FORM 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-22113
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EURO TECH HOLDINGS COMPANY LIMITED
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(Exact name of Registrant as specified in its charter)
EURO TECH HOLDINGS COMPANY LIMITED
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(Translation of Registrant's name into English)
British Virgin Islands
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(Jurisdiction of incorporation or organization)
18/F Gee Chang Hong Centre, 65 Wong Chuk Hong Road, Hong Kong
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each Name of each exchange
class on which registered
Not Applicable
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Not Applicable
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Stock, $.01 par value
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(Title of Class)
Redeemable Common Stock Purchase Warrants
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
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(Title of Class)
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Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
2,068,200 shares of Common Stock
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1,740,000 Warrants
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 X Item 18
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(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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<PAGE>
GLOSSARY
The following glossary of terms may be helpful in understanding the
terminology used in this Annual Report.
Ambient Air: Atmospheric air (outdoor as opposed
to indoor air).
Colorimeter: An analytical instrument that
measures substance concentration by
color intensity when the substance
reacts to a chemical reagent.
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.
(i)
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Multi-Channel Digital
Recorder: A device that measures and records
more than one input of a digitized
signal (signal in the form of
pulses).
Multi-Channel and Analogue
Recorder: A device that measures and records
more than one input of a signal in
multi-voltage or milliampere (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
continually measures the clarity of
water based on light scattering or
deflection.
(ii)
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TABLE OF CONTENTS
PART I .................................................................... 1
Item 1. Description of Business ...................................... 1
Item 2. Description of Property ...................................... 21
Item 3. Legal Proceedings ............................................ 22
Item 4. Control of Registrant ........................................ 22
Item 5. Nature of Trading Market ..................................... 23
Item 6. Exchange Controls and Other Limitations
Affecting Securityholders .................................... 23
Item 7. Taxation ..................................................... 24
Item 8. Selected Financial Data ...................................... 25
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 26
Item 9A. Quantitative and Qualitative Disclosures about
Market Risk .................................................. 38
Item 10. Directors and Officers of Registrant ......................... 38
Item 11. Compensation of Directors and Officers ....................... 41
Item 12. Options to Purchase Securities from Registrant
or Subsidiaries .............................................. 42
Item 13. Interest of Management in Certain
Transactions ................................................. 43
PART II ................................................................... 48
Item 14. Description of Securities to be Registered ................... 48
PART III .................................................................. 49
Item 15. Defaults Upon Senior Securities .............................. 49
Item 16. Changes in Securities, Changes in Security for
Registered Securities and Use of Proceeds .................... 49
PART IV ................................................................... 50
Item 17. Financial Statements ......................................... 50
Report of Independent Public Accountants ..................... F-1
Consolidated Statements of Income For the Year Ended
December 31, 1995, 1996 and 1997 .......................... F-2
Consolidated Balance Sheets as of December 31,
1996 and 1997 ............................................. F-3
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1995,
1996 and 1997 ............................................. F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 .......................... F-5
Notes to the Consolidated Financial Statements ............... F-7
Item 18. Financial Statements ......................................... 51
Item 19. Financial Statements and Exhibits ............................ 51
(iii)
<PAGE>
PART I
Item 1. Description of Business
Introduction
Euro Tech Holdings Company Limited (the "Company") was organized under the
laws of the British Virgin Islands on September 30, 1996 for the purposes of
raising capital and for acquiring all the outstanding capital stock of Euro Tech
(Far East) Ltd., a Hong Kong corporation ("Far East"). The Company successfully
completed a public offering (the "Public Offering") of approximately 618,200
shares of Common Stock, $.01 par value, and 690,000 Redeemable Common Stock
Purchase Warrants (the "Common Stock"), from which the Company received net
proceeds of approximately $1,817,000, in or about March 1997. Pursuant to and
concurrently with the Public Offering, the Company acquired all the issued and
outstanding capital stock of Far East, and thereafter Far East became a
wholly-owned subsidiary and the primary operational tool of the Company. 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." Far East engages in its core business of distributing
various equipment, instruments and supplies used in connection with the
treatment, analysis and testing of water and waste water. Where appropriate,
references to the business of the Company refer to the business of Far East.
The Company is primarily a distributor of a wide range of advanced water
treatment equipment (including chlorination equipment), laboratory instruments,
analyzers, test kits and related supplies. The Company acts as an exclusive and
non-exclusive distributor for well-known manufacturers of such equipment,
primarily to commercial customers and governmental agencies or instrumentalities
in Hong Kong and the People's Republic of China (the "PRC"). The Company
distributes products to approximately 400 regular customers, 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, and to sub-distributors located in Hong Kong, the PRC and
Macao. These products are manufactured by a substantial number of major
American, European and Japanese corporations, including Wallace & Tiernan
Pacific Pty. Ltd. ("Wallace"), Hach Company, Inc. ("Hach"), Hioki E.E. Corp.
("Hioki") and Finnigan Corporation ("Finnigan") (now a wholly-owned subsidiary
of ThermoQuest Corporation ("ThermoQuest"), which are the Company's largest
suppliers, with purchases from them accounting for approximately 12%, 10%, 8%
and 13%, respectively, of the Company's sales during
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its fiscal year ended December 31, 1996 ("Fiscal 1996") and 6%, 14%, 11% and 8%,
respectively, of the Company's sales during its fiscal year ended December 31,
1997 ("Fiscal 1997").
The Company distributes products through its Hong Kong headquarters, its
regional sales offices located in Beijing, Shanghai, Guangzhou, Chongqing, Xian
and Shenyang, and through non-exclusive arrangements with independent
sub-distributors located in Hong Kong, the PRC and Macao.
The Company believes that the continuing growth of industrial activity in
particular, and overall business activity in general, in the PRC over the last
five years has produced a strong and increasing demand for its products in the
PRC. The Company further believes that in the near future the need and demand
for the products it distributes will grow as a result of increased regulations
governing the environment and industrial pollution output, projected growing
demands of the PRC's population for clean water and a healthier and safer
environment, and the potential for the contamination or depletion of existing
clean fresh water sources.
In or about March 1997, the Company began its Public Offering and thereby
sold 618,200 shares of Common Stock at $5.00 per share and 690,000 Warrants at a
purchase price of $.15 per share, each entitling the holder thereof to purchase
one share of Common Stock at $5.50 (the "Exercise Price"), subject to
adjustment, commencing in or about March 1998, for aggregate net proceeds of
approximately $1,817,000. At December 31, 1997, no Warrants had been exercised.
The Company used a portion of the net proceeds of the Public Offering to
(a) establish an operation for the assembly of the type of products now
distributed by the Company, including certain water-related testing, monitoring
and treatment equipment, and (b) to expand its product assembly operations to
other products of the kind now distributed by the Company, either pursuant to an
agreement to be entered into with a PRC-based entity, such as the Shanghai
Thermometric Instrument Plant (hereafter, "STIP"), or for the acquisition of a
manufacturing plant, and (c) to expand its marketing efforts by, among other
things, opening additional regional sales offices in the PRC. The Company
believes that by assembling the products it distributes, it may realize
increased gross profit margins and greater revenues and net income than if it
remained only a distributor of such products. Similarly, the Company believes
that by expanding its regional sales efforts in the PRC, it may realize higher
revenues and net income. In the event the Company is unable to complete a
definitive agreement with STIP, it intends to continue to seek assembly-process
assistance through partnerships or joint ventures with or the acquisition of
other PRC-based entities.
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The Company has engaged a business consultant to assist with identifying
manufacturing plants and engineering companies which would make suitable
acquisition targets. The Company contemplates, but as to which no assurance can
be made, that such entities, if acquired, would assist in the assembly of its
products and offer customer turnkey projects and solutions.
During the Company's Fiscal 1996 and Fiscal 1997, the Company had sales of
approximately $13,758,000 and $12,510,000, respectively, and net income of
approximately $469,000 and $438,000, respectively.
Background
The Company presently has three subsidiaries, all of which are
wholly-owned.
The Company's wholly-owned subsidiary and primary operational arm is Far
East, which it acquired in March 1997. Far East has engaged in the distribution
of various industrial control equipment, which continues to be the core business
of the Company, since its inception in 1971.
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 Eurotherm Ltd.'s industrial control equipment in
Hong Kong and Southeast Asia. Far East expanded its activities into 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 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 ("EuroTherm ")
and Far East. By 1994, all of the capital stock of Far East had been purchased
by its management and Far East changed its name from Eurotherm (Far East) Ltd.
to its current name. See "Interest of Management in Certain Transactions."
Another subsidiary of the Company is Euro Tech Trading (Shanghai) Limited
("Trading"). The core business of trading is similar to that of Far East. The
Company also has an inactive subsidiary, Euro Tech (China) Limited ("Limited").
Products, Services and Customers
Laboratory instruments, analyzers and test kits are used to analyze the
chemical content and ascertain the level of impurities or other contaminants in
water. The Company distributes analytical re-agents and chemicals to support
testing systems of laboratory
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and portable instruments, process analyzers and portable test kits and assist in
the analysis process. 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.
Laboratory and portable instruments generally consist of analytical
instruments including but not limited to the following: spectrophometers,
colorimeters, turbidimeters, ion-selective electrodes, chemical oxygen demand
apparati, digestion apparati, and precision re-agent dispensing devices which
are used to test and monitor impurities and contaminants in water systems. See
"Glossary."
The Company also distributes continuous-reading process analyzers, process
turbidimeters, pH controllers and analyzer accessories. These products are
generally used to monitor and control drinking water quality to ensure that
water treatment procedures comply with regulatory standards. See "Glossary."
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 generally divided into those which monitor
ambient (i.e., atmospheric) air, and those which monitor pollution sources.
Additionally, the Company offers general purpose laboratory instruments
including a variety of water quality monitoring and analysis equipment, such as
continuous reading process analyzers, process turbidimeters, pH controllers, and
test kits for monitoring chemical content in water (i.e., chlorine, fluorides,
etc.). See "Glossary."
Customers for the analytical instruments include government agencies,
academic and research institutions and major laboratories. The Company also
distributes products to beverage producers and restaurants, including water
quality test kits to approximately twelve bottling plants of a well known United
States softdrink producer, which are located in the PRC; field use water quality
test kits to the People's Liberation Army (the PRC armed forces), water quality
monitoring instruments to a well known United States fast food franchisor's
restaurants located in Hong Kong and the PRC, and to a well known United States
beer producer's bottling plants located in Wuhan, PRC. Each such soda producer,
restaurant and beer bottler accounts 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.
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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 sites at 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 49.6% and 48.5% of its sales from the
sale of Scientific Instruments during Fiscal 1996 and Fiscal 1997, respectively.
Process Control and Engineering Products. The Company provides process
control 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 harmonic 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 include government
water supply agencies, water treatment facilities, 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 33.0% and 28.4% of its sales from the
sale of Process Control and Engineering Products during Fiscal 1996 and Fiscal
1997, respectively.
Other Products. The Company distributes general testing and
telecommunications testing equipment to industries, utilities, educational
institutions and telecommunications companies. The Company also distributes
multi-channel digital and analogue recorders and similar products. Customers for
telecommunications products include government departments and telephone
companies and utilities.
The Company derived approximately 10.6% and 14.8% of its sales from the
sale of these Other Products during Fiscal 1996 and Fiscal 1997, respectively.
The increased percentage of the Company's sales of Other Products during Fiscal
1997 in comparison to its sales during Fiscal 1996 is due to increased demand
from utilities, i.e., power generation plant and water plant.
Special Projects and Technical Support. In conjunction with the
distribution of computer hardware and software, the Company
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provides computer programming hardware and software to government agencies,
industrial plants and beverage producers.
The Company's technical support staff provides customers with maintenance,
installation assistance, and calibration services, and assists sales personnel
in giving technical advice to and performing product demonstrations for
customers.
The Company derived approximately 6.8% and 8.4% of its sales from Special
Projects and Technical Support Operations during Fiscal 1996 and Fiscal 1997,
respectively.
Customers. At the end of Fiscal 1996 and Fiscal 1997, the Company had
approximately 400 regular customers, including sub-distributors, located in Hong
Kong, the PRC and Macao. During Fiscal 1996 and Fiscal 1997, 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.
Other Distribution Lines. The Company has previously established
subsidiaries to distribute products not directly related to its core business of
distributing water and waste-water-related products, but is currently
consolidating its operations to focus more on this core business and is spinning
off its subsidiaries which are not compatible with its core business. During
Fiscal 1996, the Company streamlined its operations by selling three of its
subsidiaries, Euro Electron (Far East) Ltd. ("Euro Electron"), Action
Instruments (China) Ltd. ("Action") and Armtison Limited ("Armiston"), and
focused its efforts on its core product lines. See "Certain Transactions with
Affiliates."
Euro Electron had been established to distribute telecommunication
products. However, the Company had difficulty entering the distribution market
for these products, as the Company discovered that manufacturers of
telecommunication products generally distributed their products directly to end
users without using distributors, and that technical expertise with
telecommunication products was also found to be necessary for entering this
market. The Company believes that due to this difficulty in entering the target
market, Euro Electron never progressed past a start-up stage.
Action was an industrial computer distributor. During Fiscal 1994, Action
lost its principal source manufacturer when such manufacturer sold its
industrial computer production line to another supplier, while another major
manufacturer of industrial computers established its own distribution operation
in Hong Kong and the PRC. The third subsidiary sold off by the Company was
Armtison, which was a holding company for Euro Electron and Action.
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The Company has also from time to time been involved with other businesses
not related to its core business, including investing in real estate. The
Company currently owns real property in Hong Kong which it intends to sell.
Although the Company is presently discontinuing or disposing of operations not
related to its core business, in the future, the Company may establish
subsidiaries or divisions to distribute products that are unrelated to its
current core product lines, and it may make future investments in real estate.
See "Property."
Sources of Supply
The Company has exclusivity agreements covering specific geographic areas
with many of its suppliers for certain products. Such agreements do not
encompass all products distributed by the Company and all market areas served 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 Macao authorized to supply,
install and commission Hach's products and accessories. The Company also has
exclusive distribution agreements with Euroglas, B.V. for certain of that
manufacturer's products in Hong Kong and the PRC.
The Company distributes products manufactured by a number of vendors,
including Wallace, Hach, Hioki and Finnigan, which are the Company's primary
suppliers, with purchases from them accounting for approximately 12%, 10% 8% and
13%, respectively, of the Company's sales during Fiscal 1996 and 6%, 14%, 11%
and 8%, respectively, of the Company's sales during Fiscal 1997. The Company has
exclusivity agreements for specified geographic areas with many of its suppliers
for certain products, including Wallace and Finnigan. Those agreements do not
encompass all products distributed by the Company or all of the market areas
serviced by the Company. The Company's agreement with Finnigan for most products
does not include the PRC, while the Company's agreement with Wallace is limited
to Hong Kong. In addition, some of these agreements are memorialized not as
formal contracts but rather through other acknowledgements or correspondence
which may contain a vague, if any, description of the terms and conditions of
such agreement or arrangement, and therefore may be unenforceable. The Company
has written confirmation from Hach that the Company is Hach's sole
representative in the PRC, Hong Kong and Macao 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 Macao. 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
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days notice by either party. The Company's agreement with Hach expires in May
2000, 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.
Expansion
Management of the Company used the proceeds of the Public Offering to
pursue expansion of its operations through the addition of three new regional
sales offices in Chongqing, Xian and Shenyang which expansion was also aided by
internal growth. These new sales offices are leased from third parties not
affiliated with the Company. See "Property." Other than the potential
acquisition of certain manufacturing plants and engineering companies in
connection with its proposed product - assembly operation, the Company has no
other plans for expansion. In addition, although the Company has recently
disposed of certain subsidiaries in transactions with affiliates and disposed of
certain realty held for investment purposes, in an effort to streamline its
structure and concentrate on its core business, in the future the Company may
establish subsidiaries or divisions to distribute products that are unrelated to
its current core product lines, and it may make future investments in real
estate.
Regulatory Environment
Concerns about and awareness of pollution problems and environmental
issues have grown at all levels of PRC government as the PRC has experienced
economic growth. Environmental protection laws and strict regulations have been
enacted and are buttressed by increased budget allocations for environmental
regulation, monitoring and enforcement. The PRC's primary environmental
protection agency is the National Environmental Protection Agency (NEPA), under
which there are Environment Protection Bureaus in each city and county.
According to the Company, 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 due to their
non-compliance with environmental regulations. According to the Company, NEPA
has recently identified 3,000 enterprises as new major pollution sources and the
number of monitoring stations for industrial firms is anticipated to increase to
9,000 in the next five years, according to government estimates. The Company has
supplied water and air quality monitoring and analytic instruments to these
monitoring stations for several years. Despite this anticipated growth in
monitoring stations, there can be no assurance that the
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agencies will continue to use the Company's products for these purposes, that
other market competitors will not enter the market with superior products,
distribution systems or more competitive prices. See "Competition."
Competition
The Company faces competition from other distributors of substantially
similar products as well as the manufacturers of such products, and in both
foreign and Chinese markets. The Company faces its principal competition from
manufacturers and other distributors of its core products located in Hong Kong
and the PRC. Moveover, the Company has begun to implement plans to assemble
products of the kind that it presently distributes. Should an assembly operation
be developed to the stage where products are presented to the market, the
Company may be in direct competition with certain of its vendors. There can be
no assurance that the existence of this direct competition will not impair the
Company's ability or such competitor's willingness to continue providing other
products for continued distribution by the Company, and that such a development
would not materially adversely affect the Company's core business.
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 products manufactured in the PRC. As
a result, the Company reduced its sales prices to remain competitive, with a
corresponding negative impact upon profit margins. During Fiscal 1995, Fiscal
1996 and Fiscal 1997, the Company's profit margins were approximately 22.2%,
22.7% and 24.9%, respectively. The Company believes that it competes with the
PRC manufacturers on the basis of quality and technology. The Company believes
it offers foreign-manufactured products which are of higher quality and use more
advanced technology than products manufactured in the PRC. The Company believes
that it competes with foreign manufacturers and other distributors of their
products on the basis of the Company's more extensive distribution network and
an established reputation. The Company disposed of one subsidiary when it
determined it could not successfully compete directly with a manufacturer which
established its own PRC distribution network for the same type of products.
Proposed Product Assembly Operations
The Company has reached a preliminary agreement with STIP pursuant to
which STIP will provide space and technical expertise to the Company for
assembly of certain products which the Company currently distributes, including
certain water-related testing,
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monitoring and treatment equipment. The Company has also engaged a business
consultant to look for suitable manufacturing plant targets for acquisition. It
is contemplated that the Company will import components, assemble the finished
products and then distribute the products through its 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 net income since the Company believes it will enjoy
higher overall profit margins by assembling certain products which it now
distributes rather than by only purchasing the finished product from vendors.
STIP has been manufacturing temperature sensors and measuring instruments and
controllers for twenty years, has over 150 employees and has a 16,000 square
meter facility of which the Company intends to lease a portion. However, the
Company is not a party to any lease agreement and there is no assurance that it
will become such a party or will be able to enforce its right to use this
facility.
It is anticipated that either STIP or the newly acquired manufacturing
plant 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 to pay the salaries of the STIP employees it uses. There is
no assurance, however, that the preliminary agreement with STIP will continue to
remain in effect, or that in the event of cancellation, suspension or
unavailability of the foregoing facilities, that the Company would be able to
make other satisfactory arrangements or continue its assembly operations without
interruption or diminution.
Sales and Marketing
The Company distributes products through its principal office located in
Hong Kong and its regional PRC offices located in Beijing, Shanghai, Guangzhou,
Chongqing, Xian and Shenyang. The Company has a marketing and sales force of 30
people who are paid a salary plus commission based on sales. The Company's
offices also coordinate the sales efforts of approximately twelve other
companies located in the PRC which act as sub-distributors. These
sub-distributors are paid a commission on sales they generated, and are engaged
on a non-exclusive basis to distribute the products of other distributors. Each
of the twelve sub-distributors accounted for less than two percent of the
Company's sales during Fiscal 1996 and Fiscal 1997.
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Employees
The Company has approximately 60 full-time employees, including a
marketing and sales staff of 30, an administrative staff of 19 and a technical
support staff of eleven.
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.
Risk Factors
Hong Kong; Transfer of Sovereignty. The Company's executive and principal
offices are located in Hong Kong, a Special Administrative Region of China (an
"SAR"; Hong Kong is sometimes herein referred to as the "Hong Kong SAR"). As of
July 1, 1997, sovereignty over Hong Kong was transferred from Great Britain to
the PRC.
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 is provided a high degree of autonomy
except in foreign and defense affairs. The Basic Law provides that the Hong Kong
SAR is to have its own legislature, legal and judicial system and full economic
autonomy for 50 years after the transfer of sovereignty. 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 has had
or will have an adverse impact on its financial and operating environment. 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. See "Risk Factors -- Recent Currency Exchange Rate and Economic
Instability." There can be no assurance, however, that these past or any
prospective future changes in political or other conditions will not result in
such adverse impact or other material adverse effect upon the Company or Far
East.
Recent Currency Exchange Rate and Economic Instability. Most economies in
the Far East are suffering from large debts, declining company earnings and
economic growth, and significant currency devaluation. The region has also
suffered from the effects of the resulting capital flight from financial
institutions.
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<PAGE>
On June 22, 1998, the Hong Kong Chief Executive announced an immediate
freeze on new government land sales through March 31, 1999 in an attempt to
stabilize property prices which have on average fallen more than 40% from their
1997 peak, and ease tightening credit. Financial institutions could face
additional pressure from possible defaults on loans made for property. Company
stock valuations have also dropped sharply in late 1997 and 1998, as the main
Hong Kong stock index (the Hang Seng) has fallen to less than half its 1997
peak. There can be no assurance that these problems will not abate or worsen or
that recovery will occur in the near future, if at all, in which event the
Company may likely be materially adversely affected.
Risks Relating to the PRC; 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 the PRC. Additionally, the Company
intends to produce water related testing, monitoring and treatment equipment in
the PRC. As a consequence, the Company's results of operations and financial
condition may be influenced, and potentially, materially adversely affected, by
the economic, political, legal and social conditions in the PRC.
Economic, Internal Political and Other Risks. The economy in the PRC
differs from many other countries' economies in terms of its structure, degree
of government planning and control, its level of development, growth rate, rate
of capital reinvestment, allocation of resources, inflation rate and balance of
payments position. The PRC government's economic philosophy is based upon a
"planned" economy model as opposed to a "free enterprise" or "capitalist" model
with moderate government regulation which is the typical model in most
developed, Western nations. For more than forty years, the PRC economy has been,
and presently continues to be, a socialist economy operating under government
controls promulgated under various one-, five- and ten-year plans (collectively,
"State Plans") adopted by central Chinese government authorities and
implemented, to a large extent, by provincial and local authorities which may
set production and development targets. Although the majority of productive
assets in the PRC are still government owned, since approximately the early
1980s the Chinese government has implemented certain policies that emphasize
decentralization of decision-making power and responsibility with respect to
matters such as allocation of funds and the regionalization of economic
development, reduce the role of government planning and permit some utilization
of market forces in the development of its economy. Such economic reform
measures or other policies may be inconsistent, ineffectual, or discontinued at
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any time with or without notice, and the Company may not be able to benefit from
any or all such reforms or policies. Further, there can be no assurance that the
PRC will continue to pursue such policies, that such policies will be successful
or beneficial to the Company if pursued, that such policies will not be
significantly altered from time to time, or discontinued at any time with or
without notice, or that business operations in the PRC 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 the PRC depends on the Company's continued
ability to overcome circumstances specifically affecting the industrial sector,
including the relatively poor infrastructure, road transportation and
communications network and an uncertain legal and regulatory environment.
During much of the past two decades, the Chinese government under its
current leadership has been reforming, and is expected to continue to reform,
the PRC's economic and political systems in the direction of a more "free
market" economic model, and has permitted greater provincial and local economic
autonomy and private economic activity. Many of the reforms are unprecedented
for the PRC and in all likelihood will be refined and implemented 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 the PRC. The Company's
results at times may also be adversely affected by changes in political,
economic and social conditions in the PRC (including sudden and unexpected
changes in leadership resulting from factors including death or revolution) and
by changes in government policies 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 other import restrictions. Sudden changes in
such conditions, including any decision to abandon the economic reform program
of recent years and return to the more centrally-planned economy that existed
prior thereto, could materially adversely affect economic conditions in the PRC
and the operations of the Company. 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 the PRC
has already undergone extensive changes as a result of the success of such
reforms, the Company believes, although no assurance can be made, that the basic
principles underlying the reforms will continue to provide an acceptable
framework for the PRC's political and economic systems.
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Although the PRC's economy has experienced significant growth in recent
years, that growth has been uneven among various geographic regions and economic
sectors. Economic reforms and growth in the PRC have been more successful in
certain provinces than in others, and the continuation or increase of such
disparities could adversely affect political or social stability. Also, the PRC
recently has been experiencing substantial rates of inflation, although
inflation has declined in the most recent years. For example, according to
public reports, consumer prices reportedly were 2.8% greater in 1997 than in
1996. The PRC 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 PRC 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 PRC government could materially and
adversely affect the Company, its business and results of operations. See "Risk
Factors -- Competition; Adverse Impact upon Company of PRC's Credit
Restrictions." However, the PRC economy may be adversely affected by general
economic problems presently affecting most of the Far East. Most economies in
the Far East are suffering from large debts, declining company earnings and
economic growth, and significant currency devaluation. The region has also
suffered from the effects of the resulting capital flight on financial
institutions. These problems may materially adversely affect political and
economic conditions in Hong Kong and the PRC. There can be no assurance that
such problems will not abate or worsen, or continue for a protracted period, or
that recovery will occur in the near future, if at all, in which event the
Company may likely be materially adversely affected.
Uncertain Legal System and Application of Laws. The legislative trend in
the PRC 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 PRC economy, business and commercial
framework and legal system all continue 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 the PRC or the ability of
the Company to enter into Sino-foreign agreements. For example, the PRC's State
Economic and Trade Commission is reportedly considering regulations that may
restrict the ability of foreigners to enter certain industries.
The PRC legal system is a civil law system which is based on written
statutes and in which decided legal cases have little
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precedential value with regards to interpretations of the law and resolution of
questions of law. Although since January 1, 1994, the PRC government has
introduced new laws and regulations to modernize its systems, the PRC does not
yet possess a comprehensive body of business law or a consolidated body of laws
governing foreign investment enterprises. As a result, the enforcement,
interpretation and implementation of existing laws, regulations or agreements
may be sporadic, inconsistent and subject to considerable discretion. The PRC'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. As
the legal system develops, entities such as the Company may be adversely
affected by new laws, changes to existing laws (or interpretations thereof) and
preemption of provincial or local laws by national laws. Even when adequate law
exists in the PRC, 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 PRC 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 three to five 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 regarding contracts for deliveries in the PRC is to have
the contract sums denominated and payable in Hong Kong dollars, U.S. dollars or
the British pound sterling. In some instances, the Company may allow clients to
pay certain low value contracts in Renminbi ("Rmb"), the currency of the PRC, as
the Company needs to pay some of its costs in Rmb such as its day-to-day
overhead expenses for its offices in China. With this method, the Company
believes that currency risks have been minimized 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,
15
<PAGE>
the conversion of Rmb 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 U.S.$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 generally
been stable since January 1, 1994 and the PRC 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 the PRC, earnings and dividends.
Recent Turbulent Relations with the United States. The United States has
from time to time considered revocation of the PRC's Most Favored Nation ("MFN")
trade status, which provides China with the trading privileges available
generally to trading partners of the United States, the United States and the
PRC have recently been involved in controversy over the protection in the PRC of
intellectual property rights that threatened a trade war between the countries.
The United States annually reconsiders the renewal of the PRC's MFN status.
However, there can be no assurance that the United States will not revoke or
refuse to extend the PRC's MFN status in the future.
Recently Disposed Unsuccessful Subsidiaries; Risks of Investing in Hong
Kong Realty. The Company recently disposed of several unsuccessful subsidiaries
which had sustained losses. One such subsidiary had been established to
distributed 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 its industrial computer product line. The Company presently has
only three
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subsidiaries, of which two have active operations consisting of the Company's
core business, and the third of which is inactive.
The Company has from time to time invested in real estate in Hong Kong.
Although the Company has derived past profits from some of its investments in
Hong Kong real estate, there can be no assurance that the Company will ever
derive a profit from any future investments in Hong Kong realty. As a result of
the recent transfer of sovereignty over Hong Kong from the United Kingdom to
China, any investment in Hong Kong realty will be subject to the risks arising
from that transfer, including but not limited to the possible appropriation of
realty by the Chinese government. In addition, the Government of Hong Kong
announced on June 22, 1998 a unilateral freeze on public land sales and
dispositions of property through March 31, 1999 in order to stabilize Hong Kong
property values which had declined on average more than 40% from their peak in
1997. See " Risk Factors -- Hong Kong; Transfer of Sovereignty," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." 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 or ever become profitable. See
"Subsidiaries."
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 is 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 such coverage 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 profit margins to remain competitive. The Company
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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 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
relationship 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 12%, 10%, 8% and 13%,
respectively, of the Company's sales during Fiscal 1996 and 6%, 14%, 11% and 8%,
respectively, of the Company's sales during Fiscal 1997. The Company has only a
letter from Hioki appointing the Company as Hioki's sales representative in the
PRC, Hong Kong and Macao, its agreements with each of Wallace and ThermoQuest
(the new parent of Finnigan) are terminable on thirty days notice by either
party prior to the renewal date and the agreement with Hach expires in May 2000,
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 the
Company's operations due to the Company's dependence on these vendors. See
"Business."
Control by T.C. Leung; Potential Conflict of Interests. T.C. Leung, the
Company's Chairman of the Board and Chief Executive Officer, beneficially owns
approximately 68% of the Company's issued and outstanding shares of Common Stock
which as a practical matter enables 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 can, 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."
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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 the 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 British
Virgin Islands 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 BVI 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. 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, and may
have more limited rights, than they might have as shareholders of a company
incorporated in many United States jurisdictions.
BVI law does 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) in cases where (i) the directors commit an
act which is illegal or ultra vires; (ii) there is interference with the
personal rights of a shareholder, or (iii) fraud is committed on the
shareholder. However, there is some uncertainty whether BVI courts would enforce
judgments of the courts of the United States and of other foreign jurisdictions,
or enforce actions brought in the BVI which are based upon the securities laws
of the United States. A final monetary judgment obtained in the United States
will be treated as a cause of action in itself by the BVI courts so that no
retrial of the issues would be necessary, provided that: (a) such court had
subject matter jurisdiction and the judgment debtor either consented to such
jurisdiction or was resident or carrying on business within the BVI and was duly
served with process; (b) such judgment was not in respect of penalties, taxes,
fines or similar fiscal or revenue obligations; (c) in obtaining judgment there
was no fraud on the part of the person in whose favor judgment was given or on
the part of the Court; (d) recognition or enforcement of the judgment by BVI
courts was not contrary to public policy; and (e) the proceedings pursuant to
which judgment was obtained were not contrary to the rules of natural justice.
See "Description of Securities."
As all but one of the Company's officers and all but one of its 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 upon all such
directors and officers. Furthermore, all of the Company's 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."
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Forward Looking Statements. This annual report 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 of 1934. 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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Item 2. Description of Property
Facilities
The Company maintains an executive office at 18/F Gee Chang Hong Centre,
65 Wong Chuk Hang Road, Hong Kong. The Company occupies approximately 12,800
square feet of office and warehouse storage space under a lease expiring in May
1999 for monthly rental payments of approximately $13,700. The warehouse storage
space is used to hold products for distribution to its customers via common
carriers.
In August 1995, the Company purchased approximately 1,200 square foot of
space in a building in Hong Kong. The Company financed the purchase and as of
December 31, 1997, had an outstanding mortgage of approximately $388,000 in
principal, bearing interest at Hong Kong's prime rate plus 1.75%, which mortgage
repayable in eighty-four monthly installments through approximately November
2002. In April 1997, the Company leased out the property at a monthly rental of
approximately $2,200.
The Company also maintains regional sales offices within the PRC in the
cities of Beijing, Shanghai, Guangzhou, Chongqing, Xian and Shenyang. The
Beijing and Shanghai sales offices are owned by the Company. The Beijing sales
office is situated on property purchased in November 1994. The Shanghai sales
office is situated on property purchased in August 1995. The Guangzhou sales
office is rented pursuant to a lease expiring in March 1999 for approximately
$650 per month. The Chongqing sales office is rented pursuant to a lease
expiring in January 1999 for approximately $300 per month. The Xian sales office
is rented pursuant to a lease expiring in November 1999 for approximately $360
per month. The Shenyang office is rented pursuant to a lease expiring in
December 1998 for approximately $280 per month. The Company's office in Shanghai
is rented pursuant to a lease expiring in April 1999 for approximately $330 per
month.
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.
Realty Investments
The Company has in the past made investments in Hong Kong realty and
realty located elsewhere. This sector of the business is currently being
deemphasized, but there can be no assurance that the Company in the future will
not make occasional or significant investments in real estate in its ordinary
course of business or for investment purposes. See "Risk Factors -- Recently
Disposed Unsuccessful Subsidiaries; Risks of Investing in Hong Kong Realty."
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Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Control of Registrant
The following table sets forth, as of March 31, 1998, certain information
concerning beneficial ownership of shares of Common Stock with respect to (i)
each person known to the Company to own 10% or more of the outstanding shares of
Common Stock, and (ii) all officers and directors of the Company as a group:
Amount and Approximate
Nature of Percentage
Beneficial of Common
Ownership Stock Owned(4)
--------- --------------
T.C. Leung(1)(2)............................. 1,400,000 68%
Pearl Venture Ltd.(1)(2)..................... 1,400,000 68%
Regent Earning Ltd.(1)....................... 1,027,600 50%
All Executive Officers
and Directors of the
Company as a group
(5 persons)(2)(3)............................ 1,400,000 68%
- ----------
(1) The address for Mr. Leung 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."
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Item 5. Nature of Trading Market
The Company has two classes of securities presently registered: Common
Stock and Warrants. These securities are presently traded on the NASDAQ SmallCap
Market under the trading symbols "CLWTF" and "CLWWF," respectively, and have so
traded since the Company's Public Offering in March 1997.
As of June 11, 1998, the Common Stock was last traded at $5.00 and the
Warrants were last traded at approximately $1.44. The high and low bid and ask
price quotations for the Common Stock securities in every calendar quarter of
trading since the Public Offering are as follows:
Close Close
High Low Last Bid Ask
- --------------------------------------------------------------------------------
Quarter Ended March 31, 1997 ........... 7 3/4 6 3/8 6 7/8 6 7/8 7 1/4
Quarter Ended June 30, 1997 ............ 9 1/2 5 1/4 7 3/4 7 7 3/4
Quarter Ended September 30, 1997 ....... 8 1/2 6 1/4 7 1/4 7 1/4 8 1/4
Quarter Ended December 31, 1997 ........ 8 7/8 4 6 6 6 3/8
Quarter Ended March 31, 1998 ........... 7 4 1/8 5 1/2 5 1/2 5 7/8
The Common Stock was held by approximately 26 holders of record, of which
23 were located or resident in the United States, as of June 17, 1998. Based
upon information received from broker-dealers, clearing firms and others, the
Company believes that it has approximately at least 400 beneficial shareholders
of its Common Stock.
The high and low bid and ask price quotations for the Common Stock
securities in every calendar quarter of trading are as follows since the Public
Offering:
Close Close
High Low Last Bid Ask
- --------------------------------------------------------------------------------
Quarter Ended March 31, 1997 ......... 2 1/2 1 1/2 2 1/2 1 7/8 2 1/2
Quarter Ended June 30, 1997 .......... 3 1 7/8 1 5/8 1 5/8 2 3/16
Quarter Ended September 30, 1997 ..... 3 5/8 2 1/32 2 1/2 2 2 1/2
Quarter Ended December 31, 1997 ...... 4 2 2 1/4 1 5/8 2 3/8
Quarter Ended March 31, 1998 ......... 2 1/2 1 3/8 1 5/8 1 3/8 1 5/8
The Warrants were held by approximately 15 holders of record, of which
eight (8) were located or resident in the United States, as of June 17, 1998.
Item 6. Exchange Controls and Other Limitations Affecting Securityholders
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
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principal executive offices are located, or the British Virgin Islands, where
the Company is incorporated. There are no British Virgin Islands laws which
impose foreign exchange controls on the Company or that affect the payment of
dividends, interest, or other payments to non-resident holders of the Company's
securities. British Virgin Islands laws and the Company's Memorandum and
Articles of Association impose no limitations on the right of non-resident or
foreign owners to hold the Company's securities or vote the Company's Common
Stock. Under BVI law, dividends may only be declared and paid by an
International Business Company (which the Company is classified as under BVI
law) out of surplus, such that after payment of dividends such company must be
able to satisfy its liabilities as they become due in the ordinary course of
business and the realizable value of the assets of such company must not be less
than the sum of its liabilities (other than deferred taxes and capital). There
are no other BVI restrictions regarding dividends. However, the PRC has
established a unified exchange rate system and system of exchange controls to
which the Company is subject. See "Risk Factors - Risks Relating to the PRC;
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 -
Government Control of Currency and Exchange Rate Risks."
Item 7. Taxation
The Company is exempt from taxation in the British Virgin Islands.
The Company's two subsidiaries organized in Hong Kong Far East and
Limited, pay the Hong Kong profits tax at a rate of 16.5% on their income for
financial reporting purposes, after adjustments for income and expense items
which are not assessable or deductible for profits tax purposes. Hong Kong
levies no capital gains or dividends tax.
The Company's third subsidiary, Euro Tech Trading (Shanghai) Limited
("Trading"), is fully exempt from the PRC state unified income tax pursuant to
the tax laws applicable to foreign investment enterprises in the PRC. This
unified income tax is levied at a rate of 33%. Trading was fully exempt from the
unified income tax for its first operating year of 1997, and will enjoy a 50%
reduction in the regular levied unified income tax for each of Fiscal 1998 and
Fiscal 1999, with liability for the full tax rate beginning on January 1, 2000.
24
<PAGE>
Item 8. Selected Financial Data
SELECTED FINANCIAL INFORMATION
(Amounts expressed in thousands, except
share and per share data and unless otherwise stated)
The selected income statement data for years ended December 31, 1995,
1996, and 1997 and the selected balance sheet data as of December 31, 1996 and
1997 set forth below are derived from audited financial statements of the
Company and should be read in conjunction with, and are qualified in their
entirety by reference to such financial statements, including the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operation." The selected income statement data for the years ended December 31,
1993 and 1994 and the selected balance sheet data as of December 31, 1993, 1994
and 1995 set forth below are derived from audited financial statements of Euro
Tech (Far East) Limited which are not included therein.
As of December 31,
-----------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
US$(1) US$(1) US$(1) US$ US$
Balance Sheet Data:
Cash and cash equivalents 483 440 597 1,400 2,539
Working capital (2) 1,197 937 631 1,307 3,292
Total assets 5,922 6,782 7,717 8,278 8,084
Short-term debt (3) 806 1,007 831 1,201 75
Long-term bank loans 328 430 905 586 329
Shareholders' equity 2,214 2,275 2,289 2,734 4,972
For the year ended December 31,
----------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
US$(1) US$(1) US$ US$ US$
Income Statement
Data:
Net sales ................ 13,614 13,374 13,667 13,758 12,510
Cost of goods sold ....... (10,256) (10,459) (10,633) (10,633) (9,399)
------- ------- ------- ------- -------
Gross profit ............. 3,358 2,915 3,034 3,125 3,111
Selling and
administrative
expenses ................ (2,494) (2,610) (2,773) (2,703) (2,812)
------- ------- ------- ------- -------
Operating income ......... 864 305 261 422 299
25
<PAGE>
For the year ended December 31,
----------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
US$(1) US$(1) US$ US$ US$
Income Statement
Data:
Interest (expenses)
income, net ............. (29) (64) (113) (98) 18
Other income, net ........ 87 373 153 242 183
------- ------- ------- ------- -------
Income before
taxes ................... 922 614 301 566 500
Income taxes ............. (143) (55) (9) (97) (62)
------- ------- ------- ------- -------
Net income from
continuing
operations .............. 779 559 292 469 438
Discontinued
operations Income
(loss) of subsidiary
companies sold in
1996 .................... 2 (189) (213) -- --
------- ------- ------- ------- -------
Net income ............... 781 370 79 469 438
======= ======= ======= ======= =======
Income from continuing
operations per
common share ............ 0.20 0.32 0.23
Loss from
discontinued
operations per
common share ............ (0.15) -- --
Net income
per common share ........ 0.05 0.32 0.23
Weighted
average number of
common share
outstanding ............. 1,450,000 1,450,000 1,888,000
- ----------
(1) Translation solely for convenience of the readers at the exchange rate of
HK$7.74-US$1.
(2) Current assets minus current liabilities.
(3) Short-term debt includes short-term borrowings and current portion of
long-term bank loans.
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
26
<PAGE>
Political and Economic Conditions in Hong Kong and the People's Republic of
China
The Company's operations are located almost entirely within, and revenues
are almost entirely generated from Hong Kong and the PRC. In Fiscal 1997
approximately 69% and 30% of the Company's sales were made to customers located
in the PRC and Hong Kong, respectively. During Fiscal 1996 approximately 60% and
39% of the Company's sales were made to customers located in the PRC and Hong
Kong, respectively. Sales to customers situated in Macao and elsewhere in both
years were nominal. This makes the Company particularly susceptible to changes
in the political and economic climate of either Hong Kong or the PRC.
Hong Kong. Hong Kong has been one of the prime centers for commercial
activity and economic development recently in Southeast Asia. On July 1, 1997,
sovereignty over Hong Kong was transferred from the United Kingdom to the PRC.
As provided in the Sino-British Joint Declaration and the Basic Law, the Hong
Kong SAR is provided a high degree of autonomy except in foreign and defense
affairs. The Basic Law provides that the Hong Kong SAR is to have its own
legislature, legal and judicial system and full economic autonomy for 50 years
after the transfer of sovereignty. 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 has had or will have an adverse
impact on its financial and operating environment. Although the Chinese
government has pledged to maintain the economic and political autonomy of Hong
Kong over its internal affairs, there is no assurance that such pledge will
continue to be honored if there are changes in the Chinese political or economic
climate. See "Risk Factors." In addition, on June 22, 1998, the Hong Kong Chief
Executive announced an immediate freeze on new government land sales through
March 31, 1999 in an attempt to stabilize property prices which have on average
fallen more than 40% from their 1997 peak, and ease tightening credit. Financial
institutions could face additional pressure from possible defaults on loans made
for property. Company stock valuations have also dropped sharply in late 1997
and 1998, as the main Hong Kong stock index (the Hang Seng) has fallen to less
than half its 1997 peak. There can be no assurance that these problems will not
abate or worsen or that recovery will occur in the near future, if at all, in
which event the Company may likely be materially adversely affected.
PRC. The PRC has been a socialist state since 1949. For more than forty
years, the PRC's economy has been, and presently continues to be, a socialist
economy operating under government controls promulgated under various one-,
five- and ten-year plans (collectively, "State Plans") adopted by central
Chinese government authorities and implemented, to a large extent, by provincial
and
27
<PAGE>
local authorities which may set production and development targets. However,
since approximately the early 1980s, the PRC's national government has
undertaken certain reforms to permit greater provincial and local economic
autonomy and private economic activities. Any change in political or economic
conditions may substantially adversely affect these reform initiatives and, in
turn, the Company. See "Risk Factors."
Overview
The Company was organized under the laws of the British Virgin Islands on
September 30, 1996. As of December 31, 1996, the Company had issued and
outstanding 150,000 shares of Common Stock, of which 100,000 shares of Common
Stock, or 66.7% of the Company, was owned by Sidford International Limited and
50,000 shares, or 33.3%, by Gusrae, Kaplan & Bruno. Sidford International
Limited ("Sidford") is a business consultant for Far East, which now is a
subsidiary of the Company. Gusrae, Kaplan & Bruno is the United States counsel
of the Company. In January 1997, the Company repurchased 100,000 common shares
from Sidford for $1,000, and thereafter became wholly owned by Gusrae, Kaplan &
Bruno until the Public Offering. The 50,000 shares issued to Gusrae, Kaplan &
Bruno were recorded at fair market value after the completion of the Public
Offering. In addition, the Company issued 1,000,000 redeemable common stock
purchase warrants to certain private investors in 1996 for aggregate net
proceeds of approximately $93,000. Each warrant entitles the holder to purchase
one share of common stock exercisable at $5.50 per share (subject to adjustment)
for a five-year period commencing March 14, 1998. In February 1997, the Company
repurchased 70,000 redeemable common stock purchase warrants from certain
private investors at an aggregate cost of $10,500. See "Certain Transactions
with Affiliates."
On March 14, 1997, the Company commenced its Public Offering and thereby
sold 618,200 shares of Common Stock, par value of $0.01 per share, and 690,000
redeemable common stock purchase warrants for aggregate net proceeds of
approximately $1,817,000. Upon the completion of the Public Offering, the
Company acquired all of the issued and outstanding ordinary shares of Far East
in consideration for its issuance of 1,027,600 and 372,400 shares of Common
Stock to Regent Earning Limited, a company incorporated in Hong Kong, and Pearl
Venture Limited, a company incorporated in the British Virgin Islands,
respectively. Regent Earning Limited and Pearl Venture Limited previously had in
the aggregate held 100% of the outstanding shares of Far East. This transaction
has been accounted for as a reorganization of companies under common control in
a manner similar to a pooling of interests. See "Certain Transactions with
Affiliates."
28
<PAGE>
Prior to its incorporation, the businesses of the Company were engaged in
by Far East, which in 1997 was acquired by, and is now 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 company'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 distributing high-tech
equipment manufactured in the United States, Europe and Japan within the PRC, in
addition to its distribution of its parent's products. In 1988, the activities
of the parent and Far East were separated into Eurotherm International and Far
East. In or around 1994, all the capital stock of Far East was purchased by its
management, principally T.C. Leung, the Company's Chairman of the Board of
Directors and Chief Executive Officer. Far East thereafter changed its name from
Eurotherm (Far East) Ltd. to its current name. See "Principal Shareholders" and
"Certain Transactions with Affiliates."
The following discussion and analysis should be read in conjunction with
the Audited Consolidated Financial Statements and notes thereto appearing
elsewhere in this Annual Report. All financial data referred to in the following
discussion has been prepared in accordance with United States GAAP.
Results from Operations
During the fiscal years ended October 31, 1991 ("Fiscal 1991"), October
31, 1992 ("Fiscal 1992"), a two-month transition period from November 1, 1992 to
December 31, 1992 (accounting for the Company's change of its fiscal year end
from October 31 to December 31, effective December 31, 1993) and the fiscal year
ended December 31, 1993 ("Fiscal 1993"), the Company experienced a gradual
increase in sales revenues. During the fiscal years ended December 31, 1994
("Fiscal 1994") and December 31, 1995 ("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 halt 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
29
<PAGE>
Fiscal 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 and Armtison.
Euro Electron had been established to distribute telecommunication
products. However, Far East believes that manufacturers of these products
generally distributed their products directly to end users, instead of using
intermediary distributors such as Far East. Far East also believes that
technical expertise in this product line, which it lacked, was a necessity for
successfully entering this market. Far East attributes the inability of Euro
Electron to ever develop its core business to the foregoing factors. Action had
been established to distribute industrial computers. During Fiscal 1994, Action
lost its principal vendor when such vendor sold its industrial computer
production line to another supplier. Additionally, another major manufacturer of
industrial computers established its own Hong Kong and PRC distribution
operation. Armtison was principally a holding company for Euro Electron and
Action.
The following table presents selected statement of operations data
expressed as a percentage of net sales for the Company's Fiscal 1993, Fiscal
1994, Fiscal 1995, Fiscal 1996 and Fiscal 1997.
Year ended December 31,
------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 75.3% 78.2% 77.8% 77.3% 75.1%
Gross Profit 24.7% 21.8% 22.2% 22.7% 24.9%
Selling and administrative expenses 18.3% 19.5% 20.3% 19.6% 22.5%
Operating income 6.8% 4.6% 2.2% 4.1% 4.0%
Income tax provision 1.0% .4% .1% .7% .5%
Net income 5.7% 2.8% .6% 3.4% 3.5%
===== ===== ===== ===== =====
Results of Operations
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996
Sales; Gross Profit and Cost of Goods Sold. Sales decreased by
approximately $1,248,000 or 9% to approximately $12,510,000 in Fiscal 1997 from
approximately $13,758,000 in Fiscal 1996. The decrease is primarily due to (i)
streamlining of product line offerings to concentrate on the Company's core
business of the
30
<PAGE>
water and waste water treatment business, and the discontinuation of certain
product lines not related to the Company's core business, some medical lines,
and (ii) the economic slowdown in Asia in the second half of the year.
Gross profit decreased by approximately $14,000 or 0.4% to approximately
$3,111,000 for Fiscal 1997 as compared to approximately $3,125,000 for Fiscal
1996. This decrease was attributable to the increase in gross profit margins
from 22.7% in Fiscal 1996 to 24.9% in Fiscal 1997. During Fiscal 1997, the
Company's cost of goods sold was $9,399,000, or 75.1% of sales, in comparison to
$10,633,000 or 77.3% of sales for Fiscal 1996. Cost of goods sold expressed as a
percentage of sales decreased by 2.2% in Fiscal 1997 as compared with Fiscal
1996. The gross profit margin increase and the percentage decrease in cost of
goods sold are attributed to the discontinuation or disposition of the lower
margin businesses such as the medical products line.
Selling and Administrative Expenses. Selling and administrative expenses
were approximately $2,812,000 in Fiscal 1997, an increase of approximately
$109,000 or 4.0% from approximately $2,703,000 in Fiscal 1996. The increase is
primarily due to additional expenses incurred in connection with the Company's
preparations for its Public Offering, including its application for listing on
the NASDAQ SmallCap Market, such as but not limited to legal fees, maintenance
fees, consultant fees and management fees, and operating expenses for the three
new PRC sales offices opened during the year.
Interest Income/Expense. Net interest changed from net interest expense of
approximately $98,000 in Fiscal 1996 to net interest income of approximately
$18,000 in Fiscal 1997. Interest income increased by approximately $35,000 or
52.2% to approximately $102,000 in Fiscal 1997 from approximately $67,000 for
Fiscal 1996. The increase is primarily due to the increase in bank deposits from
funds generated from operations and proceeds from the issuance of common stock
and warrants. Interest expense decreased by approximately $81,000 or 49.1% to
approximately $84,000 in Fiscal 1997 from approximately $165,000 for Fiscal
1996. The decrease was a result of the Company's reduced utilization of credit
facilities under its banking arrangements.
Other Income. Other income decreased by approximately $59,000 or 24.4% to
approximately $183,000 in Fiscal 1997 from approximately $242,000 in Fiscal
1996. The decrease in other income is
31
<PAGE>
principally due to a non-recurring profit of approximately $118,000 from sales
of investment property in Fiscal 1996.
Provision for Profit Tax. Provisions for taxes decreased by $35,000 to
approximately $62,000 in Fiscal 1997 from approximately $97,000 in Fiscal 1996.
The decrease was due primarily to the decrease in operating income and
over-provision in 1996.
Income from Continuing Operations. Income from continuing operations
increased by approximately $87,000 or 24.8% to approximately $438,000 in Fiscal
1997 from approximately $351,000 (total income of approximately $469,000 less
non-recurring profit of approximately $118,000 from sales of property) in Fiscal
1996. The increase in net income was primarily due to the improvement in the
gross margin percentage and the reduction in interest expenses.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31,
1995
Sales; Gross Profit and Cost of Goods Sold. Sales increased by
approximately $91,000 or 0.7% to approximately $13,758,000 in Fiscal 1996 from
approximately $13,667,000 in Fiscal 1995. These results reflect the phasing out
of the distribution of medical business-related products essentially being
offset by the increase in sales for products relating to the Company's core
business for water and waste water treatment. Gross profit increased by
approximately $91,000 or 3% to approximately $3,125,000 for Fiscal 1996 compared
to approximately $3,034,000 for Fiscal 1995 which was attributable to the
increase in gross profit margins from 22.2% in Fiscal 1995 to 22.7% in Fiscal
1996. During Fiscal 1996, the Company's cost of goods sold were $10,633,000 or
77.3% of sales in comparison to $10,633,000 or 77.8% of sales for Fiscal 1996 as
compared with Fiscal 1995. The gross profit margin increase and the percentage
decrease in costs of goods sold were principally the result of increases in
demand for products with higher gross profit margins.
Selling and Administrative Expenses. Selling and administrative expenses
were approximately $2,703,000 in Fiscal 1996, a decrease of approximately
$70,000 or 2.5% from approximately $2,773,000 in Fiscal 1995. The decrease is
primarily due to improved operating efficiencies resulting in the reduction of
operating expenses in the Company's PRC sales offices, lower advertising costs
incurred in exhibitions, and decreased rental expenses for the Company's sales
offices as a result of the Company's replacement of rented office space with the
use of self-owned properties in Shanghai and Beijing.
Interest Expense. Net interest expense decreased by approximately
$15,000 or 13.3% to approximately $98,000 in Fiscal 1996
32
<PAGE>
from approximately $113,000 for Fiscal 1995. The decrease is primarily the net
result of (a) the increase in mortgage loan interest of approximately $50,000
due to Far East's long-term borrowings incurred in September and October 1995
which were used to finance the purchase of properties situated in Shanghai and
Hong Kong, respectively; and (b) the decrease in interest expenses for short
term borrowings from banks and the increase in interest income received from an
affiliated company.
Other Income. Other income increased by approximately $89,000 or 58.2% to
approximately $242,000 in Fiscal 1996 from approximately $153,000 in Fiscal
1995. The increase in other income results from a gain of approximately $118,000
from sales of an investment property.
Provision for Profit Tax. Provisions for taxes increased by $88,000 to
approximately $97,000 in Fiscal 1996 from approximately $9,000 in Fiscal 1995.
The increase was due primarily to the exceptional low provision in Fiscal 1995
attributable to an adjustment of tax on profit from previous years of
approximately $45,000, resulting from a review by Hong Kong's Commissioner of
Inland Revenue.
Income from Continuing Operations. Income from continuing operations
increased by approximately $177,000 or 61.0% to approximately $469,000 in Fiscal
1996 from approximately $292,000 in Fiscal 1995. The increase in net income was
primarily due to profit of approximately $118,000 from the disposal of an
investment property, and a significant reduction in sales and administrative
expenses. The decrease in sales and administrative expenses was principally
attributable to a reduction in selling expenses (such as business travel,
advertising and exhibition costs), as the Company believes that its sales
efforts in prior years have created a solid network of distributors, a
recognized name, an established reputation and a stable PRC sales force, and
that this strength now permits the Company to force its resources elsewhere.
Discontinued Operations. The Company's shareholders decided to separate
the main operating company (Far East) from its subsidiaries in early 1996 to
focus on its core business and discontinue operations inconsistent with its core
business. The Company disposed of the following subsidiaries: Euro Electron,
Action and Armtison. The Company'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, no income (loss) to those
subsidiaries is reported in Fiscal 1996.
33
<PAGE>
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 $293,000 or 2.2% to approximately $13,667,000 in Fiscal 1995 from
approximately $13,374,000 in Fiscal 1994. The Company was able to achieve a
growth in sales even under the PRC's economic austerity measures primarily as a
result of the Company's established sales and distribution networks. Gross
profit increased by approximately $119,000 or 4.1% to approximately $3,034,000
for Fiscal 1995 compared to approximately $2,915,000 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, the
Company's cost of goods sold were $10,633,000 or 77.8% of sales remaining
relatively constant when compared to Fiscal 1994, when cost of goods sold were
approximately $10,459,000 or 78.2% of sales as the Company 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 $2,773,000 in Fiscal 1995, an increase of approximately
$163,000 or 6.3% from approximately $2,610,000 in Fiscal 1994. The increase is
primarily due to the increase in the selling and administrative expenses of the
Company's PRC sales offices, particularly taxes owed in connection with such
offices commencing in 1995.
Interest Expense. Net interest expense increased by approximately $49,000
or 76.6% to approximately $113,000 in Fiscal 1995 from approximately 64,000 in
Fiscal 1994. This interest expense increase is the result of increased levels of
borrowing, particularly the Company entering into a mortgage loan for the
purchase of its Beijing office in November 1994 with mortgage loan interest
expense increasing by approximately $26,000. 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 9.0% during 1995.
Other Income. Other income decreased by approximately $220,000 or 60% to
approximately $153,000 in Fiscal 1995 from approximately $373,000 in Fiscal
1994. The decrease in other income is primarily due to a non-recurring profit of
approximately $297,000 from sales of property in Fiscal 1994.
Provision for Profit Tax. Provisions for taxes declined by approximately
$46,000 to approximately $9,000 in Fiscal 1995 from approximately $55,000 in
Fiscal 1994. This decline was due primarily to an adjustment of profits tax on
prior years of
34
<PAGE>
approximately $45,000 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 $292,000 in Fiscal 1995, an increase of approximately HK$226,000
or 11% from approximately $262,000 (total income of approximately $559,000 less
non-recurring profit of approximately $297,000 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 the Company's self-imposed attempts to
restrict selling and administrative expenses, which only increased by 6.3% in
comparison to the PRC inflation rate of 10% during 1995.
Discontinued Operations -- Losses of Subsidiary Companies. Losses by
subsidiaries increased by approximately $24,000 to approximately $213,000 for
Fiscal 1995, from approximately $189,000 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 Company subsidiary, Euro Electron, was unable to
secure major orders from the telecommunication market and also sustained a loss
for Fiscal 1995.
Liquidity and Capital Resources
The Company has primarily used its cash to fund accounts receivable,
inventories, and capital expenditures including purchases of property, office
furniture and equipment, computers and calibration equipment. The Company has
historically met its cash requirements from cash flows from operations,
short-term borrowings under bank lines of credit, and long-term mortgage bank
loans. The Company expects, but as to which no assurance may be made, that its
present cash reserves, cash from operations and existing available bank credit
facilities would be sufficient to fund its capital expenditures. Working capital
at the end of Fiscal 1996 and Fiscal 1997 was approximately $1,307,000 and
$3,292,000, respectively.
The Company generated net cash from operating activities of $983,000 in
Fiscal 1995, used $74,000 in continuing operating activities in Fiscal 1996, and
generated net cash of $793,000 from operating activities in Fiscal 1997,
respectively, on net income of $79,000, $469,000 and $438,000 in Fiscal 1995,
Fiscal 1996 and Fiscal 1997, respectively. The Company believes that cash from
operations in Fiscal 1996 was adversely impacted by the increase in prepayments,
particularly resulting from expenses relating to preparations for the Company's
Public Offering and an increase in net amount due from affiliated companies in
Fiscal 1996. At the end
35
<PAGE>
of Fiscal 1996, the Company's accounts receivable were approximately $2,969,000
while at the end of Fiscal 1997, the Company's accounts receivable were
approximately $2,585,000.
The Company used net cash for investing activities of $1,058,000 in Fiscal
1995, generated $1,105,000 from investing activities in Fiscal 1996, and used
$71,000 for investing activities in Fiscal 1997, respectively. Cash used in
investing activities in Fiscal 1997 was mainly used to purchase facilities and
equipment. Cash in the amount of approximately $871,000 was received in Fiscal
1996 from the sale of an investment property in Hong Kong.
The Company generated from financing activities $232,000 in Fiscal 1995,
used $228,000 in Fiscal 1996, and generated $422,000 in Fiscal 1997,
respectively. The Company has various banking facilities for overdraft, import
and export credits and foreign exchange contracts from which the Company can
access up to approximately $5,800,000, and of which approximately $4,765,000
remained unused as at December 31, 1997. Approximately $3,290,000 of the
aforementioned available credit facilities were obtained on the conditions that,
among other things, the Company mortgage its properties as security for the
credit facilities, not to create a charge or lien on its other assets in favor
of other parties without such bank's consent, and the Company maintaining a
certain level of net worth. The Company also has a bank loan from the Hong Kong
and Shanghai Banking Corporation to finance the purchase of its properties with
outstanding indebtedness at December 31, 1997 of approximately $388,000, which
loan bears interest at Hong Kong's prime rate plus 1.75% and is repayable in
monthly installments through November 2002. At December 31, 1997, the Company
had an outstanding import loan to finance the purchase of goods from suppliers
of approximately US$15,906 from Standard Chartered Bank, bearing interest at
7.4% per annum. The principal and interest on such loan was repaid on January 6,
1998.
Cash increased from approximately $1,400,000 at the end of Fiscal 1996 to
approximately $2,539,000 at the end of Fiscal 1997. The principal reasons for
the increase in cash were: (i) receipt of approximately $1,817,000 in net
proceeds from the Public Offering; (ii) increased cash generated from operations
resulting from the reduction in accounts receivable and prepayments, and the
repayment of amounts due from affiliated companies. The Company plans to use the
cash for, among other purposes, to acquire a manufacturing plant and/or
engineering company in Hong Kong and/or the PRC.
The Company's net accounts receivable decreased from $2,969,000 at
December 31, 1996 to $2,585,000 at December 31, 1997, which decrease is
attributed to the Company's approximate 9% decline in sales in 1997. Amounts due
from related companies also
36
<PAGE>
declined from $344,000 at December 31, 1997 to $16,000 at December 31, 1997,
which decline is due to repayments from related companies.
Inventory increased from approximately $461,000 at the end of Fiscal 1996
to approximately $574,000 at the end of Fiscal 1997. The Company seeks to
maintain a low level of inventory consisting mostly of low-tech products to fill
its regular customers' orders, and parts and accessories for warranty purposes,
with the Company policy to order products upon customer demand. The higher
inventory level at the end of Fiscal 1997 was principally due to goods received
near year end but not delivered to customers for several reasons, including but
not limited to, a multi-component order awaiting shipment of a component while
another customer order had arrived without the customer's letter of credit or
other provision for payment having been received.
The Company's outstanding short-term bank borrowings consist of import and
export bank loans. Short-term borrowings were reduced from approximately
$1,114,000 at the end of Fiscal 1996 to approximately $16,000 at the end of
Fiscal 1997 as the Company repaid most of such debt during the year. As at
December 31, 1997, the Company had various banking facilities from which total
available credit was approximately $5,800,000, of which approximately $4,765,000
remained unused as at such date. The Company's long-term bank loans are secured
by certain of the Company's realty, and bear interest at 12% per annum. As at
December 31, 1997, the Company had outstanding long-term bank loans in the
amount of approximately $388,000.
The Company's capital expenditures were approximately $74,000 in 1997, an
increase from expenditures of approximately $14,000 in 1996 but substantially
less than the capital expenditures of $1,065,000 in 1995. Capital expenditures
in 1997 were incurred primarily in connection with the opening of new offices
and the purchase of office equipment and furniture, computers and calibration
equipment. The Company is presently seeking targets for acquisition, such as
facilities for assembly operations or engineering companies. If such
acquisitions are indeed made, the Company may expect to incur significantly
larger capital expenditures, for which the Company presently intends, but as to
which no assurance can be made, to use existing cash reserves, cash from
operations and available bank credit facilities to fund such capital
expenditures.
37
<PAGE>
Inflation
The annual rate of inflation in the PRC has declined significantly in
recent years. In 1995, 1996 and 1997 the rate of inflation was approximately
14.8%, 8.3% and 2.8%, respectively, in comparison to the preceding years,
respectively. In 1994, however, inflation grew at approximately 21.7% over 1993.
In 1993, inflation grew at approximately 13.2% over 1992. The Company believes
this declining inflation rate has had a positive effect on its results from
operations. 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, and that as a result Far East will be able to increase prices in the
market for its products and thus realize increased profit margins.
Item 9A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 10. Directors and Officers of Registrant
The directors and executive officers of Euro Tech Holdings Company Limited
are as follows:
Name Age Position
---- --- --------
T.C. Leung 54 Chairman of the Board of
Directors and Chief Executive
Officer
Jerry Wong 38 Director and Chief Financial
Officer
Nancy Wong 48 Director
C.P. Kwan 38 Director
Alex Sham 34 Director
Adam L. Goldberg 39 Director
Y.K. Liang 68 Director
Set forth below is a brief background of the executive officers and
directors based upon the information supplied by them:
T.C. Leung has been Chief Executive Officer and Chairman of the Board of
Directors of both the Company and Far East since their inception. Before
establishing Far East, Mr. Leung was an engineer for English Electric in
England, from 1965 to 1968, and Lockheed Aircraft in Hong Kong, from 1968 to
1970. Mr. Leung also served as
38
<PAGE>
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 Masters degree in Business Administration from the University
of East Asia, Macao in 1986 and is a Chartered Engineer, a title bestowed upon 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 and has been with Far East since 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 has been a Director of the Company since its inception and a
Director of Far East, and its Personnel Manager, since 1994. Ms. Wong has been
with Far East since 1971. Ms. Wong is also Far East's Chief Representative in
China. 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 of Science
degree in Business Administration from the University of East Asia, Macao 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 between 1981 and 1984.
Alex Sham has been a Director of the Company since its inception. Mr. 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 received a Bachelor of Science 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.
Adam L. Goldberg has been a director of the Company since February 16,
1998. Mr. Goldberg is an attorney who has maintained his own practice in New
York City since 1993. From 1989 until 1993, Mr. Goldberg was employed as a staff
attorney with the New York City Department of Housing Preservation and
Development. Mr. Goldberg is the designee of May Davis Group, Inc., the
underwriter of the Company's initial public offering.
39
<PAGE>
Y.K. Liang has been a director of the Company since February 16, 1998. Mr.
Liang is a director of Wong Liang Consultants Ltd. ("Consultants") and a member
of the certified public accounting firm of Y.K. Liang & Co. ("LCO"). Mr. Liang
has been associated with both Consultants and LCO for more than the past five
years. Consultants is a general business consulting firm.
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.
Item 11. Compensation of Directors and Officers
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 1997 and Fiscal 1996 by Far East's Chairman of the Board and
Chief Executive Officer.
Summary Compensation Table
Name and
Principal Position Year Salary($) Bonus($)
- ------------------ ---- --------- --------
T.C. Leung, Chairman of the Board of 1997 78,890 32,269
Directors and Chief Executive Officer 1996 15,584 38,329
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.
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
40
<PAGE>
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, 1995,
1996 and 1997, the Company made total pension contributions of approximately
$111,600, $53,500 and $115,000, respectively.
Employment Agreement - T.C. Leung
T.C. Leung's services to the Company and Far East are provided pursuant to
a five year personal services agreement between the Company, Far East and
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 the 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.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
Stock Option Plan
In November 1996, the Board of Directors adopted the Company's 1996 Stock
Option Plan (the "1996 Stock Option Plan" or, the "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 presently be granted under the 1996 Stock Option Plan is 100,000
shares, and the exercise price of all such options must be at least $5.50 per
share. Originally, up to 150,000 Options were eligible to have been granted
under the 1996 Stock Option Plan, but as the Company failed to achieve net
income for its fiscal year ended December 31, 1997 ("Fiscal Year 1997") of at
least $990,000, a total of 50,000 options thereof were cancelled in accordance
with the terms of the Plan. The remaining 100,000 options will terminate unless
the Company achieves net income of at least $1,800,000 for the fiscal year ended
December 31, 1998 ("Fiscal Year 1998").
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
41
<PAGE>
price, exercise period (up to six years) 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 was 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 option under the 1996 Stock Option Plan is six
years. Options shall become exercisable at such times and in such installments
as provided by either the Board of Directors or a committee of the Board of
Directors in the terms of each individual option, except that 50,000 Options
under the Plan already automatically terminated under the terms thereof because
the Company failed to achieve net income of at least $990,000 during the
Company's Fiscal Year 1997, and further, if the Company does not achieve net
income of at least $1,800,000 during its Fiscal Year 1998, the remaining 100,000
Options under the 1996 Stock Option Plan will automatically terminate.
Item 13. Interest of Management in Certain Transactions
Management Options
The Company has authorized the issuance of 1,400,000 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 to such
persons as the Company's Chairman of the Board and Chief Executive Officer may
direct. During 1997, the Company granted Management Options for the purchase of
up to 1,329,000 shares of Common Stock, which Management Options became
exercisable on March 14, 1998 for a term of ten years. The exercise price of
400,000 of the Management Options is $4.00 per share and $5.50 per share for the
remaining 929,000 options granted. All 71,000 Management Options not yet granted
will have an exercise price of $5.50 per share.
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 reclassifica-
42
<PAGE>
tion 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 granted to
date: (i) the aggregate amounts of shares of Common Stock subject to Management
Options granted to 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 as of
December 31, 1997.
Names of Shares Subject Per Share
Executive Officers and Directors to Options Exercise Price
- --------------------------------------------------------------------------------
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)
43
<PAGE>
Other officers and/or employees of the Company have been or will be
granted Management Options to purchase an aggregate of 150,000 Management
Options, all of which will be exercisable at $5.50 per share. No Management
Options have been exercised as of July 1, 1998.
Consultant's Options
The Company has granted options (the "Consultant 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 exercisable at $5.50 per share
and contain the same terms and conditions as the Warrants. See "Certain
Transactions with Affiliates".
Certain Transactions with Affiliates
Overview
The Company was incorporated under the laws of the British Virgin Islands
on September 30, 1996. Shortly after incorporation, the Company sold 50,000
shares of its Common Stock to Gusrae, Kaplan & Bruno and 100,000 shares of its
Common Stock 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 the Public Offering. Sidford
has been and is a business consultant to Far East which initially was paid
HK$5,000 by Far
- --------
(1) Price range.
44
<PAGE>
East and granted the option to purchase the aforementioned 100,000 shares. In
January 1997, Far East amended its consulting agreement with Sidford to pay
Sidford $5,000 per month for twenty months. At that same time, the Company
repurchased the 100,000 shares of its Common Stock held by Sidford.
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.
Concurrently with the closing of the Public Offering, the Company
consummated the Acquisition of Far East 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.
Pearl was one of the original shareholders of Far East. During the years
1992 through 1994, Pearl and Regent purchased accumulated 266,000 and 734,000
shares (or 100% in the aggregate) of the issued and outstanding common stock of
Far East for an aggregate consideration of approximately HK$11,130,000.
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 presently issued and
outstanding 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% in the case of
Mr. Kwan, and less than 1% of the Company's Common Stock for each of Messrs.
Wong and Sham and Ms. Wong, respectively. See "Management" and "Principal
Shareholders."
During Fiscal 1996, the Company transferred its equity interests in three
former subsidiaries, Armtison (a wholly owned subsidiary), Action (a 51% owned
subsidiary) and Euro Electron (an 80% owned subsidiary) to Regent and Pearl in
exchange for the book value price (an aggregate of HK$10,000) of the Company's
interest in these three subsidiaries.
On November 11, 1996 the Company completed a private placement of an
aggregate of 1,000,000 Warrants (the "Private Warrants") at
45
<PAGE>
$.15 per Warrant and received therefrom aggregate gross proceeds of $150,000.
May Davis Group, the underwriter of the Public Offering, acted as the Company's
placement agent in connection with this private placement and received an
aggregate of $19,500 in commissions and non-accountable expenses. The terms and
conditions of the Private Warrants are identical to the Public Warrants sold in
the Public Offering in March 1997. In March 1997, the Company repurchased 70,000
Private Warrants at their purchase price for an aggregate repayment of $10,500.
See "Description of Securities" and "Concurrent Registration of Securities."
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 was the proponent of the Public Offering to raise
capital for the Company and Far East and of establishing a company in the
British Virgin Islands for that purpose. After completion of the Public Offering
and the Acquisition of Far East, Mr. Leung became the beneficial owner of
approximately 68% of the Company's issued and outstanding shares of Common
Stock. See "Principal Shareholders."
The Company intends that all future transactions between the Company and
its executive officers and directors will be on terms no less favorable than
could be obtained from independent third parties and will be approved by a
majority of the Company's directors who are not interested in such transactions.
Related Party Transactions
A related company is a company in which one or more of the directors or
the shareholders of the Company have direct or indirect beneficial interests, or
a company which is under common management control.
The transactions with related parties are summarized as follows:
(in thousands of US $)
1995 1996 1997
---- ---- ----
Sales to subsidiary companies 8 -- --
Sales to related companies 141 183 226
Purchases from subsidiary companies 316 -- --
46
<PAGE>
Purchases from related companies 99 329 640
Service income received from subsidiary
companies 28 -- --
Service income received from a related
company -- 9 --
Interest income received from a subsidiary
company 21 -- --
Interest income received from a related
company 22 56 --
Rental income received from a related
company 8 64 54
Transfer of investment in subsidiary
companies to the Company's shareholders -- 1 --
All outstanding balances with related parties are unsecured, non-interest
bearing and are repayable in 1998. The related companies with which the Company
has engaged in transactions are Euro Electron, EuroTherm, Action and Armtison.
In addition, no loans or advances will be made in the future to the
Company's officers, directors or shareholders of at least five (5%) percent of
the issued and outstanding shares of any class of equity securities ("5%-plus
Shareholders"), or their respective affiliates unless such loans are for bona
fide business purposes.
47
<PAGE>
PART II
Item 14. Description of Securities to be Registered
Not Applicable
48
<PAGE>
PART III
Item 15. Defaults Upon Senior Securities
Not Applicable
Item 16. Changes in Securities, Changes in Security for Registered Securities
and Use of Proceeds
Not Applicable
49
<PAGE>
PART IV
Item 17. Financial Statements
See Pages F-1 through F-16 annexed hereto for the following consolidated
financial statements of the Company.
Euro Tech Holdings Company Limited and Subsidiaries
Report of Independent Public Accountants ................................. F-1
Consolidated Statements of Income For the Year Ended
December 31, 1995, 1996 and 1997 ...................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 ............ F-3
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1995, 1996 and 1997 ........... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 ...................................... F-5
Notes to the Consolidated Financial Statements ........................... F-7
50
<PAGE>
EURO TECH HOLDINGS COMPANY LIMITED AND SUBSIDIARIES
AUDITED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
AND
AUDITED CONSOLIDATED STATEMENTS OF INCOME,
CASH FLOWS AND CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: EURO TECH HOLDINGS COMPANY LIMITED
We have audited the accompanying consolidated balance sheets of Euro Tech
Holdings Company Limited (the "Company"), incorporated in the British Virgin
Islands, and subsidiaries ("the Group") as of December 31, 1996 and 1997, and
the related consolidated statements of income, cash flows and changes in
shareholders' equity for the years ended December 31, 1995, 1996 and 1997. 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Group as of December 31, 1996 and 1997, the results of its operations and cash
flows for the years ended December 31, 1995, 1996 and 1997 in conformity with
generally accepted accounting principles in the United States of America.
/s/ ARTHUR ANDERSEN & CO.
Hong Kong,
March 20, 1998.
-F-1-
<PAGE>
EURO TECH HOLDINGS COMPANY LIMITED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,1995,1996 AND 1997
(Amounts in thousands except for share and per share data)
<TABLE>
<CAPTION>
Notes 1995 1996 1997
------- --------- --------- ---------
US$ US$ US$
<S> <C> <C> <C> <C>
Net sales 12 13,667 13,758 12,510
Cost of goods sold (10,633) (10,633) (9,399)
--------- --------- ---------
Gross profit 3,034 3,125 3,111
Selling and administrative expenses (2,773) (2,703) (2,812)
--------- --------- ---------
Operating income 261 422 299
Interest (expenses) income net 12 (113) (98) 18
Other income, net 4 & 12 153 242 183
--------- --------- ---------
Income before income taxes 301 566 500
Income taxes 5 (9) (97) (62)
--------- --------- ---------
Income from continuing
operations 292 469 438
Discontinued operations
Loss of subsidiary
companies sold in 1996 (213) -- --
--------- --------- ---------
Net income 79 469 438
========= ========= =========
Income from continuing operations
per common share 0.20 0.32 0.23
========= ========= =========
Loss from discontinued operations
per common share (0.15) -- --
========= ========= =========
Net income per common
share 0.05 0.32 0.23
========= ========= =========
Weighted average number of common shares
outstanding (pro forma
for 1995 and 1996) 1,450,000 1,450,000 1,888,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F-2-
<PAGE>
EURO TECH HOLDINGS COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,1996 AND 1997
(Amounts in thousands except for share data)
Note 1996 1997
---- ----- -----
ASSETS US$ US$
- ------
Current assets:
Cash and cash equivalents 1,400 2,539
Accounts receivable, net 6 2,969 2,585
Bills receivable 322 73
Due from related companies 12 344 16
Inventories, net 7 461 574
Prepayments and other current assets 769 288
----- -----
Total current assets 6,265 6,075
Organization costs 8 --
Property, plant and equipment, net 8 2,005 2,009
----- -----
Total assets 8,278 8,084
===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term borrowings 9 1,114 16
Long-term bank loans, current portion 10 87 59
Accounts payable 2,636 1,917
Bills Payable 6 179
Due to related companies 12 101 143
Due to a director 12 6 --
Accrued expenses 912 440
Taxation payable 96 29
----- -----
Total current liabilities 4,958 2,783
----- -----
Long-term bank loans 10 586 329
----- -----
Shareholders' equity:
Common stock, par value US$0.01 each, 20,000,000
(1996: 20,000,000) shares authorized; 2,068,200
(1996: 150,000) shares 2 21
issued and outstanding
Additional paid-in capital 385 2,092
Warrants 93 172
Cumulative translation adjustment -- (5)
Retained earnings 2,254 2,692
----- -----
Total shareholders' equity 2,734 4,972
----- -----
Total liabilities and shareholders'
equity 8,278 8,084
===== =====
The accompanying notes are an integral part of these financial statements.
-F-3-
<PAGE>
EURO TECH HOLDINGS COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,1995,1996 AND 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Additional Cumulative
Common paid-in translation Retained
stock capital Warrants adjustment earnings Total
US$ US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C> <C>
Balance as of January
1, 1995 -- 129 -- -- 2,146 2,275
Net income -- -- -- -- 79 79
Dividends -- -- -- -- (65) (65)
----- ----- ---- ---- ----- -----
Balance as of
December 31, 1995 -- 129 -- -- 2,160 2,289
Net income -- -- -- -- 469 469
Dividends -- -- -- -- (375) (375)
Effect of transfer of
subsidiary companies
to the Company's
shareholders -- 256 -- -- -- 256
Issuance of common
stock 2 -- -- -- -- 2
Issuance of warrants -- -- 93 -- -- 93
----- ----- ---- ---- ----- -----
Balance as of
December 31, 1996 2 385 93 -- 2,254 2,734
Net income -- -- -- -- 438 438
Repurchase of
common stock (1) -- -- -- -- (1)
Share swap 14 (14) -- -- -- --
Repurchase of
warrants -- -- (11) -- -- (11)
Issuance of common
stock 6 1,721 -- -- -- 1,727
Issuance of warrants -- -- 90 -- -- 90
Foreign exchange
translation
adjustments -- -- -- (5) -- (5)
----- ----- ---- ---- ----- -----
Balance as of
December 31, 1997 21 2,092 172 (5) 2,692 4,972
===== ===== ==== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
-F-4-
<PAGE>
EURO TECH HOLDINGS COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1995,1996 AND 1997
(Amounts in thousands)
1995 1996 1997
------ ----- -----
US$ US$ US$
Cash flows from operating activities:
Income from continuing operations 292 469 438
Adjustments to reconcile income from
continuing operations to net cash
provided by (used in) operating activities:
Amortization of organization costs -- -- 8
Depreciation of property, plant and
equipment 43 72 70
Gain on disposal of property, plant and
equipment (6) -- (3)
Gain on disposal of investment property 17 (118) --
(Increase) decrease in assets:
Accounts receivable 595 (121) 384
Bills receivable (383) 61 249
Due from subsidiary companies (197) 202 --
Due from related companies (6) (308) 328
Inventories 161 199 (113)
Prepayments and other current assets 54 (595) 481
Increase (decrease) in liabilities:
Accounts payable 313 128 (719)
Bills payable 6 173
Due to subsidiary companies (7) -- --
Due to related companies -- 101 42
Due to a director 3 3 (6)
Accrued expenses 160 29 (472)
Net liabilities of discontinued operations -- (254) --
Taxation payable (56) 52 (67)
------ ----- -----
Net cash provided by (used in)
continuing operating activities 983 (74) 793
------ ----- -----
Cash flows from investing activities:
Increase in organization costs -- (8) --
Additions to property, plant and
equipment (1,065) (14) (74)
Proceeds from disposals of property, plant
and equipment 7 -- 3
Proceeds from disposal of investment
property -- 871 --
Proceeds from disposal of subsidiary
companies -- 256 --
------ ----- -----
Net cash provided by (used in)
investing activities (1,058) 1,105 (71)
------ ----- -----
(Continued)
-F-5-
<PAGE>
EURO TECH HOLDINGS COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
FOR THE YEARS ENDED DECEMBER 31,1995,1996 AND 1997
(Amounts in thousands)
1995 1996 1997
----- ----- ------
US$ US$ US$
Cash flows from financing activities:
(Repayment of) net proceeds from short-term
borrowings (239) 413 (1,098)
Proceeds from long-term bank loans 605 -- --
Repayment of long-term bank loans (66) (361) (285)
Issuance of common stock -- 2 1,727
Repurchase of common stock -- -- (1)
Issuance of warrants -- 93 90
Repurchase of warrants -- -- (11)
Repayment of other noncurrent liabilities (3) -- --
Dividends paid (65) (375) --
----- ----- ------
Net cash provided by (used in)
financing activities 232 (228) 422
----- ----- ------
Net increase in cash and cash equivalents 157 803 1,144
Cash and cash equivalents, beginning of
year 440 597 1,400
Effect of exchange rate change on cash -- -- (5)
----- ----- ------
Cash and cash equivalents, end of year 597 1,400 2,539
===== ===== ======
Supplementary information
Interest received 20 67 102
Interest paid 133 165 84
Income taxes paid 65 67 129
Noncash transaction
transfer of net liabilities of
subsidiaries to the Company's
shareholders -- 254 --
The accompanying notes are an integral part of these financial statements.
-F-6-
<PAGE>
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in United States Dollars unless otherwise stated)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Euro Tech Holdings Company Limited (the "Company") was incorporated in the
British Virgin Islands on September 30, 1996.
As of December 31, 1996, the Company was 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") which is
the principal operating subsidiary of the Company. Gusrae, Kaplan & Bruno, Esqs.
is the United States counsel of the Company. In January 1997, Euro Tech Holdings
Company Limited repurchased 100,000 common shares from Sidford International
Limited at a cost of $1,000 and Euro Tech Holdings Company Limited became wholly
owned by Gusrae, Kaplan & Bruno, Esqs. (holding 50,000 shares of common stocks)
before the initial public offering as described in Note 2 below. The shares
issued to Gusrae, Kaplan & Bruno, Esqs were recorded at fair market value after
the completion of the initial public offering. In addition, the Company issued
1,000,000 redeemable common share purchase warrants to certain private investors
in November 1996 for aggregate net proceeds of approximately $93,000. 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 March 1997 (the date of the Prospectus). In February 1997, the Company
repurchased 70,000 redeemable common share purchase warrants from certain
private investors at an aggregate cost of $10,500.
2. INITIAL PUBLIC OFFERING
On March 14, 1997, the Company completed an initial public offering (the
"Offering") of 618,200 common shares, par value of $0.01 per share, and 690,000
redeemable common share purchase warrants for aggregate net proceeds of
approximately $1,817,000. Upon the completion of the initial public offering,
the Company acquired all of the issued and outstanding ordinary shares of Far
East by the issuance of 1,027,600 and 372,400 common shares of the Company to
Regent Earning Limited, a company incorporated in Hong Kong, and Pearl Venture
Limited, a company incorporated in the British Virgin Islands, respectively.
Regent Earning Limited and Pearl Venture Limited previously in aggregate held
100% of the outstanding shares of Far East. This transaction has been 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 (the "PRC"). Upon consummation
of the above transaction, Far East became a wholly owned subsidiary of the
Company.
-F-7-
<PAGE>
2. INITIAL PUBLIC OFFERING (Cont'd)
As a result of the above transactions, the Company had 2,068,200 common shares
and 1,740,000 redeemable common share purchase warrants in issue and outstanding
as of December 31, 1997.
The consolidated financial statements of the Company and its subsidiaries (the
"Group") include the results of the companies now comprising the Group as if the
current structure of the Group has been in existence throughout the years
covered by these financial statements or since their respective dates of
incorporation where this is a shorter period. The Company's directors are of
opinion that the consolidated financial statements prepared on a basis similar
to a pooling of interests present fairly the financial position and the results
of operations and cash flows of the Group as a whole.
Details of the Company's subsidiaries are summarized as follows:
Percentage
of equity Place of
Name ownership incorporation Principal activities
- -------------------- ---------- ------------- -------------------------------
Euro Tech (Far East)
Limited 100% Hong Kong Marketing and trading of water
and waste water related
process control, analytical
and testing instruments,
disinfection equipment,
supplies and related
automation system
Euro Tech (China)
Limited 100% Hong Kong Inactive
Euro Tech Trading
(Shanghai) Limited 100% The PRC Marketing and trading of water
and waste water related
process control analytical and
testing instruments,
disinfection equipment,
supplies and related
automation system
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All material intercompany balances and
transactions have been eliminated on consolidation.
-F-8-
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
b. Subsidiaries
A subsidiary is a company in which the Company holds, directly or
indirectly, more than 50% of its issued share capital.
c. Sales
Sales represent the invoiced value of goods supplied to customers. Sales
are recognized upon delivery of goods and passage of title to customers.
d. Taxation
The Company is exempt from taxation in the British Virgin Islands.
Far East and Euro Tech (China) Limited provide for Hong Kong profits tax
at a rate of 16.5% on the basis of their income for financial reporting
purposes, adjusting for income and expense items which are not assessable
or deductible for profits tax purposes.
Pursuant to the relevant income tax laws applicable to foreign investment
enterprises in the PRC, Euro Tech Trading (Shanghai) Limited is fully
exempt from the PRC State unified income tax at a rate of 33% for the
first operating year in 1997, followed by a 50% reduction of the income
tax for the next two years, commencing January 1,1998.
Deferred income taxes are provided using the liability method. Under the
liability method, deferred income taxes are recognized for all significant
temporary differences between the tax and financial statements bases of
assets and liabilities. The tax consequences of those differences expected
to occur in subsequent years are classified as an asset or a liability.
e. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and demand deposits with
banks.
f. 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-9-
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
g. 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:
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
h. Operating Leases
Leases where substantially all the risks and rewards of ownership of the
leased assets remain with the lessors are accounted for as operating
leases. Rental payments under operating leases are charged to expenses on
the straight-line basis over the period of the relevant leases.
i. Foreign Currency Translation
The Company maintains its books and records in United States dollars. Its
subsidiaries maintain their books and records either in Hong Kong dollars
or Chinese Reminbi ("functional currency"), respectively. Foreign currency
transactions during the year are translated into the functional currency
at the applicable rates of exchange at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are
translated into the functional currency using the exchange rates
prevailing at the balance sheet date. Gain or losses from foreign currency
transactions are recognized in the statements of income during the period
in which they occur. Translation adjustments on subsidiaries' equity are
included as cumulative translation adjustment.
j. Earnings Per Common Share
Earnings per common share ("EPS") is computed on the basis of the average
number of shares of common shares outstanding. No dilutive EPS is
calculated as the stock options' exercise price was higher than the
average market price of the common shares.
-F-10-
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
k. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from
those estimates.
4. OTHER INCOME
1995 1996 1997
---- ---- ----
'000 '000 '000
Gain on disposal of property, plant
and equipment 6 118 3
Exchange gain (loss), net 47 56 110
Service fee income 52 21 --
Rental income 48 47 70
---- ---- ----
153 242 183
==== ==== ====
5. PROVISION FOR INCOME TAXES
The reconciliations of the statutory income tax rate to the effective income tax
rate as stated in the consolidated statements of income are as follows:
1995 1996 1997
---- ---- ----
Statutory tax rate 16.5% 16.5% 16.5%
Permanent differences (1.3%) 2.6% --
Overprovision in prior year written back -- -- (4.8%)
Tax effect of US GAAP adjustments 2.0% (1.1%) --
Adjustments of profits tax of prior
years resulting from Inland
Revenue Department review (14.6%) -- --
Others 0.4% (0.9%) 0.7%
---- ---- ----
Effective tax rate 3.0% 17.1% 12.4%
==== ==== ====
-F-11-
<PAGE>
6. ACCOUNTS RECEIVABLE
1996 1997
---- ----
'000 '000
Trade and other receivables 3,021 2,610
Less: Allowance for doubtful debts (52) (25)
----- -----
2,969 2,585
===== =====
7. INVENTORIES
1996 1997
---- ----
'000 '000
Trading equipment 576 656
Less: Provision for inventory obsolescence (115) (82)
----- -----
461 574
===== =====
8. PROPERTY, PLANT AND EQUIPMENT
1996 1997
---- ----
'000 '000
Land and buildings 2,070 2,067
Leasehold improvements 25 43
Furniture, fixtures and office equipment 90 81
Motor vehicles 112 112
Testing equipment 75 27
----- -----
2,372 2,330
Less: Accumulated depreciation (367) (321)
----- -----
2,005 2,009
===== =====
As of December 31, 1996 and 1997, land and buildings with net book values of
$1,860,000 and $1,147,000, respectively, were pledged to secure certain banking
facilities of Far East (see Note 10).
-F-12-
<PAGE>
9. SHORT-TERM BORROWINGS
Short-term borrowings represent import and export bank loans, bearing interest
at 7.4%-9.5% per annum as of December 31, 1996 and 1997.
As of December 31, 1997, the Group had various banking facilities available from
financial institutions amounting to approximately $5,800,000 (1996 - $5,626,000)
of which $4,765,000 (1996 - $2,430,000) remained unused.
10. LONG-TERM BANK LOANS
Long-term bank loans are secured by certain of the Group's land and buildings,
and bear interest at 12% per annum. Future maturities of long-term bank loans
are as follows:
1996 1997
---- ----
'000 '000
Within one year 87 59
During the second year 98 66
During the third year 107 74
During the fourth year 119 83
During the fifth year 130 94
Over five years but not exceeding nine years 132 12
--- ---
673 388
=== ===
11. STOCK OPTIONS
A total of 1,400,000 shares of common stock have been reserved for issuance
under the Company's management options plan ("Management Options"). The
Management Options provide for the grant of options to its officers, directors
and employees in such numbers and to such persons as the Company's Chairman of
the Board and Chief Executive Officer may direct. During the year, the Company
granted its officers, directors and employees Management Options, which allow
them to purchase up to 1,329,000 shares of common stock. Such Management Options
will not be exercisable until March 14, 1998 and have a term of up to ten years.
The exercise price of the Management Options is $4.00 per share for 400,000 of
such options and $5.50 per share for the remaining 929,000. The exercise price
of those Management Options, which have not been granted, is $5.50 per share.
-F-13-
<PAGE>
11. STOCK OPTIONS (Cont'd)
A total of 150,000 shares of common stock have been reserved for issuance under
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 1996 Stock Option Plan is
administered by the Board of Directors or a committee appointed by the Board,
which determines 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
options granted under the 1996 Stock Option Plan must be at least $5.50 per
share. The maximum term of options granted under 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 shall provide
in the terms of each individual option, provided, however, that 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 ending December 31, 1997 and
1998. During the year, no options had been granted under the 1996 Stock Option
Plan. As the Company did not achieve the net income level of $990,000 for the
fiscal year ended December 31, 1997, the right to grant the first 50,000 options
has been automatically terminated as of December 31, 1997.
-F-14-
<PAGE>
12. RELATED PARTY TRANSACTIONS
A related company is a company in which one or more of the directors or the
shareholders of the Company have direct or indirect beneficial interests, or a
company which is under common management control.
The transactions with related parties are summarized as follows:
1995 1996 1997
---- ---- ----
`000 `000 `000
Sales to subsidiary companies 8 -- --
Sales to related companies 141 183 226
Purchases from subsidiary companies 316 -- --
Purchases from related companies 99 329 640
Service income received from subsidiary
companies 28 -- --
Service income received from a related
company -- 9 --
Interest income received from a subsidiary
company 21 -- --
Interest income received from a related
company 22 56 --
Rental income received from a related
company 8 64 54
Transfer of investment in subsidiary
companies to the Company's shareholders -- 1 --
All outstanding balances with related parties are unsecured, non-interest
bearing and are repayable in 1998.
13. PENSION PLAN
The Group has a defined contribution pension plan for all its employees except
for a few employees who work in the PRC. Under this plan, all employees are
entitled to a pension benefit equals to their own contributions plus 50% to 100%
of individual fund account balances contributed by the Group, depending on their
years of service with the Group. The Group is required to make specific
contributions at approximately 10% of the basic salaries of the employees to an
independent fund management company. The Group 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, 1995, 1996 and 1997, the Group made total pension
contributions of approximately $111,600, $53,500 and $115,000, respectively.
-F-15-
<PAGE>
14. COMMITMENTS AND CONTINGENT LIABILITIES
a. Lease commitments
The Group leases office and industrial premises under various lease
agreements extending to November 1999. Rental expenses for the years ended
December 31, 1995, 1996 and 1997 were approximately $132,000, $213,000 and
$139,000, respectively.
Future minimum rental payments as of December 31, 1996 and 1997, under
agreements classified as operating leases with noncancelable terms in
excess of one year, were as follows:
1996 1997
---- ----
'000 '000
Payable during the following period:
Within one year 167 11
Over one year but not exceeding two years -- 167
---- ----
167 178
==== ====
b. Capital commitments
As of December 31, 1996 and 1997, the Group had outstanding contractual
commitments for purchase of land and buildings in the PRC of approximately
$219,000.
c. Contingent liabilities
As of December 31, 1996 and 1997, the Group had the following contingent
liabilities:
1996 1997
---- ----
'000 '000
Discounted bills 136 --
Guarantees to secure certain banking
facilities shared by the Company and a
related company 840 --
Guarantees on performance bonds and bid
bonds 205 57
----- ----
1,181 57
===== ====
-F-16-
<PAGE>
Item 18. Financial Statements
Not Applicable.
Item 19. Financial Statements and Exhibits.
(a) List of Financial Statements.
Reference is made to Item 17 for all financial statements filed as part of
this Annual Report.
(b) List of Exhibits.
Exhibit No. Description
----------------------------------------------------------
10.3 Amended Lease for Euro Tech (Far East)
Ltd.'s main Hong Kong Office(1)
10.4 Amended Lease for Euro Tech (Far East)
Ltd.'s Guangzhou Office(1)
10.8 Sales Representative Agreement between
ThermoQuest Corporation and Euro Tech
(Far East) Ltd.(1)
10.9 Distributorship Agreement between
Hach Company and Euro Tech (Far East)
Limited(1)
10.17 Lease for Chongqing Office between
Chongqing Goddess Peak Travel Co.
and Euro Tech (China) Ltd.(1)
10.18 Lease for Xian Office(1)
10.19 Lease for Shenyang Office (1)
10.20 Lease for Euro Tech Trading (Shanghai)
Ltd.'s Shanghai Office(1)
10.21 Lease for Euro Tech (Far East) Ltd.'s
second Hong Kong Office(1)
23.2 Consent of Arthur Andersen & Co., Hong
Kong(1)
- ----------
(1) Filed herewith.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EURO TECH HOLDINGS COMPANY LIMITED
--------------------------------------
(Registrant)
/s/ T.C. Leung
--------------------------------------
Chief Executive Officer and Chairman
of the Board
Date: July 15, 1998
<PAGE>
List of Exhibits
Exhibit No. Description
----------------------------------------------------------
10.3 Amended Lease for Euro Tech (Far East)
Ltd.'s main Hong Kong Office(1)
10.4 Amended Lease for Euro Tech (Far East)
Ltd.'s Guangzhou Office(1)
10.8 Sales Representative Agreement between
ThermoQuest Corporation and Euro Tech
(Far East) Ltd.(1)
10.9 Distributorship Agreement between
Hach Company and Euro Tech (Far East)
Limited(1)
10.17 Lease for Chongqing Office between
Chongqing Goddess Peak Travel Co.
and Euro Tech (China) Ltd.(1)
10.18 Lease for Xian Office(1)
10.19 Lease for Shenyang Office (1)
10.20 Lease for Euro Tech Trading (Shanghai)
Ltd.'s Shanghai Office(1)
10.21 Lease for Euro Tech (Far East) Ltd.'s
second Hong Kong Office(1)
23.2 Consent of Arthur Andersen & Co., Hong
Kong(1)
- ----------
(1) Filed herewith.
Dated the 15th day of May 1997
GEE CHANG PROPERTY
MANAGEMENT LIMITED
and
EURO TECH (FAR EAST) LIMITED
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
Tenancy Agreement
of
All Those Factories A, B, C & D on the
18th Floor -- of Gee Chang Hong Centre,
No.65 Wong Chuk Hang Road, Aberdeen,
Hong Kong
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
Term: 2 years and 1 month
Commencement on: 01/05/97
Termination on: 31/05/99
Rent: HK$ 105,900.00
Service charges: HK$ 15,000.00
Monthly payment on: 1st day of each month
Rent deposit: HK$ 317,700.00
========================================
CHAN EVANS CHUNG & TO,
SOLICITORS,
21st Floor Ka Wah Bank Centre,
No.232 Des Voeux Road Central,
HONG KONG.
========================================
REF.: PT/16535/CON/cc/ic
<PAGE>
This Agreement is made the 15th day of May
One thousand nine hundred and ninety-seven
Between GEE CHANG PROPERTY MANAGEMENT LIMITED whose registered office is situate
at 7th Floor, Tung Hip Commercial Building, No.244 Des Voeux Road Central, Hong
Kong as agent for the registered owner, ASSOCIATED DEVELOPMENT COMPANY LIMITED,
(hereinafter called "the Landlord") of the one part and EURO TECH (FAR EAST)
LIMITED [Chinese Translation Omitted] whose registered office is situate at 18th
Floor, Gee Chang Hong Centre, No.65 Wong Chuk Hang Road, Aberdeen, Hong Kong
- ---------------------- (hereinafter called "the Tenant") of the other part
NOW IT IS AGREED as follows:-
1. The Landlord shall let and the Tenant shall take ALL THOSE FACTORIES A, B, C
and D on the EIGHTEENTH FLOOR -------------------- (hereinafter referred to as
"the said premises") of the building known as GEE CHANG HONG CENTRE, No.65 Wong
Chuk Hang Road, Aberdeen, Hong Kong which said Building is erected on ALL THAT
piece or parcel of ground registered in the Land Registry as ABERDEEN INLAND LOT
NO.390 and is hereinafter referred to as "the said building" TOGETHER with a
right of way for the Tenant his servants and agents (in common with the Landlord
and all others having the like right) from time to time to pass and repass over
and along the staircases and landings erected in the said building and the right
(in common with the Landlord and all others having the like right) to use the
lifts installed in the said building during such time as the same are in
operation for the purpose of access to and egress from the said premises FOR THE
TERM of TWO (2) YEARS and ONE (1) MONTH from the 1st day of May 1997 to the 31st
day of May 1999 YIELDING AND PAYING therefor during the said term monthly and
every calendar month the rent of DOLLARS ONE HUNDRED FIVE THOUSAND AND NINE
HUNDRED ($105,900.00) ONLY --------------------------------------------------
(inclusive of rates) and monthly service charges in the sum of $15,000.00 --
both payable in Hong Kong Currency in advance on the 1st day of each and every
calendar month.
2. The Tenant agrees with the Landlord as follows:-
(1) To pay the said rent at the times and in manner aforesaid.
(2) To pay the Landlord or the person or the corporation for the time
being appointed in writing by the Landlord to undertake the general
management of the said building on the 1st day of each and every
calendar month during the continuance of this tenancy the said sum
of HK$ 15,000.00 ----- per month (hereinafter called "the service
charges") as contribution towards the expenses of the management of
and
HONG KONG STAMP DUTY [ILLEGIBLE]
005.00 [ILLEGIBLE] Original Stamped with
$63541
STAMP DUTY PAID HONG KONG
1
<PAGE>
provision of general services to the said premises as set out in
subclauses 3(4) to (8) (inclusive) hereof. The management and
general services to be undertaken or to be performed by the Landlord
do not include the disposal of industrial waste or refuse or rubbish
of the Tenant.
(3) To pay the electricity gas and water charges in respect of the said
premises and to make all necessary deposits and increase in deposits
for the supply of electricity gas and water to the said premises.
(4) To constantly maintain and keep the whole of the interior of the
said premises and every part thereof in proper and tenantable repair
and condition including all fixtures and fittings therein and to
meet and comply with all requirements and notices that may be issued
by the Urban Services Department, the Fire Services Department or
any other Government Departments and to constantly maintain and keep
all windows and window panes in good repair and condition.
(5) To permit the Landlord and all persons authorised by it at all
reasonable times to enter into the said premises to view the
condition thereof and to give or leave notice in writing upon the
said premises for the Tenant of all defects or want of repair there
found and the Tenant shall within one month after the date of every
such notice well and sufficiently repair and make good such defects
and/or want of repair whereof such notice shall have been so given
or left and the Landlord shall in no way be responsible for any
inconvenience or damage caused by the person or persons so
authorised.
(6) Not to make any alterations in or additions to the said premises
without the previous consent in writing of the Landlord. In the
event of any permitted alterations or additions being made by the
Tenant to the said premises during the said term the Tenant shall if
required by the Landlord reinstate the said premises at his own cost
and expense prior to delivering up possession thereof to the
Landlord.
(7) Not to assign underlet sublet or otherwise part with the possession
of the said premises or any part thereof or let or to sublet lend
share or by any other means whereby any person or persons not a
party to this Agreement obtain the use or possession of the said
premises or any part thereof irrespective of whether any rental or
other consideration is given for such use or possession. The tenancy
shall be personal to the Tenant specifically named in this Agreement
and without in any way limiting the generality of the foregoing, the
following acts and events shall, unless previously approved in
writing by the Landlord (which approval the Landlord may give or
withhold at its sole discretion without assigning any reason
therefor) be deemed to be breaches of this subclause -
(i) in the case of a Tenant which is a partnership, the taking in
of one or more new partners whether on the death or retirement
of an existing partner or otherwise;
2
<PAGE>
(ii) in the case of a Tenant who is an individual (including a sole
surviving partner of a partnership tenant) the death, insanity
or other disability of that individual to the intent that no
right to use, possess, occupy or enjoy the said premises or
any part thereof shall vest in the executors, administrators,
personal representatives, next-of-kin, trustee or committee of
any such individual:
(iii) in the case of a Tenant which is a corporation any take-over,
reconstruction, amalgamation, merger, voluntary liquidation or
change in the person or persons who owns or own a majority of
voting shares of such corporation or who otherwise has or have
effective control thereof;
(iv) the giving by the Tenant of a Power of Attorney or similar
authority whereby the donee of the Power or authority obtains
the right to use, possess, occupy or enjoy the said premises
or any part thereof or does in fact use, possess, occupy or
enjoy the same;
(v) the change of the Tenant's business name without the previous
written consent of the Landlord.
(8) Not to do or cause or permit or suffer to be done anything in or
upon the said premises or any part thereof which may at any time be
or become a nuisance or annoyance to the Landlord or the tenants or
occupiers of the other portions of the said building or of the
neighbouring premises or which may produce an offensive odour and to
take all such precautions as the Landlord shall reasonably from time
to time require to prevent or minimise damage to the said premises
from the Tenant's operations.
(9) Not to store or cause or permit or suffer to be stored any unlawful
or dangerous or hazardous goods or any explosive or combustible
substance on or in any part of the said premises.
(10) Not to use the said premises or any part thereof for any illegal or
immoral purpose.
(11) Not to prepare or permit or cause or suffer to be prepared any food
in the said premises.
(12) Not to do or cause or permit or suffer to be done anything whereby
the policy or policies of insurance of the said premises or of the
said building against fire may be rendered void or voidable or
whereby the premium for such insurance may be liable to be increased
and the Tenant shall indemnify the Landlord against such increased
or additional premium as shall have been brought about or caused by
any act or default of the Tenant or his servants or licensees.
(13) To use the said premises for industrial purposes only and not to
carry on any trade or business thereon which is now or may hereafter
be declared to be an offensive trade under the Public Health and
Municipal Services Ordinances or any enactment amending the same or
substituted therefor.
3
<PAGE>
(14) To cushion all the machineries placed or affixed to the said
premises and to restrict the number of workers working or staying in
the said premises in accordance with all Government regulations for
the time being in force in Hong Kong.
(15) Not to store or place or cause or permit or suffer to be stored or
placed any goods or machinery or other things on or in any part of
the said premises which impose a loading exceeding 733 kilograms per
square metre (150 lbs. per square foot).
(16) Not to overload or cause or permit or suffer to be overloaded any of
the lifts in the said building in excess of their maximum capacity
and to be responsible for any damage caused thereby.
(17) Not to install any furnace, boiler or other plant or equipment in
any part of the said premises or use any fuel that might in any
circumstance produce smoke without the previous consent in writing
of the Commissioner for Labour and the Landlord first had and
obtained.
(18) Not to install or use on the said premises or any part thereof any
machinery, furnace, boiler or other plant or equipment or use any
fuel or method or process of manufacture or treatment which might in
any circumstances result in the discharge or emission, whether
aerial or otherwise, on or from the said building or any part
thereof of any noxious, harmful or corrosive matter, whether it be
in the form of gas, smoke, liquid or solids or otherwise, or which
shall in the opinion of the Commissioner for Labour be excessive in
or unnecessary for the proper use and enjoyment of the said building
for the purpose for which the Land is granted.
(19) Not to place or store or cause or permit or suffer to be placed or
stored any goods or chattels or any things on the parking or loading
area or the driveway or in the common entrance-hall, staircases,
landings, passages or any other common parts of and in the said
building and to indemnify the Landlord against all actions, suits,
costs, expenses, losses and claims which may be incurred or
sustained by the Landlord by reason of or relating to the
non-compliance of this sub-clause by the Tenant its servants or
agents.
(20) Not to hang any flags or display any posters or things of a similar
nature on any part of the exterior walls of the said premises or the
said building such as notices for employment of workers or any kind
of advertisements or by any other cause whatsoever.
(21) Not to paint affix erect or display any sign board, neon sign or
advertisement on any part of the exterior walls or on any of the
windows of the said building but the Tenant shall be at liberty to
exhibit his firm name as contained in this Agreement in the spaces
provided by the Landlord at the main entrances of the said building
and in such size as the Landlord shall designate and approve.
(22) Not to carry on or cause or permit or suffer to be carried on any
trade or business in the nature of an oil refinery, paint spraying,
dyeing or bleaching, metal ware bearing, electrical plating, rubber
shoes manufacturing, paper carton making, paper storage,
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printing or laundry or furniture or rattan factory, foam rubber
manufacturing, weaving or knitting factory, electroplating factory
or plastic factory or any other similar kind of trade or business.
(23) Not to install any support or erect any iron bracket on any part of
the exterior walls of the said building for the installation of
air-conditioners or ventilators without the prior written consent of
the Landlord. If the Tenant wishes to install any air-conditioners
or ventilators he shall ensure that such air-conditioners or
ventilators are safely installed through the windows of the said
premises without damaging and without protruding beyond any part of
the exterior walls of the said building.
(24) Not to paint the window glass panes with paints and to constantly
keep such glass panes in a clean and tidy condition and to undertake
to replace any broken panes that may occur.
(25) Not to injure or interfere with or allow or permit or suffer anyone
to injure or interfere with or alter or test or reset or repair or
replace the "Fire Alarm" or "Sprinkler System" as the case may be or
any of the fire fighting equipments installed in the said premises
and building without the prior written approval of the Landlord
first had and obtained.
(26) Not to fix or erect or cause or permit or suffer to be fixed or
erected any chimneys or venetian blinds or sun blinds or canopies,
pipes or wires of any description to or on any part of the exterior
walls of the said building and not to fix or erect any chimneys in
any part of the said premises.
(27) Not to make any openings or damage any part of the exterior walls of
the said building.
(28) Not to erect or cause or permit or suffer to be erected any shelters
or coverings on any part of the canopy or the flat-roof or roof of
the said building.
(29) Not to remove or alter the position of any of the Smoke Lobby doors
or to make any alterations in or additions to any of such doors
whatsoever.
(30) Not to allow or cause any aerial wiring or rods to protrude outside
the exterior walls of the said building.
(31) Not to break any part of the exterior walls of the said building for
the conveyance of goods, machineries or any other things or for any
other purpose whatsoever.
(32) Not to use or allow or permit the use of any of the common
electricity supply for his own purpose whether temporary or
otherwise and not to interfere with any of the common electricity
wirings as installed in the said building.
(33) To observe and perform all regulations and conditions imposed and
notices and orders served by any Government Department or competent
authority in relation to or in respect of the carrying on of a
factory or the trade or business of the Tenant on the said premises
and to observe and perform all the terms and conditions contained in
the relevant Conditions of Sale under which the said Lot is held and
the House Rules relating to the upkeep and maintenance of the said
building (if any) and that the Tenant shall indemnify the Landlord
against all liability claims loss or damages costs and
5
<PAGE>
expenses as a result of the non-observance or non-performance
thereof.
(34) At the expiration or sooner determination of this Agreement to
deliver up to the Landlord vacant possession of the said premises in
such good repair and condition as aforesaid together with any
additional erections alterations or improvements which the Tenant
may with the consent of the Landlord as aforesaid have made upon or
in the said premises without payment of any compensation for such
additional erections alterations or improvements.
3. The Landlord agrees with the Tenant as follows:-
(1) That the Tenant paying the rent hereby reserved and performing and
observing the terms and conditions hereinbefore contained and on the
part of the Tenant to be performed or observed may peaceably hold
and enjoy the said premises during the said term without any
interruption by the Landlord or any person lawfully claiming through
or under it.
(2) To pay the Crown rent rates (except any increase in rates) and
property tax which are now or may hereafter during the said term be
imposed by Government upon the said premises throughout the said
term.
(3) To maintain and keep the main structure and roof of the said
building and every part of such main structure and roof in proper
and tenantable repair and condition.
(4) To engage and pay one or more caretakers for the said building.
(5) To keep the said lifts in reasonably good repair and in working
condition in accordance with the maintenance terms and conditions of
the lift contractors.
(6) To maintain the electric pumps (if any) for supplying flushing water
to the said building in good condition and to provide salt water for
flushing purposes whenever the same is made available by the
Government.
(7) To keep the staircases and landings and other common portions of the
said building in a clean and sanitary condition.
(8) To pay all charges in respect of electricity consumed by the said
lifts, the electric pumps and lighting in the staircases and
landings and other common portions of the said building. Provided
always that the Landlord shall not in any circumstances be
responsible for failure of the said lifts, the electric pumps and/or
lighting for any reason whatsoever including negligent or wrongful
acts or omissions by independent contractors for any damage
whatsoever caused thereby.
4. PROVIDED ALWAYS AND IT IS MUTUALLY AGREED as follows:-
(1) That if and whenever any part of the rent hereby reserved shall be
in arrear for three (3) days (whether the same shall have been
lawfully demanded or not) or if the Tenant shall fail to pay the
monthly service charges within three (3) days of due date or if and
whenever there shall be a breach by the Tenant of any of the terms
or conditions
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hereinbefore contained and to be performed or observed by the Tenant
or if the Tenant shall become bankrupt or in the case of a limited
company shall be wound up whether voluntarily or compulsorily or
shall enter into composition or arrangement with the Tenant's
creditors or shall suffer execution to be levied upon any of the
Tenant's goods or effects the Landlord shall upon the happening of
any such event be entitled to re-enter upon the said premises or any
part thereof in the name of the whole and thereupon this Agreement
shall absolutely determine but without prejudice to any rights which
may have accrued to the Landlord by reason of any antecedent breach
of any of the obligations on the part of the Tenant hereinbefore
contained.
(2) The lifts as installed in the said building shall be permitted for
use by the Tenant under instructions imposed by the Landlord at all
reasonable times only. Should the Tenant fail to observe the
instructions as imposed by the Landlord, he shall not be allowed to
use any of the said lifts. The Tenant shall indemnify the Landlord
for all damage done to any of the said lifts due to the mis-use of
the said lifts by the Tenant, his servants, agents, visitors or
customers.
(3) All fire fighting equipments as installed in the said premises and
the said building shall be and remain the property of the Landlord
and the Tenant shall take due care thereof and in particular the
Tenant shall not allow or cause any of such equipments to be
interfered with or moved to any other position. The Tenant shall
further pay the annual recharge fees for all the fire-extinguishers
as installed in the said premises.
(4) In the event of the said premises at any time during the said term
being damaged or destroyed by fire or by any other cause (not
attributable to the act default or negligence of the Tenant) so as
to be completely unfit for use this Agreement shall automatically
terminate whereupon the Tenant shall forthwith deliver up vacant
possession of the entire premises to the Landlord and neither party
shall have any claim against the other except for antecedent
breaches, if any.
(5) If for any reason whatsoever the rateable value of the said premises
is increased to a figure in excess of the rateable value as at the
date hereof or if the Rates payable in respect of the said premises
shall be increased then and in any such case the Tenant shall during
the continuance of the term of this Agreement bear such increase in
Rates.
(6) If for any reason whatsoever the Rates of the said premises are
increased to a figure in excess of the Rates at the date hereof by
reason of any decoration alteration or other works or improvements
carried out by the Tenant on the said premises then and in any such
case the Tenant shall during the continuance of the term of this
Agreement bear the increase in Rates and the amount of such increase
or increases shall form part of the rent and be paid by and be
recoverable from the Tenant accordingly.
(7) The Landlord shall not be under any liability whatsoever to the
Tenant or to any other person whomsoever in respect of any loss or
damage to person or property sustained by the Tenant or to any other
person caused by or through or in any way owing to the
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<PAGE>
overflow of water, bursting or leakage of any water pipes, waste
water pipes, drains of any description, overflow of water-closet
cistern or leakage of water-taps or sprinklers or the escape of
fumes smoke fire or any other substance or thing from anywhere
within me said building or breakage or want of repair of any part of
the fixtures or other plant or equipment including "fire alarm" or
"sprinkler" or other fire service installations and the Tenant shall
fully and effectually indemnify the Landlord from and against all
claims and demands actions and legal proceedings whatsoever made
upon the Landlord by any person in respect of any loss, damage or
injury caused by or through or in any way owing to the overflow of
water or the escape of fumes smoke fire or any other substance or
thing from the said premises owing to the neglect or default of the
Tenant, his servants, visitors, agents or licensees or to the
defective or damaged condition of the interior of the said premises
for which the Tenant is responsible hereunder and against all costs
and expenses incurred by the Landlord in respect of any such claim
or demand.
(8) The Landlord shall not be in any way responsible to the Tenant for
any damage to the said premises or the contents thereof or to the
Tenant's business including structural defects of the said building
or damage caused directly or indirectly by the malfunction or
failure of any of the lifts or the water pumps or of the electrical
equipment wiring or apparatus or by water seepage from the upper
floors or windows of the said building or by floods from the hills,
landslide, typhoon, storms, lightning or rain or by any other
unforeseen calamities.
(9) The Tenant hereby expressly declares that he waives any claim for or
entitlement to any compensation or awards, under the provisions of
the Demolished Buildings (Redevelopment of Sites) Ordinance or any
amending or substituting legislations in respect thereof and that
the Tenant shall indemnify the Landlord for any claims actions
demands arising from the non-observance or non-compliance of the
terms contained in this sub-clause.
(10) The Tenant hereby expressly declares that he has paid no premium,
construction fee, key money or other sums of money of a similar
nature for securing the tenancy and that at the expiration or sooner
determination of this Agreement the Tenant will not invoke or seek
to avail himself of any protection which may or shall hereafter be
afforded by any ordinance or regulation of Hong Kong protecting
tenants or lessees from eviction but will promptly and punctually
quit and deliver up vacant possession of the entirety of the said
premises at the expiration of this Agreement or sooner determination
as aforesaid.
(11) To secure the due performance and observance of the stipulations or
conditions herein contained the Tenant shall on the signing of this
Agreement pay to the Landlord by way of deposit the sum of
$317,700.00 -- the receipt whereof the Landlord hereby acknowledges.
At the expiration or sooner determination of this Agreement and
provided that the said rent and other sums of money hereby
stipulated shall have been
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duly paid on due dates and all other terms and conditions
hereinbefore contained duly performed and observed by the Tenant
then within the period of seven days after the Tenant shall have
duly delivered up vacant possession of the entire said premises to
the Landlord, the Landlord shall return to the Tenant the said
deposit money but without any interest. The said deposit money shall
be absolutely forfeited to the Landlord if the Tenant shall fail to
perform or observe any of the terms or conditions herein contained,
without prejudice to the Landlord's right to claim for damages or
breach of contract.
(12) Any notice under this Agreement shall be in writing and any notice
to the Tenant shall be sufficiently served if left addressed to him
at the said premises or any part thereof or sent to him by
registered post or left at his last known address in Hong Kong and
any notice to the Landlord shall be sufficiently served if sent to
it by registered post or left at its last known address in Hong
Kong.
(13) For the purpose of these presents any act default or omission of the
agents, licensees, workmen, servants, visitors or customers of the
Tenant shall be deemed to be the act default or omission of the
Tenant.
(14) For the purpose of the Landlord and Tenant (Consolidation)
Ordinance, Cap. 7 and for the purpose of these presents the rent in
respect of the said premises shall be deemed to be in arrear if not
paid in advance as stipulated by Clause 1 hereof.
5. It is hereby further declared and acknowledged by the parties hereto that
Associated Development Co. Ltd. (hereinafter called "the said Company") is the
registered owner of the premises and that Gee Chang Property Management Limited
is the lawful attorney and agent of the said Company; the term "Landlord"
wherever appears in this Agreement shall include the said Company.
6. All costs and expenses of and incidental to the preparation completion
stamping and registration (if any) of this Agreement shall be borne and paid by
the Landlord and the Tenant in equal shares. Where the tenancy is one to which
Part V of the Landlord & Tenant (Consolidation) Ordinance applies, the Tenant
shall also bear the costs of Messrs. Chan, Evans, Chung & To in the posting of
notices in compliance with the said Ordinance.
7. It is hereby declared that in these presents if the context permits or
requires words importing the singular number shall include the plural number and
words importing the masculine gender shall include the feminine gender and the
neuter gender.
8. The Tenant shall be at liberty to terminate this Agreement after the
expiration of THIRTEEN MONTHS from the date of commencement of the tenancy
created herein by giving to the Landlord at least one calendar month's previous
notice in writing of its intention so to do (such notice only to expire on the
last day of any calendar month).
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AS WITNESS the respective hands of the parties hereto the day and year first
above written.
SIGNED by YEUNG KWOK YUI Director ) FOR AND ON BEHALF OF
) GEE CHANG PROPERTY MANAGEMENT LIMITED
for and on behalf of the Landlord whose )
) /s/ YEUNG KWOK YUI
signature is verified by:- )
/s/ PATRICK P.W. TO
PATRICK P.W. TO
Solicitor,
Hong Kong
For and on behalf of
SIGNED by Wong Mo Kee ------- ) EURO TECH (FAR EAST) LTD
) [Chinese Translation Omitted]
- ---------------- for and on behalf of )
) /s/
the Tenant in the presence of:- ) -----------------------------
Authorized Signature
/s/ PATRICK P.W. TO
PATRICK P.W. TO
Solicitor,
Hong Kong
INTERPRETED by:-
/s/ Cheng Chau Ling
Cheng Chau Ling
Clerk to Messrs. Chan, Evans, Chung & To,
Solicitors, Hong Kong.
RECEIVED on the day and year first above )
written of and from the Tenant the above- )
mentioned deposit of )
DOLLARS THREE HUNDRED SEVENTEEN ) HK$317,700.00
THOUSAND AND SEVEN HUNDRED ONLY ) =============
Hong Kong Currency.
FOR AND ON BEHALF OF
GEE CHANG PROPERTY MANAGEMENT
LIMITED
/s/ YEUNG KWOK YUI
WITNESS:-
/s/ PATRICK P.W. TO
PATRICK P.W. TO
Solicitor,
Hong Kong
ENGLISH TRANSLATION - TENANCY AGREEMENT OF GUANGZHOU OFFICE
OFFICE TENANCY AGREEMENT
LANDLORD: MR LIU KWONG WAH (hereafter called PARTY A)
TENANT: EURO TECH (CHINA) LTD (hereafter called PARTY B)
PARTY A is willing to rent out his own premise to PARTY B for office use,
address of the premises is situated at Rm 2104 21/F South Tower, World Trade
Centre, Guangzhou. Both parties agreed to be obliged by this agreement.
1) Then Tenancy period is for one year; starting from 1/4/98 to 31/3/99. Upon
the expiry of this agreement, under the same conditions and terms PARTY B have
the priority to renew the tenency should PARTY A agree to continue to lease the
premises. However the monthly rental fee will be adjusted according to price
index.
2) The monthly rental fee for period between 1/4/98 to 31/3/99 is HK$5,000.-
The rental fee for current month should be paid on the 30th of the previous
month, payment after the specific time is regard as delay. A receipt will be
given by PARTY A upon receipt of the rental fee.
3) On signing this agreement, PARTY B should pay PARTY A 3 month rental fee
(inclusive of one month rental fee and two month deposit) and telephone deposit
HK$10,000.- Total amount is HK$25,000.- Upon expiry of this agreement, PARTY A
will pay back the deposit with no interest to PARTY B, provided that PARTY B
have settled all outstanding rental fee and expenses incurred.
4) Prior to the effective of this agreement, PARTY A should provide information
to PARTY B that all expenses incurred (inclusive of telephone, electricity,
management fee and etc) in this premises before 1/4/98 have been settled.
5) Within the tenenacy period, PARTY B is responsible for the management,
electricity, telephone fee. PARTY B needs to pay the monthly rental fee on time,
if without any reason the rental fee is delayed for one month, PARTY A have the
right to deduct the rental fee from PARTY B's deposit and reserve the right to
take back the property. If PARTY B delay in paying the management for one month
without reason. PARTY A also have the right to deduct the management fee from
the deposit and reserve the right to take back the premises.
6) PARTY B have to guarantee that the rented premises is for office use only;
and that they will obey the Chinese law and the policies of the Guangzhou
government official; the regulations of the management office and no illegal
business is carried out in the premise. Any indebtedness of PARTY B have no
relationship with PARTY A.
7) Upon expiry or termination of this agreement, PARTY B must restore the
original position of the premises on time, and information must provide to PARTY
A that PARTY B have paid all expenses (inclusive of electricity, management,
telephone fee and etc) incurred during the tenency period. PARTY A will return
the deposit to PARTY B, however if PARTY B cannot restore the premise to its
original position (exception of reasonable damages), PARTY A have the right to
take the deposit as compensation for repair purpose.
<PAGE>
8) If supplement is required for this agreement, the supplement is also valid as
the agreement itself.
9) This agreement will be effected after signing by both parties. Both parties
have one valid copy.
Signed by PARTY A Signed by PARTY B
21/3/98 1/4/98
Revised 4/25/98
INTERNATIONAL DISTRIBUTORSHIP AGREEMENT
THIS INTERNATIONAL DISTRIBUTORSHIP AGREEMENT is effective as of this 1st
day of January, 1998 (the "Effective Date") by and between ThermoQuest
Corporation, a Delaware corporation, whose business address is 355 River Oaks
Parkway, San Jose, California, U.S.A., 95134 (referred to as "Company") and EURO
TECH (FAR EAST) LTD, an Hong Kong corporation whose business address is 18/F Gee
Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong. (referred to as
"Distributor") (hereinafter referred to as the "Agreement");
WHEREAS, the Company has developed and manufactured certain machines,
equipment, spare parts, software, services and training as more particularly
described in Exhibit "A", which is attached hereto and incorporated herein by
reference for all purposes (the "Product or Products"); and
WHEREAS, the Distributor wishes to market, sell and service the Products
in that certain geographical area as indicated in Exhibit "B", which is attached
hereto and is incorporated herein by reference for all purposes (hereinafter
referred to as the "Territory");
THEREFORE, in consideration of the mutual undertakings set forth in this
Agreement, the sufficiency of which is hereby acknowledged, Company and
Distributor agree as follows:
1. PRODUCTS AND TERRITORY. Subject to the terms and conditions of this
Agreement, Company appoints Distributor as its exclusive distributor of the
Products for importing, marketing, selling and servicing within the Territory.
Company shall therefore sell to Distributor and Distributor shall purchase from
the Company the Products in accordance with this Agreement. Company reserves the
right, at its sole discretion, to remove and/or change the classification of any
Product listed on Exhibit "A" by giving the Distributor notice in writing not
less than thirty (30) days prior to such removal, addition and/or change of
classification.
2. TERRITORIAL AND OPERATIONAL RESPONSIBILITY. It is the desire of Company
that Distributor achieve substantial sales volumes of the Products and establish
a first class support base for such sales in the Territory. Distributor shall
use its best efforts to market, sell and service any Product in the Territory.
Without prejudice to the generality of the above, Distributor shall, at its own
expense, accomplish all of Company's requirements to achieve this success,
including, without limitation, the following:
a. Develop a detailed business plan acceptable to Company for the
successful marketing, selling and servicing of the Products in the Territory;
b. Employ or otherwise provide competent and reliable personnel to perform
all of its obligations under this Agreement;
c. Maintain adequate facilities in the Territory which shall meet the
reasonable standards of Company;
d. Establish effective customer service and support for the appropriate
Products as described in Exhibit "A".
<PAGE>
e. Effectively market any Product in the Territory through such means as
trade shows, demonstrations, seminars, literature distribution, direct mail,
advertising and/or any other available means;
f. Effectively perform market research for Company on any new product
ideas, concepts and designs and market profiles;
g. Effectively monitor customer satisfaction with respect to the
performance and customer support of the Products in the Territory;
h. Write and produce quality sales, marketing, technical, service and
training literature to promote the Products in the Territory;
i. Recommend product modifications to make the Products more competitive
in the Temtory and assist Company in making such modifications.
3. RELATIONSHIP OF THE PARTIES.
a. Distributor is neither an agent, employee, coventurer, partner,
associate or legal representative of Company. The parties relationship is solely
that of a buyer and seller, and each party is responsible for its own costs of
operation, except as specifically provided herein. Moreover, Distributor is
granted no right or authority to assume or create any obligation or
responsibility for or on behalf of Company or otherwise to bind Company or to
use Company's name in a manner other than as may be expressly authorized in
writing by Company.
b. Distributor shall, at its expense, comply with all laws and regulations
within the Territory and do all the things necessary to achieve registration (if
necessary) of this Agreement with, or to obtain any permission, license or
consent from any government body, Chamber of Commerce, or the like as may be
necessary for the purposes of this Agreement.
4. NON-COMPETE.
a. During the Term and any renewal term, Distributor shall only purchase
the Products from the Company. During the Term and any renewal term and for a
period of one (1) year after the termination date of this Agreement, Distributor
shall not, within the Territory, either directly or indirectly as a shareholder,
investor, partner, director, officer, employee, consultant or otherwise (i)
develop, manufacture, market or sell any product which is competitive with any
Product, and (ii) render or market any service which is competitive with any
service contemplated in this Agreement.
b. Distributor agrees that the product, duration and geographic scope of
the non-competition provision set forth above is reasonable. In the event that
any court or arbitrator determines that the product, duration or the
geographical scope, or any or all of them is unreasonable and that such
provision is to that extent unenforceable, the parties agree that the provision
shall remain in full force and effect for the greatest time period and area and
for those products that would not render it unenforceable. The parties intend
that this non-competition provision shall be deemed to be a series of separate
covenants, one for each and every political subdivision of each and every
country outside the U.S. where this provision is intended to be effective.
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<PAGE>
c. On a quarterly basis, Distributor shall send the Company a list of all
sub-distributors and/or sales representatives and/or agents represented by it
and keep such list current.
5. ORDERS AND SHIPMENT
a. All shipping dates are approximate and are based upon Company's prompt
receipt of all necessary information from Distributor to properly process each
order. Except as provided in Section 5(e), the Company shall use its good faith
efforts to ship any Product in response to any orders received from the
Distributor by the method agreed to in writing by the parties within the same
delivery schedule as is generally available to customers for any Product outside
the United States, plus a reasonable time allowance for greater shipping
distances; provided however, that no order placed by the distributor shall be
binding upon the Company until and unless the Company acknowledges such order by
first class air mail letter, express mail, facsimile, or telex; and provided
further that the Company shall not be responsible for delays caused by events
outside of its control. Such events may include, but are not limited to strikes,
fires, floods, unavailability of materials, discontinuance of a particular model
of any Product and inability to obtain or maintain necessary patents, copyrights
or licenses. Except as provided in Section 6(e), if the Distributor should
cancel any order more than two weeks after the acknowledgement thereof by the
Company, it shall reimburse the Company, as liquidated damages (which the
parties hereto agree to be a genuine pre-estimate of the Company's loss) for
such cancellation, an amount equal to the percentage of completion of any
Product multiplied by its then existing list price.
b. Any Product sold to the Distributor shall be packaged by the Company in
outer containers of such export packing type as shall be required to conform to
carrier insurance requirements and to ensure under normal handling the delivery
of any Product to the Distributor or its consignee. Shipping and packaging costs
shall be borne by the Distributor. The Distributor shall perform all functions
necessary to comply with any import regulations and shall pay any applicable
duty, tax or other charge relating to any such shipment.
c. All sales of any Product made by the Company to the Distributor
pursuant to this Agreement will be made F.O.B. (as defined in ICC Incoterms,
1990) the Company's plant to such destinations within the Territory as the
Distributor may direct, and in each case risk of loss, damage or deterioration
of any Product will pass to the Distributor or its consignee at the time of
placement on board a carrier at the Company's plant. Title to any Product will
pass from the Company to Distributor in accordance with Section 11.
d. The Company shall not be required to ship incomplete orders nor
consolidate orders for shipment, and the Company may issue partial invoices for
partial shipments.
6. PRICE AND TERMS OF PAYMENT
a. The price of any Product sold to the Distributor will be determined by
reference to the Company's published International Price List, as in effect from
time to time. The Company shall have the unrestricted right at any time to
change its published International Price List provided it gives Distributor
thirty (30) days prior written notice of such change. A copy of Company's
International Price List in effect as of the Effective Date is attached as
Exhibit "C". Distributor shall be entitled to a discount on the Product prices
referenced on the Company's then current International Price List in accordance
with the Product Discount Schedule, which is
3
<PAGE>
attached hereto as Exhibit "D" and is incorporated herein by reference (the
"Product Discount Schedule"). The Company shall have the unrestricted right at
any time to change the discount rates on Product prices provided it gives
Distributor thirty (30) days prior written notice of such change. Except as
otherwise agreed to in writing by the parties hereto, no discounts will be
credited or allowed on any Product supplied by the Company which is not
manufactured by the Company or is not listed in Exhibit "A". Moreover, except as
provided for in Section 6(c) and (d) herein, the Company shall not be obligated
to pay Distributor any compensation on the sales by Distributor of any Product.
b. The payment terms for any order by Company will be by irrevocable
letter of credit on a United States bank or at the terms established by Company
and agreed to in writing by the parties. All payments under this Agreement shall
be made in U.S. Dollars and shall be net of any value-added or other taxes,
duties and similar charges imposed on any such order. All risks of foreign
exchange or currency devaluation shall be borne by the Distributor.
c. If the Distributor shall become delinquent in making any payment
hereunder, then the company may charge interest on any unpaid amount from the
date on which it is due until paid at an interest rate to be determined by
Company, which shall not exceed the maximum interest rate permitted by law. In
addition, if Company agrees in writing to allow Distributor to pay for any order
on credit and Distributor exceeds any credit limit established by the Company,
then the Company may, at its sole option, withhold any shipment until
Distributor has reduced such credit levels to levels acceptable to Company. If
at any time the Company deems itself reasonably insecure, it shall have the
right to directly invoice all customers of the Distributor who have placed
orders for any Product with the Distributor and to cause payment of such
Invoices to be made directly to the Company. In such event, the Company will pay
to the Distributor compensation in respect of each such order at the percentage
rates of Company's Net Invoice Price as set fort in Distributor's Compensation
Rate Schedule, which is attached hereto as Exhibit "E". Distributor's
compensation on any such order shall be paid by Company in U.S. Dollars and
within forty-five (45) days after receipt of payment from the customer after
allowing any offsets, credits and/or payments. The term "Net Invoice Price" as
used herein or in the exhibits hereto shall mean the then current established
price of any Product requested in each such order received by the Company,
exclusive of freight, transportation charges, taxes, cost reduction, Original
Equipment Manufacturer (OEM) discounts, returns, collection costs, company
services and installation costs. The Company shall have the unrestricted right
at any time to change its percentage rates on compensation for such orders
provided it gives Distributor thirty (30) days prior written notice of such
change. No compensation will be credited, allowed or paid on any Product
supplied by the Company which is not listed in Exhibit "A".
d. Notwithstanding anything else to contrary herein, the Company shall
have the unrestricted right, should it so elect, to directly sell any Product
outside and in the Territory. However, if a customer of Distributor who has its
principal place of business in the Territory, places an order directly on
Company for the purchase of any Product, then the Company will pay and the
Distributor will have deemed to have earned compensation in respect of each such
order provided such order arose from the efforts of Distributor and/or
Distributor agrees to assume in writing responsibility for service and support
of such Product. The Company will, after allowing any offsets, credits and/or
payments, pay Distributor compensation on each such order accepted by Company at
the percentage rates of Company's Net Invoice Price as set forth in the Exhibit
"E". The Company shall have the unrestricted right at any time to change its
percentage rates on compensation for such orders provided it gives Distributor
thirty (30) days prior written notice of such change. No compensation will be
credited, allowed or paid on any Product supplied by
4
<PAGE>
the Company which is not listed on Exhibit "A". In the event that such an order
is accepted, in whole or in part, at a price less than the current established
price, then the Distributor shall be entitled to and receive compensation only
on the reduced price at which such order was accepted. Distributor shall provide
the Company with all reasonable assistance in making such sales and shall
provide, in accordance with Section 9, service to such customers of Distributor.
e. If any non-standard unit of Product is required to be manufactured
pursuant to specifications provided by the Distributor or any third person, the
price, time of delivery and provisions for damages in the event of cancellation
of the order governing such unit shall be specifically negotiated in each
instance.
7. PRODUCT WARRANTIES.
EXCEPT AS OTHERWISE PROVIDED IN EXHIBIT "F", WHICH IS ATTACHED HERETO, THE
COMPANY MAKES NO WARRANTIES, EITHER EXPRESSED OR IMPLIED, TO DISTRIBUTOR AND/OR
TO ANY OF DISTRIBUTOR'S CUSTOMERS, AGENTS, REPRESENTATIVES, SUCCESSORS AND/OR
ASSIGNS UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IF ANY MODEL OR SAMPLE WAS
SHOWN, SUCH MODEL OR SAMPLE WAS USED MERELY TO ILLUSTRATE THE PRODUCT AND NOT TO
REPRESENT THAT ANY PRODUCT DELIVERED HEREUNDER WOULD CONFORM TO THE MODEL OR
SAMPLE.
8. SOFTWARE AND COMPUTER PROGRAMS. In order for the Distributor to sell
and for any end-user to use any software listed on Exhibit "A" and/or
incorporated into any Product (the "Software"), Distributor shall be required to
have each end-user execute an appropriate Software License Agreement submitted
by the Company and Distributor shall timely deliver to Company a fully-executed
original of the Software License Agreement signed by each such end-user.
9. SERVICING AND SPARE PARTS.
a. The Distributor shall, during the Term or any renewal thereof, provide
the highest professional standards in servicing any Product sold by Distributor
and/or sold by Company for use within the Territory, and shall instruct its
service personnel in repair and servicing methods for any such Product.
b. Within two months from the Effective Date, the Distributor shall
purchase for its own account, and thereafter maintain, a quantity of spare parts
for the Products sufficient to fulfill its obligations under this Agreement.
c. Except for the Company's obligations pursuant to Sections 10 below, the
Distributor's service obligations under this Section shall be at such reasonable
charge to customers as it determines. Distributor's failure to provide the
servicing required herein shall constitute grounds for Company to terminate this
Agreement without Company incurring any liability from Distributor after thirty
(30) days written notice by Company to Distributor.
5
<PAGE>
10. THE COMPANY'S EXCLUSIVE OBLIGATIONS.
a. Distributor shall examine all of the Products as soon as reasonably
practicable, and in any event within fourteen (14) days after arrival at the
destination to which such Products are dispatched in accordance with Section 5.
Distributor shall immediately notify the Company of any incomplete or failed
delivery or any defective Product. Distributor shall be deemed to have waived
any claim connected with any such delivery and/or connected with any such defect
if Distributor fails to notify Company within such fourteen (14) day period.
b. The obligations of the Company with respect to any Product duly
notified by the Distributor in accordance with Section 10(a) and confirmed by
the Company to be defective shall be limited exclusively to the repair or
replacement of such Product. The obligations of the Company with respect to any
Software duly notified by the Distributor in accordance with Section 10(a) and
confirmed by the Company shall be limited exclusively to correcting any errors
in the Software.
c. No Product shall be returned to the Company without its prior written
approval. Upon the return of any incomplete or defective Product to the Company,
the Company shall pay any and all shipping, insurance and storage charges
incurred by Distributor relating to any such defective Product.
d. The remedy provided in this Section is the exclusive remedy for the
Distributor or any ultimate purchaser under the Agreement.
11. TITLE
a. The Company shall retain ownership of any Product until all sums due to
the Company from Distributor for such Product or other goods or services have
been paid in full.
b. Until ownership of any Product passes to Distributor.
i. Distributor shall insure them against all usual risks to full
replacement value;
ii. Distributor shall sell, use or part with possession of them only in
the ordinary course of business;
iii. Distributor shall, where reasonably possible, keep them separate and
clearly identified as the Company's property;
iv. Distributor shall pay all taxes, duties and other charges levied in
respect of them when due;
v. Distributor shall not create or allow the creation of any security
interest or any other kind of encumbrance to be placed on the
Products and shall protect the ownership of the Company in the
Products against all third parties;
vi. The Company shall, at all times and without prejudice to the
Company's other remedies, have the irrevocable right to examine,
inspect, recover and/or sell any Products and for any such other
purpose to enter the premises owned, controlled, leased or used by
Distributor.
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c. Distributor shall promptly reimburse the Company for any and all losses
and expenses incurred by the Company as a result of any failure of Distributor
duly to comply with its obligations under this Section 11.
d. Distributor shall provide the Company with current financial
information concerning Distributor's business relating to this Agreement on a
monthly, quarterly and audited fiscal year-end basis, with detail satisfactory
to the Company and prepared in accordance with generally-accepted accounting
principles consistently applied. Company shall have the right to review and
verify such financial information and Distributor shall provide the Company, at
Distributor's cost, access to Distributor's financial records, books, accounts
and other financial information as they relate to this Agreement.
12. INDEMNITY
a. DISTRIBUTOR SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS COMPANY AND ITS
PARENT AND AFFILIATED COMPANIES, TOGETHER WITH THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, SUCCESSORS AND ASSIGNS FROM AND
AGAINST ANY CLAIM, DEMAND, CAUSE OF ACTION, LOSS, EXPENSE (INCLUDING BUT NOT
LIMITED TO ATTORNEY'S FEES) AND/OR ANY LIABILITY OF ANY KIND CAUSED BY OR
ARISING OUT OF OR RELATING TO (i) ANY DEFAULT BY DISTRIBUTOR OF ANY PROVISION
UNDER THIS AGREEMENT AND/OR (ii) ANY ACT OR OMISSION (NEGLIGENCE OR NOT) ON THE
PART OF DISTRIBUTOR IN CONNECTION WITH THIS AGREEMENT.
b. COMPANY SHALL NOT BE LIABLE TO THE DISTRIBUTOR FOR ANY PUNITIVE
DAMAGES, AND/OR FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES
FOR ANY REASON WHATSOEVER.
c. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY HEREIN, THE LIABILITY OF
COMPANY UNDER THIS AGREEMENT (IRRESPECTIVE OF WHETHER COMPANY MAY HAVE BEEN OR
MAY BE ALLEGED TO HAVE BEEN NEGLIGENT OR OTHERWISE LEGALLY AT FAULT AND
IRRESPECTIVE OF INSURANCE COVERAGE MAINTAINED BY EITHER PARTY) SHALL IN NO EVENT
EXCEED THE PAYMENT, IF ANY, RECEIVED BY COMPANY FOR ANY PRODUCT, SPARE PART
AND/OR SERVICE SOLD OR TO BE SOLD, AS THE CASE MAY BE, WHICH IS THE SUBJECT OF
THE CLAIM OR DISPUTE.
13. INSURANCE During the Term or any renewal hereof, Distributor shall
maintain in force a comprehensive general liability ("CGL") insurance policy
with an insurance carrier suitable to the Company. The CGL Policy shall have
coverage limits of at least $1,000,000 and shall name Company as an additional
insured. Distributor agrees to provide annually and upon request of Company a
certificate of insurance indicating the existence of the CGL Policy. Distributor
shall immediately notify the Company in writing if its CGL insurance policy is
canceled by the carrier, if its liability limits are modified or if Distributor
cancels the insurance on its own initiative for any reason whatsoever.
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<PAGE>
14. PATENTS, COPYRIGHTS, TRADEMARKS AND TRADE NAMES
a. Distributor recognizes the exclusive right of Company in and to all of
Company's trademarks applied to any Product to any and all of Company's
copyrighted material used in connection therewith. Distributor also recognizes
the validity of all trademarks, patents and/or copyrights owned or controlled by
Company covering the Product (which include any Software), and shall not dispute
or impair the value of any such trademarks, patents and/or copyrights. Company
gives no representation or warranty as to the enforceability or validity of any
trademarks, copyrights, patents or other rights or as to whether any of the same
infringe the rights of any third party.
b. Distributor shall not, without the prior written consent of the
Company, make reference to, or otherwise designate Company's trademarks or trade
name except in the promotion or sale of any Products. Company's trademarks or
trade name are not to be used in printed materials without first submitting
specimen printings to Company for its prior written approval.
c. Whenever Distributor shall mention any trademark of Company in any form
of printed material, Distributor shall place an asterisk immediately after and
slightly above the trademark at the first occurrence of the mark and on each
page, referring to a footnote, reading: "Trademark of ThermoQuest."
d. Distributor shall not use any other trademark in combination with
Company's trademark on any Product or to use any trademark or trade name of
Company, either alone or in combination with any other trademark or trade name,
on any other product.
e. No right or license under any patent, copyright, trademark or trade
name of either Company or any of its parent and subsidiaries is granted by, or
is to be inferred from, any provision in this Agreement, except as and only to
the extent expressly provided herein.
f. Distributor shall promptly, upon the request from the Company, execute
such form of registered user agreement or several registered user agreements
from time to time as may be required by the Company in respect of the Trade
Marks and/or Service Marks for registration with the authorities in the
Territory or any part therof.
15. CONFIDENTIAL INFORMATION
a. Distributor recognizes that it may come into possession of certain
confidential or proprietary information, trade secrets, know-how or data of
various kinds pertaining to the Company's business. Distributor shall maintain
all such information, whether oral or written, in accordance with the following
terms and conditions:
i. "Confidential Information" shall mean and shall include, but not
be limited to, ideas, concepts, development plans for new or improved
products or processes, data, formulae, techniques, designs, sketches,
know-how, photographs, plans, drawings, samples, test specimens, reports,
customer lists, price lists, product offerings, discounts, compensation
schedules, findings, studies, inventions and any and all technical and/or
business information relating to the Company.
8
<PAGE>
ii. Distributor shall (a) maintain all Confidential Information in
strictest confidence, (b) not disclose the Confidential Information to any
third party other than as stated in Subsection 15.b. and (c) not use the
Confidential Information for any purpose other than as contemplated by
this Agreement, except with the prior written consent of the Company. This
obligation shall continue for the term of this Agreement and any extension
thereof and for a period of three (3) years after the date of termination
of this Agreement as set forth below.
iii. The obligation set forth in Subsection 15.a.ii. above shall not
apply, however, to any Confidential Information which the Distributor can
show by written evidence: (a) is or becomes known to the public through no
fault of the Distributor, but only after such public disclosure occurs;
(b) was already in the Distributor's possession prior to receipt thereof
from the Distributor, or (c) is hereafter obtained by the Distributor from
another source free of restrictions on use or disclosure, provided such
source is not acting on behalf of the Distributor and has the legal right
to make such a disclosure.
iv. The Distributor shall not make any commercial use of the
Company's Confidential Information for so long as it remains confidential
without first obtaining a license from the Company for such use.
b. The Distributor may supply information disclosed by the Customer
hereunder to its respective customers, but only to the minimum extent necessary
for market development, application and sale of any Product.
16. APPROVAL OF DESIGN
a. Before Distributor undertakes to make any change of design
specifications, materials or similar characteristics of any Product, Distributor
must obtain Company's prior written approval to any such changes.
b. Company shall own any and all improvements made by Distributor on any
Product, whether said improvement is patentable or not. In this regard, Company
hereby grants to the Distributor a royalty-free, non-exclusive non-transferable
license to make, use, and sell all improvements within the Territory that are
made by Distributor on any Product.
17. ADVERTISING
a. Distributor shall advertise the Products in suitable media in the
Territory with due regard to appeal of the advertising to industry. Company will
furnish to Distributor, at no expense, samples of advertising materials used in
other territories, with the right to use the same, but Distributor need not be
bound by these and may, in its discretion, adopt any advertising methods and
displays that it believes most effective for the market and the Territory.
b. Distributor hereby grants to the Company the right to use, without
charge,
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advertising methods, displays and materials which Distributor may devise in
marketing any Product and Distributor further grants to Company the right,
without charge, to make such information and materials available to other
distributors for their use.
18. BUSINESS PLAN AND ACTIVITY REPORTS. Within thirty (30) days after the
Effective Date, Distributor shall submit to Company a Business Plan outlining
the expansion of Company's Products and business in the Territory. Distributor
shall work closely with Company in developing the Business Plan. Moreover,
Distributor shall submit to Company activity and forecast reports as defined in
Exhibit "G".
19. TERM. The term of this Agreement shall be for a period of one (1) year
from the Effective Date (the "Term") and shall be automatically renewed on a
yearly basis, unless Company notifies Distributor in writing of its intention
not to renew at least thirty (30) days prior to the expiration of the Term or
any annual renewal. In the event that notice of intention not to renew is given
by Company as set forth in this Section, all Distributor purchase orders which
have been confirmed by Company will be handled in the same manner and with the
same duties and obligations of each party as if no such notice had been given.
Company will not be obligated to confirm any further purchase orders from
Distributor after the date of any notice of termination.
20. DEFAULT AND EARLY TERMINATION
a. This Agreement may be terminated immediately by Company if
Distributor shall:
i. Fail to timely pay to Company any payment due under any part of
this Agreement;
ii. Fail to comply with the terms and conditions of this Agreement
after Company has notified Distributor in writing of Distributor's
failure to comply and Distributor has not remedied the matter to the
satisfaction of Company within thirty (30) days thereof;
iii. Be adjudged insolvent, or if a petition of bankruptcy is filed
by or against the Distributor, or an assignment is made for the
benefit of any creditor or a receiver is appointed or applied for;
iv. Have its corporate charter terminated or cease to do business in
the Territory;
v. Amalgamate with or become controlled by any other party without
Company's prior written consent;
vi. Enter into a business relationship with any individual, firm,
partnership and/or corporation which competes with the Product
without Company's prior written authorization;
vii. Become, in Company's reasonable opinion, incapable of carrying
out the terms of this Agreement to Company's satisfaction; or
viii. Fail to purchase the Products from the Company in the
following U.S. $ amounts (expensed net of all discounts, and net of
any duties, taxes or
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similar charges referred to in herein):
1998 $ 1.2 M
-------
1999 $ 1.4 M
-------
2000 $ 1.6 M
-------
b. Termination of this Agreement for any reason shall have the effect of
terminating all further rights and obligations of the parties hereto, other than
those expressly provided for in Subsection 20.f. below, but in the event of
termination, neither Company nor Distributor shall be relieved from their
respective obligations to pay any sum of money due, payable, or accrued under
this Agreement. All accounts between Company and Distributor shall be settled in
full within ninety (90) days after the date of termination.
c. Distributor expressly waives the benefit of and agrees not to assert
any statutory or other rights available under applicable law which limits the
exercise of any termination rights or which may provide for compensation not
contemplated in this Agreement to Distributor. Upon payments in respect of any
goodwill or loss of prospective profits on account of any expenditure incurred
by Distributor, except as specifically provided by this Agreement or authorized
in writing by Company.
d. In the event of termination, Distributor shall surrender to Company
without any claim for compensation all Company Confidential Information and
other property including, but not limited to, any technical manuals, bulletins,
drawings, price lists, samples, brochures, documentation, or supplies issued to
Distributor by Company and any lists of customers within the Territory that may
have been compiled in relation to the sale of the Product in the Territory.
e. Upon either termination or expiration of this Agreement for any reason,
as the case may be, Distributor hereby assigns, with effect from the termination
or expiration date, to Company without any claim for compensation all of the
benefit of any and all purchase orders, service contracts and other contracts
relating to the Products. In this regard, Distributor shall ensure that any and
all such purchase orders, service contracts or other contracts are freely
assignable to Company at no cost to Company and in accordance with this Section.
f. Notwithstanding any other provision of this Agreement to the contrary,
the provisions of Sections 3, 4, 7, 9, 10, 11, 12, 13-15 and 19-22 shall survive
termination of this Agreement for whatever reason.
21. NOTICES. All required notices shall be in writing and shall be deemed
given when sent first class airmail, postage prepaid, or when sent by facsimile,
express mail, telegraph or cable (with a copy by first class airmail, postage
prepaid), addressed as follow:
To Company: ThermoQuest Corporation
355 River Oaks Parkway
San Jose, California 95134
Attention: Americas Dealer Manager
To Distributor: EURO TECH (FAR EAST) LTD.
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<PAGE>
18/F Gee Chang Hong Centre,
SS Wong Chuk Road, Hong Kong
Attention: T.C. Leung
22. MISCELLANEOUS
a. Waiver. The failure of either party to exercise any right or
option granted, or to require the performance of any term, or the waiver of
either party of any breach of this Agreement, shall not prevent a subsequent
exercise of enforcement rights or to be deemed a waiver of any kind.
b. Modification or Amendment. Any modification or amendment of any
provision of this Agreement must be in writing and initialed by an authorized
representative of both parties.
c. Assignment. Distributor shall not assign, either voluntarily,
involutarily or by operation of the law, this Agreement without Company's prior
written consent. In the event of such assignment without Company's prior written
consent, Company may, in its sole discretion, terminate this Agreement without
incurring any liability to Distributor, Company shall be entitled to assign this
Agreement to any person, partnership, association and/or corporation without the
prior consent of Distributor.
d. Succession. Subject to the provisions otherwise contained in this
Agreement, this Agreement shall inure to the benefit of and be binding on the
successors and assigns of the respective parties hereto.
e. Execution of Agreement. This Agreement has been executed in
duplicate and each party shall be entitled to one original, receipt of which
they each acknowledge.
f. Resolution of Disputes.
i. Any dispute, controversy or claim arising out of or
relating to this Agreement or to a breach hereof,
including its interpretation, performance or
termination, shall be finally resolved by arbitration.
The arbitration shall be conducted by three (3)
arbitrators unless such dispute, controversy or claim
involves a claim of damages for $50,000 or less, in
which event arbitration shall be conducted by one (1)
arbitrator.
ii. The arbitration shall be conducted in English and in
accordance with the UNCITRAL Arbitration Rules in effect
at the time of the arbitration. The appointing authority
shall be the International Chamber of Commerce, which
shall administer the arbitration. The arbitration,
including the rendering of the award, shall take place
in Austin, Texas U.S.A., and shall be the exclusive
forum for resolving such dispute, controversy or claim.
For the purpose of this arbitration, the provisions of
this Agreement and all rights and obligations thereunder
shall be governed and construed in accordance with the
laws of the State of Texas, U.S.A. The
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<PAGE>
be governed and construed in accordance with the laws of
the State of Texas, U.S.A. The decision of the
arbitrators shall be binding upon the parties hereto,
and the expense of the arbitration (including, without
limitation, the award of attorneys fee to the prevailing
party) shall be paid as the arbitrators determine. The
decision of the arbitrators shall be executory, and
judgment thereon may be entered by any court of
competent jurisdiction.
iii. Notwithstanding anything contained in Subsection 22(f)
to the contrary, each party shall have the right to
institute judicial proceedings against the other party
or anyone acting by, through or under such other party,
in order to enforce the instituting party's rights
hereunder through reformation of contract, specific
performance, injunction, or similar equitable relief.
g. Complete Agreement. This Agreement and its Exhibits set forth the
entire agreement between the parties and replaces all understandings which may
have existed between Company and Distributor, to the extent that such prior
understandings relate to the establishment of a distributorship for the
marketing, sale and support of any Software, Product and/or space parts in the
Territory.
h. Attorney's Fees: Prejudgment Interest. If the services of an
attorney or other legal adviser are required by any party to secure the
performance hereof or otherwise upon the breach or default of the other party to
this Agreement, or if any judicial remedy or arbitration is necessary to enforce
or interpret any provision of this Agreement or the rights and duties of any
person in relation thereto, the prevailing party shall be entitled to reasonable
fees, costs and other expenses of such attorney or legal adviser, in addition to
any other relief to which such party may be entitled. Any award of damages
following judicial remedy or arbitration as a result of the breach of this
Agreement or any of its provisions shall include an award of prejudgment
interest from the date of the breach at the maximum amount of interest allowed
by law.
i. Captions. All Section captions are for reference only and shall
not be considered in construing this Agreement.
j. Severability. If any provision of this Agreement is held to be
invalid or unenforceable, the remainder of the Agreement which can be given
effect without the invalid provision shall continue in full force and effected
and shall in no way be impaired or invalidated.
k. Succession. Subject to the provisions otherwise contained in this
Agreement, this Agreement shall inure to the benefit of and be binding on the
successors and assigns of the respective parties hereto.
l. Parties in Interest. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement or any persons other than the parties to it and their respective
successors and assigns, nor anything in this Agreement intended to release or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third person any right of
subrogation or action over or against any party to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the Effective Date.
"Company"
ThermoQuest Corporation
By: /s/ Kevin Wallace
-----------------------------------
Name Printed: Kevin Wallace
-------------------------
Attest: Title: Asst. to the President
--------------------------------
- -----------------
"Distributor"
By: /s/ T C Leung
-----------------------------------
Name Printed: T C Leung
-------------------------
Attest: Title: Managing Director
--------------------------------
- -----------------
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EXHIBIT "A'
PRODUCTS
San Jose Factory Products: LCQ, TSQ, SSQ
Austin Factory Products: GCQ
MassLab Factory Products: Voyager, Navigator
Automass Factory Products: Automass 30, 150, 300
Bremen Factory Products: BreathMAT
Spare Parts, option and Upgrade of the above products.
15
<PAGE>
EXHIBIT "B"
TERRITORY
Hong Kong
Products
Bremen Factory Products: MAT 9XX, MAT 252, Delta Plus, MAT 262, Element
16
[HACH Logo]
Distributorship Agreement
Between Hach Company and EuroTech (Far East) Ltd.
This agreement made and entered into between Hach Company, Inc., a corporation
organized and existing under the laws of the State of Delaware, U.S.A., having
its principal offices at 57th Street and Lindbergh Parkway (P.O. Box 389),
Loveland Colorado 80537, United States of America ("Hach") and
EuroTech (Far East) Ltd.
18/F Gee Chang Hong Centre
65 Wong Chuk Hang Road
Hong Kong ("Distributor").
Whereas Hach is one of the leading manufacturers of laboratory testing
apparatus, process analyzers and chemicals particularly intended for analysis of
water and other substances the ("Products"); and
Whereas Distributor has the commercial and technical experience and
capability as well as technically trained personnel to promote, sell and service
the Products:
Now, therefore, the parties hereto agree as follows:
1.0 Definitions
1.1 The "Territory" shall mean the geographic area described on Exhibit A,
Territory, attached hereto.
1.2 The "Products" shall mean the items of the Product lines designated on
Exhibit B, Products, attached hereto. The parties may add to or otherwise modify
said list by mutual written agreement.
1.3 "Private Label Products" shall mean those products which Hach supplies to
its customers which bear the customer's label, or those products purchased from
Hach under a special agreement, or those products which are otherwise
denominated by Hach as Private Label Products.
1.4 "Contract Date" is the date shown beneath the signature of Hach Company at
the end of this Agreement.
2.0 Appointment of Distributor
2.1 Hach hereby appoints EuroTech (Far East) Ltd. Distributor of Products in
the Territory, and Distributor accepts said appointment, subject to all terms
and conditions hereof.
2.2 Hach may appoint other person(s) or company(s) to distribute or represent
the Products in the Territory during the term of this Agreement or any extension
hereof.
2.3 Hach does not guarantee the Products will not at times be sold to customers
in the Territory by Distributors or representatives established outside the
Territory.
2.4 Hach may sell Products directly to customers in the Territory where
requested by a customer or where, in Hach's sole discretion, Distributor's
coverage of the Territory is not adequate.
3.0 Purchase, Shipment
3.1 Distributor may sell only those Products described in Exhibit B, Products
in the Territory.
3.2 Absent a separate, written agreement, Distributor may not sell Private
Label Product, and no commission is due or shall be extended for such sales.
3.3 Subject to availability, Distributor shall place firm orders for and Hach
shall send to Distributor, Products in quantities sufficient to meet
Distributor's demand for the Products in the Territory.
3.4 Hach shall sell Products to Disributor, Ex Works (Factory, Ames, Iowa
U.S.A.) and all risk of damage or loss shall pass to Distributor at this point.
Hach retains title to the Products until carrier delivers Product(s) at first
foreign (non U.S.) port of entry.
3.5 Products shall be sold to Distributor at Hach's Distributor List Prices in
effect at the time the order is accepted by Hach. All sales shall be made under
Hach's standard terms and conditions of sale, as modified and subject only to
the terms of this Agreement which shall prevail in the event of any
inconsistency between this Agreement and those terms and conditions of sale.
Hach shall furnish to Distributor from time to time a Distributor Price List and
a recommended price list covering the Products. Hach may from time to time and
without prior notice to Distributor change either of these price lists.
3.6 Each order placed by Distributor shall be subject to acceptance by Hach in
the U.S. Hach shall not be obligated to accept any order. Hach shall not be
liable to any party for its failure or refusal to accept any order.
DAW 23 February 1998
1
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[HACH Logo]
3.7 Hach shall not be liable for loss, damage, detention, delay or failure to
deliver all or any part of the Products resulting from causes beyond its
control, including but not limited to fires, strike, insurrection, riots,
embargoes, car shortages, delays in transportation, inability to obtain
supplies and raw materials, requirements or regulations of the United States
Government or any other civil or military authority. Hach shall not be liable
for any loss or damage arising from such delay.
3.8 Quoted delivery dates are merely approximate. Delay in delivery shall not
entitle Distributor to cancel an order. Distributor's acceptance of delivery of
the Products shall constitute a waiver of all claims for loss or damage due to
delay.
3.9 Hach shall have the right to discontinue the availability of any Product,
or to make design changes or improvements in the Products, at any time without
notification to Distributor, without incurring any liability to Distributor or
to Distributor's dealers or customers and without any obligation to apply any
such changes or improvements to Products previously purchased by Distributor or
in use in the Territory.
4.0 Terms of Payment
4.1 Payment for Products shall be made by Distributor in U.S. dollars in
accordance with Hach's standard credit practices for international sales.
Ability to complete payments to Hach in the currency of the United States of
America as stipulated herein is of the essence of this Agreement. If by virtue
of any regulation or order of any government authority in the Territory
Distributor is unable to make payments in accordance with this agreement, Hach
may elect to terminate this Agreement
4.2 Notwithstanding Section 4.1, payment may be made in U.S. dollars or in any
alternate currency upon which the parties hereto mutually agree in writing prior
to payment in that alternate currency.
4.3 All overdue invoices shall accrue interest at the rate of one and one-half
(1.5%) percent per thirty (30)-day period, with each fraction of a period
counting as a full period.
5.0 Duties of Distributor
5.1 Distributor agrees to maintain a suitable place or places of business with
adequate facilities for the sale and servicing of the Products. Such facilities
shall be staffed by qualified personnel and shall remain open to customers
during business hours customary in the trade and in the Territory. Distributor
shall allow Hach's representatives at any reasonable time to examine
Distributor's place of business and inventories and to test Distributor's
equipment and facilities so as to verify Distributor's compliance with this
agreement.
5.2 Distributor agrees to exert its best efforts to promote and sell the
Products in the Territory and to provide competent post-sales servicing for all
Products located in the Territory regardless of whether or not sold by
Distributor.
5.3 Neither Distributor nor any related or affiliated person of Distributor
shall, during the term of this Agreement, sell or represent any goods which
conflict or compete with the Products.
5.4 Distributor agrees to inform Hach in writing of all products or companies
other than Hach, which or from whom Distributor purchases for resale or
otherwise represents during the term of this Agreement.
5.5 Distributor agrees to keep at all times during the term of this Agreement
an adequate inventory of Product as reasonably required to meet the Sales
Forecast for the Territory. Distributor shall execute such Sales Forecast
promptly upon signing this Agreement or at the start of Hach's fiscal year as
mutually agreed upon. In the event said Sales Forecast is not executed before
the first day of the third month following the Contract Date of this Agreement,
Hach may terminate this Agreement with thirty (30) days written notice to
Distributor.
5.5.1 An Annual Sales Forecast(s) will be provided by Distributor to
Hach by June 30 of each contract year.
5.6 Distributor shall furnish an Annual Sales and Operations Report ("Report")
to Hach, This Report is due on February 1 of each year and Hach must receive the
Report no later than February 28. The Report shall contain accurate information
as to sales, customer demand, customer reactions, activities of competitors,
information on political and economic developments that could affect in any way
the financial condition of the Distributor and/or the ability of Distributor to
promote and sell the Products in the Territory and such other information as
Hach may reasonably request, including information on the financial condition of
Distributor.
5.7 Distributor shall maintain records of all sales and keep them on file for
three (3) years. Distributor shall allow Hach's employees or agents to examine
such records at any reasonable time. Distributor agrees that all customers or
potential customers for the Products have been developed and created solely for
the benefit of Hach, and any list of customers or potential customers for the
Products shall be deemed to be the property of Hach.
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5.8 Distributor shall assist Hach in obtaining information regarding the
financial stability and credit history of any customer or prospective customer
with respect to which Distributor forwards an order directly to Hach for
acceptance in return for a sales commissions, as provided herein.
5.9 If Distributor services Hach equipment it shall do so according to Hach's
"International Instrument Service Policy and Procedure of Hach Company and of
Hach Europe, S.A."
6.0 Resale of Products by Distributor
6.1 Distributor shall actively solicit orders from prospective and actual
customers, either by calling on same with its own personnel, through its dealers
or by mailing adequate printed material and brochures.
6.2 Hach may visit customers and prospective customers in the Territory and
may, but shall not be required to, afford Distributor an opportunity to
accompany the Hach representative on any such visit. Any order placed by a
customer during a joint visit by Hach and Distributor shall be for the account
of Distributor.
6.3 Distributor shall establish a Customer Price List which shall be made
available to Hach upon request. In doing so, Distributor agrees to give due
consideration to Hach's recommended customer list prices, and prices of Hach
Product and competitive products in the U.S.A. and locally. Said Price List
shall be established to afford sales potential for the Products and at the same
time to secure due compensation to Distributor for the sale and service efforts
in the Territory.
6.4 Distributor shall not solicit or advertise in jurisdictions outside the
Territory unless this restriction on solicitation or advertisement is prohibited
by law. Distributor shall not maintain branches, places of business or
warehouses outside the Territory for the Products without the prior written
consent of Hach.
6.5 Distributor shall not, without the prior written consent of Hach, alter the
Products in any manner including, without limitation, removal or alteration of
labels, tradenames, trademarks, notices, serial numbers or other identifying
marks, symbols or legends affixed to any of the Products or their containers or
packages
7.0 Sales Literature
7.1 Hach shall furnish to Distributor reasonable quantities of sales literature
and brochures in the English language and using United States standard measures
and weights. Distributor shall be responsible for carrying out, at its own cost
and expense, any translations or adaptations of such material required by local
law, provided that no such translations or adaptations shall be disseminated by
Distributor without the prior written consent of Hach. Nonetheless, Distributor
agrees to indemnify Hach and hold it harmless from any liability, damages, costs
and expenses incurred by Hach with respect to any improper or incorrect
translation or adaptation of the above mentioned materials.
7.2 Upon termination of this Agreement Distributor shall promptly deliver to
Hach all such material and any translations and/or adaptations thereof which may
be in Distributor's possession or control, in accordance with instructions from
Hach.
7.3 Hach shall have the right to distribute literature and brochures directly
to the customers and prospective customers in the Territory based on mailing
lists that Hach may develop. Where Hach and Distributor together develop such
lists, Distributor may be requested by Hach to pay up to one-half of the cost of
any such distribution.
8.0 Appointment of Dealers
Distributor shall not appoint any representatives, agents, sub-Distributors or
dealers ("Appointees")to assist in the promotion and/or sale of the Products in
the Territory without the prior written consent of Hach. In the event that Hach
shall consent to any such appointments, it is understood that any such Appointee
shall not be considered a representative, agent, distributor, dealer or employee
of Hach, and shall derive no rights vis-a-vis Hach by virtue of such
appointment. Accordingly, Distributor agrees to indemnify Hach and hold it
harmless from any liability, damages, costs or expenses (including reasonable
attorney's fees) incurred by Hach as a result of acts of the Appointees. Further
Distributor shall indemnify and hold Hach harmless from any liability, damages,
costs or expenses (including reasonable attorney's fees) incurred by Hach with
respect to the termination and/or appointment of any such Appointees.
9.0 Government Regulations
9.1 Distributor agrees to obtain at its own expense any import license, foreign
exchange permit, or other permit or approval it may need for the performance of
its obligations under this Agreement and to comply at its own expense with all
applicable laws, regulations and orders of the government(s) of the Territory
any instrumentality thereof.
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10.0 Warranty
10.1 Hach warrants that the Products are free from defects in material and
workmanship for a period of one (1) year from the date of shipment unless
otherwise specified by Hach.
10.2 The sole obligation of Hach is to repair or replace, at its option, and
without charge, any Product or part of its manufacture which it agrees is
defective.
10.3 This warranty does not cover limited-life electrical components which
deteriorate with age such as but not limited to: vacuum tubes, batteries, lamps,
photo cells, electrodes. In the case of equipment and accessories not
manufactured by Hach, but which are furnished with equipment of Hach's
manufacture, if warranty is extended by the manufacturers thereof and
transferable to Distributor, Hach transfers such warranty.
10.4 This warranty does not cover parts or Products which in Hach's or
Distributor's opinion have become worn from normal use or have been damaged by
misuse, negligence or accident, or which disassembly and/or repairs have been
attempted causing said defect.
10.5 UNLESS EXPRESSLY SET FORTH IN THIS AGREEMENT, HACH MAKES NO WARRANTY OF
ANY KIND WHATSOEVER WITH RESPECT TO ANY PRODUCTS FURNISHED HEREUNDER. HACH
EXPRESSLY DISCLAIMS ANY WARRANTIES IMPLIED BY LAW, INCLUDING BUT NOT LIMITED TO
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT
SHALL HACH BE LIABLE FOR DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
10.6 Distributor, acting only on its behalf, shall in the sale contract between
it and its retail customer, provide a warranty similar to the one given to
Distributor by Hach herein. Distributor shall promptly perform and fulfill any
and all of the terms and conditions of each such warranty extended. Distributor
agrees not to extend to its customers any Product warranty that is different
from Hach's limited warranty set forth in this Section 10.
11.0 Industrial Property
Distributor recognizes that Hach is the owner, assignee or licensee of various
industrial property rights in the United States and throughout the world,
including patents, trademarks, trade names, designs, insignia and confidential
information, and Distributor expressly acknowledges and agrees that it will not
have or acquire any rights in or to any such industrial property rights used or
adopted by Hach anywhere in the world, or used or adopted by any company related
to or affiliated with Hach, whether or not such industrial property rights are
registered in the Territory. Recognizing the importance of such rights to Hach's
business and good will, Distributor agrees as follows:
11.1 Should Distributor become aware of trade practices or actions posed or
threatened by third parties that may injure the business that Distributor
conducts pursuant to this Agreement or Hach's business and good will or the
above-mentioned property rights, full details of the same shall be promptly
supplied to Hach, and Hach or any person authorized by it shall have the right
to take or direct such action as Hach may deem proper against such third
parties. Distributor shall in no event take any action in protection of Hach's
rights or in furtherance of Hach's interest without Hach's written
authorization.
11.2 During the continuance of this Agreement and thereafter, Distributor shall
not take or cooperate in any action or threatened action which might in any way
impair such industrial property rights, or question Hach's paramount ownership
or interest in the same or in any way injure Hach's business and good will.
11.3 Distributor shall not, without Hach's consent or direction, make any
threat against or cooperate in any action against third parties which in any way
involves the above-mentioned industrial property or which constitutes unfair
trade practices or violation of any law in the sale or in the advertising of
Hach Products.
11.4 Distributor shall not alter, deface, remove, cover up or mutilate in any
manner whatever any trademark, serial or model numbers, brand or name which is
attached to Hach Products. If any such modifications or changes come to
Distributor's attention it shall report them to Hach.
11.5 During the continuance of this Agreement and thereafter Distributor shall
not use or register or attempt to register any name, or insignia which infringes
or is in conflict with or is confusingly similar to Hach's industrial property
rights, and Distributor shall not at any time assert any ownership or interest
in any such name, mark or insignia. The foregoing shall include use on products,
in business titles and in advertising literature.
11.6 During the continuance and solely for the purpose of this Agreement,
Distributor is granted the non-exclusive right to use Hach's trade names and
trademarks in connection with the sale or offering for sale and servicing of the
Products, provided, however, that Distributor shall discontinue the display or
use of any such
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trademark or trades name or change the manner in which any such mark or name is
displayed or used when requested to do so by Hach. Such marks or names may be
used as part of the name under which Distributor's business is conducted only
with the express approval of Hach. Distributor is not authorized to use outside
the Territory, directly or indirectly, in whole or in part, as a part of
Distributor's corporate name or in signs, advertising, or any other similar
selling effort, any of Hach's trademarks or tradenames that are now or may
hereafter be owned by Hach.
11.7 During the continuance of this Agreement and thereafter neither
Distributor nor its officers or employees will divulge to others, without Hach's
written consent, confidential information supplied directly or indirectly to
Distributor including customer lists and purchase orders, engineering or
technical data including plans, specifications, drawings, designs, layouts,
processes and formulae, whether or not reduced to writing. Distributor shall
disclose confidential information only to those of its officers or employees
whose duties require them to know the same, and then only if such persons have
given to Distributor an enforceable undertaking not to disclose the confidential
information to any unauthorized third person, and Distributor shall take any
such other steps which may be necessary to cause compliance with the provisions
of this Section 11.7 by its officers and employees.
11.8 Distributor shall reimburse Hach for all costs and expenses including
legal fees incurred by Hach in connection with any legal action taken to enforce
compliance with this Section 11.
12.0 Principal-to-Principal Relationship
It is understood and agreed that this Agreement creates a principal-to-principal
relationship between the parties hereto, that Distributor is not an agent, and
that Distributor may not lawfully bind Hach in any manner whatsoever.
Distributor shall not make quotations or write letters in the name of Hach, but
in every instance shall sign with its own name. The name of Hach shall not
appear on the stationery used by Distributor except as a marginal note to
indicate that Distributor is authorized by Hach to distribute Products in the
Territory. In no event shall Hach be liable for any expense incurred by
Distributor, the liability for which is not specifically assumed in writing by
Hach.
13.0 Duration and Termination
13.1 This Agreement shall become effective upon the Contract Date. Unless
sooner terminated as hereinafter provided, this Agreement shall terminate two
years from the Contract Date. This Agreement may be extended beyond its original
term only by the mutual consent of the parties expressed in a written instrument
that refers to this Agreement and specifies the extended term.
13.2 The following events constitute just cause for termination of this
Agreement:
13.2.1 Default by Distributor in the payment of any obligations owing to
Hach; or
13.2.2 The filing by or against Distributor of any insolvency or
bankruptcy proceedings or proceedings for reorganization receivership or
dissolution, or the inability by Distributor to meet its debts as become
due; or
13.2.3 Any material, adverse change in Distributor's financial condition,
or
13.2.4 If Distributor is a corporation, more than fifty percent (50%) of
the stock of Distributor is transferred to another person who does not own
or control at least twenty-five percent (25%) of Distributor's equity at
the time of execution of this Agreement; or
13.2.5 If Distributor is a partnership, any change in the membership of
Distributor's firm by death or otherwise; or
13.2.6 If Distributor is an individual, his death; or
13.2.7 A competitor of Hach acquires, directly or indirectly, control of
at least twenty-five percent (25%) equity interest in Distributor; or
13.2.8 Any dispute, disagreement or controversy arises between or among
any of Distributor's principals, partners, managers, officers or
stockholders which, in Hach's opinion, may adversely affect Distributor's
operation, management, reputation or business or Hach's interest or the
reputation of the Products; or
13.2.9 Any dispute, disagreement or controversy arises between
Distributor and a customer, which in Hach's opinion may adversely affect
Hach's interests or the reputation of Hach's Products; or
13.2.10 Without Hach's written consent, Distributor's place of business
remains closed during regular business hours for more than five (5)
consecutive days, except when the closing is caused by strikes or
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acts of God or when the closing coincides with religious or other holidays
normally recognized in the city where Distributors principal sales and
service are located, or
13.2.11 The assignment or attempted assignment of this Agreement, or of
any interest herein or of any right hereunder, by Distributor without
Hach's written consent; or
13.2.12 Distributors failure to obtain or maintain any license, permit or
authorization from any government within or without the Territory
necessary for the importation, sale or servicing of the Products
thereunder, or necessary to enable Distributor to make payments for the
Products in the United States of America dollars as provided in Section 4
hereof, or otherwise necessary for the performance of Distributor's
obligations hereunder; or
13.2.13 The failure or refusal of Distributor for a period of thirty (30)
days after notice to perform any of its obligations under this Agreement;
or
13.2.14 The enactment of law by any governmental unit within the Territory
which would restrict Hach's right to terminate and/or elect not to renew
this Agreement as herein provided, by making Hach liable to Distributor
for compensation and damages upon termination and/or failure to renew this
Agreement.
13.2.15 The failure of Distributor to approximate the sales levels agreed
to in the Sales Forecast.
13.3 Upon the occurrence of any event specified in subparagraphs 13.2.2, 13.2.4
and 13.2.14 above, this Agreement shall automatically and immediately terminate.
Upon the occurrence of any of the other above specified events, in addition to
the other rights or remedies which Hach may have in law or equity, it may, as
its option, terminate this Agreement by written notice thereof. Such termination
shall become effective as of the date set forth in said notice but in no event
earlier than ninety (90) days after such notice is given. Any waiver of the
right to terminate for any of these events shall not constitute a waiver of the
right to claim damages and/or to terminate this Agreement for any similar events
which may occur in the future.
14.0 Rights and Obligations Upon Termination
Upon termination of this Agreement as provided in Section 13 or otherwise
provided for herein:
14.1 The acceptance of orders from Distributor or the continuance of sale of
Products to Distributor or any other act of Hach after notice of termination of
this Agreement shall not be construed as a renewal or a revival of this
Agreement for any further term or as a waiver of the termination.
14.2 Hach shall have the obligation of canceling any of Distributor's
outstanding orders for Products.
14.3 Hach shall not be liable to Distributor for compensation or damages of any
kind whether on account of loss by Distributor of present or prospective
profits, or anticipated orders, or on account of expenditures, investments or
commitments made in connection with this Agreement, or on account of any other
thing or cause whatsoever.
14.4 Distributor shall remove all signs bearing any of Hach's trademarks or
tradenames, obliterate said trademarks or trade names from letterheads,
stationery, service orders and other forms, and discontinue the use of any
identification or advertising that might convey the impression that Distributor
is still an authorized Hach distributor. Distributor shall immediately return to
Hach all price lists and catalogs, technical specifications, brochures,
advertising matter of any kind and all originals and copies of confidential
information which Hach has supplied to Distributor in accordance with
instructions from Hach.
14.5 Hach shall have the option of repurchasing from Distributor any new
Products held by Distributor in inventory which Hach in its sole discretion
determines to be marketable. Such Products shall be repurchased at the Ex Works
(Factory, Ames, Iowa U.S.A.) price as invoiced by Hach to Distributor for such
Products if Distributor can prove such invoice price: otherwise, such Products
shall be repurchased at seventy-five percent (75%) of Hach's current Ex Works
(Factory, Ames, Iowa U.S.A.) price for such Products. Distributor shall furnish
to Hach a bill of sale, or other document of title satisfactory to Hach,
covering all property repurchased under this Section 14.5.
14.6 Termination of this Agreement shall in no way affect Distributor's
obligation to make payments for the Products delivered prior thereto. The
parties may pursue any rights or obligations accrued or existing at the date of
termination.
14.7 Distributor shall, if necessary, take all steps to transfer any
governmental or regulatory approvals for each Product to Hach or Hach's nominee,
or if such transfer is not permitted, to cooperate in the cancellation of
Distributor's governmental approvals and the reissuance thereof to Hach or
Hach's nominee at Hach's expense.
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15.0 Indemnification
15.1 Distributor shall indemnify and hold Hach harmless from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, attorney's fees) imposed upon,
incurred by or asserted against Hach that result from:
15.1.1 Acts of negligence or misrepresentations by Distributor, its
employees or agents; Distributor's breach of any provision of this
Agreement including without limitation, Sections 6, 7, 9 and 10); or
Distributor's failure to meet its obligations or to perform any acts
required under its agreements with any third party; and
15.1.2 The relationship between Distributor and any of its employees,
agents, and servants, whether under industrial accident laws, worker's
compensation laws or any other laws applicable to employers and employees.
15.2 The provisions of this Section 15 shall survive the termination of this
Agreement.
16.0 Assignment
This Agreement shall be binding upon and inure to the benefit of Hach's
successors and assigns, but it is personal to Distributor and may not be
assigned or transferred by it without Hach's written consent which Hach may
withhold at its sole discretion whether such discretion is reasonable or
unreasonable.
17.0 Entire Agreement and Miscellaneous Provisions
17.1 This Agreement, entered into by Distributor and Hach of their freewill,
records the entire agreement between the parties and merges all discussions and
replaces any understanding or prior agreement which may heretofore have existed
between Hach and Distributor with regard to Distributor's appointment in the
Territory.
17.2 Any amendments to this Agreement shall be in the form of a written
document signed by all parties to this Agreement. Oral agreements and
representations shall be not be binding.
17.3 No party to this Agreement shall be responsible for noncompliance with the
terms and conditions of this Agreement where the reasons for such noncompliance
are beyond the control of the party.
17.4 Hach's failure to enforce at any time any provision, right or option of
this Agreement, shall in no way be considered a waiver of such provision, right
or option or in any way affect the validity of this Agreement. The exercise by
Hach of its rights or options hereunder shall not preclude it from or prejudice
it in exercising the same or any other rights or options it may have under this
Agreement. All notices provided for herein shall be given in writing by
registered return-receipt air mail, by telegraph or cable confirmed in writing,
by facsimile or other electronic transmission or by courier, addressed to:
Distributor: EuroTech (Far East) Ltd.
Hach: Hach Company
PO Box 389
57th Street and Lindbergh Parkway
Loveland, Colorado 80537 USA
Attn.: Vice President of Sales and Marketing
with a copy to:
Hach Company
PO Box 389
57th Street and Lindbergh Parkway
Loveland, Colorado 80537 USA
Attn.: Office of Chief Counsel of Operations.
17.5 Notices sent by facsimile, cable, telegraph or other electronic means
shall be seemed to be given on the day following the transmission. Notices sent
by registered return-receipt air mail shall be deemed to be given seven (7) days
after the date of mailing. Notices sent by courier shall be deemed to have been
given five (5) days after tender and acceptance of the notice by the courier for
purposes of delivery.
18.0 Separability
18.1 Any provision of this Agreement which in any way contravenes the law of
any country or political subdivision in which this Agreement is effective shall,
in such country or political subdivision and to the extent
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of such contravention of law, be deemed separable and shall not affect the
validity of any other provision of this Agreement.
18.2 This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Colorado, U.S.A., without giving effect to its conflict of
law principles. The United Nations Convention on Contracts for the International
Sale of Goods shall not apply to this Agreement.
18.3 Any dispute arising between the parties out of or in connection with this
Agreement shall be finally resolved by arbitration in Denver, Colorado pursuant
to the International Arbitration Rules of the American Arbitration Association.
The arbitration panel shall consist of three arbitrators, one appointed by each
party and a third neutral arbitrator appointed by the other two arbitrators. The
arbitration shall be conducted in English which is the governing language of
this Agreement.
18.4 Nothing in this Article shall prevent Hach from seeking injunctive relief
against Distributor from any judicial or administrative authority pending the
resolution of a controversy or claim by arbitration. Hach also reserves the
right to sue in any court of competent jurisdiction to collect from Distributor
funds due and owing Hach for Products sold and delivered to Distributor under
this Agreement and Distributor agrees that, in the event of any such suit for
collection by Hach, Distributor shall not be entitled to raise as a defense
thereto any set-off or counterclaim alleged by Distributor; rather, any set-off
or counterclaim alleged by Distributor shall be subject to the arbitration
provision above.
19.0 Commissioned Sales
19.1 Distributor may be entitled to a Sales Commission for sale of Hach Product
when such Product is sold by Hach or Distributor directly to a customer in the
Territory. Payment and allocation of Commission is specifically set forth in
Exhibit C, Commission Schedule. Hach recognizes that extraordinary circumstances
may warrant allocation of a particular sales commission on a basis differing
from that described in the Commission Schedule with approval from Hach prior to
the transaction. In all events, Hach's decision as to the allocation of any
commission shall be final and binding on all parties.
19.2 Commission payment shall be made by Hach in accordance with Distributor's
express, written instructions. At Hach's discretion, such payment may be made in
U.S. dollars or in the currency of the Territory. In no event shall Hach be
liable to Distributor for any commission, a claim for which is reported to Hach
more than six (6) months after the transaction.
19.3 Distributor shall assist Hach in assuring the timely and complete payment
of any invoice with respect to which a commission is owing to Distributor, and
Distributor shall advise all customers that on sales made directly to customers
by Hach, overdue payments shall accrue interest at the rate of one-and-one
half (1 1/2) percent per thirty (30)-day period, with each fraction of a period
counting as a full period.
19.4 Hach shall debit Distributor's account for any commission which is paid to
Distributor with respect to Products which are returned by the customer for
credit or refund and a prorata amount of any commission which is paid with
respect to orders for which Hach, for whatever reason, does not receive payment
in full. No commission shall be owing to Distributor with respect to any sale
for which Hach receives less than sixty percent (60%) of the full invoice price.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year hereinafter written, to become effective when
signed by both parties.
FOR DISTRIBUTOR FOR HACH COMPANY
NAME: T C LEUNG NAME: GARY R. DREHER
------------------------ --------------------------
TITLE: CHAIRMAN TITLE: VP & CFO
------------------------ --------------------------
DATE: 10/3/98 (10 March 98) CONTRACT DATE:
------------------------ ------------------
SIGNATURE: /s/ T C LEUNG SIGNATURE: /s/ GARY R. DREHER
------------------- ---------------------
Exhibits Lists:
Exhibit A Territory
Exhibit B Products
Exhibit C Commission Schedule
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EXHIBIT A
TERRITORY
- --------------------------------------------------------------------------------
Hong Kong
Macao
Peoples Republic of China
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EXHIBIT B
PRODUCTS IN THE TERRITORY
1.1 Distributor may only Distribute Products which are covered under this
Agreement. Products covered under this Agreement are denominated as such with a
check mark in the YES Column under 2.2 below. Product denominated with a check
mark in the NO Column below is not covered under this Agreement and Distributor
is not eligible to distribute those products.
<TABLE>
<CAPTION>
2.2 PRODUCT CLASS COVERED UNDER THIS AGREEMENT
- -----------------------------------------------------------------------------------------------------
<S> <C>
CHEMICALS (Process Reagents) YES |X| NO |_| EXCEPTED(1)|_|
CHEMICALS (COD Reagents; Lab/Kit YES |X| NO |_| EXCEPTED|_|
Reagents manufactured by Hach)
TEST KITS YES |X| NO |_| EXCEPTED|_|
(Test Kits; Test Kit Replacement Parts)
MICROBIOLOGY YES |X| NO |_| EXCEPTED|_|
(Microbiological Chemicals/Media;
Kits and Apparatus manufactured by Hach)
CHEMISTRY RESALE YES |X| NO |_| EXCEPTED|_|
(Resale Apparatus, Resale Lab Instruments)
OTHER CHEMICALS YES |X| NO |_| EXCEPTED|_|
(Other Chemicals manufactured by Hach)
COLORIMETERS/SPECTROPHOTOMETERS YES |X| NO |_| EXCEPTED|_|
(Pocket Colorimeters; DR-Series Colorimeters,
DR-Series Spectrophotometers; DR-EL Series
Portable Field Laboratories; Special Field Laboratories)
LABORATORY INSTRUMENTS YES |X| NO |_| EXCEPTED|_|
(Amperometric Titrator; TitraStir(R); BOD Apparatus;
IncuTrol(R); COD Reactor; Conductivity Meters;
Digital Titrators; Dissolved Oxygen Meters;
Electrodes, pH Meters; TenSette(R) Pipettes;
Digestion Instruments & Accessories; Hach
Miscellaneous Laboratory Instruments and
Accessories)
TURBIDIMETERS (Laboratory and YES |X| NO |_| EXCEPTED|_|
Portable Turbidimeters)
TURBIDIMETERS (Process Turbidimeters) YES |X| NO |_| EXCEPTED|_|
PROCESS INSTRUMENTS YES |X| NO |_| EXCEPTED|_|
SERVICE PARTS YES |X| NO |_| EXCEPTED|_|
</TABLE>
EXCEPTIONAL CONDITIONS (Describe)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------
(1) Products annotated as "Excepted" are distributed under this Agreement but
are limited to the distribution arrangement described under the Exceptional
Conditions statement in this Exhibit B.
DAW 23 February 1998
10
<PAGE>
[HACH Logo]
EXHIBIT C
COMMISSION SCHEDULE
- --------------------------------------------------------------------------------
1.0 Distributor may, at Hach's discretion and with prior approval on each
transaction, be allowed a percentage commission for certain sales.
1.1 Sales for which Distributor may be allowed a commission are indent sales
made at Hach's International market Price for the Territory on orders direct
from the Territory. Distributor orders for Distributor's own account at
Distributor's cost are not commissionable orders under this Agreement.
2.0 Commission is computed according to the following schedule.
2.1 Full Commission is 20% of the International Market Price for the Territory,
Ex Works (Factory, Ames, Iowa).
2.2 Full Commission may be achieved according to the following participation
Schedule:
2.2.1 Credit for Specifying Hach Products: Up to fifty percent (50%)
of full commission may be credited to the account of the Distributor
who participates in securing a written specification or preference for
Hach Product(s) in the Territory. Where more than one Distributor has
secured such specification or preference this fifty percent of full
commission may be allocated among the participants at Hach's
discretion.
2.2.2 Credit for Origination of Order: Up to twenty-five percent
(25%) of Full Commission may be credited to the account of the
Distributor from whose Territory the order issued. Distributors must
substantiate that he or his agent(s) were materially instrumental in
inducing the customer to place the order for which commission is
sought with Hach Company. The following are examples of the types of
inducement which will be considered instrumental and therefore
commissionable: pre-notifying Hach Company of the existence of an
order, specification of the Distributor's name on the customer's
purchase order, or other documentary proof of distributor inducement.
Nothing in this Section 2.2.2 would preclude Distributor from offering
other evidence of its instrumentality in the transaction. Hach may, at
its sole discretion choose to accept or reject such other forms of
proof.
2.2.3 Credit for Destination of Product: Up to twenty-five percent
(25%) of Full Commission may be credited to the account of the
Distributor into whose Territory Hach Product(s) is shipped for
installation or use. No Commission shall be paid unless Distributor
has and will, in Hach's opinion, provide reasonable assistance to the
customer in the Territory before, during or after the transaction.
Such assistance may include but is not limited to on-site inspection
of the Product and a commitment to continued service and support.
2.2.4 Upon receipt of commission payment for Destination Credit,
Distributor must, within 60 days of the date of the commission check,
prepare and submit to Hach a complete description of any and all
Distributor's post-transaction activity related to that commission
payment. Failure to promptly report such post-transaction activity may
result in limitation of Distributor's rights to receive future
Destination Credit.
2.3 All claims for Specification Participation, Order Origination or
Destination Participation must be adequately supported by written documentation
or a report acceptable to Hach which indicates the materiality of Distributor
involvement in the transaction.
2.4. Nothing herein precludes Hach Company and Distributor from agreeing upon a
Commission schedules or program different from that described in this Exhibit B,
so long as such schedule or program is agreed upon in writing and in advance of
any commissionable event.
DAW 23 February 1998
11
TRANSLATION OF ENGLISH - CHONGQING OFFICE TENANCY AGREEMENT
TENANCY AGREEMENT
PARTY A: CHONGQING GODDESS PEAK TRAVEL CO
PARTY B: EURO TECH (CHINA) LTD
A) Rights of both parties:
1) Room 704 (with an area of 25 sq.m at RMB100/sq.m/month) is rented to PARTY B
for office use by PARTY A.
2) The tenancy is for one year, that is from 20/1/98 to 20/1/99. PARTY B have to
paid the quarter rental fee of total RMB7,500.- Settlment time is the first 5
days of each quarter.
3) During the tenancy period, PARTY B should be responsible for the legal
obligation of the business process.
4) PARTY B can renew this agreement after the expiry date.
5) Guarantee by both parties:
5.1 PARTY B is not allowed to sub-rent ; to transfer; to take the
premises as security.
5.2 PARTY B must obtain approval from PARTY A for any innovation,
addition to the premises. Upon expiry or for any reason termination
of this agreement, PARTY B is not allowed to remove the addition and
innovation of the premises.
5.3 If renovation or maintenance of the premises is required, PARTY A
should inform PARTY B in advance and PARTY B should closely
cooperate with PARTY A.
5.4 During the tenancy period, PARTY B should obey the laws, the
security regulation of PARTY A. PARTY B should carry out his]
business legally.
6) During tenancy period, if one of the parties wants to terminate this
agreement he should inform the other party with one month notice and with
written consent of both parties, this agreement can be terminated.
7) Responsibilities of breach of agreement:
7.1 PARTY B is not allowed to delay payment of the rental fee, if delay
occurs PARTY B should pay penalty charge to PARTY A. The penalty is
1% per day on delayed payment.
7.2 The party who terminate this agreement prior to expiry have to pay
the other party a penalty charge of 3% per day on the contracted
amount.
<PAGE>
7.3 If PARTY B delays payment, and still not pay after receiving a
written notice within 15 days from PARTY A, PARTY A have the right
to terminate this agreement and take back the premises.
8) The rental fee for telephone extension set is RMB5O.-/set. Local call is free
whereas distant call is charged.
9) The rental fee for direct telephone set is RMB1000.- /set. (will not refunded
after expiry of this agreement).
10) PARTY A have the right to take back the premises and forfeit all furniture
and fixture inside the premises if PARTY B delay in paying the rental fee for
one month and do not contact PARTY A.
11) PARTY B must pay to PARTY A as a guarantee of this agreement a deposit of
RMB3,600.- The deposit will be refunded to PARTY B upon fullfillment of their
responsibilities and expiry of this agreement.
12) This agreement is effect from the date the deposit is received by PARTY A.
13) This agreement is made in one set with 2 copies (both copies have the same
legal status), each party holds a copy.
SIGNED BY PARTY A SIGNED BY PARTY B
DATED: 15/1/98
ENGLISH TRANSLATION - XIAN OFFICE TENANCY AGREEMENT
CONTRACT
AGRICULTURAL BANK OF CHINA XIAN BRANCH (hereafter called PARTY A)
EURO TECH (CHINA) LTD (hereafter called PARTY B)
The following agreement has been made between PARTY A and PARTY B for the
purpose of leasing the premises:
1) Period of renting:
1. Effective 10/11/97 till 9/11/99.
2. Upon expiry date, if PARTY B wants to continue to rent the premises,
he should approach PARTY A 2 months ahead and renew the contract.
The rental fee will be adjusted according to the market fluctation.
However, if PARTY B is not ready to renew the contract, he should
inform PARTY B two months ahead.
3. If PARTY B wants to terminate the contract before expiry date, he
should notify PARTY A 3 months ahead and the contract will be
terminated upon return of the premises without damages.
4. During the contracted period except by irresistible reasons such as
natural calamities, PARTY A has no right to terminate the contract
or prevent PARTY B for using the premises.
2) Price of the premises:
The premises is room 11004, net area is 22 sq m, rental fee is RMBl,800.-plus
electricity and management fee RMB1,200.-
3) Payment method:
1. Payment in advance, 10 days after effective of this contract, PARTY
B has to pay 3 months rental fee to PARTY A.
2. PARTY B has to guarantee that the rental fee will be paid on time,
if delay occurs, within 15 days, a surcharge of 0.3% will be
imposed, over 15 days, PARTY A has the right to terminate the
contract, and PARTY B must leave the premises. electricity, water
supplies and communication channel will be cut off.
4) Responsibilities of both parties:
1. PARTY A is responsible for management of the premises (except for
irresistible reasons); to provide water, electricity, air condition,
toiletery facilities free of charge. PARTY B is not allowed to
install cooking stove, heavy penalty will be imposed. Should PARTY B
want to install
<PAGE>
additional electricity facility, he need to get approval from PARTY
A and agree to pay for the extra electricity fee. PARTY B must
guarantee the no damages inside the premises and compensate for
damages if any.
2. PARTY A will provide PARTY B the following services: the cleansing
of gate door, escalators, common area. PARTY B should obey the laws
of the country and the regulations set by PARTY A. PARTY B should
not conduct illegal businesses inside the premises; should not carry
exposive, hazardous, polluted goods and animals inside the premises;
should take fire, crime prevention and other necessary actions to
protect the security of the premises. PARTY a is not reponsible for
PARTY B's economic loss.
3. Renovation with no effect on the construction of the property and
approval must be obtained from PARTY B and he is reponsible for all
expenses in this matter. PARTY A should closely cooperate with PARTY
B.
4. During the contracted period, PARTY B has the right to use the
premises but cannot transfer the right to other party. Contract
would be terminated immediately if transfer is found. PARTY B is
reponsible for the loss incurred.
5. Should advertising space is required by PARTY B. he have to pay the
advertising fee set by PARTY A.
6. Telephone set will be connected to the premises by PARTY A but PARTY
B is reponsible for the telephone fee.
7. PARTY A must arrange appropriate parking space.
5) Others:
1. Any other matters not mentioned above but agreed by both parties can
be added as supplement.
2. This contract is in one set four copies, each party holds two valid
copies.
3. This contract is valid after signing and terminated upon terms set
above and settlement of all expenses.
SIGNED BY PARTY A SIGNED BY PARTY B
4/11/97 4/11/97
ENGLISH TRANSLATION OF SHENYANG OFFICE TENANCY AGREEMENT
AGREEMENT
PARTY A: LIAONING XIAN FANG BUILDING (hereafter called PARTY A)
PARTY B: EURO TECH (CHINA) LTD (hereafter called PARTY B)
After consulation both parties have agreed on the followings:
1) Tenancy period from 1/12/97 to 1/12/98.
2) Area floor: 11/F
3) Room number: 1107
4) Premises area: net 24 sq m
5) Annual rental fee (per sq. m): RMB 1180/sq m
6) Total amount: RMB28,320.-
7) N/A
8) Payment method:
Upon signing of this contact, PARTY B have to pay PARTY A 10% deposit; half year
rental fee within the first half month, rental fee on the first day of each
month for the second half year. In case of holiday, payment will be prosponed,
under regular conditions, penalty of 5% will be imposed for one date late
payment, and the premises will be taken back after delay in payment for 10 days.
9) Right and execution of regulation for both parties:
For PARTY B:
1. has the right to use the facility of the premises.
2. is not allowed to demolish, change the existing fixtures of the
premises, to place overload goods inside the premises. In the case
of necessity, approval must be obtained prior to renovation
otherwise PARTY B has to responsible for the restoration &
compensation.
3. PARTY B has to take care on using the fixtures of the premises; has
to take note of the fire, burglary prevention. In case of damages
made intentionally, penalty will be imposed according to degree of
damages.
4. During the tenancy period, PARTY B without the consent of PARTY A,
is not allowed to rent or transfer all or part of the premises to
third party. In case this happens, PARTY B is considered of breach
of contact and PARTY A has the right to terminate this contact.
<PAGE>
5. Both parties do not have the right to terminate this contact (with
the exception of irresistible damages). Party who wants to terminate
the contracts needs to give a 3 month notice to the other party, and
pay him a sum equal to 6 months rental fee as compensation for
breach of contract.
6. PARTY B needs to follow strictly the rules and regulations of the
building, closely cooperate with the management office of the
building.
7. PARTY B is forbidden to use electric stove, gas for cooking. If it
happens, PARTY B is responsible for the consequences on economic
loss or criminal charge.
8. 3 months prior to maturity of this contract, PARTY B should inform
PARTY A his intention for renewal. PARTY B needs to sign new contact
with PARTY A if the lease is to be continued. PARTY B should move
out from the premises if the lease will not continue. PARTY B is
responsible for the loss incurred due to delay in moving out the
premises.
2) The rights and responsibilites of PARTY A:
1. to inspect and maintain the fixtures inside the premises in a
regular base, so as to guarantee PARTY B has the premises for proper
use.
2. to responsible for the cleansing of the public area (corridors,
toilets, stairways, outdoor hygiene excluding spading out the snow).
3. to guarantee the supply of hot water.
4. to receive and send mails, newspaper and magazine.
5. to provide parking space.
6. should PARTY B does not pay the rental fee as scheduled, PARTY A has
the right to forbid PARTY B to use the premises.
7. Rental fee can be adjusted once in a year and the rate of adjustment
is in accordance with the market situation.
10) PARTY B has to inform PARTY A in writing 3 months before the maturity date
if he has no intention to renew this contract. PARTY B has the priorty to rent
the premises under the same conditions in case PARTY A continues to lease the
premises.
11) In the case of the premises is damaged due to irresistible reasons, this
contract is automatically terminated and no party will be responsible.
12) All other events that are not covered by this contract can be made in a
separate supplement which if agreed, signed by both parties, then the supplement
and this contract have the same legal effects.
13) During the execution of this contract, for any arguments, both parties
should take part in solving the problem and if it does not work, both parties
<PAGE>
may take legal action in the local People's court.
14) This contract comes into effect after signing and certified by public
notary, it is in one set 4 copies, each party have 2 copies.
SIGNED BY PARTY A SIGNED BY PARTY B
ENGLISH TRANSLATION OF TENANCY AGREEMENT- EURO TECH TRADING (SHANGHAI) LTD
(International COMMERCIAL TRADE BLDG) - TENANCY AGREEMENT
LESSOR: SHANGHAI WAIGAOQIAO TRADING COMMERCIAL DEVELOPMENT LTD (hereafter called
PARTY A)
LEGAL ADDRESS: 118 XIN LING RD
LEGAL ENTITY: KAM LAI-NG
LESSEE: EURO TECH (CHINA) LTD
LEGAL ADDRESS: 118 XIN LING RD
LEGAL ENTITY: LEUNG TAK-CHUNG
In accordance with The People's Rep of China ecomomic common law, The People's
Rep of China Municipal Property Management Law and the related regulations, for
clear clarification of the rights and responsibilities of both the lessor and
the lessee, after consulation and following agreement has been reached.
1) Name, constuction, area and usage of the rented premises:
1. Premises Name: International Commercial Bldg
2. Premises address: Rm 1906A 19/F,118 Xin Ling Rd,
Area F No. 3-1,
Shanghai Waigaoqiao Free Trade Zone.
3. Premises gross area: 50 sq. m (net area 25 sq.m)
4. Usage of the premises: office space
5. Fixtures of the premises : as attached
2) Tenancy period:
With effect from 27/4/98 PARTY A will hand over the premises to PARTY B for
occupance till 26/4/99 (one year).
3) Payment of rents and other expenses:
- Rental fee is RMB33,000.-/per annum.
& payable in full on 27/4/98.
- Management fee is RMB3,000.-/per annum
& payable in full on 27/4/98.
4) The deposit with no interest will be refunded upon expiry of this contract
and with no damages on the premises.
5) Upon expiry of this tenancy agreement and if renewal will not made, PARTY B
has to hand over the premises to PARTY A in good condition. PARTY B is
repsonsible for loss due to damages (if any).
<PAGE>
6) Any renovation made by PARTY B must notify PARTY A in advance. PARTY B is
reponsible for the restoration of the premises to its original position upon
expiry of tenancy agreement. PARTY A is responsible for the hygiene and
cleansing of the public area.
7) During the tenancy period, If the ownership of the premises is transferred to
third party, PARTY B will not be consulted. However, the right and obligation of
PARTY A to PARTY B is also transferred to the new owner of the premises.
8) Breach of contract for PARTY A if a) he does not provide the premises to
PARTY B as agreed on this contract. b) He carries out other businesses and
interrupts the normal activities of PARTY B inside the premises. c) he violates
the terms of this agreement. Breach of contract for PARTY B if a) he changes the
construction of the premises and cause economic loss. b) he does not pay the
rent on time c) breach of other terms set in this agreement.
9) No party will be claimed for damages caused by irresistible calamities.
10) Argument (if any) can be settled by consultation of both parties or by
filing claim to the local People's Court.
11) Supplement can be added to this agreement and both the agreement and
supplement are valid.
12) This agreement takes into effect after signing by both parties. In the case
there is changes in Shanghai Municipal law and the changes affect the carrying
out of this agreement, appropriate alternation on the term in this agreement
must be made in order to meet the requirement of the law.
13) The original copy of this agreement must be registered to the Free Zone
Management Committee 10 days after effective. Each party is responsible for 50%
of the expenses.
14) This agreement is in one set 5 copies, all copies bear the same legal right.
Changes of address, telephone, contact of one party must inform the other party.
SIGNED BY PARTY A SIGNED BY PARTY B
18/3/98
Dated the 26th day of April 1997
--------------------------------
EURO TECH (FAR EAST) LIMITED
AND
HUMAN INSURANCE BROKERS
COMPANY LIMITED
--------------------------------
TENANCY AGREEMENT
of
Office 2 on 15th Floor.
No. 180 Electric Road, Hong Kong.
--------------------------------
Commencement Date: 26.4.1997
Expiry Date: 25.4.1999
Rent Free Period: From 26th April 1997 to
31st May 1997 (Both days
inclusive)
Term: TWO (2) YEARS
(with an option to renew
for a further term of
ONE (1) YEAR)
HASTINGS & CO.,
Solicitors & Notaries,
21/F, Bank of China Tower,
No. 1 Garden Road,
Hong Kong.
Ref: YCT/E-5/ATY/97 (1991.38466) VH
VH/ama (TA(BUS).E5)
<PAGE>
INDEX
Page
- ----
1 SECTION I AGREEMENT
1 SECTION II RENT AND OTHER CHARGES
2 1. Rent
2 2. Rates
2 3. Utility Charges and Deposits
2 4. Production of Receipts
2 SECTION III TENANT'S OBLIGATIONS
2 1. Compliance with Ordinances
3 2. Fitting Out Interior
3 3. Good Repair
3 4. Replacement of Windows
3 5. Repair of Electrical Installations
4 6. Good Repair of Toilets and Water Apparatus
4 7. Cleaning of Drains
4 8. Indemnity Against Loss/Damage from Interior Defects
4 9. Protection from Typhoon
5 10. Landlord to Enter and View
5 11. Repair on Receipt of Notice
5 12. Inform Landlord of Damage
5 13. Cleaning and Cleaning Contractors
5 14. Refuse and Garbage Removal
5 15. Service Lifts and Entrances
6 16. Directory Boards
6 17. Contractors Employees Invitees and Licensees
6 18. Regulations
6 19. Yield Up Premises and Reinstatement
6 SECTION IV LANDLORD'S OBLIGATIONS
7 1. Quiet Enjoyment
7 2. Crown Rent
7 3. External Parts
7 4. Main Structure
7 SECTION V RESTRICTIONS AND PROHIBITIONS
1
<PAGE>
7 1. User
8 2. Installation and Alterations
8 3. Injury to Main Walls
8 4. Alteration to Exterior
9 5. Locks
9 6. Noise
9 7. Signs
9 8. Auction and Sales
9 9. Illegal Use
10 10. Touting
10 11. Sleeping or Domestic Use
10 12. Plant. Machinery & Goods
10 13. Obstructions in Passages
10 14. Parking and Loading
10 15. Goods and Merchandise Outside the Premises
11 16. Pets and Infestation
11 17. Subletting, Assigning
12 18. Breach of Crown Lease, etc.
12 19. Breach of Insurance Policy
12 SECTION VI EXCLUSIONS
12 1. Lifts, Air conditioning, Utilities
12 2. Fire and Overflow of Water
13 3. Security
13 SECTION VII ABATEMENT OF RENT
13 SECTION VIII DEFAULT
14 1. Default
14 2. Interest
14 3. Acceptance of Rent
15 4. Acts of Employees Invitees and Licensees
15 5. Distraint
15 SECTION IX DEPOSIT
15 1. Deposit
16 2. Repayment of Deposit
16 3. Assignment of the Premises
16 SECTION X REGULATIONS
2
<PAGE>
16 1. Introduction of Regulations
16 2. Conflict
17 SECTION XI INTERPRETATION AND MISCELLANEOUS
17 1. Marginal Notes, Headings and Index
17 2. Condonation not a Waiver
17 3. Letting Notices
18 4. Service of Notice
18 5. Name of Building
18 6. Gender
18 7. Stamp Duty and Costs
18 8. Management Agreement
18 9. No premium paid
19 SECTION XII OPTION TO RENEW
19 SECTION XIII RENT FREE PERIOD
20 FIRST SCHEDULE
21 SECOND SCHEDULE
22 THIRD SCHEDULE
23 SIGNATURES
3
<PAGE>
SECTION 1
AGREEMENT
THIS AGREEMENT is made the 26th day of April One Thousand Nine Hundred and
Ninety-Seven BETWEEN the parties named and described as Landlord in Part I of
the First Schedule hereto (hereinafter called "the Landlord which expression
shall where the context admits includes its successors and assigns) of the one
part and the party named and described as Tenant in Part I of the First Schedule
hereto (hereinafter called "the Tenant") which expression shall where the
context admits include its successors and permitted assigns) of the other part.
NOW IT IS AGREED as follows:-
The Landlord shall let and the Tenant shall take ALL THOSE the Premises
(hereinafter called "the Premises") forming part of all that Building
(hereinafter called "the Building") which the Premises and the Building are more
particularly described and set out in Part II of the First Schedule attached
hereto TOGETHER with the furniture fixtures fittings and equipment (hereinafter
called "the Furniture") more particularly described and set out in the Third
Schedule AND TOGETHER with the use in common with the Landlord and all others
having the like right of the entrances staircases landings passages, toilets and
other common facilities in the Building in so far as the same are necessary for
the proper use and enjoyment of the Premises and except in so far as the
Landlord may from time to time restrict such use AND TOGETHER with the use in
common as aforesaid of the lift service and air cooling services (if any) during
such hours as the same shall be operating for the term set forth in Part III of
the First Schedule hereto YIELDING AND PAYING therefore throughout the said term
the rent and other charges as are set out in Part I and Part II of the Second
Schedule hereto which sums shall be payable exclusive of rates and in advance
clear of all deductions on the first day of each calendar month the first and
last of such payments to be apportioned according to the number of days in the
month included in the said term.
SECTION II
RENT AND OTHER CHARGES
The Tenant agrees with the Landlord as follows:-
(1) Rent
(a) To pay the said rent as set out in Part I of the Second Schedule
monthly in advance on the 1st day of each and every calendar month.
HONG KONG STAMP DUTY
995.00 -7.5.97
HONG KONG
$_________(cent)
STAMP DUTY PAID
-1-
<PAGE>
(b) To pay in advance on the 1st day of each and every calendar month,
subject to review, the management fees as set out in Part II of the
Second Schedule.
(2) Rates
To pay and discharge punctually all rates taxes assessments duties
impositions charges and outgoings whatsoever now or hereafter to be
imposed or levied on the Premises or upon the owner or occupier in respect
thereof by the Government of Hong Kong or other lawful authority (Crown
Rent and Property Tax alone excepted).
(3) Utility Charges and Deposits
To pay and discharge all deposits and charges in respect of gas water
electricity (including electricity consumed by the air conditioning units
inside the Premises) and telephone as may be, shown by or operated from
the Tenant's own metered supply or by accounts rendered to the Tenant in
respect of all such utilities consumed on or in the Premises.
(4) Production of Receipts
To produce to the Landlord on demand all receipts for rates and other
outgoings which are paid by the Tenant in accordance with the terms and
conditions hereof.
SECTION III
TENANT'S OBLIGATIONS
(1) Compliance with Ordinances
To obey and comply with and to indemnify the Landlord against the
breach of all ordinances, regulations, by-laws, rules and requirements of
any Governmental or other competent authority relating to the use and
occupation of the Premises, or to any other act, deed, matter or thing
done, permitted, suffered or omitted therein or thereon by the Tenant or
any employee, agent or licensee of the Tenant and without prejudice to the
foregoing to obtain any licence approval or permit required by any
Governmental or other competent authority in connection with the Tenant's
use or occupation of the Premises prior to the commencement of the
Tenant's business and to indemnify the Landlord against the consequences
of a breach of this provision.
(2) Fitting Out Interior
To fit out the interior of the Premises in accordance with such plans and
specifications as shall have been first submitted by the Tenant to and
approved in writing by the
-2-
<PAGE>
Landlord or its appointed agents in a good and proper workmanlike fashion
using good quality materials and to maintain the same throughout the said
term in good condition and repair to the satisfaction of the Landlord. In
the event of such approval being requested it shall be a condition
precedent to the granting thereof that the Tenant shall pay to the
Landlord any fee and/or cost incurred by the Landlord in obtaining the
approval of its appointed agents, consultants and/or architects. In
carrying out any approved work hereunder, the Tenant shall and shall cause
his servants agents contractors and workmen to cooperate fully with the
Landlord and all servants agents, contractors and workmen of the Landlord
and with other tenants or contractors carrying out any work in the
Building. The Tenant shall obey and cause his servants agents contractors
and workmen to obey and comply with all instructions and directions which
may be given by the Landlord's servants agents contractors and workmen or
other authorised representatives in connection with the carrying out of
such work.
(3) Good Repair
To keep all the Furniture and all the interior of the Premises including
the flooring and interior wallpaper or other finishing material or
rendering to walls floors and ceilings to the Premises (if any) and the
Landlords fixtures and fittings therein and all additions thereto
including all doors windows electrical installations and wiring light
fittings suspended ceilings fire fighting apparatus piping and air
conditioning ducting in good clean tenantable substantial and proper
repair and condition (fair wear and tear excepted) and as may be
appropriate from time to time properly painted and decorated and so to
maintain the same at the expense of the Tenant, and to deliver up the same
to the Landlord at the expiration or sooner determination of the said term
in like condition.
(4) Replacement of Windows
To pay to or reimburse the Landlord the cost of replacing all broken or
damaged windows or glass whether the same be broken or damaged by the
negligence of the Tenant or owing to circumstances beyond the control of
the Tenant.
(5) Repair of Electrical Installations
To repair or replace if so required by the appropriate companies or
authorities under any ordinance or any statutory modification or
re-enactment thereof or any Order in Council or regulation or by-law made
thereunder by duly authorised contractors statutory undertakers or
authorities as the case may be all the electricity wiring installations
and fittings within the Premises and the wiring from the Tenants meter or
meters to and within the same.
(6) Good Repair of Toilets and Water Apparatus
-3-
<PAGE>
At the expense of the Tenant to maintain all toilets and water apparatus
as are located within the Premises (or elsewhere if used exclusively by
the Tenant his employees invitees and licensees) in good clean and
tenantable state and in proper repair and condition (fair wear and tear
excepted) at all times during the said term to the satisfaction of the
Landlord and in accordance with all ordinances, regulations, by-laws,
rules and requirements of any governmental or other competent authority.
(7) Cleaning of Drains
To pay on demand to the Landlord the cost incurred by the Landlord in
cleaning and clearing any of the drains pipes or sanitary or plumbing
apparatus choked or stopped up during the said term.
(8) Indemnity against Loss/Damage from Interior Defects
To be wholly responsible for any loss damage or injury caused to any
person whomsoever directly or indirectly through the defective or damaged
condition of any part of the interior of the Premises or any fixtures or
fittings therein for the repair of which the Tenant is responsible
hereunder or in any way owing to the spread of fire or smoke or the
overflow of water from the Premises or any part thereof or through the act
default or neglect of the Tenant his servants agents licensees or visitors
and to make good the same by payment or otherwise and to indemnify the
Landlord against all costs claims demands actions and legal proceedings
whatsoever made upon the Landlord by any person in respect of any such
loss damage or injury and all costs and expenses incidental thereto. and
to effect adequate insurance cover in respect of such risks with an
insurance company. The Tenant hereby further undertakes to produce to the
Landlord as and when required by the Landlord such policy of insurance
together with a receipt for the last payment of premium and a certificate
from the insurance company that the policy is fully paid up and in all
respects valid and subsisting.
(9) Protection from Typhoon
To take all reasonable precautions to protect the interior of the
Premises from flood, storm or typhoon damage.
(10) Landlord to Enter and View
To permit the Landlord its agents and all persons authorised by it with or
without workmen or others and with or without appliances at all reasonable
times to enter upon the Premises to view the condition thereof and upon
prior reasonable notice to the Tenant to take inventories of the fixtures
and fittings and the Furniture therein and to carry out any work or repair
required to be done provided that in the event of an
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emergency the Landlord its servants or agents may enter without notice
and forcibly if necessary.
(11) Repair on Receipt of Notice
To make good all defects and wants of repair to the Premises and the
Furniture for which the Tenant may be liable within fourteen days from the
receipt of notice from the Landlord to repair and make good the same, and
if the Tenant shall fail to execute such works or repairs as
aforementioned to permit the Landlord to enter upon the Premises and
execute the same and the cost thereof shall be a debt due from the Tenant
to the Landlord and be recoverable forthwith by action.
(12) Inform Landlord of Damage
To give notice to the Landlord of any damage that may be suffered to the
Premises and the Furniture and of any accident to or defects in the water
and gas pipes (if any) electrical wiring or fitting, fittings fixtures or
other facilities provided by the Landlord which may be known to the
Tenant.
(13) Cleaning and Cleaning Contractors
To keep the Premises including inside of all windows and lights at all
times in a clean and sanitary state and condition, and for the better
observance hereof the Tenant shall only employ as cleaners of the Premises
such persons or firms as may be approved by the Landlord. Such cleaners
shall be employed at the expense of the Tenant.
(14) Refuse and Garbage Removal
To be responsible for the removal of refuse and garbage from the Premises
to such location as shall be specified by the Landlord from time to time
and to use only that type of refuse container as is specified by the
Landlord or the management company of the Building (hereinafter
collectively called "the Manager") from time to time. In the event of the
Manager providing a collection service for refuse and garbage the same
shall be used by the Tenant to the exclusion of any other similar service
and the use of such service provided by the Manager shall be at the sole
cost of the Tenant.
(15) Service Lifts and Entrances
To load and unload goods only at such times through such entrances and by
such service lifts (if any) as shall be designated by the Manager for the
purpose from time to time.
(16) Directory Boards
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To pay the Manager immediately upon demand the cost of affixing repairing
or replacing as necessary the Tenant's name in lettering to the directory
boards (if any) exhibited on the ground floor entrance lobby of the
Building, which shall be restricted to the name of the Tenant and limited
to one name only.
(17) Contractors Employees Invitees and Licensees
To be liable for any act default negligence or omission of the Tenant's
contractors, employees invitees or licensees as if it were the act default
negligence or omission of the Tenant and to indemnify the Landlord against
all costs claims demands expenses or liability to any third party in
connection therewith.
(18) Regulations
To obey and comply with such Regulations as may from time to time be made
or adopted by the Landlord in accordance with Section X hereof.
(19) Yield Up Premises and Reinstatement
To yield up the Premises and the Furniture with all fixtures fittings and
additions therein and thereto at the expiration or sooner determination of
this Agreement in good clean and tenantable repair and condition (fair
wear and tear excepted) in accordance with the stipulations hereinbefore
contained Provided That where the Tenant has made any alterations or
installed any fixtures or additions to the Premises with or without the
Landlord's written consent the Landlord may at its discretion require the
Tenant at the Tenant's expense to reinstate or remove such alterations
fixtures or additions or any part or portion thereof and make good and
repair in a proper and workmanlike manner any damage to the Premises and
the Landlord's fixtures and fittings therein as a result thereof before
delivering up the Premises to the Landlord.
SECTION IV
LANDLORD'S OBLIGATIONS
The Landlord agrees with the Tenant as follows:-
(1) Quiet Enjoyment
To permit the Tenant duly paying the rent and other charges hereby agreed
to be paid on the days and in manner herein provided for payment of the
same and rates and observing and performing the agreements stipulations
terms conditions and obligations herein contained to have quiet possession
and enjoyment of the Premises during the
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said term without any interruption by the Landlord or any person lawfully
claiming under or through or in trust for the Landlord.
(2) Crown Rent
To pay the Crown Rent and Property Tax attributable to or payable in
respect of the Premises.
(3) External Parts
To keep the external parts of the Premises in good and tenantable repair
and condition at the expense of the Landlord.
(4) Main Structure
To repair and keep the main structure of the Building and every part of
such main structure in proper and tenantable repair and condition as is
reasonable for the continued occupation of the Premises by the Tenant when
the Landlord receives notices from a competent authority requiring the
Landlord to do so PROVIDED that the Landlord's liability hereunder shall
not be deemed to have arisen unless and until written notice of any want
of repair of the same shall have been previously given by the Tenant to
the Landlord and the Landlord shall have failed to take steps to repair
the same after the lapse of a reasonable time.
SECTION V
RESTRICTIONS AND PROHIBITIONS
The Tenant hereby agrees with the Landlord as follows:-
(1) User
To use the Premises only for the purpose as set forth in Part V of the
First Schedule hereto.
(2) Installation and Alterations
(a) Not without the previous written consent and approval of the
Landlord and the relevant authorities to erect install or alter any
fixtures partitioning or other erection or installation in the
Premises or to make suffer or permit to be made any alterations or
additions to the electrical wiring installation air condition
ducting (if any) and lighting fixtures or any part thereof nor
without the like consent to install or permit or suffer to be
installed any equipment apparatus
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or machinery including any safe which imposes a weight on any part
of the flooring in excess of that for which it was designed. The
Landlord shall be entitled to prescribe the maximum weight and
permitted location of safes and other heavy equipment and to require
that the same stand on supports of such dimensions and material to
distribute the weight as the Landlord may deem necessary.
(b) In the event of the Tenant wishing to install private
air-conditioning units in the Premises or any part thereof with the
prior written consent of the Landlord the Tenant shall comply with
the directions and instructions of the Landlord regarding
installation and shall at its own expense be responsible for their
periodic inspection maintenance and repair and for the replacement
of defective wiring and the Tenant shall be strictly liable for any
damage caused by the installation operation or removal of such units
Provided further that in the event of undue noise vibration or heat
being caused or generated by any air conditioning units installed
hereunder the Landlord may require the Tenant to remove or replace
such installations forthwith and to make good any loss or damage to
the Premises or neighbouring premises caused thereby.
(c) In carrying out any approved work hereunder the Tenant its servants
agents contractors and workmen shall obey and comply with all
instructions and directions which may be given by the Landlord or
other authorised representatives in connection with the carrying out
of such work.
(d) Any fees or expenses incurred by the Landlord in connection with the
giving of consents hereunder shall be borne by the Tenant.
(3) Injury to Main Walls, etc.
Not without the previous written consent of the Landlord to cut maim or
injure or permit or suffer to be cut maimed or injured any doors windows
walls beams structural members or any part of the fabric of the Premises
nor any of the plumbing or sanitary apparatus or installations included
therein.
(4) Alteration to Exterior
Save as provided in Section V Clause (7) hereof not to affix anything or
paint or make any alteration whatsoever to the exterior of the Premises.
(5) Locks
Not without the consent previously obtained of the Landlord to install
additional locks bolts or other fittings to the entrance doors or roller
shutters or grille gate to the Premises or in any way to change or alter
those already installed and in the event that
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consent is given under this Clause to immediately deposit with the
Landlord keys to all such additional locks bolts or other fittings as may
be approved for installation.
(6) Noise
Not to cause or produce or suffer or permit to be reproduced on or in the
Premises any sound or noise (including sound produced by broadcasting from
rediffusion, television, radio and any apparatus or instrument capable on
producing or reproducing music and sound) or other acts or things in or on
the Premises which is or are or may be a nuisance or annoyance to the
tenants or occupiers of adjacent or neighbouring premises.
(7) Signs
Not to exhibit or display within or on the exterior of the Premises any
writing sign signboard or other device whether illuminated or not which
may be visible from outside the Premises nor to affix any writing sign
signboard or other device in at or above any common area lobby landing or
corridor of the Building. Provided that the Tenant shall at its own
expense be entitled to have its name affixed in lettering and/or
characters to a design and standard of workmanship approved by the
Landlord on a signboard to be displayed outside the Premises. If the
Tenant carries on business under a name other than its own name he shall
be entitled to have that name displayed as aforesaid but the Tenant shall
not be entitled to change the business name without the previous written
consent of the Landlord and without prejudice to the foregoing the
Landlord may in connection with any application for consent under this
Clause require the Tenant to produce such evidence as it may think fit to
show that no breach of Section V clause (19) has taken place or is about
to take place.
(8) Auction and Sales
Not to conduct or permit any auction close down or similar sale of things
or properties of any kind to take place on the Premises Provided that this
provision shall not preclude the conduct of genuine periodic seasonal or
promotional sales.
(9) Illegal Use
Not to use or cause permit or suffer to be used any part of the Premises
for gambling or for any illegal immoral or improper purposes or in any way
so as to cause nuisance annoyance inconvenience or damage or danger to the
tenants or occupiers of adjacent or neighbouring premises or to carry on
or commit or permit to be carried on or committed in the Premises any
offensive trade or occupation.
(10) Touting
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Not to permit any touting or soliciting for business or the distributing
of any pamphlets notice or advertising matter outside the Premises or
anywhere within the Building by way of the Tenant's servants agents or
licensees.
(11) Sleeping or Domestic Use
Not to use the Premises or any part thereof as sleeping quarters or as
domestic premises within the meaning of any ordinance for the time being
in force or to allow any person to remain on the Premises overnight.
(12) Plant, Machinery and Goods
Not to install any plant or machinery in the Premises without having first
obtained the written approval of the Landlord nor to keep or store or
cause or permit or suffer to be kept or stored any hazardous or dangerous
goods within the meaning of the any ordinance and the regulations
thereunder or any statutory modification or re-enactment thereof.
(13) Obstructions in Passages
Not to place or leave or suffer or permit to be placed or left by any
contractor employee invitee or licensee of the Tenant any boxes furniture
articles or rubbish in the entrance or any of the staircases passages or
landings of the Building used in common with other tenants or occupiers of
other premises of the Building not in the exclusive occupation of the
Tenant or otherwise encumber the same.
(14) Parking and Loading
Not to park in obstruct or otherwise use nor permit to be parked in
obstructed or otherwise used by any employee agent or licensee of the
Tenant those areas of the Building allocated to parking the movement of or
access for vehicles or designated as loading/unloading areas other than in
accordance with the Regulations made from time to time by the Manager.
(15) Goods and Merchandise Outside the Premises
Not to place expose or leave or permit to be placed exposed or left for
display sale or otherwise any goods or merchandise whatsoever upon or over
the ground outside the Premises.
(16) Pets and Infestation
Not to keep or permit or suffer to be kept any animals or pets inside the
Premises and to take all such steps and precautions to the satisfaction of
the Landlord to prevent the
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Premises or any part thereof from becoming infested by termites rats mice
cockroaches or any other pests or vermin and for the better observance
hereof the Landlord may require the Tenant to employ at the Tenant's
expense such pest extermination contractors as the Landlord may nominate
and at such intervals as the Landlord may direct.
(17) Subletting, Assigning
Not to assign underlet or otherwise part with the possession of the
Premises or any part thereof in any way whether by way of sub-letting
lending sharing or other means whereby any person or persons not a party
to this Agreement obtains the use or possession of the Premises or any
part thereof irrespective of whether any rental or other consideration is
given for such use or possession and in the event of any such transfer
subletting sharing assignment or parting with the possession of the
Premises (whether for monetary consideration or not) this Agreement shall
absolutely determine and the Tenant shall forthwith vacate the Premises on
notice to that effect from the Landlord. The Tenancy shall be personal to
the Tenant named in the First Schedule to this Agreement and without in
any way limiting the generality of the foregoing the following acts and
events shall unless approved in writing by the Landlord be deemed to be
breaches of this Clause:-
(i) In the case of a Tenant which is a partnership the taking in of one
or more new partners or the bankruptcy death insanity disability or
retirement of an existing partner.
(ii) In the case of a Tenant who is an individual (including a sole
surviving partner of a partnership) the bankruptcy death insanity or
disability of that individual to the intent that no right to use
possess occupy or enjoy the Premises or any part thereof shall vest
in the executors administrators personal representatives next of kin
trustee or committee of any such individual.
(iii) In the case of a Tenant which is a corporation any take-over
reconstruction amalgamation merger liquidation or change in the
person or persons who owns or own a majority of its voting shares or
who otherwise has to have effective control thereof.
(iv) The giving by the Tenant of a Power of Attorney or similar authority
whereby the donee of the Power obtains the right to use possess
occupy or enjoy the Premises or any part thereof or does in fact use
possess occupy or enjoy the same.
(v) The change of the Tenant's business name without the previous
written consent of the Landlord which consent the Landlord may give
or withhold at its discretion.
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(18) Breach of Crown Lease, etc.
Not to cause suffer or permit any contravention of the provisions of the
Crown Lease(s), Deed(s) of Mutual Covenant or Deed(s) of Covenant and/or
Sub-Deed(s) of Mutual Covenant or Sub-Deed(s) of Covenant and the
Management Agreement(s) (if any and whether incorporated therein or
otherwise) or other deeds of a like nature including but not limited to
the House Rules and Regulations for the time being relating to the
Premises under which the Landlord holds the Premises and to indemnify the
Landlord against any such breach.
(19) Breach of Insurance Policy
Not to cause or suffer or permit to be done any act or thing whereby the
policy or policies of insurance on the Premises against loss or damage by
fire or liability to third parties for the time being subsisting may
become void or voidable or whereby the rate of premium or premiums thereon
may be increased, and to repay to the Landlord on demand all sums paid by
the Landlord by way of increased premium or premiums thereon and all
expenses incurred by the Landlord in and about any renewal of such policy
or policies arising from or rendered necessary by a breach of this Clause.
SECTION VI
EXCLUSIONS
IT IS HEREBY FURTHER EXPRESSLY AGREED AND DECLARED that the Landlord shall not
in any circumstances be liable to the Tenant or any other person whomsoever:-
(1) Lifts, Air-conditioning, Utilities
In respect of any loss or damage to person or property sustained by the
Tenant or any other person caused by or through or in any way owing to any
defect in or breakdown of the lifts and air-conditioning system, electric
power and water supplies, or any other service provided in the Building,
or
(2) Fire and Overflow of Water
In respect of any loss or damage to person or property sustained by the
Tenant or any other person caused by or through or in any way owing to the
escape of fumes smoke fire or any other substance or thing or the overflow
of water from anywhere within the Building, or
(3) Security
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For the security or safekeeping of the Premises or any contents therein
and in particular but without prejudice to the generality of the foregoing
the provision by the Landlord of watchmen and caretakers shall not create
any obligation on the part of the Landlord as to the security of the
Premises or any contents therein and the responsibility for the safety of
the Premises and the contents thereof shall at all times rest with the
Tenant, nor shall the rent and other charges hereinbefore mentioned or any
part thereof abate or cease to be payable on account of any of the
foregoing.
SECTION VII
ABATEMENT OF RENT
If the Premises or the Building or any part thereof shall at any time during the
tenancy be destroyed or damaged or become inaccessible owing to fire water storm
typhoon defective construction white ants earthquake subsidence of the ground or
any calamity beyond the control of the Landlord and not attributable to the
negligence or fault of the Tenant so as to render the Premises unfit for use or
inaccessible and the policy or policies of insurance effected by the Landlord
shall not have been vitiated or payment of the policy moneys refused in whole or
in part in consequence of any act or default of the Tenant or if at any time
during the continuance of this tenancy the Premises or the Building shall be
condemned as a dangerous structure or a demolition order or closing order shall
become operative in respect of the Premises or the Building then the rent hereby
reserved or a fair proportion thereof according to the nature and extent of the
damage sustained or order made shall after the expiration of the then current
month be suspended until the Premises or Building shall again be rendered
accessible and fit for use Provided that should the Premises or the Building not
have been reinstated in the meantime either the Landlord or the Tenant may at
any time after three months from the occurrence of such damage or destruction or
order give to the other of them one (1) month's notice in writing to determine
this present tenancy and thereupon the same and everything herein contained
shall cease and be void as from the date of the occurrence of such destruction
or damage or order or of the Premises becoming inaccessible or unfit for use but
without prejudice to the rights and remedies of either party against the other
in respect of any antecedent claim or breach of the agreements stipulations
terms and conditions herein contained or of the Landlord in respect of the rent
payable hereunder prior to the coming into effect of the suspension.
SECTION VIII
DEFAULT
It is hereby expressly agreed and declared as follows:-
(1) Default
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If the rent and/or the management fees payable hereunder or any part
thereof shall be in arrear for fifteen (15) days after the same shall have
become payable (whether formally demanded or not) or if the Tenant shall
persistently delay in paying the rent and/or the management fee or if
there shall be any breach or non-performance of any of the stipulations
conditions or agreements herein contained and on its part to be observed
or performed or if the Tenant shall become bankrupt or being a corporation
go into liquidation (save for the purposes of amalgamation or
reconstruction) or if the Tenant shall suffer execution to be levied upon
the Premises or otherwise on the Tenant's goods then and in any such case
it shall be lawful for the Landlord at any time thereafter to re-enter on
and upon the Premises or any part thereof in the name of the whole and
thereupon this Agreement shall absolutely determine but without prejudice
to any right of action by the Landlord in respect of any outstanding
breach or non-observance or non-performance by the Tenant of any of the
terms of this Agreement AND the deposit paid under SECTION IX Clause (1)
shall be forfeited to the Landlord but without prejudice to the Landlord's
right to claim any further damages which the Landlord shall have sustained
or may sustain. All costs and expenses incurred by the Landlord in
demanding payment of the rent and other charges aforesaid (if the Landlord
elects to demand) arising out of this clause shall be paid by the Tenant
and shall be recoverable from the Tenant as a debt or be deductible by the
Landlord from any deposit held by the Landlord hereunder.
(2) Interest
Notwithstanding anything hereinbefore contained in the event of default in
payment of the rent and the management fee for a period of fifteen (15)
days from the date on which the same falls due for payment the Tenant
shall further pay to the Landlord on demand interest on the amount in
arrears at the rate of 2% per month calculated from the date on which the
same becomes due for payment until the date of payment as liquidated
damages and not as penalty provided that the demand and/or receipt by the
Landlord of interest pursuant to this provision shall be without prejudice
to and shall not affect the right of the Landlord to exercise any other
right or remedy hereof (including the right of re-entry) exercisable under
the terms of this Agreement.
(3) Acceptance of Rent
The acceptance of any rent by the Landlord hereunder shall not be deemed
to operate as a waiver by the Landlord of any right to proceed against the
Tenant in respect of any breach non-observance or non-performance by the
Tenant of any of the agreements stipulations terms and conditions herein
contained and on the part of the Tenant to be observed and performed.
(4) Acts of Employees Invitees and Licensees
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For the purpose of these presents any act default neglect or omission of
any guest visitor servant contractor employee agent invitee or licensee of
the Tenant shall be deemed to be the act default neglect or omission of
the Tenant.
(5) Distraint
For the purposes of Part III of the Landlord and Tenant (Consolidation)
Ordinance (Chapter 7)) and of these presents, the rent payable in respect
of the Premises shall be and be deemed to be in arrear if not paid in
advance at the time and in the manner hereinbefore provided for payment
thereof.
SECTION IX
DEPOSIT
(1) Deposit
The Tenant shall on the signing hereof and at such other times (if any)
during the term of tenancy hereby created as are specified in Part III of
the First Schedule hereto deposit with the Landlord the sum or sums
specified in Part IV of the First Schedule subject to reasonable increases
Provided Always that the said deposit shall be equivalent to 3 times the
amount of the monthly rental as security for the due payment of all sums
of money payable hereunder and the due performance and observance by the
Tenant of the terms and conditions on his part to be performed and
observed herein contained and on the part of the Tenant to be observed and
performed which said deposit shall be held by the Landlord throughout the
currency of this Agreement free of any interest to the Tenant with the
right for the Landlord (without prejudice to any other right of remedy
hereunder) to deduct therefrom the amount of any rent rates and other
charges payable hereunder and any costs expenses loss or damage sustained
by the Landlord as the result of any non-observance or non-performance by
the Tenant of any of the said agreements, stipulations obligations or
conditions. In the event of any deduction being made by the Landlord from
the said deposit in accordance herewith during the currency of this
Agreement the Tenant shall forthwith on demand by the Landlord make a
further deposit equal to the amount so deducted and failure by the Tenant
so to do shall entitle the Landlord forthwith to re-enter upon the
Premises and to determine this Agreement as hereinbefore provided but
without prejudice to any right of action by the Landlord in respect of any
aforementioned outstanding breach or non-observance or non-performance by
the Tenant.
(2) Repayment of Deposit
Subject as aforesaid the said deposit shall be refunded to the Tenant by
the Landlord without interest within thirty (30) days after the expiration
or sooner determination of
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this Agreement and delivery of vacant possession to the Landlord and after
settlement of the last outstanding claim by the Landlord against the
Tenant for any arrears of rent rates and other charges and for any breach
non-observance or non-performance of any of the agreements stipulations
terms and conditions herein contained and on the part of the Tenant to be
observed or performed whichever shall be the later.
(3) Assignment of the Premises
If the Landlord assigns the Premises to a third party (hereinafter called
"the Purchaser"), the Landlord may upon completion of the said Assignment
at any time thereafter transfer to the Purchaser the said deposit or any
part thereof less any deduction which may be made by the Landlord pursuant
to the terms of this Agreement in that event the Tenant shall within 14
days upon request by the Landlord at its own costs and expenses execute a
novation agreement and/or such other documents of a similar nature for the
purpose of transferring the said deposit and releasing the Landlord's
liability in relation to the refund of the said deposit to the Tenant with
the Landlord and/or the Purchaser in a form to be prescribed by the
Landlord. The Landlord hereby expressly excepts and reserves unto itself
the right, after as well as before the assignment of the Premises, to
claim from the Tenant all arrears of rent and other moneys due and owing
under this Agreement and all damages in respect of any breach of this
Agreement. In the event where the Tenant fails or shall fail to execute a
novation agreement and/or other documents of a similar nature as aforesaid
for any reason whatsoever, the Tenant shall be deemed to have consented to
the transfer of the said deposit or any part thereof and to have released
the Landlord's liability in relation to the refund of the said deposit or
any part thereof.
SECTION X
REGULATIONS
(1) Introduction of Regulations
The Landlord shall be entitled from time to time and by notice in writing
to the Tenant to make introduce and subsequently amend adopt or abolish if
necessary such Regulations as it may consider necessary for the proper
operation and maintenance of the Building.
(2) Conflict
Such Regulations shall be supplementary to the terms and conditions
contained in this Agreement and shall not in any way derogate from such
terms and conditions. In the event of conflict between such Regulations
and this Agreement the terms and conditions of this Agreement shall
prevail.
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SECTION XI
INTERPRETATION AND MISCELLANEOUS
(1) Marginal Notes, Headings and Index
The Marginal Notes, Headings and Index are intended for guidance only and
do not form a part of this Agreement nor shall any of the provisions of
this Agreement be construed or interpreted by reference thereto or in any
way affected or limited thereby.
(2) Condonation not a Waiver
No condoning, excusing or overlooking by the Landlord of any default,
breach or non-observance or non-performance by the Tenant at any time or
times of any of the agreements stipulations terms and conditions herein
contained shall operate as a waiver of the Landlord's rights hereunder in
respect of any continuing or subsequent default, breach or non-observance
or non-performance or so as to defeat or affect in any way the rights and
remedies of the Landlord hereunder in respect of any such continuing or
subsequent default or breach and no waiver by the Landlord shall be
inferred from or implied by anything done or omitted by the Landlord,
unless expressed in writing and signed by the Landlord. Any consent given
by the Landlord shall operate as a consent only for the particular matter
to which it relates and shall in no way be considered as a waiver or
release of any of the provisions hereof nor shall it be construed as
dispensing with the necessity of obtaining the specific written consent of
the Landlord in the future, unless expressly so provided.
(3) Letting Notices
Notwithstanding anything herein contained, during the three months
immediately before the expiration or sooner determination of the said term
of tenancy the Tenant shall permit all persons having written authority
from the Landlord or the Landlord's agent to enter and view the Premises
and every part thereof at all reasonable times and the Landlord shall
during such period be at liberty to affix and maintain without
interference upon any external part of the Premises a notice stating that
the Premises are to be let and such other information in connection
therewith as the Landlord shall reasonably require.
(4) Service of Notice
Any notice required to be served on the Tenant shall be deemed to have
been validly served if delivered to or despatched by ordinary or
registered post or left at the
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Premises or at the last known address of the Tenant. A notice sent by
ordinary or registered post shall be deemed to be given at the time and
date of posting.
(5) Name of Building
The Landlord reserves the right at any time and from time to time to
change, alter, substitute or abandon the name of the Building at his sole
discretion with any such name or style as it may determine provided that
the Landlord shall have given the Tenant reasonable notice of its
intention so to do and in respect thereof the Landlord shall not be liable
in damages to the Tenant or be made a party to any other proceedings or
for costs or expenses of whatsoever nature incurred by the Tenant as a
result of such change.
(6) Gender
In this Agreement if the context permits or requires words importing the
singular number shall include the plural number and vice versa and words
importing the masculine feminine or neuter gender, shall include the other
of them.
(7) Stamp Duty and Costs
Each party shall bear its own costs of the preparation of this Agreement
and its counterpart and the stamp duty thereon and the registration fee
(if any) of the Urban Land Registry or the relevant New Territories Land
Registry as the case may be shall be borne by the Landlord and the Tenant
in equal shares.
(8) Management Agreement
The Tenant shall observe and comply with the provisions of the Management
Agreement relating to the Building and shall indemnify the Landlord
against the breach non-observance or non-performance thereof.
(9) No premium paid
The Tenant hereby declares that he has not paid any premium construction
money or other consideration for the tenancy.
-18-
<PAGE>
SECTION XII
OPTION TO RENEW
If the Tenant shall be desirous of taking a tenancy of the Premises for a
further term of ONE (1) YEAR from the expiration of the said term hereby granted
at the rent and on the terms and conditions hereinafter mentioned, it shall not
less than seven (7) months before the expiration of the said term hereby granted
give to the Landlord notice in writing of such its desire and if it shall have
paid the rent hereby reserved and shall have performed and observed the
stipulations conditions or agreements herein contained and on its part to be
observed or performed up to the termination of the tenancy hereby created then
the Landlord will let the Premises to the Tenant for the said further term of
ONE (1) YEAR from the expiration of the said term hereby granted at the rental
to be agreed by the parties within three (3) months from the expiration of this
tenancy failing which at the prevailing market rent to be determined by a
chartered survey or to be appointed by the Chairman of The Hong Kong Institution
of Chartered Surveyors at the material time. The prevailing market rent shall be
binding and conclusive. The chartered surveyor shall be deemed to act as an
expert and not as an arbitrator in any determination made by him hereunder and
his determination shall be conclusive and binding on all concerned. All the
costs and expenses incurred in determining the prevailing market rent shall be
borne and paid by the parties hereto in equal share. *In that event the parties
shall execute another tenancy agreement that contains the same stipulations
conditions or agreements as are herein contained except this Clause for renewal
and the Tenant shall bear the whole costs of the preparation of the said another
tenancy agreement and its counterpart and the stamp duty thereon and the
registration fee (if any) of the Urban Land Registry or the relevant New
Territories Land Registry as the case may be shall be wholly borne by the
Tenant.
SECTION XIII
RENT FREE PERIOD
The Tenant shall be granted a rent free period from the 26th day of April 1997
to the 31st day of May 1997 but subject to the observance of the following terms
and conditions by the Tenant during the period of occupation of the Premises:-
(1) That the Tenant shall not use the Premises for any purpose other than for
the purpose of decorating the Premises; and
(2) That the Tenant shall pay all rates, charges for electricity gas water
air-conditioning (if any) and all other charges maintenance or management
fees and outgoings in connection with the Premises as and from the 26th
day of April 1997.
-19-
<PAGE>
THE FIRST SCHEDULE ABOVE REFERRED TO
PART I
Landlord : EURO TECH (FAR EAST) LIMITED (Chinese translation omitted)
whose registered office is situated at 18th Floor, Gee Chang
Hong Centre, 65 Wong Chuk Hang Road, Hong Kong.
Tenant : HUMAN INSURANCE BROKERS COMPANY LIMITED (Chinese translation
omitted) whose registered office is situated at 17th Floor,
Concord Commercial Building, No. 157 King's Road, North Point,
Hong Kong.
PART II
Premises : Office 2 on 15th Floor, No. 180 Electric Road, Hong Kong.
PART III
Term : TWO (2) YEARS commencing on the 26th day of April 1997 and
expiring on the 25th day of April 1999.
PART IV
Deposit : HONG KONG DOLLARS FIFTY-ONE THOUSAND NINE HUNDRED ONLY
(HK$51,900.00).
PART V
User : The Premises shall be used by the Tenant for office use only.
-20-
<PAGE>
THE SECOND SCHEDULE ABOVE REFERRED TO
PART I
PARTICULARS OF RENT
HONG KONG DOLLARS SEVENTEEN THOUSAND THREE HUNDRED ONLY (HK$17,300.00) per
calendar month payable as from the 1st day of June 1997.
PART II
PARTICULARS OF OTHER CHARGES
The management fees shall be subject to review and shall be HONG KONG DOLLARS
THREE THOUSAND ONE HUNDRED AND SEVENTY ONLY (HK$3,170.00) per calendar month
payable as from the 26th day of April 1997.
-21-
<PAGE>
THE THIRD SCHEDULE ABOVE REFERRED TO
2 split-typed air-conditioners
-22-
<PAGE>
AS WITNESS the hands of the parties hereto the day and year first
above written.
SIGNED by the Landlord by ) For and on behalf of
Mr. Au Shek Sau, a director ) EURO TECH (FAR EAST) LTD
) (Chinese translation omitted)
)
)
) /s/ [Illegible]
) ---------------------------------
in the presence of:- ) Authorized Signature
/s/ Arthur Y. TSO
Arthur Y. TSO
Solicitor, Hong Kong
SIGNED by the Tenant by ) For and on behalf of
Ms. Wong Mo Kee, ) HUMAN INSURANCE BROKERS CO., LTD.
an Accounts Manager ) (Chinese translation omitted)
)
)
) /s/ [Illegible]
) ---------------------------------
in the presence of:- ) Authorized Signature
/s/ Arthur Y. TSO
Arthur Y. TSO
Solicitor
Hong Kong
-23-
<PAGE>
RECEIVED the day and year first above )
written of and from the Tenant the sum )
of HONG KONG DOLLARS FIFTY )
ONE THOUSAND NINE HUNDRED )
ONLY being the deposit money above )
expressed to be paid by the Tenant to the )HK$51,900.00
Landlord. )============
For and on behalf of
EURO TECH (FAR EAST) LTD
(Chinese translation omitted)
/s/ [Illegible]
---------------------------------
Authorized Signature
-------------------------------------
The Landlord
Witness:-
/s/ Arthur Y. TSO
Arthur Y. TSO
Solicitor
Hong Kong
-24-
[LETTERHEAD OF ARTHUR ANDERSEN, HONG KONG]
July 15, 1998
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 report
dated March 20, 1998 included in Form 20-F and to all references to our Firm
included in Form 20-F.
Very truly yours,
/s/ Arthur Andersen & Co.
