordance with their best judgment in the interest of the
Company.
Please sign below exactly as your name
appears on the Proxy Card. If shares are
registered in more than one name, the
signatures of all such persons are
required. A corporation should sign in its
full corporate name by a duly authorized
officer, stating his/her title. Trustees,
guardians, executors, and administrators
should sign in their official capacity,
giving their full title as such. If a
partnership, please sign in the
partnership name by authorized person(s).
-------------------------------------------
Signature(s)
Date ______________________________________
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
