<PAGE> 1
As filed with the Securities and Exchange Commission on November 12, 1997
Registration No.333-
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
BRIGHTON TECHNOLOGIES CORPORATION
(Name of Small Business Issuer in Its Charter)
DELAWARE 7373 87-0460452
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
6 PEARL COURT
ALLENDALE, NEW JERSEY 07401
(201) 818-2889
(Address and Telephone Number of Principal Executive Offices)
KIT KUNG, CHAIRMAN
BRIGHTON TECHNOLOGIES CORPORATION
6 PEARL COURT
ALLENDALE, NEW JERSEY 07401
(201) 818-2889
(Name, Address, and Telephone Number of Agent For Service)
-------------------
Copies of all communications to:
DAVID L. FICKSMAN, ESQ. ALAN I. ANNEX, ESQ.
LOEB & LOEB LLP ROBERT S. MATLIN, ESQ.
1000 WILSHIRE BOULEVARD, SUITE 1800 CAMHY KARLINSKY & STEIN LLP
LOS ANGELES, CALIFORNIA 90017 1740 BROADWAY, 16TH FLOOR
TELEPHONE: (213) 688-3400 NEW YORK, NEW YORK 10019-4315
FACSIMILE: (213) 688-3460 TELEPHONE: (212) 977-6600
FACSIMILE: (212) 977-8389
---------------------------
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [ ]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================
Proposed
Maximum Proposed
Titles of Each Class of Amount to be Offering Maximum
Securities to be Registered Registered Price Aggregate Amount of
Per Offering Registration
Security(2) Price(2) Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of
Common Stock, $.001 par value, and one
Redeemable Warrant to purchase one
share of Common Stock(1)................ 1,437,500 $5.00 $7,187,500 $2,178.03
- ---------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, issuable upon exercise of
Redeemable Warrants(4).................. 1,437,500 $6.00 $8,625,000 $2,613.64
- ---------------------------------------------------------------------------------------------------
Representative's Warrants............... 125,000 $.0001 $12.50 (3)
- ---------------------------------------------------------------------------------------------------
Units issuable upon exercise of the
Representative's Warrants(5)............ 125,000 $6.00 $750.000 $ 227.27
- ---------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share, underlying the Redeemable
Warrants included in the
Representative's Warrants............... 125,000 $6.00 $750,000 $ 227.27
===================================================================================================
Total................................... $5,246.27
===================================================================================================
</TABLE>
(1) Based on the offering of 1,250,000 Units and 187,500 Units pursuant to the
over-allotment.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended ("Securities Act").
(3) No Fee is required pursuant to Rule 457(g) under the Securities Act.
(4) Issuable upon the exercise of Redeemable Warrants to be offered to the
public. Pursuant to Rule 416 under the Securities Act, this Registration
Statement covers any additional shares of Common Stock which may become
issuable by virtue of the anti-dilution provisions of new Redeemable
Warrants.
(5) These Units are identical to the Units offered to the public. Pursuant to
Rule 416 under the Securities Act, this Registration Statement also covers
any additional Units which may become issuable by virtue of the
anti-dilution provisions of the Representative's Warrants.
(6) Issuable upon the exercise of the Redeemable Warrants included in the
Representative's Warrants. Pursuant to Rule 416 under the Securities Act,
this Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilution provision of
the Redeemable Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION"), ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 3
PROSPECTUS
SUBJECT TO COMPLETION, DATED _______________, 1997
1,250,000 UNITS
[LOGO] BRIGHTON TECHNOLOGIES CORPORATION
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
----------
Brighton Technologies Corporation (the "Company") is hereby
offering (the "Offering") 1,250,000 units (the "Units"), each Unit consisting of
one share of common stock (the "Common Stock"), $.001 par value per share, and
one redeemable Common Stock purchase warrant (the "Warrants"). The Units, the
Common Stock and the Warrants are sometimes referred to as the "Securities." The
Common Stock and the Warrants included in the Units may not be separately traded
until _______________, 1998, unless earlier separated upon three days' prior
written notice from National Securities Corporation (the "Representative") to
the Company at the sole discretion of the Representative. Each Warrant entitles
the holder thereof to purchase one share of Common Stock (a "Warrant Share") at
an exercise price of 120% of the offering price per Unit at any time commencing
_______________, 1998 until _______________, 2003, unless earlier redeemed. The
Warrants are subject to redemption by the Company at a price of $0.10 per
Warrant at any time commencing _______________, 1998, on thirty days prior
written notice, provided that the closing price per share of the Common Stock
has equaled or exceeded $_______________ (150% of the offer price) for twenty
consecutive trading days within the thirty-day period immediately preceding such
notice. See "DESCRIPTION OF SECURITIES" and "UNDERWRITING."
It is currently estimated that the initial public offering price
per Unit will be between $_____ and $_____. The Company has applied to have the
Units quoted on the Nasdaq SmallCap Market under the symbol "BRTU." The Common
Stock is presently quoted on the OTC Electronic Bulletin Board under the symbol
"BRTK." See "UNDERWRITING" for a discussion of the factors to be considered in
determining the initial public offering price of the Units. On __________, 1997,
the closing bid price of the Common Stock, as reported on the OTC Electronic
Bulletin Board, was $________ per share. See "MARKET PRICE FOR THE COMMON STOCK"
and "DIVIDEND POLICY." ----------
THE SECURITIES OFFERED HEREBY INVOLVE SUBSTANTIAL
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE
[ ] AND "DILUTION" BEGINNING ON PAGE [ ].
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
==================================================================================================
Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $ $ $
- --------------------------------------------------------------------------------------------------
Total (3) $ $ $
==================================================================================================
</TABLE>
(1) Does not include additional compensation to be received by the
Representative as representative of the several underwriters (the
"Underwriters") consisting of a non-accountable expense allowance equal to
3% of the total price to the public. In addition, the Company has agreed to
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. See "UNDERWRITING."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $______, excluding the Representative's non-accountable expense
allowance.
(3) The Underwriters have been granted an option, expiring 45 days from the date
of this Prospectus, to purchase up to 187,500 additional Units from the
Company, solely to cover over-allotments, if any. If the over-allotment
option is exercised in full, the Total Price to the Public, Underwriting
Discounts and Commissions and proceeds the Company will be $__________,
$__________ and $__________, respectively, See "UNDERWRITING."
The Securities are being offered by the Underwriters named herein on a firm
commitment basis subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval to certain legal matters
by their counsel and subject to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of certificates
representing the Units will be made at the offices of National Securities in
Seattle, Washington on or about __________, 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is __________, 1997
<PAGE> 4
[PHOTOGRAPHS]
The Company is not currently a reporting company under the Securities Exchange
Act of 1934, as amended ("Exchange Act"). The Company intends to furnish its
shareholders with annual reports containing audited financial statements and
interim reports as it deems appropriate. The Company's year end is December 31.
In addition, as of the date of this Prospectus, the Company will be subject to
the information requirements of the Exchange Act, and in accordance therewith,
will file reports, proxy statements and other information with the Commission.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS, ON
THE NASDAQ SMALLCAP MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR OTHERWISE
AFFECT THE MARKET PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY
OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES
OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
4
<PAGE> 5
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and financial statements and the
related notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus (i) assumes that the
Underwriters' over-allotment option will not be exercised and (ii) gives
retroactive effect to a reverse stock split of 1 for 3 as a result of which the
10,450,820 outstanding Common Stock of the Company as of October 17, 1997 were
converted into 3,483,666 shares of Common Stock ("Reverse Stock Split"). This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed in "Risk Factors."
THE COMPANY
The Company currently operates in two business segments: (i) computer
network integration, and (ii) distribution of industrial equipment. The Company
is also developing an on-line securities trading network for the Securities
Trading Automated Quotations System (the "STAQ Exchange"), which the Company
expects to be operational in late 1998. The Company provides such services and
equipment primarily to customers in the People's Republic of China ("PRC" or
"China"), as well as other Pacific Basin countries. The Company believes that it
has a strong reputation as an independent full service provider of computer
network integration services and as a distributor of industrial equipment in
China. This belief is based on several factors, including the Company's and its
predecessor's experience in designing and installing computer networks and
importing industrial equipment into China since 1981. Building on its operating
experience in China, the Company formed a Chinese joint venture to develop,
design, install and maintain a nationwide computerized multi-market securities
quotation and trading network in China. (Hereinafter, reference to the Company
shall include its subsidiaries unless the context otherwise requires).
The Company intends to maintain its focus on the Chinese market place
and its business strategy is focused as follows:
o Emphasis on network integration in the banking and finance industries
o Commercialization of the on-line securities trading network
o Expansion of the industrial equipment distribution business to meet
customer demand
Banking and Finance Oriented Information Technology. As the Chinese economy
continues to grow and the standard of living increases in China, the Company
believes that there will be an increased demand for consumer oriented financial
services such as automated teller machines ("ATMs") and retail outlets that
accept credit card transactions. The Company's strategy has been to meet this
increasing demand in the Chinese marketplace by installing wireless
telecommunications networks suitable for high volume transactions that require
instant responses, such as ATM transactions, credit card verifications,
clearance and settlements. Historically, the Company's gross margin on contracts
for computer network integration for such wireless telecommunication systems has
been at least 40 percent. The Company currently has contracts with the
Industrial and Commercial Bank of China, the largest retail bank in China, to
design and install wireless telecommunication networks for clearance and
settlements for six of its bank branches. The Company believes that as market
demand for ATMs and retail outlets that accept credit card transactions
increases, it will be able to secure additional contracts in this area.
5
<PAGE> 6
Securities Quotation and Trading Network. The Company is the owner of a 90%
interest in Beijing Brighton Staq Electronic System Company Limited
("Brighton-STAQ"), a PRC registered Sino-Hong Kong joint venture. The remaining
10% interest is owned by a company controlled by the STAQ Exchange, one of four
national securities exchanges in China, located in Beijing. The purpose of
Brighton-STAQ is to develop, design, install and maintain a nationwide
computerized multi-market securities quotation and trading network, similar to
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") in the U.S., for trading of stocks listed on the Shanghai, Shenzhen
and STAQ Exchange (the "STAQ On-line Network"). The Company's initial plans are
to offer the STAQ On-line Network to the 550 stock brokerages (operating 2,200
offices) that are members of the STAQ Exchange in the cities of Beijing,
Chongqing, Guangzhou, Shanghai and Shenzhen, with plans to eventually market the
STAQ On-line Network to all 2,800 stock brokerages (operating over 10,000
offices) in China. The Company expects to initially charge an installation fee
of $6,000 and a monthly maintenance fee of $1,000 for each terminal installed at
the stock brokerages. The STAQ On-line Network project is currently in the
testing phase. The Company expects to commercialize the STAQ On-line Network in
the first quarter of 1998.
Equipment Distribution. Industrial equipment distribution accounts for a
substantial portion of the current revenues and operating income of the Company.
The types of industrial equipment which the Company has been marketing in China
include machine tools, such as machine center and grinder measurement devices,
and heavy machinery, such as gantry mills, pressing machine production lines and
dyes transfer automation systems. The Company is the exclusive distributor for
Milltronics Manufacturing Company (a U.S. company), Normac Incorporated (a U.S.
company), ALO Teknik AB (a Swedish company), Royal Master Grinders, Inc. (a U.S.
company) and K.O. Lee Company (a U.S. company) for the sale of their industrial
equipment in China. In addition to representing these manufacturers, the Company
has adopted the strategy of increasing sales by searching for industrial
equipment from manufacturers worldwide that meet both the customer's technical
specifications and budget. The Company will continue its past practice of
gradually increasing the size of its sales team to meet customer demand for
industrial equipment.
CORPORATE STRUCTURE
The Company conducts its business through two principal
subsidiaries: The Brighton Industries Corporation, a Delaware corporation
("BIC"), and Brighton Electronics Corporation Limited, the Company's Hong Kong
registered subsidiary ("BECL"). BIC acts as distributor of third-party
manufactured industrial equipment to customers in Pacific Basin countries, with
primary distribution to customers in China. BECL is an investment and holding
company for Asian-based investments focusing on data transfer networks and
industrial equipment related ventures in the Pacific Basin region. BECL holds
investments in five second-tier subsidiaries, four of which are companies
organized under the laws of Hong Kong and one of which is a Chinese joint
venture company.
The Company's executive offices are located at 6 Pearl Court,
Allendale, New Jersey 07401, and its telephone number is (201) 818-2889.
6
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company................. 1,250,000 Units, each Unit consisting of one
share of Common Stock and one Warrant.
Warrants.......................................... Each Warrant will entitle the holder thereof to
purchase one share of Common Stock. The Warrants
are exercisable commencing _______________, 1998,
unless earlier redeemed, for one share of Common
Stock each, at an exercise price of 120% of the
offering price per Unit in the Offering. The
Warrants may not be separately traded until
______________, 1998, unless earlier separated
upon three days prior written notice by the
Representative to the Company at the discretion
of the Representative. The Warrants are redeemable
by the Company at $0.10 per Warrant at any time
commencing _______________, 1998, on thirty days
prior written notice, provided that the closing sale
price per share for the Common Stock has equaled or
exceeded $__________ (150% of the offer price) for
twenty consecutive trading days within the thirty-day
period immediately preceding such notice. See
"DESCRIPTION OF SECURITIES."
Offering Price.................................... $_________ per Unit
Common Stock Outstanding:
Prior to the Offering........................ 3,495,333 shares
After the Offering(1)........................ 4,745,333 shares
</TABLE>
- --------------------
(1) Does not include: (i) 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 125,000 shares of Common Stock issuable upon the
exercise of the Representative's Warrants; or (iii) up to 187,500 shares of
Common Stock issuable upon exercise of Warrants and Common Stock issuable upon
the exercise of the Underwriters' Over-Allotment Option.
7
<PAGE> 8
<TABLE>
<S> <C>
Use of Proceeds................................... To complete the investment required to commercialize
the STAQ On-line Network project and for general
working capital. See "USE OF PROCEEDS."
Risk Factors...................................... The Offering involves a substantial degree of risk,
including the entry of the Company into a new business
in China, discretionary use of proceeds, general risks
associated with operating in China, possible
regulatory constraints and possible need for additional
financing. See "RISK FACTORS."
NASDAQ Market Symbols............................ Common Stock.............................. "BRTK"
Units .................................... "BRTU"
</TABLE>
8
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The following table sets forth (i) for the periods indicated and
at the dates indicated historical summary financial information of the Company
and (ii) adjusted historical balance sheet information of the Company as of June
30, 1997. The historical information contained in the table as of December 31,
1996 and for the years ended December 31, 1995 and 1996 has been derived from
audited financial statements, and is qualified in its entirety by, and should be
read in connection with, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION," the audited financial statements (and notes thereto) and other
financial and statistical information of the Company appearing elsewhere in this
Prospectus. The historical statements of operations and balance sheet data as of
June 30, 1997 and for the six months ended June 30, 1996 and 1997, have been
derived from unaudited financial statements. The financial statements as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 are unaudited;
however in the opinion of management all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the financial
statements for interim periods have been made. The results of interim periods
are not necessarily indicative of the results to be obtained in a full fiscal
year. The accompanying historical as adjusted unaudited balance sheet data is
adjusted to give effect to the Offering as if it had occurred on June 30, 1997.
The following data gives retroactive effect to a 1 for 3 reverse stock split
which was effective on October 17, 1997. All share and per share data have been
restated for all periods presented to reflect this split.
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
------------------------ -------------------------
1995(1) 1996 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues $8,370,537 $8,006,260 $5,496,964 $4,535,865
Gross profit 2,205,336 2,220,753 1,040,701 1,330,721
Operating income (loss) 557,320 465,724 236,892 (90,461)
Income (loss) before
income taxes and
minority interests 560,644 514,750 297,259 (66,966)
Net income (loss) 172,347 198,524 141,375 (30,024)
Net income (loss) per
common share:
Primary and fully diluted .06 .06 .05 (.01)
Weighted average
number of common
shares and common share
equivalents outstanding:
Primary 3,025,000 3,101,896 3,025,000 3,467,630
Fully diluted 3,025,000 3,140,672 3,066,155 3,547,339
</TABLE>
(1) As restated (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION-OVERVIEW").
9
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<TABLE>
<CAPTION>
June 30, 1997
----------------------------
December 31, Historical
1996 Historical As Adjusted(2)
---- ----------- --------------
<S> <C> <C> <C>
BALANCE SHEET
DATA:
Working capital (deficiency) $ (879,481) $ (667,134) $
Total assets 10,187,068 6,683,432
Total liabilities 9,602,032 5,796,388
Stockholders' equity 585,036 887,044
</TABLE>
(2) Gives effect to the sale of 1,250,000 Units offered hereby.
10
<PAGE> 11
RISK FACTORS
An investment in the securities offered hereby involves a
substantial degree of risk. Prospective investors, prior to making an investment
decision, should carefully consider the following risk factors. This Prospectus
contains forward-looking statements within the meaning of the `safe harbor'
provisions of the Private Securities Litigation Reform Act of 1995. Reference is
made in particular to the description of the Company's plans and objectives for
future operations, assumptions underlying such plans and objectives and other
forward-looking statements included in "PROSPECTUS SUMMARY," "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS" in
this Prospectus. Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in the forward-looking
statements. Factors which could cause such results to differ materially from
those described in the forward-looking statements include those set forth in the
risk factors below.
RISKS RELATING TO OPERATIONS IN CHINA. The Company conducts
substantially all its marketing and sales, and provides its services to,
end-users in China. The Company expects to continue to focus its efforts on the
Chinese market. As such, there are risks involved with the conduct of the
Company's business in China, including the following:
Internal Political Risks. During the past decade and a half, the
Chinese Government has implemented a program of reform, and is expected to
continue to open its economic and political systems. Such reforms have resulted
in significant economic growth and social progress. Many of the reforms are
unprecedented or experimental and are expected to be refined and improved upon.
Other political, economic and social factors may also lead to further
readjustment of the reform measures. This refinement and readjustment process
may not have a positive effect on the operations of the Company. The Company's
results at times may also be adversely affected by changes in China's political,
economic and social conditions, and/or by changes in the policies of the Chinese
Government, such as changes in laws and regulations (or the interpretation
thereof), including those with respect to trade with the United States,
Sino-foreign joint ventures, the introduction of measures to control inflation,
changes in the rate or method of taxation, imposition of additional restrictions
on currency conversion and remittances abroad and others.
Over the past years, there has been an increasing focus on
attracting foreign investment into China. There can be no assurance that the
Chinese Government will continue with the policy of encouraging foreign
investment in the Company's businesses, nor that the maximum levels of foreign
percentage holding allowed for joint ventures will be continued.
Government Control Over the Economy and Inflation. The economy of
China differs from the economies of most countries belonging to the Organization
for Economic Cooperation and Development ("OECD") in such respects as structure,
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, self-sufficiency, rate of inflation and balance of
payments position, among others. For almost 40 years, the economy of China has
been primarily a planned economy subject to one-, five- and 10-year State Plans.
Pursuant to such State Plans, various Central Government agencies with
jurisdiction over different industries and local Governments at various levels
formulate and implement more specific plans applicable to their respective
industries and localities. Although the majority of productive assets in China
are still owned by the Chinese Government, which relies on state-owned
enterprises for a substantial portion of its revenue, in recent years the
portion of the Chinese economy subject to State Plans has been diminishing.
Nevertheless, at times, the economic reform measures adopted by the Chinese
Government may be inconsistent or ineffectual and, therefore, the Company may
not be able at times to capitalize on such reforms.
11
<PAGE> 12
The Chinese economy has experienced significant growth in the
past five years, but such growth has been uneven both geographically and among
various sectors of the economy. Economic growth has also been accompanied by
rising inflation. The Chinese Government has implemented policies from
time-to-time to restrain the rate of such economic growth and control inflation
in order to achieve coordinated economic development. In July 1993, the Central
Government adopted a number of measures to strengthen "macroeconomic control" of
the economy, including increasing interest rates on bank loans and deposits, and
postponing certain planned price reforms. Despite some successes in controlling
economic expansion and the inflation rate, the Central Government has stated its
intention to slow further economic growth in order to combat inflation which has
seen prices rise more than 20% in some years.
A significant portion of the economic activity in China is
related to exports and may therefore be affected by developments in the
economies of China's principal trading partners. The United States annually
reconsiders the renewal of "Most Favored Nation" ("MFN") trading status for
China, which provides China with trading privileges available to trading
partners of the United States. If trade relations between China and the United
States were to deteriorate for any reason, the Company could be adversely
affected.
Restrictions on Currency Conversions. The Company's income from
the STAQ On-line Network project will be received or realized in the Chinese
currency, Renminbi, although the Company will be required to compute and report
its results of operations in U.S. dollars. Accordingly, changes in the Renminbi
against the U.S. dollar, will result in corresponding changes in the U.S. dollar
value of the Company's assets denominated in Renminbi, and will change the U.S.
dollar value of income and dividends received or to be received in Renminbi. The
Company does not currently engage in hedging transactions and does not intend to
do so in the future.
During the last five years, the value of the Renminbi generally
has experienced a gradual but significant devaluation against most major
currencies. On January 1, 1994, the official exchange rate was abolished and a
new managed floating-rate foreign exchange system was implemented. Although the
Renminbi to U.S. dollar exchange rate has been stable since January 1, 1994 and
the Central Government has stated its intention to intervene in the future to
support the value of the Renminbi, there can be no assurance that exchange rates
will not again become volatile or that the Renminbi will not further decline in
value against the U.S. dollar.
Both the conversion of Renminbi into foreign currencies and the
remittance of foreign currencies abroad require Chinese Government approvals.
The Company believes that it will be able to obtain all required approvals for
the conversion and remittance abroad of foreign currency necessary to support
the operations of the Company and distribute dividends to stockholders should
the Company elect to do so. However, such approvals do not guarantee the
availability of foreign currency, and, no assurance can be given that the
Company will be able to convert sufficient amounts of foreign currencies in
China's foreign exchange markets. See "BUSINESS-STAQ ON-LINE NETWORK."
Restrictions on Repatriation of Foreign Currency. Foreign
investment enterprises may generally remit out of China profits or dividends
derived from a source within China, subject to the availability of foreign
currency. Except for such profits or dividends, remittance out of China by
foreign investment enterprises of any other amount (including proceeds from a
disposition of an investment in China) is subject to the approval of
governmental regulatory agencies and the availability of foreign currency. In
addition, if there were to be a deterioration in China's balance of payments, or
for other reasons, China could impose restrictions on foreign currency
remittances abroad. No assurance can be given that the Company will be able to
remit out of China amounts due the Company from any Sino-foreign joint venture
with which the Company may engage in business.
Legal System. Since 1979, many laws and regulations governing
economic matters in general have been promulgated in China. Despite these
efforts in developing the legal system, China does not have a comprehensive
system of laws. In addition, the enforcement of existing laws may be uncertain
and sporadic, and implementation
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and interpretation thereof inconsistent. The Chinese judiciary is relatively
inexperienced in enforcing the laws that exist, leading to a higher than usual
degree of uncertainty as to the outcome of any litigation. Even where adequate
laws exists in China, it may be difficult to obtain swift and equitable
enforcement of such laws, or to obtain enforcement of a judgment by a court of
another jurisdiction. The Chinese legal system is based on written statutes and,
therefore, decided legal cases are without binding legal effect, although they
are often followed by judges as guidance. The interpretation of Chinese laws may
be subject to policy changes which reflect domestic political changes.
As the Chinese legal system develops, the promulgation of new
laws, changes to existing laws and the pre-emption of local regulations by
national laws may adversely affect the Company's businesses. The general effect
of legislation over the past 18 years, however, has been to significantly
enhance the protection afforded to foreign investment enterprises in China.
However, there can be no assurance that changes in such legislation or
interpretation thereof will not have an adverse effect upon the businesses and
prospects of the Company.
The Company's activities in China are by law subject, in certain
cases, to administrative review and approval by various national and local
agencies of the Chinese government. In particular, part of the Company's current
operations and the realization of its future expansion programs in China will be
subject to Chinese government approvals.
Enforceability of Judgements. China has not entered into treaties
or arrangements providing for the recognition and enforcement of judgements of
courts in most other countries. Accordingly, it may be difficult to secure
recognition and enforcement in China for the judgements of courts in such
jurisdictions.
Foreign Trade Corporations. In order to conduct the distribution
business in China, the Company must make most of its sales through foreign trade
corporations ("FTC's") which are legally authorized by the Chinese Government to
conduct import business. Although purchasing decisions are made by the end-user,
which is obligated to pay the applicable purchase prices, the Company enters
into a formal purchase contract with only the FTC. The FTC's make purchases on
behalf of the end-users. By virtue of its direct contractual relationship with
the FTC's, rather than the end-user, the Company is to some extent dependent
upon the continuing existence of the contractual compliance by the FTC's until
the particular transaction has been consummated. The Company's business,
however, is not dependent on any single FTC or end-user. Although sales to
certain industries involve repeat transactions with FTC's that operate in those
industries, the Company does not believe that it is dependent upon relations
with any particular FTC or that the loss of relations with any particular FTC
would have a material adverse affect on the Company. Rather, FTC's, which earn
commissions in transactions, compete with each other for the right to handle
end-users' business. See "BUSINESS-INDUSTRIAL EQUIPMENT DISTRIBUTION BUSINESS."
Hong Kong: Transfer of Sovereignty. BECL, the Company's
investment and holding company for Asian based investments for information and
industrial equipment related ventures in the Pacific Basin region, is a Hong
Kong registered company. As a result, the Company's results of operations and
financial condition may be influenced by the political situation in Hong Kong
and by the general state of the Hong Kong economy. On July 1, 1997, sovereignty
over Hong Kong was transferred from the United Kingdom to China, and Hong Kong
became a Special Administrative Region of China (an "SAR"). As provided in the
Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law of
the Hong Kong SAR of China (the "Basic Law"), the Hong Kong SAR is to have its
own legislature, legal and judicial system and full economic autonomy for 50
years. Based on the current political conditions and the Company's understanding
of the Basic Law, the Company does not believe that the transfer of sovereignty
over Hong Kong will have a material adverse impact on the Company's financial
and operating environment. There can be no assurance, however, that changes in
political or other conditions will not result in such an adverse impact. See
"BUSINESS-BUSINESS DEVELOPMENT."
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BRINGING BRIGHTON-STAQ TO COMMERCIALIZATION. It is management's
belief that Brighton-STAQ represents the primary growth opportunity for the
Company. Consequently, the future success of the Company depends to a
substantial extent on the successful implementation of the Brighton-STAQ joint
venture. While the Company and its predecessor have been in business for more
than 16 years, the Brighton-STAQ joint venture is inherently a new business for
the Company. The Company projects that the Brighton-STAQ will not be profitable
until, at least, after the first year of commercialization. Prospective
investors, therefore, have no historical financial information about
Brighton-STAQ upon which to evaluate the Company's performance in this business
and investment in the Units offered hereby. The likelihood of the success of
Brighton-STAQ must be considered in light of the problems, expenses,
difficulties and delays frequently encountered in connection with the formation
of a new business. See "BUSINESS-STAQ ON-LINE NETWORK."
China's Securities Industry Related Risk. Although the Chinese
government has introduced new laws and regulations since January 1, 1994 to
modernize its securities market, China does not have a well-developed,
consolidated body of law governing the securities industry. As China continues
to develop its securities market, changes to existing laws, regulations and
policies (or in the application or enforcement thereof), the adoption of new
laws, and the pre-emption of local regulations by national laws may adversely
affect Brighton-STAQ. See "GOVERNMENT CONTROL OVER THE ECONOMY AND INFLATION."
Dependence on Strategic Relationship. The Company, through its
subsidiary, operates Brighton-STAQ as a joint venture company with Beijing
Huazheng Electronic Technology Co., Ltd. ("Huazheng"), a Chinese registered
Sino-Hong Kong equity joint venture company. Huazheng is a company controlled by
the STAQ Exchange in Beijing. It is Huazheng's affiliation with the STAQ
Exchange that provides Brighton-STAQ with access to the STAQ Exchange. The
deterioration of this strategic relationship would have a material adverse
effect on Brighton-STAQ and would potentially limit the Company's ability to
continue to design, install and maintain the STAQ On-line Network. There can be
no assurance that the Company's relationship with its strategic partner will
remain on agreeable terms or that the Company's partner will not end its
relationship with the Company by selling its interest in Brighton-STAQ. See
"BUSINESS-STAQ ON-LINE NETWORK."
Limited Duration of Joint Venture. Brighton-STAQ has a term of 12
years. To the extent that the Company is unable to either extend the term of the
joint venture in 2006 or replace the revenues generated from its operations, the
Company's future earnings may be adversely affected. Although the Company
expects to be able to extend the term of Brighton-STAQ, there can be no
assurance that the Company will be successful in extending the term of the joint
venture or establish new arrangements sufficient to replace such lost revenues.
See "BUSINESS-STAQ ON-LINE NETWORK."
Right of Huazheng to buy up to 49% of Brighton-STAQ. The Company
and Huazheng have a verbal agreement that Huazheng has the right during the term
of Brighton-STAQ, under certain financial performance criteria to be agreed upon
by the parties, to acquire up to an additional 10% of Brighton-STAQ annually, at
market valuation, up to a total ownership of 49%. The parties have not agreed on
the mechanism for determining such performance criteria. If Huazheng decides to
exercise this right at a time when Brighton-STAQ is profitable, the Company's
operating results and anticipated growth may be adversely affected. Also, the
mechanism for determining market valuation (yet to be negotiated between the
parties) at the time Huazheng exercises its acquisition right may possibly be
unfavorable to the Company. See "BUSINESS-STAQ ON-LINE NETWORK."
Construction and Operation of the STAQ On-line Network. In order
for the STAQ On-line Network to be fully operational, additional Chinese
governmental approvals will be required. Even in the event that the Company
obtains all necessary governmental approvals related to and has adequate
financing to fund construction and operation of the STAQ
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On-line Network, Brighton-STAQ may experience difficulties and delays relating
to the construction and operation of such network system. There can be no
assurance that such network system will be completed in a timely manner, if at
all, or that financing will be sufficient to complete or to operate the STAQ
On-line Network. The failure to achieve these goals may have a material adverse
effect upon the liquidity, working capital requirements and anticipated growth
of the Company's business operations. See "BUSINESS-STAQ ON-LINE NETWORK."
Dependence on The People's Daily as Satellite Provider. The
operation of the STAQ On-line Network is dependent on satellite service provided
by The People's Daily, the major newspaper serving China. The Company is
currently negotiating a three-year contract for satellite services with The
People's Daily and expects to finalize the contract by the end of October 1997.
The People's Daily is not a commercial provider of satellite service and itself
subscribes to Asia Satellite Telecommunications Co. Ltd. in Hong Kong for lease
of a C-Band transponder and China Telecommunications Broadcast Satellite
Corporation in Beijing for lease of a Ku-Band transponder. The Company is
dependent on The People's Daily's transponder lease agreements with the
commercial satellite service providers. If The People's Daily's transponder
lease agreements were to terminate for any reason, the Company will need to
subscribe for satellite service from a commercial provider at substantially
higher cost to the Company. See "BUSINESS-STAQ ON-LINE NETWORK."
Additional Capital Requirements. Capital, in addition to the net
proceeds from the Offering, may be required to fund the capital expenditures,
development and construction costs and working capital requirements related to
the Company's development of the STAQ On-line Network. The Company cannot
predict the extent to which additional capital may be required for those
purposes and there can be no assurance that the Company will be able to obtain
such additional capital on terms acceptable to the Company. To the extent that
future financing requirements are satisfied through the issuance of equity
securities, prospective investors may experience significant dilution in the net
book value of the Units offered hereby.
In addition, the projected capital requirements to complete the
STAQ On-line Network exceed Brighton-STAQ's current authorized total investment
amount. Under Chinese law, the Company may not make capital contributions in
excess of authorized total investment amounts (currently $1,600,000) without the
consent of relevant Chinese Governmental approval authorities. The Company has
decided for practical reasons to delay application until funds from the Offering
are available. Although the Company currently expects that the required
governmental approvals will be obtained and the Company will be able to obtain
financing when necessary to expand capacity to meet projected targets, such
approval and ability of the Company to obtaining financing are beyond the
control of Brighton-STAQ and the Company. There can be no assurance that such
approval will be granted. If such approval is not obtained, the ability of
Brighton-STAQ to meet its projected future business targets may be materially
adversely impacted. See "BUSINESS-STAQ ON-LINE NETWORK" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."
Competition. The STAQ On-line Network may potentially compete
with the Shanghai and Shenzhen Stock Exchanges as both the exchanges maintain
their own on-line securities quotation and trading system. Management believes
that it is unlikely that either of the two exchanges would compete with the STAQ
On-line Network because the STAQ Exchange and the Shanghai and Shenzhen Stock
Exchanges are under common control and the development of the STAQ On-line
Network complements the two stock exchanges. No assurances can be given that
competition from these exchanges will not arise.
In addition, other businesses experienced in the systems
management and computer network integration business as well as the wireless
communications business, such as Dow Jones Markets, Inc., Reuters Limited and
Bloomberg L.P., may compete with the Company. These competitors have greater
marketing and development budgets than the Company and have greater capital
resources than the Company. There can be no assurance that the Company will be
successful in commercializing the STAQ On-line Network.
DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES. The Company's
network integration and STAQ On-line Network business segments operate in an
industry that is characterized by fast-changing technology. As a
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result, the Company will be required to expend substantial funds for and commit
significant resources to the conduct of continuing product development,
including research and development activities and the engagement of additional
engineering and other technical personnel. Any failure by the Company to
anticipate or respond adequately to technological developments, customer
requirements, or new design and production techniques, or any significant delays
in product development or introduction, could have a material adverse effect on
the operating results of the Company.
The Company's future operating results will depend to a
significant extent on its ability to identify, develop, and market enhancements
or improvements to existing network integration applications as well as to
introduce new product lines that compare favorably on the basis of time to
introduction, cost and performance with the product lines offered by
competitors. The success of new product lines depend on various factors,
including proper market segment selection, utilization of advances in
technology, innovative development of new product concepts, timely completion
and delivery, efficient and cost-effective features, and market acceptance.
Because of the complexity of the design and implementation process required by
the Company's integration services, the Company may experience delays from time
to time in completing the design and implementation of improvements to existing
network systems or the introduction of new network integration applications. In
addition, there can be no assurance that any new network integration application
will receive or maintain customer or market acceptance. The Company's future
operating results would be adversely affected in the event that it is unable to
design and implement enhancements to existing network systems or introduce new
network integration applications on a timely and cost-effective basis. See
"BUSINESS -- COMPUTER NETWORK INTEGRATION AND STAQ ON-LINE NETWORK."
Complex network integration systems, such as those developed by
the Company and incorporated third party hardware and software programs, often
encounter development delays and occasionally contain errors that are discovered
only after network systems have been installed and used by many different
customers in a variety of business operations. Significant development delays in
the future may result in increased product development costs, delays in market
acceptance, loss of sales, and reduction of market share, which could have a
material adverse effect on the Company's operating results. Although the Company
conducts extensive testing of its network integration applications and systems,
there can be no assurance that the Company will successfully detect and
eliminate all programming errors.
CHANGE IN PRODUCT MIX. Historically, the Company has derived a
substantial portion of its revenue from the sale and integration of hardware and
software developed by others. The resale of hardware products manufactured by
third parties is extremely competitive and involves relatively low profit
margins. The sale of software developed by others also involves relatively low
profit margins and exposes the Company to various risks, including product
performance and market acceptance of such products as well as the strategies of
the product developers, over which the Company has little control.
The Company has changed its business strategy to emphasize the
development of its own network system in an effort to increase the relative
percentage of revenue it will derive from offering network services for
securities trading on the STAQ Exchange. The Company has completed testing of
the STAQ On-line Network using land telephone lines and is in the process of
bringing it to commercialization. There can be no assurance, however, that the
Company will be successful in commercializing the STAQ On-line Network. The
failure of the Company to successfully develop and market the STAQ On-line
Network could have a material adverse effect on the Company.
See "BRINGING BRIGHTON-STAQ TO COMMERCIALIZATION."
MANAGEMENT OF CHANGE IN BUSINESS. The Company currently is
experiencing a period of significant growth in the development of the STAQ
On-line Network. The Company's ability to effectively manage this change in its
business operations will require it to enhance its operational, financial, and
management systems; to expand its facilities and equipment; and to successfully
hire, train, and motivate additional employees, including
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the technical personnel necessary to develop the STAQ On-line Network and to
integrate new software systems with evolving hardware technologies. The failure
of the Company to manage effectively the change in its business focus could have
a material adverse effect on the Company.
DEPENDENCE ON KEY CUSTOMERS. The Company's industrial equipment
customers vary from year to year, but, historically, significant portions of its
revenues are from a limited number of customers. The Company expects that
significant portions of future revenues from this business segment will continue
to be generated by a limited number of customers. The Company's inability to
secure individual contracts for significant industrial equipment may result in
substantial reduction in business volume and would adversely affect operating
results. China Henan Light Industrial Products Import and Export Corporation, a
BECL customer, accounted for 17% of the Company's revenues in 1996 and Honest
Fortune International, Ltd., a BIC customer, accounted for 10% of the Company's
revenues in 1995.
CHINA NATIONAL CONTRACT. The Company's contract with China
National Chemical Construction Company ("China National") which accounted for
34% and 13% of the Company's revenues for the years ended December 31, 1995 and
1996, respectively, is a turn-key contract. Contracts of this nature are
generally discrete projects, and the Company does not anticipate repeat business
from China National after the completion of the contract in 1997. The Company
does not currently have or plan to have any projects of this nature in the
foreseeable future. See "BUSINESS-CHINA NATIONAL."
COMPETITION. The network integration and equipment distribution
businesses are highly competitive in China and includes competition from
distributors and service providers from around the world. Certain of the
Company's competitors have considerably greater financial, marketing, personnel
and other resources than the Company, as well as greater experience and customer
recognition than the Company. In the wireless system integration area, the
Company competes with Multipoint, Inc., a U.S. company, and Kb/Tel, SA, a
Mexican company, who offer wireless telecommunication equipment offering
identical features as the Aria Wireless System. In the equipment distribution
area, the Company competes with other independent distributors, as well as
manufacturers such as Cincinnati Milacron, Inc. and Ingersoll-Rand Company.
There can be no assurance that the Company will be able to successfully compete
with its competitors.
DEPENDENCE ON KEY PERSONNEL. The Company depends to a large
extent on the abilities and relationships of its Chairman, President, Chief
Executive Officer and principal stockholder, Kit Kung. Mr. Kung does not have an
employment agreement with the Company (see "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT"). The loss of Mr. Kung as an officer and
director could have a material adverse effect on the Company's business. In
addition, there is strong competition for qualified technical and management
personnel in the information, systems management and communications industries,
and the loss of key technical and management personnel or an inability to
continue to attract, retain and motivate key personnel could adversely affect
the Company's business. There can be no assurance that the Company will be able
to retain its existing key personnel or attract additional qualified personnel.
The Company does not have a key-person life insurance policy on Mr. Kung or any
employee of the Company. The Company will, prior to the completion of the
Offering, obtain and maintain a $2,000,000 term life insurance policy covering
Kit Kung which names the Company as the sole beneficiary. See "MANAGEMENT."
CONTROL BY KIT KUNG. Upon the consummation of the Offering, Kit
Kung will own approximately 59.7% of the issued and outstanding Common Stock,
assuming the Warrants have not been converted into Common Stock, or 47.3% of the
issued and outstanding Common Stock, assuming the Warrants have been converted
into Common Stock. Accordingly, Kit Kung will be able to significantly influence
the Company's business and affairs. This concentration of ownership may have the
affect of delaying, deferring or preventing a change in control of the Company.
See "PRINCIPAL STOCKHOLDERS."
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DISCRETIONARY USE OF PROCEEDS. The Company intends to use all of
its net proceeds from the Offering to finance commercialization of the STAQ
On-line Network project except for approximately $____________ which the Company
intends to use for working capital and general corporate purposes. However,
delays or difficulties in project development could cause the Company to use
such net proceeds for general corporate purposes. The Company's management will,
therefore, retain broad discretion in allocating all of the net proceeds of the
Offering. See "USE OF PROCEEDS."
NO DIVIDENDS AND NONE ANTICIPATED. The Company has not paid any
dividends on its Common Stock since it acquired all of the issued and
outstanding capital stock of BIC and BECL, effective November 11, 1996, and does
not intend to pay dividends in the foreseeable future. Earnings of the Company,
if any, not paid as dividends are expected to be retained to finance the
expansion of the Company's business. The payment of dividends on its Common
Stock in the future will depend on the results of operations, financial
condition, capital expenditure plans and other cash obligations of the Company
and will be at the sole discretion of the Board of Directors. See "DIVIDEND
POLICY" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."
NEED FOR ADDITIONAL FINANCING. Based on the Company's operating
plan, management believes that the proceeds from the Offering, together with
borrowings that will be available under its existing credit facility or any
replacement credit facility and anticipated cash flow from operations, will be
sufficient to meet the Company's anticipated cash needs and to finance its plans
for the STAQ On-line Network project for at least the next 12 months from the
date of this Prospectus. Thereafter, the Company anticipates that it may require
additional financing to meet its plans for the STAQ On-line Network project. No
assurance can be given that the Company will be successful in obtaining
additional financing on favorable terms, if at all. If the Company is unable to
obtain additional financing, its ability to meet its plans for the STAQ On-line
Network project beyond 12 months could be materially adversely affected. The
Company has financed its operations to date primarily from cash flow from
operations, related party loans and private sales of equity. See "USE OF
PROCEEDS," "CAPITALIZATION," "CERTAIN TRANSACTIONS" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS."
DILUTION. Upon completion of the Offering, prospective investors
of the Units will experience dilution in net tangible book value of their
investment in the Company of $____ per share of Common Stock. See "DILUTION."
NO PRIOR MARKET FOR THE UNITS; DETERMINATION OF OFFERING PRICE.
Prior to the Offering, there has been no public market for the Units. While the
Company has applied for the listing of the Units on the Nasdaq SmallCap Market,
there can be no assurance that an active trading market for the Units will be
established, or if so established, sustained. The initial offering price for the
Units has been arbitrarily determined through negotiation between the Company
and the Representative based on such factors as the business potential and
earnings prospects of the Company and prevailing market conditions. Such price
may not be indicative of the market price of the Units after the Offering has
been consummated. See "UNDERWRITING." The trading price of the Company's Units
may be highly volatile and could be subject to significant fluctuations in
response to variations in the Company's quarterly operating results and other
factors. In addition, the stock market is subject to price and volume
fluctuations affecting the market price for the securities of many companies
generally, which fluctuations often are unrelated to operating results.
ANTI-TAKEOVER CONSIDERATIONS. The Board of Directors has the
authority to issue up to Five Million (5,000,000) shares of preferred stock, par
value $.001 per share and to establish the rights and preferences of such
shares. Such issuance could occur without action by the holders of the Common
Stock and the holders of the Units. Such preferred stock could have voting and
conversion rights that adversely affect the voting power of the holders of Units
and/or Common Stock, or could result in one or more classes of outstanding
securities that would
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have dividend, liquidation or other rights superior to those of the Units and/or
Common Stock. Issuance of such preferred stock may have an adverse effect on the
then prevailing market price of the Units and/or Common Stock. This authority,
together with certain provisions in the Company's Restated Certificate of
Incorporation and By-Laws, may delay, deter or prevent a change in control of
the Company, may discourage bids for the Units and/or Common Stock at a premium
over the market price of the Units and/or Common Stock, and may adversely affect
the market price of, and the voting and other rights of the holders of, Units
and/or the Common Stock. Additionally, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law
("Delaware Law"), which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Section 203 could have the effect of delaying or preventing a change of control
of the Company. See "DESCRIPTION OF SECURITIES."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering,
there will be 4,745,333 shares of Common Stock outstanding, of which 3,093,837
shares of Common Stock will be "restricted" securities within the meaning of the
Securities Act and may not be sold in the absence of registration under the
Securities Act or an exemption therefrom, including the exemptions contained in
Rule 144 under the Securities Act. Without regard to the "Lock-Up Agreements"
with the Representative, referred to below, such shares will become available
for sale under Rule 144 at various times commencing 90 days from the date of
this Prospectus. No prediction can be made as to the effect, if any, that future
sales of shares of Common Stock will have on the market price of the shares of
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that these sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
ability of the Company to raise additional capital through the sale of its
equity securities or through debt financing. The Company and its officers,
directors and current stockholders have agreed to enter into agreements
("Lock-Up Agreements") under which they will agree not to sell or otherwise
dispose of any of their shares of Common Stock or other securities of the
Company for a period of thirteen (13) months commencing upon the date of this
Prospectus, without the prior written consent of the Representative. See
"UNDERWRITING" and "SHARES ELIGIBLE FOR FUTURE SALE."
POSSIBLE DELISTING FROM NASDAQ SYSTEM AND MARKET ILLIQUIDITY.
While the Units meet the Nasdaq listing requirements and are expected to be
initially quoted on the Nasdaq SmallCap Market, there can be no assurance the
Company will meet the criteria for continued listing. For continued listing on
the Nasdaq SmallCap Market, a company would need to have, among other things,
(A) net tangible assets of $2,000,000, (B) a market capitalization of
$35,000,000, or net income for two of the last three fiscal years of $500,000,
(C) a minimum market value of public float of $1,000,000 and (D) a minimum bid
price of $1.00 per share. Additionally, for both initial listing and continued
listing on the Nasdaq SmallCap Market, companies would be required to have at
least two independent directors, and an Audit Committee, a majority of the
members of which must be independent directors.
If the Company's Common Stock were delisted from Nasdaq, it could
become subject to Rule 15g-9 under the Exchange Act and be considered a "penny
stock" under such Rule, which imposes additional sales practice requirements on
broker-dealers that sell such delisted securities to persons other than
established customers and "accredited investors" (generally, individuals with a
net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or
$300,000 together with their spouses). For transactions covered by Rule 15g-9, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
the sale. Consequently, Rule 15g-9 may adversely affect the ability of
broker-dealers to sell the Company's Common Stock or Units and may adversely
affect the ability of purchasers in the Offering to sell in the secondary market
any of the Units or Common Stock acquired.
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PENNY STOCK REGULATION. Broker-dealer practices in connection
with transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Commission. Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. If the Units do not qualify for quotation
on the Nasdaq SmallCap Market, or if it qualifies and is later delisted from
such Market and has a price of less than $5.00 per Unit, then unless another
exemption is available, the Units and the underlying Common Stock would be
subject to the penny stock rules. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. If the Securities become
subject to the penny stock rules, investors in the Offering may find it more
difficult to sell their Securities.
ADVERSE CONSEQUENCES ASSOCIATED WITH WARRANTS. The Company has
reserved 1,250,000 shares of Common Stock for issuance upon exercise of the
Warrants, and 125,000 shares of Common Stock for issuance upon the exercise of
the Representative's Warrants. Holders of such Warrants are likely to exercise
them when, in all likelihood, the Company could obtain additional capital on
terms more favorable than those provided thereby. Furthermore, such Warrants may
adversely affect the terms on which the Company could obtain additional capital.
Should a significant portion of such Warrants be exercised, the resulting
increase in the amount of Common Stock in the public market may have the effect
of reducing the per share market price thereof.
See "SHARES ELIGIBLE FOR FUTURE SALE."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants
are subject to redemption by the Company at a price of $0.10 per Warrant under
certain conditions at any time commencing __________, 1998, on thirty days prior
written notice. If the Warrants are redeemed, Warrant holders will lose their
right to exercise the Warrants except during the 30 day redemption period. Upon
receipt of notice of redemption, Warrant holders would be required to: (i)
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the then market
price, if any, when they might otherwise wish to hold the Warrants, or (iii)
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants at the time of redemption.
See "DESCRIPTION OF SECURITIES -- WARRANTS."
STOCKHOLDERS INABILITY TO VOTE ON OR REVIEW TRANSACTIONS. As is
customary under the Delaware Law, the Board of Directors, not the stockholders,
of the Company have authority to review many types of prospective business
transactions and approve or disapprove of the same. As such, the stockholders of
the Company may not have the opportunity to review the terms of any prospective
transactions nor review the financial statements of any entities relating to any
such transactions.
REPRESENTATIVE'S INFLUENCE ON THE MARKET. A significant number of
Units offered hereby may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Although they have no obligation to
do so, the Underwriters intend to make a market in the Units and may otherwise
effect transactions in such securities. If they participate in such market, the
Underwriter may exert a dominating influence on the market, if one develops, for
the Units. Such market-making activity may be discontinued at any time.
Moreover, if the Underwriter exercises the
20
<PAGE> 21
Warrants, they may be required under the Exchange Act to temporarily suspend
market-making activities. The price and liquidity of the Units may be
significantly affected by the degree, if any, of the Underwriter's participation
in such market. See "UNDERWRITING."
21
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units in the
Offering are estimated to be _______________, after deducting estimated selling
commissions and other expenses associated with the Offering. The Company intends
to use such net proceeds as set forth below:
OFFERING
AMOUNT PERCENTAGE
Commercialization of
the STAQ On-line Network Project $ 4,000,000 %
Working capital $ %
----------- ------
TOTAL $ 100.00%
=========== ======
The commercialization of the STAQ On-line Network, currently in
the testing phase of linking Beijing, Chongqing, Shanghai and Shenzhen to the
STAQ Exchange, requires $3,000,000 for the necessary satellite-linking equipment
and $1,000,000 in related costs for establishing operations in the cities of
Beijing, Chongqing, Shanghai and Shenzhen, such as wireless systems, office
facilities, office equipment and personnel. See "BUSINESS-STAQ ON-LINE NETWORK."
The foregoing allocations are estimates only and are subject to
revision from time-to-time to meet the Company's requirements. Pending full
utilization of the proceeds of the Offering, the Company may invest the net
proceeds in insured interest-bearing savings accounts, U.S. Government
obligations, insured Certificates of Deposit or other insured short-term
investments of similar quality. See "RISK FACTORS - ADDITIONAL CAPITAL
REQUIREMENTS," "- DISCRETIONARY USE OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS-STAQ ON-LINE NETWORK."
22
<PAGE> 23
MARKET PRICE FOR THE COMMON STOCK
The Company was formed as a result of a reverse acquisition,
effective November 11, 1996, whereby the Company acquired all of the issued and
outstanding capital stock of BIC and BECL from their shareholders in exchange
for the issuance by the Company of a controlling interest in the Company to such
shareholders (the "Reverse Merger"). Since November 12, 1996, the Company's
Common Stock has been listed for trading on the OTC Electronic Bulletin Board
under the symbol "BRTK." (As a result of the Reverse Stock Split, the Common
Stock will trade under the symbol "BRTKD" for 30 days from the effective date of
the Reverse Stock Split (October 17, 1997), after which the symbol will revert
back to "BRTK.") Prior to that date, the Company's Common Stock traded under the
symbol "ZNTX." The trading market is limited and sporadic and should not be
deemed to constitute an "established trading market."
The following table sets forth the range of bid prices of the
Company's common stock as quoted on the OTC Electronic Bulletin Board during the
periods indicated. Such prices reflect prices between dealers in securities and
do not include any retail markup, markdown or commission and may not necessarily
represent actual transactions. The information set forth below was provided by
Nasdaq Trading & Market Services. All prices reflect the 1-for-3 reverse stock
split effective November 11, 1996 and the Reverse Stock Split.
FISCAL YEAR ENDED DECEMBER 31, 1996 (1) HIGH LOW
- --------------------------------------- ---- ---
<TABLE>
<S> <C> <C>
Quarter Ended March 31, 1996 $45.00 $ 9.00
Quarter Ended June 30, 1996 31.50 31.50
Quarter Ended September 30, 1996 (2) (2)
Period from October 1, 1996 - November 11, 1996 20.82 11.25
Period from November 12, 1996 - December 31, 1996 21.39 18.75
FISCAL YEAR ENDING DECEMBER 31, 1997
- ------------------------------------
Quarter Ended March 31, 1997 21.00 16.14
Quarter Ended June 30, 1997 17.64 9.75
Quarter Ended September 30, 1997 15.38 7.13
Period from October 1, 1997 - November 10, 1997 7.13 6.00
</TABLE>
(1) Not available prior to 1/1/96.
(2) Not available.
On November 10, 1997, the closing bid price for the Common Stock as
reported by OTC Electronic Bulletin Board was $6.
As of the date of this Prospectus, the number of security holders of
record of the Company's Common Stock was 91. As of such date, 3,495,333 shares
were outstanding.
23
<PAGE> 24
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock since its
acquisition of all of the issued and outstanding capital stock of BIC and BECL,
effective November 11, 1996, and does not anticipate paying dividends on its
Common Stock in the foreseeable future. It is the present policy of the Board of
Directors to retain all earnings to provide for the future growth of the
Company. Earnings of the Company, if any, not paid as dividends are expected to
be retained to finance the expansion of the Company's business. The payment of
dividends on its Common Stock in the future will depend on the results of
operations, financial condition, capital expenditure plans and other cash
obligations of the Company and will be at the sole discretion of the Board of
Directors. See "DESCRIPTION OF SECURITIES."
24
<PAGE> 25
DILUTION
The following discussion and tables allocate no value to the
Warrants contained in the Units. The difference between the public offering
price per share of Common Stock and the pro forma net tangible book value per
share of Common Stock after the Offering constitutes the dilution per share of
Common Stock to investors in the Offering. Net tangible book value per share of
Common Stock on any given date is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) on such date
by the number of shares of Common Stock outstanding on such date.
At June 30, 1997, the net tangible book value of the Company was
$____________, or $________ per share of Common Stock. After giving effect to
the conversion of the demand note payable into shares of Common Stock, the pro
forma net tangible book value of the Company on June 30, 1997 would have been
$____________ or $_____ per share of Common Stock. After giving effect to the
sale of the __________ shares of Common Stock included in the Units offered by
the Company hereby (less underwriting discounts and estimated expenses of the
Offering), the pro forma net tangible book value of the Company at June 30, 1997
would have been $____________ or $_____ per share, representing an immediate
increase in net tangible book value of $_____ to existing stockholders and an
immediate dilution of $_____ per share to the purchasers of Units in the
Offering.
The following table illustrates the dilution to prospective
investors on a per-share basis:
<TABLE>
<S> <C> <C>
Offering price..................................................... $
Net tangible book value before pro forma adjustments.......... $
Increase attributable to pro form adjustments................. ______
Pro forma net tangible book value before the Offering......... $
Increase attributable to prospective investors................ ______
Pro forma net tangible book value after the Offering............... ______
Dilution to prospective investors..................................
======
</TABLE>
The following table sets forth, as of June 30, 1997, with respect to (i)
the existing stockholders, (ii) the holders of the convertible notes payable,
and (iii) the purchasers of Common Stock constituting part of the Units in the
Offering, a comparison of the number and percentage of shares of Common Stock
acquired from the Company, the amount and percentage of consideration paid and
the average price per share:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price Per
Number Percentage Amount Percentage Share
<S> <C> <C> <C> <C> <C>
Existing Stockholders................... $ $
Holders of Convertible Notes Payable ...
Public Stockholders.....................
Total................................... 100.0% 100.0%
======== ====== ======= ======
</TABLE>
25
<PAGE> 26
CAPITALIZATION
The following table sets forth the actual short term debt and
capitalization of the Company as of June 30, 1997 and as adjusted to reflect the
sale of Units at an assumed offering price of $________ per Unit. See "USE OF
PROCEEDS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION."
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Short term debt:
Convertible demand note payable (1).......... $635,603
Note payable(2).............................. 155,000
--------
Total short term debt payable................ 790,603
--------
Stockholders' equity:
Preferred Stock, $.001 par value
5,000,000 shares authorized, none issued and
outstanding................................
Common Stock, $.001 par value
100,000,000 shares authorized, 3,482,107
shares outstanding; ______(3)
shares issued and outstanding as adjusted.. 3,482 ________
Contributed capital........................ 1,836,981 ________
Accumulated deficit........................ (928,919) ________
Unearned compensation cost................. (24,500)
-------
Stockholders' equity...................... 887,044 ________
----------
Total short term debt capitalization...... $1,677,647 $
========== ========
</TABLE>
(1) The note is payable upon demand, bears interest at 5% per annum and is
convertible into shares of Common Stock at prevailing market rates.
(2) The note bears interest at 10% per annum, with interest to accrue until the
due date of February 25, 1998. Thereafter, the note will be payable upon
demand, with interest at 12% per annum.
(3) Does not include: (i) 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 125,000 shares of Common Stock issuable upon
the exercise of the Representative's Warrants; or (iii) up to 187,500 shares
of Common Stock issuable upon exercise of Warrants and Common Stock issuable
upon the exercise of the Underwriters' Over-Allotment Option.
26
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
Effective November 11, 1996, the Company acquired all of the
issued and outstanding capital stock of BIC and BECL from Kit Kung and Hong Yun
(the "Brighton Shareholders") in exchange for the issuance by the Company of an
approximate 88% controlling interest in the Company to the Brighton
Shareholders. The acquisition of BIC and BECL by the Company was accounted for
as a recapitalization of BIC and BECL, with BIC and BECL as the acquirer
(reverse acquisition). This transaction was consummated to facilitate the
consolidation of the operating companies (BIC and BECL) owned by the Brighton
Shareholders into one entity. Accordingly, the historical financial statements
consist of the combined financial statements of BIC and BECL for all periods
presented. The consolidated financial statements include the accounts of BIC, a
United States-based company, and BECL, a Hong Kong-based holding company with
controlling interests in four Hong Kong subsidiaries and three Hong Kong joint
ventures (see "Item 1. Description of Business - Business Development.") All
common share and per share amounts presented herein have been adjusted to
reflect the 1 for 3 reverse stock split effective November 11, 1996, as well as
the 1 for 3 reverse stock split effective October 17, 1997.
BIC is a distributor of third party manufactured industrial,
telecommunication and computer equipment and technological processes to
customers in the PRC and other Pacific Basin countries. BECL is an investment
and holding company whose subsidiaries and joint ventures are involved in (i)
the buying, selling and installation of computer and industrial equipment, and
(ii) the marketing, sale and service of wireless telecommunication equipment
used for credit card approval and authorization systems in the PRC and other
Pacific Basin countries. In addition, the Company is developing the STAQ On-line
Network for the STAQ Exchange, which is not yet operational. Accordingly, the
Company considers its current operations to be in two business segments -
Equipment Distribution and Networking.
On April 15, 1994, BIC entered into a long-term contract with
estimated revenues of $11,000,000 with China National to provide aid in the
design and construction of a sodium bichromate production plant in Chongqing,
Sichuan Province, PRC, with an annual production capacity of 20,000 metric tons.
Although this contract and the work related to it was outside the ordinary scope
of the Company's equipment distribution business, given its size and complexity,
because of certain third party technology that was available to the Company at
that time, the Company was able to successfully bid on the contract. Contracts
of this nature are project based and since the Company's current focus is on
developing other business opportunities in the PRC, the Company does not
anticipate engaging in additional projects of this type or size in the
foreseeable future. Revenue from this contract has been recognized in the years
ended December 31, 1994, 1995, and 1996, and the six months ended June 30, 1997,
and revenue is expected to continue to be recognized through the year ending
December 31, 1998. This contract was temporarily suspended in February 1996
by the municipal government due to environmental concerns relating to China
National's proposed methodology for waste disposal by the plant. The revised
proposal for waste management submitted by China National was approved by the
municipal government and the temporary suspension was lifted in January 1997.
The contract resumed following the lifting of the temporary suspension.
The China National contract accounted for approximately 34% and
13% of revenues for the years ended December 31, 1995 and 1996, respectively,
and approximately 67% and 28% of equipment distribution revenues for the years
ended December 31, 1995 and 1996, respectively. In addition, during 1995 and
1996, a different customer in each such year accounted for approximately 10% and
17% of revenues, respectively. The Company has historically relied on a limited
number of customers for a substantial portion of its total revenues. In
addition, substantially all of the Company's business is currently conducted
with or in the PRC. The Company expects that a significant portion of its future
revenues will continue to be generated by a limited number of customers in the
PRC. The loss of any of these customers or any substantial reduction in business
volume with any of these customers, or any political or economic difficulties
between the United States and the PRC could have a material adverse effect on
future results of operations.
The following tables set forth certain historical operating data
for the periods presented. The 1995 financial statements
27
<PAGE> 28
were restated to reflect the correction of depreciation expense recorded on
project equipment, accounting for losses related to joint ventures, and to
appropriately recognize revenue from certain long-term projects. As a result,
net income for the year ended December 31, 1995 was reduced by $258,353.
The following table sets forth certain historical operating date
for the periods presented:
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------ ----------------------------------------------
1995 1996 1996 1997
-------------------- ------------------- ------------------------- -------------------
Amount % Amount % Amount % Amount %
---------- ---- ---------- ----- ---------- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,370,537 100.0 $8,006,260 100.0 $5,496,964 100 $ 4,535,865 100.0
Cost of Revenues 6,165,201 73.6 5,785,507 72.3 4,456,263 81.1 3,205,144 70.7
General and
Administrative Expenses 1,648,016 19.7 1,755,029 21.9 803,809 14.6 1,146,601 25.3
Consulting Fees 274,581 6.0
---------- ----- ---------- ----- ---------- ----- ----------- -----
Operating Income (Loss) 557,320 6.7 465,724 5.8 236,892 4.3 (90,461) (2.0)
Total Other Income, Net 3,324 -- 49,026 .6 60,367 1.1 23,495 .5
---------- ----- ---------- ----- ---------- ----- ----------- -----
Income (Loss) Before Income
Taxes and Minority
Interests 560,644 6.7 514,750 6.4 297,259 5.4 (66,966) (1.5)
Provision (Benefit) for
Income Taxes 444,000 5.3 309,000 3.8 133,176 2.4 (31,000) (.7)
Minority Interests 55,703 .7 (7,226) (.1) (22,708) (.4) 5,942 .1
---------- ----- ---------- ----- ---------- ----- ----------- -----
Net Income (Loss) $ 172,347 2.1 $ 198,524 2.5 $ 141,375 2.6 $ (30,024) (.7)
========== ===== ========== ===== ========== ===== =========== =====
</TABLE>
28
<PAGE> 29
Revenues from the United States consist primarily of revenues from equipment
distribution export sales to the Far East, while revenues from the Far East
based operations consist of revenues from both equipment distribution and
networking.
GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
---------------------------------------- -----------------------------------------
1995 1996 1996 1997
------------------ ------------------- ------------------- --------------------
Amount % Amount % Amount % Amount %
---------- ----- ---------- ----- ---------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
United States $6,497,541 77.6 $6,039,716 75.4 $4,081,042 74.2 $3,953,366 87.2
Far East 1,872,996 22.4 1,966,544 24.6 1,415,922 25.8 582,499 12.8
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $8,370,537 100.0 $8,006,260 100.0 $5,496,964 100.0 $4,535,865 100.0
========== ===== ========== ===== ========== ===== ========== =====
Operating
Income (Loss):
United States $ 927,375 166.4 $ 730,875 156.9 $ 212,590 89.7 $ 339,517 184.4
Far East (370,055) (66.4) (265,151) (56.9) 24,302 10.3 (155,397) (84.4)
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $ 557,320 100.0 $ 465,724 100.0 $ 236,892 100.0 $ 184,120(1) 100.0
========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
---------------------------------------- -----------------------------------------
1995 1996 1996 1997
------------------ ------------------- ------------------- --------------------
Amount % Amount % Amount % Amount %
---------- ----- ---------- ----- ---------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Networking $4,102,746 49.0 $4,341,827 54.2 $2,638,543 48.0 $1,617,221 35.7
Equipment
Distribution 4,267,791 51.0 3,664,433 45.8 2,858,421 52.0 2,918,644 64.3
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total $8,370,537 100.0 $8,006,260 100.0 $5,496,964 100.0 $4,535,865 100.0
========== ===== ========== ===== ========== ===== ========== =====
Operating
Income:
Networking $ 309,891 55.6 $ 251,209 53.9 $ 113,708 48.0 $ 78,105 42.4
Equipment
Distribution 247,429 44.4 214,515 46.1 123,184 52.0 106,015 57.6
---------- ---- ---------- ----- ---------- ---- --------- -----
Total $ 557,320 100.0 $ 465,724 100.0 $ 236,892 100.0 $ 184,120(1) 100.0
========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
(1) Operating income (loss) for both Geographic Area Information and Business
Segment Information exclude business development consulting fees of
$274,581.
29
<PAGE> 30
Consolidated Results of Operations
SIX MONTHS ENDED JUNE 30, 1996 AND 1997:
Revenues. Revenues for the six months ended June 30, 1997 were
$4,535,865, as compared to $5,496,964 for the six months ended June 30, 1996, a
decrease of $961,099 or 17.5%. The decrease in revenues of $961,099 in 1997 as
compared to 1996 consisted of a decrease of $1,021,322 or 38.7% from networking,
which was offset in part by a nominal increase of $60,233 or 2.1% from equipment
distribution. For the six months ended June 30, 1997 and 1996, revenues from
equipment distribution represented approximately 64.3% and 52.0% of revenues,
respectively, and revenues from networking represented approximately 35.7% and
48.0% of revenues, respectively.
The primary reason for the decrease in revenues from networking in 1997
as compared to 1996 was management's decision to allocate personnel and
resources in 1997 to continue the development of the STAQ On-line Network (see
"Description of Business - STAQ On-line Network"), which, due to the Company's
limited capital and operating resources, required the Company to reduce its
sales efforts with respect to the networking business segment.
For the six months ended June 30, 1997 and 1996, the China National
contract accounted for approximately 46% and 0% of revenues, respectively, and
approximately 71% and 0% of equipment distribution revenues, respectively.
Revenues from the China National contract were approximately $2,066,000 for the
six months ended June 30, 1997, and $0 for the six months ended June 30, 1996
due to the project's temporary suspension (which suspension was imposed in
February 1996 and was lifted in January 1997).
Networking revenues include revenues from the sale and installation of
the Aria Wireless System. During the six months ended June 30, 1997, the Company
completed six agreements with the Industrial and Commercial Bank of China
("ICBC") to provide and install the Aria Wireless System for ATM linkage
progressively as transaction automation is introduced within the bank's entire
system comprising over 600 branches in the PRC. For the six months ended June
30, 1997, revenues from the sale and installation of the Aria Wireless System
were $987,103 or 61.0% of networking revenues. The Company did not have any
revenues from the sale and installation of the Aria Wireless System during the
six months ended June 30, 1996.
For the six months ended June 30, 1997, United States revenues from
export sales to the Far East decreased by $127,676 or 3.1%, to $3,953,366 in
1997 from $4,081,042 in 1996, and revenues from operations based in the Far East
decreased by $833,423 or 58.9%, to $582,499 in 1997 from $1,415,922 in 1996. For
the six months ended June 30, 1997 and 1996, export sales' revenues from the
United States represented approximately 87.2% and 74.2% of revenues,
respectively, and revenues from the Far East operations represented 12.8% and
25.8% of revenues, respectively.
Gross Profit. Gross profit for the six months ended June 30, 1997
increased by $290,020 or 27.9%, to $1,330,721 or 29.3% of revenues, as compared
to $1,040,701 or 18.9% of revenues for the six months ended June 30, 1996.
Despite a decrease in revenues in 1997 as compared to 1996 of 17.5%, gross
profit increased as a result of improvement in gross margin, which was primarily
a result of increased progress on the completion of the China National contract
in early 1997, and improved gross margins from certain equipment distribution
contracts.
General and Administrative Expenses. Excluding consulting fees of
$247,581 as described below, general and administrative expenses increased by
$342,792 or 42.6% to $1,146,601 or 25.3% of revenues for the six months ended
June 30, 1997, as compared to $803,809 or 14.6% of revenues for the six months
June 30, 1996, primarily as a result of increases in employee compensation and
occupancy costs incurred to develop the STAQ On-line Network in particular and
to expand operations in general.
During the six months ended June 30, 1997, the Company incurred
consulting fees aggregating $274,581 for certain legal, professional,
consulting and other costs incurred in connection with the Company's ongoing
business development activities. The Company did not incur any similar costs
during the six months ended June 30, 1996. The Company does not expect that this
category of costs will continue at these levels in 1998 subsequent to the
completion of the offering. Included in the $274,581 of consulting fees is
$175,000 of costs pursuant to a consulting agreement with a consulting firm as
described below in "Consulting Fees."
30
<PAGE> 31
Operating Income (Loss). For the six months ended June 30, 1997,
operating loss was ($90,461) as compared to operating income of $236,892 for
the six months ended June 30, 1996, and operating income (loss) as a percent of
revenues was (2.0%) in 1997 as compared to 4.3% in 1996. The Company incurred an
operating loss in 1997 as compared to operating income in 1996 primarily as a
result of increased general and administrative expenses related to business
development activities.
For the six months ended June 30, 1997 and 1996, operating income from
equipment distribution represented approximately 3.6% and 4.3% of equipment
distribution revenues, respectively, and operating income from networking
represented approximately 4.8% and 4.3% of networking revenues, respectively.
For the six months ended June 30, 1997 and 1996, operating income from
the United States export sales to the Far East represented approximately 8.6%
and 5.2% of such revenues, respectively, and operating income (loss) from Far
East based operations represented approximately (26.7%) and 1.7% of Far East
revenues, respectively.
Miscellaneous Income. During the six months ended June 30, 1996,
miscellaneous income aggregated $70,841, and included nonrecurring license
income of $44,871. Miscellaneous income was $8,099 for the six months ended June
30, 1997.
Consulting Fees. On February 25, 1997, the Company entered into a
consulting agreement with a financial consulting firm for business advisory
services. Pursuant to that agreement, the Company paid the consulting firm
$25,000 and issued a one-year note for $150,000 for services rendered. The note
is unsecured, bears interest at 10% per annum, with interest to accrue until the
due date of February 25, 1998. Thereafter, such note will become payable upon
demand, with interest at 12% per annum.
If the Company does not complete a debt or equity financing by
February 25, 1998, then the Company will have the option of converting the note,
including accrued interest, into its common stock, with the value of such common
shares to be calculated at 75% of the market price on such date. The maximum
number of common shares that the Company will be required to reserve and issue
as full settlement for the note, including accrued interest, will be 75,000
shares. Such shares, if issued, will be restricted and will have piggyback
registration rights.
If the Company completes a private financing by February 25,
1998, then the noteholder will have the option of converting the note, including
accrued interest, into the same debt or equity instrument issued in connection
with such private financing. If the Company completes a secondary public
offering by February 25, 1998, the noteholder will have the option of converting
the balance of the note, including interest, into the same securities issued in
connection with the secondary public offering at the offering price. Such
securities, if issued, will be restricted and will have piggyback registration
rights. In addition, the noteholder will have the right to elect one member of
the Company's board of directors.
31
<PAGE> 32
Income Taxes. For the six months ended June 30, 1997, the benefit from
income taxes was ($31,000) or 46.3% of the loss before income taxes and minority
interests, as compared to a provision for income taxes of $133,176 or 44.8% of
income before income taxes and minority interests for the six months ended June
30, 1996, primarily as a result of a lower valuation allowance relating to
foreign tax loss carryforwards. Accordingly, the Company's consolidated
effective tax rate is increased by the effects of valuation allowances
established against net operating losses generated by BECL subsidiaries, the
realization of which cannot be considered more likely than not.
The Company is subject to different tax rates and tax laws because it
operates in various distinct jurisdictions. As a result, the Company may not
necessarily be able to offset its income earned in one jurisdiction against
losses incurred in another jurisdiction. Therefore, the Company anticipates that
its consolidated effective tax rate may vary significantly between periods.
Net Income (Loss). The net loss for the six months ended June 30, 1997
was ($30,024) or ($.01) per share, as compared to net income of $141,375 or $.05
per share for the six months June 30, 1996.
CONSOLIDATED RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996:
Revenues. Revenues for the year ended December 31, 1996 were
$8,006,260, as compared to $8,370,537 for the year ended December 31, 1995, a
decrease of $364,277 or 4.4%. The decrease in revenues of $364,277 in 1996 as
compared to 1995 consisted of a decrease in revenues from equipment distribution
of $603,358 or 14.1%, which was partially offset by an increase in revenues from
networking of $239,081 or 5.8%. For the years ended December 31, 1996 and 1995,
revenue from equipment distribution represented approximately 45.8% and 51.0% of
revenues, respectively, and revenues from networking represented approximately
54.2% and 49.0% of revenues, respectively.
Equipment distribution revenues for the year ended December 31, 1996
decreased primarily because of the temporary suspension imposed by the municipal
government from February 1996 to January 1997 relating to the previously
described contract with China National. Revenue from this long term contract is
included in the Company's equipment distribution business segment, and is
recognized using the percentage of completion method. As a result of the
project's temporary suspension, revenue from this contract was reduced by
approximately $1,810,000 in 1996 as compared to 1995, from approximately
$2,850,000 in 1995 to $1,040,000 in 1996. As a result of the lifting of the
temporary suspension in January 1997, the Company expects to recognize revenue
from this contract of approximately $6,400,000 during 1997.
United States revenues from export sales to the Far East consist
primarily of revenues from equipment distribution, while revenues from
operations based in the Far East consist of revenues from both equipment
distribution and networking. For the year ended December 31, 1996, revenues from
the United States export sales decreased by $457,825 or 7.0%, to $6,039,716 in
1996 from $6,497,541 in 1995, and revenues from the Far East operations
increased by $93,548 or 5.0%, to $1,966,544 in 1996 from $1,872,996 in 1995. For
the years ended December 31, 1996 and 1995, revenues from the United States
export sales represented approximately 75.4% and 77.6% of consolidated revenues,
respectively, and revenues from the Far East operations represented
approximately 24.6% and 22.4% of consolidated revenues, respectively.
Gross Profit. Gross profit for the year ended December 31, 1996 was
$2,220,753 or 27.7% of revenues, as compared to $2,205,336 or 26.3% of revenues
for the year ended December 31, 1995. The increase in the gross margin from 1995
to 1996 was primarily a result of the increase in revenues from networking, both
on an absolute basis and as a percentage of revenues.
General and Administrative Expenses. General and administrative
expenses increased by $107,013 or 6.5%, to $1,755,029 or 21.9% of revenues for
the year ended December 31, 1996, as compared
32
<PAGE> 33
to $1,648,016 or 19.7% of revenues for the year ended December 31, 1995,
primarily as a result of increases in employee compensation and occupancy costs
incurred to develop the STAQ On-line Network in particular and to expand
operations in general. These increased costs were offset in part by decreases in
travel and lodging and miscellaneous costs.
Operating Income. For the year ended December 31, 1996, operating
income decreased by $91,596 or 16.4% to $465,724, as compared to $557,320 for
the year ended December 31, 1995, and operating income as a percent of revenues
decreased to 5.8% in 1996 from 6.7% in 1995. The reduction in operating income
in 1996 as compared to 1995 reflects a decrease in revenues, primarily from the
China National contract, increased start-up and marketing costs in the
networking business segment and increased general and administrative costs.
For the years ended December 31, 1996 and 1995, operating income from
equipment distribution represented approximately 5.9% and 5.8% of equipment
distribution revenues, respectively, and operating income from networking
represented approximately 5.8% and 7.6% of networking revenues, respectively.
The decrease in operating income from equipment distribution of $32,914 or 13.3%
in 1996 as compared to 1995 reflects a decrease in revenues, primarily from the
China National contract, and the decrease in operating income from networking of
$58,682 or 18.9% in 1996 as compared to 1995 reflects an increase in various
operating costs.
For the years ended December 31, 1996 and 1995, operating income from
the United States represented approximately 12.1% and 14.3% of United States
revenues, respectively, and operating loss from the Far East represented
approximately 13.5% and 19.8% of Far East revenues, respectively. The decrease
in operating income from the United States of $196,500 or 21.2% in 1996 as
compared to 1995 was a result of the decrease in revenues, primarily from the
China National contract, and the decrease in operating loss from the Far East of
$104,904 or 28.3% in 1996 as compared to 1995 was a result of an increase in
revenues.
Income Taxes. For the year ended December 31, 1996, the provision for
income taxes was $309,000 or 60.0% of income before income taxes and minority
interests, as compared to $444,000 or 79.2% of income before income taxes and
minority interests for the year ended December 31, 1995, primarily as a result
of a lower valuation allowance relating to foreign tax loss carryforwards.
Accordingly, the Company's effective tax rate is increased by the effects of
valuation allowances established against net operating losses generated by BECL
subsidiaries, the realization of which cannot be considered more likely than
not.
The Company is subject to different tax rates and tax laws because it
operates in various distinct jurisdictions. As a result, the Company may not
necessarily be able to offset its income earned in one jurisdiction against
losses incurred in another jurisdiction. Therefore, the Company anticipates that
its consolidated effective tax rate may vary significantly between periods.
Net Income. Net income for the year ended December 31, 1996 was $198,524
($.06 per share), as compared to net income of $172,347 ($.06 per share) for the
year ended December 31, 1995.
CONSOLIDATED FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES:
Operating. For the six months ended June 30, 1997, the Company's
operations utilized cash resources of $1,576,867, as compared to utilizing cash
resources of $583,782 for the six months ended June 30, 1996. The Company had a
net working capital deficit of ($667,134) at June 30, 1997, as compared to a net
working capital deficit of ($879,481) at December 31, 1996, reflecting a current
ratio of .88:1 at June 30, 1997 as compared to .91:1 at December 31, 1996. The
Company's operations utilized an increased amount of cash
33
<PAGE> 34
resources in 1997 as compared to 1996 as a result of increased activity with
respect to the China National contract.
For the year ended December 31, 1996, the Company's cash flow
from operations was $2,741,329, as compared to $599,233 for the year ended
December 31, 1995. The Company had a net working capital deficit of ($879,481)
at December 31, 1996, as compared to a net working capital deficit of
($2,819,778) at December 31, 1995, reflecting current ratios of .91:1 and .48:1,
respectively. The Company's operating cash flow improved substantially in 1996
as compared to 1995 primarily as a result of improved project management that
focused on cash collection.
Accounts receivable increased by $1,185,943 to $1,339,318 at
December 31, 1996, from $153,375 at December 31, 1995. Included in the accounts
receivable balance at December 31, 1996 is approximately $512,000 due from a
Hong Kong-based customer on an unsecured basis, which represents approximately
38% of total accounts receivable. Management is currently discussing the timing
of the settlement of this accounts receivable with the customer and expects that
it will be paid in full during the latter part of 1997. During the six months
ended June 30, 1997, accounts receivable levels remained relatively constant,
and the Company collected approximately $101,000 of the accounts receivable
balance from the Hong Kong-based customer.
Investing. During the years ended December 31, 1995 and 1996, the
Company purchased fixed assets aggregating $1,352,434 and $154,484,
respectively, primarily in the form of project equipment which will be utilized
in completing future projects. Other than equipment which the Company purchases
in the fulfillment of its contracts, the Company has no capital expenditure
commitments, except with regard to the Brighton-STAQ project into which it has
already invested $1,600,000 (see "Description of Business - Brighton-STAQ"). The
Company owns a 90% interest in the joint venture developing the Brighton-STAQ
project, and is obligated to provide additional funding of approximately
$4,000,000 during the latter part of 1997 and early 1998. The Company is in
discussions with various parties regarding funding this obligation, and it
currently expects to meet its funding obligation through the sale of its equity
securities, although there can be no assurances that the Company will be
successful in this regard.
The restricted cash balances decreased by $1,555,425, from
$2,636,000 at December 31, 1996 to $1,080,575 at June 30, 1997, as a result of
the utilization of a portion of the restricted cash balances to fulfill certain
equipment contract obligations related to the China National contract during the
six months ended June 30, 1997.
Restricted cash balances, which represent prepayments by
customers that are restricted to pay project related current liabilities and
commitments, increased by $2,036,000 during 1996, from $600,000 at December 31,
1995 to $2,636,000 at December 31, 1996. The restricted cash balance at December
31, 1996 secures, in part, irrevocable letters of credit aggregating $746,230
that the Company had issued for contingent commitments on equipment purchases.
Financing. During January 1996, the Company entered into a
convertible demand note agreement with a third party, with interest at 5% per
annum. The note had a principal balance outstanding of $620,101 and $635,603 at
December 31, 1996 and June 30, 1997. The note is convertible into shares of
common stock at prevailing market prices. The Company is currently negotiating
with the note holder to convert a portion of this demand note into common stock.
During December 1996, the Company sold 33,333 shares of common
stock in a private transaction for aggregate proceeds of $450,000, less costs of
$259,824, generating net proceeds of $190,176. Subsequently, during the six
months ended June 30, 1997, the Company sold an additional 24,007 shares of
34
<PAGE> 35
common stock for aggregate proceeds of $352,948, less costs of $45,416,
generating net proceeds of $307,532. Such costs consist of payments to various
related and unrelated parties as compensation for services rendered. In
addition, the Company issued 6,089 shares of common stock with a value of
$89,504 to various individuals and firms for services rendered with respect to
capital raising activities. Included in the costs of $259,824 in 1996 and
$45,416 in 1997 are payments of $105,731 and $11,931, respectively, to Orient
Financial Services Limited, a Hong Kong-based company in which Nils A. Ollquist,
a director of the Company, is a principal.
During the six months ended June 30, 1997, the Company granted
3,333 shares of restricted common stock to an employee. The aggregate value of
the shares of $49,000 was recorded as a reduction to stockholders' equity as
unearned compensation cost and is being amortized, as earned, during the year
ended December 31, 1997. At June 30, 1997, the balance of unearned compensation
costs was $24,500.
In order to meet its working capital requirements, the Company
has periodically received funding from Kit Kung, the Chairman of the Board of
Directors, President and Chief Executive Officer, and his family members. The
Company has also periodically made advances to the principals and officers of
the Company. Such advances are unsecured and generally bear no stated interest
rate or terms of repayment. As of December 31, 1995 and 1996, amounts due from
Kit Kung and his family members aggregated $0 and $43,239, respectively;
outstanding receivables from other related parties aggregated $8,220 and
$15,884, respectively; and amounts due to Kit Kung and his family members
aggregated $2,612,896 and $227,298, respectively. During the year ended December
31, 1995, Kit Kung and his family members had advanced $1,612,041 to the
Company, and during the year ended December 31, 1996, the Company had repaid
$1,118,625 of such advances. During the years ended December 31, 1995 and 1996,
advances to other related parties aggregated $518,322 and $43,239, respectively,
and during the year ended December 31, 1996, $424,872 of accounts receivable
from related parties was repaid.
In December 1996, Kit Kung contributed $1,266,973 of net
borrowings, consisting of $1,515,076 of amounts owed by the Company to Kit Kung
less $248,103 of amounts owed to the Company, to contributed capital.
During the six months ended June 30, 1997, the Company advanced
$325,001 to Kit Kung and his family members and repaid amounts due Kit Kung and
his family members aggregating $182,513, resulting in receivables from
stockholders and related parties of $360,124 and a payable to stockholders of
$44,785 at June 30, 1997.
The Company is in the process of renegotiating the terms of
certain aspects of technological licensing arrangements that it entered into in
conjunction with the China National contract (see "Description of Business -
Industrial Equipment Distribution"). The contractual value of services currently
under negotiation is approximately $450,000. The inability of the Company to
fulfill contractual terms of long-term projects or to negotiate favorable
arrangements on the use or distribution of licensed technology may have a
material adverse effect on the Company's results of operations and financial
condition.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that its projected cash flow provided by
operations, supplemented with borrowings from related parties as necessary, will
be sufficient to support operations at current levels for at least the next 12
months. However, the Company requires additional capital in connection with the
Brighton-STAQ project (see "Description of Business - STAQ On-line Network"),
which the Company anticipates obtaining from the net proceeds of the Offering
and from subsequent debt and/or equity financings. To the extent that the
Company is unable to timely fund its $4,000,000 commitment to fund the
Brighton-STAQ project, the Company's interest in the project may be reduced or
eliminated, which would adversely affect the potential future profitability of
this project as it relates to the Company's consolidated results of operations.
If the Company
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<PAGE> 36
were to be unable to fund the continuing development of the Brighton-STAQ
project, project equipment aggregating $1,331,588 at June 30, 1997 would be
liquidated at net realizable value and the resulting loss, if any, would be
charged to operations.
INFLATION AND CURRENCY MATTERS:
In recent years, the PRC economy has experienced periods of rapid
economic growth as well as high rates of inflation, which in turn has resulted
in the periodic adoption by the PRC government of various corrective measures
designed to regulate growth and contain inflation. Since 1993, the PRC
government has implemented an economic program designed to control inflation,
which has resulted in the tightening of working capital available to PRC
business enterprises. The success of the Company depends in substantial part on
the continued growth and development of the PRC economy.
Since the Company's contracts are generally denominated in U.S.
dollars and are generally of short duration, the Company is not subject to any
economic exposure from the effects of inflation in the PRC. However, the
Brighton-STAQ project will be subject to the effects of inflation in the PRC.
Foreign operations are subject to certain risks inherent in
conducting business abroad, including price and currency exchange controls, and
fluctuations in the relative value of currencies. Changes in the relative value
of currencies occur periodically and may, in certain instances, materially
affect the Company's results of operations and the ability of customers to
satisfy obligations owed to the Company. In addition, PRC currency is not freely
convertible into foreign currencies. All foreign exchange transactions involving
PRC currency must take place either through the Bank of China or other
institutions authorized to buy and sell foreign exchange, or at a Foreign
Exchange Adjustment Center. The ability to convert PRC currency is subject to
the availability of foreign currencies.
RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements, the Company will be required to present "basic" earnings per share
and "diluted" earnings per share. Basic earnings per share does not include the
dilutive effect of stock options and warrants. The Company does not expect that
adoption of this statement will have a material effect on reported earnings per
share.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 129, "Disclosure of Information about Capital Structure," which is
effective for financial statements issued for periods ending after December 15,
1997. The new standard reinstates various disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by this statement. The Company does not expect that adoption of this
statement will have a material effect on its current disclosures and
presentation.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," which is effective for
financial statements issued for periods ending after December 15, 1997. Earlier
application is permitted. This statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income
36
<PAGE> 37
refers to revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are excluded from
net income. The Company does not expect that adoption of this statement will
have a material effect on its current disclosures and presentation.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which is effective for financial statements issued for periods
ending after December 15, 1997. This statement discusses how to report operating
segments and certain information about a public company's products and services,
the geographic areas in which it operates, and its major customers. The Company
does not expect that adoption of this statement will have a material effect on
its current disclosures and presentation.
37
<PAGE> 38
BUSINESS
GENERAL
The Company currently operates in two business segments, (i)
computer network integration and (ii) distribution of industrial equipment. The
Company is also developing an on-line securities trading network for the STAQ
Exchange, which the Company expects to be operational in late 1998. The Company
provides such services and equipment primarily to customers in China, as well as
other Pacific Basin countries. The Company believes that it has a strong
reputation as an independent full service provider of computer network
integration services and a distributor of industrial equipment in China. This
belief is based on several factors, including the Company's and its
predecessor's experience in designing and installing computer networks and
importing industrial equipment in China since 1981. Building on its operating
experience in China, the Company formed a Chinese joint venture to develop,
design, install and maintain a nationwide computerized multi-market securities
quotation and trading network in China.
BUSINESS STRATEGY
The Company intends to maintain its focus on the Chinese market
place and its business strategy is focused as follows:
o Emphasis on network integration in the banking and finance
industries
o Commercialization of the on-line securities trading
network
o Expansion of the industrial equipment distribution
business to meet customer demand
Banking and Finance Oriented Information Technology. As the Chinese economy
continues to grow and the standard of living increases in China, the Company
believes that there will be an increased demand for consumer oriented financial
services such as ATMs and retail outlets that accept credit card transactions.
The Company's strategy has been to meet this increasing demand in the Chinese
marketplace by installing wireless telecommunications networks suitable for high
volume transactions that require instant responses, such as ATM transactions,
credit card verifications, clearance and settlements, in China. Historically,
the Company's gross margin on contracts for computer network integration for
such wireless telecommunication systems has been at least 40 percent. The
Company currently has contracts with the Industrial and Commercial Bank of China
to design and install wireless telecommunication networks for clearance and
settlements for six of its bank branches. The Company believes that as market
demand for ATMs and retail outlets that accept credit card transactions
increases, it will be able to secure additional contracts in this area.
Securities Quotation and Trading Network. The Company is the owner of a 90%
interest in Brighton-STAQ, a PRC registered Sino-Hong Kong joint venture. The
remaining 10% interest is owned by a company controlled by the STAQ Exchange,
one of four national securities exchanges in China, located in Beijing. The
purpose of Brighton-STAQ is to develop, design, install and maintain the STAQ
On-line Network. The Company's initial plans are to offer the STAQ On-line
Network to the 550 stock brokerages (operating 2,200 offices) that are members
of the STAQ Exchange in the cities of Beijing, Chongqing, Guangzhou, Shanghai
and Shenzhen, with plans to eventually market the STAQ On-line Network to all
2,800 stock brokerages (operating over 10,000 offices) in China. The Company
expects to initially charge an installation fee of $6,000 and a monthly
maintenance fee of $1,000 for each terminal installed at the stock brokerages.
The STAQ On-line Network project is currently in the testing phase. The Company
expects to commercialize the STAQ On-line Network in the first quarter of 1998.
38
<PAGE> 39
Industrial Equipment Distribution. Industrial equipment distribution accounts
for a substantial portion of the current revenues and profits of the Company.
The type of industrial equipment which the Company has been marketing in China
include machine tools, such as machine center and grinder measurement devices,
and heavy machinery, such as gantry mills, pressing machine production lines and
dyes transfer automation systems. The Company is the exclusive distributor for
Milltronics Manufacturing Company (a U.S. company), Normac Incorporated (a U.S.
company), ALO Teknik AB (a Swedish company), Royal Master Grinders, Inc. (U.S.
company) and K.O. Lee Company (a U.S. company) for the sale of their industrial
equipment in China. In addition to representing these manufacturers, the Company
has adopted the strategy of increasing revenues by searching for industrial
equipment from manufacturers worldwide that meet both the customer's technical
specifications and budget. The Company will continue its past practice of
gradually increasing the size of its sales team to meet customer demand for
industrial equipment.
COMPUTER NETWORK INTEGRATION
MARKET OVERVIEW
China's information technology market has enjoyed significant
growth and will likely grow at an increasing rate in the next decade as market
demand for Western style modernization increases. In particular, growth will be
most significant for system engineering services that provide customized
products tailoring to customer's specifications. The following are the market
factors which will contribute to this growth:
(1) DEVELOPMENT OF LARGE SCALE INFORMATION
"INFRASTRUCTURES": The Chinese Central Government has
made "informationization" of the economy a priority of
its most recent five year plan, and is planning to
invest substantial amounts of capital in numerous
information super-highway type projects such as the
"Golden" projects(1).
(2) GROWING DEMAND FOR COMPLEX INFORMATION SYSTEMS FROM
OTHER LARGE INFRASTRUCTURE PROJECTS: Continuous
investment in large-scale infrastructure in areas such
as power generation and transportation will drive demand
for information technology systems. One example is the
Three Gorges Dam hydro-electric project, where the
information technology system is estimated to cost in
the area of $30,000,000.
(3) GROWING DEMAND FOR INFORMATION TECHNOLOGY SYSTEMS FROM
ENTERPRISES AND GOVERNMENT AGENCIES: As the Chinese
economy develops and matures, enterprises and
governmental agencies will need to utilize information
technology systems to become competitive with their
counterparts in more developed countries.
- ------------------------
(1) China's State Council plans to develop the country's information
infrastructure by 2000. The plan, know as the China National Information
Infrastructure was implemented at the end of 1993 and is characterized by a
series of "Golden" Projects, including the Golden Bridge, Golden Taxation,
Golden Customs and Golden Card Projects. The Golden Bridge Project's goal is to
link, via a telecommunication network, all the cables of the Ministry of Posts
and Telecommunications and special telecommunication grids of other ministries
and official departments. The telecommunication network is expect to digitally
transmit documents, sound and pictures used for serving China's finance,
customs, foreign trade, tourism, meteorology, communication, State security,
science and technology and other information businesses. The Golden Tax and
Golden Customs Projects are extensions of the Golden Bridge Project. The Golden
Card Project is consumer oriented and expected to modernize the China's payment
and cashing services with the introduction and popularization of credit cards
and other related media and decrease the amount of cash in circulation.
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<PAGE> 40
and governmental agencies will neet to utilize
information technology systems to become competitive
with their counterparts in more developed countries
In addition, due to their relative lack of technological
sophistication, Chinese customers usually require more systems engineering
services on each project than customers in more developed markets. Compared to
Western countries, China's information technology industry is relatively young,
such that most organizations do not have dedicated information technology
departments as are common in Western countries. Much of the industry's technical
resources are concentrated in companies that directly engage in the information
technology business. As a result, companies outside the industry must rely on
outside technical expertise to meet their needs. The demand for outside
technical assistance will likely increase, as most of the software packages
being developed are general platforms that require substantial customization to
meet specific needs of each organization.
OPERATIONS
The Company provides customized full service computer network and
telecommunication equipment integration, installation and maintenance for
customers in China and other Pacific Basin countries. The Company provides
integrating solutions for customers utilizing software and hardware developed by
third parties. The following examples are indicative of the Company's and its
predecessor's projects:
<TABLE>
<CAPTION>
==========================================================================================
CUSTOMER PROJECT DESCRIPTION DATE OF EXECUTION CONTRACTUAL BILLINGS
==========================================================================================
<S> <S> <C> <C>
ICBC Bank branch networking June 1993 $1,700,000
in six cities in China to
August 1997
- ------------------------------------------------------------------------------------------
Bank of China Credit card September 1992 $420,000
authorization and
processing for Beijing
Headquarters
- ------------------------------------------------------------------------------------------
Travel Industry Ticket reservation April 1993 $1,200,000
Automatic Systems system for three
of Australia (TIAS) airline companies,
linking 3,500
reservation terminals
- ------------------------------------------------------------------------------------------
Mobil Oil Credit card October 1992 $160,000/yr.
authorization and to
processing for retail September 1994
outlets across
Australia and New
Zealand
- ------------------------------------------------------------------------------------------
Shell Oil Credit card October 1992 $85,000/yr.
authorization and to
processing for retail September 1994
outlets across
Australia and New
Zealand
- ------------------------------------------------------------------------------------------
New Zealand ATM network January 1994 $1,200,000
National Bank
- ------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
==========================================================================================
CUSTOMER PROJECT DESCRIPTION DATE OF EXECUTION CONTRACTUAL BILLINGS
==========================================================================================
<S> <C> <C> <C>
Coles Myer Credit card August 1994 $1,650,000
authorization and
processing for all
Coles Myer Stores in
Australia
- ------------------------------------------------------------------------------------------
Queensland Bank ATM network March 1993 $800,000
- ------------------------------------------------------------------------------------------
Zhongzou Hotel Hotel management September 1997 $210,000
computer system for
300-room hotel in
Zhongzou City, PRC
- ------------------------------------------------------------------------------------------
The People's Daily Office automation November 1996 $760,000
system for text
retrieval and high
speed line printer
integration
==========================================================================================
</TABLE>
The Company completed integration of a hotel management computer
system for Zhengzhou Hotel, Zhengzhou City, China in September 1997. The Company
has developed its own software for integration of hotel management computer
systems capable of managing reservations, telephones and billings. The Company
has installed over 60 hotel management computer systems in China and Hong Kong.
The Company's customers include Regent Hotel in Hong Kong, The China Hotel in
Guangzhou, International Hotel in Beijing and JC Mandarin Hotel in Shanghai. The
Company's gross margin for installation of hotel management computer systems is
in the range of 20-25 percent.
The Company also provides computer network integration for office
automation. The Company installed a database management system for The People's
Daily in November 1996 that is capable of scanning, storing, retrieving and
typesetting texts in Chinese characters. The Company integrated software from
Chinese vendors with computer equipment manufactured by Digital Equipment
Corporation, with computer software from Oracle Corporation for database
management, as well as with high speed line printers. The Company's gross margin
for office automation projects is approximately 10 percent.
ARIA WIRELESS SYSTEM
The Company has been particularly successful in introducing
wireless telecommunication equipment manufactured by Aria Wireless Systems,
Inc., a U.S. company, which is suitable for high volume transactions that
require instant responses, such as ATM transactions, credit card verifications,
clearance and settlements ("Aria Wireless Systems"), in the Chinese market
place. The Company's gross margin on contracts for computer network integration
of the Aria Wireless Systems has been approximately 40 percent. In 1997, to
date, the Company has secured eight contracts with the Industrial and Commercial
Bank of China to customize integration of and install Aria Wireless Systems for
ATM linkage and for clearance and settlements for six of its bank branches. Four
of the contracts have been completed and two of the contracts are currently in
progress. The Company's focus in the computer network integration segment of its
business currently is in wireless telecommunication systems and it expects to
secure two additional contracts for the Aria Wireless System by the end of 1997.
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<PAGE> 42
GENERAL
The Company's Aria Wireless Systems utilizes radio frequency to
transmit data in metropolitan areas within a 38 mile radius. Primary application
for the Aria Wireless System is in the financial service industry and includes
ATM linkage, credit card processing and banking data transfer. The Aria Wireless
System is the industry leader for wireless data transfer technology in on-line
transactions processing applications. There are over 230 Aria Wireless Systems
installed in 53 nations worldwide in the financial services industry.
As the Chinese economy continues to grow and the standard of
living increases in China, there will be an increased demand for consumer
oriented financial services such as ATMs and retail outlets that accept credit
card transactions. The Company believes that the Aria Wireless System is
particularly well-suited for use by the financial services industry in China
because it offers a more reliable alternative to land telephone lines for data
transmission. Unlike Western countries, the land telephone lines in China are
not yet able to support the rapid transmission of data with the accuracy and
speed required by the financial industry. The Aria Wireless System, which
utilizes radio frequencies, will assist the financial services industry to
address the demand for consumer oriented financial services.
SALES AND MARKETING
In 1995, the Company's subsidiary, BECL, signed a
Preincorporation Agreement to form a Hong Kong joint venture company, Aria
Wireless Systems (China) Limited ("Aria China"), with two U.S. companies, Aria
Wireless Systems, Inc. ("Aria, Inc.") and Valdacom, Inc. ("Valdacom"), to
market, sell and service wireless telecommunication products from Aria, Inc.
("Aria Wireless System") in the China market on an exclusive basis. The
Preincorporation Agreement provided that the Company was to receive a 65%
ownership of Aria China, and the two other parties, Aria, Inc. and Valdacom,
were to receive a 19.5% and 15.5% ownership of Aria China, respectively.
Financial difficulties at Aria, Inc. delayed formation of Aria
China. Aria, Inc. filed for reorganization under Chapter 11 of the United States
Bankruptcy Code in February 1996. On May 22, 1997, Aria, Inc. emerged from
Chapter 11 under an approved reorganization plan and with a new financial
structure. Aria China was incorporated in 1995 by the Company but has remained
inactive as the parties to the Preincorporation Agreement have, to date, not
subscribed for their respective shares. There are no immediate plans for Aria
China to complete formation or commence operations while Aria, Inc. is solving
its financial difficulties.
In the meantime, the Company has marketed and sold the Aria
Wireless Systems as a component of its network integration business and plans to
continue to such sales practice. Sales of Aria Wireless Systems by the Company
so far have been concentrated in the Beijing area. The Company has plans to
target sales of the Aria Wireless System to other large metropolitan markets in
China. The Company is the only distributor of the Aria Wireless System in China.
The Company participates in 2 to 3 trade shows per annum and
holds 2 to 3 promotional seminars per annum throughout China and follows up with
mass mailings of product catalogues to solicit contracts for its computer
network integration services business. The Company's current focus is the
network integration of the Aria Wireless Service in the banking and financial
industry. To date, the Company's customers for this business segment have all
been PRC Government owned or controlled entities, including government
ministries, universities and research facilities.
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<PAGE> 43
COMPETITION
The Company competes with Multipoint, Inc., a U.S. company and
Kb/Tel, SA, a Mexican company, on a worldwide basis for the wireless system
installation and service business. Both companies manufacture wireless systems
that offer features identical to the Aria Wireless System. The Company also
competes with other manufacturers of wireless systems that offer similar
features to the Aria Wireless System.
The Company believes that its technical expertise in computer
network integration makes the Aria Wireless System more competitive than the
wireless systems offered by the other two companies. The Company has 11
engineers dedicated to installing and customizing system applications for the
Aria Wireless System to customer's specifications. It is the Company's belief
that its competitors do not have technical staff with the level of expertise of
the Company's engineers and the Company is aware that the wireless systems
installed by the Company's competitors have in the past experienced numerous
technical problems due to improper integration installation.
STAQ ON-LINE NETWORK
CHINA'S SECURITIES MARKET OVERVIEW (all conversions to U.S. dollars use the
November 10, 1997 exchange rate)
The Chinese securities market comprises four national exchanges:
Shanghai, Shenzhen, STAQ and China National Securities Trading System ("NETS").
The securities industry is regulated by two organizations: The State Council
Securities Policy Committee, which is responsible for the macro policy of the
industry, and the China Securities Regulatory Commission ("CSRC"), which is
responsible for the day-to-day regulation of the securities industry. The CSRC
dictates the stock exchange on which the shares of any Chinese company, whether
State owned or foreign owned, is listed. The CSRC also determines the terms of
the listing, including the size of the offering of securities and the price of
the offering.
Trade orders on all four national exchanges are computer matched.
Each exchange seat at each of the four exchanges is equipped with a computer
terminal for entering trade orders. Membership to the exchanges is limited to
licensed stock brokerages and only registered members can trade on the
respective exchanges. Non-members of the exchanges place orders with member
stock brokerages either personally or by telephone. Each exchange has taken a
different approach to develop its distribution system to its members. The NETS
Exchange, the Exchange under the control of the People's Bank of China that was
originally established for government bond clearing for the other national
exchanges, has been inactive for a number of years and is not further discussed.
The Shanghai Stock Exchange operates 21 sub-exchanges across
China. These sub-exchanges are linked to the main computer via satellite. A
member of the Shanghai Stock Exchange can obtain exchange seats at the main
exchange or at any of the sub-exchanges. The stock brokerages must place their
order with their floor agents by telephone. Stocks, debt instruments and
investment funds are traded on the Shanghai Stock Exchange. A seat on the
Shanghai Stock Exchange is Rmb1,000,000 ($120,754) and the annual membership fee
is Rmb500,000 ($60,376). The Shanghai Stock Exchange does not offer off-floor
on-line trading of its stocks. In 1994, 204 stocks were traded on the Shanghai
Stock Exchange with market capitalization of Rmb225.5 billion ($27.2 billion).
The annual turnover in 1994 was Rmb250 billion ($30.2 billion).
The Shenzhen Stock Exchange offers direct on-line linkage to its
central computer via satellite. Each subscriptive stock brokerage is directly
linked to one satellite station. Unlike the Shanghai Stock
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Exchange, the Shenzhen Stock Exchange allows connections at its members'
offices. Trade orders can be entered directly onto computer terminals at the
respective stock brokerages. This arrangement offers more flexibility and wider
coverage but at a substantial financial cost. The annual membership fee for the
Shenzhen Stock Exchange is Rmb600,000 ($72,452) and it charges its members an
installation charge of approximately Rmb300,000 ($36,226) to set up satellite
linkage and an annual maintenance fee of Rmb60,000 ($7,245). Stocks, debt
instruments and investment funds are traded on the Shenzhen Stock Exchange. In
1994, 127 stocks were traded on the Shanghai Stock Exchange with market
capitalization of Rmb133.4 billion ($16.1 billion). The annual turnover in 1994
was Rmb137.8 billion ($16.6 billion).
The STAQ Exchange has its main trading floor in Beijing and a
sub-exchange in Xiamen. The STAQ Exchange is the official exchange for (i)
legal-person-owned shares (C Shares), that are shares of PRC State owned
enterprises which may only be held by other PRC State-owned enterprises, and
(ii) State Treasury Bonds issued by the Ministry of Finance. In addition to
listing C Shares (total of 8 stocks) and State Treasury Bonds, the STAQ Exchange
acts as a sub-exchange for both the Shanghai and Shenzhen Stock Exchanges. A
sub-exchange functions as a branch of the main exchange. Through direct computer
linkages via satellite with both the Shanghai and Shenzhen Stock Exchanges,
members of the STAQ Exchange can directly trade stocks listed on the Shanghai
and Shenzhen Stock Exchanges from the STAQ Exchange trading floor. The annual
membership fee for the STAQ Exchange is Rmb150,000 ($18,113).
THE STAQ EXCHANGE
The STAQ Exchange was approved by the CSRC in 1992 and The Stock
Exchange Executive Council (the "SEEC"), a non-governmental advisory body to the
CSRC, was assigned the responsibility of designing and developing the STAQ
Exchange into a computer-based over-the-counter multi-point to multi-point
on-line automated quotations system for securities trading. The members of the
SEEC consist of China's largest trust and investment corporations, securities
firms, and other non-bank financial institutions authorized to engage in
securities and other financial businesses.
About 80% of all State Treasury Bonds are distributed by the
Ministry through the STAQ Exchange and 50% of all State Treasury Bond trading is
done through STAQ. Due to the restrictive ownership requirements of C Shares,
trading of C Shares is limited and sporadic. When the STAQ Exchange was first
approved as a sub-exchange for the Shanghai and Shenzhen Stock Exchanges in 1992
and in 1993, respectively, the trading volume fluctuated substantially due to
the inherent instabilities of these two fledgling exchanges which were formally
established only in 1990 and 1991, respectively. The high end trading volume for
the STAQ Exchange was approximately 3% of the Shanghai Stock Exchange and 10% of
the Shenzhen Stock Exchange. According to officials at STAQ, trading on the STAQ
Exchange has stabilized at 1.5% and 4% of the trading volume on the Shanghai and
Shenzhen Stock Exchanges, respectively, for the last three years.
Trade orders on the STAQ Exchange are entered onto the computer
terminals located on the trading floor in either Beijing or Xiamen and are
computer matched. Members telephone their floor agents to execute transactions.
According to statistics provided by officials of the STAQ Exchange, there are
currently approximately 550 licensed stock brokerages (operating approximately
2,200 offices in China) that are members of the STAQ Exchange.
BRIGHTON-STAQ
Brighton-STAQ is a PRC registered Sino-Hong Kong equity joint
venture company of which the Company owns 90% and Huazheng owns 10%.
Brighton-STAQ has its registered office and principal place of business in
Beijing and a branch office registered in Shanghai. Brighton-STAQ was formed to
develop, design, install and maintain the STAQ On-line Network.
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In 1992, the STAQ Exchange received a grant of $200,000 from the
World Bank for the development of the STAQ Exchange. The STAQ Exchange used part
of the funds to invite seven technical experts from NASDAQ to visit the STAQ
Exchange in Beijing and also asked the experts from NASDAQ to review the designs
for the national on-line securities trading system that was modeled after
NASDAQ. After reviewing the plans submitted, the NASDAQ experts confirmed that,
as presented, the designs were functionally suitable for the on-line securities
trading system as contemplated. Based on its expertise in the computer network
integration services business, the Company was invited by the STAQ Exchange to
submit designs for the computer network component of the on-line securities
trading system. The Company's designs for the STAQ On-line Network were
submitted, along with the designs of the securities trading system, for review
and approved by the NASDAQ experts.
The STAQ On-line Network will initially link remote computer
terminals installed at stock brokerages in the cities of Beijing and Chongqing
(with plans to expand linkage to Guangzhou, Shanghai and Shenzhen) to the STAQ
Exchange trading floor in Beijing. The Company anticipates that linkage will
eventually be on a nationwide level, with such expansion being driven by the
Company's estimated break-even for each city of approximately 15 terminals.
Through the use of the STAQ On-line Network, the stock brokerages will then be
able to obtain real time price quotations of shares traded on the Shanghai and
Shenzhen Stock Exchanges as well as C Shares and State Treasury Bonds and will
be able to trade through party-to-party negotiations on remote computer
terminals. The STAQ On-line Network is modeled after the on-line trading system
offered by NASDAQ in the U.S. although, unlike NASDAQ with the exception of C
Shares, no stock will be quoted solely on the STAQ Exchange.
Information displayed on the remote computer terminals will be
identical to information available on the trading floor of the STAQ Exchange in
Beijing. The operation of the STAQ On-line Network, including all software
programs installed on the remote computer terminals at the stock brokerage
houses, will be maintained and controlled by the STAQ Exchange. Brighton-STAQ's
role is to develop, design, install and maintain the STAQ On-line Network. The
Company will earn its revenue through an initial installation charge and a
monthly maintenance fee charged to the stock brokerage houses for each terminal.
The Company initially plans to charge a maintenance fee equivalent to
approximately $1,000 per month for each remote computer terminal. The
maintenance fee will be paid and denominated in Renminbi. The Company expects to
initially charge an installation fee equivalent to approximately $6,000 for
installing each remote computer terminal at the stock brokerages which will also
be paid and denominated in Renminbi.
Brighton-STAQ is authorized by the Ministry of Foreign Economic
Relations and Trade for a total investment of $1,600,000. To date, approximately
$1,600,000 has been contributed by the Company into the joint venture, with an
additional $4,000,000 expected to be required to complete the STAQ On-line
Network project (all of which will be the responsibility of the Company). To
ensure that all investment in Brighton-STAQ in excess of the authorized total
investment is adequately protected under Chinese law, it will be necessary for
the Company to submit, for approval, a request for an increase in the total
investment of the joint venture, which application will be submitted when the
funds from the Offering are available. The Company has no reason to believe that
such application would not be approved. Additional capital contributed by the
Company will be structured as loans to Brighton-STAQ such that the Huazheng's
percentage ownership in Brighton-STAQ will not be diluted.
The joint venture has a 12-year term expiring in 2006. Extension
of the term of the joint venture is subject to the approval of the Ministry of
Foreign Economic Relations and Trade, the approval authority for Sino-Hong Kong
joint venture companies. The Company will be required to submit a formal
application for extension to the Ministry six months prior to the expiration of
the term for approval. The Company has no reason to believe that such
application would not be approved. The parties have a verbal agreement that
Huazheng has the right, under certain financial performance criteria, to acquire
up to an
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additional 10% of the joint venture annually, at market valuation, up to a total
ownership interest of 49% of Brighton-STAQ.
CURRENT STATUS OF THE STAQ ON-LINE NETWORK
The Company has successfully tested the STAQ On-line Network
using dedicated land telephone lines leased from ChinaPac, a commercial arm of
the Ministry of Post and Telecommunications. In order to be fully commercially
operational, the Company intends to convert the STAQ On-line Network to
satellite linkage. The Company is negotiating a three-year arrangement with The
People's Daily, the major newspaper serving China, to subscribe for use of its
satellite service, which it will finalize pending completion of the Offering.
The Company is able to obtain services from The People's Daily at a rate of
one-third the rate generally charged by commercial providers of satellite
service because The People's Daily uses satellite communication only at night
for distribution of text, as is customary for daily newspaper publications. As a
result, its satellite communication resources are idle during daylight hours.
This provides the opportunity for the Company to lease the system, with
availability during key daylight trading hours, at very competitive rates. The
satellite transponder providers of The People's Daily are Asia Satellite
Telecommunications Co. Ltd. in Hong Kong for C-Band transponder and China
Telecommunications Broadcast Satellite Corporation in Beijing for Ku-Band
transponder.
The stock price quotations from the STAQ Exchange trading floor
in Beijing will be uplinked to The People's Daily's transponder and downlinked
to various cities then being served. After being downlinked to the various
cities, the stock price quotations will be transmitted over a wireless system
for broadcast to the remote computer terminals at the brokerages. Nodes for
receiving the data broadcasted over the wireless system will be installed at the
remote computer terminals. When a buy or sell order is executed at the remote
computer terminals, such information is transmitted back via the wireless system
and the satellite linkage to the STAQ Exchange in Beijing. The Company will own
the satellite equipment necessary for uplinking and downlinking the stock price
quotations. For local wireless communication, the Company plans to "piggyback"
on the frequencies used by the Aria Wireless Systems which it has installed for
other customers. Radio frequency is a controlled resource in China. Current
Chinese laws and regulations do not allow foreign ownership or control of radio
frequency. As a result, the Company cannot independently lease radio frequencies
from the Ministry of Post and Telecommunication to build its wireless networks.
The Company's customer, ICBC, has agreed to allot a portion of ICBC's assigned
radio frequency in Beijing and Chongqing for the Company's use for a fee of $100
per node per year.
The STAQ On-Line Network is functionally similar to other on-line
transaction processing systems the Company has designed and installed for its
financial services and hospitality industry customers. On-line transaction
processing systems are designed to provide instant responses for high volume
transactions. In the last seven years, the Company and its predecessor have
developed, designed and installed over 35 on-line transaction processing
networks in the Pacific Basin region to customer's specifications, including
credit and authorization systems, airline ticket reservation systems, ATM
networks and bank branch networking. The Company has applied this knowledge in
the design and development of the STAQ On-Line Network.
MARKETING
The Company plans to initially set up the satellite-linked STAQ
On-line Network in the cities of Beijing and Chongqing and install computer
terminals in a selected number of STAQ Exchange member stock brokerages for a
three month test period, which is anticipated to begin in January 1998. During
the test period, the STAQ On-line Network will be provided to the selected stock
brokerages for free. At the end of the test period, these stock brokerages will
have the option to subscribe for the STAQ On-line Network by executing
maintenance agreements with Brighton-STAQ. The Company plans to host a series of
seminars at
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these test sites for other traders from the STAQ Exchange member stock
brokerages during the test period to attract customers. Once the Company
establishes the STAQ On-line Network service in Beijing and Chongqing, it plans
to extend its coverage area to Shanghai, Shenzhen and Guangzhou.
The Company believes that the STAQ On-line Network will increase
the STAQ Exchange's ability to offer access to trading on the exchange.
According to officials at the STAQ Exchange, only half of its members currently
have seats on the trading floor because of the STAQ Exchange's insufficient
technical expertise and capital resources. The remaining members must
collaborate with seat members to trade. Eventually, Brighton-STAQ plans to
co-market the STAQ On-line Network by packaging it with membership to the STAQ
Exchange to all stock brokerages who are not yet members of the STAQ Exchange,
in cooperation with the STAQ Exchange.
COMPETITION - BRIGHTON-STAQ
Both the Shanghai and Shenzhen Stock Exchanges maintain their own
on-line securities quotation and trading systems for internal use and both have
the potential to compete with the STAQ Exchange for trading of securities listed
on their respective stock exchanges. The Company believes that it is unlikely
that either the Shanghai or Shenzhen Stock Exchanges would compete with the STAQ
Exchange because all three exchanges are now under common control. The Shanghai
and Shenzhen Stock Exchanges were brought under direct control of the CSRC by
the PRC State Council in August 1997 to settle conflict of interest issues among
the exchanges. In addition, as their sub-exchange, the STAQ Exchange is
contributing to the development of the Shanghai and Shenzhen Stock Exchanges.
The Company believes that the development of the STAQ On-line Network by
Brighton-STAQ will likely complement the Shanghai and Shenzhen Stock Exchanges
by increasing the volume of securities traded on both exchanges.
The Company will potentially compete with other businesses
experienced in the systems management and computer network integration business
as well as the wireless communications business, which are capable of designing,
installing and maintaining on-line transaction processing systems. The Company
believes that information providers that have entered the China market and
utilize on-line transaction processing systems in their businesses, such as Dow
Jones Markets, Inc., Reuters Limited and Bloomberg L.P., are potential
competitors of the Company. These potential competitors have greater marketing
and development budgets than the Company and have greater capital resources than
the Company. In the developed securities markets in the Pacific Basin region
(such as Hong Kong, Singapore, Japan, Malaysia, Thailand and Taiwan), Dow Jones
Markets, Inc., Reuters Limited and Bloomberg L.P. have been successful in
offering access to trading on securities markets that permit off-exchange floor
trading, currency trading as well as news and information. It should be noted
that except for China, which permits off-exchange floor trading, the stock
exchanges in the Pacific Basin region are all floor-based electronic trading
systems which do not permit off-exchange floor trading.
EQUIPMENT DISTRIBUTION BUSINESS
MARKET OVERVIEW
Beginning in the mid-1980's, China commenced economic reforms
that significantly decentralized the purchasing authority of government owned or
controlled entities with respect to imports. In response to this process of
decentralization and market orientation, increased numbers of industrial
equipment manufacturers and independent distributors have entered the Chinese
market to meet the market demand for modernization. Currently, the equipment
distribution sector in China is highly saturated with significant competition
among manufacturers and distributors from around the world.
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PRODUCTS
The Company and its predecessor have, since 1981, facilitated
United States, European and other manufacturers of industrial equipment with
access to the Chinese marketplace by providing marketing, sales and technical
services for their products. The industrial equipment which the Company has been
marketing in China are machine tools, such as machine center and grinder
measurement devices, and heavy machinery, such as gantry mills, pressing machine
production lines and dyes transfer automation systems.
The Company has signed exclusive distributor agreements with
several major manufacturers of industrial equipment (Milltronics Manufacturing
Company (a U.S. company), Normac Incorporated (a U.S. company), ALO Teknik AB (a
Swedish company), Royal Master Grinders, Inc. (a U.S. company) and K.O. Lee
Company (a U.S. company)) for the sale of their industrial equipment in China.
However, these manufacturers may sell the industrial equipment to their own
customers based outside of China for use in China, such as, sales to the
American party of a Sino-foreign joint venture company for use by the
Sino-foreign joint venture company in China. In such cases, these manufacturers
would pay the Company a sales commission of 5% of the sales price for the
Company to provide repair and servicing for the industrial equipment inside
China. The Company also sells industrial equipment for other manufacturers on a
non-exclusive basis.
The following table sets forth the Company's sales of industrial
equipment by supplier made during the ten month period ended October 31, 1997
and the Company's projected revenues in 1998 based on the Company's on-going
negotiations with customers:
<TABLE>
<CAPTION>
====================================================================================
SUPPLIER TYPE OF INDUSTRIAL 1997 1998
EQUIPMENT
====================================================================================
<S> <C> <C> <C>
Adaptive Motion Tube & pipe bending $200,000 $300,000
Control Systems machine
- ------------------------------------------------------------------------------------
Alo-Teknik AB Saw tooth grinders $750,000 $300,000
- ------------------------------------------------------------------------------------
Forest-Line Capdenac Large size milling - $1,500,000
machines
- ------------------------------------------------------------------------------------
Milltronics Machine centers $300,000 $2,000,000
Manufacturing
Corporation
- ------------------------------------------------------------------------------------
Normac, Inc. Shred grinding machines $350,000 $350,000
- ------------------------------------------------------------------------------------
Royal Master Centerless grinders $450,000 $450,000
Grinders, Inc.
- ------------------------------------------------------------------------------------
Sullair Corporation Industrial air $900,000 $1,500,000
compressors and dryers
- ------------------------------------------------------------------------------------
The Monarch Machine Vertical Machine centers $1,000,000 $1,000,000
Tool Company
====================================================================================
</TABLE>
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CUSTOMERS
The Company's customers for industrial equipment are PRC
Government owned or controlled entities, including government ministries,
universities, research facilities and factories. The majority of the Company's
customers are metal handling and processing factories in the automotive, ship
building and aviation industries in China. The following sets forth the
Company's major customers for industrial equipment:
China National Chemical Construction Chongqing Company
Shenyang Blower Works
Shenyang Aircraft Corporation
State-owned Benxi Toolplant
China Offshore Industrial Corporation
Dongfeng-Citroen Automobile Company Ltd.
Changan Automobile Works
Shanghai Jiao Tong University
Deyang Qitong Machinery Co. Ltd.
Shenzhen Baosheng Co. Ltd.
The Company signed three major contracts with Chinese customers
for the sale of industrial equipment, as of October 29, 1997, totaling
approximately $6,980,000. The Company has been awarded a $1,690,000 contract
from Shenyang Aircraft Corporation to equip 5 heavy duty vertical machining
centers. Shenyang Aircraft Corporation is the leading aircraft manufacturer in
China and produces sections of the Boeing 737 aircraft. The Company has entered
into a contract to provide computer-controlled auto body stamping equipment to
Changan Automobile Works, a Chinese government-owned automotive manufacturer,
located in Chongqing, for $2,890,000. Changan Automobile Works is one of the
largest automotive manufacturers in China and is a long standing customer of the
Company. Delivery for the stamping equipment is scheduled for the first quarter
of 1998. The Company has contracted to provide a gantry milling machine to
Shenyang Blower Works, in Shenyang, for $2,400,000. Shenyang Blower Works is the
largest manufacturer of air blowers and air compressors for the petroleum,
chemical and electricity generating industries in China. Due to the long
manufacturing cycle for large-size machine tools, delivery to Shenyang Blower
Works is scheduled for the fourth quarter of 1998.
The equipment distribution business accounted for approximately
$4,300,000 and $3,700,000 in revenue for 1995 and 1996, respectively.
Historically, the Company has relied on a limited number of customers for a
substantial portion of its total revenues. The Company's customers vary from
year to year, but, historically, significant portions of its revenues are from a
limited number of customers. The Company expects that significant portions of
future revenues from this business segment will continue to be generated by a
limited number of customers, and revenue may vary substantially from quarter to
quarter as a result of both the large order sizes and the long lead times
characteristic of this business.
MARKETING
The Company solicits potential customers for the sale of
industrial equipment by participating in trade shows, promotional seminars and
exhibitions throughout China and following up with mass mailings of product
catalogues. At the trade shows, the Company operates a separate promotional
exhibit. When the Company receives a request for particular equipment, the
Company's sales staff in New Jersey is provided with the technical
specifications and searches for suitable equipment manufacturers in the global
market. When equipment that meets the technical specifications of the customer
is identified, a case-by-case arrangement is negotiated between the equipment
manufacturer and the Company. After a purchase agreement is signed with the
customer, the Company will purchase the equipment from the manufacturer and
resell it to the customer.
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The Company's industrial equipment distribution business sales
and support teams, based in China and New Jersey, have grown from a total of 3
employees in 1991 to 27 employees as of September 30, 1997. The Company's sales
teams in China for the industrial equipment distribution business are located in
Beijing (9 employees), Shanghai (8 employees) and Wuhan (8 employees). All
orders are sent to Beijing for approval and processing.
FOREIGN TRADE CORPORATIONS ("FTC")
Contracts for the sale of industrial equipment are entered into
between BIC or Brighton Equipment Corporation Limited, a wholly owned Hong Kong
subsidiary of BECL ("Brighton Equipment"), and the customer. The Company does
not place an order with the third party manufacturer for industrial equipment
until a sale has been made to the customer. As a result, the Company does not
generally need to warehouse inventory. In most cases, however, the Company does
take title to the industrial equipment and bears the risk of loss in the event
of non-payment by the customer.
Sales of the industrial equipment, regardless of the nature of
the customer, are made through FTC's, since Chinese domestic companies and
individuals are not permitted to trade directly with foreign companies. The
FTC's make purchases on behalf of the customers and are legally authorized by
the PRC Government to conduct import business. FTC's are chartered and regulated
by the government and were formed to facilitate foreign trade. Once the customer
selects the foreign vendor and the industrial equipment to be purchased, it
selects a FTC to carry out the necessary procedures for the import and purchase
of the equipment. The FTC's function as procurement arms for the customers.
Although the purchase decision is made by the customer, the Company enters into
formal purchase contracts with FTC's. The FTC's take title to the industrial
equipment and resell to the customers. The customers pay the FTC's in local
currency (Rmb) and the FTC's, which have access to foreign exchange, pay the
foreign vendors in U.S. dollars or other foreign currency.
By virtue of its direct contractual relationship with the FTC,
rather than the customer, the Company is to some extent dependent upon the
continuing existence of and contractual compliance by the FTC until the
particular transaction has been consummated. The Company's industrial equipment
sales business, however, is not dependent on any single FTC or customer.
Although sales by the Company to certain industries involve repeat transactions
with FTC's that operate in those industries, the Company does not believe that
it is dependent upon any particular FTC or that the loss of relations with any
particular FTC would have a material adverse effect on the Company. Rather,
FTC's, which earn commissions in transactions, compete with each other for the
right to handle the customer's business.
The Company believes that it is able to ensure that purchase
orders for industrial equipment by the customers are properly approved and
authorized when a purchase contract is signed with a FTC because the FTC will
review all necessary paperwork before executing contracts on the customer's
behalf. As an additional precaution, to date, all of the Company's direct sales
to its customers have been guaranteed by letters of credit. As a policy, the
Company will not ship any industrial equipment ordered until a bank letter of
credit is provided by the customer. As such, the Company has seldom experienced
nonpayment for industrial equipment orders and the risk of loss due to
nonpayment is negligible even though the Company takes title to the industrial
equipment. The Company has also never experienced a problem with obtaining
payment in U.S. dollars for the industrial equipment.
The customer is responsible for carrying out any necessary import
procedure for the industrial equipment, obtaining the import license and for
freight charges. The Company ships the ordered industrial equipment to the port
of entry specified by the customer. It is also the customer's responsibility to
clear the industrial equipment through customs and ship the industrial equipment
from the port of entry to the customer's
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premises. After the industrial equipment has arrived at its destination in
China, the Company arranges with the customer for the installation of the
industrial equipment and the training of the customer's personnel in the
operation of the industrial equipment. The industrial equipment is generally
warranted for a period of one year after installation. The customer is
responsible for any out of warranty service and repairs.
AFTER SALES SERVICES
In order to perform its servicing and other after-sale
responsibilities, the Company employs a staff of five engineering and technical
support personnel. The technical support engineers work out of the Company's
various offices throughout China and are trained to handle service calls
initially through advice and consultation. If necessary, the engineers travel to
the location of the unit and perform required servicing. The Company maintains
what it believes is an adequate inventory of supplies, spare parts and tools to
handle most servicing. If parts under warranty require replacement, the Company
may elect to replace that part out of its own parts inventory with the
understanding that the manufacturer would in turn replace the part in the
Company's inventory. Any post-warranty repair or servicing, charged on a time
and material basis, has historically been immaterial to the Company's business.
COMPETITION
The Company competes with other independent distributors in China
marketing similar products. Although the Company believes that it is one of the
major independent distributors of industrial equipment, there may be other
distributors with greater resources or other competitive advantages over the
Company.
In addition to other independent distributors, the Company faces
more significant competition directly from established manufacturers. With
respect to its industrial equipment, for example, the Company competes with
Cincinnati Milacron, Inc. of the US, which maintains its own direct sales force
in China. In addition, certain manufacturers, such as Ingersoll-Rand Company of
the US, are better able than the Company to establish name recognition across
industry lines as they market a wide variety of products in China under one
brand name.
Domestic Chinese entities also compete in various product areas.
Certain of these competitors, whether joint venture projects with foreign
manufacturers or all-Chinese groups, often receive preferential treatment by the
government regulatory authorities, who seek to curtail spending on imported
equipment in favor of domestic Chinese industrial development. Although the
Company competes directly with products of certain of such joint ventures and
all-Chinese groups, the Company does not believe that this preference by the
regulatory authorities is often applied to the material detriment of the
Company.
CHINA NATIONAL CONTRACT
On April 15, 1994, the Company contracted with China National to
provide engineering design and implementation for a sodium bichromate production
plant with production capacity of 20,000 metric tons. This contract and the work
related to it are outside the ordinary course of the Company's business.
However, because of certain third-party technology that was available to it at
that time, the Company was able to successfully bid on the contract. Turn-key
contracts of this nature are generally discrete projects, and the Company does
not anticipate repeat business from China National. The Company also does not
currently have or plan to have any other projects of this nature in the
foreseeable future.
The Company is responsible for the basic engineering design and
transferring to China National certain manufacturing technological know-how
licensed to the Company by AlliedSignal, Inc.
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("AlliedSignal") for use in the production of sodium bichromate, chromic
anhydride and chromium sulfate. The Company is also commissioned to procure key
production equipment on China National's behalf. To date, the Company has
completed the transfer of the basic engineering design and AlliedSignal's
technology, and procurement of key production equipment. The first and second
shipments of the equipment were made in May 1997 and October 1997, respectively.
The third (final) shipment of the equipment is scheduled for February 1998.
After construction of the plant is complete and ready to commence production
(expected to occur at the end of 1998), the Company will provide plant
commissioning services, including supervision of final construction, equipment
installation and pre-operational testing. The contract with China National
accounted for approximately 34% and 13% of the Company's revenues for the years
ended December 31, 1995 and 1996, respectively, and approximately 67% and 28% of
equipment distribution revenues for the years ended December 31, 1995 and 1996,
respectively. The decrease in revenues was due to a temporary suspension of the
project imposed by the municipal government in February 1996, due to
environmental concerns relating to China National's proposed methodology for
waste disposal by the plant. The revised proposal for waste management submitted
by China National was approved by the municipal government and the temporary
suspension was lifted in January 1997. The contract resumed following the
lifting of the temporary suspension. All payments from China National are
remitted to the Company in U.S. dollars.
BACKGROUND OF THE COMPANY
The Company was incorporated in the State of Delaware on November
4, 1988 as Sirone Corporation. On October 31, 1995, the Company changed its name
to Zentex Corporation. For a period of time prior to November 11, 1996, the
Company was engaged in the distribution in the United States and Canada of a
shampoo and conditioner treatment. In October 1996, the Company entered into an
acquisition agreement (the "Acquisition Agreement") with BIC, BECL, and the
Brighton Shareholders pursuant to which effective November 11, 1996 the Company
acquired all of the issued and outstanding capital stock of BIC and BECL from
the Brighton Shareholders in exchange for the issuance by the Company of a
controlling interest in the Company to the Brighton Shareholders (the "Reverse
Merger"). The Reverse Merger was effected to facilitate the consolidation of BIC
and BECL into one entity. Pursuant to the Reverse Merger, and in furtherance of
its new business plan, the Company's name was changed to "Brighton Technologies
Corporation," and its symbol on the OTC Electronic Bulletin Board was changed to
"BRTK."
Immediately prior to the Reverse Merger, the Company had a total
of 3,513,000 shares of Common Stock issued and outstanding. In connection with
the Reverse Merger, the Company issued to the Brighton Shareholders an aggregate
of 27,000,000 shares of Common Stock representing approximately 88% of the then
outstanding shares of Common Stock of the Company. On November 11, 1996, a
1-for-3 reverse stock split was effected. Effective October 17, 1997, a second
1-for-3 reverse stock split was effected. All Common Stock and per share data
have been restated to reflect the reverse stock splits.
Pursuant to the terms of the Acquisition Agreement, the Company
transferred to two individuals who were part of the prior management (the
"Transferees") all of its operating assets existing immediately subsequent to
the closing of the Reverse Merger (excluding the shares of BIC and BECL) in
exchange for the assumption by the Transferees of all of the liabilities of the
Company as of the closing of the Reverse Merger and the delivery of a release of
all obligations owed by the Company to an affiliate of the Transferees. In
addition, at the closing of the Reverse Merger, each member of the Company's
then Board of Directors resigned, and was replaced by representatives of the
Brighton Shareholders.
THE COMPANY'S CORPORATE STRUCTURE
The Company conducts its business through two principal
subsidiaries: BIC and BECL. BIC acts as distributor of third party manufactured
industrial equipment to customers in Pacific Basin countries with primary
distribution to customers in China. BIC established a representative in Wuhan,
China. BECL is an investment and holding company for Asian based investments
focusing on information and industrial equipment
52
<PAGE> 53
related ventures in the Pacific Basin region. BECL holds investments in five
second tier subsidiaries, four of which are companies organized under the laws
of Hong Kong and one is a PRC joint venture company (the percentage of ownership
of the issued and outstanding capital stock is denoted parenthetically): (i)
Brighton OLTP Systems Limited ("Brighton OLTP") (100%); (ii) Aria China 100%;
(iii) Brighton-Equipment (100%); (iv) Brighton Elevator Corporation Limited
("Brighton Elevator") (79%); and (v) Brighton-STAQ (90%). Brighton Equipment
provides computer network integration to customers in Pacific Basin countries
other than China. Brighton Elevator is a distributor of elevator and escalators
in China. Both Brighton OLTP and Aria China are inactive companies.
Brighton-STAQ is a PRC Sino-Hong Kong equity joint venture company that was
formed to develop, design, install and maintain computer equipment for an
automated securities trading and quotation system.
The following is a diagram of the Company's structure:
[DIAGRAM OF COMPANY STRUCTURE]
53
<PAGE> 54
GOVERNMENT REGULATION
All foreign entities, businesses, persons and all onshore foreign
investors, including Sino-foreign cooperative joint ventures, and Sino-foreign
equity joint ventures, are prohibited from managing or participating in the
management of any telecommunication business in China. In addition, all such
telecommunication businesses are prohibited from structuring any foreign
ownership of the management of such businesses. Participation in projects
engaged in the leasing service industry is also prohibited to foreign entities,
businesses, persons and all on-shore foreign investors.
The Company believes that Brighton-STAQ does not violate the
provisions of these regulations at the present time. The Company has received an
opinion from its Chinese counsel, Zhong Xin Law Office, to the effect that the
design, installation and maintenance of the STAQ On-line Network and the charge
of a related maintenance fee by Brighton-STAQ does not violate any rules of the
relevant Chinese Governmental agencies. The telecommunication services essential
to the operation of the STAQ On-line Network will be provided by domestically
licensed third-party providers (i.e., The People's Daily and ICBC). In addition,
operation of the STAQ On-line Network is controlled directly by the STAQ
Exchange. Revenue earned by Brighton-STAQ is for the maintenance and service of
the equipment for the STAQ On-line Network.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company has no material expenses and anticipates no material
impact on its business occasioned by compliance with environmental laws.
EMPLOYEES
The Company and its subsidiaries have approximately 130 full-time
employees of which over 80% are professionals with specialized skills. There are
32 employees based in Hong Kong, 88 based in China and 10 in the Company's
corporate office in Allendale, New Jersey U.S.A., which serves as technical
support base for the Asian operations. Of the 88 employees in China, 27 are
dedicated to sales related activities for the equipment distribution business
segment and 18 are engineering and technical support personnel in the Network
Group business segment.
PROPERTIES
NEW JERSEY. The Company and BIC currently occupy facilities
leased by BIC in Allendale, New Jersey consisting of 5,000 square feet. The
lease expires on July 31, 2001.
HONG KONG. BECL and its subsidiaries occupy facilities leased by
BECL in Quarry Bay, Hong Kong consisting of office B and D1 on the 14th floor of
Aik San Factory Building. The lease expires on February 28, 1998.
BEIJING. The facilities occupied by Brighton-STAQ in the Ritan
Office Building, Chao Yang District, Beijing are under two separate lease
agreements. Both leases expire on April 30, 1999.
SHANGHAI. Brighton-STAQ signed a two-year lease for its branch
office, effective September 1, 1997 and expiring August 31, 1999, for office
space in Shanghai, consisting of Suite D and E on the 5th Floor of the Nan Yang
Properties Building.
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<PAGE> 55
SHENZHEN. The Brighton Elevator Shenzhen representative office
occupies office space in the Shenzhen Beijing Hotel in Shenzhen. The lease
expires December 30, 1997. The Company intends to renew the lease upon its
expiration.
WUHAN. The Brighton Elevator Wuhan representative office occupies
120 square feet of office space in Wuhan. The lease expires on October 1, 1998.
At such time, the BIC Wuhan representative office will assume the remainder of
the lease.
PATENTS AND TRADEMARKS
The Company owns no registered patents or trademarks. The Company
believes that its business is not materially dependent on any patent or
trademark.
LEGAL MATTERS
The Company is either a plaintiff or a defendant in several
pending legal matters. In the opinion of management, the final resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
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<PAGE> 56
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all
directors and executive officers of the Company and the key management personnel
as of September 30, 1997. The Board of Directors of the Company is comprised of
only one class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
shareholders. Except as otherwise noted, there are no family relationships among
directors and executive officers. Also provided is a brief description of the
business experience of each director and executive officer and the key
management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
<TABLE>
<CAPTION>
AGE
NAME (AS OF OCTOBER 31, 1997) POSITION
---- ------------------------ --------
BRIGHTON TECHNOLOGIES CORPORATION
<S> <C> <C> <C>
Kit Kung 46 Chairman of the Board, President
and Chief Executive Officer
Nils Ollquist 41 Director and Vice President
Robert N. Weingarten 45 Chief Financial Officer
Warren Wang 49 Secretary and Chief Accounting
Officer
Hong Yun 42 Director;
Vice President/General Manager of
The Brighton Industries Corporation
(New Jersey)
Michael Muldavin 77 Director
KEY MANAGEMENT PERSONNEL
Edith Wong 47 General Manager
Brighton Electronics Corporation Ltd.
(Hong Kong)
He Ping 37 General Manager
Beijing Brighton Staq
Electronic System Company Limited
(Beijing)
Lu Jian Guo 39 General Manager
Beijing Brighton Staq Electronic
System
Company Limited - Shanghai Branch
Office (Shanghai)
</TABLE>
<TABLE>
<S> <C> <C> <C>
Ma Yong Jun 39 Manager of Finance and
Administration
Brighton Electronic Corporation Ltd.
(Beijing)
</TABLE>
56
<PAGE> 57
BACKGROUND AND EXPERIENCE
KIT KUNG has been Chairman of the Board, President and Chief
Executive Officer of the Company since October 1996. Mr. Kung is the Founder of
BECL. He was born in Shanghai and emigrated to the United States in 1974. He
re-visited China in 1980, and by 1981 was the first ever to legally export
32-bit computers from the United States into China; those first computers being
two sets of VAX computer systems from Digital Equipment Corporation. From that
profile, he established an extensive network of customers and relationships in
China. Mr. Kung graduated from Rutgers University with a degree in Physics and
is a citizen of the United States. Mr. Kung has been listed in the "Who's Who
Worldwide" publication since 1993 and the "Outstanding Americans" publication
since 1994. He is the husband of Hong Yun.
NILS A. OLLQUIST has been a director, Vice President and Chief
Financial Officer of the Company since October 1996. He is also a Principal of
Orient Financial Services Limited in Hong Kong. Mr. Ollquist has fifteen years
of experience in investment banking and corporate finance in Hong Kong, the
United States and Australia. Prior to creating Orient Financial in 1993, he
served as head of Bank of America's mergers and acquisitions group in Asia.
Before joining Bank of America in 1990, Mr. Ollquist was Director and head of
Security Pacific Australia's U.S. corporate finance and investment banking
activities. He worked for several years in Sydney with Amsterdam Rotterdam Bank
and Barclays Bank from 1980 to 1984. Prior to commencing his investment banking
career, Mr. Ollquist served for 5 years in the Australian Treasury in Canberra.
He holds degrees in Economics and Law from the Australian National University.
ROBERT N. WEINGARTEN has served as Chief Financial Officer of the
Company since November 3, 1997. From July 1992 to present, Mr. Weingarten has
been the sole shareholder of Resource One Group, Inc., a financial consulting
and advisory company. From January 1, 1997 through July 31, 1997, Mr. Weingarten
was a principal in Chelsea Capital Corporation, a merchant banking firm. From
January 1991 through December 1992, Mr. Weingarten served as a general partner
of Commerce Partners, a consulting firm specializing in financial restructurings
and business reorganizations in financial restructurings and business
reorganizations. Since 1979, Mr. Weingarten has served as a consultant with
numerous public companies in various stages of development, operation or
reorganization. Mr. Weingarten currently serves as a director of Fotoball USA,
Inc., a publicly-held company specializing in sports products, and as an officer
and director of GolfGear International, Inc., a privately-held company. Mr.
Weingarten received an M.B.A. in Finance from the University of Southern
California and a B.A. in Accounting from the University of Washington.
WARREN WANG has been Secretary and Chief Accounting Officer of
the Company since November 1996. From 1981 to 1996, he was Vice
President-Finance at Seavest, Inc. (a financial investment firm with interests
in real estate, securities, oil and gas, and other capital ventures). From 1979
to 1980, he was the Accounting Manager at Mailman Brothers. From 1977 to 1978,
he was with the CPA firm of Louis Sturz & Co. From 1975 to 1977, he was an
accountant with Western Union International, Inc. Mr. Wang is a certified public
accountant and received his B.B.A. in accounting from the Bernard M. Baruch
College of the City University of New York.
HONG YUN has been a director of the Company since October 1996.
She joined BIC's predecessor in 1982 and founded BIC in 1989 and is the
individual responsible for developing the industrial equipment business into a
significant operation. Ms. Yun is a native of Beijing and a U.S. citizen by
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<PAGE> 58
naturalization. Ms. Yun graduated from Beijing University of Beijing, China
specializing in electronics engineering. She is the wife of Kit Kung.
MICHAEL MULDAVIN has been a director of the Company since October
1996. Mr. Muldavin, currently a visiting professor at the University of
California at Los Angeles, was a pioneer in China trading, having assumed
responsibility for the family trading business in Heilongjiang province before
WWII. In 1979, Mr. Muldavin was invited by the Chinese Government to establish a
joint Chinese language magazine "Science & Technology Review." In recent years,
Mr. Muldavin has been involved in a total of more than 80 joint venture
investments in China including agribusiness, automotive and media/data systems
and communications. Mr. Muldavin founded the Benchmark Company Group, an
investment consultancy and advisory firm, and has consulted on investments and
ventures in China, Russia and Vietnam since 1980. Mr. Muldavin received his B.S.
in mathematics and engineering, M.S. in economics, joint PhDs in economics and
public administration and J.D. from Harvard College. Mr. Muldavin also holds a
M.P.H. (medical care administration and epidemiology) from the University of
California, Los Angeles.
EDITH WONG joined BIC's predecessor in 1984 as the first employee
and office manager in Hong Kong. Ms. Wong is the General Manager of BECL and is
responsible for the day-to-day operations of BECL and its Hong Kong
subsidiaries. Ms. Wong received her Bachelors Degree in Business Administration
and Post-graduate Diploma in Purchasing and Supply from Polytechnic of North
London. Ms. Wong is a resident of Hong Kong.
HE PING is the General Manager of Brighton-STAQ. Mr. He joined
the Company as the Deputy General Manager and then Acting General Manager of
Brighton-STAQ project in September 1994, and was promoted to his current
position. Prior to joining the Company, Mr. He was the Business Development
Officer and Administrative Executive in the Beijing representative office of
Imperial Chemical Industry since 1993. Mr. He graduated from Beijing TV
University in 1988 and was a graduate of the China-Europe Management Institute
MBA program in 1993. Mr. He is a native of Beijing and a Chinese national.
LU JIAN GUO is based in the Brighton-STAQ Shanghai branch office
and is responsible for the Eastern China operations of the Company. Mr. Lu
joined BIC's predecessor in 1995 as the Deputy General Manager of Eastern Region
operations. Prior to joining the Company, Mr. Lu held a number of managerial
positions with Sino-Foreign joint venture companies in southern and eastern
China from 1991 to 1995. Mr. Lu graduated from Eastern Normal China University
in 1983 majoring in mechanical design. He was a lecturer for Shanghai University
from 1983 to 1991. Mr. Lu is a native of Shanghai and a Chinese national.
MA YONG JUN was employed by BECL in September 1994 as the Manager
of Finance and Administration for BIC's predecessor's and BECL's Beijing based
operations. Prior to joining Brighton, Mr. Ma worked as the Accounting Executive
and Financial Manager for Bei Chen Group, a large scale real estate company,
from 1990 to 1994. Mr. Ma has had more than eight years in managing financial
and administrative matters. Presently, Mr. Ma is responsible for the corporate
planning for the China based operations for BIC and BECL. Mr. Ma graduated from
the University of Beijing Finance & Accounting College majoring in Finance in
1986. Mr. Ma is native of Beijing and a Chinese national.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during
fiscal years ended December 31, 1995 and 1996 to the Company's Chief Executive
Officer. No officer of the Company received annual compensation in excess of
$100,000 per annum.
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<PAGE> 59
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary
------------------ ---- ------
<S> <C> <C>
Kit Kung, Chairman, President and Chief 1996 $80,000
Executive Officer 1995 $80,000
</TABLE>
COMPENSATION AGREEMENTS
There are currently no long-term employment or consulting agreements
between the Company and the executive officers or directors of the Company.
BOARD OF DIRECTORS
During the year ended December 31, 1996, no meetings of the Board of
Directors were held; all corporate actions were conducted by unanimous written
consent of the Board of Directors. Directors receive no compensation for serving
on the Board of Directors, but are reimbursed for any out-of-pocket expenses
incurred in attending board meetings. The Company had no audit, nominating or
compensation committees, or committees performing similar functions, during the
year ended December 31, 1996. Subsequent to the Offering, the Company intends to
have at least two independent directors and to form an audit committee with a
majority of the members being independent directors.
STOCK OPTION PLAN
As of October 31, 1997, the Company has not adopted a stock option
plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation includes
provisions which limit the liability of its directors. As permitted by
applicable provisions of the Delaware Law, directors will not be liable to the
Company for monetary damages arising from a breach of their fiduciary duty as
directors in certain circumstances. This limitation does not affect liability
for any breach of a director's duty to the Company or its stockholders (i) with
respect to approval by the director of any transaction from which he or she
derives an improper personal benefit, (ii) with respect to acts or omissions
involving an absence of good faith, that the director believes to be contrary to
the best interests of the Company or its stockholders, that involve intentional
misconduct or a knowing and culpable violation of law, that constitute an
unexcused pattern or inattention that amounts to an abdication of his or her
duty to the Company or its stockholders, or that show a reckless disregard for
duty to the Company or its stockholders in circumstances in which he or she was,
or should have been aware, in the ordinary course of performing his or her
duties, of a risk of serious injury to the Company or its stockholders, or (iii)
based on transactions between the Company and its directors or another
corporation with interrelated directors or based on improper distributions,
loans or guarantees under applicable sections of Delaware Law. This limitation
of directors' liability also does not affect the availability of equitable
remedies, such as injunctive relief or rescission.
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<PAGE> 60
The Company has been advised that it is the position of the
Commission that insofar as the provision in the Company's Restated Certificate
of Incorporation may be invoked for liabilities arising under the Securities
Act, the provision is against public policy as expressed in the Securities Act
and is therefore unenforceable.
KEY MAN INSURANCE
The Company will, prior to the completion of the Offering, obtain and
maintain a $2,000,000 term life insurance policy covering Kit Kung which names
the Company as the sole beneficiary.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of
this Prospectus with respect to (i) the beneficial ownership of the Common Stock
of the Company by each beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company, each director, each executive officer and
all executive officers and directors of the Company as a group, (ii) the number
of shares of Common Stock owned by each such person and group and (iii) the
percent of the Company's Common Stock so owned.
As used in this section, the term beneficial ownership with respect
to a security is defined by Rule 13d-3 under the Exchange Act as consisting of
sole or shared voting power (including the power to vote or direct the vote)
and/or sole or shared investment power (including the power to dispose of or
direct the disposition of) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, subject to community
property laws where applicable. Each person has sole voting and investment power
with respect to the shares of Common Stock, except as otherwise indicated.
Beneficial ownership consists of a direct interest in the shares of Common
Stock, except as otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY STOCK BENEFICIARY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------- ------------------- --------------------- --------------------
<S> <C> <C> <C>
Kit Kung 2,833,334(1) 81.1% 59.7%
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
Hong Yun 166,667(2) 4.8% 3.5%
c/o Brighton
Technologies Corporation
6 Pearl Court
Allendale, NJ 07401
Nils Ollquist 18,334 0.5% 0.4%
c/o Orient Financial
Services 13C, Chinaweal
Centre
414-424 Jaffe Road
Wanchai, Hong Kong
Robert N. Weingarten -- -- --
5439 Lockhurst Drive
Woodland Hills, CA 91367
Warren Wang -- -- --
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
Michael Muldavin -- -- --
c/o Brighton Technologies
Corporation
6 Pearl Court
Allendale, NJ 07401
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING COMMON OUTSTANDING COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK BENEFICIALLY STOCK BENEFICIARY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------- ------------------- --------------------- --------------------
<S> <C> <C> <C>
All Directors and 3,018,335 86.4% 63.6%
executive Officers as a
group
(6 persons)
</TABLE>
(1) Does not include 166,667 shares of Common Stock owned by Hung Yun, Mr.
Kung's wife. Mr. Kung disclaims beneficial ownership of such shares.
(2) Does not include 2,833,334 shares of Common Stock owned by Kit Kung, Ms.
Yun's husband. Ms. Yun disclaims beneficial ownership of such shares.
CHANGES IN CONTROL
The Company is unaware of any contract or other arrangement, the
operation of which may at a subsequent date result in a change in control of the
Company.
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<PAGE> 63
CERTAIN TRANSACTIONS
In order to meet its working capital requirements, the Company
periodically received funding from Kit Kung, the Chairman of the Board of
Directors, President and Chief Executive Officer, and his family members. The
Company has also periodically made advances to the principals and officers of
the Company. Such advances are secured and generally bear no stated interest
rate or terms of repayment. As of December 31, 1995 and 1996, amounts due from
Kit Kung and his family members aggregated $0 and $43,239, respectively;
outstanding receivables from other related parties aggregated $8,220 and
$15,884, respectively; and amounts due to Kit King and his family members
aggregated $2,612,896 and $227,298, respectively.
At December 31, 1995, BIC had a net receivable, funded by advances
from Kit Kung, from Brighton Information Systems Corporation (now known as
Greater China Corporation) of $493,751. Kit Kung had previously served as a
director and officer of Greater China Corporation until his resignation in
September 1994 but continued to serve as officer and director of certain
subsidiaries until January 1997. In partial settlement of this indebtedness, the
Company received an assignment of fixed assets and accounts receivable during
1996 valued at $381,433, resulting in a balance of $112,318. During the year
ended December 31, 1995, Kit Kung and his family members had advanced $1,612,041
to the Company, and during the year ended December 31, 1996, the Company had
repaid $1,118,625 of such advances. During the years ended December 31, 1995 and
1996, advances to other related parties aggregated $518,322 and $43,239,
respectively, and during the year ended December 31, 1996, $424,872 of accounts
receivable from related parties were repaid.
Through November 1996, BECL had $248,103 of advances to affiliates of
Greater China Corporation, which were funded by advances from Kit Kung. Kit Kung
agreed to assume responsibility for settlement of such advances (and the
previously described balance of $112,318 owed to BIC) and such amounts were
offset against advances to stockholders.
In December 1996, Kit Kung contributed approximately $1,266,973 of
net borrowings, consisting of $1,515,076 of the net amounts owed by the Company
to Kit Kung less $248,103 of amounts Kit Kung owed to the Company, to
contributed capital.
During the six months ended June 30, 1997, the Company advanced
$325,001 to Kit Kung and his family members and repaid amounts due Kit Kung and
his family members aggregating $182,513, resulting in receivables from
stockholders and related parties of $360,124 and a payable to stockholders of
$44,785 at June 30, 1997.
Subsequent to the completion of the Offering, the Company does not
intend to enter into any future transactions with Kit Kung and his family
members, and the Company intends to have all future transactions with affiliates
approved by a committee of disinterested directors.
During the year ended December 31, 1996, $105,731 was paid to Orient
Financial Services Limited, a Hong Kong-based company in which Nils A. Ollquist
is a principal: $60,000 was paid as a retainer fee with respect to advisory
services provided in relation to the reverse merger with Zentex Corporation (the
former name of the Company) and fund raising activities and $45,731 was
reimbursement of travel and related expenses. During the six months ended June
30, 1997, $15,870 was paid to Orient Financial Services Limited.
During the years ended December 31, 1995 and 1996, salaries and
incentive expenses to Kit Kung and his family members aggregated approximately
$135,000 in each of such years.
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<PAGE> 64
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Restated Certificate of
Incorporation to issue an aggregate of 100,000,000 shares of Common Stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001
per share, which preferred stock may be issued with such rights, designations
and privileges (including redemption and voting rights) as the Board of
Directors may, from time to time, determine.
The following summary descriptions are qualified in their entirety by
reference to the Company's Restated Certificate of Incorporation, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The Company is authorized to issue 100,000,000 shares of Common
Stock, par value $.001 per share. As of the date of this Prospectus, 3,495,333
shares of Common Stock were issued and outstanding and held of record by 91
stockholders. Each stockholder is entitled to one vote per share of Common Stock
owned by such stockholder on all matters submitted to a vote of the
stockholders.
The Common Stock is not entitled to preemptive rights and is not
subject to redemption. Subject to the dividend rights of holders of any then
outstanding preferred stock, holders of Common Stock are entitled to receive
dividends at such times and in such amounts as the Board of Directors, from time
to time, may determine. Subject to the liquidation preference of any then
outstanding preferred stock, holders of Common Stock are entitled to receive, on
a pro rata basis, all remaining assets of the Company available for distribution
to the holders of Common Stock in the event of the liquidation, dissolution or
winding up of the Company.
All outstanding shares of Common Stock are, and the shares of the
Common Stock issued pursuant to the Offering will be, validly issued, fully paid
and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to cause the Company to
issue, without any further vote or action by the stockholders, up to 5,000,000
shares of preferred stock, par value $.001 per share, in one or more series, to
designate the number of shares constituting any series, and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
voting rights, rights and terms of redemption, redemption price or prices and
liquidation preferences of such series. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. The issuance of preferred
stock with voting and conversion rights may adversely effect the voting power of
the holders of Common Stock, including the loss of voting control. The Company
has no present plans to issue any shares of preferred stock.
WARRANTS
The Warrants sold in the Offering will be issued pursuant to a
warrant agreement (the "Warrant Agreement") among the Company, the
Representative and Interwest Transfer Company (the "Warrant Agent"), and will be
evidenced by warrant certificates in registered form. The following summary is
qualified in its entirety by the text of the Warrant Agreement.
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<PAGE> 65
Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at a price of 120% of the offering price per Unit at any
time commencing _______________, 1998 until _______________, 2003, unless
previously redeemed. The Warrants comprising part of the Units will not be
transferable separately from the Units until ____________, 1998, unless earlier
separated upon three days' prior written notice from the Representative at the
sole discretion of the Representative.
The Warrants are subject to redemption by the Company at a price of
$0.10 per Warrant, at any time commencing _______________, 1998, on 30 day's
prior written notice, provided that the closing price per share of the Common
Stock has equaled or exceeded $____________ (150% of the offer price) for twenty
consecutive trading days within the thirty-day period immediately preceding such
notice.
The exercise price of the Warrants and the number of shares of Common
Stock or other securities issuable upon the exercise thereof are subject to
adjustment in certain circumstances, including, but not limited to, any stock
dividend on the Common Stock, any subdivision, combination or reclassification
of the Common Stock, any distribution to all stockholders or rights, warrants or
options to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock), or any distribution to all stockholders of
assets or evidence of indebtedness of the Company. Adjustments also would be
made upon a merger or consolidation where the Company is not the surviving
entity, or the sale of all or substantially all of the assets of the Company, so
as to enable warrantholders to purchase the kind and number of shares of stock
or other securities or property (including cash) receivable in such event by a
holder of the number of shares of Common Stock that might otherwise have been
purchased upon exercise of such Warrant.
The exercise price of the Warrants bears no relation to any objective
criteria of value and should not be regarded as an indication of the future
market price of the Securities offered hereby.
The Warrants do not confer upon the holder any voting or any rights
of a stockholder of the Company. Upon written notice to the warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
SECTION 203 OF DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date, the business combination is approved by the board of directors
and by the affirmative vote of at least 66-2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. Section 203 may have a depressive
effect on the market price of the Common Stock and/or the Units.
TRANSFER AGENT
The Company has appointed Interwest Transfer Company, Salt Lake City,
Utah, as transfer agent for the Units.
65
<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,495,333 shares of Common Stock outstanding 3,093,837 shares
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act and, under certain circumstances, may be sold without
registration pursuant to Rule 144. Generally, under Rule 144, each person
holding restricted securities of a period of one year may, every three months,
sell in ordinary brokerage transactions or to market makers an amount of shares
equal to no more than the greater of 1% of the Company's then outstanding Common
Stock or the average weekly trading volume for the four weeks prior to the
proposed sale. This limitation on the amount of shares which may be sold under
the Rule 144 does not apply to restricted securities sold for the account of a
person who is not or has not been an affiliate of the Company during the three
months prior to the sale and who has beneficially owned the restricted
securities for at least two years. The Company's officers, directors and
substantially all of its principal stockholders have agreed not to publicly sell
any securities of the Company owned by them without the written consent of the
Underwriters prior to _________________, 1998. Any sales of restricted
securities must be in compliance with Rule 144, pursuant to registration under
the Securities Act or pursuant to an exemption therefrom. The public sale of
restricted securities pursuant to Rule 144, an effective registration statement,
or otherwise, may have an adverse affect on the market price of the Common
Stock. The 401,496 share balance of the 3,495,333 shares of Common Stock
currently outstanding plus the 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants are freely tradable.
UNDERWRITING
The Underwriters named below, for whom the Representative is acting
as representative, has agreed, subject to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of Units set forth opposite their names:
Underwriter Number of Units
----------- ---------------
National Securities Corporation........................
-----------............................................
Total.................................................. [ ]
===============
The Underwriters are committed to purchase all of the Units offered
hereby, if any of such Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to conditions
precedent specified therein.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Units to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such prices less concessions not in excess of $___ per Unit.
Such dealers may re-allow a concession not in excess of $___ per Unit to certain
other dealers. After the initial public offering, the public offering price
concession and reallowance may be changed by the Representative.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has agreed
to pay to the Representative a non-accountable expense allowance equal to [3%]
66
<PAGE> 67
of the gross proceeds of the Offering, of which $25,000 has already been paid.
The Company has also agreed to pay all of the costs of qualifying the Units
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with the Offering.
The Company has granted to the Underwriters an over-allotment option
exercisable for 45 days from the date of this Prospectus, to purchase up to
187,500 Units at the initial public offering price per Unit offered hereby, less
underwriting discounts and commissions, if any (the "Over-Allotment Option").
The Underwriters may exercise this option, in whole or in part, from time to
time, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the Units. To the extent the Over-Allotment Option
is exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of Units proportionate to
its initial commitment. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the Units offered
hereby.
In connection with the Offering, the Company has agreed to sell to
the Representative and its designees, for nominal consideration, warrants to
purchase from the Company up to 125,000 Units (the "Representative's Warrants").
The Representative's Warrants are initially exercisable at a price of $___ per
Unit (120% of the initial public offering price per Unit) for a period of five
years commencing on the effectiveness of the Offering. The Representative's
Warrants may not be sold, transferred, assigned or hypothecated for a period of
one year from the date of this Prospectus, except to officers and directors of
the Representative. The Representative's Warrants provide for adjustments in the
number of shares of Common Stock and Warrants and in the exercise price of the
Representative's Warrants as a result of certain events, including subdivisions
and combinations of the Securities. The Representative's Warrants grant to the
holders thereof certain rights of registration for the Common Stock and Warrants
issuable upon exercise of the Representative's Warrants.
The Company and all of the officers, directors and holders of all
outstanding securities of the Company as of the date of this Prospectus have
agreed not to, without the Representative's prior written consents, sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any equity
securities of the Company, or any securities convertible into, or exercisable or
exchangeable for, any equity securities of the Company, for a period of 13
months following the effective date of the Registration Statement, except
pursuant to the Over-Allotment Option. An appropriate legend shall be marked on
the reverse of the certificates representing such securities.
The Company has agreed that, for a period of five (5) years from the
date of this Prospectus, if so requested by the Representative, the Company
shall nominate and use its best efforts to cause an individual designated by the
Representative to be elected as a member of the Board of Directors of the
Company. In the event that the Representative elects not to designate a person
to serve on the Board of Directors of the Company, the Representative shall have
the right to designate one person to attend meetings of the Board of Directors
of the Company. Such person shall be entitled to attend all such meetings and to
receive all notices and other correspondence and communications sent by the
Company to members of its Board of Directors. The Company's officers, directors
and shareholders have agreed to vote their shares of Common Stock in favor of
such designee. The Representative has not yet exercised its right to designate
such a person. The Company has agreed to reimburse the designee of the
Representative for such designee's out-of-pocket expenses incurred in connection
with such designee's attendance of meetings of the Company's Board of Directors.
Prior to the Offering, there has been no public trading market for
the Units. Consequently, the initial public offering price of the Units has been
determined by negotiations between the Company and the Representative and does
not necessarily bear any relationship to the Company's asset value, net worth,
or other established criteria of value. Among the factors considered in
determining the offering price, in addition to
67
<PAGE> 68
prevailing market conditions, were the Company's financial condition, prospects
and management. There can be no assurance however, that the price at which the
Units will sell in any public market after the Offering will not be lower than
the offering price. Neither the Representative nor any of the participants of
the underwriting group have a material relationship with the promoters, officers
and/or directors of the Company.
In connection with the Offering, certain Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Units. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which, such person may bid for or purchase
Units for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Units in connection with the Offering than they are committed to purchase from
the Company, and in such case may purchase Units in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position by
exercising the Over-Allotment Option. In addition, the Representative, on behalf
of the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby they may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to Units that are distributed in the Offering
but subsequently purchased for the account of the Underwriters in the open
market. Any of the transactions described in this paragraph may stabilize or
maintain the price of the Units at a level above that which might otherwise
prevail in the open market. None of the transactions described in this paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a brief summary of the agreements described
above and does not purport to be complete. Reference is made to copies of each
such agreement which are filed as exhibits to the Registration Statement. See
"ADDITIONAL INFORMATION."
LEGAL MATTERS
The validity of the shares of Units offered hereby will be passed
upon for the Company by Loeb & Loeb LLP, Los Angeles, California. Camhy
Karlinsky & Stein LLP, New York, New York, has acted as counsel for the
Underwriters in connection with the Offering.
EXPERTS
The 1996 financial statements and schedules included in this
Prospectus and in the Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the period
set forth in their report appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting. The 1995 financial
statements and schedules included in this Prospectus and in the Registration
Statement have been audited by Russo and Shapiro and Francis S. L. Yan & Co.,
independent certified public accountants, to the extent and for the period set
forth in their reports appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
68
<PAGE> 69
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a registration statement ("Registration Statement"),
together with exhibits thereto, under the Securities Act with respect to the
Units offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, omits certain of the information set forth in the
Registration Statement in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and to the Units
offered hereby, reference is made to such Registration Statement and such
exhibits filed as a part thereof. Statements contained in this Prospectus as to
the content of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement and exhibits can be inspected and copied at the public reference
section at the Commission's principal office, 450 5th Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, the Commission's Regional Offices located at the
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York, New York
10048 and on the Commission's website at http://www.sec.gov. Copies may be
obtained from the Commission's principal office upon payment of the fees
prescribed by the Commission.
69
<PAGE> 70
BRIGHTON TECHNOLOGIES CORPORATION
Brighton Technologies Corporation and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Sequential
Page
Numbers
----------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
- ----------------------------------------------
Report of Independent Certified Public Accountants -
BDO Seidman, LLP
Russo and Shapiro
Consolidated Balance Sheets -
December 31, 1995 (as restated) and 1996
Consolidated Statements of Income -
Years Ended December 31, 1995 (as restated) and 1996
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1995
(as restated) and 1996
Consolidated Statements of Cash Flows Years Ended December 31, 1995 (as
restated) and 1996
Notes to Consolidated Financial Statements
Years Ended December 31, 1995 (as restated) and 1996
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Condensed Consolidated Balance Sheet -
June 30, 1997
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1996 and 1997
Condensed Consolidated Statements of
Stockholders' Equity
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1997
Notes to Condensed Consolidated Financial Statements
</TABLE>
70
<PAGE> 71
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Brighton Technologies Corporation
and Subsidiaries
Allendale, New Jersey
We have audited the consolidated balance sheet of Brighton Technologies
Corporation and Subsidiaries (the "Company") as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brighton Technologies
Corporation and Subsidiaries at December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman LLP
Woodbridge, New Jersey
May 29, 1997 (October 17, 1997 as
to the last paragraph of Note 8)
71
<PAGE> 72
[RUSSO AND SHAPIRO LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Brighton Technologies Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Brighton
Technologies Corporation and subsidiaries as of December 31, 1995, and the
related statements of income, stockholder's equity and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
financial statements of Brighton Technologies Corporation which statements
reflect total assets of $2,634,859 as of December 31, 1995, and total revenues
of $9,872,996 for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Brighton Electronics Corporation Limited,
is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Brighton Technologies Corporation
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the financial statements, the 1995 financial
statements have been restated to reflect the correction of depreciation
expenses recorded on project equipment, accounting for losses related to joint
ventures and in the recognition of revenue on certain long-term projects.
Accordingly, the Company's financial statements for the year ended December 31,
1995 have been restated to reflect the correction of these errors.
/s/ Russo and Shapiro
New York, New York
September 25, 1997
72
<PAGE> 73
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1995
(As restated)
December 31, (Note 3) 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 137,067 $ 716,699
Restricted cash (Note 2) 600,000 2,636,000
Accounts receivable (net of allowance for doubtful
accounts of $30,000 in 1995 and 1996) (Note 11) 153,375 1,339,318
Costs and accumulated gross profit in excess of
billings on uncompleted contracts (Note 6) 747,168 2,056,987
Receivables from stockholders and related parties (Note 4) 17,622 43,239
Prepaid expenses 529,460 310,677
Deferred taxes (Note 9) 408,000 1,315,000
Other 1,207 4,700
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,593,899 8,422,620
- ----------------------------------------------------------------------------------------------------------
FIXED ASSETS, NET (NOTE 5) 1,349,757 1,536,458
OTHER ASSETS:
Non-current accounts receivable - related parties (Note 4) 484,349 15,884
Deposits -- 9,245
Prepaid contract fees 314,375 171,875
Organization costs, net 365 30,986
- ----------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 2,148,846 1,764,448
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,742,745 $10,187,068
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 427,877 $ 958,550
Accrued expenses 252,716 313,337
Accrued licensing costs 600,000 450,000
Billings in excess of costs and accumulated gross profit
on uncompleted contracts (Note 6) 1,160,188 4,971,394
Deferred revenue -- 83,421
Demand note payable (Note 7) -- 620,101
Payable to stockholders (Note 4) 2,612,896 227,298
Taxes payable (Note 10) 360,000 1,678,000
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,413,677 9,302,101
- ----------------------------------------------------------------------------------------------------------
LONG-TERM:
Deferred taxes (Note 9) 263,000 156,000
Minority interests (Note 2) 136,705 143,931
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,813,382 9,602,032
- ----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 4 AND 8):
Common stock; $.001 par value; shares authorized -
100,000,000; issued and outstanding - 3,025,000 and
3,448,678 in 1995 and 1996, respectively 3,025 3,449
Preferred stock; $.001 par value; shares authorized -
5,000,000; none issued and outstanding -- --
Contributed capital 23,757 1,480,482
Accumulated deficit (1,097,419) (898,895)
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,070,637) 585,036
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,742,745 $10,187,068
==========================================================================================================
See accompanying notes to financial statements
</TABLE>
73
<PAGE> 74
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1995
(As restated)
Year ended December 31, (Note 3) 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES (NOTES 6 AND 11) $ 8,370,537 $ 8,006,260
COST OF REVENUES (NOTE 6) 6,165,201 5,785,507
- -----------------------------------------------------------------------------------------------
GROSS PROFIT 2,205,336 2,220,753
- -----------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries, payroll taxes and employee benefits (Note 4) 579,713 765,035
Rent and premises (Note 10) 299,365 377,154
Travel and lodging 234,565 84,402
Depreciation and amortization 6,007 38,738
Foreign transaction (gains) losses 4,615 5,268
Miscellaneous 523,751 484,432
- -----------------------------------------------------------------------------------------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,648,016 1,755,029
- -----------------------------------------------------------------------------------------------
OPERATING INCOME 557,320 465,724
- -----------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense and bank fees (Note 7) (38,488) (33,170)
Interest income 27,949 37,451
Miscellaneous income 13,863 44,745
- -----------------------------------------------------------------------------------------------
3,324 49,026
- -----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 560,644 514,750
PROVISION FOR INCOME TAXES (NOTE 9) 444,000 309,000
- -----------------------------------------------------------------------------------------------
MINORITY INTERESTS (NOTE 2) 55,703 (7,226)
- -----------------------------------------------------------------------------------------------
NET INCOME $ 172,347 $ 198,524
===============================================================================================
EARNINGS PER SHARE DATA:
Primary and fully diluted $ .06 $ .06
===============================================================================================
Weighted average shares outstanding - primary 3,025,000 3,101,896
===============================================================================================
Weighted average common shares and common
equivalents outstanding - fully diluted 3,025,000 3,140,672
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
74
<PAGE> 75
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Years ended December 31, 1995 and 1996
- -----------------------------------------------------------------------------------------------------
Common Stock Contributed Accumulated
Shares Amount Capital Deficit
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 (NOTE 3) 3,025,000 $3,025 $ 23,757 $ (755,013)
Adjustment for the effect on prior
years of correction of errors
(Note 3) -- -- -- (514,753)
- -----------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1995, AS
RESTATED (NOTE 3) 3,025,000 3,025 23,757 (1,269,766)
Net income, as restated, for 1995 -- -- -- 172,347
- -----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 3,025,000 3,025 23,757 (1,097,419)
Net shares issued in connection with
reverse merger (Note 1) 390,345 390 (390) --
Sale of common stock 33,333 34 449,966 --
Costs associated with the sale of
common stock -- -- (259,824) --
Conversion of advances from majority
stockholder (Note 4) -- -- 1,266,973 --
Net income -- -- -- 198,524
- -----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 3,448,678 $3,449 $1,480,482 $ (898,895)
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
75
<PAGE> 76
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995
(As restated)
Year ended December 31, (Note 3) 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 172,347 $ 198,524
- -----------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 143,508 176,238
Deferred income taxes 75,000 (1,014,000)
Minority interests (55,703) 7,226
Changes in assets and liabilities:
Accounts receivable 2,299,745 (1,185,943)
Costs and accumulated gross profit in excess of billings (747,168) (1,309,819)
Other current assets (513,530) 208,941
Other assets 63,809 (38,227)
Accounts payable (1,946,011) 530,673
Billings in excess of costs and accumulated gross profits 160,013 3,811,206
Taxes payable 573,000 1,318,000
Other liabilities and deferred revenue 374,223 38,510
- -----------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 426,886 2,542,805
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 599,233 2,741,329
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES (NOTE 2):
Increase in restricted cash (600,000) (2,036,000)
Purchases of fixed assets (1,352,434) (154,484)
- -----------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,952,434) (2,190,484)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES (NOTE 2):
Proceeds from demand note payable -- 575,603
Issuance of common stock, net of related costs -- 190,176
Proceeds from Stockholder advances 1,612,041 --
Repayments on Stockholder advances -- (1,118,625)
Repayment of accounts receivable - related parties -- 424,872
Advances to related parties (518,322) (43,239)
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,093,719 28,787
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (259,482) 579,632
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 396,549 137,067
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 137,067 $ 716,699
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Taxes paid $ 221,466 $ 5,358
Interest expense paid 38,488 18,046
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
76
<PAGE> 77
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION OF General
COMPANY
Brighton Technologies Corporation (the
"Company") serves as the ultimate parent of
Brighton Industries Corporation ("BIC"), a
United States of America based company, and
Brighton Electronics Corporation Limited
("BECL"), a Hong Kong based holding company for
two Hong Kong subsidiaries and interests in
three Hong Kong joint ventures.
On October 23, 1996, Zentex Corporation
("Zentex"), an inactive public company,
affected a reverse non-cash merger transaction
of BIC and BECL structured in the following
manner. Stockholders of BIC and BECL
transferred ownership of their shares to Zentex
in exchange for the issuance of shares
representing a controlling interest in Zentex.
Pursuant to the terms of the agreement, Zentex
transferred to the predecessor Zentex
shareholders all of its operating assets
(excluding the shares of BIC and BECL) in
exchange for the assumption of liabilities
existing immediately subsequent to the closing
of the transaction. As part of the transaction,
Zentex received a release of all obligations
owed by it to an affiliate of the predecessor
Zentex shareholders. In addition, at the
closing, each member of the predecessor Zentex
Board of Directors resigned and was replaced by
representatives of the BIC and BECL
stockholders. On November 12, 1996, Zentex was
renamed Brighton Technologies Corporation. This
transaction was consummated to facilitate the
consolidation of the operating companies of BIC
and BECL's founder and majority stockholder
(the "Stockholder) into one entity. The
Stockholder and members of his family control
the operations of the Company and its
subsidiaries. Prior to this transaction, the
Stockholder and his family had full ownership
of BIC and BECL. Since the BIC and BECL
Stockholders obtained control of the Company,
the accompanying financial statements reflect
the operations of BIC and BECL for periods
prior to the consummation of the transaction.
The issuance of shares to the predecessor
Zentex shareholders was accounted for as the
issuance of equity by the Company for no
consideration.
77
<PAGE> 78
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
BIC, a Delaware Corporation, principally
conducts its business in the People's Republic
of China ("PRC") through registered PRC
offices, where it acts as the purchaser and
distributor of third party manufactured
industrial, telecommunication and computer
equipment and technological processes to PRC
customers. The Company is actively marketing
similar services in other Pacific basin
countries. The Company has also entered into a
long-term contract with China National Chemical
Construction Chongqing Company ("China
National") to aid in the design and
construction of a sodium bichromate production
plant in the PRC. Management does not expect to
enter into any significant long-term contracts
of this type in the future (see Note 11).
BECL is located in and incorporated in Hong
Kong and is an investment and holding company
for Asian based companies. BECL subsidiaries
are involved in the buying, selling and
installation of computer and industrial
equipment and in the development of credit card
approval and authorization systems.
One joint venture in which BECL has a 90%
interest ("STAQ") has been formed to design,
install and maintain a computer network for the
trading of securities in the PRC. The minority
interest holders of STAQ have the right to
acquire an additional 10% ownership interest
per annum (at the then determinable fair
values) up to a maximum interest of 49%. Under
the STAQ joint venture arrangements, the
Company is required to invest approximately
$4,000,000 ($1,600,000 of which has been
invested) at December 31, 1996. BECL also has
interests in two other inactive joint ventures.
78
<PAGE> 79
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
2. SUMMARY OF Business Combination and Consolidation Policy
SIGNIFICANT
ACCOUNTING POLICIES
The combination of the Company's subsidiaries,
which were previously under the common control
of the Stockholder, has been accounted for in a
manner similar to the pooling-of-interests
method of business combinations. This method
presents the Company's financial position,
results of operations and cash flows as if BIC
and BECL were combined for all periods
presented. Accordingly, the consolidated
financial statements include the accounts of
the Company and its direct subsidiaries and
joint ventures in which the Company has a
controlling interest. All intercompany accounts
and transactions have been eliminated in
consolidation.
Minority Interests
BECL consolidates the accounts of three joint
ventures in which it holds controlling
interests. Income (loss) allocable to minority
interests is recorded in the accompanying
consolidated financial statements. Operating
losses are allocated to the minority interests
only to the extent of the minority interests'
investment in these joint ventures. The Company
is responsible for losses in excess of the
minority interests' investments. At December
31, 1996, the excess of such investments over
accumulated losses was approximately $39,000.
Foreign Currencies
For BECL subsidiaries and BIC branch offices,
whose functional currency is the Hong Kong
Dollar or the PRC Renminbi, balance sheet
accounts are translated at exchange rates in
effect at the end of the year and income
statement accounts are translated at average
exchange rates for the year. Translation
adjustments are not material as of December 31,
1996 and 1995. For the majority of BIC
transactions, revenue and costs are invoiced in
U.S. dollars. Accordingly, the effects of
foreign exchange transaction gains or losses
are not material. The Company does not enter
into foreign currency forward exchange
contracts to hedge foreign currency exposures.
79
<PAGE> 80
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Revenue Recognition
The Company accounts for long-term contracts on
the percentage-of- completion method and income
is recognized as work on contracts progresses,
but estimated losses on contracts in progress
are charged to operations immediately. The
Company generally bills customers in accordance
with contractual terms. At December 31, 1996
and 1995, management estimated that the Company
will, at a minimum, recover its outlay for
expenses when the projects are completed.
Accordingly, no loss provisions for such
contracts were recorded during 1996 and 1995.
For short-term contracts and projects, revenue
is recognized on the accrual basis as goods are
shipped and services are performed.
Income Taxes
The Company accounts for income taxes using the
liability method, which requires an entity to
recognize deferred tax liabilities and assets
for the expected future tax consequences of
events that have been recognized in the
Corporation's financial statements or tax
returns. Under this method, deferred tax
liabilities and assets are determined based on
the difference between the financial statement
carrying amounts and tax basis of liabilities
and assets using enacted tax rates in effect in
years in which the differences are expected to
reverse.
Income tax expense (benefit) is determined on a
separate company basis and includes current
Federal, foreign and state taxes and deferred
taxes. For U.S. purposes, the Company files its
income tax returns on a cash basis.
Cash Equivalents
The Company considers all highly liquid debt
instruments with a maturity of three months or
less at the date of purchase to be cash
equivalents.
80
<PAGE> 81
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Restricted Cash
Cash that is restricted to pay project related
liabilities and commitments totaled $600,000
and $2,636,000 at December 31, 1995 and 1996,
respectively.
Non-Cash Investing and Financing Activities
During 1996, the Stockholder contributed
$1,266,973 of net advances owed by the Company
to contributed capital. In 1996, the Company
received fixed assets valued at $67,297 in lieu
of payments on 1995 accounts receivable
balances.
In connection with the merger described in Note
1, 390,345 shares of common stock were issued
to Zentex stockholders with no proceeds to the
Company. The increase in common stock was
offset by a reduction to contributed capital in
the accompanying financial statements.
Organization Costs
Costs incurred in connection with the
incorporation of the Company and the formation
of its current structure are capitalized and
amortized over a period of five years.
Fixed Assets
Fixed assets are carried at cost and are
depreciated over the estimated useful lives of
the related assets (generally 2 to 5 years) on
a straight line bases. The cost of leasehold
improvements is amortized over the lesser of
the length of the related leases or the
estimated useful lives of the assets. Assets
purchased, but not utilized in operations, are
not subject to depreciation.
Prepaid Contract Fees
Prepaid contract fees are principally comprised
of prepayments for services to be rendered over
the life of a long-term contract. The related
amortization expense for the years ended
December 31, 1995 and 1996 was $137,500.
81
<PAGE> 82
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Benefit Plans
BIC has no pension or profit sharing plans.
BECL has a defined contribution plan covering
qualified participants. The amount of
contributions for the years ended December 31,
1995 and 1996 were $13,586 and $20,416,
respectively.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and expenses
during the reporting period. The Company
utilizes estimates in measuring and projecting
revenue, costs and gross profit on long-term
contracts, in providing for an allowance for
doubtful accounts (also see Note 11) and in
recording accrued liabilities. Actual results
could differ from those estimates.
Fair Values of Financial Instruments
At December 31, 1995 and 1996, the carrying
values of cash equivalents, restricted cash,
accounts receivable (current and non-current),
related party receivables and payables,
accounts payable, demand notes payable and
long-term debt approximates fair values due to
the immediate or short-term maturity of these
financial instruments.
Earnings Per Share
Earnings per share is based on the weighted
average number of common stock shares. For
purposes of determining fully diluted earnings
per share, the conversion of the demand note
into common stock equivalents was valued using
the average sales price of the Company's common
stock sold in 1996.
82
<PAGE> 83
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
In February 1997, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). This statement is
effective for the Company's 1997 financial
statements and establishes criteria for the
calculation and presentation of "Basic" and
"Diluted" earnings per share. Based on an
assessment of its current capital structure,
management believes that adoption of SFAS 128
will not have a significant effect on the
Company's reported earnings per share.
Reclassifications
Certain prior period amounts have been
reclassified to conform with the current year
presentation (also see Note 3).
3. RESTATEMENTS The 1995 financial statements have been
restated to reflect the correction of
depreciation expense recorded on project
equipment, accounting for losses related to
joint ventures, and to appropriately recognize
revenue from certain long-term projects. In
prior periods, BIC recognized revenue on
long-term projects as certain stages of a
project were completed, rather than on a
ratable basis over the term of the entire
contract. As a result, accumulated deficit at
January 1, 1995 was increased by $514,753 and
net income for the year ended December 31, 1995
was reduced by $258,353 ($.09 per share) from
amounts previously published.
4. RELATED PARTIES Receivables and Liabilities
From time to time, the Company receives funding
from or provides funding to the Stockholder,
his family members, principals and officers.
Such advances generally bear no stated interest
rate or terms of payments.
Outstanding balances with stockholders and
related parties at December 31, 1995 and 1996
were as follows:
83
<PAGE> 84
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
December 31, 1995 1996
---------------------------------------------------------------------
<S> <C> <C>
Receivables (current and non-current):
Stockholder and family members $ - $ 43,239
Brighton Information Systems
Corporation (a) and (b) 493,751 -
Other 8,220 15,884
---------------------------------------------------------------------
$ 501,971 $ 59,123
=====================================================================
Liabilities:
Stockholder and family members $2,612,896 $227,298
=====================================================================
</TABLE>
(a) At December 31, 1995, BIC had a net
receivable, funded by the Stockholder,
from Brighton Information System
Corporation (now known as Greater China
Corporation, "Greater China") in the
amount of $493,751. The Stockholder had
previously served as a director and
officer of Greater China until his
resignation in March 1996. In partial
settlement of this indebtedness in 1996,
the Company received an assignment of
fixed assets and accounts receivable
valued at $381,433.
(b) Through November 1996, BECL had $248,103
of advances to affiliates of Greater
China, which were funded by advances
from the Stockholder. Accordingly, the
Stockholder has agreed to assume
responsibility for settlement of such
advances (and the balance owed to BIC
after the transactions described in (a)
above) and such amounts were offset
against "Advances to stockholders." In
December 1996, the Stockholder
contributed outstanding borrowings (net
of these advances) to the Company's
capital structure (see below).
Conversion of Advances
In December 1996, the Stockholder elected to
contribute $1,266,973 of net borrowings
($248,103 of amounts the Stockholder owed to
the Company and $1,515,076 of the net amounts
owed by the Company) into the Company's capital
structure.
84
<PAGE> 85
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Professional Fees
Fees paid to Directors and their affiliates for
financial advisory services totaled $0 and
$105,731 for the years ended December 31, 1995
and 1996, respectively. The entire amount in
1996 was charged to contributed capital (see
Note 8).
General and Administrative Expenses
Salaries and incentives expenses for the
Stockholder and members of his family totaled
approximately $135,000 in each of the years
ended December 31, 1995 and 1996.
5. FIXED ASSETS Fixed assets at December 31, 1995 and 1996 are
comprised of the following:
<TABLE>
<CAPTION>
December 31, 1995 1996
------------------------------------------------------------
<S> <C> <C>
Equipment $ 18,707 $ 210,367
Furniture and fixtures 6,572 18,834
Leasehold improvements 6,850 18,027
Less: Accumulated depreciation (7,278) (42,358)
------------------------------------------------------------
24,851 204,870
Project equipment
(assets to be utilized
in completing future projects) 1,324,906 1,331,588
------------------------------------------------------------
Total $ 1,349,757 $ 1,536,458
============================================================
</TABLE>
85
<PAGE> 86
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
6. LONG-TERM At December 31, 1995 and 1996, costs, estimated
CONTRACTS gross profit and billings on uncompleted long-term
contracts accounted for on the percentage of completion
method are summarized as follows:
December 31, 1995 1996
-------------------------------------------------------
Costs incurred on
long-term contracts $ 4,078,131 $ 6,205,662
Estimated gross profit 834,357 1,242,824
-------------------------------------------------------
4,912,488 7,448,486
Less: Billings to date (5,325,508) (10,362,893)
-------------------------------------------------------
$ (413,020) $ (2,914,407)
=======================================================
These amounts are included in the accompanying balance
sheets under the following captions:
<TABLE>
<CAPTION>
December 31, 1995 1996
---------------------------------------------------------
<S> <C> <C>
Costs and accumulated gross
profit in excess of billing
on uncompleted contracts $ 747,168 $2,056,987
Billings in excess of costs and
accumulated gross profit on
uncompleted contracts 1,160,188 4,971,394
=========================================================
</TABLE>
7. DEMAND NOTE In 1996, BECL entered into a convertible demand note
agreement with a third party. The note is convertible to
common shares at prevailing market values. The balance
outstanding at December 31, 1996 was $620,101. The fixed
interest rate at December 31, 1996 was 5% per annum.
Interest expense for the year ended December 31, 1996
was $15,124.
The Company and the creditor are in the process of
negotiating the conversion of $440,000 of the note to
common shares.
86
<PAGE> 87
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. STOCKHOLDERS' Private Placement
EQUITY
In December 1996, the Company sold 33,333 shares of
common stock in a private underwriting for aggregate net
proceeds (before the costs discussed in the following
paragraph) of approximately $450,000. In 1997, the
Company sold an additional 24,007 of common stock for
net proceeds of approximately $350,000.
Costs directly related to the completion of these
offerings amounted to $259,824 and have been charged to
contributed capital in 1996.
Public Offering
Subject to certain conditions in 1997, the Company is
considering a public offering of an unspecified number
of shares of its common stock. Proceeds from this sale,
if consummated, will be used for general corporate
purposes and investments in joint ventures.
Common Stock Reserved for Issuance
At December 31, 1996, the Company had reserved 41,333
shares for fulfilling the conversion of a demand note
payable to common stock. The conversion terms are based
on the fair market value of the Company's common stock.
Subsequent to December 31, 1996, the Company issued, at
nominal cost, 9,422 shares of common stock to various
individuals and firms. Of this issuance, 6,100 shares
related to services rendered in connection with the
Private Placement and contemplated Public Offering.
The balance of the authorized, but not outstanding,
common stock are not reserved.
Preferred Stock
The Company has 5,000,000 authorized shares of Preferred
Stock (with a par value of $.001 per share), none of
which have been issued or remained outstanding as of and
for the years ended December 31, 1995 and 1996. The
Company's Board of Directors reserves the right to
determine the ownership privileges of the Preferred
Stockholders and terms of the security prior to its
issuance.
87
<PAGE> 88
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Dividends
There were no dividends declared or paid on the
Company's common stock in 1995 and 1996.
Increase in Authorized Shares
In 1996, the Company's stockholders approved an
amendment to the Company's Certificate of Incorporation
to establish the number of authorized shares of common
stock of the Company at 100,000,000 shares, with a par
value of $.001 per share and also approved a three for
one stock split of the Company's common stock
outstanding at that time. On October 17, 1997, the
Company approved a one for three reverse stock split.
All share and per share data have been restated for all
periods presented to reflect these splits.
9. INCOME TAXES The domestic and foreign components of income (loss)
before income taxes and minority interests are as
follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
-------------------------------------------------------
<S> <C> <C>
Domestic $ 936,307 $ 764,000
Foreign (375,663) (249,250)
-------------------------------------------------------
$ 560,644 $ 514,750
=======================================================
</TABLE>
88
<PAGE> 89
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
The components of the provision (benefit) for income
taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1995 1996
-------------------------------------------------------
<S> <C> <C>
Current:
Federal $274,000 $ 988,000
Foreign 16,000 47,000
State 79,000 288,000
-------------------------------------------------------
369,000 1,323,000
-------------------------------------------------------
Deferred:
Federal 59,000 (802,000)
Foreign (87,000) (29,000)
State 16,000 (212,000)
-------------------------------------------------------
(12,000) (1,043,000)
-------------------------------------------------------
Net change in
valuation allowance 87,000 29,000
-------------------------------------------------------
Provision for income taxes $444,000 $ 309,000
=======================================================
</TABLE>
89
<PAGE> 90
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
The following table presents the principal reasons for
the difference between the actual income tax provision
and the tax provision computed by applying the U.S.
Federal statutory income tax rate to income before
income taxes and minority interests:
December 31, 1995 1996
--------------------------------------------------------
U.S. Federal income tax
provision at statutory rates $191,000 $ 175,000
State income taxes, net
of Federal benefit 63,000 50,000
Effects of foreign
operations and tax rate
differentials 66,000 44,000
Valuation allowance - foreign
loss carryforwards 87,000 29,000
Non-deductible losses
and expenses 30,000 7,000
Other, net 7,000 4,000
--------------------------------------------------------
Provision for income taxes $444,000 $ 309,000
========================================================
The statutory tax rates in the United States (including
applicable net state rates), Hong Kong and the PRC are
40%, 16.5% and 33%, respectively. There are no tax
holidays, exemptions and incentives afforded to the
Company for its off-shore operations.
Deferred income taxes as recorded in the accompanying
consolidated balance sheets are comprised of the
following:
90
<PAGE> 91
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
1995 1996
- ----------------------------------------------------------------------------------------------------
December 31, Asset Liability Net ASSET LIABILITY NET
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current deferred income taxes:
Accrued
accounts
receivable $ -- $ (88,000) $ (88,000) $ -- $ (371,000) $ (371,000)
Contract
costs -- (234,000) (234,000) -- -- --
Liabilities 733,000 -- 733,000 1,706,000 -- 1,706,000
Other current -- (3,000) (3,000) -- (20,000) (20,000)
- ----------------------------------------------------------------------------------------------------
$ 733,000 $(325,000) $ 408,000 $ 1,706,000 $ (391,000) $ 1,315,000
====================================================================================================
Non-current deferred income taxes:
Foreign net
operating loss
carryforwards $ 87,000 $ -- $ 87,000 $ 116,000 $ -- $ 116,000
Deferred costs -- (258,000) (258,000) -- (146,500) (146,500)
Fixed assets -- (4,500) (4,500) -- (9,000) (9,000)
Other non-
current -- (500) (500) -- (500) (500)
Valuation
allowance (87,000) -- (87,000) (116,000) -- (116,000)
- ----------------------------------------------------------------------------------------------------
-- $(263,000) $(263,000) $ -- $(156,000) $(156,000)
====================================================================================================
</TABLE>
At December 31, 1995 and 1996, the Company had
established a valuation allowance on the deferred tax
assets related to the foreign net operating loss
carryforwards of BECL. Reductions to the valuation
allowance will be recorded when, in the opinion of
management, BECL's ability to generate taxable income in
the future is considered more likely than not.
At December 31, 1996, the Company has net operating loss
carryforwards for Hong Kong tax purposes of
approximately $702,000, which can be carried forward
indefinitely.
91
<PAGE> 92
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. COMMITMENTS AND Operating Leases
CONTINGENCIES
The Company and its subsidiaries lease administrative
office space and equipment under operating leases which
expire prior to the end of 2001. Total future minimum
lease payments as of December 31, 1996 are:
<TABLE>
<CAPTION>
-------------------------------------------------------
<S> <C>
1997 $284,055
1998 187,899
1999 85,817
2000 43,750
2001 25,521
-------------------------------------------------------
Total minimum lease payments $627,042
=======================================================
</TABLE>
Rent expense and related costs for 1995 and 1996 were
$149,880 and $260,396, respectively.
Legal Matters
The Company is either a plaintiff or a defendant in
several pending legal matters. In the opinion of
management, the final resolution of these matters will
not have a material adverse effect on the Company's
financial position or results of operations.
92
<PAGE> 93
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Contractual Obligations
The Company may also be subject to claims and penalties
arising from failure to comply with specific
contractual requirements on the progression of
long-term projects. Management does not believe that it
has any measurable exposures related to such
contingencies at December 31, 1996. The Company is also
in the process of renegotiating the terms of certain
aspects of technological licensing arrangements. The
contractual value of services currently under
negotiation approximates $450,000. The inability of the
Company to fulfill contractual terms of long-term
projects or to negotiate favorable arrangements on the
use or distribution of licensed technology may have a
material adverse effect on the Company's financial
statements.
Letters of Credit
At December 31, 1996, the Company had issued
irrevocable letters of credit of $746,230 (included in
the determination of Restricted Cash balances at
December 31, 1996) representing contingent commitments
on equipment purchases.
11. CONCENTRATIONS Major Customers
China National accounted for approximately 34% and 13%
of revenues for the years ended December 31, 1995 and
1996, respectively. A BECL customer accounted for
approximately 17% of revenues in 1996 and a BIC
customer accounted for approximately 10% of revenues in
1995.
The Company had an unsecured accounts receivable
balance of approximately $512,000 at December 31, 1996
with a Hong Kong based customer. Management is
currently discussing the timing of the settlement of
this account receivable with the customer and expects
full payment in 1997.
93
<PAGE> 94
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
Historically, the Company has relied on a limited
number of customers for a substantial portion of its
total revenues. The Company expects that a significant
portion of its future revenues will continue to be
generated by a limited number of customers. The loss of
any of these customers or any substantial reduction in
business volume with any of these customers could
materially adversely affect operating results.
Suppliers
The Company purchases a substantial amount of equipment
and licenses technology from a limited number of
entities. Based on the number of alternate qualified
suppliers, management does not believe that the Company
has a concentration of risks under its current
arrangements.
Geographical
The vast majority of the Company's revenues are derived
from customers based in countries outside the United
States. Such operations subject the Company to certain
operational risks. The Company's prospective results of
operations could be negatively affected by adverse
consequences arising from these risks. Although
management believes that the likelihood of such factors
occurring is remote, the possibility of unanticipated
events disrupting the Company's operations exists.
12. SEGMENT Operations by Geographic Area
INFORMATION
Net revenues, operating income (loss) and identifiable
assets from United States export sales to the Far East
and for the Company's operations based in the Far East
(principally, PRC and Hong Kong) are as follows:
December 31, 1995 United States Far East Eliminations Consolidated
- --------------------------------------------------------------------------------
Net revenues $6,497,541 $ 1,872,996 $ -- $8,370,537
Operating income
(loss) 927,375 (370,055) -- 557,320
Identifiable assets 2,574,807 2,634,859 (466,921) 4,742,745
================================================================================
94
<PAGE> 95
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
December 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $6,039,716 $ 1,966,544 $ -- $ 8,006,260
Operating income
(loss) 730,875 (265,151) -- 465,724
Identifiable assets 7,152,549 4,299,370 (1,264,851) 10,187,068
================================================================================
</TABLE>
Substantially all of the Company's United States
revenues are derived from customers based in the Far
East.
Operations by Segment
The Company's predominant businesses are equipment
distribution and networking.
Net revenues, operating income and allocated assets for
the Company's segments are as follows:
<TABLE>
<CAPTION>
Equipment
December 31, 1995 Distribution Networking Consolidated
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $4,267,791 $4,102,746 $8,370,537
Operating income 247,429 309,891 557,320
Identifiable assets 1,757,405 2,985,340 4,742,745
Purchases of fixed assets 27,049 1,325,385 1,352,434
Depreciation and
amortization expense 5,887 120 6,007
================================================================================
</TABLE>
95
<PAGE> 96
BRIGHTON TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
December 31, 1996
- --------------------------------------------------------------------------------
Net revenues $3,664,433 $4,341,827 $ 8,006,260
Operating income 214,515 251,209 465,724
Identifiable assets 4,179,102 6,007,966 10,187,068
Purchases of fixed assets 20,083 134,401 154,484
Depreciation and
amortization expense 33,702 5,036 38,738
================================================================================
96
<PAGE> 97
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 370,117
Restricted cash 1,080,575
Accounts receivable, net 1,345,658
Costs and accumulated gross profit
in excess of billings
on uncompleted contracts 675,396
Receivables from stockholders
and related parties 360,124
Prepaid expenses 316,903
Deferred taxes 746,000
----------
Total current assets 4,894,773
----------
Fixed assets:
Project equipment 1,331,588
Furniture and equipment, net 202,871
----------
Net fixed assets 1,534,459
----------
Other assets:
Non-current accounts receivable -
related parties 24,000
Deposits 9,245
Prepaid contract fees 103,125
Deferred offering costs
(Notes 5 and 8) 90,387
Organization costs, net 27,443
----------
Total other assets 254,200
----------
Total assets $6,683,432
==========
(continued)
</TABLE>
97
<PAGE> 98
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,875,837
Accrued expenses 138,019
Accrued licensing costs (Note 4) 450,000
Billings in excess of costs
and accumulated gross profit
on uncompleted contracts 1,030,225
Deferred revenue 107,438
Notes payable (Note 2) 790,603
Payable to stockholders 44,785
Taxes payable 1,125,000
---------
Total current liabilities 5,561,907
---------
Long-term liabilities:
Deferred taxes 96,500
Minority interests 137,981
---------
Total long-term liabilities 234,481
----------
Commitments and contingencies (Notes 4 and 5)
Stockholders' equity (Notes 1 and 3):
Preferred stock; $.001 par value;
shares authorized - 5,000,000;
issued and outstanding - none
Common stock; $.001 par value;
shares authorized - 100,000,000;
issued and outstanding
- 3,482,107 shares 3,482
Contributed capital 1,836,981
Accumulated deficit (928,919)
Unearned compensation cost (24,500)
----------
Total stockholders' equity 887,044
----------
Total liabilities and
stockholders' equity $6,683,432
==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
98
<PAGE> 99
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues $ 5,496,964 $ 4,535,865
Cost of revenues 4,456,263 3,205,144
----------- -----------
Gross profit 1,040,701 1,330,721
----------- -----------
General and administrative expenses:
Salaries, payroll taxes and
employee benefits 304,981 560,908
Rent and premises 133,312 218,987
Travel and lodging 133,176 110,886
Depreciation and amortization 16,227 40,314
Foreign transaction losses 3,148 7,423
Consulting fees (Note 6) (274,581)
Miscellaneous 212,965 208,083
----------- -----------
Total general and
administrative expenses 803,809 1,421,182
----------- -----------
Operating income (loss) 236,892 (90,461)
----------- -----------
Other income (expense):
Interest expense and bank fees (19,565) (28,124)
Interest income 9,091 43,520
Miscellaneous income 70,841 8,099
----------- -----------
Total other income, net 60,367 23,495
----------- -----------
Income (loss) before income taxes
and minority interests 297,259 (66,966)
Provision (benefit) for income taxes 133,176 (31,000)
Minority interests (22,708) 5,942
----------- -----------
Net income (loss) $ 141,375 $ (30,024)
=========== ===========
</TABLE>
(continued)
99
<PAGE> 100
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1996 1997
------------- -----------
<S> <C> <C>
Net income (loss) per common share (Note 1):
Primary and fully diluted $ .05 $ (.01)
============ ===========
Weighted average number of common shares and
common share equivalents outstanding (Note 1):
Primary 3,025,000 3,467,630
============ =============
Fully diluted 3,066,155 3,547,339
============ =============
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
100
<PAGE> 101
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
--------------------- CONTRIBUTED ACCUMULATED COMPENSATION
SHARES AMOUNT CAPITAL DEFICIT COST
--------- ------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3,448,678 $ 3,449 $ 1,480,482 $ (898,895)
Sale of common stock 24,007 24 352,924
Costs associated with the sale
of common stock (45,416)
Issuance of common stock for
costs associated with the
sale of common stock 6,089 6 (6)
Issuance of restricted common
stock to employee 3,333 3 48,997 $ (49,000)
Amortization of unearned
compensation 24,500
Net loss for the six months
ended June 30, 1997 (30,024)
--------- ------- ----------- ----------- ------------
Balance at June 30, 1997 3,482,107 $ 3,482 $ 1,836,981 $ (928,919) $ (24,500)
========= ======= =========== =========== ============
</TABLE>
See accompanying notes to condensed
consolidated financial statements
101
<PAGE> 102
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 141,375 $ (30,024)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 84,977 109,063
Deferred income taxes (507,000) 509,500
Minority interests 13,752 (5,950)
Non-cash compensation expense 24,500
Note payable issued
for consulting fees 150,000
Interest accrued on notes payable 29,373 20,502
Changes in operating assets
and liabilities:
Accounts receivable, net (739,233) (6,340)
Costs and accumulated
gross profit in
excess of billings on
uncompleted contracts (733,243) 1,381,591
Prepaid expenses (642,251) (6,226)
Other current assets (19,093) 4,700
Deposits (20,151)
Accounts payable 119,497 917,287
Accrued expenses (76,397) (175,318)
Billings in excess of
costs and accumulated
gross profit on
uncompleted contracts 827,144 (3,941,169)
Deferred revenue 275,468 24,017
Taxes payable 662,000 (553,000)
----------- -----------
Total adjustments (725,157) (1,546,843)
----------- -----------
Net cash used
in operating
activities (583,782) (1,576,867)
----------- -----------
</TABLE>
(continued)
102
<PAGE> 103
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1997
------------ -----------
<S> <C>
Cash flows from investing activities:
Decrease in restricted cash $ $ 1,555,425
Acquisition of fixed assets (1,298) (34,771)
Organization costs (211)
------------ -----------
Net cash provided by
(used in) investing activities (1,509) 1,520,654
------------ -----------
Cash flows from financing activities:
Proceeds from demand note payable 575,603
Sale of common stock, net of related costs 307,532
(Advances to) repayments from stockholder
and related parties 501,971 (325,001)
Decrease in payable to stockholders (36,140) (182,513)
Deferred offering costs (90,387)
------------ -----------
Net cash provided by
(used in) financing
activities 1,041,434 (290,369)
------------ -----------
Net increase (decrease) in cash and
cash equivalents 456,143 (346,582)
Cash and cash equivalents, at
beginning of period 137,067 716,699
------------ ------------
Cash and cash equivalents, at
end of period $ 593,210 $ 370,117
============ ============
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
103
<PAGE> 104
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
1. Basis of Presentation
The accompanying condensed consolidated financial statements as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 are unaudited but,
in the opinion of management of the Company, contain all adjustments necessary
to present fairly the financial position at June 30, 1997, the results of
operations for the six months ended June 30, 1996 and 1997, and the changes in
cash flows for the six months ended June 30, 1996 and 1997. These adjustments
are of a normal recurring nature. The accompanying condensed consolidated
financial statements include the accounts of the Company and its direct
subsidiaries and joint ventures in which the Company has a controlling interest.
All intercompany accounts and transactions have been eliminated in
consolidation.
Certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although
management of the Company believes that the disclosures contained in these
financial statements are adequate to make the information presented therein not
misleading. For further information, refer to the Company's consolidated
financial statements and notes thereto for the years ended December 31, 1995 and
1996.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year ending December 31, 1997.
Net income (loss) per share for the six months ended June 30, 1996 and
1997 is based on the weighted average number of shares of common stock
outstanding for each respective period. For purposes of determining fully
diluted net income (loss) per share, the conversion of the demand note (see Note
2) into common stock equivalents was calculated using the average sales price of
the Company's common stock sold during the six months ended June 30, 1997, and
the conversion of the note payable issued for a consulting fee into common stock
equivalents was calculated at the estimated offering price.
All common share and per share amounts have been restated for all
periods presented to reflect a one-for-three reverse stock split effective
October 17, 1997.
2. Notes Payable
During 1996, Brighton Electronics Corporation Limited, a Hong Kong-based
subsidiary of the Company, entered into a convertible demand note agreement with
a third party, with interest at 5% per annum. The note is convertible into
common stock of the Company at prevailing market values. The note, including
accrued interest, had a balance of $635,603 at June 30, 1997.
On February 25, 1997, the Company entered into a consulting firm for
business advisory services. Pursuant to that agreement, the Company paid the
consulting firm $25,000 and issued a one-year note for $150,000 for services
rendered. This amount has been charged to operations in the six month period
ended June 30, 1997. The note is unsecured, bears interest at 10% per annum,
with interest to accrue until the due date of February 25, 1998. Thereafter,
such note will become payable upon demand, with interest at 12% per annum.
If the Company does not complete a debt or equity financing by February
25, 1998, then the Company will have the option of converting the note,
including accrued interest, into its common stock, with
104
<PAGE> 105
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
the value of such common shares to be calculated at 75% of the market price on
such date. The maximum number of common shares that the Company will be required
to reserve and issue as full settlement for the note, including accrued
interest, will be 75,000 shares. Such shares, if issued, will be restricted and
will have piggyback registration rights.
If the Company completes a private financing by February 25, 1998, then
the noteholder will have the option of converting the note, including accrued
interest, into the same debt or equity instrument issued in connection with such
private financing. If the Company completes a secondary public offering by
February 25, 1998, the noteholder will have the option of converting the balance
of the note, including accrued interest, into the same securities issued in
connection with the secondary public offering at the offering price. Such
securities, if issued, will be restricted and will have piggyback registration
rights. In addition, the noteholder will have the right to elect one member of
the Company's board of directors.
3. Stockholders' Equity
Transactions affecting the Company's capital structure during the six
months ended June 30, 1997 consisted of the following:
a. The Company sold 24,007 shares of common stock for proceeds
of $352,948, and incurred related costs of $134,920 of which $45,416 was paid in
cash (including $11,931 to an affiliate of a director) and $89,504 was paid by
the issuance of 6,089 shares of common stock to various individuals and firms
for services rendered in connection therewith. The 6,089 shares of common stock
were recorded as a charge to contributed capital at par value. The values
ascribed to such shares were based on the sales price of the Company's common
stock sold in comparable periods.
b. The Company granted 3,333 shares of restricted common stock
to an employee. The aggregate value of the shares of $49,000 was recorded as a
reduction to stockholders' equity as deferred compensation cost and is being
amortized, as earned, during the year ending December 31, 1997. At June 30,
1997, the balance of unearned compensation cost was $24,500.
4. Contractual Obligations
The Company is in the process of renegotiating the terms of certain
aspects of technological licensing arrangements that it entered into in
conjunction with its contract with China National. The contractual value of
services currently under negotiation is approximately $450,000. The inability of
the Company to fulfill contractual terms of long-term projects or to negotiate
favorable arrangements on the use or distribution of licensed technology may
have a material adverse effect on the Company's consolidated financial
statements.
105
<PAGE> 106
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
5. Deferred Offering Costs
Deferred offering costs aggregating $90,387 at June 30, 1997 represent
certain legal, accounting and underwriter costs incurred in connection with the
contemplated public sale of the Company's securities (see Note 8). These costs
have been capitalized and will be charged to stockholders' equity upon
successful completion of the offering or charged to operations if the offering
is not completed.
6. Consulting Fees
Consulting fees aggregating $274,581 were charged to operations during
the six months ended June 30, 1997 for certain professional, consulting and
other costs incurred in connection with the Company's ongoing business
development activities. Of such amount, $15,873 was paid to an affiliate of a
director during the six months ended June 30, 1997 and $175,000 was incurred
pursuant to an agreement with a consulting firm (see Note 2).
7. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements, the Company will be required to present "basic" earnings per share
and "diluted" earnings per share. Basic earnings per share does not include the
dilutive effect of stock options and warrants. The Company does not expect that
adoption of this statement will have a material effect on reported earnings per
share.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 129, "Disclosure of Information about Capital Structure," which is
effective for financial statements issued for periods ending after December 15,
1997. The new standard reinstates various disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by this statement. The Company does not expect that adoption of this
statement will have a material effect on its current disclosures and
presentation.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income," which is effective for financial
statements issued for periods ending after December 15, 1997. Earlier
application is permitted. This statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income refers to revenues,
expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income but are excluded from net income. The
Company does not expect that adoption of this statement will have a material
effect on its current disclosures and presentation.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for financial statements issued for periods ending after
December 15, 1997. This statement discusses how to report operating segments and
certain information about a public company's products and services, the
geographic areas in which it operates, and its major customers. The Company does
not expect that adoption of this statement will have a material effect on its
current disclosures and presentation.
106
<PAGE> 107
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
8. Public Offering
a. On May 7, 1997, the Company entered into a Letter of Intent
agreement with an underwriter ("Representative"), as representative of certain
underwriters ("Underwriters"), to act as managing underwriter in a firm
commitment underwriting for a proposed offering ("Offering") and sale to the
public of 1,250,000 units ("Units") of the Company's securities at an offering
price ranging from $_______ to $_______ per Unit.
Each Unit consists of one share of common stock and one redeemable
common stock purchase warrant ("Warrant") of the Company. Each Warrant entitles
the holder to purchase one share of common stock for 120% of the offering price
per Unit, subject to adjustment in certain circumstances, at any time commencing
on _________________, 1998 until ________________, 2003, unless earlier
redeemed.
The Company has granted to the Underwriters an option, exercisable for
45 days from the date of the Offering, to purchase up to 187,500 additional
Units at the Unit offering price, less the underwriting discounts and the
nonaccountable allowance, for the sole purpose of covering over-allotments, if
any.
In connection with the Offering, the Company has agreed to sell to the
Representative and its designees, for a nominal consideration, an option ("Unit
Purchase Option") to purchase up to 125,000 Units. The Unit Purchase Option is
exercisable initially at 120% of the Offering price per Unit for a period of
five years commencing on the effectiveness of the Offering.
9. Subsequent Events
a. In July 1997, the Company issued 1,500 shares of common
stock with an aggregate value of $17,438 to a consultant for services rendered.
b. Effective September 13, 1997, the Company entered into a
letter of agreement with a public relations firm to provide corporate and
investor relations for a period of six months. In conjunction therewith, the
Company issued the public relations firm a stock option to purchase 8,333 shares
of common stock with an exercise price of $7.50 per share, which was the fair
market value on the date of grant.
c. Effective October 1, 1997, the Company entered into a
consulting agreement with a firm to provide certain business development
services in exchange for 11,667 shares of Common Stock, which were issued on
November 3, 1997.
105
<PAGE> 108
<TABLE>
<CAPTION>
============================================================================ ==================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in
this Prospectus in connection with the offer made by this Prospectus. If 1,250,000 Units
given or made, such information or representations must not be relied upon
as having been authorized by the Company or the Underwriters. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof. This Prospectus does not [LOGO]
constitute an offer to, or solicitation of, anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone BRIGHTON
to whom it is unlawful to make such offer or solicitation. TECHNOLOGIES
CORPORATION
--------------------
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary............................
Risk Factors..................................
Use of Proceeds...............................
Market Price for Common Stock.................
Dividend Policy...............................
Dilution......................................
Capitalization................................ Units
Management's Discussion and Analysis
or Plan of Operations....................
Industry Overview.............................
Business Development..........................
Business......................................
Management....................................
Certain Transactions.......................... ----------
Principal Stockholders........................ PROSPECTUS
Description of Securities..................... ----------
Shares Eligible for Future Sale...............
Underwriting..................................
Legal Matters.................................
Experts.......................................
Additional Information........................
Index to Financial Statements.................
--------------------
Until __________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities offered
hereby, whether or not participating in the Offering, may be required to
deliver a prospectus. This is in addition to the obligation of dealers ________________, 1997
to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
============================================================================ ===================================================
</TABLE>
<PAGE> 109
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation includes provisions
which limit the liability of its directors. As permitted by applicable
provisions of the Delaware Law, directors will not be liable to the Company for
monetary damages arising from a breach of their fiduciary duty as directors in
certain circumstances. This limitation does not affect liability for any breach
of a director's duty to the Company or its stockholders (i) with respect to
approval by the director of any transaction from which he or she derives an
improper personal benefit, (ii) with respect to acts or omissions involving an
absence of good faith, that the director believes to be contrary to the best
interests of the Company or its stockholders, that involve intentional
misconduct or a knowing and culpable violation of law, that constitute an
unexcused pattern or inattention that amounts to an abdication of his or her
duty to the Company or its stockholders, or that show a reckless disregard for
duty to the Company or its stockholders in circumstances in which he or she was,
or should have been aware, in the ordinary course of performing his or her
duties, of a risk of serious injury to the Company or its stockholders, or (iii)
based on transactions between the Company and its directors or another
corporation with interrelated directors or based on improper distributions,
loans or guarantees under applicable sections of Delaware Law. This limitation
of directors' liability also does not affect the available of equitable
remedies, such as injunctive relief or rescission.
The Company has been advised that it is the position of the Commission
that insofar as the provision in the Company's Restated Certificate of
Incorporation may be invoked for liabilities arising under the Securities Act,
the provision is against public policy and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses for the issuance and distribution of the Units
registered hereby, other than underwriting commissions, fees and
Representative's nonaccountable expense allowance are set forth in the following
table:
ITEM AMOUNT
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $______
NASD Filing Fee........................................................... ______
Nasdaq SmallCap Market Filing Fee......................................... ______
Blue Sky Fees and Expenses................................................ ______
Transfer Agent Fees....................................................... ______
Legal Fees................................................................ ______
Accounting Fees........................................................... ______
Printing and Engraving Costs.............................................. ______
Miscellaneous............................................................. ______
Total............................................................ $
======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following is information for all securities that the Company
has sold within the past three years without registering the securities under
the Securities Act (all share information reflect the 1 for 3 reverse stock
split effective October 17, 1997):
II-1
<PAGE> 110
1. On November 28, 1995, the Company issued an aggregate
of 186,667 share of common stock to 24 investors. The offering was done as a
private placement pursuant to Rule 505 of Regulation D.
2. On November 30, 1995, the Company issued an aggregate
of 16,667 shares of common stock to two investors, the offering was done as a
private placement pursuant to Rule 504 of Regulation D.
3. On October 1, 1996, the Company issued an aggregate of
300,001 shares of common stock to eight investors. The offering was done as a
private placement pursuant to Rule 504 of Regulation D for a total offering
price of $60,000.
4. On October 22, 1996, the Company issued an aggregate of
2,833,333 shares of common stock to Mr. Kit Kung and 166,667 shares to Ms. Hong
Yun in connection with the Reverse Acquisition. The shares were issued pursuant
to Section 4(2) of the Securities Act.
5. On October 22, 1996, the Company issued an aggregate of
25,000 shares of common stock to a consultant for the Company in connection with
the Reverse Acquisition. The Shares were issued pursuant to Section 4(2) of the
Securities Act.
6. On November 27, 1996, the Company issued an aggregate
of 33,333 shares of common stock. The offering was done as a private placement
pursuant to Rule 504 of Regulation D for an aggregate offering price of
$500,000.
7. On March 5, 1997, the Company issued an aggregate of
9,422 shares of common stock to five consultants or employees of the Company for
services rendered. The shares were issued pursuant to Section 4(2) of the
Securities Act.
8. From March 5 through April 28, 1997, the Company issued
an aggregate of 24,007 shares of common stock to twelve investors for an
aggregate purchase price of $352,948. The offering was done as a private
placement pursuant to Rule 504 of Regulation D.
9. In July 1997, the Company issued 1,500 shares of common
stock, with an aggregate value of $17,438 to a consultant for services rendered.
10. On November 3, 1997, the Company issued 11,667
shares of common stock to a consultant, for services to be rendered, of which
10,000 shares were issued pursuant to Rule 504 of the Securities Act and 1,667
shares were issued pursuant to Rule 701 of the Securities Act.
II-2
<PAGE> 111
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Title
<S> <C>
1.1 Form of Underwriting Agreement*
2.1 Acquisition Agreement with BIC, BECL, Kit Kung and Hung Yun
3.1 Certificate of Incorporation as filed with the Delaware Secretary of
State
3.2 Certificate of Correction of Certificate of Incorporation, as filed
with the Delaware Secretary of State on January 17, 1989
3.3 Articles of Amendment to the Articles of Incorporation, as filed with
the Delaware Secretary of State on October 31, 1995
3.4 Certificate of Amendment to Certificate of Incorporation, as filed with
the Delaware Secretary of State on October 28, 1996.
3.5 Certificate of Amendment to Certificate of Incorporation, as filed with
the Delaware Secretary of State on October 10, 1997.
3.6 By-laws
4.1 Form of Common Stock Certificate*
4.2 Form of Representative's Warrant Agreement (including form of
Representative's Warrants)*
4.3 Form of Redeemable Warrant Agreement*
5.1 Opinion of Loeb & Loeb LLP*
10.1 Lease Agreement (Allendale - The Company's and BIC's facilities)
10.2 Lease Agreement (Hong Kong -- BECL's and its subsidiaries' facilities)
10.3 Lease Agreement Summary (Beijing)
10.4 Lease Agreement Summary (Beijing)
10.5 Lease Agreement Summary (Shanghai)
10.6 Lease Agreement Summary (Shenzhen)
10.7 Lease Agreement Summary (Wuhan)
10.8 Agreement with China National
10.9 Agreement with AlliedSignal
10.10 Agreement with Huazheng for establishment of Brighton-STAQ
10.11 Form of Lock-Up Agreement*
21.1 Subsidiaries of Registrant
23.1 Consent of BDO Seidman, LLP,
Independent Certified Public Accountants
23.2 Consent of Russo & Shapiro, Independent Certified Public Accountants
23.3 Consent of Francis S.L. Yan & Co., Independent Certified Public
Accountants
23.4 Consent of Loeb & Loeb LLP (included in the opinion to be filed as
Exhibit 5.1)*
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
- --------------------
</TABLE>
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
II-3
<PAGE> 112
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement.
(2) To provide to the Underwriters at the closing specified
in the Underwriting Agreement (filed herewith as Exhibit 1.1) certificates in
such denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described above in Item 24,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction of the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the
Securities Act, to treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
(5) For the purpose of determining any liability under the
Securities Act, to treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and the offering of such securities at that time as the
initial bona fide offering of those securities.
II-4
<PAGE> 113
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement or amendment thereto to be signed on its behalf by the
undersigned in the City of Allendale, State of New Jersey, on the ____ day of
November, 1997.
BRIGHTON TECHNOLOGIES CORPORATION
By: /s/ KIT KUNG
---------------------------------------
Kit Kung
Chairman, President and Chief
Executive Officer
II-5
<PAGE> 114
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kit Kung, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, grant unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date stated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ KIT KUNG President, Chief Executive November 12, 1997
- -------------------------- Officer and Chairman of
Kit Kung the Board of Directors
(Principal Executive Officer)
/s/ NILS OLLQUIST Vice President and Director November 12, 1997
- --------------------------
Nils Ollquist
/s/ WARREN WANG Secretary and Chief November 12, 1997
- -------------------------- Accounting Officer
Warren Wang
/s/ ROBERT H. WEINGARTEN Chief Financial Officer November 12, 1997
- --------------------------
Robert H. Weingarten
/s/ HONG YUN Director November 12, 1997
- --------------------------
Hong Yun
/s/ MICHAEL MULDAVIN Director November 12, 1997
- --------------------------
Michael Muldavin
</TABLE>
II-6
<PAGE> 1
EXHIBIT 2.1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "Agreement") is dated as of October
__, 1996, by and between Zentex Corporation, a Delaware corporation (the
"Company"), and Yarek Bartosz ("Bartosz"), on the one hand; and The Brighton
Industries Corporation, a Delaware corporation, and Brighton Electronics
Corporation, Ltd., a Hong Kong corporation (collectively, the "Brighton
Group"), and Kit Kung and Hong Yun, as all the shareholders of the Brighton
Group (collectively the "Brighton Shareholders"), on the other hand.
RECITALS
WHEREAS, the Brighton Shareholders own all of the issued and
outstanding capital stock of the Brighton Group (the "Brighton Shares");
WHEREAS, the Company desires to acquire all of the Brighton Shares
(the "Acquisition"), and the Brighton Shareholders desire to exchange all of
the Brighton Shares for new shares in the Company on the terms and conditions
set forth herein;
WHEREAS, the Company is presently engaged in a private placement (the
"Private Placement") pursuant to the sale to accredited investors of an
aggregate of 100,000 shares of its Common Stock (the "Private Placement
Shares") for $500,000 (the "Private Placement Purchase Price");
WHEREAS, the parties' interest in consummating the Acquisition is
conditioned in part upon the Brighton Shareholders' approval of the
divestiture, immediately after consummation of the Acquisition, of the
Company's current business assets and operations in exchange for the assumption
of all liabilities and indemnification coverage, in accordance with the terms
and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and in reliance upon the representation and
warranties hereinafter set forth, the parties agree as follows:
1. EXCHANGE OF THE SHARES AND CONSIDERATION
1.1. SHARES BEING EXCHANGED. Effective at the closing of this
Agreement (the "Closing"), and subject to the terms and conditions of this
Agreement, the Brighton Shareholders shall assign, transfer and deliver to the
Company all of the Brighton Shares.
<PAGE> 2
1.2. CONSIDERATION. Subject to the terms and conditions of this
Agreement, and in consideration of the assignment and delivery of the Brighton
Shares to the Company, the Company shall at Closing issue to the Brighton
Shareholders and/or their designees as set forth on Schedule 1.2, 27,000,000
shares of the Common Stock of the Company (the "Company Shares") which shall
represent 87.625% of all issued and outstanding stock in the Company on a fully
diluted basis and the issuance of the Company Shares, the Private Placement
Shares and all consultant and other shares to be issued on behalf of the
Company in connection with the Acquisition.
1.3. CLOSING. The Closing of the Acquisition and other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Loeb & Loeb LLP, 1000 Wilshire Blvd., Los Angeles, CA 90017, or
other such place as mutually agreed upon, on or before October 21, 1996.
1.4. METHOD OF CLOSING. The method of closing shall require the
parties to satisfy the conditions specified in Section 6.
2. REPRESENTATIONS AND WARRANTIES OF THE BRIGHTON GROUP AND THE
BRIGHTON SHAREHOLDERS
2.1. ORGANIZATION. The Brighton Industries Corporation ("BIC") is
a corporation duly organized, validly existing, and in good standing under the
laws of Delaware. Brighton Electronics Corporation Ltd. ("BEC") is a
corporation duly organized, validly existing, and in good standing under the
laws of Hong Kong. Each of BIC and BEC and their consolidated subsidiaries
have the corporate power and authority to carry on their business as presently
conducted; and each of BIC and BEC and their consolidated subsidiaries are
qualified to do business in all jurisdictions where the failure to be so
qualified would have a material adverse effect on their business.
2.2. CAPITALIZATION.
(a) All of the issued and outstanding shares of each of
BIC and BEC are duly authorized, validly issued, fully paid and nonassessable.
The Brighton Shares being transferred to the Company pursuant to Section 1.1
hereof constitute all of the issued and outstanding capital stock of all
classes of each of BIC and BEC, are free from any claims, liens or other
encumbrances, and the Brighton Shareholders are the sole owners thereof, have
good title thereto, and the unqualified right to transfer and dispose of such
shares.
(b) There are no outstanding options, warrants, or rights
to purchase any securities of BIC and BEC.
2
<PAGE> 3
2.3. SUBSIDIARIES AND INVESTMENTS. Except as set forth in Schedule
2.3, the Brighton Group does not own any capital stock or have any interest in
any corporation, partnership, or other form of business organization.
2.4. FINANCIAL STATEMENTS. The Brighton Group has provided
financial statements for each of BEC and BIC consisting of (a) an unaudited
consolidated Balance Sheet as of June 30, 1996 and consolidated Statement of
Income for BEC for the six months ended June 30, 1996, as reviewed by BDO
Binder, Hong Kong, and (b) an unaudited Balance Sheet as of June 30, 1996 and
Statements of Retained Earnings, Income and Cash Flows for the six months ended
June 30, 1996 for BIC (collectively, the "Brighton Group Financial Statements")
The Brighton Group Financial Statements (a) were prepared in accordance with
the books and records of the Brighton Group and its consolidated subsidiaries;
(b) were prepared in accordance with generally accepted accounting principles
consistently applied; (c) are accurate and fairly present the financial
condition and the results of operations as of the relevant date thereof and for
the entities and period covered thereby; (d) contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
the results of operations for the entities and period covered by said financial
statements; and (e) contain and reflect adequate provisions for all reasonably
anticipated liabilities with respect to the period then ended.
2.5. ABSENCE OF MATERIAL CHANGES. Except as disclosed in writing
to the Company, since June 30, 1996, there has not been any material adverse
change in the condition (financial or otherwise) of the properties, assets,
liabilities or business of the Brighton Group or its consolidated subsidiaries,
except changes in the ordinary course of business which, individually and in
the aggregate, have not been materially adverse.
2.6. LITIGATION. There is no litigation, proceeding, or
investigation pending or threatened against the Brighton Group or its
consolidated subsidiaries affecting any of their properties or assets, or
against any officer, director, or stockholder, or consultant of the Brighton
Group or its consolidated subsidiaries that might result, either in any case or
in the aggregate, in any material adverse change in the business, operations,
affairs, or financial condition of the Brighton Group or its consolidated
subsidiaries or their properties or assets, or that might call into question
the validity of this Agreement, or any action taken or to be taken pursuant
hereto.
2.7. TITLE TO ASSETS. The Brighton Group and its consolidated
subsidiaries have good and marketable title to all of the assets and properties
now carried on their books as disclosed in their financial statements, free and
clear of all liens, claims, charges, security interests or other encumbrances,
except as described in their financial statements.
2.8. CONTRACTS AND UNDERTAKINGS. The Brighton Group and its
consolidated subsidiaries have no contracts, agreements, leases, licenses,
arrangements, commitments
3
<PAGE> 4
and other undertakings (collectively "Contracts") to which any of them is a
party or to which they or their property are subject, with respect to which
they are in material default, or alleged to be in material default, and, to the
knowledge of the Brighton Shareholders, no other party to any Contract to which
the Brighton Group or its consolidated subsidiaries are a party is in default
thereunder nor, to the knowledge of the Brighton Shareholders, does there exist
any condition or event which, after notice or lapse of time or both, would
constitute a default by any party to any such Contract.
2.9. TRANSACTIONS WITH AFFILIATES, DIRECTORS AND SHAREHOLDERS.
There are no contracts, agreements, arrangements or other transactions between
the Brighton Group or any of its consolidated subsidiaries and any officer,
director, or 5% stockholder thereof, or any corporation or other entity
controlled by any such officer, director of 5% stockholder, a member of any
such officer, director of 5% stockholder's family, or any affiliate of any such
officer, director or 5% stockholder.
2.10. NO CONFLICT. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not conflict with
or result in a breach of any term or provision of, or constitute a default
under, the charter documents of the Brighton Group or any agreement, contract
or instrument to which the Brighton Group is a party or by which it or any of
its assets are bound.
2.11. AUTHORITY. The Brighton Group and the Brighton Shareholders
have full power and authority to enter into this Agreement and to carry out the
transactions contemplated herein. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, have been duly
authorized and approved by The Brighton Group and no other corporate
proceedings on the part of The Brighton Group are necessary to authorize this
Agreement and the transactions contemplated hereby.
2.12. SECURITIES LAWS. The Brighton Shareholders understand that
the Company Shares are not being registered under the Securities Act of 1933,
as amended (the "Securities Act"), on the ground that the offer and sale of the
Company Shares are believed to be exempt from the registration provisions of
Section 5 of the Securities Act pursuant to Section 4(2) thereof, as
transactions by an issuer not involving any public offering, and/or may be
deemed not to involve an offer or sale within the meaning of Section 5 of the
Securities Act pursuant to Regulation S promulgated thereunder for offers and
sales of securities that occur outside the United States, and that the Company
Shares may not be offered or sold in any transaction subject to Section 5 of
the Securities Act unless registered or an exemption from registration is
available for such offer or sale, and that the certificates representing the
Company Shares will bear a legend to that effect, substantially in the form set
forth on Schedule A.
4
<PAGE> 5
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND BARTOSZ
The Company and Bartosz hereby represent and warrant to the Brighton
Group and the Brighton Shareholders as follows:
3.1. ORGANIZATION
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, has the
corporate power and authority to carry on its business as presently conducted,
and is qualified to do business in all jurisdictions where the failure to be so
qualified would have a material adverse effect on the business of the Company.
(b) The copies of the Certificate of Incorporation of the
Company, as certified by the Secretary of State of Delaware, and the Bylaws of
the Company heretofore furnished to the Brighton Shareholders are complete and
correct copies of the Certificate of Incorporation and the Bylaws of the
Company as amended and in effect on the date hereof. All minutes of meetings
and actions in writing without a meeting of the Board of Directors and
stockholders of the Company are contained in the minute book of the Company and
no minutes or actions in writing without a meeting have been excluded in such
minute book.
3.2. CAPITALIZATION OF THE COMPANY. The authorized capital stock
of the Company consists of 100,000,000 shares of Common Stock, par value $0.001
per share, of which 3,513,000 are presently, and will be at the Closing,
outstanding exclusive only of the issuance of the Private Placement Shares but
prior to issuance of Company Shares; and 5,000,000 shares of Preferred Stock,
par value $0.001 per share, none of which is outstanding. All outstanding
shares are duly authorized, validly issued, fully paid and non-assessable, and,
at the Closing, the Company Shares will be duly authorized, validly issued,
fully paid and non-assessable. Except for such outstanding Shares, there are
no outstanding shares of capital stock or other securities or other equity
interests of the Company or rights of any kind to acquire such stock, other
securities or other equity interests. There are no outstanding agreements
which impose an obligation to file a registration statement or register any of
the capital stock of the Company.
3.3. AUTHORITY. The Company has full power and authority to enter
into this Agreement and to carry out the transactions contemplated herein. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby, and the issuance of the Company Shares in accordance with
the terms hereof, have been duly authorized and approved by the Board of
Directors of the Company and no other
5
<PAGE> 6
corporate proceedings on the part of Company are necessary to authorize this
Agreement, the transactions contemplated hereby and the issuance of the Company
Shares in accordance with the terms hereof.
3.4. NO LIABILITIES. The Company on a consolidated basis is not
subject to any liability, debt or obligation of any nature, whether absolute,
accrued, contingent, or otherwise and whether due or to become due.
3.5. LITIGATION. There is no litigation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company affecting any of its properties or assets, or, to the knowledge of
the Company, against any officer, director, or stockholder of the Company that
might result, either in any case or in the aggregate, in any material adverse
change in the business, operations, affairs or condition of the Company or any
of its properties or assets, or that might call into question the validity of
this Agreement, or any action taken or to be taken pursuant hereto.
3.6. TITLE TO ASSETS. The Company has good and marketable title to
all of its assets and properties now carried on its books including those
reflected in the balance sheet contained in the Company's financial statements,
free and clear of all liens, claims, charges, security interests or other
encumbrances, except as described in the balance sheet included in the
Company's financial statements or on any Exhibits attached hereto. As of the
Closing, the only assets of the Company are set forth on Exhibit 3.6, which
assets will be disposed of pursuant to Section 6.1(c).
3.7. CONTRACTS AND UNDERTAKINGS. The Company has no contracts,
agreements, leases, licenses, arrangements, commitments and other undertakings
(collectively "Contracts") to which the Company or any such subsidiary is a
party or by which it or its property is bound other than what is described in
Exhibit 3.7, all of which will be assigned to a third party pursuant to Section
6.1(c). The Company is not in material default, or alleged to be in material
default, under any Contract and, to the knowledge of the Company, no other
party to any Contract to which the Company is a party is in default thereunder
nor, to the knowledge of the Company, does there exist any condition or event
which, after notice or lapse of time or both, would constitute a default by any
party to any such Contract.
3.8. TRANSACTIONS WITH AFFILIATES, DIRECTORS AND SHAREHOLDERS.
Except as set forth on Exhibit 3.8 there are no contracts, agreements,
arrangements or other transactions between the Company and any officer,
director, or 5% stockholder, a member of any such officer, director or 5%
stockholder's family, or any affiliate of any such officer, director of 5%
stockholder.
3.9. NO CONFLICT. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not conflict with
or result in
6
<PAGE> 7
a breach of any term or provision of, or constitute a default under, the
Certificate of Incorporation or Bylaws of the Company, or any agreement,
contract or instrument to which the Company is a party or by which it or any of
its assets are bound.
3.10. DISCLOSURE. Neither this Agreement nor any other agreement,
document, certificate or written or oral statement furnished to the Brighton
Group by or on behalf of the Company in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or when
taken as a whole omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
3.11. FINANCIAL STATEMENTS. The audited consolidated Balance Sheet
of the Company as of December 31, 1995 and the consolidated Statements of
Income and Cash Flows for the year ended December 31, 1995 (the "Company
Financial Statements") (a) were prepared in accordance with the books and
records of the Company; (b) were prepared in accordance with generally accepted
accounting principles consistently applied; (c) are accurate and fairly present
the Company's financial condition and the results of its operations as of the
relevant date thereof and for the period covered thereby; (d) contain and
reflect all necessary adjustments and accruals for a fair presentation of the
Company's financial condition and the results of its operations for the period
covered by said Financial Statements; and (e) contain and reflect adequate
provisions for all reasonably anticipated liabilities with respect to the
period then ended.
3.12. ABSENCE OF MATERIAL CHANGES. Since December 31, 1995, there
has not been:
(a) any material change in the condition (financial or
otherwise) of the properties, assets, liabilities or business of Company,
except changes in the ordinary course of business which, individually and in
the aggregate, have not been materially adverse.
(b) any undisclosed redemption, purchase or other
acquisition of any shares of the capital stock of Company, or any issuance of
any shares of capital stock or the granting, issuance or execution of any
rights, warrants, options or commitments by the Company relating to their
authorized or issued capital stock.
3.13. COMPLIANCE WITH LAW. The Company has in all material respects
complied with and it is now in all material respects in compliance with, all
Federal, State and Canadian laws applicable to the Company. The Company Shares
will be issued in full compliance with all state and federal securities laws.
3.14. SUBSIDIARIES AND INVESTMENTS. The Company does not own any
capital stock or have any interest in any corporation, partnership or other
form of business organization, other than its interests as described in the
recitals.
7
<PAGE> 8
4. COVENANTS AND AGREEMENTS OF THE PARTIES EFFECTIVE PRIOR TO CLOSING
4.1. CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to the
Closing, each party shall be entitled, through its employees and
representatives, to make such investigations and examinations of the books,
records and financial condition of the Company or The Brighton Group as each
party may request. In order that each party may have the full opportunity to
do so, the Company and the Brighton Group shall furnish each party and its
representatives during such period with all such information concerning the
affairs of the Company or the Brighton Group and its consolidated subsidiaries
as each party or its representatives may reasonably request and cause the
Company's or the Brighton Group and its consolidated subsidiaries' officers,
employee, consultants, agents, accountants and attorneys to cooperate fully
with each party's representatives in connection with such review and
examination and to make full disclosure of all information and documents
requested by each party and/or its representatives. Any such investigations
and examinations shall be conducted at reasonable times and under reasonable
circumstances, it being agreed that any examination or original documents will
be at each party's premises, with copies thereof to be provided to each party
and/or its representatives upon request.
4.2. COOPERATION; CONSENTS. Prior to the Closing, each party shall
cooperate with the other parties to the end that the parties shall (i) in a
timely manner make all necessary filings with, and conduct negotiations with,
all authorities and other persons the consent or approval of which, or the
license or permit from which is required for the consummation of the
transactions contemplated by this Agreement and (ii) provide to each other
party such information as the other party may reasonably request in order to
enable it to prepare such filings and to conduct such negotiations.
4.3. CONDUCT OF BUSINESS. From the date hereof through the
Closing, each party shall (i) conduct its business in the ordinary course and
in such a manner so that the representations and warranties contained herein
shall continue to be true and correct as of the Closing as if made at and as of
the Closing and (ii) not enter into any transaction not envisioned or required
by this transaction, or incur any liability, without first obtaining the
written consent of each party. Without the prior written consent of the
Company or any Brighton Shareholder, except as expressly set forth herein, each
party shall not undertake or fail to undertake any action if such action or
failure would render any of said warranties and representations untrue as of
the Closing.
4.4. LITIGATION. From the date hereof through the Closing, each
party hereto shall promptly notify the other parties of any lawsuits, claims,
proceedings or investigations which after the date hereof are threatened or
commenced against such party or any of its affiliates or any officer, director,
employee, consultant, agent or shareholder thereof, in their capacities as
such, which, if decided adversely, could reasonably be
8
<PAGE> 9
expected to have a material adverse effect upon the condition (financial or
otherwise), assets, liabilities, business, operations or prospects of such
party of any of its subsidiaries.
4.5. NOTICE OF DEFAULT. From the date hereof through the Closing,
each party hereto shall give to the other parties prompt written notice of the
occurrence or existence of any event, condition or circumstance occurring which
would constitute a violation or breach of this Agreement by such party of which
would render inaccurate in any material respect any of such party's
representations or warranties herein.
4.6. PRIVATE PLACEMENT. Each of the parties shall cooperate and
use their best efforts to complete the Private Placement which shall close
immediately after the Closing. The Private Placement shall be effected through
an escrow with Loeb & Loeb LLP, Los Angeles, California.
5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and covenants of the parties hereto
contained herein shall survive the consummation of the transactions
contemplated herein and remain in full force and effect.
6. CONDITIONS TO CLOSING
6.1. CONDITIONS TO OBLIGATION OF THE BRIGHTON GROUP AND THE
BRIGHTON SHAREHOLDERS. The obligations of the Brighton Group and the Brighton
Shareholders under this Agreement shall be subject to each of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES OF COMPANY TO BE TRUE.
The representations and warranties of the Company herein contained shall be
true in all material respects at the Closing with the same effect as though
made at such time. The Company shall have performed in all material respect
all obligations and complied in all material respects, to its actual knowledge,
with all covenants and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing.
(b) NO LEGAL PROCEEDINGS. No injunction or restraining
order shall be in effect prohibiting this Agreement, and no action or
proceeding shall have been instituted and, at what would otherwise have been
the Closing, remain pending before the court to restrain or prohibit the
transactions contemplated by this Agreement.
(c) STATUTORY REQUIREMENTS. All statutory requirements
for the valid consummation by the Company of the transactions contemplated by
this Agreement shall have been fulfilled. All authorizations, consents and
approvals of all governments and other persons required to be obtained in order
to permit consummation by the Company of the transactions contemplated by this
Agreement shall have been obtained.
9
<PAGE> 10
(d) DIRECTOR RESIGNATION. Prior to the Closing, all of
the directors and officers of the Company shall have submitted their contingent
resignations to Loeb & Loeb to be held in escrow and to become effective at the
Closing. All resignations shall contain a statement that each of the directors
and officers has no claim whatsoever against the Company. Before the
resignations take effect, the resigning directors shall appoint the persons
nominated by the Brighton Shareholders to become new directors of the Company.
(e) ASSET TRANSFER AND ASSUMPTION OF LIABILITIES. The
Brighton Shareholders and the persons nominated by them to become new directors
of the Company, in their capacities as new management and controlling
shareholders of the Company, acting for and on behalf of the Company, shall
have reached an agreement with Bartosz and Stajen Warness as transferee, and
shall have approved on behalf of the Company the terms of such agreement with
such transferee, to cause the Company to sell and transfer to such transferee
and such transferee shall have agreed to purchase and assume, immediately upon
consummation of the Acquisition, all of the operating assets of the Company and
all of the liabilities of the Company existing immediately prior to the
Acquisition, including but not limited to all costs as described in clause 7.2
of this Agreement. Such transfer and assumption shall take place immediately
following the transfer to the Company of the Brighton Shares. In connection
with the foregoing, all affiliates and/or related parties shall have released
the Company from any obligations or liability existing as of the Closing.
(f) INDEMNIFICATION. Bartosz shall have agreed to
indemnify and hold the Company harmless with respect to all the liabilities of
the Company existing immediately prior to the Acquisition which are being
assumed by Bartosz and Stajen Warness to paragraph (e).
(g) PRIVATE PLACEMENT. The Private Placement Purchase
Price shall have been deposited into escrow so that the Private Placement can
close immediately after the Closing.
6.2. CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of the
Company under this Agreement shall be subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF THE BRIGHTON GROUP
AND THE BRIGHTON SHAREHOLDERS TO BE TRUE. The representations and warranties
of The Brighton Group and the Brighton Shareholders herein contained shall be
true in all material respects as of the Closing and shall have the same effect
as though made at the Closing; The Brighton Group and the Brighton Shareholders
shall have performed in all material respects all obligations and complied in
all material respects, with all covenants and conditions required by this
Agreement to be performed or complied with by them prior to the Closing.
10
<PAGE> 11
(b) NO LEGAL PROCEEDINGS. No injunction or restraining
order shall be in effect, and no action or proceeding shall have been
instituted and, at what would otherwise have been the Closing, remain pending
before the court to restrain or prohibit the transactions contemplated by this
Agreement.
(c) STATUTORY REQUIREMENTS. All statutory requirements
for the valid consummation by the Brighton Group and the Brighton Shareholders
of the transactions contemplated by this Agreement shall have been fulfilled.
All authorization, consents and approvals of all governments and other persons
required to be obtained in order to permit consummation by the Brighton Group
and the Brighton Shareholders of the transactions contemplated by this
Agreement shall have been obtained.
7. MISCELLANEOUS
7.1. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each of the parties will execute and
deliver to the others such documents and take such action as the other party
may reasonably request in order to consummate more effectively the transactions
contemplated hereby.
7.2. EXPENSES OF SALE. Except as otherwise provided herein, each
party shall bear its own direct and indirect expenses incurred in connection
with the negotiation and preparation of this Agreement and the consummation and
performance of the transactions contemplated herein. Without limitation, such
expenses shall include the fees and expenses of all attorneys, brokers,
investment bankers, accountants, agents and finders and other professionals
incurred in connection herewith, acting on behalf of such party. The parties
shall indemnify each other against any claims, costs, losses, expenses or
liabilities arising from any claim or commissions, finder's fees or other
compensation in connection with the contemplated transactions which may be
asserted by any person based on any agreement or arrangement for payment by the
other party.
7.3. USE AND CONFIDENTIALITY. All of the information, records,
books, and data to which the parties are given access as set forth herein shall
be used by the parties solely for the purpose of confirming the representations
and warranties set forth herein. Subject to any obligation to comply with (i)
any law (ii) any rule or regulation of any authority or securities exchange of
(iii) any subpoena or other legal process to make information available to the
persons entitled thereto, whether or not the transactions contemplated herein
shall be concluded, all information obtained by any party about the other, and
all of the terms and conditions of this Agreement, shall be kept in confidence
by each party, and each party shall cause its shareholders, directors,
trustees, officers, employees, agents and attorneys to hold such information
confidential. Such confidentiality shall be maintained to the same degree as
such party maintains its own confidential information and shall be maintained
until such time, if any, as any such data or information either is, or becomes,
published or a matter of public knowledge; provided, however, that the
11
<PAGE> 12
foregoing shall not apply to any information obtained by either party through
its own independent investigations of the other party or received by such party
from a third party not under any obligation to keep such information
confidential nor to any information obtained by such party which is generally
known to others engaged in the trade or business; and provided, further, that
from and after the Closing, such party shall be under no obligation to maintain
confidential any such information concerning the other party. If this
Agreement shall be terminated for any reason, each party shall return or cause
to be returned to the other all written data, information, files, records and
copies of documents, worksheets and other materials obtained by such party in
connection with the transactions contemplated herein.
7.4. NOTICES. All notices, requests and other communications
thereunder shall be in writing and shall be delivered by courier or other means
of personal service (including by means of a nationally recognized courier
service or professional messenger service), or sent by telex or telecopy or
mailed first class, postage prepaid, by certified mail, return receipt
requested, or by Federal Express or other reputable overnight delivery service,
in all cases, addressed to:
TO THE BRIGHTON GROUP:
The Brighton Industries Corporation
6 Pearl Court
Allendale, New Jersey 07401
Attention: Kit Kung
Tel: (201) 818-2889
Fax: (201) 818-0983
WITH A COPY TO:
David L. Ficksman, Esq.
Loeb & Loeb LLP
1000 Wilshire Blvd., Suite 1800
Los Angeles, California 90017
Tel: (213) 688-3698
Fax: (213) 688-3460
12
<PAGE> 13
TO THE COMPANY:
#11, 1715 - 27 Avenue N.E.
Calgary, Alberta T2E 7E1
Attention: Yarek Bartosz
Tel: (403) 250-1878
Fax: (403) 291-5248
WITH A COPY TO:
Thomas G. Kimble & Associates
311 S. State Street
Suite 440
Salt Lake City, Utah 84111
Attention: Van L. Butler, Esq.
Tel: (801) 531-0066
Fax: (801) 359-6603
All notices, requests and other communications shall be deemed given on the
date of actual receipt or delivery as evidenced by written receipt,
acknowledgment or other evidence of actual receipt or delivery to the address.
In case of service by telecopy, a copy of such notice shall be personally
delivered or sent by registered or certified mail, in the manner set forth
above, within three (3) business days thereafter. Either party hereto may from
time to time by notice in writing served as set forth above designate a
different address or a different or additional person to which all such notices
or communications thereafter are to be given.
7.5. PARTIES IN INTEREST. Except as otherwise expressly provided
herein, all the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective heirs,
beneficiaries, personal and legal representatives, successors and assigns of
the parties hereto.
7.6. ENTIRE AGREEMENT, AMENDMENTS. This Agreement, including the
Schedules, Exhibits and other documents and writings referred to herein or
delivered pursuant hereto, which form a part hereof, contains the entire
understanding of the parties with respect to this subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes
all prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument
duly executed by the parties or their respective successors or assigns.
13
<PAGE> 14
7.7. HEADINGS, ETC. The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretations of this Agreement.
7.8. PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.
7.9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.10. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Delaware.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
Zentex Corporation,
a Delaware corporation
By: /s/ Yarek Bartosz
------------------------------------
Name: Yarek Bartosz
Title: President
/s/ Yarek Bartosz
----------------------------------------
Yarek Bartosz
The Brighton Industries Corporation,
a Delaware corporation
By: /s/ Kit Kung
------------------------------------
Name: Kit Kung
Title:
14
<PAGE> 15
Brighton Electronics Corporation, Ltd.,
a Hong Kong corporation
By: /s/ Kit Kung
------------------------------------
Name:
Title:
/s/ Kit Kung
----------------------------------------
Kit Kung
/s/ Hong Yun
----------------------------------------
Hong Yun
15
<PAGE> 16
SCHEDULE A
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS PROHIBITED EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES ACT OF 1933 (THE "ACT").
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED OR SOLD IN ANY TRANSACTION
SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT UNLESS SUCH SECURITIES ARE
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT IS AVAILABLE.
16
<PAGE> 17
SCHEDULE B
CERTIFICATE
Reference is made to that certain Agreement (the "Acquisition Agreement")
between Zentex Corporation (the "Company") and Yarek Bartosz ("Bartosz"), on
the one hand, and The Brighton Industries Corporation and Brighton Electronics
Corporation Ltd., and Kit Kung and Hong Yun (the "Brighton Shareholders"), on
the other hand. Terms not defined herein shall have the same meaning as
ascribed to them in the Acquisition Agreement.
In connection with the Closing, the Brighton Shareholders have requested that
Bartosz provide this Certificate to the Brighton Shareholders.
Bartosz hereby assumes responsibility for all liabilities of the Company
existing immediately prior to the Acquisition and hereby indemnifies the
Brighton Shareholders and will hold them harmless from and against all loss,
cost, expense or liability associated therewith or arising therefrom, or from
any material breach of the representations and warranties of the Company and
Bartosz set forth in the Acquisition Agreement.
Dated: October 18, 1996
/s/ Yarek Bartosz
----------------------------------------
17
<PAGE> 18
EXHIBIT 1.2
(SHARES ISSUED TO SHAREHOLDER AND/OR ITS DESIGNEE(S))
<TABLE>
<S> <C>
Hong Yun 1,500,000
Kit Kung 25,500,000
</TABLE>
59 Peach Hill South
Ramsey NJ 07446
18
<PAGE> 19
EXHIBIT 2.7
Reference is made to that certain Agreement (the "Acquisition Agreement")
between Zentex Corporation, a Delaware corporation and Yarek Bartosz, on the
one hand; and The Brighton Industries Corporation, a Delaware corporation, and
Brighton Electronics Corporation, Ltd., a Hong Kong corporation (collectively,
the "Brighton Group"), and Kit Kung and Hong Yun, as all the shareholders of
the Brighton Group, on the other hand. Terms not defined herein shall have the
same meaning as ascribed to them in the Acquisition Agreement.
The assets and liabilities of the Brighton Group and its consolidated
subsidiaries are set forth below.
All of the Stock of Brighton Electronics Corporation, Ltd. and Brighton
Electronics Corporation Ltd.
Assets and liabilities as set forth on the Financial Statements.
19
<PAGE> 20
EXHIBIT 3.6
Reference is made to that certain Agreement (the "Acquisition Agreement")
between Zentex Corporation, a Delaware corporation (the "Company") and Yarek
Bartosz, on the one hand; and The Brighton Industries Corporation, a Delaware
corporation, and Brighton Electronics Corporation, Ltd., a Hong Kong
corporation, and Kit Kung and Hong Yun, as all the shareholders of the Brighton
Group, on the other hand. Terms not defined herein shall have the same meaning
as ascribed to them in the Acquisition Agreement.
The only assets of the Company are set forth below and will be disposed of
pursuant to Section 6.1 (e).
All of the shares of Yarel Biological Corporation.
20
<PAGE> 21
EXHIBIT 3.7
Reference is made to that certain Agreement (the "Acquisition Agreement")
between Zentex Corporation, a Delaware corporation (the "Company") and Yarek
Bartosz, on the one hand; and The Brighton Industries Corporation, a Delaware
corporation, and Brighton Electronics Corporation, Ltd., a Hong Kong
corporation, and Kit Kung and Hong Yun, as all the shareholders of the Brighton
Group, on the other hand. Terms not defined herein shall have the same meaning
as ascribed to them in the Acquisition Agreement.
The only contracts to which the Company is a party or by which it is bound at
the Closing are as follows:
21
<PAGE> 22
EXHIBIT 3.8
Reference is made to that certain Agreement (the "Acquisition Agreement")
between Zentex Corporation, a Delaware corporation (the "Company") and Yarek
Bartosz, on the one hand; and The Brighton Industries Corporation, a Delaware
corporation, and Brighton Electronics Corporation, Ltd., a Hong Kong
corporation, and Kit Kung and Hong Yun, as all the shareholders of the Brighton
Group, on the other hand. Terms not defined herein shall have the same meaning
as ascribed to them in the Acquisition Agreement.
Except for the transaction defined in Paragraph 6.1(e), Asset Transfer and
Assumption of Liabilities, there are no contracts, agreements, arrangements or
other transactions between the Company, and any officer, director, or 5%
stockholder of the Company, or any corporation or other entity controlled by
any such officer, director or 5% stockholder, a member of any such officer,
director or 5% stockholder's family, or any affiliate of any such officer,
director or 5% stockholder.
22
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SIRONE CORPORATION
FIRST. The name of this corporation shall be:
SIRONE CORPORATION
SECOND. Its registered office in the State of Delaware is to be
located at 1013 Centre Road, in the City of Wilmington, County of New Castle
19805, and its registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which Corporations may
be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation
is authorized to issue is:
One Hundred Million (100,000,000) shares of the par value of $.0001
each, amounting to One Hundred Thousand Dollars ($100,000.00).
FIFTH. The name and mailing address of the incorporator is as
follows:
JANE S. KRAYER
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805
SIXTH. The Board of Directors shall have the power to adopt, amend
or repeal the by-laws.
SEVENTH. No director shall be personally liable to the Corporation
or its stockholders for monetary damages for any breach of fiduciary duty by
such director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation
<PAGE> 2
Law or (iv) for any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Article Seventh shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
IN WITNESS WHEREOF, The undersigned, being the incorporator
hereinbefore named, has executed, signed and acknowledged this certificate of
incorporation this fourth day of November, A.D. 1988.
/s/ Jane S. Krayer
---------------------------------------------
Jane S. Krayer
Incorporator
2
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF INCORPORATION
OF
SIRONE CORPORATION
(Pursuant to Section 103 (f) of the General Corporation
Law of the State of Delaware)
I, the undersigned, being the sole incorporator of SIRONE
CORPORATION, do hereby certify that the Certificate of Incorporation contained
an inaccurate record.
ARTICLE FOURTH provided that the amount of stock of this corporation
is One Hundred Million (100,000,000) shares of the par value of $.0001 each,
amounting to One Hundred Thousand Dollars ($100,000.00).
ARTICLE FOURTH should read as follows:
FOURTH. The total number of shares of stock which
this corporation is authorized to issue is:
One Hundred Million (100,000,000) shares of the par value of $.001
each, amounting to one Hundred Thousand Dollars ($100,000.00).
I have duly executed this Certificate of Correction of Certificate
of Incorporation this 17th day of January, 1989.
/s/ Jane S. Krayer
---------------------------------------------
Jane S. Krayer
Incorporator
<PAGE> 2
Certificate of Correction filed to correct a certain error in the Certificate of
Incorporation of SIRONE CORPORATION filed November 4, 1988, as received and
filed in this office the eighteenth day of January, A.D. 1989, at 9 o'clock A.M.
2
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SIRONE CORPORATION
Pursuant to the applicable provisions of the Delaware General
Corporation Law, Sirone Corporation (the "Corporation") adopts the following
Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the Corporation in
Sirone Corporation.
SECOND: The following amendments to its Articles of Incorporation
were adopted by majority vote of shareholders of the Corporation on October 31,
1995 in the manner prescribed by Delaware law.
1. Article FIRST is amended to read as follows: Name. The name
of this corporation shall be:
ZENTEX CORP.
2. Article FOURTH is hereby amended to read as follows:
The total number of shares of stock which this corporation is
authorized to issue is:
a. Common. 100,000,000 shares of Common Stock having a
par value of $.001.
b. Preferred. 5,000,000 shares of preferred stock having
a par value of $.001 per share, to be issued in such series and to have such
rights, preferences
<PAGE> 2
and designations as determined by the Board of Directors of the Corporation.
3. The Corporation has effectuated a 10 to 1 reverse stock
split of its shares of common stock outstanding as of October 31, 1995,
decreasing the outstanding shares from 1,500,000 shares to 150,000 shares. Said
reverse split to be effective with the commencement of business on November 1,
1995.
THIRD: The number of shares of the corporation outstanding and
entitled to vote at the time of the adoption of said amendment was 1,500,000.
FOURTH: The number of shares voted for such amendments was 810,000
(54%) and the number voted against such amendment was 0.
DATED this 31st day of October, 1995.
SIRONE CORPORATION
By: /s/ John A. Balden
---------------------------------------
John A. Balden
President
2
<PAGE> 3
VERIFICATION
STATE OF UTAH )
: ss.
COUNTY OF UTAH )
The undersigned being first duly sworn, deposes and states: that the
undersigned is the secretary of Sirone Corporation that the undersigned has read
the Articles of Amendment and knows the contents thereof and that the same
contains a truthful statement of the Amendment duly adopted by the directors and
stockholders of the Corporation.
/s/ Rose Ann Balden
---------------------------------------------
Rose Ann Balden
Secretary
3
<PAGE> 4
STATE OF UTAH )
: ss
COUNTY OF SALT LAKE )
On this 31 day of October, 1995, personally appeared before me, Rose
Ann Balden as Secretary of Sirone Corporation, the signer of the foregoing
instrument, whose identity is personally known to me or proven on the basis of
satisfactory evidence, who voluntarily signed the document in my presence on
behalf of said corporation and has taken an oath or affirmation before me duly
attesting to the truthfulness of its contents.
/s/ Van L. Butler
- ----------------------------- ---------------------------------------
Official Seal Notary Public
4
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ZENTEX CORP.
Pursuant to the application provisions of the Delaware General
Corporation Law, Zentex Corp. (the Corporations adopts the following Articles of
Amendment to its "Certificate of Incorporation" by stating the following:
FIRST: The present name of the Corporation is Zentex Corp.
SECOND: The following amendments to its Certificate of Incorporation
were adopted by majority vote of stockholders of the Corporation on October 28,
1996, in the manner prescribed by Delaware law,
1. Article FIRST is amended to read as follows:
Name. The name of this corporation shall be:
BRIGHTON TECHNOLOGIES CORPORATION
2. The Corporation has adopted a 3 to 1 reverse stock split of
its shares of common stock outstanding as of November 11, 1996, decreasing the
outstanding shares from 31,038,000 shares to 10,346,000 shares. Said reverse
split shall to be effective with the commencement of business on November 11,
1996.
THIRD: The number of shares of the Corporation outstanding and
entitled to vote at the time of the adoption of said amendment was 31,038,000.
<PAGE> 2
FOURTH: The number of shares voted for such amendments was
27,000,000 and the number voted against amendment was zero.
IN WITNESS WHEREOF, Zentex Corp. has caused this Certificate of
Amendment to be executed by Kit Kung, its authorized officer, on this 28th day
of October, 1966.
ZENTEX CORP.
By: /s/ Kit Kung
-----------------------------------
Kit Kung, President
2
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BRIGHTON TECHNOLOGIES CORPORATION
The undersigned certifies that:
1. He is the Secretary of Brighton Technologies Corporation, a
Delaware corporation (the "Corporation").
2. The Fourth Article of the Certificate of Incorporation of
the Corporation is amended to by adding the following:
"Effective as of 5:00 p.m. Eastern time on October 10, 1997,
each outstanding three (3) shares of common stock shall be
automatically converted into one (1) share of common stock.
Any fractional shares resulting from such automatic conversion
shall be rounded upward to the nearest whole share.";
3. The foregoing amendment to the Certificate of Incorporation
of the Corporation was duly adopted by the Board of Directors of the Corporation
in accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware, and approved by the holders of a majority of the
shares of the Corporation's common stock, in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware.
The undersigned further declares under penalty of perjury under the
laws of the State of Delaware, that the matters set forth in this Certificate
are true and correct of his own knowledge.
Dated: October 9, 1997
/s/ Warren Wang
---------------------------------------
Warren Wang,
Secretary
<PAGE> 1
EXHIBIT 3.6
SIRONE CORPORATION
BY-LAWS
<PAGE> 2
SIRONE
CORPORATION
By-Laws
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 1013 Centre Road, Wilmington, Delaware 19899.
The registered agent in charge thereof shall be Corporation Service
Company.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation , the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the fourth day of November in each year if not a legal holiday, and
if a legal holiday, then on the next secular day following at three o'clock
P.M., when they shall elect a Board of Directors and transact such other
business as may properly be brought
1
<PAGE> 3
Sirone Corporation
By-Laws
November 4, 1988
before the meeting. If the annual meeting for election of directors is not held
on the date designated therefor, the directors shall cause the meeting to be
held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation shall be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholders entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case,
Section 5. Quorum: One-third of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy , shall constitute a quorum
at a
2
<PAGE> 4
Sirone Corporation
By-Laws
November 4, 1988
meeting of stockholders. If less than one-third of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take an action at a meeting, a written notice of the meeting shall
be given
3
<PAGE> 5
Sirone Corporation
By-Laws
November 4, 1988
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would.
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete.list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane
4
<PAGE> 6
Sirone Corporation
By-Laws
November 4, 1988
to the meeting, during ordinary business hours, for a period of at least ten
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, three in number. The directors need not be residents
of this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of the corporation, and each director shall
be elected for the term of one year, and until his successor shall be elected
and shall qualify or until his earlier resignation or removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice at the registered office of the corporation, or at such other
time and place as shall be determined by the Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on three days notice to each director, either personally or by
mail or by telegram. Special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
5
<PAGE> 7
Sirone Corporation
By-Laws
November 4, 1988
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meetings: Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
The Board of Directors may hold its meetings, and have an office, or offices,
outside of this state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board or of the stockholders, by
means of conference telephone or similar communications equipment by means of
which all persons participation in the meeting can hear each other.
Participation in this manner shall constitute presence in person at such
meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a FIXED sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is
6
<PAGE> 8
Sirone Corporation
By-Laws
November 4, 1988
permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary and Treasurer. The Board of
Directors may also choose a Chairman, one or more Vice Presidents and such other
officers as it shall deem necessary. Any number of offices may be held by the
same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the
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November 4, 1988
corporation. He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation. He shall be EX-OFFICIO a member of all
committees, and shall have the general power and duties of supervision and
management usually vested in the office of President of a corporation.
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporations, and when authorized by the
Board, affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
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Sirone Corporation
By-Laws
November 4, 1988
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right
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Sirone Corporation
By-Laws
November 4, 1988
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent shall be the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing which authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed to
the corporation at its registered office in this state or at its principal place
of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and the Secretary.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificate or by a power of attorney,
lawfully constituted in writing. No transfer shall be made which is inconsistent
with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative to
give the corporation a bond
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By-Laws
November 4, 1988
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may f@ in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed.
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November 4, 1988
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
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By-Laws
November 4, 1988
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
January.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before. or after the item stated therein, shall be deemed equivalent to
the signing of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance of
a person either in person or by proxy, at any meeting shall constitute a waiver
of notice of such meeting, except where a person attends a
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By-Laws
November 4, 1988
meeting for the express purpose of objecting to the transaction of any business
because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall present at each
annual meeting a full and complete statement of the business and affairs of the
corporation for the preceding year. Such statement shall be prepared and
presented in whatever
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By-Laws
November 4, 1988
manner the Board of Directors shall deem advisable and need not be verified by a
certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the Board of
Directors at any Directors Meeting.
November 4, 1988
/s/ Rose Ann Balden
---------------------------------------
Secretary
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<PAGE> 1
EXHIBIT 10.1
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made as of the 26th day of _____________,
1996 by and between ADVENT REALTY LIMITED PARTNERSHIP II, a Delaware Limited
Partnership ("Landlord"), and Brighton Industries Corporation (a Delaware
Corporation) ("Tenant") (the words "Landlord" and "Tenant" to include their
respective legal representatives, successors and permitted assigns where the
context requires or permits).
BASIC LEASE PROVISIONS
The following constitutes the basic provisions of this Lease. These basic
provisions are more fully described under the applicable provisions of this
Lease:
(1) Demised Premises Address: 6 Pearl Court, Allendale, NJ
(2) Demised Premises Square Footage: 5,000 sf
(3) Building Square Footage: 100,000 sf
(4) Annual Base Rent:
Lease Year 1: $41,250.00 $8.25 psf
---------
Lease Year 2: $42,500.00 $8.50 psf
---------
Lease Year 3: $43,750.00 $8.75 psf
---------
Lease Year 4: $45,000,00 $9.00 psf
---------
Lease Year 5: $46,250.00 $9.25 psf
---------
(5) Monthly Base Rent Installments:
Lease Year 1: $3,437.50
Lease Year 2: $3,541.67
Lease Year 3: $3,645.83
Lease Year 4: $3,750.00
Lease Year 5: $3,854.17
(6) Lease Commencement Date: August 1, 1996
(7) Base Rent Commencement Date: October 1, 1996
(8) Expiration Date: July 31, 2001
(9) Term: Five (5) years
(9) Tenant's Operating Expense
Percentage of Building: 5%
(10) Security Deposit: Two months rent $6,875.00
(11) Permitted Use: General/Administrative offices, light assembly
and non-hazardous storage
<PAGE> 2
W I T N E S S E T H
That Landlord, for and in consideration of the rents and all other charges and
payments hereinafter reserved and payable by Tenant, and of the covenants,
agreements, terms, provisions and conditions to be kept and performed hereunder
by Tenant, does hereby demise and lease to Tenant, and Tenant does hereby hire
and take from Landlord, the Premises described below ("Premises"), subject to
all matters hereinafter set forth and upon the subject to the covenants,
agreements, terms, provisions and conditions of this Lease for the term
hereinafter stated.
1. PREMISES. The Premises demised by this lease are approximately 5,000
square feet located at 6 Pearl Court, Allendale, New Jersey
("Building") , together with a nonexclusive right to use parking and
other common areas. The location and dimensions of the Premises are
shown on Exhibit "A", which is attached hereto and incorporated
herein by reference. No easement for light or air is incorporated in
the Premises.
2. TERM. The term of this Lease shall begin on the 1st day of August,
1996 and ends on the 31st day of July, 2001 at midnight, unless
sooner terminated as hereinafter provided.
3. RENT. Tenant agrees to pay Landlord by payment to office as
Landlord may designate, promptly on the first day of each month, in
advance, during the term of this Lease, a monthly rental ("Rent") in
U.S. currency as follows:
<TABLE>
<CAPTION>
Year Monthly
---- -------
<S> <C>
Year 1 $3,437.50
Year 2 3,541.67
Year 3 3,645.83
Year 4 3,750.00
Year 5 3,854.17
</TABLE>
It is intended that the Rental provided for in this lease shall be an absolutely
net return to Landlord throughout the Term hereof, free of any expense, charge
or other deduction whatsoever, with respect to the Premises, the Building
management, maintenance, repair, rebuilding, use or occupation of any interest
of Landlord therein, except only as otherwise expressly provided in this lease.
4. RENT INCREASE. Intentionally Omitted.
5. ADDITIONAL RENT.
a. In addition to the Rent, Tenant shall pay to Landlord that
percent of the total cost of the following items
("Adjustments") as the total floor area of the Premises bears
to the total floor area of the Building as of the first day of
each calendar month.
(i) All real estate taxes and insurance premiums. Said real
estate taxes shall include all real estate taxes and
assessments that are levied upon or assessed against the
Premises, including any taxes which may be levied on
rents. Said insurance premiums shall include all
insurance premiums for fire, extended coverage, public
liability, and other insurance which Landlord deems
necessary. If any tenant(s) in the Building pay taxes
directly to any taxing authority or carry their own
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<PAGE> 3
insurance, as may be provided in their leases, the
square footage of their leased Premises shall not be
included as part of the floor area of the Building for
purposes of calculating Tenant's share of Adjustments:
(ii) All costs to maintain, repair, replace, supervise,
insure (including provision of public liability
insurance) and administer common areas, parking lots,
landscaping, sidewalks, driveways, roof covering,
downspouts and gutters, the structural portions of the
roof, foundations and exterior walls of the Building,
and other areas used in common by the tenants or
occupants of the Building. Said costs may include a
reasonable administrative fee payable to Landlord.
Nothing in the foregoing sentence shall be construed to
make Tenant liable for capital improvement.
(iii) Any parking charges or other costs levied, assessed or
imposed by, or at the direction of, or resulting from
statutes or regulations, or interpretations thereof,
promulgated by any governmental authority or insurer in
connection with the use or occupancy of the Premises or
the common areas of the Building.
(iv) Management fees for the operation of the Building not to
exceed, however, any annual sum equal to four (4%)
percent of the total annual fixed rent for the Building.
b. Upon commencement of this Lease, Landlord shall submit to
Tenant an estimate of monthly Adjustments for the period
between such commencement date and the following July 1 and
Tenant shall pay these estimated Adjustments on a monthly
basis concurrently with the payment of the Rent. Tenant shall
continue to make such monthly payments until notified by
Landlord of a change therein. Once annually, Landlord shall
provide to Tenant a statement showing the total Adjustments
for the prior year and Tenant's allocable share thereof,
prorated from the commencement date of this Lease during the
first year. If the total monthly payments which Tenant has
made for the prior year (or portion thereof during which the
Lease was in effect) is less than the Tenant's actual share of
such Adjustments, then Tenant shall pay the difference in a
lump sum and ten (10) days after receipt of such statement
from Landlord. Any overpayment by Tenant shall be credited
towards the Adjustments next due. The actual Adjustments for
the prior year shall be used for purposes of calculating the
estimated monthly Adjustments for the current year with actual
determination of such Adjustments occurring after the end of
each calendar year, except that in any year in which
resurfacing of the common parking area or major roof repairs
are planned, Landlord may include the estimated cost of such
work in the estimated monthly Adjustments. Even though the
term of this Lease has expired and Tenant has vacated the
Premises, when the final determination is made of Adjustments
for the year in which this Lease terminates, Tenant shall
immediately pay any increase over the estimated Adjustment
previously paid and, conversely, any overpayment shall be
credited to the Tenant's account.
6. PERSONAL PROPERTY TAXES. Tenant shall pay, or cause to be paid,
before delinquency any and all taxes levied or assessed and which
become payable during the term hereof upon all Tenant's leasehold
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<PAGE> 4
improvements, equipment, furniture, fixtures, and any other personal
property located on the Premises. In the event any or all of the
Tenant's leasehold improvements, equipment, furniture, fixtures and
other personal property shall be assessed and taxed with the real
property, Tenant shall pay to Landlord its share of such taxes
within ten (10) days after delivery to Tenant by Landlord of a
statement in writing setting forth the amount such tax is applicable
to Tenant's property.
7. UTILITY BILLS. Tenant shall promptly pay all water, sewer, gas,
electricity, fuel, phone, light, heat, electric power and other
utility bills from the Premises. If Tenant does not pay these bills,
Landlord may pay them and such payment shall be added to the Rent.
8. LATE CHARGES. Tenant hereby acknowledges that late payment to
Landlord of Rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. If any Rent or
other sums due from Tenant is not received by Landlord or Landlord's
designated agent within ten (10) days after its due date, then
Tenant shall pay to Landlord a late charge equal to the maximum
amount permitted by law (and in the absence of any governing law,
two percent (2%) of such overdue amount), plus reasonable
attorneys' fees incurred by Landlord due hereunder. The parties
hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of Tenant's
late payment. Landlord's acceptance of such late charges shall not
constitute a waiver of Tenant's default with respect to such overdue
amount or estop Landlord from exercising any of the other rights and
remedies granted hereunder.
9. SECURITY DEPOSIT. Concurrently with Tenant's execution of this
Lease, Tenant has deposited with Landlord $6,875.00. Said sum shall
be held by Landlord as security for the faithful performance by
Tenant of all the terms, covenants, and conditions of this Lease to
be kept and performed by Tenant during the term hereof. If Tenant
defaults with respect to any provisions of this Lease, including,
but not limited to, the provisions relating to the payment of Rent,
Landlord may (but shall not be required to) use, apply or retain all
or any part of this security deposit for the payment of any Rent or
any other sum in default, or for the payment of any amount which
Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If
any portion of said security deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor, deposit
cash with Landlord in any amount sufficient to restore the security
deposit to its original amount and Tenant's failure to do so shall
be a default under this Lease. Landlord shall not be required to
keep this security deposit separate from its other funds, and
(unless otherwise required by law) Tenant shall not be entitled to
interest of such deposit. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof shall be returned to Tenant
(or, at Landlord's option, to the last assignee of Tenant's interest
hereunder) within ten (10) days following expiration of this Lease
term. In the event of termination of Landlord's interest in this
Lease, Landlord shall transfer said deposit to Landlord's successor
in interest,
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<PAGE> 5
10. USE OF PREMISES.
a. The Premises shall be used for general/Administrative offices,
light assembly and non-hazardous storage. Tenant shall not
create any nuisance or trespass or vitiate the insurance or
increase the rate of insurance on the Premises or the
Building. Tenant agrees not to overload the floor(s) of the
Premises or the Building. Tenant agrees not to use the
Premises for any purpose or business which is illegal,
noxious, offensive because of emission of noise, creates
smoke, dust, or odors or which could damage the Building or
the Lands environmentally or otherwise or be a nuisance or
menace to or interfere with any other tenant or the public.
b. Simultaneously herewith, Tenant shall furnish Landlord with
all Standard Industrial Classification numbers as issued by
the United States, the State of New Jersey or any other
governmental authority ("SIC"), which relates to the business
of the Tenant and the uses and purposes for which the Premises
shall be utilized, together with all additions and/or
amendments thereto, prior to creating any such addition or
amendment. Landlord, within thirty (30) days following
receipt of notice of any addition or amendment thereto, shall
have the right to refuse to permit such change or addition in
use and/or in SIC and upon notification to tenant of such
refusal, Tenant shall not have the right to effect such
changes or addition. Tenant's SIC number is _______.
11. ABANDONMENT OF PREMISES. Tenant agrees not to abandon the Premises
during the term of this Lease and agrees to use said Premises for
the purposes stated above and only for such purpose.
12. DESTRUCTION AND DAMAGE.
a. If the Building is damaged by fire or other perils covered by
extended coverage insurance Landlord shall, at Landlord's
option:
(i) In the event of total destruction of the Building, elect
either to promptly commence repair and restoration of
the Building and prosecute the same diligently to
completion, in which event this Lease shall remain in
full force and effect; or not to repair or restore said
Building, in which event this Lease shall terminate. In
either case, Landlord shall give Tenant written notice
of its intention within sixty (60) days after the
occurrence of such destruction. If Landlord elects not
to restore the building, this Lease shall be deemed to
have terminated as of the date of such total
destruction.
(ii) In the event of a partial destruction of the Building to
an extent not exceeding twenty-five percent (25%) of the
full insurable value thereof and if the damage thereto
is such that the Building may be repaired or restored
within ninety (90) days from the date of such
destruction and Landlord will receive insurance proceeds
sufficient to cover the cost of such repairs, commence
and proceed diligently with the work or repair and
restoration, in which event the Lease shall continue in
full force and effect; or if such repair and restoration
requires longer than ninety (90) days or the cost
5
<PAGE> 6
thereof exceeds twenty-five percent (25%) of the full
insurable value thereof or if said insurance proceeds
will not be sufficient to cover such costs, Landlord may
elect either to so repair and restore, in which event
the Lease shall continue in full force and effect, or
not repair, reconstruct or restore, in which event the
Lease shall terminate. In either case, Landlord shall
give written notice to Tenant of its intention within
ninety (90) days after the destruction occurs. If
Landlord elects not to restore the Building, this Lease
shall be deemed to have terminated as of the date of
such partial destruction.
b. Upon termination of this Lease under any of the provisions of
this Article, the parties shall be released thereby without
further obligation to the other from the date of the damage or
destruction, except for items which have theretofore accrued
and are then unpaid.
c. In the event of repair and restoration as herein provided, the
Rent shall be abated proportionately in the ratio which the
Tenant's use of the Premises is impaired during the period of
such repair, reconstruction or restoration. Tenant shall not
be entitled to any compensation or damages from loss of use of
the whole or any part of said Premises and/or any
inconvenience or annoyance occasioned by such damage, repair,
reconstruction or restoration.
d. Tenant shall not be released from any of its obligations under
this Lease except to the extent and upon the conditions
expressly stated in this Article. Notwithstanding anything to
the contrary contained in this Article, if Landlord has
elected to repair and restore the Premises and is thereafter
delayed or prevented from repairing and restoring said
Premises within one (1) year after the occurrence of such
damage or destruction by reason of acts of God, war,
governmental restrictions, inability to procure the necessary
labor or materials, or other cause beyond the control of
Landlord, Landlord shall be relieved of its obligation to make
such repairs or restoration and, at Landlord's option, Tenant
shall be released from its obligations under this Lease as of
the end of said one (1) year period.
e. If damage to the Building or the Premises is due to any cause
other than fire or other peril covered by extended coverage,
insurance, Landlord or Tenant may elect to terminate this
Lease.
f. If Landlord is obligated to or elects to repair or restore as
herein provided, Landlord shall repair or restore only those
portions of said Building and Premises which were originally
provided at Landlord's expense, and the repair and restoration
of areas or items not provided at Landlord's expense shall be
the obligation of Tenant.
g. Notwithstanding anything to the contrary contained in this
article, Landlord shall not have any obligation to repair or
restore the Premises or the Building during the last twelve
(12) months of this Lease or any extension thereof. If
Landlord elects not to restore the Building, this Lease shall
be deemed to have terminated as of the date of such partial
destruction.
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<PAGE> 7
13. CONDEMNATION. If twenty-five percent (25%) or more of the Premises
is taken for any public or quasi-public purpose by any lawful
governmental power or authority, by exercise or the right of
appropriation, reverse condemnation, condemnation or eminent domain
or sold to prevent such taking, the Tenant or the Landlord may at
its option terminate this Lease as of the effective date thereof,
Tenant shall not because of such taking assert any claim against the
Landlord or the taking authority for any compensation because of
such taking, and Landlord shall be entitled to receive the entire
amount of any award without deduction for any estate or interest of
Tenant. If less than twenty-five percent (25%) of the Premises is
taken, Landlord at its option may terminate this Lease. If Landlord
does not so elect, Landlord shall promptly proceed to restore the
Premises to substantially their same condition prior to such partial
taking, allowing for the reasonable effects of such taking, and a
proportionate allowance shall be made to Tenant for the Rent and
Additional Rent corresponding to the time during which, and to the
part of the Premises of which, Tenant is deprived on account of such
taking and restoration.
14. INDEMNIFICATION BY TENANT. Tenant agrees, as its sole cost and
expense, to indemnify and save Landlord harmless from and against
any and all claims, actions, demands and suits, for, in connection
with, or resulting from, any accident, injury or damage whatsoever
caused to any person or property arising, directly or indirectly, in
whole or in part, out of the business conducted in or the use of the
Premises, or occurring in, on or about the Premises or any part
thereof, or arising, directly or indirectly, in whole or in part,
from any act or omission of Tenant or any concessionaire or
subtenant or their respective licensees, servants, agents, employees
or contractors, or arising out of the breach or default by Tenant or
any term, provisions, covenant or condition herein contained, and
from and against any and all losses, costs, expenses, judgments and
liabilities incurred in connection with any claim, action, demand,
suit or other proceeding brought thereof, except for any loss or
damage caused by negligence of the Landlord, its employees and
agents. Said indemnity shall include defending or resisting and
proceeding by attorneys reasonably satisfactory to Landlord.
15. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease a policy of
comprehensive public liability insurance insuring Landlord and
Tenant against any liability arising out of the ownership, use,
occupancy, or maintenance of the Premises and all areas appurtenant
thereto. Such insurance shall be in the amount of not less than
Three Million Dollars ($3,000,000) for injury or death of one person
in any one accident or occurrence and in the amount of not less than
Three Million Dollars ($3,000,000) for injury or death of more than
one person in any one accident or occurrence. Such insurance shall
further insure Landlord and Tenant against liability for property
damage of at least Three Million Dollars ($3,000,000). The limit of
any such insurance shall not limit the liability of the Tenant
hereunder. Tenant may provide this insurance under a blanket
policy, provided that said insurance shall have a Landlord's Agent
protective liability endorsement attached thereto. If Tenant fails
to procure and maintain said insurance, Landlord may, but shall not
be required to, procure and maintain same, but at the expense of
Tenant. Insurance required hereunder shall be in companies rated
A:XIII or better in "Best Key Rating Guide". Tenant shall deliver
to Landlord copies of certificates of insurance evidencing the
liability insurance required herein with loss payable clauses
reasonably Satisfactory to Landlord. No policy shall be cancelable
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or subject to reduction of coverage. All such policies shall name
Landlord and Kwartler Associates, Inc. as additional insured, shall
be written primary policies not contributing with and not in excess
of coverage which Landlord may carry and shall be written with an
insurance carrier satisfactory to Landlord.
16. FIRE INSURANCE - FIXTURES AND EQUIPMENT. Tenant shall maintain in
full force and effect on all of its fixtures and equipment on the
Premises a policy or policies of fire and extended coverage
insurance with standard coverage endorsement in amount or amounts
equal to the full replacement cost of such fixtures and equipment.
During the term of this Lease the proceeds from any such policy or
policies of insurance shall be used for the repair or replacement of
the fixtures and equipment so insured. Landlord shall have no
interest in the insurance upon Tenant's equipment and fixtures and
will sign all documents reasonably necessary or proper in connection
with the settlement of any claim or loss by Tenant. Landlord will
not carry insurance on Tenant's possessions. Tenant shall furnish
Landlord with a certificate evidencing such policy and whenever
required shall satisfy Landlord that such policy is in full force
and effect.
17. REPAIRS BY LANDLORD. Landlord agrees to keep in good repair the
structural portions of the roof, foundations, and exterior walls of
the Premises (exclusive of all glass and all exterior doors) and
underground utility and sewer pipes outside the exterior walls of
the Building, if any, except repairs rendered necessary by the
negligence of Tenant, its agents, customers, employees or invitees.
Landlord gives to Tenant exclusive control of the Premises and shall
be under no obligation to inspect said Premises. Tenant shall
promptly report in writing to Landlord any defective condition known
to it which Landlord is required to repair.
18. REPAIRS BY TENANT. Except for renovations to be provided by Landlord
prior to occupancy, as set forth on Exhibit B and Exhibit C attached
hereto, Tenant represents that it accepts the Premises in their
present condition and as suited for the uses intended by Tenant.
Tenant shall, throughout the initial term of this Lease and all
renewals thereof, at its expense, take good care of the Premises and
shall keep repair, replace and maintain the Premises in good order,
condition and repair, reasonable wear and tear excepted, and each
and every part thereof (including, without limitation, painting and
decorating, and the repair, maintenance and replacement of any
heating, ventilating and air conditioning. units or system) , except
only such matters that are expressly stated herein to be within the
Landlord's obligation to maintain, and shall not cause nor permit
any dirt, debris or rubbish to be put, placed or maintained on the
sidewalks, driveways, parking lots, yards, entrances and curbs, in,
on or adjacent to the Building. Tenant further agrees not to use the
Premises or permit the Premises to be used in any manner as to cause
excessive depreciation of or to the Building and improvements, and
agrees not to cause nor permit waste of or damage or nuisance to,
in, or about the Premises of the Building.
19. NO ACCESS TO ROOF. Tenant shall have no right to access to the roof
of the Premises or the Building and shall not install, repair, place
or replace any aerial, fan, air conditioner or other device on the
roof of the Premises or the Building without the prior written
consent of Landlord. Any aerial, fan, air conditioner or device
installed without such written consent shall be subject to removal
at Tenant's expense, without notice, at any time. Landlord shall
repair at Tenant's expense, any damage to the Building or roof
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resulting from the installation, repair, use, or replacement or any
such air conditioner or other device.
20. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily, or
by operation of law, assign, transfer, mortgage, pledge, hypothecate
or encumber this Lease or any interest therein, and shall not sublet
the Premises or any part thereof, or any right or privilege
appurtenant thereto, or allow any other person (the employees,
agents, servants and invitees of Tenant excepted) to occupy or use
their Premises, or any portion thereof, without first obtaining the
written consent of Landlord, which consent shall not be unreasonably
withheld, Tenant can transfer its rights to this Lease to a related
entity provided Tenant owns in excess of 51% of the entity. when
Tenant requests Landlord's consent to such assignment or subletting,
it shall notify Landlord in writing of the name and address of the
proposed assignee or subtenant and the nature and character of the
business of the proposed assignee or subtenant and shall provide
financial statements for the proposed assignee or subtenant.
Landlord shall have the option (to be exercised within fifteen (15)
business days from the submission of Tenant's request) to cancel
this Lease as of the commencement date stated in the proposed
sublease or assignment. If Landlord shall not exercise its option
within the time set forth above, its consent to any proposed
assignment or subletting shall not be unreasonably withheld. if
Landlord approves an assignment or subletting as herein provided,
Tenant shall pay to Landlord, as Additional Rent, the difference, if
any, between Rent plus Additional Rent allocable to that part of the
Premises affected by such assignment or sublease pursuant to the
provisions of this Lease, and the Rent and Additional Rent payable
by the assignee or sublessee to Tenant, less reasonable expenses
actually incurred by Tenant related to the sublease or assignment to
include attorney fees, brokerage commission and construction costs
as evidenced by receipted bills. A consent to one assignment,
subletting, occupation or use shall not be deemed to be a consent to
any other or subsequent assignment, subletting, occupation or use
and consent to any assignment or subletting shall in no way relieve
Tenant of any liability under this Lease. Any assignment or
subletting without Landlord's consent shall be void, and shall, at
the option of the Landlord, constitute a default under this Lease.
In the event that Landlord shall consent to a sublease or assignment
hereunder, Tenant shall pay Landlord's reasonable fees, not to
exceed one hundred dollars per transaction, incurred in connection
with processing of documents necessary to the giving of such
consent.
21. TENANT DEFAULT. The occurrence of any one of the following events
shall constitute an event of default ("Default") on the part of
Tenant:
a. The abandonment of the Premises by Tenant;
b. Failure to pay any installment of Rent or any other monies due
and payable hereunder;
c. Default in the performance of any of Tenant's covenants,
agreements or obligations hereunder, said Default (except
Default in the payment of any installment of Rent, or other
monies) continuing for ten (10) days after written notice
thereof from Landlord to Tenant. If effort is made to cure
default but such effort is not completed within the ten (10)
days provided for above, then Tenant shall have an additional
fifteen (15) days to cure same.
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d. The filing of a voluntary petition in bankruptcy by Tenant,
the filing of a voluntary petition for any arrangement, the
filing of a petition, voluntary or involuntary, for
reorganization, or the filing of an involuntary petition by
Tenant's creditors, said involuntary petition remaining
undischarged for a period of sixty (60) days; unless tenant
continues to pay rent.
e. Receivership, attachment, or other judicial seizure of
substantially all of Tenant's assets on the Premises, such
attachment or other seizure remaining undismissed or
undischarged for a period of sixty (60) days after the levy
thereof.
22. LANDLORD'S REMEDIES.
a. Damages. In the event of any such Default by Tenant, then in
addition to any other remedies available to Landlord at law or
in equity, Landlord shall have the immediate option to
terminate this Lease and all rights of Tenant hereunder by
giving written notice to such intention to terminate. In the
event that Landlord shall elect to so terminate this Lease
then Landlord may recover from Tenant:
i. the worth at the time of award of any unpaid Rent which
has been earned at the time of such termination; plus
ii. the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after
termination until the time or award exceeds the amount
of such rental loss Tenant proves could have been
reasonably avoided; plus
iii. the worth at the time of award of the amount by which
the unpaid Rent for the balance of the Term after the
time of award exceeds the amount of such rental loss
that Tenant proves could be reasonably avoided; plus
iv. any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure
to perform his obligation under this Lease of which in
the ordinary course of things would be likely to result
therefrom; plus
v. such reasonable attorney's fees incurred by Landlord as
a result of such Default, and costs in the event suit is
filed by Landlord to enforce such remedy; and
vi. at Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from
time to time by applicable law, The term "Rent", as used
in this Article 22, shall be deemed to be and to mean
the monthly Rent, Additional Rent and all other sums
required to be paid by Tenant pursuant to the terms of
this Lease.
As used in Subparagraphs i and ii above, the "worth at the
time of award" is computed by allowing interest at the rate of
the Federal Reserve Bank of New York at the time of award plus
one percent (1%).
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b. Re-entry. In the event of any such default by Tenant, Landlord
shall also have the right, with or without terminating this
Lease, to reenter the Premises and remove all persons and
property from the Premises; such property may be removed and
stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant.
c. Election. In the event of the vacation or abandonment of the
Premises by Tenant or in the event that Landlord shall elect
to re-enter as provided in Paragraph b. above or shall take
possession of the Premises pursuant to legal proceeding or
pursuant to any notice provided by law, then if Landlord does
not elect to terminate this Lease as provided in Paragraph (a)
above, Landlord may from time to time, without terminating
this Lease, either recover all Rent as it becomes due or relet
the Premises or any part thereof for such term or terms and at
such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem
advisable with the right to make alterations and repairs of
the Premises.
In the event that Landlord shall elect to so relet, then
rentals received by Landlord from such reletting shall be
applied, first, to reasonable attorney's fees incurred by
Landlord as a result of such Default and costs in the event
suit is filed by Landlord to enforce such remedies; second, to
the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord; third, to the payment of any cost of
such reletting; fourth, to the payment of cost of any
alterations and repairs to the Premises; fifth, to the payment
of Rent due and unpaid hereunder; and the residue, if any,
shall be held by Landlord and applied in payment of future
rent as the same may become due and payable hereunder. Should
that portion of such rentals received from such reletting
during any month, which is applied by the payment of Rent
hereunder, be less than the Rent payable during the month by
Tenant hereunder, then Tenant shall pay such deficiency to
Landlord. Such deficiency shall be calculated and paid
monthly. Tenant shall also pay to Landlord, as soon as
ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not
covered by the rentals received from such reletting.
d. Termination. No re-entry or taking of possession of the
Premises by Landlord pursuant to this Article shall be
construed as an election to terminate this Lease unless a
written notice of such intention is given to Tenant or unless
the termination thereof is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without
termination of Landlord because of any Default by Tenant,
Landlord may at any time after such reletting elect to
terminate this Lease for any such Default.
23. SUBORDINATION - ATTORNMENT. Upon request of Landlord, Tenant will in
writing subordinate its rights hereunder to the lien of any mortgage or
deed of trust now or hereafter in force against the Premises, provided the
holder of such mortgage or deed of trust grants tenant a non-disturbance
agreement, and to all advances made or hereafter to be made upon the
security thereof.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or
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deed of trust made by the Landlord covering the Premises, the Tenant shall
attorn to the purchaser upon any such foreclosure or sale and recognize
such purchaser as the Landlord under this Lease.
The provisions of this Article to the contrary notwithstanding, and so
long as Tenant is not in default hereunder, this Lease shall remain in
full force and effect for the full term hereof.
24. ALTERATIONS AND ADDITIONS REMOVAL OF FIXTURES.
a. Tenant shall not make or allow to be made any alterations,
additions or improvements to or on the Premises or any part
thereof without first obtaining the written consent of
Landlord, which consent shall not be unreasonably withheld and
any alterations, additions or improvements to or on said
Premises, including, but not limited to, wall covering,
paneling and built-in cabinet work, but excepting movable
furniture and trade fixtures, shall at once become a part of
the realty and belong to the Landlord and shall be surrendered
with the Premises. In the event any such work shall cost in
excess of Ten Thousand ($10,000) Dollars, such work shall not
be commenced until Tenant shall submit to the Landlord plans
and specifications relating to any such repairs, alterations,
additions or improvements, and all such work shall be
performed in accordance with the provisions of this lease.
Landlord shall not unreasonably withhold its consent to any
such alterations, addition or improvement, but shall have the
right to determine if such work would reduce the value, size
or general utility of the Building or any portion thereof, or
whether such work maintains the architectural harmony of the
Building. Any approval by Landlord as aforesaid may be upon
condition thereof and payment therefor, as Landlord may
reasonably require, including the furnishing of adequate
security. In the event Landlord consents to the making of any
alterations, additions or improvements to the Premises by
Tenant, the same shall be made by Tenant at Tenant's sole cost
and expense and subject to the provisions of Section 42
herein. Upon the expiration or sooner termination of the term
hereof, Tenant shall, upon written demand by Landlord, given
at least thirty (30) days prior to the end of the term, at
Tenant's sole cost and expense, forthwith and with all due
diligence, remove any alterations, additions, or improvements
made by Tenant, designated by Landlord to be removed, and
Tenant shall, forthwith and with all due diligence, at its
sole cost and expense, repair any damage to the Premises
caused by such removal.
b. Any work performed by Tenant, irrespective of cost, shall be
subject to the Landlord's inspection and approval after
completion to determine whether it complies with the
requirements of this lease. The approval or consent of the
Landlord shall not relieve Tenant of its obligation that all
such repairs, alterations, improvements and/or additions be
constructed and performed in a first-class good and
workmanlike manner and in accordance with all applicable
governmental and fire underwriting requirements, nor
constitute a waiver of any rights of Landlord if Tenant fails
to perform its obligations. Tenant, at its sole cost and
expense, shall procure all necessary governmental approvals,
permits or certificates in connection with all work performed
by Tenant in, on or at the Premises and shall deliver the
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original of all such approvals, permits or certificates to the
Landlord, to be retained by Landlord.
c. During the course of any and all repairs, alterations,
additions or improvements which the Tenant shall either be
required to perform or which the Tenant shall elect to
perform, Tenant at its sole cost and expense, shall at all
times obtain and maintain or cause to be obtained and
maintained, workmen's compensation insurance and any other
insurance which shall then be required by law, together with
public liability insurance as set forth in Section 15 hereof,
to insure against any additional hazards created in connection
with the performance of any of the aforesaid work. Prior to
the commencement of any such work, Tenant shall deliver to
Landlord copies of all policies or certificates of insurance
with respect to all policies required pursuant to this Section
24(c).
25. EXTERIOR SIGNS. Tenant may not provide, install or maintain any
exterior signs on the roof or in the windows; nor shall the Tenant,
provide, install or maintain any exterior signs on the facade or
walls of the Building or on any grounds adjacent thereto, unless:
(1) such installation be made in such manner as will not affect any
roofing bond and/or other guarantee which shall then be in force and
effect; (ii) all such signs shall have been approved by Landlord in
writing before installation; and (iii) all such signs must at all
times conform to all applicable rules and regulations, codes and
ordinances of any governmental agencies having jurisdiction there-
over. Any and all signs placed on the Premises by Tenant shall
comply with Landlord's rules and regulations governing such signs
and Tenant shall be responsible to Landlord for any damage caused by
installation, use, or maintenance of such signs. Tenant agrees upon
removal of said signs to repair all damage incident to such removal.
26. ENTRY FOR CARTING AND REPAIRS.
a. Landlord and its designees shall have the right to place and
maintain all utility equipment of any kind in and on the
Premises as may be necessary or desirable to serve the
Building or any portion thereof. If the space should be
reduced, the Rent and Adjustments will be reduced in an amount
equal to the percentage that the lost space bears in relation
to the entire building. Landlord and its designees shall have
the right to enter upon the Premises at all reasonable hours
(and in emergencies at all times): (i) to inspect the same;
(ii) to make repairs, additions or alterations to and/or to
complete initial construction of, the Premises and/or to the
Building or to prevent waste or depreciation thereof; (iii) to
post "For Sale" signs on the Premises and to exhibit the
Premises to any prospective purchaser or mortgagee; or (iv)
for any other lawful purpose. This paragraph shall not be
deemed to be a covenant by Landlord nor be construed to create
an obligation or duty on the part of the Landlord to make such
inspection, repairs, additions or alterations except as
otherwise herein provided. Any performance by Landlord
hereunder shall not be deemed a waiver of Tenant's default in
failing to perform same, nor shall Landlord be liable for any
inconvenience disturbance, loss of business, loss of use of
the Premises or any other damage suffered by Tenant, due to
said performance by Landlord and the obligations of Tenant
pursuant to this lease shall not thereby be affected in any
manner whatsoever. Landlord agrees to exercise due care to
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cause the least possible interference with Tenant's business,
but Landlord shall not be required to employ labor on weekends
or on any overtime basis to avoid or reduce any such
interference.
b. For a period commencing one hundred eighty (180) days prior to
the end of the Term, Landlord and its designees shall have
reasonable access to the Premises for the purpose of
exhibiting the same to prospective tenants.
c. Landlord shall have the right to carry material in and on the
Premises and to perform work in or on the Premises pursuant to
the provisions of this lease, without the same constituting an
actual or constructive eviction to Tenant, in whole or in
part, without the same permitting any rent reduction or
abatement and without the Tenant having the right to assert
any claim for damages to the Tenant's tangible property or
injury or death to persons. In no event shall the Landlord be
liable for any inconvenience, disturbance, loss of business,
loss of use of the Premises or any consequential damages which
Tenant may suffer.
27. MORTGAGEE'S RIGHTS. Tenant's rights shall be subject to any mortgage
or deed of trust to secure debt which is now, or may hereafter be,
placed upon the Premises by Landlord. Tenant agrees to give any
mortgagee and/or trust deed holder, by registered mail, a copy of
any notice of default served upon the Landlord, provided that prior
to such notice Tenant has been notified, in writing (by way of
notice of assignment of rents and leases, or otherwise), of the
address of such mortgagee(s) and/or trust deed holder(s). Tenant
further agrees that if Landlord shall have failed to cure such
default within the time provided for in this Lease, then the
mortgagee and/or trust deed holder shall have an additional thirty
(30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may
be necessary if within such thirty (30) days, any mortgagee and/or
trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited
to commencement of foreclosure proceedings, if necessary to effect
such cure), in which event this Lease shall not be terminated while
such remedies are being so diligently pursued.
28. END OF TERM. Tenant agrees to promptly vacate the Premises at the
conclusion of the term of the Lease and to leave such Premises broom
clean, free of all debris, waste(s) and by-products, and in an
environmentally safe (in Landlord's reasonable opinion) condition,
in compliance with all governmental laws, rules, orders, and
regulations. Landlord may, at its option, retain an environmental or
engineering consultant or consulting firm to verify Tenant's
compliance with this provision, and Tenant agrees to (1) provide
access and reasonable assistance to such consultant or consulting
firm at the Premises, (2) implement the recommendation of such
consultant or consulting firm, promptly upon Landlord's request
therefor. Except for Tenant's initial build-out as per Exhibit B
attached hereto, should Landlord desire to have the Premises or any
part thereof restored to the condition in which they were originally
delivered to Tenant, Landlord shall so notify Tenant in writing no
less than thirty (30) days prior to the end of the Term. In the
event Landlord shall so desire, then Tenant, prior to the end of the
Term at its sole cost and expense shall so restore the Premises,
additions and improvements as may be requested by Landlord, and fix
and repair any and all damage or defacement to the Building and/or
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lands caused by the installation and/or removal of alterations,
additions, improvements, furniture, equipment, trade fixtures or any
other property. Any and all of such property, alterations, additions
or improvements not so removed, at Landlord's option, shall become
the exclusive property of Landlord and be disposed of by Landlord,
at Tenant's cost and expense, without further notice or demand. If
the Premises be not surrendered as and when aforesaid, Tenant shall
indemnify Landlord against any damages, loss or liability resulting
therefrom, including, without limitations, any claims made by any
succeeding occupant founded on such delay. Tenant's obligation under
this paragraph shall survive the expiration or sooner termination of
the Term.
29. NO ESTATE IN LAWS. This Lease shall create the relationship of
Landlord and Tenant between the parties hereto; no estate shall pass
out of Landlord. Tenant has only a usufruct, not subject to levy and
sale, and not assignable by Tenant except with Landlord's prior
written consent.
30. HOLDING OVER. If Tenant remains in possession of the Premises after
expiration of the term hereof, without the express written consent
of Landlord, Tenant's occupancy shall be a tenancy from month to
month at 150% of the Rent in effect for the last month of the term
of this Lease, plus all other charges payable hereunder, and upon
the same terms and conditions herein contained. In no event,
however, shall Tenant be relieved of any liability to Landlord for
damages resulting from such holding over.
31. HOMESTEAD RIGHTS. Tenant waives all homestead rights and exemptions
which it may have under any law as against any obligation owing
under this Lease. Tenant hereby assigns to Landlord its homestead
and exemption.
32. SALE OF PREMISES BY LANDLORD. In the event of any sale of the
Premises by Landlord, Landlord shall be and is hereby entirely freed
and relieved of all liability under any and all of its covenants and
obligations contained in or derived from this Lease arising out of
any act, occurrence or omission occurring after the consummation of
such sale; and the purchaser, at such sale or any subsequent sale of
the Premises shall be deemed, without any further agreement between
the parties of their successors in interest or between the parties
and any such purchaser, to have assumed and agreed to carry out any
and all of the covenants and obligations of the Landlord under this
Lease.
33. RULES AND REGULATIONS.
a. Tenant agrees to comply with such reasonable rules and
regulations as Landlord may adopt from time to time for the
orderly and proper operation of the Building and parking and
other common areas. Such rules may include but shall not be
limited to the following: (1) the restriction of employee
parking to a limited, designated area or areas; and (2)
regulation of the removal, storage and disposal of Tenant's
refuse and other rubbish at the sole cost and expense of
Tenant. The rules and regulations shall be binding upon Tenant
upon delivery of a copy of them to Tenant. Landlord shall not
be responsible to Tenant for the nonperformance of any of said
rules and regulations by any other tenants or occupants of the
Building. Landlord agrees to enforce the rules and regulations
in a nondiscriminatory manner.
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b. Tenant agrees at all times during the Term hereof, and at its
sole cost and expense:
i. not to take or permit any action which would violate
Landlord's union contracts, if any, affecting the
Building or the Premises, or which would create any work
stoppage, picketing, labor disruption or any work
performed or to be performed by Landlord or any other
persons in or about the Building, or which would hinder
the activities or operations of the Landlord in bringing
about the cessation of any work stoppage, picketing or
other labor disruption or dispute affecting the Building
or any work being performed or to be performed in or
about the Building;
ii. to pay promptly and when due, all taxes, licenses, fees,
assessments or other charges levied or imposed upon the
business of Tenant or upon any fixtures, furnishings or
equipment in, on or at the Premises;
iii. not to commit any waste or nuisance, nor use the
plumbing facilities for any purpose injurious to same or
dispose of any garbage or any foreign substance therein,
nor place a load on any floor in the Premises exceeding
the floor load per square foot which such floor was
designed to carry, nor install, operate and/or maintain
in the Premises any heavy equipment except in a location
approved by Landlord, not install, operate and/or
maintain in the Premises any electrical equipment which
will overload the electrical system therein, or any part
thereof, beyond its capacity for proper and safe
operation as determined by Landlord or which does not
have Underwriter's approval; or which would require any
plan and/or bond to be furnished or which would require
any work to be performed in order to cure and/or correct
any condition created by Tenant, pursuant to any
applicable governmental law or requirement;
iv. to keep the Premises in a neat, clean, orderly and
sanitary condition, free of any insects, rodents, vermin
and pests of every type and kind;
v. not to use the Premises for any purpose or business
which is illegal, noxious, offensive because of the
emission of noise, smoke, dust or odors or which could
damage the Building or be a nuisance or menace to or
interfere with, any other tenants or the public;
vi. to comply with all requirements of all suppliers of
public utility services to the Building and not to
suffer or permit any act or omission the consequence of
which could be to cause the interruption, curtailment,
limitation or cessation of any utility service to the
Building;
vii. Simultaneously herewith, and thereafter upon the request
of Landlord, Tenant agrees to deliver to Landlord a
written statement detailing all processes, functions,
procedures and other methods of operation used at the
Premises, a description of all materials stored at the
Premises, and any changes, modifications or amendments
thereto;
viii. Tenant further agrees to properly and accurately label
and segregate all materials stored at the Premises. At
all times during the Term hereof, and upon the
termination of the Term hereof , Tenant shall comply
with all applicable environmental protection laws, rules
or requirements, and shall promptly cure all violations
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thereof arising from its non-compliance including but
not limited to, the preparation, delivery and/or filing
with the applicable governmental authorities and with
the Landlord, or all forms, certificates, notices,
documents, plans and other writings, and the furnishing
of such other information as may be required or
requested by the Landlord, its mortgagee or any
applicable governmental authority in connection with
compliance or curing of any applicable requirement or in
connection with the sale, lease, transfer, mortgaging or
other disposition of the Building and/or Lands. It is
specifically acknowledged and agreed that the provisions
of this sub-paragraph shall survive the termination of
the lease, regardless of the reason or cause thereof.
c. No abatement, diminution or reduction of the Rental or other
charges required to be paid by Tenant pursuant to the terms of
this lease, shall be claimed by or allowed to, the Tenant for
the inconvenience, interruption, cessation or loss of business
or otherwise cause directly or indirectly by any present or
future laws, rules, requirements, orders, directions,
ordinances or regulations of the federal, state, county or
municipal government, or of any other governmental or lawful
authority whatsoever, or as a result of any diminution of the
amount of space used by Tenant caused by legally required
changes in the construction, equipment operation or use of the
Premises.
d. Tenant, following notice to Landlord, shall have the right to
contest by appropriate legal proceedings, at its sole cost and
expense, the validity of any law, ordinance, order, rule,
regulation or requirement of the nature herein referred to,
provided, however, that: (i) any noncompliance shall not
constitute a crime on the part of the Landlord or otherwise
adversely affect, jeopardize or threaten the interest of
Landlord; (ii) Tenant shall diligently prosecute any such
contest to a final determination by a court, department or
governmental authority having final jurisdiction and keep
Landlord advised in writing as to all changes in status and
determinations in connection with any such proceedings; and
(iii) Tenant shall indemnify and save harmless Landlord
against any and all losses, costs, expenses, claims,
penalties, actions, demands, liabilities, judgments or other
damages which Landlord may sustain by reason of such contest
or as a result of Tenant's failure or delay in compliance. It
is agreed however that Landlord has the right to demand that
the Tenant furnish adequate security to ensure its ability to
perform its indemnity obligations hereunder, which security if
so requested, shall be furnished to Landlord prior to the
Tenant commencing or continuing which such contest, as the
case may be. In no event, however shall Tenant defer
compliance if such deferment would constitute a violation of
any of the provisions of any mortgage or ground lease to which
this lease is or shall be subordinate. Landlord agrees to
cooperate as reasonably required for the purpose of any such
contest, provided that the same shall be without cost or
expense to Landlord. Landlord shall have the right, but not
the obligation to contest by appropriate legal proceedings, at
Landlord's expense, any such law, ordinance, rule, regulation
or requirement.
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34. RIGHTS CUMULATIVE. All rights, power and privileges conferred
hereunder upon parties hereto shall be cumulative but not
restrictive to those given by law.
35. WAIVER OF RIGHTS. No failure of Landlord to exercise any power given
Landlord hereunder, or to insist upon strict compliance by Tenant
with his obligation hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a waiver
of Landlord's right to demand exact compliance with the terms
hereof.
36. TIME OF ESSENCE. Time is of the essence of this agreement.
37. DEFINITIONS. "Landlord" as used in this Lease shall include
Landlord's heirs, representatives, assigns and successors in title
to Premises. "Tenant" shall include Tenant's heirs and representa-
tives, and if this Lease shall be validly assigned or the Premises
sublet, shall include Tenant's assignees or sublessees, as to
Premises covered by such assignment or sublease. "Landlord" and
"Tenant" include male and female, singular and plural, corporation,
partnership or individual, as may fit the particular parties.
38. NOTICES. All notices and demands which may or are to be required or
permitted to be given to either party by the other hereunder shall
be in writing. All notices and demands by the Landlord to the Tenant
shall be sent by United States mail, postage prepaid, addressed to
the Tenant at the Premises, and to the address hereinbelow, or to
such other place as Tenant may from time to time designate in a
notice to the Landlord. All notices and demands by the Tenant to the
Landlord shall be sent by United States mail, postage prepaid,
addressed to the Landlord at the address set forth herein, and to
such other person or place as the Landlord may from time to time
designate in a notice to the Tenant.
To Landlord at: c/o Kwartler Associates, Inc.
2 North Street, Waldwick, NJ 07463
To Tenant at: 6 Pearl Court
Allendale, New Jersey 07401
39. ESTOPPEL CERTIFICATES. Tenant shall, from time to time, upon written
request of Landlord, execute, acknowledge and deliver to Landlord or
its designee a written statement stating: the date this Lease was
executed and the date it expires, the date Tenant entered into
occupancy of the Premises; the amount of minimum monthly rent and
the date to which such rent has been paid; that this Lease is in
full force and effect and has not been assigned, modified,
supplemented or amended in any way (or specifying the date and terms
of any agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this
leasing; that all conditions under this Lease to be performed by the
Landlord have been satisfied; that all required contributions by
Landlord to Tenant on account of Tenant's improvements have been
received; that on this date there are no existing defenses or
offsets which the Tenant has against the enforcement of this Lease
by the Landlord; that no rent has been paid more than one (1) month
in advance; and that no security has been deposited with Landlord
(or, if so, the amount thereof). It is intended that any such
statement delivered pursuant to this paragraph may be relied upon by
a prospective purchaser of Landlord's interest or a mortgage of
Landlord's interest or assignee of any mortgage upon Landlord's
interest in the Building. If Tenant shall fail to respond within
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fifteen (15) days of receipt by Tenant of a written request by
Landlord as herein provided, Tenant shall be deemed to have given
such certificate as above provided without modification and shall be
deemed to have admitted the accuracy of any information supplied by
Landlord to a prospective purchaser or mortgagee.
40. SUBROGATION. As long as their respective insurers so permit,
Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other, for any loss insured by fire, extended
coverage and other property insurance policies existing for the
benefit of the respective parties. Each party shall apply to their
insurers for such waivers and shall obtain any special endorsements
required by their insurer to evidence compliance with the
aforementioned waiver.
41. GOVERNMENTAL ORDERS. Tenant agrees, at its own expense, to promptly
comply with all requirements of any legally constituted public
authority made necessary by reason of Tenant"s occupancy of said
Premises. Landlord agrees to promptly comply with any such
requirements if not made necessary by reason of Tenant's occupancy.
42. LIENS. Tenant shall keep the Premises and the property on which the
Premises are situated free from any liens arising out of any work
performed, materials furnished or obligations incurred by or on
behalf of Tenant. Landlord may require, at Landlord's sole option,
that Tenant provide to Landlord, at Tenant's sole cost and expense,
a lien and completion bond in an amount equal to one and one-half
(1-1/2) times the estimated cost of any improvements, additions, or
alterations which the Tenant desires to make.
43. DISPLAYS. Tenant may not display or sell merchandise or allow
grocery carts or other similar devices within the control of Tenant
to be stored or to remain outside the exterior walls and doorways of
the Premises. Tenant further agrees not to install any exterior
lighting, amplifiers or similar devices or use in or about the
Premises an advertising medium which may be heard or seen outside
the Premises, such as flashing lights, searchlights, loudspeaker,
phonographs or radio broadcasts.
44. AUCTIONS. Tenant shall not conduct or permit to be conducted any
sale by auction in, upon or from the Premises whether said auction
be voluntary, involuntary, pursuant to any assignment for the
payment of creditors or pursuant to any bankruptcy or other
insolvency proceeding.
45. AUTHORITY OF TENANT. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of said corporation or
partnership represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation or
partnership, and that this Lease is binding upon said corporation or
partnership.
46. NO ACCORD OR SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent and other sums due
hereunder shall be deemed to be other than on account of the
earliest rent or other sums due, nor shall any endorsement or
statement on any check or accompanying any check or payment be
deemed an accord and satisfaction; and Landlord may accept such
check or payment without prejudice to Landlord's right to recover
the balance of such rent or other sum or pursue any other remedy
provided in this Lease.
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47. BROKERS. Tenant represents and warrants to Landlord that neither it
nor its officers or agents nor anyone acting on its behalf has dealt
with any real estate broker other than Kwartler Associates, Inc. and
The Galbreath Company in negotiating or making of this Lease, and
Tenant agrees to indemnify and hold Landlord harmless from any claim
or claims, as well as costs and expenses including attorneys' fees
incurred by Landlord in conjunction with any claim or claims, of any
other broker or brokers claiming to have interested Tenant in the
Building or Premises or claiming to have caused Tenant to enter into
this Lease.
48. NON-LIABILITY OF LANDLORD.
a. Landlord shall not be liable for any damage or injury which
may be sustained by Tenant or by any other person, as a
consequence of the failure, breakage, leakage or obstruction
of the street or sub-surface; or of the water, plumbing,
steam, sewer waste or soil pipes; or of the roof, walls,
drains, leaders, gutters, valleys, downspouts or the like; or
of the electrical, gas, power conveyor, refrigeration,
sprinkler, air conditioning or heating systems; or of the
elevators or hoisting equipment; or of any other structural
failure; or by reason of the elements; or resulting from theft
or pilferage; or resulting from fire, explosion, or other
casualty; or resulting from the carelessness, negligence, or
improper conduct on the part of the Tenant, any other tenant,
or of Landlord, except willful misconduct of Landlord, its
agents, employees, guests, licensees, invitees, subtenants,
assignees or successors; or attributable to any interference
with, interruption of or failure, beyond the control of
Landlord, of any services to be furnished or supplied by
Landlord. All property kept, maintained or stored at the sole
risk of the Tenant.
b. Landlord shall not be liable to Tenant or any person or entity
claiming through the Tenant, nor shall Tenant be excused from
the performance of any obligation hereunder, due to any breach
or violation by Landlord, by any other tenant or by any other
person or entity, of:
(i) any rule or regulation established by Landlord; or
(ii) any provision, covenant, term or condition of any other
agreement affecting the Building and lands or any
portion thereof. Further, Landlord shall not be liable,
nor shall Tenant be excused from the performance of any
obligation hereunder, due to the Landlord enforcing any
right or remedy against the Tenant and/or against other
tenants of the Building, but not against all tenants of
the Building.
49. UNAVOIDABLE DELAYS.
a. If, as a result of strikes, lockouts, labor disputes,
inability to obtain labor, materials or reasonable substitutes
therefore, acts of God, governmental restrictions, regulations
or controls, enemy or hostile governmental action, civil
commotion, insurrection, revolution, sabotage, fire or other
casualty, acts or failure to act by Tenant or any other tenant
or other conditions beyond the control of Landlord, whether
prior to or during the Term, Landlord shall fail punctually to
perform any lease obligation, then and in any of such events,
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such obligation shall be punctually performed as soon as
practicable after such condition shall abate. In the event
that Landlord, as a result of any such condition, shall be
unable to exercise any right or option within any time limit
provided in this lease, such time limit shall be deemed
extended for a period equal to the duration of such condition.
The failure of Landlord to perform any lease obligation for
the reasons set forth herein shall not affect, curtail, impair
or excuse this lease or the obligations of Tenant hereunder.
b. No diminution or abatement of rent, or other compensation,
shall be claimed or allowed for inconvenience or discomfort
arising from the making of repairs or improvements to the
Building or to its appliances, or arising from the
construction of or repairs or improvements to, other
buildings, structures, land or appliances, to the various
"services", if any, to be furnished by the Landlord to the
Tenant, it is agreed that there shall be no diminution or
abatement of the rent, or any other compensation, for
interruption or curtailment shall be due to accident,
alterations or repairs necessary to be made or to inability or
difficulty in securing supplies or labor for the maintenance
of such service or to some other cause, not gross negligence
on the part of the Landlord. No such interruption or
curtailment of such "service" nor any nonperformance by
Landlord pursuant to subparagraph (a) of this Paragraph, shall
be deemed a constructive eviction, nor shall there be any
abatement or diminution of rent because of making of repairs,
improvements or decorations to the Premises after the date
above fixed for the commencement of the Term, it being
understood that the Rental shall in any event, commence to run
at such date as above fixed.
50. ENVIRONMENTAL PROVISIONS.
a. For purposes of this lease, the following additional definitions
shall apply:
i. "Hazardous Substances" shall include any pollutants,
petroleum products, dangerous substances, toxic
substances, hazardous wastes, hazardous materials, or
hazardous substances as defined in or pursuant to the
Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq.
and all rules, regulations, orders, directives and
opinions promulgated thereunder ("ISRA"); the Spill
Compensation and Control Act, N.J.S.A. 58:10-23.11 et
seq. and all rules, regulations orders, directives and
opinions promulgated thereunder ("Spill Act"); the Solid
Waste Management Act, N.J.S.A. 13:1E-1 et seq.; and all
rules and regulations promulgated thereunder; the
Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901 et seq.; the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C.
Sections 9601 et seq. and all rules and regulations
promulgated thereunder ("CERCLA"); or any other Federal,
State or Local environmental law or ordinance and all
rules and regulations promulgated under the foregoing,
(collectively "Environmental Laws").
ii. "Release" means releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping.
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iii. "Notice" means any summons, citation, directive, order,
claim, litigation, investigation, proceeding, judgment,
letter or other communication, written or oral, actual
or threatened, from the New Jersey Department of
Environmental Protection and Energy ("DEP"), the United
States Environmental Protection Agency ("EPA"), any
other Federal, State or Local agency or authority or any
other entity or any individual, concerning any act or
omission resulting or which may result in the Release of
Hazardous Substances into the waters or onto the lands
of the State of New Jersey or into waters outside the
jurisdiction of the State of New Jersey or into the
"environment" as such terms are defined in CERCLA.
"Notice" shall include the imposition of any liens of
any real or personal property or revenues of Tenant
including, but not limited to, Tenant's interest in the
premises or any of Tenant's property located thereon
pursuant to or resulting from the violation of, any
Environmental Law, or any other governmental actions,
orders or permits or any knowledge after due inquiry and
investigation of any facts which could give rise to any
of the above.
b. To the extent that Tenant uses the Premises, whether as
permitted by law or otherwise, for the generating,
manufacturing, refining, transporting, treating, storing,
handling, disposing, transferring or processing of Hazardous
Substances, Tenant shall ensure that said use shall be
conducted at all times strictly in accordance with applicable
Environmental Laws. Tenant shall not cause nor permit as a
result of any intentional or unintentional act or omission, a
Release of Hazardous Substances, except in accordance with a
valid permit or as otherwise permitted by law. If any
intentional or unintentional act or omission results in any
actual or alleged Release of Hazardous Substances, Tenant
promptly shall conduct necessary sampling and cleanup and
remediate such Release in accordance with applicable
Environmental Laws.
c. Within ten (10) days from date hereof, and thereafter within
ten (10) days after written request by Landlord, but not more
frequently than once per Lease Year and on each anniversary of
the Commencement Date hereof, Tenant shall deliver to Landlord
a duly executed and acknowledged affidavit of Tenant's chief
executive officer certifying:
i. The proper SIC Industry Group Number relating to
Tenant's then current business and use(s) of the
Premises; and
ii. That Tenant's then current use(s) of the Premises does
not involve the generation, manufacture, refining,
transportation, treatment, storage, handling or disposal
of Hazardous Substances on site, above ground or below
ground (all herein referred to as the "Presence of
Hazardous Substances"); or
iii. That Tenant's then current use(s) of the Premises does
involve the Presence of Hazardous Substances, in which
event, said affidavit shall describe in detail that
portion of Tenant's operations which involve the
Presence of Hazardous Substances. Said description,
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inter alia, shall identify each Hazardous Substance and
describe the manner in which it is generated, handled,
manufactured, refined, transported, treated, disposed
of, and/or stored. Tenant shall supply Landlord with
such additional information relating to said Presence of
Hazardous Substances as Landlord may request.
d. Tenant, at its sole cost and expense, promptly shall apply for
ISRA approval prior to the occurrence of any event caused by
Tenant that would trigger ISRA applicability, and pursue the
matter to obtain an approved negative declaration or an
approved remedial action workplan completion. Tenant shall
have the right to utilize streamlined procedures for
compliance with ISRA, as set forth in Sections 17 and 18 of
ISRA, provided that if required by DEP, Tenant shall post a
remediation funding source in an amount at least equal to 125%
of the amount requested by DEP in a form satisfactory to DEP,
and shall remain as a holdover tenant for such portion of the
Premises as shall not be usable or rentable as a result of
Tenant remediation until all obligations extending beyond the
expiration of the Term shall have been performed pursuant
hereto. In the event that the occurrence is the transfer of
title or other action by Landlord, Landlord at its cost and
expense shall be responsible for ISRA compliance. Tenant shall
furnish such information and otherwise cooperate reasonably
with Landlord in connection with Landlord's compliance with
ISRA.
e. In connection with the performance of its obligations pursuant
to this Paragraph 50, Tenant shall properly and accurately
label and segregate all Hazardous Substances stored at the
Premises and promptly shall furnish to Landlord true and
complete copies of all documents, submissions and
correspondence provided by Tenant to DEP and all documents,
reports, directives and correspondence provided by DEP to
Tenant, together with true and complete copies of all sampling
and test results obtained from samples and tests taken at and
around the Premises.
f. Should DEP determine that pursuant to ISRA, a remedial action
workplan be prepared and a cleanup be undertaken because of a
Release of a Hazardous Substance at the Premises which
occurred during the period in which Tenant shall have leased
the Premises, whether or not pursuant to this Lease, for which
Tenant is responsible hereunder, Tenant, at its sole cost and
expense, promptly shall prepare and submit the required plan
and remediation funding source and promptly shall carry out
the approved plan. Should Tenant's operations at the Premises
be outside of those industrial operations covered by ISRA,
Tenant, at its own cost and expense, shall obtain a Letter of
Nonapplicability or de minimis quantity exemption from DEP
prior to termination of the Term and Tenant, at Landlord's
option, shall hire a consultant satisfactory to Landlord to
undertake sampling at the Premises sufficient to determine
whether or not Tenant's operations have resulted in a Release
of a Hazardous Substance at or around the Premises. Tenant's
sampling, at a minimum, shall establish the integrity of all
underground storage tanks at the Premises. Should the sampling
reveal any Release of a Hazardous Substance, then Tenant, at
its sole cost and expense, promptly shall cleanup the Premises
in accordance with Environmental Laws and to the satisfaction
of DEP.
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g. Should the submission of a remedial action workplan be
required pursuant to ISRA for which Tenant is responsible
hereunder, then Tenant, at is sole cost and expense, shall
furnish to DEP, if required, a remediation funding source
satisfactory to DEP, in the amount of at least 125% of the
amount requested by DEP, in a form satisfactory to DEP,
guaranteeing the performance and completion of Tenant's
obligations pursuant to ISRA. The security furnished by Tenant
shall be renewed and kept in force by Tenant, at Tenant's sole
cost and expense, until such time as Tenant shall have
received final approval of the cleanup and a release of the
remediation funding source from DEP, it being acknowledged
that said remediation funding source may be utilized by Tenant
to pay for its remediation costs, to the extent and in the
manner permitted by DEP.
h. Regardless of which party may trigger the applicability of
ISRA, or pursuant to any other Environmental Law, Tenant shall
be responsible only for the remediation and obtaining of DEP
approval for any Release of Hazardous Substances from, on, to
or within the Premises which shall have occurred during the
period in which Tenant shall have leased the Premises, whether
or not pursuant to this Lease, unless such Release shall not
have been caused by the intentional or unintentional act(s)
and/or omissions of Tenant, and Landlord shall be responsible
for the remediation and obtaining of DEP approval for any such
Release which shall have occurred prior to the commencement of
the Tenant"s leasing of the Premises, or which was not caused
by the intentional or unintentional act(s) and/or omissions of
Tenant.
i. In the event Tenant is or would be responsible for triggering
ISRA and is unable to obtain either (a) a non-applicability
letter; (b) an approval of a negative declaration; (c) a de
minimis quantity exemption; or (d) an approval of a remedial
action workplan, prior to the occurrence of the event
triggering applicability of ISRA, then Tenant, at its sole
cost and expense, shall do everything necessary in order to
obtain agreement with DEP, authorizing the occurrence of the
event triggering ISRA and obligating Tenant to comply, at its
sole cost and expense, with all requirements of ISRA and
without imposing any restrictions or prohibitions against the
Premises.
j. Notwithstanding anything in this lease to the contrary, and
without limiting any other provisions of this Paragraph 50,
Tenant, at its sole cost and expense, shall observe, comply
and fulfill all of the terms and provisions of all applicable
Environmental Laws, as the same may be amended from time to
time, as they relate to Tenant's use and occupancy of the
Premises, whether or not pursuant to this Lease, unless caused
by Landlord.
Without limiting the foregoing, Tenant agrees:
i. That it shall not do or omit to do nor suffer the
commission or omission of any act, the commission or
omission of which is prohibited by or may result in
liability pursuant to any Environmental Law, including
without limitation, the Release of Hazardous Substances;
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ii. Except as otherwise herein provided, whenever the
provisions of any Environmental Law requires the "owner
or operator" to do any act, Tenant, on behalf of Tenant
and/or Landlord, as the case may be, shall do such act
at its sole cost and expense, including the making of
all submissions and the providing of all information, it
being the intention of the parties hereto that Landlord
shall be free of all expenses and obligations arising
from or in connection with compliance with Environmental
Laws and that Tenant shall fulfill all such obligations
and pay all such expenses.
k. In the event there shall be filed a lien against the Building,
Land and/or Premises arising out of a claim(s) by DEP pursuant
to the provisions of the Spill Act or by EPA pursuant to the
provisions of CERCLA, resulting from any act of commission or
omission of Tenant or relating to a condition or circumstance
which Tenant is obligated to cure, then and in such event,
Tenant immediately either shall: 1) pay the claim and remove
the lien from the premises; or, 2) furnish a bond, cash
receipt or other security satisfactory to Landlord sufficient
to discharge the claim out of which the lien arises.
l. Each party hereby covenants and agrees to indemnify and hold
the other harmless from and against any and all losses of
whatever nature, including lost rentals, claims, costs, fines,
penalties, losses and expenses, including but not limited to,
reasonable attorney, consultant and expert fees that the other
party may sustain as a result of such party's non-compliance
or failure to comply in a timely fashion with the provisions
of this Paragraph 50 or any Environmental Law or by Tenant's
Release of Hazardous Substances at the Premises.
m. i. Tenant promptly shall provide Landlord with all
reports and notices made by Tenant pursuant to the
Hazardous Substance Discharge Reports and Notices Act,
N.J.S.A. 13:1K-15, et seq. and all rules, regulations,
orders, directives and opinions promulgated thereunder.
ii. Tenant promptly shall provide Landlord with a copy of
all permits relating to the Premises obtained pursuant
to any Environmental Law.
n. Tenant acknowledges that for Landlord to comply with the
requirements of Environmental Laws, Landlord from time to
time, may have to enter the Premises. Landlord and/or its
agents shall have an irrevocable license and right to enter
the Premises for such purposes, as well as for removing soil,
installing test and/or monitoring wells, such other equipment
and undertaking such other work as may be required by DEP. All
such entry by Landlord and/or its agents shall be upon
reasonable notice to Tenant.
o. Tenant shall cooperate fully in allowing, from time to time,
Such examinations, tests, inspections, and reviews of the
Premises as Landlord, in its sole and absolute discretion,
shall determine to be advisable in order to evaluate any
potential environmental problems. Landlord expressly reserves
the right, but without any obligation, to conduct
examinations, tests, (including but not limited to a
geohydrological survey of soil and subsurface conditions),
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inspections and reviews of the Premises as Landlord, in its
sole and absolute discretion, may determine to be necessary.
p. Landlord and Tenant agree to cooperate with each other to
provide any information necessary to the other in order to
effect compliance with any Environmental Law.
q. Notwithstanding anything to the contrary contained in this
lease, Tenant shall not be responsible for complying with any
Environmental Law in connection with any spill or Release of
Hazardous Substances which occurred prior to the commencement
of its leasing of the Premises, whether or not pursuant to
this Lease or which was caused by Landlord.
r. Tenant shall commence the performance of its obligations
within the time period specified herein or within ten (10)
days after obtaining knowledge or receiving notice requiring
its performance hereunder, if no other time period is
specified herein, and shall proceed diligently and in good
faith to complete the performance of its obligations within a
reasonable time. In the event Tenant shall fail to comply in
full with this Paragraph, Landlord, at its option, may perform
any and all of Tenant's obligations as aforesaid, and all
costs and expenses incurred by Landlord, in the exercise of
its rights shall be deemed a claim against Tenant as
Additional Rent payable on demand.
s. The provisions of this Paragraph 50 shall survive the
expiration or earlier termination of this lease, regardless of
the reason for such termination and compliance with the
provisions of this Paragraph 50 may require Landlord or Tenant
to expend funds or perform acts after the expiration or
termination of this lease. Landlord and Tenant agree to expend
such funds and/or perform such acts and shall not be excused
therefrom notwithstanding any expiration or termination of
this lease, it being agreed and acknowledged that the parties
would not have entered into this Lease but for the provisions
of this Paragraph 50 and the survival thereof.
t. During, at the end of, or after the Term of this Lease,
Tenant, at no cost to Tenant, agrees to execute any or all
documents required and/or prepared by Landlord in connection
with compliance with any Environmental Law.
51. GENERAL PROVISIONS
a. Joint Obligation. If there be more than one Tenant, the
obligations hereunder imposed shall be joint and several.
b. Marginal Headings, etc. The marginal headings index, lease
summary sheet and titles to the articles of this Lease are not
a part of the Lease and shall have no effect upon the
construction or interpretation of any part hereof.
c. Choice of Law. This Lease shall be governed by and construed
in accordance with the laws of the State in which the Premises
are located.
d. Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, inure
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to and bind the heirs, successors, executors, administrators
and assigns of the parties hereto.
e. Recordation. Neither Landlord nor Tenant shall record this
Lease, but a short-form memorandum hereof may be recorded at
the request of Landlord.
f. Quiet Possession. Upon Tenant's paying the rent reserved
hereunder and observing and performing all of the covenants,
conditions and provisions on Tenant's part to be observed and
performed hereunder, Tenant shall have quiet possession of the
Premises for the entire term hereof, subject to all the
provisions of this Lease.
g. Inability to Perform. This Lease and the obligations of the
Tenant hereunder shall not be affected or impaired because the
Landlord is unable to fulfill any of its obligations hereunder
or is delayed in doing so, if such inability or delay is
caused by reason of strike, labor troubles, acts of God, or
any other cause beyond the reasonable control of the Landlord.
h. Partial Invalidity. Any provision of this Lease which shall
prove to be invalid, void, or illegal shall in no way affect,
impair or invalidate any other provision hereof and such other
provisions shall remain in full force and effect.
i. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, whenever possible, be cumulative
with all other remedies at law or in equity.
j. Entire Agreement. This lease contains the entire agreement and
no representations, inducements, promises or agreements, oral
or otherwise, between the parties, not embodied herein, shall
be of any force or effect.
k. No Option. The submission of this Lease for examination does
not constitute a reservation of or option for the Premises,
and this Lease becomes effective only upon execution and
delivery thereof by Landlord.
52. OPTION TO RENEW: Tenant shall have the option to renew this lease
for an additional term of five (5) years under the following terms
and conditions:
a. Commencement. The next day following the termination date of
the initial term.
b. Notice. Tenant shall notify Landlord, or its agents or
assigns, in writing, by Certified mail, no later than twelve
(12) months prior to the expiration of the initial term of
this lease.
27
<PAGE> 28
c. Rent. Rent as described in Article 3 of this lease shall be
replaced with the following rental rates during the renewal
period.
<TABLE>
<CAPTION>
Period Monthly Rent Annual Rent
------ ------------ -----------
<S> <C> <C>
8/1/2001 - 7/31/2002 $4,062.50 $48,750.00
8/1/2002 - 7/31/2003 $4,166.67 $50,000.00
8/1/2003 - 7/31/2004 $4,270.83 $51,250.00
8/1/2004 - 7/31/2005 $4,375.00 $52,500,00
8/1/2005 - 7/31/2006 $4,479.17 $53,750.00
</TABLE>
d. Other Terms. In each and every respect and matter, all of the
terms, conditions, provisions and covenants of the original
lease shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns, in the same
manner and to the same extent as if each of the parties hereto
had been the initial parties to the original lease.
53. DELIVERY OF PREMISES.
a. Landlord agrees to deliver the Premises, substantially
completed and ready for occupancy by Tenant on or before
August 26, 1996, provided the following conditions are met:
i. Tenant executes Lease and this Addendum on or before
June 26, 1996 along with required payment of first
monthly payment of Rent ($3,437.50). Additional Rent
($1,108.33) and Security Deposit ($6,875.00); plus
ii. Tenant provides whatever approvals are required relating
to the renovation and construction of the Premises
within one (1) business day of any such requested
approval by Landlord or its agents.
b. If the Tenant's conditions outlined in this article 53 (a)
hereinabove are met and this Landlord does not deliver the
Premises substantially completed and ready for occupancy by
Tenant on or before August 26, 1996, then in that event, the
Landlord shall credit the Tenant $111.00 per day for each day
following August 26, 1996 until such day that Landlord does
deliver the Premises. Anything to the contrary
notwithstanding, any delay caused by the specification of
special items (i.e. equipment, fixtures and/or finishes that
are non-standard) or change orders by Tenant, shall in effect
postpone the deadline for delivery of Premises by that period
of time required to install such special items and/or make
such change orders.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals
in triplicate, the date and year first above written.
LANDLORD: ADVANT REALTY LIMITED PARTNERSHIP, II
BY: ADVANT REALTY GP II LIMITED PARTNERSHIP (Its General Partner)
By: /s/ Michael A. Ruane
--------------------------------------
Michael A. Ruane, Chairman
28
<PAGE> 29
TENANT: BRIGHTON INDUSTRIES CORPORATION
BY: /s/ Kit Kung
--------------------------------------
Kit Kung, Chairman
29
<PAGE> 1
EXHIBIT 10.2
THIS AGREEMENT made the 11th day of March, one thousand nine hundred and
ninety-six between FIVERAY INVESTMENTS LIMITED whose registered office is at
28/F, BANK OF CHINA TOWER, NO. 1 GARDEN ROAD, CENTRAL, HONG KONG (hereinafter
called "the Landlord") of the one part and Brighton Equipment Corporation
Limited whose registered office is at Rm 1403-5, Blk B Sea View Est, 2-8 Watson
Rd, North Point, Hong Kong (hereinafter called "the Tenant") of the other part
WHEREBY IT IS AGREED as follows:-
1. The Landlord shall let and the Tenant shall take All Those premises
(hereafter referred to as "the said premises") being FACTORY FLAT B AND D1
ON THE 14TH FLOOR OF AIK SAN FACTORY BUILDING ("the said building") 14
WESTLANDS ROAD, Quarry Bay, Hong Kong standing or erected on All Those
pieces or parcels of ground registered in the Land Office as Subsection 6
of Section C of Quarry Bay Marina Lot No.1, Section G of Quarry Bay Marina
Lot No.2 and the Extension Thereto and Section D of Quarry Bay Inland Lot
No.15 which said premises for identification purposes only are more
particularly shown on the Plan annexed hereto and thereon coloured Pink
hatched Black and marked "B & D1" together with the Furniture and Fixtures
as described in the Schedule annexed hereto (collectively "the Furniture
and Fixtures" and individually "the Furniture" and "the Fixtures")
TOGETHER with the right
<PAGE> 2
for the Tenant his servants, workmen or agents and all other persons
authorised by the Tenant in common with the Landlord and tenants of the
other factory flats in the said building and the like right to use for the
purpose only of access to and egress from the said premises the entrance
hall staircases landings and lifts in the said building and such passage
therein as are not included in any of the other factory flats together
with the right to use the gentleman toilet as more particularly marked "G"
on the plan annexed hereto in common with the Landlord tenants and
occupiers of other factory flats on the same floor of the said building
for a term of TWO YEARS (with an option for renewal as more particularly
described below) the 1st day of March 1996 to the 28th day of February
1998 both days inclusive determinable as hereinafter mentioned at the rent
of DOLLARS SEVENTY THOUSAND (HK$70,000.00) Hong Kong Currency per calendar
month exclusive of rates, management fees and other charges, to be paid in
advance on the 1st day of each and every calendar month without deduction
whatsoever with a rent free period from the 1st of March, 1996 to the 15th
March, 1996 subject to the performance and observances of the Tenant of
the terms and conditions herein.
2. The Tenant to the intent that the obligations may continue throughout the
term hereby created hereby
2
<PAGE> 3
agrees with the Landlord in the manner following that is to say:
(a) To pay the rent hereby stipulated on the day and in the manner
aforesaid without any deduction.
(b) To pay and discharge all rates taxes assessments duties charges
impositions and other outgoings now or at any time hereafter to be
imposed or charged by the Government of Hong Kong or other lawful
authority in respect of the said premises upon the owner or occupier
in respect thereof (Crown Rent and Property Tax alone excepted). For
the purpose of calculating the amount of rates payable by the
Tenant, the Tenant shall pay the Rates of the whole of Factory Flat
B and 42.73% of the rates of Factory Flat D.
(c) To pay all charges for management fees, telephone, electricity,
water and gas service charges and other outgoings now or at any time
hereafter chargeable in respect of the said premises. For the
purposes of calculating the amount of management fees, electricity
charges and water charges payable by the Tenant, the Tenant shall
pay the same as follows :-
(i) Management fees - the management fees payable in respect of
the whole of Factory Flat B and 42.73% of Factory Flat D.
3
<PAGE> 4
(ii) Electricity charges - electricity charges payable in respect
of Factory Flat B and Dl.
(iii) Water charges - water charges payable in respect of the
Factory Flat B and Dl.
(d) To keep the said premises including all Fixtures thereto and the
Furniture in complete tenantable repair and conditions throughout
the term hereby created (fair wear and tear expected) and without
any alterations except such as shall be sanctioned in writing by the
Landlord which consent shall not be unreasonably withheld and in
such repair and condition to yield them up at the determination of
the tenancy.
(e) To maintain the Furniture, all electrical installation or wiring,
plumbings (if any), Fixtures and installation installed by the
Landlord for use by the Tenant in good repair and condition and to
bear and pay for all costs and expenses for maintenance and/or
replacement of such Furniture, electrical installation or wiring,
plumbings (if any) , Fixtures and installation during the
continuance of the term of tenancy.
(f) To replace all broken or damaged windows whether the same be broken
or damaged by the negligence of the Tenant or owing to circumstances
beyond the control of the Tenant.
4
<PAGE> 5
(g) To forthwith repair and amend any defects to the said premises and
the Furniture and Fixtures of which notice shall be given to the
Tenant or left on the said premises or any part thereof.
(h) to pay for all costs and expenses for painting and/or whitewashing
the interior of the said premises or any part thereof but not
otherwise.
(i) To take all reasonable precautions to protect the said premises and
the Furniture and Fixtures against damage by fire storm or typhoon
or the like threats.
(j) To permit the Landlord and his agents at all reasonable times to
enter and view the state of repair of the said premises and
forthwith to repair and amend any defects of which written notice
shall be given to the Tenant or left on the said premises.
(k) Not to add to or remove from the said premises any Fixtures and/or
the Furniture without previous written consent of the Landlord and
in particular not to put up any fixtures partition or other erection
on any part of the said premises.
(l) Not to assign underlet or otherwise part with possession of the said
premises or any part thereof either by way of subletting lending
sharing or other means whereby any person or
5
<PAGE> 6
persons not a party to this Agreement obtains 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.
(m) Not to use the said premises except for office and its ancillary
storage purposes only.
(n) Not to incumber with boxes or otherwise or place or leave rubbish or
any article or thing whatsoever upon or in any part of the said
building which is not hereby exclusively let to the Tenant.
(o) Not without the consent in writing of the Landlord to do or permit
to be done within the said premises anything whereby the policy or
policies of insurance on the said building for the time being
subsisting against damage by fire or against claims by third parties
may become void or voidable provided that if by reason of anything
done by the Tenant within the said building the Insurers of the same
demand a higher rate of premium than would otherwise have been
charged the Tenant shall upon being so requested by the Landlord
forthwith reimburse the Landlord with the amount of such additional
insurance premium.
6
<PAGE> 7
(p) Not to do or permit to be done in or upon the said premises or any
part thereof anything which may be or become a nuisance annoyance
damage or disturbance to the Landlord or the tenant or occupiers of
the other factory flats of the said building or of other property in
the neighborhood or in anywise against the laws or regulations of
Hong Kong.
(q) Not to keep or store or cause or permit or suffer to be kept or
stored any arms ammunitions gun powder saltpetre kerosene or other
explosive or combustible substance or hazardous goods in the said
premises or do or cause to be done or suffer or permit any act deed
matter or thing whatsoever which shall amount to a breach or
non-observance of the terms and conditions under which the said
premises are held of the Crown.
(r) Not to use the said premises or allow the same to be used for any
illegal or immoral purposes.
(s) Not to hold or permit or suffer to be held any sale by auction on
the said premises.
(t) Not to do or permit or suffer to be done in or upon the said
building and the said premises which may infringe any laws,
regulations, by-laws rules and house rules and all notices and
requirements of the Government Departments and other competent
7
<PAGE> 8
authorities in connections with or in relation to the use and
occupation of the said premises and the said building.
(u) To indemnify the Landlord against all claims demands actions and
legal proceedings whatsoever made upon the Landlord in respect of
the damage to any person whomsoever caused by the negligence of the
Tenant or by or through or in any way owing to the overflow of water
from the said premises except in the events for which provision has
been made in Clause 4(j) hereof.
(v) To observe all the terms and conditions of the Deed of Mutual
Covenant or Deed of Covenant and Management Agreement (if any)
relating to the said building so far as the same relate to or affect
the said premises.
(w) To yield up the said premises with the Fixtures and any additions
thereto and the Furniture at the expiration or sooner determination
of this Agreement in good clean and tenantable repair and condition
in accordance with the stipulations hereinbefore contained fair wear
and tear is excepted and to remove at the Tenant's expense all
fixtures, fittings, additions, partitions and alterations made or
installed by the Tenant during the term hereof and to re-instate
restore and make
8
<PAGE> 9
good any damage caused by such removal or reinstatement and in the
event of the Tenant failing so to do the Tenant shall on demand pay
to the Landlord the cost of such reinstatement restoration or making
good.
(x) To pay and discharge (apart from the management fees hereinbefore
mentioned) any other service management and maintenance charges
(save and except those of a capital nature) payable by the owner or
occupier of the said premises or (as the case may be) the Landlord
including such charges as may be demanded by the Manager or
Management Committee for the time being of the said building of
which the said premise form part and/or those charges payable
pursuant to or by virtue of the Deed of Mutual Covenant and
Management Agreement (if any) relating to the said premises.
(y) To allow the Landlord at all reasonable times within 6 calendar
months immediately preceding the expiration of the said term the
Landlord to show and enter into the said premises to prospective
tenants or purchasers and to allow such prospective tenants or
purchasers to inspect the said premises.
(z) The Tenant has inspected and test-run the 2 sets of air-conditioning
systems with cooling tanks
9
<PAGE> 10
(collectively 2 Air-conditioning systems), which have been included
as an item in the list of Fittings and Furniture in the Schedule
hereto. The Tenant acknowledges that the Tenant has inspected and
test-run the 2 Air-conditioning systems and is satisfied. The Tenant
hereby undertakes to repair and maintain the 2 Airconditioning
systems during the subsistence of this tenancy agreement and to
yield and deliver up the 2 Air-conditioning systems to the Landlord
at the expiration of the term, fair wear and tear excepted. In
consideration of the Landlord providing clean services to the
gentleman toilet to be shared between the Landlord and the Tenant
and to pay and discharge the water and cleaning charges thereof, the
Tenant agrees to supply all toilet papers and liquid soap for the
normal use and consumption by the parties hereto in respect of the
gentleman toilet.
3. The Landlord hereby agrees with the Tenant as follows:-
(a) That the Tenant paying the rent hereby stipulated and observing and
performing the several stipulations herein contained and on his part
to be observed and performed shall peacefully hold and enjoy the
said premises during the said term without any interruption by the
Landlord or any
10
<PAGE> 11
person lawfully claiming under or in trust for him.
(b) The Landlord pay the Crown Rent and Property Tax in respect of the
said premises during the said term.
4. PROVIDE ALWAYS and it is hereby expressly agreed as follows:-
(a) If the rent hereby stipulated or any part there of shall be unpaid
for fifteen (15) days after becoming payable (whether legally or
formally demanded or not) or if the Tenant shall fail or neglect to
perform or observe any term or condition herein contained and on his
part to be performed or observed or if the Tenant or other person in
whom for the time being the term hereby created shall be vested
shall become bankrupt or enter into any composition or arrangement
with creditors then and in any of the said cases it shall be lawful
for the Landlord at any time thereafter 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 right of action of the Landlord in respect of any breach of
11
<PAGE> 12
the Tenant's terms and conditions herein contained and a written
notice served by the Landlord on the Tenant or left at the said
premises to the effect that the Landlord thereby exercises the power
of re-entry hereinbefore contained shall be a full and sufficient
exercise of such power notwithstanding any statutory or common law
provision to the contrary.
(b) The Tenant hereby agrees to deposit with the landlord the sum of
HK$149,177.34 by way of security for the due and punctual payment of
rent and due observance and performance of the term and conditions
on the part of the Tenant to be observed and performed herein
contained and if the Tenant shall not observe and perform any of the
covenants and conditions herein contained after the expiration of
the due notice to remedy the same the said deposit shall be
absolutely forfeited to the Landlord Provided that if the Tenant
shall have punctually paid the said rent, and all other outgoings
and shall have duly performed and observed the Tenant's terms and
conditions herein contained the said deposit shall be refunded to
the Tenant without interest within 14 days after the expiration or
sooner determination of the term hereby created and upon
12
<PAGE> 13
the Tenant delivering up possession of the said premises together
with the Furniture to the Landlord in good and tenantable
conditions.
(c) For the purpose of the Occupiers Liability ordinance (Cap. 314) or
any amendment or substitution thereto the Tenant shall be deemed for
all intents and purposes the occupiers of the said premises.
(d) All notice under this Agreement shall be in writing. Any notice
required to be served hereunder shall be sufficiently served on the
Tenant if delivered to him by post or left addressed to him at or on
the said premises or at his last known address in Hong Kong. A
notice sent by post to the Tenant shall be deemed to have been
received by the Tenant at the time when in due course of post it
would be delivered at the address to which it is sent.
(e) Acceptance of rent by the Landlord shall not be deemed to operate as
a waiver by the Landlord of any right tenant in resect of a breach
by the Tenant or any of the Tenant's obligations hereunder.
(f) For the purpose Of this Agreement any act default or omission of the
agents servants visitors and customers of the Tenant and any person
claiming
13
<PAGE> 14
through the Tenant shall be deemed to be the act default or omission
of the Tenant.
(g) For the purpose of the Distress for the Rent under Part III of the
Landlord and Tenant (Consolidation) Ordinance (Cap. 7) and for the
purpose of this Agreement the rent in respect of the said premises
shall be deemed to be in arrear if not paid in advance at the times
stipulated by Paragraph 1 hereof.
(h) The Tenant shall under any circumstances deliver up vacant
possession of the said premises to the Landlord at the expiration or
sooner determination of the term hereby created notwithstanding any
rule of law or equity to the contrary.
(i) The Tenant hereby expressly agrees to deprive himself of his rights
to protection against ejectment provided by the existing or future
legislation (if any) should such legislation be applicable to the
said premises.
(j) In the event of the said premises or any part thereof at any time
being damaged or destroyed by fire water storm wind typhoon
defective construction white-ants earthquake subsidence of the
ground or any other cause (not attributable to the act or default of
the Tenant) so as to be rendered unfit for use and occupation or
being
14
<PAGE> 15
declared unfit for use and occupation becoming subject to a closure
order or is inaccessible due to any cause whatsoever then the rent
hereby stipulated or a fair proportion thereof according to the
nature and extent of the damage sustained shall be suspended until
the said premises shall be again rendered fit for occupation and use
And the Landlord shall pay to the Tenant the amount of any such
abatement insofar as the rent shall have been paid in advance
provided the amount of such abatement shall be such sum as shall
either be agreed between the parties in writing or in the event of
failing by the parties to reach agreement by a single arbitrator in
accordance with the provisions of the Arbitration Ordinance (Cap.
341) or any statutory modification or re-enactment thereof for the
time being in force AND provided always that the Landlord shall be
under no obligation to reinstate the said premises whatsoever and
provided that if the Landlord shall fail to reinstate the said
premises within one month of receiving a written notice to reinstate
the same from the Tenant or if the said premises are declared unfit
for use and occupation or shall remain subject to the said closure
order or otherwise remain uninhabitable for a period of one
15
<PAGE> 16
month the Tenant may forthwith or within a reasonable time
thereafter terminate this Agreement without prejudice to its right
to recover the sum paid hereunder by way of deposit.
(k) All stamp duty shall be borne by the parties hereto in equal share.
(l) For the purpose of the interpretation of these presents words herein
denoting the singular number include the plural number and vice
versa; words herein denoting persons include corporations; and words
herein denoting masculine gender include feminine gender.
5. The Tenant hereby expressly admits and declares that no premium or fine or
construction or key money has been paid to the Landlord by the Tenant for
the creation of this tenancy.
6. The Tenant hereby further agrees with the Landlord to pay by way of an
additional rent without any deduction counterclaim or set off whatsoever
and on demand interest calculated on a daily basis at the rate of 2% per
month on:-
(i) any sum of money not received by the Landlord within 7 days of the
date due for payment (whether demanded or not) from the due date
aforesaid until the whole of such sum is received by the Landlord;
16
<PAGE> 17
(ii) any sum paid by the Landlord in default of the Tenant's obligations
under this Agreement from the date of payment by the Landlord until
the same is received by the Landlord; and
(iii) on any sum which shall be declined by the Landlord so as not to
waive a breach of a term agreement or condition herein by the Tenant
from the due date until acceptance following the remedying of the
breach by the Tenant.
7. The Landlord shall upon the written request of the Tenant made not less
than three or more than six calendar months before the expiration of the
term hereby created and provided that there shall not be at the time of
such expiration any existing breach or non-observance of any of the
agreements terms and conditions on the part of the Tenant herein
contained, grant to the Tenant a tenancy of the said premises for a
further term of ONE YEAR from the date of expiry of the term hereby
created on the same terms and conditions as herein contained save and
except this Clause for renewal but substituting for the rent hereby
reserved the open market rent to be mutually agreed, or failing agreement
thereon at least one calendar month before the expiration date of the
original term created by this Agreement, such rent as shall be determined
by arbitration by a single arbitrator to be agreed between
17
<PAGE> 18
the parties hereto or in default of agreement to be appointed at the
request of either party by the Chairman for the time being of the Royal
Institution of Chartered Surveyors (Hong Kong Branch), such arbitration to
be conducted in accordance with the provisions of the Arbitration
Ordinance, Cap. 341 of the Laws of Hong Kong or any statutory amendment
modification or enactment thereof.
As WITNESS whereof the parties have signed this Agreement the day and year first
above written.
18
<PAGE> 19
SCHEDULE
FURNITURE AND FIXTURES
(a) the inner surface of and the paint paper and other decorative finishes
applied to the interior of the external walls of the said premises but not
any other part of the external wall;
(b) the doors, door frames, windows and window frames;
(c) all carpet floor with underlay;
(d) false ceilings;
(e) all additions and improvements to the said premises;
(f) all the Landlord's fixtures and fittings of every kind now in or upon or
which shall from time to time be in or upon the said premises (whether
originally affixed or fastened to or upon the same or otherwise) except
any such fixtures and fittings installed by the Tenant and that can be
removed from the said premises without defacing the same; and
(g) all electrical and water installations and all wiring cables and piping
including without limitation all service media and air conditioning plant
equipment and apparatus.
19
<PAGE> 20
SIGNED BY ) For and on behalf of
)
) FIVERAY INVESTMENTS LIMITED
) /s/ Christina Cheung
---------------------------
Authorized Signature(s)
for and on behalf of the )
Landlord in the presence )
of :- )
SIGNED BY South China )
Registered Limited, its )
Director --------------- ) SOUTH CHINA REGISTRATIONS LTD.
/s/
--------------------------------------------
for and on behalf of the )
Tenant in the presence ) For and on behalf of
BRIGHTON EQUIPMENT CORPORATION
of :- ) LIMITED
/s/ Edith Wong
--------------------------------------------
Authorized Signature(s)
RECEIVED the day and year first above )
written of and from the Tenant the sum of )
HONG KONG DOLLARS ONE HUNDRED FORTY NINE ) HK$149,177.34
THOUSAND AND ONE HUNDRED AND SEVENTY-SEVEN )
AND CENTS THIRTY-FOUR being deposit money ) For and on
above expressed to be paid by the Tenant ) behalf of
to the Landlord. ) FIVERAY
INVESTMENTS
) LIMITED
WITNESS :- ________________
Authorized
Signature(s)
20
<PAGE> 21
Dated the 11th day of March 1996.
FIVERAY INVESTMENTS LIMITED
and
BRIGHTON EQUIPMENT CORPORATION LIMITED
*********************************
TENANCY AGREEMENT of
Factory Flats B and Dl on the 14th Floor of
Aik San Factory Building, 14 Westlands Road,
Quarry Bay, Hong Kong.
*********************************
21
<PAGE> 1
EXHIBIT 10.3
LEASE SUMMARY
Title of Lease: Building Lease Agreement
Date of Lease: March 23, 1994
Lessor: Beijing Chao Yi Trade and Development Company
Lessee: Beijing Brighton Staq Electronic System Co. Ltd.
Property or Suite Leased: 15 Guang Hua Road, Ritan Office Building, Chao Yang
District, Beijing, China
Term: May 1, 1994 - April 30, 1999
Termination Rights: 3 months notice or 3 months rental payment
Renewal Options: 6 months written notice prior to end of term
<TABLE>
<S> <C> <C>
Rent: Year 1 and 2 U.S. $ 90,000.00/Annum
- ----
Year 3 U.S. $103,725.00/Annum
Year 4 U.S. $104,186.25/Annum
Year 5 U.S. $109,395.56/Annum
</TABLE>
Assignment: Not permitted.
Governing Jurisdiction: China
<PAGE> 1
EXHIBIT 10.4
LEASE SUMMARY
Title of Lease: Building Lease Agreement
Date of Lease: April 26, 1995, Amended, August 28, 1996
Lessor: Beijing Chao Yi Trade and Development Company
Lessee: Beijing Brighton Staq Electronic System Co. Ltd.
Property or Suite Leased: 15A Guang Hua Road, Ritan Office Building, Room 888,
Chao Yang District, Beijing, China
Term: May 15, 1995 - April 30, 1999
Termination Rights: 3 months written notice by either party
Renewal Options: 3 months notice prior to the end of lease
Rent: Paid every six months at the following rates:
<TABLE>
<S> <C>
May 1, 1997 - October 30, 1997 U.S. $62,024.13
November 1, 1997 - April 30, 1998 U.S. $62,024.13
May 1, 1998 - October 30, 1998 U.S. $64,628.78
November 1, 1998 - April 30, 1999 U.S. $64,628.78
</TABLE>
Assignment: Not permitted
Governing Jurisdiction: China
<PAGE> 1
EXHIBIT 10.5
LEASE SUMMARY
Title of Lease: Building Lease Agreement
Date of Lease: June 24, 1997
Lessor: Shanghai Zhu You Properties Company Limited
Lessee: Beijing Brighton-STAQ Electronic System Co., Ltd.
Shanghai Branch
Property or Suite Leased: 665 Pu Yu Road, Nan Yang Properties Building
5th Floor, Suite D&E
Shanghai, China
Term: September 1, 1997 - August 31, 1999
- ----
Termination Rights: Subject to agreement between the parties
Renewal Options: 2 months notice prior to the end of lease
Rent: Rmb 18,200/month (U.S. $2,275/month)
Assignment: Not permitted
Governing Jurisdiction: China
<PAGE> 1
EXHIBIT 10.6
LEASE SUMMARY
Title of Lease: Building Lease Agreement
Date of Lease: December 21, 1995
Lessor: Shenzhen Beijing Hotel
Lessee: Brighton Elevators Corporation Limited Shenzhen
Representative Office
Property or Suite Leased: 10 Baoan Road, Beijing Building, Room 909
Luohu District, Shenzhen, China
Term: January 1, 1996 - December 30, 1997
Termination Rights: 2 months written notice by either party
Renewal Options: 2 months notice prior to the end of lease
Rent: Rmb 4108.50/month (U.S. $513/month)
Assignment: Not permitted
Governing Jurisdiction: China
<PAGE> 1
EXHIBIT 10.7
LEASE SUMMARY
Title of Lease: Agreement
Date of Lease: June 27, 1996
Lessor: Wuhan Zhong Nan Chemical Distribution Company
Lessee: Brighton Elevator Corporation Limited Wuhan
Representative Office
The Brighton Industries Corporation Wuhan
Representative Office
Property or Suite Leased: 2 Hang Kong Road
Rooms 3-5
Wuhan City, China
Term: October 1, 1996 - October 1, 1998
- ----
Termination Rights: 3 months prior notice
Renewal Options: Subject to negotiation upon termination
Rent: RMB $64,800/annum (U.S. $8,000/annum)
Increased by 5% after the first year
Assignment: Not permitted
Governing Jurisdiction: China
Comment: Original lease signed by Brighton Elevator. The
Brighton Industries Corporation takes over lease
October 1, 1997.
<PAGE> 1
EXHIBIT 10.8
C O N T R A C T
OF
20,000 METRIC TON/YEAR SODIUM BICHROMATE PRODUCTION PLANT
IMPORTATION OF TECHNOLOGY & EQUIPMENT FROM THE UNITED STATES
FOR CHONGQING DONGFENG CHEMICAL PLANT
BETWEEN
CHINA NATIONAL CHEMICAL CONSTRUCTION CHONGQING BRANCH
AND
THE BRIGHTON INDUSTRIES CORPORATION
<PAGE> 2
THE CONTRACT OF 20000 MT/Y
SODIUM BICHROMATE PRODUCTION PLANT IMPORTATION OF
TECHNOLOGY & EQUIPMENT FROM THE UNITED STATES
FOR CHONGQING DONGFENG CHEMICAL PLANT
CONTRACT NO.: 94HNXH/3901 US
SHIPPING MARKS: 94HNXH/3901 US
--------------
US TO HK
THE BUYER: CHINA NATIONAL CHEMICAL CONSTRUCTION
CHONGQING CO.
ADDRESS: NO. 24 YU BEI ER CUN JIANG BEI QU
CHONGQING, CHINA
TELEPHONE: (0811)752494
FAX NO.: (0811)750579
POSTAL CODE: 630020
BANK: BANK OF CHINA CHONGQING BRANCH
ACCOUNT NO.: 01809817
THE SELLER: THE BRIGHTON INDUSTRIES CORPORATION
ADDRESS: 15 ESSEX ROAD, CENTURY PLAZA BUILDING,
PARAMUS, NJ 07652 USA
TELEPHONE: (201)368-8463
FAX NO.: (201)368-1623
BANK: BANK OF CHINA, NEW YORK BRANCH
ACCOUNT NO.: 5011-4018567-001
THE ENDUSER: CHONGQING DONGFENG CHEMICAL FACTORY IN
CHINA
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THE CONTRACT PRODUCT:
Means that the Seller sells to the Buyer a complete set of productive
technology and whole basic engineering design package of 20000 MT/Y Sodium
Bichromate, 6000 MT/Y Chromic Anhydride (Chromic Acids) and 5000 MT/Y basic
Chromium Sulfate. The Seller, as the contractor, will also conduct
installations, commissioning and test run for the plant. The Seller will
supply the Allied- Signal's existing technology information of all Chromate
products. In addition, the Seller is responsible for supplying the key
equipment of the production plant made in the United States.
THE CONTRACT PLANT
Means the plant which consists of production facility, auxiliary facility
and utility within the battery limit which is defined in the Contract
Attachment 1.
GENERAL PRINCIPLE:
Being entrusted by Chongqing Dong Feng Chemical Factory,
China National Chemical Construction Chongqing Co. signed
the contract with The Brighton Industries Corporation.
The Seller is to apply to the U.S. Export & Import Bank a loan on behalf of
the Buyer for the total amount of the software and the hardware of the
contract, including shipping and insurance fee.
The Seller performs basic engineering design for this contract plant in
accordance with Allied-Signal's technology. The detailed responsibilities
for both parties and the scopes of supply will be shown in the technical
attachment.
The Seller and the Buyer through their substantial technical exchanges and
commercial negotiations agreed on the following clauses and the contract
signed will be enforced accordingly.
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C O N T E N T S
<TABLE>
<CAPTION>
CONTRACT CLAUSES
<S> <C> <C>
Clause 1 Scope of Supply
Clause 2 Delivery, Packing and Transportation
Clause 3 Contract Price
Clause 4 Technical Services Provided by the
Seller
Clause 5 Installation, Commissioning, Test Run &
Acceptance
Clause 6 Payment and Terms of Payment
Clause 7 Guarantee and Claims
Clause 8 The Customs Duty and other Taxes
Clause 9 Force Majeure
Clause 10 Disputes Settlement
Clause 11 Effectiveness of the Contract &
Miscellaneous
</TABLE>
<TABLE>
<CAPTION>
TECHNICAL ATTACHMENTS
<S> <C> <C>
Attachment 1 Battery Limit & Process Description
Attachment 2 Basic Engineering Design
Attachment 3 Performance Guarantee and Test
Attachment 4 Technical Service Provided by the
Seller in China
Attachment 5 Technical Training of the Buyer's
Personnel
Attachment 6 Design and Design Contact
Attachment 7 List of the Seller's Specialists
for Technical Services in China and
Treatment Conditions to be Provided
by the Buyer
Attachment 8 Procurement Service for Equipment
and List of Equipment to be
procured abroad
</TABLE>
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CLAUSE 1 SCOPE OF SUPPLY
1.1 The Seller's responsibility is to supply basic
engineering design, technical guidance for installation
commissioning, and test run. The Seller will also
provide technical service to the Buyer, the Buyer has
agreed to obtain the basic engineering design package
of the contract plant and the above mentioned guidance
and the technical service. The products description,
production capacity and quality index of the plant are
shown in technical attachment 2.2 and 2.3.
1.2 The Seller shall be responsible for providing the technical
documentation of the contract product. The specific content, quantity
and delivery will be shown in technical attachment 2.5 and 2.6.
1.3 The Seller shall dispatch experts to the job-site to provide
technical guidance and service for the Buyer's detailed engineering
design, construction acceptance, etc. The contents and the
requirement are shown in technical attachment 4.
1.4 The Seller shall dispatch the experts to the site to
train Buyer's technicians and main operators of the
contract plant in order for the Buyer to be familiar
with the technology provided by the Seller, production
operation, analysis and examination in the plant. The
contents and requirement are shown in technical
attachment 5.
1.5 The Seller shall dispatch the experts to the site to provide
technical guidance during the period of the test run until products
tested qualified. The contents and requirement of the test run and
products qualification is shown in technical attachment 3.
1.6 The U.S. key equipment purchasing service provided by the Seller for
the Buyer's Contract Plant is shown in Contract Attachment 8.
1.7 Authorization from AlliedSignal Inc. to the Chongqing Dong Feng
Chemical Plant to utilize the transferred technology exclusively for
the proposed production plant.
The transfer of the production license on chrome technology from
AlliedSignal Inc. ("Licensor") is via and signed by the Seller to
Chongqing Dongfeng Chemical Plant ("Licensee"). The Seller is,
through legal procedure, to acquire the production license from the
Licensor which is the legal owner of the technology. The Seller also
has the right to transfer the license
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to the Licensee, and guarantees that such transference is not to be
charged by any third party. In case that a third party contests the
legitimacy of the transference, the Seller should assume all legal
and economic liability.
1.7.1 SCOPE
Sodium Bichromate, Chromic Anhydride, Chromium Sulfate technical
know-how and related technology which includes utilizing the
technology for production and selling products in worldwide markets.
1.7.2 LICENSE
Exclusive transferred within the People's Republic of China and
non-transferable worldwide.
1.7.3 DURATION
Ten (10) years for withholding technical secrecy, indefinate for
utilzation of the technology.
1.7.4 PRODUCTION CAPABILITY
Total production of the license is 57,000 metric tons per year with
an initial production license of 20,000 metric tons per year.
1.7.5 RESPONSIBILITIES OF THE LICENSEE
1.7.5.1 The Licensee is not allowed to further transfer or provide the
technology to any third party without the written consent of the
Licensor.
1.7.5.2 The Licensee agrees to hold all transferred
information and technology from the Licensor in
strict secrecy. If any third party is able to
obtain this transferred technical secrecy without
the written consent from the licensee, then the
Buyer shall have the right and obligation to take
legal action against such third party on behalf of
the Seller.
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CLAUSE 2 DELIVERY, PACKING AND TRANSPORTATION
2.1 The Seller shall deliver the technical documentation in chongqing,
China in accordance with the contents, quantities and times
stipulated in the technical attachment 2.6.
2.2 After each shipment of the documentation, the Seller shall advice the
Buyer the name, quantity, transportation way of the shipment within 2
days and send the packing list, invoice and bill of lading, etc.
by express mail at the same time.
2.3 Upon receipt of the delivery, the Buyer will check it against the
items in the technical attachment. If any item missing or damaged
during the transportation, the Buyer should advice the Seller in five
(5) days. In return, the Seller should make up and re-ship the
missing or damaged item to the Buyer within 30 days.
2.4 These technical documents shall be packed in new and strong cases
which are suitable for long distance transportation to protect from
damage. Two copies of detailed packing list for the batch shall
content item number, name and number of total page of the document.
Such packing list should be enclosed in each package.
2.5 Delivery, Packing and transportation of the equipment shall be in
accordance within the specifications of the equipment orders.
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CLAUSE 3 CONTRACT PRICE
The contract price is US$11,000,000.00 CIF China main ocean port. The
price consists of three parts: technology transfer fee, overseas
equipment procurement fee and technical services fee.
3.1 Contract Price and Fees
3.1.1 Technology Transfer Fee is US $4,785,000.00. The goods shall be
delivered at Chongqing Airport. The production technology transfer
contract price consists of the following segments:
3.1.1.1 The technology transfer license fee of 20000 MT/Y Sodium Bichromate
is US$2,200,000.00.
3.1.1.2 Fee for Seller to provide basic engineering design and technical
documentation related to the technology is US$985,000.00.
3.1.1.3 Fee for Seller to provide basic engineering design and technical
documentation related to the equipment and material is
US$1,600,000.00.
3.1.2 Overseas Equipment Procurement Fee is estimated at US$6,000,500.00
CIF China main ocean port. The final equipment price will be
determined based upon the equipment purchase order. The Overseas
Equipment Procurement List is attached as APPENDIX 3-1.
3.1.3 Technical service fee is US$214,500.00. The payment term of the
technical service fee is shown in the technical attachment 7. The
payment is to be calculated at the rate of US$858.00 man/day
according to actual man/day serviced by the Seller's technical
personnel on the end user site. The Technical Services Schedule is
attached as APPENDIX 3-2.
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<TABLE>
<CAPTION>
Contract Attachment 8 - Hardware Equipment List & Price [APPENDIX 3-1]
Contract Number # 94 HNXH/3901 US
US Dollars Expressed In Thousand
Description Equipment # Spec's Vendor Quantity Unit Price
<S> <C> <C> <C> <C> <C> <C>
Material Feeder FE-125 [3-5 ton/hr] Koppers 2 6.75 13.5
Ball Mill MI-130 [5-10 ton/hr] Hardinge 1 900 900
Double Ribbon Blender MX-198 [20 ton/hr] Mixing 2 60 120
Double Screw Feeder CV-207 [3-5 ton/hr] Fluor Daniel 1 30 30
Continuous Treator w/Control System TK-315 [10-20 m3/hr] AlliedSignal 1 517 517
Evaporation Recycle Pump PU-330 [10-15 m3/hr] Struthers 1 65 65
Continuous Crystallizer CZ-360 [2-5 ton/hr] Struthers 1 270 270
Sulfate Centrifuge CG-520 [6 ton/hr] Baker 1 355 355
Acid Solution Filter FL-350 [30 m2] US Filter 2 240 480
Sodium Bichromate Centrifuge CG-410 [6 ton/hr] Baker 2 350 700
Packing Machine PG-430 [5-10 ton/hr] Fluor Daniel 2 80 160
Sodium Bichromate Anhydrous Dryer CG-650 [6 ton/hr] Baker 1 348 348
Crystallizer (Anhydrous Crystallizer) CZ-630 [2-5 ton/hr] Swenson 1 165 165
Chromic Acid Reator w/Control System RR-720 [1-5 ton/hr] AlliedSignal 1 485 485
Chromic Acid Packing Machine PG-741 [1-5 ton/hr] Fluor Daniel 1 82.5 82.5
Cloudy Liquor Muds Filter FL-750 [20 m2] Dorr 1 350 350
Oleum Supply Pump PU-725 [10-15 m3/h] Liquiflo 1 12 12
Basic Chromium Sulfate Spray Dryer DR-830 [1-5 ton/hr] Fluor Daniel 1 80.5 80.5
Basic Chromium Sulfate Packing Machine PG-866 [1-5 ton/hr] Fluor Daniel 1 85 85
Mix Scales SG-135 N/A K-Tron 10 35 350
Export Packing/Land & Ocean Freight/ N/A N/A Brighton 1 432 432
Grand Total 6000.5
</TABLE>
<PAGE> 10
Attachment to Contract No. # 94 HNXH/3901 US [APPENDIX 3-2]
Technical Services Provided By The Seller
For 20,000 MT/Y Sodium Bichromate Plant
<TABLE>
<CAPTION>
Time-Range (1) No. of People Specialities (2) No. of Times Man-days
<S> <C> <C> <C> <C> <C>
Phase 1--Contraction & Installation [156 - 182] 1 PE 1 15
1 Process Engineer [156 - 182] 1 ME 1 15
2 Mechanical Engineer [156 - 182] 1 IE 1 15
3 Instrument Engineer 3 3 45
Subtotal
Phase 2--Training
1 Process Engineer [156 - 182] 2 PE 1 40
Phase 3--Commissioning
1 Process Engineer [156 - 182] 1 PE 1 30
2 Mechanical Engineer [156 - 182] 1 ME 1 30
3 Instrument Engineer [156 - 182] 1 IE 1 30
Subtotal 3 3 90
Phase 4--Test Run/Acceptance
1 Process Engineer [156 - 182] 3 PE 1 75
Grand Total 5 11 250
</TABLE>
Note: (1) Expressed in weeks.
(2) PE = Process Engineer, ME = Mechanical Engineer, IE = Instrument
Engineer
<PAGE> 11
Attachment to Contract # 94 HNXH/3901 US
Technology Transfer Documentation List
<TABLE>
<CAPTION>
Item Description Quantity
- ---- ----------- --------
<S> <C> <C>
1) Process description 1 set
2) Process flowsheets 27
3) Piping and instrument diagrams (P&ID's) 14
4) Supervisors' and operating manuals
and Engineering Directives 36
5) Research and plant research reports 8
6) Baltimore plant layout drawings 24
7) Baltimore plant equipment arrangement
drawings 70
8) Cardex file of equipment which contains detailed
equipment 1 set
9) Description of laboratory analytical
procedures 1 volume
10) General information on process piping, valves &
fittings *
11) Safety data sheets for products & chemicals
used 1 set
12) General information for the prevention of major
incidents 1 set
13) Recommended spare equipment or parts *
14) Physical Data 4 Books
</TABLE>
* Denotes Not Available - Will be reviewed during Technology
Transfer Phase.
<PAGE> 12
CLAUSE 4 TECHNICAL SERVICES PROVIDED BY THE SELLER
4.1 According to the stipulation in the contract, the Seller should
dispatch the technical engineers with experience to the job-site to
provide technical service. The number of people, specific tasks and
duration on the site is shown in the technical attachment 4,5,7.
4.2 During the period of basic engineering design by the Seller in the
United States, the Seller shall assist the Buyer for its engineers to
apply travelling document to enter, to work and to stay in U.S. The
specific requirement is shown in the technical attachment 6.
4.3 Forty five (45) days before arriving to the job-site in China, the
Seller shall advice the Chinese party so as for the Buyer to issue
invitation letter, to arrange accommodation, place of working and
transportation, etc. The details is shown in the technical attachment
7.
4.4 During the Basic Engineering Design, the Buyer will send their
specialists to the United States, to participate in the design phase,
equipment procurement services and contract work acceptance. The
details of this participation are shown in Technical Attachment 6 and
8.
4.5 The technicians from both the Seller and the Buyer should obey the
laws and the regulations in either country where and during their
stay.
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CLAUSE 5 INSTALLATION, COMMISSIONING, TEST RUN & ACCEPTANCE
5.1 During the installation period of the contact plant, the Seller shall
dispatch experts to the job-site to supervise the job. The Buyer will
cooperate with the Seller to perform the erection work according to
the Technical Attachment 4.
5.2 After the installation is completed, both the Seller and the Buyer
will perform adjustment, commissioning, test run and acceptance of
the trial products. The details for the test run, including testing
item, quantity, time and acceptance standard are shown in the
Technical Attachment 3.
5.3 When the test running of the plant and the quality of
the products qualified to the acceptance standard
stipulated in the technical attachment after the test
run which is performed by both parties, the authorized
representatives from the Seller and the Buyer will sign
the certificate of acceptance for the contract
products. This certificate will be in four copies,
each party will keep two copies.
5.4 If the technical property of the products is not fully qualified to
the standard after test run and acceptance of the plant, the methods
of solving the problem for both parties shall be determined according
to the Contract Clauses 5.5.2, 5.5.3, 5.7 and 7.4.
5.5 During the commissioning period, the Buyer will provide written
production monthly report in English to the Seller. The Seller will
decide whether the production facility is stable and ready to perform
the test run.
5.5.1 During the test run period, if the running can not be
completed in two running circles due to external cause,
such as power, gas, water failure, mechanical
malfunction or, improper operation, both parties will
consult and decide to suspend the running. If and when
both parties decide to start another running, and if
that requires to have Seller's specialist(s) come to
the contract plant, the incurred expenses, including
air tickets, accommodation, transportation,
communication and etc. will be borne by Buyer.
However, the salary will be calculated and paid
according to US $800 per person per working day.
5.5.2 In case that the test run cannot be completed after three tries under
the direction of Seller's specialist(s) due to the causes described
in 5.5.1, both parties shall decide not to try any more. Thus, the
contract is fully fulfilled and completed.
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5.5.3 In case that the test run can not be started due to nontechnical
cause (Except for force majeure) twelve months after commissioning
takes place, both parties shall decide not to perform the test run.
Thus, the contract is fully fulfilled and completed.
5.5.4 Within three (3) months after both the Seller and the Buyer decide to
finalize the contract, both parties should settle the account of the
contract.
5.6 After the test run and the acceptance of both parties according to
the technical attachment 3, the Seller and the Buyer will sign a
certificate of acceptance in four (4) copies. Each party keep two (2)
copies. The Buyer shall then pay to the Seller the remaining balance
of the total contract price.
5.7 If the test run index is not totally qualified after the test run,
penalty fine shall be imposed according to the Contract Clause 7.6.
5.8 The Seller undertakes to dispatch AlliedSignal's technical personnel
to the China site to provide technical services before December 31,
1996. After December 31, 1996, the Seller will organize its own
technical team to provide such services which shall be satisfactory
to the technical attachment 4.
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CLAUSE 6 PAYMENT AND TERMS OF PAYMENT
6.1 All the payments either by the Buyer to the Seller or
by the Seller to the Buyer under this Contract shall be
made by telegraphic transfer. Payments by the Buyer to
the Seller shall be effected through Buyer's bank to
Seller's bank and payments by the Seller to the Buyer
shall be effected through Seller's bank to Buyer's
bank. All the documents of payment made by either the
Buyer or the Seller shall be transferred through both
parties' banks.
The total Contract price specified in the Clause 3 of the Contract
shall be paid by means of
6.1.1 The payment of fifteen percent (15%) of the total Contract price as
indicated in Clause 3 shall be made by the Buyer to the Seller within
thirty (30) days by cash payment through way of telegraphic transfer
remittance after the Buyer has received the documents specified in
Clause 6.2.1.1 and found them in order.
The payment of eighty-five percent (85%) of the total Contract price
shall be made in accordance with Loan Agreement signed by and between
the Buyer's Bank and Export-Import Bank of the United States
(hereinafter referred to as the US Bank) by way of Irrevocable Letter
of Credit issued in favor of the Seller by the Buyer's Bank within
three (3) months after the Effective Date of the Contract.
6.2 The total Contract price stipulated in Clause 3 shall be paid by the
Buyer to the Seller according to the following schedule, terms and
proportions:
6.2.1 Technology Transfer Fee specified in Contract Clause
3.1.1.
6.2.1.1 Within thirty (30) days after the Effective Date of Contract, fifteen
percent (15%) of the total Contract price, which is US$1,650,000,00
(say: one million six hundred fifty thousand US dollars only)
Shall be paid by the Buyer to the Seller, as downpayment for the
technology transfer fee, within thirty (30) days after the Buyer has
received the following documents submitted by the Seller and found
them in order:
(a) Export License issued by the relevant authorities of the
Seller's country, authorizing the Seller to export the
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Equipment, Materials, License and Know-how, Technical
Documentation or a certificate issued by the Licensor stating
that such export license is not required;
(b) One (1) original and one (1) copy of an irrevocable Letter of
Guarantee issued by the Seller's Bank (Specimen as per
Appendix 6-1);
(c) Four (4) copies of proforma invoice issued by the Seller
covering the total Contract price;
(d) Four (4) copies of commercial invoice;
(e) Two (2) copies of sight draft.
6.2.1.2 Nine (9) weeks after the first payment, ten percent (10%) of the
total Contract price, which is US$1,100,000.00
(say: one million one hundred thousand US dollars
only)
shall be paid by the Buyer to the Seller within thirty (30) days
after the Buyer has received the following documents and found them
in order:
(a) Two (2) copies of the certificate of technology data
confirmation signed by the ultimate user;
(b) Four (4) copies of commercial invoice;
(c) Two (2) copies of sight draft.
6.2.1.3 Five (5) months after the first payment, four percent (4%) of the
total Contract price, which is US$440,000.00
(say: four hundred forty thousand US dollars only)
shall be paid by the Buyer to the Seller upon delivery by the Seller
of the equipment specification list in accordance within the
Technical Attachment of the Contract and within thirty (30) days
after the Buyer has received the following documents and found them
in order:
(a) Two (2) copies of the receipt of the Equipment Specification
List signed and accepted by the ultimate user;
(b) Four (4) copies of commercial invoice;
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(c) Two (2) copies of sight draft.
6.2.1.4 Seven months after the first payment, four percent (4%) of the total
Contract price, which is US$440,000,00
(say: four hundred forty thousand US dollars only)
shall be paid by the Buyer to the Seller upon delivery by the Seller
to the Buyer of the instrument list in accordance within the
Technical Attachment of the Contract and within thirty (30) days
after the Buyer has received the following documents and found them
in order:
(a) One (1) copy of the Authorization Letter issued by
AlliedSignal, Inc. to Chongqing Dongfeng Chemical Factory of
utilizing the transferred chrome technology to produce
products as specified within the contract.
(b) Two (2) copies of the receipt of the Instrument Specification
List signed and accepted by the ultimate user;
(c) Four (4) copies of commercial invoice;
(d) Two (2) copies of sight draft,
6.2.1.5 Eleven (11) months after the first payment, eight point thirty-three
percent (8.33%) of the total Contract price, which is US$916,300,00
(say: nine hundred sixteen thousand and three
hundred US dollars only)
shall be paid by the Buyer to the Seller upon delivery by the Seller
to the Buyer of the whole basic engineering design package in
accordance within the Technical Attachment of the Contract and within
thirty (30) days after the Buyer has received the following documents
and found them in order:
(a) Two (2) copies of the Acceptance Certificate of the Basic
Engineering Design Package signed by the ultimate user;
(b) Full set of the Airway Bill delivering of the
package;
(c) Four (4) copies of commercial invoice;
(d) Two (2) copies of sight draft.
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6.2.2 Overseas Equipment Procurement Fee specified in
Contract Clause 3.1.2
6.2.2.1 Within six (6) months after the first payment, fifteen percent (15%)
of the total Contract price, which is US$1,650,000,00
(say: one million six hundred fifty thousand US
dollars only)
shall be paid by the Buyer to the Seller, as downpayment for the
American made equipment procurement, within thirty (30) days after
the Buyer has received the following documents and found them in
order:
(a) One (1) copy of the List of Purchase Orders signed and
confirmed by the ultimate user.
(b) Four (4) copies of commercial invoice;
(c) Two (2) copies of sight draft,
6.2.2.2 Within twelve (12) months after the first payment, twenty percent
(20%) of the total Contract price, which is US$2,200,000.00
(say: two million two hundred thousand US dollars
only)
shall be paid by the Buyer to the Seller, as the second payment for
the American made equipment procurement, within thirty (30) days
after the Buyer has received the following documents and found them
in order:
(a) Four (4) copies of commercial invoice;
(b) Two (2) copies of sight-draft.
6.2.2.3 Within eighteen (18) months after the first payment, nineteen point
fifty five percent (19.55%) of the total Contract price, which is
US$2,150,500.00
(say: two million one hundred fifty thousand and
five hundred US dollars only)
shall be paid by the Buyer to the Seller within thirty (30) days
after the Buyer has received the following documents and found them
in order:
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(a) Full set clean on board ocean Bill of Lading made out to order
marked "Freight Prepaid";
(b) One (1) original and two (2) copies of ocean transportation
insurance policy covering the amount of 110% of the invoice
value of the equipment and material shipped;
(c) Packing list in four (4) copies;
(d) Four (4) copies of commercial invoice;
(e) Two (2) copies of sight draft.
6.2.3 Technical Service Fee specified in Contract Clause
3.1.3
6.2.3.1 When the Buyer and the Seller both agree that the contract plant is
ready for technical services, such as site inspection, training,
commissioning and test run, then zero point ninety five percent
(0.95%) of the contract price as of the Technical Service Fee, which
is US $104,500.00
(say: One hundred four thousand and five hundred
US dollars only)
shall be paid by the Buyer to the Seller within ten (10) days after
the Buyer has received the following documents submitted by the
Seller and found them in order :
(a) One (1) copy of the notification from the Seller to the Buyer
advising the number of technical specialists and the arrival
time to the job site to perform the contracted technical
services;
(b) Four (4) copies of commercial invoice;
(c) Two (2) copies of sight draft.
6.2.3.2 The remaining of the Technical Service Fee or one percent (1%) of the
contract price, which is US $110,000.00
(say: One hundred ten thousand US dollars only)
shall be paid by the Buyer to the Seller within ten (10) days after
the Buyer has received the following documents submitted by the
Seller and found them in order:
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(a) Two (2) copies of the time sheets signed by the
representatives of both parties confirming the actual workdays
performed by the Seller for the contracted technical services
and the final compensation calculation for the technical
services;
(b) Four (4) copies of commercial invoice;
(c) Two (2) copies of sight draft.
6.2.3.3 In the event that the actual workdays of the
technical services performed by the Seller differ
from the contracted 250 workdays, then the amount
of the last payment of the Technical Services Fee
shall be adjusted at the rate for the workday
specified in Contract Clause 3.1.3 and Clause 7
against the actual workdays performed by the
Seller.
6.3 Contract Remaining Balance Settlement
6.3.1 Upon satisfying Contract Clause 7 of the Performance Guarantee, after
the last shipment of the equipment procured in the United States of
America as per Contract Clause 3.1.2, and after qualified products
produced from the test run of the plant, the last payment of the
total Contract price, which is US $238,700.00
(say: two hundred thirty-nine thousand and two hundred US dollars
only)
shall be paid by the Buyer to the Seller after the Buyer has received
the following documents and found them in order :
(a) Two (2) copies of the Certificate of the result of the Test
Run and final Contract Settlement Calculation signed by the
ultimate user;
(b) one (1) original and one (1) copy of an irrevocable Letter of
Guarantee issued by the Seller's Bank for Performance
Guarantee for the commissioning and test run of the contract
plant in favor of the Buyer (Specimen as per
Appendix 6-1);
(c) Four (4) copies of commercial invoice;
(d) Two (2) copies of sight draft.
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6.3.2 In the event that the Seller shall pay any amount for penalty as of
the failure of the performance test specified in Contract Clause 7,
then the Seller shall make the penalty payment to the Buyer within
thirty (30) days after the two parties reach agreement on the testing
result and receiving the formal written notice from the Buyer.
6.4 All the banking charges and fees for the execution of this contract
incurred in P.R. China shall be borne by the Buyer, while those
incurred outside of P.R. China shall be borne by the Seller.
6.5 Agreement on postponing payment
If the Buyer fails to pay the Seller on the payment schedule
stipulated in the Contract Clause 6, the failure of the payment shall
be treated as follows:
6.5.1 If the Buyer fails to pay the Seller exceeding the payment schedule
specified within Contract Clause 6 for more than four (4) weeks, then
the Seller shall have right to delay the execution of the contract.
In addition, the Buyer shall compensate the Seller all associated
financial losses.
6.5.2 If the Seller re-starts the contract according to the specific
request from the Buyer after the contract has been postponed due to
the f act that the Buyer fails to pay the Seller according to the
payment schedule, then the Buyer shall pay the Seller the Contract
re-starting fee. The actual amount of the Contract re-starting fee
shall be determined and agreed by both parties.
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APPENDIX 6-1 Letter of Guarantee Specimen
Date :
To : The Buyer
Address
Letter of Guarantee for Contract No. _________________________
This Guarantee is hereby issued to serve as the Performance Guarantee of The
Brighton Industries Corporation (hereinafter called "the Seller") for contract
No. _________________ dated __________________, 1994, between you and the Seller
for supply of technology transfer and related services, overseas equipment
procurement, technical services for Sodium Bichromate Chemical Plant
(hereinafter called "the project").
(The Seller's Bank) in the State of _______________________, the United States
(hereinafter called "the Bank") hereby irrevocably guarantees and binds itself,
its successors and assigns to pay you up to the total amount US$ _____________
(say United States Dollars _______________________________) representing the
exact amount of the fund which you will deposit into the Bank in care of the
Seller's bank account and accordingly agrees as follows:
(1) On the Seller's failure of the faithful performance of the contract and
determined by you, the Bank shall, on your demand in a written notification
stating the failure of performance by the Seller, pay you such amount or amounts
as required by you not exceeding the aggregate total as stated above. All
demands notifications and statements must bear the confirmation of a bank in
P.R, China that the signatories thereon are authorized to sign.
(2) On your written notification, the Bank shall pay the amount or amounts to
the Seller as specifically instructed by you not exceeding the aggregate total
as stated above. All written notifications and payment instructions must bear
the confirmation of a bank in P.R. China that the signatories thereon are
authorized to sign.
(3) This guarantee shall only be valid in full force and effect from the date
that the Bank shall receive the exact amount of fund deposited from you to the
Bank in care of the Seller and remain valid in full force until _____________,
199x after which date the Bank's liability hereunder shall absolutely cease and
this Guarantee will be of no further effect. All claims or demands hereunder
must be received by the Bank at its registered office in the State of
___________, the United States of America on or before the said date of expiry
of this Guarantee.
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This Guarantee is personal to you and is not assignable or transferable.
It is a condition of this Guarantee that this Guarantee shall be returned to the
Bank for cancellation upon payment or upon expiry, as the case may be.
This Guarantee shall be governed by and construed in accordance with the laws in
the State of ___________________, the United states of America.
Your faithfully,
For and on behalf of
The Seller's Bank
Authorized signature(s)
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CLAUSE 7 GUARANTEE AND CLAIMS
7.1 The Seller guarantees that the technical documentation of basic
engineering design provided by the Seller according to the contract
is to be verified and confirmed by the Buyer, The Seller further
guarantees that the technical documents will be delivered on schedule
according to the technical attachment 2.6.
7.2 After the validity of the contract, upon Buyer's request, the Seller
will continue to provide technical guidance to the contract plant if
and when condition allows in order to improve technical level and
quality of the contract products.
7.3 If the technical documents delivered by the Seller are not in
accordance with the stipulation in the technical attachment 2.5, the
Seller must mail related technical documents to the Buyer free of
charge within thirty (30) days after receipt of Buyer's written
notice.
7.4 During the commissioning, test run and acceptance
period, if the production and product quality is not
stable due to improper process and selection of
equipment provided by the Seller, then the Seller will
continue to provide technical services free of charge
until the production and the product quality is stable
and qualified.
7.5 If the Seller does not deliver the technical documents
on the schedule according to the technical attachment
2.6, and when the delay exceeds four (4) weeks, a
maximum penalty of (0.1%) of the contract software
price for each week may be charged starting the fifth
week. However, the penalty will not release Seller's
liability of continuing to deliver the technical
documents.
If the delay exceeds seventy (70) days, the Buyer has the right to
cancel the contract, and the Seller must reimburse the Buyer the
whole amount paid by the Buyer.
7.6 If the technical property guarantee stipulated in the
technical attachment 3 (production capability, product
quality, chrome ore recoverability, chrome yield,
chromium residue discharge rate, and chrome loss)
cannot be qualified within six (6) months after the
beginning of the test run, the Seller shall pay penalty
fines to the Buyer according to the following
percentage table. But the total penalty fine will not
exceed five percent (5%) of the total contracted
technology transfer and related services price.
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TEST ITEMS PENALTY PERCENTAGE
(% of total software price)
1 Total Production output
(90% of the designed capacity) 1.5%
2 Sodium Bichromate production 1.5%
(90% of the designed capacity)
3 Sodium Bichromate quality
(100% as qualification) 2.0%
4 Chromic Acids quality
(100% as qualification) 2.0%
5 Chromium Basic Sulfate quality 1.0%
(100% as qualification)
6 Chromium total recoverability 1.0%
(86.52% as qualification)
7 Chromic Residue discharge 0.5%
(1.53 T/1.0 T Sodium Bichromate) 0.5%
8 Chromium in process waste water of workshop 0.5% (0 as qualification)
If the above item does not meet the qualification figure, penalty fine will
be calculated according to the following:
7.6.1 Total production output, Sodium Bichromate production, product
quality, chrome yield, once one percent (1%) below the qualification
figure, the penalty will be ten percent (10%) of the penalty
percentage listed in the above table, respectively.
7.6.2 Chromium Residue discharge, once one percent (1%) higher than the
qualification figure, the penalty will be ten percent (10%) of the
penalty percentage listed in the above table.
7.6.3 Chromium in process waste water of workshop, if it can not reach zero
in the waste water discharge, the penalty will be the total penalty
percentage listed in the above table.
7.6.4 If the test run items above exceed the lowest penalty level [item 1,
2, 3, 4, 5, 6 lower than ten percent (10%) of the designed; item 7
higher than ten percent (10%); item 8 higher than 1000g/sec.], the
Buyer has the right to refuse to accept.
7.7 Upon validity of the contract, the Seller and the Buyer
must strictly comply with the contract. If one party
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cancels the contract without permission of the other except the
equipment procurement contract, the one who cancels the contract must
pay the other party economic compensation.
7.8 Within ten (10) years after the contract comes into
force, both parties have the liability to keep secrecy
to the productive technology of scope of the contract
product. Neither party is allowed to transfer or to
provide the technology to any third party. If any
party breaks the contract, the other party has the
right to impose penalty of twenty percent (20%) of the
technology transfer price of the contract.
7.9 The guarantee and the claim for the overseas equipment will be in
accordance with relevant clauses in each equipment purchasing
contract.
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\
CLAUSE 8 THE CUSTOMS DUTY AND OTHER TAXES
8.1 A treaty between the US and the Chinese government was signed on the
30th of April, 1984 regarding avoiding double taxation between the
two countries. Both parties shall obey the regulation and provision
of the treaty.
8.2 The duty and the taxation related to the contract collected by the
People's Republic of China from the Buyer according to the country's
current tax law will be borne by the Buyer.
8.3 The duty and the taxation related to the contract collected by the
People's Republic of China from the seller according to the country's
current tax law will be borne by the Seller. The Seller agrees to
pay the Buyer within ten (10) days the taxation referred in Contract
Clause 8.1 when the Buyer produces a notification of taxation payment
from the Taxation Authority of the Chinese Government. The Buyer
agrees to provide to the Seller the original copy of the certificate
or receipt of the taxation payment from the Taxation Authority of the
Chinese Government when the Buyer receives it.
8.4 The duty and the taxation related to the contract collected outside
Chinese boundary will be borne by the Seller.
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CLAUSE 9 FORCE MAJEURE
9.1 Both Parties shall extend the execution period of the contract in
case of war, water or fire disaster, earthquake and/or such natural
disasters of force majeure that affected to either party.
9.2 The party affected by the force majeure shall inform, by fax or
telex, the other party, and send within fourteen (14) days, by
certifies air mail, the other party an authorized testimonial for the
other party to confirm.
9.3 In case that the influence of the force majeure lasts more than one
hundred twenty (120) days, both parties shall consult to each other
in order to decide how to continue executing the contract.
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<PAGE> 29
CLAUSE 10 DISPUTES SETTLEMENT
10.1 During the performance of the contract, both parties will attempt to
settle any and all dispute first through friendly consultation. If
there is no agreement reachable after such consultation, the dispute
shall be submitted to arbitration.
10.2 The arbitration will be conducted in Beijing, the People's Republic
of China by the arbitration institute of the China Foreign Trade
Promotion Committee in accordance with the arbitration procedures and
rules of the institute.
10.3 The award of the arbitration will be final and binding, and parties
will abide by such award.
10.4 When arbitration takes place in Beijing, the Chinese law is the
applicable law.
10.5 The arbitration fee shall be borne by the failure party except
otherwise decided by the arbitrator.
10.6 In the course of arbitration, the contract will be continuously
executed by both parties except for matters which are under
arbitration.
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CLAUSE 11 EFFECTIVENESS OF THE CONTRACT & MISCELLANEOUS
11.1 This contract is signed by the representatives authorized by both
parties on the 15th day of April, 1994. The Buyer will then apply to
the Chinese government authorities for approval. Upon such
governmental approval, then the buyer's Bank and the Export-Import
Bank of USA will negotiate and sign a loan agreement according to the
contract. The date for such loan agreement execution is the date when
the contract becomes valid. The Buyer shall duly inform the Seller of
the contract approval by fax and then air mail.
11.2 If the contract does not become valid three months after the signing,
both parties shall have right to cancel the contract. The
cancellation shall be confirmed by air mail.
11.3 The term of the validity of the contract is five (5) years beginning
the date that the contract comes into effect. When the term of
validity expires, the contract will loss its effect.
11.4 When the contract expires, outstanding creditor's rights and debts of
both parties will not be influenced by the expiration of the
contract. The debtor shall continue to fulfil its obligation of
paying the outstanding debts to the creditor.
11.5 The contract shall be in English and Chinese. Each party keeps two
(2) sets of originals. If there is any discrepancy(ies) between the
English and Chinese versions of the contract, then the English
version of the contract shall prevail.
11.6 This contract consists of Clauses 1 through 11, and technical
attachment 1 through 8. The Contract Clauses and the technical
attachments to it are inalienable, all of them are equally legal and
valid.
11.7 In case that any item of the contract is to be revised, expanded or
deleted in the future, it shall be in form of written document which
shall be signed by the representatives of both parties and then shall
become inalienable and equally valid as the contract.
11.8 In the process of execution of the contract, the communication
between both parties may be in either English or Chinese. Any formal
notice shall be in writing, and mailed by certified air mail in two
(2) sets.
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<PAGE> 31
Signed for and on behalf of the Buyer
CHINA NATIONAL CHEMICAL CONSTRUCTION CHONGQING CO.
/s/ (in Chinese characters) 1994/4/15
- ------------------------------------- -----------------------------
Authorized Signature Date
Signed for and on behalf of the Seller
THE BRIGHTON INDUSTRIES CORPORATION
/s/ Kit Kung April 15, 1994
- ------------------------------------- -----------------------------
Authorized Signature Date
28
<PAGE> 1
EXHIBIT 10.9
JPF
3/30/94
LICENSE AGREEMENT
THIS AGREEMENT, dated this 31st day of March, 1994, by and
between AlliedSignal Inc. (hereinafter called "LICENSOR") a Delaware corporation
having a principal place of business at Columbia Road and Park Avenue, Morris
Township, New Jersey and The Brighton Industries Corporation (hereinafter called
"LICENSEE") a Delaware corporation having a principal place of business at 15
Essex Road, Paramus, New Jersey.
W I T N E S S E T H, T H A T
WHEREAS, Licensor is in the possession of certain valuable
information, know-how and technology relating to the manufacture of certain
chrome products;
WHEREAS, Licensee desires to represent Licensor as agent (whether
known or unknown) in the grant of a license to the PRC Sublicensee (as defined
in Section 1.8) and to obtain a license with the right to sublicense to utilize
said information, know-how and technology for the design, construction and
operation of a facility in the People's Republic of China for the production of
such chrome products; and
WHEREAS, Licensor is willing to allow Licensee to act as agent
for Licensor with respect to the PRC Sublicensee and to grant such license and
sublicensing rights to Licensee on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good valuable considerations, it is hereby agreed as
follows:
1. DEFINITIONS
1.1 "Effective Date" shall mean the date
first above written.
1.2 "PRC" means the People's Republic of
China.
1.3 "Agreement" means this agreement and the
Appendices.
<PAGE> 2
1.4 "Plant" means Licensor's chrome
chemicals plant located at Baltimore, Maryland, which has
been shut down.
1.5 "Products" shall mean chromic add,
sodium bichromate and KOREON(TM) product (chromic basic sulfate) manufactured in
PRC by means of Technology, or any portion thereof, furnished under this
Agreement.
1.6 "Technology" shall mean the technical
information owned or controlled by Licensor which is in written or other
documentary form and which was used in the commercial production of Products at
the Plant at the time of its shut-down (but including an updated heat and
materials balance) such information including trade secrets, know-how,
engineering drawings, specifications and flow sheets, and further including all
technical information which will be disclosed to Licensee under the terms of
this Agreement in the form of consultation and technical assistance as specified
in Section 4 hereof.
1.7 "PRC Plant" shall mean a single facility
for the commercial practice of Technology located at the Chouguing Dongfeng
Chemical Plant, Sichuan Province, PRC, including any modifications or expansions
of such facilities under this Agreement.
1.8 "PRC Sublicensee" shall mean the
ultimate user of Technology at PRC Plant.
2. GRANT OF RIGHTS
2.1 Licensor hereby grants to Licensee upon
receipt by Licensor of the down payment provided for in Subsection 5.1.1 below,
a non-exclusive right and license, together with the right to grant sublicenses,
to construct, operate and maintain PRC plant to manufacture Products in PRC and
a non-exclusive right to sell the Products anywhere in the world.
2.2 No license is granted herein, by
implication or otherwise, under any patent or patent application or any other
technology of Licensor, or to use Technology outside of PRC, or for any other
purpose, or for other than in PRC Plant.
2.3 All sublicenses granted by Licensee
shall be subject to all applicable terms and conditions, including payments to
Licensor as provided in this Agreement; which terms and conditions shall first
have been accepted in writing and delivered to Licensor by each such
sublicensee. Licensee shall be and remain responsible to
2
<PAGE> 3
Licensor for the reporting and payment of all sums due from sublicensees.
3. TRANSFER OF TECHNOLOGY
Promptly after the Effective Date, PRC Sublicensee's
representatives shall visit Plant to receive the documentation on Technology and
Licensor shall furnish to such representatives such documentation as specified
below:
3.1 Existing documentation as follows:
3.1.1 Process descriptions
3.1.2 Process flowsheets
3.1.3 Piping and instrument diagrams
3.1.4 Supervisors' and operators'
operating manuals
3.1.5 Research and plant research reports
3.1.6 Baltimore plant layout drawings
3.1.7 Baltimore plant equipment
arrangement drawings
3.1.8 Cardex file of equipment which
contains detailed equipment
3.1.9 Descriptions of laboratory
analytical procedures
3.1.10 General information on process
piping, valves and fittings
3.1.11 Safety data sheets for products and
chemicals used
3.1.12 General information for the
prevention of major incidents.
3.1.13 Names, addresses and phone numbers
of former Allied personnel
3.1.14 Recommended spare equipment or
parts
3.2 Updated heat and material balance.
3
<PAGE> 4
Licensee agrees to obtain from PRC Sublicensee a confirmation
certificate that PRC Sublicensee has received all of the required documentation
immediately after it is received by PRC Sublicensee and provide a copy of such
certificate to Licensor. It is understood that such confirmation certificate
shall confirm only that the categories of documents listed have been transferred
without regard to the content of such documents.
4. TECHNICAL ASSISTANCE
4.1 Upon written request received from
Licensee with reasonable notice, Licensor shall provide consultation and/or
written comments on the Technology as provided for herein. All such consultation
and/or comments shall be provided by Licensor at its facilities in the U.S. All
visits by Licensee's or its sublicensees' personnel shall be at mutually
convenient times. Such consultation and/or comments shall be according to the
terms of Appendix I, provided that Licensor shall have no obligation to provide
such consultation and/or comments after forty (40) weeks from the Effective
Date.
4.2 Upon written request received from
Licensee within the time frames specified in Appendix II and on 30 days' prior
written notice, Licensor shall provide the additional consultation and/or
comments to Licensees or its sublicensees according to the terms of Appendix II.
Licensor shall have no obligation to provide such additional consultation and/or
comments after eight-five (85) weeks from the Effective Date.
4.3 All travel and living expenses including
communications for representatives of Licensee or its sublicensees in connection
with Licensor's provision of technical assistance pursuant to Subsections 4.1
and 4.2 above shall be for the account of Licensee.
4.4 Licensee shall reimburse Licensor for
Licensor's costs and expenses in connection with the furnishing of the services
specified in Appendices I and II at the rate of Eight Hundred Dollars ($800.00)
per man-day of Licensor's representatives utilized, plus any related travel
expenses.
5. CONSIDERATION
5.1 For the disclosure of Technology
hereunder and for the rights and licenses herein granted to represent Licensor
and to use and to sublicense the use of Technology, or any portion thereof in
the manufacture of Products in the PRC Plant, Licensee shall pay to Licensor in
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<PAGE> 5
United States funds the sum of Two Million Dollars ($2,000,000.00) payable
according to the following schedule:
5.1.1 50% of said sum, i.e., One Million
Dollars ($1,000,000.00), within thirty (30) days from PRC Sublicensee's receipt
of the documentation on Technology as specified in Section 3 hereof as evidenced
by PRC Sublicensee's signing of the confirmation certificate as specified in
Section 3, but in no event later than September 30, 1994 (down payment).
5.1.2 25% of said sum, i.e. Five Hundred
Thousand Dollars ($500,000.00), as soon as the basic engineering design is
completed by Licensee, but in no event later than twelve (12) months from
Licensor's receipt of the down payment.
5.1.3 25% of said sum, i.e. Five Hundred
Thousand Dollars ($500,000.00), as soon as Licensor has completed its review of
the detailed design pursuant to this Agreement, but in no event later than
twenty (20) months from Licensor's receipt of the down payment.
5.2 Payments made in accordance with
Subsection 5.1 of this Section shall be nonrefundable.
6. PAYMENTS
All payments which shall become due hereunder shall be made by
Licensee to Licensor without discount or offset in lawful money of the United
States at the address provided in Section 18 hereof, or at such other bank or
location in the United States that Licensor shall designate, except that
Licensee may deduct up to ten (10)% of all payments made but only to the extent
that PRC Sublicensee deducts such amounts from its payments to Licensee with
respect to the PRC tax on technical know-how and related services and then and
only then, if such tax is creditable under United States tax law against
Licensor's United States Federal Income Tax liability. With such payments (with
deductions), Licensee shall deliver to Licensor a certified copy of the receipt
by the taxing authority of payment by Licensor of any such tax in form suitable
to enable Licensor to obtain its credit as described above.
7. DISCLAIMERS AND INDEMNITIES
7.1 Licensee understands that improper use
or practice of Technology could present in-plant health and safety hazards to
employees of Licensee or its sublicensees and also waste disposal problem which
could present a hazard to the environment and public health. Licensee agrees to
5
<PAGE> 6
alert its employees and its sublicensees as to these hazards and to require its
sublicensees to take appropriate measures in the practice and use of Technology
to avoid or minimize such hazards.
7.2 Licensor's sole obligation with respect
to Technology to be provided to Licensee hereunder shall be to use reasonable
care to verify correspondence and completeness of same as against Licensor's
records.
7.3 Licensor shall bear no responsibility
whatsoever to Licensee or its sublicensees or any other party for any and all
liabilities, loss, cost, expense, damage, claim or demand arising or in any
manner resulting from, Licensee's contracts with its sublicensees or any other
party. Licensee shall indemnify and hold Licensor harmless with respect to any
such liabilities, loss, cost, expense, damage, claim or demand.
7.4 Licensor shall have no obligation to
Licensee or to its sublicensees to defend any claim or suit, or to hold harmless
or immune or to indemnify against any loss, cost, expense, payment or damage,
arising from any allegation of violation of any contractual right or patent
right or other right or alleged right of any third party by reason of the
manufacture, use or sale of Products, or by reason of Licensee's or its
sublicensees' design, engineering or construction of PRC Plant, or by reason of
licensee's or its sublicenses' design, engineering, construction, operation and
maintenance of PRC Plant; or any other use of Technology by Licensee or its
sublicensees.
7.5 Licensee shall exonerate, hold harmless
and indemnify Licensor against any loss, cost, expense, payment or damage in any
way arising from or connected with such claim or suit described in Subsection
7.4 above.
7.6 Licensee shall assume, or contract so
that its sublicensees shall assume, all duties and obligations arising out of
the practice of Technology or production or use of Products, or arising out of
the design, engineering, construction and operation of Plants, including,
without limitation, those relating to compliance with any governmental laws,
rules, regulations or ordinances, including without limitation, laws, rules,
regulations and ordinances pertaining to employee safety and to the environment.
Licensee shall assume or contract with its sublicensees to assume all risk and
liability for failure or alleged failure to meet such duties or obligations and
Licensee shall exonerate, hold harmless, defend and indemnify Licensor against
any kind of claim or liability whatsoever arising out of such failure or alleged
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<PAGE> 7
failure including, without limiting the generality of the foregoing, claims of
customers, end-users, members of the public or any government, or any agency
thereof, or employees' claims.
8. CONFIDENTIALITY AND NON-USE
8.1 Licensee shall keep secret Technology
and shall not disclose Technology to any third party or use Technology for any
purpose, except as licensed herein, without the prior written approval of
Licensor. However, this obligation shall not apply to any information which:
(i) is at the time of disclosure,
or thereafter becomes, a part of the public domain through no act or omission by
Licensee or its employee; or
(ii) had been independently
perfected by Licensee or was otherwise in Licensee's lawful possession prior to
disclosure as shown by written records; or
(iii) Is hereafter lawfully
disclosed to Licensee by a third party which did not acquire the information
under an obligation of confidentiality from or through Licensor.
Any combination of known information shall be within any of the foregoing
exclusions only if the combination as such is within such exclusion.
8.2 Notwithstanding the foregoing, Licensee
shall have the right to communicate Technology to its employees, its contractors
and their employees, and to its sublicensees and its contractors and employees,
but only to the extent necessary to exercise its sublicensing rights hereunder,
provided, however, that in advance of such communication, each permitted
disclosee of Technology or other information shall have assumed a corresponding
obligation of secrecy and non-use as provided for herein.
9. GOVERNMENT EXPORT REGULATIONS
9.1 In addition to its obligation to
maintain Technology confidential, as provided by Section 8 hereof, Licensee
hereby agrees that, for so long as the rules and regulations of the U.S.
Government prohibit the same, neither Technology nor other technical data
including software in any manner disclosed or furnished to Licensee by Licensor
to Licensee's sublicensees hereunder will be shipped, transmitted, exported or
re-exported, nor will any "direct product" of such Technology or such other
technical
7
<PAGE> 8
data be shipped, transmitted, exported or re-exported, either directly or
indirectly, to any country or destination prohibited by the laws, regulations or
policies of the U.S. Government. Licensee agrees to provide similar language
defining such restrictions in its contracts with all sublicensees.
9.2 For the purpose of this Section, the
term "technical data" shall be defined as in Sec. 379.1(a) of the U.S. Export
Control Regulations, and the term "direct product" shall mean only the immediate
product (including processes and services) produced or constructed directly by
use of the technical data, e.g., a plant or any major component thereof, capable
of producing Products, all in accordance with said Export Control Regulations.
9.3 Licensee is advised that is unlawful to
reexport without U.S. Government permission U.S. origin products or technology
if Licensee knows that the products, technology, or software are (a) destined
for any missile technology project listed in Supplement No. 6 to EAR Part 778;
(b) will be used in the design, development, production, or use of missiles in
or by a country where a project listed in Supplement No. 6 to EAR Part 778 is
located; (c) will be used in the design, development, production, stockpiling,
or use of chemical or biological weapons in or by a country listed in Supplement
No. 5 to EAR Part 778; or (d) will be used in any destination except those
listed in Supplement 2 to EAR Part 778 for sensitive nuclear end-uses; or if
Licensee is informed by the U.S. Government that a validated license is required
for export to this consignee because it may apply to the design, development,
production, stockpiling, or use of missiles or chemical or biological weapons.
9.4 Licensee agrees to indemnify and hold
harmless Licensor against any claim, demand, action, proceeding, judgment,
penalty, fine, loss, liability, cost or expense (including reasonable attorneys
fees) suffered or incurred by Licensor and arising out of or relating to any
violation by Licensee or any of its sublicensees, contractors, consultants or
customers of any U.S. export control laws or regulations.
9.5 Licensee understands that the foregoing
obligations are U.S. legal requirements and agrees that they
shall survive any term or termination of this Agreement.
10. TERMINATION
10.1 This Agreement may be terminated by
Licensor at any time by giving not less than thirty (30)
8
<PAGE> 9
days' prior written notice of termination; (i) if Licensee or its sublicensees
fail to perform any obligation hereunder when due, including, without
limitation, Licensee's obligation to make payments pursuant to Section 5 hereof,
unless Licensee or its PRC Sublicensee cures such failure to perform within
thirty (30) days after receipt of such notice from Licensor, or (ii) if Licensee
or its PRC Sublicensee becomes bankrupt or insolvent, or makes any assignment
for the benefit of creditors, or if a trustee or receiver of its property is
appointed, or if Licensee or its PRC Sublicensee takes or is subjected to any
other action under law based upon its inability to meet its financial
obligations. In the event of such termination, all rights and licenses acquired
by Licensee and sublicensees hereunder shall cease and terminate and Licensee
and/or its sublicensees shall cease to use and shall forthwith return or
surrender to Licensor all Technology and information received from Licensor, and
all papers and documents made by Licensee and its sublicensees embodying such
Technology and information.
10.2 Termination of this Agreement by
Licensor shall not release licensee of its obligations under Sections 8 and 9
hereof or to make payments due or which shall become due, in accordance with
Section 5 hereof. The immunities of Licensor under Section 7 hereof shall not be
affected by termination of this Agreement.
11. USE OF LICENSOR'S NAME OR TRADEMARKS
PROHIBITED
Licensee shall have no rights or hereunder with respect to the
use of any business name or trademark of Licensor in any manner in connection
with the manufacture, use or sale of Products.
12. FORCE MAJEURE
If either party is rendered unable, wholly or in part, to carry
out any of its duties or obligations under this Agreement, by reason of (i) act
of God or the public enemy, fire, explosion, perils of the sea, flood, drought,
war, riot, sabotage, accident, embargo, or (ii) without limiting the foregoing
circumstances, any circumstance of like or different character beyond the
reasonable control of the party so failing; or (iii) interruption of or delay in
transportation, inadequacy or shortage or failure of supply of materials or
equipment, breakdowns, labor trouble from whatever cause arising and whether or
not the demands of the employees involved are reasonable and within said party's
power to concede; or (iv) compliance by either party with any order, action,
direction, or request of any Governmental officer, department agency, authority
or committee thereof,
9
<PAGE> 10
or (v) delays in obtaining or inability to obtain any US. Government approvals
including, but not necessarily limited to, export licenses which may be required
in the future; and (vi) whether in any case the circumstance now exists or
hereafter arises, such party shall forthwith give written notice thereof to the
other party (such notice briefly to describe the circumstance causing such
inability); and thereupon, to the extent that the party giving such notice is
unable to perform such duty or obligation by reason of said circumstance, such
duty or obligation shall be suspended during, but no longer than the continuance
of such circumstance.
13. MISCELLANEOUS
Licensee agrees to incorporate in its contracts with its
sublicensees in the PRC, language which will maximize the enforceability of the
confidentiality provisions herein by its sublicensees under PRC law and policy.
To this end all contractual relationships between Licensee and its sublicensees
in the PRC are subject to the prior written approval of Licensor as to form and
content as impacting on these terms.
14. ARBITRATION
14.1 Any controversy or dispute arising out
of or in connection with this Agreement, its interpretation, performance, or
termination, which the parties are unable to resolve within a reasonable time
after written notice by one party to the other of the existence of such
controversy or dispute, shall be submitted to arbitration by either party and if
so submitted by either party, shall be finally settled by arbitration conducted
in accordance with the rules of conciliation and arbitration of the American
Arbitration Association in effect on the date hereof. Any such arbitration shall
take place in the City of New York, New York, United States of America, before
three arbitrators, one of whom shall be designated by Licensee one by Licensor,
and the third by the two so designated. If one party fails to designate an
arbitrator within thirty (30) days after the designation of any arbitrator by
the other party, the arbitrator who should have been chosen by the other party
shall be appointed by the American Arbitration Association as soon as possible.
In the event that the said two arbitrators designated by the parties am unable
to agree upon a third arbitrator within thirty (30) days after the nomination of
the last of the said two arbitrators, the third arbitrator shall be appointed by
the American Arbitration Association on as soon as possible. None of the
arbitrators need be designated from any panel published by
10
<PAGE> 11
the American Arbitration Association or any other arbitration association.
14.2 The arbitrators shall apply the laws of
the State of New York. In no event shall the arbitrators have power to assess
against Licensor any sum, or account of any allegation of patent infringement or
other violation of any right or alleged right of a third party, or an account of
non-performance or alleged non-performance of Technology.
14.3 The institution of any arbitration
proceeding hereunder shall not relieve Licensee of its obligation to make
payments accrued hereunder pursuant to Section 5 hereof to Licensor during the
continuance of such proceeding.
14.4 The decision by the arbitrators, to the
extent that the issues decided therein fall within the powers of the arbitrators
conferred by this Section, shall be binding and conclusive upon the parties,
their successors and assigns and they shall comply with such decision in good
faith. Each party hereby submits itself to the jurisdiction of the courts of the
place where the arbitration is held, but only for the entry of judgement with
respect to the decision of the arbitrators hereunder. Notwithstanding the
foregoing, judgment upon the award may be entered in any court in the country
where the arbitration takes place, or any court having jurisdiction.
15. GOVERNING LAW LANGUAGE
This Agreement shall be governed by and interpreted and construed
in accordance with the laws of the State of New York, U.S.A., excluding any such
laws which may direct the application of the laws of another jurisdiction.
16. HEADINGS
The headings of the Sections of this Agreement are for
convenience only and shall not affect in any way the interpretation of this
Agreement.
17. ASSIGNMENT
This Agreement may not be assigned by Licensee except to a wholly
owned subsidiary of Licensee. In the event of any such assignment however,
Licensee shall remain fully liable and responsible for all obligations under
this Agreement. Except as so provided, any purported assignment hereof shall be
null and void.
11
<PAGE> 12
18. NOTICES
Any notice or other communication required or authorized to be
given by either party to the other hereunder shall be in writing and shall be
delivered personally or sent by registered or certified mail, or by telegraph,
cable or TELEX message, postage or other charges prepaid, addressed to the party
to receive the same at the address set forth below or such other address as such
party shall have specified by written notice given hereunder. Any such notice or
communication given by mail shall be effective as of the time it is received.
If to Licensee: Brighton Industries Corporation
15 Essex Road
Paramus, New Jersey
Attention: Kit Kung
If to Licensor: AlliedSignal Inc.
101 Columbia Road
Morristown, NJ 07962
Attention: L.R. Taunton
19. WAIVER
Waiver by Licensor of any breach of failure to enforce any of the
terms and conditions of this Agreement at any time she not in any way affect,
limit or waive Licensor's rights thereafter to enforce or compel strict
compliance with every term and condition thereof.
20. ENTIRETY
This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and merges
and supersedes all prior discussions and writing with respect thereto. Unless
expressly set forth in this Agreement, no warranties, express or implied, are
made, nor shall any statements, promises or inducements made or offered by
either party or by any agent or representative of either party by valid or
binding. No modification or alteration of this Agreement shall be effective
unless made in writing and signed by both parties hereto.
12
<PAGE> 13
21. EXECUTION
IN WITNESS WHEREOF, the parties hereto by their duly authorized
representatives have executed this Agreement in duplicate as of the date first
above written.
AlliedSignal Inc.
Engineered Materials Sector
By: /s/ L.R. Taunton 4/21/94
-------------------------------
L.R. Taunton
Vice President
Operations
The Brighton Industries Corporation
By: /s/ Kit Kung 3/31/94
-------------------------------
Kit Kung
President & CEO
13
<PAGE> 14
APPENDIX I
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DOWN PAYMENT MAXIMUM NO. OF SPECIALTIES (1) MAN-
LICENSOR PEOPLE DAYS
- ---------------------------------------------------------------------------------------------------------------------
PHASE 1 - BASIC ENGINEERING DESIGN
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Collecting & Sorting Documentation [1 - 9] 2 PE(1) 30
Basic Data Sorting & Consultation
2 PFD(2) & Equipment Spec's Review [16 - 17] 2 PE 16
3 PID(3) & Instruments Spec's Review [30 - 31] 3 PE, IE(4) 30
4 Major Equipment Layout Review [26 - 35] 2 ME(5) 20
5 Third Version of PID Review [37 - 38] 2 PE 20
6 Environmental Documents Review [40 - 41] 2 PE 20
7 Equipment Layout Review [36 - 38] 2 PE 18
8 Miscellaneous (Review) [1 - 38] 2 PE 16
TOTAL 5 170
</TABLE>
- --------
(1)PE = Process Engineer
(2)PFD = Process Flow Diagrams
(3)PID = Piping and Instrumentation Diagrams
(4)IE = Instrument Engineer
(5)ME = Mechanical Engineer
<PAGE> 15
(APPENDIX II)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
DOWN PAYMENT MAXIMUM NO. OF SPECIALTIES (1) MAN-
LICENSOR PEOPLE DAYS
- -----------------------------------------------------------------------------------------------------------
PHASE 2 - DETAILED ENGINEERING DESIGN
REVIEW
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Process Engineer [78 - 82] 2 PE(1) 15
2 Mechanical Engineer [78 - 82] 1 ME(2) 7.5
3 Instrument Engineer [78 - 82] 1 IE(3) 7.5
TOTAL 4 30
</TABLE>
- --------
(1)PE = Process Engineer
(2)ME = Mechanical Engineer
(3)IE = Instrument Engineer
<PAGE> 1
EXHIBIT 10.10
CONTRACT FOR BEIJING BRIGHTON STAQ
ELECTRONIC SYSTEM CO., LTD.
CHAPTER 1. GENERAL PROVISIONS
This contract is made between Beijing Huazheng Electronic
Technology Co., Ltd. (hereinafter referred to as Party A), and Hong Kong
Brighton Electronics Corporation Ltd. (hereinafter referred to as Party B), for
the establishment of the Sino-foreign equity joint venture -- Beijing Brighton
Staq Electronic System Co., Ltd. -- in Beijing Municipality of the People's
Republic of China, after friendly consultations on the principle of equality and
mutual benefit, and in accordance with the Law of the People's Republic of China
on Chinese-Foreign Equity Joint Ventures and other related laws and regulations
of China.
CHAPTER 2. JOINT VENTURE PARTIES
Article 1: Names, Legal Addresses and Legal
Representatives of Joint Venture Parties.
Party A: Beijing Huazheng Electronic Technology
Co., Ltd.
Legal Address: 8 Xinzhong St., Gongti Rd.(N),
Dongcheng District, Beijing
Legal Representative: Zhang Zhifang
Post: Chairman of the Board
Nationality: Chinese
Party B: Brighton Electronics Corporation Ltd.
Legal Address: 1403-1405, Block B, Seaview Estate,
North Pt., Hong Kong
Legal Representative: Kit Kung
<PAGE> 2
Post: Chairman of the Board
Nationality: U.S.
CHAPTER 3. ESTABLISHMENT OF JOINT VENTURE COMPANY
Article 2: Party A and Party B agreed to the establishment of a
joint venture company with main operations in the electronics industry in
Beijing in accordance with the Law of the People's Republic of China on
Chinese-Foreign Equity Joint Ventures and other related laws and regulations of
China.
Article 3: The name of the joint venture company
is: [NAME IN FOREIGN LANGUAGE]
English Name: Beijing Brighton Staq Electronic
System Co., Ltd.
Legal Address: 93 Fumei Dajie, Xicheng District,
Beijing
Article 4: The joint venture company is a Chinese legal person
set up in accordance with Chinese laws, and all of its operations in China
should follow and be protected by related Chinese laws, as well as enjoy the
preferential treatment granted by the laws. The organization form of the joint
venture company is a company with limited liability as stipulated in the Law of
the People's Republic of China on Chinese-Foreign Equity Joint Ventures. Party A
and Party B are obliged to pay up the agreed capital for the joint venture
company, and enjoy the profit distribution and take responsibility for the risks
of the joint venture company in line with their investment proportions. If
necessary for expansion of business, the joint venture company may set up such
institutions as subsidiaries in other parts of China or abroad.
2
<PAGE> 3
CHAPTER 4. BUSINESS TARGET, SCOPE AND SCALE
OF THE JOINT VENTURE COMPANY
Article 5: The target of the joint venture company is to meet the
society's need for modern computer software and hardware, develop new on-line
transacting processing systems, and achieve satisfactory economic benefits.
Article 6: Business scope of the joint venture company covers the
development, production and marketing of computer software and hardware
(excluding electronic products under license control), and related electronic
products, as well as after-sale services.
Article 7: Business scale of the joint venture company: to make
five million yuan of profit in the first year and increase it annually.
CHAPTER 5. TOTAL INVESTMENT & REGISTERED CAPITAL
Article 8: The joint venture company has a total investment of
US$1.6 million, which is fully registered.
Of this, Party A shall contribute US $160,000 worth of RMB
equivalent in cash (calculated on the foreign exchange rate announced by China's
State Administration of Exchange Control for the day of payment), which
represents 10% of the registered capital; and Party B shall invest US$1.152
million worth of equipment and US$288,000 in cash, US$1.44 million in total,
which represents 90% of the registered capital.
Article 9: The registered capital of the joint venture company
shall be paid up fully within six months starting from the day when the business
license of the joint venture company is issued. The joint venture company will
invite a Chinese certified accountant to verify the capital contributions and
make certificates of capital verification.
3
<PAGE> 4
Article 10: If any of the joint venture parties is to transfer
part or all of its interest in the joint venture company to a third party, it
shall be agreed by the other joint venture party and also be approved by the
government body that originally approved the setting up of the joint venture
company. If one joint venture party is to transfer part or all of its interest
in the joint venture company, the other joint venture party shall be given a
preference for buying. If the transfer is made to a third party, the price for
the transfer shall not be lower than that to the other joint venture party. A
transfer violating the above conditions is invalid.
CHAPTER 6. LIABILITIES OF JOINT VENTURE PARTIES
Article 11: Liabilities of Party A
1. To prepare for and make sure the availability
of the joint venture company's necessary facilities such as water, electricity
and gas supply, and be responsible for making the application to Chinese
authorities in charge for the establishment of the joint venture company;
2. To take responsibility for such affairs as applying
for registration and business license of the joint venture company;
3. To help the joint venture company recruit local
managers, technicians, workers and other necessary personnel of the Chinese
nationality;
4. To help go through import procedures for imported
equipment and its transport within the Chinese territory;
5. To help foreign employees apply for visas, work
licenses and travel formalities when they are to enter China;
6. To take responsibility for other affairs entrusted
by the joint venture company; and
4
<PAGE> 5
7. to pay up the agreed capital in time. Liabilities of
Party B:
1. To pay up the agreed capital in time;
2. To take responsibility for the procurement of equipment
to be imported and its shipment to the development site of the joint venture
company;
3. To take responsibility for the installation and testing
of the equipment, and personnel training before operation; and
4. To take responsibility for other affairs entrusted by the
joint venture company.
CHAPTER 7. BUSINESS FORMS & MARKETING CHANNELS
Article 12: Business forms: flexible forms and quality
services.
Article 13: Marketing channels: 60% of the joint venture
company's products are for sale overseas, and 40% for sale in China. The
overseas sale is to be sponsored by the foreign side.
CHAPTER 8. BOARD OF DIRECTORS
Article 14: The day of registration of the joint venture company
is the day of founding of the joint venture company's Board of Directors.
Article 15: The Board of Directors is composed of five directors,
with two appointed by Party A and three appointed by Party B. The board's
Chairman is appointed by Party B and its Vice Chairman is appointed by Party A,
both for a term of office of four years. They may be reappointed by their
respective appointing party.
Article 16: The Board of Directors is the joint venture
company's highest decision-making body and decides
5
<PAGE> 6
all the important affairs of the joint venture company. Its main authority is
as follows:
1. To decide and approve the important reports
made by the General Manager, on such affairs as business plans, annual business
reports, funds and loans, etc.
2. To approve annual financial reports, budgets for
revenues and expenditures, and annual profit distribution programs.
3. To discuss and give pass to the company's
major rules and regulations.
4. To discuss and revise the articles of
association.
5. To decide the appointment of senior staff members
such as the General Manager, the Deputy General Manager and the Chief
Accountant.
6. To decide the direction for development of
the joint venture company.
7. To discuss and decide the expansion and
transfer of the joint venture company.
8. To discuss and decide the joint venture
company's pattern of organization.
9. To discuss the joint venture company's suspension
of business, termination and merger with other economic entities.
10. To decide and organize the liquidation upon expiration
of the joint venture company's business term.
11. Other important affairs to be decided by the Board of
Directors.
Article 17: The following affairs must be passed by the Board of
Directors unanimously:
1. To revise the contract and articles of association for the
joint venture company.
2. To examine and approve the annual business report made by the
General Manager.
6
<PAGE> 7
3. To expand and transfer the joint venture company's registered
capital.
4. To terminate and dissolute the joint venture company or merge
it with other economic entities.
Article 18: The following affairs must be passed by 3/4 of the
Board of Directors:
1. To decide the joint venture company's annual operation policy,
business plan and development plan.
2. To approve the annual financial budget, final account and
accounting statement.
3. To decide the upper limit of the joint venture company's
annual working capital loans.
4. To decide the joint venture company's annual profit
distribution program.
5. To give pass to the joint venture company's labor contracts
and various rules and regulations.
6. To appoint the General Manager, the Deputy General Manager and
other senior staff members proposed by the General Manager to the Board of
Directors, and to decide the salary of senior staff members.
7. To decide the joint venture company's pattern of organization.
8. Other affairs to be decided by the Board of Directors.
Article 19: The Chairman is the legal representative of the joint
venture company, and when unable to carry out his/her duty for right reasons,
he/she may authorize the Vice Chairman or other directors to act as the legal
representative temporarily.
Article 20: The Board of Directors must convene at least one
meeting every year. The Chairman is authorized to call and chair the meeting,
and be responsible for informing all the directors of the meeting one month in
advance. If proposed by more than 1/3 of the directors, the Chairman may call an
interim board meeting. The decisions made by the
7
<PAGE> 8
interim meeting will be effective only if more than 3/4 of the directors attend.
The minutes of the meeting shall be placed on file. The meetings of the Board of
Directors shall be convened in principle at the place where the legal address of
the joint venture company is.
CHAPTER 9. MANAGEMENT ORGANIZATION
Article 21: The joint venture company has a management
organization to deal with its routine business and management work. The
management organization is composed of one general manager and one deputy
general manager. The first general manager is to be recommended by Party A and
the first deputy general manager by Party B. They both have a term of office of
four years and may be reappointed for more terms by the Board of Directors.
Article 22: The obligations of the General Manager are to carry
out the decisions made at the meetings of the Board of Directors, and take
charge of the routine operation and management work of the joint venture
company. The Deputy General Manager is to assist the General Manager in the
work.
The management organization may have a certain number of
department managers to take charge of the work in various departments of the
joint venture company, handle affairs assigned by the General Manager and the
Deputy General Manager and hold themselves responsible to the General Manager.
Article 23: The General Manager may be dismissed and replaced
through a decision of the Board of Directors at any time in case of malpractices
for selfish ends or serious dereliction of duty.
8
<PAGE> 9
CHAPTER 10. PROCUREMENT OF EQUIPMENT
Article 24: If the joint venture company needs to import
equipment, Party B is responsible for the procurement abroad after the
specifications, models, functions and prices are accepted by both Party A and
Party B.
CHAPTER 11. LABOR MANAGEMENT
Article 25: Concerning such matters as recruiting, dismissal,
wage, labor insurance, labor protection, labor discipline, well-being, welfare,
rewards and punishments of employees in the joint venture company, the Board of
Directors shall, in accordance with the Provisions of the People's Republic of
China for Labor Management in Chinese-Foreign Equity Joint Ventures, the
provisions' detailed rules for implementation and related regulations of
Beijing's Municipality, make a program, work out the labor contract wording, and
after approval from the local labor administration, have the joint venture
company and its labor union sign collective or individual labor contracts with
the employees. The labor contracts signed shall be reported to the local labor
administration for the record.
Article 26: Appointment of the joint venture company's senior
managers and their wages, social insurance, welfare and the standards for
expenses on business tours are to be discussed and decided by the Board of
Directors.
CHAPTER 12. TAXATION, FINANCIAL AFFAIRS,
FOREIGN EXCHANGE & AUDITING
Article 27: The joint venture company is to hand over taxes in
accordance with China's related laws and regulations, and also in accordance
with China's related
9
<PAGE> 10
laws and administrative stipulations, enjoy preferential
treatment like tax reductions and exemptions.
Article 28: Employees of the joint venture company are to pay
individual income tax in accordance with the Individual Income Tax Law of the
People's Republic of China and related regulations.
Article 29: The joint venture company is permitted to extract
reserve funds, enterprise development funds and funds for employees' welfare in
accordance with the Law of the People's Republic of China on Chinese-Foreign
Equity Joint Ventures. The proportion extracted every year is to be discussed
and decided by the Board of Directors in line with the company's business
conditions.
Article 30: The accounting year of the joint venture company
starts on January 1 and ends on December 31, and all the bookkeeping vouchers,
documents, statements and account books are written in Chinese.
Article 31: The joint venture company shall invite an accountant
registered in China to check and audit its financial affairs, and the auditing
results shall be reported to the Board of Directors and the General Manager.
Article 32: In the first three months of every business year, the
General Manager is to organize the compilation of the statement of assets and
liabilities, the profit and loss statement, and the profit distribution program
for the previous business year, and submit them to the meeting of the Board of
Directors for examination and approval.
Article 33: With its business license, the joint venture company
is permitted to open a foreign exchange account in a bank or other financial
institution authorized by China's foreign exchange administration to deal in
foreign exchange business.
Article 34: All foreign exchange affairs of the
joint venture company are to be handled in accordance with
10
<PAGE> 11
the Interim Regulations on Foreign Exchange Control of the People's Republic of
China, and other related regulations. Conversion between Renminbi and other
currencies is to be calculated on the exchange rates issued by the State
Administration of Exchange Control of the People's Republic of China for the day
of actual conversion. The balance of bookkeeping base currency resulted from
difference of exchange rates in conversion is taken as exchange gain or loss,
and variation of the exchange rate of the bookkeeping currency. The amount of
foreign currency accounts is to receive accounting treatment in accordance with
China's related laws and financial system at the year-end summarization.
CHAPTER 13. TERM OF OPERATION
Article 35: The joint venture company has a term of operation of
12 years, and its founding date is the day when the business license is issued.
If agreed by both parties, or proposed by one party and passed
unanimously by the meeting of the Board of Directors, an application may be
submitted to the government body that originally approved the setting up of the
joint venture company for prolonging the term of operation six months before
expiration of the term.
CHAPTER 14. PROPERTY TREATMENT UPON
EXPIRATION OF TERM OF OPERATION
Article 36: When the term of operation expires or is terminated
before expiration, the joint venture company shall by law liquidate its net book
value and distribute the balance on account according to investments of the two
parties after paying off the debts and covering the liquidation cost.
11
<PAGE> 12
CHAPTER 15. PROFIT DISTRIBUTION
Article 37: The joint venture company distributes its profits in
accordance with the joint venture parties' investment proportions. The Board of
Directors is to decide the profit distribution program and the profits payable
to the two parties within three months after one accounting year. Profits paid
to Party B may be remitted to the designated country or region in accordance
with the Interim Regulations on Foreign Exchange Control of the People's
Republic of China.
CHAPTER 16. INSURANCE
Article 38: The joint venture company covers all its insurance in
the Beijing Branch of the People's Insurance Company of China, and the insurance
coverage, the insured value and the insurance period are discussed and decided
by the Board of Directors in accordance with the stipulations of the Beijing
Branch of the People's Insurance Company of China.
CHAPTER 17. REVISION, CHANGE AND
DISSOLUTION OF CONTRACT
Article 39: Revision of this contract and its attached papers
will be effective only after the representatives of the joint venture parties
sign an agreement in writing and being approved by the government body that made
the original approval.
Article 40: In case that the contract is not able to be carried
out for force majeure or the joint venture company is not able to continue its
operation as a result of successive losses, the joint venture company may be
terminated and the contract be dissoluted before expiration upon
12
<PAGE> 13
approval by the Board of Directors and the government body that made the
original approval.
CHAPTER 18. LIABILITY FOR DEFAULT
Article 41: In case any of the joint venture parties fails to pay
up the amount of investment in time as stipulated in Chapter 5 of this contract,
the defaulter is to pay 3% of the investment payable every month starting from
the first overdue month as penalty to the other party that abides by the
contract. If the investment payment is overdue for three months, the
accumulative penalty shall be 9% of the investment payable and the party that
abides by the contract has the right to terminate the contract and require the
defaulting party to indemnify for its loss incurred. In case one party fails to
carry out or seriously defaults its obligations stipulated in this contract and
the articles of association, and thus makes the joint venture company unable to
operate or achieve the operation aim stipulated in this contract, it shall be
taken that the party of default unilaterally terminates the contract and the
party that abides by the contract has the right to claim indemnity from the
defaulting party and, in line with stipulations of the contract, report to the
government body that made the original approval for approving termination of the
contract. If both joint venture parties agree to continued operation, the
defaulting party shall make up for the economic losses occurred to the joint
venture company.
Article 42: When one party's fault causes a partial or full
failure in implementing this contract and its attached papers, the party that
makes the fault shall be responsible for the default of contract. If the fault
is made by both parties, the two parties shall take their respective
responsibility on the basis of actual conditions.
13
<PAGE> 14
Article 43: If any of the joint venture parties fails to pay part
or full amount of the investment in time as stipulated in Articles 8 and 9 of
this contract, the party that abides by the contract may give a notice to the
defaulting party for the payment. If the defaulting party still fails to pay the
stipulated part or full amount of the investment one months after the notice is
made, it shall be taken that the defaulting party gives up all its rights
stipulated in this contract and voluntarily withdraws from the joint venture
company, and the party that abides by the contract has the right to apply to the
government body that made the original approval for approving the dissolution of
the company or look for another joint venture partner to inherit the defaulting
party's rights and obligations stipulated in this contract.
The party that abides by the contract has the right to ask the
defaulting party to make up for its economic loss resulted from the latter's
failure to pay part or full amount of the agreed investment.
If the defaulting party has already paid part of its investment,
the joint venture company shall liquidate the paid capital and deduct the
compensation for the economic loss occurred to the joint venture company before
returning the remaining to the defaulting party.
CHAPTER 19. FORCE MAJEURE
Article 44: In case earthquake, typhoon, fire, war or other force
majeure that cannot be foreseen and whose occurrence and results cannot be
prevented or avoided directly affects the implementation of the contract or make
it unable to be implemented according to agreed conditions, the party which
suffers any of the above-mentioned force majeure accidents shall immediately
inform the other party of the accident conditions through telegraph. Besides, it
14
<PAGE> 15
shall, within a period of 15 days, provide the details of the accident and an
effective certificate proving the reasons for the failure to carry out part or
all of the contract or the necessity to put off the implementation. Such a
certificate shall be made by a notary organ at the origin of the accident. In
line with the accident's impact on the implementation of the contract, the two
parties shall consult and decide whether or not to dissolute the contract,
exempt part of the liabilities for implementing the contract, or put off the
implementation of the contract.
CHAPTER 20. APPLICABLE LAW
Article 45: The law of the People's Republic of China is
applicable to the making, effectiveness, explanation and implementation of this
contract, and settlement of disputes over this contract.
CHAPTER 21. SETTLEMENT OF DISPUTES
Article 46: All the disputes taking place in the implementation
of this contract or related to this contract shall be settled by the two parties
through friendly consultations. If such a dispute fails to be settled through
consultations, it shall be submitted to the China International Economic and
Trade Arbitration Commission for arbitration according to the commission's
current interim regulations on arbitration procedures. The arbitral decision is
final and has a binding force to both parties. The loser shall bear the cost for
the arbitration.
Article 47: In the course of arbitration, this contract shall
continue to be implemented except for the part that is under arbitration and
over which the two parties have a dispute.
15
<PAGE> 16
CHAPTER 22. LANGUAGE
Article 49: This contract is written in Chinese.
CHAPTER 23. CONTRACT VALIDITY AND OTHERS
Article 50: This contract and its attached papers take into
effect as of the day when they are approved by the People's Government of
Xicheng District of Beijing Municipality.
Article 51: When either of the joint venture parties sends a
notice through telegraph or telex, a letter in writing shall be followed if the
notice concerns the right and obligations of the parties. The legal address of
either of the joint venture parties stipulated in the contract is the address of
the consignee.
Article 52: After its signing, this contract shall be followed if
any of the agreements, memorandums and letters between the two joint venture
parties does not comply with it.
Article 53: Matters not covered in this contract shall be decided
through consultations between the two sides.
Article 54: This contract is signed in Beijing of China in
October 1994 by authorized representatives of the joint venture parties.
Party A: Beijing Huazheng Electronic Technology Co., Ltd.
Party B: Brighton Electronics Corporation Ltd.
16
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Name(1) Incorporation/Organization
- ----- --------------------------
<S> <C>
The Brighton Industries Corporation Delaware
Brighton Electronics Corporation Ltd. Hong Kong
Brighton Elevator Corporation Limited Hong Kong
Brighton Equipment Corporation Limited Hong Kong
Brighton OLTP Systems Limited Hong Kong
Aria Wireless Systems (China) Limited Hong Kong
Beijing Brighton STAQ Electronic System Co., Ltd. China
</TABLE>
- --------
(1) The subsidiary is doing business under the same name unless otherwise
indicated.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Brighton Technologies Corporation
Allendale, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated May 29, 1997 (October 17, 1997 as to
the last paragraph of Note 8), relating to the consolidated financial statements
of Brighton Technologies Corporation, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
----------------------
Woodbridge, New Jersey
November 11, 1997
<PAGE> 1
EXHIBIT 23.2
[RUSSO & SHAPIRO LETTERHEAD]
Certified Public Accountants
Anthony J. Russo
Nelson Shapiro
295 Madison Avenue, Suite 1700
New York, New York 10017-6304
Tel: (212) 687-2420
Fax: (212) 687-1815
Fed. I.D. # 13-3770301
The Brighton Technologies Corporation
and Subsidiaries
Allendale, New Jersey 07401
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 25, 1997, relating to the
financial statements of the Brighton Technologies Corporation and Subsidiaries
which is contained in the Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ Russo & Shapiro
New York, New York
September 25, 1997
<PAGE> 1
EXHIBIT 23.3
[FRANCIS S. L. YAN & CO. LETTERHEAD]
11th November 1997
Brighton Technologies Corporation
Allendale,
New Jersey,
U.S.A.
Dear Sir,
Audit for the year ended 31st December 1995
Re: Brighton Electronics Corporation Limited
We hereby consent to the use in the Prospectus of Brighton Technologies
Corporation our re-stated report of its subsidiary, Brighton Electronics
Corporation Limited, for the year ended 31st December 1995, which is contained
in that Prospectus.
We also consent to the reference to us under the caption 'Expert' in the
Prospectus.
Yours faithfully,
/s/ Francis S.L. Yan & Co.
FRANCIS S.L. YAN & Co.
Certified Public Accountants.
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