<PAGE>
================================================================================
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 Section 240.14a-11(c) or Section 240.14a-12
SUNBASE ASIA, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
SUNBASE ASIA, INC.
19/F., FIRST PACIFIC BANK CENTRE
51-57 GLOUCESTER ROAD
WANCHAI, HONG KONG
(852) 2865-1511
2240 BUENA VISTA
IRWINDALE, CALIFORNIA 91010
(626) 358-0181
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 15, 1997
To the Shareholders of Sunbase Asia, Inc.:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Meeting") of Sunbase Asia, Inc., a Nevada corporation (the "Company"), which
will be held at the U.S. office of the Company, 2240 Buena Vista, Irwindale,
California 91010, at 10:00 a.m., Pacific Standard Time, on December 15, 1997,
to consider and act upon the following matters, all as more fully described in
the accompanying Proxy Statement:
1. To elect a board of seven directors to serve until the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualify;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1997;
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record of the Company's voting stock at the close of
business on October 15, 1997, the record date fixed by the Board of Directors,
are entitled to notice of, and to vote at, the Meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE COMPLETE THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. ANY SHAREHOLDER GIVING
A PROXY HAS THE RIGHT TO REVOKE IT ANY TIME BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William McKay
William McKay
President and Chief Executive
Officer
Irwindale, California
November 19, 1997
<PAGE>
SUNBASE ASIA, INC.
19/F., FIRST PACIFIC BANK CENTRE
51-57 GLOUCESTER ROAD
WANCHAI, HONG KONG
(852) 2865-1511
2240 BUENA VISTA
IRWINDALE, CALIFORNIA 91010
(626) 358-0181
----------------
PROXY STATEMENT
----------------
The following information is furnished in connection with the solicitation
of proxies for the Annual Meeting of Shareholders of Sunbase Asia, Inc., a
Nevada corporation (the "Company"), to be held at the U.S. office of the
Company, 2240 Buena Vista, Irwindale, California 91010, at 10:00 a.m., Pacific
Standard Time, on December 15, 1997, and adjournments thereof (the "Meeting"),
for the purposes stated in the Notice of Annual Meeting of Shareholders
preceding this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy is being furnished herewith by the Company to each
shareholder, and, in each case, is solicited on behalf of the Board of
Directors of the Company for use at the Meeting. The entire cost of soliciting
these proxies will be borne by the Company. The Company may pay persons
holding shares in their names or the names of their nominees for the benefit
of others, such as brokerage firms, banks, depositories, and other
fiduciaries, for costs incurred in forwarding soliciting materials to their
principals. Members of the management of the Company may also solicit some
shareholders in person, or by telephone, telegraph or telecopy, following
solicitation by this Proxy Statement, but will not be separately compensated
for such solicitation services.
Proxies duly executed and returned by shareholders and received by the
Company before the Meeting will be voted FOR the election of all seven of the
nominee-directors specified herein, and FOR ratification of the appointment of
Ernst & Young LLP to act as the Company's independent auditors for the year
ending December 31, 1997, unless a contrary choice is specified in the proxy.
Where a specification is indicated as provided in the proxy, the shares
represented by the proxy will be voted and cast in accordance with the
specification made. As to other matters, if any, to be voted upon, the persons
designated as proxies will take such actions as they, in their discretion, may
deem advisable. The persons named as proxies were selected by the Board of
Directors of the Company and each of them is currently a director of the
Company.
Under the Company's bylaws and Nevada law, shares represented by proxies
that reflect abstentions or "broker non-votes" (i.e., shares held by a broker
or nominee which are represented at the Meeting, but with respect to which
such broker or nominee is not empowered to vote on a particular proposal) will
be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of
determining whether approval of the shareholders has been obtained with
respect to any such matter (and thus will have the effect of a "no" vote in
connection with each matter submitted for shareholder approval).
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Meeting and to vote in person. Any shareholder
giving a proxy has a right to revoke it at any time by either (a) a later-
dated proxy, (b) a written revocation sent to and received by the Secretary of
the Company prior to the Meeting, or (c) attendance at the Meeting and voting
in person.
<PAGE>
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
As of the close of business on October 15, 1997 (the "Record Date"), the
Company had outstanding 12,700,141 shares of Common Stock, 36 shares of Series
A Preferred Stock and 6,800 shares of Series B Preferred Stock. Only
shareholders of record on the books of the Company at the close of business on
the Record Date will be entitled to vote at the Meeting. Each share of Common
Stock is entitled to one vote; each share of Series A Preferred Stock is
entitled to 500,000 votes; and each share of Series B Preferred Stock is
entitled to 100 votes. Representation at the Meeting by the holders of a
majority of the outstanding voting stock of the Company, either by personal
attendance or by proxy, will constitute a quorum.
Pursuant to the Company's By-laws, a shareholder may vote for one or more
directors by cumulative voting provided that the name of the candidates for
whom the cumulative votes would be cast have been placed in nomination prior
to the voting and that the shareholder has given notice at the meeting prior
to the voting of the shareholder's intention to cumulate his votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes
for the election of directors. Cumulative voting means that each shareholder
is entitled to as many votes as equal to the number of shares (or voting
rights) that he owns multiplied by the number of directors to be elected. He
may cast all of such votes for a single nominee or he may distribute them
among any two or more nominees, as he sees fit. If cumulative voting is not
requested, each shareholder will be entitled to one vote per voting right for
each director to be elected.
The enclosed Proxy vests in the Proxyholder cumulative voting rights. The
person authorized to vote shares represented by executed proxies in the
enclosed form (if authorized to vote for the election of directors is not
withheld) will have full discretion and authority to vote cumulatively and to
allocate votes among any or all of the nominees as he may determine or, if
authority to vote for a specified candidate or candidates has been withheld,
among those candidates for whom authority to vote has been withheld. In any
case, the proxies may be voted for less than the entire number of nominees if
any situation arises which, in the opinion of the Proxyholder, makes such
action necessary or desirable. The seven nominees who receive the largest
number of votes shall be elected, provided that each of them receives atleast
a majority of the quorum.
On all other matters which may come before the meeting, the shareholders
shall be entitled to one vote for each voting right as set forth above.
Approval of the proposal to ratify the appointment of Ernst & Young LLP
requires the affirmative vote of a majority of the shares represented and
voting at the meeting.
As of the record date, Asean Capital was the beneficial owner of shares
representing 85.2% of the aggregate voting rights held by owners of the
Company's capital stock.
Asean Capital advised the Company of its intention to vote in favor of the
below listed nominees and ratification of the appointment of Ernst & Young
LLP.
Accordingly, Asean Capital will have the ability to elect a majority of the
Board of Directors and approval of Ernst & Young LLP.
2
<PAGE>
The following table sets forth certain information regarding the beneficial
ownership of the Company's voting stock as of the Record Date as to (a) each
director, (b) each executive officer, (c) all executive officers and directors
of the Company as a group, and (d) each person known to the Company to
beneficially own five percent or more of the outstanding shares of Common
Stock.
<TABLE>
<CAPTION>
EQUITY OWNERSHIP VOTING RIGHTS
--------------------------- ---------------------------
AMOUNT OF AMOUNT OF
BENEFICIAL OF PERCENT BENEFICIAL OF PERCENT
NAME AND ADDRESS OWNERSHIP(1) CLASS(2) OWNERSHIP(1) CLASS(3)
- ---------------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Asean Capital.......... 12,339,900(4) 72.7% 26,739,900(5) 85.2%
Gunter Gao............. 12,339,900(4)(6) 72.7% 26,739,900(5)(6) 85.2%
Chairman and Director
Glory Mansion Limited
("GML")............... 1,200,000(7) 6.6% 1,200,000(7) 3.7%
Wardley China Invest-
ment Trust
("Wardley")........... 400,000(8) 2.3% 400,000(8) 1.2%
Private Equity Manage-
ment BVI Limited
("PEM")............... 1,200,000(9) 6.6% 1,200,000(9) 3.7%
Billy Kan.............. 420,000(10) 2.4% 420,000(10) 1.3%
Vice Chairman and
Director
William McKay.......... 185,000(11) 1.1% 185,000(11) *
Chief Executive
Officer, President
and Director
Li Yuen Fai (Roger).... 400,000(12) 2.3% 400,000(12) 1.2%
Chief Financial
Officer, Vice President
and Director
Chang Shing Yam (Dick-
ens).................. 30,000(13) * 30,000(13) *
Chief Accounting
Officer
Lai Kwan Fai (Davis)... * * * *
Corporate Secretary
Ho Cho Hing (Franco)... * * * *
Director
Philip Yuen............ * * * *
Director
George Raffini(14)..... * * * *
Director
Sunbase International
(Holdings) Limited.... 12,339,900(15) 72.7% 26,739,900(16) 85.2%
The New China Hong Kong
Capital Limited....... 1,371,100 8.1% 1,371,100 4.4%
All directors and exec-
utive officers of the
Company as a Group, 9
persons............... 13,374,900(17) 74.4% 27,774,900(17) 85.8%
</TABLE>
- --------
*Less than 1 percent.
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of a security).
(2) This percentage is determined on the basis of 16,980,141 shares of Common
Stock calculated as follows: (a) 12,700,141 shares outstanding; (b)
3,600,000 shares issuable upon the conversion of Series A Preferred
Stock; and (c) 680,000 shares issuable upon conversion of the Series B
Preferred Stock, plus, with respect to each named person, the number of
shares of Common Stock, if any, which person has the right to exercise or
otherwise acquire within sixty days, but otherwise excludes shares of
Common Stock issuable pursuant to conversion of the Convertible
Debentures, warrants and options.
3
<PAGE>
(3) This percentage is determined on the basis of an aggregate of 31,380,141
voting rights calculated as follows: (1) 12,700,141 rights from Common
Stock outstanding; (b) 18,000,000 rights from the Series A Preferred
Stock; and (c) 680,000 rights from the Series B Preferred Stock, plus,
with respect to each named person, the number of shares of Common Stock,
if any, which such person has the right to exercise or otherwise acquire
within sixty days, but otherwise excludes shares of Common Stock issuable
pursuant to conversion of the Convertible Debentures, warrants and
options.
(4) Consists of 8,739,900 outstanding shares of Common Stock and 3,600,000
shares of Common Stock issuable upon the conversion of the Series A
Preferred Stock.
(5) Consists of 8,739,900 voting rights held by way of Asean Capital's
ownership of 8,739,900 shares of Common Stock and 18,000,000 voting
rights held by way of Asean Capital's ownership of 36 shares of Series A
Preferred Stock. Pursuant to the terms of the Convertible Debentures,
Asean Capital is prohibited from exercising the super majority votes of
the Series A Preferred Stock.
(6) Includes shares of Sunbase Asia Common Stock and Series A Preferred Stock
beneficially owned by Gunter Gao and Linda Yang, husband and wife, by way
of the ownership by each of Mr. Gao and Ms. Yang of 50% of the capital
stock of Sunbase International, which in turn owns all of the capital
stock of Asean Capital. Each of Ms. Yang and Mr. Gao disclaims beneficial
ownership of the shares held by the other, although their ownership has
been aggregated for purposes of this table.
(7) Consists of shares issuable upon conversion of the Convertible Debentures
at an initial exercise price of $5.00 per share. GML is the record owner
of $6,000,000 in principal amount of Convertible Debentures.
(8) Consists of shares issuable upon conversion of the Convertible Debentures
at an initial exercise price of $5.00 per share. Wardley is the record
owner of $2,000,000 in principal amount of Convertible Debentures.
(9) PEM, as the general partner of the HSBC Private Equity Fund, L.P.
("HSBC"), the parent of GML, shares voting power and has sole investment
power over shares of Common Stock issuable to GML upon conversion of the
Convertible Debentures.
(10) Includes 400,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options granted to Mr. Kan.
(11) Includes 160,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options granted to Mr. McKay, but does not
include any shares issuable upon conversion of 18 shares of Series B
Preferred Stock owned by Mr. McKay.
(12) Consists of 400,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options granted to Mr. Li.
(13) Consists of 30,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options granted to Mr. Chang.
(14) Does not include any shares issuable upon conversion of the Convertible
Debentures owed by GML and Wardley. Mr. Raffini is an employee of HSBC
and the nominee of GML and Wardley to the Board of Directors.
(15) Consists of 8,739,900 outstanding shares of Common Stock and 3,600,000
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock owned by Asean Capital, which is wholly owned by Sunbase
International.
(16) Consists of 8,739,900 voting rights held by way of Asean Capital's
ownership of 8,739,900 shares of Common Stock and 18,000,000 voting
rights held by way of Asean Capital's ownership of 36 shares of Series A
Preferred Stock.
(17) See notes (4), (5), (6), (10), (11), (12), (13), and (14) above.
(18) The address of Dr. Gao and Messrs. Kan, Li, Chang and Lai is 19/F., First
Pacific Bank Centre, 51-57 Gloucester Road, Wanchai, Hong Kong. The
address of GML, Wardley, PEM and Mr. Raffini is 3 Garden Road, Hong Kong.
The address of Mr. Ho and New China Hong Kong is 25/F., Bank of China
Tower, 1 Garden Road, Hong Kong. The address of Mr. Yuen is 11/F., Wing
Lung Bank Bldg., 45 Des Voeux Road, Central, Hong Kong. The address of
Mr. McKay is 2240 Buena Vista, Irwindale, California 91010.
4
<PAGE>
ELECTION OF DIRECTORS
The Company's directors are to be elected at each Annual Meeting of
Shareholders. At this Meeting, seven directors are to be elected to serve
until the next Annual Meeting of Shareholders and until their successors are
elected and qualify. The nominees for election as directors at this Meeting
set forth in the table below are all recommended by the Board of Directors of
the Company.
Each nominee has indicated his intention to serve, if elected. In the
unanticipated event that any of the nominees for director should become unable
to serve if elected, it is intended that shares represented by proxies which
are executed and returned will be voted for such substitute nominee(s) as may
be recommended by the Company's existing Board of Directors.
There were two meetings of the Board of Directors of the Company during the
last fiscal year of the Company. In addition, on five dates resolutions were
adopted by the directors acting by written consent in lieu of board meeting as
provided for in the Company's By-laws.
The Board of Directors has designated two committees, the compensation and
audit committees.
Members of the compensation committee of the Board of Directors of the
Company review the performance of executive officers of the Company and review
the compensation programs for key employees, including salary and cash bonus
levels and the operation and administrative of the Stock Option Plan. The
compensation committee met once during 1996.
Members of the audit committee of the Board of Directors of the Company
review, act on and report to the Board of Directors with respect to various
auditing and accounting matters, including the selection of the Company's
independent public accountants, the scope of the annual audits, the nature of
non-audit services, and fees paid to independent pubic accountants, the
performance of the Company's independent public accountants, and the
accounting practices of the Company. The audit committee did not meet during
1996.
Bill McKay attended less than 75% of the Board of Directors meetings.
The following table sets forth certain information concerning the nominees
for election as directors (all of such nominees being continuing members of
the Company's present Board of Directors):
<TABLE>
<CAPTION>
FIRST
NAME AGE ELECTED
---- --- -------
<S> <C> <C>
Gunter Gao(1)............................................... 41 1994
Billy Kan................................................... 45 1996
William McKay............................................... 43 1996
(Roger) Li Yuen Fai(2)...................................... 36 1994
(Franco) Ho Cho Hing(2)..................................... 44 1994
Philip P.Y. Yuen(2)......................................... 61 1996
George Raffini.............................................. 41 1996
</TABLE>
- --------
(1) Member of the compensation committee.
(2) Member of the audit committee.
GUNTER GAO, CHAIRMAN AND DIRECTOR. Mr. Gao is the Chairman of the Board and
for over five years has been a principal of Sunbase International, which
indirectly owns a controlling position in Sunbase Asia. Sunbase International
has various industrial holdings in China in industries such as aviation,
transportation, cement, steel and retail. In addition, Mr. Gao is Honorable
Chairman of Northern Swan Airlines, an airline operating in China. Mr. Gao is
currently a member of China's congress, known as the People's Political
Consultative Conference. Mr. Gao serves as a Senior Economic Advisor to
several Chinese municipal and provincial governments, including the
governments of Tianjin, Hebei, Xinjiang, Harbin and Shaanxi. In addition, Mr.
Gao is deputy director of the Sino-Foreign Entrepreneurs Cooperative
Committee.
5
<PAGE>
BILLY KAN, VICE CHAIRMAN AND DIRECTOR. Mr. Kan has been the Vice Chairman
and a Director of Sunbase Asia since the beginning of 1996 and the Chairman of
the Board of Southwest Products Company since 1996. In addition, Mr. Kan has
been the Managing Director & General Manager of Sunbase International
(Holdings) Limited and the Vice Chairman of Sunbase China Limited since 1996.
From 1990 to 1995, Mr. Kan was Chairman of Biliocean Ltd, a property and
consulting company that he founded. Mr. Kan holds a Bachelor of Science Degree
from the University of East Anglia, a United Kingdom university, and is a
member of The Institute of Chartered Accountants in England and Wales as well
as the Hong Kong Society of Accountants.
WILLIAM MCKAY, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr. McKay
has been the Chief Executive Officer, President and a Director of Sunbase Asia
since the beginning of 1996 and has been a Director and President of Southwest
Products Company since 1991. Prior to becoming President of Southwest Products
he was Southwest Products' General Manager from 1986. Prior to joining
Southwest Products Mr. McKay practiced law, specializing in the areas of
business and real estate. Mr. McKay holds a Juris Doctorate Degree, Masters in
Business Administration and Bachelor of Arts Degree with a major in History
and minor in International Relations from the University of Southern
California.
(ROGER) LI YUEN FAI, CHIEF FINANCIAL OFFICER, VICE-PRESIDENT AND
DIRECTOR. Mr. Li has been the Chief Financial Officer and a Director of
Sunbase Asia since 1994 and has recently been elected as the Vice-President of
Sunbase Asia. From 1990 to 1991 he was compliance manager of the Hong Kong
Securities Clearing Company Limited. Mr. Li was employed by Coopers & Lybrand
in Hong Kong from 1980 to 1990 (his most recent position was audit manager)
and was a partner in a Hong Kong accounting firm from 1992 to 1993.
(FRANCO) HO CHO HING, DIRECTOR. Mr. Ho has been a Director of the New China
Hong Kong Group since 1993 and a Director of Sunbase Asia since 1994. Mr. Ho
is also a registered investment advisor with the Securities and Futures
Commission in Hong Kong. Mr. Ho held executive positions with Trenomics
Securities Limited (1981 to 1983), Shun Loong Bear Stearns Asia Limited (1985
to 1988) and Best Securities Company (1991 to 1993).
PHILIP YUEN, DIRECTOR. Mr. Yuen is a solicitor of the Supreme Court of Hong
Kong. He became a practicing solicitor in 1962 and founded the solicitors'
firm Yung, Yu, Yuen & Co. in 1965. He is currently the managing partner of his
firm. He has over 30 years' experience in legal practice. Mr. Yuen has been a
member of The National Committee of the Chinese People's Political
Consultative Conference since 1983 and has been a member of the China
International Economic and Trade Arbitration Commission for the past 15 years.
Mr. Yuen is also a non-executive director of Tsingtao Brewery Company Limited,
Henderson Development Company Limited, Henderson (China) Investment Company
Limited and Melbourne Enterprises Limited, all of which are listed on the
Stock Exchange of Hong Kong Limited.
GEORGE RAFFINI, DIRECTOR. From September 1989 to the present, Mr. Raffini
has been the Deputy Managing Director of HSBC Private Equity Management
Limited with responsibility for managing the investment process for projects
and regional private equity investment funds with total capital under
management of approximately $500 million. Mr. Raffini received his Bachelor of
Science Degree from The American University, a diploma in Political and
Economic Affairs from the Institut D'Etudes Politiques, Paris, France, a
Masters Degree in International Affairs from Columbia University and a MBA
from Harvard University. Mr. Raffini is the nominee of certain of the
investors of the Convertible Debentures.
Individuals who are executive officers but not directors of the Company
include:
(DICKENS) CHANG SHING YAM, CHIEF ACCOUNTING OFFICER. Mr. Chang has been the
Chief Accounting Officer of Sunbase Asia since 1995. Mr. Chang was employed by
the international accounting firm of Ernst & Young in Hong Kong from 1989 to
1994, most recently as audit manager.
(DAVIS) LAI KWUN FAI, SENIOR ASSISTANT MANAGER AND CORPORATE SECRETARY. Mr.
Lai has been the Corporate Secretary of Sunbase Asia since 1996. In addition,
he has been a manager of Sunbase International (Holdings) limited since 1993.
From 1991 to 1992, Mr. Lai was the Marketing Manager of Truth Realty
Consultant Ltd. Thereafter, he studied at the University of Leeds in the
United Kingdom, where he received a Masters of Arts Degree in Economics and
Finance.
6
<PAGE>
EXECUTIVE COMPENSATION
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation for
services in all capacities paid or accrued for the fiscal years indicated by
the Company to its Chief Executive Officer and the only other executive
officer whose compensation exceeded $100,000 in 1996:
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME/PRINCIPAL POSITION YEAR(1) SALARY BONUS OPTIONS COMPENSATION
----------------------- ------- ------- ----- ------------ ------------
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
W.R. McKay................. 1996 284,327 -- 800,000 1,181(2)
CEO, President, Director
B. Kan..................... 1996 111,804 -- 600,000 -0-
Vice Chairman, Director
</TABLE>
- --------
(1) Neither Mr. McKay nor Mr. Kan were employed by Sunbase Asia, Inc. prior to
1996.
(2) Consists of Southwest Products' matching contribution to Mr. McKay's 401
(k) plan.
OPTION GRANTS IN 1996
Grants of stock options to the named executive officers in 1996 are
summarized in the following table:
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM(1)
GRANTED EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME (#) IN 1996 PRICE DATE 5% 10%
---- ------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
W.R. McKay..... 160,000 7.8% 6.65 01/16/03 433,155 1,009,435
160,000 7.8% 7.75 01/16/04 592,045 1,418,050
160,000 7.8% 9.25 01/16/05 815,966 2,009,763
160,000 7.8% 10.75 01/16/06 1,081,699 2,741,237
160,000 7.8% 12.75 01/16/07 1,449,092 3,780,358
B. Kan......... 200,000 9.8% 6.375 01/16/06 641,473 1,625,617
200,000 9.8% 6.375 01/16/07 724,546 1,890,179
200,000 9.8% 6.375 01/16/08 811,773 2,181,197
</TABLE>
- --------
(1) As required by the Securities & Exchange Commission, the dollar amount in
the last two columns represent the hypothetical gain or "option spread"
that would exit for the options based on assumed 5% and 10% annual
compounded rates of stock price appreciation over the full option term.
These prescribed rates are not intended to forecast possible appreciation,
if any, of the Company's stock. All of the outstanding options held by the
named executive officers are currently exercisable at prices substantially
greater than the closing price for the Company's stock on October 15,
1997, which was $3 7/8.
7
<PAGE>
AGGREGATE OPTION EXERCISES IN 1996 AND
OPTION VALUES AS OF DECEMBER 31, 1996
The value of options exercised by the named executive officers in 1996 and
the value of unexercised options at December 31, 1996, are set forth below:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- --------------------- -----------------
<S> <C> <C> <C> <C>
B. Kan.................. -0- -0- 200,000(1) -0-(1)
-0- -0- 400,000(2) -0-(2)
W.R. McKay.............. -0- -0- -0-(1) -0-(1)
-0- -0- 800,000(2) -0-(2)
</TABLE>
- --------
(1) Exercisable
(2) Unexercisable
The value of unexercised in-the-money options is determined by using the
difference between the exercise price and the average bid price at December
31, 1996.
EMPLOYMENT AGREEMENTS
On January 16, 1996, Sunbase Asia and Southwest Products entered into an
employment agreement with William R. McKay (the "Agreement") pursuant to which
Mr. McKay is employed to serve as President and Chief Executive Officer of
Southwest Products Company and as President and Chief Executive Officer of
Sunbase Asia for a term of five years. Under the terms of the Agreement, Mr.
McKay will be paid an annual base salary of U.S.$285,000. The base salary may
be increased or decreased (to a minimum of $225,000), based upon an annual
review of Mr. McKay's performance. In addition to the base salary the Board of
Directors of Sunbase Asia may, at its sole discretion, pay Mr. McKay a bonus
for any particular year of his employment. On January 16, 1996, in connection
with the execution of the Agreement, Sunbase Asia, Southwest Products and Mr.
McKay entered into a Confidentiality and Non-Competition Agreement pursuant to
which Mr. McKay agrees to keep certain information of Sunbase Asia, Southwest
Products and their affiliates confidential and is prohibited from competing
with Sunbase Asia, Southwest Products and their affiliates during the term of
the Agreement.
Pursuant to the terms of an Employment Agreement between the Company and Mr.
Kan dated August 1, 1996, Mr. Kan is employed as the Vice Chairman of the
Board of Directors or such other capacity of an equivalent status as the
Company may reasonably require. The term of employment commenced on August 1,
1996, and continues until terminated by either party giving to the other not
less than 12 months prior notice. Mr. Kan's duties include the development,
marketing and promoting of the products of the Company as may be required by
the Board of Directors. Mr. Kan is to exercise such powers and functions and
perform such duties in relation to the business of the Company as may from
time to time be assigned to him by the Board. Mr. Kan will be paid a salary of
HK$1,625,000 per annum subject to review by the Board on an annual basis. Mr.
Kan is also entitled to stock options.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is responsible for reviewing the Company's
compensation policies and making recommendations to the Board with respect to
executive compensation, including the granting of stock options. The Company's
compensation policies are designated to attract and retain qualified
executives who are willing to work in a unique environment; create a
performance oriented system which recognizes both annual and long term
results; strengthen the identification of executive officers with
shareholders' interests; and reward long term commitment to the Company.
8
<PAGE>
Compensation of the Company's executive officers is composed primarily of
salary and stock options. Salaries for the two highest paid executive officers
have been fixed pursuant to contractual arrangements. See "Employment
Agreements." In negotiating the terms of the Employment Agreements, the
Compensation Committee sought to establish salary levels which would be
sufficient to attract and retain executives to work in a company whose primary
operations are in the People's Republic of China. Given these unique
circumstances, the Committee believed that there were not sufficient
comparable companies to provide any meaningful statistical data which would
assist in determining appropriate salary levels. Rather, the Compensation
Committee took into account the relevant experience of the officers and what
the Compensation Committee deemed to be competitive alternatives should they
obtain employment elsewhere.
Pursuant to their Employment Agreements, the two senior executive officers
may be paid bonuses for extraordinary performance. The Company does not have
specific criteria governing the payment of bonuses. However, the Compensation
Committee intends to consider the Company's profitability, growth in profits
and improved gross margins as key criteria in determining whether or not to
award any bonuses to executive officers. To date, no such bonuses have been
awarded.
Other executive officers of the Company are compensated at levels at which
the Compensation Committee believes to be competitive in order to obtain
persons of their background and experience in their respective labor markets
in China, Hong Kong and the United States.
Stock options are intended to strengthen the identification of the executive
officers with the interest of the Company's stockholders. Stock options are
used by the Compensation Committee as a form of long term incentive
compensation and not as renumeration for the past year's services. Options are
granted and their terms fixed with a view to providing a reward to the grantee
only if the grantee stays with the Company for a substantial period of time
(one year or longer) and the price of the Company's stock appreciates during
that time period. The Compensation Committee's standards for determining the
number of options granted are subjective. The Committee considers the past and
likely future contributions of an individual officer in order to determine if
stock options should be granted and, if so, the appropriate number of options
to be granted. Consideration is given to the number of options already held by
an officer in determining whether or not an additional grant is necessary and
appropriate. All options granted have an exercise price of not less than the
fair market value of the stock on the date of grant and generally vest over a
period of several years.
Basis for Compensation of the CEO. As noted, Mr. McKay is compensated in
accordance with the terms of his Employment Agreement entered into on January
16, 1996. His salary for 1996 was fixed at $285,000. Mr. McKay was not awarded
any bonus for 1996 in view of the Company's performance for the year.
Mr. McKay is entitled to receive options to acquire up to 800,000 shares of
common stock of the Company provided that such options will vest at the rate
of 160,000 shares per each full year of Mr. McKay's employment under the
employment contract.
By the Compensation Committee
Gunter Gao
9
<PAGE>
COMPENSATION OF DIRECTORS
None of the directors receive compensation for serving on the Board of
Directors. All of the directors are eligible to participate in the Company's
1995 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or formerly was an officer or
employee of the Company or had any relationships requiring disclosure under
Item 404 of Regulation S-K. Furthermore, none of the executive officers of the
Company served as a member of the Board of Directors, Compensation Committee
or committee performing equivalent functions of any other company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A promissory note for $5,102,000 (the "Note") was issued to Asean Capital
Limited ("Asean") in connection with a Share Exchange Agreement and is secured
by a continuing security interest in all of the Company's title and interest
in the outstanding capital stock of its wholly-owned subsidiary China Bearing.
The Note is denominated in and is repayable in full in United States dollars,
and bears interest at 8% per annum.
In connection with the issuance of the convertible debentures, Asean has
undertaken that for so long an any of the debentures are outstanding, no
amounts are to be repaid on the Note unless there is sufficient working
capital and the repayment is made in accordance with the following schedule:
<TABLE>
<CAPTION>
PAYMENT PERIOD AMOUNT
-------------- ------
<C> <S>
August 1, 1996 to July 31, 1997................. up to $2,000,000 plus
accrued interest
August 1, 1997 to July 31, 1998................. up to $1,500,000 plus
accrued interest
August 1, 1998 to July 31, 1999................. up to $1,500,000 plus
accrued interest
</TABLE>
Pursuant to the above described repayment schedule, a payment was made on
the Note on September 10, 1996.
Harbin Bearing, a majority owned subsidiary of the Company, and Harbin
Precision, an entity affiliated with the Municipal Government of Harbin, have
entered into leases (the "Ancillary Transport Equipment Lease" and the
"Manufacturing Machinery Lease") covering all equipment and assets of the
factory in Harbin relating to the bearing operations which were not
contributed to the Company in the Restructuring, which occurred in 1993 (the
"restructuring"). The Leases cover cars, trucks, machinery, and equipment used
in manufacturing, office administration and power generation and provide for
total annual payments of RMB 27,183,000 (U.S. $3,267,000). At the expiration
of the two leases on December 31, 1998, and December 31, 2001, respectively,
Harbin Bearing has the right to either renew the Leases or acquire the
equipment.
Harbin Bearing and Harbin Holdings, an entity affiliated with the Municipal
Government of Harbin, have entered into a lease covering plants and buildings
used in Harbin Bearing's business which were not contributed to Harbin Bearing
in the Restructuring (the "Plant Lease"). The Plant Lease provides for annual
rent payments of RMB 3,751,000 (U.S. $452,000). At the expiration of the Plant
Lease on December 31, 1998, Harbin Bearing has the right to extend the Lease
at market rent for another five years.
Harbin Holdings and Harbin Bearing have entered into a lease providing for
the use of land by Harbin Bearing at RMB 2,508,000 (U.S. $302,000) per annum,
effective January 1, 1994, subject to future adjustments in accordance with
changes in government fees.
Harbin Holdings owns the rights to the trademark "HRB." Pursuant to an
exclusive and perpetual trademark license agreement, Harbin Holdings has
granted Harbin Bearing the exclusive and perpetual right to use the "HRB"
trademark on its products and marketing materials. The royalty on the
trademark license agreement is 0.5% of annual sales from 1994 to 2003 and 0.3%
from 2004 to 2013.
10
<PAGE>
Harbin Bearing and Harbin Holdings have entered into an agreement (the
"Pension Agreement") relating to pension arrangements for Harbin Bearings. The
Pension Agreement provides that Harbin Bearing may satisfy the statutory
requirement to pay an amount equal to 20% (22% effective July 1, 1996) on
annual wages to the municipal government to fund future pension obligations of
its existing employees by making such payments to Harbin Holdings as
representative of the municipal government of Harbin, and Harbin Holdings
agrees to be responsible for all obligations to employees of Harbin Bearing
who retire or leave December 1994.
Harbin Bearing and Harbin Holdings are parties to a management and
administrative service agreement that provides for the payment by Harbin
Bearing of an annual fee of RMB 17,160,000 (approximately U.S. $2,049,000) in
connection with services for medical, heating, education and other staff-
related benefits provided by Harbin Holdings for a term of three years. The
fees are subject to an annual 10% inflation adjustment.
In 1996 the Company paid a total amount of RMB 941,000 (U.S. $113,000) to
Sunbase International Limited for reimbursement of the expenses incurred on
behalf of the Company. These expenses include expenses for office rental,
office management fees, travel and utilities.
COMPARE CUMULATIVE TOTAL RETURN
AMONG SUNBASE ASIA INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
SUNBASE INDUSTRY
FISCAL YEAR ENDING ASIA INC. INDEX BROAD MARKET
- ------------------ --------- -------- ------------
<S> <C> <C> <C>
1996 $100.00 $100.00 $100.00
1996 $100.00 $106.70 $103.98
1996 $ 83.87 $111.06 $111.68
1996 $100.00 $116.75 $114.76
1996 $103.23 $116.75 $114.76
1996 $ 69.35 $116.63 $120.16
</TABLE>
ASSUMES $100 INVESTED ON FEBRUARY 9, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1996
11
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than
10% of a registered class of the Company's equity securities to file various
reports with the Securities and Exchange Commission and the NASDAQ concerning
their holdings of, and transactions in, equity securities of the Company.
Copies of these filings must be furnished to the Company.
Based on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors,
the Company believes that all persons, subject to such filing requirements
filed the required reports on a timely basis in accordance with Section 16(a).
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed, subject to ratification by the
shareholders, Ernst & Young LLP as independent auditors for the year ended
December 31, 1997. The Board of Directors recommends ratification of the
appointment of Ernst & Young LLP.
SHAREHOLDER PROPOSALS
Shareholders who wish to present proposals for action at the Company's 1997
Annual Meeting of Shareholders should submit their proposals in writing to the
Secretary of the Company at the address of the Company set forth on the first
page of this Proxy Statement. Proposals must be received by the Secretary no
later than 120 days prior to the 1997 meeting, which is estimated to be
Tuesday, December 15, 1998.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report to Shareholders of the Company for the fiscal year ended
December 31, 1996, including audited financial statements, is being mailed to
the shareholders concurrently herewith, but such report is not incorporated in
this Proxy Statement and is not deemed to be a part of the proxy solicitation
material.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (exclusive of Exhibits), will be furnished
without charge to any person from whom the accompanying proxy is solicited
upon written request to Sunbase Asia, Inc., 2240 Buena Vista, Irwindale,
California 91010, Attention: Todd Stockbauer. If Exhibit copies are requested,
a copying charge of $.20 per page will be made.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William McKay
William McKay
President and Chief Executive
Officer
Irwindale, California
November 19, 1997
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND
YOUR COOPERATION WILL BE APPRECIATED.
12
<PAGE>
PROXY
SUNBASE ASIA, INC.
19/F., First Pacific Bank Centre
51-57 Gloucester Road 2240 Buena Vista
Wanchai, Hong Kong Irwindale, California 91010
(852) 2865-1511 (626) 358-0181
ANNUAL MEETING OF SHAREHOLDERS DECEMBER 15, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby appoint William McKay and Li Yuen Fai (Roger),
and any of them, with full power of substitution, as Proxies to vote, as
directed on the reverse side of this card, or, if not so directed, in
accordance with the Board of Directors' recommendations, all shares of Sunbase
Asia, Inc. held of record by the undersigned at the close of business on
October 15, 1997 and entitled to vote at the Annual Meeting of Shareholders of
Sunbase Asia, Inc. to be held at 10:00 a.m., December 15, 1997 at 2240 Buena
Vista, Irwindale, California 91010, or at any adjournment thereof, and to vote,
in their discretion, upon such other matters as may properly come before the
Annual Meeting.
You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot vote
your shares unless you sign and return this card.
<PAGE>
1. ELECTION OF DIRECTORS FOR all nominees below
(except as marked to the contrary below). [_]
WITHHOLD AUTHORITY to vote for all nominees listed below. [_]
(INSTRUCTION: To withhold authority to vote for any individual nominee mark the
box next to the nominee's name below):
[_] Gunter Gao [_] William McKay [_] Philip Yuen [_] Ho Cho Hing (Franco)
[_] Li Yuen Fai (Roger) [_] Billy Kan [_] George Raffini
2. RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR YEAR 1997
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE SIGNER HEREBY REVOKES ALL PROXIES HERETOFORE GIVEN BY THE SIGNER TO VOTE
AT SAID MEETING OR ANY ADJOURNMENTS THEREOF.
Dated: __________, 1997
By: ___________________
_______________________
Signature
NOTE: Please sign exactly as name
appears hereon. Joint owners should
each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such.
PLEASE READ, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
