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
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11 (c) or Rule 14a-12
PACIFICNET INC.
(Name of Registrant as specified in its Charter)
PACIFICNET INC.
(Name of Person(s) Filing Proxy Statement)
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:_________________________________________________________________
PACIFICNET INC.
----------
NOTICE OF ANNUAL MEETING
TO BE HELD ON MONDAY, DECEMBER 30, 2002
----------
TO THE STOCKHOLDERS OF PACIFICNET INC:
The Annual Meeting of the Stockholders of PacificNet Inc., a Delaware
corporation (the "Company'), will be held on Monday, December 30, 2002, at 10:00
a.m. (Hong Kong Time), at PacificNet, Unit 1702, ChinaChem Century Tower, 178
Gloucester Road, Wanchai, Hong Kong, for the following purposes:
1. To elect eight (8) directors to the Board of Directors of the
Company to serve until the next annual meeting of stockholders
and until their successors are duly elected and qualified;
2. To ratify the appointment of Clancy and Co., P.L.L.C. as the
Company's independent auditors for the fiscal year ending
December 31, 2002; and
3. To transact any other business as may properly be presented at
the Annual Meeting or any adjournment or postponement thereof.
Stockholders of record at the close of business on November 22, 2002
are entitled to notice of, and to vote at the Annual Meeting or any adjournment
thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of matters to be considered at the Annual
Meeting. A copy of the Annual Report on Form 10-KSB for the year ended December
31, 2001 also accompanies this Notice.
YOUR VOTE IS IMPORTANT. YOU ARE REQUESTED TO CAREFULLY READ THE PROXY STATEMENT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/s/ Victor Tong
-----------------------------------------
Name: Victor Tong
Title: Secretary and Executive Director
of PacificNet Inc.
Hong Kong
Dated: December 11, 2002
2
PACIFICNET INC.
----------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 2002
----------
INTRODUCTION
Your proxy is solicited by the Board of Directors of PacificNet Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on Monday, December 30, 2002, at 10:00 a.m. (Hong Kong
Time), at the Company's executive offices located at PacificNet, Unit 1702,
ChinaChem Century Tower, 178 Gloucester Road, Wanchai, Hong Kong, and at any
adjournment thereof (the "Annual Meeting"), for the following purposes:
1. To elect eight (8) directors to the Board of Directors of the
Company to serve until the next annual meeting of stockholders
and until their successors are duly elected and qualified;
2. To ratify the appointment of Clancy and Co., P.L.L.C. as the
Company's independent auditors for the fiscal year ending
December 31, 2002; and
3. To transact any other business as may properly be presented at
the Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has set November 22, 2002 as the record date
(the "Record Date") to determine those holders of common stock who are entitled
to notice of, and to vote at the Annual Meeting. The Company expects that the
Notice of Annual Meeting, Proxy Statement, form of proxy, and Annual Report on
Form 10-KSB will first be mailed to stockholders on or about December 19, 2002.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE?
You can vote your shares of common stock, par value $0.0001 per share
(the "Common Stock") if our records show that you owned the shares on the Record
Date. As of the close of business on the Record Date, a total of 24,186,975
shares of Common Stock are entitled to vote at the Annual Meeting. Each share of
Common Stock is entitled to one (1) vote on matters presented at the Annual
Meeting.
HOW DO I VOTE BY PROXY?
Follow the instructions on the enclosed proxy card to vote on each
proposal to be considered at the Annual Meeting. Sign and date the proxy card
and mail it back to us in the enclosed envelope.
The enclosed proxy, when properly signed and returned to the Company,
will be voted by the proxy holders at the Annual Meeting as directed by the
proxy. Proxies which are signed by stockholders but which lack any such
specification will be voted in favor of the proposals set forth in the Notice of
Annual Meeting.
3
WHAT IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The matters described in this proxy statement are the only matters we
know of that will be voted on at the Annual Meeting. If other matters are
properly presented at the meeting, the proxy holders will vote your shares as
they see fit.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. A proxy card may be revoked by a stockholder at any time before
its exercise at the Annual Meeting by giving Victor Tong, our Secretary, a
written notice revoking your proxy card or a duly executed proxy bearing a later
date, or by attendance at the Annual Meeting and electing to vote in person.
CAN I VOTE IN PERSON AT THE ANNUAL MEETING RATHER THAN BY COMPLETING THE PROXY
CARD?
Although we encourage you to complete and return the proxy card to
ensure that your vote is counted, you can attend the Annual Meeting and vote
your shares in person.
HOW ARE VOTES COUNTED?
We will hold the Annual Meeting if holders of a majority of the shares
of Common Stock entitled to vote in person or by proxy either sign and return
their proxy cards or attend the meeting. If you sign and return your proxy card,
your shares will be counted to determine whether we have a quorum even if you
abstain or fail to vote on any of the proposals listed on the proxy card.
The directors will be elected by the affirmative vote of a plurality of
the shares of Common Stock presented in person or represented by proxy at the
Annual Meeting. The proposal to ratify the appointment of Clancy and Co.,
P.L.L.C., shall be approved upon the affirmative vote of a majority of the
shares of Common Stock presented in person or represented by proxy at the Annual
Meeting. Unless otherwise stated, the enclosed proxy will be voted in accordance
with the instructions thereon.
If your shares are held in the name of a nominee, and you do not tell
the nominee how to vote your shares ("broker nonvotes"), your shares will not be
voted with respect to any proposal. Broker nonvotes and abstentions will be
counted as present to determine if a quorum exists, however, broker nonvotes and
abstentions with respect to proposals 1 and 2 are not considered as shares
entitled to vote, and will, therefore have no legal effect on the vote proposals
1 and 2.
WHO PAYS FOR THIS PROXY SOLICITATION?
We do. In addition to sending you these materials, some of our
employees may contact you by telephone, by mail, by fax, by email, or in person.
None of these employees will receive any extra compensation for doing this.
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders entitled to notice of, and to vote at the Annual Meeting
and any adjournment thereof are stockholders of record at the close of business
on the Record Date. Persons who are not stockholders of record on the Record
Date will not be allowed to vote at the Annual Meeting. At the close of business
on the Record Date there were 24,186,975 shares of Common Stock issued and
outstanding. The Company has issued no other voting securities as of the Record
Date. Each share of Common Stock is entitled to one (1) vote on each matter to
be voted upon at the Annual Meeting. Holders of Common Stock are not entitled to
cumulate their votes for the election of directors.
4
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of November 22, 2002 the number of
shares of the Company's Common Stock beneficially owned by (i) each person who
is known by the Company to be the beneficial owner of more than five percent of
the Company's Common Stock; (ii) each director and nominee for election to the
Board of Directors of the Company; (iii) each of the named executive officers in
the Summary Compensation Table; and (iv) all directors and executive officers as
a group. Unless otherwise indicated, the stockholders listed in the table have
sole voting and investment power with respect to the shares indicated.
NUMBER OF % OF COMMON
SHARES STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNED(2)
------------------------------------------------------------------------------------- ---------------- ---------------
Sino Mart Management Ltd. (3) 15,482,778 53.9%
c/o ChoSam Tong
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
B2B Ltd. 2,413,890 8.4%
c/o China Strategic Holdings Ltd, Paul Y Centre, Kwun Tong, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Asia Hero Limited 1,575,000 5.5%
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Tony Tong (4) 1,901,917 6.6%
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
ShaoJian (Sean) Wang (5) 107,000 *
PacificNet Inc., 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
------------------------------------------------------------------------------------- ---------------- ---------------
Victor Tong (6) 77,000 *
PacificNet Inc., 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
------------------------------------------------------------------------------------- ---------------- ---------------
David Bussmann (7) 60,000 *
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Max Tong (8) 60,000 *
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Richard Lo (9) 55,000 *
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Patrick Ko (10) 60,000 *
PacificNet Inc., 860 Blue Gentian Road, Ste. 360, Eagan, MN 55121, USA
------------------------------------------------------------------------------------- ---------------- ---------------
Shu Wang (11) 55,000 *
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
5
NUMBER OF % OF COMMON
SHARES STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNED(2)
------------------------------------------------------------------------------------- ---------------- ---------------
Richard Hui (12) 181,042 *
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
Charles Mueller (13) 275,000 *
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road,
Wanchai, Hong Kong
------------------------------------------------------------------------------------- ---------------- ---------------
ALL DIRECTORS AND OFFICERS AS A GROUP (10) 2,375,917 8.3%
------------------------------------------------------------------------------------- ---------------- ---------------
* Indicates less than one percent.
(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 our
knowledge, the stockholders named in the table have sole voting and
investment power with respect to all common stock shares shown as
beneficially owned by them.
(2) As to each person or entity named as beneficial owner, such person's or
entity's percentage of ownership is determined by assuming that any
options held by such person or entity which are exercisable or convertible
within 60 days from the Record Date have been exercised or converted, as
the case may be, making the percentages calculable on a fully-diluted
basis.
(3) Sino Mart Management Ltd. is owned by Mr. ChoSam Tong, the father of Mr.
Tony Tong. Includes 3,000,000 shares of common stock issuable to Sino Mart
Management Ltd. under the terms of a warrant to purchase additional shares
of common stock of the Company.
(4) Mr. Tony Tong is currently the Chairman, CEO, and an executive director of
the Company. Includes 1,250,000 Incentive Stock Options exercisable under
the 1998 Stock Option Plan. Excludes 15,000,000 shares owned by Sino Mart
Management Ltd., as to which shares Mr. Tony Tong disclaims beneficial
ownership.
(5) Mr. Shao Jian (Sean) Wang is the Chief Financial Officer of the Company.
(6) Mr. Victor Tong is currently Vice President of the Company and an
executive director of the Company. He is the brother of Mr. Tony Tong.
Excludes 15,000,000 shares owned by Sino Mart Management Ltd., as to which
shares Mr. Victor Tong disclaims beneficial ownership.
(7) Mr. David Bussmann is an independent director of the Company.
(8) Mr. Max Tong is an independent director of the Company.
(9) Mr. Richard Lo is an independent director of the Company.
(10) Mr. Patrick Ko is an independent director of the Company.
(11) Mr. Shu Wang is an independent director of the Company.
(12) Mr. Hui resigned as an executive officer of the Company effective November
1, 2001.
(13) Mr. Mueller resigned as CFO of the Company effective February 1, 2002, and
as Secretary and a Director of the Company effective April 17, 2002.
6
PROPOSAL 1
ELECTION OF DIRECTORS
The term of the eight (8) directors of the Company (Messrs. Tony Tong,
Victor Tong, ShaoJian (Sean) Wang, David Bussmann, Patrick Ko, Richard Lo, Max
Tong, and Shu Wang) will terminate on the day of the Annual Meeting. Messrs.
David Bussmann and Shu Wang have announced that they plan to retire their
directorship terms and will not seek re-election for another term as directors.
Messrs. Tony Tong, Victor Tong, ShaoJian (Sean) Wang, Patrick Ko, Richard Lo,
and Max Tong have indicated their intentions to seek re-election as directors
for another term.
Eight director nominees are seeking to be elected at the Annual
Meeting, to hold office until the next Annual Meeting of stockholders and until
their successors are elected and qualified. It is intended that the accompanying
proxy will be voted in favor of the following persons to serve as directors
unless the stockholder indicates to the contrary on the proxy: Messrs. Tony
Tong, Victor Tong, ChoSam Tong, ShaoJian (Sean) Wang, Patrick Ko, Richard Lo,
Max Tong and Justin Tang. Management expects that each of the nominees will be
available for election, but if any of them is not a candidate at the time the
election occurs, it is intended that such proxy will be voted for the election
of another nominee to be designated by the Board of Directors to fill any such
vacancy.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
Set forth below are the names of the directors, executive officers and
key employees of the Company as of November 22, 2002.
Name Age Title
----------------------- ----------- -----------------------------------
Tony I. Tong 34 Chairman, Chief Executive Officer and President
Victor Tong 31 Vice President of N. America Operations, Secretary and
Director
ChoSam Tong 61 President of China Operations
ShaoJian (Sean) Wang 36 Chief Financial Officer, Vice President of International
Business and Director
Patrick Ko 34 Independent Director
Richard C.H. Lo 35 Independent Director
Max Tong 48 Independent Director
Shu Wang 46 Independent Director
David Bussmann 47 Independent Director
Executive officers of the Company are appointed at the discretion of
the Board of Directors with no fixed term. There are no family relationships
between or among any of the executive officers or directors of the Company other
than the relationship between Mr. Tony Tong, Mr. Victor Tong, and Mr. ChoSam
Tong.
INFORMATION ABOUT DIRECTOR NOMINEES
Set forth below is certain information with respect to each director
nominee.
Mr. Tony Tong, age 34, is the founder, Chairman and CEO of the Company.
Mr. Tong was the Chief Information Officer of DDS Inc., a leading SAP-ERP
consulting company, which was acquired by CIBER, Inc. (NYSE: CBR). Mr. Tong was
one of the early members of Information Advantage, Inc. (Nasdaq:IACO), a leading
business intelligence software, Data-Mining and CRM technology provider serving
Fortune 500 clients. IACO consummated an IPO and was listed on the Nasdaq Stock
Market in 1997 and was later acquired by Sterling Software and Computer
7
Associates (NYSE:CA). Mr. Tong's prior professional experience includes Business
Process Re-engineering Consulting at Andersen Consulting - Arthur Anderson
(Accenture, NYSE:ACN); and telecom engineering at ADC Telecommunications, Inc.
(Nasdaq:ADCT), a global supplier of network equipment, fiber optics, software
and systems integration services that enable communications service providers to
deliver Internet, data, video and voice services to consumers and businesses
worldwide. Mr. Tong's R&D achievements include being the inventor, designer, and
patent holder of US Patent Number 6,012,066 (granted by US Patent and Trademark
Office) titled "Computerized Work Flow System, an Internet-based workflow
management system for automated web creation and process management." Mr. Tong
also serves on the board of advisors of Fortune Telecom (listed on HK GEM:
8040.HK), a leading distributor of mobile phones, PDAs, telecom services, and
accessories in China and Hong Kong. Mr. Tong graduated with Bachelor of
Mechanical/Industrial Engineering Degree from the University of Minnesota and
served as an Adjunct Professor and a director on the Computer Engineering
Department Advisory Board at the University of Minnesota, USA.
Mr. Victor Tong, age 31, currently is the Vice President of North
American Operations, Secretary and Director of the Company. Mr. Victor Tong was
formerly the President at KeyTech, a leading information technology consulting
company based in Minneapolis, Minnesota. In 1994 during the dawn of the
Internet, Victor Tong was a co-founder of Talent Information Management ("TIM").
PacificNet was originally founded as an operating division of TIM. Mr. Victor
Tong gained his consulting, systems integration, and technical expertise in
client/server systems through his experience at Andersen Consulting, American
Express Financial Advisors (IDS), 3M, and the Superconductivity Center at the
University of Minnesota. He was awarded as one of the "CityBusiness 40 Under 40"
in 1999 as one of the 40 people under 40 years of age who are the next
generation of Twin Cities business and community leaders. Mr. Tong graduated
with honors with the Bachelor of Science in Physics from the University of
Minnesota, USA.
Mr. ChoSam Tong, age 61, is President of China Operations and Director
of the Company. Mr. Tong is also the Managing Director of Sino Mart, one of the
original "angel" investors of PacificNet. In addition, Mr. Tong, is the Chairman
of Talent Industrial Company, a leading manufacturer of electronic components in
China, with offices in Shanghai, Hunan, Guilin, ChengDu, and had more than 1000
employees throughout China. Since its inception in 1982, Talent Industrial
Company has been a leading provider of electronic components to the
telecommunications and consumer electronics industries in China. Mr. ChoSam Tong
is the father of Tony Tong, PacificNet's Chairman and Chief Executive Officer.
Mr. ShaoJian (Sean) Wang, age 38, is the Chief Financial Officer and
Vice President of International Business for the Company. Mr. Wang is also
Director of Thian Bing Investments Pte Ltd - a Singapore based investment
holding company, a Director on the board of Alliance PKU Co. Ltd - a company
owned and controlled by Guanghua School of Management, Peking University;
Director of the board of Portcullis International Group - a Singapore based
investment consulting company; and Director and Partner of the Overseas Chinese
Scholar Fund, a leading venture capital firm headquartered in Zhongguancun
Beijing and Guangzhou, China. Mr. Wang started his professional career as a
Market/Financial analyst with Ecolab Inc. (NYSE:ECL) in 1987, where he moved
quickly to become Territory Manager and Marketing Manager. In 1990, Mr. Wang was
posted to Ecolab's Asia Pacific regional headquarters as Business Development
Manager. In 1992, Mr. Wang was appointed to Country Manager of Ecolab for
Indonesia. Mr. Wang is an investor and Director in Alliance PKU Co. Ltd. which
owns two premier companies in China. Alliance PKU Consulting is a leading
management consulting firm in China, and Beidabiz & E-learning Co. (a venture of
Peking University) is a well-known online education provider. Mr. Wang also
advises some local governments in China. The Municipal government of Yantai
appointed him as the city's representative for investment. He worked with the
Wei Fang government on setting up the Agricultural Development Park. Mr. Wang
attended Peking University and received his MBA degree at the Carlson School of
Management, University of Minnesota, and the B.S. in economics, Hemline
University.
Mr. Patrick Ko, age 34, is the Chief Executive Officer of FirsTrust
Group, Inc., a boutique investment and consulting firm based in Atlanta,
Georgia. Mr. Ko is also the Chairman & President of Everest Corp. Inc. and its
subsidiary, Shanghai Everest Sports & Entertainment Co., a leading marketing
company providing focused and dedicated marketing solutions for clients and
8
properties through the medium of sports and entertainment. From 1999-2002, Mr.
Ko served as Managing Director of Securities America, Inc., a subsidiary of
American Express Company (NYSE:AXP). Securities America is one of the nation's
largest independent securities broker/dealers with over 1,500 registered brokers
and investment advisors serving more than 500,000 retail and institutional
investors. During 1995-1999, Mr. Ko was the Senior Vice President of Investment
at Josephthal & Co., one of the oldest New York Stock Exchange (NYSE) firms
established in 1878. Josephthal has been recently acquired by Fahnestock & Co.
(NYSE: FVH). Mr. Ko received his bachelor degree in International Trade from
Shuren University of China, and his B.B.A. degree in Management from University
of Texas.
Richard Lo, age 35, is the Chief Executive Officer of Fulldiamond
Limited, an investment and consulting firm specialized in financial, real estate
and venture advisory work. He is currently director of several start-up
companies in HK and the US. Mr. Lo is the former Managing Director of Associated
Capital Limited and former Executive Director of two publicly listed companies
in HK. Mr. Lo holds a B.A. degree from the University of California, Los Angeles
(UCLA) and obtained his MBA degree in Finance and Investment from the University
of Hull in England.
Mr. Max Tong, age 48, is the CEO of Prism Systems Hong Kong Limited, an
Asia telecom company with focus in Greater China. He has been in consumer
electronic business for more than 15 years including manufacturing, wholesale
and retail distribution of major Japanese branded high tech electronic products.
Mr. Tong has also been the directors for several multi-national companies. (Mr.
Max Tong has no family relationship with Mr. Tony Tong)
Mr. Justin Tang, age 31, is Chairman and Chief Executive Officer of
eLong, Inc., a leading online travel service company in China that was formed
through a buyout from its parent company Asia.com in 2001. From 2000 to 2001,
Mr. Tang served as President and Executive Director of Asia.com, a pan-Asia
Internet and wireless company that Mr. Tang co-founded through the merger with
elong.com, Inc. and was a subsidiary of Mail.com (now Easylink Service
Corporation, Nasdaq NM:EASY), a NASDAQ listed company. In 1999, Mr. Tang
co-founded elong.com, a mainland China Internet portal, and served as its
Chairman and Chief Executive Officer. Prior to eLong.com, he was Vice President
at Oscar Gruss & Son Incorporated, a New York-based investment banking firm, and
was responsible for setting up an investment banking, research and institutional
sales operation specializing in advising emerging growth companies. He also
worked for Brookehill Partners, Inc., and Merrill Lynch & Co., and has 6 years'
experience in venture capital & investment banking. Mr. Tang studied at Nanjing
University in China and received his BS degree from Concordia College in the
U.S.
The Board of Directors will vote the proxies "FOR" the election of all
of the above-named nominees unless you indicate that the proxy shall not be
voted for all or any one of the nominees. Nominees receiving 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 EIGHT NOMINEES FOR DIRECTOR SET FORTH HEREIN.
9
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
Based on the Company's review of copies of Forms 3, 4 and 5 filed with
the Securities and Exchange Commission (the "SEC") or written representations
from certain reporting persons, the Company believes that during fiscal year
2001, all officers, directors, and greater than ten-percent beneficial owners
timely complied with the applicable filing requirements of Section 16(a) of the
Securities Exchange Act of 1934.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held ten meetings during 2001 and took action by
unanimous written consent two times during 2001. No director attended less than
75% of the meetings of the Board and any committee of which the director was a
member.
The Board of Directors has designated two standing committees, the
Audit Committee and the Compensation Committee.
AUDIT COMMITTEE
The Board of Directors adopted a written charter for the Audit
Committee, a copy of which is annexed hereto as Exhibit A. The Audit Committee's
charter states that the responsibilities of the Audit Committee shall include:
nominating the Company's independent auditors and reviewing any matters that
might impact the auditors' independence from the Company; reviewing plans for
audits and related services; reviewing audit results and financial statements;
reviewing with management the adequacy of the Company's system of internal
accounting controls, including obtaining from independent auditors management
letters or summaries on such internal accounting controls; determining the
necessity and overseeing the effectiveness of the internal audit function;
reviewing compliance with the U.S. Foreign Corrupt Practices Act and the
Company's internal policy prohibiting insider trading in its Common Stock;
reviewing compliance with the SEC requirements for financial reporting and
disclosure of auditors' services and audit committee members and activities;
reviewing related-party transactions for potential conflicts of interest; and
reviewing with corporate management and internal and independent auditors the
policies and procedures with respect to corporate officers' expense accounts and
perquisites, including their use of corporate assets. As of April 12, 2002, our
audit committee consisted of Messrs. Mike Gaard and David Bussmann. The Audit
Committee met three times during 2001.
On April 30, 2002, Mr. Mike Gaard retired from the committee with no
disagreement and the following new independent directors were elected to join
the audit committee: Patrick Ko, Richard Lo, Max Tong and Shu Wang. As a result,
our audit committee currently consists of Messrs. David Bussmann, Patrick Ko,
Richard Lo, Max Tong and Shu Wang.
COMPENSATION COMMITTEE
The Compensation Committee's charter states that it is the
responsibility of the Compensation Committee to make recommendations to the
Board of Directors with respect to all forms of compensation paid to our
executive officers and to such other officers as directed by the Board and any
other compensation matters as from time to time directed by the Board. Our stock
option plan, however, is currently administered by the full Board of Directors.
As of April 12, 2002, our Compensation Committee consisted of Messrs. Mike Gaard
and David Bussmann. The Compensation Committee met two times during 2001.
On April 30, 2002, Mr. Mike Gaard retired from the committee with no
disagreement and the following new independent directors were elected to join
the compensation committee: Patrick Ko, Richard Lo, Max Tong and Shu Wang. As a
result, our compensation committee currently consists of Messrs. David Bussmann,
Patrick Ko, Richard Lo, Max Tong and Shu Wang.
10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or to be paid
by the Company, as well as certain other compensation paid or accrued, during
each of the Company's last three fiscal years to each named executive officer.
Long Term Compensation
Annual Compensation Awards Payouts
---------------------------------- --------------------- -------
Restricted
Fiscal Stock Stock All Other
Name/Principal Position Year Salary ($) Bonus ($) Other ($) Award ($) Options LTIP ($) Comp. ($)
----------------------- ---- ---------- --------- --------- --------- ------- -------- ---------
Tony I. Tong, CEO (3) 1999 $18,427 $6,000 - - - - -
2000 $41,666 $20,000 $12,650(1) - - - $425(2)
2001 $106,226 - $15,384(4) 250,000 $53,333(2)
Charles W. Mueller, CFO 1999 $22,000 - - - - - -
(3)(6) 2000 $51,981 $20,000 - - - - $1,500(2)
2001 $160,000 - - - 275,000 $8,280(2)
Richard Hui, President 1999 $18,427 $6,000 - - - - -
of Hong Kong Operations(3) 2000 $41,666 $20,000 - - - - $425(2)
2001 $115,913 -(5) -(5) $35,223(2)
--------------------
(1) Mr. Tony Tong received a housing/auto rental allowance of $2,530/month.
(2) Represents amounts received for life and health insurance coverage
(3) Denotes executives and key employees of the Company subsequent to the
reverse merger transaction entered into by the Company on July 27, 2000.
Compensation amounts for the 2000 fiscal year are for the period subsequent to
the reverse merger transaction of the Company (July 28, 2000 through December
31, 2000).
(4) Effective October 19, 2001 through December 31, 2001, Mr. Tony Tong ceased
receiving compensation under an employment agreement and received non-salaried
compensation totaling $12,160.
(5) Effective November 1, 2001, Mr. Hui resigned from the Company; 250,000 stock
options awarded to Mr. Hui during fiscal 2001 were cancelled upon resignation.
In addition, Mr. Hui received a lump sum settlement payment of $35,223.
(6) Effective February 1, 2002, Mr. Mueller resigned as CFO of the Company;
effective April 17, 2002, Mr. Mueller resigned as Secretary and Director of the
Company.
OPTION GRANTS DURING 2001 FISCAL YEAR
The Company granted 1,643,200 options to purchase its shares of common
stock during the 2001 fiscal year. Of this amount 1,026,500 options were
cancelled due to employee resignations.
OPTION EXERCISES DURING 2001 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
No options to purchase the Company's common stock were exercised during
the 2001 fiscal year.
11
COMPENSATION OF DIRECTORS
DIRECTORS' FEES. All of the Company's directors are reimbursed for
out-of-pocket expenses relating to attendance at meetings. Each director is paid
a sign-on bonus of 10,000 shares of common stock of the Company. Each director
is also entitled to US$500 for each board meeting that such director attends in
person, by conference call, or by committee action and US$200 for each committee
meeting, payable by cash or common stock of the Company, at the option of the
Company.
ANNUAL RETAINER FEE. Each director is paid an annual retainer fee of
US$10,000 in the form of common stock of the Company. Such retainer fee is paid
semi-annually in arrears. The number of shares of common stock issued is based
on the average closing market price over the ten trading days prior to the end
of the six month period that the retainer fee is due.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
As of December 31, 2001, the Company had an employment agreement with
Mr. Charles W. Mueller; effective February 1, 2002, such employment agreement
was terminated under a mutually agreed upon settlement agreement. On October 19,
2001, Mr. Tony Tong's employment agreement with the Company was terminated under
a mutually agreed upon settlement agreement, and was replaced with a
non-salaried consulting service agreement. On November 1, 2001, Mr. Richard Hui
resigned from the Company and his employment agreement with the Company was
terminated under a mutually agreed upon settlement agreement.
12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee on Executive
Compensation describes the compensation policies and rationale applicable to our
executive officers with respect to the compensation paid to such executive
officers for the year ended December 31, 2001.
The Compensation Committee recommends and reviews the compensation paid
to our executive officers; our stock option plan, however, is currently
administered by the full Board of Directors. The Compensation Committee
currently consists of Messrs. David Bussmann, Patrick Ko, Richard Lo, Max Tong
and Shu Wang. Subject to existing contractual obligations, the base salaries of
our executives are fixed based on job responsibilities and a limited review of
compensation practices for comparable positions at corporations which compete
with the Company in its business or are of comparable size and scope of
operations in Hong Kong. Bonuses for our executives are not determined through
the use of specific criteria. Rather, the Compensation Committee bases bonuses
on the Company's overall performance, profitability, working capital management
and other qualitative and quantitative measurements. In determining the amount
of bonuses, if any, to be awarded, the Compensation Committee considers our net
sales growth and profitability for the applicable period and each executive's
contribution to our success. The Compensation Committee's decisions are based
primarily on informal judgments believed to be fair and reasonable and in the
best interests of the Company and our stockholders.
The Board believes that equity ownership by executive officers provides
incentive to build stockholder value and aligns the interests of executive
officers with the interests of stockholders. There were no stock options granted
to the Company's executives during 2001.
Under the Company's 1998 Plan, a total of 1,049,667 shares of common
stock were available for the granting of stock options as of December 31, 2001,
and it was the Board's intent to review job responsibilities, individual
performance, current option position and other criteria and, where applicable,
grant additional options in 2002 and 2003.
The Board considers awarding stock option grants on a periodic basis.
The Board believes that these additional grants provide an incentive for
executive officers and other key employees to remain with the Company. Under our
current stock option plan, options are granted at the market price of the common
stock on the date of grant and, consequently, will have value only if the price
of the common stock increases over the exercise price. In determining the size
of the periodic grants, the Board of Directors will consider various factors,
including the amount of any prior option grants, the executive's or employee's
performance during the current fiscal year and his or her expected contributions
during the succeeding fiscal year.
The Compensation Committee
David Bussmann, Patrick Ko, Richard Lo, Max Tong, Shu Wang
Independent Directors, PacificNet Inc.
November 12, 2002
13
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist the Board of Directors in its
oversight of the Company's financial reporting process. The Board of Directors,
in its business judgment, has determined that all members of the committee are
"independent" as required by applicable listing standards of the Nasdaq
NationalThe Committee operates pursuant to a Charter that was approved by the
Board in fiscal 2000. As set forth in the Charter, management of the Company is
responsible for the preparation, presentation and integrity of the Company's
financial statements, accounting and financial reporting principles and internal
controls and procedures designed to assure compliance with accounting standards
and applicable laws and regulations. The independent auditors are responsible
for auditing the Company's financial statements and expressing an opinion as to
their conformity with generally accepted accounting principles.
In the performance of this oversight function, the Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The Committee has discussed with the independent auditors the matters
required to be discussed by Statement of Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEE, as currently in effect. Finally, the
Committee has received written disclosures and the letter from the independent
auditors required by Independence Standard Board Standard No. 1, Independence
Discussions with Audit Committees, as currently in effect, has considered
whether the provision of non-audit services by the independent auditors to the
Company is compatible with maintaining the auditor's independence and has
discussed with the auditors the auditors' independence.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting, are not experts in the fields of accounting
or auditing, including in respect of auditor independence. Members of the
Committee rely without independent verification on the information provided to
them and on the representations made by management and the independent
accountants. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal control
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
consideration and discussions referred to above do not assure that the audit of
the Company's financial statements has been carried out in accordance with
generally accepted accounting principles or that the Company's auditors are in
fact "independent".
Based upon the reports and discussions described in this report, and subject to
the limitations on the role and responsibilities of the Committee referred to
above and in the Charter, the Committee recommended to the Board that the
audited financial statements be included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission.
The Audit Committee
David Bussmann, Patrick Ko, Richard Lo, Max Tong, Shu Wang
Independent Directors, PacificNet Inc.
November 12, 2002
14
RELATED TRANSACTIONS
CONSULTING AGREEMENT WITH MR. DAVID BUSSMANN - For the year ended December 31,
2001, the Company paid net consulting fees of $18,000 for management advisory
services under a contract that expired on February 28, 2002.
CONSULTING AGREEMENT WITH TONY TONG UNDER PACIFICNET VENTURES LIMITED. -
Effective October 19, 2001 through December 31, 2001, Mr. Tony Tong's Employment
Agreement with the Company was terminated, and was replaced by a Consulting
Agreement with Tony Tong. As a result, Mr. Tong ceased receiving salary
compensation under his employment agreement and instead received non-salaried
consulting compensation totaling $12,160 from October 19, 2001 to December 31,
2001.
SUBLEASE AGREEMENT - The Company entered into a sublease agreement with a
company beneficially owned by Mr. Gaard for the entire space at the Company's
previous United States corporate office for a monthly sublease amount of $3,500.
The sublease agreement was terminated on April 30, 2002.
INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the General Corporation
Law of the State of Delaware. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. The Company has entered into indemnification agreements with
its officers and directors containing provisions that may require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms.
15
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has adopted a resolution appointing Clancy and
Co., P.L.L.C. ("Clancy and Co.") as our independent public accountants for the
fiscal year ending December 31, 2001 and December 31, 2002. Clancy and Co.
currently serves as the independent public accountants for the Company.
Stockholder ratification of the selection of Clancy and Co. as our independent
public accountants is not required by our bylaws or otherwise. Nevertheless, the
Board is submitting the selection of Clancy and 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. We do not expect any representatives of Clancy
and Co. to be present at the Annual Meeting.
AUDIT FEES
The aggregate fees billed for professional services rendered by Clancy
and Co. for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2001 and for the review of the financial
statements included in the Company's Forms 10-QSB during the fiscal year ended
December 31, 2001 was $34,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company did not engage Clancy and Co. to provide advice to the
Company regarding financial information systems designs and implementation
during the fiscal year ended December 31, 2001.
ALL OTHER FEES
The Company did not engage Clancy and Co. to provide non-audit related
professional services during the fiscal year ended December 31, 2001.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
CLANCY AND CO., P.L.L.C. AS OUR INDEPENDENT PUBLIC ACCOUNTANTS.
16
MISCELLANEOUS
ANNUAL REPORT
The Company's Annual Report to Shareholders accompanies delivery of
this Proxy Statement.
2003 STOCKHOLDER PROPOSALS
Rule 14a-4 of the SEC proxy rules allows the Company to use
discretionary voting authority to vote on matters coming before an annual
meeting of stockholders if the Company does not have notice of the matter at
least 45 days before the date corresponding to the date on which the Company
first mailed its proxy materials for the prior year's annual meeting of
stockholders or the date specified by an overriding advance notice provision in
the Company's By-Laws. The Company's By-Laws do not contain such an advance
notice provision. For the Company's 2003 Annual Meeting of Stockholders,
stockholders must submit such written notice to the Secretary of the Company on
or before November 4, 2003. Stockholders of the Company wishing to include
proposals in the proxy material for the 2003 Annual Meeting of Stockholders must
submit the same in writing so as to be received by Victor Tong, the Secretary of
the Company on or before August 21, 2003. Such proposals must also meet the
other requirements of the rules of the SEC relating to stockholder proposals.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at
the Annual Meeting, except matters discussed in the Proxy Statement. If any
other matters properly come before the meeting, it is intended that the shares
represented by proxies will be voted in accordance with the judgment of the
persons voting the proxies.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Stockholders may read and copy any reports,
statements or other information that we file at the SEC's public reference rooms
in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information about the public reference rooms.
Our public filings are also available from commercial document retrieval
services and at the Internet Web site maintained by the SEC at
http://www.sec.gov.
Upon the request of a stockholder, the Company shall provide to such
person, without charge, a copy of the Company's annual report on Form 10-KSB.
STOCKHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE THEIR SHARES AT THE
ANNUAL MEETING. NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED NOVEMBER 25, 2002. STOCKHOLDERS SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE.
By Order of the Board of Directors
/s/ Victor Tong
----------------------------------
Name: Victor Tong
Title: Secretary
December 11, 2002
17
PACIFICNET INC.
PROXY
FOR ANNUAL MEETING TO BE HELD DECEMBER 30, 2002
The undersigned stockholder of PacificNet Inc., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement and hereby appoints Tony Tong, Victor Tong and
ShaoJian (Sean) Wang, or any of them, proxies and attorneys-in-fact, with full
power to each of substitution and revocation, on behalf and in the name of the
undersigned, to represent the undersigned at the 2002 Annual Meeting of
Stockholders of the Company to be held at 10:00 a.m. (Hong Kong Time) at
PacificNet, Unit 1702, ChinaChem Century Tower, 178 Gloucester Road, Wanchai,
Hong Kong, on Monday, December 30, 2002, or at any adjournment or postponement
thereof, and to vote, as designated below, all shares of common stock of the
Company which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below.
The Board of Directors recommends that you vote "FOR" each proposal.
--------------------------------------------------------------------
1. Elect Directors
Nominees
1. Tony Tong 2. Victor Tong 3. ChoSam Tong
4. ShaoJian (Sean) Wang 5. Patrick Ko 6. Richard Lo
7. Max Tong 8. Justin Tang
|_| FOR all nominees listed above |_| WITHHOLD AUTHORITY to vote for
(except those whose names or all nominees listed above.
numbers have been written
on the line below)
2. Proposal to ratify Clancy and Co., P.L.L.C. as the independent auditors
of the Company for fiscal year 2002.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Transact any other business as may properly be presented at the Annual
Meeting or any adjournment or postponement thereof.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED "FOR" EACH PROPOSAL SPECIFICALLY IDENTIFIED ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date: _______________, 2002
____________________________________________
____________________________________________
PLEASE DATE AND SIGN ABOVE exactly as name
appears at the left, indicating, where
proper, official position or representative
capacity. For stock held in joint tenancy,
each joint owner should sign.
18
EXHIBIT A
PACIFICNET INC.
AUDIT COMMITTEE CHARTER
AS AMENDED NOVEMBER 25, 2002
I. RESPONSIBILITY
The PacificNet Inc. ("PacificNet") Audit Committee ("Committee") was established
to assist the Board of Directors in carrying out its oversight responsibilities
that relate to PacificNet's accounting and financial reporting processes, audits
of PacificNet's financial statements, internal controls, and compliance with
laws, regulations and ethics. This policy reaffirms that the Committee's duties
are oversight in nature and that the primary responsibility for financial
reporting, internal control, and compliance with laws, regulations, and ethics
standards rests with PacificNet's executive management and that PacificNet's
external auditors are responsible for auditing PacificNet's financial
statements. The foregoing notwithstanding, the Committee, in its capacity as the
Audit Committee of the Board of Directors, has direct responsibility for the
appointment, compensation and oversight of the work of any registered public
accounting firm employed by PacificNet (including resolution of disagreements
between management and the auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work. The Committee
does not provide any expert or special assurances as to PacificNet's financial
statements or any professional certification as to the external auditors work.
The Committee has the power to conduct or authorize investigations into any
matters within the Committee's scope of responsibilities and to establish
procedures concerning the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls or auditing matters and
confidential, anonymous employee submissions of concerns regarding questionable
accounting or auditing matters. The Committee is empowered to retain independent
counsel, accountants, or others to assist it in the conduct of any
investigation. The President, the Chief Financial Officer or the Corporate
Secretary of PacificNet shall provide, or arrange to provide, such other
information, data and services as the Committee may request. The Committee shall
conduct such interviews or discussions as it deems appropriate with personnel of
PacificNet, and/or others whose views would be considered helpful to the
Committee.
The Committee's prior approval is required for all auditing services and
non-audit services. However, in the event the aggregate amount of non-audit
services constitutes 5% or less of the total revenues paid by PacificNet to its
external auditor during the fiscal year in which non-audit services are
provided, and PacificNet did not recognize that these services were non-audit
services at the time of the engagement and the Committee is promptly notified of
this fact by PacificNet; provided the Committee (or one or more members of the
Committee who are also members of the Board of Directors to whom approval
authority has been delegated by the Committee) approves such non-audit services
prior to their completion.
The Committee believes its policies and procedures should remain flexible in
order to best react to changing conditions and that the following duties of the
Committee are set forth as a guide with the understanding that the Committee may
diverge from this guide as appropriate given the circumstances:
A. Financial Reporting
Committee procedures shall include:
1. Selection of Outside Auditors
The Committee has the ultimate authority and responsibility to select, evaluate,
and where appropriate, replace the outside auditor. The outside auditors are
ultimately accountable to the Audit Committee and the entire Board for such
auditors' review of the financial statements and controls of PacificNet. On an
annual basis, the Audit Committee should review and discuss with the auditors
all significant relationships they have with PacificNet to determine their
independence. The Committee shall submit its recommended appointment (or
reappointment) or termination of outside auditors to the Board of Directors.
19
The Committee's review shall include:
- Review and prior approval of all audit services and non-audit services. (In
the event the Committee approves an audit service within the scope of an
auditor's engagement, that audit service shall be deemed to have been
pre-approved.)
- Opinions on the performance of the outside auditors by appropriate management.
- Inquiring if the outside auditors face any significant litigation or
disciplinary actions by the Securities and Exchange Commission ("Commission") or
others.
- Inquiring whether the chief executive officer of PacificNet's outside auditors
was employed by a registered independent public accounting firm and participated
in any capacity in PacificNet's audit during the one-year period preceding the
commencement of an audit of PacificNet.
- Receiving from the auditors, on a periodic basis, a formal written statement
delineating all relationships between the auditors and PacificNet consistent
with Independence Standards Board Statement 1 ("ISB No. 1");.
- Obtaining written disclosure from the outside auditors describing all
relationships between the outside auditors and PacificNet that bear on
independence and objectivity.
- Discussing auditor independence with its outside auditors and recommending
that the Board of Directors take appropriate action regarding any independence
issues.
- Discussing with PacificNet's Chief Executive Officer and Chief Financial
Officer certifications in PacificNet's periodic reports concerning disclosures
of significant control deficiencies and any fraud by management.
- Auditor engagement letters and estimated fees.
- Consideration of the report of the outside auditors' latest peer review
conducted pursuant to a professional quality control program.
- Review of management's letter of representation and consideration of any
significant operational or reporting issues that may affect the financial
statements.
- Review of proposed non-audit services and consideration of the possible effect
that these services could have on the independence of the outside auditors.
- Facilitating and maintaining an open avenue of communication with PacificNet's
outside auditors.
- Ensuring the Committee is informed in a timely manner by PacificNet's outside
auditors of (1) all critical accounting policies and practices the outside
auditors intend to use for the audit; (2) discussion with PacificNet's
management of all alternative treatments of financial information within
generally accepted accounting principles ("GAAP"), the ramifications of the use
thereof and the outside auditors' preferred treatment; and (3) other material
written communications between the outside auditors and PacificNet's management
to include any management letter or schedule of audit adjustments.
2. Meeting with PacificNet's general counsel, if any, and outside counsel when
appropriate, to discuss legal matters that may have a significant impact on
PacificNet's financial statements.
20
3. Regarding PacificNet's financial statements, the Committee will:
- Review PacificNet's audited annual financial statements and outside auditors'
opinions with respect to the statements, including the nature of any changes in
accounting principles or their application.
- Review PacificNet's interim quarterly financial statements and outside
auditors' views with respect to the statements, including the nature of any
changes in accounting principles or their application.
- Review significant accounting policies, policy decisions and changes, along
with significant accounting, reporting or operational issues.
- Review the financial statements to be issued with management and with the
outside auditors to determine whether the outside auditors are satisfied with
the disclosure and content of the financial statements to be presented to the
shareholders prior to the release of the quarterly financial report to
shareholders.
- Make a recommendation to the Board of Directors regarding the inclusion of
interim and annual financial statements in PacificNet's SEC filings based on its
review of such financial statements with management and the outside auditors.
- Ensure that management maintains reliability and integrity of accounting
policies and financial reporting and that management establishes and maintains
processes to assure adequate systems of internal control.
- Disclose in PacificNet's annual proxy or information statement, the existence
of the Committee and the Committee charter and the extent to which the Committee
has satisfied its responsibilities during the prior year in compliance with its
charter.
- Disclose the Committee's approval of any non-audit services in PacificNet's
periodic reports filed with the Commission.
- Review the management letter issued by the outside auditors and management's
response.
- Review fees paid for audit and consulting services, respectively.
4. Annually review and examine those matters which relate to a financial review
of PacificNet's Investment Policies.
5. Submit findings of importance, conclusions, recommendations, and items that
require follow-up or action to the Board of Directors.
6. Annually review and update the Audit Committee Charter and submit the Charter
to the full Board of Directors for approval.
7. Maintain minutes or other records of meetings and activities of the
Committee.
B. Monitoring of Internal Controls
The Committee is responsible for obtaining and understanding PacificNet's key
financial reporting risk areas and internal control structure. The Committee
monitors the internal control process by reviewing information provided in the
Business Conduct Questionnaire and Annual Certification reporting made by each
PacificNet employee, discussions with the chief financial and accounting
officers and such other persons as the Committee deems appropriate, and
discussions with and reports issued by outside auditors.
21
C. Compliance with Laws, Regulations, and Ethics
The Committee shall review reports and other information to gain reasonable
assurance that PacificNet is in compliance with pertinent laws and regulations,
is conducting its affairs ethically, and is maintaining effective controls
against conflict of interest and fraud.
Committee procedures shall include:
1. Review PacificNet's policies relating to compliance with laws, regulations,
ethics, and conflict of interest.
2. Review significant cases of conflict of interest, misconduct, or fraud and
the resolution of such cases.
3. Review PacificNet's policies and processes for compliance with U.S. and
foreign country export control's, laws and regulations.
4. Review PacificNet's policies and processes for compliance with the Foreign
Corrupt Practices Act and the USA Patriot Act.
5. Review compliance reports received from regulators and consider legal and
regulatory matters that may have a material impact on the financial statements.
6. Review outside auditors' reports that relate to the monitoring of compliance
with PacificNet's policies on business ethics.
7. Review policies and procedures covering officers' expense accounts and
perquisites, including their use of corporate assets, and consider the results
of any review of these areas by internal or outside auditors.
8. Review the disclosure included in PacificNet's periodic reports concerning
whether at least one member of the Committee is a "financial expert" (as defined
in Part III below) and, if no member of the Committee is a "financial expert",
why no such expert has been appointed to the Committee.
II. OVERSIGHT OF OUTSIDE AUDITOR FUNCTIONS
The Committee shall schedule meetings as necessary to receive and discuss
reports from staff, other committees, and consultants. Particular emphasis will
be given by the Committee to significant control deficiencies, and actions taken
by management to correct them. The Committee may request through the Chief
Financial Officer that the outside auditors perform special studies,
investigations, or other services in matters of interest or concern to the
Committee.
The Committee's oversight of outside audit coverage is covered under section
I.A. above.
III. COMMITTEE MEMBERSHIP
The Committee shall be composed of three or more Directors, each of whom shall
be independent. To be considered independent, a Committee member may not (other
than in his capacity as a member of the Committee, the Board or another
committee of the Board) accept any consulting, advisory or other compensatory
fee from PacificNet or be an affiliated person of PacificNet or any of its
subsidiaries. Each member shall comply with the requirements promulgated by The
Nasdaq Stock Market, Inc. and the Commission, and shall be free of any
relationship that, in the opinion of the Board of Directors, would interfere
with his or her exercise of independent judgment. All members of the Committee
will have a general understanding of basic finance practices and accounting
practices and policies, and at least one member must have the requisite
22
accounting or related financial management expertise to be deemed a "financial
expert", as that term is defined by the Commission, having through education and
experience as a public accountant, or auditor or a principal financial officer,
comptroller or principal accounting officer or a position performing similar
functions, an understanding of GAAP and financial statements, experience in the
preparation or auditing of financial statements of generally comparable issuers
and the application of such principles in connection with the accounting for
estimates, accruals and reserves, and experience with internal accounting
controls and an understanding of audit committee functions. The Committee
members may enhance their familiarity with finance and accounting by
participating in educational programs conducted by PacificNet or an outside
consultant. The Chairman and other members of the Committee shall be appointed
by the Board of Directors.
Vacancies occurring in the Committee may be filled by appointment of the
Chairman of the Board, but no member of the Committee shall be removed except by
vote of a majority of Directors present at any regular or special meeting of the
Board.
The Secretary of the Committee shall be appointed by the majority vote of the
Committee. The Secretary of the Committee shall prepare minutes of the meetings,
maintain custody of copies of data furnished to and used by the Committee, and
generally assist the Committee in connection with preparation of agendas,
notices of meetings and otherwise.
IV. CONDUCT OF BUSINESS
All meetings require the presence of a majority of the members of the Committee
to conduct business. Each Committee member shall have one vote. All actions or
determinations by the Committee must be by majority vote of the members present.
The Board of Directors shall have overall authority over all Committee actions.
V. COMPENSATION
The compensation of members of the Committee may be determined from time to time
by resolution of the Board of Directors. Members of the Committee shall be
reimbursed for all reasonable expenses incurred in attending such meetings.
VI. TIME AND PLACE OF MEETINGS
Committee meetings shall be held quarterly or more frequently as necessary at an
agreed upon location. The Committee may ask members of management or others to
attend the meeting and to provide pertinent information as necessary. As part of
its job to foster open communication, the Audit Committee should meet at least
annually with management, the director of the internal auditing department and
the outside auditors separately to discuss any matters that the Audit Committee
or each of these groups believe should be discussed privately. In addition, the
Audit Committee or at least its Chairperson should meet with the outside
auditors and management quarterly to review PacificNet's financial statements
consistent with the Audit Committee's duties and responsibilities set forth
herein.
VII. PRESENTATION OF REPORTS TO THE BOARD OF DIRECTORS
The Committee shall make an annual presentation to the Board of Directors within
three months after the receipt of the outside auditors opinion on PacificNet's
financial statement. The presentation shall provide an overview of the
Committee's activities, findings of importance, conclusions, recommendations,
and items that require follow-up or action by the Board. Presentations may be
made at more frequent intervals if deemed necessary by the Committee or as
requested by the Board of Directors.
23