SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed
by
the Registrant T
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))
T
Definitive Proxy Statement
¨
Definitive Additional Materials
¨
Soliciting Material under Rule 14a-12
CHINA
BAK BATTERY, 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):
T
No fee
required
¨
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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¨
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.
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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Date
Filed:
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July
3,
2008
Dear
Stockholder:
On
behalf
of the Board of Directors of China BAK Battery, Inc. (the “Company”), I invite
you to attend our 2008 Annual Meeting of Stockholders. We hope you can join
us.
The annual meeting will be held:
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At:
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BAK
Industrial Park, No. 1 BAK Street
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Kuichong
Town, Longgang District
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Shenzhen,
518119
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People’s
Republic of China
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On:
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July
28, 2008
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Time:
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9:00
a.m., local time
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The
Notice of Annual Meeting of Stockholders, the Proxy Statement and our 2007
Annual Report accompany this letter.
At
the
Annual Meeting, we will report on important activities and accomplishments
of
the Company and review the Company’s financial performance and business
operations. You will have an opportunity to ask questions and gain an up-to-date
perspective on the Company and its activities, and to meet certain directors
and
key executives of the Company.
As
discussed in the enclosed Proxy Statement, the Annual Meeting will also be
devoted to the election of directors, the ratification of the appointment of
the
Company’s accountants, the increasing of the number of authorized shares of the
Company’s Common Stock, par value $.001 per share (“Common Stock”) and
consideration of any other business matters properly brought before the Annual
Meeting.
We
know
that many of our stockholders will be unable to attend the Annual Meeting.
We
are soliciting proxies so that each stockholder has an opportunity to vote
on
all matters that are scheduled to come before the stockholders at the Annual
Meeting. Whether or not you plan to attend, please take the time now to read
the
proxy statement and vote and submit your proxy by signing, dating and returning
your proxy card promptly in the enclosed postage-paid envelope. You may revoke
your proxy at any time before it is exercised. Regardless of the number of
Company shares you own, your presence in person or by proxy is important for
quorum purposes and your vote is important for proper corporate
action.
Thank
you
for your continuing interest in China BAK Battery, Inc. We look forward to
seeing you at our Annual Meeting.
If
you
have any questions about the Proxy Statement, please contact Tracy Li, Investor
Relations Manager, China BAK Battery, Inc., BAK Industrial Park, No. 1 BAK
Street, Kuichong Town, Longgang District, Shenzhen, 518119, People’s Republic of
China; Telephone: 011 (86-755) 8977-0093.
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Sincerely,
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/s/
Xiangqian Li
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Xiangqian
Li
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Chief
Executive Officer
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CHINA
BAK BATTERY, INC.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
July
28, 2008
To
the
Stockholders of CHINA BAK BATTERY, INC.:
Notice
is
hereby given that the Annual Meeting of Stockholders (the “Meeting”) of China
BAK Battery, Inc., a Nevada corporation (the “Company”), will be held on Monday,
July 28, 2008, at 9:00 a.m., local time, at BAK Industrial Park, No. 1 BAK
Street, Kuichong Town, Longgang District, Shenzhen, 518119, People’s Republic of
China for the following purposes:
| 1. |
To
elect 5 persons to the Board of Directors of the Company, each to
serve
until the next annual meeting of stockholders of the Company or until
such
person shall resign, be removed or otherwise leave office;
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| 2. |
To
ratify the selection by the Audit Committee of PKF as the Company’s
independent registered public accounting firm for the fiscal year
ending
September 30, 2008;
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| 3. |
To
act upon a proposal to amend the Company’s Stock Option Plan to (i)
increase the number of shares of the Company’s Common Stock available for
grants of options and other stock-based awards under such plan and
make a
related amendment to Section 1.7 of such plan and (ii) amend the
definition of “Fair Market Value”; and
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| 4. |
To
transact such other business as may properly come before the Meeting
or
any adjournment thereof.
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Only
stockholders of record at the close of business on June 11, 2008 are entitled
to
notice and to vote at the Meeting and any adjournment.
You
are
cordially invited to attend the Meeting.
A
Proxy
Statement describing the matters to be considered at the Meeting is attached
to
this Notice. Our 2007 Annual Report accompanies this Notice, but it is not
deemed to be part of the Proxy Statement.
It
is important that your shares are represented at the Meeting. We urge you to
review the attached Proxy Statement and, whether or not you plan to attend
the
meeting in person, please vote your shares promptly by either completing,
signing and returning the accompanying proxy card or casting your vote via
the
internet as directed either in instructions of our transfer agent, Securities
Transfer Corporation (the “Transfer Agent”) or on the proxy card included with
this Proxy Statement. You do not need to affix postage to the enclosed reply
envelope if you mail it within the United States. If you attend the meeting,
you
may withdraw your proxy and vote your shares personally.
If
you
plan to attend the meeting, please mark the accompanying proxy card in the
space
provided and return it to us, or notify us of your intentions via the internet
as directed on the proxy card. This will assist us with meeting preparations.
If
your shares are not registered in your own name and you would like to attend
the
Meeting, please ask the broker, trust, bank, or other nominee that holds your
shares to provide you with evidence of your share ownership. This will enable
you to gain admission to the Meeting.
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By
Order of the Board of Directors,
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/s/
Tony Shen
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Secretary
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July
3,
2008
CHINA
BAK BATTERY, INC.
BAK
Industrial Park, No. 1 BAK Street
Kuichong
Town, Longgang District
Shenzhen,
518119
People’s
Republic of China
__________
PROXY
STATEMENT
__________
This
Proxy Statement and the accompanying proxy are being furnished with respect
to
the solicitation of proxies by the Board of Directors of China BAK Battery,
Inc., a Nevada corporation (the “Company,” “China BAK” or “we”), for the 2008
Annual Meeting of Stockholders (the “Meeting”). The Meeting is to be held at
9:00 a.m., local time, on Monday, July 28, 2008, and at any adjournment or
adjournments thereof, at BAK Industrial Park, No. 1 BAK Street, Kuichong Town,
Longgang District, Shenzhen, 518119, People’s Republic of China.
The
approximate date on which the Proxy Statement and form of proxy are intended
to
be sent or given to stockholders is July 1, 2008.
The
purposes of the Meeting are to seek stockholder approval of three proposals:
(i)
electing five (5) directors to the Board of Directors of the Company (the
“Board”); (ii) ratifying the appointment of the Company’s accountants for fiscal
year 2008; and (iii) amending the Company’s Stock Option Plan (the
“Plan”).
Who
May Vote
Only
stockholders of record of our Common Stock, as of the close of business on
June
11, 2008 (the “Record Date”) are entitled to notice and to vote at the Meeting
and any adjournment or adjournments thereof.
A
list of
stockholders entitled to vote at the Meeting will be available at the Meeting
and for ten days prior to the Meeting, during office hours, at the executive
offices of the Company at BAK Industrial Park, No. 1 BAK Street, Kuichong Town,
Longgang District, Shenzhen 518119, People’s Republic of China, by contacting
the Secretary of the Company.
The
presence at the Meeting of a majority of the outstanding shares of Common Stock
as of the Record Date, in person or by proxy, is required for a quorum. Should
you submit a proxy, even though you abstain as to one or more proposals, or
you
are present in person at the Meeting, your shares shall be counted for the
purpose of determining if a quorum is present.
Broker
“non-votes” are included for the purposes of determining whether a quorum of
shares is present at the Meeting. A broker “non-vote” occurs when a nominee
holder, such as a brokerage firm, bank or trust company, holding shares of
record for a beneficial owner does not vote on a particular proposal because
the
nominee holder does not have discretionary voting power with respect to that
item and has not received voting instructions from the beneficial
owner.
As
of the
Record Date, we had issued and outstanding 53,227,387 shares of Common Stock.
Each holder of Common Stock on the Record Date is entitled to one vote for
each
share then held on all matters to be voted at the Meeting. No other class of
voting securities was then outstanding.
Voting
Your Proxy
You
may
vote by one of the following methods:
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·
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Completing
and signing the proxy card and mailing it in the enclosed postage-paid
envelope; or
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·
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Voting
on the internet. Please follow the instructions that are either included
with the proxy materials provided by the Transfer Agent (you may
obtain
copies of such information by contacting the Transfer Agent at Securities
Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, Texas
75034;
Telephone No. (469) 633-0101; http://www.stctransfer.com/votelogin.htm)
or on the proxy card.
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If
your
shares are held through a broker, trust, bank or other nominee, you should
refer
to information forwarded to you by such holder of record for your voting
options.
The
shares represented by any proxy duly given will be voted at the Meeting in
accordance with the instructions of the stockholder. If no specific instructions
are given, the shares will be voted FOR the election of the nominees for
director set forth herein, FOR ratification of PKF as the Company’s independent
registered public accounting firm and FOR amending the Plan. In addition, if
other matters come before the Meeting, the persons named in the accompanying
form of proxy will vote in accordance with their best judgment with respect
to
such matters.
Each
share of Common Stock outstanding on the record date will be entitled to one
vote on all matters. Under Proposal 1 (Election of Directors), the five
candidates for election as directors at the Meeting are uncontested. In
uncontested elections, directors are elected by majority of the votes cast
at
the Meeting. Proposal 2 (Ratification of the selection of Independent Auditors)
seeks the vote of a majority of the votes cast at the Meeting. Proposal 3
(amending the Plan) requires the vote of a majority of the shares present in
person or by proxy at the Meeting.
Shares
which abstain from voting as to a particular matter, and shares held in “street
name” by brokers or nominees who indicate on their proxies that they do not have
discretionary authority to vote such shares as to a particular matter, will
not
be counted as votes in favor of such matter, and will also not be counted as
shares voting on such matter. Accordingly, abstentions and “broker non-votes”
will have no effect on the voting on matters (such as the election of directors,
the ratification of the selection of the independent registered public
accounting firm and increasing the number of authorized shares of the Company’s
Common Stock) that require the affirmative vote of a plurality or a majority
of
the votes cast or the shares voting on the matter.
Revoking
Your Proxy
Even
if
you execute a proxy, you retain the right to revoke it and to change your vote
by notifying us at any time before your proxy is voted. Mere attendance at
the
meeting will not revoke a proxy. Such revocation may be effected in writing
by
execution of a subsequently dated proxy or by a written notice of revocation,
in
each case sent to the attention of the Secretary at the address of our principal
office set forth above in the Notice to this Proxy Statement, or by your
attendance and voting in person at the Meeting. In addition, you may revoke
your
proxy via the Transfer Agent’s website at http://www.stctransfer.com/votelogin.htm
(please
contact the Transfer Agent at Securities Transfer Corporation, 2591 Dallas
Parkway, Suite 102, Frisco, Texas 75034; Telephone No. (469) 633-0101;
http://www.stctransfer.com/votelogin.htm
for
instructions). Unless so revoked, the shares represented by proxies, if received
in time, will be voted in accordance with the directions given
therein.
If
the
Meeting is postponed or adjourned for any reason, at any subsequent reconvening
of the Meeting, all proxies will be voted in the same manner as the proxies
would have been voted at the original convening of the Meeting (except for
any
proxies that have at that time effectively been revoked or withdrawn), even
if
the proxies had been effectively voted on the same or any other matter at a
previous Meeting.
You
are
requested, regardless of the number of shares you own or your intention to
attend the Meeting, to sign the proxy and return it promptly in the enclosed
envelope.
Solicitation
of Proxies
The
expenses of solicitation of proxies will be paid by the Company. We may solicit
proxies by mail, and the officers and employees of the Company, who will receive
no extra compensation therefore, may solicit proxies personally or by telephone.
The Company will reimburse brokerage houses and other nominees for their
expenses incurred in sending proxies and proxy materials to the beneficial
owners of shares held by them.
2
Delivery
of Proxy Materials to Households
Only
one
copy of the Company’s 2007 Annual Report and Proxy Statement for the 2008 Annual
Meeting of Stockholders will be delivered to an address where two or more
stockholders reside unless we have received contrary instructions from a
stockholder at the address. A separate proxy card will be delivered to each
stockholder at the shared address.
If
you
are a stockholder who lives at a shared address and you would like additional
copies of the 2007 Annual Report, this Proxy Statement, or any future annual
reports or proxy statements, contact Manager, Investor Relations at China BAK
Battery, Inc., BAK Industrial Park, No. 1 BAK Street Kuichong Town, Longgang
District, Shenzhen 518119, People’s Republic of China; Telephone number 011
(86-755) 8977-0093, and we will promptly mail you copies.
Interest
of Officers and Directors in Matters to Be Acted Upon
On
May
29, 2008, the Compensation Committee of the Board approved the grant of an
option to purchase 1,080,000 shares of Common Stock to Mr. Xiangqian Li,
subject to stockholder approval of Proposal 3 (amending the Plan to, among
other
things, increase the number of shares of Common Stock available for grants
of
options and other stock-based awards under the Plan) as there is not a
sufficient number of shares currently available under the Plan for issuance
upon
exercise of such option and additional options granted on the same day to other
employees (which options also are subject to stockholder approval of Proposal
3). None of the Company’s officers or directors have any other interest in any
of the matters to be acted upon, except to the extent that a director is named
as a nominee for election to the Board or to the extent that such officer or
director will be eligible to receive future grants of restricted stock or stock
options under the Plan.
3
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth information known to us with respect to the
beneficial ownership of our Common Stock as of the close of business on May
30,
2008 for: (i) each person known by us to beneficially own more than 5% of our
voting securities, (ii) each executive officer, (iii) each of our directors
and
nominees, and (iv) all of our executive officers and directors as a group:
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Name
and Address
of
Beneficial Owner(1)
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Amount
and Nature of
Beneficial
Ownership(1)
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||||||
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Number(2)
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Percent(3)
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|||||
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PowerShares
Capital Management LLC(4)
1360
Peachtree Street NE
Atlanta,
GA 30309
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3,941,524
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7.4
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%
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||||
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Xiangqian
Li(5)
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19,053,887
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35.8
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%
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||||
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Huanyu
Mao(6)
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483,139
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*
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|||||
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Richard
B. Goodner
6608
Emerald Drive
Colleyville,
Texas 76034
United
States
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10,000
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*
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|||||
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Charlene
Spoede Budd(7)
199
Air Strip Road
Jackson
Georgia 30233
United
States
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5,000
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*
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|||||
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Chunzhi
Zhang(7)
Room
1505, Block B Tairan 9th Road
Chengongmiao,
Futian District
Shenzhen
F4 518000
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5,000
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*
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|||||
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Tony
Shen(8)
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70,000
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*
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|||||
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Xinggang
Cao(9)
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20,485
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*
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|||||
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Kenneth
G. Broom(10)
31061
Gunn Ave. Mission
B.C.
AI V45157
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31,668
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*
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|||||
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Yongbin
Han
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136,566
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*
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|||||
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All
officers and directors as a group (9 persons)
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19,815,745
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37.2
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%
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||||
____________________
| * |
Denotes
less than 1% of the outstanding shares of Common
Stock.
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| (1) |
The
number of shares beneficially owned is determined under SEC rules,
and the
information is not necessarily indicative of beneficial ownership
for any
other purpose. Under those rules, beneficial ownership includes any
shares
as to which the individual has sole or shared voting power or investment
power, and also any shares which the individual has the right to
acquire
within 60 days of the Record Date, through the exercise or conversion
of
any stock option, convertible security, warrant or other right (a
“Presently Exercisable” security). Including those shares in the table
does not, however, constitute an admission that the named stockholder
is a
direct or indirect beneficial owner of those shares. Unless otherwise
indicated, the address of each person or entity named in the table
is c/o
China BAK Battery, Inc., BAK Industrial Park, No. 1 BAK Street, Kuichong
Town, Longgang District, Shenzhen 518119,People’s Republic of
China.
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4
| (2) |
Unless
otherwise indicated, each person or entity named in the table has
sole
voting power and investment power (or shares that power with that
person’s
spouse) with respect to all shares of Common Stock listed as owned
by that
person or entity.
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| (3) |
A
total of 53,227,387 shares of Common Stock are considered to be
outstanding on May 30, 2008, pursuant to Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934. For each beneficial owner above,
any
Presently Exercisable securities of such beneficial owner have been
included in the denominator.
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| (4) |
According
to the Schedule 13G filed with the SEC on February 11, 2008, by Invesco
Ltd. on behalf of PowerShares Capital Management LLC.
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| (5) |
Mr.
Li is a party to a guarantee agreement under which he has pledged
certain
of his shares of Common Stock to China Development Bank as collateral
for
a long-term loan agreement entered into by Shenzhen BAK. Such shares
had
previously been subject to a pledge in favor of Shenzhen Development
Bank
which was released by Shenzhen Development Bank on August 25, 2006.
On May
29, 2008, the Compensation Committee approved the grant to Mr. Li
of an
option to purchase 1,080,000 shares of Common Stock at a price of
$4.18
per share. The option is subject to a three-year vesting schedule,
with
the first 1/12 vesting on the last day of the full fiscal quarter
following the date of grant, and the remaining 11/12 vesting in eleven
equal installments on the last day of each following fiscal quarter.
Issuance of the option to Mr. Li is subject to stockholder approval
of the
amendment of the Plan to increase the number of shares available
for
issuance thereunder.
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| (6) |
Dr.
Mao was granted an option to purchase 200,000 shares of Common Stock
on
May 16, 2006, at a price of $6.25 per share, 40% of which vested
on July
1, 2007, an additional 30% of which vested on January 1, 2008, and
the
final 30% of which will vest on July 1, 2008. Any unvested portion
of the
option is subject to forfeiture if Dr. Mao is no longer employed
by the
Company. On January 28, 2008, Mr. Mao was granted an option to purchase
an
additional 200,000 shares of Common Stock at a price of $4.30 per
share.
The option vests and becomes exercisable in 12 installments over
a
three-year period as follows: the first 16,667 shares on April 28,
2008,
an additional 16,667 shares each three months thereafter beginning
on July
28, 2008, through October 28, 2010, and the final 16,663 shares on
January
28, 2011.
|
| (7) |
On
June 25, 2007, each of Ms. Budd and Mr. Zhang were granted 5,000
shares of
restricted Common Stock and on July 17, 2007, Mr. Goodner was granted
5,000 shares of restricted Common Stock. The restricted Common Stock
granted to each director is subject to a one-year vesting schedule,
with
unvested shares being subject to limitations on transfer and forfeiture
provisions. The first 25% of the restricted shares vested on the
applicable grant date, and the remaining 75% vest in three equal
installments on the last day of each following full fiscal quarter
of the
Company.
|
| (8) |
On
June 25, 2007, Mr. Shen was granted an option to purchase 80,000
shares of
Common Stock at a price of $3.35 per share. The option vests over
two
years, with 10,000 shares vesting on the last day of each fiscal
quarter
following the grant date, with the first vesting date occurring on
June
30, 2007. On January 28, 2008, Mr. Shen was granted an option to
purchase
120,000 shares of Common Stock at a price of $4.30 per share. The
option
vests and becomes exercisable over a three-year period with the option
vesting and becoming exercisable as to 1/12 of the total shares every
three months beginning on April 28,
2008.
|
| (9) |
Mr.
Cao was granted 20,485 restricted shares of Common Stock on December
26,
2006, with 40% of such shares vesting on July 1, 2007, an additional
30%
vesting on January 1, 2008, and the remaining 30% vesting on July
1,
2008.
|
| (10) |
On
June 25, 2007, Mr. Broom was granted an option to purchase 100,000
shares
of Common Stock at a price of $3.268 per share. The option vests
over four
years, with 25,000 shares vesting on July 1 of each year and with
the
first vesting date occurring on July 1, 2008. On January 28, 2008,
Mr.
Broom was granted an option to purchase 40,000 shares of Common Stock
at a
price of $4.30 per share. The option vests and becomes exercisable
in 12
installments over a three-year period as follows: the first 3,334
shares
on April 28, 2008, an additional 3,334 shares each three months thereafter
beginning on July 28, 2008, through October 28, 2010, and the final
3,326
shares on January 28, 2011.
|
5
PROPOSAL
1
ELECTION
OF DIRECTORS
The
Board
is responsible for establishing broad corporate policies and monitoring the
overall performance of the Company. It selects the Company’s executive officers,
delegates authority for the conduct of the Company’s day-to-day operations to
those officers, and monitors their performance. Members of the Board are kept
informed of the Company’s business by participating in Board and Committee
meetings, by reviewing analyses and reports, and through discussions with the
Chairman and other officers.
Effective
December 8, 2006, Article V of our articles of incorporation was amended so
that
the number of our directors shall be determined in accordance with our bylaws
instead of in accordance with provisions contained in our articles of
incorporation. There are currently five (5) directors serving on the Board.
At
the Meeting, five (5) directors will be elected, each to hold office until
the
next Annual Meeting of Stockholders or his or her earlier death or resignation
or until his or her successor, if any, is elected or appointed. The individuals
who have been nominated for election to the Board at the Meeting are listed
in
the table below. Each of the nominees is a current director of the
Company.
If,
as a
result of circumstances not now known or foreseen, any of the nominees is
unavailable to serve as a nominee for the office of Director at the time of
the
Meeting, the holders of the proxies solicited by this Proxy Statement may vote
those proxies either (i) for the election of a substitute nominee who will
be
designated by the proxy holders or by the present Board or (ii) for the balance
of the nominees, leaving a vacancy. Alternatively, the size of the Board may
be
reduced accordingly. The Board has no reason to believe that any of the nominees
will be unwilling or unable to serve, if elected as a Director. The five
nominees for election as directors are uncontested. In uncontested elections,
directors are elected by majority of the votes cast at the meeting. Proxies
submitted on the accompanying proxy card will be voted for the election of
the
nominees listed below, unless the proxy card is marked
otherwise.
Director
Selection
As
provided in its charter, the Nominating and Corporate Governance Committee
of
the Company’s Board is responsible for identifying individuals qualified to
become Board members and recommending to the Board nominees for election as
directors. The Nominating and Corporate Governance Committee considers
recommendations for director nominees, including those submitted by the
Company’s stockholders, on the bases described below. Stockholders may recommend
nominees by writing to the Nominating and Corporate Governance Committee c/o
the
Secretary at BAK Industrial Park, No. 1 BAK Street Kuichong Town, Longgang
District, Shenzhen, 518119. Stockholder recommendations will be promptly
provided to the chairman of the Nominating and Corporate Governance Committee.
To be considered by the Nominating and Corporate Governance Committee for
inclusion in the proxy for the 2009 annual meeting, recommendations must be
received by the Secretary of the Company not later than the close of business
on
January 29, 2009.
In
identifying and evaluating nominees, the Nominating and Corporate Governance
Committee may consult with the other Board members, management, consultants,
and
other individuals likely to possess an understanding of the Company’s business
and knowledge of suitable candidates. In making its recommendations, the
Nominating and Corporate Governance Committee assesses the requisite skills
and
qualifications of nominees and the composition of the Board as a whole in the
context of the Board's criteria and needs. In evaluating the suitability of
individual Board members, the Nominating and Corporate Governance Committee
may
take into account many factors, including general understanding of marketing,
finance and other disciplines relevant to the success of a publicly traded
company in today’s business environment; understanding of the Company’s business
and technology; the international nature of the Company’s operations;
educational and professional background; and personal accomplishment. The
Nominating and Corporate Governance Committee evaluates each individual in
the
context of the Board as a whole, with the objective of recommending a group
that
can best perpetuate the success of the Company’s business and represent
stockholder interests through the exercise of sound judgment, using its
diversity of experience. The Nominating and Corporate Governance Committee
also
ensures that each member satisfies the NASDAQ Stock Market, Inc. (“Nasdaq”)
independence requirements.
6
The
Board of Directors recommends a vote FOR the election of the nominees listed
below.
NOMINEES
The
names, the positions with the Company and the ages as of the Record Date of
the
individuals who are our nominees for election as directors are:
|
Name
|
Age
|
Position/s
|
Director
Since
|
|||
|
Xiangqian
Li
|
40
|
Chairman,
President and Chief Executive Officer
|
January
2005
|
|||
|
Huanyu
Mao
|
57
|
Director,
Chief Operating Officer and Chief Technology Officer
|
May
2006
|
|||
|
Richard
B. Goodner
|
62
|
Director
|
May
2006
|
|||
|
Charlene
Spoede Budd
|
69
|
Director
|
June
2007
|
|||
|
Chunzhi
Zhang
|
46
|
Director
|
June
2007
|
For
information as to the shares of the Common Stock held by each nominee, see
“Securities Ownership of Certain Beneficial Owners and Management,” which starts
on page 4 of this Proxy Statement.
The
following are biographical summaries for our nominees for election as
directors:
Xiangqian
Li
has
served as the chairman of our Board, our president and chief executive officer
since January 20, 2005. He has been a director of BAK International Limited,
our
Hong Kong incorporated subsidiary, since November 2004. Mr. Li is the founder
and has served as the chairman of the board of Shenzhen BAK Battery Co., Ltd.,
our wholly owned subsidiary (“Shenzhen BAK”), since its inception in August
2001, and served as Shenzhen BAK’s general manager since December 2003. From
June 2001 to June 2003, Mr. Li was the chairman of Huaran Technology Co., Ltd.,
a company incorporated in the People’s Republic of China (“PRC”) that is engaged
in the car audio business. Mr. Li received a bachelor’s degree in thermal energy
and power engineering from the Lanzhou Railway Institute, China and a doctorate
degree in quantitative economics from Jilin University in China.
Huanyu
Mao
has
served as a director of our company since May 12, 2006. He has also served
as
our chief technology officer since January 20, 2005 and as our chief operating
officer since June 30, 2005. Dr. Mao has been the chief scientist of Shenzhen
BAK since September 2004. Prior to joining us, between 1997 and September 2004,
Dr. Mao was the chief technology officer of Tianjin Lishen, a leading battery
manufacturer in China. Dr. Mao pioneered core technologies on lithium-ion
battery before its commercialization in 1992 and was the inventor under seven
U.S. patents relating to lithium-ion technology. Dr. Mao received a doctorate
degree in electrochemistry from Memorial University of Newfoundland, Canada
where he focused on conductive polymers.
Richard
B. Goodner
has
served as our director since May 12, 2006. Since June 2003, Mr. Goodner has
served as the vice president for legal affairs and general counsel for U.S.
Home
Systems, Inc., a public company listed on the Nasdaq National Market. Since
May
2006, Mr. Goodner also has been a director of Winner Medical Group Inc., a
leading Chinese exporter of medical disposal products, which shares are traded
on the Over-the-Counter Bulletin Board in the United States. From 1997 to 2003,
Mr. Goodner was a partner in the law firm of Jackson Walker L.L.P. Mr. Goodner
holds a bachelor of arts degree in economics from Eastern New Mexico University
and a law degree from Southern Methodist University, the United
States.
Charlene
Spoede Budd, PhD,
CPA, CMA, CFM, PMP,
has
served as our director since June 25, 2007. Ms. Budd is Professor Emeritus
of
Accounting at Baylor University, where she was a professor and Emerson O. Henke
Chair of Accounting from 1993 through 2005, and where she has taught graduate
management accounting, graduate project management, and other classes since
1973. She received her PhD in business administration from The University of
Texas-Austin and her MBA and undergraduate degrees from Baylor University.
She
holds certifications as a CPA, CMA, CFM, PMP, and in all six professional
categories of the theory of constraints. Currently, Ms. Budd also serves as
Chair, Business Environment & Content Subcommittee, of the American
Institute of Certified Public Accountants (AICPA) and the Chair, Finance &
Metrics (F&M) Committee of the Theory of Constraints International
Certification Organization (TOC-ICO).
7
Chunzhi
Zhang
has
served as our director since June 25, 2007. Since mid-2005, Mr. Zhang has served
as General Manager of AASTOCKS.com, Ltd., Shenzhen Branch, an online stock
investment service operating in China. From 2003 through mid-2005, Mr. Zhang
served as General Manager of Shenzhen Sharemax Management Co., Ltd, where he
was
involved in brokerage of Hong Kong-listed stocks, asset management and managing
venture capital projects. From 1998 through 2003, Mr. Zhang served as General
Manager of Haixing Security Brokage Co., Ltd, Shenzhen Branch, involved in
securities trading and asset management. Prior to joining Haixing Security
Brokerage, from 1985 through 1996, Mr. Zhang served as Manager for China
Resources Holding Co., Ltd., an import/export company. Mr. Zhang received his
bachelor degree in Economy from Jilin University in 1985.
All
directors will hold office for the terms indicated, or until their earlier
death, resignation, removal or disqualification, and until their respective
successors are duly elected and qualified. There are no arrangements or
understandings between any of the nominees, directors or executive officers
and
any other person pursuant to which any of our nominees, directors or executive
officers have been selected for their respective positions. No nominee, member
of the Board of Directors or executive officer is related to any other nominee,
member of the Board of Directors or executive officer.
No
director, officer or affiliate of the Company, nor to the Company’s knowledge,
any owner of record or beneficially of more than five percent of any class
of
voting securities of the Company or any associate of any of the foregoing,
is a
party adverse to the Company or any of its subsidiaries or has a material
interest adverse to the Company or any of its subsidiaries.
COMMITTEES
OF THE BOARD OF DIRECTORS
Committees
and Meetings
Our
Board
currently has three standing Committees which, pursuant to delegated authority,
perform various duties on behalf of and report to the Board: (i) Audit
Committee, (ii) Compensation Committee and (iii) Nominating and Corporate
Governance Committee. Each of the three standing Committees is comprised
entirely of independent directors as that term is defined under the Nasdaq
listing standards. From time to time, the Board may establish other
committees.
During
the fiscal year ended September 30, 2007, the Board held a total of ten
meetings. Each director attended 100% of the total number of meetings of the
Board and 100% of the meetings of all Committees on which he
served.
Audit
Committee
During
the fiscal year ended September 30, 2007, our Audit Committee originally
consisted of our directors Richard B. Goodner, Joseph R. Mannes and Jay J.
Shi.
Mr. Mannes served as the chair of the Audit Committee and as our Audit Committee
financial expert as that term is defined by the applicable SEC rules. On June
25, 2007, Messrs. Mannes and Shi resigned from the Board, and Charlene Spoede
Budd and Chunzhi Zhang were elected to the Board. Each of Ms. Budd and Mr.
Zhang
were appointed to the Audit Committee, with Ms. Budd replacing Mr. Mannes as
chair of the Audit Committee and as our Audit Committee financial expert. Each
director who has served or is serving on our Audit Committee was or is
“independent” as that term is defined under the Nasdaq listing standards at all
times during their service on such Committee.
The
Audit
Committee oversees our accounting and financial reporting processes and the
audits of the financial statements of our company. During the fiscal year ended
September 30, 2007, the Audit Committee held five meetings. The Audit Committee
is responsible for, among other things:
8
|
·
|
selecting
our independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by our independent
auditors;
|
|
·
|
reviewing
with our independent auditors any audit problems or difficulties
and
management’s response;
|
|
·
|
reviewing
and approving all proposed related-party transactions, as defined
in Item
404 of Regulation S-K under the Securities Act of 1933, as
amended;
|
|
·
|
discussing
the annual audited financial statements with management and our
independent auditors;
|
|
·
|
reviewing
major issues as to the adequacy of our internal controls and any
special
audit steps adopted in light of significant internal control
deficiencies;
|
|
·
|
annually
reviewing and reassessing the adequacy of our Audit Committee
charter;
|
|
·
|
such
other matters that are specifically delegated to our Audit Committee
by
our Board from time to time;
|
|
·
|
meeting
separately and periodically with management and our internal and
independent auditors; and
|
|
·
|
reporting
regularly to the full Board.
|
Compensation
Committee
During
the fiscal year ended September 30, 2007, our Compensation Committee originally
consisted of our directors Richard B. Goodner, Joseph R. Mannes and Jay J.
Shi.
On June 25, 2007, Ms. Budd and Mr. Zhang replaced Messrs. Mannes and Shi on
the
Compensation Committee, with Mr. Zhang replacing Mr. Shi as chair of the
Compensation Committee. Each director who has served or is serving on our
Compensation Committee was or is “independent” as that term is defined under the
Nasdaq listing standards at all times during their service on such
Committee.
Our
Compensation Committee assists the Board in reviewing and approving the
compensation structure of our directors and executive officers, including all
forms of compensation to be provided to our directors and executive officers.
Our chief executive officer may not be present at any Committee meeting during
which his compensation is deliberated. The Compensation Committee is permitted
to delegate its authority in accordance with Nevada law unless prohibited by
the
Company’s by-laws or the Compensation Committee charter. The Compensation
Committee held three meetings during the fiscal year ended September 30,
2007.
The
Compensation Committee is responsible for, among other things:
|
·
|
approving
and overseeing the compensation package for our executive
officers;
|
|
·
|
reviewing
and making recommendations to the Board with respect to the compensation
of our directors;
|
|
·
|
reviewing
and approving corporate goals and objectives relevant to the compensation
of our chief executive officer,
|
|
·
|
evaluating
the performance of our chief executive officer in light of those
goals and
objectives, and setting the compensation level of our chief executive
officer based on this evaluation;
and
|
|
·
|
reviewing
periodically and making recommendations to the Board regarding any
long-term incentive compensation or equity plans, programs or similar
arrangements, annual bonuses, employee pension and welfare benefit
plans.
|
Compensation
Committee Interlocks and Insider Participation
All
current members of the Compensation Committee are independent directors, and
all
past members were independent directors at all times during their service on
such Committee. None of the past or present members of our Compensation
Committee are present or past employees or officers of ours or any of our
subsidiaries. No member of the Compensation Committee has had any relationship
with us requiring disclosure under Item 404 of Regulation S-K under the
Securities Exchange Act of 1934, as amended. None of our executive officers
has
served on the Board or Compensation Committee (or other committee serving an
equivalent function) of any other entity, one of whose executive officers served
on our Board or Compensation Committee.
9
Nominating
and Corporate Governance Committee
During
the fiscal year ended September 30, 2007, our Nominating and Corporate
Governance Committee originally consisted of our directors Richard B. Goodner,
Joseph R. Mannes and Jay J. Shi. On June 25, 2007, Ms. Budd and Mr. Zhang
replaced Messrs. Mannes and Shi on the Nominating and Corporate Governance
Committee. Mr. Goodner continues to serve as chair of this Committee. Each
director who has served or is serving on our Nominating and Corporate Governance
Committee was or is “independent” as that term is defined under the Nasdaq
listing standards at all times during their service on such
Committee.
The
Nominating and Corporate Governance Committee assists the Board in identifying
individuals qualified to become our directors and in determining the composition
of the Board and its committees. The Nominating and Corporate Governance
Committee did not meet separately during the fiscal year ended September 30,
2007. The Nominating and Corporate Governance Committee is responsible for,
among other things:
|
·
|
identifying
and recommending to the Board nominees for election or re-election
to the
Board, or for appointment to fill any
vacancy;
|
|
·
|
reviewing
annually with the Board the current composition of the Board in light
of
the characteristics of independence, age, skills, experience and
availability of service to us;
|
|
·
|
identifying
and recommending to the Board the directors to serve as members of
the
Board’s committees; and
|
|
·
|
monitoring
compliance with our code of business conduct and
ethics.
|
We
recognize that transactions between us and any of our directors or executive
officers can present potential or actual conflicts of interest and create the
appearance that our decisions are based on considerations other than the best
interests of our stockholders. Pursuant to its charter, the Nominating and
Corporate Governance Committee considers and makes recommendations to the Board
with regard to possible conflicts of interest of Board members or management.
The Board then makes a determination as to whether to approve the
transaction.
Code
of Business Conduct and Ethics
We
have
adopted a code of business conduct and ethics relating to the conduct of our
business by our employees, officers and directors. We intend to maintain the
highest standards of ethical business practices and compliance with all laws
and
regulations applicable to our business, including those relating to doing
business outside the United States. During the fiscal year ended September
30,
2007, there were no amendments to or waivers of our Code of Conduct. If we
effect an amendment to, or waiver from, a provision of our Code of Conduct,
we
intend to satisfy our disclosure requirements by posting a description of such
amendment or waiver on our Internet website at www.bak.com.cn
or via a
current report on Form 8-K.
10
REPORT
OF THE AUDIT COMMITTEE
FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 2007
The
Audit
Committee of the Board is comprised of three non-employee Directors, each of
whom has been determined by the Board to be “independent” under the meaning of
Rule 10A-3(b)(1) under the Exchange Act. Ms. Budd, the chair of the Audit
Committee, is an “audit committee financial expert” within the meaning of Item
401(h) of SEC Regulation S-K. The Audit Committee assists the Board’s oversight
of the integrity of the Company’s financial reports, compliance with legal and
regulatory requirements, the qualifications and independence of the Company’s
independent registered public accounting firm, the audit process, and internal
controls. The Audit Committee operates pursuant to a written charter adopted
by
the Board. The Audit Committee is responsible for overseeing the corporate
accounting and financing reporting practices, recommending the selection of
the
Company’s registered public accounting firm, reviewing the extent of non-audit
services to be performed by the auditors, and reviewing the disclosures made
in
the Company’s periodic financial reports. The Audit Committee also reviews and
recommends to the Board that the audited financial statements be included in
the
Company’s Annual Report on Form 10-K.
During
2007, the Audit Committee (1) reviewed and discussed the audited financial
statements for the fiscal year ended September 30, 2007, with Company
management; (2) discussed with the independent auditors the matters required
to
be discussed by SAS 61 (Codification of Statements on Auditing Standards),
as
may be modified or supplemented; and (3) received the written disclosures and
the letter from the independent accountants required by Independence Standards
Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), as may be modified or supplemented, and
has
discussed with the independent accountant its independence.
Based
on
the review and discussions referred to above, the Audit Committee had
recommended to the Board of Directors that the audited financial statements
be
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2007 for filing with the SEC.
|
/s/
The Audit Committee
|
|
Charlene
Spoede Budd, Chair
|
|
Chunzhi
Zhang
|
11
REPORT
OF THE COMPENSATION COMMITTEE
FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 2007
The
compensation of the Company’s executive officers is determined by the
Compensation Committee of the Board. The Committee has three members, each
of
whom is independent of management. None of the members of the Committee has
any
insider or interlocking relationship with the Company, and each of them is
a
non-employee director, as these terms are defined in applicable rules and
regulations of the SEC.
Compensation
Philosophy
The
Company’s executive compensation philosophy is to align the interests of
executive management with shareholder interests and with the Company’s business
strategy and success, through an integrated executive compensation program
that
considers short-term performance, the achievement of long-range strategic goals
and growth in total shareholder value. The key elements of executive
compensation are competitive base salary, annual incentives and equity
participation. The aggregate compensation package is designed to attract and
retain individuals critical to the long-term success of the Company, to motivate
these persons to perform at their highest levels, and to reward exceptional
performance.
Base
Salary
Base
salary levels for executive officers are determined not only on the basis of
the
Committee’s assessment of individual performance, but also on the total
compensation, including salaries, paid by companies engaged in similar
businesses, to persons holding equivalent positions. The Compensation Committee
believes that any increases in base salary should be based upon a favorable
evaluation of individual performance relative to individual goals, the
functioning of the executive’s team within the corporate structure, success in
furthering the corporate strategy and goals, and individual management skills,
responsibilities and anticipated workload.
Apart
from contractual commitments, the Compensation Committee also considers
demonstrated loyalty and commitment and the competitive salaries offered by
similar companies to attract and retain executives. Merit increases for
executives are to be subject to the same budgetary guidelines as apply to any
other employees. In those cases where an executive has entered into an
employment agreement, the base salary is determined pursuant to the terms of
the
agreement, and renewals of contracts will be considered on the basis of the
performance of the individual, the performance of the Company and the
compensation philosophy of the Company.
Bonuses
The
Company may pay bonuses to provide an incentive to executives and to reward
executives based on the overall performance of the Company, as well as on the
performance of each executive officer’s area of responsibility or operating
group. Measures of performance are both financial and strategic. Financial
elements are based on achieving quarterly and annual EBITDA targets and
strategic elements include, but are limited to technological or quality
improvements, improvements in operations and contributions to business success.
The goals are also structured to provide the kinds of objectivity and checks
and
balances required to ensure compliance with SEC regulations and the
Sarbanes-Oxley Act.
Equity
Awards
In
May
2005 the Board approved the Stock Option Plan to expand the number of employees
eligible for equity awards so as to award equity more broadly and deeply
throughout the organization and thus provide additional incentive to employees
to maximize shareholder value. Executives are eligible for equity awards in
the
form of stock options and restricted stock units under the Plan. Awards are
made
at the discretion of the Compensation Committee. The number of shares awarded
to
any individual depends on individual performance, salary level and competitive
data, and the impact that such employee’s productivity may make to shareholder
value over time. In addition, in determining the number of stock options or
restricted stock units granted to each executive, the Compensation Committee
reviews the unvested options and units of each executive to determine the future
benefits potentially available to the executive. The number of options or units
granted will depend in part on the total number of unvested options and units
deemed necessary to provide an incentive to that individual to make a long
term
commitment to remain with the Company. By giving to executives an equity
interest in our company, the value of which depends upon stock performance,
the
policy seeks to further align management and shareholder interests. The
Committee believes that using restricted stock units as part of the overall
equity awards program better aligns the interest of management and shareholders
as restricted stock units closely replicate the economic characteristics of
capital stock.
12
The
Plan
currently authorizes the issuance of up to 4,000,000 shares of Common Stock.
In
September 2006, the Compensation Committee approved the cancellation of options
for 1,400,000 shares of Common Stock previously granted to employees who are
residents of the PRC. In December 2006, a total of 914,994 shares of restricted
stock were granted as replacement awards for the cancelled options to the
employees whose options had been terminated and who continued to be employed
by
the Company at that time. On June 25, 2007, the Compensation Committee approved
the grant of options to purchase 1,501,500 shares of Common Stock to 111
employees. On January 28, 2008, the Compensation Committee also approved the
grant of options to purchase 360,000 shares of Common Stock to three employees:
Dr. Mao, the Company’s Chief Operating Officer and Chief Technology Officer and
a member of the Company’s Board, Mr. Shen, the Company’s Chief Executive Officer
and Secretary, and Mr. Broom, the Company’s Vice President of International OEM
Business. On May 29, 2008, the Compensation Committee approved the grant of
options to purchase a total of 1,250,000 shares of Common Stock to the Company’s
Chief Executive Officer, Mr. Li, and five other employees. Issuance of the
options to Mr. Li and the other five employees is subject to shareholder
approval of the amendment of the Plan to increase the number of shares available
for issuance thereunder.
|
/s/
The Compensation Committee
|
|
Chunzhi
Zhang, Chair
|
|
Charlene
Spoede Budd
|
|
Richard
B. Goodner
|
13
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Exchange Act requires executive officers and directors of the
Company and persons who own more than ten percent of the outstanding Common
Stock to file with the SEC an initial report of ownership on Form 3 and changes
in ownership on Forms 4 and 5. The reporting persons are also required to
furnish the Company with copies of all forms they file.
Based
solely on the review of copies of Forms 3, 4 and 5 furnished to the Company
with
respect to the fiscal year ended September 30, 2007, the Company has determined
that its directors, officers and greater than 10% beneficial owners complied
with all applicable Section 16 filing requirements except as follows: (i) late
Form 4 reports filed by each of Houde Liu and Shuquan Zhang on October 23,
2006
and by Yanlong Zou on October 20, 2006, in each case to report the cancellation
of a stock option grant on September 28, 2006 of 50,000 shares of common stock
pursuant to termination and release agreements entered into between us and
each
of Messrs. Liu, Zhang and Zou; (ii) late Form 3 reports filed by each of Joseph
R. Mannes, Richard B. Goodner and Jay J. Shi on October 25, 2006, in each case
to report his appointment as our director on May 12, 2006; (iii) late Form
4
reports filed by each of Messrs. Mannes, Goodner and Shi on October 25, 2006,
in
each case to report the grant of 5,000 restricted shares of our common stock
pursuant to our Compensation Plan for Nonemployee Directors; (iv) late Form
4
report filed by Xiangqian Li on April 2, 2007, to report the release of
1,089,775 shares of common stock from escrow to investors pursuant to an escrow
agreement between Mr. Li and such investors; (v) late Form 4 reports filed
by
each of Houde Liu, Yanlong Zou, Shuquan Zhang and Yongbin Han on April 2, 2007
to report the grant of 34,142, 34,142, 34,142 and 136,566 shares of restricted
stock, respectively, on December 26, 2006; (vi) late Form 3 report filed by
Zhongyi Deng on April 3, 2007 to report his appointment as our Vice-President
of
Business Development; and (vii) late Form 4 report filed by Mr. Li on June
5, 2008, to report the grant on May 29, 2008, of an option to purchase 1,080,000
shares of Common Stock.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our
PRC
subsidiary, Shenzhen BAK Battery, Co., Ltd. (“Shenzhen BAK”) has several
outstanding short term bank loans, long term bank loans and bills payable to
(i)
Agricultural Bank of China (Longgang/Shenzhen Eastern Branches), (ii) Shenzhen
Ping An Bank (Shuibei Branch), (iii) Shenzhen Development Bank (Longgang
Branch), (iv) China CITIC Bank, (v) Bank of China (Shenzhen Branch) and (vi)
China Development Bank, respectively, the proceeds of which were used primarily
to fund the operations of our manufacturing facility located at the BAK
Industrial Park and for general working capital requirements. At March 31,
2008,
we had aggregate amounts due and payable under these debt arrangements of $187.0
million, including short-term bank loans of $116.8 million, long-term bank
loans
of $8.5 million maturing within one year, long-term bank loans of $31.3 million
maturing in over one year, and bills payable of $30.4 million. The debt
arrangements bear interest at rates ranging from 5.751% to 8.217% per annum
and
have maturity dates ranging from six to forty-eight months. Each loan is
guaranteed by Mr. Li, our director, Chairman, President and Chief Executive
Officer. Mr. Li has also pledged certain of his shares of Common Stock to secure
certain of our indebtedness. Mr. Li did not receive nor is entitled to receive
any consideration for the above referenced guarantees, and we are not
independently obligated to indemnify any of those guarantors for any amounts
paid by them pursuant to any guarantee.
PROPOSAL
2
RATIFICATION
OF SELECTION OF INDEPENDENT AUDITORS
The
Audit
Committee has selected PKF to serve as the independent registered public
accounting firm of the Company for the fiscal year ending September 30, 2008.
We
are
asking our stockholders to ratify the selection of PKF as our independent
registered public accounting firm. Although ratification is not required by
our
bylaws or otherwise, the Board is submitting the selection of PKF to our
stockholders for ratification as a matter of good corporate practice. In the
event our stockholders fail to ratify the appointment by majority of the votes
cast at the Meeting, the Audit Committee may reconsider this
appointment.
14
The
Company has been advised by PKF that neither the firm nor any of its associates
had any relationship with the Company. Representatives of PKF will be available
via teleconference during the Meeting, at which time they may make any statement
they consider appropriate and will respond to appropriate questions raised
at
the Meeting.
Former
Auditors
On
May
15, 2006, the Company changed its independent registered public accounting
firm
from Schwartz Levitsky Feldman LLP (“SLF”) to KPMG. On July 7, 2006, the Board,
acting upon the recommendation of the Audit Committee, ratified and authorized
the appointment of KPMG as the Company’s independent registered public
accounting firm for the fiscal year ending September 30, 2006. Subsequently,
effective April 1, 2007, the Board dismissed KPMG and authorized the appointment
of PKF as the Company’s independent registered public accounting firm for the
fiscal year ending September 30, 2007.
For
the
fiscal years ended September 30, 2005 and 2006, the Company’s principal
accountants’ report on the Company’s financial statements did not contain any
adverse opinion or disclaimer of opinion, nor was it qualified or modified
as to
uncertainty, audit scope or accounting principles, except as follows: KPMG’s
audit report, dated December 8, 2006, on the consolidated financial statements
of the Company and its subsidiaries (the “Group”) as of and for the years ended
September 30, 2006 and 2005, contained a separate paragraph stating that “As
discussed in note 2(q) to the consolidated financial statements, on October
1,
2005, the Group adopted Statement of Financial Accounting Standards (‘SFAS’)
No.123 (Revised 2004), “Share-Based Payment,” using the modified prospective
method, representing a change in the Group’s method of accounting for
stock-based compensation.” The audit report, dated August 22, 2006, of KPMG on
the consolidated financial statements of the Group as of September 30, 2005
and
2004 and for the three-year period ended September 30, 2005, which was included
in Amendment No. 3 to our Form 10-KSB/A for the fiscal year ended September
30,
2005, did not contain an adverse opinion or disclaimer of opinion, and was
not
qualified or modified as to uncertainty, audit scope or accounting principles,
except as follows: KPMG’s report contained a separate paragraph stating that “As
described in Note 3 to the accompanying consolidated financial statements,
the
Company has restated the consolidated balance sheets as of September 30, 2004
and 2005 and the related consolidated statements of income and comprehensive
income, and cash flows for each of the years in the three-year period ended
September 30, 2005, which were previously audited by other independent
accountants, to correct certain accounting errors that were detected after
the
original issuance of those consolidated financial statements.” The audit report
of KPMG on management’s assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control over financial
reporting as of September 30, 2006, which is included in our Annual Report
on
Form 10-K for the fiscal year ended September 30, 2006 (the “2006 Form 10-K”),
did not contain any adverse opinion or disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles,
except that KPMG’s report indicates that the Group did not maintain effective
internal control over financial reporting as of September 30, 2006, because
of
the effect of material weaknesses, including those set forth below, described
in
such report and elsewhere in the 2006 Form 10-K.
During
the fiscal years ended September 30, 2005 and 2006, there were no disagreements
with the Company’s former accountants on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to such former accountant’s satisfaction, would have caused such
former accountant to make reference in connection with their opinion to the
subject matter of the disagreement. During the fiscal years ended September
30,
2005 and 2006, there were no “reportable events,” as such term is defined in
Item 304(a)(1)(v) of Regulation S-K, except that KPMG advised the Group of
certain material weakness in its internal controls over financial reporting,
which were reported by the Company under Item 9A. “Controls and Procedures” of
the 2006 Form 10-K, to the effect that the Company had an insufficient
complement of personnel, including in senior management, with a level of
accounting knowledge, experience and training in the application of U.S. GAAP
and did not implement adequate supervisory review to ensure that the
consolidated financial statements were prepared in conformity with U.S. GAAP.
The lack of sufficient personnel with such accounting knowledge, experience
and
training contributed to the following material weaknesses in the Group’s (i)
accounting for capitalization of interest costs, and the related recognition
of
property, plant and equipment and depreciation expense; (ii) accounting for
deferred taxes under U.S. GAAP, in particular the identification and measurement
of differences between the respective tax and financial reporting bases of
certain assets and liabilities and the determination of the applicable income
tax rate to ensure that deferred taxes were accurately presented in the Group’s
consolidated financial statements; (iii) accounting for the share-based
compensation, in particular the accounting for cancellation and replacement
of
certain option grants and the classification of the associated share-based
compensation expense in the consolidated statement of income and comprehensive
income; (iv) the calculation of earnings per share in accordance with Statement
of Financial Accounting Standards No. 128 “Earnings per Share,” in particular
the identification of dilutive instruments in the calculation of diluted
earnings per share; (v) accounting for the complete and accurate recognition
of
construction in progress assets; and (vi) accounting for construction in
progress assets and the determination of depreciation expense when the assets
are ready for their intended use.
15
Both
KPMG
and SLF were provided copies of the disclosures contained above.
Independent
Registered Public Accounting Firm’s Fees
SLF
and
KPMG performed services for us in fiscal year ended September 30, 2006, and
KPMG
and PKF performed services for us in fiscal year ended September 30, 2007,
related to financial statement audit work, quarterly reviews, audit of internal
control over financial reporting and registration statements. Fees paid or
payable to SLF, KPMG and PKF in fiscal years 2007 and 2006 were as follows:
|
2007
|
2006
|
||||||
|
Audit
fees
|
$
|
223,630
|
$
|
935,826
|
|||
|
Audit-related
fees
|
24,375
|
9,342
|
|||||
|
Tax
fees
|
—
|
—
|
|||||
|
All
other fees
|
—
|
—
|
|||||
|
Total
|
$
|
248,005
|
$
|
945,168
|
|||
Pre-Approval
Policies and Procedures
Under
the
Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by
our
auditors must be approved in advance by our Audit Committee to assure that
such
services do not impair the auditors’ independence from us. In accordance with
its policies and procedures, our Audit Committee pre-approved the audit service
performed by KPMG and PKF for our consolidated financial statements as of
and
for the year ended September 30, 2007, and our internal control over financial
reporting as of September 30, 2007.
The
Board of Directors recommends a vote FOR ratification of the selection of
PKF as
the Company’s independent registered public accounting firm for the fiscal year
ending September 30, 2008.
16
PROPOSAL
3
APPROVAL
OF AMENDMENT OF THE COMPANY’S STOCK OPTION PLAN
Background
In
May
2005, the Board adopted the China BAK Battery, Inc. Stock Option Plan. The
Plan
provides for equity-based awards to employees, non-employee directors, and
certain non-employee advisors of the Company. The Company may grant stock
options and restricted Common Stock to eligible participants under the Plan.
The
maximum number of shares of Common Stock issuable under the Plan is 4 million
shares. As of June 1, 2008, options to purchase approximately 2.2 million
shares
of Common Stock and 0.8 million shares of restricted stock had been granted
under the Plan. Accordingly, of the 4 million shares of Common Stock available
for issuance under the Incentive Plan, as of June 1, 2008, approximately
1.0
million shares remained available for issuance pursuant to future awards.
In
addition, we are amending the definition of “Fair Market Value” in accordance
with the requirements of Section 409A (“Section 409A”) of the U.S. Tax Code of
1985, as amended (the “Code”).
The
Proposal
The
Board
of Directors has unanimously adopted a resolution declaring it advisable
to
increase the number of shares of Common Stock available for grants under
the
Plan by 4 million shares. The additional 4 million shares of Common Stock
would
be available for all types of awards authorized under the Plan. In connection
with the increase, Section 1.7 of the Plan will be amended to delete the
provision that, when an option is exercised in whole or in part, the number
of
shares of Common Stock then available for issuance under the Plan would be
increased by a number of shares equal to the number of shares to which the
exercise relates.
In
addition, we are amending the definition of “Fair Market Value” under the Plan
to provide that options granted to U.S. taxpayers be priced at grant date
closing price of our Common Stock.
Reasons
for the Amendment
The
amendment to increase the number of shares available for grants would permit
the
Company to continue to grant equity awards to its employees, directors and
agents under the Plan, as amended (the “Amended Plan”). The continued success of
the Company depends on its ability to attract and retain directors and employees
who are highly qualified and motivated. The Board believes that the Amended
Plan
promotes this objective by giving participants an opportunity to share in
the
success of the Company through equity ownership. The Amended Plan also is
designed to create an identity of interests between the Company’s directors and
employees and its stockholders by providing participants with appropriate
incentives to build stockholder value.
Equity
compensation is an important component of employees’ compensation package,
particularly for the Company’s management. Most of the Company’s senior
executives received annual salaries in 2007 of less than $40,000, so that
the
equity compensation component is particularly important to the Company’s ability
to attract, retain and motivate qualified senior management.
Finally,
the Plan must be brought into compliance with Code Section 409A by January
1,
2009. Accordingly, the Board has approved an amendment to the definition
of
“Fair Market Value” under Plan to require that options granted under the Plan to
U.S. taxpayers be priced at the grant date closing price of our Common
Stock.
17
Summary
of the Amended Stock Option Plan
Below
is
a summary of the principal provisions of the Amended Plan, which summary
is
qualified in its entirety by reference to the full text of the Amendment,
which
is attached as Appendix A to this Proxy Statement, and the Plan, which is
attached as Appendix B to this Proxy Statement. The Amended Plan is identical
to
the Plan, except for the increase in the number of shares that may be issued
under the Amended Plan and the amendments to Section 1.7 and the definition
of
Fair Market Value described above. All
terms used in the Summary but not defined herein have the meanings assigned
to
such terms in the Amended Plan.
Purpose.
The
purpose of the Amended Plan is to promote the growth and general prosperity
of
the Company by permitting the Company to grant options to purchase Common
Stock
and restricted Common Stock of the Company to key employees, nonemployee
directors, and advisors. The Amended Plan is designed to help the Company
and
its subsidiaries and affiliates attract and retain superior personnel for
positions of substantial responsibility and to provide key employees,
nonemployee directors, and advisors with an additional incentive to contribute
to the success of the Company.
Options
and Stock Granted Under the Amended Plan.
If
an
option terminates without being wholly exercised, new options may be granted
hereunder covering the number of Amended Plan Shares to which such option
termination relates.
Eligibility.
Employees, nonemployee directors and advisors (individuals who are neither
employees nor directors who perform substantial bona fide services to the
Company) are eligible to participate in the Plan.
Administration.
Administration of the Amended Plan is charged to a committee or committees
appointed by the Board (the “Committee”). The Compensation Committee of the
Board currently serves as the Committee of the Plan. The Committee has sole
discretion and authority to determine which participants shall be granted
options or restricted shares and the terms of such grants, to interpret the
Amended Plan and any option or restricted stock agreement, to prescribe,
amend
and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, to modify or amend any option or restricted stock
agreement or waive any conditions or restrictions applicable to any options
(or
the exercise thereof) or restricted stock, and to make all other determinations
necessary or advisable for the administration of the Plan.
Limitation
on Issuances of Amended Plan Shares.
The
maximum aggregate number of shares of Common Stock which may be issued under
the
Amended Plan shall during any given calendar year not exceed 5% of the total
outstanding shares of the Company’s Common Stock during such calendar
year.
Restricted
Stock.
The
Committee shall have sole and complete authority to determine to whom shares
of
restricted stock shall be granted, the number of shares of restricted stock
to
be granted to each participant, the duration of the period during which,
and the
conditions under which, the restricted stock may be forfeited to the Company,
and the other terms and conditions of such restricted stock. Dividends and
other
distributions paid on or in respect of any shares of restricted stock may
be
paid directly to the participant, or may be reinvested in additional shares
of
restricted stock as determined by the Committee in its sole
discretion.
Adjustments
Upon Changes in Capitalization. If
the
outstanding Common Stock is increased, decreased, changed into, or exchanged
for
a different number or kind of shares or securities through merger,
consolidation, combination, exchange of shares, other reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock
split or any other increase, or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company (but
not
including conversion of convertible securities issued by the Company), an
appropriate and proportionate adjustment shall be made in the maximum number
and
kind of shares as to which options may be granted under the Plan. A
corresponding adjustment changing the number or kind of shares allocated
to
unexercised options or portions thereof that shall have been granted prior
to
any such change shall likewise be made. Any such adjustment in outstanding
options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the options, but with a corresponding adjustment
in the price for each share covered by the options.
Amendment
and Termination. The
Amended Plan shall terminate on May 17, 2055, unless provided otherwise in
an
agreement between the Company and an optionee with respect to one or more
options. No option shall be granted under the Amended Plan after the date
of
termination. The Committee may at any time amend or revise the terms of the
Plan, including the form and substance of option agreements to be used in
connection herewith; provided that no amendment or revision may be made without
the approval of the stockholders of the Company if such approval is required
under applicable law or rule. No amendment, suspension or termination of
the
Amended Plan shall, without the consent of the individual who has received
an
option, alter or impair any of that individual’s rights or obligations under any
option granted under the Amended Plan prior to that amendment, suspension
or
termination.
18
Purchase
Price.
The
purchase price for shares acquired pursuant to the exercise, in whole or
in
part, of any option shall not be less than fair market value at the time
of the
grant of the option, where “fair market value” means such value as determined by
the Committee on the basis of such factors as it deems appropriate on the
basis
of the reported sales prices for the Common Stock over a ten business day
period
ending on the date for which such determination is relevant, as reported
on the
Nasdaq National Market System; provided that, with respect to U.S. taxpayers,
“fair market value” shall mean the closing price of the Common Stock as reported
on the Nasdaq National Market System on the date of grant or, if the Common
Stock is not listed, the average of the bid and asked priced of the Common
Stock
on the date of grant.
Effect
of Optionees’ Rights Upon Termination of Employment or Service with the Company.
In
the
event an optionee ceases to be an employee, nonemployee director or advisor
for
any reason other than death, permanent disability or misconduct, unless provided
in an option agreement or in connection with a corporate transaction (described
below), then, the unvested portion of such optionee’s option shall terminate
immediately and cease to remain outstanding and the vested portion shall
immediately terminate at the beginning of the 31st day following termination
of
optionee’s service.
Effect
of Optionees’ Rights Upon Death, Permanent Disability or
Misconduct.
In the
event an optionee ceases to serve as an employee, nonemployee director or
advisor due to death, permanent disability or misconduct, the optionee’s options
may be exercised as follows:
Death.
Except
as
otherwise limited by the Committee at the time of the grant of an option,
if an
optionee dies while serving as, or within three months after ceasing to be,
an
employee, nonemployee director or advisor, his or her option shall become
fully
exercisable on the date of his or her death and shall expire 12 months
thereafter, unless by its terms it expires sooner or unless the Committee
agrees, in its sole discretion, to further extend the term of such option.
Disability.
If
an
optionee ceases to serve as an employee, nonemployee director or advisor
as a
result of permanent disability, his or her option shall become fully exercisable
and shall expire 12 months thereafter, unless by its terms it expires sooner
or,
unless the Committee agrees, in its sole discretion, to extend the term of
such
option.
Misconduct.
Should
the optionee cease to be an employee, nonemployee director or advisor because
of
misconduct, his or her option, whether vested or unvested, shall terminate
immediately.
Corporate
Transactions. In
the
event of any Corporate Transaction (defined below), each outstanding option
shall automatically accelerate so that each such option shall, immediately
prior
to the effective date of Corporate Transaction, become fully exercisable.
However, an outstanding option shall not so accelerate if: (i) such option
is either to be assumed by the successor corporation (or parent thereof)
or to
be replaced with a comparable option to purchase shares of the capital stock
of
the successor corporation (or parent thereof), (ii) such option is to be
replaced with a cash incentive program of the successor corporation or
(iii) the acceleration of such option is subject to other limitations
imposed by the Committee at the time of the option grant.
A
“Corporation Transaction” is defined under the Amended
Plan as
either
of the following stockholder-approved transactions to which the Company is
a
party: (i) a merger or consolidation in which securities possessing more
than
50% of the total combined voting power of the Company’s outstanding securities
are transferred to a person or person different from the persons holding
those
securities immediately prior to such transaction or (ii.) the sale, transfer
or
other disposition of all or substantially all of the Company’s assets in
complete liquidation or dissolution of the Company.
Immediately
following the consummation of the Corporate Transaction, all outstanding
Options
shall terminate and cease to be outstanding, except to the extent assumed
by the
successor corporation (or parent thereof) as provided in Section VII of the
Plan. The Committee shall have the discretion (i) to provide that any options
which are assumed or replaced in the Corporate Transaction and do not otherwise
accelerate at that time shall automatically accelerate in the event the
optionee’s service should subsequently terminate by reason of an involuntary
termination within 18 months following the effective date of such Corporate
Transaction and (ii) to provide for the automatic acceleration of one or
more
outstanding options upon the occurrence of a Corporate Transaction, whether
or
not those options are to be assumed or replaced in the Corporation Transaction.
19
Dissolution
or Liquidation.
In the
event of the proposed dissolution or liquidation of the Company, the Committee
shall notify each Optionee as soon as practicable prior to the effective
date of
such proposed transaction. The Committee in its discretion may provide for
an
Optionee to have the right to exercise his or her Option until ten
(10) days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In addition, the Committee may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an
Option
shall lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
Equity
Compensation Plan Information
|
|
Number of
securities to
be issued
upon exercise
of
outstanding
options,
restricted
stock,
warrants and
rights
(a)
|
Weighted-
average
exercise
price
of
outstanding
options,
restricted
stock
warrants
rights
(b)
|
Number of
securities
remaining
available
for future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
|
|||||||
|
|
||||||||||
|
Equity
compensation plans approved by security holders
|
2,997,840
|
(1)
|
$
|
4.59
|
1,002,160
|
(2)
|
||||
|
Equity
compensation plans not approved by security holders(3)
|
1,250,000
|
4.18
|
—
|
|||||||
|
|
||||||||||
|
Total
|
4,247,840
|
(1)
|
$
|
4.47
|
1,002,160
|
(1)
|
||||
|
(1)
|
The
Company granted options to purchase a total of 2,000,000 shares
of common
stock in May 2005. Of these options, options in respect of 170,000
shares
of common stock were cancelled as of October 1, 2005. In the fiscal
quarter ended September 30, 2007, options to purchase 30,000 shares
of
Common Stock were cancelled. In each case, the holders of the options
terminated their employment with the Company. On September 22,
2006, the
Compensation Committee approved the form of termination and release
agreement for cancellation of 1,400,000 shares of stock options
granted to
the optionees who are residents of the PRC. The Compensation Committee
also consented to adopt the terms and provisions for Restricted
Stock
Grant Agreement for the issuance of restricted shares and agreed
to meet
during the first quarter of fiscal year 2007 to determine an appropriate
number of shares of restricted stock that will be granted to these
optionees under the Plan (“the Replacement Awards”). Fair value of the
Replacement Awards granted to each optionee approximated that of
the stock
options given up by each optionee. The Replacement Awards are classified
as liability-classified awards until such time that the number
of shares
is determined. On September 28, 2006, options to purchase a total
of
1,400,000 shares of our common stock were cancelled pursuant to
termination and release agreements signed on that day. On December
26,
2006, pursuant to the restricted stock grant agreements signed
between the
Company and the respective optionees and based on the closing market
price
of the Company’s listed common stock on that day, a total of 914,994
shares of restricted stock were granted as Replacement Awards to
the
employees who gave up their stock options and continued to be employed
by
the Company on that date pursuant to restricted stock grant agreements.
The fair value of the Replacement Awards granted to each optionee
approximated that of such employee’s terminated stock options. The
Compensation Committee ratified such grants on January 15, 2007.
On June
25, 2007, the Company issued 1,501,500 options to 111 employees
pursuant
to the Plan. In accordance with the vesting provisions of the grants,
the
options will become vested and exercisable during the period from
June 30,
2007 to February 9, 2012 according to each employee’s respective
agreement. On January 28, 2008, the Compensation Committee approved
the
grant of 360,000 options to three employees: Dr. Mao, the Company’s Chief
Operating Officer and Chief Technology Officer and a member of
the
Company’s Board, Mr. Shen, the Company’s Chief Executive Officer and
Secretary, and Mr. Broom, the Company’s Vice President of International
OEM Business. In accordance with the vesting provisions of the
grants, the
options will become vested and exercisable during the period from
April
28, 2008 to January 28, 2011 according to each of the employee’s
agreements respectively.
|
20
|
(2)
|
The
Company is seeking stockholder approval to increase the number
of shares
of Common Stock available for future issuance under the Plan by
4 million
shares. If stockholder approval is obtained, this number would
be
3,752,160, which amount would reflect an increase by 4 million
shares, and
a reduction of 1,250,000 due to the issuance of the options to
purchase
1,250,000 shares which are currently reflected in the table under
the row
entitled “Equity compensation plans not approved by security
holders.”
|
|
(3)
|
On
May 29, 2008, the Compensation Committee approved the grant of
options to
purchase a total of 1,250,000 shares of Common Stock to the Company’s
Chief Executive Officer, Mr. Li, and five other employees. Issuance
of the
options to Mr. Li and the other five employees is subject to stockholder
approval of the amendment of the Plan to increase the number of
shares
available for issuance thereunder.
|
Recommendation
of the Board of Directors
The
Board
recommends that the stockholders vote “FOR” the amendment to the Plan to (i)
increase by 4 million the number of shares of Common Stock available for
awards
under the Plan and the related amendment to Section 1.7 of the Plan and
(ii) amend the definition of “Fair Market Value” in accordance with the
requirements of Code Section 409A.
GENERAL
At
the
date of this Proxy Statement, management is not aware of any matters to be
presented for action at the meeting other than those described above. However,
if any other matters should come before the Annual Meeting, it is the intention
of the persons named in the accompanying proxy to vote such proxy in accordance
with their judgment on such matters.
STOCKHOLDER
COMMUNICATIONS
The
Company has a process for stockholders who wish to communicate with the Board
of
Directors. Stockholders who wish to communicate with the Board may write
to it
at the Company’s address given above. These communications will be reviewed by
one or more employees of the Company designated by the Board, who will determine
whether they should be presented to the Board. The purpose of this screening
is
to allow the Board to avoid having to consider irrelevant or inappropriate
communications.
STOCKHOLDER
PROPOSALS FOR THE 2009 ANNUAL MEETING
If
you
wish to have a proposal included in our proxy statement for next year’s annual
meeting in accordance with Rule 14a-8 under the Exchange Act, your proposal
must
be received by the Secretary of the Company at BAK Industrial Park, No. 1
BAK
Street Kuichong Town, Longgang District, Shenzhen 518119, People’s Republic of
China, no later than the close of business on January 29, 2009. A proposal
which
is received after that date or which otherwise fails to meet the requirements
for stockholder proposals established by the SEC will not be included. The
submission of a stockholder proposal does not guarantee that it will be included
in the proxy statement.
21
ANNUAL
REPORT ON FORM 10-K
We
will
provide without charge to each person solicited by this Proxy Statement,
on the
written request of such person, a copy of our Annual Report on Form 10-K,
including the financial statements and financial statement schedules, as
filed
with the SEC for our most recent fiscal year. Such written requests should
be
directed to the Secretary of the Company, at our address listed on the top
of
page one of this Proxy Statement. A copy of our Annual Report on Form 10-K
is
also made available on our website at www.bak.com.cn after it is filed with
the
SEC.
OTHER
MATTERS
As
of the
date of this Proxy Statement, the Board of Directors has no knowledge of
any
business which will be presented for consideration at the Meeting other than
the
election of directors and the ratification of the appointment of the accountants
of the Company. Should any other matters be properly presented, it is intended
that the enclosed proxy will be voted in accordance with the best judgment
of
the persons voting the proxies.
|
July
3, 2008
|
By
Order of the Board of Directors
|
|
|
/s/
Tony Shen
|
||
|
Secretary
|
||
22
Appendix
A
Amendment
No. 1 to
China
BAK
Battery, Inc. Stock Option Plan
AMENDMENT
NO. 1 TO THE
CHINA
BAK BATTERY INC.
STOCK
OPTION PLAN
WHEREAS,
China BAK Battery, Inc. (the “Company”) maintains the China BAK Battery, Inc.
Stock Option Plan; and
WHEREAS,
the Compensation Committee of the Board of Directors of the Company has been
appointed as the Committee under the Plan; and
WHEREAS,
Article 5.1 of the Plan provides that the Committee may amend the Plan, subject
to stockholder approval of such amendment if such approval is required under
applicable law; and
WHEREAS,
the Committee now desires to amend the Plan to, among other things, increase
the
number of shares of Common Stock issuable under the Plan from 4,000,000 shares
to 8,000,000 shares;
NOW,
THEREFORE, the Plan is hereby amended as follows:
FIRST:
Section
1.6 of the Plan is amended to read in its entirety:
1.6 Maximum
Number of Plan Shares.
Subject
to adjustment pursuant to the provisions of Section 5.2, and subject to any
additional restrictions elsewhere in the Plan, the maximum aggregate number
of
shares of Common Stock that may be issued and sold hereunder shall be 8,000,000.
Notwithstanding the foregoing, the maximum aggregate number of shares of
Company
Common Stock which may be issued under the Plan shall during any given calendar
year not exceed 5% of the total outstanding shares of Company Common Stock
during such calendar year.
SECOND:
The
second sentence of Section 1.7 of the Plan is deleted such that Section 1.7
is
amended to read in its entirety:
1.7 Options
and Stock Granted Under Plan.
If an
Option terminates without being wholly exercised, new Options may be granted
hereunder covering the number of Plan Shares to which such Option termination
relates.
THIRD:
The
definition of “Fair Market Value” as set forth in Section 8.14 of the Plan shall
be amended (i) to add at the phrase “; provided further
that,
with respect to any Optionee that is a U.S. taxpayer, Fair Market Value shall
mean the closing price of the Common Stock as reported on such national
securities exchange or the Nasdaq National Market System on the date of the
applicable grant” the end of the first sentence of such definition, after “as
the case may be” and immediately before the period and (ii) to add at the phrase
“; provided
that,
with respect to any Optionee that is a U.S. taxpayer, Fair Market Value shall
equal the mean between the closing bid and asked quotations for such stock
on
the date of the applicable grant (as reported by a recognized stock quotation
service) or, in the event that there shall be no bid or asked quotations
on the
date of the applicable grant, then on the date nearest preceding such grant
date
for which such bid and asked quotations are available” the end of the second
sentence of such definition, after “were available” and immediately before the
period, such that Section 8.14 shall read in its entirety as
follows:
23
8.14 “Fair
Market Value” means such value as determined by the Committee on the basis of
such factors as it deems appropriate; provided
that if
the Common Stock is traded on a national securities exchange or transactions
in
the Common Stock are quoted on the Nasdaq National Market System, such value
as
shall be determined by the Committee on the basis of the reported sales prices
for the Common Stock over a ten business day period ending on the date for
which
such determination is relevant, as reported on the national securities exchange
or the Nasdaq National Market System, as the case may be; provided further
that,
with respect to any Optionee that is a U.S. taxpayer, Fair Market Value shall
equal the closing price of the Common Stock as reported on such national
securities exchange or the Nasdaq National Market System on the date of the
applicable grant. If the Common Stock is not listed and traded upon a recognized
securities exchange or on the Nasdaq National Market System, the Committee
shall
make a determination of Fair Market Value on a reasonable basis, which may
include the mean between the closing bid and asked quotations for such stock
on
the date for which such determination is relevant (as reported by a recognized
stock quotation service) or, in the event that there shall be no bid or asked
quotations on the date for which such determination is relevant, then on
the
basis of the mean between the closing bid and asked quotations on the date
nearest preceding the date for which such determination is relevant for which
such bid and asked quotations were available; provided
that,
with respect to any Optionee that is a U.S. taxpayer, Fair Market Value shall
equal the mean between the closing bid and asked quotations for such stock
on
the date of the applicable grant (as reported by a recognized stock quotation
service) or, in the event that there shall be no bid or asked quotations
on the
date of the applicable grant, then on the date nearest preceding such grant
date
for which such bid and asked quotations are available.
FOURTH:
Except
as provided above, the Plan shall continue in full force and
effect.
FIFTH:
Any
capitalized term used herein, but not defined herein, shall have the meaning
ascribed to such term in the Plan.
SIXTH:
This
Amendment No. 1 to the Plan is subject to the approval of the stockholders
of
the Company and shall become effective upon such approval.
24
Appendix
B
China
BAK
Battery, Inc. Stock Option Plan
CHINA
BAK BATTERY, INC.
STOCK
OPTION PLAN
ARTICLE
I.
THE
PLAN
1.1 Name.
This
Plan shall be known as the “China BAK Battery, Inc. Stock Option
Plan.” Capitalized terms used herein are defined in Article VII hereof.
1.2 Purpose.
The
purpose of the Plan is to promote the growth and general prosperity of the
Company by permitting the Company to grant Options to purchase Common Stock
and
Restricted Stock of the Company to key Employees, Nonemployee Directors,
and
Advisors. The Plan is designed to help the Company and its subsidiaries and
affiliates attract and retain superior personnel for positions of substantial
responsibility and to provide key Employees, Nonemployee Directors, and Advisors
with an additional incentive to contribute to the success of the
Company.
This
Plan
is intended to comply with Section 409A of the Internal Revenue Code of 1986,
as
amended (the “Code”), and any regulatory or other guidance issued under such
section. At the Effective Date of the Plan, additional guidance had yet to
be
promulgated by the Department of Treasury. Any terms of the Plan that
conflict with such guidance shall be null and void as of the Effective Date.
After such additional guidance is issued, the intent is to amend the Plan
to
delete any conflicting provisions and to add such other provisions as are
required to fully comply with Section 409A and any other legislative or
regulatory requirements applicable to the Plan. The Plan is also intended
to
comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as
amended from time to time, or any successor provision thereto (“Rule 16b-3”),
and shall be construed to so comply. With respect to any restriction in the
Plan
that is based on the requirements of Rule 16b-3 or the rules of any exchange
upon which the Company’s securities are listed or automated quotation system
upon which the Company’s securities are quoted, or any other applicable law,
rule or restriction, to the extent that any such restriction is no longer
required, the Committee shall have the sole discretion and authority to remove
such restrictions from the Plan and/or to waive them.
1.3 Effective
Date.
The Plan
shall become effective upon the Effective Date.
1.4 Eligibility
to Participate.
Any key
Employee, Nonemployee Director, or Advisor shall be eligible to participate
in
the Plan. Subject to the provisions of this Plan, the Committee may grant
Options in accordance with such determinations as the Committee shall make
from
time to time in its sole discretion.
1.5 Shares
Subject to the Plan.
The
shares of Common Stock to be issued pursuant to the Plan shall be either
authorized and unissued shares of Common Stock or shares of Common Stock
issued
and thereafter acquired by the Company.
1.6 Maximum
Number of Plan Shares.
Subject
to adjustment pursuant to the provisions of Section 5.2, and subject to any
additional restrictions elsewhere in the Plan, the maximum aggregate number
of
shares of Common Stock that may be issued and sold hereunder shall be 4,000,000.
Notwithstanding the foregoing, the maximum aggregate number of shares of
Company
Common Stock which may be issued under the Plan shall during any given calendar
year not exceed 5% of the total outstanding shares of Company Common Stock
during such calendar year.
1.7 Options
and Stock Granted Under Plan.
If an
Option terminates without being wholly exercised, new Options may be granted
hereunder covering the number of Plan Shares to which such Option termination
relates. Moreover, when an Option is exercised in whole or in part, the number
of Plan Shares then available for issuance hereunder shall be increased by
a
number of shares equal to the number of Plan Shares to which the exercise
relates.
25
1.8 Conditions
Precedent.
The
Company shall not issue any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:
(a) The
admission of the Plan Shares to listing on all stock exchanges on which the
Common Stock is then listed, unless the Committee determines in its sole
discretion that such listing is neither necessary nor advisable;
(b) The
completion of any registration or other qualification of the offer or sale
of
the Plan Shares under any federal or state law or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body that the Committee shall in its sole discretion deem necessary
or advisable; and
(c) The
obtaining of any approval or other clearance from stockholders of the Company
and any federal or state governmental agency that the Committee shall in
its
sole discretion determine to be necessary or advisable.
1.9 Reservation
of Shares of Common Stock.
During
the term of the Plan, the Company shall at all times reserve and keep available
such number of shares of Common Stock as shall be necessary to satisfy the
requirements of the Plan as to the number of Plan Shares. In addition, the
Company shall from time to time, as is necessary to accomplish the purposes
of
the Plan, seek or obtain from any regulatory agency having jurisdiction any
requisite authority that is necessary to issue Plan Shares hereunder. The
inability of the Company to obtain from any regulatory agency having
jurisdiction the authority deemed by the Company’s counsel to be necessary to
the lawful issuance of any Plan Shares shall relieve the Company of any
liability in respect of the nonissuance of Plan Shares as to which the requisite
authority shall not have been obtained.
1.10 Tax
Withholding.
(a) Condition
Precedent.
The
issuance of Plan Shares is subject to the condition that if at any time the
Committee shall determine, in its discretion, that the satisfaction of
withholding tax or other withholding liabilities under any federal, state
or
local law is necessary or desirable as a condition of, or in connection with,
such issuances, then the issuances shall not be effective unless the withholding
shall have been effected or obtained in a manner acceptable to the Committee.
(b) Manner
of Satisfying Withholding Obligation.
When a
participant is required by the Committee to pay to the Company an amount
required to be withheld under applicable income tax laws in connection with
the
exercise of an Option, such payment may be made (i) in cash, (ii) by
check, (iii) if permitted by the Committee, by delivery to the Company of
shares of Common Stock already owned by the participant having a Fair Market
Value on the Tax Date equal to the amount required to be withheld, (iv) if
permitted by the Committee, through the withholding by the Company of a portion
of the Plan Shares acquired upon the exercise of the Options (if applicable)
having a Fair Market Value on the Tax Date equal to the amount required to
be
withheld, or (v) in any other form of valid consideration, as permitted by
the Committee in its discretion.
1.11 Exercise
of Options.
(a) Method
of Exercise.
Each
Option shall be exercisable in accordance with the terms of the Option Agreement
pursuant to which the Option was granted. No Option may be exercised for
a
fraction of a Plan Share.
(b) Payment
of Purchase Price.
The
purchase price of any Plan Shares purchased shall be paid at the time of
exercise of the Option either (i) in cash, (ii) by certified or
cashier’s check, (iii) if permitted by the Committee, by shares of Common
Stock so long as the participant has not acquired the Common Stock from the
Company within six (6) months prior to the date of exercise, (iv) if
permitted by the Committee, by cash or certified or cashier’s check for the par
value of the Plan Shares plus a promissory note for the balance of the purchase
price, which note shall provide for full personal liability of the maker
and
shall contain such terms and provisions as the Committee may determine,
including without limitation the right to repay the note partially or wholly
with Common Stock, (v) if approved by the Committee, in accordance with a
cashless exercise program under which either (A) if so instructed by the
participant, Plan Shares may be issued directly to the participant’s broker or
dealer upon receipt of the purchase price in cash from the broker or dealer,
or
(B) Plan Shares may be issued by the Company to a participant’s broker or
dealer in consideration of such broker’s or dealer’s irrevocable commitment to
pay to the Company that portion of the proceeds from the sale of such Plan
Shares that is equal to the exercise price of the Option(s) relating to such
Plan Shares, or (vi) in any other form of valid consideration, as permitted
by the Committee in its discretion. If any portion of the purchase price or
a note given at the time of exercise is paid in shares of Common Stock, those
shares shall be valued at the then Fair Market Value.
26
1.12 Written
Notice Required.
Any
Option shall be deemed to be exercised for purposes of the Plan when written
notice of exercise has been received by the Company at its principal office
from
the person entitled to exercise the Option and payment for the Plan Shares
with
respect to which the Option is exercised has been received by the Company
in
accordance with Section 1.11.
1.13 Compliance
with Securities Laws.
Plan
Shares shall not be issued with respect to any Option unless the issuance
and
delivery of the Plan Shares and the exercise of an Option shall comply with
all
relevant provisions of state and federal law (including without limitation
(i) the Securities Act and the rules and regulations promulgated
thereunder, and (ii) the requirements of any stock exchange upon which the
Plan Shares may then be listed) and shall be further subject to the approval
of
counsel for the Company with respect to such compliance. The Committee may
also
require a participant to furnish evidence satisfactory to the Company, including
without limitation a written and signed representation letter and consent
to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation
of
any state or federal law, rule, or regulation. Further, each participant
shall
consent to the imposition of a legend on the certificate representing the
Plan
Shares issued pursuant to the exercise of an Option restricting their transfer
as required by law or this section.
1.14 Employment
or Service of Optionee.
Nothing
in the Plan or in any Option or Restricted Stock granted hereunder shall
confer
upon any Employee any right to continued employment by the Company or any
of its
subsidiaries or affiliates or limit in any way the right of the Company or
any
of its subsidiaries or affiliates at any time to terminate or alter the terms
of
that employment. Nothing in the Plan or in any Option granted hereunder shall
confer upon any Nonemployee Director or Advisor any right to continued service
as a Nonemployee Director or Advisor of the Company or any of its subsidiaries
or affiliates or limit in any way the right of the Company or any of its
subsidiaries or affiliates at any time to terminate or alter the terms of
that
service.
1.15 Rights
of Optionees Upon Termination of Employment or Service.
In the
event an Optionee ceases to be an Employee, Nonemployee Director, or Advisor
for
any reason other than death, Permanent Disability or Misconduct, unless provided
in an Option Agreement or in Article VI hereof, then, the unvested portion
of
the Optionee’s Option shall terminate immediately and cease to remain
outstanding and the vested portion shall immediately terminate at the beginning
of the thirty-first (31st) day
following termination of Optionee’s service. In the event an Optionee ceases to
serve as an Employee, Nonemployee Director, or Advisor due to death, Permanent
Disability or Misconduct, the Optionee’s Options may be exercised as follows:
(a) Death.
Except
as otherwise limited by the Committee at the time of the grant of an Option,
if
an Optionee dies while serving as an Employee, Nonemployee Director, or Advisor
or within three months after ceasing to be an Employee, Nonemployee Director,
Advisor, his or her Option shall become fully exercisable on the date of
his or
her death and shall expire 12 months thereafter, unless by its terms it expires
sooner or unless, with respect to a Nonqualified Stock Option, the Committee
agrees, in its sole discretion, to further extend the term of such Nonqualified
Stock Option. During such period, the Option may be fully exercised, to the
extent that it remains unexercised on the date of death, by the Optionee’s
personal representative or by the distributees to whom the Optionee’s rights
under the Option shall pass by will or by the laws of descent and distribution.
(b) Disability.
If an
Optionee ceases to serve as an Employee, Nonemployee Director, or Advisor
as a
result of Permanent Disability, the Optionee’s Option shall become fully
exercisable and shall expire 12 months thereafter, unless by its terms it
expires sooner or, unless, with respect to a Nonqualified Stock Option, the
Committee agrees, in its sole discretion, to extend the term of such
Nonqualified Stock Option.
(c) Misconduct.
Should
the Optionee cease to be an Employee, Nonemployee Director or Advisor because
of
Misconduct, the Optionee’s Option shall terminate whether vested or unvested
immediately.
27
1.16 Transferability
of Options.
Except
as the Committee may otherwise provide, Options shall not be transferable
other
than by will or the laws of descent and distribution or, with respect to
Nonqualified Stock Options, pursuant to the terms of a qualified domestic
relations order as defined by the Code or Title I of ERISA, or the rules
thereunder. The designation by an Optionee of a beneficiary shall not constitute
a transfer of the Option. The Committee may, in its discretion, provide in
an
Option Agreement that Nonqualified Stock Options granted hereunder may be
transferred by the Optionee to members of his or her immediate family, trusts
for the benefit of such immediate family members and partnerships in which
such
immediate family members are the only partners.
1.17 Information
to Participants.
The
Company shall furnish to each participant a copy of the annual report, proxy
statements and all other reports (if any) sent to the Company’s stockholders.
Upon written request, the Company shall furnish to each participant a copy
of
its most recent Form 10-K Annual Report (if any) and each quarterly report
to
stockholders issued (if any) since the end of the Company’s most recent fiscal
year.
ARTICLE
II.
ADMINISTRATION
2.1 Committee.
The Plan
shall be administered by a Committee, which shall be appointed by the Board.
If
the Board so elects, the Plan may be administered by different Committees
with
respect to different groups of participants. The Committee shall be constituted
to satisfy applicable laws. Subject to the provisions of the Plan, the Committee
shall have the sole discretion and authority to determine from time to time
the
Employees, Non-Employee Directors, and Advisors to whom Options shall be
granted
and the number of Plan Shares subject to each Option, to interpret the Plan,
to
prescribe, amend and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, to determine and interpret the details
and
provisions of each Option Agreement, to modify or amend any Option Agreement
or
waive any conditions or restrictions applicable to any Options (or the exercise
thereof) or Restricted Stock, and to make all other determinations necessary
or
advisable for the administration of the Plan. The Board may remove any
member of the Committee, with or without cause.
2.2 Majority
Rule; Unanimous Written Consent.
A
majority of the members of the Committee shall constitute a quorum, and any
action taken by a majority present at a meeting at which a quorum is present
or
any action taken without a meeting evidenced by a writing executed by all
members of the Committee shall constitute the action of the Committee. Meetings
of the Committee may take place by telephone conference call.
2.3 Company
Assistance.
The
Company shall supply full and timely information to the Committee on all
matters
relating to Employees, Nonemployee Directors, and Advisors, their employment,
death, Permanent Disability, or other termination of employment or other
relationship with the Company, and such other pertinent facts as the Committee
may require. The Company shall furnish the Committee with such clerical and
other assistance as is necessary in the performance of its duties.
2.4 Exculpation
of Committee.
No
member of the Committee shall be personally liable for, and the Company shall
indemnify all members of the Committee and hold them harmless against, any
claims resulting directly or indirectly from any action or inaction by the
Committee pursuant to the Plan.
ARTICLE
III.
NONQUALIFIED
STOCK OPTIONS
3.1 Option
Terms and Conditions.
The
terms and conditions of Options granted under this Article may differ from
one
another as the Committee shall, in its discretion, determine as long as all
Options granted under this Article satisfy the requirements of this Article.
3.2 Duration
of Options.
Each
Option granted pursuant to this Article and all rights thereunder shall expire
on the date determined by the Committee. In addition, each Option shall be
subject to early termination as provided elsewhere in the Plan.
3.3 Purchase
Price.
The
purchase price for the Plan Shares acquired pursuant to the exercise, in
whole
or in part, of any Option granted under this Article shall not be less than
the
Fair Market Value of the Plan Shares at the time of the grant of the Option.
3.4 Individual
Option Agreements.
Each
Optionee receiving Options pursuant to this Article shall be required to
enter
into a written Option Agreement with the Company. In such Option Agreement,
the Optionee shall agree to be bound by the terms and conditions of the Plan,
the Options made pursuant hereto, and such other matters as the Committee
deems
appropriate.
28
ARTICLE
IV.
RESTRICTED
STOCK
4.1 Grant.
Notwithstanding any provisions of the Plan to the contrary, the Committee
shall
have sole and complete authority to determine to whom Shares of Restricted
Stock
shall be granted, the number of Shares of Restricted Stock to be granted
to each
participant, the duration of the period during which, and the conditions
under
which, the Restricted Stock may be forfeited to the Company, and the other
terms
and conditions of such Restricted Stock.
4.2 Dividends
and Distributions.
Dividends and other distributions paid on or in respect of any shares of
Restricted Stock may be paid directly to the participant, or may be reinvested
in additional shares of Restricted Stock as determined by the Committee in
its
sole discretion.
ARTICLE
V.
TERMINATION,
AMENDMENT, AND ADJUSTMENT
5.1 Termination
and Amendment.
The Plan
shall terminate with respect to Nonqualified Stock Options on the date that
is
fifty years after the Effective Date unless provided otherwise in the option
agreement. No Option shall be granted under the Plan after the respective
date
of termination. Subject to the limitations contained in this section, the
Committee may at any time amend or revise the terms of the Plan, including
the
form and substance of the Option Agreements to be used in connection herewith;
provided that no amendment or revision may be made without the approval of
the
stockholders of the Company if such approval is required under the Code,
Rule
16b-3, or any other applicable law or rule. No amendment, suspension, or
termination of the Plan shall, without the consent of the individual who
has
received an Option, alter or impair any of that individual’s rights or
obligations under any Option granted under the Plan prior to that amendment,
suspension, or termination.
5.2 Adjustments.
If the
outstanding Common Stock is increased, decreased, changed into, or exchanged
for
a different number or kind of shares or securities through merger,
consolidation, combination, exchange of shares, other reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock
split or any other increase, or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company (but
not
including conversion of convertible securities issued by the Company), an
appropriate and proportionate adjustment shall be made in the maximum number
and
kind of Plan Shares as to which Options may be granted under the Plan. A
corresponding adjustment changing the number or kind of shares allocated
to
unexercised Options or portions thereof that shall have been granted prior
to
any such change shall likewise be made. Any such adjustment in outstanding
Options shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the Options, but with a corresponding adjustment
in the price for each share covered by the Options. The foregoing adjustments
and the manner of application of the foregoing provisions shall be determined
solely by the Committee, and any such adjustment may provide for the elimination
of fractional share interests.
ARTICLE
VI.
CORPORATE
TRANSACTIONS;
CHANGES
IN CAPITALIZATION; DISSOLUTION
6.1 Corporate
Transactions.
In the
event of any Corporate Transaction, each outstanding option shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of Corporate Transaction, become fully exercisable for all of the shares
of
Common Stock at the time subject to such option and may be exercised for
any or
all of those shares as fully-vested shares of Common Stock. However, an
outstanding Option shall not so accelerate if and to the extent: (i) such
Option is, in connection with the Corporate Transaction, either to be assumed
by
the successor corporation (or parent thereof) or to be replaced with a
comparable Option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such Option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing on the unvested Option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such Option is
subject to other limitations imposed by the Committee at the time of the
option
grant. The determination of option comparability under clause (i) above
shall be made by the Committee, and its determination shall be final, binding
and conclusive.
29
6.2
Termination. Immediately following the consummation of the Corporate
Transaction, all outstanding Options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) as provided in this Section VII.
6.3 Assumption.
Each
Option which is assumed in connection with the Corporate Transaction shall
be
appropriately adjusted, immediately after such Corporate Transaction, to
apply
to the number and class of securities which would have been issuable to the
Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to
(i) the number and class of securities available for issuance under the
Plan following consummation of such Corporate Transaction and (ii) the
exercise price payable per share under each outstanding Option, provided
the
aggregate exercise price payable for such securities shall remain the same.
6.4 Subsequent
Termination.
The
Committee shall have the discretion, exercisable at the time the Option is
granted or at any time while the Option remains outstanding, to provide that
any
Options which are assumed or replaced in the Corporate Transaction and do
not
otherwise accelerate at that time shall automatically accelerate in the event
the Optionee’s Service should subsequently terminate by reason of an involuntary
termination within eighteen (18) months following the effective date of
such Corporate Transaction. Any Options so accelerated shall remain exercisable
for fully-vested shares until the earlier of (i) the expiration of the
option term or (ii) the expiration of the one (1)-year period measured from
the effective date of the involuntary termination.
6.5 Automatic
Acceleration.
The
Committee shall have the discretion, exercisable either at the time the Option
is granted or at any time while the option remains outstanding to provide
for
the automatic acceleration of one or more outstanding Options upon the
occurrence of a Corporate Transaction, whether or not those Options are to
be
assumed or replaced (or those repurchase rights are to be assigned) in the
Corporation Transaction.
6.6 No
Limitation on Actions.
The
grant of Options under the Plan shall in no way affect the right of the Company
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer
all
or any part of its business or assets.
6.7 Dissolution
or Liquidation.
In the
event of the proposed dissolution or liquidation of the Company, the
Administrator shall notify each Optionee as soon as practicable prior to
the
effective date of such proposed transaction. The Administrator in its discretion
may provide for an Optionee to have the right to exercise his or her Option
until ten (10) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option would not otherwise
be
exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an
Option
shall lapse as to all such Shares, provided the proposed dissolution or
liquidation takes place at the time and in the manner contemplated. To the
extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
ARTICLE
VII.
MISCELLANEOUS
7.1 Other
Compensation Plans.
The
adoption of the Plan shall not affect any other stock option or incentive
or
other compensation plans in effect for the Company or any subsidiary or
affiliate of the Company, nor shall the Plan preclude the Company or any
subsidiary or affiliate thereof from establishing any other forms of incentive
or other compensation plans.
7.2 Plan
Binding on Successors.
The Plan
shall be binding upon the successors and assigns of the Company and any
subsidiary or affiliate of the Company that adopts the Plan.
7.3 Number
and Gender.
Whenever
used herein, nouns in the singular shall include the plural where appropriate,
and the masculine pronoun shall include the feminine gender.
30
7.4 Headings.
Headings
of articles and sections hereof are inserted for convenience of reference
and
constitute no part of the Plan.
7.5 Stockholder
Rights.
The
holder of an option shall have no stockholder rights with respect to the
shares
subject to the option until such person shall have exercised the option,
paid
the exercise price and become a holder of record of the purchased shares.
7.6 Market
Stand-Off.
In
connection with any underwritten public offering by the Corporation of its
equity securities pursuant to an effective registration statement filed under
the Securities Act of 1933, the Optionee may not sell, make any short sale
of,
loan, hypothecate, pledge, grant any option for the purchase of, or otherwise
dispose or transfer for value or otherwise agree to engage in any of the
foregoing transactions with respect to, any shares of Common Stock acquired
upon
exercise of an option granted under the Plan without the prior written consent
of the Corporation or its underwriters. Such restriction (the “Market
Stand-Off”) shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be required
to
execute such agreements as the Corporation or the underwriters request in
connection with the Market Stand-Off.
ARTICLE
VIII.
DEFINITIONS
As
used
herein with initial capital letters, the following terms have the meanings
hereinafter set forth unless the context clearly indicates to the contrary:
8.1 “Advisor”
means any individual performing substantial bona fide services for the Company
or any subsidiary or affiliate of the Company that has adopted the Plan who
is
not an Employee or a Director.
8.2 “Applicable
Laws” means the requirements relating to the administration of stock option
plans under U.S. state corporate laws, U.S. federal and state securities
laws,
the Code, any stock exchange or quotation system on which the Common Stock
is
listed or quoted and the applicable laws of any foreign country or jurisdiction
where Options are, or will be, granted under the Plan.
8.3 “Board”
means the Board of Directors of the Company.
8.4 “Code”
means the Internal Revenue Code of 1986, as amended.
8.5 “Committee”
means the Committee appointed in accordance with Section 2.1.
8.6 “Common
Stock” means the Common Stock, par value $.001 per share, of the Company or, in
the event that the outstanding shares of such Common Stock are hereafter
changed
into or exchanged for shares of a different stock or security of the Company
or
some other corporation, such other stock or security.
8.7 “Company”
means China BAK Battery, Inc., a Nevada corporation.
8.8 “Corporate
Transaction” means either of the following stockholder-approved transactions to
which the Company is a party:
i. a
merger
or consolidation in which securities possessing more than fifty percent (50%)
of
the total combined voting power of the Company’s outstanding securities are
transferred to a person or person different from the persons holding those
securities immediately prior to such transaction, or
ii. the
sale,
transfer or other disposition of all or substantially all of the Company’s
assets in complete liquidation or dissolution of the Company.
8.9 “Director”
means a member of the Board.
8.10 “Effective
Date” means May 16, 2005.
8.11 “Employee”
means an employee (as defined in Section 3401(c) of the Code and the
regulations thereunder) of the Company or of any subsidiary or affiliate
of the
Company that adopts the Plan, including Officers.
31
8.12 “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.
8.13 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
8.14 “Fair
Market Value” means such value as determined by the Committee on the basis of
such factors as it deems appropriate; provided
that if
the Common Stock is traded on a national securities exchange or transactions
in
the Common Stock are quoted on the Nasdaq National Market System, such value
as
shall be determined by the Committee on the basis of the reported sales prices
for the Common Stock over a ten business day period ending on the date for
which
such determination is relevant, as reported on the national securities exchange
or the Nasdaq National Market System, as the case may be. If the Common Stock
is
not listed and traded upon a recognized securities exchange or on the Nasdaq
National Market System, the Committee shall make a determination of Fair
Market
Value on a reasonable basis, which may include the mean between the closing
bid
and asked quotations for such stock on the date for which such determination
is
relevant (as reported by a recognized stock quotation service) or, in the
event
that there shall be no bid or asked quotations on the date for which such
determination is relevant, then on the basis of the mean between the closing
bid
and asked quotations on the date nearest preceding the date for which such
determination is relevant for which such bid and asked quotations were
available.
8.15 “Misconduct”
means the commission of any act of fraud, embezzlement or dishonesty by the
Optionee, any unauthorized use or disclosure by such person of confidential
information or trade secrets of the Company, or any other intentional misconduct
or negligence by such person adversely affecting the business or affairs
of the
Company in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Company may consider
as
grounds for the dismissal or discharge of any Optionee or other person in
the
service of the Company.
8.16 “Nonemployee
Director” means a member of the Board who is not an Officer or Employee;
provided that, as used in Section 2.1, the term “Non-Employee Director”
shall have the meaning provided in that section.
8.17 “Nonqualified
Stock Option” means an Option granted pursuant to Article III.
8.18 “Officer”
means an officer of the Company or of any subsidiary or affiliate of the
Company.
8.19 “Option”
means a Nonqualified Stock Option.
8.20 “Optionee”
means an Employee, Nonemployee Director, or Advisor to whom an Option has
been
granted hereunder.
8.21 “Option
Agreement” means an agreement between the Company and an Optionee with respect
to one or more Options.
8.22 “Permanent
Disability” has the same meaning as that provided in Section 22(e)(3) of
the Code.
8.23 “Plan”
means the China BAK Battery, Inc. Stock Option Plan, as amended from time
to
time.
8.24 “Plan
Shares” means shares of Common Stock issuable pursuant to the Plan.
8.25 “Restricted
Stock” means any shares granted under Article IV of the Plan.
8.26 “Rule
16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor
rule.
8.27 “Securities
Act” means the Securities Act of 1933, as amended.
8.28 “Tax
Date” means the date on which the amount of tax to be withheld is determined.
32
CHINA
BAK BATTERY, INC.
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON JULY 28, 2008
Annual
Meeting Proxy Card
This
Proxy is Solicited on Behalf of the Board of Directors
The
undersigned stockholder of CHINA BAK BATTERY, INC., a Nevada corporation
(the
“Company”), acknowledges receipt of the Notice of Annual Meeting of Stockholders
and Proxy Statement, dated July 3, 2008, and hereby constitutes and appoints
Mr.
Xiangqian Li, the Company’s Chairman, President and Chief Executive Officer, and
Mr. Tony Shen, the Company’s Chief Financial Officer, Secretary and Treasurer,
or either of them acting singly in the absence of the other, with full power
of
substitution in either of them, the proxies of the undersigned to vote with
the
same force and effect as the undersigned all shares of the Company’s Common
Stock which the undersigned is entitled to vote at the 2008 Annual Meeting
of
Stockholders to be held on July 28, 2008, and at any adjournment or adjournments
thereof, hereby revoking any proxy or proxies heretofore given and ratifying
and
confirming all that said proxies may do or cause to be done by virtue thereof
with respect to the following matters:
The
undersigned hereby instructs said proxies or their substitutes:
| 1. |
Elect
as Directors the nominees listed below: o
|
Xiangqian
Li
Huanyu
Mao
Richard
B. Goodner
Charlene
Spoede Budd
Chunzhi
Zhang
Withhold
authority for the following:
o
Xiangqian Li
o
Huanyu
Mao
o
Richard
B. Goodner
o
Charlene
Spoede Budd
o
Chunzhi
Zhang
| 2. |
Approve
the ratification of PKF as the Company’s accountant for fiscal year
2008.
|
FOR
o
AGAINST
o
ABSTAIN
o
|
3.
|
Approve
the proposal to amend the Company’s Stock Option Plan to (i) increase the
number of shares of the Company’s Common Stock available for grants of
options and other stock-based awards under such plan and make a
related
amendment to Section 1.7 of such plan and (ii) amend the definition
of
“Fair Market Value” under such
plan.
|
FOR
o
AGAINST
o
ABSTAIN
o
4. In
their
discretion, the proxies are authorized to vote upon such other business as
may
properly come before the Meeting, and any adjournment or adjournments
thereof.
THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED; IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES AND FOR THE
RATIFICATION OF THE SELECTION OF PKF AS THE COMPANY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTANTS. IN THEIR DIRECTION, THE PROXIES ARE ALSO AUTHORIZED TO
VOTE
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, INCLUDING
THE
ELECTION OF ANY PERSON TO THE BOARD OF DIRECTORS WHERE A NOMINEE NAMED IN
THE
PROXY STATEMENT DATED JULY 3, 2008 IS UNABLE TO SERVE OR, FOR GOOD CAUSE,
WILL
NOT SERVE.
I
(we)
acknowledge receipt of the Notice of Annual Meeting of Stockholders and the
Proxy Statement dated July 3, 2008, and the 2007 Annual Report to Stockholders
and ratify all that the proxies, or either of them, or their substitutes
may
lawfully do or cause to be done by virtue hereof and revoke all former
proxies.
Please
sign, date and mail this proxy immediately in the enclosed
envelope.
|
Name
______________________________________________
|
|
|
Name
(if joint)
|
|
| ____________________________________ | |
|
Date
_____________, 2008
|
|
|
Please
sign your name exactly as it appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your
full title
as it appears hereon. When signing as joint tenants, all parties
in the
joint tenancy must sign. When a proxy is given by a corporation,
it should
be signed by an authorized officer and the corporate seal affixed.
No
postage is required if returned in the enclosed
envelope.
|