<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EURO TECH HOLDINGS COMPANY LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
AND TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
<TABLE>
<S> <C> <C>
BRITISH VIRGIN ISLANDS 5090 NA
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
18F Gee Chang Hong Centre
65 Wong Chuk Hang Road, Hong Kong
011-852-2814-0311
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
T.C. LEUNG
CHIEF EXECUTIVE OFFICER
c/o EURO TECH (FAR EAST) LIMITED
18F Gee Chang Hong Centre
65 Wong Chuk Hang Road, Hong Kong
011-852-2814-0311
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT PEREZ, ESQ. JAY M. KAPLOWITZ, ESQ.
GUSRAE, KAPLAN & BRUNO GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP
120 Wall Street 575 Lexington Avenue
New York, New York 10005 New York, New York 10022
Tel No. (212) 269-1400 Tel No. (212) 752-9700
Fax No. (212) 809-5449 Fax No. (212) 752-9713
</TABLE>
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<PAGE> 2
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......... 690,000(2) $5.00 $3,450,000 $1,189.66
- --------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase
Warrants............................ 690,000(3) $ .15 $ 103,500 $ 35.69
- --------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(4)....... 690,000 $5.50 $3,795,000 $1,308.62
- -------------------------------------------------------------------------------------------------
Underwriter's Stock Warrants(5)....... 60,000 $ -- $ 5 $ --
- -------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(6)....... 60,000 $6.00 $ 360,000 $ 124.14
- --------------------------------------------------------------------------------------------------
Underwriter's Warrants(7)............. 60,000 $ -- $ 5 $ --
- --------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants(8)..... 60,000 $ .18 $ 10,800 $ 3.72
- --------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(9)....... 60,000 $6.00 $ 360,000 $ 124.13
- --------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase
Warrants to be sold by Selling
Securityholders..................... 1,000,000 $ .15(10) $ 150,000 $ 51.72
- -------------------------------------------------------------------------------------------------
Common Stock, $.01 par value to be
sold by Selling Securityholders..... 1,000,000 $5.50(10) $5,500,000 $1,896.55
- -------------------------------------------------------------------------------------------------
TOTAL.......................... $4,734.24
=========
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Except as set forth in Note (10), estimated solely for purposes of
calculating the registration fee.
(2) Includes 90,000 shares of Common Stock subject to the underwriter's
overallotment option and assumes the overallotment option is exercised in
full.
(3) Includes 90,000 Redeemable Common Stock Purchase Warrants subject to the
underwriter's overallotment option and assumes the overallotment option is
exercised in full.
(4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants
referred to in the prior note.
(5) To be issued to the Underwriter, entitling the Underwriter to purchase up
to 60,000 shares of Common Stock.
(6) Issuable upon the exercise of the Underwriter's Stock Warrants.
(7) To be issued to the Underwriter, entitling the Underwriter to purchase up
to 60,000 Common Stock Purchase Warrants.
(8) Issuable upon the exercise of the Underwriter's Warrants.
(9) Issuable upon the exercise of the Common Stock Purchase Warrants identified
in the prior note.
(10) Price is based upon actual sale price paid by Selling Securityholders to
Registrant.
(11) Issuable upon the exercise of the Redeemable Common Stock Purchase Warrants
which are to be sold by the Selling Securityholders.
PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL BUT
INDETERMINATE NUMBER OF SHARES AS MAY BECOME ISSUABLE PURSUANT TO ANTI-DILUTION
PROVISIONS OF THE REDEEMABLE COMMON STOCK PURCHASE WARRANTS AND THE
UNDERWRITER'S STOCK WARRANTS AND UNDERWRITER'S WARRANTS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 3
EURO TECH HOLDINGS COMPANY LIMITED
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM F-1 LOCATION IN PROSPECTUS
- ------------------------------------------------------------- ------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus................................ Front Cover Page of
Registration Statement; Cross
Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.............................................. Inside Front Cover Page of
Prospectus; Additional
Information; Outside Back
Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges........................................ Prospectus Summary; Risk
Factors
4. Use of Proceeds......................................... Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price......................... Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution................................................ Dilution; Risk Factors
7. Selling Securityholders................................. Concurrent Registration for
Selling Securityholders
8. Plan of Distribution.................................... Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered.............. Outside Front Cover Page of
Prospectus; Prospectus
Summary; Description of
Securities
10. Interests of Named Experts and Counsel.................. Legal Matters; Experts
11. Information with Respect to the Registrant.............. Outside Front Cover Page of
Prospectus; Prospectus
Summary; Risk Factors;
Capitalization; Unaudited Pro
Forma Condensed Consolidated
Financial Statements; Selected
Financial Information;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Transactions; Principal
Shareholders; Description of
Securities; Dividend Policy;
Shares Eligible for Future
Sale; Appendix -- The People's
Republic of China; Financial
Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities.............................. *
</TABLE>
- ---------------
* Item is inapplicable, or the answer thereto is in the negative, and is
omitted.
<PAGE> 4
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering by the Company of shares of Common Stock and
Redeemable Common Stock Purchase Warrants (the "Prospectus") and one to be used
in connection with the sale of Redeemable Common Stock Purchase Warrants and
shares of the Company's Common Stock underlying such Warrants by certain selling
securityholders (the "Selling Securityholder Prospectus"). The Prospectus and
the Selling Securityholder Prospectus will be identical in all respects except
for the alternate pages for the Selling Securityholder Prospectus included
herein which are labeled "Alternate Page(s) for Selling Securityholder
Prospectus."
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1996
EURO TECH HOLDINGS COMPANY LIMITED
600,000 SHARES OF COMMON STOCK AND
600,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Euro Tech Holdings Company Limited, a British Virgin Island Company (the
"Company") hereby offers 600,000 shares of common stock, $.01 par value (the
"Common Stock") of the Company and 600,000 Redeemable Common Stock Purchase
Warrants (the "Warrants"). The Common Stock and the Warrants offered hereby
(sometimes hereinafter collectively referred to as the "Securities") will be
separately tradeable immediately upon issuance and may be purchased separately.
Investors will not be required to purchase shares of Common Stock and Warrants
together or in any particular ratio. Each Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $5.50 (the "Exercise
Price"), subject to adjustment, commencing one year after the date of this
Prospectus (the "Effective Date") until the close of business on the sixth year
after the Effective Date, provided however that prior to the second year after
the Effective Date, the Warrants will be exercisable only if May Davis Group,
Inc. (the "Underwriter") has consented in writing to all of the Warrants being
exercisable.
The Warrants are redeemable, in whole or in part, by the Company at a price
of $.10 per Warrant, at any time that they are exercisable, and prior to their
expiration, provided that (i) prior written notice of not less than thirty days
is given to the Warrant holders, (ii) the average closing bid price of the
Company's Common Stock for the twenty consecutive trading days immediately prior
to the date on which the notice of redemption is given, shall have exceeded
$8.50 per share, and (iii) Warrantholders shall have exercise rights until the
close of business the day preceding the date fixed for redemption if the
Warrants are then exercisable.
Prior to this offering (the "Offering" or the "Public Offering"), there has
been no public market for the Company's Common Stock and Warrants, and there can
be no assurance that such a public market will develop or be sustained after the
completion of the Offering. The Offering price of the Common Stock and the
exercise price and other terms of the Warrants were established by negotiations
between the Company and the Underwriter and do not bear any direct relationship
to the Company's assets, book value, results of operations or any other criteria
of value. The Company has applied for the listing of the Common Stock and
Warrants on the NASDAQ SmallCap Market ("NASDAQ") under the symbols
" " and " ", respectively, and on the Boston Stock
Exchange under the symbols " " and " ",
respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 7 AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES" COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
Per Share........................ $5.00 $.50 $4.50
- ------------------------------------------------------------------------------------------------
Per Warrant...................... $.15 $.015 $.135
- ------------------------------------------------------------------------------------------------
Total(3)......................... $3,090,000.00 $309,000.00 $2,781,000.00
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional compensation to the Underwriter consisting
of (i) a non-accountable expense allowance equal to 3% of the aggregate purchase
price of the Securities, or $92,700 ($106,605 if the Underwriter's overallotment
option is exercised in full); (ii) warrants to purchase 60,000 shares of Common
Stock at $6.00 per share and/or 60,000 Common Stock Purchase Warrants at $.18
per Warrant; and (iii) a three year consulting agreement providing for fees
totalling $108,000, which is payable to the Underwriter in full on the closing
of this Offering. For additional information concerning further agreements
between the Company and the Underwriter, including an agreement to indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) After deducting Underwriting discounts and commissions, but before the
payment of the Underwriter's non-accountable expense allowance in the amount of
$92,700 ($106,605 if the Underwriter's overallotment option is exercised in
full) and other expenses of the Offering payable by the Company (estimated at
$449,550).
(3) The Company has granted the Underwriter an option to purchase up to
90,000 additional shares of Common Stock and 90,000 additional Warrants, upon
the same terms and conditions set forth above, solely to cover overallotments,
if any (the "Overallotment Option"). If the Overallotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be increased to $3,553,500, $355,350 and $3,198,150,
respectively.
The Common Stock and Warrants are being offered on a "firm commitment"
basis, subject to prior sale, when, as, and if delivered to and accepted by the
Underwriter, and subject to certain other conditions and legal matters. The
Underwriter reserves the right to withdraw, cancel or modify the Offering and to
reject orders in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock and Warrants will be made
at the offices of the Underwriter, in New York City, on or about ,
1996.
-------------------------------------------
MAY DAVIS GROUP, INC.
-------------------------------------------
The date of this Prospectus is , 1996.
<PAGE> 6
Upon consummation of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file periodic reports
and other information with the Commission. However, as a "foreign private
issuer," the Company will be exempt from the rules under the Exchange Act
prescribing certain disclosure and procedural requirements for proxy
solicitations and the Company's officers, directors and principal shareholders
will be exempt from the reporting and "short-swing" profit recovery provisions
contained in Section 16 of the Exchange Act and the rules thereunder, with
respect to their purchases and sales of shares of Common Stock and Warrants. In
addition, the Company will not be required under the Exchange Act to file
periodic reports and financial statements with the Commission as frequently or
as promptly as United States companies whose securities are registered under the
Exchange Act. However, the Company intends to furnish its shareholders with
annual reports containing financial statements which will be examined and
reported on, with an opinion expressed by, an independent public accounting firm
(prepared in accordance with generally accepted accounting principles in the
United States ("U.S. GAAP").
The Company prepares its consolidated financial statements in accordance
with U.S. GAAP. The Company publishes its financial statements in United States
dollars as the Company is incorporated in the British Virgin Islands, where the
currency is the United States dollar, and upon completion of this Offering the
functional currency of the Company's only operating subsidiary is in Hong Kong
Dollars. All dollar amounts ("$") set forth in this Prospectus are in United
States dollars, the references to HK$ refer to Hong Kong Dollars and RMB to
Chinese Renminbi Yuan.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
The Company intends to distribute to its shareholders annual reports
containing financial statements audited and reported upon by its independent
public accountants after the close of each fiscal year, and will make such other
periodic reports as the Company may determine to be appropriate or as may be
required by law. The Company's fiscal year ends December 31st of each year.
2
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including financial statements and notes thereto appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Except as otherwise indicated herein, the
information contained in this Prospectus gives no effect to the exercise of (i)
the Overallotment Option, (ii) the Underwriter's Warrants, (iii) Warrants
offered hereby or issued to private investors, or (iv) options granted under the
Company's stock option plan and other options which may be granted by the
Company.
THE COMPANY
Euro Tech Holdings Company Limited, a British Virgin Islands company, will
acquire upon the closing of this Offering all of the issued and outstanding
capital stock of Euro Tech (Far East) Ltd. ("Far East"), a Hong Kong corporation
(the "Acquisition") and Far East will become a wholly owned subsidiary of the
Company. Unless the context otherwise requires, or it is otherwise stated, all
references to the "Company" include Far East, giving effect to the Acquisition.
The Company believes it is one of the leading distributors of water and
waste water related process control, analytical and testing instruments,
disinfection equipment, supplies and related automation systems in Hong Kong and
the People's Republic of China (the "PRC" or China). The Company distributes
products to approximately 400 regular customers including sub-distributors
located in Hong Kong, the PRC and Macau including the Hong Kong Environmental
Protection Department, the Beijing Hydrology station, China Light & Power Co.,
Ltd., Hong Kong Electric Co., Ltd., and the Kowloon-Canton Railway Corporation.
The Company believes that because of the increased expansion of industry
and general business growth in the PRC during the last five years there is a
strong and increasing demand for the products distributed by it in the PRC. The
Company further believes that in years to come the need for the products
distributed by it will grow as a result of governmental regulations of
environmental pollution and based upon demands of the PRC's population for a
healthy and safer environment including cleaner water.
The Company distributes products manufactured by a substantial number of
American, European and Japanese corporations, including Wallace & Tiernan,
Pacific Pty. Ltd. ("Wallace"), Hach Company ("Hach"), Hioki E.E. Corporation
("Hioki") and Finnigan Corporation ("Finnigan"), which are the Company's largest
suppliers, with purchases from them accounting for approximately 11%, 7%, 7% and
4%, respectively, of the Company's sales during its fiscal year ended December
31, 1995 ("Fiscal 1995") and 9%, 10%, 10% and 23%, respectively, of the
Company's sales during the first six months of the Company's fiscal year to end
December 31, 1996 ("Six Months 1996").
The Company distributes products through its headquarters located in Hong
Kong and its regional sales offices located in Beijing, Shanghai and Guangzhou
and through independent distributors. During Fiscal 1995 and Six Months 1996, no
single customer accounted for more than 5% of the Company's sales.
The Company intends to use a substantial portion of the net proceeds of the
Public Offering to establish an operation to assemble products of the kind now
distributed by the Company pursuant to an agreement with a PRC based entity and
to expand its marketing efforts by, among other things, opening additional
regional sales offices in the PRC. The Company believes that by assembling
products that it distributes, gross profits margins, revenues and net income
will increase. Similarly, the Company believes that by expanding its regional
sales efforts in the PRC, revenues and net income will be enhanced.
The Company has recently reached a preliminary agreement with the Shanghai
Thermometric Instrument Plant ("STIP") pursuant to which STIP will provide space
and technical expertise to assemble in the PRC certain of the products of the
kind that the Company currently distributes, including certain water related
testing, monitoring and treatment equipment. It is presently contemplated that
the Company will import components, assemble the components into finished
product and then distribute the products through the Company's distribution
network. There can be no assurance that the Company will successfully complete
an agreement with STIP or any other similar entity or that the Company's
expansion efforts will be successful.
3
<PAGE> 8
During the Company's Fiscal 1995 and Six Months 1996, the Company had sales
of approximately $13,667,000 and $6,973,000, respectively, and net income of
approximately $79,000 and $232,000, respectively. There can be no assurance that
the recent levels of the Company's revenues or net income will continue to be
achieved in the future.
The Company maintains an executive office at 18/F Gee Chang Hong Centre, 65
Wong Chuk Hang Road, Hong Kong, and its telephone number at that address is
011-852-2814-0311.
The Company's registered office in the British Virgin Islands is located at
TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands,
and its telephone number is (809) 494-5296.
THE OFFERING
SECURITIES OFFERED(1)...... 600,000 shares of Common Stock and 600,000
Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock at a price of
$5.50 during a five year period commencing one year
after the date of this Prospectus, provided,
however, that prior to the second year after the
date of this Prospectus, the Warrants will be
exercisable only if the Underwriter has consented
in writing to all of the Warrants being
exercisable. The exercise price and the number of
shares issuable upon exercise of the Warrants are
subject to adjustment in certain circumstances. See
"Description of Securities."
COMMON STOCK OUTSTANDING
BEFORE OFFERING(1)....... 1,550,000 Shares.
COMMON STOCK OUTSTANDING
AFTER OFFERING(1)(2)..... 2,150,000 Shares.
WARRANTS OUTSTANDING BEFORE
OFFERING................. 1,000,000.
WARRANTS OUTSTANDING AFTER
OFFERING(2).............. 1,600,000 Warrants.
EXPIRATION DATE............ , 2002 (six years after the Effective
Date).
REDEMPTION................. Redeemable by the Company, in whole or in part at a
price of $.10 per Warrant, at any time that they
are exercisable upon not less than 30 days prior
written notice to the holders of such Warrants,
provided that the average closing bid price of the
Company's Common Stock for the twenty consecutive
trading days immediately prior to the date on which
the notice of redemption is given, shall have
exceeded $8.50 per share.
USE OF PROCEEDS............ Expenses of establishing assembly operations in the
PRC (including start-up costs, leasehold
improvements and equipment), expansion of regional
sales offices, capital expenditures for office
equipment and working capital. See "Use of
Proceeds."
RISK FACTORS............... Investment in the securities offered hereby
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
PROPOSED NASDAQ SYMBOLS:(3)
COMMON STOCK..........
WARRANTS..............
4
<PAGE> 9
PROPOSED BOSTON STOCK
EXCHANGE SYMBOLS:(3)
COMMON STOCK..........
WARRANTS..............
- ---------------
(1) Includes 1,400,000 shares of the Company's Common Stock to be issued in
connection with the Acquisition. The owners of the shares to be issued in
connection with the Acquisition have agreed to return to the Company for
cancellation and as a contribution to capital an aggregate of 200,000 shares
in the event Far East fails to achieve after-tax net income of at least
$450,000 for the fiscal year to end December 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Certain Transactions."
(2) Does not include (i) 90,000 shares of Common Stock and 90,000 Warrants,
subject to the Underwriter's Overallotment Option; (ii) 1,600,000 shares of
Common Stock issuable upon the exercise of the outstanding Warrants, (iii)
120,000 shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants including the shares of Common Stock underlying the
Warrants included within the Underwriter's Warrants; (iv) 1,400,000 shares
of Common Stock reserved for issuance upon options that may be granted to
the Company's management (the "Management Options"); or (v) 150,000 shares
of Common Stock reserved for issuance pursuant to the Company's incentive
stock option plan. See "Management," "Underwriting" and "Description of
Securities."
(3) The proposed trading symbols do not imply that a liquid and active market
will be developed or sustained for the securities upon completion of this
Offering. See "Risk Factors -- Possible Suspension of the Company's
Securities from NASDAQ and the Boston Stock Exchange Even if Listing is
Obtained."
5
<PAGE> 10
SUMMARY FINANCIAL DATA
(AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA AND UNLESS OTHERWISE STATED)
The following table presents summary financial data of Euro Tech (Far East)
Limited. For a description of the Financial Statements from which the following
financial data have been derived, see the introduction to "Selected Financial
Information." The summary financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
OCTOBER 31,(1) AS OF DECEMBER 31, AS OF JUNE 30,
----------------- --------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996 1996
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HK$ HK$ HK$ HK$ HK$ US$(2) HK$ US$(2)
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents.............. 1,340 4,934 3,735 3,408 4,626 597 3,008 389
Working capital(3)..................... 6,152 8,855 9,261 7,253 4,896 631 6,115 790
Total assets........................... 25,845 33,615 45,838 52,492 59,740 7,717 57,303 7,404
Short-term debt(4)..................... 1,086 3,629 6,235 7,791 6,434 831 6,232 805
Long-term bank loans................... -- -- 3,538 3,330 7,006 905 6,471 836
Stockholders' equity................... 8,955 11,308 17,140 17,607 17,721 2,289 20,983 2,711
</TABLE>
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE SIX
OCTOBER 31,(1) FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED JUNE 30,
--------------------- -------------------------------------------- ---------------------------------
1991 1992 1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ US$(2)
(UNAUDITED)
INCOME STATEMENT DATA:
Sales.................. 68,263 83,813 105,374 103,512 105,782 13,667 51,959 53,969 6,973
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Cost of goods sold..... (50,686) (62,833) (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397)
Selling and
administrative
expenses............. (15,607) (19,683) (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273)
Interest expenses,
net.................. (249) (135) (221) (492) (877) (113) (420) (631) (82)
Gain on disposal of a
real estate
property............. -- -- -- 2,300 -- -- -- -- --
Other income, net...... 535 2,739 675 590 1,186 153 118 488 63
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total costs and
expenses............. (66,007) (79,912) (98,232) (98,754) (103,455) (13,366) (51,539) (51,780) (6,689)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations before
profits tax.......... 2,256 3,901 7,142 4,758 2,327 301 420 2,189 284
Provision for profits
tax current.......... (373) (827) (1,106) (425) (68) (9) (77) (406) (52)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations........... 1,883 3,074 6,036 4,333 2,259 292 343 1,783 232
Discontinued operations
Income (loss) of
subsidiary companies
sold in 1996......... 169 947 12 (1,466) (1,645) (213) (369) -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)...... 2,052 4,021 6,048 2,867 614 79 (26) 1,783 232
========= ========= ========= ========= ========= ========= ========= ========= =========
Income (loss) from
discontinued
operations per common
share................ 0.11 0.61 0.01 (0.95) (1.06) (0.14) (0.24) -- --
Net income (loss) per
common share......... 1.32 2.59 3.90 1.85 0.40 0.05 (0.02) 1.15 0.15
Weighted average number
of common shares
outstanding.......... 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000
</TABLE>
- ---------------
(1) In 1993, Euro Tech (Far East) Limited changed its financial year end date
from October 31 to December 31. Accordingly, income statement data for the
period from November 1, 1992 to December 31, 1992 are not presented.
(2) Translation solely for convenience of the readers at the prevailing exchange
rate of $7.74 = US$1 on June 30, 1996.
(3) Current assets minus current liabilities.
(4) Short-term debt include short-term borrowings and current portion of
long-term bank loans.
6
<PAGE> 11
RISK FACTORS
This Prospectus, including the documents incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act. Also, documents subsequently filed by the Company with the
Commission will contain forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below and the matters set forth or incorporated in
the Prospectus generally. The Company cautions the reader, however, that this
list of factors may not be exhaustive, particularly with respect to future
filings. Before making a decision to purchase any of the securities described in
this Prospectus, prospective investors should carefully consider the following
risk factors in connection with an investment in the Company, certain of which
are not typically associated with investing in equity securities of companies
from the United States. For more information concerning the PRC and certain
related matters discussed below, see "Appendix -- The People's Republic of
China."
HONG KONG; TRANSFER OF SOVEREIGNTY. The Company's executive and principal
offices are located in Hong Kong. As a result, the Company's results of
operations and financial condition may be influenced by the political situation
in Hong Kong and by the general state of the Hong Kong economy. On July 1, 1997,
sovereignty over Hong Kong will be transferred from the United Kingdom to China,
and Hong Kong will become a Special Administrative Region of China (an "SAR").
As provided in the Sino-British Joint Declaration on the Question of Hong Kong
(the "Joint Declaration") and the Basic Law of the Hong Kong SAR of China (the
"Basic Law"), the Hong Kong SAR will have a high degree of autonomy except in
foreign and defense affairs. Under the Basic Law, the Hong Kong SAR is to have
its own legislature, legal and judicial system and full economic autonomy for 50
years. Based on the current political conditions and the Company's understanding
of the Basic Law, the Company does not believe that the transfer of sovereignty
over Hong Kong will have an adverse impact on its financial and operating
environment. There can be no assurance, however, that changes in political or
other conditions will not result in such an adverse impact.
RISKS RELATING TO CHINA. A substantial portion of the Company's revenues
are derived from activities located in China. Additionally, the Company has
reached a preliminary agreement to produce water related testing, monitoring and
treatment equipment in China. As a consequence, the Company's results of
operations and financial condition may be influenced by the economic, political,
legal and social conditions in China. See "Appendix - The People's Republic of
China."
Economic, Political and Other Risks. China is in the process of
implementing a "socialist market economy" in which market forces are expected to
have a significant role, subject to policies and macro-economic regulations
established by the Chinese government. Although implementation of the socialist
market economy has resulted in significant economic growth in China, such growth
has been uneven among various sectors of the economy and among geographic
regions. Many of the economic reform measures which have been implemented are
unprecedented or experimental and may be subject to change or repeal. As a
result, there can be no assurance that general economic conditions in China will
continue to improve. In addition, the success of the Company's activities in
China depend on the Company's continued ability to overcome circumstances
specifically affecting the industrial sector, including the relatively poor
infrastructure and road transportation network and an uncertain legal and
regulatory environment.
During the past decade and a half, the Chinese government under its current
leadership has been reforming, and is expected to continue to reform, China's
economic and political systems. Such reforms have resulted in significant social
progress. Many of the reforms are unprecedented and are expected to be refined.
Other political, economic and social factors can also lead to further
readjustment of the reform measures. This refinement and readjustment process
may not always have a positive effect on the Company in China. The Company's
results at times may also be adversely affected by changes in policies of
China's government such as changes in laws and regulations (or the
interpretation thereof), the introduction of additional measures to control
inflation, changes in the rate or method of taxation and imposition of
additional restrictions on currency conversion and remittances abroad. Although
historically there have been periods of political instability, such as during
the "Cultural Revolution", and certain of the reform measures have from time to
time been readjusted, because of the broad support for the reform process and
because the economic system in China has already undergone extensive changes as
a result of the success of such reforms, the Company
7
<PAGE> 12
believes that the basic principles underlying the reforms will continue to
provide an acceptable framework for China's political and economic systems.
China recently has been experiencing substantial rates of inflation. For
example, according to public reports, consumer prices reportedly were 10.1%
greater in 1995 than in 1994. The Chinese government has implemented various
measures from time to time to control inflation and to regulate economic
expansion with a view to preventing overheating of the economy including credit
restrictions and reduction in growth of the money supply. The Chinese
government's measures to restrain inflation have had a significant impact on the
Company in the past and more measures in this regard or other actions by the
Chinese government could materially and adversely affect the Company, its
business and results of operations.
Legal Considerations. The legislative trend in China over the past decade
has been to enhance the protection afforded to foreign investment and allow for
more active control by foreign parties of foreign invested enterprises. There
can be no assurance, however, that legislation directed towards promoting
foreign investment and experimentation will continue. In addition, as the
Chinese business legal system continues to develop, changes to existing laws,
the creation of new laws and the preemption of local regulations by national
laws may adversely affect the Company's activities in China or the ability of
the Company to enter into a Sino-foreign agreements. For example, China's State
Economic and Trade Commission is reportedly considering regulations that may
restrict the ability of foreigners to enter certain industries. Although since
January 1, 1994, the Chinese government has introduced new laws and regulations
to modernize its systems, China does not yet possess a comprehensive body of
business law. As a result, the enforcement, interpretation and implementation of
regulations may prove to be inconsistent and it may be difficult to enforce
contracts.
Government Approvals. Consummation by the Company of any agreement with a
Chinese entity will be subject to certain Chinese government approvals. The
approval process typically requires submission of applications, asset appraisals
and feasibility studies to municipal, provincial and/or central government
agencies and the Company estimates that obtaining necessary approvals may take
at least 3 to 5 months after execution of final documentation for any such
agreement. There can be no assurance that the Company will be able to obtain
such approvals or that it will find a suitable entity to enter into an agreement
with.
Foreign Exchange and Exchange Rate Risks. The present practice of the
Company when entering into contracts for deliveries in China is to have the
contract sums denominated and payable in Hong Kong dollars, U.S. dollars or the
pound sterling. In some instances, the Company may allow clients to pay certain
low value contracts in Renminbi ("Rmb"), the currency of China, as the Company
needs to pay some of its costs in Rmb such as its day to day overhead expenses
for its offices situated in China. With this method, the currency risks have
been reduced to a minimum and the Company does not consider any hedging
activities for the purpose of minimizing its exposure to currency fluctuation
risk to be necessary.
The Chinese government controls its foreign currency reserves through
restrictions on imports and the conversion of Renminbi into foreign currency.
All foreign exchange transactions involving Renminbi must take place either
through the Bank of China or other institutions authorized to buy and sell
foreign exchange, or at an approved foreign exchange adjustment center (known as
"swap center"). The exchange rates used for transactions through the Bank of
China and other authorized institutions are set by the government from time to
time. The exchange rates available at swap centers are determined with reference
to supply and demand based on foreign currency requirements of Chinese
enterprises. The Company may conduct currency conversions of Rmb and foreign
currency at the swap centers at prevailing rates because of its proposed product
assembly activities. The Chinese government has recently imposed and then
revoked certain limitations on the Rmb/foreign currency exchange rates at the
swap centers, causing significant fluctuations in the value of the Rmb against
foreign currencies, and resulting in the intervention of Chinese banking
authorities to support the Rmb. There can be no assurance that the Chinese
government or other authorities will not seek to place limitations on the
exchange of Rmb or take other action that will result in significant
fluctuations in the value of the Rmb against other currencies or reduce the
availability of foreign exchange in China in the future.
During the last five years, the value of the Rmb generally has experienced
a gradual but significant devaluation against most major currencies. For
example, the official Rmb to U.S. dollar exchange rate declined from Rmb3.73 to
US$1.00 at the beginning of 1989 to Rmb5.81 to US$1.00 at the end of 1993. In
8
<PAGE> 13
1993, there was significant volatility in the swap rate of Rmb to U.S. dollars,
and there was a significant devaluation in the exchange rate on January 1, 1994,
to Rmb8.70 to US$1.00, in connection with the abolition of the official exchange
rate and implementation of the new managed floating rate foreign exchange
system. Although the Rmb to U.S. dollar exchange rate has been stable since
January 1, 1994 and the Chinese government has stated its intention to intervene
in the future to support the value of the Rmb, there can be no assurance that
exchange rates will not again become volatile or that the Rmb will not devalue
further against the U.S. dollar or Hong Kong dollar. Exchange rate fluctuations
may adversely affect the Company because of foreign currency denominated
liabilities, and may materially adversely affect the value, translated into U.S.
dollars, of the Company's net fixed assets situated and to be situated in China,
earnings and dividends.
POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company intends to use
approximately 39% of the net proceeds of this Offering to expand its business
operations by assembling products of the kind that it distributes. Although it
is anticipated that STIP will provide the facilities and the technical expertise
to assemble the products, the Company will be required to pay for leasehold
improvements and the equipment to assemble the products. The Company will also
be required to employ mid-level management to oversee the assembly of products.
The Company's estimated costs for leasehold improvements and equipment may prove
to be inaccurate or the costs may increase as a result of conditions in the PRC
or other factors. Additionally, although it believes that there are mid-level
managerial personnel available to the Company at a salary rate acceptable to the
Company, future events may alter this circumstance. There is no assurance the
Company's estimates will prove to be accurate or that unforeseen expenses will
not occur. In the event the Company's cost estimates prove to be inaccurate and
additional expenditures are required, the Company may not be able to implement
its strategy to assemble products and/or may be required to reallocate net
proceeds from other allocations to this purpose. See "-- Establishment of a New
Business," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
ESTABLISHMENT OF A NEW BUSINESS. The Company has not previously engaged in
the assembly of products and, as such, the Company's planned product assembly
operations should be viewed by investors as a new business venture that will be
subject to all the risks inherent in establishment of any new business
enterprise including, but not limited to, the possible need for additional
financing, complications and delays in the initiation of assembly operations,
incurring initial losses in the start-up of operations, the uncertainty of
market acceptance of the products to be assembled by the Company and competition
from manufacturers of finished products which the Company plans to assemble as
well as their distributors. Accordingly, there can be no assurance that the
Company's proposed product assembly operations will be successful. See "--
Possible Need For Additional Financing," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
NEW MARKET PENETRATION. The Company intends to establish three additional
regional sales offices in the PRC with a portion of the net proceeds of this
Offering. The opening of additional offices will require the hiring and training
of personnel, paying their salaries and related benefits, and the payment of
leasehold, equipment and other expenses until the offices are sustained by their
own revenues, of which there can be no assurance. Therefore, losses may be
possible until the additional regional sales offices are established and have
generated significant revenues. In addition to the foregoing, future events,
including problems, delays, expenses and complications frequently encountered by
companies seeking to penetrate new markets, as well as changes in governmental
policies, economic or other conditions may occur that could also cause the
Company to sustain losses as a result of these expansion efforts. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
RECENTLY DISPOSED OF SUBSIDIARIES; INVESTMENTS IN REALTY. The Company
recently disposed of several unsuccessful subsidiaries which had sustained
losses. One of such subsidiaries had been established to distribute
telecommunications products but encountered intense competition from the
manufacturers of telecommunications products who engaged in direct distribution
to end users. Such subsidiary failed to develop the expertise necessary to
distribute telecommunications products. Another subsidiary, established to
distribute industrial computers, lost its principal vendor when the vendor sold
this product line. Additionally, the Company has from time to time invested in
real estate and currently holds realty in Hong Kong which it intends to sell. In
the future, the Company may establish subsidiaries or divisions to distribute
products that
9
<PAGE> 14
are unrelated to its current product lines and it may make future investments in
real estate. In the event that the Company establishes such subsidiaries or
divisions in the future, there can be no assurance that they will not sustain
losses. Although the Company has derived profits from its investment in real
estate, there can be no assurance that the Company will derive a profit from its
current realty investment, which it is seeking to sell, or any future
investments that it may make in realty. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
DEPENDENCE UPON MANAGEMENT. The Company will be dependent upon the
services of its executive officers, in particular Mr. T.C. Leung, the Chairman
of the Company's Board of Directors and its Chief Executive Officer. The
business of the Company could be adversely effected by the loss of services of,
or a material reduction in the amount of time devoted to the Company by its
executive officers. Although the Company intends to apply for and be the
beneficiary of a "Key Person" life insurance policy in the amount of $1,000,000
on the life of Mr. Leung, there can be no assurance that the Company will
successfully obtain this insurance coverage, that it will maintain the policy in
effect or that the coverage to be applied for, if obtained, will be sufficient
to compensate the Company for the loss of the services of Mr. Leung. See
"Management."
COMPETITION. The Company faces competition from other distributors of
substantially similar products and manufacturers themselves, both foreign and
Chinese. The Company faces its principal competition from foreign manufacturers
and other distributors of their products situated in Hong Kong and the PRC. In
1994, the PRC tightened its credit nationwide and, as a result, the Company
believes that purchasers of the products distributed by the Company sought
reduced prices. The products distributed by the Company were foreign
manufactured and higher priced than Chinese manufactured products. As a result,
the Company reduced its sales prices and, therefore, its profit margins to
remain competitive. The Company believes that it competes with PRC manufacturers
on the basis of quality and technology, with the Company offering products of
foreign manufacturers which are of higher quality and use more advanced
technology. The Company believes that it competes with the foreign manufacturers
and the distributors of their products on the basis of the Company's more
extensive distribution network and an established reputation. However, the
Company recently disposed of one of its subsidiaries as a result of direct
competition from a manufacturer which established its own distribution network
in the PRC to distribute the type of products distributed by the subsidiary.
There can be no assurance that the Company will be able to compete effectively
with its competitors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
COMPETITION WITH VENDORS. As the Company plans to assemble products of the
kind that it presently distributes, the Company may directly compete with
certain of its vendors. Any such direct competition may adversely affect its
relationships with its vendors. See "Business."
VENDORS; LACK OF LONG TERM AGREEMENTS. The Company distributes supplies
manufactured by a number of vendors, including Wallace, Hach, Hioki and
Finnigan, which are the Company's largest suppliers, with purchases from them
accounting for approximately 11%, 7%, 7% and 4%, respectively, of the Company's
sales during Fiscal 1995 and 9%, 10%, 10%, and 23%, respectively, of the
Company's sales during Six Months 1996. The Company has only a letter from Hioki
appointing the Company as Hioki's sales representative in the PRC, Hong Kong and
Macau, its agreement with Wallace is terminable by either party on thirty days
notice prior to its annual renewal date, its agreement with Finnigan is
terminable on ninety days notice by either party and the agreement with Hach
expires in March 1997, unless a renewal is obtained. Although alternative
sources of supply exist, there can be no assurance that the termination of the
Company's relationship with any of the above or other vendors would not have a
short-term adverse effect on the Company's operations. See "Business."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 31% of the
estimated net proceeds received by the Company from this Offering have been
allocated to working capital and the Company will have broad discretion as to
the application of such funds. See "Use of Proceeds."
CONTROL BY T.C. LEUNG. After the successful completion of this Offering,
T.C. Leung, the Company's Chairman of the Board and Chief Executive Officer will
beneficially own approximately 65% of the Company's issued and outstanding
shares of Common Stock which as a practical matter will enable him to nominate
and cause the election of all the members of the Company's Board of Directors,
control the
10
<PAGE> 15
appointment of its officers and the day-to-day affairs and management of the
Company. See "Principal Shareholders."
CERTAIN LEGAL CONSEQUENCES OF INCORPORATION IN THE BRITISH VIRGIN
ISLANDS. The Company's corporate affairs are governed by its Memorandum of
Association, Articles of Association and the corporate law of the British Virgin
Islands ("BVI"). Principles of law relating to such matters as the validity of
Company procedures, the fiduciary duties of management and the rights of the
Company's shareholders may differ from those that would apply if the Company
were incorporated in a jurisdiction within the United States. The rights of
shareholders under BVI law are not as extensive as the rights of shareholders
under legislation or judicial precedent in many United States jurisdictions.
Thus, the shareholders of the Company may have more difficulty in protecting
their interests in the face of actions by the Company's Board of Directors than
they might have as shareholders of a company incorporated in many United States
jurisdictions. In addition, there is uncertainty whether the courts of BVI would
enforce judgments of the courts of the United States and of other foreign
jurisdictions. There is also uncertainty whether the courts of the BVI would
enforce actions brought in the BVI which are based upon the securities laws of
the United States.
DILUTION. As a result of the sale of the Securities offered in this
Offering and the consummation of the Acquisition, there will be immediate and
substantial dilution to public investors in that the pro forma net tangible book
value per share of the Company's Common Stock after this Offering and
consummation of the Acquisition will be approximately $2.25 per share, or
approximately $2.75 (55%) less than the $5.00 offering price per share. See
"Dilution."
NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to
this Offering, there has been no market for any of the Company's securities. The
initial public offering price of the Securities and the exercise price and other
terms of the Warrants have been arbitrarily determined by negotiations between
the Company and the Underwriter and such prices and terms are not necessarily
related to the Company's asset value, net worth or other established criteria of
value. In addition, there can be no assurance that a trading market will develop
after this Offering for any of the Company's Securities or that, if developed,
it will be sustained. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. In general, under Rule 144, a person
which has satisfied a two-year holding period may, under certain circumstances,
sell within any three-month period a number of shares of common stock that does
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume in such shares during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of shares without any quantity or other limitation by a person which is not an
affiliate of an issuer and which has satisfied a three-year holding period. The
holders of all shares of the Company's Common Stock have agreed not to sell
shares of the Company's Common Stock owned by them on the date hereof for a
period of twenty-four months from the date of this Prospectus without the prior
written consent of the Underwriter.
The Company has 1,550,000 shares of Common Stock outstanding that are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
also has outstanding Warrants to purchase 1,000,000 shares of Common Stock which
Warrants and shares of Common Stock underlying the Warrants are being registered
under the Registration Statement of which this Prospectus forms a part for sale
by said persons. Investors should be aware that sales of the Company's
securities may have a depressive effect on the price of the Company's securities
in any market which may develop for such securities. See "-- Effect of Options,
Warrants and Registration Rights", " -- Impact of Concurrent Offering," "Shares
Eligible for Future Sale" and "Concurrent Registration of Securities."
EFFECT OF OPTIONS, WARRANTS AND REGISTRATION RIGHTS. For the respective
terms of the Underwriter's Warrants and Warrants sold as part of this Offering
and registered hereby and any options that may be granted by the Company under
the Company's stock option plan or other options which may be issued by the
Company, the holders thereof are given an opportunity to profit from a rise in
the market price of the Common Stock, with a resulting dilution in the interests
of the other stockholders. Further, the terms on which the Company may obtain
additional financing during the exercise periods of said warrants and options
may be adversely effected by the existence of such warrants, options and plan.
The holders of options or warrants to
11
<PAGE> 16
purchase Common Stock may exercise such options or warrants at a time when the
Company might be able to obtain additional capital through offerings of
securities on terms more favorable than those provided by such options or
warrants. In addition, the holders of the Underwriter's Warrants have demand and
"piggyback" registration rights with respect to their securities. Exercise of
such registration rights may involve substantial expense to the Company. See
"Management," "Description of Securities," "Underwriting" and "Concurrent
Registration of Securities."
NO CASH DIVIDENDS. The Company has not paid any dividends to date. The
Company's Board of Directors does not presently intend to declare any dividends
in the foreseeable future, but instead intends to retain all earnings, if any,
for use in the Company's business operations. See "Description of Securities."
LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in
August 1993, was registered as a broker in June 1995, and became a member firm
of the National Association of Securities Dealers, Inc. (the "NASD") in June
1995. The Underwriter is principally engaged in retail brokerage and market
making activities and various corporate finance projects. The Underwriter has
acted as a placement agent in private offerings and has participated as a member
of the underwriting syndicate or as a selected dealer in one public offering and
it has acted solely one time as the lead manager in only one public offering of
securities. While certain of the officers of the Underwriter have significant
experience in corporate finance and the underwriting of securities, no assurance
can be given that the Underwriter's lack of experience as a lead managing
underwriter of public offerings will not adversely affect this Offering and the
subsequent development of a liquid public trading market in the Company's
securities. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. At any time during
their exercise period, the Warrants may be redeemed by the Company at a
redemption price of $.10 per Warrant upon 30 days prior written notice if the
average closing bid price of the Common Stock for 20 consecutive trading days
ending within 10 days of the notice exceeds $8.50. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the current market price for the Warrants when they might otherwise
wish to hold the Warrants, or to accept the redemption price, which may be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities."
CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only if a current prospectus relating
to such shares is then in effect and only if the shares are qualified for sale
under the securities laws of the states in which the warrantholders reside.
Although the Company intends to maintain such a current prospectus and to seek
to qualify the shares of Common Stock underlying the Warrants for sale in those
states where the Common Stock and Warrants are to be offered, there is no
assurance that it will be able to do so. The Warrants may be deprived of any
value if the current prospectus encompassing the shares underlying the Warrants
is not kept effective or if such underlying shares are not or cannot be
registered in the states in which warrantholders reside. See "Description of
Securities."
POSSIBLE SUSPENSION OF COMPANY'S SECURITIES FROM NASDAQ AND THE BOSTON
STOCK EXCHANGE EVEN IF LISTING OBTAINED. The Company has applied for the
listing of the Securities offered hereby on the NASDAQ System and the Boston
Stock Exchange. However, there can be no assurance that the Company's
application will be granted or that, if granted, the Company will meet the
criteria for continued quotation of its securities on the NASDAQ System and the
Boston Stock Exchange. Minimum continued quotation criteria on the NASDAQ System
include, among other things, $2,000,000 in total assets, $1,000,000 in capital
and surplus, $200,000 in aggregate market value, and a minimum bid price of
$1.00 per share of Common Stock. If an issuer does not meet the $1.00 minimum
bid requirement, it may, however, remain on the NASDAQ System if it has
$2,000,000 of capital and surplus and $1,000,000 in aggregate market value.
Minimum continued quotation criteria for the Boston Stock Exchange include,
among other things, $1,000,000 in total assets, $500,000 in stockholders'
equity, a public float of 150,000 shares worth at least $500,000 and 250
beneficial stockholders. If the Company becomes unable to meet the continued
quotation criteria of the NASDAQ System and the Boston Stock Exchange and is
suspended therefrom, trading, if any, in the Company's securities would
thereafter be conducted in the over-the-counter market in the so-called "pink
12
<PAGE> 17
sheets" of if then available, the OTC Bulletin Board. In such event, an investor
would likely find it more difficult to dispose of, or to obtain accurate
quotations as to the value of, the Company's securities.
RISKS OF LOW-PRICED SECURITIES. If the Securities were to be suspended or
delisted from the NASDAQ System and the Boston Stock Exchange, the Securities
would be subject to rules under the Exchange Act, which impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established clients and "accredited investors" (for example,
individuals with a net worth in excess of $1,000,000 or an annual income
exceeding $200,000, or $300,000 together with their spouses). For transactions
covered by such rules, a broker-dealer must make a special suitability
determination of the purchaser and have received the purchaser's written consent
to the transaction prior to the sale. Consequently, such rules may affect the
ability of broker-dealers to sell the Company's Securities and the ability of
purchasers in this Offering to sell any of the Company's Securities acquired in
this Offering in any secondary market that may develop for such Securities.
The Commission has enacted rules that define a "penny stock" to be any
equity security that has a price (as therein defined) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions, including securities listed on the NASDAQ System or on designated
exchanges, For any transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to any transaction in a penny stock, of a disclosure
statement prepared by the Commission relating to the penny stock market.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading, and about commissions payable to
both the broker-dealer and the registered representative, current quotations for
the securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. In the event the Company's
securities are no longer listed on the NASDAQ System and the Boston Stock
Exchange or are not otherwise exempt from the provisions of the Commission's
"penny stock" rules, such rules may also affect the ability of broker-dealers to
sell the Company's Securities and the ability of purchasers in this Offering to
sell any of the Securities acquired hereby in any secondary market that may
develop.
IMPACT OF CONCURRENT OFFERING. Concurrently with this Offering, the
Company is registering, on behalf of the Selling Securityholders, Warrants to
purchase 1,000,000 shares of Common Stock and 1,000,000 shares of Common Stock
underlying said Warrants. The Selling Securityholders have agreed not to sell
any of the Company's securities owned by them for a period of two years from the
closing of this Offering without the prior written consent of the Underwriter.
Sales of substantial amounts of the Company's securities by the Selling
Securityholders or even the potential for such sales, could have an adverse
affect on the market price of the Securities and could impair the Company's
ability to raise capital through the sale of its securities. See "Concurrent
Registration of Securities."
13
<PAGE> 18
DILUTION
The net tangible book value of the Company as of June 30, 1996 was
approximately HK$20,983,000 (US$2,711,000) or HK$13.54 (US$1.75) per Common
Share. Net tangible book value per Common Share is determined by dividing the
net tangible book value of the Company (total tangible assets less total
liabilities) by the number of outstanding Common Shares at that date, assuming
the share exchange between the Company and Far East as described in the "Certain
Transactions" section had taken place prior to June 30, 1996 and that 100% of
the outstanding shares of Far East had been transferred to the Company. After
giving effect to the sale by the Company of the 600,000 Common Shares and
600,000 Warrants offered hereby (after deduction of estimated underwriting
discounts and commissions, and offering expenses), the Company's net tangible
book value at June 30, 1996 would have been approximately HK$37,475,000
(US$4,842,000) or HK$17.43 (US$2.25) per Common Share. This represents an
immediate increase in net tangible book value to existing shareholders of
HK$3.89 (US$0.50) per Common Share and an immediate dilution to new investors of
HK$21.32 (US$2.75) per Common Share. The following table illustrates the per
Common Share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Common Share................... US$ 5.00
Net tangible book value per Common Share as of June 30, 1996........... US$ 1.75
Increase in net tangible book value per Common Share attributable to
new investors....................................................... 0.50
--------
Net tangible book value per Common Share after this Offering........... 2.25
--------
Dilution per Common Share to new investors.......................... US$ 2.75
========
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996,
assuming the above mentioned share exchange had taken place prior to such date,
the difference between the number of Common Shares purchased from the Company,
the total consideration paid, and the average price per Common Share paid by the
existing shareholders and by the new investors (at an assumed initial public
offering price of US$5.00 per Common Share before deduction of estimated
underwriting discounts and commissions, and other expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER COMMON SHARE
--------- ------ ------------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 1,550,000 72.1% US$2,711,000 47.5% US$ 1.75
New investors............... 600,000 27.9% 3,000,000 52.5% 5.00
--------- ------ ------------ ------ ----------------
Total..................... 2,150,000 100.0% US$5,711,000 100.0% US$ 2.66
======== ====== ============ ====== =================
</TABLE>
The information presented above, with respect to existing shareholders,
assumes no exercise of the Underwriter's Overallotment Option. In addition,
1,600,000 Common Shares have been reserved for issuance upon exercise of the
Warrants and 120,000 Common Shares have been reserved for issuance upon exercise
of the Underwriter's Warrants including the shares of Common Stock underlying
the Warrants included within the Underwriter's Warrants, 1,400,000 Common Shares
have been reserved for future issuance pursuant to the Management Options,
150,000 Common Shares have been reserved for future issuance upon exercise of
options granted pursuant to the Company's incentive stock option plan. See
"Management," "Underwriting" and "Description of Securities."
14
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of 600,000 shares of Common
Stock and 600,000 Warrants offered hereby are estimated to be approximately
$2,130,750 ($2,533,995 if the Underwriter's Overallotment Option is exercised in
full) after deducting underwriting commissions and discounts and other expenses
of this Offering. The Company expects to use the net proceeds over the next
twelve months approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
DOLLAR AMOUNT PERCENTAGE OF
APPLICATION OF NET PROCEEDS OF NET PROCEEDS NET PROCEEDS
- -------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Product Assembly Operations(1)................................ $ 825,000 39%
Expand the Number of Sales Offices(2)......................... $ 300,000 14%
Office Equipment Purchases(3)................................. $ 350,000 16%
Working Capital............................................... $ 655,750 31%
---------- ---
Total....................................................... $ 2,130,750 100%
</TABLE>
- ---------------
(1) Represents the approximate amount that may be used to fund the initial
start-up costs, approximately $150,000, and the establishment of production
facilities (including leasehold improvements and equipment and inventory
purchases, lease payments and employee salaries), approximately $675,000,
for the Company's proposed product assembly operations. See "Business."
(2) Represents the approximate amount that may be used to expand the number of
the Company's regional sales offices in the PRC which is subject to change
from time to time. The Company estimates that the foregoing allocation will
be sufficient to enable it to establish approximately three new regional
sales offices and will be used for leasehold improvements and office
equipment. See "Business."
(3) To be used to purchase and update the Company's principal offices, including
purchases of computer hardware and software and general office equipment.
The Company currently estimates that the net proceeds of this Offering will
be sufficient to fund its planned operations, including the funding of its
obligations under the proposed agreement with STIP, and expansion efforts for
approximately twelve months from the date of this Prospectus. The net proceeds
may be sufficient for a greater or lesser period of time depending on the extent
of the Company's expansion efforts and the rapidity of the completion of the
negotiations for the Company's proposed agreement with STIP. In addition, the
Company may require additional financing prior to or following such period if it
is unable to complete the negotiation for the proposed agreement with STIP and
another suitable facility is obtained requiring the Company to expend greater
sums of money for initial start-up costs and/or production facilities or if a
final agreement is reached with STIP but the estimated initial start-up costs
and establishment of production facilities is greater than estimated. The
Company has no commitments or arrangements for any such additional financing and
there can be no assurance that the Company will be able to obtain additional
financing on terms acceptable to the Company or at all. In the event additional
financing is unavailable to the Company, the Company may be materially adversely
affected.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this Offering. Future events, as well as changes in
economic, regulatory or competitive conditions or the Company's business and the
results of its activities may make shifts in the allocation of funds within the
described categories or to other purposes necessary or desirable. In the event
the Company is unable to fund its proposed product assembly operations with the
net proceeds allocated above or suffers losses, the Company may draw upon the
net proceeds of this Offering allocated to expand the number of sales offices,
purchase equipment and/or working capital. The Company estimates that the net
proceeds of this Offering allocated to expand the number of its sales offices
will be sufficient to establish approximately three new sales offices at an
average cost of approximately $100,000 for each new sales office. In the event
the per sales office costs are greater than estimated, the Company may establish
fewer sales offices or draw upon the net proceeds of this Offering allocated to
working capital. In the event the per sales office costs are less than
estimated, a portion of the net proceeds of this Offering allocated for such
purposes will be reallocated to working capital.
Prior to expenditure, proceeds will be invested principally in high grade,
short-term, interest-bearing investments. Any proceeds received upon exercise of
the Overallotment Option or any of the Warrants will be used for working capital
purposes. There can be no assurance that the Overallotment Option or any of the
Warrants will be exercised.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth the pro forma consolidated capitalization of
the Company at June 30, 1996, (i) on an actual basis assuming the share exchange
between the Company and Far East as described in the "Certain Transactions"
section had taken place prior to June 30, 1996 and that 100% of the outstanding
shares of Far East had been transferred to the Company; and (ii) on a pro forma
basis giving effect to the issuance of 1,000,000 Warrants to certain private
investors before the Public Offering and the issuance of 600,000 Common Shares
and 600,000 Warrants and the receipt of the estimated net proceeds of the Public
Offering. This table should be read in conjunction with the financial statements
of Far East and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
ACTUAL PRO FORMA PRO FORMA
------- --------- ---------
<S> <C> <C> <C>
HK$000 HK$ 000 US$ 000
Short-term borrowings.............................. 5,171 5,171 668
Current portion of long-term bank loans............ 1,061 1,061 137
Payable to a director.............................. 38 38 5
------- --------- ---------
Total current portion of debt...................... 6,270 6,270 810
------- --------- ---------
Long-term bank loans, net of current portion....... 6,471 6,471 836
------- --------- ---------
Shareholders' equity:
Share capital................................. 108 108 14
Additional paid-in capital.................... -- 16,494 2,131
Capital surplus............................... 20,875 20,875 2,697
Warrants...................................... -- 1,010 131
------- --------- ---------
Total shareholders' equity.................... 20,983 38,487 4,973
------- --------- ---------
Total capitalization..................... 33,724 51,228 6,619
======== ========= =========
</TABLE>
16
<PAGE> 21
SELECTED FINANCIAL INFORMATION
(AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA AND UNLESS OTHERWISE STATED)
The selected income statement data for the six months ended June 30, 1996,
and the selected balance sheet data as of June 30, 1996 set forth below are
derived from unaudited financial statements of Euro Tech (Far East) Limited
which are included elsewhere in this Prospectus and should be read in
conjunction with, and are qualified in their entirety by reference to such
financial statements. The selected income statement data for the years ended
December 31, 1993, 1994 and 1995 and the selected balance sheet data as of
December 31, 1994 and 1995 set forth below are derived from audited financial
statements of Euro Tech (Far East) Limited which are included elsewhere in this
Prospectus and should be read in conjunction with, and are qualified in their
entirety by reference to such financial statements, including the notes thereto.
The selected income statement data for the years ended October 31, 1991 and 1992
and the selected balance sheet data as of October 31, 1991 and 1992, and
December 31, 1993 set forth below are derived from audited financial statements
of Euro Tech (Far East) Limited which are not included herein. All of the above
financial statements have been prepared and presented in accordance with
accounting principles generally accepted in the United States of America.
<TABLE>
<CAPTION>
AS OF
OCTOBER 31,(1) AS OF DECEMBER, AS OF JUNE 30,
---------------- -------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996 1996
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HK$ HK$ HK$ HK$ HK$ US$(2) HK$ US$(2)
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents............ 1,340 4,934 3,735 3,408 4,626 597 3,008 389
Working capital(3)................... 6,152 8,855 9,261 7,253 4,896 631 6,115 790
Total assets......................... 25,845 33,615 45,838 52,492 59,740 7,717 57,303 7,404
Short-term debt(4)................... 1,086 3,629 6,235 7,791 6,434 831 6,232 805
Long-term bank loans................. -- -- 3,538 3,330 7,006 905 6,471 836
Stockholders' equity................. 8,955 11,308 17,140 17,607 17,721 2,289 20,983 2,711
</TABLE>
17
<PAGE> 22
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE SIX MONTHS
OCTOBER 31,(1) FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------- --------------------------------------------- ---------------------------------
1991 1992 1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ US$(2)
(UNAUDITED)
INCOME STATEMENT DATA:
Sales................. 68,263 83,813 105,374 103,512 105,782 13,667 51,959 53,969 6,973
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Cost of goods sold.... (50,686) (62,833) (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397)
Selling and
administrative
expenses............ (15,607) (19,683) (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273)
Interest expenses,
net................. (249) (135) (221) (492) (877) (113) (420) (631) (82)
Gain on disposal of a
real estate
property............ -- -- -- 2,300 -- -- -- -- --
Other income, net..... 535 2,739 675 590 1,186 153 118 488 63
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total costs and
expenses........ (66,007) (79,912) (98,232) (98,754) (103,455) (13,366) (51,539) (51,780) (6,689)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations before
profits tax......... 2,256 3,901 7,142 4,758 2,327 301 420 2,189 284
Provision for profits
tax
-- current.......... (373) (827) (1,106) (425) (68) (9) (77) (406) (52)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations.......... 1,883 3,074 6,036 4,333 2,259 292 343 1,783 232
Discontinued
operations Income
(loss) of subsidiary
companies sold in
1996................ 169 947 12 (1,466) (1,645) (213) (369) -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)..... 2,052 4,021 6,048 2,867 614 79 (26) 1,783 232
======== ======== ======== ======== ======== ======== ======== ======== ========
Income (loss) from
discontinued
operations per
common share........ 0.11 0.61 0.01 (0.95) (1.06) (0.14) (0.24) -- --
Net income (loss) per
common.............. 1.32 2.59 3.90 1.85 0.40 0.05 (0.02) 1.15 0.15
Weighted average
number of common
shares
outstanding......... 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000
</TABLE>
- ---------------
(1) In 1993, Euro Tech (Far East) Limited changed its financial year end date
from October 31 to December 31. Accordingly, income statement data for the
period from November 1, 1992 to December 31, 1992 are not presented.
(2) Translation solely for convenience of the readers at the prevailing exchange
rate of $7.74 = US$1 on June 30, 1996.
(3) Current assets minus current liabilities.
(4) Short-term debt includes short-term borrowings and current portion of
long-term bank loans.
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
INTRODUCTION
The Company was recently organized under the laws of the British Virgin
Islands to raise capital and acquire Far East. Upon the closing of this
Offering, Far East will become a wholly-owned subsidiary of the Company.
Far East was established in 1971, under the name of Eurotherm (Far East)
Ltd., as a subsidiary of a United Kingdom publicly traded company (Eurotherm
Ltd.) to market and distribute its parent's industrial control equipment in Hong
Kong and Southeast Asia and expanded its activities into the PRC in 1973. In the
early 1980's, Far East began the distribution of high-tech equipment
manufactured in the United States, Europe and Japan into the PRC, in addition to
its distribution activities on behalf of its parent. In 1988, the activities of
the parent and Far East were separated into Eurotherm International and Far
East. By in or about 1994, all the capital stock of Far East was purchased by
its management, principally Mr. T.C. Leung, the Company's Chairman of the Board
of Directors and Chief Executive Officer and Far East changed its name from
Eurotherm (Far East) Ltd. to its current name. See "Principal Shareholders" and
"Certain Transactions."
During Fiscal 1995 approximately 59% and 40% of the Company's sales were
made to customers located in the PRC and Hong Kong, respectively. For Six Months
1996 approximately 66% and 34% of the Company's sales were made to customers
located in the PRC and Hong Kong, respectively. Sales to customers situated in
Macau and elsewhere were nominal.
The Company has funded itself since inception by initial borrowings from
Far East and selling 1,000,000 Warrants in a private placement of such
securities pursuant to which the Company derived aggregate gross proceeds of
$150,000.
FAR EAST
GENERALLY
During Far East's fiscal years ended October 31, 1991 ("Fiscal 1991"),
October 31, 1992 ("Fiscal 1992"), and December 31, 1993 ("Fiscal 1993"), Far
East experienced a gradual increase in sales revenues. During its fiscal years
ended December 31, 1994 ("Fiscal 1994") and Fiscal 1995, Far East's sales
revenues remained substantially unchanged. Management of the Company believes
that Far East's lack of sales growth during Fiscal 1994 and Fiscal 1995 resulted
from the PRC's economic austerity measures undertaken to dampen the rate of
inflation in the PRC, which was approximately 27% in 1994 in comparison to 1993.
These economic austerity measures included the tightening of credit, when
coupled with a devaluation of the RMB in 1993 and the imposition of a value tax
imposed by the PRC on imports into the PRC, caused products manufactured in the
PRC to become more competitive with the United States, European and Japanese
manufactured products distributed by Far East even though the products
distributed by Far East were of better quality. Cost became an overriding issue
with many of PRC's customers and, in response, Far East reduced its sales prices
and, therefore, its profit margins to remain competitive with PRC manufacturers.
During Six Months 1996, Far East also began streamlining its operations and
focusing its efforts on its current product lines by disposing of three of its
subsidiaries, Euro Electron (Far East) Ltd. ("Euro Electron"), Action
Instruments (China) Ltd. ("Action") and Armtison Ltd. ("Armtison"). Euro
Electron had been established to distribute telecommunication products. However,
manufacturers of these products distribute their products directly to end users,
without intermediary distributors such as Far East. Technical expertise in this
product line was also found to be a necessity. As a result, Euro Electron's
activities never developed. Action distributed industrial computers. During
Fiscal 1994, Action lost its principal source of this product line when Action's
principal supplier sold its industrial computer production line to another
supplier. Additionally, another major manufacturer of industrial computers
established its own distribution office in
19
<PAGE> 24
Hong Kong to distribute its products in Hong Kong and the PRC. Armtison was
principally a holding company for Euro Electron and Action.
The rate of inflation in the PRC has declined. In 1995, the rate of
inflation was approximately 10% in comparison to 1994. The Company believes,
although no assurance can be given as to the correctness of the Company's
belief, that credit restrictions will be gradually lifted allowing Far East to
increase its sales prices and profit margins. The Company's management also
believes that by Far East entering into an agreement with an entity situated in
the PRC to assemble certain products of the kind currently distributed by Far
East, Far East will also be able to increase its profit margins.
BASIS OF PRESENTATION
All financial data referred to in the following discussion has been
prepared in accordance with US GAAP.
RESULTS OF OPERATION OF FAR EAST
The following table presents selected statement of operations data
expressed as a percentage of net sales for Far East's Fiscal 1993, Fiscal 1994
and Fiscal 1995 and the Six Months ended June 30, 1995 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31,
----------------- ----------------------------
1995 1996 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 78.2% 77.4% 75.3% 78.2% 77.8%
Gross profit................................ 21.8% 22.6% 24.7% 21.8% 22.2%
Selling and administrative expenses......... 20.4% 18.3% 18.3% 19.5% 20.3%
Operating income............................ .8% 4.1% 6.8% 4.6% 2.2%
Income tax provision........................ .1% .8% 1.0% .4% .1%
Net income.................................. (.1%) 3.3% 5.7% 2.8% .6%
====== ====== ====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Sales; Gross Profit and Cost of Goods Sold. Sales increased by
approximately HK$2,010,000 or 3.9% to approximately HK$53,969,000 in the Six
Months 1996 from approximately HK$51,959,000 in the Six Months 1995. The Company
believes that this increase in sales is primarily due to the PRC government
relaxing economic austerity measures in early 1996. Gross profit increased by
approximately HK$857,000 or 7.6% to approximately HK$12,193,000 for the Six
Months 1996 compared to approximately HK$11,336,000 for the Six Months 1995
which was attributable to the increase in sales (including those products with
high gross profit margins) and the increase in gross profit margins from 21.8%
for the Six Months 1995 to 22.6% for the Six Months 1996. For the Six Months
1996, Far East's cost of goods sold were approximately HK$41,776,000 or 77.4% of
sales representing a decrease of approximately HK$1,153,000 from the comparable
period in the prior year or approximately HK$40,623,000 or 78.2% of sales. The
decrease in cost of goods sold is primarily due to increases in demand for
products with higher gross profit margins.
Selling and Administrative Expenses. Selling and administrative expenses
were approximately HK$9,861,000 for the Six Months 1996 a decrease of
approximately HK$753,000 or 7.1% from approximately HK$10,614,000 for the Six
Months 1995. This decrease is primarily due to improved operating efficiencies
resulting in the reduction of operating expenses in Far East's PRC sales
offices, lower advertising costs incurred in promotion and exhibitions and other
selling expenses, and decrease in rental expenses for Far East's sales offices
as Far East moved to self-owned properties in Shanghai and Beijing.
Interest Expense. Net interest expense increased by approximately
HK$211,000 or 50.2% to approximately HK$631,000 for the Six Months 1996 from
approximately HK$420,000 for the Six Months 1995. The increase is principally
the result of mortgage loan interest payments of approximately HK$217,000 due
upon Far East's long term bank borrowings incurred in September and October 1995
used to finance the purchase of premises situated in Shanghai and Hong Kong
respectively.
20
<PAGE> 25
Other Income. The main components of other income are rental income,
income from provision of engineering service, gain (loss) on disposal of fixed
assets, and exchange gain (loss). Other income increased by approximately
HK$370,000 from approximately HK$118,000 for the Six Months 1995 to
approximately HK$488,000 for the Six Months 1996 and results from greater income
generated from providing engineering service to other companies and exchange
rate differences arising from settlement of sales and purchase transactions.
Income from Continuing Operations. Income from continuing operations
increased by approximately HK$1,440,000 or 419.8% to approximately HK$1,783,000
for the Six Months 1996 compared to approximately HK$343,000 for the Six Months
1995. In addition to a small increase in sales and gross profit margin
percentages, the principal factor contributing to the increase in net income was
a significant reduction in sales and administrative expenses. The decrease in
sales and administrative expenses was principally a reduction in selling
expenses, (business travel, advertising and exhibition costs) as Far East
efforts in prior years have created what the Company believes to be a solid
network of distributors, a recognized name, an established reputation and a
stable PRC sales force.
Discontinued Operations. Far East's shareholders decided to separate the
main operating company (Far East) from its subsidiaries in early 1996 to focus
on its current product lines and shed immaterial activities. Far East disposed
of the following subsidiaries; Euro-Electron, Action and Armtison. See " --
Introduction." Far East's investment in the foregoing three subsidiaries was
transferred back to Far East's shareholders directly at a price equal to book
value (HK$10,000). As a result, there is no income (loss) of those subsidiaries
reported for the Six Months 1996.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
Sales; Gross Profit and Cost of Goods Sold. Sales increased by
approximately HK$2,270,000 or 2.2% to approximately HK$105,782,000 in Fiscal
1995 from approximately HK$103,512,000 in Fiscal 1994. Far East was able to
achieve a growth in sales even under the PRC's economic austerity measures
primarily as a result of Far East's established sales and distribution networks.
Gross profit increased by approximately HK$923,000 or 4.1% to approximately
HK$23,482,000 for Fiscal 1995 compared to approximately HK$22,559,000 for Fiscal
1994 which increase is attributable to increased sales and a gross profit margin
increase from 21.8% in Fiscal 1994 to 22.2% in Fiscal 1995. During Fiscal 1995,
Far East's cost of goods sold were HK$82,300,000 or 77.8% of sales remaining
relatively constant when compared to Fiscal 1994, when cost of goods sold were
approximately HK$80,953,000 or 78.2% of sales as Far East faced intense
competition in the PRC market place resulting from the economic austerity
measures adopted in early 1994.
Selling and Administrative Expenses. Selling and administrative expenses
were approximately HK$21,464,000 in Fiscal 1995, an increase of approximately
HK$1,265,000 or 6.3% from approximately HK$20,199,000 in Fiscal 1994. This
increase is primarily due to the increase in the selling and administrative
expenses of Far East's PRC sales offices, especially Far East being obligated to
pay taxes for its sales offices in the PRC commencing in 1995.
Interest Expense. Net interest expense increased by approximately
HK$385,000 or 78.3% to approximately HK$877,000 in Fiscal 1995 from
approximately HK$492,000 for Fiscal 1994. This interest expense increase is the
result of increased levels of borrowing, particularly Far East entering into a
mortgage loan for the purchase of its Beijing's office in November 1994 with
mortgage loan interest expense increasing by approximately HK$202,000. Increased
interest for other short term bank borrowings (i.e. bank overdraft and
import/export loans) is principally due to the gradual increase in interest
rates from the Hong Kong prime of 6.5% in January 1994 up to the highest rate of
9.0% during 1995.
Other Income. Other income increased by approximately HK$596,000 or 101%
to approximately HK$1,186,000 in Fiscal 1995 from approximately HK$590,000 in
Fiscal 1994. The increase in other income results from greater income generated
from providing engineering services to other companies and exchange rate
differences arising from settlement of sales and purchase transactions.
Provision for Profit Tax. Provisions for taxes declined by approximately
HK$357,000 to approximately HK$68,000 in Fiscal 1995 from approximately
HK$425,000 in Fiscal 1994. This decline was due primarily to
21
<PAGE> 26
an adjustment of profits tax on prior years of approximately HK$345,000 made in
Fiscal 1995 resulting from a tax review by Hong Kong's Commissioner of Inland
Revenue.
Income from Continuing Operations. Income from continuing operations was
approximately HK$2,259,000 in Fiscal 1995, an increase of approximately
HK$226,000 or 11% from approximately HK$2,033,000 (total income of approximately
HK$4,333,000 less non-recurring profit of approximately HK$2,300,000 from sales
of property) in Fiscal 1994. The increase in operating profit was primarily due
to the increase in sales and gross margin percentages and Far East's
self-imposed budgetary restraints on selling and administrative expenses, which
only increased by 6.3% in comparison to the then double digit PRC inflation
rate.
Discontinued Operations -- Losses of subsidiary companies. Losses of Far
East subsidiaries increased by approximately HK$179,000 to approximately
HK$1,645,000 for Fiscal 1995, from approximately HK$1,466,000 in Fiscal 1994.
During Fiscal 1995 one of Action's major suppliers established its own office in
Hong Kong to directly distribute its products. As a result of a reduction in
products resulting from the loss of another supplier and this direct
manufacturer competition, Action sustained a loss. Another Far East subsidiary,
Euro Electron, was unable to secure major orders from the telecommunication
market and also sustained a loss for Fiscal 1995.
FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1993
Sales; Gross Profit and Cost of Goods Sold. Sales decreased by
approximately HK$1,862,000 or 1.8% to approximately HK$103,512,000 in Fiscal
1994 from approximately HK$105,374,000 in Fiscal 1993. This decrease was
primarily the result of exceptionally high sales in Fiscal 1993 flowing from the
inclusion in Fiscal 1993 sales of approximately HK$19,600,000 of equipment to
the largest steel complex in the PRC. Excluding this exceptional order, the net
sales for Fiscal 1993 were approximately HK$85,774,000 and Fiscal 1994 sales had
an increase of approximately HK$17,738,000, or 20.7%. In 1994, the PRC
government implemented economic austerity measures to curb its high inflation
rates. However, Far East was able to increase its sales during Fiscal 1994 even
when confronted by the PRC's economic austerity measures as a result of prior
years efforts in exploring PRC markets, including but not limited to prior
appointments of distributors and the establishment of its Guangzhou sales office
in Fiscal 1993. Gross profit decreased by approximately HK$3,431,000 or 13.2% to
approximately HK$22,559,000 for Fiscal 1994 in comparison to approximately
HK$25,990,000 in Fiscal 1993, which decrease was attributable to the inclusion
of the exceptional order mentioned above in Fiscal 1993 sales and a 2.9%
decrease in gross profit margins from 24.7% for Fiscal 1993 to 21.8% for Fiscal
1994. For Fiscal 1994, Far East's cost of goods sold were approximately
HK$80,953,000 or 78.2% of sales in comparison to HK$79,384,000 or 75.3% of sales
for Fiscal 1993. Cost of goods sold expressed as a percentage of sales increased
by 2.9% in Fiscal 1994 as compared with Fiscal 1993. The gross profit margin
reduction and the percentage increase in costs of goods sold were principally
the result of intensified competition in the PRC market resulting from the
economic austerity measures adopted by the PRC government in early 1994, the
imposition of a value added tax on goods imported in the PRC and the devaluation
of RMB in early 1994 significantly reduced the purchasing power of Far East's
PRC customers. As a result, they sought discounts on the products distributed by
Far East.
Selling and Administrative Expenses. Selling and administrative expenses
were approximately HK$20,199,000 in Fiscal 1994, representing an increase of
approximately HK$897,000 or 4.7% from approximately HK$19,302,000 in Fiscal
1993. This increase was primarily due to general increases in expenses as a
result of the high inflation rate in the PRC which Far East was able to offset
by self-imposed budgetary restraints on selling expenses (sales commissions,
business travel, advertising, exhibitions, entertainment etc.)
Interest Expense. Net interest expense increased by approximately
HK$271,000 or 123% to approximately HK$492,000 for Fiscal 1994 from
approximately HK$221,000 for Fiscal 1993. The increase in interest expense was
due to an increased level of borrowings, resulting from the purchase of
investment property in September 1993 (with mortgage interest increasing by
HK$170,000) and payment of dividends of approximately HK$3,500,000 in Fiscal
1994 to Far East's shareholders.
Other Income. Other income declined by approximately HK$85,000 or 12.6% to
approximately HK$590,000 in Fiscal 1994 from approximately HK$675,000 in Fiscal
1993. This decrease in other income
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<PAGE> 27
was due primarily to a decrease in income generated from providing engineering
services to other companies in Fiscal 1994.
Gain on Disposal of a Real Estate Property. The gain of approximately HK
$2,300,000 resulted from the disposition of the premises which were previously
leased out.
Income from Continuing Operations. Income from continuing operations was
approximately HK$4,333,000 in Fiscal 1994, a decrease of approximately
HK$1,703,000 or 28.2% from approximately HK$6,036,000 in Fiscal 1993. This
decrease in operating profit was primarily due to the economic austerity
measures adopted by the PRC government in early 1994 and the exceptional sale in
Fiscal 1993 resulting from the inclusion of the above mentioned exceptional
order in the approximate amount of HK$19,600,000.
Discontinued Operations -- Income (Loss) of subsidiary companies. In
Fiscal 1993, the operations of Far East's subsidiaries derived a profit of
approximately HK$12,000 but their operations resulted in a loss of approximately
HK$(1,466,000) in Fiscal 1994. This loss was primarily due to one of the major
suppliers of Action disposing of its industrial computer product line in Fiscal
1994. The industrial computer product line had been one of Action's major
product lines in prior years. Euro Electron was established in the later part of
Fiscal 1993. During Fiscal 1994, Euro Electron was in its development stage,
incurring expenses for planned operations, seeking product sources and
formulating its marketing efforts while deriving no revenues.
LIQUIDITY AND CAPITAL RESOURCES
Far East's primary uses of cash have been to fund accounts receivable,
inventories, capital expenditures related to the additions to property and
equipment, and to pay dividends to its shareholders. Far East has historically
met its cash requirements from cash flow from operations, short-term borrowings
under bank lines of credit, and long-term mortgage bank loans. Working capital
at the end of Fiscal 1995 and Six Months 1996 was approximately HK$4,896,000 and
approximately HK$6,115,000, respectively.
Inventory decreased from approximately HK$5,106,000 at the end of Fiscal
1995 to approximately HK$3,258,000 at the end of Six Months 1996. Far East seeks
to maintain a low level of inventory comprised mostly of low tech products to
fill regular customer's orders and parts and accessories for warranty purposes,
with Far East principally ordering products upon receiving a customer's order.
The higher inventory level at the end of Fiscal 1995 was principally due to
goods received near year end but not delivered to customers for several reasons,
including but not limited to, a multicomponent order awaiting shipment of a
component while another had arrived and a customer's Letter of Credit or payment
not having been received.
During Fiscal 1995 and Six Months 1996, Far East experienced cash flow from
operations of approximately HK$7,611,000 and (HK$319,000), respectively. Cash
from operations in Fiscal 1995 having been positively impacted by shipments made
in late Fiscal 1994 with payment being received in Fiscal 1995. At the end of
Fiscal 1995, Far East's accounts receivable stood at approximately HK$22,040,000
while at the end of Six Months 1996, Far East's accounts receivable were
approximately HK$18,978,000. At the end of Six Months 1996, Far East had
advanced approximately HK$3,800,000 to Regent (of which approximately
HK$2,200,000 was repaid subsequent to the end of Six Months 1996). Also accounts
receivable declined by approximately HK$3,062,000 from approximately
HK$22,040,000 at the end of Fiscal 1995 to approximately HK$18,978,000 at the
end of Six Months 1996, which was partially offset by an increase in receivables
from related companies of approximately HK$1,115,000 from approximately
HK$275,000 at the end of Fiscal 1995 to approximately HK$1,390,000 at the end of
Six Months 1996.
For Fiscal 1995 and Six Months 1996, Far East had income from continuing
operations of approximately HK$2,259,000 and HK$1,783,000 respectively. This
income rate increase followed from Far East's self-imposed budgetary restraints,
the loosening of the PRC's economic austerity measures and a reduced rate of
inflation in the PRC.
Cash used in investing activities were mainly used to purchase properties
in the PRC and Hong Kong.
Far East has various banking facilities for overdraft, import and export
credits and foreign exchange contracts amounting to approximately HK$40,900,000
from various banks. Approximately HK$24,500,000 of the credit facilities that
are available were obtained on the conditions that, among other things, Far East
mortgage its properties as security for the credit facilities, Far East not to
create a charge or lien on its other
23
<PAGE> 28
assets in favor of other parties without the bank's consent, and Far East
maintaining a certain level of net worth. Far East also has various bank loans
to finance the purchase of its properties with outstanding indebtedness at June
30, 1996 of approximately HK$7,500,000. As of June 30, 1996, properties with net
book value of approximately HK$20,200,000 were pledged to secure certain banking
facilities of Far East.
Cash declined from approximately HK$4,626,000 at the end of Fiscal 1995 to
approximately HK$3,008,000 at the end of Six Months 1996 principally as a result
of Far East electing to use cash on hand to repay short-term borrowings (i.e.
bank overdraft and import/export loans) and make advances to Regent to finance a
significant government project that had been undertaken by Regent's subsidiary
and is nearing completion. Regent is charged interest at the rate of 18% per
year for this advance. At June 30, 1996, Regent had an outstanding balance of
approximately HK$3,800,000 due to Far East.
The Company plans to use the net proceeds of this Offering to establish
product assembly operations and additional sales offices in the PRC and purchase
office equipment including computer hardware and software. The balance of the
proceeds of this Offering will be used for general working capital purposes.
The Company believes that the net proceeds of this Offering, together with
available trade credit, bank credit and internally generated funds, will be
sufficient to satisfy its anticipated working capital needs for at least the
twelve month period following the completion of this Offering.
24
<PAGE> 29
BUSINESS
INTRODUCTION
The Company believes that it is one of the leading distributors of water
and waste water related process control, analytical and testing instruments,
disinfection equipment, supplies and related automation systems in Hong Kong and
the People's Republic of China (the "PRC" or China). The Company distributes
products to approximately 400 regular customers including sub-distributors
located in Hong Kong, the PRC and Macau including the Hong Kong Environmental
Protection Department, the Beijing Hydrology station, China Light & Power Co.,
Ltd., Hong Kong Electric Co., Ltd., and the Kowloon-Canton Railway Corporation.
The Company believes that because of the increased expansion of industry
and general business growth in the PRC during the last five years there is a
strong and increasing demand for the products distributed by it in the PRC. The
Company further believes that in years to come the need for the products
distributed by it will grow as a result of governmental regulations of
environmental pollution and based upon demands of the PRC's population for a
healthy and safer environment including cleaner water.
The Company distributes products manufactured by a substantial number of
major American, European and Japanese corporations, including Wallace, Hach,
Hioki and Finnigan which are the Company's largest suppliers, with purchases
from them accounting for approximately 11%, 7%, 7% and 4%, respectively, of the
Company's sales during Fiscal 1995 and 9%, 10%, 10% and 23%, respectively, of
the Company's sales during Six Months 1996.
The Company distributes products through its headquarters located in Hong
Kong and its regional sales offices located in Beijing, Shanghai and Guangzhou
and through independent distributors. During Fiscal 1995 and Six Months 1996, no
single customer accounted for more than 5% of the Company's sales.
The Company intends to use a substantial portion of the net proceeds of the
Public Offering to establish an operation to assemble products of the kind now
distributed by the Company pursuant to an agreement with a PRC based entity and
to expand its marketing efforts by, among other things, opening additional
regional sales offices in the PRC. The Company believes that by assembling
products that it distributes, gross profits margins, revenues and net income
will increase. Similarly, the Company believes that by expanding its regional
sales efforts in the PRC, revenues and net income will be enhanced.
The Company has recently reached a preliminary agreement with STIP pursuant
to which STIP will provide space and technical expertise to assemble in the PRC
certain of the products of the kind that the Company currently distributes,
including certain water related testing, monitoring and treatment equipment. It
is presently contemplated that the Company will import components, assemble the
components into finished product and then distribute the products through the
Company's distribution network.
In the event, the Company is unable to complete a definitive agreement with
STIP, it will continue to seek other PRC based entities to assemble products.
During the Company's Fiscal 1995 and Six Months 1996, the Company had sales
of approximately $13,667,000 and $6,973,000, respectively, and net income of
approximately $79,000 and $232,000, respectively.
BACKGROUND
Far East was established in 1971, under the name of Eurotherm (Far East)
Ltd., as a subsidiary of a United Kingdom publicly traded company (Eurotherm
Ltd.) to market and distribute its parent's industrial control equipment in Hong
Kong and Southeast Asia and expanded its activities into China in 1973. In the
early 1980's, Far East began the distribution of high-tech equipment
manufactured in the United States, Europe and Japan into China, in addition to
its distribution activities on behalf of its parent. In 1988, the activities of
the parent and Far East were separated into Eurotherm International and Far
East. By 1994, all of the capital stock of Far East had been purchased by its
management and Far East changed its name from Eurotherm (Far East) Ltd. to its
current name. See "Certain Transactions."
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<PAGE> 30
BUSINESS
GENERALLY
The Company believes that it is a significant distributor in China of a
wide range of advanced water treatment equipment (including chlorination
equipment), laboratory instruments, analyzers, test kits and supplies and acts
as an exclusive and non-exclusive distributor for well known manufacturers of
such equipment.
Laboratory instruments, analyzers and test kits are used to analyze the
chemical content and other properties of water and, in conjunction with these
products, the Company distributes analytical re-agents and chemicals to support
testing systems of laboratory and portable instruments, process analyzers and
portable test kits.
Laboratory and portable instruments consist of analytical instruments
including but not limited to the following: spectrophometers, colorimeters,
turbidimeters, ion selective electrodes, chemical oxygen demand apparatus,
digestion apparatus, and precision re-agent dispensing devices which are used to
test and monitor impurities in water systems.
The Company also distributes continuous-reading process analyzers, process
turbidimeters, PH controllers and analyzer accessories. These products are used
to monitor and control drinking water quality to ensure that waste water
treatment procedures comply with regulatory standards.
The Company offers a wide variety of test kits to test water quality. The
Company believes that these portable test kits are easy to use and preadapted
for rugged field use. These test kits are used to monitor drinking water
distribution systems.
PRODUCTS, SERVICES AND CLIENTELE
SCIENTIFIC INSTRUMENTS. The Company distributes analytical instruments,
environmental monitoring instruments and general purpose laboratory instruments.
Analytical instruments include but are not limited to mass spectrometers, flow
injector analyzers and atomic spectrometers. Environmental monitoring
instruments include both air and water quality monitoring instruments. Air
quality monitoring instruments are divided into two categories, one monitors
ambient air, and the second monitors pollution sources. Additionally, a variety
of water quality monitoring and analysis equipment are offered including
continuous reading process analyzers, process turbidimeters, PH controllers,
test kits for monitoring chemical content in water (i.e. chlorine, fluorides,
etc.)
Customers for the analytical instruments include government departments,
institutions and major laboratories. The Company also distributes products to
beverage producers and restaurants supplying; water quality test kits to
approximately twelve bottling plants, of a well known United States softdrink
producer, located in the PRC; field use water quality test kits to the People's
Liberation Army, water quality monitoring instruments to a well known United
States fast food franchisor's restaurants located in Hong Kong and China, and to
a well known United States beer producer's bottling plants located in the PRC's
city of Wuhan. Each of said soda producer, restaurants and beer producer account
for less than one percent of the Company's sales and the People's Liberation
Army accounts for approximately one percent of the Company's sales.
Customers for air and water quality monitoring instruments also include
government agencies such as; the Hong Kong Environmental Protection Department
which uses a Company distributed water quality monitoring system to monitor the
water quality of Hong Kong's Victoria Harbor, approximately ten water treatment
plants located in the PRC (including Beijing, Tianjin, Guangzhou and Wuhan), and
the Beijing Environmental Monitoring Centre. The Company is also one of two
distributors supplying continuous water monitoring systems to Beijing's
Hydrology Station.
PROCESS CONTROL AND ENGINEERING PRODUCTS. The Company provides controls
systems specifically designed for the industrial needs of clients including
sensors, temperature gauges, pressure gauges, flow meters, valves, temperature
and pressure transmitters and control devices, temperature and pressure
calibrators, moisture, power, energy and harmonics analyzers. Chlorination
disinfection systems are also distributed by Far East in conjunction with water
treatment, sewage discharge and swimming pool water treatment. Customers for the
foregoing distributed products are government water supply bureaus, water
treatment
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<PAGE> 31
projects, power and electric companies, petrochemical plants and instrument
manufacturers. For example, the Company distributes chlorination disinfection
systems to Hong Kong's new Chek Lap Kok airport and its environs.
OTHER PRODUCTS. The Company distributes general testing and
telecommunications testing equipment to industries, utilities, educational
institutions and telecommunications companies, and bio-medical instruments such
as cardiac catheterization systems and defibrillators to hospitals.
The Company distributes indoor pay telephones, multi-channel digital and
analogue recorders and similar products. Customers for telecommunications
products include government departments, and telephone companies and customers
for bio-medical instruments are hospitals such as Queen Mary Hospital in Hong
Kong and the Logistic Bureau of China People's Liberation Army Hospital in
China.
SPECIAL PROJECTS AND TECHNICAL SUPPORT. In conjunction with the
distribution of computer hardware and software. The Company provides computer
programming to government agencies, industrial plants and beverage producers.
The Company's technical support staff provides customers with maintenance
and installation assistance and assist sales personnel in giving technical
advice to and performing product demonstrations for customers.
At the end of Fiscal 1995 and Six Months 1996, the Company had
approximately 400 regular customers, including sub-distributors, located in Hong
Kong, PRC and Macau.
OTHER ACTIVITIES. The Company in the past has established subsidiaries to
distribute products not directly related to its principal product lines
discussed above. During Six Months 1996, the Company streamlined its operations
and focused its efforts on its current product lines by disposing of three of
its subsidiaries, Euro Electron, Action and Armtison. Euro Electron had been
established to distribute telecommunication products. However, manufacturers of
these products distribute their products directly to end users, without
intermediary distributors, and technical expertise in this product line was also
found to be a necessity. As a result, Euro Electron's activities never past a
start-up stage. Action distributed industrial computers. During Fiscal 1994,
Action lost its principal source of this product line when Action's principal
supplier sold its industrial computer production line to another supplier.
Additionally, another major manufacturer of industrial computers established its
own distribution office in Hong Kong to distribute its products in Hong Kong and
the PRC. Armtison was principally a holding company for Euro Electron and
Action. Additionally, the Company has from time to time invested in real estate
and currently holds realty in Hong Kong which it intends to sell. In the future,
the Company may establish subsidiaries or divisions to distribute products that
are unrelated to its current product lines and it may make future investments in
real estate.
EXPANSION
Management also intends to pursue expansion of the Company's operations by
adding new regional sales offices in the PRC with the proceeds of the Public
Offering and by internal growth.
The Company has allocated approximately $300,000 from the net proceeds of
the Public Offering to establish three new additional regional sales offices in
the PRC which are intended to be located in the PRC's cities of Chongqing, Xian
and Shenyang which are intended to be opened within twelve months following the
completion of the Public Offering. The Company presently anticipates that the
additional regional sales offices will be leased from third parties not
affiliated with the Company.
REGULATORY ENVIRONMENT
Environmental concerns have become increasingly important, at all levels of
PRC government paralleling PRC's economic growth. Environmental protection laws
and strict regulations have been enacted buttressed by increased budget
allocations for environmental purposes. PRC's system of environmental protection
is led by the National Environmental Protection Agency (NEPA) and consists of
Environment Protection Bureaus in each city and county. Under bureau management,
there are two environment monitoring systems: one system consists of over 2,000
monitoring stations to collect and analyze the environmental data of each city
and county; another system consists of over 1,000 stations to monitor specific
industrial districts or factories
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<PAGE> 32
which have been identified as major pollution sources for their noncompliance
with environmental regulations. NEPA has recently identified 3,000 enterprises
as new major pollution sources. The number of monitoring stations for industrial
firms is anticipated to increase to 9,000 in the next five years, according to
the governmental plans. The Company has supplied water and air quality
monitoring and analytic instruments to these monitoring stations for several
years.
COMPETITION
The Company faces competition from other distributors of substantially
similar products and manufacturers themselves, both foreign and Chinese. The
Company faces its principal competition from foreign manufacturers and other
distributors of their products situated in Hong Kong and the PRC. In 1994, the
PRC tightened its credit nationwide and, as a result, the Company believes that
purchasers of the products distributed by the Company sought reduced prices. The
products distributed by the Company were foreign manufactured and higher priced
than Chinese manufactured products. As a result the Company reduced its profits
margins to remain competitive. The Company believes that it competes with the
PRC manufacturers on the basis of quality and technology, with the Company
offering products of foreign manufacturers which are of higher quality and use
more advanced technology. The Company believes that it competes with the foreign
manufacturers and the distributors of their products on the basis of the
Company's more extensive distribution network and an established reputation. The
Company recently disposed of one of its subsidiaries as a result of direct
competition from a manufacturer which established its own distribution network
in the PRC to distribute the type of products distributed by the subsidiary.
As the Company plans to assemble products of the kind that it presently
distributes, the Company may directly compete with certain of its vendors.
PROPOSED PRODUCT ASSEMBLY OPERATIONS
The Company has recently reached a preliminary agreement with STIP pursuant
to which STIP will provide space and technical expertise to enable the Company
to assemble in the PRC certain products of the kind that the Company currently
distributes, including certain of the water related testing, monitoring and
treatment equipment. It is contemplated that the Company will import components,
assemble the components into finished product and then distribute the products
through the Company's distribution network. The Company believes that by
establishing product assembly operations in the PRC and expanding the number of
its regional sales offices in the PRC, it will not only increase revenues by
expanding its customer base and increasing distribution capabilities, but also
will increase net income by assembling certain of the products that it
distributes rather than purchasing the finished product from suppliers which the
Company believes will result in higher profit margins on such products. STIP has
a twenty year history of manufacturing temperature sensor and measuring
instruments and controllers, has over 150 employees and has a 16,000 square
meter facility of which the Company intends to lease a portion of.
It is anticipated that STIP will provide the Company with leased space for
the Company to assemble, warehouse and distribute its products from and provide
the Company with technical and non-technical employees. It is anticipated that
the Company's sole obligation to STIP will be to make lease payments for the
portion of the facility it uses and pay the salaries of the STIP employees it
uses.
The preliminary agreement with STIP is subject to negotiation of a
definitive agreement, of which no assurance can be given, and the Company
securing adequate financing. Any such financing will be used for, among other
purposes, leasehold improvements to conform the existing facility to the
Company's specifications, equipment purchases, lease payments, purchases of
inventory and salaries. See "Use of Proceeds."
SOURCES OF SUPPLY
The Company distributes products manufactured by a number of vendors,
including Wallace, Hach, Hioki and Finnigan which are the Company's largest
suppliers, with purchases from them accounting for approximately 11%, 7%, 7% and
4%, respectively, of the Company's sales during Fiscal 1995 and 9%, 10%, 10%,
and 23%, respectively, of the Company's sales during Six Months 1996. The
Company has exclusivity agreements with many of its suppliers for certain
products for specified geographic areas, including the two of the four
previously mentioned suppliers (Wallace and Finnigan). Those agreements do not
encompass all products distributed by the Company and all of the market areas
serviced by the Company. The Company's
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<PAGE> 33
agreement with Wallace for most products does not include the PRC and similarly,
the Company's agreement with Finnigan is limited to Hong Kong. The Company has
written confirmation from Hach that the Company is Hach's sole representative in
the PRC, Hong Kong and Macau authorized to supply, install and commission Hach's
products and accessories. The Company has only a letter from Hioki appointing
the Company as Hioki's sales representative in the PRC, Hong Kong and Macau. The
Company's agreement with Wallace is terminable by either party on thirty days
notice prior to its annual renewal date. The Company's agreement with Finnigan
is terminable on ninety days notice by either party. The Company's agreement
with Hach expires in March 1997, unless renewed. Although alternative sources of
supply exist, there can be no assurance that the termination of the Company's
relationship with any of the above or other vendors would not have a short-term
adverse effect on operations.
SALES AND MARKETING
The Company distributes products through its principal office located in
Hong Kong and its regional PRC offices located in Beijing, Shanghai and
Guangzhou by using its 26 person marketing and sales force which are paid a
salary plus a sales commission. The Company's offices also coordinate the sales
efforts of approximately nine other companies located in the PRC which are paid
a commission on sales effected by them.
FACILITIES
The Company maintains an executive office at 18/F Gee Chang Hong Centre, 65
Wong Chuk Hang Road, Hong Kong occupying approximately 12,800 square feet of
office and warehouse storage space under a lease expiring in October 1997
requiring monthly rental payments of approximately $16,200. The warehouse
storage space is used to hold products for distribution to its customers via
common carriers.
In August 1995, the Company purchased a building, 1502 AT Tower, 180
Electric Road, North Point, Hong Kong, having approximately 1,200 square feet,
by a bank mortgage in the principal sum of approximately HK$3,688,000 at June
30, 1996, bearing interest at Hong Kong's prime rate plus 1.75%, repayable in
eighty four monthly installments commencing in November 1995. The Company
intends to relocate part of its executive and headquarters office to this newly
purchased site.
The Company also maintains regional sales offices within the PRC in the
cities of Beijing, Shanghai and Guangzhou. The Beijing and Shanghai sales
offices are owned by the Company. The Company's Beijing sales office is situated
on premises purchased in November 1994, with an outstanding principal amount due
upon a bank mortgage of approximately HK$1,104,000 at June 30, 1996, bearing
interest at the United States prime rate plus 2.5% repayable in eighty four
monthly installments which commenced in December 1994. The Company's Shanghai
sales office is situated on premises purchased in August 1995, with an
outstanding principal amount due upon a bank mortgage of approximately
HK$768,000 at June 30, 1996 bearing interest at thirteen percent, subject to
fluctuation, repayable in one hundred twenty monthly installments which
commenced in October 1995. The Guangzhou sales office is a leased facility
pursuant to a lease expiring in April 1997 requiring monthly rental payments of
approximately $1,870.
Additionally, in August 1993, the Company purchased premises also situated
in Hong Kong for investment purposes. The Company intends to sell this property
and it is held subject to a bank mortgage having an outstanding principal amount
due of approximately HK$1,972,000 at June 30, 1996, payable in approximately
ninety four monthly installments which commenced in December 1993.
The Company's registered office in the British Virgin Islands is located at
TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands and
its telephone number is (809) 494-5296.
EMPLOYEES
The Company has approximately 52 full-time employees, including 26
marketing and sales persons, 16 administrative persons and 10 technical support
persons.
The Company's management consists of its officers and directors.
The Company is not subject to any collective bargaining agreement and
believes that its relationship with its employees are good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
The directors and executive officers of Euro Tech Holdings Company Limited
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
T.C. Leung.......................... 53 Chairman of the Board of Directors and Chief Executive
Officer
Jerry Wong.......................... 37 Director and Chief Financial Officer
Nancy Wong.......................... 47 Director
C.P. Kwan........................... 37 Director
Alex Sham........................... 33 Director
</TABLE>
Set forth below is a brief background of the executive officers and
directors based upon information supplied by them:
T.C. Leung has been Chief Executive Officer and Chairman of the Board of
Directors of Far East and the Company since their inception. Before establishing
Far East, Mr. Leung was an engineer for English Electric in England, from 1965
to 1968, and Lockheed Aircraft, from 1968 to 1970 in Hong Kong. Mr. Leung also
served as managing director of Eurotherm (Far East) Ltd. between 1971 and 1992.
Since 1992, Mr. Leung has also served as managing director of Eurotherm Hong
Kong. Mr. Leung received a Master's degree in Business Administration from the
University of East Asia, Macau in 1986 and is a Chartered Engineer, i.e. a
member of the Council of Engineering Institutions in the United Kingdom.
Jerry Wong has served as Director and Chief Financial Officer of Far East
since 1994 having joined Far East in 1987. Mr. Wong has been the Chief Financial
Officer and a Director of the Company since its inception. From 1985 until 1987,
Mr. Wong worked for MUA Agencies Ltd., a subsidiary of a Hong Kong publicly
listed company engaged in the insurance business as deputy manager of its
secretarial, legal and accounting department. From 1981 until 1985, Mr. Wong
served as a senior accountant in Price Waterhouse-Hong Kong. He is a Fellow of
the Chartered Association of Certified Accountants in the United Kingdom and a
Certified Public Accountant in Hong Kong.
Nancy Wong joined Far East in 1971 becoming a Director and its Personnel
Manager in 1994. Ms. Wong is also Far East's Chief Representative in China. Ms.
Wong has been a Director of the Company since its inception. During the last
several years, Ms. Wong has played a pivotal role in Far East's business
expansion in China. Ms. Wong received a Bachelor's degree in Business
Administration from the University of East Asia, Macau in 1989.
C.P. Kwan joined Far East in 1984 and has served as a Director and Manager
of its Process Equipment Department since 1991. Mr. Kwan has been a Director of
the Company since its inception. Before joining Far East, he was employed by
Haven Automation (H.K.) Ltd., a company involved in the water treatment and
process control business.
Alex Sham joined Far East in 1988 and has been its Sales Manager since 1991
and became a Director of Far East in 1996. Mr. Sham has been a Director of the
Company since its inception. Mr. Sham received a degree in Applied Chemistry
from Hong Kong Baptist University in 1990. Prior to joining Far East, Mr. Sham
was employed by the Environmental Protection Department of the Hong Kong
Government from 1986 until 1988.
Directors of the Company serve until the next annual meeting of
shareholders of the Company and until their successors are elected and duly
qualified. Officers of the Company will be elected annually by the Board of
Directors and serve at the discretion of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
the compensation paid by Far East for services rendered in all capacities to Far
East during Fiscal 1995 and Fiscal 1994 by Far East's
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<PAGE> 35
Chairman of the Board and Chief Executive Officer. Neither the Company nor Far
East having any executive officer whose total annual salary and bonus exceeded
$100,000 for either of said fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR
NAME AND ENDED
PRINCIPAL POSITION DECEMBER SALARY($) BONUS($)
------------------------------------ ----------- --------- --------
<S> <C> <C> <C>
T.C Leung, Chairman of the Board of
Directors and Chief Executive
Officer............................. 1995 $15,584 15,605
1994 $15,584 41,162
</TABLE>
EMPLOYMENT AGREEMENT
The Company and Far East have entered into a five year personal services
agreement, with Shereman Enterprises Ltd., a management company, pursuant to
which Mr. Leung will continue to serve as the Chairman of the Board of Directors
and Chief Executive Officer of Far East and the Company. The agreement requires
that Mr. Leung devote substantially all of his business time to the affairs of
the Company and Far East. The agreement provides for the payment of $100,000 and
six percent of the Company's consolidated pre-tax income to the management
company in exchange for Mr. Leung's services during the first year of the
agreement's term with compensation past the first year to be renegotiated
annually. The agreement contains a confidentiality provision and a covenant not
to compete with the Company or Far East for a period of one year following
termination of the agreement under certain circumstances.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive compensation for their services as
directors; however, the Board of Directors may authorize the payment of
compensation to directors for their attendance at regular and special meetings
of the Board and for attendance at meetings of committees of the Board as is
customary for similar companies. Directors will be reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company.
STOCK OPTION PLAN
In October 1996, the Board of Directors adopted and the stockholders
approved the Company's 1996 Stock Option Plan (the "1996 Stock Option Plan").
The 1996 Stock Option Plan provides for the grant of (i) options that are
intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422A of the Internal Revenue Code, as amended (the
"Code"), to certain employees, directors and consultants and (ii) options not
intended to so qualify ("Non-Qualified Stock Options") to employees (including
directors and officers who are employees of the Company), directors and
consultants. The total number of shares of Common Stock for which options may be
granted under the 1996 Stock Option Plan is 150,000 shares.
The 1996 Stock Option Plan is to be administered by the Board of Directors
or a committee of the Board of Directors which will determine the terms of
options granted, including the exercise price, the number of shares subject to
the option and the terms and conditions of exercise. No option granted under the
1996 Stock Option Plan is transferable by the optionee other than by will or the
laws of descent and distribution and each option is exercisable during the
lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the 1996 Stock Option
Plan must be at least $5.50. With respect to any participant who owns stock
possessing more than 10% of the voting rights of all classes of the Company's
outstanding capital stock, the exercise price of any Incentive Stock Option must
be not less than 110% of the fair market value on the date of grant. The term of
each option granted pursuant to the 1996 Stock Option Plan may be established by
the Board of Directors or a committee of the Board of Directors, in its sole
discretion; provided, however, that the maximum term of each Incentive Stock
Option granted pursuant to the 1996 Stock Option Plan is six years. With respect
to any Incentive Stock Option granted to a
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<PAGE> 36
participant who owns stock possessing more than 10% of the voting rights of all
classes of the Company's outstanding capital stock, the maximum term is five
years. Options shall become exercisable at such times and in such installments
as the Board of Directors or a committee of the Board of Directors shall provide
in the terms of each individual option, provided, however, that as to 50,000 and
100,000 stock options, by their terms automatically terminate unless the Company
achieves net income levels of not less than $990,000 and $1,800,000,
respectively, during the Company's fiscal years to end December 31, 1997 and
1998.
MANAGEMENT OPTIONS
The Company has authorized the issuance of options to purchase up to an
aggregate of 1,400,000 shares of Common Stock (the "Management Options") to its
officers and directors in such numbers and to such persons as the Company's
Chairman of the Board and Chief Executive Officer may direct. Any such
Management Options will not be exercisable until one year after the Effective
Date and may have a term of up to ten years. The exercise price of the
Management Options will be $2.50 per share for 400,000 of such options and $5.50
per share for the remaining 1,000,000 options.
The exercise price and the number of shares of Common Stock purchasable
upon exercise of any Management Options are subject to adjustment upon the
occurrence of certain events, including stock dividends, reclassification,
reorganizations, consolidations, mergers, and certain issuances and redemptions
of Common Stock and securities convertible into or exchangeable for Common Stock
excluding certain issuances of shares of the Company's Common Stock. No
adjustments in the exercise price will be required to be made with respect to
the Management Options until cumulative adjustments amount to $.05. In the event
of any capital reorganization, certain reclassifications of the Common Stock,
any consolidation or merger involving the Company (other than (i) a
consolidation or merger which does not result in any reclassification or change
in the outstanding shares of Common Stock or (ii) the acquisition of Far East or
any other business), or sale of the properties and assets of the Company, as, or
substantially as, an entirety to any other corporation, Management Options will
thereupon become exercisable only for the number of shares of stock or other
securities, assets, or cash to which a holder of the number of shares of Common
Stock of the Company purchasable (at the time of such reorganization,
reclassification, consolidation, merger, or sale) upon exercise of such
Management Options would have been entitled upon such reorganization,
reclassification, consolidation, merger, or sale.
Members of the Company's management, in particular Mr. T.C. Leung, the
Company's Chairman of the Board of Directors and Chief Executive Officer will be
beneficial owners of a substantial portion of the Company's Common Stock after
completion of the Public Offering. The record owners of the 1,400,000 shares of
the Company's Common Stock to be exchanged in connection with the Acquisition
have agreed to return to the Company for cancellation and as a contribution to
capital, an aggregate of 200,000 shares of the Company's Common Stock in the
event Far East fails to achieve after-tax net income of at least $450,000 for
its fiscal year to end December 31, 1996. See "Principal Shareholders" and
"Certain Transactions."
PENSION PLAN
The Company has a defined contribution pension plan for all of its
employees. Under this plan, all employees are entitled to a pension benefit
equal to 50% to 100% of their individual fund account balances at their dates of
resignation or retirement which depends on their years of services. The Company
is required to make specific contributions at approximately 10% of the basic
salaries of the employees to an independent fund management company. The Company
has no future obligations for the pension payment or any post-retirement
benefits beyond the annual contributions made. The independent fund management
company is responsible for the ultimate pension liabilities to those resigned or
retired employees. During the years ended December 31, 1993, 1994 and 1995, and
for Six Months 1995 and 1996, the Company made total pension contributions of
approximately HK$587,000, HK$621,000, HK$864,000, HK$455,000 (Unaudited) and
HK$261,000 (Unaudited) respectively.
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<PAGE> 37
PRINCIPAL SHAREHOLDERS
The following table set forth, as of the date of this Prospectus, after
giving effect to the Acquisition as if it had occurred on that date, certain
information concerning beneficial ownership of shares of Common Stock with
respect to (i) each person known to the Company to own 5% or more of the
outstanding shares of Common Stock, (ii) each executive officer, director and
director nominee of the Company, and (iii) all officers, directors and director
nominees of the Company as a group:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE
OF COMMON APPROXIMATE
AMOUNT AND STOCK OWNED PERCENTAGE OF
NATURE OF BEFORE COMMON STOCK OWNED
BENEFICIAL PUBLIC AFTER PUBLIC
OWNERSHIP OFFERING OFFERING(4)
---------- ------------ ------------------
<S> <C> <C> <C>
T.C Leung (1)(2)...................................... 1,400,000 90% 65%
Jerry Wong (1)(3)..................................... 0 * *
Nancy Wong (1)(3)..................................... 0 * *
C.P. Kwan (1)(3)...................................... 0 * *
Alex Sham (1)(3)...................................... 0 * *
Pearl Venture Ltd. (1)(2)............................. 1,400,000 90% 65%
Regent Earning Ltd. (1)............................... 1,027,600 66% 48%
Celestial Dreams Corp., N.V. (5)...................... 100,000 7% 5%(6)
Richgrove, N.V. (5)................................... 100,000 7% 5%(6)
Waveland Corp., N.V. (5).............................. 100,000 7% 5%(6)
Eaglehurst, N.V. (5).................................. 100,000 7% 5%(6)
Totado International, N.V. (5)........................ 70,000 5% 3%(6)
Signal Hill, N.V. (5)................................. 92,000 6% 4%(6)
Sidford International Ltd. (7)........................ 100,000 7% 5%
All Executive Officers and Directors of the Company as
a group (5 persons) (2)(3).......................... 1,400,000 90% 65%
</TABLE>
- ---------------
* Denotes less than 1%.
(1) The address for each of Ms. Wong and Messrs. Leung, Wong, Kwan and Sham is
c/o Euro Tech (Far East) Ltd., 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang
Road, Hong Kong. The address for Pearl Venture Ltd. ("Pearl") is Columbus Centre
Building, Wichhams Cay, Road Town, Tortola, British Virgin Islands. The address
for Regent Earning Ltd. ("Regent") is Chong Kin Commercial Building, 596 Nathan
Road, Room 902, Mong Kok, Kowloon, Hong Kong.
(2) Includes shares of the Company's Common Stock owned of record by Pearl,
which is a trust established for the benefit of Mr. Leung. Also includes those
shares of the Company's Common Stock owned of record by Regent of which Pearl is
the majority shareholder. See "Certain Transactions."
(3) Does not include such person's proportionate interest in shares of the
Company's Common Stock held of record by Regent and/or Broadskill Investments,
Inc. ("Broadskill"). See "Certain Transactions."
(4) Does not include options which may be granted under the Company's 1996 Stock
Option Plan and the Management Options. See "Management."
(5) Represents shares of the Company's Common Stock issuable upon the exercise
of Warrants held such entities which are selling securityholders. See
"Concurrent Registration of Securities." The address for Signal Hill, N.V.,
Celestial Dreams Corp., N.V., Richgrove, N.V., Waveland Corp., N.V., and
Eaglehurst, N.V. is Landhuis Joonchi, Kaya Richard J. Beaujon Z/A, P.O. Box 837,
Curacao, Netherland Antilles. The address for Totado International, N.V. is P.O.
Box 245, Philipsburg, Sint Maartin, Netherland Antilles.
(6) Assumes no sale by such selling securityholders of their Warrants and/or the
shares of the Company's Common Stock underlying such Warrants. See "Concurrent
Registration of Securities."
(7) The address for Sidford International Ltd. ("Sidford") is 21st Floor, Regent
Centre, 88 Queen's Road Central, Hong Kong. Sidford is a business consultant to
Far East. See "Certain Transactions."
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<PAGE> 38
CERTAIN TRANSACTIONS
The Company was incorporated under the laws of the British Virgin Islands
on September 30, 1996 and shortly thereafter sold 50,000 shares to Gusrae,
Kaplan & Bruno, Esqs. and 100,000 shares to Sidford for an aggregate
consideration of $1,500 or $.01 per share. Gusrae, Kaplan & Bruno is United
States counsel to the Company. Sidford has been and is a business consultant to
Far East.
Pearl is a British Virgin Islands company which is a trust for the benefit
of T.C. Leung, the Company's Chairman of the Board and Chief Executive Officer.
Regent is a Hong Kong corporation.
Simultaneously with the closing of this Offering, the Company will
consummate the Acquisition by exchanging 1,400,000 shares of the Company's
Common Stock for the 1,000,000 issued and outstanding shares of the Common Stock
of Far East at a ratio of 1.4 (one and four-tenths) shares of the Company's
Common Stock for each issued and outstanding share of Far East's Common Stock.
In the event Far East fails to achieve after-tax net income of at least $450,000
for its fiscal year to end December 31, 1996, Pearl and Regent have agreed to
return to the Company for cancellation and as a contribution to capital, an
aggregate of 200,000 shares of the Company's Common Stock issued as part of the
exchange for the capital stock of Far East. All discussions in this Prospectus
relating to the number of issued and outstanding shares of Common Stock give
effect to the Acquisition.
Pearl was one of the founding shareholders of Far East and during the years
1992 through 1994, Pearl and Regent accumulated 100% of the issued and
outstanding common stock of Far East (1,000,000 shares) for an aggregate
consideration of approximately HK$11,130,000, with Pearl and Regent being the
record owners of 266,000 and 734,000 shares of Far East's Common Stock,
respectively. Broadskill is a Hong Kong corporation which owns an approximate
44% equity interest in Regent which if converted into shares of the Company's
Common Stock would represent approximately 27% of the Company's Common Stock. No
executive officer or director of the Company is an officer or director of Pearl,
Regent or Broadskill. In addition to its direct record ownership of 372,400
shares of the Company's Common Stock, Pearl is also the beneficial owner of
approximately 527,069 shares of the Company's Common Stock through its equity
interest in Regent. Mr. Kwan, and each of Messrs. Wong, Sham and Ms. Wong,
Executive Officers and Directors of the Company and Far East have equity
interests in Regent and/or Broadskill which if converted into shares of the
Company's Common Stock would represent approximately 4%, less than 1%, less than
1% and less than 1% of the Company's Common Stock, respectively. See
"Management" and "Principal Shareholders."
During Fiscal 1996, the Company transferred its equity interests in three
former subsidiaries, Armtison Limited (a wholly owned subsidiary), Action
Instruments (China) Ltd., (a 51% owned subsidiary) and Euro Electron (Far East)
Ltd. (a 80% owned subsidiary) to Regent and Pearl at book value (HK$10,000)
invested in these three subsidiaries.
In November, 1996 the Company sold an aggregate of 1,000,000 Warrants (the
"Private Placement Warrants") to private investors for aggregate gross proceeds
of $150,000. The Underwriter acted as the Company's placement agent in
connection with the foregoing private placement of the Company's Private
Placement Warrants and received an aggregate of $19,500 in commissions and
non-accountable expenses. The terms and conditions of the Private Placement
Warrants are identical to the Warrants offered hereby. See "Description of
Securities" and "Concurrent Registration of Securities."
At the end of Six Months 1996, Far East had advanced approximately
HK$3,800,000 to Regent to finance a significant government project that had been
undertaken by Regent's subsidiary and is nearing completion. Regent is charged
eighteen percent interest per year on this advance. Regent has repaid
approximately HK$2,200,000 to Far East subsequent to June 30, 1996.
Mr. Leung may be deemed to be a "promoter" of the Company as such term is
defined under the federal securities laws.
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<PAGE> 39
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital of the Company is $200,000 comprised of 20,000,000
shares of Common Stock, $.01 par value per share, of which 2,150,000 shares will
be outstanding upon completion of the Public Offering (2,240,000 shares if the
Underwriter's Overallotment Option is exercised in full).
Holders of Common Stock are entitled to one vote for each whole share on
all matters to be voted upon by shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors. All shares of Common Stock are equal to each other with
respect to liquidation and dividend rights. Holders of Common Stock are entitled
to receive dividends if and when declared by the Company's Board of Directors
out of funds legally available under British Virgin Islands law. In the event of
the liquidation of the Company, all assets available for distribution to the
holders of Common Stock are distributable among them according to their
respective share holdings. Holders of Common Stock have no preemptive rights to
purchase any additional, unissued shares of Common Stock. All of the outstanding
shares of Common Stock of the Company are, and the shares of Common Stock
offered hereby will be when issued against the consideration set forth in this
Prospectus, duly authorized, validly issued, fully paid and nonassessable.
Pursuant to the Company's Memorandum and Articles of Association and
pursuant to the laws of the British Virgin Islands, the Company's Memorandum and
Articles of Association may be amended by a resolution of the Board of Directors
without shareholder approval. This includes amendments to increase or reduce the
authorized capital stock of the Company or to increase or reduce the par value
of its shares. The ability of the Company to amend its Memorandum and Articles
of Association without shareholder approval could have the effect of delaying,
deterring or preventing a change in control of the Company without any further
action by the shareholders including but not limited to, a tender offer to
purchase the Common Stock at a premium over then current market prices.
Under United States law, majority and controlling shareholders generally
have certain "fiduciary" responsibilities to the minority shareholders.
Shareholder action must be taken in good faith and actions by controlling
shareholders which are obviously unreasonable may be declared null and void. The
British Virgin Islands law protecting the interests of the minority shareholders
is not as protective in all circumstances as the law protecting minority
shareholders in United States jurisdictions. While British Virgin Islands law
does not permit a shareholder of a British Virgin Islands company to sue its
directors derivatively, i.e., in the name of and for the benefit of the Company,
and to sue the Company and its directors for his benefit and the benefit of
others similarly situated, the circumstances in which any such action may be
brought that may be available in respect of any such action may result in the
rights of shareholders of a British Virgin Island company being more limited
than those rights of shareholders in a United States company.
WARRANTS
Each Warrant is issued pursuant to a Warrant Agreement between the Company
and American Stock Transfer & Trust Company, as warrant agent. The following
description is subject to the detailed provisions of and are qualified in their
entity by reference to the Warrant Agreement, which is included as an exhibit to
the Registration Statement of which this Prospectus is a part.
Each Warrant entitles the holder to purchase for one share of Common Stock
at a price of $5.50, for a period of five years commencing one year after the
Effective Date, provided however, that prior to the second year after the
Effective Date, the Warrants will be exercisable only if the Underwriter has
consented in writing to all of the Warrants being exercisable.
EXERCISE
Each holder of a Warrant may exercise such Warrant, in whole or in part, by
surrendering the certificate evidencing such Warrant, with the form of election
to purchase attached to such certificate properly
35
<PAGE> 40
completed and executed, together with payment of the exercise price and any
required transfer taxes, to the Company. No Warrants may be exercised unless at
the time of exercise there is a current prospectus covering the shares of Common
Stock issuable upon the exercise of such Warrants under an effective
registration statement. The Company will endeavor to maintain an effective
registration statement, including such current prospectus, so long as any of the
exercisable Warrants remain outstanding. While it is the Company's intention to
comply with this intention, there can be no assurance that it will be able to do
so.
The exercise price and any required transfer taxes will be payable in cash
or by certified or official bank check payable to the Company. If fewer than all
of the Warrants evidenced by a warrant certificate are exercised, a new
certificate will be issued for the remaining number of Warrants. Certificates
evidencing the Warrants may be exchanged for new certificates of different
denominations by presenting the Warrant certificate at the offices of the
Company.
ADJUSTMENTS
The exercise price and the number of shares of Common Stock purchasable
upon exercise of any Warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits, reverse stock splits,
reclassification, reorganizations, consolidations, mergers, and certain
issuances and redemptions of Common Stock and securities convertible into or
exchangeable for Common Stock excluding issuances of shares of the Company's
Common Stock prior to the commencement of the Public Offering, the acquisition
of Far East, any issuances of the Company's securities in connection with the
Public Offering and Company stock option plans. No adjustments in the exercise
price will be required to be made with respect to the Warrants until cumulative
adjustments amount to $.05. In the event of any capital reorganization, certain
reclassifications of the Common Stock, any consolidation or merger involving the
Company (other than (i) a consolidation or merger which does not result in any
reclassification or change in the outstanding shares of Common Stock or (ii) the
acquisition of Far East or any other business), or sale of the properties and
assets of the Company, as, or substantially as, an entirety to any other
corporation, Warrants will thereupon become exercisable only for the number of
shares of stock or other securities, assets, or cash to which a holder of the
number of shares of Common Stock of the Company purchasable (at the time of such
reorganization, reclassification, consolidation, merger, or sale) upon exercise
of such Warrants would have been entitled upon such reorganization,
reclassification, consolidation, merger, or sale.
OTHER RIGHTS
In the event of an adjustment in the number of shares of Common Stock
issuable upon exercise of the Warrants, the Company will not be required to
issue fractional shares of Common Stock upon exercise of the Warrants. In lieu
of fractional shares of Common Stock, there will be paid to the holders of the
Warrants, at the time of such exercise, an amount in cash equal to the same
fraction of the current market price of a share of Common Stock of the Company.
Warrant holders do not have voting or any other rights of stockholders of
the Company and are not entitled to dividends, if any.
REDEMPTION OF WARRANTS
During any time the Warrants are exercisable, if the average closing bid
price of the Common Stock for 20 consecutive trading days shall exceed $8.50 the
Company may redeem the Warrants by paying holders $.10 per Warrant, provided
that notice of such redemption is mailed not later than 10 days after the end of
such period and prescribes a redemption date at least 30 days thereafter.
Warrant holders will be entitled to exercise Warrants at any time up to the
business day next preceding the redemption date. Additionally, the Warrants may
not be redeemed unless at the time of redemption there is a current prospectus
covering the shares of Common Stock issuable upon exercise of such Warrants
under an effective registration statement.
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<PAGE> 41
PRIVATE PLACEMENT WARRANTS
Upon the completion of the Public Offering, the Private Placement Warrants
will be automatically exchangeable for the Warrants offered hereby. See
"Concurrent Registration of Securities."
TRANSFER AGENT AND WARRANT AGENT
The Company has appointed American Stock Transfer & Trust Company as
transfer agent and registrar for the Common Stock and as Warrant Agent for the
Warrants.
The Company's Warrant Agreement with the Warrant Agent contains provisions
permitting the Company and the Warrant Agent, without the consent of the Warrant
holders, to supplement or amend the Warrant Agreement in order to cure any
ambiguity or defect, or to make any other provisions in regard to matters or
questions arising thereunder that the Company and the Warrant Agent may deem
necessary or desirable and that does not adversely affect the interests of the
Warrant holders.
DIVIDEND POLICY
The Company has not paid dividends to date. The payment of dividends, if
any, in the future is within the discretion of the Board of Directors. The
payment of dividends, if any, in the future will depend upon the Company's
earnings, capital requirements and financial conditions and other relevant
factors. The Company's Board of Directors does not presently intend to declare
any dividends in the foreseeable future, but instead intends to retain all
earnings, if any, for use in the Company and Far East's business operations.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SHAREHOLDERS
There are no exchange control restrictions on payment of dividends on the
Company's Common Stock or on the conduct of the Company's operations either in
Hong Kong, where the Company's principal executive offices are located, or the
British Virgin Islands, where the Company is incorporated. Other jurisdictions
in which the Company conducts operations may have various exchange controls.
There are no material British Virgin Islands laws which impose foreign exchange
controls on the Company or that affect the payment of dividends, interest, or
other payments to nonresident holders of the Company's securities. British
Virgin Islands law and the Company's Memorandum and Articles of Association
impose no limitations on the right of nonresident or foreign owners to hold the
Company's securities or vote the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Public Offering, the Company will have 2,150,000
shares of Common Stock and 1,600,000 Warrants outstanding (2,240,000 shares and
1,690,000 Warrants, respectively, if the Underwriter's overallotment option is
exercised in full). All of the shares of Common Stock sold in the Public
Offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), except for
any shares purchased by an "affiliate" of the Company which will be subject to
certain limitations of Rule 144 adopted under the Securities Act.
All outstanding shares of Common Stock and 1,000,000 Warrants are
restricted securities and will be subject to the resale limitations provided for
in Rule 144. Under Rule 144, as currently in effect, subject to the satisfaction
of certain other conditions, a person, including an affiliate of a Company, who
has owned restricted securities beneficially for at least two years, is entitled
to sell, within any three month period, a number of the securities that does not
exceed the greater of 1% of the total number of outstanding securities of the
same class or, if the security is quoted on an exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A nonaffiliate
who has not been an affiliate of the Company for at least the three months
immediately preceding the sale and who has beneficially owned the Company's
securities for at least three years is entitled to sell such shares under Rule
144 without regard to any of the limitations described above. In meeting the two
and three year holding periods described above, a holder who has purchased
shares can include the holding periods of a prior owner who was not an affiliate
of the Company.
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<PAGE> 42
All of the Company's securityholders, on the date hereof, have agreed not
to publicly sell, for a period of twenty-four months from the date of this
Prospectus, any securities of the Company owned by them without the prior
written consent of the Underwriter.
Prior to the Public Offering, there has been no market for any securities
of the Company. The effect, if any, of public sales of the restricted shares of
Common Stock or the availability of such shares for future sale at prevailing
market prices cannot be predicted. Nevertheless, the possibility that
substantial amounts of restricted shares may be resold in the public market may
adversely affect prevailing market prices for the Common Stock and the Warrants,
if any such market should develop.
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<PAGE> 43
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
between the Company and the Underwriter (a copy of which agreement is filed as
an exhibit to the Registration Statement of which this Prospectus forms a part),
the Company has agreed to sell to the Underwriter 600,000 shares of Common Stock
and 600,000 Warrants. All 600,000 shares and 600,000 Warrants offered must be
purchased by the Underwriter if any are purchased. The shares and Warrants are
being offered by the Underwriter subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
shares of Common Stock and the Warrants to the public at the offering prices set
forth on the cover page of this Prospectus and that the Underwriter may allow to
certain dealers who are members in good standing with the National Association
of Securities Dealers, Inc. ("NASD") concessions, not in excess of $
per share of Common Stock and $ per Warrant. After the initial public
offering, the public offering price and concessions may be changed by the
Underwriter.
While certain of the officers of the Underwriter have significant
experience in corporate finance and the underwriting of securities, the
Underwriter has previously underwritten only one public offering. No assurance
can be given that the Underwriter's limited public offering experience will not
affect the Company's Offering of the Common Stock and Warrants and subsequent
development of a trading market, if any.
The Company has granted the Underwriter an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to 90,000 Shares and 90,000
Warrants from it, at the public offering price less the underwriting discounts
set forth on the cover page of this Prospectus. The Underwriters may exercise
this option solely to cover overallotments in the sale of the shares of Common
Stock and Warrants offered hereby.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of the shares of Common Stock and Warrants
sold in this Offering.
The underwriting agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain civil liabilities, including
liabilities under the Securities Act.
The Company has agreed to sell to the Underwriter or its designees, at a
price of $10, the Underwriter's Warrants, which entitle the Underwriter to
purchase up to 60,000 shares of Common Stock of the Company and 60,000 Warrants
to purchase up to an additional 60,000 shares of Common Stock of the Company,
respectively. The Underwriter's Warrants will be exercisable at a price of $6.00
per share and $.18 per Warrant, respectively, for a period of four years
commencing one year from the date of this Prospectus, and they will not be
transferable except to the underwriter and selected dealers and officers and
partners thereof. Any profit realized upon any resale of the Underwriter's
Warrants or upon any sale of the shares of Common Stock or Warrants underlying
same may be deemed to be additional underwriter's compensation. The Company has
registered (or file a post-effective amendment with respect to any registration
statement registering), for a period of five years from the effective date of
this Offering, the Underwriter's Warrants and the underlying securities under
the Securities Act at its expense on one occasion, and at the expense of the
holders thereof on another occasion, upon the request of a majority of the
holders thereof. The Company has also agreed to certain "piggy-back"
registration rights for the holders of the Underwriter's Warrants and the
underlying securities. Such piggy-back registration rights will expire seven
years from the Effective Date.
The Company has agreed that for a period of not less than three years, the
Underwriter will have the right to designate a person to be a non-voting advisor
to the Company's Board of Directors who will receive the same compensation as a
member of the Board of Directors and who will be indemnified by the Company
against any claims arising out of his participation at meetings of the Board of
Directors. Alternatively, the Underwriter has the right, during such three year
period, to designate one person to be elected to the Company's Board of
Directors. The Company has agreed to use its best effort to obtain the election
of the Underwriter's designee and, if so elected, such person shall be entitled
to receive the same compensation, expense reimbursement and other benefits as
any other non-employee Director of the Company, if any. The
39
<PAGE> 44
identity of such person has not been determined as of the date hereof, and it is
not expected that such right will be exercised in the immediate future.
The Underwriter has informed the Company that it does not expect sales to
be made to discretionary accounts to exceed 1% of the shares of Common Stock and
Warrants offered hereby.
The Offering is subject to the agreement by all present stockholders of the
Company that they will not sell any shares of Common Stock to the public for a
period of twenty-four months.
The Company has agreed to enter into an agreement with the Underwriter
retaining it as a financial consultant for a period of three years from the date
hereof, pursuant to which it will receive fees aggregating $108,000 which fees
will be payable in full at closing.
The Underwriting Agreement also provides that the Company, its current or
future subsidiaries, if any, and its principal stockholders, or their respective
affiliates, will for a period of five years from the Effective Date provide the
Underwriter with a right of first refusal with respect to any public or private
offering of securities to raise capital. The Underwriter must agree to undertake
any such financing on the same or better terms as any other financing proposal.
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this Offering, 1,000,000 Warrants and 1,000,000 shares of
the Company's Common Stock underlying said Warrants have been registered under
the Securities Act for immediate resale. None of the holders of such securities
or their affiliates has ever held any position or office with the Company or had
any other material relationship with the Company. The holders of such securities
have agreed not to sell any of the registerable securities for a period of
twenty-four months from the Effective Date without the prior written consent of
the Underwriter.
LEGAL MATTERS
The validity of the securities being offered hereby and certain legal
matters in connection with this Offering with respect to British Virgin Islands
law will be passed upon for the Company by Smith-Hughes, Raworth & McKenzie,
British Virgin Islands counsel to the Company. Certain legal matters in
connection with this Offering with respect to United States law will be passed
upon for the Company by Gusrae, Kaplan & Bruno, New York, New York, as United
States counsel to the Company. Gusrae, Kaplan & Bruno owns 50,000 shares of the
Company's Common Stock. Hastings & Co. has advised the Company on certain legal
matters in connection with this Offering with respect to the laws of Hong Kong.
Jingtian Associates has advised the Company on certain legal matters with
respect to the laws of the PRC. Certain legal matters in connection with this
Offering will be passed upon for the Representative by Gersten, Savage,
Kaplowitz & Curtin LLP, New York, New York.
EXPERTS
The Financial Statements of the Company, included in this Prospectus have
been audited by Arthur, Anderson & Co., Hong Kong, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as expert in giving
said reports.
40
<PAGE> 45
ENFORCEMENT OF CIVIL LIABILITIES
The Company is a British Virgin Islands holding corporation. The Company
has appointed as its agent upon whom process may be served in any
action brought against it under the securities laws of the United States.
However, it may be difficult for investors to enforce outside the United States
judgements against the Company obtained in the United States in any such
actions, including actions predicated upon the civil liability provisions of the
United States federal securities laws. In addition, all of the Company's
officers and directors reside outside the United States and all of the assets of
these persons and of the Company are or may be located outside of the United
States. As a result, it may be difficult for investors to effect service of
process within the United States upon such persons. Additionally, Hong Kong
courts will not directly enforce against the Company or such persons judgments
obtained in United States courts. There is substantial doubt as to the
enforceability against the Company or any of its officers and directors located
outside the United States in original actions for enforcement of judgements of
United States courts.
The Company has been advised by Hastings & Co., its Hong Kong counsel, and
Smith-Hughes, Raworth & McKenzie, its British Virgin Islands counsel, that no
treaty exists between Hong Kong or the British Virgin Islands and the United
States providing for the reciprocal enforcement of foreign judgements. However,
the courts of Hong Kong and the British Virgin Islands are generally prepared to
accept a foreign judgment as evidence of a debt due. An action may then be
commenced in Hong Kong or the British Virgin Islands for recovery of this debt.
A Hong Kong or British Virgin Islands court will only accept a foreign judgement
as evidence of a debt due if: (i) the judgement is for a liquidated amount in a
civil matter; (ii) the judgment is final and conclusive and has not been stayed
or satisfied in full; (iii) the judgment is not directly or indirectly for the
payment of foreign taxes, penalties, fines or changes of a like nature (in this
regard, a Hong Kong or British Virgin Islands court is unlikely to accept a
judgement for an amount obtained by doubling, trebling or otherwise multiplying
a sum assessed as compensation for the loss or damage sustained by the person in
whose favor the judgement was given); (iv) the judgment was not obtained by
actual or constructive fraud or duress; (v) the foreign court has taken
jurisdiction on grounds that are recognized by the common law rules as to
conflict of laws in Hong Kong or the British Virgin Islands; (vi) the
proceedings in which the judgment was obtained were not contrary to natural
justice (i.e., the concept of fair adjudication); (vii) the proceedings in which
the judgment was obtained, the judgment itself and the enforcement of the
judgment are not contrary to the public policy of Hong Kong or the British
Virgin Islands; (viii) the person against whom the judgment is given is subject
to the jurisdiction of the Hong Kong or the British Virgin Islands court; and
(ix) the judgment is not on a claim for contribution in respect of damages
awarded by a judgement which does not satisfy the foregoing. Enforcement of a
foreign judgment which has been registered in a Hong Kong court or a judgment
obtained in Hong Kong can be enforced by one or more of the following manners:
(i) a Hong Kong court's bailiffs being sent to seize valuable chattels from the
judgment debtor's premises and thereafter auction the same in satisfaction of
the judgment debt; (ii) by a charge being registered against any real property
belonging to the judgment debtor which charge must necessarily be redeemed upon
sale or upon the judgment creditor exercising a right of sale attached thereto;
(iii) oral examination of the judgment debtor or its director(s), to reveal in
open court, assets belonging to him/her or the Company; (iv) by debtors of the
judgment debtor being required to pay over debts due to the judgment debtor; and
(v) bankruptcy or "winding-up" proceedings. Enforcement of a foreign judgement
in Hong Kong or the British Virgin Islands may also be limited or affected by
applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or
similar laws relating to or affecting creditors' rights generally and will be
subject to a statutory limitation of time within which proceedings may be
brought.
A substantial portion of the Company's assets will be situated in the PRC.
As the PRC does not have treaties providing for the reciprocal recognition and
enforcement of judgments of courts within the United States, actions brought by
regulatory authorities, such as the Commission, and other actions, which result
in foreign court judgments, could (assuming such actions are not required by PRC
law to be arbitrated) only be enforced in the PRC if such judgments or rulings
do not violate the basic principles of the law of the PRC or the sovereignty,
security and public interest of the society of the PRC, as determined by a
people's court of the PRC which has jurisdiction for recognition and enforcement
of judgments. The Company has been advised by its PRC counsel, Jingtian
Associates, that there is substantial doubt as to the enforceability in the PRC
of any
41
<PAGE> 46
actions to enforce judgments of United States' courts arising out of or based on
the ownership of the Securities offered hereby, including judgments arising out
of or based on the civil liability provisions of United States federal or state
securities laws or otherwise.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
F-1 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock and Warrants offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in the exhibits and schedules thereto as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
42
<PAGE> 47
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF
EURO TECH (FAR EAST) LIMITED
Report of Independent Public Accountants........................... F-2
Statements of Income for the years ended December 31, 1993, 1994
and 1995 (Audited), and for the six months ended June 30, 1995 and
1996 (Unaudited).................................................. F-3
Balance Sheets as of December 31, 1994 and 1995 (Audited), and June
30, 1996 (Unaudited).............................................. F-4
Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 (Audited), and for the six months ended June 30,
1995 and 1996 (Unaudited)......................................... F-5
Statements of Changes in Equity for the years ended December 31,
1993, 1994 and 1995 (Audited), and for the six months ended June
30, 1996 (Unaudited).............................................. F-7
Notes to the Financial Statements.................................. F-8
BALANCE SHEET OF
EURO TECH HOLDINGS COMPANY LIMITED
Report of Independent Public Accountants........................... F-21
Balance Sheet as of October 31, 1996............................... F-22
Notes to the Balance Sheet......................................... F-23
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Euro Tech (Far East) Limited
We have audited the accompanying balance sheets of Euro Tech (Far East)
Limited (the "Company"), incorporated in Hong Kong, as of December 31, 1994 and
1995, and the related statements of income, cash flows and changes in
shareholders' equity for the years ended December 31, 1993, 1994 and 1995,
expressed in Hong Kong dollars. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1994 and 1995, and the results of its operations and cash flows for the
years ended December 31, 1993, 1994 and 1995 in conformity with generally
accepted accounting principles in the United States of America.
/s/ ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
November 13, 1996.
F-2
<PAGE> 49
EURO TECH (FAR EAST) LIMITED
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (AUDITED),
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- -----------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$ HK$ HK$ US$ HK$ HK$ US$
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.......................... 105,374 103,512 105,782 13,667 51,959 53,969 6,973
--------- --------- --------- --------- --------- --------- ---------
Cost of goods sold............. (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397)
Selling and administrative
expenses..................... (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273)
Interest expenses, net......... (221) (492) (877) (113) (420) (631) (82)
Gain on disposal of a real
estate property.............. -- 2,300 -- -- -- -- --
Other income, net.............. 675 590 1,186 153 118 488 63
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses....... (98,232) (98,754) (103,455) (13,366) (51,539) (51,780) (6,689)
--------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations before profits
tax.......................... 7,142 4,758 2,327 301 420 2,189 284
Provision for profits tax
-- current................... (1,106) (425) (68) (9) (77) (406) (52)
--------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations................... 6,036 4,333 2,259 292 343 1,783 232
Discontinued operations
Income (loss) of subsidiary
companies sold in 1996..... 12 (1,466) (1,645) (213) (369) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............. 6,048 2,867 614 79 (26) 1,783 232
========= ========= ========= ========= ========= ========= =========
Income (loss) from discontinued
operations per common
share........................ 0.01 (0.95) (1.06) (0.14) (0.24) -- --
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common
share........................ 3.90 1.85 0.40 0.05 (0.02) 1.15 0.15
========= ========= ========= ========= ========= ========= =========
Weighted average number of
common shares outstanding.... 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 50
EURO TECH (FAR EAST) LIMITED
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995 (AUDITED),
AND JUNE 30, 1996 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------- ------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
HK$ HK$ US$ HK$ US$
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... 3,408 4,626 597 3,008 389
Accounts receivable, net...................... 26,649 22,040 2,847 18,978 2,452
Bills receivable.............................. -- 2,963 383 2,700 349
Receivable from subsidiary companies.......... 39 1,564 202 -- --
Receivable from related companies............. 226 275 36 1,390 180
Receivable from shareholders.................. -- -- -- 5,258 679
Inventories, net.............................. 6,354 5,106 660 3,258 421
Prepayments and other current assets.......... 1,782 1,366 175 1,372 177
------ ------ ----- ------ -----
Total current assets.................. 38,458 37,940 4,900 35,964 4,647
Property, plant and equipment, net.............. 14,034 21,800 2,817 21,339 2,757
------ ------ ----- ------ -----
Total assets.......................... 52,492 59,740 7,717 57,303 7,404
====== ====== ===== ====== =====
LIABILITIES
Current liabilities:
Short-term borrowings......................... 7,276 5,426 701 5,171 668
Long-term bank loans, current portion......... 515 1,008 130 1,061 137
Accounts payable.............................. 16,992 19,411 2,508 18,216 2,354
Payable to subsidiary companies............... 54 -- -- -- --
Payable to a director......................... -- 25 3 38 5
Accrued expenses and other liabilities........ 5,599 6,837 883 4,966 642
Taxation payable.............................. 769 337 44 397 51
------ ------ ----- ------ -----
Total current liabilities............. 31,205 33,044 4,269 29,849 3,857
Long-term bank loans............................ 3,330 7,006 905 6,471 836
Share of accumulated loss of subsidiary
companies..................................... 324 1,969 254 -- --
Other non-current liabilities................... 26 -- -- -- --
------ ------ ----- ------ -----
Total liabilities..................... 34,885 42,019 5,428 36,320 4,693
------ ------ ----- ------ -----
SHAREHOLDERS' EQUITY
Share capital................................. 1,000 1,000 129 1,000 129
Retained earnings............................. 16,607 16,721 2,160 19,983 2,582
------ ------ ----- ------ -----
Total shareholders' equity............ 17,607 17,721 2,289 20,983 2,711
------ ------ ----- ------ -----
Total liabilities and shareholders'
equity.............................. 52,492 59,740 7,717 57,303 7,404
====== ====== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 51
EURO TECH (FAR EAST) LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995 (AUDITED), AND
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------- ---------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$ HK$ HK$ US$ HK$ HK$ US$
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from continuing operating
activities:
Income from continuing operations..... 6,036 4,333 2,259 292 343 1,783 232
Adjustments to reconcile income to net
cash provided by operating
activities:
Depreciation of property, plant and
equipment......................... 400 460 469 60 209 534 69
Gain on disposals of property, plant
and equipment..................... (35) (2,335) (49) (6) (49) (1) --
(Increase) decrease in assets:
Accounts receivable................. (8,499) (2,869) 4,609 595 3,415 3,062 395
Bills receivable.................... -- -- (2,963) (383) -- 263 34
Receivable from subsidiary
companies......................... -- (39) (1,525) (197) (478) 1,564 202
Receivable from related companies... -- (226) (49) (6) (125) (1,115) (144)
Receivable from a director.......... 26 -- -- -- -- -- --
Receivable from shareholders........ -- -- -- -- -- (5,258) (679)
Inventories......................... (293) (311) 1,248 161 (1,247) 1,848 239
Prepayments and other current
assets............................ 1,199 15 416 54 (500) (6) (2)
Increase (decrease) in liabilities:
Accounts payable.................... (2,610) 6,554 2,419 313 4,080 (1,195) (154)
Payable to subsidiary companies..... 58 (64) (54) (7) (54) -- --
Payable to associated companies..... 5 (5) -- -- -- -- --
Payable to related companies........ 1,067 (1,067) -- -- -- -- --
Payable to a director............... -- -- 25 3 13 13 2
Accrued expenses and other
liabilities....................... 3,305 (760) 1,238 160 30 (1,871) (241)
Taxation payable.................... (168) (1,103) (432) (56) 76 60 7
------ ------ ------ ------ ------ ------ ----
Net cash provided by (used in)
continuing operating
activities...................... 491 2,583 7,611 983 5,713 (319) (40)
------ ------ ------ ------ ------ ------ ----
Cash flows from investing activities:
Additions to property, plant and
equipment........................... (8,447) (6,055) (8,240) (1,065) (5) (73) (9)
Proceeds from disposals of property,
plant and equipment................. 35 4,338 54 7 54 1
Proceeds from disposals of subsidiary
companies........................... -- -- -- -- -- 10 1
------ ------ ------ ------ ------ ------ ----
Net cash (used in) provided by
investing activities............ (8,412) (1,717) (8,186) (1,058) 49 (62) (8)
------ ------ ------ ------ ------ ------ ----
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 52
EURO TECH (FAR EAST) LIMITED
STATEMENTS OF CASH FLOWS (CONT'D)
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995 (AUDITED), AND
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------- --------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$ HK$ HK$ US$ HK$ HK$ US$
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from (repayment of)
short-term borrowings............... 3,325 1,419 (1,850) (239) (3,765) (255) (33)
Net proceeds from (repayment of) long-
term bank loans..................... 2,916 929 4,169 539 (253) (482) (62)
Net proceeds from (repayment of) other
non-current liabilities............. 67 (41) (26) (3) (26) -- --
Dividends paid........................ (1,200) (3,500) (500) (65) (500) (500) (65)
------ ------ ------ ---- ------ ------ ----
Net cash provided by (used in)
financing activities............ 5,108 (1,193) 1,793 232 (4,544) (1,237) (160)
------ ------ ------ ---- ------ ------ ----
Net (decrease) increase in cash and
cash equivalents.................... (2,813) (327) 1,218 157 1,218 (1,618) (208)
Cash and cash equivalents, beginning
of year............................. 6,548 3,735 3,408 440 3,408 4,626 597
------ ------ ------ ---- ------ ------ ----
Cash and cash equivalents, end of
year................................ 3,735 3,408 4,626 597 4,626 3,008 389
====== ====== ====== ==== ====== ====== ====
Supplemental Information
Interest received..................... 75 60 149 20 78 37 4
Interest paid......................... 296 552 1,026 133 498 668 86
Profits tax paid...................... 1,274 1,528 500 65 -- 346 45
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 53
EURO TECH (FAR EAST) LIMITED
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995 (AUDITED), AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL EARNINGS TOTAL TOTAL
----- -------- ------ ----------
HK$ HK$ HK$ US$
(NOTE 2 J.)
<S> <C> <C> <C> <C>
Balance as of January 1, 1993......................... 1,000 12,392 13,392 1,730
Net income............................................ -- 6,048 6,048 781
Dividends............................................. -- (1,200) (1,200) (154)
----- ------ ------ -----
Balance as of December 31, 1993....................... 1,000 17,240 18,240 2,357
Net income............................................ -- 2,867 2,867 370
Dividends............................................. -- (3,500) (3,500) (452)
----- ------ ------ -----
Balance as of December 31, 1994....................... 1,000 16,607 17,607 2,275
Net income............................................ -- 614 614 79
Dividends............................................. -- (500) (500) (65)
----- ------ ------ -----
Balance as of December 31, 1995....................... 1,000 16,721 17,721 2,289
Net income (Unaudited)................................ -- 1,783 1,783 232
Net liabilities of subsidiary companies transferred to
the Company's shareholders (Unaudited).............. -- 1,979 1,979 255
Dividends (Unaudited)................................. -- (500) (500) (65)
----- ------ ------ -----
Balance as of June 30, 1996 (Unaudited)............... 1,000 19,983 20,983 2,711
===== ====== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 54
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN HONG KONG DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Euro Tech (Far East) Limited (the "Company") was incorporated in Hong Kong
on June 15, 1971 and is owned by Regent Earning Limited (73.4%), a company
incorporated in Hong Kong, and Pearl Venture Limited (26.6%), a company
incorporated in the British Virgin Islands.
The Company is principally engaged in the marketing and trading of water
and waste water related process control, analytical and testing instruments,
disinfection equipment, supplies and related automation system in Hong Kong and
in the People's Republic of China (the "PRC").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Sales
Sales represent the invoiced value of goods supplied to customers. Sales
are recognized upon delivery of goods and passage of title to customers.
b. Taxation
The Company provides for Hong Kong profits tax on the basis of its income
for financial reporting purposes, adjusted for income and expense items which
are not assessable or deductible for profits tax purposes.
The Company provides deferred profits tax using the liability method. Under
the liability method, deferred profits tax is recognized for all significant
temporary differences between the tax and financial statement bases of assets
and liabilities. The tax consequences of those differences are classified as an
asset or a liability.
c. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and demand deposits with
banks, and liquid investments with an original maturity of three months or less.
d. Inventories
Inventories are stated at the lower of cost, on a specific identification
basis, or net realizable value. Costs include purchase and related costs
incurred in bringing each product to its present location and condition. Net
realizable value is calculated based on the estimated normal selling price, less
further costs expected to be incurred to disposal. Provision is made for
obsolete, slow moving or defective items, where appropriate.
F-8
<PAGE> 55
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation of property, plant and equipment is computed using
the straight-line method over the assets' estimated useful lives. The estimated
useful lives are as follows:
<TABLE>
<S> <C>
Land................................................... Terms of the leases
Buildings.............................................. 15 - 51 years
Leasehold improvements................................. Terms of the leases
Furniture, fixtures and office equipment............... 5 years
Motor vehicles......................................... 5 years
Testing equipment...................................... 10 years
</TABLE>
f. Operating Leases
Leases where substantially all the risks and rewards of ownership of the
leased assets remain with the leasing company are accounted for as operating
leases. Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
g. Foreign Currency Translation
The Company maintains its books and records in Hong Kong dollars. Foreign
currency transactions during the year are translated into Hong Kong dollars at
the exchange rates prevailing at the time of the transactions. Monetary assets
and liabilities denominated in foreign currencies are translated using the
exchange rates prevailing at the balance sheet date. Exchange differences are
included in the accompanying statements of income.
h. Net Income per Common Share
Net income per common share is computed by dividing net income (loss) for
each year or period by 1,550,000, the weighted average number of common shares
outstanding during the year or period, as the case may be, on the basis that the
share exchange with Euro Tech Holdings Company Limited had been consummated and
that 150,000 common shares of Euro Tech Holdings Company Limited had been issued
to its existing shareholders prior to January 1, 1993 (see Note 16).
i. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("US GAAP")
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.
j. Translation into United States Dollars
The financial statements expressed in Hong Kong dollars as of December 31,
1995 and June 30, 1996, and for the year ended December 31, 1995 and for the six
months ended June 30, 1996 were translated into United States dollars, solely
for the convenience of the reader, at the prevailing exchange rate of
$7.74 = US$1 on June 30, 1996.
F-9
<PAGE> 56
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. PROVISION FOR PROFITS TAX
Hong Kong profits tax was provided at the rate of 16.5% on the estimated
assessable income which was earned in or derived from Hong Kong.
The reconciliations of profits tax amounts based on the statutory profits
tax rate in Hong Kong to the profits tax amounts as stated in the statements of
income are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------- ---------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
Tax based on pre-tax
accounting income at
statutory rate (16.5%)..... 1,178 785 384 50 69 361 46
Tax effect of permanent
differences................ (148) (486) (28) (4) (83) (491) (63)
Tax effect of US GAAP
adjustments................ 6 25 50 6 20 45 6
Adjustments of profits tax of
prior years resulting from
Inland Revenue Department
review..................... -- -- (345) (44) -- -- --
Other........................ 70 101 7 1 71 491 63
----- ---- ---- --- --- ---- ---
Provision for profits tax.... 1,106 425 68 9 77 406 52
===== ==== ==== === === ==== ===
</TABLE>
4. ACCOUNTS RECEIVABLE
Accounts receivable comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
Trade and other receivables..... 26,649 22,153 2,862 19,134 2,472
Less: Allowance for doubtful
debts......................... -- (113) (15) (156) (20)
------ ------ ----- ------ -----
Accounts receivable, net........ 26,649 22,040 2,847 18,978 2,452
====== ====== ===== ====== =====
</TABLE>
5. INVENTORIES
Inventories comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
Trading equipment............... 7,064 5,885 761 4,221 545
Less: Provision for inventory
obsolescence.................. (710) (779) (101) (963) (124)
----- ----- ---- ----- ----
Inventories, net................ 6,354 5,106 660 3,258 421
===== ===== ==== ===== ====
</TABLE>
F-10
<PAGE> 57
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
Land and buildings.............. 13,941 22,148 2,861 22,148 2,861
Leasehold improvements.......... 190 190 25 190 25
Furniture, fixtures and office
equipment..................... 1,259 1,293 167 1,358 175
Motor vehicles.................. 1,021 1,021 132 866 112
Testing equipment............... 1,251 1,204 156 1,212 157
------ ------ ----- ------ -----
17,662 25,856 3,341 25,774 3,330
Less: Accumulated
depreciation.................. (3,628) (4,056) (524) (4,435) (573)
------ ------ ----- ------ -----
Net book value.................. 14,034 21,800 2,817 21,339 2,757
====== ====== ===== ====== =====
</TABLE>
As of December 31, 1995 and June 30, 1996, all land and buildings with net
book values of $20,476,000 and $20,164,000 (Unaudited) respectively were pledged
to secure certain banking facilities of the Company (see Note 8).
7. SHORT-TERM BORROWINGS
Short-term borrowings represented import and export bank loans, bearing
interest at 6.75%-9.00% per annum as of December 31, 1995 and June 30, 1996.
Unused credit lines for short-term borrowings amounted to approximately
$27,861,000 as of December 31, 1995 and $32,063,000 (Unaudited) as of June 30,
1996.
F-11
<PAGE> 58
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7. SHORT-TERM BORROWINGS (CONTINUED)
Other information pertaining to the short-term borrowings is as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED WEIGHTED
AMOUNT AMOUNT AVERAGE AVERAGE
OUTSTANDING OUTSTANDING INTEREST RATE INTEREST RATE
DURING THE DURING THE AT THE END DURING THE
BALANCE PERIOD PERIOD OF THE PERIOD PERIOD
------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AMOUNTS IN THOUSANDS
OF HONG KONG DOLLARS
- -------------------------------------------
December 31, 1994 (Audited)
Denominated
Non HK$.................................. $ 4,095 $ 6,845 $ 4,350 8.00% 8.00%
HK$...................................... 3,181 4,261 2,847 8.50% 7.21%
------
$ 7,276
------
December 31, 1995 (Audited)
Denominated
Non HK$.................................. $ 3,367 $ 6,113 $ 4,428 8.00% 8.00%
HK$...................................... 2,059 3,910 3,141 9.00% 8.96%
------
$ 5,426
------
June 30, 1996 (Unaudited)
Denominated
Non HK$.................................. $ 1,698 $ 5,676 $ 4,191 6.75% 7.04%
HK$...................................... 3,473 3,869 2,098 8.50% 8.67%
------
$ 5,171
------
AMOUNTS IN THOUSANDS OF
UNITED STATES DOLLARS (NOTE 2 J.)
- -------------------------------------------
December 31, 1995 (Audited)
Denominated
Non HK$.................................. $ 435 $ 790 $ 572 8.00% 8.00%
HK$...................................... 266 505 406 9.00% 8.96%
------
$ 701
------
June 30, 1996 (Unaudited)
Denominated
Non HK$.................................. $ 219 $ 733 $ 541 6.75% 7.04%
HK$...................................... 449 500 271 8.50% 8.67%
------
$ 668
------
</TABLE>
F-12
<PAGE> 59
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM BANK LOANS
Long-term bank loans comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------- --------------------------
1995 1995 1996 1996
---------- ------------ ----------- ------------
HK$'000 US$'000 HK$'000 US$'000
1994 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
----------
HK$'000
(AUDITED)
<S> <C> <C> <C> <C> <C>
DENOMINATED IN HONG KONG DOLLARS
Mortgage bank loan on land and
building -- repayable in 84
equal monthly installments
starting from November 30, 1995,
interest at 10.75% in 1995 and
10.25% in 1996.................. -- 3,889 503 3,688 476
Mortgage bank loan on land and
building -- repayable in 94
monthly installments starting
from December 7, 1993, interest
at Hong Kong prime rate plus
1.25% in 1994, 1995 and 1996.... 2,538 2,160 279 1,972 255
Mortgage bank loan on land and
building -- repayable in 118
equal monthly installments
starting from October 18, 1995,
interest at 13% in 1995 and
12.5% in 1996................... -- 790 102 768 99
----- ------ ----- ------ ----
Sub-total......................... 2,538 6,839 884 6,428 830
DENOMINATED IN UNITED STATES
DOLLARS
Mortgage bank loan on land and
building -- repayable in 84
equal monthly installments
starting from December 4, 1994,
interest at U.S. prime rate plus
2.5% in 1994, 1995 and 1996..... 1,307 1,175 151 1,104 143
----- ------ ----- ------ ----
Sub-total......................... 3,845 8,014 1,035 7,532 973
Portion due within one year....... (515) (1,008) (130) (1,061) (137)
----- ------ ----- ------ ----
3,330 7,006 905 6,471 836
===== ====== ===== ====== ====
</TABLE>
Future maturities of long-term bank loans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------------- ---------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
Within one year............ 515 1,008 130 1,061 137
During the second year..... 528 1,044 135 1,090 141
During the third year...... 545 1,127 146 1,167 151
During the fourth year..... 570 1,200 155 1,249 161
During the fifth year...... 579 1,296 167 1,343 174
Over five years but not
exceeding nine years..... 1,108 2,339 302 1,622 209
----- ----- ----- ----- ----
3,845 8,014 1,035 7,532 973
===== ===== ===== ===== ====
</TABLE>
F-13
<PAGE> 60
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------------- ---------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
Commission payable to sales
agents................... 3,092 3,805 491 3,327 430
Accrued expenses........... 631 755 98 438 57
Deposits from customers.... 917 1,036 134 604 78
Other payables............. 959 1,241 160 597 77
----- ----- --- ----- ---
Total...................... 5,599 6,837 883 4,966 642
===== ===== === ===== ===
</TABLE>
10. SHARE OF ACCUMULATED LOSS OF SUBSIDIARY COMPANIES
Movements of share of accumulated loss of subsidiary companies were as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- -------------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of
period............. 1,130 1,142 (324) (41) (324) (1,969) (254)
Income (loss) from
equity
investment......... 12 (1,466) (1,645) (213) (369) -- --
Transfer of interest
in subsidiary
companies to the
Company's
shareholders....... -- -- -- -- -- 1,969 254
---- ----- ---- ---- ------ ---- ----
Balance, end of
period............. 1,142 (324) (1,969) (254) (693) -- --
==== ===== ==== ==== ====== ==== ====
</TABLE>
Other information pertaining to the subsidiary companies is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- -------------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales........ 569 6,987 8,860 1,145 4,781 -- --
</TABLE>
Details of the subsidiary companies were as follows:
<TABLE>
<CAPTION>
NAME OF
SUBSIDIARY PERCENTAGE COUNTRY OF
COMPANIES OF INTEREST HELD INCORPORATION PRINCIPAL ACTIVITIES
------------------- ----------------------- ------------- ------------------------------
DIRECTLY INDIRECTLY
<S> <C> <C> <C> <C>
Armtison Limited... 100% -- Hong Kong Marketing and trading of
electronic equipment
Euro Tech (China)
Limited.......... 100% -- Hong Kong Inactive
Action Instruments
(China) Limited
("Action")....... -- 51% Hong Kong Marketing and trading of
electronic equipment
Euro Electron (Far
East) Limited.... -- 80% Hong Kong Marketing and trading of
telecommunication equipment
</TABLE>
F-14
<PAGE> 61
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. SHARE OF ACCUMULATED LOSS OF SUBSIDIARY COMPANIES (CONTINUED)
During January to June 1996, the Company transferred its entire interests
in the subsidiary companies to the shareholders of the Company. Accordingly,
these subsidiary companies have been accounted for as discontinued operations in
the accompanying financial statements.
11. RELATED PARTY TRANSACTIONS
The transactions with related parties are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------- ---------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ---------- ----------- -----------
HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales to subsidiary
companies................. 5 13 59 8 59 -- --
Sales to related
companies................ 367 383 1,088 141 530 945 122
Purchases from subsidiary
companies................ 1,278 942 2,443 316 2,044 -- --
Purchase from related
companies................ 7,516 1,562 764 99 250 265 34
Service income received
from subsidiary
companies................ 58 50 213 28 14 -- --
Service income received
from related companies... -- -- -- -- -- 128 17
Management fees paid to a
subsidiary company....... 448 384 -- -- -- -- --
Interest income received
from a subsidiary
company.................. -- -- 166 21 -- -- --
Interest income received
from a related company... -- -- -- -- -- 258 33
Transfer of investment in
subsidiary companies to
the Company's
shareholders............. -- -- -- -- -- 10 1
</TABLE>
The outstanding balances due from subsidiary companies and shareholders
included a loan to Action of $500,000 as of December 31, 1995 and a loan to
Regent Earning Limited of approximately $3,868,000 (Unaudited) as of June 30,
1996, which were unsecured, bore interest at 18% per annum and are payable in
early 1997.
All other outstanding balances with related companies, shareholders and a
director were unsecured, non-interest bearing and are payable in early 1997.
12. PENSION PLAN
The Company has a defined contribution pension plan for all of its
employees. Under this plan, all employees are entitled to a pension benefit
equals to 50% to 100% of their individual fund account balances at their dates
of resignation or retirement which depends on their years of services with the
Company. The Company is required to make specific contributions at approximately
10% of the basic salaries of the employees to an independent fund management
company. The Company has no future obligations for the pension payment or any
post-retirement benefits beyond the annual contributions made. The independent
fund management company is responsible for the ultimate pension liabilities to
those resigned or retired employees. During the years ended December 31, 1993,
1994 and 1995, and for the six months ended June 30, 1995 and 1996, the Company
made total pension contributions of approximately $587,000, $621,000, $864,000,
$455,000 (Unaudited) and $261,000 (Unaudited) respectively.
F-15
<PAGE> 62
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS
a. Lease commitments
The Company leases office and industrial premises under various lease
agreements extending to October 1997. Rental expenses for the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and
1996 were approximately $1,116,000, $1,013,000, $1,020,000, $504,000 (Unaudited)
and $557,000 (Unaudited) respectively.
Future minimum rental payments as of December 31, 1995 and June 30, 1996,
under agreements classified as operating leases with noncancelable terms in
excess of one year, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- -------------------------
1995 1995 1996 1996
--------- ----------- ----------- -----------
HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C>
Payable during the following period:
Within one year......................... 1,666 215 1,638 212
Over one year but not exceeding two
years................................ 1,305 169 500 65
----- --- ----- ---
2,971 384 2,138 277
===== === ===== ===
</TABLE>
b. Capital commitments
As of December 31, 1995 and June 30, 1996, the Company had outstanding
contractual commitments for purchase of land and buildings in the PRC of both
approximately $1,701,000.
14. EXPLANATION ADDED FOR THESE FINANCIAL STATEMENTS FOR READERS IN THE UNITED
STATES
The accompanying financial statements have been prepared in accordance with
US GAAP. The Company maintains its accounts on the basis of accounting
principles generally accepted in Hong Kong ("HK GAAP"), but which differ in the
following respects from US GAAP:
a. Before June 30, 1996, HK GAAP did not require provision for
depreciation of land which has a leasehold period of over fifty years.
Effective July 1996, depreciation of land should be provided over its
estimated useful life.
b. HK GAAP does not require provision for depreciation of properties
which are held for their investment potential and for the long-term.
c. Under HK GAAP, investment in subsidiary companies should be stated
at cost less provision for any permanent diminution in value instead of
using the equity method of accounting.
F-16
<PAGE> 63
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
14. EXPLANATION ADDED FOR THESE FINANCIAL STATEMENTS FOR READERS IN THE UNITED
STATES (CONTINUED)
Reconciliations of certain financial information under HK GAAP and US GAAP
are as follows:
a. Net Income
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- -----------------------------------------
1994 1995 1995 1995 1996 1996
---------- ---------- ----------- ------------ ------------ -----------
HK$'000 HK$'000 US'$000 HK$'000 HK$'000 US$'000
1993 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
----------
HK$'000
(AUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income under HK
GAAP............... 6,070 4,486 2,563 330 464 2,056 266
Adjustments for:
- Depreciation of
leased land...... (15) (62) (107) (13) (41) (103) (12)
- Depreciation of
an investment
property......... (19) (91) (197) (25) (80) (170) (22)
- Share of income
(loss) of
subsidiary
companies........ 12 (1,466) (1,645) (213) (369) -- --
---------- ---------- ---------- ----- ----- ------ ---
Net Income (loss)
under US GAAP...... 6,048 2,867 614 79 (26) 1,783 232
========== ========== ========== ========== ============ ============ ==========
</TABLE>
b. Property, plant and equipment
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1995 1995 1996 1996
---------- ----------- ------------ -----------
HK$'000 US'$000 HK$'000 US$'000
1994 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
----------
HK$'000
(AUDITED)
<S> <C> <C> <C> <C> <C>
Property, plant and equipment under HK
GAAP...................................... 14,220 22,290 2,880 22,102 2,856
Adjustments for:
- Depreciation of leased land............. (76) (183) (24) (286) (37)
- Depreciation of an investment
property................................ (110) (307) (39) (477) (62)
---------- ---------- ----------- ------------ -----------
Property, plant and equipment under US
GAAP...................................... 14,034 21,800 2,817 21,339 2,757
========== ========== ========== ============ ==========
</TABLE>
c. Shares of accumulated loss of subsidiary companies
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1995 1995 1996 1996
---------- ----------- ------------ -----------
HK$'000 US$'000 HK$'000 US$'000
1994 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
----------
HK$'000
(AUDITED)
<S> <C> <C> <C> <C> <C>
Investment in subsidiary companies under HK
GAAP...................................... (10) (10) (1) -- --
Adjustments for share of accumulated loss of
subsidiary companies...................... 334 1,979 255 -- --
-- --
--- ---------- ---
Share of accumulated loss of subsidiary
companies under US GAAP................... 324 1,969 254 -- --
========== ========== ========== ============ ==========
</TABLE>
15. SEGMENT INFORMATION
a. The Company is only engaged in the marketing and trading of electronic
equipment and has no other major business operations.
F-17
<PAGE> 64
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENT INFORMATION (CONTINUED)
b. Analysis of sales
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- -----------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
China.............. 71,571 61,216 62,566 8,083 32,218 35,330 4,565
Hong Kong.......... 30,429 40,824 41,605 5,375 19,131 18,268 2,360
Macau.............. 3,194 1,193 753 97 576 253 33
Others............. 180 279 858 111 34 118 15
------- ------- ------- ------ ------ ------ -----
105,374 103,512 105,782 13,666 51,959 53,969 6,973
======= ======= ======= ====== ====== ====== =====
</TABLE>
c. Major customers
A substantial portion of the Company's sales was made to a large number of
customers on credit and generally no collateral was required. There was no
individual customer accounting for more than 10% of the Company's sales for the
years ended December 31, 1993, 1994 and 1995 and for the six months ended June
30, 1995 and 1996.
16. CONTEMPLATED TRANSACTIONS
Subsequent to December 31, 1995, the following events are being planned:
a. Upon completion of the initial public offering as described in note b
below, the shareholders of the Company will exchange all of the issued and
outstanding ordinary shares of the Company for 1,400,000 common shares of Euro
Tech Holdings Company Limited in a transaction accounted for as a reorganization
of companies under common control in a manner similar to a pooling of interests.
Upon the consummation of the share exchange transaction, the Company will become
a wholly owned subsidiary of Euro Tech Holdings Company Limited.
Euro Tech Holdings Company Limited is owned by Sidford International
Limited (66.7%) and Gusrae, Kaplan & Bruno, Esqs (33.3%). Sidford International
Limited is a business consultant of the Company and Gusrae, Kaplan & Bruno,
Esqs. is the United States Counsel of Euro Tech Holdings Company Limited. Euro
Tech Holdings Company Limited was incorporated in the British Virgin Islands on
September 30, 1996 and shortly thereafter issued 100,000 and 50,000 common
shares at par value of US$0.01 per share to Sidford International Limited and
Gusrae, Kaplan & Bruno, Esqs respectively for a total consideration of US$1,500.
These shares will be recorded at fair market value.
Assuming the above share exchange transaction occurred as of December 31,
1995, or June 30, 1996, as the case may be, consolidated shareholders' equity of
Euro Tech Holdings Company Limited and subsidiary would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
---------------------- ----------------------
HK$'000 US$'000 HK$'000 US$'000
(NOTE 2 J.) (NOTE 2 J.)
<S> <C> <C> <C> <C>
Share capital
-- 1,400,000 common shares outstanding..... 108 14 108 14
Capital surplus.............................. 17,613 2,275 20,875 2,697
------ ----- ------ -----
17,721 2,289 20,983 2,711
====== ===== ====== =====
</TABLE>
F-18
<PAGE> 65
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
16. CONTEMPLATED TRANSACTIONS (CONTINUED)
b. Euro Tech Holdings Company Limited is planning for an initial public
offering of 600,000 common shares and 600,000 redeemable common share purchase
warrants. The net proceeds from this offering, after underwriters' discounts and
commission, and other estimated expenses, are expected to be US$2,130,750 based
on an assumed initial public offering of US$5 per share and US$0.15 per warrant.
The following unaudited pro forma consolidated statements of income of Euro
Tech Holdings Company Limited for the year ended December 31, 1995 and for the
six months ended June 30, 1996, have been prepared to give effect to the
transactions as described in Note a. above as if such transactions had occurred
on January 1, 1995.
The pro forma consolidated statements of income are unaudited and have been
prepared using the historical financial statements of the Company, and are
qualified entirely by reference to, and should be read in conjunction with, such
historical financial statements. The pro forma consolidated statements of income
are provided for informational and comparative purposes only. The pro forma
adjustments are based on available financial information and certain estimates
and assumptions. The pro forma consolidated statements of income do not purport
to be indicative of the results of operations of Euro Tech Holdings Company
Limited that would have occurred had such transactions in fact happened on
January 1, 1995, or during the periods presented or during any future periods.
a. Unaudited pro forma consolidated statement of income of Euro Tech
Holdings Company Limited for the year ended December 31, 1995:
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA PRO FORMA
--------- ----------- --------- ---------
HK$'000 HK$'000 HK$'000 US$'000
(NOTE 2J.)
<S> <C> <C> <C> <C>
Sales................................... 105,782 105,782 13,667
--------- --------- ---------
Cost of goods sold...................... (82,300) (82,300) (10,633)
Selling and administrative expenses..... (21,464) (641)(1) (22,105) (2,856)
Interest expenses, net.................. (877) (877) (113)
Other income, net....................... 1,186 1,186 153
--------- --------- ---------
Total costs and expenses................ (103,455) (104,096) (13,449)
--------- --------- ---------
Income from continuing operations before
profits tax........................... 2,327 1,686 218
Provision for profits tax............... (68) (68) (9)
--------- --------- ---------
Income from continuing operations....... 2,259 1,618 209
Discontinued operations
Loss of subsidiary companies sold in
1996............................... (1,645) 1,645(2) -- --
--------- --------- ---------
Net income.............................. 614 1,618 209
========= ========= =========
Net income per common share............. 0.0004 0.0010 0.0001
========= ========= =========
Weighted average number of common shares
outstanding........................... 1,550,000 1,550,000 1,550,000
========= ========= =========
</TABLE>
F-19
<PAGE> 66
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
16. CONTEMPLATED TRANSACTIONS (CONTINUED)
b. Unaudited pro forma consolidated statement of income of Euro Tech
Holdings Company Limited for the six months ended June 30, 1996:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
ACTUAL ----------- --------- PRO FORMA
--------- HK$'000 HK$'000 ---------
HK$'000 US$'000
(NOTE 2
J.)
<S> <C> <C> <C> <C>
Sales................................... 53,969 53,969 6,973
--------- --------- ---------
Cost of goods sold...................... (41,776) (41,776) (5,397)
Selling and administrative expenses..... (9,861) (439)(1) (10,300) (1,330)
Interest expenses, net.................. (631) (631) (82)
Other income, net....................... 488 488 63
--------- --------- ---------
Total costs and expenses................ (51,780) (52,219) (6,746)
--------- --------- ---------
Income before profits tax............... 2,189 1,750 227
Provision for profits tax............... (406) (406) (52)
--------- --------- ---------
Net income.............................. 1,783 1,344 175
========= ========= =========
Net income per common share............. 0.0012 0.0009 0.0001
========= ========= =========
Weighted average number of common shares
outstanding........................... 1,550,000 1,550,000 1,550,000
========= ========= =========
</TABLE>
- ---------------
Notes to unaudited pro forma consolidated statements of income:
(1) Upon consummation of the initial public offering, the Chairman will be
compensated based on a new employment contract. Had this contract been
effective as of January 1, 1995, selling and administrative expenses would
have been higher as indicated.
(2) Represents elimination of the share of the loss of subsidiary companies for
the year ended December 31, 1995.
F-20
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Euro Tech Holdings Company Limited
We have audited the accompanying balance sheet of Euro Tech Holdings
Company Limited (the "Company"), incorporated in the British Virgin Islands, as
of October 31, 1996, expressed in United States dollars. This balance sheet is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above present fairly, in all
material respects, the financial position of the Company as of October 31, 1996
in conformity with generally accepted accounting principles in the United States
of America.
/s/ ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
November 13, 1996.
F-21
<PAGE> 68
EURO TECH HOLDINGS COMPANY LIMITED
BALANCE SHEET
AS OF OCTOBER 31, 1996
<TABLE>
<CAPTION>
US$
-------
<S> <C>
ASSETS
Current asset:
Cash............................................................................. 168.01
-------
Organization costs................................................................. 8,257.00
-------
Total assets............................................................. 8,425.01
=======
LIABILITIES
Current liabilities:
Accruals and other payables...................................................... 8,425.00
-------
SHAREHOLDERS' EQUITY
Share capital.................................................................... 0.01
-------
Total liabilities and shareholders' equity............................... 8,425.01
=======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-22
<PAGE> 69
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE BALANCE SHEET
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
1. ORGANIZATION
Euro Tech Holdings Company Limited (the "Company") was incorporated in the
British Virgin Islands on September 30, 1996 and is owned by Sidford
International Limited (66.7%) and Gusrae, Kaplan & Bruno, Esqs (33.3%). Sidford
International Limited is a business consultant of Euro Tech (Far East) Limited
("Far East"), a company incorporated in Hong Kong, and Gusrae, Kaplan & Bruno,
Esqs is the United States counsel of the Company. In November 1996, the Company
issued 100,000 and 50,000 common shares at par value of US$0.01 per share to
Sidford International Limited and Gusrae, Kaplan & Bruno, Esqs respectively for
a total consideration of $1,500. These shares will be recorded at fair market
value. In addition, the Company issued 1,000,000 redeemable common share
purchase warrants to certain private investors for aggregate gross proceeds of
$150,000. Each warrant entitles the holder to purchase one common share
exercisable at $5.50 per share (subject to adjustment) for a period of five
years commencing one year after the date of the Prospectus.
2. INITIAL PUBLIC OFFERING
The Company is planning for an initial public offering (the "Offering") of
600,000 common shares, par value $0.01 per share, of the Company and 600,000
redeemable common share purchase warrants. Upon completion of the Offering, the
Company will acquire all of the issued and outstanding ordinary shares of Far
East by issuance of 1,027,600 and 372,400 common shares of the Company to Regent
Earning Limited and Pearl Venture Limited respectively. Regent Earning Limited
and Pearl Venture Limited are both Hong Kong companies and in aggregate hold
100% of the outstanding shares of Far East. This transaction will be accounted
for as a reorganization of companies under common control in a manner similar to
a pooling of interests. Far East is principally engaged in the marketing and
trading of water and waste water related process control, analytical and testing
instruments, disinfection equipment, supplies and related automation systems in
Hong Kong and in the People's Republic of China. Upon the consummation of the
above transaction, Far East will become a wholly owned subsidiary of the
Company.
3. SIGNIFICANT ACCOUNTING POLICY
ORGANIZATION COSTS
Organization costs represent costs incurred in the establishment of the
Company and are amortized using the straight-line method over a period of five
years.
F-23
<PAGE> 70
APPENDIX
THE PEOPLE'S REPUBLIC OF CHINA
AREA AND POPULATION
The PRC is the third largest country in the world in terms of land area. It
has a territory of approximately 9.6 million square kilometers (3.71 million
square miles).
The PRC is also the most populous country in the world with a population at
the end of 1993 of over 1.19 billion, representing about one-fifth of the
world's population. The population is unevenly distributed, being very dense in
the east, particularly in the nine eastern coastal provinces and municipalities
which make up 31.7% of the total population. The eastern population resides in
9% of the total land area with a density of 400 people per square kilometer. The
western part of the PRC is sparsely populated. Xinjiang, Tibet, Inner Mongolia
and Ningxia autonomous regions and Qinghai and Gangsu provinces make up to about
one half of the total land area of the PRC but contain only 6.2% of the
population with an average of less than 16 people per square kilometer.
The PRC is becoming increasingly urbanized. In 1949, the PRC urban
population accounted for only 11% of the total population. At the end of 1992,
about 27.6% of the population (that is, more than 300 million people), lived in
the cities. Chongqing and Shanghai, with population of approximately 15 and 13
million, respectively, are the largest cities in the PRC.
POLITICAL OVERVIEW
The structure of the PRC political system is organized on the basis of the
PRC Constitution. The structure consists of the National People's Congress
("NPC"), which is the highest organ and law-making body under the PRC
Constitution, and the State Council, which is the highest executive organ of the
laws and decisions made by the NPC.
All state organs derive official authority from the PRC Constitutions and
other laws. The principal powers of the NPC include amending and enacting the
PRC Constitution, promulgating and reviewing China's national laws and other
regulations, appointing and removing the Premier and other members of the State
Council, the Chairman of the Central Military Commission, the President of the
Supreme People's Court, the Procurator General of the Supreme People's
Procurate, and the President and Vice-President of the PRC and approving
national, social and economic plans. The NPC represents the highest level of
state power. Delegates to the NPC come from the various provinces, regions,
municipalities and armed force units and hold five year terms. The NPC meets
annually with the Standing Committee of the NPC exercising state power when the
NPC is not in session.
While the NPC is the highest policy and law-making body, the State Council
is the highest executive organ of the state. The Premier of the State Council is
appointed by the NPC. The State Council is responsible for the supervision and
co-ordination of all ministries and commissions at the state level, as well as,
all administrative agencies at the local level. It prepares and supervises the
implementation of the State Plan and budget. There are 38 ministries and
commissions together with the People's Bank of China and the State Auditing
Administration which are currently under the authority of the State Council.
The Chinese Communist Party ("CCP") plays a leading role in formulating
policy and selecting and providing personnel at all levels of the State
structure.
Administratively, the PRC is divided into 23 provinces (which includes
Taiwan), three municipalities (Beijing, Shanghai and Tianjin) and five
autonomous regions. At the local level, administrative entities derive their
authority from, and are accountable to, the People's Congresses at the
provincial and municipal levels.
ECONOMIC OVERVIEW
ECONOMIC STRUCTURE
The PRC's economy currently comprises four major sectors: state-owned
enterprises, collectively-owned enterprises, individually-owned enterprises and
other enterprises including enterprises with foreign capital. Although the
proportion of industrial output attributable to state-owned enterprises has been
decreasing, state-
A-1
<PAGE> 71
owned enterprises still play a leading role in the economy. In 1993, state-owned
enterprises accounted for approximately 43% of the PRC's output while
enterprises owned by collectives and individuals accounted for 38.4% and 8.4%,
respectively. The fastest growing sector of the economy is other types of
enterprises, including enterprises with foreign capital, which accounted for
10.2% of the total industrial output in 1993, representing an increase of
approximately 43.7% over 1992 figures.
The PRC Government relies predominantly on state-owned enterprises for its
revenues. These enterprises dominate major industrial sectors such as energy and
raw materials, heavy industries, transport and communications. Because of their
inefficiency and the large drain on the state budget from subsidies to them,
there have been demands for stateowned enterprises to be placed under greater
financial discipline. One of the goals of recent management and other reforms is
to reduce state subsidies to loss-making state-owned enterprises so that they
will assume greater responsibility for their own profits and losses.
One of the important recent reforms has been the conversion of selected
state-owned enterprises into limited liability shareholding companies, and the
issue of shares to public and private investors (including employees). A
significant number of these state-owned enterprises have, after being converted
into limited liability shareholding companies, been granted approval to list on
the Shanghai Stock Exchange and the Shenzhen Stock Exchange, the two emerging
stock markets in the PRC.
Collectively-owned enterprises are mostly located in rural areas and
concentrated in industries with lower demands for capital and technology or with
greater consumer orientation. Collectively-owned enterprises are not subject to
strict control, but are only under the guidance of the State Plan. This allows
them more operational flexibility than state-owned enterprises, but entitles
them to fewer state subsidies. In 1992, collectively-owned enterprises accounted
for approximately 38% of total industrial Production Value in the PRC.
Individually-owned enterprises are typically family-run small businesses.
Individually-owned and other enterprises generally engage in service industries
or retail businesses and are not covered by the State Plan.
ECONOMIC PLANS AND DEVELOPMENT
The development of the PRC's economy has been characterized by the
adoption, since 1953, of Five Year Plans. Implementation of the plans is carried
out under the supervision of the State Planning Commission, which reports
directly to the State Council. The eighth Five Year Plan for national, economic
and social development for 1991-1995, along with a ten-year program which
extends to 2000, was adopted on March 28, 1991, by the Standing Committee of the
NPC.
One common objective for both of these plans is for the PRC to quadruple
its gross national output from RMB710 billion in 1980 to RMB2,800 billion by the
end of this century. This objective requires the country's output to grow at a
compound annual rate of growth of about 6% in the 1990s. From 1980 to 1990, the
PRC had an average annual GNP growth rate of approximately 9%, which
substantially exceeded both of the annual targeted rates of 4.0% and 7.5% of the
sixth Five Year Plan (1981-1985) and the seventh Five Year Plan (1986-1990),
respectively.
The plans also call for the establishment of an economic structure
consistent with a socialist planned economy based on public ownership and market
regulation. In addition, emphasis is placed on the further opening of the PRC to
the outside world by expanding economic and technological exchanges with other
countries. The plans also seek to relieve supply bottle-necks which have arisen
from rapid growth during the 1980s and to allocate resources to the priority
areas of agriculture, energy, transportation, telecommunications and basic
materials industries.
The PRC's target of 9% annual GNP growth rate in the current eighth Five
Year Plan is somewhat higher than the average 7.78% per annum achieved in the
previous Five Year Plan from 1986 to 1990. GNP grew at a rate of 7.7% in 1991,
12.8% in 1992 and 13.2% in 1993.
ECONOMIC REFORMS
In 1978, the PRC began implementing an economic reform program in an effort
to revitalize the economy and improve the standard of living. Since that time,
the PRC Government's economic policies have allowed for an increasing degree of
liberalization from a centrally-planned economy to a more market-oriented
A-2
<PAGE> 72
economy. At the fourteenth Party Congress held in October 1992, the Congress
called for a "socialist market economy" in which full rein should be given to
market forces with the government limiting its role to setting and implementing
broad macro-economic policies. This was later endorsed by the eighth session of
the NPC amending the Constitution. As part of the economic reforms, managers of
enterprises have been granted more decision-making powers and responsibilities
in relation to matters such as production, marketing, use of funds, and
employment and disciplining of staff.
The PRC Government is also gradually relaxing many of its controls over
product prices. Although some products are still controlled and distributed by
the PRC Government at planned prices, the range of products subject to planned
prices has been substantially reduced, particularly in 1992 and the first half
of 1993. Products which are not subject to the State Plan are generally sold at
prices determined by market conditions. In addition, a state-owned enterprise
which has fulfilled its production obligations under the State Plan may obtain
additional raw materials and sell products which it has produced in excess of
the State Plan at market prices in both the international and domestic markets.
The following table sets out major economic indicators of the PRC from 1988
to 1992:
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Gross national product.................. % change (i) 11.3 4.4 4.1 8.2 13.0
Agricultural output..................... % change (i) 3.9 3.1 7.6 3.7 6.4
Industrial output....................... % change (i) 20.8 8.5 7.8 14.7 20.8
Light industries...................... 22.1 8.2 9.2 14.5 20.9
Heavy industries...................... 19.4 8.9 6.2 13.8 20.7
Per capita GNP.......................... % change (i) 9.5 2.8 2.5 6.3 11.5
Gross domestic investment............... % of GNP (iii) 29.8 37.6 35.1 36.5 n/a
Gross domestic savings.................. % of GNP (iii) 37.9 36.0 37.3 38.9 n/a
Inflation rate.......................... % change in
Retail Price
Index (i) 18.5 17.8 2.1 2.9 5.4
Gross industrial output value........... % change (i) 20.8 8.5 7.8 14.8 27.5
Merchandise exports..................... US$billion (i) 47.5 52.5 62.1 71.8 85.0
% change (i) 20.5 10.6 18.2 15.8 18.2
Merchandise imports..................... US$billion (i) 55.3 59.1 53.3 63.8 80.6
% change 27.9 7.0 --9.8 19.7 26.3
Trade balance........................... US$billion (i) --7.8 --6.6 8.8 8.1 4.4
Current account balance................. US$billion (ii) --3.8 --4.3 12.0 13.3 n/a
% of GNP (ii) --1.0 --1.0 3.2 3.6 n/a
External debt........................... US$billion (iv) 37.2 44.8 52.6 60.8 69.3
Foreign currency reserve................ US$billion (ii) 17.5 17.0 28.6 42.7 n/a
Debt service ratio...................... % (iv) 9.7 11.4 11.6 12.0 n/a
Official Exchange Rate (end of year).... RMB per US$(ii)
3.722 4.722 5.222 5.434 5.752
</TABLE>
- ---------------
Source:
(i) State Statistical Bureau of the PRC China Statistical Yearbook 1993;
(ii) International Monetary Fund, International Financial Statistics
(Washington, D.C., January 1991);
(iii) Asian Development Outlook 1990 & 1992;
(iv) World Bank, World Debt Tables 1992-1993.
As indicated in the table above, industrial output in the PRC has grown
rapidly since 1988. The last decade of economic reform has resulted in a great
change in the PRC's industrial pattern. In the first three decades after 1949,
the PRC placed great emphasis on heavy industry rather than light industry and
as a result the growth rate of heavy industry consistently out-performed that of
light industry. In recent years growth in the industrial output has become
relatively balanced between light industry and heavy industry.
A-3
<PAGE> 73
The PRC's economic reform has not been without problems. Overheating of the
economy, inflation and stagnation in its basic infrastructure development
prompted the government to implement policies to curb inflation from time to
time during the 1980s. An austerity policy in 1988, in particular, led to two
years of stagnant markets and an economic downswing. Starting in early 1992,
boosted by Deng Xiaoping's calls for faster economic development during his
visit to southern China, the pace of the PRC's economic reform has accelerated.
At present, the PRC is in another period of very fast economic development.
However, economic problems are being encountered mainly due to over-investment
in fixed assets, rapid growth in the monetary supply, serious bottle-neck
problems in transport infrastructure, excessive increases in the prices of some
consumer goods and the costs of production. Commencing in the second half of
1993, the PRC implemented macro-economic and fiscal policies in an effort to
control its overheated economy. The plan included raising interest rates,
calling in speculative loans, cutting government expenditure and suspending some
price reform measures. The challenge facing the PRC's economic planners is to
ensure that the economy continues to grow, but that this growth takes place in a
stable and non-inflationary environment.
FOREIGN TRADE
The PRC's foreign trade has grown rapidly since 1978 in both quantity and
range. Trading partners now include about 170 countries and regions. From 1978
to 1993, the value of total trade grew from US$20.6 billion to US$195.7 billion.
In 1992, the PRC's foreign trade yielded a trade surplus of US$4.4 billion.
Exports reached US$85.0 billion, representing an increase of 18.2% over that of
1991, and imports reached US$80.6 billion, representing an increase of 26.4%
over that of 1991. However, in 1993, the PRC's foreign trade yielded a trade
deficit of US$12.2 billion. Exports reached US$91.8 billion, representing an
increase of 8% over those of 1992, and imports reached US$103.95 billion,
representing an increase of 29%.
The PRC currently enjoys Most Favored Nation ("MFN") trading status with
the United States which is subject to renewal on an annual basis. The PRC's MFN
status means that the PRC maintains those trading privileges enjoyed by all
normal trading partners of the United States. The PRC has retained MFN
privileges since 1980. Rescission of MFN status would subject the PRC exports to
the United States to significantly higher tariffs.
FOREIGN INVESTMENT
Since 1978, the number of enterprises with foreign investment has increased
rapidly in the PRC. By the end of 1993, about 167,507 foreign investment
enterprises with an aggregate amount of contracted investment of about US$382
billion has been established. In 1990, foreign investment enterprises
constituted approximately 4.3% of the PRC's total industrial production value.
Since 1978, the PRC Government has afforded even greater flexibility to foreign
parties in relation to the industries in which investments may be made, access
to domestic markets, and management of foreign investment enterprises, including
greater latitude in the hiring and dismissal of employees, in setting levels of
wages, bonuses and allowances, and in purchasing raw materials and marketing
products.
FOREIGN INVESTMENT IN THE PRC FROM 1979 TO 1993
(excluding joint stock limited companies)
<TABLE>
<CAPTION>
1979-84 1985-89 1990 1991 1992 1993
------- ------- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Number of contracts............................. 3,248 18,530 7,273 12,978 48,764 83,437
Contractual value (in US$billions).............. 10.41 26.46 6.60 11.98 58.1 111.4
</TABLE>
- ---------------
Source: State Statistical Bureau of the PRC.
A-4
<PAGE> 74
LEGAL SYSTEM
China's legal system is based on written statutes. Decided cases generally
do not constituted binding precedents, although such cases are sometimes
referred to for guidance. Although China is still in the process of developing a
comprehensive system of laws, a significant number of laws and regulations
dealing with general economic matters, foreign investment, protection of
intellectual property, taxation, technology transfer and trade have been
promulgated since the start of China's economic reform program in 1978. In 1982,
China adopted a new Constitution which, among other things, authorizes foreign
investment and guarantees the "lawful rights and interests" of foreign investors
in China and was amended in 1988 and 1993 to provide for a "socialist market
economy."
National laws in China are promulgated by the NPC or its Standing
Committee. The State Council formulates and promulgates administrative
regulations, orders and directives in accordance with the Constitution and
existing laws. The ministries and commissions under the State Council are vested
with the power to issue orders, directives and regulations within the scope of
their respective authorities. The local People's Congress and the local
government are authorized to issue local decrees and administrative regulations
to their own jurisdiction. These administrative regulations, orders and
directives as well as local decrees and administrative regulations can not be in
conflict with the Constitution and existing laws.
The principal statute governing the judicial system is The Law of the
People's Republic of China Concerning the Organization of the Judicial System,
which took effect in July 1979 and which was amended in September 1983. The
principal statute governing civil relations, including business transactions is
the General Principles of the Civil Code (the "Civil Code"), enacted in April
1986. The Civil Code can be divided into seven broad categories: general
principles, civil law, contract property, civil liability, remedies and special
provisions governing foreign economic relations. The main statute governing
civil procedure is The Law of the People's Republic of China on Civil Procedure
(the "Civil Procedure Law") which took effect in April 1991.
All foreign individuals, enterprises and other entities have the same
rights and obligations as Chinese individuals, enterprises and other entities in
instituting or defending proceedings in Chinese courts. However, if the rights
and obligations of Chinese individuals, enterprises or other entities to
institute or defend legal proceedings are subject to restrictions in particular
foreign jurisdictions, then reciprocal restrictions may be imposed by Chinese
courts on the rights and obligations of individuals, enterprises and other
entities of such jurisdictions to institute or defend legal proceedings in
China.
All civil cases are decided by Chinese courts on the basis of a majority
vote of the judges sitting on a case and are subject to a two-tier procedure
whereby cases are heard by a court of first instance and are then subject to
review by appellate courts. Courts are divided into four levels; the Supreme
People's Court, the Higher People's Court, the Intermediate People's Court and
the Elementary People's Court, with each level usually containing a criminal
division, a civil division, an economic division, an administrative division, an
intellectual property rights division and an enforcement division. The Supreme
People's Court is the highest judicial organ in China and is responsible for
supervising all other Courts.
If a Chinese court is asked to recognize or enforce a judgment or ruling
given by a foreign court, such judgment or ruling will be recognized and
enforced only where there exists an applicable international treaty or other
arrangement or basis for reciprocal enforcement of judgments between China and
the country of the foreign court and where such enforcement would not violate
the public security, state sovereignty or basic principles of the law of China ,
or contradict the "public interest." Foreign arbitral awards may be enforced in
China pursuant to international treaties to which China is party, including the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the
"New York Convention"), to which China acceded in 1987. As of January 1, 1992,
86 countries were members of the New York Convention, including the United
States and Hong Kong (to which Great Britain extended application of the
Convention pursuant to its own accession). Applications for enforcement in China
are handled in accordance with the Civil Procedure Law, which provides that an
application for enforcement shall be submitted to the Intermediate People's
Court of the place where the party subject to enforcement is domiciled or where
such party's property is located.
A-5
<PAGE> 75
The Arbitration Law of PRC was promulgated by the Standing Committee of the
NPC on August 31, 1994 and came into effect on September 1, 1995. It is
applicable to, among other matters, trade disputes involving foreign parties
where the parties have entered into a written agreement to refer the matter to
arbitration before an arbitration committee constituted in accordance with the
Arbitration Law. Under the Arbitration Law, China Chamber of International
Commerce is authorized to formulate foreign-related arbitration rules in
accordance with the Arbitration Law and the PRC Civil Procedure Law. Where the
parties have by an agreement provided arbitration as a method for dispute
resolution, the parties are not permitted to institute legal proceeding in a
People's Court. The China International Economic and Trade Arbitration
Commission ("CIETAC"), established in Beijing under the auspices of the China
Council for the Promotion of International Trade (China Chamber of International
Commerce) is one of two domestic arbitration organizations in China charged with
arbitrating foreign-related disputes. CIETAC's arbitration rules provide that
CIETAC has jurisdiction over any dispute arising from "international economic
and trade transactions" with respect to which an arbitration agreement selecting
CIETAC arbitration is in effect. The second Chinese arbitration organization
exclusively arbitrates foreign related maritime disputes. The CIETAC rules
provide that an award rendered by a CIETAC tribunal shall be final and binding
on the parties. The Civil Procedure Law also provides that a Chinese court may
only refuse to enforce a CIETAC final award in the event of certain procedural
errors relating to the jurisdiction of CIETAC over a given dispute or the
failure by an arbitration tribunal to abide by CIETAC rules, or in the event
that it determines that doing so would be against the "public interest." A
consistent record of enforcement in China of foreign arbitral awards has yet to
develop.
EXCHANGE CONTROL
On December 28, 1993, the People's Bank of China, authorized by the State
Council of the PRC, announced that the dual exchange rate system for Renminbi
against foreign currencies would be replaced by a unified exchange rate system,
with effect from January 1, 1994. The PRC's foreign exchange control system has
been in a state of flux since that time. Numerous rules and regulations and
implementation measures have been issued. To the extent that existing provisions
stipulated in previous regulations do not contradict new regulations as
mentioned above, the existing regulations should remain valid. Set out below is
a summary of those regulations which remain valid and effective:
(1) Foreign exchange dealings are centralized and administered by the
State Administration for Exchange Control and its branches ("SAEC").
Foreign exchange transactions are to be carried out under the approval of
SAEC in the PRC through authorized banks and other financial institutions,
including certain designated foreign banks.
(2) PRC residents and foreigners residing in the PRC with foreign
exchange incomes may deposit the foreign exchange in banks or sell the
foreign exchange to banks.
(3) Foreign parties to Sino-foreign equity joint ventures,
Sino-foreign cooperative joint ventures, foreign investors in wholly
foreign-owned enterprises and other foreign enterprises in China are
permitted to remit their profits out of the PRC, subject to the
availability of foreign exchange.
Since March 1, 1993, each PRC or non-PRC resident has been permitted to
bring in or take out of the PRC RMB6,000 in cash.
The People's Bank of China, with authority from the State Council, on
December 28, 1993 issued the Notice on the Further Reform of the Foreign
Exchange Control Structure with effect from January 1, 1994. The Notice unifies
the official Renminbi exchange rate and the market rate for Renminbi established
at the foreign exchange swap centers throughout the PRC. Under the Notice, all
foreign exchange income of PRC enterprises must be sold to designated banks
authorized to deal in foreign exchange. However, enterprises with foreign equity
interests and enterprises allowed to have foreign exchange bank accounts are
allowed to retain their foreign exchange earnings.
Control on the purchase of foreign exchange is also relaxed. Enterprises
which require foreign exchange for their ordinary trading activities may
purchase foreign exchange from designated foreign exchange banks if
A-6
<PAGE> 76
the application is supported by proper import contracts and payment notices. For
import activities which require quotas, import licenses and registration,
foreign exchange may be purchased if the applications are supported by import
contracts and the relevant required documents. For non-trading activities, any
application for purchase of foreign exchange needs to be supported by payment
contracts or payment notices from relevant overseas organizations. According to
Article 14 of the Provisional Regulation on the Sale, Purchase and Payment of
Foreign Exchange, the payment of dividends to foreign shareholders is one of the
activities permitting the purchase of foreign exchange through the banking
system.
A unified foreign exchange inter-bank market among designated foreign
exchange banks is to be established, to be supervised and administered by the
People's Bank of China through the SAEC.
A single exchange rate system has been set up to replace the official rate
and the swap center rate. Based on market conditions and supply and demand, and
based on the PRC interbank foreign exchange market rate on the previous day,
with reference to current exchange rates in the world financial markets, the
People's Bank of China announces each day an exchange rate which is to be
followed by all designated foreign exchange banks within the permitted range.
Furthermore, foreign investment enterprises may distribute profit to their
foreign investors with funds in their foreign exchange bank accounts kept with
designated foreign exchange banks. Should such foreign exchange be insufficient,
enterprises may apply to the relevant department of the state for permission to
purchase foreign exchange from designated foreign exchange banks.
The foreign exchange quota system is being phased out and outstanding
holdings of foreign exchange quota and other entitlements may still be used to
obtain foreign currencies through swap centers which shall continue to operate
for an interim period. See "Exchange Rate Information."
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Gross national product.......................................... % change (i) 11.3 4.4 4.1 8.2 13.0
Agricultural output............................................. % change (i) 3.9 3.1 7.6 3.7 6.4
Industrial output............................................... % change (i) 20.8 8.5 7.8 14.7 20.8
Light industries.............................................. 22.1 8.2 9.2 14.5 20.9
Heavy industries.............................................. 19.4 8.9 6.2 13.8 20.7
Per capita GNP.................................................. % change (i) 9.5 2.8 2.5 6.3 11.5
Gross domestic investment....................................... % of GNP (iii) 29.8 37.6 35.1 36.5 n/a
Gross domestic savings.......................................... % of GNP (iii) 37.9 36.0 37.3 38.9 n/a
Inflation rate.................................................. % change in
Retail Price
Index (i) 18.5 17.8 2.1 2.9 5.4
Gross industrial output value................................... % change (i) 20.8 8.5 7.8 14.8 27.5
Merchandise exports............................................. US$ billion (i) 47.5 52.5 62.1 71.8 85.0
% change (i) 20.5 10.6 18.2 15.8 18.2
Merchandise imports............................................. US$ billion (i) 55.3 59.1 53.3 63.8 80.6
% change 27.9 7.0 --9.8 19.7 26.3
Trade balance................................................... US$ billion (i) --7.8 --6.6 8.8 8.1 4.4
Current account balance......................................... US$ billion (ii) --3.8 --4.3 12.0 13.3 n/a
% of GNP (ii) --1.0 --1.0 3.2 3.6 n/a
External debt................................................... US$ billion (iv) 37.2 44.8 52.6 60.8 69.3
Foreign currency reserve........................................ US$ billion (ii) 17.5 17.0 28.6 42.7 n/a
Debt service ratio.............................................. %(iv) 9.7 11.4 11.6 12.0 n/a
Official Exchange Rate (end of year)............................ RMB per US$(ii) 3.722 4.722 5.222 5.434 5.752
</TABLE>
- ---------------
Source:
(i) State Statistical Bureau of the PRC China Statistical Yearbook 1993;
(ii) International Monetary Fund, International Financial Statistics
(Washington, D.C., January 1991);
(iii) Asian Development Outlook 1990 & 1992;
(iv) World Bank, World Debt Tables 1992-1993.
A-7
<PAGE> 77
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Dilution............................... 14
Use of Proceeds........................ 15
Capitalization......................... 16
Selected Financial Information......... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 25
Management............................. 30
Principal Shareholders................. 33
Certain Transactions................... 34
Description of Securities.............. 35
Shares Eligible for Future Sale........ 37
Underwriting........................... 39
Concurrent Registration of
Securities........................... 40
Legal Matters.......................... 40
Experts................................ 40
Enforcement of Civil Liabilities....... 41
Additional Information................. 42
Index to Financial Statements and
Unaudited Pro Forma Financial
Statements........................... F-1
Appendix -- The People's Republic of
China................................ A-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
EURO TECH
HOLDINGS COMPANY LIMITED
600,000 SHARES OF
COMMON STOCK AND
600,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
--------------------
PROSPECTUS
--------------------
MAY DAVIS GROUP, INC.
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 78
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1996
EURO TECH HOLDINGS COMPANY LIMITED
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
AND 1,000,000 SHARES OF COMMON STOCK
This Prospectus relates to the sale by certain selling securityholders (the
"Selling Securityholders") of 1,000,000 Shares of common stock, par value $.01
per share (the "Common Stock") and 1,000,000 common stock purchase warrants (the
"Warrants") of Euro Tech Holdings Company Limited, a British Virgin Islands
Company (the "Company"). None of the proceeds from the sale of the Common Stock
and Warrants by the Selling Securityholders will be received by the Company. The
Company will bear all expenses (other than selling commissions and fees and
expenses of counsel or other advisors to the Selling Securityholders) in
connection with the registration and sale of the Common Stock and Warrants being
offered by the Selling Securityholders. The Common Stock and the Warrants are
sometimes collectively referred to as the "Securities."
The Common Stock and Warrants will be offered by the Selling
Securityholders in transactions in the over-the-counter market, in negotiated
transactions or a combination of such methods of sale, at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the Common Stock and
Warrants to or through broker/dealers, and such broker/dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Common Stock and Warrants
for whom such broker/dealers may act as agent or to whom they sell as principal,
or both. The Selling Securityholders may be deemed to be "underwriters" as
defined in the Securities Act of 1933, as amended (the "Securities Act"). If any
broker/dealers are used by the Selling Securityholders, any commission paid to
broker/dealers and, if broker/dealers purchase any Common Stock or Warrants as
principals, any profits received by such broker/dealers on the resales of the
Securities may be deemed to be underwriting discounts or commissions under the
Securities Act. In addition, any profits realized by the Selling Securityholders
may be deemed to be underwriter commissions. All costs, expenses and fees in
connection with the registration of the Common Stock and Warrants offered by
Selling Securityholders will be borne by the Company. Brokerage commissions, if
any, attributable to the sale of the Common Stock and Warrants will be borne by
the Selling Securityholders. See "Selling Securityholders" and "Plan of
Distribution."
The Company has applied for listing of the Common Stock and Warrants on the
NASDAQ SmallCap Market ("NASDAQ") under the symbols " " and " ",
respectively. And on the Boston Stock Exchange under the symbols " " and
" ", respectively.
Concurrently with the commencement of this offering, the Company offered by
separate Prospectus 600,000 shares of Common Stock and 600,000 Warrants (the
"Public Securities"). The Company's offering (the "Public Offering") is being
made through May Davis Group, Inc. (the "Underwriter").
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION.
SEE "RISK FACTORS," COMMENCING ON PAGE 7 AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 79
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
Upon consummation of the Public Offering, the Company will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, will file periodic
reports and other information with the Commission. However, as a "foreign
private issuer," the Company will be exempt from the rules under the Exchange
Act prescribing certain disclosure and procedural requirements for proxy
solicitations and the Company's officers, directors and principal shareholders
will be exempt from the reporting and "short-swing" profit recovery provisions
contained in Section 16 of the Exchange Act and the rules thereunder, with
respect to their purchases and sales of shares of Common Stock and Warrants. In
addition, the Company will not be required under the Exchange Act to file
periodic reports and financial statements with the Commission as frequently or
as promptly as United States companies whose securities are registered under the
Exchange Act. However, the Company intends to furnish its shareholders with
annual reports containing financial statements which will be examined and
reported on, with an opinion expressed by, an independent public accounting firm
(prepared in accordance with generally accepted accounting principles in the
United States ("U.S. GAAP").
The Company prepares its consolidated financial statements in accordance
with U.S. GAAP. The Company publishes its financial statements in United States
dollars as the Company is incorporated in the British Virgin Islands, where the
currency is the United States dollar, and upon completion of the Public Offering
the functional currency of the Company's only operating subsidiary is in Hong
Kong Dollars. All dollar amounts ("$") set forth in this Prospectus are in
United States dollars, the references to HK$ refer to Hong Kong Dollars and RMB
to Chinese Renminbi Yuan.
The Company intends to distribute to its shareholders annual reports
containing financial statements audited and reported upon by its independent
public accountants after the close of each fiscal year, and will make such other
periodic reports as the Company may determine to be appropriate or as may be
required by law. The Company's fiscal year ends December 31st of each year.
<PAGE> 80
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
During the Company's Fiscal 1995 and Six Months 1996, the Company had sales
of approximately $13,667,000 and $6,973,000, respectively, and net income of
approximately $79,000 and $232,000, respectively. There can be no assurance that
the recent levels of the Company's revenues or net income will continue to be
achieved in the future.
The Company maintains an executive office at 18/F Gee Chang Hong Centre, 65
Wong Chuk Hang Road, Hong Kong, and its telephone number at that address is
011-852-2814-0311.
The Company's registered office in the British Virgin Islands is located at
TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands,
and its telephone number is (809) 494-5296.
THE OFFERING
SECURITIES OFFERED(1)...... 1,000,000 shares of Common Stock and 1,000,000
Warrants. See "Description of Securities."
COMMON STOCK OUTSTANDING
BEFORE PUBLIC
OFFERING(1).............. 1,550,000 shares.
COMMON STOCK OUTSTANDING
AFTER PUBLIC
OFFERING(1)(2)........... 2,150,000 shares.
WARRANTS TO BE ISSUED IN
THE PUBLIC OFFERING........ 600,000 Warrants.
EXERCISE TERMS............. Each Warrant entitles the holder thereof to
purchase one share of Common Stock for $5.50,
during the five year period commencing one year
after the date of this Prospectus, provided,
however, that prior to the second year after the
date of this Prospectus, the Warrants will be
exercisable only if the Underwriter has consented
in writing to all of the Warrants being
exercisable. The exercise price and the number of
shares issuable upon exercise of the Warrants are
subject to adjustment in certain circumstances. See
"Description of Securities."
EXPIRATION DATE............ , 2002 (six years after the Effective
Date).
REDEMPTION................. Redeemable by the Company, in whole or in part, at
a price of $.10 per Warrant, at any time that the
Warrants are exercisable upon not less than 30 days
prior written notice to the holders of such
Warrants, provided that the closing bid price of
the Company's Common Stock for the twenty
consecutive trading days immediately prior to the
date on which the notice of redemption is given,
shall have exceeded $8.50 per share.
USE OF PROCEEDS............ The Company will receive none of the proceeds from
this offering. See "Use of Proceeds."
RISK FACTORS............... Investment in the securities offered hereby
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
PROPOSED NASDAQ SYMBOLS:(3)
COMMON STOCK..........
WARRANTS..............
PROPOSED BOSTON STOCK
EXCHANGE SYMBOLS:(3)
COMMON STOCK..........
WARRANTS..............
- ------------------
(1) Includes 1,400,000 shares of the Company's Common Stock to be issued in
connection with the Acquisition. The owners of the shares to be issued in
connection with the Acquisition have agreed to return to the Company for
cancellation and as a contribution to capital an aggregate of 200,000 shares
in the event Far East fails to achieve after-tax net income of at least
$450,000 for the fiscal year to end December 31, 1996. See "Management
Discussion and Analysis of Financial Condition and Results Operations,"
"Business" and "Certain Transaction."
4
<PAGE> 81
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
(2) Does not include (i) 90,000 shares of Common Stock and 90,000 Warrants,
subject to the Underwriter's Overallotment Option; (ii) 1,600,000 shares of
Common Stock issuable upon the exercise of the outstanding Warrants, (iii)
120,000 shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants including the shares of Common Stock underlying the
Warrants included within the Underwriter's Warrants; (iv) 1,400,000 shares
of Common Stock reserved for issuance upon options that may be granted to
the Company's management (the "Management Options"); or (v) 150,000 shares
of Common Stock reserved for issuance pursuant to the Company's incentive
stock option plan. See "Concurrent Public Offering of Securities,"
"Management" and "Description of Securities."
(3) The proposed trading symbols do not imply that a liquid and active market
will be developed or sustained for the Securities upon completion of the
Public Offering. See "Risk Factors-Possible Suspension of the Company's
Securities from NASDAQ and the Boston Stock Exchange Even if Listing is
Obtained.
5
<PAGE> 82
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
are unrelated to its current product lines and it may make future investments in
real estate. In the event that the Company establishes such subsidiaries or
divisions in the future, there can be no assurance that they will not sustain
losses. Although the Company has derived profits from its investment in real
estate, there can be no assurance that the Company will derive a profit from its
current realty investment, which it is seeking to sell, or any future
investments that it may make in realty. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
DEPENDENCE UPON MANAGEMENT. The Company will be dependent upon the
services of its executive officers, in particular Mr. T.C. Leung, the Chairman
of the Company's Board of Directors and its Chief Executive Officer. The
business of the Company could be adversely effected by the loss of services of,
or a material reduction in the amount of time devoted to the Company by its
executive officers. Although the Company intends to apply for and be the
beneficiary of a "Key Person" life insurance policy in the amount of $1,000,000
on the life of Mr. Leung, there can be no assurance that the Company will
successfully obtain this insurance coverage, that it will maintain the policy in
effect or that the coverage to be applied for, if obtained, will be sufficient
to compensate the Company for the loss of the services of Mr. Leung. See
"Management."
COMPETITION. The Company faces competition from other distributors of
substantially similar products and manufacturers themselves, both foreign and
Chinese. The Company faces its principal competition from foreign manufacturers
and other distributors of their products situated in Hong Kong and the PRC. In
1994, the PRC tightened its credit nationwide and, as a result, the Company
believes that purchasers of the products distributed by the Company sought
reduced prices. The products distributed by the Company were foreign
manufactured and higher priced than Chinese manufactured products. As a result,
the Company reduced its sales prices and, therefore, its profit margins to
remain competitive. The Company believes that it competes with PRC manufacturers
on the basis of quality and technology, with the Company offering products of
foreign manufacturers which are of higher quality and use more advanced
technology. The Company believes that it competes with the foreign manufacturers
and the distributors of their products on the basis of the Company's more
extensive distribution network and an established reputation. However, the
Company recently disposed of one of its subsidiaries as a result of direct
competition from a manufacturer which established its own distribution network
in the PRC to distribute the type of products distributed by the subsidiary.
There can be no assurance that the Company will be able to compete effectively
with its competitors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
COMPETITION WITH VENDORS. As the Company plans to assemble products of the
kind that it presently distributes, the Company may directly compete with
certain of its vendors. Any such direct competition may adversely affect its
relationships with its vendors. See "Business."
VENDORS; LACK OF LONG TERM AGREEMENTS. The Company distributes supplies
manufactured by a number of vendors, including Wallace, Hach, Hioki and
Finnigan, which are the Company's largest suppliers, with purchases from them
accounting for approximately 11%, 7%, 7% and 4%, respectively, of the Company's
sales during Fiscal 1995 and 9%, 10%, 10%, and 23%, respectively, of the
Company's sales during Six Months 1996. The Company has only a letter from Hioki
appointing the Company as Hioki's sales representative in the PRC, Hong Kong and
Macau, its agreement with Wallace is terminable by either party on thirty days
notice prior to its annual renewal date, its agreement with Finnigan is
terminable on ninety days notice by either party and the agreement with Hach
expires in March 1997, unless a renewal is obtained. Although alternative
sources of supply exist, there can be no assurance that the termination of the
Company's relationship with any of the above or other vendors would not have a
short-term adverse effect on the Company's operations. See "Business."
10
<PAGE> 83
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 31% of the net
proceeds received by the Company from the Public Offering have been allocated to
working capital and the Company will have broad discretion as to the application
of such funds. See "Use of Proceeds."
CONTROL BY T.C. LEUNG. After the successful completion of the Public
Offering, T.C. Leung, the Company's Chairman of the Board and Chief Executive
Officer will beneficially own approximately 65% of the Company's issued and
outstanding shares of Common Stock which as a practical matter will enable him
to nominate and cause the election of all the members of the Company's Board of
Directors, control the appointment of its officers and the day-to-day affairs
and management of the Company. See "Principal Stockholders."
CERTAIN LEGAL CONSEQUENCES OF INCORPORATION IN THE BRITISH VIRGIN
ISLANDS. The Company's corporate affairs are governed by its Memorandum of
Association, Articles of Association and the corporate law of the British Virgin
Islands ("BVI"). Principles of law relating to such matters as the validity of
Company procedures, the fiduciary duties of management and the rights of the
Company's shareholders may differ from those that would apply if the Company
were incorporated in a jurisdiction within the United States. The rights of
shareholders under BVI law are not as extensive as the rights of shareholders
under legislation or judicial precedent in many United States jurisdictions.
Thus, the shareholders of the Company may have more difficulty in protecting
their interests in the face of actions by the Company's Board of Directors than
they might have as shareholders of a company incorporated in many United States
jurisdictions. In addition, there is uncertainty whether the courts of BVI would
enforce judgments of the courts of the United States and of other foreign
jurisdictions. There is also uncertainty whether the courts of the BVI would
enforce actions brought in the BVI which are based upon the securities laws of
the United States.
DILUTION. As a result of the sale of the Securities offered in the Public
Offering and the consummation of the Acquisition, there will be immediate and
substantial dilution to public investors in that the pro forma net tangible book
value per share of the Company's Common Stock after the Public Offering and
consummation of the Acquisition will be approximately $2.25 per share, or
approximately $2.75 (55%) less than the $5.00 Public Offering price per share.
See "Dilution."
NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to
the Public Offering, there has been no market for any of the Company's
securities. The initial public offering price of the Securities and the exercise
price and other terms of the Warrants have been arbitrarily determined by
negotiations between the Company and the Underwriter and such prices and terms
are not necessarily related to the Company's asset value, net worth or other
established criteria of value. In addition, there can be no assurance that a
trading market will develop after the Public Offering for any of the Company's
Securities or that, if developed, it will be sustained. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. In general, under Rule 144, a person
which has satisfied a two-year holding period may, under certain circumstances,
sell within any three-month period a number of shares of common stock that does
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume in such shares during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of shares without any quantity or other limitation by a person which is not an
affiliate of an issuer and which has satisfied a three-year holding period. The
holders of all shares of the Company's Common Stock, have agreed not to sell
shares of the Company's Common Stock owned by them on the date hereof for a
period of twenty-four months from the date of this Prospectus without the prior
written consent of the Underwriter.
The Company has 1,550,000 shares of Common Stock outstanding that are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
also has outstanding Warrants to purchase 1,000,000 shares of Common Stock which
Warrants and shares of Common Stock underlying the Warrants are being registered
under the Registration Statement of which this Prospectus forms a part for sale
by said persons. Investors should be aware that sales of the Company's
securities may have a depressive effect on the price of the Company's securities
in any
11
<PAGE> 84
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
market which may develop for such securities. See "-- Effect of Options,
Warrants and Registration Rights," "Shares Eligible for Future Sale" and
"Concurrent Registration of Securities."
EFFECT OF OPTIONS, WARRANTS AND REGISTRATION RIGHTS. For the respective
terms of the Underwriter's Warrants and Warrants sold as part of this Offering
and the Public Offering and registered hereby and any options that may be
granted by the Company under the Company's stock option plan or other options
which may be issued by the Company, the holders thereof are given an opportunity
to profit from a rise in the market price of the Common Stock, with a resulting
dilution in the interests of the other stockholders. Further, the terms on which
the Company may obtain additional financing during the exercise periods of said
warrants and options may be adversely effected by the existence of such
warrants, options and plan. The holders of options or warrants to purchase
Common Stock may exercise such options or warrants at a time when the Company
might be able to obtain additional capital through offerings of securities on
terms more favorable than those provided by such options or warrants. In
addition, the holders of the Underwriter's Warrants have demand and "piggyback"
registration rights with respect to their securities. Exercise of such
registration rights may involve substantial expense to the Company. See
"Management," "Description of Securities," "Underwriting" and "Concurrent Public
Offering of Securities."
NO CASH DIVIDENDS. The Company has not paid any dividends to date. The
Company's Board of Directors does not presently intend to declare any dividends
in the foreseeable future, but instead intends to retain all earnings, if any,
for use in the Company's business operations. See "Description of Securities."
LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in
August 1993, was registered as a broker in June 1995, and became a member firm
of the National Association of Securities Dealers, Inc. in June 1995. The
Underwriter is principally engaged in retail brokerage and market making
activities and various corporate finance projects. The Underwriter has acted as
a placement agent in private offerings and has participated as a member of the
underwriting syndicate or as a selected dealer in one public offering and it has
acted solely one time as the lead manager in only one public offering of
securities. While certain of the officers of the Underwriter have significant
experience in corporate finance and the underwriting of securities, no assurance
can be given that the Underwriter's lack of experience as a lead managing
underwriter of public offerings will not adversely affect the Public Offering
and the subsequent development of a liquid public trading market in the
Company's securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. At any time during
their exercise period, the Warrants may be redeemed by the Company at a
redemption price of $.10 per Warrant upon 30 days prior written notice if the
average closing bid price of the Common Stock for 20 consecutive trading days
ending within 10 days of the notice exceeds $8.50. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the current market price for the Warrants when they might otherwise
wish to hold the Warrants, or to accept the redemption price, which may be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities."
CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only if a current prospectus relating
to such shares is then in effect and only if the shares are qualified for sale
under the securities laws of the states in which the warrant holders reside.
Although the Company intends to maintain such a current prospectus and to seek
to qualify the shares of Common Stock underlying the Warrants for sale in those
states where the Common Stock and Warrants are to be offered, there is no
assurance that it will be able to do so. The Warrants may be deprived of any
value if the current prospectus encompassing the shares underlying the Warrants
is not kept effective or if such underlying shares are not or cannot be
registered in the states in which warrant holders reside. See "Description of
Securities."
POSSIBLE SUSPENSION OF COMPANY'S SECURITIES FROM NASDAQ AND THE BOSTON
STOCK EXCHANGE EVEN IF LISTING OBTAINED. In connection with the Public
Offering, the Company has applied for the listing of the Securities offered
hereby on the NASDAQ System and the Boston Stock Exchange. However, there can be
12
<PAGE> 85
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
no assurance that the Company's application will be granted or that, if granted,
the Company will meet the criteria for continued quotation of its securities on
the NASDAQ System and the Boston Stock Exchange. Minimum continued quotation
criteria on the NASDAQ System include, among other things, $2,000,000 in total
assets, $1,000,000 in capital and surplus, $200,000 in aggregate market value,
and a minimum bid price of $1.00 per share of Common Stock. If an issuer does
not meet the $1.00 minimum bid requirement, it may, however, remain on the
NASDAQ System and the Boston Stock Exchange if it has $2,000,000 of capital and
surplus and $1,000,000 in aggregate market value. Minimum continued quotation
criteria for the Boston Stock Exchange include, among other things, $1,000,000
in total assets, $500,000 in stockholders' equity, a public float of 150,000
shares worth at least $500,000 and 250 beneficial stockholders. If the Company
becomes unable to meet the continued quotation criteria of the NASDAQ System and
is suspended therefrom, trading, if any, in the Company's securities would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" if then available, the OTC Bulletin Board. In such event, an investor
would likely find it more difficult to dispose of, or to obtain accurate
quotations as to the value of, the Company's securities.
RISKS OF LOW-PRICED SECURITIES. If the Securities were to be suspended or
delisted from the NASDAQ System and the Boston Stock Exchange, the Securities
would be subject to rules under the Exchange Act, which impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established clients and "accredited investors" (for example,
individuals with a net worth in excess of $1,000,000 or an annual income
exceeding $200,000, or $300,000 together with their spouses). For transactions
covered by such rules, a broker-dealer must make a special suitability
determination of the purchaser and have received the purchaser's written consent
to the transaction prior to the sale. Consequently, such rules may affect the
ability of broker-dealers to sell the Company's Securities and the ability of
purchasers in this Offering to sell any of the Company's Securities acquired in
this Offering in any secondary market that may develop for such Securities.
The Commission has enacted rules that define a "penny stock" to be any
equity security that has a price (as therein defined) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions, including securities listed on the NASDAQ System or on designated
exchanges, for any transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to any transaction in a penny stock, of a disclosure
statement prepared by the Commission relating to the penny stock market.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading, and about commissions payable to
both the broker-dealer and the registered representative, current quotations for
the securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. In the event the Company's
securities are no longer listed on the NASDAQ System and the Boston Stock
Exchange or are not otherwise exempt from the provisions of the Commission's
"penny stock" rules, such rules may also affect the ability of broker-dealers to
sell the Company's Securities and the ability of purchasers in this Offering to
sell any of the Securities acquired hereby in any secondary market that may
develop.
DILUTION
The net tangible book value of the Company as of June 30, 1996 was
approximately HK$20,983,000 (US$2,711,000) or HK$13.54 (US$1.75) per Common
Share. Net tangible book value per Common Share is determined by dividing the
net tangible book value of the Company (total tangible assets less total
liabilities) by the number of outstanding Common Shares at that date, assuming
the share exchange between the Company and Far East as described in the "Certain
Transactions" section had taken place prior to June 30, 1996 and that 100% of
the outstanding shares of Far East had been transferred to the Company. After
giving effect to the sale by the Company of the 600,000 Common Shares and
600,000 Warrants offered hereby (after deduction of estimated underwriting
discounts and commissions, and offering expenses), the Company's net tangible
book value at June 30, 1996 would have been approximately HK$37,475,000
(US$4,842,000) or HK$17.43 (US$2.25) per Common Share. This represents an
immediate increase in net tangible book value
13
<PAGE> 86
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
to existing shareholders of HK$3.89 (US$0.50) per Common Share and an immediate
dilution to new investors of HK$21.32 (US$2.75) per Common Share. The following
table illustrates the per Common Share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Common Share................. US$ 5.00
Net tangible book value per Common Share as of June 30, 1996......... US$ 1.75
Increase in net tangible book value per Common Share attributable to
new investors..................................................... 0.50
--------
Net tangible book value per Common Share after the Public Offering... 2.25
--------
Dilution per Common Share to new investors........................... US$ 2.75
========
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996,
assuming the above mentioned share exchange had taken place prior to such date,
the difference between the number of Common Shares purchased from the Company,
the total consideration paid, and the average price per Common Share paid by the
existing shareholders and by the new investors (at an assumed initial public
offering price of US$5.00 per Common Share before deduction of estimated
underwriting discounts and commissions, and other expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER COMMON SHARE
--------- ------ ------------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 1,550,000 72.1% US$2,711,000 47.5% US$ 1.75
New investors.............. 600,000 27.9% 3,000,000 52.5% 5.00
--------- ------ ------------ ------ ----------------
Total................. 2,150,000 100.0% US$5,711,000 100.0% US$ 2.66
======== ====== ============ ====== =================
</TABLE>
The information presented above, with respect to existing shareholders,
assumes no exercise of the Underwriter's Overallotment Option. In addition,
1,600,000 Common Shares have been reserved for issuance upon exercise of the
Warrants and 120,000 Common Shares have been reserved for issuance upon exercise
of the Underwriter's Warrants including the shares of Common Stock underlying
the Warrants included within the Underwriter's Warrants, 1,400,000 Common Shares
have been reserved for future issuance pursuant to the Management Options, and
150,000 Common Shares have been reserved for future issuance upon exercise of
options granted pursuant to the Company's incentive stock option plan. See
"Management" and "Description of Securities."
CONCURRENT PUBLIC OFFERING OF SECURITIES
Concurrently with this Offering, the Company is offering 600,000 shares of
its Common Stock and 600,000 in the Public Offering through the Underwriter.
USE OF PROCEEDS
The Company will not received any proceeds from this Offering, but it will
receive proceeds upon the exercise of the Warrants. The net proceeds to the
Company from the sale of 600,000 shares of Common Stock and 600,000 Warrants
offered in the Public Offering are estimated to be approximately $2,130,750
(approximately $2,533,995 if the Underwriter's Overallotment Option is exercised
in full) after deducting
14
<PAGE> 87
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
underwriting commissions and discounts and other expenses of the Public
Offering. The Company expects to use the net proceeds of the Public Offering
over the next twelve months approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
DOLLAR PERCENTAGE
AMOUNT OF
OF NET NET
APPLICATION OF NET PROCEEDS PROCEEDS PROCEEDS
- ------------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Product Assembly Operations(1).................................... $ 825,000 39%
Expand the Number of Sales Offices(2)............................. $ 300,000 14%
Office Equipment Purchases(3)..................................... $ 350,000 16%
Working Capital................................................... $ 655,750 31%
---------- ----
Total................................................... $2,130,750 100%
</TABLE>
- ---------------
(1) Represents the approximate amount that may be used to fund the initial
start-up costs, approximately $150,000, and the establishment of production
facilities (including leasehold improvements, equipment and inventory
purchases, lease payments and employee salaries), approximately $675,000,
for the Company's proposed product assembly operations. See "Business."
(2) Represents the approximate amount that may be used to expand the number of
the Company's regional sales offices in the PRC which is subject to change
from time to time. The Company estimates that the foregoing allocation will
be sufficient to enable it to establish approximately three new regional
sales offices and will be used for leasehold improvements and office
equipment. See "Business."
(3) To be used to purchase and update the Company's principal offices, including
purchases of computer hardware and software and general office equipment.
The Company currently estimates that the net proceeds of the Public
Offering will be sufficient to fund its planned operations, including the
funding of its obligations under the proposed agreement with STIP, and expansion
efforts for approximately twelve months from the date of this Prospectus. The
net proceeds may be sufficient for a greater or lesser period of time depending
on the extent of the Company's expansion efforts and the rapidity of the
completion of the negotiations for the Company's proposed agreement with STIP.
In addition, the Company may require additional financing prior to or following
such period if it is unable to complete the negotiation for the proposed
agreement with STIP and another suitable facility is obtained requiring the
Company to expend greater sums of money for initial start-up costs and/or
production facilities or if a final agreement is reached with STIP but the
estimated initial start-up costs and establishment of production facilities is
greater than estimated. The Company has no commitments or arrangements for any
such additional financing and there can be no assurance that the Company will be
able to obtain additional financing on terms acceptable to the Company or at
all. In the event additional financing is unavailable to the Company, the
Company may be materially adversely affected.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Public Offering. Future events, as well as changes in
economic, regulatory or competitive conditions or the Company's business and the
results of the its activities may make shifts in the allocation of funds within
the described categories or to other purposes necessary or desirable. In the
event the Company is unable to fund its proposed product assembly operations
with the net proceeds allocated above or suffers losses, the Company may draw
upon the net proceeds of the Public Offering allocated to expand the number of
its sales offices, purchase equipment and/or working capital. The Company
estimates that the net proceeds of the Public Offering allocated to expand the
number of its sales offices will be sufficient to establish approximately three
new sales office at an average cost of approximately $100,000 for each new sales
office. In the event the per sales office costs are greater than estimated, the
Company may establish fewer sales offices or draw upon the net proceeds of the
Public Offering allocated to working capital. In the event the per sales office
costs are less than estimated, a portion of the net proceeds of the Public
Offering allocated for such purposes will be reallocated to working capital.
Prior to expenditure, proceeds will be invested principally in high grade,
short-term, interest-bearing investments. Any proceeds received upon exercise of
the Overallotment Option or any of the Warrants will be used for working capital
purposes. There can be no assurance that the Overallotment Option or any of the
Warrants will be exercised.
15
<PAGE> 88
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
was due primarily to a decrease in income generated from providing engineering
services to other companies in Fiscal 1994.
Gain on Disposal of a Real Estate Property. The gain of approximately HK
$2,300,000 resulted from the disposition of the premises which were previously
leased out.
Income from Continuing Operations. Income from continuing operations was
approximately HK$4,333,000 in Fiscal 1994, a decrease of approximately
HK$1,703,000 or 28.2% from approximately HK$6,036,000 in Fiscal 1993. This
decrease in operating profit was primarily due to the economic austerity
measures adopted by the PRC government in early 1994 and the exceptional sale in
Fiscal 1993 resulting from the inclusion of the above mentioned exceptional
order in the approximate amount of HK$19,600,000.
Discontinued Operations - Income (Loss) of subsidiary companies. In Fiscal
1993, the operations of Far East's subsidiaries derived a profit of
approximately HK$12,000 but their operations resulted in a loss of approximately
(HK$1,466,000) in Fiscal 1994. This loss was primarily due to one of the major
suppliers of Action disposing of its industrial computer product line in Fiscal
1994. The industrial computer product line had been one of Action's major
product lines in prior years. Euro Electron was established in the later part of
Fiscal 1993. During Fiscal 1994, Euro Electron was in its development stage,
incurring expenses for planned operations, seeking product sources and
formulating its marketing efforts while deriving no revenues.
LIQUIDITY AND CAPITAL RESOURCES
Far East's primary uses of cash have been to fund accounts receivable,
inventories, capital expenditures related to the additions to property and
equipment, and to pay dividends to its shareholders. Far East has historically
met its cash requirements from cash flow from operations, short-term borrowings
under bank lines of credit, and long-term mortgage bank loans. Working capital
at the end of Fiscal 1995 and Six Months 1996 was approximately HK$4,896,000 and
approximately HK$6,115,000, respectively.
Inventory decreased from approximately HK$5,106,000 at the end of Fiscal
1995 to approximately HK$3,258,000 at the end of Six Months 1996. Far East seeks
to maintain a low level of inventory comprised mostly of low tech products to
fill regular customer's orders and parts and accessories for warranty purposes,
with Far East principally ordering products upon receiving a customer's order.
The higher inventory level at the end of Fiscal 1995 was principally due to
goods received near year end but not delivered to customers for several reasons,
including but not limited to, a multicomponent order awaiting shipment of a
component while another had arrived and a customer's Letter of Credit or payment
not having been received.
During Fiscal 1995 and Six Months 1996, Far East experienced cash flow from
operations of approximately HK$7,611,000 and (HK$319,000), respectively. Cash
from operations in Fiscal 1995 having been positively impacted by shipments made
in late Fiscal 1994 with payment being received in Fiscal 1995. At the end of
Fiscal 1995, Far East's accounts receivable stood at approximately HK$22,040,000
while at the end of Six Months 1996, Far East's accounts receivable were
approximately HK$18,978,000. At the end of Six Months 1996, Far East had
advanced approximately HK$3,800,000 to Regent (of which approximately
HK$2,200,000 was repaid subsequent to the end of Six Months 1996). Also accounts
receivable declined by approximately HK$3,062,000 from approximately
HK$22,040,000 at the end of Fiscal 1995 to approximately HK$18,978,000 at the
end of Six Months 1996, which was partially offset by an increase in receivables
from related companies of approximately HK$1,115,000 from approximately
HK$275,000 at the end of Fiscal 1995 to approximately HK$1,390,000 at the end of
Six Months 1996.
23
<PAGE> 89
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
For Fiscal 1995 and Six Months 1996, Far East had income from continuing
operations of approximately HK$2,259,000 and HK$1,783,000 respectively. This
income rate increase followed from Far East's self-imposed budgetary restraints,
the loosening of the PRC's economic austerity measures and a reduced rate of
inflation in the PRC.
Cash used in investing activities were mainly used to purchase properties
in the PRC and Hong Kong.
Far East has various banking facilities for overdraft, import and export
credits and foreign exchange contracts amounting to approximately HK$40,900,000
from various banks. Approximately HK$24,500,000 of the credit facilities that
are available were obtained on the conditions that, among other things, Far East
mortgage its properties as security for the credit facilities, Far East not to
create a charge or lien on its other assets in favor of other parties without
the bank's consent, and Far East maintaining a certain level of net worth. Far
East also has various bank loans to finance the purchase of its properties with
outstanding indebtedness at June 30, 1996 of approximately HK$7,500,000. As of
June 30, 1996, properties with net book value of approximately HK$20,200,000
were pledged to secure certain banking facilities of Far East.
Cash declined from approximately HK$4,626,000 at the end of Fiscal 1995 to
approximately HK$3,008,000 at the end of Six Months 1996 principally as a result
of Far East electing to use cash on hand to repay short-term borrowings (i.e.
bank overdraft and import/export loans) and make advances to Regent to finance a
significant government project that had been undertaken by Regent's subsidiary
and is nearing completion. Regent is charged interest at the rate of 18% per
year for this advance. At June 30, 1996, Regent had an outstanding balance of
approximately HK$3,800,000 due to Far East.
The Company plans to use the net proceeds of the Public Offering to
establish product assembly operations in the PRC and additional sales offices in
the PRC and purchase office equipment including computer hardware and software.
The balance of the proceeds of the Public Offering will be used for general
working capital purposes.
The Company believes that the net proceeds of the Public Offering, together
with available trade credit, bank credit and internally generated funds, will be
sufficient to satisfy its anticipated working capital needs for at least the
twelve month period following the completion of the Public Offering.
24
<PAGE> 90
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
PRINCIPAL SHAREHOLDERS
The following table set forth, as of the date of this Prospectus, after
giving effect to the Acquisition as if it had occurred on that date, certain
information concerning beneficial ownership of shares of Common Stock with
respect to (i) each person known to the Company to own 5% or more of the
outstanding shares of Common Stock, (ii) each executive officer, director and
director nominee of the Company, and (iii) all officers, directors and director
nominees of the Company as a group:
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT APPROXIMATE PERCENTAGE OF
AND PERCENTAGE OF COMMON STOCK
NATURE OF COMMON STOCK OWNED AFTER
BENEFICIAL OWNED BEFORE PUBLIC
OWNERSHIP PUBLIC OFFERING OFFERING(4)
--------- --------------- ---------------
<S> <C> <C> <C>
T.C Leung (1)(2).............................. 1,400,000 90% 65%
Jerry Wong (1)(3)............................. 0 * *
Nancy Wong (1)(3)............................. 0 * *
C.P. Kwan (1)(3).............................. 0 * *
Alex Sham (1)(3).............................. 0 * *
Pearl Venture Ltd. (1)(2)..................... 1,400,000 90% 65%
Regent Earning Ltd. (1)....................... 1,027,600 66% 48%
Celestial Dreams Corp., N.V. (5).............. 100,000 7% 5%(6)
Richgrove, N.V. (5)........................... 100,000 7% 5%(6)
Waveland Corp., N.V. (5)...................... 100,000 7% 5%(6)
Eaglehurst, N.V. (5).......................... 100,000 7% 5%(6)
Totado International, N.V. (5)................ 70,000 5% 3%(6)
Signal Hill, N.V. (5)......................... 92,000 6% 4%(6)
Sidford International Ltd. (7)................ 100,000 7% 5%
All Executive Officers and Directors of the
Company as a group (5 persons) (2)(3)....... 1,400,000 90% 65%
</TABLE>
- ---------------
* Denotes less than 1%.
(1) The address for each of Ms. Wong and Messrs. Leung, Wong, Kwan and Sham is
c/o Euro Tech (Far East) Ltd., 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang
Road, Hong Kong. The address for Pearl Venture Ltd. ("Pearl") is Columbus
Centre Building, Wichhams Cay, Road Town, Tortola, British Virgin Islands.
The address for Regent Earning Ltd. ("Regent") is Chong Kin Commercial
Building, 596 Nathan Road, Room 902, Mong Kok, Kowloon, Hong Kong.
(2) Includes shares of the Company's Common Stock owned of record by Pearl,
which is a trust established for the benefit of Mr. Leung. Also includes
those shares of the Company's Common Stock owned of record by Regent, of
which Pearl is the majority shareholder. See "Certain Transactions."
(3) Does not include such person's proportionate beneficial interest in shares
of the Company's Common Stock held of record by Regent and/or Broadskill
Investments, Inc. ("Broadskill"). See "Certain Transactions."
(4) Does not include options which may be granted under the Company's 1996 Stock
Option Plan and the Management Options. See "Management."
(5) Represents shares of the Company's Common Stock issuable upon the exercise
of Warrants held such entities which are selling securityholders. See
"Selling Securityholders." The address for Signal Hill, N.V., Celestial
Dreams Corp., N.V., Richgrove, N.V., Waveland Corp., N.V., and Eaglehurst,
N.V. is Landhuis Joonchi, Kaya Richard J. Beaujon Z/A, P.O. Box 837,
Curacao, Netherland Antilles. The address for Totado International, N.V. is
P.O. Box 245, Philipsburg, Sint Maartin, Netherland Antilles.
(6) Assumes no sale by such selling securityholders of their Warrants and/or the
shares of the Company's Common Stock underlying such Warrants. See "Selling
Securityholders."
(7) The address for Sidford International Ltd. ("Sidford") is 21st Floor, Regent
Centre, 88 Queens Road Central, Hong Kong. Sidford is a business consultant
to Far East. See "Certain Transactions."
CERTAIN TRANSACTIONS
The Company was incorporated under the laws of the British Virgin Islands
on September 30, 1996 and shortly thereafter sold 50,000 shares to Gusrae,
Kaplan & Bruno, and 100,000 shares to Sidford for an aggregate consideration of
$1,500 or $.01 per share. Gusrae, Kaplan & Bruno is United States counsel to the
Company. Sidford has been and is a business consultant to Far East.
33
<PAGE> 91
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
Pearl is a British Virgin Islands company which is a trust for the benefit
of T.C. Leung, the Company's Chairman of the Board and Chief Executive Officer.
Regent is a Hong Kong corporation.
Simultaneously with the closing of the Public Offering, the Company will
consummate the Acquisition by exchanging 1,400,000 shares of its Common Stock
for the 1,000,000 issued and outstanding shares of the Common Stock of Far East
at a ratio of 1.4 (one and four-tenths) shares of the Company's Common Stock for
each issued and outstanding share of Far East's Common Stock. In the event Far
East fails to achieve an after-tax net income of at least $450,000 for its
fiscal year to end December 31, 1996, Pearl and Regent have agreed to return to
the Company for cancellation and as a contribution to capital, an aggregate of
200,000 shares of the Company's common stock issued as part of the exchange for
the capital stock of Far East. All discussions in this Prospectus relating to
the number of issued and outstanding shares of Common Stock give effect to the
Acquisition.
Pearl was one of the founding shareholders of Far East and during the years
1992 through 1994, Pearl and Regent accumulated 100% of the issued and
outstanding common stock of Far East (1,000,000 shares) for an aggregate
consideration of approximately HK$11,130,000, with Pearl and Regent being the
record owners of 266,000 and 734,000 shares of Far East's Common Stock,
respectively. Broadskill is a Hong Kong corporation which owns an approximate
44% equity interest in Regent which if converted into shares of the Company's
Common Stock would represent approximately 27% of the Company's Common Stock. No
executive officer or director of the Company is an officer or director of Pearl,
Regent or Broadskill. In addition to its direct record ownership of 372,400
shares of the Company's Common Stock, Pearl is also the beneficial owner of
approximately 527,069 shares of the Company's Common Stock through its equity
interest in Regent. Mr. Kwan, and each of Messrs. Wong and Sham and Ms. Wong,
Executive Officers and Directors of the Company and Far East have equity
interests in Regent and/or Broadskill which if were converted into shares of the
Company's Common Stock would represent approximately 4%, less than 1%, less than
1% and less than 1% of the Company's Common Stock, respectively. See
"Management" and "Principal Shareholders."
During Fiscal 1996, the Company transferred its equity interests in three
former subsidiaries, Armtison Limited (a wholly owned subsidiary), Action
Instruments (China) Ltd., (a 51% owned subsidiary) and Euro Electron (Far East)
Ltd. (a 80% owned subsidiary) to Regent and Pearl at book value (HK$10,000)
invested in these three subsidiaries.
In November, 1996 the Company sold an aggregate of 1,000,000 Warrants (the
"Private Placement Warrants") to private investors for aggregate gross proceeds
of $150,000. The Underwriter acted as the Company's placement agent in
connection with the foregoing private placement of the Company's Private
Placement Warrants and received an aggregate of $19,500 in commissions and
non-accountable expenses. Said Private Placement Warrants and the shares of the
Company's Common Stock underlying said Warrants are being offered hereby. See
"Concurrent Public Offering of Securities," "Description of Securities" and
"Plan of Distribution."
At the end of Six Months 1996, Far East had advanced approximately
HK$3,800,000 to Regent to finance a significant government project that had been
undertaken by Regent's subsidiary and is nearing completion. Regent is charged
eighteen percent interest per year on this advance. Regent has repaid
approximately HK$2,200,000 subsequent to June 30, 1996.
Mr. Leung may be deemed to be a "promoter" of the Company as such term is
defined under the federal securities laws.
34
<PAGE> 92
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus forms a part covers the
offering of 1,000,000 Warrants and 1,000,000 shares of Common Stock underlying
said Warrants owned by the Selling Securityholders. The resale of such
securities by the Selling Securityholders is subject to prospectus delivery and
other requirements of the Securities Act.
The Company's securities are being offered by the following Selling
Securityholders in the amounts set forth below.
<TABLE>
<CAPTION>
(1) (2) (3)
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF
OF COMMON STOCK OF COMMON STOCK WARRANTS
BENEFICIALLY REGISTERED REGISTERED
SELLING SECURITYHOLDER OWNED (*) HEREIN (*) HEREIN
- ------------------------------------- ---------------- ---------------- ----------
<S> <C> <C> <C>
Celestial Dreams Corp., NV........... 100,000 100,000 100,000
Richgrove, NV........................ 100,000 100,000 100,000
Waveland Corp., NV................... 100,000 100,000 100,000
Eaglehurst, NV....................... 100,000 100,000 100,000
Signal Hill, NV...................... 92,000 92,000 92,000
Totado International, NV............. 70,000 70,000 70,000
Imagine Holdings Corp................ 50,000 50,000 50,000
Lillian Goldman...................... 50,000 50,000 50,000
Jennifer L. King..................... 50,000 50,000 50,000
Maureen Hilson....................... 50,000 50,000 50,000
Ningling Jing........................ 30,000 30,000 30,000
Pamela Gailliard..................... 25,000 25,000 25,000
Edward Boginsky...................... 25,000 25,000 25,000
K. Percy............................. 25,000 25,000 25,000
Robert B. Sauter..................... 10,000 10,000 10,000
Lovella Fiedtkou..................... 10,000 10,000 10,000
Philip Settles....................... 10,000 10,000 10,000
Dr. David Mehler..................... 10,000 10,000 10,000
David H. Meyrowitz................... 10,000 10,000 10,000
Farid K. Farida...................... 10,000 10,000 10,000
Edwin S. Osias....................... 10,000 10,000 10,000
Lon Rubackin......................... 10,000 10,000 10,000
Gale L. Sayers Proby................. 10,000 10,000 10,000
Charles A. Conner, Jr................ 10,000 10,000 10,000
Ulysses Fleming...................... 10,000 10,000 10,000
Georgia M. Rogers.................... 5,000 5,000 5,000
Jane Troyer.......................... 5,000 5,000 5,000
Clifford Feldstein................... 5,000 5,000 5,000
Jon A. Maresca and
C. Elizabeth Maresca................. 5,000 5,000 5,000
John Andrew Roe...................... 3,000 3,000 3,000
</TABLE>
- ---------------
(*) The Number of Shares of Common Stock Beneficially Owned and the Number of
Shares of Common Stock Registered Herein as set forth above includes shares
of Common Stock issuable on the exercise of the Warrants.
39
<PAGE> 93
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
After the completion of the sale by the respective Selling Securityholders
of the number of shares of Common Stock and Warrants set forth opposite their
names in Columns (2) and (3) above, none of the Selling Securityholders will own
any of such shares of Common Stock or Warrants.
The foregoing persons and entities have agreed not to sell, for a period of
twenty four months from the date of this Prospectus, an aggregate of 1,000,000
Warrants and 1,000,000 shares of Common Stock underlying said Warrants without
the prior written consent of the Underwriters.
PLAN OF DISTRIBUTION
The Warrants and/or the shares of the Company's Common Stock underlying
such Warrants may be sold from time to time directly by the Selling
Securityholders. Alternatively, the Selling Securityholders may from time to
time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale. Commissions may be
paid by the Selling Securityholders in connection with such sales. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Securities Act with respect to
the securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company will derive proceeds from
exercises of the Warrants but will not derive any proceeds from the sale of the
Company's securities by the Selling Securityholders. There can be no assurance
that any of the Warrants will be exercised.
At a time an offer of securities is made by or on behalf of a Selling
Securityholder, it is the Company's intent that a prospectus be distributed
setting forth, based upon information provided by the Selling Securityholder,
the number of securities being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, if any, the purchase
price paid by any underwriter for securities purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or re-
allowed or paid to dealers, and the proposed selling price to the public.
Sales of securities by the Selling Securityholders could have an adverse
effect on the market prices of the securities offered pursuant to the Public
Offering.
LEGAL MATTERS
The validity of the securities being offered hereby and certain legal
matters in connection with this Offering with respect to British Virgin Islands
law will be passed upon for the Company by Smith-Hughes, Raworth & McKenzie,
British Virgin Islands counsel to the Company. Certain legal matters in
connection with this Offering with respect to United States law will be passed
upon for the Company by Gusrae, Kaplan & Bruno, New York, New York, as United
States counsel to the Company. Gusrae, Kaplan & Bruno owns 50,000 shares of the
Company's Common Stock. Hastings & Co. has advised the Company on certain legal
matters in connection with this Offering with respect to the laws of Hong Kong.
Jingtian Associates has advised the Company on certain legal matters with
respect to the laws of the PRC.
EXPERTS
The Financial Statements of the Company included in this Prospectus have
been audited by Arthur, Anderson & Co., Hong Kong, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as expert in giving
said reports.
40
<PAGE> 94
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
ENFORCEMENT OF CIVIL LIABILITIES
The Company is a British Virgin Islands holding corporation. The Company
has appointed as its agent upon whom process may be served in any
action brought against it under the securities laws of the United States.
However, it may be difficult for investors to enforce outside the United States
judgements against the Company obtained in the United States in any such
actions, including actions predicated upon the civil liability provisions of the
United States federal securities laws. In addition, all of the Company's
officers and directors reside outside the United States and all of the assets of
these persons and of the Company are or may be located outside of the United
States. As a result, it may be difficult for investors to effect service of
process within the United States upon such persons. Additionally, Hong Kong
courts will not directly enforce against the Company or such persons judgments
obtained in United States courts. There is substantial doubt as to the
enforceability against the Company or any of its officers and directors located
outside the United States in original actions for enforcement of judgements of
United States courts.
The Company has been advised by Hastings & Co., its Hong Kong counsel, and
Smith-Hughes, Raworth & McKenzie, its British Virgin Islands counsel, that no
treaty exists between Hong Kong or the British Virgin Islands and the United
States providing for the reciprocal enforcement of foreign judgements. However,
the courts of Hong Kong and the British Virgin Islands are generally prepared to
accept a foreign judgment as evidence of a debt due. An action may then be
commenced in Hong Kong or the British Virgin Islands for recovery of this debt.
A Hong Kong or British Virgin Islands court will only accept a foreign judgement
as evidence of a debt due if: (i) the judgement is for a liquidated amount in a
civil matter; (ii) the judgment is final and conclusive and has not been stayed
or satisfied in full; (iii) the judgment is not directly or indirectly for the
payment of foreign taxes, penalties, fines or changes of a like nature (in this
regard, a Hong Kong or British Virgin Islands court is unlikely to accept a
judgement for an amount obtained by doubling, trebling or otherwise multiplying
a sum assessed as compensation for the loss or damage sustained by the person in
whose favor the judgement was given); (iv) the judgment was not obtained by
actual or constructive fraud or duress; (v) the foreign court has taken
jurisdiction on grounds that are recognized by the common law rules as to
conflict of laws in Hong Kong or the British Virgin Islands; (vi) the
proceedings in which the judgment was obtained were not contrary to natural
justice (i.e., the concept of fair adjudication); (vii) the proceedings in which
the judgment was obtained, the judgment itself and the enforcement of the
judgment are not contrary to the public policy of Hong Kong or the British
Virgin Islands; (viii) the person against whom the judgment is given is subject
to the jurisdiction of the Hong Kong or the British Virgin Islands court; and
(ix) the judgment is not on a claim for contribution in respect of damages
awarded by a judgement which does not satisfy the foregoing. Enforcement of a
foreign judgment which has been registered in a Hong Kong court or a judgment
obtained in Hong Kong can be enforced by one or more of the following manners:
(i) a Hong Kong court's bailiffs being sent to seize valuable chattels from the
judgment debtor's premises and thereafter auction the same in satisfaction of
the judgment debt; (ii) by a charge being registered against any real property
belonging to the judgment debtor which charge must necessarily be redeemed upon
sale or upon the judgment creditor exercising a right of sale attached thereto;
(iii) oral examination of the judgment debtor or its director(s) to reveal in
open court assets belonging to him/her or the Company; (iv) by debtors of the
judgment debtor being required to pay over debts due to the judgment debtor; and
(v) bankruptcy or "winding up" proceedings. Enforcement of a foreign judgement
in Hong Kong or the British Virgin Islands may also be limited or affected by
applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or
similar laws relating to or affecting creditors' rights generally and will be
subject to a statutory limitation of time within which proceedings may be
brought.
A substantial portion of the Company's assets will be situated in the PRC.
As the PRC does not have treaties providing for the reciprocal recognition and
enforcement of judgments of courts within the United States, actions brought by
regulatory authorities, such as the Commission, and other actions, which result
in foreign court judgments, could (assuming such actions are not required by PRC
law to be arbitrated) only be enforced in the PRC if such judgments or rulings
do not violate the basic principles of the law of the PRC or the sovereignty,
security and public interest of the society of the PRC, as determined by a
people's court of the
41
<PAGE> 95
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
PRC which has jurisdiction for recognition and enforcement of judgments. The
Company has been advised by its PRC counsel, Jingtian Associates, that there is
substantial doubt as to the enforceability in the PRC of any actions to enforce
judgments of United States' courts arising out of or based on the ownership of
the Securities offered hereby, including judgments arising out of or based on
the civil liability provisions of United States federal or state securities laws
or otherwise.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
F-1 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock and Warrants offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in the exhibits and schedules thereto as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
42
<PAGE> 96
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Dilution............................... 13
Concurrent Public Offering of
Securities........................... 14
Use of Proceeds........................ 14
Capitalization......................... 16
Selected Financial Information......... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 25
Management............................. 30
Principal Shareholders................. 33
Certain Transactions................... 33
Description of Securities.............. 35
Shares Eligible for Future Sale........ 37
Selling Securityholders................ 39
Plan of Distribution................... 40
Legal Matters.......................... 40
Experts................................ 40
Enforcement of Civil Liabilities....... 41
Additional Information................. 42
Index to Financial Statements and
Unaudited Pro Forma Financial
Statements........................... F-1
Appendix -- The People's Republic of
China................................ A-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
EURO TECH
HOLDINGS COMPANY LIMITED
1,000,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
AND 1,000,000 SHARES OF
COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this offering, all of which are to be paid by the
Registrant, in connection with the issuance and distribution of the Securities
being registered, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................................ $ 4,734.24
NASD Filing Fee................................................................. 1,872.93
NASDAQ Listing and Filing Fees.................................................. 15,000.00*
Boston Stock Exchange Listing and Filing Fees................................... 15,000.00*
Printing and Engraving Expenses................................................. 50,000.00*
Accounting Fees and Expenses.................................................... 100,000.00*
Legal Fees and Expenses......................................................... 200,000.00*
Blue Sky Fees and Expenses...................................................... 50,000.00*
Transfer and Warrant Agent Fees and Expenses.................................... 10,000.00*
Consulting Agreement with Underwriter........................................... 108,000.00
Underwriter's non-accountable expense allowance (assuming no exercise of the
overallotment option)......................................................... 92,700.00
Miscellaneous Expenses.......................................................... 2,942.83*
Total........................................................................... $650,250.00*
===========
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 57 of the British Virgin Islands International Business Companies
Ordinance provides as follows:
(1) Subject to subsection (2) and any limitations in its memorandum or
articles, a company incorporated under this Ordinance may indemnify against all
expenses, including legal fees, and against all judgments, fines and amounts
paid in settlement and reasonably incurred in connection with legal,
administrative or investigative proceedings any person who:
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil, criminal,
administrative or investigative, by reason of the fact that the person is
or was a director, an officer or a liquidator of the company; or
(b) is or was, at the request of the company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting for,
another company or a partnership, joint venture, trust or other enterprise.
(2) Subsection (1) only applies to a person referred to in that subsection
if the person acted honestly and in good faith with a view to the best interests
of the company and, in the case of criminal proceedings, the person has no
reasonable cause to believe that his conduct was unlawful.
(3) The decision of the directors as to whether the person acted honestly
and in good faith and with a view to the best interests of the company and as to
whether the person had no reasonable cause to believe that his conduct was
unlawful is in the absence of fraud, sufficient for the purposes of this
section, unless a question of law is involved.
(4) The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself, create a
presumption that the person did not act honestly and in good faith and with a
view to the best interests of the company or that the person had reasonable
cause to believe that his conduct was unlawful.
II-1
<PAGE> 98
(5) If the person referred to in subsection (1) has been successful in
defense of any proceedings referred to in subsection (1), the person is entitled
to be indemnified against all expenses, including legal fees, and against all
judgements, fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
In addition, Section 58 of the British Virgin Islands International
Business Ordinance provides as follows:
A company incorporated under this Ordinance may purchase and maintain
insurance in relation to any person who is or was a director, an officer
or a liquidator of the company, or who at the request of the company is
or was serving as a director, an officer or a liquidator of, or in any
other capacity is or was acting for, another company or a partnership,
joint venture, trust or other enterprise, against any liability asserted
against the person and incurred by the person in that capacity, whether
or not the company has or would have had the power to indemnify the
person against the liability under subsection (1) of section 57.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold the following securities within the past three
years:
A
In November 1996, the Registrant sold an aggregate of 150,000 shares of its
Common Stock to the entities identified as follows, at a price of $.01 per
share, Gusrae, Kaplan & Bruno (50,000 shares); Sidford International Ltd.
(100,000 shares); and
B
In November 1996, the Registrant sold, to the persons and entities
identified below, the securities of the Registrant for the consideration
indicated opposite their names:
<TABLE>
<CAPTION>
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
- ------------------------------- ----------------------------------------------------- ----------
<S> <C> <C>
Signal Hill, N.V............... Ninety Two Hundredths of a Unit (s)of the Company's $13,800.00
Securities*
Celestial Dreams Corp., N.V.... One Unit of the Company's Securities* $15,000.00
Richgrove, N.V................. One Unit of the Company's Securities* $15,000.00
Waveland Corp, N.V............. One Unit of the Company's Securities* $15,000.00
Eaglehurst, N.V................ One Unit of the Company's Securities* $15,000.00
Totado International, N.V...... 7/10ths of a Unit of the Company's Securities* $10,500.00
Lillian Goldman................ One Half of a Unit of the Company's Securities* $ 7,500.00
Jennifer L. King............... One Half of a Unit of the Company's Securities* $ 7,500.00
Maureen Hilson................. One Half of a Unit of the Company's Securities* $ 7,500.00
Imagine Holdings Corp.......... One Half of a Unit of the Company's Securities* $ 7,500.00
Ningling Jing.................. 3/10ths of a Unit of the Company's Securities* $ 4,500.00
Edward Boginsky................ One Quarter of a Unit of the Company's Securities* $ 3,750.00
K. Percy....................... One Quarter of a Unit of the Company's Securities* $ 3,750.00
Pamela Gailliard............... One Quarter of a Unit of the Company's Securities* $ 3,750.00
Robert B. Sauter............... One Tenth of a Unit of the Company's Securities* $ 1,500.00
Louella Fiedtkou............... One Tenth of a Unit of the Company's Securities* $ 1,500.00
Philip Settles................. One Tenth of a Unit of the Company's Securities* $ 1,500.00
Dr. David Mehler............... One Tenth of a Unit of the Company's Securities* $ 1,500.00
David H. Meyrowitz............. One Tenth of a Unit of the Company's Securities* $ 1,500.00
Farid K. Farida................ One Tenth of a Unit of the Company's Securities* $ 1,500.00
Edwin S. Osias................. One Tenth of a Unit of the Company's Securities $ 1,500.00
</TABLE>
II-2
<PAGE> 99
<TABLE>
<CAPTION>
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
<S> <C> <C>
Lon Rubackin................... One Tenth of a Unit of the Company's Securities* $ 1,500.00
Gale L. Sayer Proby............ One Tenth of a Unit of the Company's Securities* $ 1,500.00
Charles A. Conner, Jr.......... One Tenth of a Unit of the Company's Securities* $ 1,500.00
Georgia M. Rogers.............. One Twentieth of a Unit of the Company's Securities $ 750.00
Jon A. & C. Elizabeth One Twentieth of a Unit of the Company's Securities* $ 750.00
Maresca......................
Jane Troyer.................... One Twentieth of a Unit of the Company's Securities* $ 750.00
Clifford Feldstein............. One Twentieth of a Unit of the Company's Securities* $ 750.00
Ulysses Fleming................ One Tenth of a Unit of the Company's Securities* $ 1,500.00
John Andrew Roe................ Three One-hundredths of a Unit of the Company's $ 450.00
Securities*
TOTAL $150,000.00
</TABLE>
- ------------------
* Each Unit consisting of 100,000 Redeemable Common Stock Purchase Warrants.
These transactions were exempt from registration under the Securities Act
of 1933, as amended (the "Act"), under Section 4(2) of that Act as not involving
a public offering, and as to those sales set forth under subsection B above,
reliance is placed upon Rule 506 of Regulation D and Section 4(6) of the Act. No
underwriter was engaged by the Registrant in connection with the issuances
described above in A. May Davis Group, Inc acted as placement agent for the
Registrant in connection with the issuances described in B above and received a
commission and non-accountable expense equal to 10% and 3% of the aggregate
amount of such securities. The recipients of all of the foregoing securities
represented that such securities were being acquired for investment and not with
a view to the distribution thereof. In addition, the certificates evidencing
such securities bear restrictive legends.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Forms of Underwriting Agreement and Selected Dealers Agreement (2)
3.1 Registrant's Restated Memorandum and Articles of Association (1)
4.1 Form of Underwriter's Warrant Certificate (2)
4.2 Form of Financial Consulting Agreement to be entered into by and between the
Registrant and the Underwriter (2)
4.3 Form of Common Stock Certificate (2)
4.4 Form of Redeemable Common Stock Purchase Warrants (2)
4.5 Form of Warrant Agreement between Registrant and American Stock Transfer & Trust
Company (2)
5.1 Opinion of Gusrae, Kaplan & Bruno (2)
10.1 Form of Stock Exchange Agreement (2)
10.2 Preliminary Agreement between the Shanghai Thermometric Instrument Plant and Euro
Tech (Far East) Ltd. (1)
10.3 Lease For Euro Tech (Far East) Ltd.'s Hong Kong Office (1)
10.4 Lease For Euro Tech (Far East) Ltd.'s Guangzhou Office (1)
10.5 Purchase Agreement between Beijing China International Industry and Commerce Co.
Ltd. and Euro Tech (Far East) Ltd. (Beijing sales office) (1)
10.6 Purchase Agreement between Shanghai Xing Tai Real Estate Development Incorp. and
Euro Tech (Far East) Ltd. (Shanghai sales office) (1)
10.7 International Sales Representative and Distribution Agreement between Wallace &
Tiernan and Euro Tech (Far East) Ltd. (1)
10.8 Sales Representative Agreement between the Finnigan Corporation and Euro Tech (Far
East) Ltd. (1)
</TABLE>
II-3
<PAGE> 100
<TABLE>
<C> <S>
10.9 Distributorship Agreement between Hach Company and Euro Tech (Far East) Limited
(1)
10.10 Hong Kong Bank Mortgage Commitment Letter with Euro Tech (Far East) Ltd.
(regarding Beijing sales office) (1)
10.11 The Bank of East Asia Limited Mortgage Commitment Letter with Euro Tech (Far East)
Limited (regarding Shanghai sales office) (1)
10.12 Standard Chartered Bank Mortgage with Euro Tech (Far East) Limited (regarding new
office) (1)
10.13 Hong Kong Bank Mortgage with Euro Tech (Far East) Limited (regarding investment
property) (1)
10.14 Form of Agreement among Registrant, Euro Tech (Far East) Limited and Shereman
Enterprises Ltd. (for the services of T.C. Leung) (2)
10.15 Registrant's Stock Option Plan (2)
23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1) (2)
23.2 Consents of Arthur Anderson & Co., Hong Kong (1)
23.3 Consent of Smith-Hughes, Raworth & McKenzie (2)
23.4 Consent of Hastings & Co. (2)
23.5 Consent of Jingtian Associates (2)
24.1 Power of Attorney (Included on Page II-6).
</TABLE>
- ---------------
(1) Filed herewith.
(2) To be Filed by Amendment.
(b) Financial Statement Schedule(s)
NONE REQUIRED.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a) (3) of the Act
need not be furnished, provided, that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements required pursuant
to this paragraph (a) (4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of those
financial statements.
II-4
<PAGE> 101
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-5
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that is has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Hong Kong, on the 15th day of November, 1996.
EURO TECH HOLDINGS COMPANY LIMITED
By: /s/ T.C. Leung
T.C. Leung,
Chairman of the Board of Directors
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints T.C. Leung and Jerry Wong and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
<S> <C> <C>
/s/ T.C. Leung Chairman of the Board of November 15, 1996
- ---------------------------------------- Directors, Chief Executive
T.C. Leung Officer and Director (Principal
Executive Officer)
/s/ Jerry Wong Chief Financial Officer and November 15, 1996
- ---------------------------------------- Director (Principal Accounting
Jerry Wong and Financial Officer)
/s/ Nancy Wong Director November 15, 1996
- ----------------------------------------
Nancy Wong
/s/ C.P. Kwan Director November 15, 1996
- ----------------------------------------
Nancy Wong
/s/ Alex Sham Director November 15, 1996
- ----------------------------------------
Alex Sham
</TABLE>
II-6
<PAGE> 1
Exhibit 3.1
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP. 291)
MEMORANDUM OF ASSOCIATION
OF
EURO TECH HOLDINGS COMPANY LIMITED
NAME
1. The name of the Company is EURO TECH HOLDINGS COMPANY LIMITED.
REGISTERED OFFICE
2. The Registered Office of the Company will be the offices of
TRUSTNET (BRITISH VIRGIN ISLANDS) LIMITED, TRUSTNET CHAMBERS,
P.O. BOX 3444, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS.
REGISTERED AGENT
3. The Registered Agent of the Company will be TRUSTNET (BRITISH
VIRGIN ISLANDS) LIMITED OF TRUSTNET CHAMBERS, P.O. BOX 3444,
ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS.
GENERAL OBJECTS AND POWERS
4. (1) The object of the Company is to engage in any act or
activity that is not prohibited under any law for the
time being in force in the British Virgin Islands;
(2) The Company may not
(a) carry on business with persons resident in
the British Virgin Islands;
(b) own an interest in real property situate in
the British Virgin Islands, other than a
lease referred to in paragraph (e) of
subclause (3);
(c) carry on banking or trust business, unless
it is licensed to do so under the Banks and
Trust Companies Act, 1990;
(d) carry on business as an insurance or reinsurance
company, insurance agent or insurance broker, unless
it is licensed under an enactment authorising it to
carry on that business;
(e) carry on business of company management,
unless it is licensed under the Company
Management Act, 1990; or
(f) carry on the business of providing the registered
office or the registered agent for companies
incorporated in the British Virgin Islands.
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<PAGE> 2
(3) For the purposes of paragraph 4.2 (a), the Company shall not
be treated as carrying on business with persons resident in
the British Virgin Islands if
(a) it makes or maintains deposits with a person
carrying on banking business within the
British Virgin Islands;
(b) it makes or maintains professional contact with
solicitors, barristers, accountants, bookkeepers,
trust companies, administration companies, investment
advisers or other similar persons carrying on
business within the British Virgin Islands;
(c) it prepares or maintains books and records
within the British Virgin Islands;
(d) it holds, within the British Virgin Islands,
meetings of its directors or members;
(e) it holds a lease of property for use as an
office from which to communicate with
members or where books and records of the
Company are prepared or maintained;
(f) it holds shares, debt obligations or other
securities in a company incorporated under
the International Business Companies Act or
under the Companies Act; or
(g) shares, debt obligations or other securities in the
Company are owned by any person resident in the
British Virgin Islands or by any company incorporated
under the International Business Companies Act or
under the Companies Act.
(4) The Company shall have all such powers as are permitted by law
for the time being in force in the British Virgin Islands,
irrespective of corporate benefit, to perform all acts and
engage in all activities necessary or conducive to the
conduct, promotion or attainment of the object of the Company.
CURRENCY
5. Shares in the Company shall be issued in the currency of the
United States of America.
AUTHORIZED CAPITAL
6. The authorized capital of the Company is $200,000.00
CLASSES, NUMBER AND PAR VALUE OF SHARES
7. The authorized capital is made up of one class and one series
of shares divided into 20,000,000 shares of $0.01 par value.
DESIGNATIONS, POWERS PREFERENCES, ETC. OF SHARES
8. The powers, preferences and rights, and the qualifications,
limitations and restrictions of the Company's shares are as
follows:
The holders of shares shall:
(i) have one vote for each share held of record;
(ii) be entitled to receive dividends as and when declared
and to participate ratably in the assets of the
Company upon liquidation; and
(iii) not to be entitled to redeem them, or be entitled to
any pre-emptive or similar rights.
2
<PAGE> 3
9. If at any time the authorized capital is divided into
different classes or series of shares, the rights attached to
any class or series (unless otherwise provided by the terms of
issue of the shares of that class or series) may, whether or
not the Company is being wound up, be varied with the consent
in writing of the holders of not less than a majority of the
issued shares of that class or series and of the holders of
not less than a majority of the issued shares of any other
class or series of shares which may be affected by such
variation.
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
10. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed
to be varied by the creation or issue of further shares ranking pari
passu therewith.
REGISTERED SHARES AND BEARER SHARES
11. Shares may be issued as registered shares or to bearer as may
be determined by a resolution of directors.
EXCHANGE OF REGISTERED SHARES AND BEARER SHARES
12. Registered shares may be exchanged for bearer shares and
bearer shares may be exchanged for registered shares.
TRANSFER OF REGISTERED SHARES
13. Subject to the provisions of the Articles of Association annexed hereto
(the "Articles of Association") registered shares in the Company may be
transferred subject to the prior or subsequent approval of the Company
as evidenced by a resolution of directors or by a resolution of
members.
SERVICE OF NOTICE ON HOLDERS OF BEARER SHARES
14. Where shares are issued to bearer, the bearer, identified for
this purpose by the number of the share certificate, shall be
requested to provide the Company with the name and address of
an agent for service of any notice, information or written
statement required to be given to members, and service upon
such agent shall constitute service upon the bearer of such
shares until such time as a new name and address for service
is provided to the Company. In the absence of such name and
address being provided it shall be sufficient for the purposes
of service for the Company to publish the notice, information
or written statement or a summary thereof in one or more
newspapers published or circulated in the British Virgin
Islands and in such other place, if any, as the Company shall
from time to time by a resolution of directors or a resolution
of members determine. The directors of the Company must give
sufficient notice of meetings to members holding shares issued
to bearer to allow a reasonable opportunity for them to secure
or exercise the right or privilege, other than the right or
privilege to vote, as to which the period of notice shall be
governed by the Articles of Association. What amounts to
sufficient notice is a matter of fact to be determined after
having regard to all the circumstances.
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<PAGE> 4
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
15. The Company may amend its Memorandum of Association and
Articles of Association by a resolution of members or by a
resolution of directors.
DEFINITIONS
16. The meanings of words in this Memorandum of Association are as
defined in the Articles of Association.
We, TrustNet (British Virgin Islands) Limited of TrustNet Chambers,
P.O. Box 3444, Road Town, Tortola, British Virgin Islands for the
purpose of incorporating an International Business Company under the
laws of the British Virgin Islands hereby subscribe our name to this
Memorandum of Association the 30th day of September, 1996.
in the presence of:
Witness Subscriber
(Sgd. Jaime Flanders) (Sgd. Harriett Anthony)
--------------------------- -----------------------------------------
TrustNet Chambers TrustNet (British Virgin Islands) Limited
P.O. Box 3444
Road Town, Tortola
4
<PAGE> 5
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP. 291)
ARTICLES OF ASSOCIATION
OF
EURO TECH HOLDINGS COMPANY LIMITED
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context, the
words and expressions standing in the first column of the following
table shall bear the meanings set opposite them respectively in the
second column thereof.
Words Meaning
capital The sum of the aggregate par value
of all outstanding shares with par
value of the Company and shares with
par value held by the Company as
treasury shares plus
(a) the aggregate of the amounts
designated as capital of all
outstanding shares without par
value of the Company and shares
without par value held by the
Company as treasury shares, and
(b) the amounts as are from time to
time transferred from surplus
to capital by a resolution of
directors.
member A person who holds shares in
the Company.
person An individual, a corporation,
a trust, the estate of a deceased
individual, a partnership or an
unincorporated association of
persons.
resolution of (a) A resolution approved at a duly
director convened and constituted
meeting of directors of the
Company or of a committee of
directors of the Company by the
affirmative vote of a simple
majority of the directors
present at the meeting who
voted and did not abstain; or
(b) a resolution consented to in
writing by all directors or of
all members of the committee,
as the case may be;
1
<PAGE> 6
except that where a director is
given more than one vote, he
shall be counted by the number
of votes he casts for the
purpose of establishing a
majority.
resolution of (a) A resolution approved at a duly
members convened and constituted
meeting of the members of the
Company by the affirmative vote
of
(i) a simple majority of the
votes of the shares
entitled to vote thereon
which were present at the
meeting and were voted and
not abstained, or
(ii) a simple majority of the
votes of each class or
series of shares which
were present at the
meeting and entitled to
vote thereon as a class or
series and were voted and
not abstained and of a
simple majority of the
votes of the remaining
shares entitled to vote
thereon which were present
at the meeting and were
voted and not abstained;
or
(b) a resolution consented to in
writing by
(i) an absolute majority of
the votes of shares
entitled to vote thereon,
or
(ii) an absolute majority of
the votes of each class or
series of shares entitled
to vote thereon as a class
or series and of an
absolute majority of the
votes of the remaining
shares entitled to vote
thereon;
securities Shares and debt obligations of
every kind, and options,
warrants and rights to acquire
shares, or debt obligations.
surplus The excess, if any, at the time
of the determination of the
total assets of the Company
over the aggregate of its total
liabilities, as shown in its
books of account, plus the
Company's capital.
the Act The International Business
Companies Act (CAP. 291)
including any modification,
extension, re-enactment or
renewal thereof and any
regulations made thereunder.
the Memorandum The Memorandum of Association
of the Company as originally
framed or as from time to time
amended.
the Seal Any Seal which has been duly
adopted as the Seal of the
Company.
2
<PAGE> 7
these Articles These Articles of Association
as originally framed or as from
time to time amended.
treasury shares Shares in the Company that were
previously issued but were
repurchased, redeemed or
otherwise acquired by the
Company and not cancelled.
2. "Written" or any term of like import includes words typewritten,
printed, painted, engraved, lithographed, photographed or represented
or reproduced by any mode of reproducing words in a visible form,
including telex, facsimile, telegram, cable or other form of writing
produced by electronic communication.
3. Save as aforesaid any words or expressions defined in the Act
shall bear the same meaning in these Articles.
4. Whenever the singular or plural number, or the masculine, feminine or
neuter gender is used in these Articles, it shall equally, where the
context admits, include the others.
5. A reference in these Articles to voting in relation to shares shall be
construed as a reference to voting by members holding the shares except
that it is the votes allocated to the shares that shall be counted and
not the number of members who actually voted and a reference to shares
being present at a meeting shall be given a corresponding construction.
6. A reference to money in these Articles is, unless otherwise stated, a
reference to the currency in which shares in the Company shall be
issued according to the provisions of the Memorandum.
REGISTERED SHARES
7. Every member holding registered shares in the Company shall be entitled
to a certificate signed by a director or officer of the Company and
under the Seal specifying the share or shares held by him and the
signature of the director or officer and the Seal may be facsimiles.
8. Any member receiving a share certificate for registered shares
shall indemnify and hold the Company and its directors and
officers harmless from any loss or liability which it or they
may incur by reason of any wrongful or fraudulent use or
representation made by any person by virtue of the possession
thereof. If a share certificate for registered shares is worn
out or lost it may be renewed on production of the worn out
certificate or on satisfactory proof of its loss together with
such indemnity as may be required by a resolution of directors.
9. If several persons are registered as joint holders of any shares, any
one of such persons may give an effectual receipt for any dividend
payable in respect of such shares.
BEARER SHARES
10. Subject to a request for the issue of bearer shares and to the
payment of the appropriate consideration for the shares to be
issued, the Company may, to the extent authorized by the
Memorandum, issue bearer shares to, and at the expense of,
such person as shall be specified in the request. Bearer
shares may not be issued for debt obligations, promissory
notes or other obligations to contribute money or property and
registered shares issued for debt obligations, promissory
notes or other obligations to contribute money or
3
<PAGE> 8
property shall not be exchanged for bearer shares unless such debt
obligations, promissory notes or other obligations to contribute money
or property have been satisfied. The Company may also upon receiving a
request in writing accompanied by the share certificate for the shares
in question, exchange registered shares for bearer shares or may
exchange bearer shares for registered shares. Such request served on
the Company by the holder of bearer shares shall specify the name and
address of the person to be registered and unless the request is
delivered in person by the bearer shall be authenticated as hereinafter
provided. Such request served on the Company by the holder of bearer
shares shall also be accompanied by any coupons or talons which at the
date of such delivery have not become due for payment of dividends or
any other distribution by the Company to the holders of such shares.
Following such exchange the share certificate relating to the exchanged
shares shall be delivered as directed by the member requesting the
exchange.
11. Bearer share certificates shall be under the Seal and shall state that
the bearer is entitled to the shares therein specified, and may provide
by coupons, talons or otherwise for the payment of dividends or other
moneys on the shares included therein.
12. Subject to the provisions of the Act and of these Articles, the bearer
of a bearer share certificate shall be deemed to be a member of the
Company and shall be entitled to the same rights and privileges as he
would have had if his name had been included in the share register of
the Company as the holder of the shares.
13. Subject to any specific provisions in these Articles, in order to
exercise his rights as a member of the Company, the bearer of a bearer
share certificate shall produce the bearer share certificate as
evidence of his membership of the Company. Without prejudice to the
generality of the foregoing, the following rights may be exercised in
the following manner:
(a) for the purpose of exercising his voting rights at a
meeting, the bearer of a bearer share certificate
shall produce such certificate to the chairman of the
meeting;
(b) for the purpose of exercising his vote on a resolution in
writing, the bearer of a bearer share certificate shall cause
his signature to any such resolution to be authenticated as
hereinafter set forth;
(c) for the purpose of requisitioning a meeting of members, the
bearer of a bearer share certificate shall address his
requisition to the directors and his signature thereon shall
be duly authenticated as hereinafter provided; and
(d) for the purpose of receiving dividends, the bearer of a bearer
share certificate shall present at such places as may be
designated by the directors any coupons or talons issued for
such purpose, or shall present the bearer share certificate to
any paying agent authorized to pay dividends.
14. The signature of the bearer of a bearer share certificate shall be
deemed to be duly authenticated if the bearer of the bearer share
certificate shall produce such certificate to a notary public or a bank
manager or a director or officer of the Company (herein referred to as
an "authorized person") and the authorized person endorses the document
bearing such signature with a statement:
(a) identifying the bearer share certificate produced
to him by number and date and specifying the number
of shares and the class of shares (if appropriate)
comprised therein;
(b) confirming that the signature of the bearer of the
bearer share certificate was subscribed in his
presence and that if the bearer is representing a
body corporate he has so acknowledged and has
4
<PAGE> 9
produced satisfactory evidence thereof; and
(c) specifying the capacity in which he is qualified as an
authorized person and, if a notary public, affixing his seal
thereto or, if a bank manager, attaching an identifying stamp
of the bank of which he is a manager.
15. Notwithstanding any other provisions of these Articles, at any
time, the bearer of a bearer share certificate may deliver the
certificate for such shares into the custody of the Company at
its registered office, whereupon the Company shall issue a
receipt therefor under the Seal signed by a director or
officer identifying by name and address the person delivering
such certificate and specifying the date and number of the
bearer share certificate so deposited and the number of shares
comprised therein. Any such receipt may be used by the person
named therein for the purpose of exercising the rights vested
in the shares represented by the bearer share certificate so
deposited including the right to appoint a proxy. Any bearer
share certificate so deposited shall be returned to the person
named in the receipt or his personal representative if such
person be dead and thereupon the receipt issued therefor shall
be of no further effect whatsoever and shall be returned to
the Company for cancellation or, if it has been lost or
mislaid, such indemnity as may be required by resolution of
directors shall be given to the Company.
16. The bearer of a bearer share certificate shall for all
purposes be deemed to be the owner of the shares comprised in
such certificate and in no circumstances shall the Company or
the chairman of any meeting of members or the Company's
registrars or any director or officer of the Company or any
authorized person be obliged to inquire into the circumstances
whereby a bearer share certificate came into the hands of the
bearer thereof, or to question the validity or authenticity of
any action taken by the bearer of a bearer share certificate
whose signature has been authenticated as provided herein.
17. If the bearer of a bearer share certificate shall be a
corporation, then all the rights exercisable by virtue of such
shareholding may be exercised by an individual duly authorized
to represent the corporation but unless such individual shall
acknowledge that he is representing a corporation and shall
produce upon request satisfactory evidence that he is
duly authorized to represent the corporation, the individual
shall for all purposes hereof be regarded as the holder of the
shares in any bearer share certificate held by him.
18. The directors may provide for payment of dividends to the
holders of bearer shares by coupons or talons and in such
event the coupons or talons shall be in such form and payable
at such time and in such place or places as the directors
shall resolve. The Company shall be entitled to recognize the
absolute right of the bearer of any coupon or talon issued as
aforesaid to payment of the dividend to which it relates and
delivery of the coupon or talon to the Company or its agents
shall constitute in all respects a good discharge of the
Company in respect of such dividend.
19. If any bearer share certificate, coupon or talon be worn out
or defaced, the directors may, upon the surrender thereof for
cancellation, issue a new one in its stead, and if any bearer
share certificate, coupon or talon be lost or destroyed, the
directors may upon the loss or destruction being established
to their satisfaction, and upon such indemnity being given to
the Company as it shall by resolution of directors determine,
issue a new bearer share certificate in its stead, and in
either case on payment of such sum as the Company may from
time to time by resolution of directors require. In case of
loss or destruction the person to whom such new bearer share
certificate, coupon or talon is issued shall also bear and pay
to the Company all expenses incidental to the investigation by
the Company of the evidence of such loss or destruction and to
such indemnity.
5
<PAGE> 10
SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS
20. Subject to the provisions of these Articles and any resolution
of members, the unissued shares of the Company shall be at the
disposal of the directors who may, without limiting or
affecting any rights previously conferred on the holders of
any existing shares or class or series of shares, offer,
allot, grant options over or otherwise dispose of shares to
such persons, at such times and upon such terms and conditions
as the Company may by resolution of directors determine.
21. No share in the Company may be issued until the consideration in
respect thereof is fully paid, and when issued the share is for all
purposes fully paid and non- assessable save that a share issued for a
promissory note or other written obligation for payment of a debt may
be issued subject to forfeiture in the manner prescribed in these
Articles.
22. Shares in the Company shall be issued for money, services rendered,
personal property, an estate in real property, a promissory note or
other binding obligation to contribute money or property or any
combination of the foregoing as shall be determined by a resolution of
directors.
23. Shares in the Company may be issued for such amount of
consideration as the directors may from time to time by
resolution of directors determine, except that in the case of
shares with par value, the amount shall not be less than the
par value, and in the absence of fraud the decision of the
directors as to the value of the consideration received by the
Company in respect of the issue is conclusive unless a
question of law is involved. The consideration in respect of
the shares constitutes capital to the extent of the par value
and the excess constitutes surplus.
24. A share issued by the Company upon conversion of, or in exchange for,
another share or a debt obligation or other security in the Company,
shall be treated for all purposes as having been issued for money equal
to the consideration received or deemed to have been received by the
Company in respect of the other share, debt obligation or security.
25. Treasury shares may be disposed of by the Company on such terms and
conditions (not otherwise inconsistent with these Articles) as the
Company may by resolution of directors determine.
26. The Company may issue fractions of a share and a fractional share shall
have the same corresponding fractional liabilities, limitations,
preferences, privileges, qualifications, restrictions, rights and other
attributes of a whole share of the same class or series of shares.
27. Upon the issue by the Company of a share without par value, if
an amount is stated in the Memorandum to be authorized capital
represented by such shares then each share shall be issued for
no less than the appropriate proportion of such amount which
shall constitute capital, otherwise the consideration in
respect of the share constitutes capital to the extent
designated by the directors and the excess constitutes
surplus, except that the directors must designate as capital
an amount of the consideration that is at least equal to the
amount that the share is entitled to as a preference, if any,
in the assets of the Company upon liquidation of the Company.
28. The Company may purchase, redeem or otherwise acquire and hold
its own shares but only out of surplus or in exchange for
newly issued shares of equal value.
29. Subject to provisions to the contrary in
(a) the Memorandum or these Articles;
(b) the designations, powers, preferences, rights, qualifications,
limitations and restrictions with which the shares were
issued; or
6
<PAGE> 11
(c) the subscription agreement for the issue of the shares,
the Company may not purchase, redeem or otherwise acquire its own
shares without the consent of members whose shares are to be purchased,
redeemed or otherwise acquired.
30. No purchase, redemption or other acquisition of shares shall
be made unless the directors determine that immediately after
the purchase, redemption or other acquisition the Company will
be able to satisfy its liabilities as they become due in the
ordinary course of its business and the realizable value of
the assets of the Company will not be less than the sum of its
total liabilities, other than deferred taxes, as shown in the
books of account, and its capital and, in the absence of
fraud, the decision of the directors as to the realizable
value of the assets of the Company is conclusive, unless a
question of law is involved.
31. A determination by the directors under the preceding Article
is not required where shares are purchased, redeemed or
otherwise acquired
(a) pursuant to a right of a member to have his
shares redeemed or to have his shares exchanged for
money or other property of the Company;
(b) by virtue of a transfer of capital pursuant to these
Articles;
(c) by virtue of the provisions of Section 83 of the Act; or
(d) pursuant to an order of the Court.
32. Shares that the Company purchases, redeems or otherwise acquires
pursuant to the preceding Article may be cancelled or held as treasury
shares except to the extent that such shares are in excess of 80
percent of the issued shares of the Company in which case they shall be
cancelled but they shall be available for reissue.
33. Where shares in the Company are held by the Company as
treasury shares or are held by another company of which the
Company holds, directly or indirectly, shares having more than
50 percent of the votes in the election of directors of the
other company, such shares of the Company are not entitled to
vote or to have dividends paid thereon and shall not be
treated as outstanding for any purpose except for purposes of
determining the capital of the Company.
34. The Company may purchase, redeem or otherwise acquire its
shares at a price lower than the fair value if permitted by,
and then only in accordance with, the terms of
(a) the Memorandum or these Articles; or
(b) a written agreement for the subscription for the shares to be
purchased, redeemed or otherwise acquired.
35. The Company may by a resolution of directors include in the computation
of surplus for any purpose the unrealized appreciation of the assets of
the Company, and, in the absence of fraud, the decision of the
directors as to the value of the assets is conclusive, unless a
question of law is involved.
MORTGAGES AND CHARGES OF REGISTERED SHARES
36. Members may mortgage or charge their registered shares in the Company
and upon satisfactory evidence thereof the Company shall give effect to
the terms of any valid mortgage or charge except insofar as it may
conflict with any requirements herein contained for consent to the
transfer of shares.
37. In the case of the mortgage or charge of registered shares
there may be entered in the share register of the Company at
the request of the registered holder of such shares
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<PAGE> 12
(a) a statement that the shares are mortgaged or charged;
(b) the name of the mortgagee or chargee; and
(c) the date on which the aforesaid particulars are
entered in the share register.
38. Where particulars of a mortgage or charge are registered, such
particulars shall be cancelled
(a) with the consent of the named mortgagee or chargee or
anyone authorized to act on his behalf; or
(b) upon evidence satisfactory to the directors of the discharge
of the liability secured by the mortgage or charge and the
issue of such indemnities as the directors shall consider
necessary or desirable.
39. Whilst particulars of a mortgage or charge are registered, no transfer
of any share comprised therein shall be effected without the written
consent of the named mortgagee or chargee or anyone authorized to act
on his behalf.
FORFEITURE
40. When shares issued for a promissory note or other written obligation
for payment of a debt have been issued subject to forfeiture, the
following provisions shall apply.
41. Written notice specifying a date for payment to be made and the shares
in respect of which payment is to be made shall be served on the member
who defaults in making payment pursuant to a promissory note or other
written obligations to pay a debt.
42. The written notice specifying a date for payment shall
(a) name a further date not earlier than the expiration of 14 days
from the date of service of the notice on or before which
payment required by the notice is to be made; and
(b) contain a statement that in the event of non-payment at or
before the time named in the notice the shares, or any of
them, in respect of which payment is not made will be liable
to be forfeited.
43. Where a written notice has been issued and the requirements have not
been complied with within the prescribed time, the directors may at any
time before tender of payment forfeit and cancel the shares to which
the notice relates.
44. The Company is under no obligation to refund any moneys to the member
whose shares have been forfeited and cancelled pursuant to these
provisions. Upon forfeiture and cancellation of the shares the member
is discharged from any further obligation to the Company with respect
to the shares forfeited and cancelled.
LIEN
45. The Company shall have a first and paramount lien on every
share issued for a promissory note or for any other binding
obligation to contribute money or property or any combination
thereof to the Company, and the Company shall also have a
first and paramount lien on every share standing registered in
the name of a member, whether singly or jointly with any other
person or persons, for all the debts and liabilities of such
member or his estate to the Company, whether the same shall
have been incurred before or after notice to the Company of
any interest of any person other than such member, and whether
the time for the payment or discharge of the same shall have
actually arrived or not, and notwithstanding that the same
8
<PAGE> 13
are joint debts or liabilities of such member or his estate and any
other person, whether a member of the Company or not. The Company's
lien on a share shall extend to all dividends payable thereon. The
directors may at any time either generally, or in any particular case,
waive any lien that has arisen or declare any share to be wholly or in
part exempt from the provisions of this Article.
46. In the absence of express provisions regarding sale in the
promissory note or other binding obligation to contribute
money or property, the Company may sell, in such manner as the
directors may by resolution of directors determine, any share
on which the Company has a lien, but no sale shall be made
unless some sum in respect of which the lien exists is
presently payable nor until the expiration of twenty-one days
after a notice in writing, stating and demanding payment of
the sum presently payable and giving notice of the intention
to sell in default of such payment, has been served on the
holder for the time being of the share.
47. The net proceeds of the sale by the Company of any shares on
which it has a lien shall be applied in or towards payment of
discharge of the promissory note or other binding obligation
to contribute money or property or any combination thereof in
respect of which the lien exists so far as the same is
presently payable and any residue shall (subject to a like
lien for debts or liabilities not presently payable as existed
upon the share prior to the sale) be paid to the holder of the
share immediately before such sale. For giving effect to any
such sale the directors may authorize some person to transfer
the share sold to the purchaser thereof. The purchaser shall
be registered as the holder of the share and he shall not be
bound to see to the application of the purchase money, nor
shall his title to the share be affected by any irregularity
or invalidity in the proceedings in reference to the sale.
TRANSFER OF SHARES
48. Subject to any limitations in the Memorandum, registered shares in the
Company may be transferred by a written instrument of transfer signed
by the transferor and containing the name and address of the
transferee, but in the absence of such written instrument of transfer
the directors may accept such evidence of a transfer of shares as they
consider appropriate.
49. The Company shall not be required to treat a transferee of a registered
share in the Company as a member until the transferee's name has been
entered in the share register.
50. Subject to any limitations in the Memorandum, the Company must
on the application of the transferor or transferee of a
registered share in the Company enter in the share register
the name of the transferee of the share save that the
registration of transfers may be suspended and the share
register closed at such times and for such periods as the
Company may from time to time by resolution of directors
determine provided always that such registration shall not be
suspended and the share register closed for more than 60 days
in any period of 12 months.
TRANSMISSION OF SHARES
51. The executor or administrator of a deceased member, the guardian of an
incompetent member or the trustee of a bankrupt member shall be the
only person recognized by the Company as having any title to his share
but they shall not be entitled to exercise any rights as a member of
the Company until they have proceeded as set forth in the next
following three Articles.
52. The production to the Company of any document which is evidence of
probate of the will, or letters of administration of the estate, or
confirmation as executor, of a deceased member or of the appointment of
a guardian of an incompetent member or the trustee of a bankrupt member
shall be accepted by the Company even if the deceased, incompetent or
bankrupt member is domiciled outside the British Virgin
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<PAGE> 14
Islands if the document evidencing the grant of probate or letters of
administration, confirmation as executor, appointment as guardian or
trustee in bankruptcy is issued by a foreign court which had competent
jurisdiction in the matter. For the purpose of establishing whether or
not a foreign court had competent jurisdiction in such a matter the
directors may obtain appropriate legal advice. The directors may also
require an indemnity to be given by the executor, administrator,
guardian or trustee in bankruptcy.
53. Any person becoming entitled by operation of law or otherwise
to a share or shares in consequence of the death, incompetence
or bankruptcy of any member may be registered as a member upon
such evidence being produced as may reasonably be required by
the directors. An application by any such person to be
registered as a member shall for all purposes be deemed to be
a transfer of shares of the deceased, incompetent or bankrupt
member and the directors shall treat it as such.
54. Any person who has become entitled to a share or shares in consequence
of the death, incompetence or bankruptcy of any member may, instead of
being registered himself, request in writing that some person to be
named by him be registered as the transferee of such share or shares
and such request shall likewise be treated as if it were a transfer.
55. What amounts to incompetence on the part of a person is a
matter to be determined by the court having regard to all the
relevant evidence and the circumstances of the case.
REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL
56. The Company may by a resolution of directors amend the Memorandum to
increase or reduce its authorized capital and in connection therewith
the Company may in respect of any unissued shares increase or reduce
the number of such shares, increase or reduce the par value of any such
shares or effect any combination of the foregoing.
57. The Company may amend the Memorandum to
(a) divide the shares, including issued shares, of a
class or series into a larger number of shares of the
same class or series; or
(b) combine the shares, including issued shares, of a
class or series into a smaller number of shares of
the same class or series,
provided, however, that where shares are divided or combined under (a)
or (b) of this Article, the aggregate par value of the new shares must
be equal to the aggregate par value of the original shares.
58. The capital of the Company may by a resolution of directors be
increased by transferring an amount of the surplus of the
Company to capital.
59. Subject to the provisions of the two next succeeding Articles,
the capital of the Company may by resolution of directors be
reduced by transferring an amount of the capital of the
Company to surplus.
60. No reduction of capital shall be effected that reduces the
capital of the Company to an amount that immediately after the
reduction is less than the aggregate par value of all
outstanding shares with par value and all shares with par
value held by the Company as treasury shares and the aggregate
of the amounts designated as capital of all outstanding shares
without par value and all shares without par value held by the
Company as treasury shares that are entitled to a preference,
if any, in the assets of the Company upon liquidation of the
Company.
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<PAGE> 15
61. No reduction of capital shall be effected unless the directors
determine that immediately after the reduction the Company
will be able to satisfy its liabilities as they become due in
the ordinary course of its business and that the realizable
assets of the Company will not be less than its total
liabilities, other than deferred taxes, as shown in the books
of the Company and its remaining capital, and, in the absence
of fraud, the decision of the directors as to the realizable
value of the assets of the Company is conclusive, unless a
question of law is involved.
MEETINGS AND CONSENTS OF MEMBERS
62. The directors of the Company may convene meetings of the members of the
Company at such times and in such manner and places within or outside
the British Virgin Islands as the directors consider necessary or
desirable.
63. Upon the written request of members holding 10 percent or more of the
outstanding voting shares in the Company the directors shall convene a
meeting of members.
64. The directors shall give not less than 7 days notice of meetings of
members to those persons whose names on the date the notice is given
appear as members in the share register of the Company and are entitled
to vote at the meeting.
65. The directors may fix the date notice is given of a meeting of members
as the record date for determining those shares that are entitled to
vote at the meeting.
66. A meeting of members may be called on short notice:
(a) if members holding not less than 90 percent of the
total number of shares entitled to vote on all
matters to be considered at the meeting, or 90
percent of the votes of each class or series of
shares where members are entitled to vote thereon as
a class or series together with not less than a 90
percent majority of the remaining votes, have agreed
to short notice of the meeting, or
(b) if all members holding shares entitled to vote on all or any
matters to be considered at the meeting have waived notice of
the meeting and for this purpose presence at the meeting shall
be deemed to constitute waiver.
67. The inadvertent failure of the directors to give notice of a meeting to
a member, or the fact that a member has not received notice, does not
invalidate the meeting.
68. A member may be represented at a meeting of members by a proxy
who may speak and vote on behalf of the member.
69. The instrument appointing a proxy shall be produced at the place
appointed for the meeting before the time for holding the meeting at
which the person named in such instrument proposes to vote.
70. An instrument appointing a proxy shall be in substantially the
following form or such other form as the Chairman of the meeting shall
accept as properly evidencing the wishes of the member appointing the
proxy.
(Name of Company)
I/We being a member of the above
Company with shares HEREBY APPOINT
of or failing him
of to be my/our proxy to vote for
me/us at the meeting of members to be
held on the
day of and at any adjournment thereof.
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<PAGE> 16
(Any restrictions on voting to be inserted here.)
Signed this day of
----------------------------------
Member
71. The following shall apply in respect of joint ownership of
shares:
(a) if two or more persons hold shares jointly each of
them may be present in person or by proxy at a
meeting of members and may speak as a member;
(b) if only one of the joint owners is present in person
or by proxy he may vote on behalf of all joint
owners, and
(c) if two or more of the joint owners are present in
person or by proxy they must vote as one.
72. A member shall be deemed to be present at a meeting of members if he
participates by telephone or other electronic means and all members
participating in the meeting are able to hear each other.
73. A meeting of members is duly constituted if, at the
commencement of the meeting, there are present in person or by
proxy not less than 50 percent of the votes of the shares or
class or series of shares entitled to vote on resolutions of
members to be considered at the meeting. If a quorum be
present, notwithstanding the fact that such quorum may be
represented by only one person then such person may resolve
any matter and a certificate signed by such person accompanied
where such person be a proxy by a copy of the proxy form shall
constitute a valid resolution of members.
74. If within two hours from the time appointed for the meeting a
quorum is not present, the meeting, if convened upon the
requisition of members, shall be dissolved; in any other case
it shall stand adjourned to the next business day at the same
time and place or to such other time and place as the
directors may determine, and if at the adjourned meeting there
are present within one hour from the time appointed for the
meeting in person or by proxy not less than one third of the
votes of the shares or each class or series of shares
entitled to vote on the resolutions to be considered by the
meeting, those present shall constitute a quorum but otherwise
the meeting shall be dissolved.
75. At every meeting of members, the Chairman of the Board of
Directors shall preside as chairman of the meeting. If there
is no Chairman of the Board of Directors or if the Chairman of
the Board of Directors is not present at the meeting, the
members present shall choose some one of their number to be
the chairman. If the members are unable to choose a chairman
for any reason, then the person representing the greatest
number of voting shares present in person or by prescribed
form of proxy at the meeting shall preside as chairman failing
which the oldest individual member or representative of a
member present shall take the chair.
76. The chairman may, with the consent of the meeting, adjourn any meeting
from time to time, and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
77. At any meeting of the members the chairman shall be responsible for
deciding in such manner as he shall consider appropriate whether any
resolution has been carried or not and the result of his decision shall
be announced to the meeting and recorded in the minutes thereof. If the
chairman shall have any doubt as to
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<PAGE> 17
the outcome of any resolution put to the vote, he shall cause a poll to
be taken of all votes cast upon such resolution, but if the chairman
shall fail to take a poll then any member present in person or by proxy
who disputes the announcement by the chairman of the result of any vote
may immediately following such announcement demand that a poll be taken
and the chairman shall thereupon cause a poll to be taken. If a poll is
taken at any meeting, the result thereof shall be duly recorded in the
minutes of that meeting by the chairman.
78. Any person other than an individual shall be regarded as one
member and subject to the specific provisions hereinafter
contained for the appointment of representatives of such
persons the right of any individual to speak for or represent
such member shall be determined by the law of the jurisdiction
where, and by the documents by which, the person is
constituted or derives its existence. In case of doubt, the
directors may in good faith seek legal advice from any
qualified person and unless and until a court of competent
jurisdiction shall otherwise rule, the directors may rely and
act upon such advice without incurring any liability to any
member.
79. Any person other than an individual which is a member of the
Company may by resolution of its directors or other governing
body authorize such person as it thinks fit to act as its
representative at any meeting of the Company or of any class
of members of the Company, and the person so authorized shall
be entitled to exercise the same powers on behalf of the
person which he represents as that person could exercise if it
were an individual member of the Company.
80. The chairman of any meeting at which a vote is cast by proxy or on
behalf of any person other than an individual may call for a notarially
certified copy of such proxy or authority which shall be produced
within 7 days of being so requested or the votes cast by such proxy or
on behalf of such person shall be disregarded.
81. Directors of the Company may attend and speak at any meeting
of members of the Company and at any separate meeting of the
holders of any class or series of shares in the Company.
82. An action that may be taken by the members at a meeting may
also be taken by a resolution of members consented to in
writing or by telex, telegram, cable, facsimile or other
written electronic communication, without the need for any
notice, but if any resolution of members is adopted otherwise
than by the unanimous written consent of all members, a copy
of such resolution shall forthwith be sent to all members not
consenting to such resolution. The consent may be in the form
of counterparts, each counterpart being signed by one or more
members.
DIRECTORS
83. The first directors of the Company shall be appointed by the
subscribers to the Memorandum; and thereafter, the directors shall be
elected by the members for such term as the members determine.
84. The minimum number of directors shall be one and the maximum
number shall be 7.
85. Each director shall hold office for the term, if any, fixed by
resolution of members or until his earlier death, resignation
or removal.
86. A director may be removed from office, with or without cause,
by a resolution of members or, with cause, by a resolution of
directors.
87. A director may resign his office by giving written notice of his
resignation to the Company and the resignation shall have effect from
the date the notice is received by the Company or from such later date
as may be specified in the notice.
88. The directors may at any time appoint any person to be a
director either to fill a vacancy or as an addition
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<PAGE> 18
to the existing directors. A vacancy occurs through the death,
resignation or removal of a director, but a vacancy or vacancies shall
not be deemed to exist where one or more directors shall resign after
having appointed his or their successor or successors.
89. The Company may determine by resolution of directors to keep a
register of directors containing
(a) the names and addresses of the persons who are
directors of the Company;
(b) the date on which each person whose name is entered
in the register was appointed as a director of the
Company; and
(c) the date on which each person named as a director
ceased to be a director of the Company.
90. If the directors determine to maintain a register of directors, a copy
thereof shall be kept at the registered office of the Company and the
Company may determine by resolution of directors to register a copy of
the register with the Registrar of Companies.
91. With the prior or subsequent approval by a resolution of members, the
directors may, by a resolution of directors, fix the emoluments of
directors with respect to services to be rendered in any capacity to
the Company.
92. A director shall not require a share qualification and may be
an individual or a company.
POWERS OF DIRECTORS
93. The business and affairs of the Company shall be managed by
the directors who may pay all expenses incurred preliminary to
and in connection with the formation and registration of the
Company and may exercise all such powers of the Company as are
not by the Act or by the Memorandum or these Articles required
to be exercised by the members of the Company, subject to any
delegation of such powers as may be authorized by these
Articles and to such requirements as may be prescribed by a
resolution of members; but no requirement made by a resolution
of members shall prevail if it be inconsistent with these
Articles nor shall such requirement invalidate any prior act
of the directors which would have been valid if such
requirement had not been made. Notwithstanding anything in
Section 80 of the Act the directors shall have the power to
sell, transfer, lease, exchange or otherwise dispose of more
than fifty percent of the assets of the Company without
submitting a proposal to or obtaining the consent of the
members of the Company.
94. The directors may, by a resolution of directors, appoint any person,
including a person who is a director, to be an officer or agent of the
Company. The resolution of directors appointing an agent may authorize
the agent to appoint one or more substitutes or delegates to exercise
some or all of the powers conferred on the agent by the Company.
95. Every officer or agent of the Company has such powers and authority of
the directors, including the power and authority to affix the Seal, as
are set forth in these Articles or in the resolution of directors
appointing the officer or agent, except that no officer or agent has
any power or authority with respect to the matters requiring a
resolution of directors under the Act.
96. Any director which is a body corporate may appoint any person its duly
authorized representative for the purpose of representing it at
meetings of the Board of Directors or with respect to unanimous written
consents.
97. The continuing directors may act notwithstanding any vacancy in their
body, save that if their number is reduced to their knowledge below the
number fixed by or pursuant to these Articles as the necessary quorum
for a meeting of directors, the continuing directors or director may
act only for the purpose of appointing directors to fill any vacancy
that has arisen or for summoning a meeting of members.
98. The directors may by resolution of directors exercise all the
powers of the Company to borrow money and
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<PAGE> 19
to mortgage or charge its undertakings and property or any part
thereof, to issue debentures, debenture stock and other securities
whenever money is borrowed or as security for any debt, liability or
obligation of the Company or of any third party.
99. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed or otherwise executed, as
the case may be, in such manner as shall from time to time be
determined by resolution of directors.
100. The Company may determine by resolution of directors to maintain at its
registered office a register of mortgages, charges and other
encumbrances in which there shall be entered the following particulars
regarding each mortgage, charge and other encumbrance:
(a) the sum secured;
(b) the assets secured;
(c) the name and address of the mortgagee, chargee or
other encumbrancer;
(d) the date of creation of the mortgage, charge or other
encumbrance; and
(e) the date on which the particulars specified above in
respect of the mortgage, charge or other encumbrance
are entered in the register.
101. The Company may further determine by a resolution of directors to
register a copy of the register of mortgages, charges or other
encumbrances with the Registrar of Companies.
PROCEEDINGS OF DIRECTORS
102. The directors of the Company or any committee thereof may meet at such
times and in such manner and places within or outside the British
Virgin Islands as the directors may determine to be necessary or
desirable.
103. A director shall be deemed to be present at a meeting of directors if
he participates by telephone or other electronic means and all
directors participating in the meeting are able to hear each other.
104. A director shall be given not less than 3 days notice of
meetings of directors, but a meeting of directors held without
3 days notice having been given to all directors shall be
valid if all the directors entitled to vote at the meeting who
do not attend, waive notice of the meeting and for this
purpose, the presence of a director at a meeting shall
constitute waiver on his part. The inadvertent failure to
give notice of a meeting to a director, or the fact that a
director has not received the notice, does not invalidate the
meeting.
105. A director may by a written instrument appoint an alternate who need
not be a director and an alternate is entitled to attend meetings in
the absence of the director who appointed him and to vote or consent in
place of the director.
106. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate
not less than one half of the total number of directors, unless there
are only 2 directors in which case the quorum shall be 2.
107. If the Company shall have only one director the provisions
herein contained for meetings of the directors shall not apply
but such sole director shall have full power to represent and
act for the Company in all matters as are not by the Act or
the Memorandum or these Articles required to be exercised by
the members of the Company and in lieu of minutes of a meeting
shall record in writing and sign a note or
15
<PAGE> 20
memorandum of all matters requiring a resolution of directors. Such a
note or memorandum shall constitute sufficient evidence of such
resolution for all purposes.
108. At every meeting of the directors the Chairman of the Board of
Directors shall preside as chairman of the meeting. If there
is no Chairman of the Board of Directors or if the Chairman of
the Board of Directors is not present at the meeting the Vice
Chairman of the Board of Directors shall preside. If there
is no Vice Chairman of the Board of Directors or if the Vice
Chairman of the Board of Directors is not present at the
meeting the directors present shall choose some one of their
number to be chairman of the meeting.
109. An action that may be taken by the directors or a committee of
directors at a meeting may also be taken by a resolution of
directors or a committee of directors consented to in writing
or by telex, telegram, cable, facsimile or other written
electronic communication by all directors or all members of
the committee as the case may be, without the need for any
notice. The consent may be in the form of counterparts, each
counterpart being signed by one or more directors.
110. The directors shall cause the following corporate records to
be kept:
(a) minutes of all meetings of directors, members,
committees of directors, committees of officers and
committees of members;
(b) copies of all resolutions consented to by directors,
members, committees of directors, committees of
officers and committees of members; and
(c) such other accounts and records as the directors by resolution
of directors consider necessary or desirable in order to
reflect the financial position of the Company.
111. The books, records and minutes shall be kept at the registered office
of the Company, its principal place of business or at such other place
as the directors determine.
112. The directors may, by resolution of directors, designate one
or more committees, each consisting of one or more directors.
113. Each committee of directors has such powers and authorities of the
directors, including the power and authority to affix the Seal, as are
set forth in the resolution of directors establishing the committee,
except that no committee has any power or authority to amend the
Memorandum or these Articles, to appoint directors or fix their
emoluments, or to appoint officers or agents of the Company.
114. The meetings and proceedings of each committee of directors consisting
of 2 or more directors shall be governed mutatis mutandis by the
provisions of these Articles regulating the proceedings of directors so
far as the same are not superseded by any provisions in the resolution
establishing the committee.
OFFICERS
115. The Company may by resolution of directors appoint officers of
the Company at such times as shall be considered necessary or
expedient. Such officers may consist of a Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors,
a President and one or more Vice Presidents, Secretaries and
Treasurers and such other officers as may from time to time be
deemed desirable. Any number of offices may be held by the
same person.
116. The officers shall perform such duties as shall be prescribed at the
time of their appointment subject to any modification in such duties as
may be prescribed thereafter by resolution of directors or resolution
of members, but in the absence of any specific allocation of duties it
shall be the responsibility of the Chairman of the Board of Directors
to preside at meetings of directors and members, the Vice Chairman
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<PAGE> 21
to act in the absence of the Chairman, the President to manage the day
to day affairs of the Company, the Vice Presidents to act in order of
seniority in the absence of the President but otherwise to perform such
duties as may be delegated to them by the President, the Secretaries to
maintain the share register, minute books and records (other than
financial records) of the Company and to ensure compliance with all
procedural requirements imposed on the Company by applicable law, and
the Treasurer to be responsible for the financial affairs of the
Company.
117. The emoluments of all officers shall be fixed by resolution of
directors.
118. The officers of the Company shall hold office until their successors
are duly elected and qualified, but any officer elected or appointed by
the directors may be removed at any time, with or without cause, by
resolution of directors. Any vacancy occurring in any office of the
Company may be filled by resolution of directors.
CONFLICT OF INTERESTS
119. No agreement or transaction between the Company and one or
more of its directors or any person in which any director has
a financial interest or to whom any director is related,
including as a director of that other person, is void or
voidable for this reason only or by reason only that the
director is present at the meeting of directors or at the
meeting of the committee of directors that approves the
agreement or transaction or that the vote or consent of the
director is counted for that purpose if the material facts of
the interest of each director in the agreement or transaction
and his interest in or relationship to any other party to the
agreement or transaction are disclosed in good faith or are
known by the other directors.
120. A director who has an interest in any particular business to be
considered at a meeting of directors or members may be counted for
purposes of determining whether the meeting is duly constituted.
INDEMNIFICATION
121. Subject to the limitations hereinafter provided the Company may
indemnify against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred
in connection with legal, administrative or investigative proceedings
any person who
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil,
criminal, administrative or investigative, by reason of the
fact that the person is or was a director, an officer or a
liquidator of the Company; or
(b) is or was, at the request of the Company, serving as a
director, officer or liquidator of, or in any other capacity
is or was acting for, another company or a partnership, joint
venture, trust or other enterprise.
122. The Company may only indemnify a person if the person acted honestly
and in good faith with a view to the best interests of the Company and,
in the case of criminal proceedings, the person had no reasonable cause
to believe that his conduct was unlawful.
123. The decision of the directors as to whether the person acted honestly
and in good faith and with a view to the best interests of the Company
and as to whether the person had no reasonable cause to believe that
his conduct was unlawful is, in the absence of fraud, sufficient for
the purposes of these Articles, unless a question of law is involved.
124. The termination of any proceedings by any judgment, order,
settlement, conviction or the entering of a nolle prosequi
does not, by itself, create a presumption that the person did
not act honestly and in good
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<PAGE> 22
faith and with a view to the best interests of the Company or that the
person had reasonable cause to believe that his conduct was unlawful.
125. If a person to be indemnified has been successful in defence of any
proceedings referred to above the person is entitled to be indemnified
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
126. The Company may purchase and maintain insurance in relation to
any person who is or was a director, an officer or a
liquidator of the Company, or who at the request of the
Company is or was serving as a director, an officer or a
liquidator of, or in any other capacity is or was acting for,
another company or a partnership, joint venture, trust or
other enterprise, against any liability asserted against the
person and incurred by the person in that capacity, whether or
not the Company has or would have had the power to indemnify
the person against the liability as provided in these Articles.
SEAL
127. The Company may have more than one Seal and references herein
to the Seal shall be references to every Seal which shall have
been duly adopted by resolution of directors. The directors
shall provide for the safe custody of the Seal and for an
imprint thereof to be kept at the Registered Office. Except
as otherwise expressly provided herein the Seal when affixed
to any written instrument shall be witnessed and attested to
by the signature of a director or any other person so
authorized from time to time by resolution of directors. Such
authorization may be before or after the Seal is affixed, may
be general or specific and may refer to any number of
sealings. The Directors may provide for a facsimile of the
Seal and of the signature of any director or authorized person
which may be reproduced by printing or other means on any
instrument and it shall have the same force and validity as if
the Seal had been affixed to such instrument and the same had
been signed as hereinbefore described.
DIVIDENDS
128. The Company may by a resolution of directors declare and pay dividends
in money, shares, or other property, but dividends shall only be
declared and paid out of surplus. In the event that dividends are paid
in specie the directors shall have responsibility for establishing and
recording in the resolution of directors authorizing the dividends, a
fair and proper value for the assets to be so distributed.
129. The directors may from time to time pay to the members such
interim dividends as appear to the directors to be justified
by the profits of the Company.
130. The directors may, before declaring any dividend, set aside out of the
profits of the Company such sum as they think proper as a reserve fund,
and may invest the sum so set aside as a reserve fund upon such
securities as they may select.
131. No dividend shall be declared and paid unless the directors
determine that immediately after the payment of the dividend
the Company will be able to satisfy its liabilities as they
become due in the ordinary course of its business and the
realizable value of the assets of the Company will not be less
than the sum of its total liabilities, other than deferred
taxes, as shown in its books of account, and its capital. In
the absence of fraud, the decision of the directors as to
the realizable value of the assets of the Company is
conclusive, unless a question of law is involved.
132. Notice of any dividend that may have been declared shall be given to
each member in manner hereinafter mentioned and all dividends unclaimed
for 3 years after having been declared may be forfeited by resolution
of directors for the benefit of the Company.
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<PAGE> 23
133. No dividend shall bear interest as against the Company and no dividend
shall be paid on treasury shares or shares held by another company of
which the Company holds, directly or indirectly, shares having more
than 50 percent of the vote in electing directors.
134. A share issued as a dividend by the Company shall be treated for all
purposes as having been issued for money equal to the surplus that is
transferred to capital upon the issue of the share.
135. In the case of a dividend of authorized but unissued shares with par
value, an amount equal to the aggregate par value of the shares shall
be transferred from surplus to capital at the time of the distribution.
136. In the case of a dividend of authorized but unissued shares without par
value, the amount designated by the directors shall be transferred from
surplus to capital at the time of the distribution, except that the
directors must designate as capital an amount that is at least equal to
the amount that the shares are entitled to as a preference, if any, in
the assets of the Company upon liquidation of the Company.
137. A division of the issued and outstanding shares of a class or series of
shares into a larger number of shares of the same class or series
having a proportionately smaller par value does not constitute a
dividend of shares.
ACCOUNTS AND AUDIT
138. The Company may by resolution of members call for the directors to
prepare periodically a profit and loss account and a balance sheet. The
profit and loss account and balance sheet shall be drawn up so as to
give respectively a true and fair view of the profit and loss of the
Company for the financial period and a true and fair view of the state
of affairs of the Company as at the end of the financial period.
139. The Company may by resolution of members call for the accounts
to be examined by auditors.
140. The first auditors shall be appointed by resolution of
directors; subsequent auditors shall be appointed by a
resolution of members.
141. The auditors may be members of the Company but no director or
other officer shall be eligible to be an auditor of the
Company during his continuance in office.
142. The remuneration of the auditors of the Company
(a) in the case of auditors appointed by the directors,
may be fixed by resolution of directors; and
(b) subject to the foregoing, shall be fixed by
resolution of members or in such manner as the
Company may by resolution of members determine.
143. The auditors shall examine each profit and loss account and balance
sheet required to be served on every member of the Company or laid
before a meeting of the members of the Company and shall state in a
written report whether or not
(a) in their opinion the profit and loss account and balance sheet
give a true and fair view respectively of the profit and loss
for the period covered by the accounts, and of the state of
affairs of the Company at the end of that period; and
(b) all the information and explanations required by the
auditors have been obtained.
144. The report of the auditors shall be annexed to the accounts and shall
be read at the meeting of members at which the accounts are laid before
the Company or shall be served on the members.
19
<PAGE> 24
145. Every auditor of the Company shall have a right of access at all times
to the books of account and vouchers of the Company, and shall be
entitled to require from the directors and officers of the Company such
information and explanations as he thinks necessary for the performance
of the duties of the auditors.
146. The auditors of the Company shall be entitled to receive notice of, and
to attend any meetings of members of the Company at which the Company's
profit and loss account and balance sheet are to be presented.
NOTICES
147. Any notice, information or written statement to be given by the Company
to members may be served in the case of members holding registered
shares in any way by which it can reasonably be expected to reach each
member or by mail addressed to each member at the address shown in the
share register and in the case of members holding shares issued to
bearer, in the manner provided in the Memorandum.
148. Any summons, notice, order, document, process, information or written
statement to be served on the Company may be served by leaving it, or
by sending it by registered mail addressed to the Company, at its
registered office, or by leaving it with, or by sending it by
registered mail to, the registered agent of the Company.
149. Service of any summons, notice, order, document, process,
information or written statement to be served on the Company
may be proved by showing that the summons, notice, order,
document, process, information or written statement was
delivered to the registered office or the registered agent of
the Company or that it was mailed in such time as to admit to
its being delivered to the registered office or the registered
agent of the Company in the normal course of delivery within
the period prescribed for service and was correctly addressed
and the postage was prepaid.
PENSION AND SUPERANNUATION FUNDS
150. The directors may establish and maintain or procure the
establishment and maintenance of any non-contributory or
contributory pension or superannuation funds for the benefit
of, and give or procure the giving of donations, gratuities,
pensions, allowances or emoluments to, any persons who are or
were at any time in the employment or service of the Company
or any company which is a subsidiary of the Company or is
allied to or associated with the Company or with any such
subsidiary, or who are or were at any time directors or
officers of the Company or of any such other company as
aforesaid or who hold or held any salaried employment or
office in the Company or such other company, or any persons in
whose welfare the Company or any such other company as
aforesaid is or has been at any time interested, and to the
wives, widows, families and dependents of any such person, and
may make payments for or towards the insurance of any such
persons as aforesaid, and may do any of the matters aforesaid
either alone or in conjunction with any such other company as
aforesaid. Subject always to the proposal being approved by
resolution of members, a director holding any such employment
or office shall be entitled to participate in and retain for
his own benefit any such donation, gratuity, pension allowance
or emolument.
VOLUNTARY WINDING UP AND DISSOLUTION
151. The Company may voluntarily commence to wind up and dissolve by a
resolution of members but if the Company has never issued shares it may
voluntarily commence to wind up and dissolve by resolution of
directors.
20
<PAGE> 25
CONTINUATION
152. The Company may by resolution of members or by a resolution passed
unanimously by all directors of the Company continue as a company
incorporated under the laws of a jurisdiction outside the British
Virgin Islands in the manner provided under those laws.
ARBITRATION
153. Whenever any difference arises between the Company on the one
hand and any of the members or their executors, administrators
or assigns on the other hand, touching the true intent and
construction or the incidence or consequences of these
Articles or of the Act, touching anything done or executed,
omitted or suffered in pursuance of the Act or touching any
breach or alleged breach or otherwise relating to the premises
or to these Articles, or to any Act or Ordinance affecting the
Company or to any of the affairs of the Company such
difference shall, unless the parties agree to refer the same
to a single arbitrator, be referred to 2 arbitrators one to be
chosen by each of the parties to the difference and the
arbitrators shall before entering on the reference appoint an
umpire.
154. If either party to the reference makes default in appointing an
arbitrator either originally or by way of substitution (in the event
that an appointed arbitrator shall die, be incapable of acting or
refuse to act) for 10 days after the other party has given him notice
to appoint the same, such other party may appoint an arbitrator to act
in the place of the arbitrator of the defaulting party.
We, TrustNet (British Virgin Islands) Limited of TrustNet Chambers,
P.O. Box 3444, Road Town, Tortola, British Virgin Islands for the
purpose of incorporating an International Business Company under the
laws of the British Virgin Islands hereby subscribe our name to these
Articles of Association the 30th day of September, 1996.
in the presence of:
Witness Subscriber
(Sgd. Jaime Flanders) (Sgd. Harriett Anthony)
--------------------- -----------------------------------------
TrustNet Chambers TrustNet (British Virgin Islands) Limited
P.O. Box 3444
Road Town, Tortola
21
<PAGE> 1
Exhibit 10.2
MEMORANDUM
This Preliminary Agreement is made between Shanghai Thermometric Instrument
Plant and Euro Tech (Far East) Ltd for cooperation and development of businesses
on the 5th of Jul l996.
1) Both Parties have the intention to establish a Joint Venture.
2) The major products to be assembled and manufactured by the Joint Venture
will be recorders, turbidity meter and other water related test instruments
distributed by Euro Tech.
3) Euro Tech is the holding company of the Joint Venture. Shanghai
Thermometric Instrument Plant will not take part in the Management team.
Shanghai Thermometric Instrument Plant will receive rents as investment
return from the Joint Venture.
4) To mininise the investment risk for both parties, Euro tech will rent 100
square meter production space , fixture and equipment from Shanghai
Thermometric Instrument Plant at the beginning stage.
5) Under the same condition, the staff of the Shanghai Thermometric Instrument
Plant should have the priority of being recruited by the Joint Venture.
Shanghai Thermometric Instrument should have the responsible of offering
the high quality staff to the Joint Venture.
6) For the seek of starting operation for the Joint Venture earlier, The
Shanghai Thermmometric Instrument Plant should proceed for the preparation
while the Joint Venture is awaiting for approval, in order to complete the
preparation for the Joint Venture by end of this year.
SHANGHAI THERMOMETRIC
INSTRUMENT PLANT EURO TECH (FAR EAST) LTD
5 Jul l996
<PAGE> 1
Dated the 18th day of November 1995
Exhibit 10.3
GEE CHANG PROPERTY
MANAGEMENT LIMITED
and
EURO TECH (FAR EAST) LIMITED
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
TENANCY AGREEMENT
of
All Those Factories A, B, C & D on the 18th Floor - of Gee Chang Hong
Centre, No.65 Wor Chuk Hang Road, Aberdeen, Hong Kong
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
Term: 2 years
Commencement on: 01/11/95
Termination on: 31/10/97
Rent: HK$ 125,000.00
Service charges: HK$ 14,000.00
Monthly payment on: 1st day of each month
Rent deposit: HK$ 375,000.00
==============================
CHAN EVANS CHUNG & TO,
SOLICITORS,
21st Floor Ka Wah Bank Centre,
No.232 Des Voeux Road Central,
HONG KONG.
==============================
REF: PT/13755/CON/cc/ic
<PAGE> 2
THIS AGREEMENT is made the 18th day of November
One thousand nine hundred and ninety-five
BETWEEN GEE CHANG PROPERTY MANAGEMENT LIMITED whose registered office is
situate at 7th Floor, Tung Hip Commercial Building, No.244 Des Voeux Road
Central, Hong Kong as agent for the registered owner, ASSOCIATED DEVELOPMENT
COMPANY LIMITED, (hereinafter called "the Landlord") of the one part and EURO
TECH (FAR EAST) LIMITED (FOREIGN LANGUAGE CHARACTERS) whose registered office
is situate at 18th Floor of Gee Chang Hong Centre, No.65 Wong Chuk Hang Road,
Aberdeen, Hong Kong ---------------------------------(hereinafter called
"the Tenant") of the other part
NOW IT IS AGREED as follows:-
1. The Landlord shall let and the Tenant shall take ALL THOSE FACTORIES A,
B, C and D on the EIGHTEENTH FLOOR ------------------------------------------
(hereinafter referred to as "the said premises") of the building known as GEE
CHANG HONG CENTRE, No.65 Wong Chuk Hang Road, Aberdeen, Hong Kong which said
Building is erected on ALL THAT piece or parcel of ground registered in the
Land Registry as ABERDEEN INLAND LOT NO.390 and is hereinafter referred to as
"the said building" TOGETHER with a right of way for the Tenant his servants
and agents (in common with the Landlord and all others having the like right)
from time to time to pass and repass over and along the staircases and landings
erected in the said building and the right (in common with the Landlord and all
others having the like right) to use the lifts installed in the said building
during such time as the same are in operation for the purpose of access to and
egress from the said premises FOR THE TERM of TWO (2) YEARS ------------------
from the 1st day of November 1995 to the 31st day of October 1997 YIELDING AND
PAYING therefor during the said term monthly and every calendar month the rent
of DOLLARS ONE HUNDRED AND TWENTY FIVE THOUSAND ($125,000.00) ONLY -----------
inclusive of rates and monthly service charges in the sum of $14,000.00 -----
both payable in Hong Kong Currency in advance on the 1st day of each and every
calendar month.
2. The Tenant agrees with the Landlord as follows:-
(1) To pay the said rent at the times and in manner aforesaid.
(2) To pay the Landlord or the person or the corporation for the
time being appointed in writing by the Landlord to undertake the general
management of the said building on the 1st day of each and every
calendar month during the continuance of this tenancy the said sum of
HK$ 14,000.00 ------- per month (hereinafter called "the service
charges") as contribution towards the expenses of the management of and
provision of general services to the said premises as set out in
subclauses 3(4) to (8)
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<PAGE> 3
(inclusive) hereof. The management and general services to be undertaken
or to be performed by the Landlord do not include the disposal of
industrial waste or refuse or rubbish of the Tenant.
(3) To pay the electricity gas and water charges in respect of the
said premises and to make all necessary deposits and increase in
deposits for the supply of electricity gas and water to the said
premises.
(4) To constantly maintain and keep the whole of the interior of the
said premises and every part thereof in proper and tenantable repair and
condition including all fixtures and fittings therein and to meet and
comply with all requirements and notices that may be issued by the
Urban Services Department, the Fire Services Department or any other
Government Departments and to constantly maintain and keep all windows
and window panes in good repair and condition.
(5) To permit the Landlord and all persons authorised by it at all
reasonable times to enter into the said premises to view the condition
thereof and to give or leave notice in writing upon the said premises
for the Tenant of all defects or want of repair there found and the
Tenant shall within one month after the date of every such notice well
and sufficiently repair and make good such defects and/or want of repair
whereof such notice shall have been so given or left and the Landlord
shall in no way be responsible for any inconvenience or damage caused by
the person or persons so authorised.
(6) Not to make any alterations in or additions to the said premises
without the previous consent in writing of the Landlord. In the event of
any permitted alterations or additions being made by the Tenant to the
said premises during the said term the Tenant shall if required by the
Landlord reinstate the said premises at his own cost and expense prior
to delivering up possession thereof to the Landlord.
(7) Not to assign underlet sublet or otherwise part with the possession of
the said premises or any part thereof or let or to sublet lend share
or by any other means whereby any person or persons not a party to this
Agreement obtain the use or possession of the said premises or any part
thereof irrespective of whether any rental or other consideration is
given for such use or possession. The tenancy shall be personal to the
Tenant specifically named in this Agreement and without in any way
limiting the generality of the foregoing, the following acts and
events shall, unless previously approved in writing by the Landlord
(which approval the Landlord may give or withhold at its sole discretion
without assigning any reason therefor) be deemed to be breaches of this
subclause -
(i) in the case of a Tenant which is a partnership, the taking in of
one or more new partners whether on the death or retirement of
an existing partner or otherwise;
(ii) In the case of a Tenant who is an individual (including a sole
surviving
2
<PAGE> 4
partner of a partnership tenant) the death, insanity or
other disability of that individual to the intent that
no right to use, possess, occupy or enjoy the said
premises or any part thereof shall vest in the
executors, administrators, personal representatives,
next-of-kin, trustee or committee of any such
individual;
(iii) in the case of a Tenant which is a corporation any
take-over, reconstruction, amalgamation, merger,
voluntary liquidation or change in the person or persons
who owns or own a majority of voting shares of such
corporation or who otherwise has or have effective
control thereof;
(iv) the giving by the Tenant of a Power of Attorney or
similar authority whereby the donee of the Power or
authority obtains the right to use, possess, occupy or
enjoy the said premises or any part thereof or does in
fact use, possess, occupy or enjoy the same;
(v) The change of the Tenant's business name without the
previous written consent of the Landlord.
(8) Not to do or cause or permit or suffer to be done anything in or
upon the said premises or any part thereof which may at any time
be or become a nuisance or annoyance to the Landlord or the
tenants or occupiers of the other portions of the said building
or of the neighbouring premises or which may produce an
offensive odour and to take all such precautions as the Landlord
shall reasonably from time to time require to prevent or
minimise damage to the said premises from the Tenant's
operations.
(9) Not to store or cause or permit or suffer to be stored any
unlawful or dangerous or hazardous goods or any explosive or
combustible substance on or in any part of the said premises.
(10) Not to use the said premises or any part thereof for any illegal
or immoral purpose.
(11) Not to prepare or permit or cause or suffer to be prepared any
food in the said premises.
(12) Not to do or cause or permit or suffer to be done anything
whereby the policy or policies of insurance of the said premises
or of the said building against fire may be rendered void or
voidable or whereby the premium for such insurance may be liable
to be increased and the Tenant shall indemnify the Landlord
against such increased or additional premium as shall have been
brought about or caused by any act or default of the Tenant or
his servants or licensees.
(13) To use the said premises for industrial purposes only and not to
carry on any trade or business thereon which is now or may
hereafter be declared to be an offensive trade under the Public
Health and Municipal Services Ordinances or any enactment
amending the same or substituted therefor.
(14) To cushion all the machineries placed or affixed to the said
premises and to restrict
3
<PAGE> 5
the number of workers working or staying in the said premises in
accordance with all Government regulations for the time being in force
in Hong Kong.
(15) Not to store or place or cause or permit or suffer to be stored or
placed any goods or machinery or other things on or in any part of the
said premises which impose a loading exceeding 733 kilograms per
square metre (150 lbs. per square foot).
(16) Not to overload or cause or permit or suffer to be overloaded any of the
lifts in the said building in excess of their maximum capacity and to be
responsible for any damage caused thereby.
(17) Not to install any furnace, boiler or other plant or equipment in any
part of the said premises or use any fuel that might in any circumstance
produce smoke without the previous consent in writing of the
Commissioner for Labour and the Landlord first had and obtained.
(18) Not to install or use on the said premises or any part thereof any
machinery, furnace, boiler or other plant or equipment or use any fuel
or method or process of manufacture or treatment which might in any
circumstances result in the discharge or emission, whether aerial or
otherwise, on or from the said building or any part thereof of any
noxious, harmful or corrosive matter, whether it be in the form of gas,
smoke, liquid or solids or otherwise, or which shall in the opinion of
the Commissioner for Labour be excessive in or unnecessary for the
proper use and enjoyment of the said building for the purpose for which
the Land is granted.
(19) Not to place or store or cause or permit or suffer to be placed or
stored any goods or chattels or any things on the parking or loading
area or the driveway or in the common entrance-hall, staircases,
landings, passages or any other common parts of and in the said
building and to indemnify the Landlord against all actions, suits,
costs, expenses, losses and claims which may be incurred or sustained
by the Landlord by reason of or relating to the non-compliance of this
sub-clause by the Tenant its servants or agents.
(20) Not to hang any flags or display any posters or things of a similar
nature on any part of the exterior walls of the said premises or the
said building such as notices for employment of workers or any kind of
advertisements or by any other cause whatsoever.
(21) Not to paint affix erect or display any sign board, neon sign or
advertisement on any part of the exterior walls or on any of the
windows of the said building but the Tenant shall be at liberty to
exhibit his firm name as contained in this Agreement in the spaces
provided by the Landlord at the main entrances of the said building
and in such size as the Landlord shall designate and approve.
(22) Not to carry on or cause or permit or suffer to be carried on any trade
or business in the nature of an oil refinery, paint spraying, dyeing or
bleaching, metal ware bearing, electrical plating, rubber shoes
manufacturing, paper carton making, paper storage,
4
<PAGE> 6
printing or laundry or furniture or rattan factory, foam rubber
manufacturing, weaving or knitting factory, electroplating
factory or plastic factory or any other similar kind of trade
or business.
(23) Not to install any support or erect any iron bracket on any
part of the exterior walls of the said building for the
installation of air-conditioners or ventilators without the
prior written consent of the Landlord. If the Tenant wishes to
install any air-conditioners or ventilators he shall ensure
that such air-conditioners or ventilators are safely installed
through the windows of the said premises without damaging and
without protruding beyond any part of the exterior walls of
the said building.
(24) Not to paint the window glass panes with paints and to
constantly keep such glass panes in a clean and tidy condition
and to undertake to replace any broken panes that may occur.
(25) Not to injure or interfere with or allow or permit or suffer
anyone to injure or interfere with or alter or test or reset or
repair or replace the "Fire Alarm" or "Sprinkler System" as the
case may be or any of the fire fighting equipments installed
in the said premises and building without the prior written
approval of the Landlord first had and obtained.
(26) Not to fix or erect or cause or permit or suffer to be fixed or
erected any chimneys or venetian blinds or sun blinds or
canopies, pipes or wires of any description to or on any part of
the exterior walls of the said building and not to fix or erect
any chimneys in any part of the said premises.
(27) Not to make any openings or damage any part of the exterior
walls of the said building.
(28) Not to erect or cause or permit or suffer to be erected any
shelters or coverings on any part of the canopy or the
flat-roof or roof of the said building.
(29) Not to remove or alter the position of any of the Smoke Lobby
doors or to make any alterations in or additions to any of such
doors whatsoever.
(30) Not to allow or cause any aerial wiring or rods to protrude
outside the exterior walls of the said building.
(31) Not to break any part of the exterior walls of the said
building for the conveyance of goods, machineries or any other
things or for any other purpose whatsoever.
(32) Not to use or allow or permit the use of any of the common
electricity supply for his own purpose whether temporary or
otherwise and not to interfere with any of the common
electricity wirings as installed in the said building.
(33) To observe and perform all regulations and conditions imposed
and notices and orders served by any Government Department or
competent authority in relation to or in respect of the
carrying on of a factory or the trade or business of the
Tenant on the said premises and to observe and perform all the
terms and conditions contained in the relevant Conditions of
Sale under which the said Lot is held and the House
5
<PAGE> 7
Rules relating to the upkeep and maintenance of the said
building (if any) and that the Tenant shall indemnify the
Landlord against all liability claims loss or damages costs and
expenses as a result of the non-observance or non-performance
thereof.
(34) At the expiration or sooner determination of this Agreement to
deliver up to the Landlord vacant possession of the said
premises in such good repair and condition as aforesaid together
with any additional erections alterations or improvements which
the Tenant may with the consent of the Landlord as aforesaid
have made upon or in the said premises without payment of any
compensation for such additional erections alterations or
improvements.
3. The Landlord agrees with the Tenant as follows:-
(1) That the Tenant paying the rent hereby reserved and performing
and observing the terms and conditions hereinbefore contained
and on the part of the Tenant to be performed or observed may
peaceably hold and enjoy the said premises during the said term
without any interruption by the Landlord or any person lawfully
claiming through or under it.
(2) To pay the Crown rent rates (except any increase in rates) and
property tax which are now or may hereafter during the said term
be imposed by Government upon the said premises throughout the
said term.
(3) To maintain and keep the main structure and roof of the said
building and every part of such main structure and roof in
proper and tenantable repair and condition.
(4) To engage and pay one or more caretakers for the said building.
(5) To keep the said lifts in reasonably good repair and in working
condition in accordance with the maintenance terms and
conditions of the lift contractors.
(6) To maintain the electric pumps (if any) for supplying flushing
water to the said building in good condition and to provide salt
water for flushing purposes whenever the same is made available
by the Government.
(7) To keep the staircases and landings and other common portions
of the said building in a clean and sanitary condition.
(8) To pay all charges in respect of electricity consumed by the
said lifts, the electric pumps and lighting in the staircases
and landings and other common portions of the said building.
Provided always that the Landlord shall not in any circumstances
be responsible for failure of the said lifts, the electric pumps
and/or lighting for any reason whatsoever including negligent or
wrongful acts or omissions by independent contractors for any
damage whatsoever caused thereby.
4. PROVIDED ALWAYS AND IT IS MUTUALLY AGREED as follows:-
(1) That if and whenever any part of the rent hereby reserved shall
be in arrear for three (3) days (whether the same shall have
been lawfully demanded or not) or if the Tenant shall fail to
pay the monthly service charges within three (3) days of due
date or if and whenever there shall be a breach by the Tenant of
any of the terms or
6
<PAGE> 8
conditions hereinbefore contained and to be performed or observed by the
Tenant or if the Tenant shall become bankrupt or in the case of a limited
company shall be wound up whether voluntarily or compulsorily or shall
enter into composition or arrangement with the Tenant's creditors or shall
suffer execution to be levied upon any of the Tenant's goods or effects
the Landlord shall upon the happening of any such event be entitled to
re-enter upon the said premises or any part thereof in the name of the
whole and thereupon this Agreement shall absolutely determine but without
prejudice to any rights which may have accrued to the Landlord by reason
of any antecedent breach of any of the obligations on the part of the
Tenant hereinbefore contained.
(2) The lifts as installed in the said building shall be permitted for use by
the Tenant under instructions imposed by the Landlord at all reasonable
times only. Should the Tenant fail to observe the instructions as imposed
by the Landlord, he shall not be allowed to use any of the said lifts. The
Tenant shall indemnify the Landlord for all damage done to any of the
said lifts due to the mis-use of the said lifts by the Tenant, his
servants, agents, visitors or customers.
(3) All fire fighting equipments as installed in the said premises and the
said building shall be and remain the property of the Landlord and the
Tenant shall take due care thereof and in particular the Tenant shall not
allow or cause any of such equipments to be interfered with or moved to
any other position. The Tenant shall further pay the annual recharge fees
for all the fire-extinguishers as installed in the said premises.
(4) In the event of the said premises at any time during the said term being
damaged or destroyed by fire or by any other cause (not attributable to
the act default or negligence of the Tenant) so as to be completely unfit
for use this Agreement shall automatically terminate whereupon the Tenant
shall forthwith deliver up vacant possession of the entire premises to the
Landlord and neither party shall have any claim against the other except
for antecedent breaches, if any.
(5) If for any reason whatsoever the rateable value of the said premises is
increased to a figure in excess of the rateable value as at the date
hereof or if the Rates payable in respect of the said premises shall be
increased then and in any such case the Tenant shall during the
continuance of the term of this Agreement bear such increase in Rates.
(6) If for any reason whatsoever the Rates of the said premises are increased
to a figure in excess of the Rates at the date hereof by reason of any
decoration alteration or other works or improvements carried out by the
Tenant on the said premises then and in any such case the Tenant shall
during the continuance of the term of this Agreement bear the increase in
Rates and the amount of such increase or increases shall form part of the
rent and be paid by and be recoverable from the Tenant accordingly.
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<PAGE> 9
(7) The Landlord shall not be under any liability whatsoever to the Tenant or
to any other person whomsoever in respect of any loss or damage to person
or property sustained by the Tenant or to any other person caused by or
through or in any way owing to the overflow of water, bursting or leakage
of any water pipes, waste water pipes, drains of any description, overflow
of water-closet cistern or leakage of water-taps or sprinklers or the
escape of fumes smoke fire or any other substance or thing from anywhere
within the said building or breakage or want of repair of any part of the
fixtures or other plant or equipment including "fire alarm" or "sprinkler"
or other fire service installations and the Tenant shall fully and
effectually indemnify the Landlord from and against all claims and demands
actions and legal proceedings whatsoever made upon the Landlord by any
person in respect of any loss, damage or injury caused by or through or in
any way owing to the overflow of water or the escape of fumes smoke fire
or any other substance or thing from the said premises owing to the
neglect or default of the Tenant, his servants, visitors, agents or
licensees or to the defective or damaged condition of the interior of the
said premises for which the Tenant is responsible hereunder and against
all costs and expenses incurred by the Landlord in respect of any such
claim or demand.
(8) The Landlord shall not be in any way responsible to the Tenant for any
damage to the said premises or the contents thereof or to the Tenant's
business including structural defects of the said building or damage
caused directly or indirectly by the malfunction or failure of any of
the lifts or the water pumps or of the electrical equipment wiring or
apparatus or by water seepage from the upper floors or windows of the
said building or by floods from the hills, landslide, typhoon, storms,
lightning or rain or by any other unforeseen calamities.
(9) The Tenant hereby expressly declares that he waives any claim for or
entitlement to any compensation or awards, under the provisions of the
Demolished Buildings (Redevelopment of Sites) Ordinance or any amending or
substituting legislations in respect thereof and that the Tenant shall
indemnify the Landlord for any claims actions demands arising from the
non-observance or non-compliance of the terms contained in this
sub-clause.
(10) The Tenant hereby expressly declares that he has paid no premium,
construction fee, key money or other sums of money of a similar nature for
securing the tenancy and that at the expiration or sooner determination of
this Agreement the Tenant will not invoke or seek to avail himself of any
protection which may or shall hereafter be afforded by any ordinance or
regulation of Hong Kong protecting tenants or lessees from eviction but
will promptly and punctually quit and deliver up vacant possession of the
entirety of the said premises at the expiration of this Agreement or
sooner determination as aforesaid.
(11) To secure the due performance and observance of the stipulations or
conditions
8
<PAGE> 10
herein contained the Tenant shall on the signing of this Agreement pay
to the Landlord by way of deposit the sum of $375,000.00 the receipt
whereof the Landlord hereby acknowledges. At the expiration or sooner
determination of this Agreement and provided that the said rent and
other sums of money hereby stipulated shall have been duly paid on due
dates and all other terms and conditions hereinbefore contained duly
performed and observed by the Tenant then within the period of seven
days after the Tenant shall have duly delivered up vacant possession of
the entire said premises to the Landlord, the Landlord shall return to
the Tenant the said deposit money but without any interest. The said
deposit money shall be absolutely forfeited to the Landlord if the
Tenant shall fail to perform or observe any of the terms or conditions
herein contained, without prejudice to the Landlord's right to claim for
damages or breach of contract.
(12) Any notice under this Agreement shall be in writing and any notice
to the Tenant shall be sufficiently served if left addressed to him at
the said premises or any part thereof or sent to him by registered post
or left at his last known address in Hong Kong and any notice to the
Landlord shall be sufficiently served if sent to it by registered post
or left at its last known address in Hong Kong.
(13) For the purpose of these presents any act default or omission of the
agents, licensees, workmen, servants, visitors or customers of the
Tenant shall be deemed to be the act default or omission of the Tenant.
(14) For the purpose of the Landlord and Tenant (Consolidation) Ordinance,
Cap. 7 and for the purpose of these presents the rent in respect of
the said premises shall be deemed to be in arrear if not paid in
advance as stipulated by Clause 1 hereof.
5. It is hereby further declared and acknowledged by the parties hereto
that Associated Development Co. Ltd. (hereinafter called "the said Company")
is the registered owner of the premises and that Geo Chang Property Management
Limited is the lawful attorney and agent of the said Company; the term
"Landlord" wherever appears in this Agreement shall include the said Company.
6. All costs and expenses of and incidental to the preparation completion
stamping and registration (if any) of this Agreement shall be borne and paid
by the Tenant absolutely. Where the tenancy is one to which Part V of the
Landlord & Tenant (Consolidation) Ordinance applies, the Tenant shall also bear
the costs of Messrs. Chan, Evans, Chung & To in the posting of notices in
compliance with the said Ordinance.
7. It is hereby declared that in these presents if the context permits or
requires words importing the singular number shall include the plural number
and words importing the masculine gender shall include the feminine gender and
the neuter gender.
8. The Tenant shall be at liberty to terminate this Agreement after the
expiration of ONE YEAR from the date of commencement of the tenancy created
herein by giving to the Landlord at least one calendar month's previous notice
in writing of its intention so to do (such notice only to expire on the last of
any calendar month).
9
<PAGE> 11
AS WITNESS the respective hands of the parties hereto the day and year
first above written.
SIGNED by YEUNG KWOK YUI Director ) FOR AND ON BEHALF OF
for and on behalf of the Landlord whose ) GEE CHANG PROPERTY MANAGEMENT LIMITED
signature is verified by:- )
/s/ PATRICK P.W TO
Solicitor,
Hong Kong
SIGNED by Wong Mo Kee ----- ) (illegible)
- ------ for and on behalf of )
the Tenant in the presence of:-)
/s/ PATRICK P.W TO
Solicitor,
Hong Kong
INTERPRETED by:
/s/ Cheng Chau Lina
Clerk to Messrs. Chan, Evans, Chung & To,
Solicitors, Hong Kong
RECEIVED on the day and year first above written of)
and from the Tenant the above-mentioned deposit of )
DOLLARS THREE HUNDRED SEVENTY FIVE ) HK$375,000.00
THOUSAND ONLY Hong Kong Currency. ) =============
WITNESS:-
FOR AND ON BEHALF OF
/s/ PATRICK P.W TO GEE CHANG PROPERTY MANAGEMENT LIMITED
Solicitor,
Hong Kong
10
<PAGE> 1
Exhibit 10.4
TENANCY AGREEMENT
THE LANDLORD: WARMATE INDUSTRIAL LTD
RM 1501 KAM FAI HONG,
53-59 MO WU ST, HUNGHOM
KOWLOON
TEL: 2764 9487
BUSINESS REGISTRATION NO: 12288690
THE TENANT: EURO TECH (CHINA) LTD
18/F GEE CHANG HONG CENTRE
65 WONG CHUK HANG RD
HONG KONG
TEL: 2814 031
BUSINESS REGISTRATION NO: 17921699
1) The Landlord lets and the Tenant takes Rm 2606 South Tower, Guangzhou World
Trade Center, 371-375 Huan She East Rd, Guangzhou, P.R. China as Office Use.
The Tenancy period is for a fixed term of 1 year starting from 15 Apr 1995
and the option of another year till 14 Apr 1997.
2) The monthly rent is HK$13,800.- payable in cash to the Hong Kong bank
account of the Landlord. The Landlord's bank account number is:
01469400017139 (Yien Yip Bank, Hunghom Branch), Account name is: Warmate
Industrial Ltd. Deposit receipt must be faxed to the Landlord as proof.
3) Method of rent payment and date: The tenant shall pay the difference of the
2 month deposit i.e. HK$5,600.- to the landlord on the date of signing this
Tenancy Agreement. The landlord have also to pay HK$1,000.- as The tenant
shall pay the monthly rent on or before 15th of the current month and a
receipt must be given by the Landlord. Upon completion of the Tenancy
Agreement, the tenant have settled all outstanding rent and other expenses
(if any), the landlord shall refund the deposit to the tenant, however if
the tenant have breach the Tenancy Agreement and have caused damages to the
landlord, the landlord have the right to deduct such damages from the
deposit.
4) If the Landlord refused to receive the rent which is paid by the tenant
according to this Tenancy Agreement. The Tenant can go to the Guangzhou
Public Notary for proof of "Refuse to receive the rent", and the Tenant
shall not be responsible for Late payment of the rent.
<PAGE> 2
5) Both the Tenant and the landlord are not allowed to find excuses of
terminating this Tenancy Agreement during the Tenancy Period. However, if
the Landlord really in need of the Property for own use, they need to send a
written notice to the tenant 2 months ahead or pay to the tenant the
compensation of 2 month rental fee in lieu of notice.
6) During the tenancy period, the repair & maintenance of the property,
property tax and the expenses incurred for the use of the land and other
expenses which belong to the landlord will be borne by the landlord. The
tenant shall pay for the monthly maintenance fee, telephone fee, clearing
fee, electricity and water fee & other indoor maintenance fee. Upon
completion or termination of the Tenancy Agreement, and the tenant's proof
of all above fees have been settled, the landlord shall return to the tenant
the deposit (without interest) of the management fee, electricity fee & etc.
The landlord have the right to deduct any outstanding fee or unpaid amount
from the deposit.
7) During the tenancy period, the tenant will be responsible for the
maintenance, restoration or compensation to the landlord should there be any
damages to the premises that is caused by the tenant.
8) The tenant shall not allowed to change the structure and the use of the
premises; the storage of prohibited, explosive & combustible substances. The
tenant shall obey the laws of The People Republic Of China and Guangzhou
City, obey the the ethics of the socialism. The tenant shall not make or
permit to make any alterations or additions to the said premises without the
consent of the landlord. Such alternation shall be restored upon request of
the landlord on completion of the Tenancy Agreement.
9) The tenancy agreement will be terminated automatically should there be
irresistible natural disasters which cause damages to the premises. Neither
the tenant nor the landlord shall be responsible for the consequences. In
the case of great damages in the premises and the landlord refuse to
repair, the tenant can terminate the tenancy agreement or have the damages
be repaired and the repair cost will be treated as rental fee.
<PAGE> 3
10) During the tenancy period, the landlord shall inform the tenant by
registered mail if the tenant failed to hand in the rental fee on time. If
the tenant did not pay the rent for one month or over, or the management,
electricity fee for two months or over will be treated as breach of
contract, and the tenancy agreement will be terminated automatically. The
landlord have the right to take back the premises without the consent of the
tenant.
11) Due to the breach of the contract of the tenant, the landlord have the right
to take back the premises and duly inform the management office of the
building. If the tenant did not hand over the door key to the landlord, the
landlord have the right to enter the premises together with the building's
management office staff. The landlord have the right to have the substances
left in the premises to auction and the revenue received from the auction
shall be treated as payment for the outstanding rent and the related
expenses. The surplus, if any, shall return to the tenant. The tenant shall
accept the above arrangement and no objection shall be entertained should he
failed to fulfil the Tenancy Agreement.
12) If the amount of the revenue come from the auction cannot cover the cost of
the outstanding rent, the management fee and the related expenses, the
landlord have the right to claim the tenant until all expenses incurred are
settled.
13) Upon completion/termination of the Tenancy Agreement, the tenant shall
remove all furnitures/substances out of the premises promptly. The
substances shall be treated as abandon if they are still kept in the
premises 5 days after the removal. The landlord have the right to dispose
the said substances with the witness of the management office staff.
14) Upon completion of the Tenancy Agreement, the tenant have the priority to
rent the premises from the landlord and the rental fee will be negotiated.
15) Should argument occured, the tenant and the landlord shall adopt a friendly
way to resolve the problem or to approach the Guangzhou Notary / Middle
People Court for juridical action.
<PAGE> 4
16) This Tenancy Agreement is printed and signed. It shall be effect from
the date of signing.
17) This Tenancy Agreement contains 1 set in two pages, two copies. Each of
the tenant and the landlord keep one and both copies are valid.
WARMATE INDUSTRIAL LTD EURO TECH (CHINA) LTD
SIGNED SIGNED
DATED : 17 MAR 1996
<PAGE> 1
Exhibit 10.5
THE P.R.CHINA PUBLIC NOTARY
<PAGE> 2
BEIJING CHINA INTERNATIONAL INDUSTRY AND COMMERCE CO LTD
STATE GUEST GARDEN, BEIJING PROPERTY SALES CONTRACT
- --------------------------------------------------------
SELLER:Beijing China International Industry And Commerce Co. Ltd
Registered Address: No. 13 Fang Toi Bei Dai Ji, Beijing
Correspondence Address: 3/F South Tower, Yuet Sau Hotel
24 Shu Wu Dong Da Ji,
Shu Wu Chu, Beijing,
P.R.China.
Tel: (010) 3038950, 3038952
Fax: (010) 3038953
Postal Code: 100051
BUYER: Euro Tech (Far East) Ltd
Registered Address: l8/F Gee Chang Hong Centre,
65 Wong Chuk Hang Rd
Hong Kong.
In accordance with the fact that the Seller have the legal right to develop the
commercial property - State Guest Garden which is situated in Fu Shing Mun Wei
Da Ji, Beijing, and according to the "Usage of land by the P.R.China (93) No.
00008. The Seller have now possessed the use of the land of "State Guest Garden"
starting from 27 Oct l993 for a usage period of 50 years (commercial ) and 70
years (domestic).
In accordance with the Beijing Municipal Property Regulation No. 0l7 ( Beijing
Commercial Property for Foreign Sales Permit ), the Seller have got the right
for the development, the pre-sales and sales of the property to overseas.
In accordance with the fact the Buyer agree to purchase the property according
to the rules and regulations of Sales & Purchase of Property of the Beijing
Municipal and laws of the P.R.China. The Buyer have already paid a deposit
amount of US$8,000.- to the Seller. Both the Seller & Buyer agree to sign this
Property Sales Contract for the Sales & Purchases Transaction.
<PAGE> 3
CLAUSE 1)
The Seller agree to sell the unit of No. l0 7/F of Guo Yee Bldg, State Guest
Garden (hereafter called the Property) (Gross area is 142.5 sq. meter) to the
Buyer (Details of the Floor plan refer to Attachment 1). The acceptable area
difference of the Unit for both parties is +/- 2% or compensation have to be
paid to either parties for the difference over or under +/- 2%.
CLAUSE 2)
Both the Seller and the Buyer agree to purchase the Property at US$366,408.83.
Method of payment please refer to Attachment (3).
CLAUSE 3)
The completion date of the Property shall be on 31 Dec 1995 and the Seller shall
hand over the Property to the Seller on that date. The Seller shall guarantee
that the Property shall successfully pass the examination required from the
Building Quality Inspection Dept. The Seller shall guarantee maintenance for the
Property for one year starting from the Property completion date. However the
followings are excluded:
i) Interior electricity, On/Off switch, consumable parts
for Water sewage equipment.
ii) Damages due to alternations without the written consent
of the Seller.
iii) Any damages caused by natural disaster.
iv) Other damages caused by misuse, unproper maintenance by
the Buyer.
The right for using the common area of the Property shall pass to the Buyer upon
the handover of the Property. The coverage period of the usage is starting from
the handover date till 26 Oct 2043 (inclusive) and the area for the usage is
based on the actual measuring result from the Beijing Municipal Property
Management Measurment Dept.
<PAGE> 4
CLAUSE 4)
Upon receipt of the Handover Advice from the Seller, the Buyer shall complete
the formality required for the handover within 14 working days. The Buyer shall
pay the outstanding amount of the Property, the Managment deposit and the
management fee.
Upon completion of the handover and within a specific time, the Seller and the
Buyer shall go to the Beijing Property Management Office with this contract and
the other required documents for applying the Transfer of ownership of the
Property from the Seller to the Buyer. Authorised personnel from both parties is
allowed.
Disputes over the ownership of the Property is responsible by the Seller.
The expenses / taxes incurred from the transaction shall be allocated (according
to the rules and regulation of the relevent government dept) to the Seller and
the Buyer respectively. Settlement for the expenses/taxes shall be paid by the
Seller and Buyer (or their authorized representatives). Expenses/taxes that do
not explicity expressed to be paid by the Seller or the Buyer, shall be paid by
the Buyer. Changes, if any, shall be subject to the rules and regulation of the
relevant Beijing Municipal government office.
CLAUSE 5)
Any changes, addition or deletion on names after the Buyer's possession of the
Ownership Certificate of the Property, written consent must be obtained from the
Seller for such changes and 0.5% of the total purchase price shall be paid by
the Buyer to the Seller. All expenses/ taxes incurred for such changes shall be
paid by the Buyer.
If the Buyer transferred, sold, leased, mortaged the Property to the third
party, the buyer shall guarantee the third party shall abide the terms that
previously signed by the Buyer.
The Buyer shall not change the construction, exterior and the usage of the
Property without the written consent of the Seller's assigned management office.
The buyer shall abide by the related laws of the P.R.China , the social ethic
and the obligation of maintaining the public facilities and benefits.
<PAGE> 5
CLAUSE 6)
The Buyer shall pay the property price and other expenses of the Property on
time. The Seller shall have the right to ask for interest for delay in payment,
the interest counts from the due day to the day that payment has made, Daily
interest is 0.3% based on the total outstanding amount. 30 days overdue amount
plus interest must be settled by the Buyer within 7 working days. The Seller
shall have the right to sue the Buyer for breach of contract, to cancel the
Property Sales Contract and claim for damages. 30% of the Unit sales price shall
be forfeited as damages. The forfeited amount shall be deducted from the Buyer's
payment on the Property. The Seller shall have the right to ask the Buyer
compensation for the deficit (if any) or refund the surplus to the Buyer. The
Seller shall have the right for disposal of the Property.
The Seller shall handover the Property to the Buyer within the specific date
stated above. For delay in handover over 30 days and caused not due to Clause
7), the Seller shall pay a monthly interest to the Buyer starting from the 31th
day. Interest rate for loan amount according to US$ mortage interest rate and
for non-loan amount according to the US$ saving interest rate of the Bank Of
China. Interests shall be counted from the due date till the handover day of the
Property.
If delay in handover of the Property over 180 days the the cause is not due to
Clause 7), the Buyer shall have the right to inform the Seller for cancellation
of the Property Sales Contract and collect back the amount and interest paid for
the Property. If the Buyer did not inform the Seller for the intention of
cancellation within the specific time, then the Buyer shall be treated as
agreement to the validity of the Property Sales Contract.
<PAGE> 6
CLAUSE 7)
The responsibilities of the Seller shall be waived for delay due to the
following reasons:
i) Natural disasters that are irresistable.
ii) Construction terminated due to stormy weather, other
extremely difficulties and technical problems that can
not be promptly resolved.
iii) Execution of the Property Sales Contract becomes impossible due to the laws
of the Government that affect the construction of the property.
iv) Other unpredictable events that beyond the control of the
Seller.
The Buyer shall have the right to inform the Seller the cancellation of the
Property Sales Contract for delay over 180 days for above reasons. The Seller
upon receipt of the Buyer's advice for cancellation,shall pay back the amount to
the Buyer. The Seller shall not pay for the interest or compensation. After
paying back to the Buyer, the validity of the Property Sales Contract will be
terminated and the Seller shall have the right for disposal of the property.
CLAUSE 8)
All expenses incurred (include but not limited to solicitor fee, public notary
fee) for signing of the Property Sales Contract shall be paid by the Buyer.
CLAUSE 9)
The signing, execution and termination of This Property Sales Contract is in
accordance with the laws, rules and regulations of the Beijing municipal
government and the P.R.China. Any disputes shall be resolved in private by the
Seller and the Buyer or, by the Beijing Municipal Property Management Dept or
People Court of P.R.China.
<PAGE> 7
CLAUSE 10)
Other terms that are not covered by the Property Sales Contract shall be
resolved by the Seller and the Buyer. Supplement or alternation made hereafter
shall be jointly signed by the Seller and the Buyer and inform the Beijing
Property Management Dept accordinly. Such terms, supplement or alternation shall
be valid as part of the terms in the Property Sales contract.
CLAUSE 11)
The signed Sales Contract shall be valid upon completion of registration in the
Beijing Municipal Property Sales & Purchase Management Dept and the Public
Notary.
CLAUSE 12)
The Property Sales Contract is type-written in Chinese, translation in other
language is for reference only and in case of disputes, Chinese language shall
be governed. Alternation made in print or hand writing need signatures from both
the Seller and Buyer and bear the same validity.
CLAUSE 13)
Correspondence addresses :
i) Both the Buyer and the Seller shall inform the other party in
writing within 14 working day for changes of address,
telephone;
ii) Advice to the other party (except in Beijing city) shall be made by courier
service and date counted is from the 2nd date after despatching.
CLAUSE 14)
The Property Sales Contract contains 1 set in 6 copies, the Seller, Buyer,
Public Notary shall have one copy , Beijing Municipal Property Management Dept
shall have two copies. All copies shall have the same legal right.
SELLER (SIGNED)
BUYER ( SIGNED)
<PAGE> 8
[FLOOR PLAN OF GUO YEE MANSION STATE GUEST GARDEN, BEIJING RM 710]
<PAGE> 9
ATTACHMENT 2
FIXTURES OF THE STATE GUEST GARDEN, BEIJING (COMMERCIAL COMPLEX,
APARTMENT)
1) Exterior wall :
Superior tilt, partial imported plain blue reflective glass.
2) Interior wall:
Apartment, Commercial complex - colour painted
3) Floor:
Apartment, Commercial complex - fully carpeted
4) Door/Window:
Apartment, Commercial complex - wooden door, aluminium alloy window, glass
push/pull door.
5) Ceiling:
Light stainless steel fire prevention, noise absorption facilities.
6) Washroom:
Floor - Non slippery tilt
Wall - tilt from bottom to top
Washing basin: imported
7) Kitchen :
Housing utensil set in stainless steel
Floor - colour tilt
8) Lobby in apartment:
Floor, wall - polished marbles
9) Lifts :
Apartment, commercial complex - 22 sets of imported elegant lifts
10)Telephone:
Apartment - One IDD plug
Commercial complex - sufficient plugs reserved
11) Airconditioner:
Apartment, Commercial complex - centralised system
<PAGE> 10
12) Car park:
Apartment - guarantee sufficient rented car parks
Commercial complex - " , floor car park
13) Public Antenna:
Apartment , Commercial complex - Close circuit TV, Satellite TV receiving
system.
14) Security :
Apartment - Temperature / Smoke sensor fire system
Commercial complex - Fire alarm, Automatic Sprinkle, Surveillance
Monitoring system.
15) Management:
From top management team
16) Electricity:
Double way electricity supply system
NOTE: Other not listed itemsor alternations subject to government
rules & regulations.
<PAGE> 11
ATTACHMENT 3
STATE GUEST GARDEN, 1ST PHASE (VALIDITY TILL 30 APR 1994)
PAYMENT METHOD (A) : One time payment or immediate installment
(12% discount)
1) Payment of deposit US$8,000.- upon signing of the temporiarly
Property Sales contract.
2) Payment of l0% (deducting the deposit paid) within 7 working days and signing
of the formal Property Sales contract.
3) Payment of 90% 30 days after signing of the formal Property
Sales contract.
PAYMENT METHOD (B): 6 month installment during the construction
period.
1) Payment of deposit US$8,000.- upon signing of the temporiarly
Property Sales contract.
2) Payment of l0% (deducting the deposit paid) within 7 working days and signing
of the formal Property Sales Contract.
3) Payment of l0% 30 days after signing of the formal Property
Property Sales contract.
4) Payment of l0% 3 months after signing of the formal Property
Sales contract.
5) Payment of l0% 6 months after signing of the formal Property
Sales contract.
PAYMENT METHOD (C): 12 month installment during the construction
period.
1) Payment of deposit US$8,000.- upon signing of the temporiarly
Property Sales contract.
2) Payment of l0% (deducting the deposit paid) within 7 working days and signing
of the formal Property Sales Contract.
3) Payment of l0% 30 days after signing of the formal Property
Sales contract.
4) Payment of l0% 6 months after signing of the formal Property
Sales contract.
5) Payment of 70% 12 months after signing of the formal Property
Sales contract.
Whichever method the Buyer chooses, the developer can arrange 60% installment
provided tht the Buyer have paid 40% of the total amount of the property.
<PAGE> 12
PUBLIC NOTARY CERTIFICATE
(94) NO: 0270
This is to certify that the Mr Wu Wei, legal representative of Beijing China
International Industry And Commerce Co Ltd signed the Property Sales Contract of
the State Guest Garden, in Beijing on 23 Mar 1994 before me. Mr Kwan Chin-Ping,
legal representative of Euro Tech (Far East) Ltd signed the Property Sales
Contract of The State Guest Garden, in Hong Kong before the authorized public
notary - Ng, Lie, Lai & Chan Solicitors & Notaries on 1 mar 1994.
After investigation, signatures and contents of the Sales Contract are in
accordance with the laws and regulations of the P.R.China The signatures and
stamps from both parties is true and correct.
Public Notary Office (signed)
P.R.China Public Notary Office
25 Mar 1994
<PAGE> 1
ENGLISH TRANSLATION OF SHANGHAI EAST OCEAN CENTRE PROPERTY SALES CONTRACT
- -------------------------------------------------------------------------
TOTAL PAGES: 7 (inclusive of this one)
PUBLIC NOTARY CERTIFICATE
- -------------------------
Exhibit 10.6
SHANGHAI PUBLIC NOTARY OFFICE
P.R.CHINA
-1-
<PAGE> 2
SHANGHAI EAST OCEAN CENTRE
- ---------------------------
CONTRACT FOR FOREIGN SALES PROPERTY
- -----------------------------------
SELLER: SHANGHAI XING TAI REAL ESTATE
DEVELOPMENT INCORP.
19/F FLAT A KAI WAH BLDG
1375 WAI HOI CHUNG RD
SHANGHAI
P.R.CHINA
TEL/FAX: (021) 6471 3739
BUYER: EURO TECH (FAR EAST) LTD
18/F GEE CHANG HONG CENTRE
65 WONG CHUK HANG RD
HONGKONG
BUSINESS INCORPORATION NO: 24182
TEL: (852) 2814 0311
1) According to "The rules on Sales, Transfer and Usage of land, P.R.China" &
"The regulation of transfer and usage of land of Shanghai Municipal". The
Seller and The Shanghai Property Management have signed "Transfer On Usage
Of Land (Contract No. (Shanghai (92) Transfer Contract No: 11), and thus
have secured a piece of land situated on Wang Pao Area, total area is 2611
sq meter for commercial usage from 5 Aug 1992 to 4 Aug 2042). It is
approved that the property built on this land is called "Shanghai East
Ocean Centre" and for foreign sales under Approval Permit No: Shanghai (93)
128.
2) The Buyer shall purchase the 21/F Flat D Gross Area 115.97 sq. meter,
hereafter called the Property (Please see attached floor plan of the flat).
3) The Seller agrees to sell and the Buyer agrees to buy the above Property at
a price of HK$2,751,200.-
4) The ownership of the Property shall pass to the Buyer upon full settlement
of the Property price.
-2-
<PAGE> 3
5) The Seller have the right to sue for interest incrued if the Buyer do not pay
promptly. If delay is over 30 days, the Seller shall have the right to
terminate the contract and inform the Buyer in writing about the termination.
All payment shall be forfeited and the ownership of the Property belongs to
the Seller.
6) The Seller shall hand over the Property to the Buyer on or before 31 Mar
1995. With the exception that followings occur and The Seller & Buyer shall
have to terminate the contract:
- Irresistable natural disaster.
- Great technical problems cannot be solved during
construction period.
- Other events that beyond the control of the Seller.
7) The Seller shall compensate the Buyer by paying interest (according to the
fixed loan interest rate from Bank Of China for not hand over the Property to
the Buyer within the stated time. If the delay is over 30 days, the Buyer
have the right to terminate the contract and the Seller shall pay back the
amount already paid by the Buyer and interest incurred.
8) The Seller shall guarantee quality of the contruction work and the property
shall pass the testing and examination carried out by the Supervision on
Construction project Shanghai Municipal.
9) The Buyer shall have the right to terminate the contract if the Property does
not pass the testing and examination by the Supervision on Construction
project Shanghai Municipal. The Seller shall have to pay back the Buyer ;
double amount of the deposit, other amount paid and interest incurred
10) The Buyer shall have to pay the oustanding property amount upon receiving
the property.
11) The Seller shall be resonsible for the construction of the property and
maintenance of the essential fixtures for a period of one year after the
hand over. Danages caused by irresistable reasons shall not be entertained.
-3-
<PAGE> 4
12) The property is for commcerical use. The Buyer cannot alter the construction
and usage of the property. The Buyer shall obey the rules and regulation of
the P.R.China and management office of the Shanghai East Ocean Centre.
13) The Buyer shall have to pay tax on usage of land to the Property Management
Shanghai Municipal.
14) Attachments of this contract shall be valid as the contract.
15) The signed contract shall be registered on the Shanghai Public Notary
Office.
16) Within the validity of this contract, agreement shall be obtained from the
Seller if the Buyer wants to transfer the contract to a third party. A new
contract shall have to signed between the Seller and the third party upon
termination of the contract between the Seller and the Buyer but within 20
days.
17) Arugment (if any) shall be resolved by the Buyer and the Seller in private
or approach the People court for juridical action.
18) This contract contains 1 set in 5 copies, The Seller, Buyer, Shanghai Public
Notary , Shanghai Property Management and Shanghai Property Registration
office shall have one. They are all valid copies.
THE SELLER: SHANGHAI XING TAI REAL ESTATE DEVELOPMENT INCORP.
(SIGNED)
THE BUYER: EURO TECH (FAR EAST) LTD
(SIGNED)
THE WITNESS: CHINA PUBLIC NOTARY AGENT
SIGNED : 28 JUN 1993 IN HONGKONG
-4-
<PAGE> 5
ATTACHMENT
- ----------
PAYMENT BY INSTALLMENT
- ----------------------
1) The Buyer shall have to pay part of the Property Amount i.e HK$550,240.- on
the date upon signing this Contract.
2) The Buyer shall have to pay part of the Property Amount
i.e. HK$412,680.- on or before 1 Nov 1993.
3) The Buyer shall have to pay part of the Property Amount
i.e. HK$412,680.- onor before 1 May l994.
4) The Buyer shall have to pay the balance of the Property Amount i.e.
HK$1,375,600.- within 14 days after receiving the Occupancy Notice from the
Seller.
-5-
<PAGE> 6
[FLOOR PLANT OF 21/F FLAT D SHANGHAI EAST OCEAN CENTRE]
-6-
<PAGE> 7
PUBLIC NOTARY CERTIFICATE
(93) SHANGHAI NO: 2359
This is to certify that the Mr Kam Sau-Nan, legal representative of Shanghai
Xing Tai Real Estate Development Incorp, Shanghai & Madam Wong Mo Kee, legal
representative of Euro Tech (Far East) Ltd (Registration No: 24182) signed the
Property Foreign Sales Contract of The Shanghai East Ocean Centre on 28 Jun 1993
in Hong Kong.
After investigation, signatures and contents of the Foreign Sales Contract are
in accordance with the laws and regulations of the P.R.China The signatures and
stamps from both parties are true and correct.
Public Notary Office (signed)
P.R.China Public Notary Office
21 SEPT 1993
-7-
<PAGE> 1
WALLACE & TIERNAN 61 2 4384881 No. 0327 P. 2/14
[LOGO] WALLACE & TIERNAN
Exhibit 10.7
INTERNATIONAL SALES REPRESENTATIVE AND
DISTRIBUTION AGREEMENT
AGREEMENT effective January 1, 1991 by and between Wallace & Tiernan Pacific
Pty Ltd a New South Wales, Australia incorporated company with offices at 89-93
Reserve Road, Artarmon, 2064 (hereinafter called W&T) and Eurotherm (Far East)
Ltd, 18/F Gee Chang Hong Kong Centre, 65 Wong Chuk Hang Road, Hong Kong
(hereinafter called "REPRESENTATIVE").
1. Appointment Subject to the terms and conditions of this Agreement, W&T
hereby appoints REPRESENTATIVE as its exclusive representative and
distributor for the Products identified below, within the Territory
defined below, and REPRESENTATIVE accepts such appointment. Exclusive
REPRESENTATIVE is able to select proper equipment, prepare its own
proposals and offer servicing and after-sale support to customers.
2. Products The Products subject to this Agreement, are those included in
Appendix "C" attached hereto and made a part hereof ("Products"). W&T
has the exclusive right to add or delete items to or from Appendix "C"
from time to time at its sole discretion.
3. Territory for Representation of Products The geographic area of
primary responsibility (hereinafter referred to at "Territory") is set
forth in Appendix "B" attached hereto and made part hereof.
W&T makes no representation that other distributors or representatives
appointed by W&T, or W&T itself, will not sell Products within the
Territory. In determining whether to continue REPRESENTATIVE's
appointment in effect, W&T will consider only the extent to which
REPRESENTATIVE has adequately served the needs of existing and potential
Municipal and Industrial Water & Wastewater customers for Products in
the Territory.
4. Prices
4.01 With respect to transactions in which REPRESENTATIVE acts as a
distributor (taking title to the Products for resale), the
Prices to be paid by REPRESENTATIVE for the Products shall be
W&T's list prices, F.O.B. Country of Supply, standard commercial
(domestic) packing, with discounts as specified in the attached
Appendix "C". Any of said list prices may be changed from time
to time by W&T without prior written notice to REPRESENTATIVE.
In such cases however, W&T may accept, for a period of thirty
(30) days following the effective date of the price increase,
previous pricing, providing that REPRESENTATIVE can produce
documentation, as W&T may reasonably require, to substantiate
the said order resulted from a bona
<PAGE> 2
[WALLACE & TIERNAN LOGO]
fide quotation, tendered by REPRESENTATIVE, prior to the price increase
effective date. REPRESENTATIVE shall make payments for the Products in
accordance with the following: an irrevocable letter of credit in favour
of Wallace & Tiernan Pacific Pty Ltd, confirmed by the Australian
correspondent of the opener's bank, payable at sight for 100% invoice
value versus shipping documents with all charges for the account of
buyer (or REPRESENTATIVE). Other mutually agreeable payment terms may be
negotiated from time to time with REPRESENTATIVE. Freight costs; taxes,
if any; and import or export duties or similar charges; insurance; and
any other fees will be the responsibility of an for the account of buyer
(or REPRESENTATIVE).
4.02 For transactions in which REPRESENTATIVE acts as a REPRESENTATIVE only
(REPRESENTATIVE solicits orders only, without taking title to the
Products), REPRESENTATIVE will quote W&T's exact figures for Products
without additions unless to cover some definite service REPRESENTATIVE
is to perform, and pricing on products not of W&T's manufacture but
which may be convenient to supply. Prices quoted to REPRESENTATIVE will
be in the net amount. Copies of prepared proposals by REPRESENTATIVE
are to be sent to W&T for review. REPRESENTATIVE shall be entitled to
a commission on the sale of Products as specified in Appendix "C"
under the following limitations:
a. No commission will be paid on orders place with W&T by
government in W&T manufacturing areas, unless REPRESENTATIVE has
been identified with the initiating sales promotional work in
which case one-half the commission rate shown under Appendix
"C" will apply.
b. No commission will be paid on orders placed with W&T by firms
carrying the classification OEM (other equipment manufacturer)
and to whom W&T has been obliged to extend a discount, unless
REPRESENTATIVE has been previously identified with initiating
sales promotional work. In which case, one-half the commission
rate shown under Appendix "C" will apply.
c. Commissions at rates specified under Appendix "C", will be paid
on Product sales invoiced by W&T to customers in the Territory
except that any discounts W&T is required to allow, shall be
deducted from the commission otherwise payable to
REPRESENTATIVE.
d. No commission shall be payable on contracts placed directly with
W&T by engineering and business houses, companies, contractors,
and the like, with head or procurement offices outside the
Territory, unless REPRESENTATIVE has been identified with the
initiating sales promotional work. In which case, one-half the
commission rate shown under Appendix "C"
<PAGE> 3
[WALLACE & TIERNAN LOGO]
will apply.
e. No commission will be paid to REPRESENTATIVE on parts orders
received directly from customers which has a total net value of
A$250.00 or less.
f. Commissions due hereunder shall be paid in Australian
dollars within thirty (30) days after W&T has received full
payment for the products upon which the commission is based. If
W&T shall be required to refund any amount upon which a
commission has previously been paid to REPRESENTATIVE, the
amount of the commission attributable to the refunded amount
shall, at the option of W&T, be returned to W&T upon demand or
offset against any and all commissions due REPRESENTATIVE.
5. Duties of REPRESENTATIVE
5.01 REPRESENTATIVE will use its best efforts to develop and maintain the
market for the Products in the Territory and will maintain a sales
force with a satisfactory level of understanding and competence in
the operation, use, and application of the Products; and will
refrain from representing (as distributor, sales representative, or
otherwise) any manufacturer, importer, or distributor of any
products similar to or competitive with the Products. REPRESENTATIVE
is also responsible for promoting and developing business for new
construction, plant expansion and modernisation projects.
5.02 REPRESENTATIVE will be responsible to cover and develop engineering
consultant accounts for the expressed purpose of promoting the sale
of W&T Water and Wastewater Equipment within engineering
specifications of request for bid. REPRESENTATIVE should maintain
available stock within the Territory and at all times carry in
inventory a sufficient quantity and assortment of Products to enable
it to meet the requirements of customers in the Territory.
5.03 REPRESENTATIVE will keep W&T advised of material developments in the
market for the Products in the Territory. It will promptly forward
to W&T all information which it may hereafter receive concerning (A)
any claim or lawsuit involving alleged infringement by the Products
of any patents of any third party and (B) any known or suspected
infringement of any W&T patents by the products of any third party.
5.04 REPRESENTATIVE will be responsible, at its expense, for handling and
processing warranty claims by REPRESENTATIVE's customers (and
customers of the latter) relating to the Products, and for any
customer service relating to the products within the Territory.
W&T's Product Guarantee and Warranty is set forth in the Instruction
Book that accompanies each Product. REPRESENTATIVE agrees not to
offer its customers (or customers of the latter) any warranty or
guarantee that
<PAGE> 4
[WALLACE & TIERNAN LOGO]
would impose upon W&T greater obligations than those imposed by
W&T's Product Guarantee and Warranty. REPRESENTATIVE is not
authorised to make representations or warranties for or on
behalf of W&T, and has not authority to bind W&T in any way.
The discounts granted pursuant to the Agreement and the
commissions payable have been set with a view to all these
requirements. Accordingly, REPRESENTATIVE agrees to indemnify and
hold W&T harmless from and against any loss, damage, cost or
expense arising out of customer service or warranty claims
against W&T by REPRESENTATIVE, its customers, or customers of
the latter that exceed the scope of W&T's Product Guarantee and
Warranty, except where liability to third parties is
demonstrated to be solely caused by fault of W&T.
5.05 REPRESENTATIVE will not export Products in contravention of any
applicable laws or regulations of the United States, including
without limitation, the Trading with the Enemy Act and the
United States Export Regulations.
5.06 When requested, REPRESENTATIVE will supply a forecast of
anticipated sales volume for the Territory in such form as W&T
may specify. Following consultation with REPRESENTATIVE, W&T
will establish an annual sales volume target for
REPRESENTATIVE's Territory. Any substantial failure by
REPRESENTATIVE to meet such a sales volume target shall be
cause for termination of the Agreement pursuant to Paragraph 14
hereof, or may result in non-renewal of the Agreement upon
expiration of its initial term or any renewal during which the
target was not met.
6. Duties of W&T. W&T shall assist REPRESENTATIVE in developing sales,
formulating quotations, and supplying technical literature that may be
required for projects under consideration. Requests for prices and
literature which W&T receives from prospective customers in the Territory
will be referred to REPRESENTATIVE.
7. Shipment from W&T. When requested by REPRESENTATIVE, W&T will ship Products
directly to REPRESENTATIVE's customer as long as the requirements of the
attached Appendix "C" are met.
8. Terms and Conditions of Sale. The terms and conditions of each sale by W&T
to REPRESENTATIVE will be governed by W&T's standard terms and conditions of
sale, as the same may be modified by W&T from time to time hereafter. The
terms and conditions of sale with respect to transactions in which REP acts
solely as a sales representative, shall be within the exclusive discretion of
W&T, and REP has no power of authority to bind W&T in any respect,
REPRESENTATIVE's sole authority, with respect to such transactions, being to
solicit orders for W&T to accept or reject. The terms and conditions of sale
effective as of the date of this Agreement are as shown on Appendix "D"
attached hereto and made part hereof. W&T makes no warranties, expressed or
implied, except as set forth in such standard terms
<PAGE> 5
and conditions of sale and in the Agreement. No claims of any
kind shall be greater in amount than the purchase price of the
Products in respect of which such claims are made.
9. Catalogues W&T will furnish free of charge reasonable
quantities of any bulletins, catalogues and other printed
advertising matter which it publishes concerning the Products.
10. Incidental Expenses Each part will bear its own expenses
(including without limitation training of personnel, postage,
cablegrams, travel and lodging) inc connection with the business
herein contemplated.
11. Independent Contractor REPRESENTATIVE shall be an independent
contractor and nothing contained herein shall create the
relationship of joint venture, principal and agent, or master
and servant between W&T and REPRESENTATIVE. Neither
REPRESENTATIVE nor any of its employees shall be or represent
themselves as authorized to bind W&T in any manner whatsoever.
REPRESENTATIVE will conduct its business in accordance with all
applicable laws, ordinances, rules and regulations of any
applicable government authority. REPRESENTATIVE shall pay and
discharge at its own cost and expense any and all expenses,
charges, fees and taxes that may be levied or imposed upon by or
by reason of the carrying on of the business of the
REPRESENTATIVE as contemplated herein.
12. Assignment This Agreement may not be assigned by REPRESENTATIVE
without the prior written consent of W&T. This Agreement may not
be assigned by W&T without prior written consent of
REPRESENTATIVE except to any successor of substantially all
the assets and business of W&T related to the Products, or to an
affiliate of W&T.
13. Confidentiality REPRESENTATIVE recognizes W&T's proprietary
interest in and title to all confidential information comprising
data, drawings, designs, trade secrets, know-how, processes or
information ("Confidential Information") which W&T may furnish
to REPRESENTATIVE pursuant to this Agreement. During the term of
this Agreement and after termination, REPRESENTATIVE shall keep
such data strictly confidential and shall so instruct its
employees, agents and representatives, and shall use
Confidential Information solely for the purposes of this
Agreement. REPRESENTATIVE and its employees, agents and
representatives will not communicate Confidential Information to
others except to the extent necessary for the proper sale of the
Products. Specifically excluded from this restriction is
material which:
(a) can be demonstrated to have been in the public domain
prior to the date hereof;
(b) becomes a part of the public domain by public use,
publication or otherwise not due to any unauthorized
act or omission on the part of REPRESENTATIVE; or
<PAGE> 6
[WALLACE & TIERNAN LETTERHEAD]
(c) is disclosed pursuant to governmental or judicial order.
14. Termination
14.01 Either party may terminate this Agreement immediately by giving
written notice at any time if:
(a) Payments are not made when due hereunder; or
(b) either party becomes party to bankruptcy or insolvency
proceedings, or to proceedings involving a composition
amount creditors, or makes an assignment for the benefit
of creditors; or
(c) Either part fails to cure a default (other than failure
to pay hereunder) within thirty (30) days after receipt
of written notice thereof;
In addition:
(d) W&T may terminate this Agreement immediately by giving
written notice if control of all of substantially all of
the assets of REPRESENTATIVE is or are transferred
(directly or indirectly) to a competitor of W&T or a
competitor of an affiliate of W&T; and
(e) W&T may terminate this Agreement upon thirty (30) days
prior written notice following any annual period with
respect to which REPRESENTATIVE has failed to meet a
sales volume target established pursuant to Paragraph
5.06 hereof.
If this Agreement is not terminated pursuant to any of the prior
provisions of this Paragraph, it will remain in effect for an
initial term of one year following the effective date set forth
in the opening Paragraph, and shall thereafter continue in
effect for successive renewal terms of one year each unless
either party gives written notice of non-renewal at least thirty
(30) days prior to the end of the initial term or any subsequent
renewal term.
14.02 Within thirty (30) days after termination or non-renewal of this
Agreement for any reason, W&T may, at its sole option,
repurchase from REPRESENTATIVE any part or all of
REPRESENTATIVE's inventory of the Products then in its
possession at REPRESENTATIVE's net cost for the Products. Any
inventory not so repurchased by W&T may be sold by
REPRESENTATIVE after this agreement has terminated.
14.03 Termination of this Agreement shall not affect the right of
either party to collect any sum which may be due it hereunder at
the time of
<PAGE> 7
[WALLACE & TIERNAN]
such termination, nor shall it affect the obligations of
REPRESENTATIVE set forth in Paragraph 5.04 or 13.
14.04 Upon termination hereof, REPRESENTATIVE shall immediately cease
holding itself out to be an authorised REPRESENTATIVE of W&T
and shall remove all signs, posters, or the like bearing any
name or mark belonging to W&T. REPRESENTATIVE shall also
immediately return to W&T all price books, part books, sales
and service manuals, and other documents furnished to
REPRESENTATIVE by W&T during the term of this Agreement.
15. FORCE MAJEURE No liability shall result from delay in performance or
non-performance in whole or in part if performance as agreed has been
made impracticable by compliance in good faith with any applicable
foreign or domestic governmental regulation or order whether or not it
later proves to be invalid, or by the occurrence of a contingency the
non-occurrence of which was a basic assumption of which this contract
was made, including, but not limited to, acts of God, fire, flood,
accident, riot, war, sabotage, strike, labour trouble or shortages,
embargo, or W&T's inability to obtain at prices and on terms deemed by
it to be practicable any required raw material, energy source,
equipment, labour, or transportation. If any such circumstances affects
only a part of W&T's capacity to perform, W&T shall have the right to
allocate production and deliveries among all of its customers and its
own requirements in a fair and reasonable manner. Quantities affected by
this paragraph may, at the option of either party, be eliminated from
the contract without liability, but the contract shall remain otherwise
unaffected.
16. PRIOR AGREEMENT: MODIFICATIONS This Agreement cancels and
supersedes all prior agreements between the parties or their
subsidiaries or affiliates relating to the sale or distribution of the
Products herein referred to. This is the entire contract between the
parties relating to the subject matter hereof. All modifications of the
contract must be in writing and signed by both parties, except to the
extent otherwise provided for herein.
17. NO WAIVER The failure of either party at any time to require
performance by the other of any provision of this Agreement shall in no
way affect the full right to require such performance at any time
thereafter. Nor shall the waiver by either party of a breach of any
provision hereof be construed as a waiver of any succeeding breach of
that provision or of the provision itself.
18. NOTICES, GOVERNING LAW This Agreement shall be governed and
construed by the laws of the State of New South Wales, Australia. All
notices shall be in writing and shall be deemed given on the fifth day
after they are sent, postpaid registered air mail to the respective
addresses as set out above (or to such other address as either party may
by notice provide); If to W&T, Wallace & Tiernan Pacific Pty Ltd, 89-93
Reserve Road, Artarmon, NSW, 2064. Attention: Sales Director.
<PAGE> 8
[WALLACE & TIERNAN LOGO]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective the date first above written. This Agreement has been
executed in two counterparts, one for each party. Each counterpart shall be
deemed an original. This Agreement shall not be binding unless and until
countersigned by W&T Pacific at Artarmon, New South Wales.
Wallace & Tiernan Pacific Pty Ltd REPRESENTATIVE
Signature: /s/ William H. Lofts Signature: /s/ T. C. Eunn
---------------------------- ------------------------
Name: WILLIAM H. LOFTS Name: T. C. EUNN
Title: SALES DIRECTOR Title: mn
Date: 20/12/90 Date: 24/12/90
Countersigned at Artarmon, New South Wales
Signature: /s/ William H. Lofts
----------------------------
Name: WILLIAM H. LOFTS
Title: Sales Director
Date: 14/1/91
<PAGE> 9
[WALLACE & TIERNAN LOGO]
APPENDIX B
AREA OF PRIMARY RESPONSIBILITY
Pursuant to Paragraph 3 of the attached International Sales Agency and
Distributor Agreement, the following area of primary responsibility is hereby
assigned for the sale of Products by REPRESENTATIVE:
HONG KONG
<PAGE> 10
[WALLACE & TIERNAN LOGO]
INTERNATIONAL SALES REPRESENTATIVE AND
DISTRIBUTION AGREEMENT
APPENDIX C
DISCOUNTS OR COMMISSIONS
I. DISCOUNTS OR COMMISSIONS
The discounts/commissions stated herein are applicable to the list price
of the Equipment and Accessories listed below. "List Prices" are
understood to be the prices in the most current price list published by
Wallace & Tiernan Pacific Pty Ltd for each respective Equipment, Accessory
or Parts item.
II. DEFINITIONS OF STANDARD EQUIPMENT DISCOUNT OR
COMMISSION
1. W&T equipment and accessories for feeding, 20%
indicating, recording or controlling chlorine
gas, ammonia, sulphur dioxide, carbon dioxide
or chlorine dioxide in the treatment of water
or waste water.
EXCLUDED from this definition are the following:
Series 50-200 Evaporator and associated W&T 15%
accessories.
Automatic V500 arrangement consisting of control 30%
unit, vacuum regulator and injector.
EXCLUDED also from this definition are the
Distributor products listed in Table A.
2. 32-050 and 32-055 Volumetric Feeders & associated 20%
W&T accessories.
3. 32-300 Industries Volumetric Feeders. 0%
4. Gravimetric Feeders, Belt Volumetric Feeders, and 20%
associated W&T accessories.
5. 35-100 and 35-150 Solution Tank Systems (excluding 15%
Feeders), 85-800 Housed Chlorination Systems,
35-300 Polyelectrolyte Feeding Systems (excluding
Pumps), and associated W&T accessories.
6. Lime Slaking systems and associated W&T 20%
accessories.
<PAGE> 11
[WALLACE & TIERNAN LOGO]
7. Metering Pumps and associated accessories.
A. 43 Series CHEMTUBE, ENVIROTUBE, and P/D 15%
Hydraulically Actuated Diaphragm Pumps and
associated W&T accessories.
B. 44 Series Diaphragm Pumps, Tank Feed Systems, See Table A
4-way valves and associated W&T accessories.
C. 48-100 Polymer Blending Systems. (Maxi-Yield)/ 25%
scaler board.
Excluded from this definition are the Distributor
products listed in Table A.
8. Varea-Meters and associated W&T accessories. 20%
9. Precision Pressure Instruments and associated 15%
W&T accessories.
10. 65-120 and 65-165 Portable Calibrators. 20%
11. Preventive Maintenance Kits. See Table A
12. Parts for all W&T Equipment. 15%
13. Equipment & Accessories Not of our Manufacture. 0%
<PAGE> 12
[LOGO] WALLACE & TIERNAN
TABLE A
III. DISTRIBUTOR EQUIPMENT
The following Distributor equipment discount/commission schedule is
dependent on per order quantity. The schedule is further based on only
one (1) declared shipping destination per order. Orders specifying
partial shipments or more than one (1) shipping destination will be
discounted on the basis of units per shipment, not total order quantity.
<TABLE>
<CAPTION>
EQUIPMENT DESCRIPTION QUANTITY PER ORDER
--------------------- ------------------
- ---------------------------------------------------------------------------
CHLORINATION EQUIPMENT 1-4 5-9 10-19 20 & OVER
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
V100A, A2 or D Control Units* 20% 40% 45% 50%
- ---------------------------------------------------------------------------
200B, C or 500B, C Regulating Vales* 20% 40% 45% 50%
- ---------------------------------------------------------------------------
V100, V75 Auto Control Retrofit Pkgs. 20% 20% 20% 20%
- ---------------------------------------------------------------------------
V75VA2, VA5, VASP Control Units* 20% 40% 45% 50%
- ---------------------------------------------------------------------------
50-345, 50-350 Scales* 20% 30% 35% 40%
- ---------------------------------------------------------------------------
20-057A Control Unit 20% 25% 30% 32%
- ---------------------------------------------------------------------------
20-057B, C Regulating Valves* 20% 25% 30% 32%
- ---------------------------------------------------------------------------
50-125A, B C or 50-135 C12 Detectors* 20% 25% 30% 32%
- ---------------------------------------------------------------------------
50-165 or 50-175 GPR Valves* 20% 25% 30% 32%
- ---------------------------------------------------------------------------
50-280 Test Kit 20% 25% 30% 32%
- ---------------------------------------------------------------------------
Depolox 3TM Basic Electronic Package 20% 25% 25% 25%
- ---------------------------------------------------------------------------
Depolox 3TM Measurement Pkg. 20% 25% 25% 25%
- ---------------------------------------------------------------------------
(Chlorine, pH or Fluoride)*
- ---------------------------------------------------------------------------
</TABLE>
* Mixed or same arrangement.
<PAGE> 13
[WALLACE & TIERNAN LOGO]
TABLE A (continued)
<TABLE>
<CAPTION>
EQUIPMENT DESCRIPTION QUANTITY PER ORDER
- ------------------------------------------------------------------------------
METERING PUMP EQUIPMENT 1-4 5-9 10-19 20 & OVER
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
44 Pumps* 20% 25% 30% 30%
44 Pump Tank Feed Systems 20% 25% 30% 30%
Multi-function 4-way Valve 20% 40% 45% 45%
45 Pumps* 20% 40% 45% 50%
45 Series Converter/Scaler Board 35% 40% 45% 50%
94 Pumps* 20% 40% 45% 50%
45 or 94 Pump Tank Feed System 20% 25% 30% 30%
Stands, or Control Centre*
30 Gal. Tank w/wo cover*** 20% 25% 30% 30%
50 Gal. Tank w/wo cover*** 20% 25% 30% 30%
Liquid Level Switch for Pump 20% 25% 30% 30%
Handle or Tank Cover Mtg.
Mixer 1/20HP 20% 25% 30% 30%
Tank Cover ONLY, Chemical Dissolving 20% 25% 30% 30%
Bag, Dust Cover or Acid Drum*
47-050 Saturators 20% 25% 30% 30%
Assorted W&T accessories when purchased 20%
with associated equipment for above+++
Preventive Maintenance Kits* 20% 25% 30% 30%
- -------------------------------------------------------------------------------
</TABLE>
* Mixed or same arrangement.
*** Discounts for tanks are based on shipping the tanks nested. If tanks are to
be shipped in individual cartons, they will be discounted as individual
shipments. Unless otherwise specified, tanks will be shipped nested in
packages of up to five to reduce shipping charges. Even when nested, the
volume-to-weight ratio is high and freight charges for five tanks nested
should be figured by multiplying class rates by 1.5 (30 gal) or 2.5 (50
gas). For individual tanks multiply first class rates by 3.0. For covers,
multiply first class by 1.5.
+++ W&T accessories purchased separately (apart from equipment) are considered
"PARTS" for discount purposes, and must be priced from Parts Price Book.
Orders are accepted on the basis that they will be immediately scheduled for
shipment on standard shipping schedules.
<PAGE> 14
[WALLACE & TIERNAN LOGO]
WALLACE & TIERNAN PACIFIC PTY. LTD. 89-93 Reserve Road, Artarmon NSW 2064
ACN 000.130.414 Australia Tel: (02)4360375 Fax:(02)4384881
FACSIMILE TRANSMISSION
W & T REF NO. 1074
----
SENT TO: W.S.D. & G.S.D. HONG KONG
COPY TO: EUROTECH
FROM: VOLUN PIROM
DATE: 6 APRIL, 1995
SUBJECT: EUROTECH (FAR EAST) LTD NUMBER OF PAGES (TO FOLLOW) 0
--
_________________________________
Dear Sir,
Eurotech (Far East) Ltd is the local agent in Hong Kong for Wallace & Tiernan.
We strongly recommend that all your inquiries and orders be directed through to
Eurotech who has our complete support especially in technical matters.
Yours faithfully,
/s/ Volun Pirom
- ----------------------------
Volun Pirom
For and on behalf of Wallace & Tiernan Pacific Pty Ltd
- ------------------------------------------------------
<PAGE> 1
Exhibit 10.8
SALES REPRESENTATIVE AGREEMENT
THIS SALES REPRESENTATIVE AGREEMENT (this "Agreement") is entered into as of
the 4 day of March, 1994, by and between FINNIGAN CORPORATION, a subsidiary of
Thermo Instruments, (hereinafter referred to as the "Company") with its
principal office located at 355 River Oaks Parkway, San Jose, California 95134
and EURO TECH (FAR EAST) LTD, (hereinafter referred to as the "Representative")
with its principal office located at 18/F Gee Chang Hong Centre, 65 Wong Chuk
Hang Road, Hong Kong.
In consideration of the mutual covenants and agreements hereinafter set forth,
the Company and the Representative hereby agree as follows:
1. REPRESENTATION AND TERRITORIES. The Company hereby appoints and authorizes
the Representative, and the Representative agrees to act, as exclusive
selling representative to sell the Company's products ("Products") and
territories ("Territory") set forth in Exhibit(s) attached hereto and
incorporated by this reference herein (or in such thereof, or additional
territories, as set forth by the Company in a written and signed amendment
to this Agreement).
The Company retains the right to sell to Original Equipment Manufacturers
("OEMs") in the Territory without payment of a commission to the
Representative. In addition, products may be sold in the Territory through
the normal distribution channels of an OEM without payment of a commission
to the Representative; provided that the OEM is a party to an agreement
with the Company for the supply of products. The Company may, at its sole
discretion, continue to deal directly with an end user or with
representation other than through the Representative. In such event, the
Company will consult with the Representative, advise him of all activity,
and compensate him according to services rendered, in an amount determined
by the Company at its sole discretion.
2. COMMISSION
(a) As consideration for such representation, the Company shall pay the
Representative for all sales of the Company's products in the foregoing
territory or territories, except as prohibited by law or as otherwise
altered by prior mutual agreement, a commission based upon the type of
product sold, the classification of the Representative and the net sale
price, f.o.b. Factory, as set forth in Exhibit(s), attached hereto and
incorporated by this reference herein. The Commission is subject to change
by the Company with ninety (90) days notice to the Representative. All
sales are bound by the Company's conditions of sales in effect at the time
of sale, which presently are as stated in Exhibit(s), attached hereto and
incorporated by this reference herein.
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(b) No commission will be paid for repairs, replacement parts, instruction
manuals or other written documentation.
(c) It is recognized that orders are sometimes placed on the basis
of price as the sole factor. In such cases, it is agreed that a lesser
commission rate may be accepted by a Representative if it appears to be in the
best interest of both parties hereto and if the amount of such lesser
commission is mutually agreed upon or before the date of quotation.
3. PAYMENT TERMS. For Class A products, 50% of the commission is payable on or
before the thirtieth (30th) day after, and only to the extent the Company
receives the sales proceeds. The additional 50% of commission is payable upon
receipt of evidence of complete acceptance by the customer. Commissions on
Class B and C Products sold directly to the end user shall be payable on or
before the thirtieth (30th) day after, and only to the extent the Company
receives the sales proceeds. Commission on Products sold directly to the Sales
Representative will be in the form of a discount as specified in Exhibit(s). A
statement, showing the invoice number for each relevant sale, the total
payment on which commissions are due for such sale and the amount of
commission paid, will accompany the commission check. Commissions paid by the
Company on items subsequently returned by the customer for credit shall be
repaid to the Company by the Representative and, if not then repaid, may be
deducted from the next commission payment due to the Representative.
4. SALES DEMONSTRATORS AND MATERIALS. The Company shall provide the
Representative with such demonstrators, sales literature, technical data and
other sales aids as the Company may deem desirable for the promotion and sales
of the Products. All such items shall remain the property of the Company and
shall be returned to the Company upon demand.
5. MATTERS RESPECTING SALES AND PRODUCTS. The Company shall establish and
have exclusive control over all prices, discounts, specifications, terms of
sale changes thereto, and shall be solely responsible for the design,
development, supply, production and performance of its products. The Company
grants the representative the authority to establish local prices which can be
up to but not exceed 120% of the Company's published list prices. This
Agreement shall extend to and include any new products or improvements added to
the Company's line during the term hereof with any new product or improvement
being classified by the Company in accordance with Exhibit(s) herein.
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All orders shall be subject to the Company's acceptance orders, or make any
price quotations, delivery or performance promises, or product warranties
or representations, without the Company's prior written approval. The
Representative shall not incur any other obligations or expenses relative
to the sale of the Company's products for which the Company will be
responsible without the Company's prior written approval. Unless otherwise
agreed to in writing by the Company, the Company shall not be responsible
for delays, failures to deliver, failure in shipment or other casualties
occasioned by strikes, labor troubles, natural disasters, wars, acts of
governments or other causes beyond its control.
6. PROPRIETARY INTEREST. It is understood that the Company has and shall
retain sole and exclusive rights to all inventions, patents, improvements,
trademarks, trade names, trade secrets, and other matters if a proprietary
nature relating to its products and business. The Company agrees to hold
the Representative harmless from all liability for infringement of any
patent rights or other rights of third parties which may result from the
Representative's sale and distribution of the Company's product.
Notwithstanding any of the foregoing, however, the Representative is not
authorized to disclose to the Company, or otherwise use in the course of
representation of the Company, any proprietary rights, including trade
secrets and customer lists, belonging to any third parties, and the
Representative shall hold the Company harmless for any liability relating
thereto. The Company's customer list and pricing structure shall at all
times remain the exclusive property of the Company.
7. RESPONSIBILITIES OF ALL REPRESENTATIVES.
(a) The Representative shall establish and maintain a sales organization
enabling him at any time to carry out the tasks and obligations he incurs
under this Agreement.
(b) The Representative shall work diligently to promote and sell the
Products to the best of its ability through its sales and service staff and
shall ensure that its staff is given the necessary training to provide
competent sales assistance to the customers. Such promotion and sales will
also be supplemented by:
(i) personal visits to, and correspondence with, potential purchasers
of the Products.
(ii) advertising, trade exhibitions, technical seminars, and by the
distribution of printed matter, all of its own expense unless
otherwise agreed to in writing by the Company.
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(c) The Representative shall, within one month from the date of signing this
Agreement, establish a sales forecast for the current calendar year.
Subsequently, the Representative shall, at the request of the Company, provide
a monthly sales forecast submitted to the Company during the 3rd week of each
month.
(d) The Representative shall advise prospective customers in the selection of
Products, and shall furnish them, whenever possible and necessary, with the
information desired and shall at all times have ready and available the sales
literature required.
(e) The Representative shall advise the Company of the progress of sales
cases. The Representative will consult with the Company as required on all
sales inquiries, and in all technical matters required to support the sales
situations.
(f) The Representative will keep detailed records showing clearly all
inquiries and sales of the Products and will allow the authorized officers of
the Company to have access to these records.
(g) The Representative, in conjunction with the Company, shall organize
periodic meetings of the users of the Products.
(h) The Representative shall periodically contact each user to determine the
user's satisfaction with the Products it has purchased. The Representative
shall immediately notify the Company in the event of problems requiring
technical advice or assistance.
(i) The Representative shall at all times give consideration to the
anticipated customers orders and shall establish and maintain an inventory of
instrument and spare parts appropriate to the needs of users in the Territory.
(j) The Representative shall only agree upon binding terms of delivery with
the customers if it has the Products concerned in its inventory or if it has
already made a firm agreement with the Company for shorter terms of delivery.
(k) The Representative shall, at its expense, promptly, and in any case
quarterly, advise the company of the market potential, trends, and competitive
activity in the Territory.
(l) The Representative shall provide the Company with a list of all companies
for which he is a representative as of the date hereof, and will notify the
Company of all changes. The Representative shall not engage in any activity
constituting direct competition with the Company, through its staff or
otherwise.
(m) The Representative shall be responsible for all local customs,
importation, and local transport fees and taxes for the Products.
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<PAGE> 5
(n) The Representative shall immediately advise the Company of any
changes affecting the Representative's ability to perform, including, but
not limited to , change in its qualified personnel or ownership or control
of the Representative.
8. ADDITIONAL RESPONSIBILITIES FOR CLASS A PRODUCTS.
(a) The Representative shall provide full sales, installation, warranty,
and other customer services for the applicable Class A Products with
essentially no support from the Company.
(b) The Representative shall maintain trained sales staff such that only
minimal assistance from the Company is required. Such training will be at
the Representative's expense, except that the Company will provide tuition
for approved training courses at the Finnigan Institute or other Company
facilities. The Company shall be the sole judge of the Representative's
qualifications.
(c) The Representative shall undertake at its own expense to send
qualified members of its staff for special training by the Company in order
to install and service the applicable instruments. The Company will provide
tuition for such qualified personnel at approved courses conducted at the
Finnigan Institute or other Company facilities. The Company shall be the
sole judge of the ability of the Representative's staff to carry out
installation and service obligations.
(d) The Representative shall conduct preinstallation surveys of the
customer's facility to ensure that the facility meets the applicable
requirements.
(e) The Representative shall be responsible for all spare parts,
including those supplied by the Company under warranty.
(f) The Representative shall be responsible for installation of the
Product, including demonstration of its specification and receipt of
customer acceptance.
(g) The Representative shall respond in a timely manner to all customer
requests for warranty service, and provide such parts and service at no
additional charge to the customer throughout the warranty period.
(h) The Representative shall maintain a stock of spare and consumable
parts sufficient to meet the anticipated needs of the Products in the
Territory.
(i) The Representative shall compensate the Company at is standard
billable rates, for installation or warranty service which is the
responsibility of the Representative but which must be performed, at the
sole discretion of the Company,
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<PAGE> 6
by the Company due to inability of the Representative to perform such
service in a timely manner.
9. RESPONSIBILITIES OF THE COMPANY IN SUPPORT OF CLASS A PRODUCTS.
(a) The Company shall recommend appropriate training for qualified sales
and service staff of the Representative, and provide such training fee of
tuition charges. Schedules for such training are at the Company's sole
discretion.
(b) The Company shall provide technical information required to support
the Representative's service personnel.
(c) The Company shall provide parts for warranty service at no charge to
the Representative for a period of ninety (90) days from system shipment.
The Company will replace, at no charge, those parts used from the
Representative's stock during this period, upon receipt of a service
report.
10. ADDITIONAL RESPONSIBILITIES FOR CLASS B PRODUCTS.
(a) The Representative shall provide sales, marketing, and minor service
support for the applicable Products.
(b) The Representative shall provide qualified sales staff for training
at its own expense. The Company will provide tuition for approved courses
at the Finnigan Institute or other Company facilities. The Representative
shall maintain such trained personnel on its staff at all times. The
Company will be the sole judge of the qualifications of the proposed staff
personnel.
(c) The Representative shall actively market and sell the Products with
support from the Company as appropriate based on mutual review of the
specific sales situation.
(d) The Representative shall conduct preinstallation surveys of the
customer's facility to ensure that the facility meets the applicable
requirements.
(e) The Representative shall provide a qualified engineer to assist the
Company's engineer with the Product installation. This assistance is
intended to provide the Representative's engineer with the ability to
perform minor service support.
(f) The Representative shall facilitate and assist the Company's service
engineer in matters of travel arrangements, technical preparation for
service visits, and local procurement of parts and services.
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(g) The Representative shall forward, on a monthly basis, a report on the
operating status of each Product, including any outstanding service
requirements.
(h) The Representative shall maintain a stock of spare and consumable
parts sufficient to meet the anticipated needs of the Products in his
Territory.
(i) The Representative shall provide technical service advice to the
customer, to the best of his ability.
(j) In the event that the Representative, as the local contact, is
required by the customer to provide installation and warranty for a
specified Product, this service will be sub-contracted from the Company.
11. RESPONSIBILITIES OF THE COMPANY IN SUPPORT OF CLASS B PRODUCTS.
(a) The Company shall recommend appropriate training for qualified sales
staff of the Representatives, and provide such training free of tuition
charge at the Finnigan Institute or other Company facility. Schedules for
such training are at the Company's sole discretion. The Company may
establish qualification requirements for Representative participants.
(b) The Company shall install the Product and obtain customer acceptance.
(c) The Company shall be responsible for warranty parts and labor.
(d) The Company may, at its sole discretion purchase services from the
Representative in order to discharge its installation or warranty
obligations at the Representative's prevailing billable service rate.
12. ADDITIONAL RESPONSIBILITIES FOR CLASS C PRODUCTS.
(a) The Representative shall provide sales and local logistics support,
but has no service responsibilities.
(b) The Representative shall provide qualified sales staff for training
at its own expense. The Company will provide tuition for approved courses
at the Finnigan Institute or other Company facility. The Representative
shall maintain such trained personnel on its staff at all times. The
Company will be the sole judge of the qualifications of the proposed staff
personnel. Schedules for such training are at the Company's sole
discretion. The Company may establish qualification requirements for
Representative participants.
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(c) The representative shall actively market and sell the Products, with
support from the Company as appropriate based on annual review of the
specific sales situation.
(d) The Representative shall be responsible for all local customs,
importation, and transport of the product to the customer's site.
(e) The Representative shall facilitate and assist the Company's service
engineer in matters of travel arrangements, technical preparation for
service visits, and local procurement of parts and services.
(f) The Representative shall forward, on a monthly basis, a report on the
operating status of each Product, including any outstanding service
requirements.
(g) In the event that the Representative, as the local contact, is
required by the customer to provide installation and warranty for a
specified Product, this service will be subcontracted from the Company.
13. RESPONSIBILITIES OF THE COMPANY IN SUPPORT OF CLASS C PRODUCTS.
(a) The Company shall recommend appropriate training for the qualified
sales staff of the Representative, and provide such training free of
tuition charge at the Finnigan Institute or other Company facility.
Schedules for such training are at the Company's sole discretion. The
Company may establish qualification requirements for Representative's
participants.
(b) The Company shall install the product and obtain customer acceptance.
(c) The Company shall be responsible for warranty parts and labor.
(d) The Company may, at its sole discretion, purchase services from the
Representative in order to discharge its installation or warranty
obligations at the Representative's prevailing billable service rate.
14. TERM AND TERMINATION. The term of this Agreement shall be for a period from
the date above written until terminated.
(a) by either party upon ninety (90) days written notice given to the
other party at the principal office of such other party; or
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<PAGE> 9
(b) Immediately upon written notice given by the Company to the
Representative, at Representative's principal office upon (i) the breach of
the Representative's obligation hereunder in a manner to discredit the
Company's products or business; or (ii) the Representative's insolvency,
bankruptcy, illegal activities, inability to function, proven moral
turpitude or similar actions.
15. OBLIGATIONS ON TERMINATION.
(a) The Representative shall promptly return all data, information,
literature, and materials provided by the Company.
(b) The Company will reimburse any inventory of products sold to the
Representative by the Company which are in good working condition and of
merchantable quality and not obsolete, for the net price of the original
invoice, less depreciation valuation, but without duties or taxes.
(c) The Company shall assume the obligation remaining in all unexpired
warranties only to the extent that it may be covered by the standard
Company warranty terms. The Representative shall compensate the Company for
accepting any and all warranty obligations. The compensation shall be
prorated and based on a rate of 5% of applicable F.O.B. product price for
the 12 month warranty.
(d) The Representative shall promptly complete any or all outstanding
installations and shall obtain customer acceptance within sixty (60) days
from the date that termination notice is given.
(e) In the event the Representative is unable to complete installations
and obtain customer acceptance with sixty (60) days, the Company shall
assume the responsibility to complete any or all installations and obtain
customer acceptance. The Representative shall compensate the Company for
accepting any or all installation responsibilities on a prorate basis at 5%
F.O.B. product price for complete installation. The Company will be the
sole judge of the extent of incompletion of the installation.
16. COMMISSION UPON TERMINATION. Upon the effective date of termination
as provided in Section 14 above, the Representative shall receive
commissions, as otherwise set forth in Section 3 herein in the full amount
thereof, as provided in Section 4 herein, for all commissionable orders on
the books which have been accepted by the Company as of the effective date
of termination.
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17. RELATIONSHIP OF PARTIES. Company shall exercise no control over the
activities and operations of the Representative except as herein provided;
and the Representative shall be free to conduct business as may seem fit,
calling on whatever customers within the Representative's territory or
territories as may be desired except as stated herein, and covering such
parts of said territory or territories and at such frequency as may be
chosen, but at no time will the Representative act contrary to the
Company's interests. The Representative shall, in correspondence,
quotations, and other dealings, clearly indicate that he is acting as
principal, and sign with its own firm name. The name and logo of the
Company shall not appear on stationary used by the Representative except as
a marginal note approved by the Company showing in the appropriate local
language "Commission Representative of Finnigan MAT." The Representative
shall have no power or authority to act for, bind, or commit the Company,
nor shall the Representative have authority to make contacts or incur
liability on behalf of the Company. The Representative will establish and
maintain a suitable place of business to handle the sales of the Company's
products and will use all due diligence in promoting the sale of the
Company's products. The Company will place no restrictions on the number of
other accounts handled by the Representative but the Representative shall
not sell any items directly competitive with the Company's except as
approved in writing by the Company.
The Representative may employ suitable and desirable personnel in its
territory or territories but it is understood that any such are at the
Representative's own risk, expense and supervision, and as such shall have
no claim against the Company for salaries, commissions or other items of
cost, and the Representative warrants that any such personnel shall be
subordinate to the Representative and subject to all obligations
applying to the Representative. Each part to this Agreement is
recognized as an independent contractor and nothing herein contained
shall be deemed to constitute one party as an agent, employee or partner
of the other.
18. ASSIGNABILITY BY REPRESENTATIVE. The franchise, rights and duties
conferred or imposed upon the Representative herein are personal in nature
and are not subject to voluntary or involuntary assignment, delegation or
encumbrance, or to assignment or delegation by operation of law.
19. CHANGE OF PRINCIPAL OFFICE. The location of the principal office of either
party herein may be changed for purposes hereof by an appropriate written
notice given to the other party.
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20. GOVERNMENT CONTRACTS. It is specifically understood that all of the terms
and conditions herein are subject to, and will be superseded by, the
provisions of any contracts of sale which may be entered into between the
Company and any governmental bodies or agencies.
21. GOVERNMENT RESTRICTIONS.
(a) All requests by the Representative for delivery of the Products are
conditioned upon receipt by the Company of valid export licenses.
(b) The Representative shall be responsible for imposing any resale
restrictions on the customer that are required by the official regulations
of any countries in which the Products are manufactured or purchased, or of
regulations in the Territory of the representation. To the best of its
ability, the Company will advise the Representative of the current
regulations.
(c) The Representative will assist the Company in obtaining the necessary
signatures for all applicable licensing forms.
22. FOREIGN CORRUPT PRACTICES ACT OF 1977. In compliance with this law,
Representatives covenants that it, and any person acting on its behalf,
including without limitation, any local agent appointed by Representative
pursuant to Representative's authority, will not violate, directly or
indirectly, the provisions of the Foreign Corrupt Practices Act of 1977,
and, in particular, will not offer, pay, promise to pay, or authorize the
payment of any money, or offer, give, promise to give, or authorize the
giving of anything of value to
(a) any foreign officials for purposes of
(i) influencing any act or decision of such foreign official in his
official capacity, including a decision to fail to perform his
official functions; or
(ii) inducing such foreign official to use his influence with a
foreign government or instrumentality thereof to affect or
influence any act or decision of such government or
instrumentality;
in order to assist in obtaining or retaining business for or with, or
directing business to, any person;
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(b) any foreign political party or official thereof or any candidate for
foreign political office for purposes of
(i) influencing any act or decision of such party, official, or
candidate in its or his official capacity, including a decision
to fail to perform its or his official functions; or
(ii) inducing such party, official, or candidate to use its or his
influence with a foreign government or instrumentality thereof to
affect or influence any act or decision of such government or
instrumentality,
in order to assist in obtaining or retaining business for or with, or
directing business to, any person;
(c) any person, while knowing or having reason to know that all or a
portion of such money or thing of value will be offered, given, or
promised, directly or indirectly, to any foreign official, to any foreign
political party of official thereof, or to any candidate for foreign
political office, for purposes of
(i) influencing any act or decision of such foreign official,
political party, party official, or candidate in his or its
official capacity, including a decision to fail to perform his or
its official functions; or
(ii) inducing such foreign official, political party, party official,
or candidate to use his or its influence with a foreign
government or instrumentality thereof to affect or influence any
act or decision of such government or instrumentality,
in order to assist in obtaining or retaining business for or with, or
directing business to, any person.
Representative recognizes that Principal will inform the U.S. Department of
Justice if Principal determines that either Representative or any of its
agents have violated the Foreign Corrupt Practices Act of 1977, the
prohibitions of which are set forth in this section.
23. FORCE MAJEURE. Neither party hereto shall be liable for failures to
perform due to contingencies beyond its reasonable control, including, but
not limited to, strike, riot, war, fire, act of God, accident, or any
action by any governmental body,
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24. SUCCESSORS AND CONSTRUCTION. This Agreement and all of the terms and
conditions herein:
(a) shall be binding upon and inure to the benefit of the permitted
successors, assigns, receivers, personal representatives and heirs of the
parties hereto;
(b) contain the whole understanding of the parties superseding any prior
agreements, written or oral, and may be modified only by mutual written
agreement, if any, as the parties hereto may execute; and
(c) are to be construed and enforced in accordance with the laws of the
State of California.
25. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
San Francisco, California, or at such other place as the parties hereto
mutually agree upon, in accordance with the Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator, or arbitrators, may be entered in any court having
jurisdiction thereof.
26. CAPTIONS. The captions and titles used in connection with the paragraphs
herein are inserted for convenience only and are not intended for use
in the construction or interpretation of the terms hereof.
27. NOTICES. Any notice given hereunder shall be sent by pre-paid letter
addressed to the last known address of the party to whom the notice is
given and shall be deemed to have been given seven (7) days after it has
been placed in first class mail, return receipt requested.
28. SEVERABILITY. In the event that any provisions of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision, provided that no such severability shall be
effective if it materially changes the economic benefit of the Agreement to
any party.
29. MODIFICATION OF EXHIBITS. The Company reserves the right from time to time
to modify the terms of Exhibit(s) attached hereto by giving not less than
thirty (30) days written notice of such modification to the Representative.
No such modification shall become effective prior to the expiration of such
thirty (30) day period unless otherwise agreed in a writing signed by the
Representative.
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IN WITNESS WHEREOF, the Company and the Representative have duly executed this
Agreement as of the day and year first above written.
FINNIGAN CORPORATION ("Company") REPRESENTATIVE
By ____ILLEGIBLE__________________ By ____ILLEGIBLE__________________
General Manager Managing Director
Title ___________________________ Title ___________________________
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EXHIBIT 1A
SAN JOSE PRODUCTS
THIS EXHIBIT is part of the Sales Representative Agreement entered into on the
____ day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the
"Representative") and FINNIGAN CORPORATION (the "Company").
PRODUCTS:
The following products supplied by the Company are included:
Magnum, Tracker, Witness, ITMS, Incos XL, SSQ710C,
SSQ7000, TSQ7000.
GEOGRAPHIC TERRITORY:
The Representative is assigned the following geographic territory:
Hong Kong and Macao
COMMISSION/DISCOUNTS:
CLASS A PRODUCTS:
Magnum, Tracker, Witness, Incos XL;
These products will yield a commission of 25% based upon
published International List Price.
CLASS B PRODUCTS:
SSQ710C, SSQ7000, TSQ7000, ITMS:
These products will yield a commission of 10% based upon
published International List Price.
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SPARE PARTS:
Spare Parts purchased by the Representative will receive a 25%
discount based upon the published International List Price.
Spare Parts purchased by the Customer in the Representative's
assigned territory will receive a 25% commission based upon the
published International List Price.
PAYMENT TERMS:
System sales directly from the end user or from the Representative for
resale:
Irrevocable and Confirmed Letter of Credit payable to Finnigan
Corporation upon presentation of shipping documents.
Sale of Parts directly to the end users:
Irrevocable and Confirmed Letter of Credit payable to Finnigan
Corporation upon presentation of shipping documents.
Sale of Parts for the Representative's account:
Payable (45) days following shipment. Delinquent accounts are subject
to interest of 2% per month from the date of shipment.
SUPPORT CONTACTS:
The Company has assigned the following individuals as the official
contacts:
Sales: Nancy Kuo, Don Remling, Ying Chow
Service: Adi Loo
EXHIBIT APPROVAL:
FINNIGAN CORPORATION ("Company") REPRESENTATIVE
By_______ILLEGIBLE______________ By_____ILLEGIBLE_______________
Vice President/General Manager
Date____7 MARCH 1994____________ Date___4 (ILLEGIBLE)/94________
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EXHIBIT 1B
SAN JOSE PRODUCTS
THIS EXHIBIT is part of the Sales Representative Agreement entered into on the
____ day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the
"Representative") and FINNIGAN CORPORATION (the "Company").
PRODUCTS:
The following products supplied by the Company are included:
Magnum, Tracker, Witness, Incos XL
GEOGRAPHIC TERRITORY:
The Representative is assigned the following geographic territory
(excluding the forensic market in all provinces listed):
1) Shanghai
2) Guang Dong, Hainan, Hunan
The Representative is assigned the following geographic territory for the
environmental market only:
1) Hei Long Jiang, Jilin, Liaoning
COMMISSIONS/DISCOUNTS:
CLASS A PRODUCTS:
None
CLASS B PRODUCTS:
Magnum, Tracker, Witness, Incos XL:
This product will yield a commission of 10% based upon published
International List Price.
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PAYMENT TERMS:
System sales directly from the end user or from the Representative for
resale:
Irrevocable and Confirmed Letter of Credit payable to Finnigan
Corporation upon presentation of shipping documents.
SUPPORT CONTACTS:
The Company has assigned the following individuals as the official
contacts:
Sales: Nancy Kuo, Don Remling, Ying Chow
Service: Adi Loo
EXHIBIT APPROVAL:
FINNIGAN CORPORATION ("Company") REPRESENTATIVE
By______ILLEGIBLE_______________ By_____ILLEGIBLE______________
Vice President/General Manager
Date____7 MARCH 1994____________ Date___4 (ILLEGIBLE)/94_______
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EXHIBIT 2
EUROPEAN PRODUCTS
THIS EXHIBIT is part of the Sales Representative Agreement entered into on the
4 day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the
"Representative") and FINNIGAN CORPORATION (the "Company").
PRODUCTS:
The following products supplied by the Company are included:
MAT 95, MAT 95Q, MAT 900, Vision 2000, Vision 2000 L,
MAT 252, MAT 262, Tracermat, Delta S, Delta C, THQ,
MAT 271, MAT 281, Element
GEOGRAPHIC TERRITORY:
The Representative is assigned the following geographic territory:
Hong Kong and Macao
COMMISSIONS/DISCOUNTS:
CLASS A PRODUCTS:
None
CLASS B PRODUCTS:
MAT 95, MAT 95Q, MAT 900, Vision 2000, Vision 2000 L,
MAT 252, MAT 262, Tracermat, Delta S, Delta C, THQ,
MAT 271, MAT 281, Element:
These products will yield a commission of 10% based upon
published International List Price.
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SPARE PARTS:
Spare Parts purchased by the Representative will receive a 20%
discount based upon the published International List Price.
Spare Parts purchased by the Customer in the Representative's
assigned territory will receive a 20% commission based upon the
published International List Price.
PAYMENT TERMS:
System sales directly from the end user or from the Representative for
resale:
Irrevocable and Confirmed Letter of Credit payable to Finnigan
Corporation upon presentation of shipping documents.
Sale of Parts directly to the end users:
Irrevocable and Confirmed Letter of Credit payable to Finnigan
Corporation upon presentation of shipping documents.
Sale of Parts for the Representative's account:
Payable (45) days following shipment. Delinquent accounts are subject
to interest of 2% per month from the date of shipment.
SUPPORT CONTACTS:
The Company has assigned the following individuals as the official
contacts:
Sales: Ying Chow, Jerome Johemko, Don Remling, Nancy Kuo
Service: Adi Loo
EXHIBIT APPROVAL:
FINNIGAN CORPORATION ("Company") REPRESENTATIVE
By______ILLEGIBLE_______________ By_____ILLEGIBLE______________
Vice President/General Manager
Date____22 APRIL 1994___________ Date___18/4/94________________
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EXHIBIT 3
HEMEL PRODUCTS
THIS EXHIBIT is part of the Sales Representative Agreement entered into on the
4 day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the
"Representative") and FINNIGAN CORPORATION (the "Company").
PRODUCTS:
The following products supplied by the Company are included:
Lasermat, SOLA
GEOGRAPHIC TERRITORY:
The Representative is assigned the following geographic territory:
Hong Kong and Macao
COMMISSIONS/DISCOUNTS:
CLASS A PRODUCTS:
None
CLASS B PRODUCTS:
Lasermat, SOLA
These products will yield a commission of 10% based upon published
International List Price.
SPARE PARTS:
Spare Parts purchased by the Representative will receive a 25% discount
based upon the published International List Price.
Spare Parts purchased by the Customer in the Representative's assigned
territory will receive a 25% commission based upon the published
International List Price.
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PAYMENT TERMS:
System sales directly from the end user or from the Representative for
resale:
Irrevocable and Confirmed Letter of Credit payable to Finnigan MAT
Ltd. L/C to be confirmed by Barclays Bank PLC, Luton International
Services Branch, 28, George Street, Luton, LU1 2HW, United Kingdom
upon presentation of shipping documents.
Sale of Parts directly to the end users:
Irrevocable and Confirmed Letter of Credit payable to Finnigan MAT
Ltd. L/C to be confirmed by Barclays Bank PLC, Luton International
Services Branch, 28, George Street, Luton, LU1 2HW, United Kingdom
upon presentation of shipping documents.
Sale Parts for the Representative's account:
Payable (45) days following shipment. Delinquent accounts are subject
to interest of 2% per month from the date of shipment.
SUPPORT CONTACTS:
The Company has assigned the following individuals as the official
contacts:
Sales: Ying Chow, Jerome Johemko, Don Remling, Nancy Kuo
Service: Adi Loo
EXHIBIT APPROVAL:
FINNIGAN CORPORATION ("Company") REPRESENTATIVE
By______ILLEGIBLE_______________ By______ILLEGIBLE_____________
Vice President/General Manager
Date____22 APRIL 1994___________ Date____18/4/94_______________
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Exhibit 10.9
( L O G O )
DISTRIBUTORSHIP AGREEMENT
BETWEEN HACH COMPANY AND EURO TECH (FAR EAST) LTD.
This agreement made and entered into between Hach Company, Inc., a corporation
organized and existing under the laws of the State of Delaware, U.S.A., having
its principal offices at 57th Street and Lindbergh Parkway (P.O. Box 389),
Loveland Colorado 80537, United States of America ("Hach") and
EURO TECH (FAR EAST) LTD.
18/F GEOCLUNG HONG CENTRES
65 WONG CHUK RD.
HONG KONG ("DISTRIBUTOR")
Whereas Hach is one of the leading manufacturers of laboratory testing
apparatus, process analyzers and chemicals particularly intended for analysis
of water and other substances the ("Products"); and
Whereas Distributor has the commercial and technical experience and
capability as well as technically trained personnel to promote, sell and
service the Products;
Now, therefore, the parties hereto agree as follows:
1.0 DEFINITIONS
1.1 The "Territory" shall mean the geographic area described on Exibit A.
Territory, attached hereto.
1.2 The "Products" shall mean the items of the Product lines designated on
Exhibit B, Products, attached hereto. The parties may add to or otherwise
modify and list by mutual written agreement.
1.3 "Private Label Products" shall mean those products which Hach supplies to
its customers which bear the customer's label, or those products purchased from
Hach under a special agreement, or those products which are otherwise
denominated by Hach as Private Label Products.
1.4 "Contract Date" is the date shown beneath the signature of Hach Company at
the end of this Agreement.
2.0 APPOINTMENT OF DISTRIBUTOR
2.1 Hach hereby appoints EURO TECH (FAR EAST) LTD. Distributor of Products in
the Territory, and Distributor accepts said appointment, subject to all items
and conditions hereof.
2.2 Hach may appoint other person(s) or company(s) to distribute or represent
the Products in the Territory during the term of the Agreement or any extension
hereof.
2.3 Hach does not guarantee the Products will not at times be sold to
customers in the Territory by Distributors of representatives established
outside the Territory.
2.4 Hach may sell Products directly to customers in the Territory where
requested by a customer or where, in Hach's sole discretion, Distributor's
coverage of this Territory is not adequate.
3.0 PURCHASE, SHIPMENT
3.1 Distributor may sell only those Products described in Exhibit B, Products
in the Territory.
3.2 Absent a separate, written agreement, Distributor may not sell Private
Label Product, and no commission is due or shall be extended for such sales.
3.3 Subject to availability, Distributor shall place firm orders for and Hach
shall send to Distributor, Products in quantities sufficient to meet
Distributor's demand for the Products in the Territory.
3.4 Hach shall sell Products to Distributor, Ex Works (Factory, Ames, Iowa
U.S.A.) and all risk of damage or loss shall pass to Distributor at this point.
Hach retains title to the Products until courier delivers Product(s) at first
foreign (non U.S.) port of entry.
3.5 Products shall be sold to Distributor at Hach's Distributor List Prices in
effect at the time the order is accepted by Hach. All sales shall be made under
Hach's standard terms and conditions of sale, as modified and subject only to
the terms of this Agreement which shall prevail in the event of any
inconsistency between this Agreement and those terms and conditions of sale.
Hach shall furnish to Distributor from time to time a Distributor Price List
and a recommended price list covering the Products. Hach may from time to time
and without prior notice to Distributor change either of these price lists.
3.6 Each order placed by Distributor shall be subject to acceptance by Hach
in the U.S. Hach shall not be obligated to accept any order. Hach shall not be
liable to any party for its failure or refusal to accept any order.
3.7 Hach shall not be liable for loss, change, detention, delay or failure to
deliver all or any part of the Products resulting from causes beyond its
control, including but not limited to fires, strike, insurrection, riots,
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embargoes, car shortages, delays in transportation, inability to obtain supplies
and raw materials, requirements or regulations of the United States Government
or any other civil or military authority. Hach shall not be liable for any loss
or damage arising from such delay.
3.8 Quoted delivery dates are merely approximate. Delay in delivery shall
not entitle Distributor to cancel an order. Distributor's acceptance of delivery
of the Product shall constitute a waiver of all claims for loss or damage due to
delay.
3.9 Hach shall have the right to discontinue the availability of any
Product, or to make design changes or improvements in the Products, at any time
without notification to Distributor, without incurring any liability to
Distributor or to Distributor's dealers or customers and without any obligation
to apply any such changes or improvements to Products previously purchased by
Distributor or in use in the Territory.
4.0 TERMS OF PAYMENTS
4.1 Payment for Products shall be made by Distributor in U.S. dollars in
accordance with Hach's standard credit practices for International sales.
Ability to complete payments to Hach to the currency of the United States of
America as stipulated herein is of the essence of this Agreement. If by virtue
of any regulation or order of any government authority in the Territory
Distributor is unable to make payments in accordance with this agreement. Hach
may elect to terminate this Agreement.
4.2 Notwithstanding Section 4.1, payment may be made in U.S. dollars or in
any alternate currency upon which the parties hereto mutually agree in writing
prior to payment in that alternate currency.
4.3 All overdue invoices shall accrue interest at the rate of one and
one-half (1.5%) percent per thirty (30)-day period, with each fraction of a
period counting as a full period.
5.0 DUTIES OF DISTRIBUTOR
5.1 Distributor agrees to maintain a suitable place or places of business
with adequate facilities for the sale and servicing of the Products. Such
facilities shall be staffed by qualified personnel and shall remain open to
customers during business hours customary in the trade and in the Territory.
Distributor shall allow Hach's representatives at any reasonable time to examine
Distributor's place of business and inventories and to lost Distributor's
equipment and facilities so as to verify Distributor's compliance with this
agreement.
5.2 Distributor agrees to exert its best efforts to promote and sell the
Products in the Territory and to provide competent post-sales servicing for all
Products located in the Territory regardless of whether or not sold by
Distributor.
5.3 Neither Distributor nor any related or affiliated person of Distributor
shall, during the term of this Agreement, sell or represent any goods which
conflict or compete with the Products.
5.4 Distributors agrees to inform Hach in writing of all or companies other
than Hach, which or from whom Distributor purchases for resale or otherwise
represents during the term of this Agreement.
5.5 Distributor agrees to keep at all times during the term of this
Agreement an adequate inventory of Product as reasonably required to meet the
Sales Forecast for the Territory. Distributor shall execute such Sales Forecast
promptly upon signing this Agreement or at the start of Hach's fiscal year as
mutually agreed upon. In the event said Sales Forecast is not executed before
the first day of the third month following the Contract Date of this Agreement,
Hach may terminate this Agreement with thirty (30) days written notice to
Distributor.
5.5.1 An Annual Sales Forecast(s) will be provided by Distributor to
Hach by June 30 of each contract year.
5.6 Distributor shall furnish an Annual Sales and Operations Report
("Report") to Hach. This Report is due on February 1 of each year and Hach must
receive the Report no later than February 28. The Report shall contain accurate
information as to sales, customer demand, customer reactions, activities of
competitors, information on political and economic developments that could
affect in any way the financial condition of the Distributor and/or the ability
of Distributor to promote and sell the Products in the Territory and such other
information as Hach may reasonably request, including information on the
financial condition of Distributor.
5.7 Distributor shall maintain records of all sales and keep them on file
for (3) years. Distributor shall allow Hach's employees or agents to examine
such records at any reasonable time. Distributor agrees that all customers or
potential customers for the Products have been developed and created solely for
the benefit of Hach, and any list of customers or potential customers for the
Products shall be deemed to be the property of Hach.
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5.8 Distributor shall assist Hach in obtaining information regarding the
financial stability and credit history of any customer or prospective customer
with respect to which Distributor forwards an order directly to Hach for
acceptance in return for a sales commissions, as provided herein.
5.9 If Distributor services Hach equipment it shall do so according to Hach's
"International Instrument Service Policy and Procedure of Hach Company and of
Hach Europe, S.A."
6.0 RESALE OF PRODUCTS BY DISTRIBUTOR
6.1 Distributor shall actively solicit orders from prospective and actual
customers, either by calling on same with its own personnel through its dealers
or by mailing adequate printed material and brochures.
6.2 Hach may visit customers and prospective customers in the Territory and
may, but shall not be required to, afford Distributor an opportunity to
accompany the Hach representative on any such visit. Any order placed by a
customer during a joint visit by Hach and Distributor shall be for the account
of Distributor.
6.3 Distributor shall establish a Customer Price List which shall be made
available to Hach upon request. In doing so, Distributor agrees to give due
consideration to Hach's recommended customer list prices and prices of Hach
Product and competitive products in the U.S.A. and locally. Said Price List
shall be established to afford sales potential for the Products and at the same
time to secure due compensation to Distributor for the sale and service efforts
in the Territory.
6.4 Distributor shall not solicit or advertise in jurisdictions outside the
Territory, unless this restriction on solicitation or advertisement is
prohibited by law. Distributor shall not maintain branches, places of business
or warehouses outside the Territory for the Products without the prior written
consent of Hach.
6.5 Distributor shall not, without the prior written consent of Hach, alter
the Products in any manner including, without limitation, removal or alteration
of labels, tradenames, trademarks, notices, serial numbers or other identifying
marks, symbols or legends affixed to any of the Products or their containers
or packages.
7.0 SALES LITERATURE
7.1 Hach shall finish to Distributor reasonable quantities of sales
literature and brochures in the English language and using United States
standard measures and weights. Distributor shall be responsible for carrying
out, at its own cost and expense, any translations or adaptations of such
material required by local law, provided that no such translations or
adaptations shall be disseminated by Distributor without the prior written
consent of Hach. Nonetheless, Distributor agrees to indemnify Hach and hold it
harmless from any liability, damages, costs and expenses incurred by Hach with
respect to any improper or incorrect translation or adaptation of the above
mentioned materials.
7.2 Upon termination of this Agreement Distributor shall promptly deliver to
Hach all such material and any translations and/or adaptations thereof which
may be in Distributor's possession or control, in accordance with instructions
from Hach.
7.3 Hach shall have the right to distribute literature and brochures directly
to the customers and prospective customers in the Territory based on mailing
lists that Hach may develop. Where Hach and Distributor together develop such
lists, Distributor may be requested by Hach to pay up to one-half of the cost
of any such distribution.
8.0 APPOINTMENT OF DEALERS
Distributor shall not appoint any representatives, agents, sub-Distributors or
dealers ("Appointees") to assist in the promotion and/or role of the Products
in the Territory without the prior written consent of Hach. In the event that
Hach shall consent to any such appointments. It is understood that any such
Appointee shall not be considered a representative, agent, distributor, dealer
or employee of Hach, and shall derive no rights vis-a-vis Hach by virtue of
such appointment. Accordingly, Distributor agrees to indemnify Hach and hold it
harmless from any liability, damages, costs or expenses (including reasonable
attorney's fees) incurred by Hach as a result of acts of the Appointees.
Further Distributor shall indemnify and hold Hach harmless from any liability,
damages, costs or expenses (including reasonable attorney's fees) incurred by
Hach with respect to the termination and/or appointment of any such Appointees.
9.0 GOVERNMENT REGULATIONS
9.1 Distributor agrees to obtain at its own expense any import license,
foreign exchange permit, or other permit or approval it may need for the
performance of its obligations under this Agreement and to comply at its own
expense with all applicable laws, regulations and orders of the government(s)
of the Territory any instrumentality thereof.
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10.0 WARRANTY
10.1 Hach warrants that the Products are free from defects in material and
workmanship for a period of one (1) year from the date of shipment unless
otherwise specified by Hach.
10.2 The sole obligation of Hach is to repair or replace, in its option, and
without charge, any Product or part of its manufacture which it agrees is
defective.
10.3 This warranty does not cover limited-life electrical components which
deteriorate with age such as but not limited to: vacuum tubes, batteries,
lamps, photo cells, electrodes. In the case of equipment and accessories not
manufactured by Hach, but which are furnished with equipment of Hach's
manufacture. If liability is extended by the manufacturers thereof and
transferable to Distributor, Hach transfers such liability.
10.4 This warranty does not cover parts or Products which in Hach's or
Distributor's opinion have become worn from normal use or have been damaged by
misuse, negligence or accident, or which disassembly and/or repairs have been
attempted causing solo defect.
10.5 UNLESS EXPRESSLY SET FORTH IN THIS AGREEMENT, HACH ALIKES NO WARRANTY OF
ANY KIND WHATSOEVER WITH RESPECT TO ANY PRODUCTS FURNISHED HEREUNDER. HACH
EXPRESSLY DISCLAIMS WARRANTIES IMPLIED BY LAW, INCLUDING BUT NOT LIMITED TO
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO
EVENT SHALL HACH BE LIABLE FOR DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
10.6 Distributor, acting only on its behalf, shall in the sale contract
between it and its retail customer, provide a warranty similar to the one given
to Distributor by Hach herein. Distributor shall promptly perform and fulfill
any and all of the terms and conditions of each such warranty extended.
Distributor agrees not to extend to its customers any Product warranty that is
different from Hach's limited warranty set forth in this Section 10.
11.0 INDUSTRIAL PROPERTY
Distributor recognizes that Hach is the owner, assignee or licensee of various
industrial property rights in the United States and throughout the world,
including patents, trademarks, trade names, designs, insignia and confidential
information, and Distributor expressly acknowledges and agrees that it will not
have or acquire any rights in or to any such industrial property rights used or
adopted by Hach anywhere in the world, or used or adopted by any company
related to or affiliated with Hach, whether or not such industrial property
rights are registered in the Territory. Recognizing the importance of such
rights to Hach's business and good will, Distributors agrees as follows:
11.1 Should Distributor become aware of trade practices or actions posed or
threatened by third parties that may injure the business that Distributor
conducts pursuant to this Agreement or Hach's business and good will or the
above-mentioned property rights, full details of the same shall be promptly
supplied to Hach, and Hach or any person authorized by it shall have the right
to take or direct such action as Hach may deem proper against such third
parties. Distributor shall in no event take any action in protection of Hach's
rights or in furtherance of Hach's interest without Hach's written
authorization.
11.2 During the continuance of this Agreement and thereafter, Distributor
shall not take or cooperate in any action or threatened action which might in
any way impair such industrial property rights, or question Hach's paramount
ownership or interest in the same or in any way injure Hach's business and
good will.
11.3 Distributor shall not, without Hach's consent or direction, make any
threat against or cooperate in any action against third parties which in any
way involves the above-mentioned industrial property or which constitutes
unfair trade practices or violation of any law in the state or in the
advertising of Hach Products.
11.4 Distributor shall not alter, deface, remove, cover up or mutilate in
any manner whatever any trademark, serial or model numbers, brand or name which
is attached to Hach Products. If any such modifications or changes come to
Distributor's attention it shall report them to Hach.
11.5 During the continuance of this Agreement and thereafter Distributor
shall not use or register or attempt to register any name, or insignia which
infringes or is in conflict with or is confused similar to Hach's industrial
property rights, and Distributor shall not at any time assert any ownership or
interest in any such name, mark or insignia. The foregoing shall include use on
products, in business titles and in advertising literature.
11.6 During the continuance and solely for the purpose of this Agreement,
Distributor is granted the non-exclusive right to use Hach's trade names and
trademark in connection with the sale or offering for sale and trademark or
trade name or change the manner in which any such mark or name is displayed or
used when requested to do so by Hach. Such marks or names may be used as part
of the name under which Distributor's
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business is concluded only with the express approval of Hach. Distributor is
not authorized to use outside the Territory, directly or indirectly, in whole
or in part, as a part of Distributor's corporate name or in signs, advertising,
or any other similar selling offer. Any of Hach's trademarks or tradenames
that are now or may hereafter be owned by Hach.
11.7 During the continuance of this Agreement and thereafter neither
Distributor nor its officers or employees will divulge to others, without
Hach's written consent, confidential information supplied directly or
indirectly to Distributor including customer lists and purchase orders,
engineering or technical data including plans, specifications, drawings,
designs, layouts, processes and formulae, whether or not reduced to writing.
Distributor shall disclose confidential information only to those of its
officers or employees whose duties require them to know the same, and then only
if such persons have given to Distributor an enforceable undertaking not to
disclose the confidential information to any unauthorized third person, and
Distributor shall take any such other steps which may be necessary to cause
compliance with the provisions of this Section 11.7 by its officers and
employees.
11.8 Distributor shall reimburse Hach for all costs and expenses including
legal fees incurred by Hach in connection with any legal action taken to
enforce compliance with this Section 11.
12.0 PRINCIPAL-TO-PRINCIPAL RELATIONSHIP
It is understood and agreed that this Agreement creates a principal-to-
principal relationship between the parties hereto, that Distributor is not an
agent, and that Distributor may not lawfully bind Hach in any manner
whatsoever. Distributor shall not make quotations or write letters in the name
of Hach, but in every instance shall sign with its own name. The name of Hach
shall not appear on the stationery used by Distributor except as a marginal
note to indicate that Distributor is authorized by Hach to distribute Products
in the Territory. In no event shall Hach be liable for any expense incurred by
Distributor, the liability for which is not specifically assumed in writing by
Hach.
13.0 DURATION AND TERMINATION
13.1 This Agreement shall become effective upon the Contract Date. Unless
sooner terminated as hereinafter provided, this Agreement shall terminate one
year from the Contract Date. This Agreement may be extended beyond its original
term only by the mutual consent of the parties expressed in a written
instrument that refers to this Agreement and specifies the extended term.
13.2 The following events constitute just cause for termination of this
Agreement:
13.2.1 Default by Distributor in the payment of any obligations
owing to Hach; or
13.2.2 The filing by or against Distributor of any insolvency or
bankruptcy proceedings or proceedings for reorganization receivership or
dissolution, of the inability by Distributor to meet its debts as become
due; or
13.2.3 Any material, adverse change in Distributor's financial condition,
or
13.2.4 If Distributor is a corporation, more than fifty percent (50%) of
the stock of Distributor is transferred to another person who does not own
or contract at least twenty-five percent (25%) of Distributor's
equity at the time of execution of this Agreement; or
13.2.5 If Distributor is a partnership, any change in the membership of
Distributor's firm by death or otherwise; or
13.2.6 If Distributor is an individual, his death; or
13.2.7 A competitor of Hach acquires, directly or indirectly, control of
at least twenty-five percent (25%) equity interest in Distributor, or
13.2.8 Any dispute, disagreement or controversy arises between or among
any of Distributor's principals, partners, managers, officers or
stockholders which, in Hach's opinion, may adversely affect Distributor's
operation, management, reputation or business or Hach's interest or the
reputation of the Products; or
13.2.9 Any dispute, disagreement or controversy arises between Distributor
and a customer, which in Hach's opinion may adversely affect Hach's
interests or the reputation of Hach's Products; or
13.2.10 Without Hach's written consent, Distributor's place of business
remains closed during regular business hours for more than five (5)
consecutive days, except when the closing is caused by strikes or acts
of God or when the closing coincides with religious or other holidays
normally recognized in the city where Distributor's principal sales and
service are located, or
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13.2.11 The assignment or attempted assignment of this Agreement, or of
any interest herein or of any right hereunder, by Distributor without
Hach's written consent; or
13.2.12 Distributor's failure to obtain or maintain any license, permit or
authorization from any government within or without the Territory necessary
for the importation, sale or servicing of the Products thereunder, or
necessary to enable Distributor to make payments for the Products in the
United States of America dollars as provided in Section 2 hereof, or
otherwise necessary for the performance of Distributor's obligations
hereunder; or
13.2.13 The Failure or refusal of Distributor for a period of thirty (30)
days after notice to perform any of its obligations under this Agreement;
or
13.2.14 The enactment of law by any governmental unit within the Territory
which would restrict Hach's right to terminate and/or elect not to renew
this Agreement as herein provided, by making Hach liable to Distributor for
compensation and damages upon termination and/or failure to renew this
Agreement
13.2.15 The failure of Distributor to approximate the sales levels agreed
to in the Sales Forecast.
13.3 Upon the occurrence of any event specified in subparagraphs 13.2.2, 13.2.4
and 13.2.14 above, this Agreement shall automatically and immediately terminate.
Upon the occurrence of any of the other above specified events, in addition to
the other rights or remedies which Hach may have in law or equity, it may, as
its option, terminate this Agreement by written notice thereof. Such termination
shall become effective as of the date set forth in said notice but in no event
earlier than ninety (90) days after such notice is given. Any waiver of the
right to terminate for any of these events shall not constitute a waiver of the
right to claim damages and/or to terminate this Agreement for any similar events
which may occur in the future.
14.0 RIGHTS AND OBLIGATIONS UPON TERMINATION
Upon termination of this Agreement as provided in Section 13 or otherwise
provided for herein;
14.1 The acceptance of orders from Distributor or the continuance of sale of
Products to Distributor or any other act of Hach after notice of termination of
this Agreement shall not be construed as a renewal or a revival of this
Agreement for any further term or as a waiver of the termination.
14.2 Hach shall have the obligation of cancelling any of Distributor's
outstanding orders for Products.
14.3 Hach shall not be liable to Distributor for compensation or damages of
any kind whether on account of loss by Distributor of present or prospective
profits, or anticipated orders, or an account of expenditures, investments or
commitments made in connection with this Agreement, or on account of any other
thing or cause whatsoever.
14.4 Distributor shall remove all signs bearing any of Hach's trademarks or
tradenames, obliterate said trademarks or trade names from letterheads,
stationery, service orders and other forms, and discontinue the use of any
identification or advertising that might convey the impression that
Distributor is still an authorized Hach distributor. Distributor shall
immediately return to Hach all price lists and catalogs, technical
specifications, brochures, advertising matter of any kind and all originals and
copies of confidential information which Hach has supplied to Distributor
in accordance with instructions from Hach.
14.5 Hach shall have the option of repurchasing from Distributor any new
Products hold by Distributor in inventory which Hach in its sole discretion
determines to be marketable. Such Products shall be repurchased at the Ex Works
(Factory, Ames, Iowa U.S.A.) price as invoiced by Hach to Distributor for such
Products if Distributor can prove such invoice price; otherwise, such Products
shall be repurchased at seventy-five percent (75%) of Hach's current Ex Works
(Factory, Ames, Iowa U.S.A.) price for such Products. Distributor shall furnish
to Hach a bill of sale, or other document of the satisfactory to Hach, covering
all property repurchased under this Section 14.5.
14.6 Termination of this Agreement shall in no way affect Distributor's
obligation to make payments for the Products delivered prior thereto. The
parties may pursue any rights or obligations accrued or existing at the date
of termination.
14.7 Distributor shall if necessary, take all steps to transfer any
governmental or regulatory approvals for each Product to Hach or Hach's
nominee, or if such transfer is not permitted, to cooperate in the
cancellation of Distributor's governmental approvals and the reissuance
thereof to Hutch or Hach's nominee at Hach's expense.
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15.0 INDEMNIFICATION
15.1 Distributor shall indemnify and hold Hach harmless from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, attorney's fees) imposed upon,
incurred by or asserted against Hach that result from:
15.1.1 Acts of negligence or misrepresentations by Distributor, its
employees or agents; Distributor's breach of any provision of this
Agreement including without limitation, Sections 6, 7, 9 and 10); or
Distributor's failure to meet its obligations or to perform any acts
required under its agreements with any third party; and
15.1.2 The relationship between Distributor and any of its employees,
agents, and servants, whether under industrial accident laws, worker's
compensation laws or any other laws applicable to employers and employees.
15.2 The provisions of this Section 15 shall survive the termination
of this Agreement.
16.0 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of Hach's
successors and assigns, but it is personal to Distributor and may not be
assigned or transferred by it without Hach's written consent which Hach may
withhold at its sole discretion whether such discretion is reasonable or
unreasonable.
17.0 ENTIRE AGREEMENT AND MISCELLANEOUS PROVISIONS
17.1 This Agreement, entered into by Distributor and Hach of their free will,
records the entire agreement between the parties and merges all discussions and
replaces any understanding or prior agreement which may heretofore have existed
between Hach and Distributor with regard to Distributor's appointment in the
Territory.
17.2 Any agreements to this Agreement shall be in the form of a written
document signed by all parties to this Agreement. Oral agreements and
representations shall be not be binding.
17.3 No party to this Agreement shall be responsible for noncompliance with
the terms and conditions of this Agreement where the reasons for such
noncompliance are beyond the control of the party.
17.4 Hach's failure to enforce at any time any provision, right or option of
this Agreement, shall in no way be considered a waiver of such provision, right
or option or in any way affect the validity of this Agreement. The exercise by
Hach of its rights or options hereunder shall not preclude it from or prejudice
it in exercising the same or any other rights or options it may have under
this Agreement. All notices provided for herein shall be given in writing by
registered return-receipt air mail, by telegraph or cable confirmed in
writing, by facsimile or other electronic transmission or by courier, addressed
to:
Distributor: EURO TECH (FAR EAST) LTD.
Hach: Hach Company
PO Box 389
57th Street and Lindbergh Parkway
Loveland, Colorado 80537 USA
Attn: Vice President of Sales and Marketing
with a copy to:
Hach Company
PO Box 389
57th Street and Lindbergh Parkway
Loveland, Colorado 80537 USA
Attn: Office of Chief Counsel of Operations.
17.5 Notices sent by facsimile, cable, telegraph or other electronic means
shall be seemed to be given on the day following the transmission. Notices sent
by registered return-receipt air mail shall be deemed to be given seven (7)
days after the date of mailing. Notices sent by courier shall be deemed to have
been given five (5) days after tender and acceptance of the notice by the
courier for purposes of delivery.
7
<PAGE> 8
[LOGO]
18.0 SEPARABILITY
18.1 Any provision of this Agreement which in any way contravenes the law
of any country or political subdivision in which this Agreement is effective
shall, in such country or political subdivision and to the extent of such
contravention of law, be deemed separable and shall not affect the validity of
any other provision of this Agreement.
18.2 This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Colorado, U.S.A., without giving effect to its
conflict of law principles. The United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement.
18.3 Any dispute arising between the parties out of or in connection with
this Agreement shall be finally received by arbitration in Denver, Colorado
pursuant to the International Arbitration Rules of the American Arbitration
Association. The arbitration panel shall consist of three arbitrators, one
appointed by each party and a third neutral arbitrator appointed by the other
two arbitrators. The arbitration shall be conducted in English which is the
governing language of this Agreement.
18.4 Nothing in this Article shall prevent Hach from seeking injunctive
relief against Distributor from any judicial or administrative authority
pending the resolution of a controversy or claim by arbitration. Hach also
reserves the right to sue in any court of competent jurisdiction to collect
from Distributor funds due and owing Hach for Products sold and delivered to
Distributor under this Agreement and Distributor agrees that, in the event of
any such suit for collection by Hach, Distributor shall not be entitled to
raise as a defence thereto any set-off or counterclaim alleged by Distributor,
rather, any set-off or counterclaim alleged by Distributor shall be subject to
the arbitration provision above.
19.0 COMMISSIONED SALES
19.1 Distributor may be entitled to a Sales Commission for sale of Hach
Product when such Product is sold by Hach or Distributor directly to a customer
in the Territory. Payment and allocation of Commission is specifically set
forth in Exhibit C, Commission Schedule, Hach recognizes that extraordinary
circumstances may warrant allocation of a particular sales commission on a
basis differing from that described in the Commission Schedule with approval
from Hach prior to the transaction. In all events, Hach's decision as to the
allocation of any commission shall be final and binding on all parties.
19.2 Commission payment shall be made by Hach in accordance with
Distributor's express, written instructions. At Hach's discretion, such payment
may be made in U.S. dollars or in the currency of the Territory. In no event
shall Hach be liable to Distributor for any commission, a claim for which is
reported to Hach more than six (6) months after the transaction.
19.3 Distributor shall assist Hach in assuring the timely and complete
payment of any invoice with respect to which a commission is owing to
Distributor, and Distributor shall advise all customers that on sales made
directly to customers by Hach, overdue payments shall accrue interest at the
rate of one-and-one half (1 1/2) percent per thirty (30)-days period, with each
fraction of a period counting as a full period.
19.4 Hach shall debit Distributor's account for any commission which is
paid to Distributor with respect to Products which are returned by the
customer for credit or refund and a prorata amount of any commission which is
paid with respect to orders for which Hach, for whatever reason, does not
receive payment in full. No commission shall be owing to Distributor with
respect to any sale for which Hach receives less than sixty percent (60%) of
the full invoice price.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year hereinafter written, to become effective
when signed by both parties.
DISTRIBUTOR FOR HACH COMPANY
NAME:__T C LEUNG_______________ NAME:___JOHN PRIVETTE___________
TITLE:_MANAGING DIRECTOR_______ TITLE:__VP MARKETING SALES______
DATE:__1 MAR 96________________ CONTRACT DATE:_11-MAR-96________
Exhibits:
Exhibit A Territory
Exhibit B Products
Exhibit C Commission Schedule
8
<PAGE> 9
[LOGO]
EXHIBIT A
TERRITORY
_______________________________________________________________________________
Hong Kong
Macao
Peoples Republic of China
9
<PAGE> 10
[LOGO]
EXHIBIT B
PRODUCTS IN THE TERRITORY
1.1 Distributor may only Distribute Products which are covered under this
Agreement. Products covered under this Agreement are denominated as such with a
check mark in the YES Column under 3.2 below. Product denominated with a check
mark in the NO Column below are not covered under this Agreement and
Distributor is not eligible to distribute those products.
2.3 PRODUCT CLASS COVERED UNDER THIS AGREEMENT
------------- ----------------------------
CHEMICALS YES X NO ___ EXCEPTED(1)___
(Process Reagents) -
CHEMICALS YES X NO ___ EXCEPTED ___
(COD Reagents; Lab/Kh -
Reagents manufactured by Hach)
TEST KITS YES X NO ___ EXCEPTED ___
(Test Kits; Test Kit Replacement Parts) -
MICROBIOLOGY YES X NO ___ EXCEPTED ___
(Microbiological Chemicals/Media; -
Kits and Apparatus manufactured by Hach)
CHEMISTRY RESALE YES X NO ___ EXCEPTED ___
(Resale Apparatus, Resale Lab Instruments) -
OTHER CHEMICALS YES X NO ___ EXCEPTED ___
(Other Chemicals manufactured by Hach) -
COLORIMETERS/SPECTROPHOTOMETERS YES X NO ___ EXCEPTED ___
(Pocket Colorimeters; DR-Series -
Colorimeters, DR-Series
Spectrophotometers; DR-EL Series
Portable Field Laboratories;
Special Field Laboratories)
LABORATORY INSTRUMENTS YES X NO ___ EXCEPTED ___
(Amperemetric Titralor, TitraStir(R); -
BOD Apparatus; IncuTral(R); COD Repeler;
Conductivity Meters; Digital Titralors;
Dissolved Oxygen Meters; Electrodes;
pH Meters; TenSeflo(R) Pipeties;
Digestion Instruments & Accessories;
Hach Miscellaneous Laboratory
Instruments and Accessories)
TURBIDIMETERS YES X NO ___ EXCEPTED ___
(Laboratory and Portable Turbidimeters) -
TURBIDIMETERS YES X NO ___ EXCEPTED ___
(Process Turbidimeters) -
PROCESS INSTRUMENTS YES X NO ___ EXCEPTED ___
-
SERVICE PARTS YES X NO ___ EXCEPTED ___
-
EXCEPTIONAL CONDITIONS (Describe)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- ----------
(1) Products annotated as "Excepted" are distributed under this Agreement but
are limited to the distribution arrangement described under the Exceptional
Conditions statement in this Exhibit E.
10
<PAGE> 11
[LOGO]
EXHIBIT C
COMMISSION SCHEDULE
- --------------------------------------------------------------------------------
1.0 Distributor may, at Hach's discretion and with prior approval on each
transaction, be allowed a percentage commission for certain sales.
1.1 Sales for which Distributor may be allowed a commission are indent
sales made at Hach's International market Price for the Territory.
Distributor orders for Distributor's own account at Distributor's cost are
not commissionable orders under this Agreement.
2.0 Commission is computed according to the following schedule.
2.0.1 Full Commission is 20% of the International Market Price for the
Territory. Ex. Works (Factory, Ames, Iowa).
2.0.2 Full Commission may be achieved according to the following
participation Schedule:
2.0.2.1 Credit for Specifying Hach Products' Up to fifty
percent (50%) of full commission may be credited to the
account of the Distributor who participates in securing a
written specification or preference for Hach Product(s) in
the Territory. Where more than one Distributor has secured
such specification or preference this fifty percent of full
commission may be allocated among the participants at Hach's
discretion.
2.0.2.2 Credit for Origination of Order: Up to twenty-five
percent (25%) of Full Commission may be credited to the
account of the Distributor from whose Territory the order
issued. Distributors must substantiate that he or his
agent(s) were materially instrumental in inducing the
customer to place the order for which commission is sought
with Hach Company. The following are examples of the types of
Inducement which will be considered instrumental and
therefore commissionable: pre-notifying Hach Company of the
existence of and order, specification of the Distributor's
name on the customer's purchase order, or other documentary
proof of Distributor Inducement. Nothing in this Section
2.0.2.2 would preclude Distributor from offering other
evidence of its instrumentality in the transaction. Hach may,
at its sole discretion choose to accept or reject such other
forms of proof.
2.0.2.3 Credit for Destination of Product: Up to twenty-five
percent (25%) of Full Commission may be credited to the
account of the Distributor into whose Territory Hach
Product(s) is shipped for installation or use. No Commission
shall be paid unless Distributor has and will, in Hach's
opinion, provide reasonable assistance to the customer in the
Territory before, during or after the transaction. Such
assistance may include but is not limited to on-site
inspection of the Product and a commitment to continued
service and support.
2.0.2.4 Upon receipt of commission payment for Destination
Credit, Distributor must, within 60 days of the date of the
commission check, prepare and submit to Hach a complete
description of any and all Distributor's post-transaction
activity may result in limitation of Distributor's rights to
receive future Destination Credit.
11
<PAGE> 12
[LOGO]
2.0.3 All claims for Specification Participation, Order Origination or
Destination Participation must be adequately supported by written documentation
or a report acceptable to Hach which indicates the materiality of Distributor
involvement in the transaction.
2.0.4 Nothing herein precludes Hach Company and Distributor from agreeing
upon a Commission schedules or program different from that described in the
Exhibit B, so long as such schedule or program is agreed upon in writing and in
advance of any commissionable event.
12
<PAGE> 1
Exhibit 10.10
HonkongBank
The Hongkong and Shanghai Banking Corporation Limited
Main Office: G/F, The Astor Hotel, 199 Jio Fang Lu, Tianjin, The People's
Republic of China (Postal Code: 300040)
PRIVATE AND CONFIDENTIAL
Euro Tech (Far East) Ltd
18/F Gee Chang Hong Centre
65 Wong Chuk Hang Road
Hong Kong
27 July 1994
Attention: Mr Jerry Wong
Tel: 814 0311
Dear Sirs
PROPERTY INSTALMENT LOAN ACCOUNT NUMBER 05-903323-30
We refer to your application for a seven year Property Installment Loan, and are
pleased to advise that your request has been approved on the following terms
and conditions:
Borrower : Euro Tech (Far East) Ltd
Loan Amount : USD170,000.00
Purpose : To finance part of the purchase cost of the property at Unit 7,
5/F, Jin Cheng Zhong Xin, 4th District, Fang Qun Garden, Fang
Zhuang, Beijing, China.
Security : An "all monies" mortgage of the Agreement for Sale and Purchase
("Agreement for Mortgage") over the following Property:
Unit 7, 5/F, Jin Cheng Zhong Xin, 4th District, Fang Qun Garden,
Fang Zhuang, Beijing, China.
with Euro Tech (Far East) Ltd as the Mortgagor (the
"Mortgagor"), that is to say a mortgage to secure "all monies"
in respect of general credit facilities owing from time to time
including future advances, with an unlimited covenant to pay on
the part of the Mortgagor.
...../2
<PAGE> 2
Euro Tech (Far East) Ltd
27 July 1994
-2-
________________________________________________________________________________
Interest : At 2.5% p.a. over USD prime rate, currently 7.25% per annum, but
subject to fluctuation without notice.
Handling Fee: 1% flat on the mortgage loan amount, minimum USD1,300, is
payable by the mortgagor to HongkongBank China Services Limited.
Instalment : The loan will be repaid by 84 instalments of USD2,800.29 (but
subject to variation) each at one month interval commencing one
month after drawdown.
Payment shall be made on such day or days of each month after
the loan is drawdown (if any such day shall fall on a bank
holiday payment shall be made on the next succeeding Banking
day, except that in the event that the next succeeding Business
Day falls within the next calendar month, then such payment
shall be made on the immediately preceding Business Day) to the
debit of your account with the Bank.
Prepayment : Early repayment in full or in part at a minimum 10% of the
original loan amount is allowed but subject to a penalty as
follows:
-- A 3-month interest on the amount prepaid, minimum USD2,600
if prepayment is made within 6 months after drawdown.
-- A 2-month interest on the amount prepaid, minimum USD1,300
-- if prepayment is made over 6 months after drawdown.
Insurance : After the issuance of Occupation Permit, insurance cover is to
be arranged by Gibbs Insurance Consultant Limited which is our
broking and consultancy subsidiary. Insurance premium will be
for your account.
Expenses : All legal and out-of-pocket expenses including stamp duty in
connection with this loan will be for your account.
Taxation : All payments of principal, interest, fees and other expenses
shall be made by you clear and free of taxes, levies, imposts,
duties, charges, withholdings of any nature or other deduction
whatsoever.
Other Terms : The loan will be subject to the terms and conditions as
contained in the Mortgage and to our customary overriding right
of repayment on demand.
<PAGE> 3
Euro Tech (Far East) Ltd 27 July 1994
-3-
- -----------------------------------------------------------------------------
Acceptance : This offer will lapse if it is not accepted within a period
of 14 days from the date of this letter.
We shall be grateful if you will sign and return to us the attached duplicate
copy of this letter thereby signifying your understanding and acceptance of
the foregoing.
This offer is subject to the completion of the Agreement for Mortgage and our
security requirements. If the loan is not drawn down within one month from the
date of this letter, our commitment to advance the loan will cease unless a
further extension has been agreed by us in writing.
Upon receipt of your acceptance our solicitors Siao, Wen and Leung, Solicitors
& Notaries will contact you by telephone regarding our security requirement.
Please quote your above loan account number in your future communication and
enquiry regarding your loan to this office.
We are pleased to be of assistance.
Yours faithfully
For and on behalf of
The Hongkong and Shanghai Banking Corporation Limited
Rose W M Lee (Ms)
Managing Director
HongkongBank China Services Limited
Enc
AW JL/cb/SN
<PAGE> 4
BEIJING MUNICIPAL PROPERTY MANAGEMENT OFFICE
REGISTERED EVIDENCE FOR THE RIGHT AND MORTGAGE OF PROPERTY
POSSESSION AND USAGE OF STATE OWNED LAND
PROPERTY ADDRESS: NO. 22, 4 DISTRICT FANG QUN YUAN,
FANG ZHUAN, FANG TAI,
BEIJING, P.R.CHINA
PROPERTY OWNERSHIP CERTIFICATE NO:
SZE FANG FOREIGN ENTERPRISES CERTIFICATE NO 01013.
PROPERTY USAGE CERTIFICATE NO:
SZE FANG FOREIGN ENTERPRISES (95) NO: 01013.
KINDS OF RIGHT: RIGHT OF PROPERTY POSSESSION AND MORTGAGE
LAND USAGE.
MORTGAGEE: HONGKONG & SHANGHAI BANKING CORP, TIANJIN BRANCH
P.R.CHINA
MORTGAGOR: EURO TECH (FAR EAST) LTD
MORTGAGED PROPERTY: RM 507 7/F JINCHENG CENTRE,
4 DISTRICT FANG QUN YUAN,
FANG ZHUANG,
BEIJING
P.R.CHINA
PROPERTY GROSS AREA: 145.16 SQ METER
MORTGAGED PROPERTY AREA: 23.12 SQ METER
MORTGAGED PROPERTY VALUE: HONG KONG DOLLARS TWENTY-TWO HUNDRED
THOUSAND & FORTY-THREE THOUSAND ONLY
MORTGAGE AMOUNT: US$170,000.00
MORTGAGED PERIOD: FROM 4 NOV 1994 TO 3 NOV 2001.
SIGNED BY: BEIJING MUNICIPAL PROPERTY MANAGEMENT OFFICE
DATED: 31 MAY 1995
<PAGE> 1
Exhibit 10.11
INFORMATION ON MORTGAGOR
MORTGAGOR: EURO TECH (FAR EAST) LTD
ESTABLISHED ON: 15 JUN 1971
INCORPORATION CERTIFICATE NO: 24192
REGISTERED ADDRESS: 18/F QEE CHANG HONG CENTRE
65 WONG CHUK HANG RD
HONG KONG
TEL: (852) 2814 0311
DETAILS ON THE MORTGAGED PROPERTY
PROPERTY ADDRESS: 21/F FLAT D SHANGHAI EAST OCEAN CENTRE
588 YAN AN LU LU (E)
SHANGHAI 200001
P.R.CHINA
USAGE PERIOD OF
LAND : FROM 5 AUG 1992 TO 4 AUG 2042
GROSS AREA : 115.97 SQUARE METER
USAGE : FOR COMMERCIAL USE
PURCHASE PRICE : HK$2,751,200.00
<PAGE> 2
DETAILS OF INSTALLMENT
- ----------------------
LOAN AMOUNT: HK$800,000.00
INSTALLMENT PERIOD: 10 YEARS, 120 INSTALLMENTS
LOAN INTEREST: 13% PER ANNUM
THE FIRST INSTALLMENT PAYMENT DATE:
ON THE SAME DAY AS THE GUARANTOR RECEIVES THE LOAN SUM OF
EACH MONTH.
(DUE AMOUNT SHALL BE PAID ON THE SAME DAY OF EACH MONTH, IF
PAY DAY IS NOT BUSINESS DAY, THE INSTALLMENT SHALL BE PAID
ON THE NEXT BUSINESS DAY.
MONTHLY INSTALLMENT: HK$11,944.70 (INCLUSIVE OF PRINCIPAL & INTEREST)
<PAGE> 3
THIS IS TO CONFIRM THAT WE HAVE READ IN DETAIL THE CONTENT OF THIS CONTRACT AND
AGREED TO COMPLY WITH THE TERMS STATED. BELOW ARE OUR SIGNATURES WITH
AUTHORIZED STAMPS:
THE MORTGAGOR: EURO TECH (FAR EAST) LTD
SIGNED BY RICKY LAU
THE MORTGAGEE: THE BANK OF EAST ASIA LTD.
SIGNED BY WAN KAM-WAH & TANG SING-YU
THE GUARANTOR: SHANGHAI XING TAI REAL ESTATE DEV. INC.
SIGNED BY WONG SHEK
WITNESSED: AUTHORIZED PUBLIC NOTARY, PRC
SIGNED BY PHILIP K.H. WONG
<PAGE> 1
EXHIBIT 10.12
[LOGO]
THE COMPANIES ORDINANCE
----------
CERTIFICATE OF REGISTRATION
OF
CHARGE
----------
I hereby certify that a Mortgage dated the 31st day of October, 1995
and created by EURO TECH (FAR EAST) LIMITED in favour of THE HONGKONG AND
SHANGHAI BANKING CORPORATION LIMITED for securing all moneys in respect of
general banking facilities
were this day registered pursuant to Section 80.
GIVEN under my hand this 21st day of November, 1995.
Miss H. Y. MA
for Registrar of Companies
Hong Kong
<PAGE> 2
[REGISTRAR SEAL]
THIS MORTGAGE is made this 31st day of October, One thousand nine hundred and
ninety five BETWEEN EURO TECH (FAR EAST) LIMITED [ILLEGIBLE] whose registered
office is situate at 18th Floor, Gee Chang Hong Centre, 65 Wong Chuk Hang Road,
Hong Kong (hereinafter called "the Borrower") of the one part, and THE HONGKONG
AND SHANGHAI BANKING CORPORATION LIMITED whose registered office is situate at
No. 1 Queen's Road Central, Hong Kong and having a branch office at 15th Floor,
Hennessy Centre, No. 500 Hennessy Road, Hong Kong (hereinafter called "the
Lender") of the other part.
WHEREAS:
The Borrower has applied to the Lender to grant to the Borrower general
banking facilities and the Lender has agreed to grant the same to such extent
and upon and subject to such terms and conditions as shall from time to time be
mutually agreed or be stipulated by the Lender ("the general banking
facilities") upon the Borrower entering into the covenants and obligations
hereinafter contained and charging the Property (as hereinafter defined) as
security for the due payment of all moneys payable or which may at any time
hereafter or from time to time become payable by the Borrower to the Lender or
which may be or become payable by the Borrower under any of the agreements,
covenants and conditions contained in this Charge and interest thereon as
hereinafter provided.
NOW THIS DEED WITNESSETH as follows:
1. DEFINITIONS AND INTERPRETATION
1.01 In this Charge if the context so permits or requires and where not
inapplicable the following terms shall have the following meanings:
(a) "Borrower" whenever used shall include (if the context permits)
the company specifically named and its successors and
<PAGE> 3
- 2 -
(c) "Crown Grant" means and includes the Crown Lease more
particularly described in the Schedule hereto and any variation
or modification thereof under which the Property is held from
the Crown at the date hereof by the Borrower;
(d) "Deed of Covenant" means and includes the Deed of Mutual
Covenant and Management Agreement more particularly described in
the said Schedule and any variation or modification thereof;
(e) "Lender" wherever used shall include, (if the context permits)
the Bank specifically named and its successors and assigns;
(f) "Property" means all or any part of the property registered or
to be registered in the name of the Borrower and the Borrower's
interest therein and more particularly described in the said
Schedule; and
(g) "Secured Indebtedness" means all sums from time to time advanced
by the Lender to the Borrower and outstanding in respect of the
general banking facilities and the interest thereon and all
other moneys and obligations in respect of moneys which the
Borrower covenants to pay to the Lender under the provisions of
Clause 2 hereof or otherwise under the terms of this Charge.
1.02 Words importing the singular number shall include the plural number and
vice versa, and words importing the masculine, feminine or neuter gender shall
include the others of them.
1.03 The Clause headings herein are inserted for convenience only and for
reference, and in no way define, limit or describe the scope of this document
or the intent of any provision thereof.
2. COVENANT FOR REPAYMENT OF SECURED INDEBTEDNESS
2.01 In consideration of the Lender agreeing to grant to the Borrower the
general banking facilities applied for the Borrower HEREBY COVENANTS with the
Lender that, subject as hereinafter provided, the Borrower will ON DEMAND by
notice in writing of the Lender made to the Borrower PAY make good and
discharge to the Lender:
<PAGE> 4
- 3 -
(i) all sums of money which at the date of such demand may be
outstanding and according to the books of the Lender, payable by
the Borrower to the Lender in respect of any account whatsoever
between the Borrower and the Lender; and
(ii) all sums of money for the time being owing to the Lender in
respect of:
(a) all bills of exchange or drafts (whether clean or
documentary) ("bills or drafts") drawn on the Borrower
by any person, firm or company in any place and which
may have been then purchased, discounted or otherwise
acquired by the Lender or may be in the hands of the
Lender for collection only;
(b) all bills or drafts drawn by the Borrower on any person,
firm or company in other places and which may be
purchased, discounted or otherwise negotiated or
acquired by the Lender;
(c) all promissory notes or other forms of negotiable
instruments which may be signed by the Borrower in
favour of the Lender or in favour of any other party and
the interest in which may have been purchased or
otherwise acquired by the Lender;
(d) all advances made by the Lender to or on account of the
Borrower or to others at the request of the Borrower in
respect of credits opened at the request of the Borrower
in favour of any person, firm or company in any place;
(e) all advances to be made from time to time to the
Borrower or to constituents, customers or agents of the
Borrower against documents of title representing goods
and merchandise consigned to the Borrower or to order or
belonging to or stored by the Borrower or belonging to
or stored by constituents, customers or agents of the
Borrower; and
<PAGE> 5
- 4 -
hereinafter delivering to the Borrower, or to others at the
request of the Borrower, any bills of Lading or other documents
of title relating to goods and merchandise and thereby enabling
the Borrower or such other persons as aforesaid to obtain
possession of the goods and merchandise referred to in such
documents of title prior to the payment of any bills or drafts
held by the Lender, and for the due payment of which the goods
and merchandise referred to in such documents of title as well
as such documents of title are held by the Lender as security;
and
(iv) the amount of all advances and all moneys which may from time to
time become due to the Lender on all contracts and engagements,
including the payment of all bills or drafts and promissory
notes, the due and punctual payment of which may from time to
time be guaranteed by the Borrower to the Lender or may be
inferred to be so guaranteed; and
(v) all principal and interest and all costs, charges and expenses
which may be incurred under or in connection with any guarantee
issued by the Lender in respect of any obligations of the
Borrower or any constituents, customers or agents of the
Borrower; and
(vi) the total amount of all re-exchange commission and other usual
bankers charges upon such bills or drafts and all landing
charges, insurance and storage charges incurred or to be
incurred by the Lender upon all goods and merchandise as are
pledged or hypothecated to the Lender as security for the
payment of such bills or drafts; and
(vii) all such sums of money as may from time to time become payable
to the Lender by the Borrower in respect of moneys advanced,
paid or payable in respect of bills or drafts, promissory notes
and/or goods of any description together with all other usual
or lawful charges; and
(viii) all principal, interest and any other moneys which are now or
<PAGE> 6
- 5 -
the Borrower relating to such loan facility, as amended from
time to time; and
(ix) all principal and interest or any other moneys outstanding and
payable by the Borrower under any term loan account maintained
with the Lender in the name of the Borrower; and
(x) all costs, charges and expenses which may be incurred under or
in connection with any other matter arising under or in
consequence of this Charge or in connection with the Property;
and
(xi) all moneys for the time being owing to the Lender in respect of
any liability whatsoever of the Borrower to the Lender which may
be incurred or arise in any manner howsoever, whether the actual
conditions under which such liability may be incurred or arise
have or have not been specifically mentioned and provided for by
the agreements, covenants and conditions in this Charge and
whether such liability shall be a liability incurred or
arising;-
(a) under circumstances or conditions incidental to any form
of contractual relationship between the Borrower and the
Lender which comes properly and strictly within the
meaning of the term "general banking facilities"; or
(b) under circumstances or conditions incidental to any
other form of contractual relationship whatsoever; or
(c) through the tort or fraud of the Borrower or of any of
the Borrower's constituents, agents or correspondents
and whether such tort or fraud shall be connected with
or dependent upon, or unconnected with and independent
of, any contractual relationship between the Borrower,
or of any of the Borrower's constituents, agents or
correspondents, and the Lender
PROVIDED HOWEVER that:-
(A) where the Lender shall hold any bill draft or
other document against which the Lender may have
discounted or purchased, or against which the
Lender
<PAGE> 7
- 6 -
may have made any advances, and which reserves a
rate of interest higher than the applicable rate
as hereinafter provided, nothing in this Charge
shall affect the right of the Lender to recover
the higher rate of interest reserved or, as the
case may be, the difference between the higher
rate reserved and the applicable rate as
hereinafter provided; and
(B) the Lender shall not be requested by the
Borrower to, nor shall be bound to make,
advances or payments or to incur liabilities in
respect of the general banking facilities to be
granted to the Borrower or to such person, firm
or company as aforesaid under or by virtue of
this Charge beyond such sum as the Lender shall
in the absolute discretion of the Lender
consider to be safe; and
(C) the Lender shall be entitled at any time after
the execution and completion of this Charge to
open credits in favour of such person, firm or
company as the Borrower may desire for such
length of time and at such places as the lender
shall think fit and the Borrower shall not be at
liberty to determine this Charge or the security
hereby affected or require any such credits to
be closed save upon six (6) calendar months'
previous notice in writing to be served upon the
Lender in Hong Kong; and
(xii) interest on all sums advanced and all other moneys payable
hereunder at such rate(s) per annum as is/are applicable under
the terms relating to any facility(ies) granted to the Borrower
as is determined by the Lender which determination shall be
conclusive and binding on the Borrower. Such interest shall
accrue from day to day and shall be computed on the basis of a
year of three hundred and sixty five (365) days and for the
actual number of days elapsed and shall be paid monthly in
arrears on such date in each succeeding calendar month as the
Lender shall stipulate.
<PAGE> 8
- 7 -
3. CHARGE OF PROPERTY
3.01 In consideration of the premises and with the object and intent of
affording to the Lender a security for the Secured Indebtedness and the due
fulfilment by the Borrower of the agreements, covenants and conditions
contained in this Charge: -
(a) the Borrower as Beneficial Owner HEREBY CHARGES the Property to
the Lender SUBJECT as is more particularly specified in the
Schedule hereto and to and with the benefit of all leases,
tenancies, rights, licenses, covenants, conditions and other
incidents of tenure affecting the Property; and
(b) the Borrower HEREBY ASSIGNS or agrees to assign unto the Lender
the full benefit and all rights of all the terms and conditions
more particularly specified in the said Schedule and of any
payment, covenant, agreement, undertaking or indemnity contained
in any sale and purchase agreement, lease, or other document,
agreement or undertaking whatsoever in respect of or relating to
the Property now subsisting or to be created hereafter TO HOLD
the same unto the LENDER absolutely
SUBJECT nevertheless to the proviso for redemption hereinafter contained.
3.02 The charge herein contained shall be a legal charge in so far as the
Property is a legal estate.
4. PROVISO FOR REDEMPTION
4.01 If the Borrower shall on demand as aforesaid or otherwise pay to the
Lender the Secured Indebtedness and shall have duly performed and observed all
the terms, covenants and agreements herein provided THEN THE LENDER SHALL at the
request cost and charge of the Borrower execute a receipt or otherwise discharge
the security hereby constituted.
5. EVENTS OF DEFAULT
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(i) the Borrower makes default in the payment of the Secured
Indebtedness or any part thereof following demand duly made; or
(ii) the Borrower makes default in the payment on the due date and in
accordance with the terms and conditions relating thereto of any
principal or interest or other moneys outstanding and payable by
the Borrower under any term loan account (whether demanded or
not); or
(iii) there shall be any breach of or omission to observe any of the
agreements covenants or obligations under this Charge; or
(iv) the Borrower becomes bound to repay prematurely any other loan
or similar obligation for borrowed money, after any applicable
grace period, by reason of a default by the Borrower in the
Borrower's obligations in respect of the same or fails to make
any payment in respect thereof on the date, after any applicable
grace period, such payment becomes due unless contested in good
faith; or
(v) (if applicable) a petition is presented or an order is made or
an effective resolution is passed or analogous proceedings are
taken for the winding up of the Borrower save for the purposes
of an amalgamation, merger or reconstruction the terms whereof
have previously been approved by the Lender; or
(vi) the Borrower convenes a meeting for the purpose of making, or
proposes and/or enters into, any arrangement or composition for
the benefit of the Borrower's creditors; or
(vii) (if applicable) the Borrower shall become bankrupt or otherwise
become insolvent or make any arrangement or composition with the
Borrower's creditors; or
(viii) an encumbrancer takes possession or a receiver or other similar
officer is appointed of the whole or any part of the assets, or
the undertaking (if applicable) of the Borrower or
<PAGE> 10
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(ix) the Borrower shall without the consent in writing of the Lender
stop payment to creditors generally or (if applicable) the
Borrower shall (otherwise than for the purpose of such an
amalgamation, merger or reconstruction as is referred to in
paragraph (v) of this sub-clause) cease or threaten to cease to
carry on the Borrower's business or any substantial part thereof
or (if applicable) shall be deemed, for the purposes of Section
178 of the Companies Ordinance or any statutory modification or
re-enactment thereof for the time being in force, to be unable
to pay its debts or disposes or threatens to dispose of the
whole or a substantial part of its undertaking or assets; or
(x) the Crown or any competent authority shall re-enter or threaten
to re-enter upon and take back possession of the Property
provided that the provision of this Sub-clause (x) shall apply,
mutatis mutandis, to any competent authority that extends or
agrees to extend the terms of the Crown grant or grants,
regrants or agrees to grant or regrant to the Borrower the
Property
then and in any such case the Borrower will notify the Lender forthwith in
writing of the occurrence of such event and regardless of whether notice of such
event has or has not been given by the Borrower to the Lender as required above,
an Event of Default shall have occurred.
5.02 Notwithstanding anything to the contrary, express or implied, contained
in any facility letter, instrument, or other agreement or document to which the
Borrower and/or the Lender is a party, the Lender shall be under no liability
at any time after the occurrence of an Event of Default to honour any further
obligations hereunder and the Secured Indebtedness, and all term loans and other
moneys, obligations and liabilities hereby secured not otherwise so repayable,
shall become repayable immediately on demand, together with interest accrued
thereon to the date of repayment in full, and cash cover shall be provided on
demand for all contingent liabilities ???????????????
<PAGE> 11
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6. LENDER'S POWERS
6.01 If any Event of Default shall have occurred then it shall be lawful for
the Lender at any time thereafter without any consent on the part of the
Borrower or of any person to:-
(i) enter into and upon and take possession of the Property and for
that purpose to take any legal proceedings and thenceforth to
hold, possess and enjoy the Property and to receive the rents
and profits thereof without any lawful interruption or
disturbance by the Borrower or any other person;
(ii) (subject to any lease or tenancy lawfully granted by the
Borrower) lot or lease the Property at such rent, for such
period and upon such terms and conditions as the Lender shall
think fit and appoint any person at such reasonable and proper
remuneration as the Lender shall determine to collect the rents
and profits of the Property on behalf of the Lender and
surrender and accept the surrender of tenancies or leases of the
Property;
(ii) (whether or not the Lender shall have made such entry or taken
possession as aforesaid) sell, assign, call in, collect and
convert into money the Property or any interest therein free
from this Charge and any other estates interests and rights to
which this Charge has priority with full power to sell the
Property either together or in parcels and either by public
auction or tender or private contract and partly by one of such
methods and partly by the other one or more of such methods of
sale with power upon any such sale to make any stipulations as
to title or evidence of commencement of title or otherwise in
such manner and subject to such lawful conditions as the Lender
shall think expedient and either for a lump sum or for a sum to
be paid by installments or for a sum on account and subject to a
charge or other security for the balance and with full power to
give any option to purchase the same or to buy in or rescind or
vary any contract of sale of the same and to re-sell the same
without being responsible for any loss which may be occasioned
thereby with power for the Lender to enter into a Deed of Mutual
Covenant or sub-deed of Mutual Covenant or supplemental Deed of
Mutual Covenant and/or Management Agreement and/or any other
documents of a similar
<PAGE> 12
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nature or grant any rights easements or privileges as the Lender
shall in its absolute discretion think fit and with full power
to compromise and effect compositions, and for the purposes
aforesaid or any of them to execute and do all such assurances
and things as the Lender shall think fit.
PROVIDED HOWEVER that where the Event of Default relates to the
payment of any moneys payable hereunder no such sale,
calling-in, collection or conversion into money shall be put
into effect until the Lender shall have previously served on the
Borrower or one of several borrowers a notice requiring payment
of the Secured Indebtedness and default has been made in payment
thereof for a period of one calendar month after such service;
(iv) exercise any powers or rights incidental to the ownership of the
Property;
(v) settle, adjust, refer to arbitration, compromise and arrange any
claim, demand or dispute relating to the Property;
(vi) bring, prosecute, enforce, defend, compromise and abandon any
claim, action, distress, suit or proceedings in relation to the
Property;
(vii) do all things necessary or desirable to preserve, maintain and
manage the Property; and
(viii) do all things necessary or desirable for realizing the Property
or any part thereof.
6.02 Upon any letting, leasing or sale purporting to be made in pursuance of
the aforesaid powers in that behalf and upon the exercise by the Lender of any
of the aforesaid powers, a tenant or purchaser or any other person dealing with
the Lender in connection therewith, shall not be bound to see or enquire
whether any default has been made in payment of the Secured Indebtedness at the
time hereinbefore appointed for payment thereof or whether any money remains
owing on the security of this Charge, or whether due ?????????
<PAGE> 13
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6.03 Notwithstanding any impropriety or irregularity whatsoever in the
exercise of such powers the same shall, as far as regards the safety and
protection of any such tenant or purchaser or any other person dealing with the
Lender, be deemed to be within the aforesaid powers in that behalf and shall be
valid and effectual accordingly.
6.04 The remedy of the Borrower in respect of any breach of the clauses or
provisions hereinbefore contained or any legal obligations imposed by law upon
the Lender from time to time with respect to the exercise of any such powers
shall be in damages only.
6.05 The aforesaid powers may be exercised by any person who for the time
being shall be entitled to receive and give a discharge for the moneys owing on
the security of this Charge.
6.06 Subject as aforesaid the Lender shall not be answerable for any
involuntary losses which may happen in the exercise of the aforesaid powers and
trusts or any of them.
6.07 The provisions of this Clause 6 shall continue to apply mutatis
mutandis after the expiry of the term granted under the Crown Grant in so far
as an extension of the term under the Crown Grant or a grant or regrant of the
Property has been made to the Borrower by any competent authority and subject
to such terms and conditions as may be imposed by such competent authority.
7. BORROWER'S FURTHER COVENANTS AND AGREEMENTS
7.01 The Borrower HEREBY FURTHER COVENANTS AND AGREES with the Lender as
follows, namely that:-
(i) The Crown Grant and the Deed of Covenant are now good, valid
and subsisting and in nowise void or voidable and that the
moneys due under any covenant relating to the Property have been
paid and any other covenants, terms, conditions and obligations
relating to the Property to be performed and observed by the
Borrower have been duly paid performed and observed up to the
date hereof;
<PAGE> 14
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(iii) the Borrower will at all times keep and maintain the Property in
good and tenantable repair and condition to the satisfaction of
the Lender and the relevant government authorities and will
allow the Lender and his servants or agents to enter and view
the state of repair of the Property at all reasonable times
without the Lender by so doing only being deemed to have taken
possession of the Property;
(iv) the Borrower will effect and maintain insurance of the Property
against loss or damage by fire and such other risks as the
Lender shall think fit in its full replacement value in some
local insurance company or such other insurance company or
office as the Lender shall first approve of in writing and if so
required by the Lender in the joint names of the Lender and the
Borrower and will punctually pay all premiums or sums of money
necessary for effecting and keeping up such insurance
immediately upon the same becoming due and will at any time on
demand made for that purpose on the Borrower as hereinafter
provided endorse over to, produce to or leave with the Lender
such policy of such insurance and the receipt for every such
payment and the Lender shall have a lien on the same and on all
moneys thereby assured; PROVIDED ALWAYS that if the Borrower
shall fail to insure the Property in accordance with the
provisions contained in this Charge the Lender may insure the
Property upon such terms and conditions as the Lender shall in
its absolute discretion think fit and any money paid for such
insurance shall be a charge on the Property in addition to the
Secured Indebtedness with the same priority and with interest at
the same rate;
(v) in the event of the Property being destroyed by fire the
Borrower shall, unless otherwise agreed in writing by the
Lender, lay out the insurance money received and at the
Borrower's own expense make up any deficiency so as fully and
completely to rebuild or reinstate the same to its original
state and condition in accordance with the plans and
specifications as shall be approved by the Lender and the
relevant government departments;
(vi) the Borrower shall make payment of (a) the rents, management and
maintenance charges, instalments of premiums (if any) and other
monies or proportions thereof payable in respect of the
<PAGE> 15
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Property under the Crown Grant and the Deed of Covenant (b) the
charges for power, lighting, water and all rates and taxes
assessed on the Property and (a) expenses for all repairs of the
Property as may be necessary under the Crown Grant or the Deed
of Covenant and shall produce to the Lender receipts or other
evidence of such payments;
(vii) the Borrower shall fully and completely perform and observe the
terms, covenants, conditions and obligations contained in the
Crown Grant and the Deed of Covenant;
(viii) if default shall be made by the Borrower in any of the
obligations specified herein it shall be lawful for the Lender
to pay or perform the same;
(ix) the Borrower will at all times keep the Lender indemnified
against all actions, suits, claims, costs and expenses which may
be incurred, or sustained on account of the non-payment of the
premium or other moneys (if any) or crown rent, property tax,
rates, charges, outgoings and impositions or any part thereof or
the breach or non-performance of the covenants, obligations and
agreements herein contained;
(x) the Borrower will not, without the prior written consent of the
Lender and then only in conformity with any conditions
whatsoever the Lender may reasonably impose, part with the use,
occupation or possession of the Property in any way whatsoever
whether by way of letting, sub-letting, sub-dividing, lending,
sharing, assigning or other means whereby any person other than
the Borrower obtains the use, occupation or possession of the
Property, irrespective of whether any rental or other
consideration is given for such use, occupation or possession;
(xi) if at any time the power of sale herein contained shall become
exercisable by the Lender the Borrower will upon being given
notice so to do by the Lender forthwith quit and deliver up
vacant possession of the Property to the Lender or to whomsoever
the Lender may nominate or direct;
(xii) during the continuance of this security the Borrower will not
assign, mortgage, charge, sub-divide, let, underlet, lease or
<PAGE> 16
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otherwise dispose, part with possession or make any arrangement
for the sharing of the Property or any interest therein or
accept surrender of any lease or tenancy thereof or cause or
permit any second or further Charge to be effected of the
Property or in any way encumber the equity of redemption therein
or diminish, jeopardise or prejudice the security hereby
afforded to the Lender or permit the same to be done without the
prior written consent of the lender:
(xiii) (if applicable) the Borrower will not create or agree to create
or permit to arise any mortgage, charge, debenture or pledge
creating any floating charge over or in respect of the
Borrower's present or future undertaking, properties, assets,
rights or revenues, or any part thereof, including its uncalled
capital (if any) for the time being unless the Property and all
rights and interests of the Borrower in respect of the Property
are expressly excluded therefrom;
(xiv) (if applicable) the Borrower will whenever requested so to do in
writing by the Lender apply to the Land Registrar for
apportionment of the Crown Rent and/or premium in respect of the
Property pursuant to the provisions of the Crown Rent and
Premium (Apportionment) Ordinance 1970;
(xv) (if applicable) the Borrower will if required (if necessary in
conjunction with the owners for the time being of the other
undivided shares of and in the Lot or lots more particularly
described in the said Schedule (hereinafter called "the said
Lot")) execute and take up the Crown Lease relating to the said
Lot when called upon so to do by the Land Registrar and pay the
due proportion of the costs and expenses in connection
therewith, and the Borrower shall execute a new charge of the
new lot, or the share owned by the Borrower of and in the new
lot, when such Crown Lease has been taken up in favour of the
Lender in substitution for this Charge;
(xvi) (if applicable) the Borrower will, not later than six months
before the expiration of the term agreed to be granted by the
Crown Grant, exercise any right of renewal [illegible]
<PAGE> 17
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documents as shall be required to effectuate such renewal and
pay such fees as shall be demanded by the Registrar General
(Land Registrar) or other competent authority and will execute a
new charge to the Lender of the said Lot or any substituted lot
or the shares owned by the Borrower of and in the said Lot or
any substituted lot for such renewed term in substitution for
this Charge;
(xvii) in the event of the Borrower being or becoming entitled to,
and/or entitled to apply to any competent authority for, an
extension of the term agreed to be granted by the Crown Grant or
the Borrower being or becoming entitled to, and/or entitled to
apply to any competent authority for, a re-grant or new grant of
an interest in the whole or any part of the said Lot or of such
new or substituted lot as referred to in sub-clauses (xv) and
(xvi) hereof, the Borrower shall forthwith comply with any terms
and conditions affecting such entitlement (including the payment
of such fees as shall be demanded by the competent authority)
and/or shall forthwith make application to the competent
authority for such re-grant or new grant, and thereafter shall
do and perform all acts (including the payment of such fees as
aforesaid) and execute such deeds and documents as may be
necessary to secure an extension or new grant or re-grant as
aforesaid, and shall thereafter execute a new charge (or such
other security interest as the Lender shall require) to the
Lender of or in respect of the subject matter of such extension,
re-grant or new grant, as security for the Secured Indebtedness;
(xviii) if on the expiry of the term granted or agreed to be granted
under the Crown Grant the Borrower does not become or is not
entitled to an extension of the term granted by the Crown Grant,
and/or does not become or is not entitled to a re-grant or new
grant of an interest in the whole or any part of this said Lot
or of such new or substituted lot as referred to in sub-clauses
(xv) and (xvi) hereof, the Borrower shall forthwith furnish such
alternative security to the Lender as the Lender shall require;
<PAGE> 18
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for the Lender to act on behalf of the Borrower, and for such
purposes the Borrower hereby irrevocably appoints the Lender's
authorised officer by way of security to be the attorney of the
Borrower to do such acts as may be necessary to ensure
performance by the Borrower of such obligations, and to execute
and sign, seal and, as the Borrower's act and deed, deliver such
deeds and to sign such documents and instruments as the Lender
shall consider necessary or desirable for such purpose and to
pay such fees on behalf of the Borrower as shall be demanded by
the Registrar General (Land Registrar) or by the competent
authority (which fees, if paid by the Lender on the Borrower's
behalf, shall be added to the Secured Indebtedness and shall
form part thereof) and to execute and to sign, seal and, as the
Borrower's act and deed, deliver a new charge in such form and
substance as the Lender shall require (or other security
interest or alternative security as aforesaid) to the Lender as
hereinbefore provided and to sign such documents and writing and
to do all such other matters and things the Lender shall
consider to be necessary or desirable for such purpose, and the
Borrower shall ratify and confirm all that the said attorney
shall lawfully do or cause to be done by virtue of the
provisions herein contained;
(xx) the Borrower shall provide the lender with copies of all notices
to or from all relevant government departments or otherwise
relating to the Property within seven (7) days of the service
of such notices by or on the Borrower or such other shorter
period as is reasonable in the circumstances and shall comply
with all governmental or other legal requirements and notices
whether statutory or otherwise in respect of the Property.
8. APPOINTMENT OF RECEIVER
8.01 If default in payment of the Secured Indebtedness or any other Event of
Default shall have occurred (and no delay or waiver of the right to exercise the
powers conferred hereby shall prejudice the future exercise of such powers) the
Lender may without further notice appoint in writing under the hand of the
[illegible]
<PAGE> 19
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another or others in his place, and the following provisions shall have effect:-
(i) such appointment may be made either before or after the Lender
shall have entered into or taken possession of the Property;
(ii) such Receiver may be vested by the Lender with such powers and
discretions, including powers of management, as the Lender may
think expedient;
(iii) without prejudice to the generality of the foregoing, such
Receiver shall have power to complete any building (if any)
under construction on the Property and to generally complete the
development thereof and to demand and recover all the income of
the Property of which he is appointed receiver by action,
distress or otherwise in the name either of the Borrower or the
Lender to the full extent of the estate or interest which the
Borrower could dispose of and to give effectual receipts
accordingly for the same;
(iv) unless otherwise directed by the Lender, such Receiver may
exercise all the powers and authorities vested in the Lender
hereunder;
(v) such Receiver shall in the exercise of his powers, authorities
and discretions conform to any regulations and directions from
time to time made and given by the Lender;
(vi) the Lender may from time to time fix the remuneration of such
Receiver and the Receiver shall be entitled to retain out of any
money received by him that remuneration and all costs charges
and expenses properly incurred by him as Receiver;
(vii) the Lender may from time to time and at any time require any
such Receiver to give security for the due performance of his
duties as such Receiver and may fix the nature and amount of the
security to be so given, but the Lender shall not be bound in
any case to require any such security;
<PAGE> 20
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(viii) declared of and concerning moneys which arise from any sale,
calling in, collection or conversion;
(ix) the Lender may pay over to such Receiver any moneys constituting
part of the Property or the income thereof to the intent that
the same may be applied for the purposes hereof by such
Receiver, and the Lender may from time to time determine what
funds the Receiver shall be at library to keep in hand with a
view to the performance of his duties as such Receiver;
(x) subject as hereinafter provided, any such Receiver may, for the
purpose of defraying any costs, charges, losses or expenses
(including his remuneration) which shall be incurred by him in
the exercise of the powers, authorities and discretion vested in
him and for all other purposes hereof or any of them, raise and
borrow money on the security of the Property or any interest
therein either in priority to the moneys hereby secured and the
security hereby constituted or otherwise and at such rate of
interest and generally on such terms and conditions as he may
think fit and no person lending any such money shall be
concerned to enquire as to the propriety or purpose of the
exercise of this power or to see to the application of any
moneys so raised or borrowed provided however that a Receiver
shall not exercise this present power without first obtaining
the prior written consent of the Lender;
(xi) every such Receiver shall be the agent of the Borrower for all
purposes and the Borrower alone shall be responsible for his
acts and defaults, loss or misconduct and for his remuneration
and the Lender shall not incur any liability therefor by reason
of the Lender making his appointment as such Receiver;
(xii) any Receiver may act in his own name or in the name of the
Borrower;
(xiii) every Receiver, attorney, manager, agent or other person
appointed by the Lender hereunder shall be entitled to be
indemnified out of the Property and the income thereof in
respect of all liabilities and expenses incurred by him in the
execution or purported execution of the terms and conditions of
this Charge and against all actions, proceedings, claims
<PAGE> 21
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and demands in respect of any matter or thing done or omitted in
anywise relating to the Property and the Lender may retain and
pay out of any money in the Lender's hands arising from the
terms and conditions of this Charge all sums necessary to affect
such indemnity and all such sums shall be a charge on the
Property;
(xiv) where more than one Receiver is appointed in accordance with the
provisions herein contained any reference in this Charge to a
Receiver shall apply to both or all of the Receivers so
appointed, and the appointment of the Receivers shall be deemed
to be a joint and several appointment to the intent that the
rights, powers, duties and discretions vested in the Receivers
may be exercised jointly by the Receivers so appointed or
severally by each of them.
9. NON-LIABILITY OF RECEIVER OR LENDER
9.01 Neither the Lender nor any Receiver shall be liable, by reason of any
entry into possession of the Property to account as mortgages in possession or
for anything except actual receipts or be liable for any loss on realisation or
for any default or omission for which a mortgagee in possession might be liable.
10. THIRD PARTY ENQUIRIES
10.01 No person dealing with the Lender or any Receiver appointed by the
Lender or with its or his attorneys or agents shall be concerned to enquire
whether any event has occurred to authorise the Receiver to act or the security
hereby constituted has become enforceable or whether the power exercised or
purported to be exercised has become exercisable or whether any moneys remain
due upon the security of this Charge or as to the necessity or expediency of
the stipulations and conditions subject to which any sale shall be made, or
otherwise as to the propriety or regularity of any sale, calling in, collection
or conversion or power exercised or to see to the application of any money paid
to the Lender or to any Receiver or its or his attorneys or agents, and in the
absence of fraud on the part of such person such dealing shall be deemed so far
as regards the safety and protection of such person to be within the powers
hereby conferred and to be valid and effectual accordingly and the remedy of the
Borrower in respect of any irregularity or impropriety whatsoever in the
exercise of such powers shall be in damages only.
<PAGE> 22
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11. LENDER'S OR RECEIVER'S RECEIPT
11.01 Upon any such letting, leasing, sale, calling in, collection or
conversion as aforesaid and upon any other dealing or transaction under the
provisions herein contained the receipt of the Lender or any Receiver for the
rent or proceeds thereof and for any other moneys paid to it or him shall
effectually discharge the tenant, lessee, purchaser or person paying the same
therefrom and from being concerned to see to the application or being
answerable for the loss or misapplication thereof.
12. PROCEEDS OR SECURITY REALIZATION
12.01 The Lender or any Receiver so appointed shall hold the moneys arising
from any such letting, leasing, sale, calling in, collection or conversion or
dealing under the powers conferred upon the Lender or upon any Receiver after
the security hereby created has become enforceable upon trust:-
Firstly: in discharge of all rent, taxes, rates and other
outgoings due and affecting the Property; then
Secondly: unless the Property is sold subject to a prior
incumbrance in discharge of that prior incumbrance;
Thirdly: in payment of the Receiver's lawful remuneration, costs,
charges and expenses and all lawful costs and expenses
properly incurred in the sale or other dealing;
Fourthly: in payment of the Secured Indebtedness, and any residue
shall be paid to the person who immediately before any
sale or other dealing was entitled to the Property or
authorized to give a receipt for the proceeds of sale of
the Property.
13. FURTHER ASSURANCES AND ATTORNEY
13.01 The Borrower shall from time to time and at any time, whether before or
after the security hereby constituted shall have become enforceable, execute and
do all such transfers, assignments, assurances, acts and things as the Lender
may reasonably require for ??????
<PAGE> 23
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security intended to be hereby constituted and for any part thereof and the
exercise by it of all the powers, authorities and discretions hereby conferred
on the Lender or any Receiver appointed by it, and the Borrower shall also give
all notices, orders and directions which the Lender may think expedient. For
the purposes of this Clause a certificate in writing signed by or on behalf of
the Lender to the effect that any particular transfer, assignment, assurance,
act or thing required by the Lender is reasonably required shall be conclusive
evidence of the fact.
13.02 The Borrower hereby irrevocably and by way of security appoints the
Lender and any Receiver jointly and each of them severally to be the Borrower's
attorney (with full power of substitution) and in the Borrower's name and on
the Borrower's behalf to execute, sign and do all deeds, instruments, acts and
things whatsoever which it shall in the opinion of the Lender (whose opinion
shall be conclusive and binding upon the Borrower) be necessary or expedient
that the Borrower should execute, sign or do for the purpose of carrying out
any trust or obligation hereby declared or imposed upon the Borrower or for
giving to the Lender on the Borrower's behalf the full benefit of any of the
provisions hereof and generally to use the Borrower's name in the exercise of
all or any of the powers hereby conferred on the Lender or any Receiver
appointed by the Lender hereunder. The Borrower covenants that the Borrower
will ratify and confirm all that the attorney shall lawfully do or cause to be
done by virtue of these presents.
14. NOTICES DEMANDS AND SERVICE OF PROCEEDINGS
14.01 Any demand for payment or notice by the Lender hereunder shall, without
prejudice to any other effective mode of giving or making the same, be deemed
to have been sufficiently given or made hereunder on the Borrower if left or
sent by prepaid post addressed to the Borrower at the Property or the
registered office or last known business or residential address of the Borrower
for the time being in Hong Kong, and shall be assumed to have reached the
Borrower within 48 hours of posting, and in proving such service it shall be
sufficient to prove that the notice or demand was properly addressed and posted
or properly left as the case may be.
14.02 Any legal process including any writ or originating summons and any
other summons or notice in connection with this Charge to be served on the
Borrower by the Lender in any legal proceedings or action
<PAGE> 24
- 23 -
commenced in any court or tribunal shall be deemed to have been duly and
sufficiently served on the Borrower forty-eight (48) hours after the same
having been left or sent by ordinary prepaid post to the Borrower at the
Borrower's registered office or usual place of business or abode or at the
address of the Property and in proving such service it shall be sufficient to
prove that the legal process or summons or notice was properly addressed and
posted or properly left as the case may be irrespective of whether the same is
returned to the Lender through the post undelivered to the Borrower.
15. SUCCESSORS AND ASSIGNS
15.01 The terms of this Charge shall be binding upon and enure to the benefit
of the respective successors-in-title and assigns of the parties hereto
provided however that the Borrower may not assign any of the Borrower's rights
or obligations hereunder without the express prior written consent and approval
of the Lender.
16. WAIVERS
16.01 No failure to exercise and no delay in exercising on the part of the
Lender any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
17. FEES, COSTS AND EXPENSES
17.01 The Borrower shall (with the object and intention of affording to the
Lender a full indemnity for all amounts actually disbursed or incurred by the
Lender pursuant to the terms hereof) pay or reimburse to the Lender or (as the
case may be) to any Receiver, on demand:-
(i) all costs, charges and expenses incurred and all payments made
by the Lender or any Receiver in the lawful exercise of the
powers hereby conferred upon it or him (together with all
remuneration payable to the Lender or to any such Receiver); and
(ii) all reasonable expenses (including Legal expenses on solicitors
own client basis) incurred by the Lender in
<PAGE> 25
- 24 -
connection with the preparation and thereafter the
administration of this Charge and any other documents executed
pursuant to the terms hereof and incurred by the Lender in suing
for or recovering any sum due from the Borrower to the Lender
hereunder or in connection with the protection or enforcement of
this Security; and
(iii) all stamp and other duties and taxes (if any) to which this
Charge, any document of title relating to the Property and any
other document executed pursuant to the terms hereof, may be
subject;
and the same shall carry interest at the applicable rate as hereinbefore
provided from the date of the same being incurred or disbursed until payment and
all such costs, charges, expenses and remuneration and all interest thereon
shall be a charge on the Property and shall form part of the Secured
Indebtedness.
18. CONTINUING SECURITY
18.01 The security created herein shall be a continuing security and shall be
available to secure whatever may be the balance at any time or from time to
time due by the Borrower to the Lender pursuant to this Charge, and such
continuing security shall not be discharged by the release of any security or
additional security whatsoever which the Lender may for the time being hold or
which may hereafter be held by the Lender as security for the Secured
Indebtedness, and further the Lender has only agreed to grant the general
banking facilities hereunder up to such amount as it may in its absolute
discretion deem safe.
19. APPLICABLE LAW
19.01 This Charge shall be governed by and construed in accordance with Hong
Kong law and the parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of the Hong Kong Courts.
IN WITNESS whereof the Borrower has caused its Common Seal to be
hereunto affixed the day and year first above written.
<PAGE> 26
- 25 -
THE SCHEDULE ABOVE REFERRED TO
ALL THOSE 635 equal undivided 40,800th parts or shares of and in ALL
THOSE pieces or parcels of ground registered in the Land Registry as SUBSECTION
11 OF SECTION A OF INLAND LOT NO. 1367, THE REMAINING PORTION OF SECTION A OF
INLAND LOT NO. 1367, SUBSECTION 10 OF SECTION A OF INLAND LOT NO. 1367,
SUBSECTION 8 OF SECTION A OF INLAND LOT NO. 1367, THE REMAINING PORTION OF
SUBSECTION 9 OF SECTION A OF INLAND LOT NO. 1367 and SECTION A OF SUBSECTION 9
OF SECTION A OF INLAND LOT NO. 1367 And of and in the measuages erections and
buildings thereon now known as AT TOWER (illegible - Chinese characters) ("the
Building") No. 180 Electric Road (formerly known as Nos. 176, 178, 180, 182, 184
and 186 Electric Road), Hong Kong TOGETHER with the sole and exclusive right and
privilege to hold use occupy and enjoy ALL THAT OFFICE 2 on the FIFTEENTH FLOOR
of the Building AND TOGETHER with the benefit of a Deed of Mutual Covenant and
Management Agreement registered in the Land Registry by Memorial No. 6448422 AND
TOGETHER with all subsisting rights and rights of way HELD from the Crown for
the residue of the term of 999 years commencing from the 24th day of February
1896 created therein by a Crown Lease in respect of the whole of Inland Lot No.
1367 dated the 20th day of May 1897 and made between Her late Majesty Queen
Victoria of the one part and Dirk Cordes, Geldolph Adriaan de Lange and Abraham
Capadose of the other part SUBJECT to the payment of the due proportion of the
Crown rent and to the observance and performance of the covenants and conditions
reserved by and contained in the said Crown Lease AND SUBJECT to the said Deed
of Mutual Covenant and Management Agreement AND SUBJECT to all subsisting rights
and rights of way.
<PAGE> 27
- 26 -
SEALED with the Common Seal )
of the Borrower and SIGNED )
by Wong Siu Pang and )
Vong Lai Si, its Directors ) [SIG] [SEAL]
in the presence of: )
[SIG]
[SIG]
- ---------------------------------
Irene Y. S. Lau
Solicitor
Hong Kong
<PAGE> 1
EXHIBIT 10.13
DATED: 7th September 1993
EURO TECH (FAR EAST) LIMITED
to
STANDARD CHARTERED BANK
-----------------------------------------------
MORTGAGE
of
Unit No. 04 on 17th Floor of Citicorp Centre,
No. 18 Whitfield Road, Hong Kong.
-----------------------------------------------
Produced to and registered by me this 9th day of September 1993.
[SIG]
------------------------------
p. Registrer of Companies
Hong Kong
D E A C O N S
in association with
GRAHAM & JAMES
and SLY & WEIGALL
[ILLEGIBLE COPY]
Alexandra House
3rd-6th Floors
Hong Kong
LC:HCFL S93/489212
E:\CFL\93090005
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
Content Page No.
------- --------
<S> <C> <C>
Parties 1
1. Interpretation 1
2. Covenant to Discharge Obligations 3
3. Charging Clause 3
4. Release 4
5. Representations and Warranties 4
6. Covenants 4
7. Events of Default 8
8. Appointment and Powers of Receiver 9
9. Provisions affecting Receiver 11
10. Lender's Powers 12
11. Lender's Entry into Possession 13
12. Power of Attorney 13
13. Third parties 13
14. Proceeds of Security Realisation 14
15. Security Additional 14
16. Suspense Account 14
17. Set-off 15
18. Indulgence 15
19. Settlement 16
20. Distribution of Payments 16
21. Expenses And Stamp Duty 16
22. Evidence 17
23. Assignment 17
24. Remedies, Waivers, Amendments and Consents 17
25. Communications 18
26. Partial Invalidity 18
27. Continuing Security 18
28. Counterparts 18
29. Governing Law 18
Schedule I 19
</TABLE>
<PAGE> 3
[ILLEGIBLE COPY] MORTGAGE [ILLEGIBLE COPY]
PARTIES:
(1) EURO TECH (FAR EAST) LIMITED [illegible Chinese characters] whose
registered office is situate at 49-51 Wong Chuk Hang Road, Flats A & E,
19th Floor, Derrick Industrial Building, Aberdeen, Hong Kong (the
"Mortgagor").
(2) STANDARD CHARTERED BANK a body corporate incorporated by Royal Charter
whose Head Office is at 1 Aldermanbury Square, London EC2V 7SB, England
having a branch office and carrying on business at No. 4-4A Des Voeux
Road Central, Hong Kong (the "Lender").
RECITALS:
(A) This Mortgage is supplemental to the Facility Letter pursuant to which
the Lender has agreed to make the Facilities available to the Mortgagor.
(B) It is a condition of the Facility Letter that the Mortgagor enter into
this Mortgage.
THIS MORTGAGE WITNESSES as follows:-
1. Interpretation
1.1 In this Mortgage, including the Recitals, the following expressions
shall have the meaning assigned to them;-
"Crown Lease"
the Crown Lease referred to in Schedule I;
"Deed of Mutual Covenant"
the Deed of Mutual Covenant and Management Agreement (if
any) referred to in Schedule I;
"Dispose" and "Disposal"
any sale, assignment, exchange, transfer, concession,
loan, lease, surrender of lease, tenancy, licence,
direct or indirect reservation, waiver, compromise,
release, dealing with or in or granting of any option,
right of first refusal or other right or interest
whatsoever or any agreement for any of the same;
"Encumbrance"
any mortgage, charge, pledge, lien (otherwise than
arising by statute or operation of law), hypothecation
or other encumbrance, priority or security interest,
whatsoever over or in the Property;
<PAGE> 4
"Event of Default"
any event set out in Clause 7.1;
"Facilities"
the banking facilities to be made available to the
Mortgagor by the Lender pursuant to the Facility Letter;
"Facility Letter"
the letter or letters from the Lender to the Mortgagor
which from time to time govern the Facilities, as
amended or varied from time to time;
"Fixtures"
all fixed plant, fixed machinery and fixtures (including
trade fixtures), fittings, goods and materials (other
than those being personal chattels within the Bills of
Sales Ordinance (Cap.20)) from time to time on or in the
Property;
"Interest"
interest at such rate(s) per annum as is/are applicable
under the terms relating to the Facilities or as
determined by the Lender (which determination shall be
conclusive and binding on the Mortgagor);
"Mortgage"
this Mortgage as from time to time amended or modified;
"Obligations"
all principal, interest and other amounts from time to
time owing by the Mortgagor to the Lender on any current
and/or other account and all other liabilities
whatsoever of the Mortgagor to the Lender whether
present, future, actual and/or contingent;
"Property"
the property described in Schedule I and any part
thereof and Fixtures;
"Receiver"
a receiver or a receiver and manager for the time being
appointed by the Lender hereunder and includes any
permitted delegate or sub-delegate of the same;
"Regulations"
all planning, building, fire and other laws, regulations
and directives affecting the Property;
"Security Documents"
this Mortgage, the Facility Letter and all other
documents supplemental to, collateral with or derived
from them.
1.2 References in this Mortgage to: -
(a) the Lender includes its successors and assigns;
- 2 -
<PAGE> 5
(b) the Mortgagor includes its executors, administrators, successors
or assigns;
(c) clauses and the Schedules are references to clauses hereof and
the Schedule hereto;
(d) sub-clauses and paragraphs are, unless otherwise stated,
references to sub-clauses and paragraphs of the clause and
sub-clause in which the reference appears; and
(e) words denoting the singular shall include the plural and vice
versa and words denoting one gender shall include all genders.
1.3 Where the Mortgagor comprises two or more persons obligations expressly
or impliedly made by them shall be deemed to be made by such persons jointly
and severally.
1.4 Headings are for ease of reference only and shall be disregarded in
construing this Mortgage.
2. Covenant to Discharge Obligations
In consideration of the Lender agreeing to make available to the
Mortgagor the Facilities upon the terms and subject to the conditions contained
in the Facility Letter, the Mortgagor covenants to pay on demand all Obligations
to the Lender.
3. Charging Clause
The Mortgagor as beneficial owner and as continuing security for the
discharge of the Obligations and the observance and performance by the Mortgagor
of the agreements covenants and conditions contained in this Mortgage:-
(a) charges the Property to the Lender by way of first fixed
mortgage Provided that insofar as the Property comprises a legal
estate in land this mortgage shall be a legal charge over the
Property;
(b) (i) assigns to the Lender all the interest of the Mortgagor
in and the benefit to the Mortgagor arising out of all
insurances relating to the Property or any part thereof
and the right to receive any sums payable to the
Mortgagor in respect thereof;
(ii) agrees to assign legally to the Lender by a document in
a form and substance required by the Lender all
insurances relating to the Property of which the
Mortgagor is entitled to the benefit forthwith upon
notice by the Lender;
(c) assigns to the Lender, (and agrees to assign to the Lender and
will, if so required, execute a separate assignment or separate
assignments in such form and substance as the Lender may require
of), the sale proceeds, the rents and other sums of money and
deposits now or to become payable by virtue of each sale
agreement, lease, tenancy agreement or other Disposal now or
hereafter
- 3 -
<PAGE> 6
concluded in respect of the Property or any part thereof
together with power for the Lender to sue for recovery and give
effectual discharges for the same in the name of the Mortgagor.
4. Release
If the Mortgagor shall repay to the Lender the Obligations hereby
secured in accordance in all respects with the covenants in that behalf herein
contained and observe and perform the covenants terms and conditions herein
contained and on the part of the Mortgagor to be observed and performed then
the Lender shall at the request and cost of the Mortgagor (including the
expense of making a certified true copy of any Power of Attorney under which
the Lender shall have executed or signed any deed or instrument) sign or
execute a receipt for the Obligations hereby secured or otherwise discharge or
release the security constituted by the Security Documents to the Mortgagor or
as the Mortgagor shall direct.
5. Representations and Warranties
The Mortgagor represents and warrants to the Lender that:-
(a) the Mortgagor is the beneficial owner of, has a good and
marketable title to, and has exclusive possession of the whole
of the Property;
(b) the Crown Lease is valid and subsisting and not voidable and has
not been amended or modified in any way;
(c) none of the Property has been Disposed of and, subject as
disclosed to the Lender in writing prior to the date hereof, the
Property is free from all Encumbrances;
(d) in respect of existing tenancies of the Property as disclosed to
the Lender in writing prior to the date hereof, no option to
renew or purchase has been granted to the tenants or any of them
and no advance payment of rent has been or will be demanded,
accepted or paid other than the monthly rent as and when it
falls due each calendar month;
(e) the covenants terms and conditions contained in the Crown Lease
and the Deed of Mutual Covenant so far as they relate to the
Property have been observed and performed up to the date hereof;
and
(f) each of the above representations and warranties and any implied
by law will be correct and complied with in all respects so long
as the Obligations remain payable under the Security Documents.
6. Covenants
6.1 The Mortgagor covenants with the Lender that the Mortgagor will:-
- 4 -
<PAGE> 7
(a) not make any Disposal or create or permit to subsist any
Encumbrance over the whole or any part or parts of the Property
except with the prior consent in writing of the Lender;
(b) observe and comply with:
(i) the covenants and conditions reserved and contained in
the Crown Lease and the Deed of Mutual Covenant; and
(ii) all Regulations;
(c) not agree to any modification or waiver of the Crown Lease or
Deed of Mutual Covenant or of any lease or tenancy agreement
affecting the Property without the prior written approval of the
Lender;
(d) take all necessary action to preserve the Property against
forfeiture, re-entry and re-possession by the Government of Hong
Kong;
(e) take out, maintain and comply with the terms of insurance in
respect of the Property which insurance shall:
(i) be in the joint names of the Mortgagor and the Lender;
(ii) be with such reputable insurance company carrying on
business in Hong Kong or with Lloyd's Underwriters as
the Lender may previously approve in writing;
(iii) be against loss or damage by fire, lightning, explosion,
storm, tempest, flood, typhoon, impact, landslip,
subsidence, aircraft (other than hostile aircraft) and
other aerial devices or articles dropped therefrom,
earthquake, riot and strikes, malicious damage, third
party risks and such other risks and contingencies as
are normally covered by a comprehensive policy
maintained by a prudent company owning similar property
and carrying on similar business in Hong Kong and as the
Lender may from time to time reasonably require;
(iv) be to a minimum of the full reinstatement value of the
Property (including architect's and surveyor's fees and
demolition costs and the costs of shoring up), provided
that if the full reinstatement value referred to above
cannot be agreed between the Mortgagor and the Lender,
it shall be determined by a leading international firm
of surveyors and valuers or other appropriate expert
approved by the Lender at the expense of the Mortgagor;
and
(v) have clauses in a form satisfactory to the Lender to the
effect that:
(01) payment will be made to the Lender in full,
without any deductions, of all moneys and ex
gratis payments in respect thereof;
- 5 -
<PAGE> 8
(02) in the event that the Mortgagor becomes
insolvent or goes into liquidation or ceases to
carry on business, the insurer will, regardless
of such insolvency or liquidation or cessation
of business, assume liability on the same terms
and conditions and for the remaining period that
it would have assumed such liability in the
absence of such insolvency or liquidation or
ceasing to carry on business;
(03) the insurer undertakes to advise the Lender of:
(I) any alteration in, cancellation of,
termination of, or expiry of the
insurance at least 14 days before such
alteration, cancellation, termination or
expiry is due to take effect; and;
(II) any default in the payment of any
premium or failure to renew the
insurance at least 14 days prior to the
date of renewal thereof;
(04) with respect to the Lender, it shall be and
remain enforceable in respect of any claim
arising as a result of any act or thing
occurring less than 14 days prior to notice to
the Lender of any invalidity, avoidance or
unenforceability in whole or in part of the
insurance; and
(05) the Lender is not liable for the payment of
premiums;
(f) pay or cause to be paid the premiums and all other moneys
payable in connection with effecting or maintaining insurance
taken out pursuant to Clause 6.1(e) and on demand to endorse
over and deliver to the Lender the policy or policies of
insurance together with the latest premium receipt;
(g) keep or cause to be kept the Property in a good and substantial
state of repair and condition and allow the Lender and any
person nominated by the Lender to enter and to view the state of
repair of the same at all reasonable times (without thereby
becoming liable as a mortgagee in possession);
(h) promptly pay all rates, taxes, assessments and other outgoings
whatsoever assessed, imposed or charged on or in respect of the
Property;
(i) not without the prior written consent of the Lender carry out
any operation on or institute or continue any use of the
Property or any part or parts thereof for which the permission
of any Governmental body or other competent authority is
required or make any structural alterations or additions to the
Property;
(j) not commit any waste upon or injure or in any manner or by any
means lessen the value of the Property;
(k) forthwith deposit with the Lender all the deeds and documents of
title relating to any of the Property; and
- 6 -
<PAGE> 9
(I) promptly inform the Lender of any event or of the receipt of any
notice which may affect the title of the Mortgagor to the
Property or its rights or interest therein or any Fixtures or
fulfilment by the Mortgagor of any of the Mortgagor's covenants
or obligations hereunder, or which may affect the security
created by the Security Documents.
6.2 The Mortgagor further covenants with the Lender that:
(a) if the Mortgagor shall default in the performance of the
covenants and conditions contained in the Crown Lease or in
complying with its obligations under this Mortgage including but
not limited to its obligations in respect of insurance or in
keeping the Property in a good and substantial condition and
state of repair, or in duly complying with all Regulations then
and in any such case and so often as the same shall happen the
Lender shall be at liberty to perform the covenants in respect
of which such default shall be made, to effect such insurances
and to comply with all such Regulations and the Mortgagor will
forthwith repay on demand all moneys expended by the Lender
therefor and until such repayment the same shall form part of
the Obligations, shall have the benefit of the security
contained in Clause 3 and shall bear interest with effect from
the date of demand for payment until repayment in full (both
before and after judgment);
(b) upon the Lender being entitled so to do under the terms of this
Mortgage, the Property may be taken possession of, and during
the residue of the term of the Crown Lease (and any renewal
thereof) held and enjoyed by the Lender without any lawful
interruption or disturbance by the Mortgagor any person charging
by his direction or any person rightfully claiming through under
or in trust for the Mortgagor (other than in respect of an
estate or interest subject to which this Mortgage is expressly
made);
(c) the Mortgagor shall execute and do all such assurances, acts,
deeds and things as the Lender may require, and procure other
interested parties so to do, for protecting or perfecting the
security created by this Mortgage and to facilitate the exercise
of all powers, authorities and discretions vested in the Lender
or in any Receiver of the Property and shall in particular
execute all transfers, conveyances, assignments, assurances and
registrations, whether to the Lender or to its nominees or
purchasers, or sub-purchasers and give all notices, orders and
discretions which the Lender may think expedient and, for the
purposes of this Clause, a certificate in writing by the Lender
to the effect that any assurance or thing required by it is
reasonably required shall be conclusive evidence of such fact;
(d) in the event of the Hong Kong Government offering a renewal or
extension of the Crown Lease the Mortgagor shall:
(i) forthwith accept the offer;
(ii) fully observe and perform the conditions of the offer
and pay any premium or other consideration demanded;
- 7 -
<PAGE> 10
[MISSING COPY (iii)...]
Crown Lease execute a mortgage or the renewed or
extended Crown Lease to the Lender in the same form as
this Mortgage with such consequential amendments as the
circumstances require; and
(iv) pending execution of the mortgage pursuant to sub-clause
6.2(d)(iii) hold its interest in the Crown Lease as
renewed or extended in trust for the Lender.
7. Events of Default
7.1 The Lender shall be entitled to declare all or any part of this
security immediately enforceable at any time if:-
(a) the Mortgagor shall have failed to comply with a demand for
repayment of the Obligations or any part thereof; or
(b) the Mortgagor makes default in the payment on the due date and
in accordance with the terms and conditions relating thereto of
any principal or interest or other moneys outstanding and
payable by the Mortgagor under any term loan account (whether
demanded or not); or
(c) any representation, warranty or statement by the Mortgagor is
not complied with or proves to have been or to be incorrect; or
(d) the Mortgagor does not comply with any of the Mortgagor's
agreements, covenants or obligations under the Security
Documents; or
(e) the Mortgagor becomes bound to repay prematurely any other loan
or similar obligation for borrowed money by reason of a default
in its obligations in respect of the same or fails to make any
payment in respect thereof on the due date; or
(f) (if applicable) a petition is presented or an order is made or
an effective resolution is passed or analogous proceedings are
taken for the winding up of the Mortgagor save for the purposes
of an amalgamation, merger or reconstruction the terms whereof
have previously been approved by the Lender; or
(g) the Mortgagor convenes a meeting for the purpose of making, or
proposes and/or enters into, any arrangement or composition for
the benefit of its creditors; or
(h) an incumbrancer takes possession or a receiver or other similar
officer is appointed of the whole or any part of the assets, or
the undertaking (if applicable) of the Mortgagor or a distress
or execution is levied or enforced upon or sued out against any
of the chattels or property of the Mortgagor and is not
discharged within thirty days of being levied; or
- 8 -
<PAGE> 11
(i) the Mortgager shall without the consent in writing of the Lender
stop payment to creditors generally or (if applicable) the
Mortgagor shall (otherwise than for the purpose of such an
amalgamation, merger or reconstruction as is referred to in
sub-clause 7.1(f) cease or threaten to cease to carry on its
business or any substantial part thereof or (if applicable)
shall be deemed, for the purposes of Section 178 of the
Companies Ordinance or any statutory modification or
re-enactment thereof for the time being in force, to be unable
to pay its debts or disposes or threatens to dispose of the
whole or a substantial part of its undertaking or assets; or
(j) the Mortgagor shall commit any act of bankruptcy or become
insolvent or make any composition or arrangement with the
Mortgagor's creditors; or
(k) the Mortgagor shall have any judgment or order of Court made or
any execution levied against the Mortgagor's goods chattels or
property; or
(l) in the opinion of the Lender it has reasonable grounds to
consider all or any part of the Property to be in danger or
being seized or sold under any form of distress or execution
levied or threatened or otherwise to be in jeopardy; or
(m) there occurs a material adverse change in the Mortgagor's
financial condition which would, in the opinion of the Lender,
prevent it from performing in any material respect its
obligations under the Security Documents.
7.2 The Mortgagor covenants that it will notify the Lender forthwith in
writing of the occurrence of any Event of Default.
7.3 Notwithstanding anything to the contrary contained in any facility
letter, instrument, or other agreement or document to which the Mortgagor and
the Lender is a party, the Lender shall be under no liability at any time after
the occurrence of an Event of Default to honour any further obligations to
provide or to continue to make available banking facilities under any
arrangements relating to them and all term loans and other moneys, obligations
and liabilities hereby secured not otherwise so repayable, shall become
repayable immediately on demand, together with interest accrued thereon to the
date of repayment in full, and cash cover shall be provided on demand for all
contingent liabilities notwithstanding that the maturity thereon shall not have
arrived or that the Mortgagor shall not have been called upon to pay
thereunder.
8. Appointment and Powers of Receiver
8.1 Upon or at any time after this security has become enforceable, or if
so requested by the Mortgagor, the Lender may under seal or by writing under
the hand of any director, officer or manager of the Lender appoint any person
or persons to be a Receiver of the Property and may similarly remove any
Receiver or appoint another in his place.
8.2 Any Receiver so appointed shall in addition to all other powers and
rights implied by law have power either in his own name or in the name of the
Mortgagor:-
- 9 -
<PAGE> 12
(b) to Dispose of the Property or any part or parts thereof on such
terms and conditions as he may think fit and so that (without
prejudice to the generality of the foregoing) he may Dispose for
a consideration consisting of cash, debentures or other
obligations, shares, securities or other valuable consideration
and any such consideration may be payable in a lump sum or by
instalments spread over such period as he may think fit.
Fixtures may be severed and sold separately from the property
containing them without the consent of the Mortgagor;
(c) to enter into a deed of mutual covenant relating to the Property
and/or any other documents of a similar nature or grant or
except any rights, easements or privileges over or in respect of
the Property as the Lender shall in its absolute discretion
think fit;
(d) for the purpose of exercising any of the powers, authorities and
discretions conferred on him by or pursuant to the Security
Documents and/or of defraying any costs, charges, losses or
expenses (including his remuneration) which shall be incurred by
him in the exercise thereof or for any other purpose, to raise
and borrow money either unsecured or on the security of the
Property either in priority to the security constituted by the
Security Documents or otherwise and generally on such terms and
conditions as he may think fit Provided that:-
(i) no Receiver shall exercise such power without first
obtaining the written consent of the Lender and the
Lender shall incur no responsibility to the Mortgagor or
any other person by reason of its giving or refusing
such consent whether absolutely or subject to any
limitation or condition; and
(ii) no person lending such money shall be concerned to
enquire as to the existence of such consent or the terms
thereof or as to the propriety or purpose of the
exercise of such power or to see to the application of
any money so raised or borrowed;
(e) to exercise or permit the Mortgagor or any nominees of the
Mortgagor to exercise any powers or rights incidental to the
ownership of the Property in such manner as he may think fit;
(f) to make and effect all such repairs, alterations, improvements
and developments to and insurances of the Property as he may
consider fit;
(g) to commence, carry out and complete any building works, repairs,
reconstruction, furnishing or equipment of the Property at the
cost of the Mortgagor;
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<PAGE> 13
(h) to enter into, perform or vary any contract or agreement for or
relating to the Property and to discontinue, repudiate or
rescind any such contract or agreement as aforesaid;
(i) to appoint, hire and employ contractors, builders, workmen,
managers, agents, officers, servants, solicitors, architects,
surveyors, quantity surveyors, estate agents and others for any
purpose on such terms and generally in such manner as he may
consider fit and to discharge any such persons and any such
persons appointed, hired or employed by the Mortgagor and/or the
Receiver;
(j) to purchase or acquire all materials for use in connection with
the exercise of his powers hereunder upon such terms and
conditions as he may in any case think fit;
(k) to require the Mortgagor, his agents, servants, solicitors,
architects, surveyors, quantity surveyors, estate agents and
others to deliver to the Lender all agreements, deeds,
documents, plans, drawings, specifications, papers and
information whatsoever in their possession which the Receiver
may in his absolute discretion require in connection with the
Property and generally to give instructions to any of the same;
(l) to obtain all consents as he shall in his absolute discretion
think fit;
(m) to settle, adjust, refer to arbitration, compromise and arrange
any claims, accounts, disputes, questions and demands with or by
any person who is or claims to be a creditor of the Mortgagor or
relating in any way to the Property;
(n) to bring, prosecute, enforce, defend, compromise and abandon all
claims, actions, suits and proceedings in relation to the
Property as may seem to him to be expedient; and
(o) to do all such other acts and things he may consider necessary
desirable in connection with the Property or for realising the
Property or incidental or conducive to any of the matters,
powers or authorities conferred on a Receiver under or by virtue
of this Mortgage and generally to exercise in relation to the
Property all such powers, authorities and things as he would be
capable of exercising and doing if he were the absolute
beneficial owner of the same.
9. Provisions affecting Receiver
The following provisions shall apply with regard to any Receiver so
appointed:-
(a) any such appointment may be made before or after the Lender
shall have entered into or taken possession of the Property;
(b) any Receiver may (at the absolute discretion of the Lender) be
appointed either Receiver of all of the Property or Receiver of
such part or parts thereof as may be specified in the
appointment and in such latter event the powers
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<PAGE> 14
hereinbefore conferred on a Receiver shall have effect as though
every reference therein to the Property were limited to the part
or parts of the Property so specified;
(c) any Receiver shall in the exercise of his powers, authorities
and discretions conform to any regulations and directions from
time to time made and given by the Lender Provided that no
person dealing with the Lender or any Receiver shall be
concerned to enquire whether the Receiver has so conformed to
any such regulations and directions;
(d) any Receiver shall be the agent of the Mortgagor for all
purposes and the Mortgagor alone shall be responsible for his
contracts, engagements, acts, omissions, defaults, losses and
misconduct and for liabilities incurred by him and for his
remuneration and the Lender shall not incur any liability
therefor (either to the Mortgagor or to any other persons
whatsoever) by reason of its appointing such Receiver or of its
having made or given any requisition or direction pursuant to
the foregoing sub-paragraph or for any other reason whatsoever;
(e) if two or more persons are appointed Receiver the Lender may
provide that their rights, powers and remedies vest in them
jointly or jointly and severally;
(f) the Lender may from time to time fix the remuneration of any
Receiver and direct payment of such remuneration out of moneys
accruing to him in the exercise of his powers as such Receiver
but the Mortgagor alone shall be liable for the payment of such
remuneration;
(g) the Lender may from time to time and at any time require any
Receiver to give security for the due performance of his duties
as Receiver and may fix the nature and amount of the security to
be so given but the Lender shall not be bound in any case to
require any such security; and
(h) every Receiver, attorney, manager, agent or other person
appointed by the Lender hereunder shall be entitled to be
indemnified out of the Property and the income thereof in
respect of all liabilities and expenses incurred by him in the
execution or purported execution of his powers and against all
actions, proceedings, claims and demands in respect of any
matter or thing done or omitted in anywise relating to the
Property and the Lender may retain and pay out of any money in
the Lender's hands arising from the Property or out of its own
resources all sums necessary to effect such indemnity and all
such sums shall be a charge on the Property.
10. Lender's Powers
All or any of the powers, authorities and discretions which are
conferred either expressly or impliedly upon a Receiver of the whole or any part
or parts of the Property by law and this Mortgage may be exercised by the Lender
in relation to the whole or any part or parts of the Property without first
appointing a Receiver of the Property or norwithstanding the appointment of a
Receiver of the Property,
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<PAGE> 15
11. Lender's Entry into Possession
11.1 If the Lender or any Receiver enters into possession of the Property, it
or he may from time to time go out of such possession.
11.2 The Lender shall not in any circumstances by reason of its taking
possession of the Property or for any other reason whatsoever, and whether as
mortgagee in possession or on any other basis whatsoever, be liable to account
to the Mortgagor for anything except its own actual receipts or be liable to the
Mortgagor for any loss or damage arising from any realisation of the Property or
from any act, default or omission in relation to the Property or from any
exercise or non-exercise by it of any power, authority or discretion conferred
upon it in relation to the Property unless such loss or damage shall be caused
by its own fraud.
11.3 All the provisions of sub-clause 11.2 shall apply in relation to the
liability of any Receiver of the Property in all respects as though every
reference in sub-clause 11.2 to the Lender were instead a reference to such
Receiver.
12. Power of Attorney
12.1 The Mortgagor by way of security irrevocably appoints the Lender, each
of the officers for the time being of the Lender and every Receiver of the
Property, each with full power of substitution and each with full power to act
alone, to be the Mortgagor's attorney and in the Mortgagor's name or in the name
of the attorney and on the Mortgagor's behalf to execute and as the Mortgagor's
act and deed or otherwise to do all such assurances, acts or things which the
Mortgagor ought to do under the covenants and provisions contained in the
Security Documents and generally in the Mortgagor's name and on the Mortgagor's
behalf to exercise all or any of the powers, authorities and discretions
conferred on the Lender or any such Receiver and (without prejudice to the
generality of the foregoing) to execute, seal and deliver and otherwise perfect
any deed, assignment, transfer, assurance, agreement, instrument or act which
may in the opinion of such attorney be required or deemed proper, necessary or
desirable in or for any of the purposes of the Security Documents.
12.2 The Mortgagor ratifies and confirms and agrees to ratify and confirm
whatever any such attorney as is mentioned in sub-clause 12.1 shall do or
purport to do in the exercise or purported exercise of all or any of the powers,
authorities and discretions referred to therein.
13. Third parties
13.1 No person dealing with the Lender or with any Receiver shall be
concerned to enquire whether any Event of Default has happened upon which any of
the powers, authorities, and discretions conferred by or pursuant to the
Security Documents in relation to the Property are or may be exercisable by the
Lender or by any such Receiver or otherwise as to the propriety or regularity of
acts purporting or intended to be in exercise of any such powers and as regards
any such person dealing with the Lender or any such Receiver, notwithstanding
that the requisite power, authority or discretion has not become exercisable or
any impropriety or irregularity whatsoever, such powers, authorities and
discretions shall be deemed to be duly and validly
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<PAGE> 16
exercised and that the remedy (if any) of the Mortgagor in respect of any
breach of the provisions hereinbefore contained shall be in damages only.
13.2 Upon any Disposal by the Lender and/or the Receiver the receipt of the
Lender and/or the Receiver for the proceeds thereof shall effectually discharge
the person paying the same therefrom and from being concerned to see to the
application or being answerable for the loss or misapplication thereof.
14. Proceeds of Security Realization
The Lender or any Receiver so appointed shall apply the moneys arising
from any Disposal under the powers conferred upon the Lender or upon any
Receiver after the security hereby created has become enforceable:-
First : in discharge of all rent, taxes, rates and other
outgoings due and affecting the Property;
Secondly : unless the Property is sold subject to a prior
incumbrance, in discharge of that prior incumbrance;
Thirdly : in payment of the Receiver's lawful remuneration, the
Receiver's and the Lender's costs, charges and expenses
and all lawful costs and expenses properly incurred in
the Disposal;
Fourthly : in payment of the Obligations, and any residue shall be
paid to the person who immediately before any Disposal
was entitled to the Property or authorized to give a
receipt for the proceeds of any Disposal of the
Property.
15. Security Additional
The security conferred by this Mortgage is in addition to and shall not
affect or be affected by any other remedy lien security or guarantee which the
Lender may now or at any time hold or take from the Mortgagor or from any other
person in respect of the Obligations.
16. Suspense Account
The Lender may at any time place and keep for such time as it may think
prudent any moneys received, recovered or realised under the Security Documents
to and in a separate or suspense account to the credit of the Mortgagor or of
such other person or persons or transaction, if any, as it shall think fit
without any intermediate obligation on its part to apply the same or any part
thereof in or towards the discharge of the Obligations.
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<PAGE> 17
Set-Off
The Mortgagor authorises the Lender to:-
(a) apply (without prior notice) any credit balance (whether or not
then due) to which the Mortgagor is at any time beneficially
entitled on any account at any office of the Lender in Hong Kong
and elsewhere; and
(b) set-off any liabilities of the Lender to the Mortgagor which are
due or to become due;
in or towards satisfaction of all or any of the Obligations.
For that purpose, the Lender is hereby authorised by the Mortgagor to
use all or any part of any such credit balance or liability to buy such other
currencies as may be necessary to effect such application or set-off.
18. Indulgence
This security and the rights of the lender under it shall not be
discharged or in any way affected by:-
(a) any time, indulgence, waiver or consent at any time given to the
Mortgagor or any other person;
(b) any amendment to any of the Security Documents or to any other
security, guarantee or indemnity;
(c) the making or the absence of any demand on the Mortgagor or any
other person for payment;
(d) the enforcement or absence of enforcement of or release of the
Security Documents or of any other security, guarantee or
indemnity;
(e) the dissolution, amalgamation, reconstruction, reorganisation or
change in the persons carrying on business in the name of the
Mortgagor or, as the case may be, death or incapacity of the
Mortgagor;
(f) the illegality, invalidity or unenforceability of or any defect
in any provision of the Security Documents or any of the
Mortgagor's obligations under them; or
(g) any party to any of the Security Documents not being bound by
any of the same by reason of failure to execute the same or
otherwise.
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<PAGE> 18
19. Settlement
Any settlement, assignment, payment or discharge between the Lender and
the Mortgagor shall be conditional upon no security or payment to the Lender in
respect of the Obligations being avoided or reduced by virtue of any provisions
or enactments relating to bankruptcy, insolvency or liquidation for the time
being in force and in that event the Lender shall be entitled to recover the
value or amount of any such security or payment from the Mortgagor.
20. Distribution of Payments
20.1 Payments by the Mortgagor shall be treated for the purposes of the
Security Documents as if money received thereunder were applied to amounts
owing thereunder or with respect thereto in such manner as the Lender may from
time to time notify, notwithstanding that such moneys may in fact be applied or
directed by the payer to be applied in some other manner.
20.2 If the security becomes enforceable all moneys received by the Lender
in respect of the Obligations after the date conclusively determined by the
Lender to be the earliest date on which the Lender was entitled to call for the
immediate repayment of any principal not otherwise payable on demand or on which
there was an Event of Default shall be credited to a suspense account or
suspense accounts or treated as if so credited pending application thereof at
the discretion of the Lender.
21. Expenses And Stamp Duty
The Mortgagor shall be liable for and shall pay on demand:-
(a) all costs and expenses (including legal fees) incurred by the
Lender in connection with the preparation, printing,
negotiation, entry into of the Security Documents and/or any
amendment of or waiver in respect of the Security Documents;
(b) all costs and expenses (including legal fees) incurred by the
Lender in the administration of, or in preserving, exercising,
protecting or enforcing any rights under the Security Documents
or in relation to the Property; and
(c) any stamp, documentary, registration or similar duty or fee
payable in connection with the entry into, registration,
performance, enforcement or admissibility in evidence of the
Security Documents and shall indemnify the Lender against any
liability with respect to or resulting from any delay in paying
or omission to pay any such duty or fee;
to the intent that the Lender shall be afforded a full and unlimited indemnity
in respect thereof and until so repaid such costs, charges, expenses and other
sums and interest shall form part of the Obligations and shall have the benefit
of the security contained in Clause 3 (but without prejudice to any other
remedy, lien or security available to the Lender).
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<PAGE> 19
22. Evidence
22.1 The entries made in the accounts maintained by the Lender in accordance
with its usual practice shall be conclusive evidence of the existence and
amounts of the Obligations of the Mortgagor therein recorded save for manifest
error.
22.2 A certificate by the Lender as to any sum payable to it under the
Security Documents and any other certificate, determination, notification or
opinion of the Lender provided for in the Security Documents, shall be
conclusive, save for manifest error.
23. Assignment
23.1 The Security Documents shall benefit and be binding on the parties,
their respective successors and any permitted assignee or transferee of some or
all of a party's rights or obligations thereunder. Any reference in the
Security Documents to any party shall be construed accordingly.
23.2 The Mortgagor may not Dispose of all or part of the Mortgagor's rights
or obligations under the Security Documents.
23.3 (a) The Lender may at any time Dispose to any one or more banks or
other financial institutions all or any part of its rights and
benefits under the Security Documents and in that event the
disposee shall have the same rights against the Mortgagor as it
would have had if it had been a party hereto.
(b) Any such disposee shall be and be treated as the Lender for all
purposes of the Security Documents and shall be entitled to the
full benefit of the Security Documents to the same extent as if
it were an original party in respect of the rights or
obligations Disposed of to it.
23.4 The Lender may disclose to a potential disposee or any other person
proposing to enter into contractual arrangements with the Lender in relation to
the Security Documents such information about the Mortgagor as it may think fit.
24. Remedies, Waivers, Amendments and Consents
24.1 Time shall be of the essence of the Security Documents but no failure on
the part of the Lender to exercise, and no delay on its part in exercising, any
right or remedy under the Security Documents will operate as a waiver thereof,
nor will any single or partial exercise of any right or remedy preclude any
other or further exercise thereof or the exercise of any other right or remedy.
The rights and remedies provided in the Security Documents are cumulative and
not exclusive of any rights or remedies provided by law.
24.2 Any provision of the Security Documents may be amended only if the
Mortgagor, and the Lender so agree in writing and any Event of Default may be
waived before or after it occurs only if the Lender agrees in writing. Any
waiver or consent shall be effective only in the instance and the purpose for
which it is given.
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<PAGE> 20
25. Communications
25.1 Each communication to be made under the Security Documents shall be made
in writing but, unless otherwise stated, may be made by telex, facsimile or
letter but, if by telex by the Mortgagor, shall promptly be confirmed by letter.
25.2 Any communication or document to be made or delivered by one party to
another pursuant to the Security Documents shall be made or delivered to that
other party to the address specified herein or (if appropriate) its registered
office or in the case of the Mortgagor to the Property.
25.3 Any communication from the Mortgagor shall be irrevocable, and shall not
be effective until actually received by the Lender. Any communication to the
Mortgagor shall be deemed to be received by the Mortgagor (if sent by telex or
facsimile) on the next working day in the place to which it is sent or (in any
other case) when left at an address required by sub-clause 25.2 or 3 days after
being put in the post (by airmail if to another country), postage prepaid, and
addressed to it at that address.
26. Partial Invalidity
The illegality, invalidity or unenforceability of any provision of the
Security Documents under the law of any jurisdiction shall not affect its
legality, validity or enforceability under the law of any other jurisdiction
nor the legality, validity or enforceability of any other provision.
27. Continuing Security
The security created herein shall be a continuing security and shall be
available to secure whatever may be the balance at any time or from time to
time due by the Mortgagor to the Lender pursuant to this Mortgage.
28. Counterparts
This Mortgage may be signed in any number of counterparts, all of which
taken together respectively and when delivered to the Lender shall constitute
one and the same respective instrument. Any party may enter into this Mortgage
by signing any such counterpart.
29. Governing Law
This Mortgage shall be governed by and construed in accordance with the
laws of Hong Kong and the parties hereby agree to submit to the non-exclusive
jurisdiction of the Hong Kong Courts.
This Mortgage has been executed by or on behalf of the Mortgagor.
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<PAGE> 21
SCHEDULE I
1. The Property:-
(a) Lot number, section, undivided shares, description, address and
etc.;-
ALL THOSE 1270 equal undivided 14,074th parts or shares of and
in ALL THOSE 260 equal undivided 10,080th parts or shares of and
in ALL THOSE pieces or parcels of ground respectively registered
in the Land Registry as THE REMAINING PORTION OF INLAND LOT
NO.1936 and THE REMAINING PORTION OF INLAND LOT NO.2227 And of
and in the measuages erections and buildings thereon now known
as "CITICORP CENTRE" No.18 Whitfield Road ("the Building")
TOGETHER with the sole and exclusive right and privilege to hold
use occupy and enjoy ALL THAT UNIT NO.04 on the SEVENTEENTH
FLOOR of the Building which said Unit is more particularly shown
coloured Pink on the 17th Floor Plan annexed to an Assignment of
even date in favour of the Mortgagor ("the Assignment").
(b) Exception and reservations, etc.:-
(i) Except and reserved as in the Crown Lease hereinafter
mentioned is excepted and reserved.
(ii) Subject to such exceptions and reservations as are set
out in the Assignment registered in the Land Registry by
Memorial No.4280160 and the Deed of Mutual Covenant
registered in the Land Registry by Memorial No.2462844
and a Supplemental Deed of Mutual Covenant registered in
the Land Registry by Memorial No.2476944 and a Sub-Deed
of Mutual Covenant registered in the Land Registry by
Memorial No.5677616.
(c) Easements and other appurtenant rights the benefit of which is
assigned with the Property:-
All rights rights of way (if any) and all other rights
privileges easements and appurtenances thereto belonging or
appertaining or therewith at any time used held occupied or
enjoyed AND all the estate right title interest property claim
and demand whatsoever of the vendor therein and thereto.
(d) Easements and other rights to which the Property is subject:-
All subsisting easements rights and rights of way (if any)
affecting the Property.
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<PAGE> 22
2. The Crown Leases:-
(A) A new Crown Lease of Inland Lot No. 1936 was deemed to have been granted
under and by virtue of the Crown Lease Ordinance (Cap.40) for the
further term of 75 years commencing immediately after the expiration of
the original term of 75 years created under the old Crown Lease,
particulars of which are set out as follows:-
(a) Date : 14th June 1917.
(b) Parties : His late Majesty King George V of the one part
and Kwong Sang Hong Limited of the other part.
(c) Term : 75 years from the 21st day of March 1904 with a
right of renewal for a further term of 75 years.
(d) Lot : Inland Lot No. 1936.
As varied or modified by a Deed of Variation dated the 21st day of May
1982 and registered in the Land Registry by Memorial No. 2260925.
(B) A new Crown Lease of Inland Lot No. 2227 was deemed to have been granted
under and by virtue of the Crown Lease Ordinance (Cap.40) for the
further term of 75 years commencing immediately after the expiration of
the original term of 75 years created under the old Crown Lease,
particulars of which are set out as follows:-
(a) Date : 14th June 1917.
(b) Parties : His late Majesty King George V of the one part
and Kwong Sang Hong Limited of the other part.
(c) Term : 75 years from the 21st day of March 1904 with a
right of renewal for a further term of 75 years.
(d) Lot : Inland Lot No. 2227.
As varied or modified by a Deed of Variation dated the 21st day of May
1982 and registered in the Land Registry by Memorial No. 2260926.
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<PAGE> 23
SEALED with the Common Seal )
of the Mortgagor and SIGNED )
by [SIG] ) [SIG] [SEAL]
)
in the presence of: )
[SIG]
HANDA C. F. LAM
Solicitor, Hong Kong
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<PAGE> 1
EXHIBIT 23.2
[ARTHUR ANDERSEN LOGO AND LETTERHEAD]
November 15, 1996
The Directors
Euro Tech (Far East) Limited
18/F Goo Chang Hong Centre
65 Wong Chuk Hang Road
Hong Kong
Dear Sirs,
As independent public accountants, we hereby consent to the incorporation of our
reports dated November 13, 1996 included in Euro Tech Holdings Company Limited's
Form F-1 dated November 18, 1996 and to references to our Firm included in this
registration statement.
Very truly yours,
/s/ Arthur Andersen & Co.
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<PAGE> 2
Exhibit 23.2
ARTHUR
ANDERSEN
LETTERHEAD
November 15, 1996
The Directors
Euro Tech Holdings Company Limited
18/F., Gee Chang Hong Centre
65 Wong Chuk Hang Road
Hong Kong
Dear Sirs,
As independent public accountants, we hereby consent to the incorporation of our
report dated November 13, 1996 included in Euro Tech Holdings Company Limited's
Form F-1 dated November 18, 1996 and to all the references to our Firm included
in this registration statement.
Very truly yours,
/s/ Arthur Andersen & Co.
- ---------------------------------------------------------
Arthur Andersen & Co.
