<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-16277
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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)
------------------------
C T CORPORATION SYSTEM
1633 Broadway
New York, New York 10019
(212) 664-1666
(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, FREDERICKS & CURTIN, LLP
120 Wall Street 101 East 52nd Street
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>
<S> <C> <C> <C> <C>
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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
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Common Stock, $.01 par value.......... 690,000(2) $ 5.00 $3,450,000 $1,045.46
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Redeemable Common Stock Purchase
Warrants............................ 690,000(3) $ .15 $ 103,500 $ 31.36
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Common Stock, $.01 par value(4)....... 690,000 $ 5.50 $3,795,000 $1,150.00
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Underwriter's Stock Warrants(5)....... 60,000 $ -- $ 5 $ --
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Common Stock, $.01 par value(6)....... 60,000 $ 8.25 $ 495,000 $ 150.00
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Underwriter's Warrants(7)............. 60,000 $ -- $ 5 $ --
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Common Stock Purchase Warrants(8)..... 60,000 $.2475 $ 14,850 $ 4.50
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Common Stock, $.01 par value(9)....... 60,000 $ 6.00 $ 360,000 $ 109.09
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Redeemable Common Stock Purchase
Warrants to be sold by Selling
Securityholders..................... 1,000,000 $ .15(10) $ 150,000 $ 45.46
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Common Stock, $.01 par value to be
sold by Selling Securityholders..... 1,000,000 $ 5.50(10) $5,500,000 $1,666.67
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TOTAL.......................... $4,202.54(12)
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----------
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</TABLE>
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(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 or to be 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.
(12) $4,734.24 previously paid with initial filing on November 18, 1996.
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.
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<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 JANUARY 31, 1997
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" or "Common Share(s)") of the Company and 600,000 Redeemable
Common Stock Purchase Warrants (the "Public Warrants"). The Common Stock and the
Public 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 Public Warrants together or in any particular ratio. Each
Public 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 Public
Warrants will be exercisable only if May Davis Group, Inc. (the "Underwriter")
has consented in writing to all of the Public Warrants being exercisable.
The Public Warrants are redeemable, in whole or in part, by the Company at
a price of $.10 per Public 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 Warrantholders, (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 Public 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 Public 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 Public 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 Public Warrants on the NASDAQ Small Cap Market ("NASDAQ") under the
symbols " " and " ", respectively. The
closing of the Public Offering is subject to the simultaneous acquisition by the
Company of Euro Tech (Far East) Ltd..
Simultaneously, with the Public Offering, certain selling securityholders
(the "Selling Securityholders") are offering for resale 1,000,000 Warrants
purchased by such Selling Securityholders as private investors in a recent
private placement of said securities (the "Private Warrants") and 1,000,000
shares of the Company's Common Stock underlying the Private Warrants. To permit
such resale, the Company has included said Private Warrants and the shares of
the Company's Common Stock underlying said Private Warrants in the Registration
Statement of which this Prospectus forms a part and are to be offered by the
Selling Securityholders by a separate prospectus also included therein. The
Selling Securityholders may not resell their Private Warrants or the shares of
Common Stock underlying said warrants for a period of twenty four months from
the Effective Date without the Underwriter's consent. See "Concurrent
Registration of Securities." The terms of the Private Warrants are identical to
the Public Warrants, and the Private Warrants and the Public Warrants are
hereinafter collectively referred to as the "Warrants."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 9 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>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................. $5.00 $.50 $4.50
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Per Warrant................................ $.15 $.015 $.135
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Total(3)................................... $3,090,000.00 $309,000.00 $2,781,000.00
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</TABLE>
(footnotes on following page)
-------------------------------------------
MAY DAVIS GROUP, INC.
-------------------------------------------
The date of this Prospectus is , 1997.
<PAGE> 6
(footnotes from previous page)
(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 $8.25 per share and/or 60,000 Common Stock Purchase Warrants at $.2475
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 ,
1997.
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 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
GLOSSARY
The following glossary of terms may be helpful in understanding the
terminology used in this Prospectus:
<TABLE>
<S> <C>
Ambient air: Atmospheric air (outdoor as opposed to indoor air)
Cardiac catheterization: An invasive clinical treatment of patients suffering from
cardiac disease by means of insertion of a special catheter
through the blood vessels and into the chamber of the heart.
Generally used for widening narrow blood vessels and
correcting abnormal heartbeats.
Colorimeter: An analytical instrument that measures substance
concentration by color intensity when the substance reacts
to a chemical reagent.
Defibrillator: A medical device used for life-resuscitation following
cardiac arrest, by releasing energy in an attempt to restore
a normal heart beat.
Flow injection analyzer: An analytical instrument with a special sampling system that
uses a continuous stream of reagent(s) into which fluid
samples are injected.
pH controller: A process instrument that measures and controls the acidity
or alkalinity of a fluid.
Reagent: A chemical substance used to cause a chemical reaction and
detect another substance.
Mass spectrometer: An analytical instrument that separates and identifies
chemical constituents according to their mass-to-charge
ratios and is used to identify organic compounds.
Multi-channel digital A device that measures and records more than one input of a
recorder: digitized signal (signal in the form of pulses).
Multi-channel and analogue A device that measures and records more than one input of a
recorder: signal in millivoltage or milliamphere (e.g. temperature in
degrees Centigrade or degrees Fahrenheit).
Atomic spectrometer: An analytical instrument used to measure the presence of an
element in a substance by testing a sample which is
aspirated into a flame and atomized. The amount of light
absorbed or emitted is measured. The amount of energy
absorbed or emitted is proportional to the concentration of
the element in the sample.
Process analyzer: An analyzer that continuously samples, monitors and measures
fluids or gases.
Process turbidimeter: An analytical instrument that continuously measures the
clarity of water based on light scattering or deflection.
</TABLE>
3
<PAGE> 8
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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."
The Company is a distributor, in Hong Kong and the People's Republic of
China (the "PRC" or China), of process control, analytical and testing
instruments, disinfection equipment, supplies and related automation systems
used in the treatment, analysis and testing of water and waste water. 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. Far East was established in 1971 as a subsidiary of a United
Kingdom publicly traded company 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 technology 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
Far East and another entity. 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 1995
("Fiscal 1995"), Far East's sales revenues remained substantially unchanged. 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, as a result of these measures, cost
became an overriding issue with many of Far East's PRC customers and, in
response, Far East reduced its sales prices and, therefore, its profit margins
to remain competitive with PRC manufacturers even though the products
distributed by Far East were of better quality. During the six month period
ended June 30, 1996 ("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, which had not been successful. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," "Principal Shareholders" and "Certain Transactions."
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%,
4
<PAGE> 9
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"). Products distributed by the Company include,
advanced water treatment and testing equipment (including chlorination
equipment) laboratory instruments, test kits and related supplies such as
spectrometers, colorimeters, chemical reagent dispensers, analyzers,
turbidimeters and pH controllers. The Company also distributes general testing
and telecommunications testing equipment, cardiac catheterization systems,
defribrillators, indoor pay telephones, and digital and analogue recorders. See
"Business."
The Company distributes products through its headquarters located in Hong
Kong and its regional sales offices located in Beijing, Shanghai and Guangzhou
and through non-exclusive arrangements with independent sub-distributors. During
Fiscal 1995 and Six Months 1996, no single customer accounted for more than 5%
of the Company's sales and each of the nine sub-distributors accounted for less
than 2% of the Company's sales during Fiscal 1995 and Six Months 1996. See
"Business."
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, initially certain water related testing, monitoring
and treatment equipment, and if successful in assembling such products, to
expand its product assembly operations to other products of the kind now
distributed by the Company, pursuant to an agreement to be entered into with a
PRC based entity, such as the Shanghai Thermometric Instrument Plant ("STIP"),
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. See "Use of
Proceeds."
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
such products. 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. See "Business."
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of the Company
and Far East and the notes thereto.
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.
5
<PAGE> 10
RISK FACTORS
Certain risk factors should be considered in evaluating the Company, its
business and its proposed product assembly operations and expansion plans. Such
factors include, among others, the risks associated with having its principal
offices and operations located in Hong Kong, where the transfer of sovereignty
is to occur shortly, risks associated with doing business in China, the possible
need for additional financing, the risks inherent in establishing new business
operations and expanding marketing efforts, competition with Chinese
manufactured products, competing with its own vendors, and dependence upon
vendors and the lack of long term agreements with vendors. For a discussion of
these and certain other factors, see "Risk Factors."
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)....... 1,450,000 Shares.
COMMON STOCK OUTSTANDING
AFTER OFFERING(1)(2)..... 2,050,000 Shares.
WARRANTS OUTSTANDING BEFORE
OFFERING................. 1,000,000.
WARRANTS OUTSTANDING AFTER
OFFERING(2).............. 1,600,000 Warrants.
EXPIRATION DATE............ , 2003 (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."
(footnotes on following page)
6
<PAGE> 11
PROPOSED NASDAQ SMALL CAP
SYMBOLS:(3)
COMMON STOCK...........
WARRANTS...............
- ---------------
(footnotes from previous page)
(1) Includes 1,400,000 shares of the Company's Common Stock to be issued in
connection with the Acquisition. See "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 options to be granted on or prior to the
Effective Date to members of the Company's management and employees of Far
East (the "Management Options"); (v) 150,000 shares of Common Stock reserved
for issuance pursuant to the Company's incentive stock option plan; or (vi)
100,000 shares of Common Stock reserved for options to be granted to a
consultant to Far East on or prior to the Effective Date. See "Management,"
"Certain Transactions," "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 Even if Listing is Obtained."
7
<PAGE> 12
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 AS OF JUNE 30, 1996
OCTOBER 31,(1) AS OF DECEMBER 31, -----------------------------------------
--------------- --------------------------------- AS PRO PRO
1991 1992 1993 1994 1995 1995 ACTUAL ADJUSTED(5) FORMA(6) FORMA(6)
------ ------ ------ ------ ------ ------ ------ ----------- ------- --------
HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ HK$ US$(2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........ 1,340 4,934 3,735 3,408 4,626 597 3,008 4,018 20,512 2,650
Working capital(3)............... 6,152 8,855 9,261 7,253 4,896 631 6,115 7,125 23,619 3,052
Total assets..................... 25,845 33,615 45,838 52,492 59,740 7,717 57,303 58,313 74,807 9,665
Short-term debt(4)............... 1,086 3,629 6,235 7,791 6,434 831 6,232 6,232 6,232 805
Long-term bank loans............. -- -- 2,538 3,330 7,006 905 6,471 6,471 6,471 836
Stockholders' equity............. 8,955 11,308 17,140 17,607 17,721 2,289 20,983 21,993 38,487 4,973
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE TWO
YEAR ENDED MONTHS ENDED FOR THE SIX
OCTOBER 31,(1) DECEMBER 31,(1) FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED JUNE 30,
----------------- --------------- ------------------------------------------- -------------------------------
1991 1992 1992 1993 1994 1995 1995 1995 1996 1996
------- ------- --------------- ------- --------- --------- --------- ------- --------- ---------
HK$ HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ US$(2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
STATEMENT
DATA:
Sales........ 68,263 83,813 15,257 105,374 103,512 105,782 13,667 51,959 53,969 6,973
-------- -------- -------- --------
- - - -
-------- - --------- --------- --------- --------- ---------
Cost of goods
sold........ (50,686) (62,833) (8,746) (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397)
Selling and
administrative
expenses.... (15,607) (19,683) (5,438) (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273)
Interest
expenses,
net......... (249) (135) (21) (221) (492) (877) (113) (420) (631) (82)
Gain on
disposal of
a real
estate
property.... -- -- -- -- 2,300 -- -- -- -- --
Other income,
net......... 535 2,739 147 675 590 1,186 153 118 488 63
-------- -------- -------- --------
- - - -
-------- - --------- --------- --------- --------- ---------
Total costs
and
expenses.... (66,007) (79,912) (14,058) (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 1,199 7,142 4,758 2,327 301 420 2,189 284
Provision for
profits tax
--
current..... (373) (827) (201) (1,106) (425) (68) (9) (77) (406) (52)
-------- -------- -------- --------
- - - -
-------- - --------- --------- --------- --------- ---------
Income from
continuing
operations... 1,883 3,074 993 6,036 4,333 2,259 292 343 1,783 232
Discontinued
operations
Income
(loss) of
subsidiary
companies
sold in
1996........ 169 947 3 12 (1,466) (1,645) (213) (369) -- --
-------- -------- -------- --------
- - - -
-------- - --------- --------- --------- --------- ---------
Net income
(loss)...... 2,052 4,021 992 6,048 2,867 614 79 (26) 1,783 232
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Pro forma
income from
continuing
operations
per common
share....... 1.56 0.20 1.23 0.16
Pro forma
loss from
discontinued
operations
per common
share....... (1.14) (0.15) -- --
Pro forma net
income per
common
share....... 0.42 0.05 1.23 0.16
Pro forma
weighted
average
number of
common share
outstanding... 1,450,000 1,450,000 1,450,000 1,450,000
</TABLE>
- ---------------
(1) In 1993, Euro Tech (Far East) Limited changed its financial year end from
October 31 to December 31.
(2) Translation solely for convenience of the readers at the prevailing exchange
rate of HK$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.
(5) Reflects the issuance of 1,000,000 Warrants to certain private investors for
net proceeds of US$130,500 before the Public Offering.
(6) Reflects the issuance of 1,000,000 Warrants to certain private investors for
net proceeds of US$130,500 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.
8
<PAGE> 13
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. On December 21, 1996, a Committee of four hundred people, chosen by the
government of China from Hong Kong's business and political communities, met in
the Chinese city of Shenzhen and selected sixty members for Hong Kong's new
legislature. Ten days prior to that, the same committee selected Hong Kong's
first Chinese chief executive. 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; UNCERTAIN ECONOMY; INTERNAL POLITICS; UNCERTAIN
LEGAL SYSTEM AND APPLICATION OF LAWS; NO ASSURANCE OF GOVERNMENT APPROVALS;
GOVERNMENT CONTROL OF CURRENCY AND EXCHANGE RATE RISKS; AND RECENT TURBULENT
RELATIONS WITH UNITED STATES. 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, Internal Political and Other Risks. The economy in China differs
from the economics of many other countries in such respects as structure,
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, rate of inflation and balance of payments position. For
almost forty years, the economy of China has been planned economy subject to
one-, five- and ten-year plans ("State Plans") adopted by central Chinese
government authorities and implemented, to a large extent, by provincial and
local authorities, which set out production and development targets. Although
the majority of productive assets in China are still government owned, in the
past several years the Chinese government has implemented economic reform
measures that emphasize decentralization, the utilization of market forces in
the development of its economy and the encouragement of private economic
activity. Such economic reform measures may be inconsistent or ineffectual and
the Company may not be able to capitalize on all such reforms. Further, there
can be no assurance that the government of China will continue to pursue such
policies, that such policies will be successful if pursued, that such policies
will not be significantly altered from time to time or that business operations
in China would not become subject to the risk of nationalization, which could
result in the total loss of investments made and markets developed in that
country. In addition, the success of the Company's activities in China depend on
the Company's continued ability to overcome
9
<PAGE> 14
circumstances specifically affecting the industrial sector, including the
relatively poor infrastructure, road transportation and communications network
and an uncertain legal and regulatory environment.
During the nearly past two decades, the Chinese government under its
current leadership has been reforming, and is expected to continue to reform,
China's economic and political systems. Many of the reforms are unprecedented
and are expected to be refined over time. 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 China's political, economic and social conditions and 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 and
reduction in tariff protection and another import restrictions. 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 believes that the basic
principles underlying the reforms will continue to provide an acceptable
framework for China's political and economic systems.
Although China's economy has experienced significant growth in recent
years, that growth has been uneven among various geographic regions and economic
sectors. Also, 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 adverse
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. See "-- Competition; Adverse
Impact upon Company of China's Credit Restrictions."
Uncertain Legal System and Application of Laws. 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 existing laws, regulations
or agreements may be sporadic and inconsistent. China's judiciary is relatively
inexperienced in enforcing laws that exist, leading to a higher than usual
degree of uncertainty as to the outcome of any litigation. Even when adequate
law exists in China, it may not be possible to obtain speedy and equitable
enforcement of the law.
No Assurance of 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. Although the Company has not been denied any such approvals in
the past, 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.
Government Control of Currency 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
10
<PAGE> 15
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 imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign imports. Effective January 1, 1994,
pursuant to the Notice of the People's Bank of China ("PBOC") Concerning Further
Reform of the Foreign Currency Control System, the conversion of Renminbi into
Hong Kong and United States Dollars must be based on rates set by the PBOC,
which rates are set daily based on the previous day's Chinese interbank foreign
exchange market rate with reference to current exchange rates on the world
financial markets.
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
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.
Recent Turbulent Relations with the United States. The United States has
considered revocation of China's Most Favored Nation ("MFN") trade status, which
provides China with the trading privileges available generally to trading
partners of the United States, and the United States and China have recently
been involved in controversy over the protection in China of intellectual
property rights that threatened a trade war between the countries. President
Clinton has extended China's MFN status until June 1997. However, there can be
no assurance that the United States will not revoke or refuse to extend China's
MFN status in the future.
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
11
<PAGE> 16
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. In the event
the Company is not successful in establishing its planned product assembly
operations, any proceeds remaining from the funds allocated for such purposes
may be reallocated to expanding the lines of products that the Company
distributes. See "-- Possible Need For Additional Financing," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
LOSSES POSSIBLE IN ATTEMPTING TO PENETRATE NEW MARKETS; POSSIBLE FAILURE TO
PENETRATE NEW MARKETS. 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 for these additional regional sales offices until they 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 be unsuccessful in these expansion efforts and the proceeds
allocated to that purpose may be expended without the Company deriving any
financial benefit. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
RECENTLY DISPOSED OF UNSUCCESSFUL SUBSIDIARIES; RISKS OF INVESTING IN HONG
KONG 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 in Hong Kong. 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 Hong Kong 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 Hong Kong real
estate, there can be no assurance that the Company will derive a profit from any
future investments that it may make in Hong Kong realty. As a result of the
impending transfer of sovereignty over Hong Kong from the United Kingdom to
China, any investment in Hong Kong realty will be subject to the risks relating
to that transfer, including but not limited to the appropriation of realty by
the Chinese government. See "Hong Kong; Transfer of Sovereignty" "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; ADVERSE IMPACT UPON COMPANY OF PRC'S CREDIT RESTRICTIONS. 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
12
<PAGE> 17
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."
DEPENDENCE ON 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 due to the Company's dependence on these vendors. See
"Business."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 24% 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; POTENTIAL CONFLICT OF INTERESTS. 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 68% 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. As a consequence, Mr.
Leung could, as a practical matter, have the company managed in a manner that
would be in his own interests and not in the interests of the other shareholders
of the Company. See "Principal Shareholders."
CERTAIN LEGAL CONSEQUENCES OF INCORPORATION IN THE BRITISH VIRGIN ISLANDS;
RIGHTS OF SHAREHOLDERS NOT AS EXTENSIVE AS IN UNITED STATES CORPORATIONS;
UNCERTAINTY OF ENFORCING UNITED STATES JUDGMENTS. 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. 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
action 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
13
<PAGE> 18
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.
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. See "Description of Securities."
UNCERTAINTY OF ENFORCING UNITED STATES JUDGMENTS IN HONG KONG AND THE
PRC. As all of the Company's officers and directors reside outside of the
United States, service of process upon the Company and such persons may be
difficult to effect in the United States. Furthermore, all of the Company assets
are and will be located outside of the United States, in Hong Kong and the PRC,
and any judgment obtained in the United States may not be enforced in those
jurisdictions. Hong Kong courts will not directly enforce against the Company or
such persons judgments obtained in the United States. There is also substantial
doubt as to the enforceability in the PRC of actions to enforce judgments of the
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. See "-- Certain Legal Consequences of Incorporation in the British
Virgin Islands; Rights of Shareholders not as Extensive as in United States
Corporations; Uncertainty of Enforcing United States Judgments" and "Enforcement
of Civil Liabilities."
LACK OF INDEPENDENT DIRECTORS. All current members of the Company's Board
of Directors are employed by Far East and, as such, there are no current members
of the Company's Board of Directors who are not affiliated or associated with
Far East and who are independent of the Company and/or Far East. All decisions
affecting the day-to-day operations of the Company and Far East will be made by
a Board of Directors, the members of which are not independent of the Company
and Far East. See "Management."
OUTSTANDING LOAN TO AFFILIATED PARTY. At June 30, 1996, Regent Earning,
Ltd. ("Regent") was indebted to the Company in the approximate sum of
HK$3,800,000. Regent owns approximately two-thirds of the outstanding equity
securities of Far East and upon completion of this Offering will own
approximately 48% of the Company's issued and outstanding shares of Common
Stock. Regent's majority shareholder is Pearl Venture, Ltd. which is a trust
established for the benefit of T.C. Leung, Chairman of the Company's Board of
Directors and its Chief Executive Officer. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Principal
Shareholders" and "Certain Transactions."
FORWARD LOOKING STATEMENTS. This Prospectus contains forward looking
statements. Additional written or oral forward looking statements may be made by
the Company from time to time in filings with the Commission or otherwise. Such
forward looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E
of the Exchange Act. Such statements may include, but not be limited to,
projections of revenues, income, or loss, capital expenditures, plans for future
operations, financing needs or plans, and plans relating to products or services
of the Company, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward looking statements, which speak only as of the date
the statement was made. Forward looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward looking statements. Statements in
this Prospectus, including those contained in the sections entitled "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in the Notes to the
Company's Financial Statements, describe factors, among others, that could
contribute to or cause such differences.
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
14
<PAGE> 19
Acquisition will be approximately $2.36 per share, or approximately $2.64 (53%)
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 1,450,000 shares of Common Stock outstanding that are
"restricted securities," as that term is defined under Rule 144 promulgated
under 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 resale 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 Warrants sold as part of this Offering and
the Private Warrants registered hereby and any options that may be granted by
the Company under the Company's stock option plan or other options issued or
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," "Certain Transactions," "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
15
<PAGE> 20
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 EVEN IF LISTING
OBTAINED. The Company has applied for the listing of the Securities offered
hereby on the NASDAQ SmallCap System. 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
SmallCap System. Current minimum continued quotation criteria on the NASDAQ
SmallCap 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
SmallCap System if it has $2,000,000 of capital and surplus and $1,000,000 in
aggregate market value. NASDAQ has proposed changes to its continued quotation
criteria for its SmallCap System, which would make it more difficult to maintain
the listing of the Company's Securities, including, among other things,
$2,000,000 in net tangible assets, an aggregate market value of $1,000,000,
500,000 shares being freely tradeable, two independent directors and an audit
committee of an issuer's board of directors with the majority of the committee
members being independent directors. If the Company becomes unable to meet the
continued quotation criteria of the NASDAQ SmallCap 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" 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 SmallCap System, 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 SmallCap System or on
designated exchanges,
16
<PAGE> 21
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 SmallCap System 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 to permit the holders of the Warrants to publicly
resell said Warrants and the shares of the Company's Common Stock underlying
said Warrants. All of the Selling Securityholders acquired their Warrants in a
private placement of the Warrants which was completed by the Company in November
1996. As a practical matter, the concurrent offering is dependent on the
successful completion of this Offering. In the event this Offering is not
successfully completed, there can be no expectation that any market for the
Company's securities will develop and, as a consequence, in such an event it
would be most unlikely that the concurrent offering would go forward. 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 "Certain Transactions" and "Concurrent
Registration of Securities."
17
<PAGE> 22
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$14.47 (US$1.87) 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$18.28 (US$2.36) per Common Share. This represents an
immediate increase in net tangible book value to existing shareholders of
HK$3.81 (US$0.49) per Common Share and an immediate dilution to new investors of
HK$20.42 (US$2.64) per Common Share. The following table illustrates the per
Common Share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Common Share................... US$ 5.00
Net tangible book value per Common Share as of June 30, 1996........... US$ 1.87
Increase in net tangible book value per Common Share attributable to
new investors....................................................... 0.49
--------
Net tangible book value per Common Share after this Offering........... 2.36
--------
Dilution per Common Share to new investors.......................... US$ 2.64
========
</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..... 1,450,000 70.7% US$2,711,000 47.5% US$ 1.87
New investors............. 600,000 29.3% 3,000,000 52.5% 5.00
--------- ------ ------------ ------ ----------------
Total................... 2,050,000 100.0% US$5,711,000 100.0% US$ 2.79
======== ====== ============ ====== =================
</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 and
100,000 Common Shares reserved for future issuance to a consultant to Far East.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management," "Certain Transactions," "Underwriting" and
"Description of Securities."
18
<PAGE> 23
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%
Establish an Office in the United States(4)................... $ 150,000 7%
Working Capital............................................... $ 505,750 24%
---------- ---
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.
(4) To purchase equipment and leasehold improvements, pay security deposits,
first year's lease payments and initial salaries for an office to be
established in the United States.
Although the Company has not specifically allocated the funds allocated to
working capital and the Company will have broad discretion as to the application
of such funds, such funds will be used in the Company's current and/or planned
operations with the primary purposes of this Offering being to raise capital for
the specific purposes described herein. The establishment of product assembly
operations may result in negative cash flow for a period of time. In such an
event, the net proceeds allocated to working capital would be used to support
product assembly operations until they result in positive cash flow or the
Company decides that such operations will not result in an economic benefit.
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
19
<PAGE> 24
may draw upon the net proceeds of this Offering allocated to expand the number
of sales offices, purchase equipment and/or working capital. In the event the
Company is not successful in establishing its planned product assembly
operations, any net proceeds remaining from the funds allocated for such purpose
may be reallocated to expanding the lines of products that the Company
distributes. 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.
20
<PAGE> 25
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 50,000 Common Shares to United States
counsel for the Company, 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
------- --------- ---------
HK$000 HK$ 000 US$ 000
<S> <C> <C> <C>
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................................. 108 112 15
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 38,491 4,974
------- --------- ---------
Total capitalization..................... 33,724 51,232 6,620
======== ========= =========
</TABLE>
21
<PAGE> 26
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.
The consolidated financial data set forth below have been presented as if
(i) the Company, which was incorporated on September 30, 1996, had been in
existence for all periods presented; and (ii) 100% of the share capital of Euro
Tech (Far East) Limited had been transferred to the Company at the beginning of
the periods presented.
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30, 1996
OCTOBER 31,(1) AS OF DECEMBER, ---------------------------------------
--------------- --------------------------------- AS PRO PRO
1991 1992 1993 1994 1995 1995 ACTUAL ADJUSTED(5) FORMA(6) FORMA(6)
------ ------ ------ ------ ------ ------ ------ ----------- -------- --------
HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ HK$ US$(2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... 1,340 4,934 3,735 3,408 4,626 597 3,008 4,018 20,512 2,650
Working capital(3)............ 6,152 8,855 9,261 7,253 4,896 631 6,115 7,125 23,619 3,052
Total assets.................. 25,845 33,615 45,838 52,492 59,740 7,717 57,303 58,313 74,807 9,665
Short-term debt(4)............ 1,086 3,629 6,235 7,791 6,434 831 6,232 6,232 6,232 805
Long-term bank loans.......... -- -- 2,538 3,330 7,006 905 6,471 6,471 6,471 836
Stockholders' equity.......... 8,955 11,308 17,140 17,607 17,721 2,289 20,983 21,993 38,487 4,973
</TABLE>
22
<PAGE> 27
<TABLE>
<CAPTION>
FOR THE FOR THE TWO
YEAR ENDED MONTHS ENDED FOR THE SIX MONTHS
OCTOBER 31,(1) DECEMBER 31,(1) FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------- --------------- --------------------------------------------- ---------------------------------
1991 1992 1992 1993 1994 1995 1995 1995 1996 1996
--------- --------- --------------- --------- --------- --------- --------- --------- --------- ---------
HK$ HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ US$(2)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
STATEMENT
DATA:
Sales... 68,263 83,813 15,257 105,374 103,512 105,782 13,667 51,959 53,969 6,973
--------- --------- --------------- --------- --------- --------- --------- --------- --------- ---------
Cost
of
goods
sold... (50,686) (62,833) (8,746) (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397)
Selling
and
administrative
expenses... (15,607) (19,683) (5,438) (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273)
Interest
expenses,
net.. (249) (135) (21) (221) (492) (877) (113) (420) (631) (82)
Gain
on
disposal
of a
real
estate
property.. -- -- -- -- 2,300 -- -- -- -- --
Other
income,
net... 535 2,739 147 675 590 1,186 153 118 488 63
--------- --------- --------------- --------- --------- --------- --------- --------- --------- ---------
Total
costs
and
expenses... (66,007) (79,912) (14,058) (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 1,199 7,142 4,758 2,327 301 420 2,189 284
Provision
for
profits
tax
-- current... (373) (827) (210) (1,106) (425) (68) (9) (77) (406) (52)
--------- --------- --------------- --------- --------- --------- --------- --------- --------- ---------
Income
from
continuing
operations... 1,883 3,074 993 6,036 4,333 2,259 292 343 1,783 232
Discontinued
operations
Income
(loss)
of
subsidiary
companies
sold in
1996... 169 947 3 12 (1,466) (1,645) (213) (369) -- --
--------- --------- --------------- --------- --------- --------- --------- --------- --------- ---------
Net
income
(loss)... 2,052 4,021 992 6,048 2,867 614 79 (26) 1,783 232
======== ======== =============== ======== ======== ======== ======== ======== ======== ========
Pro
forma
income
from
continuing
operations
per
common
share... 1.56 0.20 1.23 0.16
Pro
forma
loss
from
discontinued
operations
per
common
share... (1.14) (0.15) -- --
Pro
forma
net
income
per
common
share... 0.42 0.05 1.23 0.16
Pro
forma
weighted
average
number
of
common
share
outstanding... 1,450,000 1,450,000 1,450,000 1,450,000
</TABLE>
- ---------------
(1) In 1993, Euro Tech (Far East) Limited changed its financial year end from
October 31 to December 31.
(2) Translation solely for convenience of the readers at the prevailing exchange
rate of HK$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.
(5) Reflects the issuance of 1,000,000 Warrants to certain private investors for
net proceeds of US$130,500 before the Public Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Certain Transactions" and the financial statements of the Company and Far
East and the notes thereto.
(6) Reflects the issuance of 1,000,000 Warrants to certain private investors for
net proceeds of US$130,500 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Certain
Transactions" and the financial statements of the Company and Far East and
the notes thereto.
23
<PAGE> 28
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 organized under the laws of the British Virgin Islands on
September 30, 1996 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. See "Certain Transactions," "Description of Securities" and
"Concurrent Registration of Securities."
FAR EAST
GENERALLY
During Far East's Fiscal 1991, Fiscal 1992, and Fiscal 1993, Far East
experienced a gradual increase in sales revenues. During 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
24
<PAGE> 29
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.
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
25
<PAGE> 30
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.
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
26
<PAGE> 31
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 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
27
<PAGE> 32
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 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-
28
<PAGE> 33
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. More specifically, at June 30, 1996 Far East had borrowed
the following short term bank overdraft facilities to finance its operating
activities: (a) approximately HK$1,692,455 from Standard Chartered Bank; and (b)
approximately HK$1,780,937 from Banque Nationale de Paris. Both such facilities
bearing interest at Hong Kong's prime rate. At June 30,1996, unused portions of
the foregoing overdraft facilities were approximately HK$307,545 and HK$219,063
from the Standard Chartered Bank and Banque Nationale de Paris, respectively.
Far East also had the following outstanding import loans to finance the purchase
of goods from suppliers: (a) approximately 108,836 Deutsche Marks and 34,977
Singapore Dollars from Standard Chartered Bank, bearing interest at Hong Kong's
prime rate plus half percent and repayable within 90 days; and (b) approximately
US$136,762 from Banque Nationale de Paris, bearing interest at Hong Kong's prime
rate plus one percent and repayable within 120 days. 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. More specifically, at June 30, 1996 Far East had the
following bank loans used to finance the purchase of properties: (a) the Hong
Kong and Shanghai Banking Corporation, bearing interest at the United States
prime rate plus two and one-half percent, repayable at the approximate rate of
US$2,800 per month with approximately HK$1,104,000 in principal remaining to be
paid at the end of Six Months 1996; (b) the Bank of East Asia Ltd., bearing 13%
interest per year, repayable at the approximate rate of HK$11,945 per month with
approximately HK$768,000 in principal remaining to be paid at the end of Six
Months 1996; (c) Standard Chartered Bank, bearing interest at Hong Kong's prime
rate plus one and a quarter percent, repayable at the approximate rate of
HK$31,500 per month plus interest with approximately HK$1,972,000 in principal
remaining to be paid at the end of Six Months 1996 (repaid in December 1996 upon
the sale of the property the purchase of which this bank loan was used to
finance); and (d) the Hong Kong and Shanghai Banking Corporation, bearing
interest at Hong Kong's prime rate plus one and three quarters percent repayable
at the approximate rate of HK$65,598 per month with approximately HK$3,688,000
in principal remaining to be paid at the end of Six Months 1996. 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,
Action, 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. Regent owns approximately
two-thirds of the outstanding equity securities of Far East and upon completion
of this Offering will own approximately 48% of the Company's issued and
outstanding shares of Common Stock. Regent's majority shareholder is Pearl
Venture Ltd. which is a trust established for the benefit of T.C. Leung,
Chairman of the Company's Board of Directors and its Chief Executive Officer.
See "Principal Shareholders" and "Certain Transactions."
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.
29
<PAGE> 34
BUSINESS
INTRODUCTION
The Company is a distributor, in Hong Kong and China, of process control,
analytical and testing instruments, disinfection equipment, supplies and related
automation systems used in the treatment, analysis and testing of water and
waste water. 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 non-exclusive arrangements with independent subdistributors.
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, initially certain water related testing, monitoring
and treatment equipment, and if successful in assembling such products, to
expand its product assembly operations to other products of the kind now
distributed by the Company, pursuant to an agreement to be entered into with a
PRC based entity, such as STIP 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
such products. 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
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<PAGE> 35
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."
BUSINESS
GENERALLY
The Company is a 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.
The Company has exclusivity agreements with many of its suppliers for
certain products for specific geographic areas. Such agreements do not encompass
all products distributed by the Company and all market areas services by the
Company. The Company's agreement with Finnigan for most products does not
include the PRC and similarly, the Company's agreement with Wallace 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. See "-- Sources of
Supply". The Company also has exclusive distribution agreements with Euroglas,
B.V. for certain of that manufacturer's products in Hong Kong and the PRC and
Thermo Environmental Instruments, Inc. for certain of that manufacturer's
products in Hong Kong.
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. See "Glossary."
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 water treatment
procedures comply with regulatory standards. See "Glossary."
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 CUSTOMERS
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.). See "Glossary."
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
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<PAGE> 36
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.
The Company derived approximately 27.1% and 41.7% of its sales from the
sale of Scientific Instruments during Fiscal 1995 and Six Months 1996,
respectively. The increased percentage of the Company's sales of Scientific
Instruments during Six Months 1996 in comparison to its overall sales during
Fiscal 1995, is the result of the Company focusing greater emphasis on these
products and reducing its emphasis on the sales of Other Products.
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 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.
The Company derived approximately 39.4% and 34.3% of its sales from the
sale of Process Control and Engineering Products during Fiscal 1995 and Six
Months 1996, respectively.
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. See
"Glossary."
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. See "Glossary."
The Company derived approximately 26.7% and 17.3% of its sales from the
sale of these Other Products during Fiscal 1995 and Six Months 1996,
respectively. The decreased percentage of the Company's sales of Other Products
during Six Months 1996 in comparison to its overall sales during Fiscal 1995, is
the result of the Company focusing greater emphasis on the sales of Scientific
Instruments and reducing its emphasis on the sales of Other Products.
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.
The Company derived approximately 6.8% and 6.7% of its sales from Special
Projects and Technical Support Operations during Fiscal 1995 and Six Months
1996, respectively.
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. During Fiscal 1995 and Six Months 1996, no single customer
accounted for more than 5% of the Company's sales and the Company does not
believe that any single customer or sub-distributor is material to its
operations.
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<PAGE> 37
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 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 sales
prices and, therefore, profits margins to remain competitive. During Fiscal
1993, Fiscal 1994, Fiscal 1995 and Six Months 1996, the Company's profit margins
were approximately 24.7%, 21.8%, 22.2% and 22.6%, respectively. 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
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<PAGE> 38
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. As the Company has not previously engaged in product
assembly operations, it requires the assistance of STIP or a similar entity to
engage in such operations. 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 agreement with Finnigan for most products
does not include the PRC and similarly, the Company's agreement with Wallace 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.
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<PAGE> 39
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 as sub-distributors located in the
PRC which are paid a commission on sales effected by them. The Company's
sub-distributors are engaged on a non-exclusive basis, distributing the products
of other distributors, with each of the nine sub-distributors accounting for
less than two percent of the Company's sales during Fiscal 1995 and Six Months
1996.
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.
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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<PAGE> 40
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 1988, 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 1993
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> 41
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 November 1996, the Board of Directors adopted the Company's 1996 Stock
Option Plan (the "1996 Stock Option Plan"). The 1996 Stock Option Plan provides
for the grant of options to employees, officers, directors and consultants of
the Company. 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.
The exercise price of all stock options granted under the 1996 Stock Option
Plan must be at least $5.50. 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 such Option granted pursuant to the 1996 Stock
Option Plan is six 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 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, directors and employees in such numbers and
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<PAGE> 42
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 $4.00 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.
The table below shows, as to each of the executive officers, and directors
of the Company and as to all executive officers and directors of the Company as
a group, the following information with respect to Management Options to be
granted: (i) the aggregate amounts of shares of Common Stock subject to
Management Options to be granted prior to the Effective Date; and (ii) the per
share exercise price for the Management Options to be granted for these
individuals. No other options to these individuals have been issued or will be
issued and outstanding on the Effective Date.
<TABLE>
<CAPTION>
SHARES SUBJECT PER SHARE
NAMES OF EXECUTIVE OFFICERS AND DIRECTORS TO OPTIONS EXERCISE PRICE
---------------------------------------------------------- -------------- --------------
<S> <C> <C>
T.C. Leung................................................ 750,000 $5.50
350,000 $4.00
Alex Sham................................................. 30,000 $5.50
20,000 $4.00
Jerry Wong................................................ 25,000 $5.50
15,000 $4.00
Nancy Wong................................................ 22,500 $5.50
7,500 $4.00
C.P. Kwan................................................. 22,500 $5.50
7,500 $4.00
All Executive Officers and Directors
as a Group (5 persons).................................. 1,250,000 $4.00 - $5.50(1)
</TABLE>
- ---------------
(1) Price Range.
Other officers and/or employees of the Company have been or will be granted
Management Options, prior to the Effective Date, to purchase an aggregate of
150,000 Management Options, all of which will be exercisable at $5.50 per share.
CONSULTANT'S OPTIONS
On or prior to the Effective Date, the Company will grant options to
purchase up to 100,000 shares of its Common Stock to Sidford International Ltd.
("Sidford"), a consultant to Far East. Said options will be
38
<PAGE> 43
exercisable at $5.50 per share and contain the same terms and conditions as the
Warrants. See "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> 44
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 97% 68%
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 97% 68%
Regent Earning Ltd. (1)............................... 1,027,600 71% 50%
All Executive Officers and Directors of the Company as
a group (5 persons) (2)(3).......................... 1,400,000 97% 68%
</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 granted or which may be granted under the Company's
1996 Stock Option Plan, the Management Options and the Consultant's Options.
See "Management" and "Certain Transactions."
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<PAGE> 45
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 aggregate cash
consideration of $1,500 or $.01 per share. Gusrae, Kaplan & Bruno is United
States counsel to the Company and was granted the right to purchase said shares
in partial consideration of its services rendered to the Company in connection
with this Offering. Sidford has been and is a business consultant to Far East
which initially was paid HK$5,000 and granted the option to purchase the
foregoing 100,000 shares. In January 1997, Far East amended its agreement with
Sidford to provide cash compensation to Sidford of $5,000 per month for twenty
months. At that same time, the Company repurchased the 100,000 shares previously
sold to Sidford for the sum of $1,000 and agreed to grant to Sidford options to
purchase up to 100,000 shares of the Company's Common Stock, such options being
exercisable at 5.50 per share. See "Management."
The Company's activities to date have been limited to organizational
activities, seeking and securing financing including a private offering of its
securities and this Offering and negotiating the terms and conditions of its
acquisition of Far East. Far East was established in 1971 and has been in
continuous operation since that time. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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.
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 29% 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 5%, 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.
On November 11, 1996 the Company completed the sale of an aggregate of
1,000,000 Warrants (the "Private Placement Warrants") to private investors for
aggregate gross proceeds of $150,000, or a price of $.15 per Warrant. 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."
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<PAGE> 46
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 by the rules promulgated by the Commission under the Securities Act. As
so defined a promoter is any person who (i) acting alone or in conjunction with
others, took the initiative in founding and organizing an issuer's business or
enterprise, or (ii) in connection with founding and organizing the business or
enterprise of an issuer, receives in consideration for services and/or property,
ten percent or more or either any class of the issuer's securities or the
proceeds therefrom. Mr. Leung formulated the concepts of a public offering to
raise capital for the Company and Far East and establishing a company in the
British Virgin Islands for that purpose. Additionally, upon completion of this
Offering and the Acquisition, Mr. Leung will beneficially own approximately 68%
of the Company's issued and outstanding shares of Common Stock. See "Principal
Shareholders".
All future transactions between the Company and its executive officers and
directors will be on terms no less favorable than could be obtained form
independent third parties and will be approved by a majority of the Company's
directors disinterested in such transactions.
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<PAGE> 47
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 2,050,000 shares will
be outstanding upon completion of the Public Offering (2,140,000 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
43
<PAGE> 48
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 (below the lesser of the then exercise price of
the Warrants or the fair market value of the Company's 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
or the Management Options. 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> 49
PRIVATE PLACEMENT WARRANTS
Upon the completion of the Public Offering, the Private Placement Warrants,
which were issued in typewritten format, will be automatically exchangeable for
Warrants in printed form. In the event the majority holders of the Private
Placement Warrants and the shares of the Company's Common Stock underlying said
Warrants have not been sold in connection with the Public Offering, the Company
has agreed to use its best effort to file an additional registration statement
for such securities to permit their public resale. 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
Warrantholders, 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 2,050,000
shares of Common Stock and 1,600,000 Warrants outstanding (2,140,000 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
45
<PAGE> 50
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.
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> 51
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 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 $8.25
per share and $.2475 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
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<PAGE> 52
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 three 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, Fredericks & Curtin LLP, New York, New York.
EXPERTS
The Financial Statements of the Company, included in this Prospectus have
been audited by Arthur, Andersen & 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.
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<PAGE> 53
ENFORCEMENT OF CIVIL LIABILITIES
The Company is a British Virgin Islands holding corporation. The Company
has appointed CT Corporation System, 1633 Broadway, New York, New York 10019 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
49
<PAGE> 54
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. The Commission maintains a website that contains
reports, proxies and information statements and other information regarding
issuers that file electronically with the Commission. The Commission's website
is located at http://www.sec.gov.
50
<PAGE> 55
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> 56
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> 57
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,
-------------------------------------------------- -----------------------------------------
1994 1995 1995 1995 1996 1996
--------- --------- ----------- ----------- ----------- -----------
HK$ HK$ US$ HK$ HK$ US$
1993 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
---------
HK$
(AUDITED)
<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
========= ========= ========= ========= ========= ========= =========
Pro forma income from
continuing operations per
common share................. 1.56 0.20 1.23 0.16
========= ========= ========= =========
Pro forma loss from
discontinued operations per
common share................. (1.14) (0.15) -- --
========= ========= ========= =========
Pro forma net income per common
share........................ 0.42 0.05 1.23 0.16
========= ========= ========= =========
Pro forma weighted average
number of common shares
outstanding.................. 1,450,000 1,450,000 1,450,000 1,450,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 58
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,
--------------------------------- ------------------------
1995 1995 1996 1996
--------- ----------- ----------- -----------
HK$ US$ HK$ US$
1994 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
---------
HK$
(AUDITED)
<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.............. 8,073 15,974 2,064 15,580 2,013
Investment property, net........................ 5,961 5,826 753 5,759 744
------ ------ ----- ------ -----
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
Net liabilities of discontinued operations...... 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> 59
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......................... 367 325 334 43 142 467 60
Depreciation of investment
property.......................... 33 135 135 17 67 67 9
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........................... (2,318) (6,055) (8,240) (1,065) (5) (73) (9)
Additions to investment property...... (6,129) -- -- -- -- -- --
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> 60
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 SIX MONTHS ENDED JUNE 30,
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------
-----------------------------------------------
1994 1995 1995 1995 1996 1996
--------- --------- ----------- ----------- ----------- -----------
HK$ HK$ US$ HK$ HK$ US$
1993 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
---------
HK$
(AUDITED)
<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)
Proceeds from long-term bank loans.... 2,916 1,307 4,679 605 -- -- --
Repayment of long-term bank loans..... -- (378) (510) (66) (253) (482) (62)
Proceeds from other non-current
liabilities......................... 67 -- -- -- -- -- --
Repayment of other non-current
liabilities......................... -- (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
Non-cash transaction
-transfer of net liabilities of
subsidiaries to the Company's
shareholders...................... -- -- -- -- -- 1,969 254
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 61
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> 62
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> 63
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...................................... 3 years
</TABLE>
f. Investment Property
Investment property represents land and building held for their investment
potential. Investment property is stated at cost less accumulated depreciation.
Depreciation of investment property is computed using the straight-line method
over its estimated useful live. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Land................................................... Terms of the leases
Building............................................... 40 years
</TABLE>
g. 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.
h. Foreign Currency Translation
The Company mainly conducts its operations in Hong Kong and the PRC, and
maintains its books and records in Hong Kong dollars. The functional currency
for the Company's operations is 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.
i. Net Income per Common Share
Net income per common share is computed by dividing net income (loss) for
each year or period by 1,450,000, 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 50,000 common shares of Euro Tech Holdings Company Limited had been issued
to Gusrae, Kaplan & Bruno, Esqs. prior to January 1, 1997 (see Note 17).
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$1 on June 30, 1996.
F-9
<PAGE> 64
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("US GAAP")
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.
3. OTHER INCOME, NET
Other income, net comprised:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------- ---------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$'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>
Gain on disposal of fixed
assets..................... 35 -- 49 6 49 2 0
Rental income................ 448 444 372 48 186 16 2
Exchange gain (loss)......... 115 (2) 360 47 (211) 295 38
Management fee income........ 77 148 405 52 94 175 23
--------- --------- --------- --- ----- ----- ---
675 590 1,186 153 118 488 63
========= ========= ========= ========== =========== =========== ==========
</TABLE>
4. 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
--------- --------- --------- ----------- ----------- ----------- -----------
HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C> <C> <C>
Tax based on pre-tax
accounting income at
statutory rate (16.5%)..... 1,178 785 384 50 69 361 46
Tax effect of permanent
differences................ (148) (486) (28) (4) (83) -- (63)
Tax effect of US GAAP
adjustments................ 6 25 50 6 20 45 6
Adjustments of profits tax of
prior years resulting from
Inland Revenue Department
review..................... -- -- (345) (44) -- -- --
Other........................ 70 101 7 1 71 -- 63
----- ---- ---- --- --- ---- ---
Provision for profits tax.... 1,106 425 68 9 77 406 52
===== ==== ==== === === ==== ===
</TABLE>
As of December 31, 1994 and 1995, and June 30, 1996, the Company had no
significant deferred tax assets or liabilities.
F-10
<PAGE> 65
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCOUNTS RECEIVABLE
Accounts receivable comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
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>
6. INVENTORIES
Inventories comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
Trading equipment............... 7,064 5,885 761 4,221 545
Less: Provision for inventory
obsolescence.................. (710) (779) (101) (963) (124)
----- ----- ---- ----- ----
Inventories, net................ 6,354 5,106 660 3,258 421
===== ===== ==== ===== ====
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
Land and buildings.............. 7,812 16,019 2,070 16,019 2,070
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 1,204 155 1,212 156
------ ------ ----- ------ -----
11,533 19,727 2,549 19,645 2,538
Less: Accumulated
depreciation.................. (3,460) (3,753) (485) (4,065) (525)
------ ------ ----- ------ -----
Net book value.................. 8,073 15,974 2,064 15,580 2,013
====== ====== ===== ====== =====
</TABLE>
As of December 31, 1995 and June 30, 1996, all land and buildings with net
book values of $14,650,000 and $14,405,000 (Unaudited) respectively were pledged
to secure certain banking facilities of the Company (see Note 10).
F-11
<PAGE> 66
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8. INVESTMENT PROPERTY
Investment property comprised:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- --------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- ----------- -----------
HK$'000 HK$'000 US$'000 HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
Cost............................. 6,129 6,129 792 6,129 792
Less: Accumulated depreciation... (168) (303) (39) (370) (48)
----- ----- --- ----- ---
Net book value................... 5,961 5,826 753 5,759 744
===== ===== === ===== ===
</TABLE>
The investment property was originally purchased for rental purpose.
Subsequent to June 30, 1996, the investment property was sold to a third party
for a consideration of $6,838,000 (Unaudited). As of December 31, 1995 and June
30, 1996, the investment property was pledged to secure certain banking
facilities of the Company (see Note 10).
9. 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 $32,063,000 (Unaudited) as of June 30,
1996.
F-12
<PAGE> 67
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. SHORT-TERM BORROWINGS (CONTINUED)
Other information pertaining to the short-term borrowings is as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED WEIGHTED
AMOUNT AMOUNT AVERAGE AVERAGE
OUTSTANDING OUTSTANDING INTEREST RATE INTEREST RATE
DURING THE DURING THE AT THE END DURING THE
BALANCE PERIOD PERIOD OF THE PERIOD PERIOD
------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AMOUNTS IN THOUSANDS
OF HONG KONG DOLLARS
- -------------------------------------------
December 31, 1994 (Audited)
Denominated
Non HK$.................................. $ 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-13
<PAGE> 68
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. 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-14
<PAGE> 69
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
11. 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$'000
(AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
<S> <C> <C> <C> <C> <C>
Commission payable to sales
agents................... 3,092 3,805 491 3,327 430
Accrued expenses........... 631 755 98 438 57
Deposits from customers.... 917 1,036 134 604 78
Other payables............. 959 1,241 160 597 77
----- ----- --- ----- ---
Total...................... 5,599 6,837 883 4,966 642
===== ===== === ===== ===
</TABLE>
12. NET LIABILITIES OF DISCONTINUED OPERATIONS
In preparation for its initial public offering, the Company underwent a
restructuring and in 1996 transferred its investments in certain subsidiaries to
its shareholders in exchange for cash equal to the par value of the shares
transferred. These subsidiaries had incurred losses in recent years and at the
dates of transfer their liabilities exceeded their assets. The shareholders
agreed to assume these net liabilities and accordingly the transfers were
reflected as increases in the Company's shareholders' equity. The operations of
these subsidiaries have been accounted for as discontinued operations in the
accompanying financial statements.
Movements in the net liabilities of these subsidiaries were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- -------------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$'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>
For the years ended December 31, 1993, 1994 and 1995, and for the six
months ended June 30, 1996, the subsidiary companies had no income tax expenses
or benefits.
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,
----------------------------------------------------- -------------------------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- 1995 ----------- -----------
HK$'000 HK$'000 US$'000 ----------- HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) HK$'000 (UNAUDITED) (NOTE 2 J.)
1993 (UNAUDITED)
---------
HK$'000
(AUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales........ 569 6,987 8,860 1,145 4,781 -- --
</TABLE>
F-15
<PAGE> 70
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12. NET LIABILITIES OF DISCONTINUED OPERATIONS (CONTINUED)
Details of the subsidiary companies were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF OF INTEREST HELD
SUBSIDIARY ----------------------- COUNTRY OF
COMPANIES DIRECTLY INDIRECTLY INCORPORATION PRINCIPAL ACTIVITIES
------------------- ------------- ------------------------------
<S> <C> <C> <C> <C>
Armtison Limited... 100% -- Hong Kong Marketing and trading of
electronic equipment
Euro Tech (China)
Limited.......... 100% -- Hong Kong Inactive
Action Instruments
(China) Limited
("Action")....... -- 51% Hong Kong Marketing and trading of
electronic equipment
Euro Electron (Far
East) Limited.... -- 80% Hong Kong Marketing and trading of
telecommunication equipment
</TABLE>
13. RELATED PARTY TRANSACTIONS
The transactions with related parties are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------- ---------------------------------------
1994 1995 1995 1996 1996
--------- --------- ----------- 1995 ----------- -----------
HK$'000 HK$'000 US$'000 ----------- HK$'000 US$'000
(AUDITED) (AUDITED) (NOTE 2 J.) HK$'000 (UNAUDITED) (NOTE 2 J.)
1993 (UNAUDITED)
---------
HK$'000
(AUDITED)
<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.
F-16
<PAGE> 71
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
14. 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.
15. 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 $557,000 (Unaudited) respectively.
Future minimum rental payments as of December 31, 1995 and June 30, 1996,
under agreements classified as operating leases with noncancelable terms in
excess of one year, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- -------------------------
1995 1996 1996
----------- ----------- -----------
US$'000 HK$'000 US$'000
1995 (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.)
---------
HK$'000
(AUDITED)
<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 $1,701,000.
16. SEGMENT INFORMATION
a. The Company is engaged in the marketing and trading of electronic
equipment and has no other major business operations.
F-17
<PAGE> 72
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENT INFORMATION (CONTINUED)
b. Analysis of sales
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- -----------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- --------- ----------- ----------- ----------- -----------
HK$'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>
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.
17. 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. Euro Tech Holdings Company Limited will repurchase the 100,000 common
shares from Sidford International Limited at a cost of US$1,000 and Euro Tech
Holdings Company Limited will become wholly owned by Gusrae, Kaplan & Bruno,
Esqs. before the initial public offering as described in (b) below. The shares
issued to Gusrae, Kaplan & Bruno, Esqs. will be recorded at fair market value at
the completion of the initial public offering. In addition, Euro Tech Holdings
Company Limited issued 1,000,000 redeemable common share purchase warrants to
certain private investors for net proceeds of US$130,500 (equivalent to
HK$1,010,070).
F-18
<PAGE> 73
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
17. CONTEMPLATED TRANSACTIONS (CONTINUED)
Assuming the above share exchange transaction occurred as of December 31,
1995, or June 30, 1996, as the case may be, consolidated shareholders' equity of
Euro Tech Holdings Company Limited and subsidiary would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
---------------------- ----------------------
HK$'000 US$'000 HK$'000 US$'000
(NOTE 2 J.) (NOTE 2 J.)
<S> <C> <C> <C> <C>
Share capital
-- 1,450,000 common shares outstanding....... 112 15 112 15
Capital surplus................................ 17,613 2,275 20,875 2,697
Warrants....................................... 1,010 131 1,010 131
------ ----- ------ -----
18,735 2,421 21,997 2,843
====== ===== ====== =====
</TABLE>
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$0.15 per warrant.
The following unaudited pro forma consolidated statements of income of Euro
Tech Holdings Company Limited for the year ended December 31, 1995 and for the
six months ended June 30, 1996, have been prepared to give effect to the
transactions as described in Note a. above as if such transactions had occurred
on January 1, 1995.
The pro forma consolidated statements of income are unaudited and have been
prepared using the historical financial statements of the Company, and are
qualified entirely by reference to, and should be read in conjunction with, such
historical financial statements. The pro forma consolidated statements of income
are provided for informational and comparative purposes only. The pro forma
adjustments are based on available financial information and certain estimates
and assumptions. The pro forma consolidated statements of income do not purport
to be indicative of the results of operations of Euro Tech Holdings Company
Limited that would have occurred had such transactions in fact happened on
January 1, 1995, or during the periods presented or during any future periods.
F-19
<PAGE> 74
EURO TECH (FAR EAST) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
17. CONTEMPLATED TRANSACTIONS (CONTINUED)
i. Unaudited pro forma consolidated statement of income of Euro Tech
Holdings Company Limited for the year ended December 31, 1995:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
ACTUAL ----------- --------- PRO FORMA
--------- HK$'000 HK$'000 ---------
HK$'000 US$'000
(NOTE 2
J.)
<S> <C> <C> <C> <C>
Sales................................... 105,782 105,782 13,667
--------- --------- ---------
Cost of goods sold...................... (82,300) (82,300) (10,633)
Selling and administrative expenses..... (21,464) (641)(1) (22,105) (2,856)
Interest expenses, net.................. (877) (877) (113)
Other income, net....................... 1,186 1,186 153
--------- --------- ---------
Total costs and expenses................ (103,455) (104,096) (13,449)
--------- --------- ---------
Income from continuing operations before
profits tax........................... 2,327 1,686 218
Provision for profits tax............... (68) (68) (9)
--------- --------- ---------
Income from continuing operations....... 2,259 1,618 209
========= ========= =========
Income from continuing operations per
common share.......................... 0.0016 0.0011 0.0001
========= ========= =========
Weighted average number of common shares
outstanding........................... 1,450,000 1,450,000 1,450,000
========= ========= =========
</TABLE>
ii. Unaudited pro forma consolidated statement of income of Euro Tech
Holdings Company Limited for the six months ended June 30, 1996:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
ACTUAL ----------- --------- PRO FORMA
--------- HK$'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........................... 1,450,000 1,450,000 1,450,000
========= ========= =========
</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.
F-20
<PAGE> 75
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> 76
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> 77
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. Euro Tech Holdings Company Limited will
repurchase the 100,000 common shares from Sidford International Limited at a
cost of US$1,000 and Euro Tech Holdings Company Limited will become wholly owned
by Gusrae, Kaplan & Bruno, Esqs. before the initial public offering described in
Note 2 below. The shares issued to Gusrae, Kaplan & Bruno, Esqs. will be
recorded at fair market value at the completion of the initial public offering.
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.
4. STOCK OPTION PLAN
During the period, the Company established a stock option plan which
provides for the grant of options to employees, officers, directors and
consultants. The 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. The total number
of shares of common stock for which options may be granted under the stock
option plan is 150,000 shares and the exercise price of all stock options
granted under the stock option plan must be at least US$5.50. The term of each
option granted pursuant to the stock option plan may be established by the Board
of Directors or a committee of the Board of Directors, in its sole discretion;
provided,
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<PAGE> 78
however, that the maximum term of each such option granted pursuant to the stock
option plan is six 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 options, by their terms automatically
terminate unless the Company achieves net income levels of not less than
US$990,000 and US$1,800,000, respectively, during the Company's fiscal years
ending December 31, 1997 and 1998.
The Company has also 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 initial
public offering and may have a term of up to ten years. The exercise price of
the Management Options will be US$4.00 per share for 400,000 of such options and
US$5.50 per share for the remaining 1,000,000 options.
As of October 31, 1996, no option had been granted by the Board of
Directors.
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<PAGE> 79
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 1995 of over 1.2 billion, representing about one-fifth of the world's
population. The population is unevenly distributed, being very dense in the
east, with over 75% of PRC's population living in the eastern half of the
country.
The PRC is becoming increasingly urbanized. In 1949, the PRC urban
population accounted for only 11% of the total population with the remaining 89%
living in rural areas. At the end of 1995, about 29% of the population (that is,
approximately 398 million people), lived in the cities and 71% (approximately
852 million people) lived in rural areas.
POLITICAL OVERVIEW
The structure of the PRC political system is organized on the basis of the
PRC Constitution, which was first adopted in 1954, with a New Constitution
adopted in 1982 and amended in 1988 and 1993. 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 and is composed of approximately 2,900 indirectly elected
delegates/deputies. 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 budget.
The Chinese Communist Party ("CCP") has been the governing party since
1949.
PRC's Constitution provides that the PRC may be divided into administrative
subdivisions which currently consist of 23 provinces (which includes Taiwan),
three municipalities (Beijing, Shanghai and Tianjin), five autonomous regions
and 2,171 counties. 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 comprised of the following major sectors:
state-owned enterprises, collectively-owned enterprises, individually-owned
enterprises, companies limited by shares, including companies limited by shares
that are subject to varying degrees of state ownership, and enterprises owned at
least 25% by foreign individuals or foreign companies ("foreign-invested
enterprises"). Although the proportion of industrial output attributable to
state-owned enterprises has been decreasing, state-owned enterprises still play
a leading role in the economy. In 1993, state-owned enterprises accounted for
approximately 30.9% of the
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<PAGE> 80
PRC's total national gross industrial output value while companies limited by
shares, cooperative enterprises and foreign-invested enterprises together
accounted for approximately 13.1% of such output value.
The fastest growing sectors of the PRC's economy have been companies
limited by shares, cooperative enterprises and foreign-invested enterprises.
From 1989 to 1993, the percentage contribution of total national gross
industrial output value of companies limited by shares, cooperative enterprises
and foreign-invested enterprises increased from 5.7% of the PRC's total national
gross industrial output value in 1991 to 13.1% in 1995. In addition, township
and village enterprises ("TVEs"), constituting small-scale collective
enterprises, developed primarily in townships and rural areas after the 1978
reforms, have been a vibrant segment of the economy. The percentage contribution
of TVEs to the total national gross industrial output value represented at least
34.2% of the PRC's total gross industrial output value in 1995. In 1995, total
national industrial gross output value was approximately Rmb9,852 billion, an
increase of approximately 21.5% over 1994.
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).
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.
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.
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<PAGE> 81
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
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.
On November 14, 1993, the Central Committee of the CPC affirmed its
commitment to pursue the implementation of economic reforms through the adoption
of the "Decision of the CPC Central Committee on Issues Concerning the
Establishment of a Socialist Market Economy" (the "Decision on Economic
Structure"). Those reforms include (1) reducing the PRC government's
administrative control over the economy in favor of management of the economy
using macro-economic monetary and fiscal tools; (2) introducing further
competition in the labor market; (3) promoting further corporatization of
State-owned enterprises and reducing the involvement of the PRC government in
the management of such enterprises; (4) continuing to permit the prices of more
goods and services to be determined by market forces; (5) actively and steadily
expanding financing activities in the form of stocks and bonds; (6) developing
an auction system in which the public can bid for commercial land use rights;
(7) comprehensively revising the taxation system; (8) separating the
policy-lending activities from the commercial-lending activities of the PRC's
major banks in order to develop such banks into commercial banks; and (9)
permitting deposit and loan interest rates to float freely within a range.
The implementation of economic reforms by the PRC government since 1978 has
also been marked by a number of other specific reform measures, such as rural,
enterprise, price, fiscal, and foreign trade and foreign investment reforms.
Effective January 1, 1994, the PRC government introduced a new unitary and
controlled floating exchange rate system to gradually replace the dual-rate
foreign exchange system.
Under the new regime of the income tax laws, income tax at the rate of 33%
is imposed upon virtually all domestic enterprises and foreign-invested status
enterprises, other than those enjoying preferential treatment granted to
enterprises located in designated areas or engaged in specified industries, thus
equalizing the tax treatment of domestic and foreign-invested status
enterprises.
A new Value-Added Tax ("VAT") was introduced to replace a number of
previously existing taxes. The VAT regulations subject all goods produced or
processed in the PRC, other than real property and goods produced or processed
for export, to VAT at each stage or sale in the process of manufacture,
processing and distribution, through the sale to the ultimate consumer of the
goods. The basic VAT rate is 17% of the sale price of the item, although certain
goods are assessed VAT at a preferential 13% rate. The seller of the goods adds
VAT at the applicable rate to the sale price of the item, separately invoiced
(except in the case of retail sales) and collects the applicable amount of VAT
through the sale of the item.
Other newly introduced taxes include consumption tax, land value-added tax
and resources tax.
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The following table sets forth selected data regarding the PRC's economy
for 1991 through 1995.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
GNP (in billions of Rmb).................... 2,166.6 2,665.1 3,447.7 4,491.8 5,765.0
Per Capita GNP (in Rmb)..................... 1,833.0 2,288.0 2,926.0 3,679.0 4,757.0
GDP (in billions of Rmb).................... 2,161.8 2,663.5 3,451.4 4,500.6 5,773.3
Exports (in billions of $).................. 71.8 84.9 91.7 121.0 148.8
Imports (in billions of $).................. 63.8 80.6 104.0 115.7 132.1
Current Account Balance (in billions of $)
(year end)................................ 13.3 6.4 (11.9) 7.7 2.0
Official International Reserves (in billions
of $) (year end).......................... 23.3 21.2 23.0 53.5 76.0
Total Industrial Gross Output Value (in
billions of Rmb).......................... 2,824.8 3,706.6 5,269.2 7,690.2 9,852.0
Total Agricultural Gross Output Value (in
billions of Rmb).......................... 815.7 908.5 1,099.6 1,575.0 2,032.8
Inflation Rate.............................. 2.9% 5.4% 13.2% 21.7% 14.8%
</TABLE>
- ---------------
Sources: China Statistical Yearbook: 1995, 1996 Statistical Survey. State
Statistical Bureau of China; the PBOC.
The following table sets forth data regarding percentage changes in certain
key PRC economic indicators for 1991 through 1995:
ECONOMIC GROWTH RATES
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(PERCENTAGE INCREASE)
<S> <C> <C> <C> <C> <C>
GNP..................................................... 9.5% 14.0% 13.3% 11.6% 10.2%
Per Capita GNP.......................................... 7.8% 12.8% 12.2% 10.2% 8.2%
GDP..................................................... 9.3% 14.2% 13.5% 11.8% 10.2%
Total Industrial Gross Output Value..................... 14.8% 27.5% 28.0% 26.0% 21.5%
Total Agricultural Gross Output Value................... 3.7% 6.4% 7.8% 8.6% 10.5%
</TABLE>
- ---------------
Sources:China Statistical Yearbook: 1995, 1996 Statistical Survey. State
Statistical Bureau of China.
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.
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.
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FOREIGN TRADE
The PRC's foreign trade has grown rapidly since 1978 in both quantity and
range. Prior to 1978, foreign trade was highly centralized and all imports and
exports were controlled by the then Ministry of Foreign Trade through a series
of specialized foreign trade corporations. In 1978, the PRC government began to
decentralize foreign trade. Several central government agencies and regional
authorities established their own trading corporations. In 1982, the Ministry of
Foreign Economic Relations and Trade ("MOFERT") was formed following a merger of
the various bodies formerly responsible for monitoring foreign trade and
investment, including the Ministry of Foreign Trade. In 1992, MOFERT was
succeeded by the Ministry of Foreign Trade and Economic Cooperation. On May 12,
1994, the PRC promulgated a new foreign trade law (the "Foreign Trade Law")
which, together with implementing and other regulations to be further
promulgated thereunder, is designed to further develop the PRC's foreign trade
and provide a foundation for the free import and export of goods and
technologies to and from the PRC. Because the Foreign Trade Law only became
effective on July 1 and relevant implementing and other regulations have yet to
be promulgated, it is impossible to fully judge the extent to which the Foreign
Trade Law will succeed in accomplishing its purposes.
The PRC's foreign trade has grown since 1978. The growth has included
greater absolute volumes and an expanded range of traded products. The PRC's
trading partners include more than 227 countries and regions throughout the
world. For the five-year period ended December 31, 1995, the PRC's annual
exports averaged 19.1% of its annual GNP.
This following table sets forth information pertaining to the PRC's foreign
trade for 1991 through 1995:
FOREIGN TRADE
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
(IN BILLIONS OF $, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Exports.................................... 71.8 84.9 91.7 121.0 148.8
Imports.................................... 63.8 80.6 104.0 115.7 132.1
Balance of Trade(1)........................ 8.1 4.4 (12.2) 5.3 16.7
Exports as% of Imports.................... 112.6% 105.4% 88.2% 104.6% 112.6%
Exports as% of GNP........................ 17.7% 17.5% 15.3% 23.2% 21.6%
</TABLE>
- ---------------
Sources: Figures are based on customs statistics.
Sources: China Statistical Yearbook: 1995, 1996 Statistical Survey. State
Statistical Bureau of China.
In 1995, the PRC's foreign trade surplus was $16.7 billion. Exports reached
$148.8 billion, an increase of 22% over 1994, and imports reach $132.1 billion,
an increase of 14.2% over 1994. Total trade for 1995 was approximately $280.9
billion, an increase of 18.7% over 1994.
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.
On May 28, 1993, President Clinton signed an executive order which renewed
the PRC's MFN status for another year but set forth certain conditions that had
to be met for the status to be renewed for 1994. Under the order, the Secretary
of State was to make a recommendation to the President to extend or not to
extend MFN status to the PRC for the 12-month period beginning July 3, 1994. The
Secretary of State was to recommend against extension unless he determined that
extension would substantially promote the freedom of emigration objective of the
U.S. Trade Act of 1974 and that the PRC was complying with the 1992 bilateral
agreement between the U.S. and the PRC concerning prison labor. In addition, in
making this recommendation, the Secretary of State was to determine whether the
PRC had made overall significant progress with respect to certain human rights
matters. On June 2, 1994, President Clinton made a determination that the PRC's
MFN status be renewed for another year without such conditions. In making such
determination, the President also announced that the U.S. would no longer link
the annual extension of MFN status for the PRC
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<PAGE> 84
to non-trade conditions such as those set forth in the May 28, 1993 executive
order. Freedom of emigration requirements, however, remain a condition for
renewal of MFN status, unless such requirements are waived by the President.
Recision of the PRC's MFN status would subject PRC exports to the U.S. to higher
tariff. On July 1, 1994, Senate Majority Leader George Mitchell, in response to
the President's decision to renew the PRC's MFN status, introduced a bill that
would sanction goods that are produced, manufactured or exported by the People's
Liberation Army or the PRC's defense industrial trading companies or
nonqualified goods that are produced, manufactured or exported by State-owned
enterprises. Passage of the Mitchell bill or other recision of MFN status would
subject certain PRC exports to the U.S. to higher tariffs.
FOREIGN INVESTMENT
In 1979, the PRC promulgated the first equity joint venture law, and
thereafter a number of related laws, administrative rules and regulations, which
provide a framework within which foreign investment activities are conducted and
regulated. Foreign investments in that PRC may take a number of forms, including
equity joint ventures, cooperative joint ventures and wholly foreign-owned
enterprises.
Equity joint ventures are "limited liability companies" incorporated and
registered in the PRC. They are "Chinese enterprise legal persons" which have
the right to own, use and dispose of property. In contrast with equity joint
ventures, cooperative joint ventures are not necessarily separate legal persons,
although many cooperative joint ventures have such status. If a cooperative
joint venture is not a separate enterprise legal person, each Chinese and
foreign party is responsible for paying its own taxes on profits derived from
the venture and bears its own liability for risks and losses. A wholly
foreign-owned enterprise is owned completely by one or more foreign investors
and does not involve any Chinese joint venture parties. A wholly foreign-owned
enterprise must be an enterprise which either utilizes advanced technology or
which exports 50% or more of its products. Wholly foreign-owned enterprises are
restricted or prohibited from engaging in certain specified industries, such as
media, domestic commerce, foreign trade and telecommunications.
FOREIGN DIRECT INVESTMENT IN THE PRC(1)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
-------- -------- --------- -------- --------
(IN MILLIONS OF $)
<S> <C> <C> <C> <C> <C>
Actual Investment(2)
Equity Joint Ventures(3)................ 2,299.0 6,114.6 15,347.8 17,932.5 19,078.0
Wholly Foreign-Owned Enterprise......... 1,134.7 2,520.3 6,505.6 8,035.6 10,371.0
Cooperative Joint Ventures(3)........... 763.6 2,122.5 5,237.6 7,120.2 7,536.0
Others.................................. 108.7 250.0 424.0 678.2 590.0
-------- -------- -------- -------- --------
Total........................... 4,366.0 11,007.4 27,515.0 33,761.5 37,521.0
======== ======== ======== ======== ========
Contracted Investments(4)................. 11,977.0 58,124.0 111,435.7 82,679.8 91,281.5
</TABLE>
- ---------------
(1) Excludes investments in "B" shares, "H" and "N" shares issued by Chinese
enterprises.
(2) Reflects amounts disbursed during the relevant period.
(3) Represents amounts contributed by foreign investors.
(4) Reflects amounts committed during the relevant period.
Sources: China Foreign Economic Relations and Trade Yearbooks, 1991-1995,
MOFTEC; 1996 Statistical Survey, State Statistical Bureau of China.
According to the State Planning Commission, aggregate direct foreign
investment disbursed in 1993, including equity joint ventures, cooperative joint
ventures and wholly foreign-owned enterprises, was approximately $20 billion,
representing an increase in excess of 85% from 1992.
Foreign investment in the PRC may also take the form of "B" shares, "H"
shares and "N" shares, which are shares offered exclusively to foreign investors
for purchase and sale using foreign exchange. "B" Shares were first listed and
traded on the Shanghai and Shenzhen Stock Exchanges in 1992. In October 1992, it
was announced that nine State-owned enterprises had been selected to list their
"H" shares on the Hong Kong Stock Exchange ("HKSE"). As of end of March 1994,
"H" shares of seven of these enterprises had been
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<PAGE> 85
listed on the HKSE. Also, in early 1994, it was announced that twenty-two
State-owned enterprises would be allowed to list their Shares on foreign stock
exchanges, including the New York Stock Exchange ("NYSE") and the HKSE.
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
A-7
<PAGE> 86
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.
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 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.
In furtherance of the currency reforms, the China Foreign Exchange Trading
Center ("CFETC") was formally established and came into operation in April 1994.
CFETC has set up a computerized network with sub-centers in several major
cities, thereby forming an inter-bank market in which designated foreign
exchange banks can trade and settle their foreign currencies. The establishment
of CFETC was originally intended to coincide with the elimination of the swap
centers. However, the swap centers have been retained as an interim measure.
Since the unification of the exchange rate system pursuant to the PBOC
Notice, numerous regulations, rules and notices have been issued. In particular,
the Regulations of the People's Republic of China for the Control of Foreign
Exchange (the "Forex Regulations") were promulgated by the State Council on
January 29, 1996 and came into effect on April 1, 1996. The Forex Regulations
are designed to be the foundation of foreign exchange control in the PRC and to
provide for greater convertibility of the Renminbi.
A-8
<PAGE> 87
Under the Forex Regulations, foreign exchange revenue from current account
item (that is, transaction items which occur regularly within the context of
international receipts and payment, including revenue and expenditure from
trade) must be sold to designated foreign exchange banks in accordance with the
Provisional Regulations for Administration of the Settlement, Sale and Payment
of Foreign Exchange promulgated by the PBOC on June 20, 1996 or, upon approval,
deposited into foreign exchange accounts at designated foreign exchange accounts
at designated foreign exchange banks. Foreign exchange may be purchased for
payment of current account items from designated foreign exchange banks on the
strength of valid vouchers and commercial documents in accordance with the
Settlement Regulations.
Foreign exchange revenue from capital account items (that is, items of
increase or decrease in assets or liabilities due to inflow or outflow of
capital within the context of international receipts and payments, including
direct investment and all forms of loans) must be deposited into foreign
exchange accounts opened with designated foreign exchange banks. The sale of
foreign exchange revenue from capital account items is subject to the approval
of the foreign exchange control authorities.
Upon termination of foreign investment enterprises and provided that
liquidation has been carried out and taxes have been paid in accordance with the
relevant State Counsel regulations, the Renminbi funds belonging to the foreign
investors may be remitted or carried out of the PRC in foreign exchange
purchased from designated foreign exchange banks. The foreign exchange belonging
to the PRC investors shall be sold to the designated foreign exchange banks.
The Forex Regulations also reinforce the implementation of a foreign debt
registration system by the state. Loans taken out by foreign investment
enterprises are required to be reported to the SAEC. Foreign exchange guarantees
may only be issued by financial institutions and enterprises which conform to
conditions specified by the state and shall be subject to registration with and
approval of the SAEC.
Foreign investment enterprises continue to be able to access foreign
exchange through the swap centers. For foreign investment enterprises located in
the trial areas of Shanghai, Shenzhen and Dalian Municipalities as well as
Jangsu Province, new regulations promulgated recently have sought to bring their
position in line with domestic enterprises. Pursuant to such new regulations,
foreign investment enterprises in the trial areas can also access foreign
exchange through designated foreign exchange banks.
The following table sets forth (a) the Official Exchange Rate and the
exchange rate at the Shanghai Swap Center for 1991 through 1994 and (b) the
PPBOC Rate (as reflected by the Noon Buying Rate) and the exchange rate at the
Shanghai Swap Center in 1995 and the first quarter of 1996:
EXCHANGE RATES
<TABLE>
<CAPTION>
OFFICIAL EXCHANGE RATE/PROC RATE(1) SHANGHAI SWAP CENTER RATE
--------------------------------------- ---------------------------------------
PERIOD PERIOD
PERIOD END AVERAGE(2) HIGH LOW END AVERAGE(2) HIGH LOW
- --------------------- ------ ---------- ------ ------ ------ ---------- ------ ------
(EXPRESSED IN RMB PER $1.00) (EXPRESSED IN RMB PER $1.00)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991................. 5.4478 5.3343 5.4478 5.2352 5.8980 5.8534 5.9290 5.7490
1992................. 5.7662 5.5214 5.9007 5.4124 7.7060 6.7497 7.7700 5.8970
1993................. 5.8145 5.7769 5.8245 5.7076 8.7000 8.7207 10.9230 7.7180
1994................. 8.4662 8.6303 8.7409 8.4662 8.4461 8.5790 8.7080 8.4459
1995................. 8.3374 8.3685 8.4584 8.3203 8.3174 8.3494 8.4448 8.2764
1st quarter, 1996.... 8.3538 8.3429 8.3538 8.3338 8.3339 8.3229 8.3365 8.3079
</TABLE>
- ---------------
(1) For periods prior to 1994, the Official Exchange Rate; for subsequent
periods, the PBOC Rate.
(2) Determined by averaging the rates on the last business day of each month
during the relevant period.
Sources:Official Exchange Rates are as reported at the Noon Buying Rates.
Shanghai Swap Center Rates have been obtained from the Shanghai Swap
Center.
A-9
<PAGE> 88
For the five-year period ended December 31, 1991, there was a consistent
devaluation of the Renminbi against the United States Dollar. In February 1993,
the SAEC imposed limits on foreign currency exchange rates available at swap
centers. Under such limitations, the Renminbi/United States Dollar exchange rate
was officially capped at approximately Rmb8.40 to $1.00. These limitations,
together with continue devaluations of the Renminbi and increasing demand for
foreign currency in early 1993, gave rise to the development of unofficial
foreign currency markets which are not subject to such restrictions. As a
result, there were periodic shortages of foreign currency at swap centers in
1993. On June 1, 1993, the ceilings on swap center rates were removed, and these
rates promptly were adjusted to reflect prevailing market rates. On June 1,
1993, the Renminbi/United States Dollar exchange rate at the Shanghai swap
center was Rmb10.170 to $1.00. Thereafter, the Renminbi/United States Dollar
exchange rate declined at the Shanghai swap center to approximately Rmb8.7 to
$1.00 at December 31, 1993.
A-10
<PAGE> 89
- ------------------------------------------------------
- ------------------------------------------------------
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..................... 4
Risk Factors........................... 9
Dilution............................... 18
Use of Proceeds........................ 19
Capitalization......................... 21
Selected Financial Information......... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 24
Business............................... 30
Management............................. 36
Principal Shareholders................. 40
Certain Transactions................... 41
Description of Securities.............. 43
Shares Eligible for Future Sale........ 45
Underwriting........................... 47
Concurrent Registration of
Securities........................... 48
Legal Matters.......................... 48
Experts................................ 48
Enforcement of Civil Liabilities....... 49
Additional Information................. 50
Index to Financial Statements.......... F-1
Appendix -- The People's Republic of
China................................ A-1
</TABLE>
UNTIL , 1997 (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.
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 90
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 JANUARY 31, 1997
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 resale 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.
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 Warrants offered by
the Selling Securityholders are identical to the Warrants offered in the Public
Offering. The Public Offering is subject to the simultaneous acquisition by the
Company of Euro Tech (Far East) Ltd. It is anticipated that the offering by the
Selling Securityholders will not be commenced by any of the Selling
Securityholders unless the Public Offering is successfully completed, as unless
it is so completed there will be no expectation of a market developing for any
of the Company's securities.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION.
SEE "RISK FACTORS," COMMENCING ON PAGE 9 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 , 1997
<PAGE> 91
[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> 92
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
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"). Products distributed by the Company include,
advanced water treatment and testing equipment (including chlorination
equipment) laboratory instruments, test kits and related supplies such as
spectrometers, colorimeters, chemical reagent dispensers, analyzers,
turbidimeters and pH controllers. The Company also distributes general testing
and telecommunications testing equipment, cardiac catheterization systems,
defribrillators, indoor pay telephones, and digital and analogue recorders. See
"Business."
The Company distributes products through its headquarters located in Hong
Kong and its regional sales offices located in Beijing, Shanghai and Guangzhou
and through non-exclusive arrangements with independent sub-distributors. During
Fiscal 1995 and Six Months 1996, no single customer accounted for more than 5%
of the Company's sales and each of the nine sub-distributors accounted for less
than 2% of the Company's sales during Fiscal 1995 and Six Months 1996. See
"Business."
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, initially certain water related testing, monitoring
and treatment equipment, and if successful in assembling such products, to
expand its product assembly operations to other products of the kind now
distributed by the Company, pursuant to an agreement to be entered into with a
PRC based entity, such as the Shanghai Thermometric Instrument Plant ("STIP"),
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. See "Use of
Proceeds."
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
such products. 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. See "Business."
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements of the Company
and Far East and the notes thereto.
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.
5
<PAGE> 93
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
RISK FACTORS
Certain risk factors should be considered in evaluating the Company, its
business and its proposed product assembly operations and expansion plans. Such
factors include, among others, the risks associated with having its principal
offices and operations located in Hong Kong, where the transfer of sovereignty
is to occur shortly, risks associated with doing business in China, the possible
need for additional financing, the risks inherent in establishing new business
operations and expanding marketing efforts, competition with Chinese
manufactured products, competing with its own vendors, and dependence upon
vendors and the lack of long term agreements with vendors. For a discussion of
these and certain other factors, see "Risk Factors."
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).............. 1,450,000 shares.
COMMON STOCK OUTSTANDING
AFTER PUBLIC
OFFERING(1)(2)........... 2,050,000 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............ , 2003 (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."
(footnotes on following page)
6
<PAGE> 94
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
PROPOSED NASDAQ SMALL CAP
SYMBOLS:(3)
COMMON STOCK..........
WARRANTS..............
- ------------------
(footnotes from previous page)
(1) Includes 1,400,000 shares of the Company's Common Stock to be issued in
connection with the Acquisition. See "Certain Transaction."
(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 options to be granted on or prior to the
Effective Date to members of the Company's management and employees of Far
East (the "Management Options"); (v) 150,000 shares of Common Stock reserved
for issuance pursuant to the Company's incentive stock option plan; or (vi)
100,000 shares of Common Stock reserved for options to be granted to a
consultant to Far East on or prior to the effective date. See "Concurrent
Public Offering of Securities," "Management" "Certain Transactions," 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 Even if Listing is Obtained.
7
<PAGE> 95
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
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."
DEPENDENCE ON 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 due to the Company's dependence on these vendors. See
"Business."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 24% 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; POTENTIAL CONFLICTS OF INTEREST. 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 68%
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." As a consequence, Mr. Leung could, as a practical
matter, have the Company managed in a manner that would be in his own best
interests and not the interest of the other shareholders of the Company.
CERTAIN LEGAL CONSEQUENCES OF INCORPORATION IN THE BRITISH VIRGIN ISLANDS;
RIGHTS OF SHAREHOLDERS NOT AS EXTENSIVE AS IN UNITED STATES CORPORATIONS;
UNCERTAINTY OF ENFORCING UNITED STATES JUDGMENTS. 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. 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
action 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
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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. 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. See
"Description of Securities."
UNCERTAINTY OF ENFORCING UNITED STATES JUDGMENTS IN HONG KONG AND THE
PRC. As all of the Company's officers and directors reside outside of the
United States, service of process upon the Company and such persons may be
difficult to effect in the United States. Furthermore, all of the Company assets
are and will be located outside of the United States, in Hong Kong and the PRC,
and any judgment obtained in the United States may not be enforced in those
jurisdictions. Hong Kong courts will not directly enforce against the Company or
such persons judgments obtained in the United States. There is also substantial
doubt as to the enforceability in the PRC of actions to enforce judgments of the
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. See "-- Certain Legal Consequences of Incorporation in the British
Virgin Islands; Rights of Shareholders not as Extensive as in United States
Corporations; Uncertainty of Enforcing United States Judgments" and "Enforcement
of Civil Liabilities."
LACK OF INDEPENDENT DIRECTORS. All current members of the Company's Board
of Directors are employed by Far East and, as such, there are no current members
of the Company's Board of Directors who are not affiliated or associated with
Far East and who are independent of the Company and/or Far East. All decisions
affecting the day-to-day operations of the Company and Far East will be made by
a Board of Directors, the members of which are not independent of the Company
and Far East. See "Management."
OUTSTANDING LOAN TO AFFILIATED PARTY. At June 30, 1996, Regent Earning,
Ltd. ("Regent") was indebted to the Company in the approximate sum of
HK$3,800,000. Regent owns approximately two-thirds of the outstanding equity
securities of Far East and upon completion of the Public Offering will own
approximately 48% of the Company's issued and outstanding shares of Common
Stock. Regent's majority shareholder is Pearl Venture, Ltd. which is a trust
established for the benefit of T.C. Leung, Chairman of the Company's Board of
Directors and its Chief Executive Officer. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Principal
Shareholders" and "Certain Transactions."
FORWARD LOOKING STATEMENTS. This Prospectus contains forward looking
statements. Additional written or oral forward looking statements may be made by
the Company from time to time in filings with the Commission or otherwise. Such
forward looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E
of the Exchange Act. Such statements may include, but not be limited to,
projections of revenues, income, or loss, capital expenditures, plans for future
operations, financing needs or plans, and plans relating to products or services
of the Company, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward looking statements, which speak only as of the date
the statement was made. Forward looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward looking statements. Statements in
this Prospectus, including those contained in the sections entitled "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in the Notes to the
Company's Financial Statements, describe factors, among others, that could
contribute to or cause such differences.
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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 $2.36 per share, or
approximately $2.64 (53%) 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 1,450,000 shares of Common Stock outstanding that are
"restricted securities," as that term is defined under Rule 144 promulgated
under 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 resale 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,"
"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," "Certain Transactions," "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
15
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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 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 SmallCap System.
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 SmallCap System. Current minimum
continued quotation criteria on the NASDAQ SmallCap System, which would make it
more difficult to maintain the listing of the Company's Securities, 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 SmallCap System if it has
$2,000,000 of capital and surplus and $1,000,000 in aggregate market value.
NASDAQ has proposed changes to its continued quotation criteria for its SmallCap
System including, among other things, $2,000,000 in net tangible assets, an
aggregate market value of $1,000,000, 500,000 shares being freely tradeable, two
independent directors and an audit committee of an issuer's board of directors
with the majority of the committee members being independent directors. If the
Company becomes unable to meet the continued quotation criteria of the NASDAQ
SmallCap 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, 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
16
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[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
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 SmallCap 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 SmallCap
System 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.
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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$14.47 (US$1.87) 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$18.28 (US$2.36) per Common Share. This represents an
immediate increase in net tangible book value to existing shareholders of
HK$3.81 (US$0.49) per Common Share and an immediate dilution to new investors of
HK$20.42 (US$2.64) per Common Share. The following table illustrates the per
Common Share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Common Share................. US$ 5.00
Net tangible book value per Common Share as of June 30, 1996......... US$ 1.87
Increase in net tangible book value per Common Share attributable to
new investors..................................................... 0.49
--------
Net tangible book value per Common Share after the Public Offering... 2.36
--------
Dilution per Common Share to new investors........................... US$ 2.64
========
</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...... 1,450,000 70.7% US$2,711,000 47.5% US$ 1.87
New investors.............. 600,000 29.3% 3,000,000 52.5% 5.00
--------- ------ ------------ ------ ----------------
Total................. 2,050,000 100.0% US$5,711,000 100.0% US$ 2.79
======== ====== ============ ====== =================
</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 and
100,000 Common Shares reserved for future issuance to a consultant to Far East.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management," "Certain Transactions" 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.
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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 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%
Establish an Office in the United States(4)....................... $ 150,000 7%
Working Capital................................................... $ 505,750 24%
---------- ----
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.
(4) To purchase equipment and leasehold improvements, pay security deposits,
first year's lease payments and initial salaries for an office to be
established in the United States.
Although the Company has not specifically allocated the funds allocated to
working capital and the Company will have broad discretion as to the application
of such funds, such funds will be used in the Company's current and/or planned
operations with the primary purposes of the Public Offering being to raise
capital for the specific purposes described herein. The establishment of product
assembly operations may result in negative cash flow for a period of time. In
such an event, the net proceeds allocated to working capital would be used to
support product assembly operations until they result in positive cash flow or
the Company decides that such operations will not result in an economic benefit.
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
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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. In the event the Company is not successful in establishing its
planned product assembly operations, any net proceeds remaining from the funds
allocated for such purpose may be reallotted to expanding the lines of products
that the Company distributes. 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.
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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 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.
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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. More specifically, at June 30, 1996 Far East had borrowed
the following short term bank overdraft facilities to finance its operating
activities: (a) approximately HK$1,692,455 from Standard Chartered Bank; and (b)
approximately HK$1,780,937 from Banque Nationale de Paris. Both such facilities
bearing interest at Hong Kong's prime rate. At June 30, 1996, unused portions of
the foregoing overdraft facilities were approximately HK$307,545 and HK$219,063
from the Standard Chartered Bank and Banque Nationale de Paris, respectively.
Far East also had the following outstanding import loans to finance the purchase
of goods from suppliers: (a) approximately 108,836 Deutsche Marks and 34,977
Singapore Dollars from Standard Chartered Bank, bearing interest at Hong Kong's
prime rate plus half percent and repayable within 90 days; and (b) approximately
US$136,762 from Banque Nationale de Paris, bearing interest at Hong Kong's prime
rate plus one percent and repayable within 120 days. 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. More specifically, at June 30, 1996 Far East had the
following bank loans used to finance the purchase of properties: (a) The Hong
Kong and Shanghai Banking Corporation, bearing interest at the United States
prime rate plus two and one-half percent, repayable at the approximate rate of
US $2,800 per month with approximately HK$1,104,000 in principal remaining to be
paid at the end of Six Months 1996; (b) the Bank of East Asia Ltd., bearing 13%
interest per year, repayable at the approximate rate of HK$11,945 per month with
approximately HK$768,000 in principal remaining to be paid at the end of Six
Months 1996; (c) Standard Chartered Bank, bearing interest at Hong Kong's prime
rate plus one and a quarter percent, repayable at the approximate rate of
HK$31,500 per month plus interest with approximately HK$1,972,000 in principal
remaining to be paid at the end of Six Months 1996 (repaid in December 1996 upon
the sale of the property the purchase of which this bank loan was used to
finance); and (d) the Hong Kong and Shanghai Banking Corporation, bearing
interest at Hong Kong's prime rate plus one and three quarters percent repayable
at the approximate rate of HK$65,598 per month with approximately HK$3,688,000
in principal remaining to be paid at the end of Six Months 1996. 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,
Action, 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. Regent owns approximately
two-thirds of the outstanding equity securities of Far East and upon completion
of the Public Offering will own approximately 48% of the Company's issued and
outstanding shares of Common Stock. Regent's majority shareholder is Pearl
Venture Ltd. which is a trust established for the benefit of T.C. Leung,
Chairman of the Company's Board of Directors and its Chief Executive Officer.
See "Principal Shareholders" and "Certain Transactions."
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.
29
<PAGE> 105
[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 97% 68%
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 97% 68%
Regent Earning Ltd. (1)....................... 1,027,600 71% 50%
All Executive Officers and Directors of the
Company as a group (5 persons) (2)(3)....... 1,400,000 97% 68%
</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 granted or which may be granted under the Company's
1996 Stock Option Plan, the Management Options and the Consultant's Options.
See "Management" and "Certain Transactions."
40
<PAGE> 106
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
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 cash
consideration of $1,500 or $.01 per share. Gusrae, Kaplan & Bruno is United
States counsel to the Company and was granted the right to purchase said shares
in partial consideration of its services rendered in connection with the Public
Offering and this Offering. Sidford has been and is a business consultant to Far
East which was initially paid HK$5,000 and granted the option to purchase the
foregoing 100,000 shares. In January 1997, Far East amended its Agreement with
Sidford to provide cash compensation to Sidford of $5,000 per month for twenty
months. At that same time, the Company repurchased the 100,000 shares previously
sold to Sidford for the sum of $1,000 and agreed to grant to Sidford options to
purchase up to 100,000 shares of the Company's Common Stock, such option being
exercisable at $5.50 per share. See "Management".
The Company's activities to date have been limited to organizational
activities, seeking and securing financing including a private offering of its
securities and the Public Offering and negotiating the terms and conditions of
its acquisition of Far East. Far East was established in 1971 and has been in
continuous operation since that time. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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. 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 29% 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 5%, 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.
On November 11, 1996 the Company completed the sale of an aggregate of
1,000,000 Warrants (the "Private Placement Warrants") to private investors for
aggregate gross proceeds of $150,000, or a price of $.15 per Warrant. 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
41
<PAGE> 107
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
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 by the rules promulgated by the Commission under the Securities Act. As
so defined a promoter is any person who (i) acting alone or in conjunction with
others, took the initiative in founding and organizing an issuer's business or
enterprise, or (ii) in connection with founding and organizing the business or
enterprise of an issuer, receives in consideration for services and/or property,
ten percent or more or either any class of the issuer's securities or the
proceeds therefrom. Mr. Leung formulated the concepts of a public offering to
raise capital for the Company and Far East and establishing a company in the
British Virgin Islands for that purpose. Additionally, upon completion of the
Public Offering and the Acquisition, Mr. Leung will beneficially own
approximately 65% of the Company's issued and outstanding shares of Common
Stock. See "Principal Shareholders."
All future transactions between the Company and its executive officers and
directors will be on teams no less favorable than could be obtained from
independent third parties and will be approved by a majority of the Company's
directors disinterest in such transactions.
42
<PAGE> 108
[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.
46
<PAGE> 109
[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 resold 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, Andersen & 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.
47
<PAGE> 110
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
ENFORCEMENT OF CIVIL LIABILITIES
The Company is a British Virgin Islands holding corporation. The Company
has appointed CT Corporation System, 1633 Broadway, New York, New York 10019 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
48
<PAGE> 111
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
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 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. The Commission maintains a website that contains
reports, proxies and information statements and other information regarding
issuers that file electronically with the Commission. The Commission's website
is located at http://www.sec.gov.
49
<PAGE> 112
[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..................... 4
Risk Factors........................... 9
Dilution............................... 18
Concurrent Public Offering of
Securities........................... 18
Use of Proceeds........................ 19
Capitalization......................... 21
Selected Financial Information......... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 24
Business............................... 30
Management............................. 36
Principal Shareholders................. 40
Certain Transactions................... 41
Description of Securities.............. 43
Shares Eligible for Future Sale........ 45
Selling Securityholders................ 46
Plan of Distribution................... 47
Legal Matters.......................... 47
Experts................................ 47
Enforcement of Civil Liabilities....... 48
Additional Information................. 49
Index to Financial Statements.......... F-1
Appendix -- The People's Republic of
China................................ A-1
</TABLE>
UNTIL , 1997 (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
--------------------
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 113
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*
Printing and Engraving Expenses................................................. 50,000.00*
Accounting Fees and Expenses.................................................... 100,000.00*
Legal Fees and Expenses......................................................... 212,000.00*
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.......................................................... 5,942.83*
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> 114
(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> 115
<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 Form of Underwriting 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 Smith Hughes, Raworth & McKenzie (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> 116
<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 Hong Kong Bank Mortgage with Euro Tech (Far East) Limited (regarding new office)
(1)
10.13 Standard Chartered 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)
10.16 Consulting Agreement with Sidford International Ltd. (2)
23.1 Consent of Smith Hughes, Raworth & McKenzie (included in Exhibit 5.1) (2)
23.2 Consents of Arthur Anderson & Co., Hong Kong (2)
23.3 Consent of Gusrae, Kaplan & Bruno (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 of initial filing.
</TABLE>
- ---------------
(1) Previously filed with initial filing.
(2) Filed herewith.
(3) 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,
II-4
<PAGE> 117
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.
(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> 118
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 or amendment to be signed on its behalf by the undersigned, thereunto
duly authorized in Hong Kong, on the 29th day of January, 1997.
EURO TECH HOLDINGS COMPANY LIMITED
By: /s/ T.C. Leung
----------------------------------
T.C. Leung,
Chairman of the Board of Directors
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 Directors, January 29, 1997
- ---------------------------------------- Chief Executive Officer and
T.C. Leung Director (Principal Executive
Officer)
/s/ Jerry Wong Chief Financial Officer and January 29, 1997
- ---------------------------------------- Director (Principal Accounting and
Jerry Wong Financial Officer)
* Director January 29, 1997
- ----------------------------------------
Nancy Wong
* Director January 29, 1997
- ----------------------------------------
Nancy Wong
* Director January 29, 1997
- ----------------------------------------
Alex Sham
*By: /s/ T.C. Leung January 29, 1997
------------------------------------
T.C. Leung
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 119
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on January 30, 1997 by the
undersigned as the duly authorized representative of Euro Tech Holdings Company
Limited in the United States.
/s/ PATRICK W. LEUNG
--------------------------------------
Patrick W. Leung
900 Palisade Ave. 8F
Fort Lee, NJ 07024
II-7
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
----- ---------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting 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 Smith Hughes, Raworth & McKenzie (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)
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 Hong Kong Bank Mortgage with Euro Tech (Far East) Limited (regarding
new office) (1)
10.13 Standard Chartered 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)
10.16 Consulting Agreement with Sidford International Ltd. (2)
23.1 Consent of Smith Hughes, Raworth & McKenzie (included in Exhibit 5.1)
(2)
23.2 Consents of Arthur Anderson & Co., Hong Kong (2)
23.3 Consent of Gusrae, Kaplan & Bruno (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 of initial filing.
</TABLE>
- ---------------
(1) Previously filed with initial filing.
(2) Filed herewith.
(3) To be filed by Amendment.
<PAGE> 1
Exhibit 1.1
EURO TECH HOLDINGS COMPANY LIMITED
UNDERWRITING AGREEMENT
New York, New York
, 1997
May Davis Group, Inc., as Representative of
the Several Underwriters as Listed in Schedule A
20 Exchange Place
New York, New York 10005
Dear Sirs:
The undersigned, Euro Tech Holdings Company Limited, a
____________ corporation organized under the laws of the British Virgin Islands
(the "Company"), hereby confirms its agreement with May Davis Group, Inc., as
representative of the several underwriters listed in Schedule A ("May Davis",
"you" or the "Underwriters") with respect to the sale by the Company to the
Underwriters, acting severally and not jointly, of the respective number of
shares of the common stock ("Shares") of the Company, par value $.01 per share
("Common Stock") and redeemable common stock purchase warrants ("Public
Warrant") each to purchase one share of Common Stock, as set forth in Schedule A
hereto. The aggregate 600,000 Shares and 600,000 Public Warrants will be
separately tradable upon issuance and are sometimes herein referred to as the
"Firm Securities".
1. INTRODUCTION. Each Public Warrant is exercisable commencing
on _________, 1999 [two years from the Effective Date, as hereafter defined]
until ___________, 2003 [six years from the Effective Date], unless previously
redeemed by the Company, at an initial exercise price of $ ____ [110% of the
public offering price] per share of Common Stock provided that the Public
Warrants shall be exercisable from _______, 1998 through _______, 1999,
1
<PAGE> 2
only if May Davis has consented in writing to all of the Public Warrants being
exercisable. The Public Warrants may be redeemed by the Company at a redemption
price of $.10 per Public Warrant at any time during the period that the Public
Warrants are exercisable on thirty (30) days prior written notice, provided that
the closing bid price of the Common Stock equals or exceeds $____ [170% of the
initial public offering price per share] for any twenty (20) consecutive trading
day period provided that notice of redemption is mailed not later than 10 days
after the end of such period and sets forth a redemption date at least 30 days
thereafter, all in accordance with the terms and conditions of the Warrant
Agreement between the Company and American Stock Transfer & Trust Company
("Warrant Agreement").
Upon your request, as provided in this Agreement, the Company shall
also issue and sell to you up to an additional 90,000 Shares and/or 90,000
Public Warrants for the purpose of covering over-allotments in the sale of the
Firm Securities (the "Over-allotment Option"). Such additional securities are
hereinafter referred to as the "Option Securities." The Firm Securities and the
Option Securities are hereinafter sometimes referred to as the "Securities." The
Company also proposes to issue and sell to you, pursuant to the terms of the
warrant agreement, dated ___________, 1997 between you and the Company (the
"Underwriters' Warrant Agreement"), warrants (the "Underwriters' Warrants") to
purchase up to 60,000 Shares and/or 60,000 Public Warrants. The Underwriters'
Warrants shall be exercisable during the five year period commencing one (1)
year from the date of the Prospectus (as defined in Section 2(a) hereof) at a
price of $______ [165% of the public offering price per Share] per Share and
$_____ [ 165% of the public offering price per Public Warrant] per Public
Warrant, subject to adjustment in certain events to protect against dilution.
The Securities issuable upon exercise of the Underwriters' Warrants are
hereinafter sometimes referred to as the "Underwriters' Securities." The
Securities, the Underwriters' Warrants and the Underwriters' Securities are more
fully described in the Registration Statement and the Prospectus referred to
below.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriters as of the date hereof that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (the
"Registration Statement"), and an amendment or amendments
2
<PAGE> 3
thereto, on Form F-1 (No. 333-16277), including any related preliminary
prospectus (the "Preliminary Prospectus"), for the registration of the
Securities and the Underwriters' Securities, under the Securities Act of 1933,
as amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations (the "Regulations") of the Commission
promulgated under the Act. Before the registration becomes effective, the
Company will not file any amendment to such registration statement to which you
shall have reasonably objected after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated therein
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations (or included in
the Registration Statement, if no filing under Rule 424 is required), is
hereinafter called the "Prospectus."
(b) On the date upon which the Registration Statement
is declared effective by the Commission (the "Effective Date") and at all times
subsequent thereto up to Closing Date I and Closing Date II, if any (as such
terms are defined in Section 3(d) hereof), the Registration Statement and the
Prospectus will comply in all material respects with the applicable provisions
of the Act and the Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The representation and
warranty made in this Section 2(b) does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company by the Underwriters expressly for use in the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(c) This Agreement, the Warrant Agreement, the
Underwriters' Warrant Agreement and the Financial Advisory and Investment
Banking Agreement (as defined in Section 5(s) hereof), have been duly and
validly authorized by the Company, and this
3
<PAGE> 4
Agreement constitutes, and the Public Warrant Agreement, the Underwriters'
Warrant Agreement and the Financial Advisory and Investment Banking Agreement,
when executed and delivered pursuant to this Agreement, will (assuming due
execution by the Underwriters) each constitute a valid and binding agreement of
the Company, enforceable against the Company in accordance with its respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification, contribution or exculpation provision may be limited under
applicable Federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. The Securities and the
Underwriters' Warrants to be issued and sold by the Company pursuant to this
Agreement, the Underwriters' Securities issuable upon exercise of the
Underwriters' Warrants and payment therefor, have been duly authorized and, when
issued and paid for, will be validly issued, fully paid and non-assessable; the
holders thereof are not and will not be subject to personal liability by reason
of being such holders; the Securities, the Underwriters' Warrants and the
Underwriters' Securities are not and will not be subject to the preemptive
rights of any holders of any security of the Company or similar contractual
rights granted by the Company; and all corporate action required to be taken for
the authorization, issuance and sale of the Securities, the Underwriters'
Warrants and the Underwriters' Securities has been duly and validly taken. The
Underwriters' Warrants constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms, to issue and sell, upon exercise in
accordance with the terms thereof, the number and type of the Company's
securities called for thereby; except (i) as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification, contribution or exculpation provision may be limited under
applicable Federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(d) All issued and outstanding securities of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; the issuances and sales of all such securities complied in all
material respects with applicable
4
<PAGE> 5
Federal and state securities laws; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company.
(e) Except as set forth in the Registration Statement
and the Prospectus, the Company and each of its Subsidiaries (collectively,
"Subsidiaries" and individually a Subsidiary") has good and marketable title to,
or valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, respectively,
free and clear of all liens, encumbrances, claims, security interests, defects
and restrictions of any material nature whatsoever, other than those referred to
in the Prospectus and liens for taxes not yet due and payable. The Company has
no direct or indirect Subsidiaries except as described in the Prospectus and
Euro Tech (Far East) Ltd., which will be wholly owned by the Company on Closing
Date I.
(f) There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding pending or to the knowledge
of the Company threatened, against or involving the properties or business of
the Company or any Subsidiary or which if adversely determined could reasonably
be expected to materially and adversely affect the financial position, or
prospects, or business of the Company and Subsidiaries, taken as a whole, except
as referred to in the Prospectus.
(g) All contracts and other documents required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement have been described in the Registration
Statement or the Prospectus or filed with the Commission as Exhibits to the
Registration Statement, as required.
(h) The financial statements of the Company and
Subsidiaries, together with the related notes, included in the Registration
Statement and Prospectus fairly present the financial positions and the results
of operations of the Company and Subsidiaries, at the dates and for the periods
to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved. There has
5
<PAGE> 6
been no material adverse change in financial conditions or results of operations
of the Company or any Subsidiary, or to the knowledge of the Company, any
development involving a prospective change in the condition or prospects of the
Company or any Subsidiary, financial or otherwise, since the date of the
financial statements included in the Prospectus, except as disclosed therein.
(i) Arthur Anderson & Co., whose reports are filed
with the Commission as a part of the Registration Statement, are independent
accountants as required by the Act and the Regulations.
(j) Except as otherwise set forth in the Prospectus,
the Company does not own, directly or indirectly, an interest in any
corporation, partnership, joint venture, trust or other business entity. Each of
the Company and each Subsidiary is duly qualified and licensed and in good
standing as foreign corporation in each jurisdiction in which its ownership of
property or business operations require such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material
adverse affect on the Company or such Subsidiary. Each of the Company and each
Subsidiary is duly and validly organized and is in good standing in its
jurisdiction of incorporation and has all requisite corporate power and
authority, and all necessary material authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies, to own or lease its respective properties and conduct its
respective business as described in the Prospectus. Each of the Company and each
Subsidiary is, and has been, doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates and permits and with
all applicable Federal, state and local laws, rules and regulations, including
but not limited to laws and regulations relating to environmental matters and
employee health and safety matters, and none of the aforementioned
authorizations, approvals, orders, licenses, certificates or permits have been
suspended or revoked, nor are there any proceedings pending or to the knowledge
of the Company threatened which could result in a suspension or revocation
thereof. The Company has all requisite corporate power and authority to enter
into this Agreement, the Warrant Agreement, the Underwriters' Warrant Agreement
and the Financial Advisory and Investment Banking Agreement and to carry out the
provisions and conditions hereof and thereof, and all consents, authorizations,
approvals and orders required in connection therewith have been obtained. No
consent, authorization or order of, and no filing with, any court, government
agency or other body is required for
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the issuance of the Securities and the Underwriters' Securities, pursuant to
this Agreement, the Warrant Agreement, and the Underwriters' Warrant Agreement,
and as contemplated by the Prospectus, except with respect to applicable Federal
and state securities laws.
(k) The outstanding debt, the property and the
business of the Company and its Subsidiaries conforms in all material respects
to the descriptions thereof contained in the Registration Statement and
Prospectus.
(l) The Securities, the Underwriters' Warrants, the
Underwriters' Securities and any other securities issued or to be issued by the
Company on or before the Closing Dates (as defined in Section 3(d) hereof)
described herein conform, or will conform when issued, in all material respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus.
(m) Except as set forth in the Prospectus, no
material default exists in the due performance and observance of any term,
covenant or condition of any license, contract, indenture, mortgage, deed of
trust, note, loan or credit agreement, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company or a Subsidiary is a party or by which the
Company may be bound or to which any of the property or assets of the Company or
a Subsidiary are subject which default would reasonably be expected to have a
materially adverse effect on the financial condition or business of the Company
and the Subsidiaries taken as a whole.
(n) Neither the Company nor any Subsidiary is in
violation of any term or provision of its respective Certificate (Memorandum) of
Incorporation or By-Laws. Neither the execution and delivery of this Agreement,
nor the issuance and sale of the shares of Common Stock, the Public Warrants,
the Underwriters' Warrants and the Underwriters' Securities, nor the
consummation of any of the transactions contemplated herein, nor the compliance
by the Company with the terms and provisions hereof has materially conflicted
with or will materially conflict with, or has resulted in or will result in a
material breach of, any of the terms and provisions of, or has constituted or
will constitute a material default under, or has resulted in or will result in
the creation or imposition of any lien, charge or encumbrance upon the property
or assets of the Company or any Subsidiary pursuant to the terms
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<PAGE> 8
of any indenture, mortgage, deed of trust, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company or any Subsidiary is a
party, or by which the Company or any Subsidiary is or may be bound, or to which
any of the property or assets of the Company or any Subsidiary is subject; nor
will such action result in any material violation of the provisions of the
Certificate of Incorporation or the By-Laws of the Company or any Subsidiary or
any contract or agreement, or any statute or any order, rule or regulation
applicable to the Company or any Subsidiary or any other regulatory authority or
other governmental body having jurisdiction over the Company or Subsidiary.
(o) Except as disclosed in the Prospectus, all taxes
which are due from the Company or any Subsidiary have been paid in full, unless
being contested in good faith by the Company or and such Subsidiary as
applicable, and Neither the Company nor any Subsidiary has any tax deficiency or
claim outstanding, proposed or assessed against them.
(p) Subsequent to the respective dates as of which
information is given in the most recently circulated Preliminary Prospectus
included as a part of the Registration Statement, and except as may otherwise be
indicated or contemplated herein or therein, neither the Company nor any
Subsidiary has (i) issued any securities, (ii) declared or paid any dividend or
made any other distribution on or in respect to its capital stock; (iii)
incurred any material liability or obligation, direct or contingent, for
borrowed money; or (iv) entered into any transaction other than in the ordinary
course of business.
(q) To the Company's knowledge, the Commission has
not issued any order preventing or suspending the use of any Preliminary
Prospectus or part thereof.
(r) On the Effective Date, (i) the authorization of
capital stock of the Company is as set forth in the Registration Statement, and
(ii) not more than an aggregate of 1,550,000 shares of Common Stock shall be
issued and outstanding excluding: (A) 600,000 shares of Common Stock and the
600,000 shares of Common Stock issuable upon the exercise of the Public
Warrants; (B) up to an additional 90,000 shares of Common Stock issuable upon
the exercise of the Over-allotment Option or the 90,000 shares issuable upon the
exercise of the Public Warrants issuable
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<PAGE> 9
upon the exercise of the Over-allotment Option; (C) up to an additional 60,000
shares issuable upon exercise of the Underwriters' Warrants or the 60,000 shares
issuable upon exercise of the Public Warrants issuable upon the exercise of the
Underwriters' Warrants (which warrants are identical to the Public Warrants) (D)
up to 1,000,000 shares issuable upon the exercise of outstanding Warrants, and
(E) up to 1,550,000 shares issuable upon the exercise of options outstanding, or
which may be granted under the Company's 1996 Stock Option Plan and to
management as management options as described in the Prospectus ("Management
Options"). Other than the shares of Common Stock referred to in the immediately
preceding sentence, no other shares of capital stock or securities convertible
into capital stock shall be outstanding or reserved for issuance at the
completion of the proposed public offering without the consent of the
Underwriters.
(s) Except for the registration rights granted under
the Underwriters' Warrant Agreement, to the Selling Stockholders named in the
Registration Statement or as disclosed in the Prospectus, no holders of any
securities of the Company or of any options, warrants or convertible or
exchangeable securities of the Company exercisable for or convertible or
exchangeable for securities of the Company have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company.
(t) Assuming that there will be two "market makers"
for the Common Stock, at least 300 beneficial owners of the Common Stock and a
sufficient "public float" of the Shares, and that the Company's registration of
the Common Stock pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act") becomes effective (all as contemplated by the requirements of the National
Association of Securities Dealers, Inc.), the Common Stock is eligible for
quotation on the Nasdaq Stock Market ("Nasdaq"). The Company has filed a
registration statement with the Commission pursuant to Section 12(g) of the
Exchange Act, and has used its best efforts to have same declared effective by
the Commission on an accelerated basis on the Effective Date.
(u) Except as described in the Prospectus, to the
Company's knowledge, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, commitments, payments or issuances of securities
with respect to the Company that may affect the Underwriters'
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<PAGE> 10
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(v) Neither the Company, any Subsidiary, nor to the
knowledge of the Company, any of their respective employees or officers or
directors, agents or any other person acting on behalf of the Company or any
Subsidiary has, directly or indirectly, given or agreed to give any money, gift
or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer, supplier, or official or governmental agency or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company or any Subsidiary (or assist it in
connection with any actual or proposed transaction) which (i) could reasonably
be expected to subject the Company or any Subsidiary to any material damage or
penalty in any civil, criminal or governmental litigation or proceeding, (ii) if
not given in the past, could reasonably be expected to have had a materially
adverse effect on the assets, business or operations of the Company or any
Subsidiary as reflected in any of the financial statements contained in the
Prospectus, or (iii) if not continued in the future, could reasonably be
expected to materially adversely affect the assets, business, operations or
prospects of the Company or any Subsidiary.
(w) The Company and each Subsidiary owns or possesses
the requisite licenses or rights to use all trademarks, service marks, service
names, trade names, patents and patent applications, copyrights, methods,
protocols, techniques, technologies, procedures and other rights (collectively
the "Intangibles") described as owned or used by the Company or such Subsidiary
in the Registration Statement. There is no claim, action or proceeding by any
person pending or, to the Company's knowledge, threatened, which pertains to or
challenges the rights of the Company or such Subsidiary with respect to any
Intangibles used in the conduct of the business of the Company or such
Subsidiary, except as described in the Prospectus. To the Company's knowledge,
current products, services and processes of the Company and each Subsidiary do
not infringe on any Intangibles held by any third party.
(x) Except as set forth in the Registration
Statement, neither the Company nor any Subsidiary is under any obligation to pay
royalties or fees of any kind whatsoever to any
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<PAGE> 11
third party with respect to Intangibles it has developed, uses, employs or
intends to use or employ.
(y) The Company and each Subsidiary has generally
enjoyed satisfactory employer/employee relationships with its respective
employees and is in material compliance in all material respects with all
applicable laws and regulations respecting the employment of their respective
employees and employment practices, terms and conditions of employment and wages
and hours relating thereto. To the Company's knowledge, there are no pending or
threatened investigations involving the Company or any Subsidiary by the U.S.
Department of Labor or corresponding foreign agency, or any other governmental
agency responsible for the enforcement of such Federal, state or local laws and
regulations. To the Company's knowledge, there is no unfair labor practice
charge or complaint against the Company or any Subsidiary pending before the
National Labor Relations Board or corresponding foreign agency or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or any Subsidiary, or any predecessor entity, and none
has occurred. No representation question exists respecting the employees of the
Company or any Subsidiary. No collective bargaining agreement or modification
thereof is currently in effect or being negotiated by the Company and its
respective employees. No grievance or arbitration proceeding is pending under
any expired or existing collective bargaining agreements of the Company or any
Subsidiary.
(z). Neither the Company, any Subsidiary, nor to the
Company's knowledge, any of their respective officers or directors or any of
their respective employees or stockholders, have taken, directly or indirectly,
any action designed to or which has constituted or which could reasonably be
expected to cause or result in, under the Exchange Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.
(aa). Neither the Company nor any Subsidiary is
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Neither the Company nor any Subsidiary maintains or
contributes or at any time in the past, maintained or contributed to a defined
benefit plan, as defined in Section 3(35) of ERISA.
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(ab). Except as set forth in the Prospectus under
"MANAGEMENT" or "CERTAIN TRANSACTIONS," neither the Company nor any Subsidiary
is a party to any agreement with any officer, director or stockholder of the
Company or any affiliate or associate of any such person or entity which is
required to be disclosed in the Prospectus pursuant to Regulation SK. Except as
set forth in the Prospectus, to the Company's knowledge, no officer, director or
stockholder of the Company or any Subsidiary or any "affiliate" or "associate"
(as these terms are defined in Rule 405 promulgated under the Regulations) of
any such person or entity, the Company or any Subsidiary, has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or any Subsidiary, or (B)
purchases from or sells or furnishes to the Company or any Subsidiary any goods
or services, or (ii) a beneficial interest in any contract or agreement to which
the Company or any Subsidiary is a party or by which it may be bound or
affected.
(ac). The minute books of the Company and each
Subsidiary have been made available to counsel to the Underwriters and each
contains a complete summary of all meetings and actions by unanimous consent of
directors and stockholders since the time of incorporation and reflect all
transactions referred to in such minutes accurately in all material respects.
(ad). The statements in the Prospectus under "RISK
FACTORS," "BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF
SECURITIES," insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions are correct in all
material aspects.
(ae). The Company has all requisite corporate power
and authority to enter into and to carry out the provisions and conditions
hereof, and all consents, authorizations, approvals and orders required in
connection therewith have been obtained. Neither the execution and delivery of
this Agreement, nor the consummation of any of the transactions contemplated
herein, nor the compliance by the Company with the terms and provisions hereof
has materially conflicted with or will materially conflict with,
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<PAGE> 13
or has resulted in or will result in a material breach of, any of the terms and
conditions or provisions of, or has constituted or will constitute a material
default under, or has resulted in or will result in the creation or imposition
of any lien, charge or encumbrance upon the property or assets of the Company or
any Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company or any Subsidiary is a party, or by which the Company or any
Subsidiary is or may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject; nor will such action result in any
material violation of the provisions of the respective Certificates of
Incorporation or the By-Laws of the Company or any Subsidiary or any contract or
agreement, or any statute or any order, rule or regulation applicable to the
Company or any Subsidiary or any other regulatory authority or other
governmental body having jurisdiction over the Company or any Subsidiary.
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND
UNDERWRITERS' WARRANTS.
(a) On the basis of the representations and
warranties herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters 600,000 Shares of Common
Stock and 600,000 Public Warrants, and the Underwriters agree to purchase such
Securities from the Company on a firm commitment basis at a purchase price of
$4.50 per Share and $.135 per Public Warrant, to be sold by the Underwriters at
an initial public offering price of $5.00 per Share and $.15 per Public Warrant.
(b) In addition, upon not less than two (2) days'
notice from the Underwriters to the Company, for a period of forty-five (45)
days from the date of the Prospectus, the Company agrees to sell to the
Underwriters at a purchase price of $4.50 per Share and/or $.135 per Public
Warrant, all or any part of the Option Securities, to be sold by the
Underwriters hereunder at an initial public offering price of $5.00 per Share or
$.15 per Public Warrant. Delivery of the Option Securities shall be made
concurrently with tender of payment therefor. Option Securities may be purchased
by the Underwriters only for the purpose of covering over-allotments in the sale
of the Firm Securities, and
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<PAGE> 14
the Underwriters shall have no obligation to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) On Closing Date I (defined below in Section
3(d)), the Company shall issue and sell to the Underwriters the Underwriters'
Warrants, which warrants shall entitle the holders thereof to purchase up to
60,000 Shares and/or 60,000 Public Warrants. The total purchase price of the
Underwriters' Warrants shall be $5. The Underwriters' Warrants shall be
exercisable in whole or in part for up to an additional 60,000 Shares and/or
60,000 Public Warrants for a period of five (5) years commencing one (1) year
from the date of the Prospectus at a price of $___ per Share and $.___ per
Public Warrant [(165% of the IPO price of the Securities)]. The Underwriters'
Warrant Agreement and form of Underwriters' Warrant Certificate shall be
substantially in the form filed as Exhibit ___ to the Registration Statement.
(d) Payment for the Underwriters' Warrants shall be
made on Closing Date I. Payment for the Firm Securities and the Option
Securities shall be made on each of Closing Date I and Closing Date II,
respectively, at the Underwriters' election by certified or bank cashier's check
in New York Clearing House funds, payable to the order of the Company, or by
wire transfer, at the offices of one of the Underwriters, or at such other place
as agreed upon by the Underwriters and the Company, upon delivery of
certificates (in form and substance reasonably satisfactory to the Underwriters)
representing the Securities or by confirmation of electronic transfer of the
Securities to the Underwriters for the accounts of the Underwriters. Delivery
and payment for the Firm Securities shall be made at 10:00 A.M. New York time,
on or before the fifth business day following the Effective Date or at such
earlier time as the Underwriters shall determine, or at such other time as shall
be agreed upon by the Underwriters and the Company. The hour and date of
delivery and payment for the Firm Securities are called "Closing Date I." The
Firm Securities shall be registered in such name or names and in such authorized
denominations as the Underwriters may request in writing at least two (2) full
business days prior to Closing Date I. The Company will permit the Underwriters
to examine and package any certificates representing the Firm Securities for
delivery, at least one (1) full business day prior to Closing Date I. Delivery
for each of the Option Securities as provided above shall be made within the two
(2) business day period after notice of exercise to the Company, and against
payment therefor, as provided above. The hour and date of such delivery and
payment made subsequent to
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<PAGE> 15
Closing Date I for Option Securities is referred to as "Closing Date II" and
Closing Date I and Closing Date II are collectively referred to as Closing Date
I. The Option Securities shall be registered in such name or names and in such
denominations as the Underwriters may request in writing at the time of exercise
of the Over-allotment Option.
(e). The Company shall not be obligated to sell or
deliver any Firm Securities except upon tender of payment by the Underwriters
for all the Firm Securities.
4. PUBLIC OFFERING. The Underwriters are to make a public
offering of the Firm Securities and such of the Option Securities as they may
determine. The Securities are to be initially offered to the public at the
offering price set forth on the cover page of the Prospectus (such price being
hereinafter called the "Public Offering Price"). The Underwriters may, at their
own expense, enter into one or more agreements as the Underwriters, in their
sole discretion, deem advisable with one or more broker-dealers who shall act as
dealers or co-underwriters in connection with such public offering.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees
that it will:
(a) Use its best efforts to cause the Registration
Statement to become effective and will notify the Underwriters immediately, and
confirm the notice in writing, (i) when the Registration Statement and any
post-effective amendment thereto becomes effective, (ii) of the issuance by the
Commission of any stop order or of the initiation, or the threatening, of any
proceeding for that purpose, (iii) of the issuance by any state securities
commission of any proceedings for the suspension of the qualification of the
Securities and the Underwriters' Securities for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, and (iv) of the receipt of any comments from the Commission. If
the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every reasonable
effort to obtain promptly the lifting of such order.
(b) File the Prospectus (in form and substance
reasonably satisfactory to the Underwriters) or transmit the Prospectus by a
means reasonably calculated to result in filing
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<PAGE> 16
with the Commission in accordance with Rule 424, if the Prospectus is required
to be so filed.
(c) During the time when a prospectus is required to
be delivered under the Act, use its reasonable best efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Regulations, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in the
Securities and the Underwriters' Securities in accordance with the provisions
hereof and the Prospectus. If at any time when a prospectus relating to the
Securities or the Underwriters' Securities is required to be delivered under the
Act, any event shall have occurred as a result of which, in the opinion of
counsel for the Company or counsel for the Underwriters, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act.
(d) Deliver to the Underwriters, without charge, such
number of copies of each Preliminary Prospectus and the Prospectus as the
Underwriters may reasonably request and, as soon as the Registration Statement
or any amendment or supplement thereto becomes effective, deliver to the
Underwriters two (2) signed copies of the Registration Statement, including
exhibits, and all post-effective amendments thereto and copies of all exhibits
filed therewith or incorporated therein by reference and signed copies of all
consents of certified experts.
(e) Endeavor in good faith, in cooperation with the
Underwriters, and Gersten, Savage, Kaplowitz & Curtin, LLP at or prior to the
time the Registration Statement becomes effective, to qualify the Securities and
the Underwriters' Securities for offering and sale under the securities laws of
such jurisdictions as the Underwriters may reasonably designate, provided that
no such qualification shall be required in any jurisdiction where, as a result
thereof, the Company would be subject to service of general process or to
taxation as a foreign corporation doing business in such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the
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<PAGE> 17
Underwriters agree that such action is not at the time necessary or advisable,
use its reasonable best efforts to file and make such statements or reports at
such times as are or may reasonably be required by the laws of such
jurisdiction.
(f) Make generally available to its security holders
as soon as practicable, but not later than the first day of the fifteenth full
calendar month following the Effective Date, an earnings statement (which need
not be certified by independent public or independent certified public
accountants unless required by the Act or the Regulations, but which shall
satisfy the provisions of Section 11(a) of the Act) covering a period of at
least twelve (12) consecutive months beginning after the Effective Date.
(g) For a period of five (5) years from the Effective
Date, furnish to the Underwriters copies of such financial statements and other
periodic and special reports as the Company from time to time furnishes
generally to holders of any class of its securities, and promptly furnish to
each Underwriter (i) a copy of each periodic report the Company shall file with
the Commission, (ii) a copy of every press release and every news item and
article with respect to the Company or its affairs, which was released by the
Company, (iii) a copy of each Form 8-K or Schedule 13D, 13G, 14D-1 or 13E-4
received or prepared by the Company, and (iv) such additional documents and
information with respect to the Company or any future Subsidiaries or affiliates
of the Company as the Underwriters may from time to time reasonably request.
(h) Apply the net proceeds from the offering received
by it in a manner consistent in all material respects with the caption "USE OF
PROCEEDS" in the Prospectus.
(i) Deliver to the Underwriters, prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed to
be filed after the Effective Date and not file any such amendment or supplement
to which the Underwriters shall reasonably object, after being furnished such
copy, in writing with reasonable specificity as to the nature and extent of any
objection.
(j) Furnish to the Underwriters as early as
practicable prior to Closing Date I, but not later than two (2) full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
thirty (30) days prior to
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<PAGE> 18
the Effective Date) which have been read by the Company's independent
accountants as stated in their letter to be furnished to the Underwriters
pursuant to Section 7(g) hereof.
(k) For a period of three (3) years from Closing Date
I, provide the Underwriters, upon their request, at the Company's sole expense,
(i) with access to daily consolidated financial transfer sheets relating to the
Common Stock and designate American Stock Transfer & Trust Company as transfer
agent for the Company's securities or such other transfer agent mutually
agreeable to the Company and the Underwriters and (ii) to cause the Company's
depository to fax a "special security position report" to each Underwriter on a
daily basis.
(l) For a period of three (3) years after Closing
Date I, nominate and use its best efforts to engage a designee of the
Underwriters as a nonvoting advisor to the Company's Board of Directors (the
"Advisor") or in lieu thereof to designate an individual for election as a
director, in which case the Company shall use its best efforts to have such
individual elected as a director. The designee may be a director, officer,
partner, employee or affiliate of one or both of the Underwriters and the
Underwriters shall designate such person in writing to the Board. In the event
the Underwriters shall not have designated such individual at the time of any
meeting of the Board or such person is unavailable to serve, the Company shall
notify the Underwriters of each meeting of the Board. An individual, if any,
designated by the Underwriters shall receive all notices and other
correspondence and communications sent by the Company to members of the Board.
Such Advisor or director, as the case may be shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging, and transportation. In addition,
such Advisor or Director shall be entitle to the same cash compensation as the
Company gives to other non-employee directors for acting in such capacity. The
Company further agrees that, during said three (3) year period, it shall
schedule no less than four (4) formal and "in person" meetings of its Board of
Directors in each such year at which meetings such Advisor shall be permitted to
attend as set forth herein; said meetings shall be held quarterly each year and
thirty (30) days advance notice of such meetings shall be given to the Advisor.
Further, during such three (3) year period, the Company shall give notice to the
Underwriters with respect to any proposed acquisitions, mergers, reorganizations
or other similar transactions.
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<PAGE> 19
The Company agrees to indemnify and hold
harmless both of the Underwriters and such Advisor against any and all claims,
actions, damages, costs and expenses, and judgments arising solely out of the
attendance and participation of the Advisor at any such meeting described
herein. In the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, it agrees, if
possible, to include the Advisor as an insured under such policy.
(m) Until the sooner of (i) seven (7) years from the
date hereof, or (ii) the sale to the public of the Underwriters' Securities, not
take any action or actions which may prevent or disqualify the Company's use of
Form F-1 (or another appropriate form) for the registration under the Act of the
Underwriters' Securities and the shares of Common Stock underlying the Public
Warrants.
(n) For a period of five (5) years from the Effective
Date, use its best efforts to maintain the quotation of the Securities by Nasdaq
.
(o) Supply each Underwriter with two (2), and
Gersten, Savage, Kaplowitz & Curtin, counsel to the Underwriters, with three (3)
bound volumes of the underwriting materials within a reasonable time after the
latest Closing Date.
(p) For a period of two (2) years from the Effective
Date, not issue any other shares of Common Stock or Preferred Stock or
securities convertible into or exercisable for Common Stock or Preferred Stock
without the prior written consent of the Underwriters. Notwithstanding the
foregoing, the Company may issue securities upon (A) the exercise of any
warrants outstanding on the date hereof pursuant to the terms thereof or options
granted or to be granted pursuant to the Company's 1996 Stock Options Plan and
Management Options, and (B) the exercise of the Underwriters' Warrant.
(q) So long as the Securities or the Underwriters'
Securities are registered under the Exchange Act, hold an annual meeting of
stockholders for the election of directors within 180 days after the end of each
of the Company's fiscal years and, within 150 days after the end of each of the
Company's fiscal years, provide the Company's stockholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial
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statements shall be those required by Rule 14a-3 under the Exchange Act and
shall be included in an annual report pursuant to the requirements of such Rule.
(r) Engage a financial public relations firm
reasonably satisfactory to the Underwriters as soon as possible after Closing
Date I, and continuously engage such firm, or an acceptable substitute firm for
at least the period ending twenty four (24) months after Closing Date I.
(s) Enter into the Underwriters' Warrant Agreement
and the Financial Advisory and Investment Banking Agreement (the "Consulting
Agreement") in substantially the form filed as Exhibits ___ and ___,
respectively, to the Registration Statement.
(t) As soon as possible after Closing Date I, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions or other equivalent manual and to maintain its listing
therein for a period of five (5) years from the Effective Date.
(u) Cause all of the Company's officers and directors
and stockholders, to enter into written agreements (the "Lock-up Agreements")
that, for a period of 24 months from the Effective Date, they will not, without
the consent of the Underwriters, (i) publicly sell any securities of the Company
owned directly or indirectly by them or owned beneficially by them (as defined
in the Exchange Act), or (ii) otherwise sell, or transfer such securities unless
the transferee agrees in writing to be bound by an identical lock-up.
(v) Use its best efforts to obtain key-man life
insurance in the amount of $1,000,000 per policy on the lives of such executive
officers of the Company as the Underwriters shall request, with the Company
named as beneficiary of such policies.
(w) Use its best efforts to qualify its Common Stock
and Public Warrants for quotation on the NASDAQ Small Cap system.
(x) For a period of two years from the Effective
Date, the Company shall not issue any of its securities in any offering pursuant
to Regulation S under the 1933 Act, without the prior written consent of the
Underwriters.
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(y) Grant to the Underwriters a preferential right on
the terms and subject to the conditions set forth in this Section, for a period
of three (3) years from the Effective Date, to purchase for its account, or to
sell for the account of the Company or its present affiliates or Subsidiaries or
any of its stockholders listed in the Prospectus under the caption "PRINCIPAL
STOCKHOLDERS" (the "Principal Stockholders"), any securities of the Company, on
terms not more favorable to the Company or such present or future Subsidiary or
affiliate or the Principal Stockholders than they can secure elsewhere, to
purchase or sell any such securities. If the Underwriters fail to notify the
Company in writing of their intention to act as underwriter or placement agents
or otherwise participate or introduce a third party to participate in such
offering within fifteen (15) days after receipt of a notice containing such
proposal, then the Underwriters shall have no further claim or right with
respect to the proposal contained in such notice. If, thereafter, such proposal
is materially modified, the Company, and each present or future affiliate or
Subsidiary or its Principal Stockholders shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as are
provided hereinabove with respect to the original proposal; (ii) If the
Underwriters act as underwriters or placement agents with respect to such
offering or introduce a third party (other than an underwriter) which
participates in such offering, then the Underwriters shall receive, as
compensation for services rendered, ten (10%) percent of the aggregate
consideration received by the Company through the Underwriters or the party
introduced by the Underwriters and warrant to purchase an amount of securities
equal to ten (10%) percent of the aggregate consideration received by the
Company through the Underwriters or the party introduced by the Underwriters and
warrant to purchase an amount of securities equal to ten (10%) percent of the
securities sold by the Company in such offering through the Underwriters or the
party introduced by the Underwriters at an exercise price per security equal to
the offering price of such securities. If the Underwriters introduce another
underwriter who acts as underwriter with respect to such offering, then the
Underwriters shall be entitled to receive two and one-half (2-1/2%) percent of
the aggregate consideration received by the Company through such underwriter and
warrant to purchase an amount of securities equal to two and one-half (2-1/2%)
percent of the securities sold by the Company in such offering through such
underwriter; (iii) If the Underwriters are offered the right of first refusal
and agree to perform such functions, but fail to perform, the Underwriters will
not be entitled to any such compensation, and waive their right of first refusal
with respect to future offerings unless such failure to perform is
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caused by the Company; (iv) If the Underwriters do not perform any of the
functions set forth in (ii) above and (iii) does not apply to such transaction,
the Underwriters shall be entitled to receive an aggregate of two and one-half
(2-1/2%) percent of the aggregate consideration received by the Company and
warrants to purchase an amount of securities equal to two and one-half (2-1/2%)
percent of the securities sold by the Company in such offering at an exercise
price per security equal to the offering price of such securities.
(z) Neither the Company nor any representative of the
Company has made or shall make any written or oral representation in connection
with the Offering and sale of the Securities or the Underwriters' Warrant which
is not contained in the Prospectus, which is otherwise inconsistent with or in
contravention of anything contained in the Prospectus, or which shall constitute
a violation of the Act, the Rules and Regulations, the Exchange Act or the rules
and regulations promulgated under the Exchange Act.
(aa) For so long as any Public Warrant is
outstanding, the Company shall, at its own expense: (i) use its reasonable best
efforts to cause post-effective amendments to the Registration Statement, or new
registration statements relating to the Public Warrants and the Common Stock
underlying the Public Warrants to become effective in compliance with the Act
and without any lapse of time between the effectiveness of the Registration
Statement and of any such post-effective amendment or new registration
statement; provided, however, that the Company shall have no obligation to
maintain the effectiveness of such Registration Statement or file a new
Registration Statement, or to keep available a prospectus at any time at which
such registration or prospectus is not then required; (ii) cause a copy of each
Prospectus, as then amended, to be delivered to each holder of record of a
Public Warrant; (iii) furnish to the Underwriters and dealers as many copies of
each such Prospectus as the Underwriters or dealers may reasonably request; and
(iv) maintain the "blue sky" qualification or registration of the Public
Warrants and the Common Stock underlying the Public Warrants, or have a
currently available exemption therefrom, in each jurisdiction in which the
Securities were so qualified or registered for purposes of the Offering.
6. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay all expenses
(other than fees of counsel to the Underwriters) in connection
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with the offering, including but not limited to, (i) the preparation, printing,
filing and mailing (including the payment of postage and overnight delivery with
respect to such mailing) of the Registration Statement and the Prospectus and
the printing and mailing of this Agreement and related documents, including the
cost of all copies thereof and of the Preliminary Prospectus and of the
Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as hereinabove stated, (ii) the printing, engraving,
issuance and delivery of the shares of Common Stock, the Public Warrants, and
the Underwriters' Warrants, including any transfer or other taxes payable
thereon, (iii) the qualification of the Securities, the Underwriters' Warrants
and the Underwriters' Securities under state or foreign securities or "Blue Sky"
laws and determination of the status of such securities under legal investment
laws, including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," and "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and the fees and disbursements of counsel for the Underwriters
relating to Blue Sky matters (which fees shall be payable by the Company in the
sum of $35,000 of which $10,000 has been paid), (iv) advertising costs and
expenses including but not limited to the reasonable costs and expenses in
connection with the "road show," information meetings and presentations, bound
volumes and "tombstones" in publications selected by the Underwriters and
prospectus memorabilia, (v) costs and expenses in connection with due diligence
investigations, including but not limited to the reasonable fees of any
independent counsel or consultant retained, phone calls relating to due
diligence investigations, and all reasonable travel and lodging expenses
incurred by you and/or counsel to the Underwriters in connection with visits to,
and examination of, the Company's premises, (vi) fees and expenses of the
transfer agent and warrant agent, (vii) application and listing fees for
inclusion in Moody's OTC Manual or Standard and Poor's Corporation Descriptions
or other equivalent manuals, and (viii) the fees payable to the NASD and Nasdaq.
The $35,000 payment to counsel for the Underwriters shall not include fees of
special counsel if same is required to be incurred in a merit review state which
may require local counsel. In this connection, Blue Sky applications shall be
made in such states and jurisdictions as shall be requested by the Underwriters.
Payments with regard to items (i), (iii), (iv) and (v) shall be made on each of
Closing Date I and Closing Date II.
(b) The Company shall pay to the Underwriters an aggregate
non-accountable expense allowance, in addition to the expenses payable pursuant
to Section 6(a), equal to three (3%) percent of the gross proceeds received by
the Company from
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the sale of the Securities. In the event the Offering is terminated by the
Underwriters, the Underwriters shall be reimbursed only for its actual,
accountable out-of-pocket expenses.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for the Securities, as provided herein,
shall be subject to the continuing accuracy in all material aspects of the
representations and warranties of the Company as of the date hereof and as of
each of the Closing Dates, to the accuracy in all material respects of the
statements of officers of the Company made pursuant to the provisions hereof and
to the performance by the Company of its obligations hereunder in all material
respects and to the following conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 p.m., New York time, on the date of this Agreement
or such later date and time as shall be consented to in writing by you, and, at
each of the Closing Dates, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or contemplated by the
Commission and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the
Underwriters.
(b) At Closing Date I, the Underwriters shall have
received the favorable opinions of Gusrae, Kaplan & Bruno, LLP, United States
counsel to the Company, Smith-Hughes, Raworth & McKenzie, British Virgin Islands
counsel to the Company, Hastings, & Co., Hong Kong counsel to the Company, and
Jingtian Associates, People's Republic of China counsel to the Company, dated
Closing Date I, addressed to the Underwriters and in form and substance
satisfactory to Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to
the Underwriters, in substantially the forms attached as Exhibits A, B, C and D
hereto.
(c) On or prior to each of Closing Date I and Closing
Date II, counsel for the Underwriters shall have been furnished such documents,
certificates and opinions as it may reasonably require for the purpose of
enabling it to review or pass upon the matters referred to in Section 7(b), or
in order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
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(d) Prior to each of Closing Date I and Closing Date
II, (i) there shall have been no material adverse change, or development
involving a material adverse prospective change, in the conditions or prospects
of the business activities, financial or otherwise, of the Company from the
latest dates as of which such conditions are set forth in the Registration
Statement and Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by the Company from the latest date as
of which their respective financial conditions are set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii) the
Company shall not be in default under any provision of any instrument relating
to any outstanding indebtedness; (iv) no amount of the assets of the Company
shall have been pledged or mortgaged, except as set forth in the Registration
Statement and Prospectus; (v) no action, suit or proceeding, at law or in
equity, shall be pending or threatened against the Company before or by any
court or Federal or state commission, board or other administrative agency
wherein an unfavorable result, decision, ruling or finding would adversely
affect the business, prospects, operations, or financial condition or income of
the Company, except as set forth in the Registration Statement and Prospectus
and except where such a result is deemed remote by counsel to the Company with
respect to such action or proceeding; (vi) no stop order shall have been issued
under the Act and no proceedings with respect thereto shall have been initiated
or threatened by the Commission; (vii) the market for securities in general or
political, financial or economic conditions shall not have materially adversely
changed from those reasonably foreseeable as of the date hereof as to render it
impracticable in the Underwriters' reasonable judgment to make a public offering
of the Securities, and there has not been a material adverse change in market
levels for securities in general or financial or economic conditions which
render it inadvisable in the Underwriters' judgment to proceed; and (viii) there
shall not have commenced or occurred a war or Act of God or other calamity which
would have a material adverse effect on, or result in a material loss to, the
Company.
The Company agrees and acknowledges that the
Underwriters shall be the sole determining parties as to the presence of any
such conditions, events, occurrences and provisions set forth in this Section
7(d).
(e) At each of Closing Date I and Closing Date II,
the Underwriters shall have received a certificate of the Company signed by the
President and the Secretary of the Company,
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<PAGE> 26
dated Closing Date I and Closing Date II, respectively, to the effect that the
conditions set forth in section 7(d)(i) through (vi) above have been satisfied
and that, as of Closing Date I and Closing Date II, respectively, the
representations and warranties of the Company set forth in Section 2 hereof are
true and correct.
(f) By the Effective Date, the Underwriters shall
have received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriters, as described in the Registration Statement.
(g) At the time this Agreement is executed, and at
each of Closing Date I and Closing Date II, the Underwriters shall have received
a letter, addressed to the Underwriters and in form and substance reasonably
satisfactory in all respects (including the nonmaterial nature of the changes or
decreases, if any, referred to in clause (3) below) to the Underwriters and to
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel for the
Underwriters, from Arthur Anderson & Co., dated as of the date of this Agreement
and as of each of Closing Date I and Closing Date II:
(i) confirming that they are independent accountants with respect to
the Company within the meaning of the Act and the applicable Regulations;
(ii) stating that in its opinion the financial statements of the
Company included in the Registration Statement and Prospectus comply as to form
in all material respects with the applicable accounting requirements of the Act
and the published Regulations thereunder;
(iii) stating that, they have read the fiscal year all of the minutes
of meetings of the shareholders and the Board of Directors of the Company and
its Subsidiaries as set forth in the minute books through (not more than 5 days
before date of letter), officials of the Company having advised us that the
minutes of all such meetings through that date were set forth therein and have
carried out other procedures to (not more than 5 days before date of letter) to
(day prior to date of letter), inclusive:
(A) With respect to the six-month periods ended June 30, 1996
and 1995, they have:
(1) performed the procedures specified by the
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American Institute of Certified Public Accountants for a review of interim
financial information on the unaudited condensed consolidated balance sheet at
June 30, 1996, and the unaudited condensed consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the six-month
periods ended June 30, 1996 and 1995, included in the Registration Statement
("Interim Financials"), and
(2) inquired of certain officials of the Company who
have responsibility for financial and accounting matters as to whether the
Interim Financials comply as to form in all material respects with applicable
accounting requirements of the Act and the related published rules and
regulations.
(B) With respect to latest interim period ending as of
[12/31/96; to be a date not later than 30 days prior to the Effective Date],
("Latest Interim Financials") they have:
(1) read the unaudited consolidated financial
statements for such periods of both 1995 and 1996 furnished to us by the
Company, officials of the Company having advised us that no such financial
statements as of and date or for any period subsequent to [12/31/96] were
available; and
(2) inquired of certain officials of the Company who
have responsibility for financial and accounting matters as to whether the
Latest Interim Financials are stated on a basis substantially consistent with
that of the audited consolidated financial statements in the Registration
Statement.
(C) Nothing came to their attention as a result of the
foregoing procedures that caused them to believe that:
(1) any material modifications should be made to the
Interim Financials, for them to be in conformity with generally accepted
accounting principles;
(2) the Interim Financials do not comply as to form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations; or
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(3) (I) at [12/31/96], there was any change in the
capital stock, increase in long-term debt, increase in net current liabilities
or increase in stockholders' deficit of the consolidated companies as compared
with the amounts in the 1996 balance sheet forming a part of the Interim
Financials; or (II) for the period from [12/1/96] to [12/31/96], there was any
decrease, as compared with the corresponding period in the preceding year, in
consolidated net sales or any increase in consolidated net loss, except in all
instances for changes, increases, or decreases which the Registration Statement
discloses have occurred or may occur [except as follows:]
(D) Stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus
[pages to be attached procedures performed stated and results stated as to each
item]in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including worksheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(iv) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriters may reasonably request.
(h) All proceedings taken in connection with the
authorization, issuance or sale of the Securities, the Underwriters' Warrants
and the Underwriters' Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Underwriters and to Gersten, Savage,
Kaplowitz & Curtin, LLP counsel to the Underwriters.
(i) On each of Closing Date I and Closing Date II,
there shall have been duly tendered to you for your account the appropriate
number of Securities and individually for each Underwriter's own account the
Underwriters' Warrants.
(j) No order suspending the sale of the Securities in
any jurisdiction designated by you pursuant to
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Section 5(e) hereof shall have been issued on either Closing Date I or Closing
Date II, and no proceedings for that purpose shall have been instituted or, to
the knowledge of the Underwriters or the Company, shall be contemplated.
(k) Prior to each of Closing Date I and Closing Date
II there shall not have been received or provided by the Company's independent
public accountants or attorneys, qualifications to the effect of either
difficulties in furnishing certifications as to material items including,
without limitation, information contained within the footnotes to the financial
statements, or as affecting matters incident to the issuance and sale of the
Securities or as to corporate proceedings or other matters.
(l) On or prior to Closing Date I, the Underwriters'
Warrant Agreement and the Financial Advisory and Investment Banking Agreement
shall have been executed and delivered by the Company, and the Lock-Up
Agreements shall have been executed and delivered by all of the Company's
officers, directors and five percent stockholders.
Any certificate signed by any officer of the Company
and delivered to the Underwriters or to counsel to the Underwriters shall be
deemed a representation and warranty by the Company to the Underwriters as to
the statements made therein. If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at any Closing Date is not so fulfilled,
the Underwriters may terminate this Agreement or, if the Underwriters so elect,
may waive any such conditions which have not been fulfilled or extend the time
for their fulfillment.
8. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless
each of the Underwriters, and each controlling person, if any, who controls each
of the Underwriters (within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act), against any and all liabilities, claims, lawsuits,
including any and all awards and/or judgments to which it may become subject
under the Act, the Exchange Act or any other Federal or state statute, at common
law or otherwise, insofar as said liabilities, claims and lawsuits (including
awards and/or judgments) arise out of or are in connection with the Registration
Statement,
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Prospectus and related Exhibits filed under the Act, except for any liabilities,
claims and lawsuits (including awards and/or judgments), arising out of acts or
omissions of the Underwriters. In addition, the Company shall also indemnify and
hold harmless the Underwriters against any and all costs and expenses, including
reasonable counsel fees, incurred or relating to the foregoing liabilities,
claims and lawsuits to which the indemnity applies.
The Underwriters shall give the Company prompt notice
of any such liability, claim or lawsuit which the Underwriters contend is the
subject matter of the Company's indemnification, and the Company thereupon shall
be granted the right to take any and all necessary and proper action, at its
sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise and dispose of such liability, claim
or lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
The Underwriters shall indemnify and hold harmless
the Company, and each controlling person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any and all liabilities, claims, lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the
Exchange Act or any other Federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including awards and/or
judgments) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact required to be stated or necessary to make the
statement therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf of
the Underwriters for inclusion in the Registration Statement or Prospectus or
any amendment or supplement thereto. In addition, the Underwriters shall also
indemnify and hold harmless the Company against any and all costs and expenses,
including reasonable counsel fees, incurred or relating to the foregoing.
The Company shall give to the Underwriters prompt
notice of any such liability, claim or lawsuit which the Company contends is the
subject matter of the Underwriters'
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indemnification and the Underwriters thereupon shall be granted the right to
take any and all necessary and proper action, at their sole cost and expense,
with respect to such liability, claim and lawsuit, including the right to
settle, compromise or dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
(b) In order to provide for just and equitable
contribution under the Act in any case in which (i) any person entitled to
indemnification under this Section 8 makes claim for indemnification pursuant
hereto but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, or (ii) contribution under the Act
may be required on the part of any such person in circumstances for which
indemnification is provided under this Section 8, then, and in each such case,
the Company and each of the Underwriters shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after any
contribution from others) in such proportion taking into consideration the
relative benefits received by each party from the offering covered by the
Prospectus (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was assessed, the
opportunity to correct and prevent any statement or omission and other equitable
considerations appropriate under the circumstances; provided, however, that
notwithstanding the above in no event shall the Underwriters, in the aggregate,
be required to contribute any amount in excess of 10% of the initial public
offering price of the Securities; and provided, that, in any such case, no
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party
to this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will,
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if a claim for contribution in respect thereof is to be made against another
party (the "contributing party"), notify the contributing party of the
commencement thereof, but the omission so to notify the contributing party will
not relieve it from any liability which it may have to any other party other
than for contribution hereunder. In case any such action, suit or proceeding is
brought against any party, and such party notifies a contributing party or his
or its representative of the commencement thereof within the aforesaid fifteen
(15) days, the contributing party will be entitled to participate therein with
the notifying party and any other contributing party similarly notified. Any
such contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The indemnification provisions contained in this Section 8 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
Except as the context otherwise requires, all representations,
warranties and agreements contained in this Agreement shall be deemed to be
representations, warranties and agreements at the Closing Dates, and such
representations, warranties and agreements of the Underwriters and the Company,
including the indemnity agreements contained in Section 8 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any of the Underwriters, the Company or any controlling person,
and shall survive termination of this Agreement or the issuance and delivery of
the Securities to the Underwriters until the earlier of the expiration of any
applicable statute of limitations and the seventh anniversary of Closing Date
II, at which time the representations, warranties and agreements shall terminate
and be of no further force and effect.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION HEREOF.
(a) This Agreement shall become effective at 9:30
a.m., New York time, on the first full business day following the day on which
the Registration Statement becomes effective or at the time of the initial
public offering by the Underwriters of the
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Securities, whichever is earlier. The time of the initial public offering, for
the purpose of this Section 10, shall mean the time, after the Registration
Statement becomes effective, of the release by the Underwriters for publication
of the first newspaper advertisement which is subsequently published relating to
the Securities or the time, after the Registration Statement becomes effective,
when the Securities are first released by the Under writers for offering by the
Underwriters or dealers by letter or telegram, whichever shall first occur. The
Underwriters may prevent this Agreement from becoming effective without
liability to any other party, except as noted below, by giving the notice
indicated below in this Section 10 before the time this Agreement becomes
effective. The Underwriters agree to give the undersigned notice of the
commencement of the offering described herein.
(b) The Underwriters shall have the right, in their
sole discretion, to terminate this Agreement, including without limitation, the
obligation to purchase the Firm Securities and the obligation to purchase the
Option Securities after the exercise of the Over-Allotment Option, by notice
given to the Company prior to delivery and payment for all the Firm Securities
or the Option Securities, as the case may be, if any of the conditions
enumerated in Section 7 are not either fulfilled or waived by the Underwriters
on or before any Closing Date.
(c) If the Underwriters elect to prevent this
Agreement from becoming effective or to terminate this Agreement as provided in
this Section 10, the Company shall be notified on the same day as such election
is made by the Underwriters by telephone or telegram, confirmed by letter.
(d) Anything herein to the contrary notwithstanding,
if this Agreement shall not be carried out within the time specified herein, or
any extensions thereof granted by the Underwriters, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied then, in addition to the
obligations assumed by the Company pursuant to Section 6(a) hereof, the
Underwriters shall provide the Company with a statement of the Underwriters'
accountable expenses.
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(e) In the event of litigation between the parties
arising hereunder, the prevailing party shall be entitled to costs and
reasonable attorney's fees.
(f) Notwithstanding any contrary provision contained
in this Agreement, any election hereunder or termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 8 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to the
Underwriters, shall be mailed, delivered or telegraphed and confirmed to May
Davis Group, Inc., 20 Exchange Place, New York, New York 10005, Attention:
President, with a copy to Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP
101 East 52nd Street, New York, New York 10022, Attention: Jay Kaplowitz, Esq.,
and if to the Company, shall be mailed, delivered or telegraphed and confirmed
to it at 18F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong, with a
copy to Gusrae, Kaplan & Bruno, 120 Wall Street, New York, NY 10005, Attention:
Robert Perez, Esq.
12. PARTIES. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
13. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and maintain a legal
proceeding against the other party arising from any dispute in this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that
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the legal proceeding was not initiated and maintained in the courts of the State
of New York or of the United States of America for the Southern District of New
York, in accordance with the provisions of this Section 13.
14. ENTIRE AGREEMENT. This Agreement, the Warrant Agreement,
the Underwriters' Warrant Agreement and the Financial Advisory and Investment
Banking Agreement contain the entire agreement between the parties hereto in
connection with the subject matter hereof and thereof.
If the foregoing correctly sets forth the
understanding between the Underwriters and the Company, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
EURO TECH HOLDINGS COMPANY,
LIMITED
By:
Name: T.C. Leung
Title: Chief Executive
Officer
Accepted as of the date
first above written.
New York, New York
MAY DAVIS GROUP, INC.
By:
Name: Owen May
Title:
35
<PAGE> 1
EXHIBIT 4.1
Dated __________,1997 ___________________ WARRANTS
UNDERWRITER'S WARRANT
THIS CERTIFIES THAT May Davis Group, Inc. (the "Holder") is entitled to
purchase from EURO TECH COMMUNICATIONS, INC., a British Virgin Islands
corporation (the "Company"), up to 60,000 shares of the Company's common stock,
$.01 par value (the "Shares"), and/or 60,000 redeemable common stock purchase
warrants (the Public Warrants"; together with the Shares, the "Securities") to
purchase one share of Common Stock at $5.50 per share (the "Warrant Exercise
Price") at a purchase price of $8.25 per Share (the "Share Exercise Price") and
$.2475 per Warrant (the "Warrant Exercise Price," collectively, with the Share
Exercise Price, the "Exercise Prices"), subject to adjustment as provided in
paragraph 8 hereof, at any time during the 48 month period commencing 12 months
from the effective date of the Registration Statement, defined below, (the
"Effective Date"). This Underwriter's Warrant (the "Underwriter's Warrant") is
exercisable to purchase a aggregate of 60,000 Shares and/or 60,000 Public
Warrants, issued pursuant to an Underwriting Agreement dated ___________ , 1997,
between the Company and May Davis Group, Inc. (the "Underwriter") (as defined in
the Underwriting Agreement), in connection with a public offering, through the
Underwriter, of 600,000 shares of Common Stock and 600,000 Warrants as therein
described (and up to an additional 90,000 shares of Common Stock and 90,000
Warrants (the "Option Securities" covered by an over-allotment option granted by
the Company and the Selling Stockholders (as defined in the Underwriting
Agreement) to the Underwriter) hereinafter referred to together with the Option
Securities, as the "Public Securities") and in consideration of $10.00 received
by the Company for the Underwriter's Warrant. The Shares and Public Warrants
issuable pursuant to the Underwriter's Warrant shall have same terms and
conditions as the shares of Common Stock and Public Warrants making up the
Public Securities, as described under the caption "Description of Securities" in
the Company's Registration Statement on Form F-1, File No. 3316277 (the
"Registration Statement"), except that the Holder shall have registration rights
under the Securities Act of 1933 (the "Act"), for the Underwriter's Warrant, the
Shares, Warrants, and the Shares issuable on the exercise of the Public
Warrants.
<PAGE> 2
1. The rights represented by this Underwriter's Warrant shall be
exercised at the price, subject to adjustment in accordance with paragraph 8
hereof, and during the periods as follows:
(a) During the period from the date hereof to _________, 1998
[12 months from the Effective Date] (the "Initial Period") inclusive, the Holder
shall have no right to purchase any Securities hereunder.
(b) Between ___________ 1997 and 2002 [4 years from the
Effective Date] (the "Expiration Date") inclusive, the Holder shall have the
option to purchase Shares hereunder at a price of $8.25 per Share and to
purchase Warrants at a price of $.2475 per Warrant [165 % above the public
offering price of the Shares and Public Warrants], subject to adjustment as
provided in paragraph 8 hereof.
(c) After the Expiration Date, the Holder shall have no right
to purchase any Securities hereunder.
2. (a) The rights represented by this Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Underwriter's Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the Exercise Price then in effect for
the number of Securities specified in the above-mentioned purchase form together
with applicable stock transfer taxes, if any; and (iii) delivery to the Company
of a duly executed agreement signed by the person(s) designated in the purchase
form to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 hereof. The
Underwriter's Warrant shall be deemed to have been exercised, in whole or in
part to the extent specified, immediately prior to the close of business on the
date the Underwriter's Warrant is surrendered and payment is made in accordance
with the foregoing provisions of this paragraph 2, and the person or persons in
whose name or names the certificates for Shares and/or Public Warrants shall be
issuable upon such exercise shall become the holder or holders of record of such
Shares and Public Warrants at that time and Public Warrants so
2
<PAGE> 3
purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) days, after the rights represented by this Underwriter's
Warrant shall have been so exercised.
3. The Underwriter's Warrant shall not be transferred, sold, assigned,
or hypothecated (other than by will or pursuant to the laws of descent and
distribution) for a period of one year commencing ___________, 1997, except that
it may be transferred to successors of the Holder, and may be assigned in whole
or in part to any person who is an officer or director of the Holder or
to any member of the selling group and/or the officers/directors or shareholders
or partners thereof during such period. Any such assignment shall be effected by
the Holder by (i) executing the form of assignment at the end hereof and (ii)
surrendering the Underwriter's Warrant for cancellation at the office or agency
of the Company referred to in paragraph 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this paragraph 3; whereupon
the Company shall issue, in the name or names specified by the Holder (including
the Holder) a new Underwriter's Warrant or Warrants of like tenor and
representing in the aggregate rights to purchase the same number of Securities
as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be purchased hereunder or upon exercise of the Underwriter's Warrants
and/or Public Warrants will, upon issuance against payment of the purchase price
therefor, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, during the periods within which the Underwriter's
Warrant may be exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock to provide for the
exercise of the Underwriter's Warrant and the Public Warrants.
5. The Underwriter's Warrant shall not entitle the Holder to any voting
rights or other rights as stockholders of the Company.
6. (a)(i) The Company shall advise the Holder or its transferees,
whether the Holder holds the Underwriter's Warrant or has exercised the
Underwriter's Warrant and holds shares of Common Stock and/or Public Warrants,
by written notice at least four weeks prior to the filing of any post-effective
amendment to
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<PAGE> 4
the Registration Statement or of any new registration statement or
post-effective amendment thereto under the Act covering any securities of the
Company, for its own account or for the account of others, except for any
registration statement filed on Form S-4 or S-8 (including a Form S-3 related
to a Form S-8) and will, for a period of five years beginning one year after the
Effective Date, upon the request of the Holder, and subject to subparagraph
6(a)(ii), include in any such post-effective amendment to the Registration
Statement or in any new registration statement such information as may be
required to permit a public offering of the Underwriter's Warrant, the Common
Stock issuable upon the exercise thereof or upon exercise of the Public Warrants
and the Public Warrants (collectively, the "Registrable Securities"). The
Company shall supply prospectuses and such other document as the Holder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities, use its best efforts to register and qualify any
of the Registrable Securities for sale in such states as the Holder designates
and do any and all other acts and things which may be necessary or desirable to
enable the Holder to consummate the public sale or other disposition of the
Registrable Securities, all at no expense to the Holder or the Underwriter, and
furnish indemnification in the manner provided in paragraph 7 hereof. The Holder
shall furnish information and indemnification as set forth in paragraph 7. (ii)
If the registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the Holder as a
part of the written notice given pursuant to subparagraph 6(a)(i). If the
managing underwriter determines that a limitation of the number of shares to be
underwritten is required, the underwriter may exclude some or all Registrable
Securities from such registration (the "Excluded Registrable Securities");
provided, however, that no other security-holder may include any such securities
in such Registration Statement if any of the Registrable Securities have been
excluded from such registration; and further provided that the Company will file
a new Registration Statement covering the Excluded Registrable Securities, at
the Company's expense, within six months after the completion of such
underwritten offering.
(b) On any one occasion only, any 50.1% Holder (as defined
below) shall give notice to the Company at any time to the effect that such
Holder desires to register under the Act any or all of the Registrable
Securities under such circumstances that a public distribution (within the
meaning of the Act) of any such securities will be involved, then the Company
will promptly,
4
<PAGE> 5
but no later than eight weeks after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, so that such designated Registrable
Securities may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
to become and remain effective (including the taking of such steps as are
necessary to obtain the removal of any stop order) within 90 days after the
receipt of such notice, provided, that such Holder shall furnish the Company
with appropriate information in connection therewith as the Company may
reasonably request in writing. Inclusive of this demand right shall be that the
50.1% Holder may, at its option, request the filing of a post-effective
amendment to the current Registration Statement or a new registration statement
under the Act, inclusive of the right granted by subparagraph 6(a) on one
occasion only during the five-year period beginning one year from the Effective
Date. The 50.1% Holder may, at its option, request the registration of the
Underwriter's Warrant and/or any of the securities underlying the Underwriter's
Warrant in a registration statement made by the Company as contemplated by
subparagraph 6(a) or in connection with a request made pursuant to this
subparagraph 6(b) prior to acquisition of the shares of Common Stock and/or
Public Warrants issuable upon exercise of the Underwriter's Warrant. The 50.1%
Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the
Underwriter's Warrant, or separately as to the Common Stock and/or Public
Warrant issuable upon the exercise of the Underwriter's Warrant, and such
registration rights may be exercised by the 50.1% Holder prior to or subsequent
to the exercise of this Underwriter's Warrant. Within ten days after receiving
any such notice pursuant to this subparagraph 6(b), the Company shall give
notice to any other Holder of the Underwriter's Warrant, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the
Underwriter's Warrants held by the other Holder, provided that they shall
furnish the Company with such appropriate information (relating to the
intentions of such Holder) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the post-effective
amendment or new registration statement shall be bome by the Company, except
that the Holder(s) shall bear the fees of their own counsel and any underwriting
discounts or commissions applicable to any of the securities sold by them. The
Company will maintain such
5
<PAGE> 6
registration statement or post-effective amendment current under the Act for a
period of at least nine months (and for up to an additional three months if
requested by the Holder(s)) from the effective date thereof. The Company shall
provide prospectuses, and such other documents as the Holder(s) may request in
order to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder(s) designate and furnish
indemnification in the manner provided in paragraph 7 hereof.
(c) The term "50. 1 % Holder" as used in this paragraph 6
shall mean the Holder(s) of at least 50.1% of the Underwriter's Warrant and/or
the Common Stock underlying the Underwriter's Warrant and the Public Warrants
and shall include any owner or combination of owners of such securities, which
ownership shall be calculated by determining the number of shares of Common
Stock held by such owner or owners as well as the number of shares then issuable
upon exercise of the Underwriter's Warrant and the Public Warrants.
(d) If at any time prior to the effectiveness of the
registration statement filed in connection with an offering pursuant to this
paragraph 6 the 50.1% Holder shall determine not to proceed with the
registration, upon notice to the Company and the payment to the Company by the
50.1% Holder of the Company's expenses, if any, theretofore incurred in
connection with the registration statement, the 50.1% Holder may terminate its
participation in the offering, and the registration statement previously filed
shall not be counted against the number of demand registrations permitted under
this paragraph 6.
(e) Notwithstanding the foregoing, if the Company shall
furnish to such 50.1% Holder a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its stockholders for a
registration statement to be filed in the near future containing the disclosure
of material information required to be included therein by reason of the federal
securities laws, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period during which such
disclosure would be seriously detrimental, provided that this period will not
exceed 30 days and provided further, that the Company shall not defer its
obligation in this matter more than once in any 12 month period.
6
<PAGE> 7
7. (a) Whenever pursuant to paragraph 6 a registration
statement relating to the Underwriter's Warrant or any Common Stock issued or
issuable upon the exercise of the Underwriter's Warrant or the Public Warrants,
or any Public Warrants is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each Holder of the securities covered
by such registration statement, amendment or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or therein not
misleading and will reimburse the Distributing Holder or such controlling person
or underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint, or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such
7
<PAGE> 8
losses, claims, damages or liabilities, or actions in respect thereof, arise out
of or are based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arises out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notified an indemnifying party of the commencement thereof, the
indemnifying party will 7 be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8
<PAGE> 9
8. Adjustment of Exercise Price
(a) Except as hereinafter provided, in the event the Company
shall, at any time or from time to time after the date hereof, sell any shares
of Common Stock for a consideration per share less than the lower of (i) the
closing bid price of the Common Stock as reported on NASDAQ on the trading date
next preceding such sale (the "Market Price"), or (ii) the Share Exercise Price
then in effect, or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter immediately before the date of such sale or the record date for each
Change of Shares, the Share Exercise Price for the Common Stock included in this
Underwriter's Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (1) the product of (a) the Share Exercise Price in effect immediately
before such Change of Shares and (b) the sum (i) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, and (ii)
the number of shares determined by dividing (A) the aggregate consideration, if
any, received by the Company upon such sale, issuance, subdivision or
combination, by (3) the lesser of (x) the Market Price, and (y) the Share
Exercise Price, in effect immediately prior to such Change of Shares; by (2) the
total number of shares of Common Stock outstanding immediately after such Change
of Shares.
(b) For the purposes of any adjustment to be made! in
accordance with this Section 8(a) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which shall
be cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price (before
deducting any commissions or any expenses incurred in connection therewith), if
shares of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount
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<PAGE> 10
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights or warrants or the conversion or
exchange of convertible or exchangeable securities) of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be other
than cash, the amount of the consideration therefor other than cash deemed to
have been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (B) of this Section
8(a).
(E) The number of shares of Common Stock at any one
time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
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<PAGE> 11
(ii) Upon each adjustment of the Exercise Price pursuant to
this Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Exercise Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Exercise Price.
(c) In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, for a consideration per share (determined as
provided in Section 8(a) and as provided below) less than the lower of (i) the
Market Price, or (ii) the Share Exercise Price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of any
such securities by way of dividend or other distribution), the Exercise Price
for the Common Stock included in this Underwriter's Warrants (whether or not the
same shall be issued and outstanding) in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Section 8(a) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum Exercise Price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
Section 8(a) hereof) shall be reduced by the number of shares as to which
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Exercise Price
then in effect shall forthwith be readjusted and thereafter be the
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<PAGE> 12
price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon the exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
expiration or other termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (B) (and for the purposes of subsection
(E) of Section 8(a) hereof) shall be reduced by the number of shares as to which
the conversion or exchange rights shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(C) If any change shall occur in the
exercise price per share provided for in any of the options, rights or warrants
referred to in subsection (A) of this section 8(b), or in the price per share or
ratio at which the securities referred to in subsection (3) of this Section 8(b)
are convertible or exchangeable, such options, rights or warrants or conversion
or exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
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<PAGE> 13
deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities.
(d) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Registered Holder of each Public Warrant then outstanding shall have
the right thereafter to receive on exercise of such Public Warrant the kind and
amount of securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 8(a)
and (b). The above provisions of this Section 8(c) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Share
Exercise Price or the number of shares of Common Stock purchasable upon exercise
of the Public Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Share
Exercise Price per share and the number of shares
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<PAGE> 14
purchasable thereunder as the Share Exercise Price per share and the number of
shares purchasable thereunder were expressed in the Warrant Certificates when
the same were originally issued.
(f) After each adjustment of the Share Exercise Price pursuant
to this Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (I) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to each Registered Holder at his
last address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(g) No adjustment of the Share Exercise Price shall be made as
a result of or in connection with (A) the issuance or sale of the Underwriter's
Warrants or the Securities underlying the Underwriter's Warrants, (B) the
issuance or sale of the securities pursuant to the Initial Public Offering,
including the securities underlying the Securities, (C) the issuance or sale of
shares of Common Stock pursuant to options, warrants, stock purchase agreements
and convertible or exchangeable securities outstanding or in effect on the date
hereof, or (D) the issuance or sale of shares of Common Stock if the amount of
said adjustment shall be less than $.02 for one share of Common Stock, provided,
however, that in such case, any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that shall amount, together with
any adjustment so carried forward, to at least $.02 for one share of Common
Stock. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Public Warrant or Public
Warrants held by them.
14
<PAGE> 15
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York.
IN WITNESS WHEREOF, EURO TECH HOLDINGS COMPANY LIMITED has caused this
Underwriter's Warrant to be signed by its duly authorized officers, and this
Underwriter's Warrant to be dated as of the date first above written.
EURO TECH HOLDINGS COMPANY LIMITED
By: _____________________________
Name: Title:
15
<PAGE> 16
PURCHASE FORM
(To be signed only upon exercise of Underwriter Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, ______ Shares of EURO TECH HOLDINGS
COMPANY LIMITED, $0.01 per share, and/or Redeemable Common Stock Purchase
Warrants to purchase one (1) share of Common Stock, and herewith makes payment
of $____ therefor (or hereby surrenders and delivers that portion of the
Underwriter's Warrant having equivalent value (as determined in accordance with
the provisions of subparagraph (d) of paragraph 2 of the Underwriter's
Warrant)), and requests that the certificates for shares of Common Stock and/or
Warrants be issued in the name(s) of, and delivered to whose addressees) is
(are):_________________________________________________
Dated: ____________, 19___
Signature : _____________________________
(Print name under signature)
(Signature must conform in all respects to the name
of holder as specified on the face of the
Underwriter's Warrant).
____________________________
(Insert Social Security or Other Identifying Number of Holder)
16
<PAGE> 17
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Warrant)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please
print name and address of transferee) this Warrant, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
Attorney, to transfer the within Warrant on the books of EURO TECH HOLDINGS
COMPANY LIMITED, with full power of substitution.
Dated:______________________, 19____
Signature: ________________________________
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Underwriter's Warrant.
___________________________
(Insert Social Security or Other Identifying Number of Holder)
17
<PAGE> 1
EXHIBIT 4.2
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the _____ day of____ ,
1997 by and between May Davis Group, Inc. ("May Davis"), and Euro Tech Holdings
Company Limited ("Company").
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURPOSE: The Company hereby engages May Davis for the term
specified in Paragraph 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters upon the terms and
conditions set forth herein.
2. TERM: Except as otherwise specified in Paragraph 4 hereof,
this Agreement shall be effective for a three (3) year period
commencing_________________, 1997 and ending to______________, 2000.
3. DUTIES OF MAY DAVIS: During the term of this Agreement, May
Davis shall seek out Transactions (as hereinafter defined) on behalf of the
Company and shall furnish advice to the Company in connection with any such
Transactions.
4. COMPENSATION: In consideration for the services rendered by
May Davis to the Company pursuant to this Agreement (and in addition to the
expenses provided for in Paragraph 5 hereof), the Company shall compensate May
Davis as follows:
(a) The Company shall pay May Davis a fee of $3,000 per month for the
term of this Agreement. The aggregate sum of $108,000 shall be due and payable
upon the execution of this Agreement.
(b) In the event that any Transaction occurs during the term of this
Agreement or to the extent provided herein, one year thereafter, the Company
shall pay fees to May Davis as follows:
-1-
<PAGE> 2
<TABLE>
<CAPTION>
Consideration Fee
<S> <C>
$ - 0 - TO $ 500,000 MINIMUM FEE OF $25,000
$ 500,000 TO $5,000,000 5% OF CONSIDERATION
$5,000,000 OR MORE $250,000 PLUS 1% OF THE
CONSIDERATION IN EXCESS OF
$5,000,000
</TABLE>
FOR THE PURPOSES OF THIS AGREEMENT, "CONSIDERATION" SHALL MEAN
THE TOTAL MARKET VALUE ON THE DAY OF THE CLOSING OF STOCK, CASH, ASSETS AND ALL
OTHER PROPERTY (REAL OR PERSONAL) EXCHANGED OR RECEIVED, DIRECTLY OR INDIRECTLY
BY THE COMPANY OR ANY OF ITS SECURITY HOLDERS IN CONNECTION WITH ANY
TRANSACTION. ANY CO-BROKER RETAINED BY MAY DAVIS SHALL BE PAID BY MAY DAVIS.
(c) For the purposes of the Agreement, a "Transaction" shall mean (i)
any transaction originated by May Davis, other than in the ordinary course of
trade or business of the Company, whereby, directly or indirectly, control of,
or a material interest in, the Company or any of its businesses or any of their
respective assets, is transferred for Consideration, or (ii) any transaction
originated by May Davis whereby the Company acquires any other company or the
assets of any other company or an interest in any other company (an
"Acquisition").
In the event May Davis originates a line of credit with a lender or a
corporate partner, the Company and May Davis will mutually agree on a
satisfactory fee and the terms of payment of such fee. In the event May Davis
introduces the Company to a joint venture partner or customer and sales develop
as a result of the introduction, the Company agrees to pay a fee of five percent
(5%) of total sales generated directly from this introduction during the first
two years following the date of the first sale. Total sales shall mean gross
receipts less any applicable refunds, returns, allowances, credits, taxes and
shipping charges and monies paid by the Company by way of settlement or judgment
arising out of claims made by or threatened against the Company. Commission
payments shall be paid on the 15th day of each third month following the receipt
of customers' payments. In the event any adjustments are made to the total sales
after the commission has been paid, the Company shall be entitled to an
appropriate refund or credit against future payments under this Agreement.
-2-
<PAGE> 3
(d) All fees to be paid pursuant to this Agreement, except as otherwise
specified, are due and payable to May Davis in cash or company check at the
closing or closings of any Transaction specified in Paragraph 4. In the event
that this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, May Davis shall be entitled
to a full fee as provided under Paragraphs 4 and 5 hereof, for any Transaction
for which the discussions were initiated during the term of this Agreement and
which is consummated within a period of twelve months after non-renewal or
termination of this Agreement. Nothing herein shall impose any obligation on the
part of the Company to enter into any Transaction.
5. EXPENSES OF MAY DAVIS: In addition to the fees payable
hereunder and regardless of whether any Transaction set forth in Paragraph 4
hereof is proposed or consummated, the Company shall reimburse May Davis for the
reasonable fees and disbursements of May Davis's counsel and May Davis's
reasonable travel and out-of-pocket expenses incurred in connection with the
services performed by May Davis pursuant to this Agreement and at the request of
the Company, including without limitation, hotels, food and associated expenses
and long-distance telephone calls, except that individual expenses exceeding
$500 must be pre-approved in writing by the Company and that total non
pre-approved expenses may not exceed $10,000.
6. LIABILITY OF MAY DAVIS: The Company acknowledges that all
opinions and advice (written or oral) given by May Davis to the Company in
connection with May Davis's engagement are intended solely for the benefit and
use of the Company in considering the Transaction to which they relate, and the
Company agrees that no person or entity other than the Company shall be entitled
to make use of or rely upon the advice of May Davis to be given hereunder, and
no such opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to May Davis, or use May
Davis's name in any annual reports or any other reports or releases of the
Company without May Davis's prior written consent.
The Company acknowledges that May Davis makes no commitment
whatsoever as to making a market in the Company's securities or to recommending
or advising its clients to purchase the Company's securities. Research reports
or corporate finance reports that may be prepared by May Davis will, when and if
prepared, be done solely on the merits or judgment of analysis of May Davis or
any senior corporate finance personnel of May Davis.
-3-
<PAGE> 4
7. MAY DAVIS'S SERVICES TO OTHERS: The Company acknowledges
that May Davis or its affiliates are in the business of providing financial
services and consulting advice to others. Nothing herein contained shall be
construed to limit or restrict May Davis in conducting such business with
respect to others, or in rendering such advice to others, except that May Davis
will not provide services to others when such services may materially and
adversely affect the Company.
8. COMPANY INFORMATION:
(a) The Company recognizes and confirms that, in advising the Company
and in fulfilling its engagement hereunder, May Davis will use and rely on data,
material and other information furnished to May Davis by the Company. The
Company acknowledges and agrees that in performing its services under this
engagement, May Davis may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same.
(b) Except as contemplated by the terms hereof or as required by
applicable law, May Davis shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as May Davis reasonably determines to have a need to
know.
9. INDEMNIFICATION:
(a) The Company shall indemnify and hold May Davis harmless against any
and all liabilities, claims, lawsuits, including any and all awards and/or
judgments to which it may become subject under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the
"Act") or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including costs, expenses,
awards and/or judgments) arise out of or are in connection with the services
rendered by May Davis or any transactions in connection with this Agreement,
except for any liabilities, claims and lawsuits (including awards and/or
judgments), arising out of acts or omissions of May Davis. In addition, the
Company shall also indemnify and hold May Davis harmless against any and all
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
May Davis shall give the Company prompt notice of any such
liability, claim or lawsuit which May Davis contends is the subject matter of
the Company's indemnification and the Company thereupon
-4-
<PAGE> 5
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise and dispose of such liability, claim
or lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
May Davis shall indemnify and hold the Company harmless against any
and all liabilities, claims and lawsuits, including any and all awards and/or
judgments to which it may become subject under the 1933 Act, the Act or any
other federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including costs, expenses, awards and/or
judgments) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact required to be stated or necessary to make the
statement therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf of
May Davis for inclusion in any registration statement or prospectus or any
amendment or supplement thereto or in connection with any Transaction to which
this Agreement applies or which otherwise arises. In addition, May Davis shall
also indemnify and hold the Company harmless against any and all costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
The Company shall give May Davis prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
May Davis's indemnification and May Davis thereupon shall be granted the right
to take any and all necessary and proper action, at its sole cost and expense,
with respect to such liability, claim and lawsuit, including the right to
settle, compromise or dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
(b) In order to provide for just and equitable contribution under the
Act in any case in which (i) any person entitled to indemnification under this
Paragraph 9 makes claim for indemnification pursuant hereto but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Paragraph 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Paragraph 9, then, and in each such case, the Company and May Davis shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject
-5-
<PAGE> 6
(after any contribution from others) in such proportion taking into
consideration the relative benefits received by each party from the transactions
undertaken in connection with this Agreement (taking into account the portion of
the proceeds realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was assessed,
the opportunity to correct and prevent any statement or omission and other
equitable considerations appropriate under the circumstances; and provided,
that, in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "Contributing Party"), notify
the Contributing Party of the commencement thereof, but the omission so to
notify the Contributing Party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a Contributing Party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days, the Contributing Party will be
entitled to participate therein with the notifying party and any other
Contributing Party similarly notified. Any such Contributing Party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of the Contributing Party, which consent shall not be
unreasonably withheld. The indemnification provisions contained in this
Paragraph 9 are in addition to any other rights or remedies which either party
hereto may have with respect to the other or hereunder.
10. MAY DAVIS AN INDEPENDENT CONTRACTOR: May Davis shall
perform its services hereunder as an independent contractor and not as an
employee of the Company or an affiliate thereof. The parties hereto expressly
understand and agree that May Davis shall have no authority to act for,
represent or bind the Company or any affiliate thereof in any manner, except as
may be agreed to expressly by the Company in writing from time to time.
11. MISCELLANEOUS:
(a) This Agreement between the Company and May Davis constitutes the
entire agreement and understanding of the parties hereto, and supersedes any and
all previous agreements and understandings, whether
-6-
<PAGE> 7
oral or written, between the parties with respect to the matters set forth
herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand- delivered (i) five
calendar days after being sent postage prepaid by registered mail, return
receipt requested, or (ii) one business day after being sent by facsimile with
confirmatory notice by U.S. mail, to the respective parties as set forth below,
or to such other address as either party may notify the other in writing:
IF TO THE COMPANY, TO: EURO TECH HOLDINGS COMPANY LIMITED
WITH A COPY TO:
IF TO MAY DAVIS, TO: MAY DAVIS GROUP, INC.
20 Exchange Place
New York, New York
WITH A COPY TO: JAY M. KAPLOWITZ, ESQ.
- ---------------------------------------------------------------------
GERSTEN, SAVAGE, KAPLOWITZ
- -------------------------------------------------------------------------
FREDERICKS & CURTIN
- ------------------------------------------------------------------
101 EAST 52ND. STREET
- --------------------------------------------------------------------
NEW YORK, NEW YORK 10022
- ------------------------------------------------------------------------
TELECOPY NO.: (212) 980-5192
- ---------------------------------------------------------------------------
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each
of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, without giving effect
-7-
<PAGE> 8
to its conflict of law principles. The parties hereby agree that any dispute
which may arise between them arising out of or in connection with this Agreement
shall be adjudicated before a court located in New York City, and they hereby
submit to the exclusive jurisdiction of the courts of the State of New York
located in New York, New York and of the federal courts in the Southern District
of New York with respect to any action or legal proceeding commenced by any
party, and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, relating to or
arising out of this Agreement, and consent to the service of process in any such
action or legal proceeding by means of registered or certified mail, return
receipt requested, in care of the address set forth in Paragraph 11(2) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
MAY DAVIS GROUP, INC.
By:________________________________
Name:
Title:
EURO TECH HOLDINGS COMPANY LIMITED
By:________________________________
, President
-8-
<PAGE> 1
EXHIBIT 4.3
[FORM OF FACE OF STOCK CERTIFICATE]
EURO TECH HOLDINGS COMPANY LIMITED
Number Shares
ETHCL- See Reverse For
Certain Definitions
This certifies that
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
EURO TECH HOLDINGS COMPANY LIMITED
(hereinafter called the Corporation) transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate is not valid
until countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile signatures of the Corporation's duly authorized officers.
Dated: , 1997
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER SECRETARY
Countersigned and Registered:
American Stock Transfer Trust Company
By
Authorized Signature
<PAGE> 2
[FORM OF REVERSE OF STOCK CERTIFICATE]
EURO TECH HOLDINGS COMPANY LIMITED
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT-___________________ Custodian___________________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
under Uniform Gifts to Minors Act
______________________________________
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF TRF ACT-_____________________ Custodian (until age___________)
(Cust)
_____________________ under Uniform Transfer to Minor Acts
(Minor)
_________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Please insert social security or other
identifying number of assignee
[ ]_____________________________________________________________
(Please print or type name and address, including zip
code of assigned)
________________________________________________________________________________
________________________________________________________________________________
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________
____________________ ATTORNEY TO TRANSFER THE SAID STOCK ON THE SAID STOCK ON
THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN
THE PREMISES.
<PAGE> 3
DATED:_____________________ X______________________________________
X______________________________________
Notice: The signature(s) to this
assignment must correspond with the
names(s) as written upon the face of
the certificate, in every particular,
without alteration or enlargement, or
any change whatsoever.
SIGNATURE GUARANTEED: _______________________________________________________
The signature(s) should be guaranteed by an eligible
guarantor institution (banks stockbrokers, savings and
loan associations and credit unions with membership in
an approved signature guarantee medallion program),
pursuant to S.E.C. Rule 17Ad-15
<PAGE> 1
EXHIBIT 4.4
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W _______________ (__________) Warrants
VOID AFTER _____________________, 2006
REDEEMABLE WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
EURO TECH HOLDINGS COMPANY LIMITED
BRITISH VIRGIN ISLANDS COMPANY
This certifies that FOR VALUE RECEIVED _______________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.01 par
value, of Euro Tech Holdings Company Limited, a British Virgin Islands company
(the "Company"), at any time between _____________, 1998 provided, however,
that prior to ____________________, 1999, the Warrants will be exercisable only
if May Davis Group, Inc. (the "Underwriter") has consented in writing to all of
the Company's Warrants being exercisable and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $5.50
per share (the "Purchase Price") in lawful money of the United States of
America in cash or by official bank or certified check made payable to the
Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
___________________, 1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock
1
<PAGE> 2
will be issued. In the case of the exercise of less than all the Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
____________________, 2003, or such earlier date as the Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall be 5:00
p.m. (Eastern time) the next day which in the State of New York is not a
holiday nor a day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will use its best
efforts to cause the same to become effective and to keep such registration
statement current while any of the Warrants are outstanding. This Warrant
shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment together with any
tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
At any time that this Warrant is exercisable, it may be redeemed at
the option of the Company, at a Redemption Price of $0.10 per Warrant, provided
that the average closing bid price of the Company's Common Stock for a period
of 20 consecutive trading days immediately prior to the date on which notice of
redemption is given, shall have exceeded $8.50 per share. Notice of redemption
2
<PAGE> 3
shall be mailed within ten (10) days after the end of such period and be given
not later than the thirtieth (30th) day before the date fixed for redemption,
all as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to this
Warrant except to receive the $0.10 per Warrant upon surrender of this
Certificate.
Warrantholders will be entitled to exercise Warrants at any time up to
the business day next preceding the redemption date. The Warrants may not be
redeemed unless at the time of redemption there is a current prospectus
encompassing the shares of Common Stock issuable upon exercise of such Warrants
under an effective registration statement.
WARRANT AGREEMENT AND EXCHANGE OF WARRANTS
The Warrant Agreement contains provisions permitting the Company and
the Warrant Agent, without the consent of the Warrantholders, 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 Warrantholders. At that same time,
the Company will exchange with the Warrantholders, which purchased 1,000,000
Warrants in a private placement, printed warrant certificates for the
typewritten format certificates delivered to the private placement purchasers.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the British Virgin Islands.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
3
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________________, 1997
EURO TECH HOLDINGS COMPANY LIMITED
By: _______________________________________
T.C. Leung,
Chief Executive Officer
By: _______________________________________
, Secretary
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: _______________________________________
Authorized Officer
4
<PAGE> 5
[FORM OF REVERSE OF WARRANT CERTIFICATE]
EURO TECH HOLDINGS COMPANY LIMITED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise __________________ (________________) Warrants represented by this
Warrant Certificate, and to purchase the securities issuable upon the exercise
of such Warrants, and requests that certificates for such securities shall be
issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
and be delivered to
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
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The undersigned represents that the exercise of the within Warrant was
solicited by
________________________________________
(Indicate the name of soliciting broker)
Dated: _______________________ ________________________________________
Signature
________________________________________
Street Address
________________________________________
City, State and Zip Code
________________________________________
Taxpayer ID Number
Signature Guaranteed:
________________________________________
6
<PAGE> 7
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
[please print or type name and address]
__________________________________ (________________________) of the Warrants
represented by this Warrant Certificate, and hereby irrevocably constitutes and
appoints ____________________ Attorney to transfer this Warrant Certificate on
the books of the Company, with full power of substitution in the premises.
Dated:________________________ ________________________________________
Signature Guaranteed:
________________________________________
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
7
<PAGE> 1
EXHIBIT 4.5
EURO TECH HOLDINGS COMPANY LIMITED
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
WARRANT AGREEMENT
Dated as of , 1997
<PAGE> 2
WARRANT AGREEMENT, dated as of , 1997, by and between
EURO TECH HOLDINGS COMPANY LIMITED, INC., a British Virgin Islands company
(the "Company") and AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant and
transfer agent (hereinafter called the Warrant Agent").
WHEREAS, the Company proposes to issue and sell to the public up to
690,000 shares of Common Stock, $.01 par value (hereinafter referred to as
"Common Stock" or "Common Shares"), and 690,000 Redeemable Common Stock
Purchase Warrants to purchase a share of Common Stock at $5.50 per share (the
"Warrant") (including the underwriter's overallotment option granted to May
Davis Group, Inc. (the "Underwriter")), (the "Public Offering"); and
WHEREAS, the Company has issued and sold 1,000,000 Warrants to Private
Placement investors (the "Private Warrants") delivered to said investors in
type written format containing terms and conditions substantially identical to
the Public Offering Warrants (the "Warrants") and "Private Warrants" maybe
from time to time herein collectively referred to as the "Warrants"; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfers, exchanges and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT: DEFINED TERMS. The Company
hereby appoints the Warrant Agent to act as agent ("Agent") for the Company in
accordance with the instructions hereinafter in this Agreement set forth, and
the Warrant Agent hereby accepts such appointment. The capitalized terms shall
have the meanings set forth in the recitals and the Sections of this Agreement
and the Addendum attached hereto.
SECTION 2. FORM OF WARRANT. The text of the Warrant and of the form of
election to purchase shares as is printed on the reverse thereof as now
outstanding, is substantially as set forth respectively in Exhibit A attached
hereto. The per share Warrant Price (as hereinafter defined) and the number of
shares issuable upon exercise of the Warrants are subject to adjustment upon
the occurrence of certain events, all as hereinafter provided. The Warrants
shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman, President, or Vice President
of the Company, under its corporate seal, affixed or in facsimile, attested by
the manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
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<PAGE> 3
The Warrants will be dated as of the date of issuance by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
SECTION 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall
maintain books for the transfer and registration of Warrants. Upon the initial
issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any
successor to the Warrant Agent then acting as warrant agent under this
Agreement) and shall not be valid for any purpose unless so countersigned.
Warrants may be so countersigned, however, by the Warrant Agent (or by its
successor as warrant agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signatures appear
thereon as proper officers of the Company shall have ceased to be such
officers at the time of such countersignature or delivery.
SECTION 4. EXCHANGES AND TRANSFERS. (a) Upon written advice from the
Company that it has received an original Private Warrant to be exchanged for a
printed format warrant, the Warrant Agent shall issue a Warrant in the form
annexed hereto as Exhibit A to person(s) and in the denominations specified in
such notice and deliver same to the address specified in such notice. (b) The
Warrant Agent shall transfer, from time to time, any outstanding Warrants upon
the books to be maintained by the Warrant Agent for that purpose, upon
surrender thereof for transfer properly endorsed or accompanied by appropriate
instructions for transfer. Upon any such transfer, a new Warrant shall be
issued to the transferee and the surrendered Warrant shall be delivered by the
Warrant Agent. Warrants so cancelled shall be cancelled by the Warrant Agent
to the Company from time to time upon request. Warrants may be exchanged at
the option of the holder thereof, when surrendered at the office of the
Warrant Agent, for another Warrant, or other Warrants of different
denominations, of like tenor or representing in the aggregate the right to
purchase a like number of Common Shares.
SECTION 5. RIGHTS OF REDEMPTION BY COMPANY. (i) At any time that the
Warrants are exercisable and on not less than thirty (30) days notice, the
Warrants may be redeemed, at the option of the Company, at a redemption price
of $.10 per Warrant, provided the average closing bid price of the Common
Stock receivable upon exercise of the Warrant shall have exceeded $8.50 per
share (the "Target Price"), subject to adjustment as set forth in Section 11
hereof, for a period of twenty consecutive trading days immediately prior to
the date on which notice of redemption is given. Warrantholders will be
entitled to exercise Warrants at any time up to the business day next
preceding the redemption date.
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<PAGE> 4
(ii) Providing the conditions set forth in Section 5(i) are met, and the
Company shall desire to exercise its right to redeem the Warrants, it shall
mail a notice of redemption to the holders of the Warrants to be redeemed,
first class, postage prepaid, within ten days after the end of such foregoing
period, not later than the thirtieth (30th) day before the date fixed for
redemption, at his/her last address as shall appear on the records of the
Company. Any notice mailed in the manner provided herein shall be conclusively
presumed to have been duly given whether or not the holder receives such
notice.
(iii) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that
the right to exercise the Warrant shall terminate at 5:00 p.m. (New York time)
on the trading day immediately preceding the date fixed for redemption. The
date fixed for redemption of the Warrants shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to
a holder (a) to whom notice was mailed; or (b) whose notice was defective. An
affidavit of the Secretary or an Assistant Secretary of the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(iv) Except as provided herein, any right to exercise a Warrant shall
terminate at 5:00 p.m. (New York time) on the trading day immediately
proceeding the Redemption Date. On and after the Redemption Date, the holders
shall have no further rights except to receive, upon surrender of the Warrant,
the redemption price.
(v) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the holder thereof of one or more Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of
such holder a sum in cash equal to the redemption price of each such Warrant.
From and after the date fixed for redemption and upon the deposit or setting
aside by the Company of a sum sufficient to redeem all the Warrants called for
redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificate, except the right to receive
payment of the redemption price, shall cease.
(vi) If the shares of the Company's Common Stock are subdivided or
combined into a greater of smaller number of shares of Common Stock, the
Target Price shall be proportionately adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total
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<PAGE> 5
number of shares of Common Stock to be outstanding immediately after such
event.
SECTION 6. EXERCISE OF WARRANTS. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right which may
be exercised through _____________, 2006 commencing one year from 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, and ending at
the close of business on _____________, 2006 to purchase from the Company (and
the Company shall issue and sell to such registered holder of Warrants) the
number of fully paid and non-assessable Common Shares specified in such
Warrants, upon surrender to the Company at the office of the Warrant Agent of
such Warrants, with the form of election to purchase duly filled in and
signed, and upon payment to the order of the Company of the Warrant Price,
determined in accordance with Sections 10 and 11 herein, for the number of
shares in respect of which such Warrants are then exercised. Payment of such
Warrant Price shall be made in cash or by certified check or official bank
check, payable in United States dollars, to the order of the Company. No
adjustments shall be made for any dividends on any Common Shares issuable upon
exercise of a Warrant. Subject to Section 7, upon such surrender of Warrants,
and payment of the Warrant Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written
order of the registered holder of such Warrants and in such name or names as
such registered holder may designate, a certificate or certificates for the
largest number of whole Common Shares so purchased upon the exercise of such
Warrants. The Company shall not be required to issue any fraction of a share
of Common Stock or make any cash or other adjustment except as provided in
Section 12 herein, in respect of any fraction of a Common Share otherwise
issuable upon such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares as of the date of the
surrender of such Warrants and payment of the Warrant Price as aforesaid,
provided, however, that if, at the date of surrender of such Warrants and
payment of such Warrant Price, the transfer books for the Common Shares or
other class of stock purchasable upon the exercise of such Warrants shall be
closed, the certificates for the shares in respect of which such Warrants are
then exercised shall be issuable as of the date on which such books shall be
opened, and until such date the Company shall be under no duty to deliver any
certificate for such shares; provided, further, however, that the transfer
books aforesaid, unless otherwise required by law or by applicable rule of any
national securities exchange, shall not be closed at any one time for a period
longer than 20 days. The rights of purchase represented by the Warrants shall
be exercisable, at the election of the
4
<PAGE> 6
registered holders thereof, either as an entirety or from time to time for
part only of the shares specified therein and, in the event that any Warrant
is exercised in respect of less than all of the shares specified therein at
any time prior to the date of expiration of the Warrant, a new Warrant or
Warrants will be issued to such registered holders for the remaining number of
shares specified in the Warrant so surrendered, and the Warrant Agent is
hereby irrevocably authorized to countersign and to deliver the required new
Warrants pursuant to the provisions of this Section during the Warrant
exercise period, and the Company, whenever requested by the Warrant Agent,
will supply the Warrant Agent, with Warrants duly executed on behalf of the
Company for such purpose.
SECTION 7. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Shares issuable upon the
exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificates for Common
Shares in a name other than that of the registered holder of Warrants in
respect of which such shares are issued, and in such case neither the Company
nor the Warrant Agent shall be required to issue or deliver any certificate
for Common Shares or any Warrant until the person requesting the same has paid
to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
SECTION 8. MUTILATED OR MISSING WARRANTS. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may in its
discretion issue, and the Warrant Agent shall countersign and deliver, in
exchange and substitution for and upon cancellation of the mutilated Warrant,
or in lieu of and substitution for the Warrant lost, stolen or destroyed, a
new Warrant of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company and the Warrant
Agent of such loss, theft or destruction of such Warrant and indemnity, if
requested, also satisfactory to them. Applicants for such substitute Warrants
shall also comply with such other reasonable regulations and pay such
reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 9. RESERVATION OF COMMON SHARES. There have been reserved, and
the Company shall at all times keep reserved, out of the authorized and
unissued Common Shares, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrants, and the
Transfer Agent for the Common Shares and every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of any of
the rights of purchase aforesaid are hereby irrevocably authorized and
directed at all times to reserve such number of authorized and
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<PAGE> 7
unissued shares as shall be requisite for such purpose. The Company agrees
that all Common Shares issued upon exercise of the Warrants shall be, at the
time of delivery of the certificates for such Common Shares, validly issued
and outstanding, fully paid and non-assessable and listed on any securities
exchange upon which the other Common Shares are then listed. The Company will
file such registration statement(s) pursuant to the Securities Act of 1933, as
amended, with respect to the Common Shares as may be necessary to permit it to
deliver to each person exercising a Warrant, a Prospectus meeting the
requirements of Section 11(a) (3) of such act and otherwise complying
therewith, and will deliver such a Prospectus to each such person; provided,
that the Company shall only be obligated to use its reasonable, good faith
efforts to have any such registration statement declared effective by the
Securities and Exchange Commission, and to have such reserved shares qualified
for delivery to holders of the Warrants under applicable state securities
laws, and to the extent that the Company has used such prescribed efforts but
has been unsuccessful in obtaining any such registration(s) or
qualification(s), it shall not constitute a breach of this Agreement by the
Company. The Company will keep a copy of this Agreement on file with the
Transfer Agent for the Common Shares and with every subsequent transfer agent
for any shares of the Company's capital stock issuable upon the exercise of
the rights of purchase represented by the Warrants. The Warrant Agent is
hereby irrevocably authorized to requisition from time to time such Transfer
Agent for stock certificates required to honor outstanding Warrants. The
Company will supply such Transfer Agent with duly executed stock certificates
for such purpose. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled by the Warrant Agent and shall thereafter
be delivered to the Company, and such cancelled Warrants shall constitute
sufficient evidence of the number of Common Shares which have been issued upon
the exercise of such Warrants. Promptly after the date of expiration of the
Warrants, the Warrant Agent shall certify to the Company the total aggregate
amount of Warrants then outstanding, and thereafter no Common Shares shall be
subject to reservation in respect to such Warrants which shall have expired.
SECTION 10. WARRANT PRICE. The Warrant Price at which Common Stock shall
be purchasable shall be $5.50 per whole share. No fractional shares shall be
issued.
SECTION 11. ADJUSTMENTS. Subject and pursuant to the provisions of this
Section 11, the Warrant Price and number of Common Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
(A) Except as hereinafter provided in the event the Company shall, at
any time or from time to time after the date hereof, sell
6
<PAGE> 8
any shares of Common Stock for a consideration per share less than the lower
of (i) the closing bid price of the Common Stock as reported on NASDAQ on the
trading date next preceding such sale (the "Market Price"), or (ii) the
Warrant Price then in effect, or issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
"Change of Shares"), then, and hereafter immediately before the date of such
sale or the record date for each Change of Shares, the Warrant Price for the
Warrants (whether or not the same shall be issued and outstanding) in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined
by dividing (1) the product of (a) the Warrant Price in effect immediately
before such Change of Shares and (b) the sum (i) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, and (ii)
the number of shares determined by dividing (A) the aggregate consideration,
if any, received by the Company upon such consideration, issuance, subdivision
or combination by (3) the lesser of (x) the Market Price, or (y) the Warrant
Price, in effect immediately prior to such Change of Shares; by (2) the total
number of shares of Common Stock outstanding immediately after such Change of
Shares.
For the purposes of any adjustment to be made in accordance with this
Section 11(A) the following provisions shall be applicable: In case of the
issuance or sale of shares of Common Stock (or of other securities deemed
hereunder to involve the issuance or sale of shares of Common Stock) for a
consideration part or all of which shall be cash, the amount of the cash
portion of the consideration therefor deemed to have been received by the
Company shall be (i) the subscription price (before deducting any commissions
or any expenses incurred in connection therewith), if shares of Common Stock
are offered by the Company for subscription, or (ii) the public offering price
(before deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company, and otherwise than on the
exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of
Common
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<PAGE> 9
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company other than shares
of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (B) of this Section
11.
(E) The number of shares of Common Stock at any one time outstanding
shall be deemed to include the aggregate maximum number of shares issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise
of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(F) Upon each adjustment of the Warrant Price pursuant to this Section
11, the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Warrant
Price in effect prior to such adjustment and dividing the product so obtained
by the applicable adjusted Warrant Price.
(G) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock,
for a consideration per share (determined as provided in Section 11(A) and as
provided below) less than the lower of (i) the Market Price, or (ii) the
Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way of
dividend or other distribution), the Warrant Price for the Warrants (whether
or not the same shall be issued and outstanding) in effect immediately prior
to the issuance of such
8
<PAGE> 10
options, rights or warrants, or such convertible or exchangeable securities,
as the case may be, shall be reduced to a price determined by making the
computation in accordance with the provisions of Section 11 (A) hereof,
provided that:
(1) The aggregate maximum number of shares of Common Stock, as the case
may be, issuable or that may become issuable under such options, rights
or warrants (assuming exercise in full even if not then currently
exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were
issued, for a consideration equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance,
plus the consideration, if any, received by the Company for such options,
rights or warrants; provided, however, that upon the expiration or other
termination of such options, rights or warrants, if any thereof shall not
have been exercised, the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this subsection (A) (and for the
purposes of subsection (E) of Section 11 hereof) shall be reduced by the
number of shares as to which options, warrants and/or rights shall have
expired, and such number of shares shall no longer be deemed to be issued
and outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares
actually issued plus the shares remaining issuable upon the exercise of
those options, rights or warrants as to which the exercise rights shall
not have expired or terminated unexercised.
(2) The aggregate maximum number of shares of Common Stock issuable or
that may become issuable upon conversion or exchange of any convertible
or exchangeable securities (assuming conversion or exchange in full even
if not then currently convertible or exchangeable in full) shall be
deemed to be issued and outstanding at the time of issuance of such
securities, for a consideration equal to the consideration received by
the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof;
provided, however, that upon the expiration or other termination of the
right to convert or exchange such convertible or exchangeable securities
(whether by reason of redemption or otherwise), the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this
subsection 11 (G)(2) (and for the purposes of subsection 11 (E) hereof)
shall be reduced by the number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such
number of shares shall no longer be deemed to be issued and outstanding,
and the Warrant
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<PAGE> 11
Price then in effect shall forthwith be readjusted and thereafter be the
price that it would have been had adjustment been made on the basis of
the issuance only of the shares actually issued plus the shares remaining
issuable upon conversion or exchange of those convertible or exchangeable
securities as to which the conversion or exchange rights shall not have
expired or terminated unexercised.
(3) If any change shall occur in the exercise price per share provided
for in any of the options, rights or warrants referred to in subsection
11 (B), or in the price per share or ratio at which the securities
referred to in subsection 11 (G) are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case
may be, to the extent not theretofore exercised, shall be deemed to have
expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
(H) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, then, as a condition of such reclassification, change,
consolidation, merger, sale or conveyance, the Company, or such successor or
purchasing corporation, as the case may be, shall make lawful and adequate
provision whereby the registered holder of each Warrant then outstanding shall
have right thereafter to receive on exercise of such Warrant the kind and
amount of securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such
provision. Such provisions shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
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<PAGE> 12
provided for in subsection 11 (A). The above provisions of this subsection 11
(H) shall similarly apply to successive reclassifications and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(I) After each adjustment of the Purchase Price pursuant to this
Section 11, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Warrant Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief
summary thereof to be sent by ordinary first class mail to each registered
holder at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder
whose notice was defective. The affidavit of any officer of the Warrant Agent
or the Secretary or an Assistant Secretary of the Company that such notice has
been mailed, shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(J) NO ADJUSTMENT IN CERTAIN CASES. No adjustment shall be made:
(i) upon the issuance of the Warrants (including shares of Common Stock
issued upon exercise of those warrants);
(ii) upon the issuance of shares of Common Stock and warrants (including
shares of Common Stock issued upon exercise of those warrants) issued
prior to or in connection with the Public Offering (including those
shares of the Company's Common Stock issued in connection with the
Company's Acquisition of Euro Tech (Far East) Limited);
(iii) upon the issuance or sale of shares of Common Stock issuable upon
the exercise of any stock options granted under any stock option plan of
the Company and up to 1,400,000 Management Options; or
(iv) if the amount of said adjustment shall be less than five cents
($.05) per share of Common Stock, provided, however, that in such case,
any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
11
<PAGE> 13
forward, shall amount to at least five cents ($.05) per share of Common
Stock.
(K) The foregoing provisions notwithstanding on the effective date of
any new Warrant Price the number of shares as to which any Warrant may be
exercised shall be increased or decreased so that the total sum payable to the
Company on the exercise of such Warrant shall remain constant.
(L) The form of Warrant need not be changed because of any change
pursuant to this Section, and Warrants issued after such change may state the
same Warrant Price and the same number of shares as is stated in the Warrants
initially issued pursuant to this Agreement. However, the Company may at any
time in its sole discretion (which shall be conclusive) make any change in the
form of Warrant that the Company may deem appropriate and that does not effect
the substance thereof; and any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise,
may be in the form as so changed.
SECTION 12. FRACTIONAL INTEREST. The Company shall not be required to
issue fractions of Common Stock on the exercise of Warrants or any cash or
other adjustment in respect of such fractions of Common Shares. If any
fraction of a Common Share would, except for the provisions of this Section
12, be issuable on the exercise of any Warrant (or specified portions
thereof), the Company shall issue such number of shares of Common Stock to
which the Warrant holder is entitled, rounded up to the nearest number of
whole shares.
SECTION 13. NOTICES TO WARRANTHOLDERS.
(A) In case at any time:
(a) the Company shall pay any dividends payable in stock upon its
Common Stock or make any distribution (other than regular cash dividends) to
the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights;
(c) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
(in which the Company is not the surviving corporation) with, or sale of all
or substantially all of its assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
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<PAGE> 14
then, in any one or more such cases, the Company shall give written notice to
all Warrant holders of record not fewer than 10 days' prior to the date of
which the books of the Company shall close or a record shall be taken for (i)
such dividend, distribution, or subscription rights, or (ii) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution, or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up, as the
case may be. Failure to give or publish such notice, or any defect therein,
shall not affect the legality or validity of any of the matters set forth in
this Section 13 inclusive.
(B) The Company shall cause copies of all financial statements and
reports, proxy statements and other documents as it shall send to its
stockholders to be sent by first-class mail, postage prepaid, on the date of
mailing to such stockholders, to each registered holder of Warrants at his
address appearing on the Warrant register as of the record date for the
determination of the stockholders entitled to such documents.
SECTION 14. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(A) The Warrant Agent shall forward promptly to the Company, with
respect to Warrants exercised, the funds which will be deposited in a special
account in a bank designated by the Company for the benefit of the Company,
for the purchase of Common Shares through the exercise of such Warrants.
(B) The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours.
SECTION 15. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation or company which may succeed to the business of the
Warrant Agent by any merger or consolidation or otherwise to which the Warrant
Agent shall be a party shall be the successor Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such corporation would be eligible for
appointment as a successor Warrant Agent under the provisions of Section 17 of
this Agreement. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement, any of the Warrants shall
have been countersigned but not delivered, any
13
<PAGE> 15
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned; and in case
at that time any of the Warrants shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrants either in the
name of the predecessor Warrant Agent or in the name of the successor warrant
agent; and in all such cases such Warrants shall have the full force provided
in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned, and in case at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name; and in all such
cases such Warrants shall have the full force provided in the Warrants and in
this Agreement.
SECTION 16. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
A. The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such
as describe the Warrant Agent or actions taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein expressly provided.
B. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
C. The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur
no liability or responsibility to the Company or to any holder of any Warrant
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with the opinion or the written advice of such
counsel.
D. The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on
any notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument
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<PAGE> 16
reasonably believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
E. The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution
of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including
judgments, costs and reasonable counsel fees, for anything done or omitted by
the Warrant Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence or bad faith.
F. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding relative thereto, and
any such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment shall be
for the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
G. The Warrant Agent and any stockholder, director, officer, partner
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants
or other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal
entity.
H. The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence or bad faith.
I. The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder
15
<PAGE> 17
either itself or by or through its attorneys, agents or employees, and the
Warrant Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys, agents, or employees or for any
loss to the Company resulting from such neglect or misconduct, provided
reasonable care has been exercised in the selection and continued employment
thereof.
J. Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its President or a Vice President or its Secretary or an Assistant
Secretary or its Treasurer or an Assistant Treasurer (unless other evidence in
respect thereof be herein specifically prescribed); and any resolution of the
Board of Directors of the Company may be evidenced to the Warrant Agent by a
copy thereof certified by the Secretary or an Assistant Secretary of the
Company.
SECTION 17. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to holders at their addresses appearing on the Warrant register, of
such resignation, specifying a date when such resignation shall take effect.
The Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and by like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable
of acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the
registered holder of a Warrant (who shall, with such notice, submit his
Warrant for inspection by the Company), then the registered holder of any
Warrant may apply to any court of competent jurisdiction for the appointment
of a successor to the Warrant Agent. Any successor warrant agent, whether
appointed by the Company or by such court, shall be a bank, or trust company
or active transfer agent, in good standing, incorporated under the laws of a
state of the United States of America. After appointment, the successor
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer
to the successor warrant agent all cancelled Warrants, records and property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to file or mail any
notice provided by this Section, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Warrant
Agent or the appointment of the successor warrant agent, as the case may be.
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<PAGE> 18
SECTION 18. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of
any Transfer Agent for the Common Shares or of any subsequent transfer agent
for Common Shares or other shares of the Company's capital stock issuable upon
exercise of the rights of purchase represented by the Warrants, the Company
will file with the Warrant Agent a statement setting forth the name and
address of such Transfer Agent. The Warrant Agent hereby acknowledges that it
is, at the time of execution hereof, the Transfer Agent, and waives any
statement required herein with respect thereto.
SECTION 19. NOTICES. Any notice pursuant to this Agreement to be given or
made by the Warrant Agent or by the registered holder of any Warrant to or on
the Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing by the
Company with the Warrant Agent) as follows:
Euro Tech Holdings Company Limited
c/o Euro Tech (Far East) Limited
18/F Gee Chang Hong Centre
65 Wong Chuk Hang Road
Hong Kong
Attn: T.C. Leung, Chief Executive Officer
With a copy to:
Robert Perez, Esq.
Gusrae, Kaplan & Bruno
120 Wall Street, 11th Floor
New York, New York 10005
Any notice pursuant to this Agreement to be given or made by the Company
or by the registered holder of any Warrant to or on the Warrant Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attn: _________________
SECTION 20. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval
of any holders of Warrants in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not
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<PAGE> 19
be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interests of the holders of Warrants.
SECTION 21. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 22. NEW YORK CONTRACT. This Agreement shall be deemed to be a
contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with laws of said state.
SECTION 23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for
the sole and exclusive benefit of the Company, the Warrant Agent and the
registered holders of the Warrants.
SECTION 24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterparts shall be considered an original.
SECTION 25. EFFECTIVENESS. This Agreement shall be deemed binding, and,
therefore, in effect, as of and subject to the effective date of the
Registration Statement for the Public Offering.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EURO TECH HOLDINGS COMPANY LIMITED
(Corporate Seal)
By:
-------------------------------
T.C. Leung,
Chief Executive Officer
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<PAGE> 20
Attest:
- --------------------------------
, Secretary
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
-------------------------------
19
<PAGE> 21
ADDENDUM
WARRANT AGREEMENT BY AND BETWEEN
EURO TECH HOLDINGS COMPANY LIMITED AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
(THE "AGREEMENT")
The terms set forth below, for the purposes of the Agreement to which
this Addendum is attached, shall have the meanings specified:
The term "EFFECTIVE DATE" shall mean the date(s) the Commission declares
effective the Company's registration statement under Commission File Number
333-16277 or any other registration statement required to be filed by the
Company pursuant to the Agreement.
The term "TRANSFER AGENT" shall mean American Stock Transfer & Trust
Company.
The term "WARRANT PRICE" shall mean the sum of money specified in Section
10 of the Agreement, as may be adjusted from time to time pursuant to Section
11 of the Agreement.
The term "WARRANT CERTIFICATES" shall mean typed or printed renditions of
the Warrants, specifying the names of the holders thereof and the number of
shares of the Company's Common Stock purchasable thereunder.
<PAGE> 1
EXHIBIT 5.1
January 29, 1997
EURO TECH HOLDINGS COMPANY LIMITED
C/o Euro Tech (Far East) Ltd.
18/F Gee Chang Hang Centre
65 Wong Chuk Hang Road
Hong Kong
Gentlemen:
RE: EURO TECH HOLDINGS COMPANY LIMITED
We have acted as British Virgin Islands counsel to Euro Tech Holdings
Company Limited (the "Company") in connection with its filing of its
registration statement on Form F-1 (File No. 333-16277, the "Registration
Statement") covering (i) 690,000 shares (the "Shares") of Common Stock $0.01 par
value (the "Common Stock") including 90,000 additional shares of Common Stock to
be sold by the Company to cover overallotments, if any (the "Overallotment
Shares") (ii) 690,000 Common Stock purchase warrants to purchase one share of
Common Stock (the "Warrants") (including 90,000 additional Warrants to be sold
by the Company to cover overallotments, if any (the "Overallotment Warrants");
(iii) 690,000 shares of Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares") (including 90,000 additional shares of Common Stock issuable
upon exercise of the Overallotment Warrants (the "Overallotment Warrant
Shares"); (iv) 1,000,000 shares of Common Stock purchase warrants that are owned
by certain warrantholders (the "Additional Warrants"); (v) 1,000,000 shares of
Common Stock issuable upon exercise of the Additional Warrants (the "Additional
Warrant Shares"); (vi) 60,000 warrants (the "Underwriter Warrants") issuable to
May Davis Group, Inc. (the "Underwriter") to purchase 60,000 shares of Common
Stock; (vii) 60,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants (the "Underwriter Warrant Shares"); (viii) 60,000 Common
Stock Purchase Warrants issuable upon exercise of the Underwriter's Warrants
(the "Underwriter Warrant Warrants"); and (ix) 60,000 shares of Common Stock
issuable upon exercise of the Underwriter Warrant Warrants (the "Underwriter
Warrant Warrant Shares"), all as more particularly described in the Registration
Statement.
In our capacity as British Virgin Islands counsel to the Company, we have
examined the Company's Memorandum and Articles of Association, as amended to
date, the consents of the Board of Directors of the Company containing
resolutions authorizing the various transactions under the Registration
Statement (the "Resolutions").
With respect to factual matters, we have relied with your permission
(without independent inquiry) upon statements contained in the Registration
Statement and in the other documents we have reviewed. We have also reviewed
such other matters of law and examined and relied upon such other documents,
records and certificates as we have deemed relevant hereto. In all such
examinations we have assumed conformity with the original documents of all
documents submitted to us as conformed photostatic copies, the authenticity of
all documents submitted to us as originals and the genuineness of all signatures
on all documents submitted to us. In addition we have assumed that the
Resolutions have not been amended or rescinded, the accuracy of any and all
statements or representations of fact expressed or implied in the Registration
Statement and the other documents reviewed by us, and that the transactions
contemplated by the Registration Statement are not in contravention of any
agreement to which the Company is a party.
On the basis of the foregoing, we are of the opinion that:
(i) The Shares and the Over allotment Shares covered by the
Registration Statement have been validly authorized and will, when sold and
paid for in full as contemplated by the Registration Statement, be legally
issued, fully paid and non-assessable;
<PAGE> 2
(ii) The Warrants, the Overallotment Warrants, the Additional
Warrants, the Underwriter Warrants and the Underwriter Warrant Warrants
have been validly authorized and will, when issued, sold and paid for in
full as contemplated by the Registration Statement, be legally issued,
fully-paid and non-assessable.
(iii) The Warrant Shares, the Overallotment Warrant Shares, the
Additional Warrant Shares, the Underwriter Warrant Shares and the
Underwriter Warrant Warrant shares have been validly authorized and will,
when issued sold and paid for in full as contemplated by the Registration
Statement, be legally issued, fully-paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and our firm being named in the Registration Statement
and the Prospectus section entitled "Legal Matters". By giving this consent, we
do not acknowledge that we are an expert as term is defined in Section 7 of the
United States Securities Act of 1933.
Yours faithfully,
SMITH-HUGHES, RAWORTH & MCKENZIE
/s/ CHRISTOPHER MCKENZIE
--------------------------------------
Christopher Mckenzie
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
Agreement made this day of , 1997, among Euro
Tech Holdings Company, a British Virgin Islands company, with a registered
office at Trust Net Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin
Islands (the "Company"), Pearl Venture Ltd., a British Virgin Islands company,
with an office located at Columbus Centre Building, Wickhams Cay, Road Town,
Tortola, British Virgin Islands ("Pearl") and Regent Earning Ltd., a Hong Kong
corporation, with an office located at Chong Kin Commercial Building, 596
Nathan Road, Room 902, Mong Kok, Kowloon, Hong Kong ("Regent"), Pearl and
Regent may sometimes be hereinafter referred to collectively as the Buyers.
WITNESSETH:
WHEREAS, the Buyers are collectively the owners of all of the issued
and outstanding capital stock of Euro Tech (Far East) Limited, a Hong Kong
corporation, having an office located at 18 F Gee Chang Hong Centre, 65 Wong
Chuk Hang Road, Hong Kong ("Far East"); and
WHEREAS, the Company hereby agrees to exchange, sell and deliver to
Buyers, and Buyers agree to exchange and purchase, an aggregate of 1,400,000
shares of the Common Stock of the Company in exchange for and in consideration
of an aggregate of 1,000,000
<PAGE> 2
ordinary shares of the share capital of Far East (the "Acquisition"); and
WHEREAS, the Company has filed a registration statement on Form F-1
(such registration statement and the financial statements contained therein and
all amendments and exhibits thereto are hereinafter referred to as the
"Registration Statement") for an underwritten public offering of its equity
securities pursuant to which it will derive gross proceeds of not less than
US$3,090,000 (the "Public Offering").
NOW, THEREFORE, in consideration of the promises and the
representations, warranties, covenants and agreements contained in this
Agreement, each of the parties hereto hereby agrees as follows:
ARTICLE I
RECITALS
Recitals. The parties confirm that each of the foregoing recitations
are true and correct in all respects and are incorporated herein.
ARTICLE II
THE SHARES
The Shares. The Company shall sell to Buyers an aggregate of One
Million Four Hundred Thousand (1,400,000) restricted shares of the Company's
Common Stock (the "Company Shares"), in exchange for and in consideration for
an aggregate of One Million (1,000,000) ordinary shares of the share capital of
Far East (the "Far East
2
<PAGE> 3
Shares"), representing all of the paid up share capital of Far East.
ARTICLE III
CLOSING
The Closing. Upon a closing of the Public Offering, the closing of this
Agreement and the transactions contemplated hereby (the "Closing") are to take
place simultaneously with the delivery of the documents representing and
evidencing consideration for the transactions contemplated herein as set forth
in Article IV below at such locations as the parties hereto may agree upon.
The date upon which the closing occurs is herein referred to as the "Closing
Date". In the event the Public Offering does not close prior to March 31,
1997, unless extended by the Agreement of all the parties hereto, this
Agreement shall be null, void and of no effect.
ARTICLE IV
CONSIDERATION
4.1 Company Shares. At the Closing, the Company will deliver (i)
to Pearl, certificates representing Three Hundred Seventy Two Thousand Four
Hundred (372,400) of the Company's Shares registered in the name of Pearl; and
(ii) to Regent, certificates representing One Million Twenty Seven Thousand Six
Hundred (1,027,600) of the Company's Shares registered in the name of Regent.
Said certificates may be broken down into such denominations as Pearl and/or
Regent may direct as to their respective ownership of the Company's Shares.
All of the foregoing certificates for the Company's Shares
3
<PAGE> 4
shall be duly executed by the appropriate officers and directors of the
Company.
4.2 Shares of the Buyers. At the Closing, the Buyers will deliver
to the Company certificates representing an aggregate of One Million
(1,000,000) ordinary shares of Far East, duly executed by its authorized
officers and directors and in proper form for transfer to the Company (the
"Buyers' Shares").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.1 Representations and Warranties of the Company. Except as
and/or to the extent disclosed in the Registration Statement for the Public
Offering as filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), copies
of which Registration Statement have been reviewed by the Company. The Company
represents and warrants to Buyers as of the date hereof, as follows:
A. Organization and Good Standing: Compliance. The
Company is duly organized, validly existing and in good standing under the laws
of the British Virgin Islands, with full power and authority to own or lease
and operate its properties and assets, material to the operation of its
business, and to carry on its business as presently being conducted, and has
obtained all licenses, permits or other authorizations and has taken all
actions required by applicable law or governmental regulations, material to the
operation of its business, to conduct its business. The
4
<PAGE> 5
Company has received no notice of, and does not know of, any violation of any
applicable regulation, ordinance or other law, order, or governmental
requirement, material to the operation of its business. True copies of the
Company's Restated Memorandum and Articles of Association and all corporate
minutes of the Company have been made available to or delivered to Buyers,
including all amendments thereto.
B. Capitalization. The Company's total authorized
capital stock is Twenty Million (20,000,000) shares of Common Stock (par value
$.01 per share), of which One Hundred Fifty Thousand (150,000) shares are
issued and outstanding.
C. Liens and Encumbrances. There are no liens,
encumbrances, pledges, probational agreements or claims of any nature against
the Company's Shares to be delivered to Buyers by the Company.
D. Legality. The Company's Shares upon completion of the
transactions contemplated hereby will be validly issued, fully paid and
non-assessable and were offered and sold in accordance with any applicable
securities laws or applicable exceptions thereunder, and there are no
preemptive rights in respect thereof. There are no other outstanding options,
warrants, rights, calls, puts, commitments, plans or other agreements of any
character providing for the purchase or issuance of any authorized but unissued
capital stock of the Company.
E. Financial Statements. The Company's financial
statements contained in the Registration Statement represent
5
<PAGE> 6
accurately and fairly the financial condition and results of the operations of
the Company at the respective dates or for the respective periods covered
thereby in accordance with generally accepted accounting principles applied on
a consistent basis or in accordance with the descriptions relating to such
financial statements as set forth in the Registration Statement.
F. Books and Records. The books and records of the
Company reflect all of the material debts, liabilities and obligations of any
nature (whether absolute, accrued or otherwise, and whether due or to become
due) of the Company at the dates thereof. There are no other contingent
liabilities of the Company of a material nature, and the Company has not given
any other guarantees of the obligations of any other person or entity.
G. Absence of Undisclosed Liabilities. The Company has
no undisclosed material liabilities, whether accrued, absolute, contingent, or
otherwise, including without limitation, tax liabilities due or to become due,
and whether incurred in respect of or measured by the income of the Company or
incurred subsequent to the date of the financial statements set forth in the
Registration Statement except for those incurred in the ordinary course of its
business. The Company does not know or have reasonable grounds to know of any
basis for the assertion against the Company of any material liability not fully
reflected or reserved against.
H. Title to Properties. The Company has good and
marketable title to its assets, including those reflected in the Registration
Statement (except as may be sold, exchanged or
6
<PAGE> 7
otherwise disposed of in the ordinary course of business). The assets of the
Company are not subject to any undisclosed material security interest,
mortgage, pledge, lien, encumbrance, or charge.
I. Subsidiaries. The Company has no material
subsidiaries or interest in any other corporation, firm, partnership or other
entity.
J. Common Stock. The Company has full power to sell and
deliver the Company Shares upon the terms set forth herein. Upon delivery of
the Company Shares, the Buyers will receive good and marketable title thereto,
free and clear of all liens, encumbrances, equities and claims whatsoever and
subject only to the restrictions of any applicable securities laws.
K. Mortgages, Liens and Encumbrances. The Company has
not entered into any undisclosed mortgages, pledges, hypothecations or other
encumbrances of any of its assets, tangible or intangible, material to the
operation of its business.
L. No Asset Sale. The Company has not entered into or
agreed to enter into any undisclosed agreement or arrangement granting any
rights to purchase any of its assets material to the operation of its business
other than in the ordinary course of the Company's business.
M. Capital Expenditures. The Company has not made any
undisclosed commitment for capital expenditures of a material nature that is
not in the ordinary course of the Company's business.
N. Material Agreements. The Company has not entered
into, become a party to, waived any right under, amended or
7
<PAGE> 8
cancelled any undisclosed material contract, agreement or commitment nor has
there been any material defaults thereunder or except in the ordinary course of
the Company's business.
O. Material Obligations. The Company has paid all of its
material obligations to third parties, including vendors, in a timely manner in
the ordinary course of business.
P. No Financial Changes. Since the respective dates of
the financial statements contained in the Registration Statement, there has
been no material change in the condition or general affairs of the Company,
financial or otherwise, other than as contemplated by this Agreement.
Q. No Suits Pending or Imminent. Except as may be
immaterial to the Company, its business, financial condition and results of
operations, there are no actions at law or equity or administrative proceedings
pending or threatened against the Company in which the Company is a plaintiff,
defendant, petitioner, indemnifier, or respondent, or in which it is
anticipated that the Company will join or be joined as a party.
R. Compliance with Law. The business and operations of
the Company have been and are being conducted in accordance with all applicable
laws, rules and regulations.
S. No Default of Contracts, Employee Obligations,
Contractual Obligations or Organizational Documents. None of the contracts, or
obligations or liabilities, material to the Company's business operations, are
in default. All such contracts are valid and binding obligations of the
parties thereto in accordance with
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their respective terms, there have been no amendments or modifications thereto
since the date hereof other than in the ordinary course of the Company's
business, and there are no known material liabilities of the parties thereto
arising from any breach of or default in any provision thereof by any party
thereto. The Company is not in default under any of its agreements, contracts
or instruments, material to its business operations and no claim of default has
been made or threatened by or against the Company with respect to any such
agreement, contract or instrument. The Company is not in violation of its
Memorandum and Articles of Association or other organizational documents.
T. Agreements Creating Default or Acceleration. Except
as contemplated by this Agreement, the execution, delivery and performance of
this Agreement and of each and every agreement, document and instrument and the
consummation of the transactions contemplated hereby and thereby do not and
will not (i) constitute a breach or default (or an occurrence which by lapse of
time and/or by the giving of notice would constitute a breach or default) under
any agreement, lease, license, franchise, contract or commitment to which the
Company is a party or by which its properties or assets are bound; (ii) result
in the creation or the imposition of any lien, encumbrance, security interest
or charge in favor of any other party upon any of the properties or assets of
the Company; and (iii) result in the cancellation or termination of, or the
acceleration of the performance of any obligations or of any indebtedness under
any contract, agreement, commitment, indenture,
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mortgage, note, bond, license or other instrument or obligation to which the
Company is now a party or by which it or its properties or assets may be bound
or affected.
5.2 Investment Intent. The Company is acquiring Far East's Shares
for its own account, for investment only and not with a view to the
distribution or resale thereof. The Company and its officers and directors
have such knowledge and experience in financial and business matters that they
are capable of evaluating the merits and risks of the Company purchasing Far
East's Shares; and the Company understands that none of Far East's Shares have
been registered for resale under the securities laws of any jurisdiction. The
Company is fully aware of the fact that Buyers are transferring to the Company
the Far East Shares in reliance upon this investment representation, and the
Company hereby represents that it will not pledge, hypothecate, offer, sell,
transfer, assign or otherwise dispose of Far East Shares except in compliance
with the provisions of any securities laws then applicable.
The Company acknowledges that the certificates for Far East Shares
will be legended to indicate that they were acquired for investment and may not
be pledged, hypothecated, sold or transferred in the absence of compliance with
any applicable securities laws and that "stop transfer" instructions with
respect to the Far East Shares will be maintained by the stock transfer records
for same.
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5.3 Accuracy of Representations. To the best of the Company's
knowledge and belief, no representation or warranty in this Article V or
elsewhere in this Agreement, or in any certificate or document furnished or to
be furnished by the Company pursuant hereto, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYERS
6. Representations and Warranties of Buyers. Except as disclosed
in the Registration Statement, each of Pearl and Regent, jointly and severally,
represent and warrant to the Company as of the date hereof as follows.
A. Organization and Good Standing: Compliance. Far East
is duly organized, validly existing and in good standing under the laws of Hong
Kong, with full power and authority to own or lease and operate its properties
and assets, material to the operation of its business, and to carry on its
business as presently being conducted, and has obtained all licenses, permits
or other authorizations and has taken all actions required by applicable law or
governmental regulations, material to the operation of its business, to conduct
its business. Each of Pearl and Regent have received no notice of, and does
not know of, any violation of any applicable regulation, ordinance or other
law, order, or governmental requirement, material to the operation of its
business.
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True copies of the Certificate of Incorporation and Memorandum and Articles of
Association and all corporate minutes of Far East have been made available to
or delivered to the Company, including all amendments thereto.
B. Capitalization. Far East's total authorized share
capital is HK$1,000,000.00 divided into 1,000,000 ordinary shares of HK$1.00
each, all of which are issued and fully paid up.
C. Liens and Encumbrances. There are no liens,
encumbrances, pledges, probational agreements or claims of any nature against
Far East Shares to be delivered to the Company by Buyers.
D. Securities Law. Far East Shares are validly issued,
fully paid and non-assessable and were offered and sold in accordance with any
applicable securities laws or applicable exceptions thereunder, and there are
no preemptive rights in respect thereof. There are no outstanding options,
warrants, rights, calls, puts, commitments, plans or other agreements of any
character providing for the purchase or issuance of any authorized but unissued
capital stock of Far East.
E. Financial Statements. Far East's financial statements
contained in the Registration Statement represent accurately and fairly the
financial condition and results of the operations of Far East at the respective
dates or for the respective periods covered thereby in accordance with
generally accepted accounting principles applied on a consistent basis or in
accordance with the descriptions relating to such financial statements as set
forth in the Registration Statement.
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F. Books and Records. The books and records of Far East
reflect all of the material debts, liabilities and obligations of any nature
(whether absolute, accrued or otherwise, and whether due or to become due) of
Far East at the dates thereof. There are no undisclosed contingent liabilities
of Far East of a material nature and Far East has not given any undisclosed
guarantees of the obligations of any other person or entity.
G. Absence of Undisclosed Liabilities. Far East has no
undisclosed material liabilities, whether accrued, absolute, contingent, or
otherwise, including without limitation, tax liabilities due or to become due,
and whether incurred in respect of or measured by the income of Far East or
incurred subsequent to the date of the financial statements set forth in the
Registration Statement except in the ordinary course of its business. Each of
Pearl and Regent do not know or have reasonable grounds to know of any basis
for the assertion against Far East of any material liability not fully
reflected or reserved against.
H. Title to Properties. Far East has good and marketable
title to its assets, including those reflected in the Registration Statement
(except as may be sold, exchanged or otherwise disposed of in the ordinary
course of business). The assets of Far East are not subject to any undisclosed
material security interest, mortgage, pledge, lien, encumbrance, or charge.
I. Subsidiaries. Far East has no material subsidiaries
or any undisclosed interest in any other corporation, firm, partnership or
other entity.
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J. Common Stock of Far East. Each Buyer has full power
to sell and deliver the Far East Shares to be delivered by each of them upon
the terms set forth herein. Except as contemplated by this Agreement, there is
no agreement to issue any additional shares of Far East or to redeem, purchase
or otherwise acquire any of the Far East Shares. Upon delivery of the Far East
Shares, the Company will receive good and marketable title thereto, free and
clear of all liens, encumbrances, equities and claims whatsoever and subject
only to the restrictions of any applicable securities laws.
K. Tax Returns and Payments. Far East has duly filed all
tax returns, tax reporting forms and reports required to be filed by it, and
has paid all taxes, assessments, governmental charges and payments to third
party payors which were due and payable. Far East has not entered into any
agreement, waiver or other arrangement providing for an extension of time with
respect to the filing of any tax return or the payment or assessment of any
tax, governmental charge, deficiency or third party payment relating to Far
East. Far East has withheld from each payment to each of its employees the
amount of all taxes (including but not limited to income taxes and all other
mandated employee taxes or contributions) legally required to be withheld
therefrom and has paid the same to the proper tax receiving offices, except for
such amounts withheld but not yet payable, if any.
L. Tax Returns. Far East has duly filed all reports or
returns required to be filed with governmental authorities relating
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in any manner to any of its properties, which the failure to file may
materially adversely affect the operation of its business.
M. Insurance. Far East maintains in full force and
effect all policies of insurance reasonably necessary for the type of business
which it is engaged in for the geographic areas of its business operations.
N. Mortgages, Liens and Encumbrances. Far East has no
undisclosed mortgages, pledges, hypothecations or other encumbrances of any of
its assets, tangible or intangible, material to the operation of its business.
O. No Asset Sale. Far East has not entered into or
agreed to enter into any agreement or arrangement granting any rights to
purchase any of its assets material to the operation of its business other than
in the ordinary course of its business.
P. Capital Expenditures. Far East has not made any
undisclosed commitment for capital expenditures of a material nature that is
not in the ordinary course of its business.
Q. Material Agreements. Except for the Personal
Services Agreement entered into among Far East, the Company and Shereman
Enterprises Ltd., Far East has not entered into, become a party to, waived any
right under, amended or cancelled any undisclosed material contract, agreement
or commitment nor has there been any undisclosed material defaults thereunder
except in the ordinary course of its business.
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R. Material Obligations. Far East has paid all of its
material obligations to third parties, including vendors, in a timely manner in
the ordinary course of business.
S. No Financial Changes. Since the respective dates of
the financial statements contained in the Registration Statement, there has
been no undisclosed material change in the condition or general affairs of Far
East, financial or otherwise, other than as contemplated by this Agreement.
T. No Suits Pending or Imminent. Except as may be
immaterial to Far East, its business, financial condition and results of
operations, there are no actions at law or equity or administrative proceedings
pending or threatened against Far East in which Far East is a plaintiff,
defendant, petitioner, indemnifier, or respondent, or in which it is
anticipated that Far East will join or be joined as a party.
U. Copies of Tax Returns. Buyers have delivered to the
Company true and correct copies of each income and/or other tax returns (or
outstanding extension, if any) filed by or submitted on behalf of Far East
during the period of time commencing on January 1, 1992 through the Closing of
this Agreement.
V. Compliance with Law. The business and operations of
Far East have been and are being conducted in accordance with all applicable
laws, rules and regulations.
W. No Default of Contracts, Employee Obligations,
Contractual Obligations or Organizational Documents. None of the contracts, or
obligations or liabilities, material to Far East's
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business operations, are in default. All such contracts are valid and binding
obligations of the parties thereto in accordance with their respective terms,
there have been no amendments or modifications thereto since the date hereof
other than in the ordinary course of Far East's business, and there are no
known material liabilities of the parties thereto arising from any breach of or
default in any provision thereof by any party thereto. Far East is not in
default under any of its agreements, contracts or instruments, material to Far
East's business operations, which require services to be performed, and no
claim of default has been made or threatened by or against Far East with
respect to any such agreement, contract or instrument. Far East is not in
violation of its Memorandum and Articles of Association or other organizational
documents which may cause serious effects on its business.
X. Agreement Creating Default or Acceleration. Except as
contemplated by this Agreement, the execution, delivery and performance of this
Agreement and of each and every agreement, document and instrument and the
consummation of the transactions contemplated hereby and thereby do not and
will not (i) constitute a breach or default (or an occurrence which by lapse of
time and/or by the giving of notice would constitute a breach or default) under
any agreement, lease, license, franchise, contract or commitment to which Far
East is a party or by its properties or assets are bound; (ii) result in the
creation or the imposition of any lien, encumbrance, security interest or
charge in favor of any other party upon any of the properties or assets of Far
East; and (iii)
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result in the cancellation or termination of, or the acceleration of the
performance of any obligations or of any indebtedness under any contract,
agreement, commitment, indenture, mortgage, note, bond, license or other
instrument or obligation to which Far East is now a party or by which its
properties or assets may be bound or affected.
6.2 Investment Intent. Buyers are acquiring the Company's Shares
for their own accounts, for investment only and not with a view to the
distribution or resale thereof. Buyers and each of their officers and
directors have such knowledge and experience in financial and business matters
that they are capable of evaluating the merits and risks of purchasing the
Company Shares; and each Buyer understands that none of the Company Shares have
been registered for resale under any securities laws. Buyers are fully aware
of the fact that the Company is transferring to Buyers the Company's Shares in
reliance upon this investment representation, and Buyers hereby represent that
each of them will not pledge, hypothecate, offer, sell, transfer, assign or
otherwise dispose of the Company's Shares except in compliance with the
provisions of any securities law then applicable.
Buyers acknowledge that the certificates for the Company's Shares will
be legended to indicate that the Buyer's Shares were acquired for investment
and may not be pledged, hypothecated, sold or transferred in the absence of
compliance with any then applicable securities laws effective under the Act for
such Buyers' Shares and that "stop transfer" instructions with respect to the
Company's
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Shares will be maintained by the transfer agent for the Company and/or on the
Company's stock transfer records.
6.3 Accuracy of Representations. To the best of the knowledge and
belief of each Buyer, no representation or warranty in this Article VI or
elsewhere in this Agreement, or in any certificate or document furnished or to
be furnished by either Buyer pursuant hereto, contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS
Survival of Representations and Warranties. All the representations,
warranties, covenants and agreements made by Buyers and the Company in this
Agreement (including statements contained in any exhibit, certificate or other
instrument delivered by or on behalf of any party hereto or in connection with
the transactions contemplated hereby) shall survive for a period of six years
following the consummation of the Agreement. No performance or execution of
this Agreement in whole or in part by any party hereto, no course of dealing
between or among the parties hereto nor any delay or failure on the part of any
party in exercising any rights hereunder or at law or in equity, and no
investigation by any party hereto shall operate as a waiver of any rights of
such party, except to the extent expressly waived in writing by such party.
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ARTICLE VIII
CLOSING OBLIGATIONS OF THE PARTIES
8.1 Documents to be Delivered to Buyers by the Company. At a
closing of this Agreement, the Company shall deliver or cause the following to
be delivered to Buyers:
(A) Certificates representing the Company Shares; and
(B) A copy of certified resolutions of the Company's
Board of Directors authorizing the execution and delivery of this Agreement.
8.2 Documents to be Delivered to the Company by Buyers.
(A) Such duly executed transfer and sold note, stock
power or other document or instrument in respect of the Far East Shares in
favor of the Company (and/or its nominees as directed by the Company)
sufficient to convey Buyers' right, title and interest in the Far East Shares;
(B) Certificates representing Far East Shares; and
(C) A copy of certified resolutions of each of the
Buyer's Board of Directors authorizing the execution and delivery of this
Agreement and the transfer of the Buyer's Shares to the Company and/or its
nominee(s).
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Agreement and any agreements or
instruments executed pursuant hereto or concurrently herewith contain the
entire agreement between the parties hereto with
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respect to the transactions contemplated by this Agreement and supersede all
prior agreements, writings, negotiations and understandings. This Agreement
contains all of the covenants, representations, warranties and agreements
between the parties with respect to the subject matter of this Agreement, and
each party to this Agreement acknowledges that no representations, warranties,
covenants, inducements, promises or agreements, orally or otherwise, have been
made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and no other or prior agreement, statement, representation,
warranty or covenant not contained in this Agreement shall be binding or valid.
9.2 Headings. The headings or captions in this Agreement are for
convenience and reference only and do not form a part hereof and do not in any
way modify, interpret or construe the intent of the parties or affect any to
the provisions of this Agreement.
9.3 Binding on Successors. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
legal representatives, successors and assigns.
9.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and the counterparts shall together
constitute one and the same agreement, binding each of the parties hereto,
notwithstanding that all of the parties are not signatory to the original or
the same counterpart; however, no party shall be bound by this Agreement until
and unless all parties have executed this Agreement.
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9.5 Waiver. Any provision of this Agreement which may be waived by
a corporate party hereto may be waived (but only in writing) by any duly
authorized officer thereof. No waiver shall be deemed a continual waiver or
waivers with respect to any subsequent breach or default, whether of a similar
or different nature, unless expressly so stated in writing.
9.6 Governing Law. The validity, construction and interpretation
of this Agreement shall be governed by the laws of the British Virgin Islands.
The parties agreeing that this Agreement has been executed and delivered and is
to be performed in the British Virgin Islands and Hong Kong and the laws of the
United States of America shall not apply to this Agreement or any of the
transactions contemplated hereby.
9.7 Further Acts. At any time and from time to time, on and after
the Closing Date, any party shall, at the request of any other party, perform
or cause to be performed and execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered all such further acts, deeds, assignments
and documents as may be necessary or desirable to more fully consummate the
transactions contemplated by this Agreement.
9.8 Notices. All notices and other communications required or
permitted under the terms of this Agreement shall be in writing and shall be
deemed given (1) upon hand delivery, or (2) ten days after the posting of the
same by any mechanism of the relevant postal authorities providing for
registration or certification (with return receipt requested, if available)
first class (or similar)
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postage and fees prepaid and correctly addressed to the other parties at the
addresses set forth in the first paragraph hereof.
9.9 Waiver of Jury Trial. Each of the parties hereto hereby
knowingly, voluntarily, and intentionally waives any rights it may have to a
trial by jury in respect of any litigation based hereon or arising out of,
under or in connection with this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
BUYERS: THE COMPANY:
PEARL VENTURE LTD. EURO TECH HOLDINGS COMPANY
LIMITED
By:____________________________ By:____________________________
(An Authorized Officer or (An Authorized Officer or
Director) Director)
REGENT EARNING LTD.
By:____________________________
(An Authorized Officer or
Director)
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<PAGE> 1
EXHIBIT 10.14
PERSONAL SERVICES AGREEMENT
AGREEMENT, dated as of the day of 1997, among Euro
Tech (Far East) Limited, a Hong Kong corporation, having a place of business at
18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong (the "Company"),
Euro Tech Holdings Company Limited, a British Virgin Islands company, having
its registered office located at Trust Net Chambers, P.O. Box 3444, Road Town,
Tortola, British Virgin Islands (the "Parent"), Shereman Enterprises Ltd., a
Hong Kong corporation having an office located at Room 907, Chong Kin
Commercial Building, 596 Nathan Road, Mong Kok Kawloon, Hong Kong (the
"Provider"), and T.C. Leung, an individual having an office c/o the Company,
18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong (the
"Executive").
WHEREAS, the Company is principally engaged in the business of the
distribution 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; and
WHEREAS, One Million ordinary shares of the share capital being the
entire issued and paid up share capital of the Company are to be purchased by
Parent upon successful completion of the Parent's initial public offering of
securities (the "Acquisition"); and
<PAGE> 2
WHEREAS, the Company desires that the Executive serve as its Chairman
of the Board of Directors and Chief Executive Officer; and
WHEREAS, Parent desires that the Executive serve as its Chairman of
the Board of Directors and Chief Executive Officer; and
WHEREAS, the Provider is in the business of providing management
services; and
WHEREAS, the Executive is in the Provider's employ; and
WHEREAS, the Provider is willing to provide Executive's services to
the Parent and Company, all in accordance with the conditions and other
provisions hereinafter set forth; and
NOW, THEREFORE, in consideration of the promises and mutual
representations, covenants, and agreements set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree effective upon the consummation of the
Acquisition as follows:
1. TERM: The term of this Agreement shall be for a period of five
(5) years commencing on the consummation of the Acquisition and terminating on
the fifth anniversary date of the consummation of the Acquisition, subject to
earlier termination as provided herein or unless extended by mutual consent of
the parties.
2. SERVICES: (A) Subject to the terms and conditions and for the
compensation hereinafter set forth, the Parent and the Company hereby agree to
engage Provider for and during the term of this Agreement to provide the
services of Executive to the Parent and
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the Company to serve as the Chairman of the Board of Directors and Chief
Executive Officer of each. The Executive's powers and duties shall be those of
an executive nature which are appropriate for a Chairman of the Board of
Directors and Chief Executive Officer in accordance with the Parent's and
Company's respective By-Laws; and Provider and Executive do hereby accept such
engagement Provider agrees that Executive will devote his full business time to
the affairs of the Parent and the Company. Executive shall report to the Boards
of Directors of the Parent and the Company. Neither the Parent nor the Company
shall require Executive to work in any location other than in proximity to his
residence unless Provider and Executive consent in writing to such location.
(B) During the term of this Agreement, Executive shall be
furnished with office space and facilities commensurate with his position and
adequate for the performance of his duties; he shall be provided with the
perquisites customarily associated with the position of Chairman of the Board
of Directors and Chief Executive Officer of the Parent and the Company.
(C) During the term of this Agreement, the Parent shall be
responsible (i) to pay to Provider the service charge set forth in Section 3;
(ii) reimburse Provider and/or Executive for expenses as provided in Section 4;
and (iii) provide Executive with the benefits and vacation set forth in Section
5. As a separate and independent stipulation, the Company shall, as between the
Provider and the Company, be liable to perform the obligations of the Parent
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<PAGE> 4
under Sections 3, 4, 5, 7, or any other Section of this Agreement as the
Company were the principal obligor and not merely as surety. Accordingly, the
Provider is not required to have first recourse against the Parent in respect
of its default, and the Company hereby waives any right to require that, prior
to any claim under or enforcement of this Agreement proceedings be taken
against the Parent or any other person.
(D) The Provider and Executive agree that Executive will submit to
any medical examination(s) and provide any information and documents reasonably
necessary for the Parent or the Company to obtain "Key Man" life insurance on
the Executive's life in the sum of One Million United States Dollars (US
$1,000,000).
3. SERVICE CHARGE: During the initial first year of this
Agreement, the Parent agrees to pay Provider, and Provider agrees to accept in
exchange for the services of Executive, the sum of not less than One Hundred
Thousand US Dollars (US $100,000) and six percent (6%) of the Company's
consolidated pretax income. The service charge to the Provider after the
initial first year of this Agreement is to be mutually agreed upon by the
parties hereto payable in accordance with the Parent's policies, for services
rendered by Executive hereunder.
4. EXPENSES: The Parent shall reimburse Provider and/or Executive
for all reasonable and actual business expenses incurred by him or it in
connection with Executive's services to the Parent
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and the Company, upon submission by him of appropriate vouchers and expense
account reports.
5. BENEFITS:
(A) INSURANCE: In addition to the foregoing compensation, the
Parent shall maintain family medical and dental insurance, life insurance in
the amount of not less than Five Million US Dollars (US $5,000,000) on the life
of Executive and for which Executive shall designate the beneficiary(ies), and
long term disability insurance providing monthly disability benefits to
Executive of not less than Thirty Thousand US Dollars (US $30,000). Executive
and his dependents shall be entitled to participate in such other benefits as
are extended to active executive employees of the Parent or the Company and
their dependents including but not limited to pension, retirement,
profit-sharing, stock option, bonus and incentive plans, group insurance,
hospitalization, medical or other benefits made available by the Parent or the
Company to their employees generally.
(B) VACATION: Executive shall be entitled to take up to four (4)
weeks of paid vacation annually at a time mutually convenient to the Parent,
Company and Executive.
6. RESTRICTIVE COVENANTS: (A) Provider and Executive recognize
and acknowledge that the Parent and the Company, through the expenditure of
considerable time and money, have developed and will continue to develop in the
future information concerning customers, clients, marketing, business and
operational methods of
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<PAGE> 6
the Parent and the Company and their customers or clients, contracts, financial
or other data, technical data or any other confidential or proprietary
information possessed, owned or used by the Parent or the Company, and that the
same are confidential and proprietary, and are "confidential information" of
the Parent and the Company. As additional consideration for this Agreement,
Provider and Executive agree that they will not, without the consent of the
Board of Directors of Parent, make any disclosure of confidential information
now or hereafter possessed by the Parent or the Company to any person,
partnership, corporation or entity either during or after the term hereunder,
except to employees of the Parent or the Company or their subsidiaries or
affiliates and to others within or without the Parent or the Company as the
Executive may deem necessary in order to conduct the Parent's or the Company's
business and except (i) as may be required pursuant to any court order,
judgment or decision from any court of competent jurisdiction or (ii) to enable
Provider and/or Executive to receive legal advice in defending any claim or
right with regard to the business of the Company or Far East or the matters
contemplated by this Agreement. The foregoing shall not apply to information
which is in the public domain on the date hereof; which, after it is disclosed
to Executive by the Parent or the Company, is published or becomes part of the
public domain through no fault of Executive or Provider; which is known to
Executive or Provider prior to disclosure thereof to either of them by the
Parent or the
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<PAGE> 7
Company; or, after Executive is no longer in the service of the Parent and the
Company, which is thereafter disclosed to Executive or Provider by a third
party which the Provider and/or the Executive is not aware that such third
party is under any obligation of confidence or secrecy to the Parent or the
Company with respect to such information at the time of disclosure. The
provisions of this Section 6 shall continue in full force and effect
notwithstanding any lawful termination of Executive's services under this
Agreement for a period of one year following said termination of this
Agreement.
(B) Except in the ordinary course of his duties as Chairman of the
Board of Directors and Chief Executive Officer, or in the furtherance of the
business of the Parent or the Company, during the period from the date of this
Agreement until one (1) year following the date on which his service with the
Parent and the Company is lawfully and properly terminated, Executive will not,
within Hong Kong, the People's Republic of China or the United States of
America, directly or indirectly:
(i) own, manage, operate, control, participate in, or be
connected with as an officer, employee, partner, creditor, or
guarantor of any person, partnership, firm, or corporation that is
engaged or about to become engaged in the Company's or Parent's
business; or
(ii) persuade or attempt to persuade any employee of the
Parent or the Company, or any individual who was an employee of the
Parent or the Company during the three (3) month period prior to the
lawful and proper termination of this Agreement, to leave Parent's or
the Company's employ, or to become employed by any person or entity
other than the Parent or the Company.
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7. TERMINATION:
(A) DEATH: In the event of Executive's death ("Death") during the
term of his engagement, Provider shall be entitled to payment of the service
charge from date of Death to the expiration of one (1) year thereafter. In
addition, Executive's beneficiary(ies) and/or dependents shall be entitled, for
the same one year period, to continuation, at the Parent's or the Company's
expense, of such benefits as are then being provided to them under Section 5(A)
hereof, and any additional benefits as may be provided to dependents of the
Parent's or the Company's executive officers in accordance with the terms of
the Parent's or the Company's policies and practices. In addition, any options
granted to Executive which have not, by the terms of the options, vested shall
be deemed to have vested as of the date of his Death and shall thereafter be
exercisable by Executive's beneficiary(ies) or estate for the maximum period of
time allowed for exercise thereof under the terms of such options.
(B) DISABILITY:
(a) In the event Executive, by reason of physical or
mental incapacity, shall be disabled ("Disability") for a period of at least
six (6) consecutive months, the Parent shall have the option at any time
thereafter to terminate Executive's services hereunder for Disability. Such
termination will be effective thirty (30) days after the Board of Directors of
Parent gives written notice of such termination to Provider, unless Executive
shall have
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<PAGE> 9
returned to the performance of his duties prior to the effective date of the
notice. All obligations of the Parent or the Company hereunder shall cease upon
the effectiveness of such termination, provided that such termination shall not
affect or impair any rights Executive may have under any policy of long term
disability insurance or benefits then maintained on his behalf by the Parent or
the Company. In addition, for a period of one (1) year following termination of
Executive's engagement for Disability, Executive and his dependents, as the
case may be, shall continue to receive the benefits set forth under Section
5(A) hereof, during such one (1) year period, as well as such benefits as are
extended to the Parent's and the Company's active executive employees and their
dependents during such period. Any options granted to the Executive which have
not, by the terms of the options, vested shall be deemed to have vested at the
termination and shall thereafter be exercisable by the Executive, his
beneficiary(ies), conservator or estate, as applicable, for the maximum period
of time allowed for exercise thereof under the terms of such options.
(b) "Incapacity" as used herein shall mean the inability
of the Executive due to physical or mental illness, injury or disease
substantially to perform his normal duties as Chairman of the Board of
Directors and Chief Executive Officer. Provider's service charge as provided
for hereunder shall continue to be paid during any period of incapacity prior
to and including the date on which Executive's engagement is terminated for
Disability and for
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<PAGE> 10
one (1) year following termination for Disability in accordance with Section
7(B)(a).
(C) BY THE PARENT FOR CAUSE:
(a) The Parent shall have the right, before the
expiration of the term of this Agreement, to terminate this Agreement for cause
(hereinafter "Cause"), and all service charges to Provider and Executive shall
cease to accrue upon termination for Cause. For the purposes of this Agreement,
the term "Cause" shall mean (i) Executive's conviction, after the date hereof,
of a felony; (ii) the alcoholism or drug addiction of Executive; (iii) willful
misconduct of Executive in connection with his duties hereunder; (iv) the
determination by any regulatory or judicial authority (including any securities
self-regulatory organization) that Executive directly violated, after the date
hereof, any applicable securities law, any rule or regulation adopted
thereunder, which determination results in the Parent's securities being
delisted from trading on any exchange or quotation medium upon which such
securities are listed or quoted; or (v) the continued and willful failure by
Executive substantially and materially to perform his material duties
hereunder.
(b) If the Parent elects to terminate this Agreement for
Cause under Section 7(C)(a) above, such termination shall be effective thirty
(30) days after the Parent gives written notice of such termination to Provider
and Executive. In the event of a termination for Cause in accordance with the
provisions of Section
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<PAGE> 11
7(C)(a), the Parent and the Company shall have no further obligation to the
Executive and Provider, except for the payment of all service charges and other
vested options and benefits which have accrued through the date of such
termination and any other benefits to which he or his dependents may be
entitled by law. Any options granted to the Executive which have not, by the
terms of the options, vested shall be deemed to have vested as of the date of
the written notice of termination so given by the Parent under this Section and
shall thereafter be exercisable by the Executive, his beneficiary(ies) or
estate, as applicable, for the maximum period of time allowed for exercise
thereof under the terms of such options.
(D) BY PROVIDER FOR REASON:
Provider shall have the right to terminate this Agreement at any time
for "reason" (herein designated and referred to as "Reason"). The term Reason
shall mean (i) the failure to elect or appoint, or re-elect or re-appoint,
Executive to, or removal or improperly attempted removal of Executive from, his
positions as Chairman of the Board of Directors or Chief Executive Officer with
the Parent or the Company, except in connection with the proper termination of
this Agreement by reason of Cause, Death or Disability; (ii) a reduction in
Provider's overall service charge or an adverse change in the nature or scope
of the authorities, powers, functions or duties normally attached to the
Executive's position with the Parent or the Company; (iii) the Parent's or the
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<PAGE> 12
Company's failure or refusal to perform any obligations required to be
performed in accordance with this Agreement after a reasonable notice and an
opportunity to cure same; or (iv) if the amount of the service charge payable
to the Provider at any time after the initial first year of this Agreement
cannot be mutually agreed upon by the parties hereto.
(E) SEVERANCE: In the event this Agreement shall be terminated by
the Provider for Reason or by the Parent or the Company for other than Cause,
Death or Disability: (1) the Provider shall thereupon receive as a termination
fee a lump sum in the amount of the service charges which Provider would have
received for a period of not less than one year; and (2) the Executive's (and
his dependents') participation in any and all life, disability, medical and
dental insurance plans shall be continued, or equivalent benefits provided to
him or them by the Parent or the Company, at no cost to him or them, for a
period of one year from such termination; and (3) any options granted to
Executive which have not, by the terms of the options, vested shall be deemed
to have vested at the termination and shall thereafter be exercisable for the
maximum period of time allowed for exercise thereof under the terms of such
options;
(F) RESIGNATION: The Provider is entitled to terminate this
Agreement without Reason prior to the expiration of the term hereof by two
months notice in writing without any liability for damages or compensation to
the Parent and/or the Company for early
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<PAGE> 13
termination. Such notice of termination shall not be valid and effective unless
it is signed by the Provider and counter-signed by the Executive. In the event
Provider so terminates this Agreement without Reason prior to the expiration
hereof, Provider shall receive any unpaid fixed service charge through such
date and Executive shall receive such benefits to which he is entitled by law.
Any options granted to the Executive which have not, by the terms of the
options, vested shall be deemed to have vested as of the date of the notice of
termination so given by the Provider under this Section and shall thereafter be
exercisable by the Executive, his beneficiary(ies) or estate, as applicable,
for the maximum period of time allowed for exercise thereof under the terms of
such options.
8. INDEMNIFICATION: The Parent and the Company hereby indemnify
and hold Provider and Executive harmless to the extent of any and all claims,
suits, proceedings, damages, losses or liabilities incurred by Provider or
Executive and arising out of any acts or decisions done or made in the
authorized scope of his services hereunder. The Parent and the Company hereby
agree to pay all expenses, including reasonable attorney's fees, actually
incurred by Provider and/or Executive in connection with the investigation of
any such matter, the defense of any such action, suit or proceeding and in
connection with any appeal thereon including the costs of settlements. Nothing
contained herein shall
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<PAGE> 14
entitle Provider or Executive to indemnification by the Parent or the Company
in excess of that permitted under applicable law.
9. WAIVER: No delay or omission to exercise any right, power or
remedy accruing to any party hereto shall impair any such right, power or
remedy or shall be construed to be a waiver of or an acquiescence to any breach
hereof. No waiver of any breach hereof shall be deemed to be a waiver of any
other breach hereof theretofore or thereafter occurring. Any waiver of any
provision hereof shall be effective only to the extent specifically set forth
in an applicable writing. All remedies afforded to any party under this
Agreement, by law or otherwise, shall be cumulative and not alternative and
shall not preclude assertion by such party of any other rights or the seeking
of any other rights or remedies against any other party.
10. GOVERNING LAW: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of Hong
Kong, and this Agreement and its provisions shall be construed according to the
laws of Hong Kong, without regard to the principles of conflicts of law and the
actual domiciles of the parties hereto.
11. NOTICES: All notices, demands or other communications required
or permitted to be given in connection with this Agreement shall be given in
writing, shall be transmitted to the appropriate party by hand delivery, by
certified mail, return receipt requested, postage prepaid or by overnight
courier and shall be addressed
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<PAGE> 15
to a party at such party's address shown on the first page hereof. A party may
designate by written notice given to the other parties a new address to which
any notice, demand or other communication hereunder shall thereafter be given.
Each notice, demand or other communication transmitted in the manner described
in this Section 11 shall be deemed to have been given and received for all
purposes at the time it shall have been (i) delivered to the addressee as
indicated by the return receipt (if transmitted by mail), the affidavit of the
messenger (if transmitted by hand delivery or overnight courier) or (ii)
presented for delivery during normal business hours, if such delivery shall not
have been accepted for any reason.
12. ASSIGNMENTS: This Agreement shall be binding upon and inure to
the benefit of the parties and each of their permitted respective successors,
assigns, heirs and legal representatives; provided, however, that Provider may
not assign or delegate Executive's obligations, responsibilities and duties
hereunder. Neither the Parent nor the Company may assign this Agreement without
the prior written consent of the Executive.
13. MISCELLANEOUS: This Agreement contains the entire
understanding among the parties hereto and supersedes all other oral and
written agreements or understandings among them with respect to the subject
matter hereof. No modification or addition hereto or waiver or cancellation of
any provision shall be valid except by a writing signed by the party to be
charged therewith.
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<PAGE> 16
14. OBLIGATIONS OF A CONTINUING NATURE: It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed on Provider, Executive, the Parent and the Company hereunder, which are
stated to exist or continue after termination of this Agreement, shall exist
and continue irrespective of the method or circumstances of such termination
for the respective periods of time set forth herein.
15. SEVERABILITY: The parties agree that if any of the covenants,
agreements or restrictions contained herein are held to be invalid by any court
of competent jurisdiction, the remainder of the other covenants, agreements,
restrictions and parts thereof herein contained shall be severable so not to
invalidate any others, and such other covenants, agreements, restrictions and
parts thereof shall be given full effect without regard to the invalid
covenant, agreement, restriction or part thereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
EURO TECH (FAR EAST) LIMITED SHEREMAN ENTERPRISES LTD.
By:___________________________ By:____________________________
(An Authorized Officer or (An Authorized Officer or
Director) Director)
EURO TECH HOLDINGS COMPANY EXECUTIVE
LIMITED
By:___________________________ _______________________________
(An Authorized Officer or T.C. Leung
Director)
16
<PAGE> 1
EXHIBIT 10.15
1996 STOCK OPTION PLAN
OF
EURO TECH HOLDINGS COMPANY LIMITED
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) and to consultants who are not employees of Euro Tech
Holdings Company Limited, a British Virgin Islands company (the "Company"), and
its present and future subsidiary companies, as defined in Paragraph 17
("Subsidiaries"), and to offer an additional inducement in obtaining the
services of such employees and consultants.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.01 par value
per share, of the Company ("Common Stock") for which options may be granted
under the Plan shall not exceed 150,000. Such shares of Common Stock may, in
the discretion of the Board of Directors of the Company (the "Board of
Directors"), consist either in whole or in part of authorized but unissued
shares of Common Stock or shares of Common Stock held as treasury shares of the
Company. Subject to the provisions of Paragraph 13, any shares of Common Stock
subject to an option which for any reason expires, is canceled or is terminated
unexercised or which ceases for any reason to be exercisable shall again become
available for the granting of options under the Plan. The Company shall at all
times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board of Directors or, to the extent the Board of Directors may determine,
a committee of the Board of Directors (the "Committee") consisting of not less
than two directors. A majority of the members of the Committee shall constitute
a quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, and any acts approved in writing by all members
without a meeting, shall be the acts of the Committee. All references in the
Plan to determinations or actions of the Committee shall be deemed to include
determinations and actions by the Committee or the Board of Directors.
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, to determine the
<PAGE> 2
employees and the consultants who shall be granted options; the times when
options shall be granted; the number of shares of Common Stock to be subject to
each option; the term of each option; the date each option shall become
exercisable; whether an option shall be exercisable in whole, in part or in
installments and, if in installments, the number of shares of Common Stock to
be subject to each installment, whether the installments shall be cumulative,
the date each installment shall become exercisable and the term of each
installment; whether to accelerate the date of exercise of any option or
installment; whether shares of Common Stock may be issued upon the exercise of
an option as partly paid and, if so, the dates when future installments of the
exercise price shall become due and the amounts of such installments; the form
of payment of the exercise price; the fair market value of a share of Common
Stock; whether to restrict the sale or other disposition of the shares of
Common Stock acquired upon the exercise of an option and, if so, whether to
waive any such restriction; whether to subject the exercise of all or any
portion of an option to the fulfillment of contingencies as specified in the
contract referred to in Paragraph 11 (the "Contract"), including without
limitation, contingencies relating to entering into a covenant not to compete
with the Company, any of its Subsidiaries or a Parent (as defined in Paragraph
17), to financial objectives for the Company, any of its Subsidiaries or a
Parent (except as stated in Paragraph 6 hereof), a division of any of the
foregoing, a product line or other category, and/or the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies have been met; the amount,
if any, necessary to satisfy the Company's obligation to withhold taxes or
other amounts; whether an optionee is disabled; to construe the respective
Contracts and the Plan; with the consent of the optionee, to cancel or modify
an option, provided such modified provision would be permitted to be included
in an option on the date of modification; to prescribe, amend and rescind rules
and regulations relating to the Plan; and to make all other determinations
necessary or advisable for administering the Plan. Any controversy or claim
arising out of or relating to the Plan, any option granted under the Plan or
any Contract shall be determined unilaterally by the Committee in its sole
discretion. The determinations of the Committee on the matters referred to in
this Paragraph 3 shall be conclusive and binding on the parties. No member or
former member of the Committee shall be liable for any action, failure to act
or determination made in good faith with respect to the Plan or any option
hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to
employees, officers and directors of, and to consultants to, the Company or any
of its Subsidiaries. Such options granted shall cover such number of shares of
Common Stock as the Committee
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<PAGE> 3
may determine in its sole discretion.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be determined by the Committee in its sole
discretion; provided, however, the exercise price of an option shall not be
less than Five dollars and fifty cents ($5.50).
6. TERM. The term of each option granted pursuant to the Plan
shall be such term as is established by the Committee, in its sole discretion;
provided, however, that the term of each option granted pursuant to the Plan
shall be for a period not exceeding six years from the date of grant thereof
and 50,000 and 100,000 of the options shall automatically terminate unless the
Company achieves net income of not less than $990,000 and $1,800,000,
respectively, during its fiscal years ended December 31, 1997 and 1998.
7. EXERCISE. An option (or any part or installment thereof), to
the extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is
being exercised and accompanied by payment in full of the aggregate exercise
price therefor (or the amount due on exercise if the Contract permits
installment payments) (a) in cash or by certified check or (b) if the
applicable Contract permits, with previously acquired shares of Common Stock
having an aggregate fair market value on the date of exercise (determined in
accordance with this Paragraph 7) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Common Stock
The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay such exercise price. In
connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a shareholder with respect to such shares
of Common Stock until the date of issuance of a share certificate to him for
such shares; provided, however, that until such share certificate is issued,
any optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a shareholder with
respect to such previously acquired shares.
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<PAGE> 4
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of
Common Stock on such day as reported by such exchange or on a composite tape
reflecting transactions on such exchange, (b) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is
quoted on The Nasdaq Stock Market ("Nasdaq"), (i) if closing bid and asked
price information is available with respect to the Common Stock the average of
the closing bid and asked prices per share of Common Stock on such day on
Nasdaq, or (ii) if such information is not available, the average of the
highest bid and lowest asked prices per share of Common Stock on such day on
Nasdaq, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the average
of the highest bid and lowest asked prices per share of Common Stock on such
day as reported on the OTC Bulletin Board Service or by National Quotation
Bureau, Incorporated or a comparable service; provided, however, that if
clauses (a), (b) and (c) of this Paragraph are all inapplicable, or if no
trades have been made or no quotes are available for such day, the fair market
value of the Common Stock shall be determined by the Board by any method
consistent with generally accepted accounting principles.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, any optionee whose relationship
with the Company, its Subsidiaries and Parent as an employee or consultant has
terminated for any reason (other than his death or disability) may exercise
such option, to the extent exercisable on the date of such termination, at any
time within three months after the date of termination, but not thereafter and
in no event after the date the option would otherwise have expired; provided,
however, that if such relationship is terminated either (a) for cause, or (b)
without the consent of the Company, such option shall terminate immediately.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not
be affected by any change in the status of the optionee so long as the optionee
continues to be an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent (regardless of having changed from one to the other or
having been transferred from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, its Parent or any of its
4
<PAGE> 5
Subsidiaries, or interfere in any way with any right of the Company, its Parent
or any of its Subsidiaries to terminate the optionee's relationship at any time
for any reason whatsoever without liability to the Company, its Parent or any
of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of disability (as determined by the Board of Directors),
his option may be exercised, to the extent exercisable on the date of his
death, by his Legal Representative (as defined in Paragraph 17) at any time
within one year after death, but not thereafter and in no event after the date
the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or a consultant
to, the Company, its Parent or any Subsidiary has terminated by reason of
disability (as determined by the Board of Directors) may exercise his option,
to the extent exercisable upon the effective date of such termination, at any
time within one year after such date, but not thereafter and in no event after
the date the option would otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the
exercise of any option that the optionee agree not to sell, transfer or
otherwise dispose of any shares so purchased by him except in compliance with
the United States Securities Act of 1933, as amended (the "Securities Act") and
the rules and regulations thereunder and the optionee further agrees that all
certificates evidencing any of such shares shall be appropriately legended to
reflect such restriction. The Company does not obligate itself to register any
shares under the Securities Act.
The Committee may require, in its sole discretion, as a condition to
the exercise of any option that the optionee execute and deliver to the Company
his representations and warranties, in form, substance and scope satisfactory
to the Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act or other legal requirement, including without limitation
that (a) the shares of Common Stock to be issued upon the exercise of the
option are being acquired by the optionee for his own account, for investment
only and not with a view to the resale or distribution thereof, and (b) any
subsequent resale or
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<PAGE> 6
distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior/to any offer of
sale or sale of such shares of Common Stock provide the Company with a
favorable written opinion of counsel satisfactory to the Company, in form,
substance and scope satisfactory to the Company, as to the applicability of
such exemption to the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the
granting of an option or the issue of shares of Common Stock thereunder, such
option may not be exercised in whole or in part unless such listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any
other provision of the Plan, in the event of a stock dividend, split-up,
combination, reclassification, recapitalization, spin-off, merger in which the
Company is the surviving corporation, or exchange of shares or the like which
results in a change in the number or kind of those shares of Common Stock which
are outstanding immediately prior to such event, the aggregate number and kind
of shares subject to the Plan, the aggregate number and kind of shares subject
to each outstanding option and the exercise price thereof, whose determination
shall be conclusive and binding on all parties. Such adjustment may provide for
the elimination of fractional shares which might otherwise be subject to
options without payment thereto.
In the event of (a) the liquidation or dissolution of the Company, or
(b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
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<PAGE> 7
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted
by the Board of Directors on November 5, 1996. No option may be granted under
the Plan after November 5, 2006. The Board of Directors, without further
approval of the Company's shareholders, may at any time suspend or terminate
the Plan, in whole or in part, or amend it from time to time in such respects
as it may deem advisable, including, without limitation, to comply with,
conform to, or adopt any change in applicable law, regulations, rulings or
interpretations of administrative agencies; provided, however, that no
amendment shall be effective without the requisite prior or subsequent
shareholder approval that would (a) except as contemplated in Paragraph 12,
increase the minimum number of shares of Common Stock for which options may be
granted under the Plan, (b) materially increase the benefits accruing to
participants under the Plan or (c) change the eligibility requirements to
receive options hereunder. No termination, suspension or amendment of the Plan
shall, without the consent of the holder of an existing and outstanding option
affected thereby, adversely affect his rights under such option. The power of
the Committee to construe and administer any options granted under the Plan
prior to the termination or suspension of the Plan nevertheless shall continue
after such termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the
Plan shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the
optionee, only by the optionee or his Legal Representatives. Except to the
extent provided above, options may not be assigned, transferred, pledged,
hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar
process, and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
15. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation
of, or to perfect an exemption from, the registration requirements of the
Securities Act and any applicable state securities laws or (b) implement the
provisions of the Plan or any agreement between the Company and the optionee
with respect to such shares of Common Stock.
The optionee shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the
Plan.
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<PAGE> 8
16. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for such corporate purposes as the
Board of Directors may determine.
17. DEFINITIONS. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) "Companies Ordinance" shall mean the Companies
Ordinance, Cap. 32, of Hong Kong.
(b) "Legal Representative" shall mean the executor,
administrator or other person who at the time is entitled by law to exercise
the rights of a deceased or incapacitated optionee with respect to an option
granted under the Plan.
(c) "Parent" shall mean a company that is a parent within
the meaning of the Companies Ordinance, whether incorporated in Hong Kong, the
British Virgin Islands or elsewhere.
(d) "Subsidiary" shall mean a company that is a
subsidiary within the meaning of the Companies Ordinance, whether incorporated
in Hong Kong, the British Virgin Islands or elsewhere.
18. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of Hong Kong.
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
19. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability of any other provision, all of which
shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
8
<PAGE> 1
EXHIBIT 10.16
AGREEMENT
The parties hereto being EURO TECH (FAR EAST) LTD. (the "Company") and SIDFORD
INTERNATIONAL LTD. (the "Consultant") have reached this agreement for
Consultant to perform certain services for the Company with its products and
markets and to assist with its growth.
1. TERM. The Company has engaged Consultant as of the 8th day of
May, 1996 and Consultant shall continue to perform the services described in
this Agreement until the 8th day of May, 1998. Thirty days before the said
term expires, the parties shall convene to determine if they wish to renew or
terminate this Agreement on mutually acceptable terms.
2. SERVICES. Consultant will advise the Company in relation to
its business and, specifically, shall assist the Company with:
(a) Investigating and recommending manufacturers in China
and the United States for the Company's products;
(b) Assisting the Company in entering into contracts with
manufacturers for its products;
(c) Locating proposed new products in fields relating to
the field of the Company's present business with products that may be useful in
the Company's distribution system;
(d) Providing recommendations for expanding and improving
the Company's sales force and distribution network and assisting with compiling
a marketing plan and strategy;
(e) Providing recommendations and assisting the Company
with overseas manufacturers of products that may be useful in upgrading and
adding to the Company's present products;
(f) Assisting the Company in negotiating proposals to
acquire new products or businesses that the Company may purchase in the future;
(g) Reviewing the financial structure of the Company and
making recommendations and assisting the Company as to various financial
matters including Local Currency financing and Letter of Credit financing;
3. AUTHORITY. The Consultant shall not have any authority to
obligate the Company in any way to any of the services performed by it for the
Company. Any authorization to
<PAGE> 2
Consultant to bind the Company must be in written form and signed by the
Chairman of the Company. The Company may withdraw any such written authority
at any time.
4. COMPENSATION. Consultant shall be paid HK$5,000 upon signing
this Agreement and in addition the Consultant should be entitled to purchase up
to 100,000 shares of the listed company (listed value) if the Company decides
to go public in future at par value.
5. CONFIDENTIALITY. Unless a written authorization is provided
to Consultant, Consultant shall retain in confidence all secret and proprietary
information of the Company including all future business plans.
6. OTHER PROVISIONS.
(a) Amendment can be added to this Agreement which shall
have the same legal effect as the Agreement, provided such amendments are
written and signed by the parties;
(b) Any notice under this Agreement must be written and
shall be sent to the parties at their addresses which shall be provided to each
other by separate documents;
(c) This Agreement shall be governed by the laws of Hong
Kong.
(d) This Agreement takes effect immediately upon the
execution of the parties.
The parties being duly authorized sign this Agreement as follows:
EURO TECH (FAR EAST) LTD.
By: /s/ T.C. Leung
___________________________________
T.C. Leung, Chairman
___________________________________
Print Name and Title
SIDFORD INTERNATIONAL LTD.
By: /s/ Kuai Ying Lian
___________________________________
Kuai Ying Lian, Director
___________________________________
Print Name and Title
2
<PAGE> 3
AMENDMENT
TO
AGREEMENT
Amendment dated January 22, 1997 to the agreement by and between Euro
Tech (Far East) Ltd. (the "Company") and Sidford International Ltd. (the
"Consultant").
WITNESSETH
WHEREAS, the Company and Sidford entered into an agreement pursuant to
which Sidford agreed to provide certain business consulting services to the
Company (the "Consulting Agreement"); and
WHEREAS, the Company and Sidford wish to amend certain of the terms of
the Consulting Agreement as hereinafter set forth.
NOW, THEREFORE, the Consulting Agreement is hereby amended as follows:
1. Paragraph 4 is hereby amended by deleting that paragraph in
its entirety and in its place and stead inserting the following text:
"4. Compensation.
(a) Cash Compensation. Consultant shall be paid the sum of
US$5,000 per month for twenty consecutive months with the first such payment to
be made on February 1, 1997 (with the deduction of any sums previously paid)
and for each of the nineteen following months with each such payment being due
on the first day of each month.
(b) Equity Compensation. On or prior to completion of a proposed
United States public offering of the securities (the "IPO") of Euro Tech
Holdings Company Limited ("Limited"), the Company will become a wholly-owned
subsidiary of Limited. Limited agrees, by its signature at the foot of this
document, to grant to Consultant options to purchase 100,000 shares of
Limited's common stock. Said options are to be exercisable at a price of $5.50
per share and are to contain the same terms and conditions as Limited's
warrants to be sold in the IPO.
(c) Repurchase of Shares. Pursuant to the Consulting Agreement,
Limited previously sold to Consultant 100,000 shares of its common stock for
cash consideration of US$1,000. Limited hereby repurchases said shares for the
sum of US$1,000 and Sidford hereby surrenders the certificate for said shares
with the appropriate power attached thereto permitted transfer of said shares
to Limited.
2. This Amendment shall be deemed a contract under, and shall be
governed by and interpreted in accordance with, the laws of Hong Kong.
3
<PAGE> 4
3. As hereby amended, the Consulting Agreement is in all respects
ratified and confirmed. On and after the effectiveness of this Amendment: (a)
each reference in the Consulting Agreement to the "Agreement", "hereinafter",
"herein", "hereafter", "hereunder", "hereof", or words of like import shall
mean and be a reference to the Consulting Agreement as amended by this
Amendment.
4. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute a single Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
EURO TECH (FAR EAST) LTD. SIDFORD INTERNATIONAL LTD.
By: /S/ T.C. Leung By: /s/ Yclee Nominee Limited by [Illegible]
_________________________ __________________________________________
T.C. Leung, Chairman Print Name:
Print Title:
EURO TECH HOLDINGS COMPANY LIMITED
By: /s/ T.C. Leung
_________________________
T.C. Leung, Chairman
4
<PAGE> 1
EXHIBIT 23.2
January 29, 1997
The Directors
Euro Tech (Far East) 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 use of our
reports dated November 13, 1996 included in this registration statement and to
all references to our Firm included in this registration statement.
Very truly yours,
/s/ ARTHUR ANDERSEN & CO.
--------------------------------------
Arthur Andersen & Co.
<PAGE> 2
EXHIBIT 23.2
January 29, 1997
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 use of our
reports dated November 13, 1996 included in this registration statement and to
all references to our Firm included in this registration statement.
Very truly yours,
/s/ ARTHUR ANDERSEN & CO.
--------------------------------------
Arthur Andersen & Co.
<PAGE> 1
EXHIBIT 23.3
[GUSRAE, KAPLAN & BRUNO LETTERHEAD]
January 31, 1997
Euro Tech Holdings Company Limited
18/F Gee Chang Hong Centre
65 Wong Chuk Hang Road
Hong Kong
Re: Euro Tech Holdings Company Limited
SEC File No. 333-16277
Dear Sirs:
We hereby consent to the use of this firm's name in the above
referenced Registration Statement and the Prospectus contained therein and to
all references to this firm included in said Registration Statement and
Prospectus.
By giving this consent, we do not acknowledge that we are experts as
that term is defined in Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ GUSRAE, KAPLAN & BRUNO
<PAGE> 1
EXHIBIT 23.4
[HASTINGS & CO. LETTERHEAD]
January 29, 1997
The Director,
Euro Tech Holdings Company Limited,
18th Floor,
Gee Chang Hong Centre
65 Wong Chuk Hang Road, BY FAX & BY POST
Aberdeen, Hong Kong. Fax No. 2870 0171
Attn: Mr. T.C. Leung
Dear Sirs,
Re: Public Listings in U.S.A.
Outline of PRC Legal System
As a firm of solicitors, we hereby consent to the use of our name included
in the prospectus and to all reference to our Firm included in the prospectus.
By giving this consent, we do not acknowledge that we are an expert as that
term is defined in Section 7 of the Securities Act of 1933.
Sincerely,
HASTINGS & CO.
By: /s/ ARTHUR Y. TSO
--------------------------------------
Mr. Arthur Y. Tso
A Partner of the Firm
<PAGE> 1
EXHIBIT 23.5
[JINGTIAN ASSOCIATES LETTERHEAD]
January 29, 1997
Board of Directors
Euro Tech Holdings Company Limited
c/o Euro Tech (Far East) Limited
18 F Gee Chang Hong Centre
65 Wong Chuk Hag Road
Hong Kong
Gentlemen:
Please be advised that we consent to the use of our name in your
Registration Statement and Prospectus filed with the Securities and Exchange
Commission. This consent extends to the Legal Matters section.
Sincerely,
/s/ ZHAO YANG
--------------------------------------
Zhao Yang
Jingtian Associates
