UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment
No. )
Filed by
the Registrant [X]
Filed by
a Party other than the Registrant [ ]
Check the
appropriate box:
[ ] Preliminary
Proxy Statement
[ ] Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive
Proxy Statement
[ ] Definitive
Additional Materials
[ ] Soliciting
Material Pursuant to ss.240.14a-12
China
Direct, Inc.
(Name of
Registrant as Specified In Its Charter)
____________________________________________
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
|
[X]
|
No
fee required.
|
|
|
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|
|
(1)
|
Title
of each class of securities to which transaction applies:
___________________________________________________
|
|
| (2) |
Aggregate
number of securities to which transaction applies:
___________________________________________________
|
|
|
(3)
|
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
___________________________________________________
|
|
|
(4)
|
Proposed
maximum aggregate value of transaction:
___________________________________________________
|
|
|
(5)
|
Total
fee paid:
____________________________________________________
|
[ ]
Fee paid previously with preliminary materials.
[ ]
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
| [ ] |
Amount
Previously Paid:
________________________________________
|
|
|
[ ]
|
Form,
Schedule or Registration Statement No.:
________________________________________
|
|
|
[ ]
|
Filing
Party:
_________________________________________
|
|
|
[ ]
|
Date
Filed:
_________________________________________
|
April 17,
2009
Dear
Shareholders:
You are
cordially invited to attend the 2008 annual meeting of the shareholders of China
Direct, Inc. on Friday, May 29, 2009, at 1:00 p.m., Eastern Standard Time,
at the Hilton Hotel at 100 Fairway Drive, Deerfield Beach, Florida, 33441-1856.
Matters on which action will be taken at the meeting are explained in detail in
the attached Notice and Proxy Statement.
As a
result of rules recently adopted by the U.S. Securities and Exchange Commission,
we are pleased to be furnishing our proxy materials through a “notice and
access” model. Instead of mailing printed copies to each shareholder, on or
about April 17, 2009 we mailed a Notice of Internet Availability which contained
instructions on how to access your proxy materials through the Internet,
how each shareholder can receive a paper copy of proxy materials, including our
Proxy Statement, our Annual Report and a form of proxy card, and how to access
your proxy card to vote through the Internet or by telephone. We believe this
new process will expedite your receipt of proxy materials, lower the cost of
the annual meeting, and help to conserve natural resources.
We
sincerely hope that you will be able to attend the meeting in person, and we
look forward to seeing you. Whether or not you expect to be present, please
promptly vote as your vote is important. Instructions regarding the various
methods of voting are contained on the proxy card, including voting by toll-free
telephone number or the Internet. If you attend the annual meeting, you
may revoke your proxy and vote your own shares.
|
Sincerely,
China
Direct, Inc.
 Yuejian
(James) Wang, Ph.D.
Chairman
of the Board,
Chief
Executive Officer and
President
|
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD ON MAY 29, 2009
To the
shareholders of China Direct, Inc.
You are
cordially invited to attend the annual meeting of shareholders of China Direct,
Inc. to be held at the Hilton Hotel in Deerfield Beach, Florida located at 100
Fairway Drive, Deerfield Beach, Florida, 33441-1856 on Friday, May 29, 2009 at
1:00 PM Eastern Standard Time. At the annual meeting you will be asked to vote
on the following matters:
|
·
|
To
elect a board of directors consisting of five members;
|
|
|
·
|
To
ratify the appointment of Sherb & Co., LLP as our independent
registered public accounting firm;
|
|
|
·
|
To
approve an amendment to our articles of incorporation to change our name
from China Direct, Inc. to China Direct Industries, Inc. or such other
name as the board of directors may elect; and
|
|
|
·
|
To
consider and act upon any other business as may properly come before the
annual meeting or any adjournments
thereof.
|
The board
of directors recommends that you vote FOR Proposals 1, 2 and 3. These items
of business are more fully described in the proxy statement that is attached to
this Notice. The board of directors has fixed the close of business on
April 1, 2009 as the Record Date for determining the shareholders that are
entitled to notice of and to vote at the annual meeting and any adjournments
thereof.
It is
important that your shares be represented and voted at the meeting. If you
received the proxy materials by mail, you can vote your shares by completing,
signing, dating, and returning your completed proxy card, by telephone or over
the Internet. If you received the proxy materials over the Internet, a proxy
card was not sent to you, and you may vote your shares by telephone or over the
Internet. To vote by telephone or Internet, follow the instructions included in
the proxy statement. You can revoke a proxy at any time prior to its exercise at
the meeting by following the instructions in the proxy statement.
You may
attend the annual meeting and vote in person even if you have previously voted
by proxy in one of the three ways listed above. Your proxy is revocable in
accordance with the procedures set forth in the proxy statement.
Important
Notice Regarding the Availability of Proxy Materials for the 2008 Annual Meeting
of Shareholders to be held on May 29, 2009.
The
Notice of Annual Meeting, Proxy Statement, the proxy card and Annual Report for
the year ended December 31, 2008 are available at
http://www.iproxydirect.com/cdii.
|
By
Order of the Board of Directors
|
|
|
/s/
Lazarus Rothstein
|
|
|
Lazarus
Rothstein,
|
|
|
Secretary
|
Deerfield
Beach, Florida
April 17,
2009
TABLE
OF CONTENTS
|
1
|
||
|
1
|
||
|
4
|
||
|
|
5
|
|
|
6
|
||
|
7
|
||
|
8
|
||
|
10
|
||
|
16
|
||
|
18
|
||
|
21
|
||
|
21
|
||
|
23
|
||
|
23
|
||
|
23
|
||
|
23
|
||
|
23
|
||
|
23
|
||
|
24
|
||
Shareholders
Should Read the Entire Proxy Statement Carefully Prior to Returning Their
Proxies
____________________
PROXY
STATEMENT
____________________
FOR
ANNUAL
MEETING OF SHAREHOLDERS
The
enclosed proxy is solicited on behalf of the board of directors of China Direct,
Inc. for use at our annual meeting of shareholders to be held on Friday, May 29,
2009 at 1:00 PM, Eastern Standard Time, and at any adjournments thereof.
The annual meeting will be held at the Hilton Hotel in Deerfield Beach,
Florida located at 100 Fairway Drive, Deerfield Beach, Florida, 33441-1856.
Voting materials, including this proxy statement, the proxy card and our
2008 Form 10-K, are being made available to all or our shareholders on or
about April 17, 2009.
Following
are some commonly asked questions raised by our shareholders and answers to each
of those questions.
What
may I vote on at the annual meeting?
At the
annual meeting, shareholders will consider and vote upon the following
matters:
|
•
|
to
elect a board of directors consisting of five members;
|
|
|
•
|
to
ratify the appointment of Sherb & Co., LLP as our independent
registered public accounting firm;
|
|
|
•
|
to
approve an amendment to our articles of incorporation to change our name
from China Direct, Inc. to China Direct Industries, Inc. or such other
name as the board of directors may elect; and
|
|
|
•
|
such
other matters as may properly come before the annual meeting or any
adjournments thereof
|
How
does the board of directors recommend that I vote on the proposals?
The board
of directors recommends a vote “FOR” each of the nominees to the board of
directors, “FOR” the proposal ratifying the appointment of Sherb & Co., LLP,
and “FOR” the proposal approving an amendment to our articles of incorporation
to change our name from China Direct, Inc. to China Direct Industries, Inc. or
such other name as the board of directors may elect.
Why
did I receive a one-page notice in the mail regarding the Internet availability
of proxy materials this year instead of a full set of proxy
materials?
In
accordance with rules recently adopted by the U.S. Securities and Exchange
Commission (SEC), rather than mailing a printed copy of our proxy materials to
each shareholder of record, we may now send each of our shareholders a Notice of
Internet Availability of Proxy Materials (Notice), which indicates how our
shareholders may:
|
•
|
access
their proxy materials over the Internet;
|
|
|
•
|
make
a one-time request to receive a printed set of proxy materials by mail;
or
|
|
|
•
|
make
a permanent election to receive all of their proxy materials in printed
form by mail or electronically by
e-mail.
|
The
Notice will also include your control number and instructions for voting your
proxy over the Internet. If you no longer have your Notice and need
to obtain your control number, you may contact us at
1-866-752-8683.
- 1
-
How
can I get electronic access to the proxy materials?
The
Notice provides you with instructions regarding how to:
|
•
|
view
our proxy materials for the annual meeting over the Internet;
and
|
|
|
•
|
instruct
us to send our future proxy materials to you electronically by e-mail
instead of sending you printed copies by
mail.
|
Choosing
to receive your future proxy materials by email will save us the cost of
printing and mailing documents to you and will reduce the impact of our annual
meetings of shareholders on the environment. If you choose to receive
future proxy materials by email, you will receive an email next year with
instructions containing a link to those materials and a link to the proxy voting
site. Your election to receive proxy materials by email will remain
in effect until you terminate it. Our Annual Report for the year ended December
31, 2008 on Form 10-K accompanies these proxy materials but is not considered
part of the proxy soliciting materials.
How
do I vote?
You can
vote either in person at the annual meeting or by proxy, by telephone, by fax or
over the Internet whether or not you attend the annual
meeting. To obtain directions to attend the annual meeting and vote
in person, please call (954) 363-7333. If your shares are registered
directly in your name with our transfer agent, Computershare Trust Co., Inc.,
you are considered the shareholder of record with respect to those shares and we
are sending a Notice of Internet Availability of Proxy Materials (Notice)
directly to you. As the shareholder of record, you have the right to vote
in person at the annual meeting. If you choose to do so, you can bring the
proxy card that is part of this proxy statement or vote at the annual meeting
using the ballot provided at the meeting. Even if you plan to attend the
annual meeting in person, we recommend that you vote your shares in advance as
described below so that your vote will be counted if you later decide not to
attend the annual meeting in person.
Most of
our shareholders hold their shares in street name through a stockbroker, bank or
other nominee rather than directly in their own name. In that case, you
are considered the beneficial owner of shares held in street name, and the
Notice is being forwarded to you. As the beneficial owner, you are also
invited to attend the annual meeting. Because a beneficial owner is not the
shareholder of record, you may not vote these shares in person at the annual
meeting unless you obtain a “legal proxy” from the stockbroker, trustee or
nominee that holds your shares, giving you the right to vote the shares at the
meeting. You will need to contact your stockbroker, trustee or nominee to
obtain a legal proxy, and you will need to bring it to the annual meeting in
order to vote in person.
You can
vote by proxy in four ways:
|
•
|
by
mail – If you received your proxy materials by mail, you can vote by mail
by using the enclosed proxy card;
|
|
|
•
|
by
telephone – In the United States and Canada, you can vote by telephone by
following the instructions on the Notice to access the proxy materials or
on your proxy card if you received your materials by
mail;
|
|
|
•
|
by
Internet – You can vote by Internet by following the instructions on the
Notice to access the proxy materials or on your proxy card if you received
your materials by mail; and
|
|
|
•
|
By
Fax – 212-521-3464
|
If you
vote by proxy, your shares will be voted at the annual meeting in the manner you
indicate.
The
internet, telephone and fax voting system for shareholders of record will
close at 11:59 p.m., Eastern Standard Time, on May 28, 2009. Please
refer to the proxy card for details on all methods of voting.
What
happens if additional matters are presented at the annual
meeting?
Other
than the election of directors, the ratification of the appointment of our
auditor and the approval of an amendment to our articles of incorporation
changing our corporate name, we are not aware of any other business to be acted
upon at the annual meeting. If you grant a proxy, the person named as
proxy holder, Mr. Lazarus Rothstein, our Executive Vice President, General
Counsel and Corporate Secretary, will have the discretion to vote your shares on
any additional matters properly presented for a vote at the annual
meeting.
What
happens if I do not give specific voting instructions?
If you
hold shares in your name, and you sign and return a proxy card without giving
specific voting instructions, your shares will be voted as recommended by our
board of directors on all matters and as the proxy holder may determine in his
discretion with respect to any other matters properly presented for a vote
before the annual meeting. If you hold your shares through a stockbroker,
bank or other nominee and you do not provide instructions on how to vote, your
stockbroker or other nominee may exercise their discretionary voting power with
respect to the election of our directors and the ratification of the appointment
of Sherb & Co., LLP as our independent registered public accounting
firm.
- 2
-
What
is the quorum requirement for the annual meeting?
On
April 1, 2009, the Record Date for determining which shareholders are
entitled to vote, there were 23,460,432 shares
of our common stock outstanding which is our only class of voting securities.
Each share of common stock entitles the holder to one vote on matters submitted
to a vote of our shareholders. A majority of our outstanding common shares as of
the Record Date must be present at the annual meeting (in person or represented
by proxy) in order to hold the meeting and conduct business. This is called
a quorum. Your shares will be counted for purposes of determining if there
is a quorum, even if you wish to abstain from voting on some or all matters
introduced at the annual meeting, if you are present and vote in person at the
meeting or have properly submitted a proxy card or voted by telephone or by
using the Internet.
How
can I change my vote after I return my proxy card?
You may
revoke your proxy and change your vote at any time before the final vote at the
annual meeting. You may do this by signing a new proxy card with a later date,
by voting on a later date by using the Internet (only your latest Internet proxy
submitted prior to the annual meeting will be counted), or by attending the
annual meeting and voting in person. However, your attendance at the
annual meeting will not automatically revoke your proxy unless you vote at the
annual meeting or specifically request in writing that your prior proxy be
revoked.
Is
my vote confidential?
Proxy
instructions, ballots and voting tabulations that identify individual
shareholders are handled in a manner that protects your voting privacy.
Your vote will not be disclosed either within our company or to third
parties, except:
|
•
|
as
necessary to meet applicable legal requirements;
|
|
|
•
|
to
allow for the tabulation of votes and certification of the vote;
and
|
|
|
•
|
to
facilitate a successful proxy
solicitation.
|
Any
written comments that a shareholder might include on the proxy card will be
forwarded to our management.
Where
can I find the voting results of the annual meeting?
The
preliminary voting results will be announced at the annual meeting. The
final voting results will be tallied by our transfer agent and Inspector of
Elections and published in our quarterly report on Form 10-Q for the quarter
ended June 30, 2009. We will also make the results available on our
website, which is www.cdii.net. We will identify a link to the results on the
Investor Relations page of our website.
How
can I obtain a separate set of voting materials?
To reduce
the expense of delivering duplicate voting materials to our shareholders who may
have more than one China Direct stock account, we are delivering only one Notice
of Internet Availability of Proxy Materials (Notice) to certain shareholders who
share an address, unless otherwise requested. If you share an address with
another shareholder and have received only one Notice, you may write or call us
to request to receive a separate Notice. Similarly, if you share an
address with another shareholder and have received multiple copies of the
Notice, you may write or call us at the address and phone number below to
request delivery of a single copy of this Notice. For future annual
meetings, you may request separate Notices, or request that we send only one
Notice to you if you are receiving multiple copies, by writing or calling us
at:
China
Direct, Inc.
Attention:
Mr. Lazarus Rothstein,
Executive
Vice President and General Counsel
431
Fairway Drive, Suite 200
Deerfield
Beach, Florida 33441
Telephone:
(954) 363-7333
Who
pays for the cost of this proxy solicitation?
We will
pay the costs of the solicitation of proxies. We may also reimburse
brokerage firms and other persons representing beneficial owners of shares for
expenses incurred in forwarding the voting materials to their customers who are
beneficial owners and obtaining their voting instructions. In addition to
soliciting proxies by mail, our board members, officers, and employees may
solicit proxies on our behalf, without additional compensation, personally or by
telephone.
- 3
-
How
can I obtain a copy of China Direct’s 2008 Form 10-K?
You may
obtain a copy of our Form 10-K for the year ended December 31, 2008 by sending a
written request to the address listed above under “How can I obtain a separate
set of voting materials?”. We will furnish the Form 10-K without
exhibits at no charge. If you prefer a copy of the 2008 Form 10-K
including exhibits, you will be charged a fee (which will be limited to our
reasonable expenses in furnishing such exhibits). Our 2008 Form 10-K
is available in PDF format from the Investor Relations page of our website
at www.cdii.net and our Form 10-K with exhibits is available on the
website of the U.S. Securities and Exchange Commission at
www.sec.gov.
What
is the voting requirement to approve the proposals?
In the
election of directors, the five persons receiving the highest number of (or
plurality) “FOR” votes at the annual meeting will be elected. There will be no
cumulative voting in the election of directors. The proposal to ratify the
appointment of Sherb & Co., LLP as our independent registered public
accounting firm and the proposal to approve the amendment to our articles of
incorporation changing our corporate name will be approved if the votes cast
“FOR” each of the proposals exceed those cast against each of the respective
proposals. Abstentions and broker non-votes will be treated as shares that
are present, or represented and entitled to vote for purposes of determining the
presence of a quorum at the annual meeting. Broker non-votes will not be
counted as a vote cast on any matter presented at the annual meeting.
Abstentions will not be counted in determining the number of votes cast in
connection with any matter presented at the annual meeting.
How
can I communicate with the non-employee directors on China Direct’s board of
directors?
The board
of directors encourages shareholders who are interested in communicating
directly with the non-employee directors as a group to do so by writing to the
non-employee directors in care of our corporate secretary. Shareholders
can send communications by mail to:
Mr. Lazarus
Rothstein,
Executive
Vice President, General Counsel
and
Corporate Secretary
China
Direct, Inc.
431
Fairway Drive, Suite 200
Deerfield
Beach, Florida 33441
Correspondence
received that is addressed to the non-employee directors will be reviewed by our
corporate secretary or his designee, who will regularly forward to the
non-employee directors a summary of all such correspondence and copies of all
correspondence that, in the opinion of our corporate secretary, deals with the
functions of the board of directors or committees thereof or that our corporate
secretary otherwise determines requires their attention. Directors may at
any time review a log of all correspondence received by us that is addressed to
the non-employee members of the board of directors and request copies of any
such correspondence.
You may
seek answers to your questions by writing, calling or emailing China Direct
at:
Mr. Lazarus
Rothstein
Executive
Vice President, General Counsel
and
Corporate Secretary
China
Direct, Inc.
431
Fairway Drive
Deerfield
Beach, Florida 33441
Telephone:
(954) 363-7333
Telecopier:
(954) 363-7320
Generalcounsel@cdii.net
- 4
-
Board
of Directors
The board
of directors oversees our business affairs and monitors the performance of
management. In accordance with our corporate governance principles, the
board of directors does not involve itself in day-to-day operations. The
directors keep themselves informed through discussions with the Chief Executive
Officer, other key executives and by reading the reports and other materials
that we send them and by participating in board of directors and committee
meetings. Our directors hold office until their successors have been
elected and duly qualified unless the director resigns or by reason of death or
other cause is unable to serve in the capacity of director. Biographical
information about our directors is provided in “Election of Directors – Proposal
No. 1” on page 21.
Director
Independence
We are
required to have a majority of independent directors within the meaning of
applicable NASDAQ Stock Market Rules. The board of directors has
determined three of the five directors and nominees who would serve after May
29, 2009 are independent which excludes Dr. Yuejian (James) Wang, our Chief
Executive Officer, and Mr. Yuwei Huang, our Executive Vice President -
Magnesium. The board of directors’ determinations of independence was made
in accordance with applicable SEC and NASDAQ Stock Market Rules.
Board
of Directors Meetings and Attendance
During
2008, the board of directors held five physical meetings. No incumbent
Director attended during their term, either in person or via telephone, fewer
than 75% of the total meetings of the board of directors and at least 75% of the
total meetings of the committees of the board of directors on which such
director served. The board of directors also approved certain actions
by unanimous written consent. It is our policy that directors should make
every effort to attend the annual meeting of shareholders. Dr.
Yuejian (James) Wang and Messrs. David Barnes, Sheldon Steiner and George
Leibowitz were present at our annual shareholders meeting held on May 30,
2008.
Code
of Business Conduct and Ethics
We
adopted a Code of Business Conduct and Ethics that applies to all of our
directors, officers and employees, including our principal executive officer,
principal financial and accounting officer. A copy of the Code of Business
Conduct and Ethics is available on the Investor Relations page of our website at
www.cdii.net. We will post on our website any amendment to our Code of
Business Conduct and Ethics or waivers of our Code of Business Conduct and
Ethics for directors and executive officers.
Complaints
Regarding Accounting Matters
The audit
committee has established procedures for:
|
•
|
the
receipt, retention and treatment of complaints regarding accounting,
internal accounting controls, or auditing matters; and
|
|
|
•
|
the
confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing
matters.
|
Communications
with Directors
The board
of directors has approved procedures for shareholders to send communications to
individual directors or the non-employee directors as a group. Written
correspondence should be addressed to the director or directors in care of
Mr. Lazarus Rothstein, corporate secretary of China Direct, Inc., at our
primary address. Correspondence received that is addressed to the non-employee
directors will be reviewed by our corporate secretary or his designee, who will
regularly forward to the non-employee directors a summary of all such
correspondence and copies of all correspondence that, in the opinion of our
corporate secretary, deals with the functions of the board of directors or
committees thereof or that the corporate secretary otherwise determines requires
their attention. Directors may at any time review a log of all
correspondence received by China Direct that is addressed to the non-employee
members of the board of directors and request copies of any such
correspondence. You may also contact individual directors by calling our
principal executive offices at (954) 363-7333.
Legal
Proceedings
There are
no legal proceedings to which any director, director nominee, officer or
affiliate of our company, any owner of record or beneficially of more than 5% of
common stock, or any associate of any such director, officer, affiliate of our
company or security holder that is a party adverse to our company or any of
our subsidiaries or has a material interest adverse to us.
- 5
-
Compliance
With Section 16(a) of the Exchange Act
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
under Rule 16a-3(d) of the Securities Exchange Act of 1934 during the year
ended December 31, 2008 and Forms 5 and amendments thereto furnished to us
with respect to the year ended December 31, 2008, as well as any written
representation from a reporting person that no Form 5 is required, we are
not aware that any officer, director or 10% or greater shareholder failed to
file on a timely basis, as disclosed in the aforementioned Forms, reports
required by Section 16(a) of the Securities Exchange Act of 1934 during the
year ended December 31, 2008 with the exception of the one Form 4
filing by Yi (Jenny) Liu in connection with a restricted stock award
which was inadvertently filed late.
The board
of directors has standing audit, compensation and nominating and governance
committees. Each of the audit committee, the compensation committee and
the nominating and governance committee has a written charter. The
charters are available on our website at www.cdii.net. Information
concerning the current membership and function of each committee is as
follows:
| Board of Directors Committee Membership | ||||||||||||
|
Director
|
Audit
Committee Member
|
Compensation
Committee Member
|
Nominating
and Governance Committee Member
|
|||||||||
|
Dr.
Yuejian (James) Wang
|
||||||||||||
|
Marc Siegel (1)
|
||||||||||||
|
David
Barnes
|
X | (2) | X | X | ||||||||
|
Sheldon
Steiner
|
X | X | (2) | X | (2) | |||||||
|
George Leibowitz
(3)
|
X | X | ||||||||||
|
Yuwei Huang (4)
|
||||||||||||
|
Philip Y. Shen,
Ph.D. (4)
|
||||||||||||
———————
|
(1)
|
Mr.
Siegel resigned as an officer and director of our company effective on
January 26, 2009.
|
|
(2)
|
Denotes
Chairman.
|
|
(3)
|
As
described in this proxy, Mr. Leibowitz is not standing for reelection to
the board of directors at the annual meeting. If elected at the
annual meeting, it is anticipated that Dr. Shen will serve on the audit
committee.
|
|
(4)
|
Appointed
as a director effective January 26,
2009.
|
Audit
Committee.
The audit committee is responsible to the board of directors for the areas of
audit and compliance, and oversees our financial reporting process, including
monitoring the integrity of the financial statements and the independence and
performance of the registered public accounting firm and supervises our
compliance with legal and regulatory requirements. The current members of
the audit committee are Messrs. Barnes (Chairman), Steiner and Leibowitz.
The board of directors has determined that each of Messrs. Barnes,
Steiner and Leibowitz are “audit committee financial experts” as defined under
SEC rules. The board of directors has affirmatively determined that none
of the members of the audit committee have a material relationship with us that
would interfere with the exercise of independent judgment and each of the
members of the audit committee are “independent” as defined in the applicable
SEC and NASDAQ Stock Market Rules. The audit committee held three
telephonic meetings during
2008.
Compensation
Committee.
The compensation committee is responsible for establishing and reviewing our
compensation and employee benefit policies. The members of the
compensation committee are Messrs. Steiner (Chairman) and Barnes, each of
whom are “independent” directors within the meaning of the applicable
SEC and NASDAQ Stock Market
Rules.
The compensation committee
reviews and recommends to the board of directors for approval the compensation
for our Chief Executive Officer and all of our other executive officers,
including salaries, bonuses and grants
of awards under, and administration of, our equity incentive plans. The
compensation committee, among other things, reviews and recommends to the board
of directors employees to whom awards will be made under our equity incentive
plans, determines the number of options to be awarded, and the time, manner of
exercise and other terms of the awards. For further information on the
compensation committee's consideration and determination of executive officer
compensation, see ”Executive Compensation - Compensation Discussion and
Analysis”, below. During 2008 the compensation committee met two times.
Nominating
and Governance
Committee. The nominating and governance committee was formed to (1) to
assist the board of directors by identifying individuals qualified to become
board members, and to recommend for selection by the board of directors the
director nominees to stand for election for the next annual meeting of our
shareholders; (2) to recommend to the board of directors director nominees for
each committee of the board of directors; (3) to oversee the evaluation of
the board of directors and management, and (4) to develop and recommend to the
board of directors a set of corporate governance guidelines and enhancements to
the Code of Business Conduct and
Ethics.
- 6
-
NASDAQ Stock
Market Rules require director nominees to be either selected, or
recommended for the board of directors’ selection, either by a majority of our
independent directors or our nominating and governance committee. The
nominating and governance committee is responsible for selecting those
individuals to recommend to the entire board of directors for election to the
board. The committee will consider candidates for directors proposed by
security holders. The nominating and governance committee has no formal
procedures for submitting candidates and, until otherwise determined, accepts
written submissions that include the name, address and telephone number of the
proposed nominee, along with a brief statement of the candidate’s qualifications
to serve as a director. If
the proposed nominee is not the security holder submitting the name of the
candidate, a letter from the candidate agreeing to the submission of his or her
name for consideration should be provided at the time of submission. If
the committee believes it to be appropriate, committee members may meet with the
proposed nominee before making a final determination whether to recommend the
individual as a nominee to the entire board of directors to stand for election
to the board.
The
nominating and governance committee identifies director nominees through a
combination of referrals, including by management, existing board members and
security holders, and direct solicitations, where warranted. Once a
candidate has been identified the nominating and governance committee reviews
the individual’s experience and background, and may discuss the proposed nominee
with the source of the recommendation.
Among the
factors that the committee considers when evaluating proposed nominees are their
knowledge and experience in business matters, finance, capital markets and
mergers and acquisitions. The committee may request references and
additional information from the candidate prior to reaching a conclusion.
The committee is under no obligation to formally respond to
recommendations, although as a matter of practice, every effort is made to do
so.
The
nominating and governance committee received no security holder recommendations
for nomination to the board of directors in connection with the annual meeting
of shareholders. Dr. Yuejian (James) Wang and Messrs. David Barnes,
Sheldon Steiner and George Leibowitz are incumbent directors standing for
reelection. Dr. Philip Y. Shen and Mr. Yuwei Huang were
appointed in January 2009 and are standing for election.
During
2008 the nominating and governance committee met once.
The board
of directors' general policy on director compensation is that compensation for
non-employee directors should consist of both cash and equity based
compensation. The
following table summarizes the compensation paid by us to our directors during
2008.
| Director Compensation Table for 2008 (1) | ||||||||||||
|
Name
|
Fees
Earned or Paid in Cash ($)
|
Stock Awards ($)
(2)
|
Total
($)
|
|||||||||
|
Yuejian (James) Wang
(3)
|
$ | - | $ | - | $ | - | ||||||
|
David
Barnes
|
$ | 23,039 | $ | 49,550 | $ | 72,589 | ||||||
|
Sheldon
Steiner
|
$ | 19,833 | $ | 49,550 | $ | 69,383 | ||||||
|
George
Leibowitz
|
$ | 13,616 | $ | 39,644 | $ | 53,260 | ||||||
|
Philip Shen (4)
|
$ | - | $ | - | $ | - | ||||||
|
Yuwei Huang (3)
|
$ | - | $ | - | $ | - | ||||||
|
Victor Hollander
(5)
|
$ | 6,700 | $ | - | $ | 6,700 | ||||||
___________
|
(1)
|
No
members of the board of directors received compensation in the form of
option awards, Non-Equity Incentive Plan Compensation, Nonqualified
Deferred Compensation Earnings, or any other forms of Compensation in
excess of the $10,000 in the aggregate in 2007 and
2008.
|
|
|
(2)
|
All
Stock Awards include the grant of restricted stock awards pursuant to our
2008 Non Executive Compensation Plan. The amounts reflected for
Stock Awards in the table above represent the dollar amount recognized for
financial statement reporting purposes with respect to 2008 and 2007 for
the fair value of securities granted in each respective year in accordance
with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the
impact of estimated forfeitures related to service-based vesting
conditions. These amounts reflect our accounting expense for
these awards, and do not correspond to the actual value that may be
realized upon exercise.
|
|
|
(3)
|
In
accordance with our board of directors' general policy directors who are
full time employees (currently Dr. Wang and Mr. Huang) are not paid for
board service in addition to their regular employee
compensation.
|
|
|
(4)
|
Dr.
Shen was appointed to the board of directors on January 26, 2009; as such
Dr. Shen did not receive any compensation in 2008.
|
|
|
(5)
|
Mr.
Hollander did not stand for reelection to the Board at the annual meeting
of shareholders on May 30, 2008. All amounts paid to Mr.
Hollander are for his services on the Board prior to May 30,
2008.
|
- 7
-
On May
30, 2008, the Board approved the following compensation for non-employee
directors (currently all directors other than Dr. Wang and Mr.
Huang). Each non-employee director will be paid an annual retainer of
$20,000 and $750 for each day they attend in person a Board or committee
meeting. The Chairman of the Audit Committee will also receive an annual
retainer of $4,000. The annual retainers will be paid in quarterly
installments during the directors’ one year term in office. Additionally,
upon election to the Board on May 30, 2008, the Board granted each of Messrs.
Barnes, Leibowitz and Steiner 5,000 shares of our restricted common stock.
The restricted common stock will vest in equal quarters during the
directors’ term but only if the director is still a director of our company at
the time of vesting. The shares of restricted stock which have not vested
hold voting rights and are eligible for the payment of dividends, if the Board
were to declare dividends on our common stock. The grant of restricted
stock is made in addition to the directors’ annual cash retainers and meeting
attendance fees.
The Board
appointed Dr. Shen as a Director commencing on January 26, 2009 terminating on
May 31, 2009. The Board approved the following compensation for Dr.
Shen; $5,000 payable per quarter and $750 for each Board meeting he attends
in-person. Additionally, the Board granted Dr. Shen a restricted
stock award of 5,555 shares of our common stock; 4,000 shares vest on April 26,
2009 and 1,555 vest on July 26, 2009. These restricted stock awards
vest only in the event Dr. Shen is a Director at the time of
vesting. The shares of restricted stock are eligible for the payment
of dividends, if the Board were to declare dividends on our common
stock. The grant of restricted stock is made in addition to Dr.
Shen’s cash retainer and meeting attendance fees.
On April
2, 2008, the Board approved the following 2009 compensation for non-employee
directors (currently all directors other than Dr. Wang and Mr.
Huang). Each non-employee director will continued to be paid an
annual retainer of $20,000 and $750 for each day they attend in person a Board
or committee meeting. The Chairman of the Audit Committee will also
receive an annual retainer of $4,000. The annual retainers will be paid in
quarterly installments during the directors’ one year term in office.
Additionally, the Board granted each of Messrs. Barnes, Leibowitz, Steiner
and Shen 37,000 shares of our restricted common stock. The restricted
common stock will vest in equal quarters on May 30, 2009, August 31, 2009,
November 30, 2009 and February 28, 2010 but only if the director is still a
director of our company at the time of vesting. The shares of restricted
stock which have not vested hold voting rights and are eligible for the payment
of dividends, if the Board were to declare dividends on our common stock.
The grant of restricted stock is made in addition to the directors’ annual
cash retainers and meeting attendance fees.
Report
of the Audit Committee of the board of directors
The audit
committee provides assistance to the board of directors in fulfilling its
oversight responsibilities relating to our corporate accounting and reporting
practices toward assurance of the quality and integrity of our consolidated
financial statements. The purpose of the audit committee is to serve as an
independent and objective party to monitor our financial reporting process and
internal control system; oversee, review and appraise the audit activities of
our independent registered public accounting firm and internal auditing
function, maintain complete, objective and open communication between the board
of directors, the independent accountants, financial management, and the
internal audit function.
Our
independent registered public accounting firm reports directly to the audit
committee and the audit committee is solely responsible to appoint or replace
our independent registered public accounting firm, and to assure its
independence and to provide oversight and supervision thereof. The audit
committee determines compensation of the independent registered public
accounting firm and has established a policy for approval of non-audit related
engagements awarded to the independent registered public accounting firm. Such
engagements must not impair the independence of the registered public accounting
firm with respect to our company as prescribed by the Sarbanes-Oxley Act of
2002; thus payment amounts are limited and non-audit related engagements must be
approved in advance by the audit committee. The audit committee determines
the extent of funding that we must provide to the audit committee to carry out
its duties, and has determined that such amounts were sufficient in
2008.
With
respect to the year ended December 31, 2008, in addition to its other work,
the audit committee:
|
•
|
Reviewed
and discussed with management our audited consolidated financial
statements as of December 31, 2008 and the year then
ended;
|
|
|
•
|
Discussed
with Sherb & Co., LLP the matters required to be discussed by
Statement on Auditing Standards No. 61, “Communication with Audit
Committees”, as amended, with respect to its review of the findings of the
independent registered public accounting firm during its examination of
our financial statements;
|
|
|
•
|
Received
from Sherb & Co., LLP written affirmation of its independence as
required by the Independence Standards Board Standard No. 1, “Independence
Discussions with Audit Committees”. In addition, the audit committee
discussed with Sherb & Co., LLP its independence and determined that
the provision of non-audit services was compatible with maintaining
auditor independence; and
|
|
|
•
|
Reviewed
and discussed with management our audited consolidated financial
statements as of December 31, 2008 and the year then
ended.
|
The audit
committee recommended, based on the review and discussion summarized above, that
the board of directors include the audited consolidated financial statements in
the 2008 Form 10-K for filing with the SEC.
|
Audit
Committee of the board of directors of China Direct,
Inc.
|
||
|
David
Barnes, Chairman
|
||
|
Sheldon
Steiner
|
||
|
George
Leibowitz
|
||
- 8
-
Information
About Auditors
The audit
committee of the board of directors has appointed Sherb & Co., LLP as the
independent registered public accounting firm to conduct the audit of our
consolidated financial statements for 2008 and to report on our consolidated
balance sheets, statements of income and other related statements. Sherb
& Co., LLP has served as our independent registered public accounting firm
since 2006. The audit committee charter includes the procedures for
pre-approval of all fees charged by our independent registered public accounting
firm. Under the procedure, the audit committee of the board of directors
approves the engagement letter with respect to audit, tax and review services.
Other fees are subject to pre-approval by the audit committee. The
audit and tax fees paid to the auditors with respect to 2008 were pre-approved
by the audit committee of the board of directors.
Fees
and Services
The
following table shows the fees that were billed for the audit and other services
provided by Sherb & Co., LLP for 2008 and 2007.
|
2008
|
2007
|
|||||||
|
Audit
Fees
|
$ | 328,000 | $ | 225,000 | ||||
|
Audit-Related
Fees
|
- | - | ||||||
|
Tax
Fees
|
- | - | ||||||
|
All
Other Fees
|
6,500 | 88,400 | ||||||
|
Total
|
$ | 334,500 | $ | 313,400 | ||||
Audit
Fees – This category includes the audit of our annual financial
statements, review of financial statements included in our quarterly reports and
services that are normally provided by the independent registered public
accounting firm in connection with engagements for those years. This
category also includes advice on audit and accounting matters that arose during,
or as a result of, the audit or the review of interim financial
statements.
Audit-Related
Fees – This category consists of assurance and related services by
the independent registered public accounting firm that are reasonably related to
the performance of the audit or review of our financial statements and are not
reported above under “Audit Fees”. The services for the fees disclosed
under this category include consultation regarding our correspondence with the
SEC and other accounting
consulting.
Tax
Fees – This category consists of professional services rendered by
our independent registered public accounting firm for tax compliance and tax
advice. The services for the fees disclosed under this category include
tax return preparation and technical tax
advice.
All
Other Fees – This category consists of fees for other miscellaneous
items.
Compensation
Committee Interlocks and Insider Participation
During
the year ended December 31, 2008, each of Messrs. Steiner and Barnes
were the members of the compensation committee; Mr. Steiner served as the
Chairman of the committee.
Except as
noted below, each of Messrs. Steiner and Barnes:
|
•
|
was
not, during the fiscal year, an officer or employee of our
company,
|
|
|
•
|
was
not formerly an officer or employee of our company, or
|
|
|
•
|
did
not have any relationship requiring disclosure by us under Certain
Relationships and Related Transactions appearing later in this proxy
statement.
|
- 9
-
Compensation
Discussion and Analysis
Senior
executive officers
The
following Compensation Discussion and Analysis describes, among other items, the
material elements of compensation for our Chief Executive Officer, President and
Chief Operating Officer who we refer to as our “senior executive
officers.). In 2008, our senior executive officers included Yuejian
(James) Wang, Ph.D., our Chief Executive Officer (“CEO”); Marc Siegel, our
former President and David Stein, our former Chief Operating Officer. On January
26, 2009, we announced that Mr. Siegel was resigning as our President and a
Director and taking on a role as consultant to our company through December 31,
2009. In addition, in February 2009, Mr. Stein resigned as an officer of
our company and took on a role as a consultant to us through December 31,
2009.
Overview
This
Compensation Discussion and Analysis describes the key principles and approaches
used to determine the compensation of our senior executive officers and should
be read in conjunction with the tables and narrative included in the rest of the
Executive Compensation section of this proxy statement. We are providing
this compensation discussion and analysis on a voluntary basis as we are a
smaller reporting company. All compensation paid to our CEO and other
Senior Executive Officers was determined by the independent directors of the
full Board, as defined by the applicable rules for companies listed on Nasdaq,
following recommendations made by the compensation committee of the Board.
The compensation committee is composed solely of independent
non-employee directors who meet regularly each year. During 2008, the
compensation committee engaged Watson Wyatt Worldwide (“Watson Wyatt”) as a
compensation consultant, in certain matters related to executive
compensation.
Executive
Compensation Philosophy and Objectives
Our
philosophy for compensating executives is to provide fair total cash
compensation consistent with job markets in which we compete and reward
performance. Compensation levels for the senior executive officers reflect
base salary for the executive’s role in our company, the market value of the
position, performance in that position and the opportunity for additional
rewards when we either meet or exceed business objectives that are supportive of
our business strategy. To attract and retain the best people, we offer
meaningful rewards when we and our executives achieve specific business goals or
when outstanding individual performance is demonstrated. Performance
rewards fluctuate based on the results of established objectives and provide
executives with the opportunity to earn additional compensation beyond their
base salary.
In
establishing compensation for our senior executive officers, the following are
the compensation committee’s objectives:
|
•
|
Attract
and retain individuals of superior ability and managerial
talent;
|
|
|
•
|
Ensure
senior officer compensation is aligned with our corporate strategies,
business objectives and the long-term interests of our
shareholders;
|
|
|
•
|
Increase
the incentive to achieve key strategic and financial performance measures
by linking incentive award opportunities to the achievement of performance
goals in these areas; and
|
|
|
•
|
Enhance
the officers’ incentive to increase our stock price and maximize
shareholder value.
|
Compensation
Evaluation Process
To assure
our compensation programs are suitably competitive, the compensation committee,
with the assistance of management and Watson Wyatt, reviewed outside
compensation programs to align our executive compensation levels to market
practices. A combination of salary survey data and information from a
comparator group of companies is used in these reviews.
Salary
Survey Data
In 2008
we utilized the Watson Wyatt 2007/2008 top management and Mercer executive
compensation surveys for comparison purposes in connection with determining the
salaries of our senior executive officers. These surveys were selected
based on the comparison of benchmark positions available, ability to adjust
survey data to similar size organizations, and sample of reporting
organizations.
- 10
-
Comparator
Group
For
comparative purposes, we used the following peer group of 17 public
companies of a similar size and industry to us:
|
Aceto
Corp.
Advisory
Board Co.
Diamond
Mgmt & Tech Consultants, Inc.
Duff
& Phelps Corp.
eLoyalty
Inc.
Exponent
Inc.
Friedman
Industries Inc.
General
Steel Holdings, Inc.
Hawkins,
Inc.
|
Kenexa
Corp
Metalico,
Inc.
Nn,
Inc
Nuco2,
Inc.
Sutor
Technology, Inc.
Synalloy
Corp.
Universal
Stainless & Alloy Products, Inc.
Whx
Corp.
|
Analysis
of Data
In
general, we attempted to target each component of total compensation at or
around the 50th percentile of executive salary survey information. We
believe this allows us to attract and retain executives with a necessary level
of skill and talent for our business.
Executive
salary survey data was used at the median level and adjusted based on
responsibility for each executive position. Survey benchmark positions
were selected to determine salary range midpoints based on market medians.
The base salary survey data for these benchmark positions is updated to
April 1, 2008, using an annual adjustment factor of 3.5% and were scaled to our
size of approximately $200 million in revenue. This data was used to
produce a salary structure midpoint and then reviewed with the compensation
committee to establish a base salary structure and a short-term incentive
target. No provision in the compensation arrangements was made for
long term equity incentives for Dr. Wang and Messrs. Siegel and Stein as
the compensation committee determined that each of these individuals had been
previously awarded sufficient stock options.
Compensation
Components
The
primary components of our executive compensation program includes:
|
•
|
Base
salary;
|
|
|
•
|
Short-term
incentives; and
|
|
|
•
|
Benefits
and perquisites.
|
Base
Salary. Base salary reflects the executive’s role in our company and the
market value of the position. The salary structure provides an amount of
pay for each level. We use base salaries to provide competitive
compensation to attract and retain talented executives. The compensation
committee targeted base salary levels at the median of market data collected
through our benchmarking process. Adjusting base salaries to achieve or
approach median is consistent with the compensation committee’s philosophy.
The compensation committee considered the following factors in setting
annual base salaries:
|
•
|
the
individual’s scope of responsibility;
|
|
|
•
|
the
individual’s level of performance and experience;
|
|
|
•
|
any
promotions resulting in increases in responsibility;
and
|
|
|
•
|
competitive
salaries within the market, drawing on data from our compensation survey
analysis and the group of comparative
companies.
|
On an
annual basis, the compensation committee will make recommendations to the
full Board on base salaries for senior executive officers, other than the CEO,
and will make recommendations to the independent directors as to the
CEO.
The
independent directors evaluated our CEO’s performance and determined his annual
base salary in consultation with an outside compensation consultant.
Similarly, the CEO evaluates the performance of each of the other senior
executive officers, using the same factors identified above to make compensation
recommendations to the compensation committee. Considering these recommendations
and advice by the outside consultant, the compensation committee establishes a
recommended annual base salary for the other senior executive
officers.
At its
August 6, 2008 board meeting, the independent directors approved employment
agreements for its senior executive officers which became effective as of August
1, 2008 and expire on December 31, 2013 (collectively, the “Executive Employment
Agreements”). In 2009 Messrs. Marc Siegel and David Stein
resigned from the company and entered into a separation and severance agreement
with us terminating their respective employment agreements. In
addition, Messrs. Siegel and Stein each entered into consulting agreements with
our company expiring on December 31, 2009 .
- 11
-
Currently
the Executive Employment Agreement with Dr. Wang is effective and provides for,
among other things, payment of a base salary which increases annually at fixed
amounts, eligibility to receive an annual incentive bonus in 2008 as described
below, a discretionary bonus if approved by our board of directors based on a
recommendation of the compensation committee, participation in certain health
and welfare benefit plans, an automobile allowance and an allowance for use of
an email enabled mobile phone. Dr. Wang’s employment agreement provides
that he will serve as our CEO and a member of our board of directors through
December 31, 2013 at a base salary of $166,667 payable from August 1, 2008
through December 31, 2008 and an annual base salary of $450,000 in 2009,
$500,000 in 2010, $550,000 in 2011, $600,000 in 2012 and $650,000 in
2013.
In
approving Dr. Wang’s employment agreement and determining the amount of his base
salary, the independent directors took into consideration his overall
performance in successfully completing numerous acquisitions and capital raising
transactions and competitive market data included in the 2008 executive
compensation review prepared by Watson Wyatt. When
determining the other senior executive officers’ salaries, the compensation
committee took into consideration overall individual performance and general
company performance, scope of responsibility and competitive market data
included in the 2008 executive compensation review prepared by Watson
Wyatt.
Annual
Incentive Bonus. Through the incentive compensation provision of the
Executive Employment Agreements (the “incentive bonus”), the compensation
committee attempts to focus efforts of the senior executive officers on
achievement of near term financial objectives that are critical to our success,
reward accomplishments when performance meets or exceeds established targets or
business plan objectives and more closely tie total cash compensation (base
salary plus incentive compensation) to our financial results.
We use a
company-wide financial goal to determine the amount of incentive
compensation. We believe the combination of a financial performance
goal under the Executive Employment Agreements provides an appropriate balance
between income statement and balance sheet management while focusing on
shareholder value. For 2008, our performance goal was comprised of an
operating results target of total consolidated net income plus non-cash charges
and dividends. The performance goal is assigned a base salary
multiplier. Incentive payments vary based on our financial results in comparison
to the established goals.
The
annual incentive bonus eligibility for Dr. Wang is 75% of his respective base
salary if our total consolidated net income, after taxes, and excluding
non- cash charges and dividends equals or exceeds $26,000,000, 100% of base
salary if our total consolidated net income, after taxes, and excluding non-cash
charges and dividends equals or exceeds $28,000,000, 150% of base salary if our
total consolidated net income, after taxes, and excluding non-cash charges and
dividends equals or exceeds $32,000,000, and 200% of base salary if our total
consolidated net income, after taxes, and excluding non-cash charges and
dividends equals or exceeds $36,000,000. No annual
incentive bonuses were paid to our senior executive officers in
2008.
Benefits
and Perquisites. In order to attract and retain executive officers, we
offer health and welfare programs and include medical and dental
benefits. In addition, our senior executive officers we awarded
a monthly car allowance of $750 per month and an allowance for an email enabled
mobile phone service of $500 per month.
Severance
Benefits
Under the
terms of the Executive Employment Agreements, if the employee’s employment is
terminated as a result of his death, disability, by us without cause or the
employee resigns within 90 days following a change of control or for "good
reason”, the employee will be entitled to receive (in addition to salary and
certain other benefits earned prior to termination) a single lump sum payment in
an amount equal to two times the sum of the employee’s then-current annual base
salary and the highest annual discretionary bonus and the highest incentive
bonus that the employee was entitled to receive within the three (3) years
preceding the date of termination. In addition, the employee will become
fully vested in all outstanding stock incentive awards, will be entitled to
certain health and welfare benefits for a period of two years following such
termination and payment of additional amounts in the event additional taxes are
imposed on the under Section 280G of the Internal Revenue Code. Under the
Executive Employment Agreements, “cause” means: (i) a final non-appealable
adjudication of the employee of a felony, which would have a material or adverse
effect on our business; or (ii) the determination of the board of directors
(other than the affected employee) that the employee has engaged in intentional
misconduct or the gross neglect of his duties, which has a continuing material
adverse effect on our business.
Compliance
with Internal Revenue Code Section 162(m)
As a
result of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the “Code”), we will not be allowed a federal income tax deduction for
compensation paid to certain executive officers to the extent that compensation
exceeds $1 million per officer in any one year. This limitation will
apply to all compensation paid to the covered executive officers which is not
considered to be performance-based. Compensation which does qualify as
performance-based compensation will not have to be taken into account for
purposes of this limitation. Section
162(m) of the Code did not affect the deductibility of compensation paid to our
executive officers in 2008 and it is anticipated it will not affect the
deductibility of such compensation expected to be paid in the foreseeable
future. The compensation committee will continue to monitor this matter
and may propose additional changes to the executive compensation program if
warranted.
Compensation
Committee Report
The
compensation committee has discussed and reviewed with management the
Compensation Discussion and Analysis set forth above. Based upon this
review and discussion, the compensation committee recommended to the Board that
the Compensation Discussion and Analysis be included in this proxy
statement.
|
Compensation Committee
of the Board of Directors.
|
||
|
Sheldon
Steiner, Chairman
|
||
|
David
Barnes
|
||
- 12
-
Summary
Compensation Table
The
following table summarizes all compensation recorded by us in the years ended
December 31, 2007 and December 31, 2008 for:
|
•
|
our
principal executive officer or other individual serving in a similar
capacity,
|
|
|
•
|
our
two most highly compensated executive officers other than our principal
executive officer who were serving as executive officers at December 31,
2008 as that term is defined under Rule 3b-7 of the Securities Exchange
Act of 1934, whose compensation exceed $100,000, and
|
|
|
•
|
up
to two additional individuals for whom disclosure would have been required
but for the fact that the individual was not serving as an executive
officer at December 31, 2008.
|
For
definitional purposes these individuals are sometimes referred to as the “named
executive officers”. The value attributable to any stock or option awards
is computed in accordance with FAS 123R. No officers received
compensation in the form of Non-Equity Incentive Plan Compensation, Nonqualified
Deferred Compensation Earnings, or any other forms of Compensation in excess of
the $10,000 in the aggregate in 2007 and 2008. The amounts reflected
in columns d and e represent the dollar amount recognized for financial
statement reporting purposes with respect to 2008 and 2007 for the fair value of
securities granted in each respective year in accordance with SFAS 123R.
Pursuant to SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. These amounts
reflect our accounting expense for these awards, and do not correspond to the
actual value that may be realized upon exercise.
|
Name and principal
position (a)
|
Year
(b)
|
Salary
($) (c)
|
|
Bonus
($) (d)
|
Stock
Awards ($)
(e)
|
Option
Awards ($)
(f)
|
Total
($)(j)
|
||||||||||||||
|
Yuejian (James)
Wang, Ph.D. (1)
|
2008
|
- | 37,000 | - | - | 37,000 | |||||||||||||||
|
2007
|
- | 83,700 | - | - | 83,700 | ||||||||||||||||
|
Yi (Jenny) Liu (3)
|
2008
|
105,000 | 6,500 | 232,250 | - | 343,750 | |||||||||||||||
|
2007
|
70,000 | 20,200 | 0 | ||||||||||||||||||
———————
|
(1)
|
Dr.
Wang serves as CEO, President and Chairman since January 2009. From August
2006 through December 2008 Dr. Wang served as CEO and. In 2007 and 2008
Dr. Wang waived his annual salary. In January 2009 Dr. Wang waived the
annual base salary provided for in the employment agreement from October
1, 2008 through December 31, 2008 and the incentive compensation including
bonus, if any, due in 2008. See “Employment Agreements and Narrative
Regarding Executive Compensation - Assignment of securities received as
compensation to certain executive officers” as set forth above. The
amounts reflected in column (d) for 2008 represent cash payments made to
Dr. Wang which were approved by the board of directors. The amounts
reflected in column (d) for 2007 represent the fair value of marketable
securities assigned to Dr. Wang as compensation in 2007 which were
approved by the board of directors.
|
|
|
(2)
|
Ms.
Liu serves as Vice President of Finance. In 2007 and 2008 Ms. Liu served
as our Principal Financial and Accounting Officer. The amounts reflected
in column (c) represent cash payments made to Ms. Liu in 2007
and 2008. For 2008 the amounts reflected in column (d) represent cash
payments made to Ms. Liu in 2008 which were approved by the board of
directors. For 2007 the amounts reflected in column (d) represent the fair
value of marketable securities assigned to Ms. Liu as compensation in 2007
which were approved by the board of directors. For 2008 the amounts
reflected in column (e) represent the fair value of 80,000 shares of
common stock granted on October 9, 2008 pursuant to the 2008 Non Executive
Compensation Plan which vested January 1,
2009.
|
- 13
-
Outstanding
Equity Awards at Year End
The
following table provides information concerning unexercised options, stock that
has not vested and equity incentive plan awards for each named executive officer
outstanding at December 31, 2008:
|
OPTION
AWARDS
|
STOCK
AWARDS (1)
|
||||||||||||||||||||||||||
|
Name
(a)
|
Number
of Securities Underlying Unexercised options (#) (b)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#) (c)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)(d)
|
Option
Exercise Price ($) (e)
|
Option
Expiration Date (f)
|
Number
of Shares or Units of Stock that have not Vested (#) (g)
|
Market
Value of Shares or Units of Stock that have not Vested ($)
(h)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
that have not Vested (#) (i)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
other Rights that have not Vested ($) (j)
|
||||||||||||||||||
|
Yuejian
(James) Wang
|
27,400 | 2.50 |
1/1/2011
|
||||||||||||||||||||||||
| 400,000 | 5.00 |
1/1/2012
|
|||||||||||||||||||||||||
| 500,000 | 7.50 |
1/1/2013
|
|||||||||||||||||||||||||
| 500,000 | 10 |
1/1/2014
|
|||||||||||||||||||||||||
|
Yi (Jenny) Liu (3)
|
28,000 | 2.50 |
6/1/2012
|
80,000 | - | - | - | ||||||||||||||||||||
__________________
|
(1)
|
At
December 31, 2008 no officers held any unearned Equity Incentive Plan
Awards.
|
|
|
(2)
|
Ms.
Liu holds options to purchase 28,000 shares of common stock at an exercise
price of $2.50 per share expiring on June 1, 2012. On October
9, 2008 Ms. Liu was granted a restricted stock award for 80,000 shares of
common stock, which vested on January 1, 2009. All compensation
paid to Ms. Liu was approved by the board of
directors.
|
Executive
Employment Agreements and Narrative Regarding Executive
Compensation
In
August 2006 we entered into employment agreements with Dr. Wang. The
agreement provides for a base salary and annual bonuses as determined by the
board of directors based upon their evaluation of a variety of factors including
our revenues, net income and other financial and operating factors the board of
directors deems appropriate. In addition, Dr. Wang is entitled to participate in
any of our employee benefit plans and he will be reimbursed for reasonable
business expenses incurred by him on our behalf. The employment agreement also
contains customary confidentiality and non-compete provisions.
The
August 2006 employment agreement may be terminated upon Dr. Wang’s death or
disability, and with or without cause. In the event we should terminate Dr.
Wang’s employment upon his death or disability, for cause (as defined in the
agreement) or if he should resign, he is entitled to payment of his base salary
through the date of termination, any earned but unpaid bonuses, reimbursement
for any unreimbursed business expenses and any employment benefits, if any, that
he is then legally entitled to receive. At our option we may terminate his
employment without cause in which event he is entitled to payment of his base
salary through the date of termination and for a period of the earlier of 18
months or the expiration date of the agreement, any earned but unpaid bonuses,
reimbursement for any unreimbursed business expenses, any employment benefits,
if any, that he is then legally entitled to receive and all unvested
options will immediately vest and become exercisable.
Dr.
Wang’s August 2006 employment agreement which included a December 31, 2009
expiration date, provided for an annual base salary of $100,000 for 2007,
increasing to $150,000 for 2007, $200,000 for 2008 and $250,000 for 2009. This
employment agreement also included options to purchase 2,200,000 shares of our
common stock a portion of which vest over a three year period and are
exercisable for five years from vesting at prices ranging from $0.01 to $10.00
per share as additional compensation.
- 14
-
Dr.
Wang’s August 2006 employment agreement was approved by our board of directors
when there were no independent directors on the board. Accordingly, Dr. Wang and
other members of management who were also board members in August 2006, each had
significant influence over the terms and conditions of Dr. Wang’s employment
agreement and their own.
On August
6, 2009 our board of directors approved, based on the recommendation of the
compensation committee, an employment agreement with Dr. Wang to replace
the August 2006 employment agreement effective as of August 1,
2008. Dr. Wang’s August 1, 2008 employment agreement expires on
December 31, 2013 and provides for, among other things, payment of a base salary
which increases annually at fixed amounts, eligibility to receive an annual
incentive bonus in 2008 as described below, a discretionary bonus if approved by
our board of directors based on a recommendation of the compensation committee,
participation in certain health and welfare benefit plans, an automobile
allowance and an allowance for use of an email enabled mobile
phone. In January 2009, Dr. Wang waived his salary and any incentive
bonus due for 2008.
Dr.
Wang’s August 1, 2008 employment agreement provides that he will serve as our
chief executive officer and a member of our board of directors through December
31, 2013 at a base salary of $166,667 from August 1, 2008 through December 31,
2008 and an annual base salary of $450,000 in 2009, $500,000 in 2010, $550,000
in 2011, $600,000 in 2012 and $650,000 in 2013.
Under the
August 1, 2008 employment agreement, if Dr. Wang’s employment is terminated as a
result of his death, disability, by us without cause or he resigns within 90
days following a change of control or for “good reason”, Dr. Wang will be
entitled to receive (in addition to salary and certain other benefits earned
prior to termination) a single lump sum payment in an amount equal to two times
the sum of his then-current annual base salary and the highest annual
discretionary bonus and the highest incentive bonus that the employee was
entitled to receive within the three (3) years preceding the date of
termination. In addition, Dr. Wang will become fully vested in all outstanding
stock incentive awards, will be entitled to certain health and welfare benefits
for a period of two years following such termination and payment of additional
amounts in the event additional taxes are imposed on the under Section 280G
of the Internal Revenue Code.
Under the
August 1, 2008 employment agreement, “cause” means: (i) a final non-appealable
adjudication of Dr. Wang of a felony, which would have a material or adverse
effect on our business; or (ii) the determination of the board of directors
(other than the affected employee) that Dr. Wang has engaged in intentional
misconduct or the gross neglect of his duties, which has a continuing material
adverse effect on our business.
On
January 23, 2009, Dr. Wang entered into an amendment to his August 1, 2008
employment agreement waiving the annual base salary provided for in the
employment agreement from October 1, 2008 through December 31, 2008 and the
incentive compensation including bonus, if any, due in 2008. All other terms and
conditions of the employment agreement remain in full force and
effect.
Jenny
Liu, who has served as our Vice President of Finance and as our Principal
Financial and Accounting Officer from August 2006 until February 2009, is not a
party to an employment agreement with our company. Ms. Liu's compensation
is determined by our Chief Executive Officer and board of directors who
considered a number of factors in determining her compensation including
the scope of her duties and responsibilities to our company and the time she
devotes to our business. Our Chief Executive Officer or board of directors did
not consult with any experts or other third parties in fixing the amount of Ms.
Liu’s compensation. During 2008 Ms. Liu’s compensation package included a base
annual salary of $70,000 from January 1, 2008 until June 30, 2008. On July 1,
2008, Ms. Liu’s annual base salary was increased to $105,000 plus payment of a
monthly allowance of $1,000 per month for automobile and cellular phone
expenses. In addition, on July 1, 2008, Ms. Liu was also awarded
15,000 shares of our restricted common stock pursuant to our 2008 Non-Executive
Stock Incentive Plan which shares will vest 25% on June 1, 2009, 25% on
September 1, 2009, 25% on December 1, 2009 and 25% on March 1,
2010. In addition, we provided health care benefits to Ms. Liu in
2008. On December 3, 2008 we awarded Ms. Liu 80,000 shares of our restricted
common stock pursuant to our 2008 Non-Executive Stock Incentive Plan in lieu of
any prior stock option awards. The shares awarded to Ms. Liu on
December 3, 2008 vested in full on January 1, 2009.
In
February 2009, we appointed I. Andrew Weeraratne as our Chief Financial
Officer. Mr.
Weeraratne will receive a salary of $50,000 per year in cash plus $12,500 per
month in shares of our common stock, of which $5,000 per month will be in the
form of registered shares of common stock and $7,500 will be in the form of
restricted common stock (collectively referred to as the “Stock
Award”). All shares of our common stock comprising the Stock Award
will be issued within 10 days of the end of each monthly period during the term
of employment (the Award Date”). The restricted common stock will
vest 100% 12 months after each Award Date and will be subject to the terms and
conditions of our restricted stock award agreement as approved by our
compensation committee. The number of shares of our common stock to
be issued under the Stock Award will be computed by dividing $12,500 by the
closing price of our common stock on the last business day of each full month
over the 12 month period after the Effective Date. In addition, Mr.
Weeraratne is entitled to participate in our health benefit plan.
Mr. Weeraratne’s employment may be terminated by us or Mr. Weeraratne at will
without penalty. We are in discussions with Mr. Weeraratne regarding an
amendment to his compensation arrangement.
In 2007,
we assigned Dr. Wang marketable securities as compensation in 2007 which were
approved by the board of directors with a fair value of $83,700. All such
amounts are reflected in the Summary Compensation Table set forth
above.
- 15
-
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth securities authorized for issuance under any equity
compensation plans approved by our shareholders as well as any equity
compensation plans not approved by our shareholders as of December 31,
2008.
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights (a)
|
Weighted
average exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column (a))
(c)
|
||||||||||
|
Plan
category
|
||||||||||||
|
Plans
approved by our shareholders:
|
||||||||||||
|
Evolve
One, Inc. Stock Option Plan
|
480 | $ | 11.25 | 7,999,520 | ||||||||
|
2006
Equity Plan
|
375,250 | $ | 2.85 | 9,612,750 | ||||||||
|
2008
Executive Stock Incentive Plan
|
- | - | 1,000,000 | |||||||||
|
2008
Non-Executive Stock Incentive Plan
|
- | - | 2,731,352 | |||||||||
|
Plans
not approved by shareholders:
|
||||||||||||
|
2005
Equity Compensation Plan
|
260,500 | $ | 29.97 | 99,739,500 | ||||||||
|
2006
Stock Plan
|
414,590 | $ | 2.97 | 119,250 | ||||||||
A
description of each of these plans is contained later in the notes to audited
consolidated financial statements which appear at the end of our Form 10-K for
the year ended December 31, 2008.
At
April 15, 2009 we had 23,585,415 shares of common stock issued and
outstanding. The following table sets forth information known to us as of
April 15, 2009 relating to the beneficial ownership of shares of our common
stock by:
|
•
|
each
person who is known by us to be the beneficial owner of more than 5% of
our outstanding common stock;
|
|
|
•
|
each
director and nominee;
|
|
|
•
|
each
named executive officer; and
|
|
|
•
|
all
named executive officers and directors as a
group.
|
Unless
otherwise indicated, the address of each beneficial owner in the table set forth
below is care of China Direct, Inc., 431 Fairway Drive, Suite 200, Deerfield
Beach, Florida 33441. We believe that all persons, unless otherwise noted, named
in the table have sole voting and investment power with respect to all shares of
common stock shown as being owned by them. Under securities laws, a person is
considered to be the beneficial owner of securities owned by him (or certain
persons whose ownership is attributed to him) and that can be acquired by him
within 60 days from the that date, including upon the exercise of options,
warrants or convertible securities. We determine a beneficial
owner’s percentage ownership by assuming that options, warrants or
convertible securities that are held by him, but not those held by any other
person, and which are exercisable within 60 days of the that date, have been
exercised or converted.
|
Yuejian (James) Wang
1
|
5,168,300 | 21.08 | % | |||||
|
Yuwei Huang 2
|
500,000 | 2.12 | % | |||||
|
Lazarus Rothstein
3
|
30,000 | * | ||||||
|
I. Andrew Weeraratne
4
|
21,388 | * | ||||||
|
David Barnes 5
|
54,500 | * | ||||||
|
Sheldon Steiner
6
|
64,500 | * | ||||||
|
George Leibowitz
7
|
42,000 | * | ||||||
|
Philip Shen 8
|
42,555 | * | ||||||
|
Marc Siegel 9
|
2,166,182 | 9.2 | % | |||||
|
David Stein 10
|
1,831,044 | 7.4 | % | |||||
| All directors and executive officers as a group (8 persons) | 5,655,955 | 23.97 | % |
———————
|
|
*represents
less than 1%
|
- 16
-
Footnotes to
Principal Shareholder Table.
|
(1)
|
The number of shares
beneficially owned by Dr. Wang includes: 240,900 shares held directly;
4,000,000 shares of common stock held by Dragon Fund Management LLC
("Dragon Fund"), an entity in which Dr. Wang owns 1% of the membership
interests and holds 50% of the voting control; options to purchase 27,400
shares
of common stock at an exercise price of $2.50 expiring on January 1, 2011;
options to purchase 400,000 shares of common stock at an exercise price of
$5.00 expiring on January 1, 2012; and options to purchase 500,000
shares of common stock at an exercise price of $7.50 expiring on January
1, 2013. Dr. Wang disclaims
beneficial ownership of our common stock owned by Dragon Fund
except to the extent of his pecuniary interest in Dragon
Fund.
|
|
|
(2)
|
The
number of shares beneficially owned by Yuwei Huang includes 500,000 shares
of common stock purchased in a private transaction at a price of $1.10 per
shares in February 2008.
|
|
|
(3)
|
The
number of shares beneficially owned by Mr. Rothstein includes 10,000
shares of common stock presently outstanding, and 20,000 shares of our
restricted common stock awarded pursuant to our 2006
Stock Compensation Plan which vest in equal installments on June 1,
2009, September 1, 2009, January 2010, and April 1,
2010.
|
|
|
(4)
|
The
number of shares beneficially owned by Mr. Weeraratne includes
21,388 of our restricted common stock which vest: 6,881 on February 28,
2010 and 5,952 on March 31, 2010.
|
|
|
(5)
|
The number of shares
beneficially owned by Mr. Barnes includes: 3,750 shares of our common
stock, options to purchase 12,500 shares of common stock at an exercise
price of $3.00 expiring on January 15, 2011 and 38,250 shares of our
restricted common stock which were awarded pursuant to our 2008
Non-Executive Stock Incentive Plan which vest as follows: 10,500
shares vest on May 30, 2009, 9,250 shares vest on August 31, 2009, 9,250
shares vest on November 30, 2009, and 9,250 shares vest on March 28,
2010.
|
|
|
(6)
|
The
number of shares beneficially owned by Mr. Steiner includes: 13,750
shares of common stock; options to purchase 12,500 shares of common stock
at an exercise price of $3.00 expiring on January 15, 2011 and
38,250 shares of our restricted common stock awarded pursuant to our 2008
Non-Executive Stock Incentive Plan which vest as follows: 10,500
shares vest on May 30, 2009, 9,250 shares vest on August 31, 2009, 9,250
shares vest on November 30, 2009, and 9,250 shares vest on March 28,
2010.
|
|
|
(7)
|
The
number of shares beneficially owned by Mr. Leibowitz includes: 3,750
shares of our common stock and 38,250 shares of our restricted common
stock granted awarded pursuant to our 2008 Non-Executive Stock Incentive
Plan; 10,500 shares vest on May 30, 2009, 9,250 shares vest on August 31,
2009, 9,250 shares vest on November 30, 2009, and 9,250 shares vest on
March 28, 2010.
|
|
|
(8)
|
The
number of shares beneficially owned by Dr. Shen includes: 42,555 shares of
our restricted common stock granted awarded pursuant to our 2008
Non-Executive Stock Incentive Plan; 4,000 shares vest on April 26,
2009, 1,555 vest on July 26, 2009, 9,250 shares vest on May 30, 2009,
9,250 shares vest on August 31, 2009, 9,250 shares vest on November 30,
2009, and 9,250 shares vest on March 28, 2010.
|
|
|
(9)
|
The
number of shares beneficially owned by Mr. Siegel includes 2,186,214
shares of common stock presently outstanding, and 65,268 shares of common
stock granted as compensation under a consulting agreement granted
pursuant to our 2008 Non-Executive Compensation Plan, and carry voting
rights, which vest in equal installments on June 30, 2009, September 30,
2009 and December 31, 2009.
|
|
|
(10)
|
The
number of shares beneficially owned by Mr. Stein includes: 1,659.432
shares of common stock presently outstanding; 43,512 shares of common
stock granted as compensation under a consulting agreement granted
pursuant to our 2008 Non-Executive Compensation Plan, and carry voting
rights, which vest in equal installments on June 30, 2009, September 30,
2009 and December 31, 2009; and options to purchase 200,000 shares of
common stock at an exercise price of $5.00 expiring on June 1,
2012.
|
- 17
-
From time
to time we engage in transactions with related parties. The following
is a summary of the related party transactions reflected on our consolidated
balance sheet at December 31, 2008 and Note 12 to our consolidated financial
statements for the year ended December 31, 2008.
Definitions
We have
specified the following persons and entities as related parties with ending
balances as of December 31, 2008 and 2007:
|
•
|
Yuwei
Huang is executive vice president of our Magnesium segment, a member of
the board of directors, chief executive officer and chairman of Chang
Magnesium, chairman of Baotou Changxin Magnesium, chairman of YiWei
Magnesium, and chief executive officer and vice chairman of Golden
Magnesium;
|
|
|
•
|
Taiyuan
YiWei Magnesium Industry Co., Ltd., a company organized under the laws of
the PRC (“YiWei Magnesium”), is a minority interest owner in Chang
Magnesium;
|
|
|
•
|
Lifei
Huang is the daughter of Yuwei Huang;
|
|
|
•
|
Huihuan
Huang is the sister of Yuwei Huang;
|
|
|
•
|
Lifei
Huang is a registered representative of Pine Capital Enterprises Inc., a
company organized under the laws of the Caymen Islands (“Pine
Capital”);
|
|
|
•
|
Lifei
Huang is a registered representative of Wheaton Group Corp., a
company organized under the laws of Brunei Darussalam
(“Wheaton”);
|
|
|
•
|
Nippon
Magnetic Dressing Co., Ltd., a company organized under the laws of the
Japan (“Nippon Magnetic”), is a minority interest owner of YiWei
Magnesium;
|
|
|
•
|
Shanxi
Senrun Coal Chemistry Co., Ltd., a company organized under the laws
of the PRC (“Senrun Coal”), is a minority interest owner in Golden
Magnesium;
|
|
|
•
|
Shanxi
Jinyang Coal and Coke Group Co., Ltd., a company organized under the laws
of the PRC (“Jinyang Group”), is a minority interest owner of Pan
Asia Magnesium;
|
|
|
•
|
Japan
Material Industry Co., Ltd. a company organized under the laws of the PRC,
(“Japan Material”), is a minority interest owner of YiWei
Magnesium;
|
|
|
•
|
Runlian
Tian is a director of Pan Asia Magnesium;
|
|
|
•
|
Hiubiao
Zhao is the brother of an officer of Pan Asia
Magnesium;
|
|
|
•
|
NanTong
Langyuan Chemical Co., Ltd., a company organized under the laws of the PRC
(“NanTong Chemical”), is owned by Jingdong Chen and Qian Zhu, the minority
interest owners of Lang Chemical;
|
|
|
•
|
Jingdong
Chen, is vice president of our Basic Materials segment and chief executive
officer of Lang Chemical;
|
|
|
•
|
Qian
Zhu is chief financial officer of Lang Chemical. Jingdong Chen and Qian
Zhu are husband and wife;
|
|
|
•
|
Zhou
Weiyi is the minority interest owner in CDI Metal
Recycling;
|
|
|
•
|
Chen
Chi is vice president of our Basic Materials Segment and minority interest
owner of CDI Beijing; and
|
|
|
•
|
Lisheng
(Lawrence) Wang is the chief executive officer and chairman of Dragon
Capital Group Corp. a Nevada corporation, (“Dragon Capital”) and is the
brother of Dr. Wang, CEO and Chairman of China Direct and Xiaowen Zhuang,
a key employee.
|
Accounts
Receivable – related parties
At
December 31, 2008 we reported accounts receivable – related parties of
$1,676,191 comprised of the following:
|
•
|
$1,628,896
due Baotou Changxin Magnesium from YiWei Magnesium, for inventory
provided; and
|
|
|
•
|
$47,295
due Golden Magnesium from YiWei Magnesium for inventory
provided.
|
At
December 31, 2007 we reported accounts receivable – related parties of
$2,283,600 comprised of the following:
|
•
|
$1,287,317
due Chang Magnesium from YiWei Magnesium, for product provided;
and
|
|
|
•
|
$996,283
due Golden Magnesium from YiWei Magnesium for product
provided.
|
- 18
-
Prepaid
Expenses – related parties
At
December 31, 2008 we reported prepaid expenses – related parties of
$8,007,111 comprised of the following:
|
•
|
$5,830,717
prepaid by Chang Magnesium to YiWei Magnesium for future delivery of
inventory;
|
|
|
•
|
$940,699
prepaid by Golden Magnesium to Senrun Coal for future delivery of coke gas
for fuel;
|
|
|
•
|
$520,397
prepaid by Chang Magnesium to Nippon Magnetic to for future delivery of
inventory;
|
|
|
•
|
$389,225
prepaid by Pan Asia Magnesium to Jinyang Group for the future delivery of
coke gas; and
|
|
|
•
|
$326,073
prepaid by Golden Magnesium to YiWei Magnesium for future delivery of
inventory.
|
At
December 31, 2007 we reported prepaid expenses-related parties of
$4,150,943 comprised of the following:
|
•
|
$1,805,351
prepaid by Chang Magnesium to YiWei Magnesium for future delivery of
inventory;
|
|
|
•
|
$1,382,312
prepaid by Golden Magnesium to YiWei Magnesium for future delivery of
inventory; and
|
|
|
•
|
$963,280
prepaid by Lang Chemical to NanTong Chemical for future delivery of
chemical inventory.
|
Loan
Receivable – related parties
At
December 31, 2008 we reported loan receivables – related parties of
$1,652,728 comprised of the following:
|
•
|
$1,608,959
due Lang Chemical from NanTong Chemical for funds advanced for working
capital purposes; and
|
|
|
•
|
43,769
due CDI Shanghai Management from Dragon Capital for funds advanced for
working capital purposes.
|
At
December 31, 2007 we reported loan receivables – related parties of
$0.
Due
from related parties
At
December 31, 2008 we reported due from related parties of $35,710 comprised
of the following:
|
•
|
$21,125
due China Direct from a China Direct employee for the exercise price of
exercised options; and
|
|
|
•
|
$14,585 due
CDI Metal Recycling from Zhou Weiyi, for the contribution of registered
capital related to the formation of CDI Metal
Recycling.
|
At
December 31, 2007 we reported due from related parties of $1,287,877
comprised of the following:
|
•
|
$1,287,877
due Pan Asia Magnesium from a Jinyang Group for working capital
purposes.
|
Accounts
Payable – related parties
At
December 31, 2008 we reported accounts payable – related party of
$7,516,728 comprised of the following:
|
•
|
$4,497,180
due from Chang Magnesium to Pine Capital in repayment of an advance from
customer for the expected delivery of inventory; and
|
|
|
•
|
$3,019,548
due from Chang Magnesium to Wheaton Group in repayment of an advance form
customer for the expected delivery of
inventory.
|
At
December 31, 2007 we reported accounts payable–related parties of $964,114
comprised of the following:
|
•
|
$604,596
due from Chang Magnesium to YiWei Magnesium for delivered inventory;
and
|
|
|
•
|
$359,518
due from Golden Magnesium to YiWei Magnesium for delivered
inventory.
|
- 19
-
Notes
Payable – related parties
At
December 31, 2008 we reported notes payable–related party of
$0.
At
December 31, 2007 we reported notes payable–related party of $410,167
comprised of the following:
|
•
|
$410,167
due Nantong Chemical from Lang Chemical for fund advances for working
capital purposes.
|
Due
to related parties
At
December 31, 2008 we reported due to related parties balance of
$978,739 comprised of the following:
|
•
|
$832,843 due
to Chen Chi, this amount is made of up $729,257 due from Capital One
Resource, and $103,586 from CDI Beijing for fund advances for working
capital purposes; and
|
|
|
•
|
$145,896
advanced by Huihuan Huang to Chang Magnesium for working capital
purposes.
|
At
December 31, 2007, our financial statements reflect a due to related
parties balance of $3,137,233. This amount is comprised of:
|
•
|
$1,993,410
advanced by Japan Material to Chang Magnesium for working capital
purposes;
|
|
|
•
|
$652,921
advanced by YiWei Magnesium to Chang Magnesium and Golden Magnesium for
working capital purposes;
|
|
|
•
|
$287,662
advanced by Ms. Runlian Tian and Mr. Hiubiao Zhao to Pan Asia
Magnesium for working capital purposes; and
|
|
|
•
|
$203,240
advanced by CDI Wanda to Mr. Dai Feng, an officer of CDI Wanda.
NanTong Chemical is a Chinese limited liability company owned by Jingdong
Chen and Qian Zhu, the two minority shareholders of Lang
Chemical.
|
Related
Person Transaction Policy
Our board
of directors is in the process of finalizing a written Related Person
Transaction Policy that will require the board of directors or audit committee
to approve or ratify transactions between our company or one or more of our
subsidiaries and any related person involving a dollar amount to be
determined by the board of directors. Under the Related Person Transaction
Policy being considered by the board of directors, the board of directors or
audit committee will review the relevant facts of the proposed transaction and
the interest of the related person in the transaction, and either approve or
reject the proposed transaction. If a related person transaction that has not
been previously approved or previously ratified is discovered, that transaction
will be presented to the board of directors or audit committee for
ratification. No director can participate in the deliberation or approval of any
related person transaction in which such director is the related
person.
For
purposes of the Related Person Transaction Policy, a "related person" means (i)
any director or executive officer of ours, (ii) any nominee for director, (iii)
any 5% beneficial owner of our common stock, (iv) any immediate family member of
a director, nominee for director, executive officer or 5% beneficial owner of
our common stock, and (v) any firm, corporation, or other entity in which any of
these persons is employed or is a partner or principal or in a similar position,
or in which such person has a 10% or greater beneficial ownership interest. The
Related Person Transaction Policy will provide that the following types of
transactions are deemed to be pre-approved under the policy: (1) transactions
that are available to related persons on the same terms as such transactions are
available to all employees generally; (2) compensation or indemnification
arrangements of any executive officer, other than an individual who is an
immediate family member of a related person, if such arrangements have been
approved by the board of directors or the compensation committee; (3)
transactions in which the related person's interest derives solely from his or
her ownership of less than 10% of the equity interest in another person (other
than a general partnership interest) that is a party to the transaction; (4)
transactions in which the related person's interest derives solely from his or
her ownership of a class of our equity securities and all holders of that class
of equity securities received the same benefit on a pro rata basis, (5) director
compensation arrangements, if such arrangements have been approved by the board
of directors or the nominating and corporate governance committee; and (6) any
other transaction which is not required to be disclosed as a "related person
transaction" under applicable securities regulations. The Related Person
Transaction Policy defines the term "immediate family member" to mean any child,
stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law of a director,
nominee for director, executive officer, or 5% beneficial owner of our common
stock, and any person (other than a tenant or employee) sharing the household of
such director, nominee for director, executive officer, or 5% beneficial
owner.
This
policy, which was is under consideration by our board of directors, will be
applied to future related person transactions. Consequently, during 2008
none of the aforedescribed related party transactions were subject to review as
contemplated by our Related Person Transaction Policy.
- 20
-
From time
to time in this proxy statement we used certain defined terms to refer to our
subsidiaries and other entities, all of which have the same meaning as in our
December 31, 2008 Annual Report on Form 10-K filed the Securities and
Exchange Commission.
MATTERS
TO BE CONSIDERED AT THE ANNUAL MEETING
ELECTION
OF DIRECTORS
Nominees
for the board of directors
The board
of directors proposes the election of the following five individuals to serve on
its board of directors for a term of one year. These nominees include current
board members Dr. Wang, Dr. Shen and Messrs. Barnes, Steiner and Huang. Dr.
Yuejian (James) Wang and Messrs. Barnes and Steiner are standing
for reelection. Dr. Shen and Mr. Huang were appointed in January 2009
and are standing for election. Mr. Leibowitz, currently a member of our
board of directors, is not standing for reelection at the annual meeting because
his other commitments will prevent him from devoting sufficient time to our
company. There are no disagreements between our company and Mr.
Leibowitz.
The
following is information about each nominee, including biographical data for at
least the last five years. Should one or more of these nominees become
unavailable to accept nomination or election as a director, the individual named
as proxy on the enclosed proxy card will vote the shares that he represents for
the election of such other persons as the board of directors may
recommend.
The board
of directors adheres to corporate governance principles designed to assure the
continued vitality of the board of directors and excellence in the execution of
its duties. The board of directors is responsible for supervision of the overall
affairs of China Direct. Following the annual meeting, the board of directors
will consist of five directors. All directors are A.A. citizens. The term of
each director continues until the next annual meeting or until successors are
elected. The names of the nominees for our board of directors and
information about them are set forth below.
Yuejian
(James) Wang, Ph.D., age 47, has served as our CEO and Chairman of
the board of directors since August 2006. Dr. Wang, a co-founder of China Direct
Investments, has served as its CEO and Chairman of its board of directors since
its inception in January 2005. Dr. Wang has also been a member of the board of
directors of CHIC Investment Banking Services (Shanghai) Company Limited since
June 2004. From 2001 to 2004, he was President and Chairman of the board of
directors of Genesis Pharmaceutical Enterprises, Inc. (OTCBB: GNP). From 2000
until 2001, Dr. Wang was President, Chief Operating Officer and director of
China Net & Technologies, Inc., a technology firm. From 2000 until 2001, Dr.
Wang was Vice President, Chief Operating Officer and director of Ten Sleep
Corporation, a California-based integrated Internet company that acquired and
licensed technology, identified, acquired and developed development-stage
technology and service entities and focused on the internet infrastructure
market-PC, application-ready devices. From January 2000 until November 2000, Dr.
Wang was President of Master Financial Group, Inc., a St. Paul, Minnesota-based
company which was a wholly-owned subsidiary of Ten Sleep Corporation that
provided consulting services for small private and public entities in the area
of corporate finance, investor relations and business management. Between 1997
and 2000, Dr. Wang was a research scientist and Assistant Professor, Lab
Director at the University of Minnesota, School of Medicine. Dr. Wang
received a Bachelor of Science degree from the University of Science and
Technology of China in He Fei, China in 1985, a Master of Science Degree from
the Shanghai Second Medical University, Shanghai, China in 1988, and his Ph.D.
degree from the University of Arizona in
1994.
Yuwei
Huang, age 54, has served as our Executive Vice President – Magnesium
since February 2009 and as Chief Executive Officer of our subsidiary, Chang
Magnesium, since June 2006. Mr. Huang is responsible for the operations of Chang
Magnesium. Mr. Huang also serves as General Manager of Taiyuan YiWei Magnesium
Industry Co., Ltd. (“YiWei Magnesium”) since founding the company in 1999 and
serves in various positions with its affiliated entities including Vice Chairman
of Shanxi Golden Trust YiWei Magnesium Industry Co., Ltd. since 2002, Vice
Chairman of Taiyuan Qingcheng YiWei Magnesium Industry Co., Ltd. since 2001,
Vice Chairman and General Manager of Taiyuan Min Wei Magnesium Industry Co.,
Ltd. since 2000, General Manager of Taiyuan YiWei Magnesium Factory since 1998
and Chairman of Shang Xi NiChiMen YiWei Magnesium Co., Ltd. since 1994. YiWei
Magnesium, a minority owner of Chang Magnesium, owns interests in seven
subsidiary magnesium factories, a magnesium alloy factory and a magnesium powder
desulphurization reagent factory, all located in
China.
- 21
-
David
M. Barnes, age
66, is a certified public accountant and has been a member of our board of
directors since April 2007. Mr. Barnes is the chairman of our audit committee
and serves on our compensation committee, nominating committee and governance
committee. Mr. Barnes brings over 40 years experience working with both public
and private companies. Since December 2008, Mr. Barnes has been the President
and since February 2009 has been the Chief Executive Officer and Chairman of the
Board of Directors of MDwerks, Inc. (MDWK:OTCBB). Mr. Barnes had served as the
audit committee chairman and a member of the compensation committee of the board
of MDwerks, Inc. from November 2005 until December 2008. MDwerks, Inc. is
an automated healthcare solutions provider and also markets digital pens and
associated software and customer service. From April 1996 through July 2006, Mr.
Barnes served as Executive Vice President, Chief Financial Officer and a
director of Solar Thin Films, Inc. (OTCBB:SLTN) (formerly American United
Global, Inc., (OTCBB:AUGB). From 2002 to February 2009, Mr. Barnes was a
consultant to management of numerous companies. In this role, from
May 2006 to November 2007, Mr. Barnes was Chief Financial Officer and a director
of Cyber Defense Systems, Inc. (OTCBB:CYDF), a designer and builder of manned
and unmanned surveillance airships. From March 2006 to June 2008, Mr. Barnes was
the Chief Financial Officer of Neah Power Systems, Inc. (OTCBB:NPWS), a
developer of porous silicon based fuel cells. In addition, Mr. Barnes was a
director of Searchhelp, Inc. from April 2005 to February 2009 (OTCBB:SHLP),
Thinkpath, Inc. from May 2005 to February 2009 (OTCBB:THPHF) and Medical
Solutions Management, Inc. from December 2007 to December 2008 (OTCBB: MSMT).
Thinkpath, Inc. filed for protection under Chapter 11 of the U.S. Bankruptcy
code in March 2008. Mr. Barnes began his career as an auditor for the accounting
firm of Laventhol & Horwath and is a graduate of C.W. Post
College.
Sheldon
Steiner, age 75, has been a member of our board of directors since
April 2007. Mr. Steiner is Chairman of the compensation committee and
a member of the audit committee and nominating and governance committee.
Mr. Steiner has over 52 years of both public and private accounting
experience. Since October 2008, Mr. Steiner has been a member of the board of
directors of MDwerks, Inc. From 2003 to 2005 Mr. Steiner served
as a managing director for American Express Tax and Business Services, Inc. From
2003 to 2007 Mr. Steiner was a principal of Millward & Co. CPAs. From
2006 to 2007 Mr. Steiner was a managing director of RSM McGladrey.
Mr. Steiner currently serves as a Senior Vice President at Valley Bank in
south Florida and is a member of the Fort Lauderdale Chamber of Commerce
Trustees and the Broward Economic Development Council. He is a graduate of
the City College of New
York.
Philip
Y. Shen, Ph.D., age 65, possesses three decades of high level experience
in international sales and marketing, manufacturing, mergers/acquisitions, cross
border investment, combined with his cultural background and fluency in Chinese
dialects. For more than the past 20 years, Dr. Shen has held numerous
positions with Leggett and Platt, Inc., a Fortune 500 Company
that manufactures a broad variety of engineered components and products for
customers worldwide. Prior to his retirement at Leggett and Platt,
Inc., Dr. Shen held the position of president of its Asia Pacific operations
where he was responsible for business development, sales and marketing, sourcing
and manufacturing, mergers and acquisitions, licensing and cross-cultural
negotiations in the company’s Asia Pacific region. Since his
retirement in 2008, Dr. Shen has been engaged in international consulting
representing clients in the area of cross-border investment and
marketing. In addition, since 2004, Dr. Shen has published a monthly
publication, China Insights, which reports on a variety of topics important to
business development and bi-directional trade. Dr. Shen earned a
Ph.D. degree in biochemistry from Western Michigan University in
1971.
There are
no family relationship between any of the executive officers and
directors.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR”
ELECTION OF THE DIRECTOR NOMINEES.
- 22
-
