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As filed with the Securities and Exchange Commission on September 23, 1998
Registration No. 0-
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
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BRIGHTON TECHNOLOGIES CORPORATION
(Name of Small Business Issuer in its Charter)
Delaware 87-0460452
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
6 Pearl Court
Allendale, New Jersey 07401
(Address of Principal Executive Offices) (Zip Code)
(201) 818-2889
(Issuer's Telephone Number)
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Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
(Title of Class)
Documents incorporated by reference: None
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BUSINESS
General
Brighton Technologies Corporation (the "Company") (hereinafter, reference
to the "Company" shall include its subsidiaries unless the context otherwise
requires) is a computer network integrator and operator, and a distributor of
industrial equipment. The Company is also developing an on-line securities
trading network for the Securities Trading Automated Quotations System (the
"STAQ Exchange"), one of four national stock exchanges in China, which commenced
operations in the second quarter of 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 a distributor of industrial equipment in China.
This belief is based on several factors, including, the Company's Chairman,
President, Chief Executive Officer and principal stockholder, Kit Kung's
experience in the business of designing and installing computer networks and
importing industrial equipment in China since 1980. Building on Mr. Kung's
business experience in China, the Company formed a joint venture with a company
controlled by the STAQ Exchange, 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. Its
business strategy is focused as follows:
- Emphasis on network integration in the banking and finance industries
- Commercialization of the on-line securities trading network
- Expansion of the industrial equipment distribution business to meet
customer demand
Computer Network Integration. 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 ("ATM") 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. The
Company currently has contracts with the Industrial and Commercial Bank of
China ("ICBC") to design and install wireless telecommunication networks for
clearance and settlements for 12 of its bank branches. The Company had
completed this project at June 30, 1998. 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.
Information Services. 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
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and STAQ Exchange (the "STAQ On-line Network"). The Company's initial plans are
to offer the STAQ On-line Network to the approximately 550 stock brokerages
(operating 2,200 offices) that are members of the STAQ Exchange according to
STAQ Exchange officials, in the cities of Beijing, Chongqing, Guangzhou,
Shanghai, Shenzhen and other major cities in China, 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 commercialization phase on a limited basis in the cities of
Beijing and Chongqing. Subject to the Company obtaining additional working
capital, the Company intends to expand the STAQ On-line Network to additional
cities in China in the last quarter of 1998.
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), 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 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.
In March 1998, the Company commenced operations of a newly established PRC
Sino-Hong Kong equity joint venture company in YangZhou, PRC to produce and sell
industrial equipment to small-to-midsize companies not ordinarily able to
procure imported equipment due to cost constraints. These companies are not
permitted to trade directly with foreign companies and are not able to secure
foreign exchange.
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 superhighway
type projects such as the "Golden" projects(1).
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(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
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(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.
(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.
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 Company's computer network integration projects include
integration of hotel management computer systems capable of managing
reservations, telephones and billings, office automation projects, including
integration of software from Chinese vendors with computer equipment
manufactured by Digital Equipment Corporation, and wireless telecommunication
systems for banking and finance industries. The Company's focus on the computer
network integration segment of the business is currently in wireless
telecommunication systems.
Aria Wireless System
The Company has introduced Aria Wireless Systems, Inc.'s wireless
telecommunication equipment ("Aria Wireless Systems"), which is suitable for
high volume transactions that require instant responses, such as ATM
transactions, credit card verifications,
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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 expected 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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clearance and settlements, in the Chinese marketplace. The Company's gross
margin on contracts for computer network integration of the Aria Wireless
Systems has been approximately 40 percent. In 1997, the Company secured ten
contracts with ICBC to customize integration of and install Aria Wireless
Systems for ATM linkage and for clearance and settlements for eight of its bank
branches. Seven of the contracts were completed in 1997 and the remaining three
contracts are scheduled to be completed in 1998.
General
The Company's Aria Wireless Systems utilizes radio frequency to transmit
data in metropolitan areas within a 50 kilometer (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 an industry leader for wireless data transfer technology
in on-line transactions processing applications. There are over 5,000 remote
locations connected to their respective hosts through Aria Wireless Systems in
over 50 countries throughout the world.
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
On December 12, 1997, the Company's subsidiary, The Brighton Industries
Corporation, signed a Partnership Agreement with Aria Wireless Systems, Inc.
("Aria, Inc.") whereby the Company was appointed the exclusive distributor to
market, sell and service the Aria Wireless System in the China market for a
three-year period.
To solicit contracts for its computer network integration services
business, the Company participates in two to three trade shows per annum and
holds two to three promotional seminars per annum throughout China and follows
up with mass mailings of product catalogues. 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, banks, universities and research facilities.
Competition
The Company competes with Multipoint Networks, 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 comparable to the Aria Wireless System. The Company also
competes with other manufacturers of wireless systems that offer similar
features to the Aria Wireless System.
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The Company believes that its technical expertise in computer network
integration makes the Aria Wireless System more desirable than the wireless
systems offered by the other two companies. The Company has 13 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.
Information Services
China's Securities Market Overview (all conversions to U.S. dollars use the
September 15, 1998 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 in developing 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. Stocks, debt instruments and investment funds are traded
on the Shanghai Stock Exchange. According to STAQ Exchange officials, a seat on
the Shanghai Stock Exchange is Rmb1,000,000 ($120,482) and the annual membership
fee is Rmb500,000 ($60,241). The Shanghai Stock Exchange began offering
off-floor on-line trading of its stocks in late 1997 and to date, has installed
approximately 500 remote terminals. The installation charge for each terminal is
Rmb300,000 ($36,145) and the annual maintenance fee is Rmb60,000 ($7,229). Stock
brokerages that have not subscribed for the off-floor on-line trading must place
their orders with their floor agents by telephone. As of May 31, 1998, 407
companies were listed on the Shanghai Stock Exchange with market capitalization
of Rmb118.7 billion ($14.3 billion). The 1998 average daily turnover through May
1998 was Rmb778 million ($93.7 million).
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. Trade orders can be entered directly onto computer
terminals at the respective stock brokerages.
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According to STAQ Exchange officials, the annual membership fee for the Shenzhen
Stock Exchange is Rmb600,000 ($72,289) and it charges its members an
installation charge of approximately Rmb300,000 ($36,145) to set up satellite
linkage and an annual maintenance fee of Rmb60,000 ($7,229). Stocks, debt
instruments and investment funds are traded on the Shenzhen Stock Exchange. As
of May 31, 1998, 384 companies were listed on the Shenzhen Stock Exchange with
an aggregate market capitalization of Rmb104.7 billion ($12.6 billion). The 1998
turnover through May 1998 was Rmb857.4 million ($103.3 million).
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
seven 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. According to STAQ officials, the
annual membership fee for the STAQ Exchange is Rmb150,000 ($18,072).
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 of
Finance through the STAQ Exchange and 50% of all State Treasury Bond trading is
done through the STAQ Exchange. 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 1991 and 1990, respectively. According
to STAQ Exchange officials, 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 STAQ Exchange officials, 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 STAQ Exchange officials, there are currently
approximately 550 licensed stock brokerages (operating approximately 2,200
offices in China) that are members of the STAQ Exchange.
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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 branch
offices registered in Chongqing and Shanghai. Brighton-STAQ was formed to
design, develop, install and maintain the STAQ On-line Network.
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. NASDAQ has no on-going involvement with the STAQ Exchange or
Brighton-STAQ.
In February 1998, the STAQ On-line Network commenced initial linkage of
remote computer terminals installed at stock brokerages in the cities of Beijing
and Chongqing (with plans to expand linkage to Guangzhou, Shanghai, Shenzhen and
other major cities in China) to the STAQ Exchange trading floor in Beijing. As
of September 15, 1998, the Company has installed approximately 30 terminals in
Beijing and five terminals in Chongqing. The Company has contracted to provide
maintenance and service of the STAQ On-line Network to approximately 40 stock
brokerages. 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. The Company had
invested or advanced approximately $1,650,000 and $1,910,000 with respect to
Brighton-STAQ as of December 31, 1997 and June 30, 1998, respectively. As of
December 31, 1997, the Company had fully funded its original obligation to
invest $1,600,000 in Brighton-STAQ. The Company had also committed to
provide aggregate funding of approximately $4,000,000 during 1998 in the form
of loans, based on initial estimates of the amount of working capital
required during 1998 to support the start-up and subsequent expansion of the
STAQ On-line Network.
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To the extent that the Company is unable to timely fund its current
commitment to Brighton-STAQ during 1998, the planned expansion of the STAQ
On-line Network into additional cities in China will be deferred, thus
delaying the development of Brighton-STAQ and its ability to reach
operational viability. A delay in expanding the STAQ On-line Network may also
result in potential customers adopting alternative systems to trade
securities in China, thus diminishing Brighton-STAQ's expansion potential and
competitive position in China. The occurrence of these events could reduce
the potential future commercial and economic value of the STAQ On-line
Network, which would adversely affect the future profitability of
Brighton-STAQ as it relates to the Company's consolidated results of
operations.
Based on revised and updated estimates of the cost to fund the
expansion of the STAQ On-line Network, the Company does not believe that the
entire $4,000,000 will be required during 1998. The Company currently expects
to meet its funding commitment to Brighton-STAQ through a private sale of its
common stock, although there can be no assurances that the Company will be
successful in this regard. To the extent that Brighton-STAQ were to be funded
by sources unrelated to the Company, the Company's interest in Brighton-STAQ
could be reduced or eliminated, which would adversely affect the potential
future profitability of Brighton-STAQ as it relates to the Company's
consolidated results of operations. Since the Company has fully funded its
original $1,600,000 commitment to Brighton-STAQ, the Company believes that this
event is unlikely.
To ensure that the 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
additional funds required to complete the STAQ On-line Network project are
obtained by the Company through either private placements or public offerings of
its securities. The Company has no reason to believe that such application would
not be approved.
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 orally agreed during negotiations for the establishment
of Brighton-STAQ that under certain financial performance criteria to be agreed
by the parties, Huazheng would have the right, during the term of Brighton-STAQ,
to acquire up to an additional 10% of the joint venture annually, at market
valuation, up to a total ownership interest of 49% of Brighton-STAQ. The Company
is uncertain with respect to the validity of this oral agreement under Chinese
law since it was not reflected in the written agreement approved by the Chinese
government providing for the establishment of Brighton-STAQ. The Company
believes that local business custom dictates that the Company honor such oral
agreement if so requested by its partner. If Huazheng decides to exercise such
right at a time when Brighton-STAQ is profitable, the Company's operating
results and anticipated growth may be adversely affected. In addition, the
mechanism for determining market valuation if and when Huazheng exercised such
right, which is not yet agreed to by the parties, may possibly be unfavorable to
the Company.
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 Information Technology Industry. In order to be fully commercially
operational, the Company intends to convert the STAQ On-line Network to
satellite and wireless linkage. In December 1997, the Company signed a
three-year arrangement with The People's Daily, the major newspaper serving
China, to subscribe for use of its satellite service. 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
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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. Two satellite communication links, one
between the STAQ Exchange trading floor in Beijing and Shanghai and the other
between the STAQ Exchange trading floor in Beijing and Chongqing have been
completed. The cost of construction for each satellite communication link was
approximately $38,000. The satellite equipment utilized for the STAQ On-line
Network is manufactured by Hughes Electronics Corporation. 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 terminals. When a buy or sell
order is executed at the terminals, such information is transmitted back via
the wireless system and the satellite linkage to the STAQ Exchange in
Beijing. A pair of radio frequencies, one for receiving and one for
transmitting data, is generally able to support simultaneous broadcast and
receipt of data to a maximum of 20 end users. The Company has, in conjunction
with Aria Wireless Systems, Inc., developed data broadcast software that
enables a pair of radio frequencies to support up to 250 end users of the
STAQ On-line Network. The Company believes that its data broadcast software
will significantly enhance its ability to offer the STAQ On-line Network
services to end users as radio frequencies, which are controlled by the
government, are limited and difficult to obtain in China. While The People's
Daily provides the services of its satellite transponders to operate the
communications linkages, the Company owns 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 National Management Bureau of Radio Frequencies 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 Company is currently negotiating with a
domestic telecommunication service provider in Shanghai to use its assigned
radio frequency for the STAQ On-line Network. The Company expects to finalize an
agreement with this telecommunication service provider in the first quarter of
1999.
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 other companies
controlled by the Company's Chairman, Chief Executive Officer, President and
principal stockholder have developed, designed and installed over 45 on-line
transaction processing networks in the Pacific Basin region to customer's
specifications, including credit verification 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.
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Marketing
In February 1998, the Company commenced operations of the satellite-linked
STAQ On-line Network in the cities of Beijing and Chongqing and installed
computer terminals in a selected number of STAQ Exchange member stock brokerages
for three month test periods. As of September 15, 1998, the Company has
installed approximately 30 terminals in Beijing and five terminals in Chongqing.
During the test period, the STAQ On-line Network is provided to the selected
stock brokerages free of charge. 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 these test sites for other traders from the STAQ Exchange
member stock brokerages during the test period to attract customers. As of
September 15, 1998, the Company has contracted to provide maintenance and
service of the STAQ On-line Network to approximately 40 stock brokerages.
Subject to the Company obtaining additional working capital, the Company intends
to expand the STAQ On-line Network to Shanghai, Shenzhen, Guangzhou and other
major cities in China.
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 STAQ
Exchange officials, 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, in
cooperation with the STAQ Exchange, by packaging it with membership to the STAQ
Exchange to all stock brokerages who are not yet members of the STAQ Exchange.
Competition - Brighton-STAQ
Both the Shanghai and Shenzhen Stock Exchanges maintain their own on-line
securities quotation and trading systems and 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 providing trading on
off-exchange floor trading for foreign securities markets, currency trading and
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
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electronic trading systems which do not permit off-exchange floor trading of
their domestically listed securities.
Industrial Equipment Distribution
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 industrial
equipment distribution sector in China is highly saturated with significant
competition among manufacturers and distributors from around the world.
Products
The Company facilitates access to the Chinese marketplace by United States,
European and other manufacturers of industrial equipment 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
centers 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), 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.
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 Company signed three major contracts with Chinese customers for the
sale of industrial equipment in 1997 totaling approximately $6,980,000. The
Company was awarded a $1,690,000 contract from Shenyang Aircraft Corporation to
equip five heavy duty vertical machining centers. The machine centers have been
delivered and will be installed by the Company in the third quarter of 1998.
Shenyang Aircraft Corporation is a leading aircraft manufacturer in China and
produces sections of the Boeing 737 aircraft. The Company entered into a
contract to provide computer-controlled auto body stamping equipment to Changan
Automobile Works, a Chinese state-owned automotive manufacturer, located in
Chongqing, for $3,081,000. Changan Automobile Works is one of the largest
automotive manufacturers in China and is a long standing
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customer of the Company. The Company contracted to provide a gantry milling
machine to Shenyang Blower Works, in Shenyang, for $2,400,000. Shenyang Blower
Works is a leading 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 first quarter 1999.
In the first six months of 1998, the Company signed a number of contracts
with Chinese customers totaling approximately $3,154,000. The Company signed a
contract with Instrimpex Instec Import & Export Corp. to supply 29 Ultra SPARC
Processors from Sun Microsystems, Inc. The processors will be used to create
high-speed internet connections and multimedia networks in China. The Company
was awarded a contract from Chongqing Foreign Trade Import & Export Corporation
to supply a fully automatic setting machine from Alo Teknik. The machine is for
cutting metal sheets, pipes and other materials in heavy industrial production
lines. The combined contract price for both contracts is approximately $930,000.
The Company was also awarded a $1,570,760 contract from China Songhai Industrial
Corporation for communications network equipment manufactured by Cisco Systems,
Inc. The Company received two contracts for a total of $1,024,000 to supply air
compressors manufactured by Sullair Corporation to Shanxi Electric Power
Complete Equipment Company and the Commercial Bureau of Heilongjiang Province.
The air compressors will be utilized at the Yangcheng Power Plant and at
ShuangYa Shan Mine in Heilongjiang Province. The Yangcheng Power Plant will be
one of the largest power plants in China after its construction is completed. In
September 1998, the Company signed a contract for over $600,000 from China
Xinxing Import & Export Corporation for communications network equipment
manufactured by Cisco Systems, Inc.
The industrial equipment distribution business accounted for
approximately $3,700,000 and $4,400,000 in revenue for 1996 and 1997,
respectively. Although the Company's customers vary from year to year, the
Company historically has relied on a limited number of customers for a
substantial portion of its total revenues, the margins of which may vary
significantly. The Company expects that a significant portion of its future
revenues from this business segment will continue to be generated by a
limited number of customers, and revenues 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. However, the Company expects that revenues
from the STAQ On-line Network project will represent an increasing proportion
of total China-based revenues in the future.
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.
The Company's industrial equipment distribution business sales and support
teams, based in China and New Jersey, have grown from a total of three employees
in 1991 to 27 employees as of September 15, 1998. The Company's sales teams in
China for the industrial equipment distribution business are located in Beijing
(12 employees), Shanghai (four employees),
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Wuhan (eight employees) and Chongqing (two employees). All orders are sent to
Beijing for approval and processing.
Foreign Trade Corporations ("FTC's")
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 an 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 Renminbi
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 an 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
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equipment from the port of entry to the customer's 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.
YangZhou Brighton Equipment Corporation Ltd.
The Company's Hong Kong subsidiary, Brighton Equipment, on October 17,
1997, signed a joint venture contract with YangZhou Machine Tools Works to form
YangZhou Brighton Equipment Corporation Ltd. ("YangZhou Brighton"), a Sino-Hong
Kong equity joint venture company. YangZhou Brighton was established to produce
and sell industrial equipment to small-to-midsize companies not ordinarily able
to engage the services of FTC's due to costs. These companies are not permitted
to trade directly with foreign companies and are not able to secure foreign
exchange. YangZhou Brighton, a Chinese domestic company, is able to transact and
accept Renminbi. YangZhou Brighton's office is located in YangZhou City, PRC.
YangZhou Brighton commenced operations in March of 1998.
After-Sale 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 U.S., which maintains its own direct sales force in China.
In addition, certain manufacturers, such as Ingersoll-Rand Company of the U.S.,
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
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<PAGE>
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,
for a total of $11 million, engineering design and implementation for a sodium
bichromate production plant with an annual 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. All payments from China
National are remitted to the Company in U.S. dollars.
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. ("AlliedSignal") for use in the
production of sodium bichromate, chromic anhydride and chromium sulfate. The
Company was 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. After construction of the plant is
complete and ready to commence production, the Company will provide plant
commissioning services, including supervision of final construction, equipment
installation and pre-operational testing. This contract was temporarily
suspended by the municipal government in February 1996, due to environmental
concerns relating to China National's proposed methods for waste disposal by the
plant, but activity under this contract continued through 1997 as a result of
existing commitments.
The Company has been advised by China National that they are currently
negotiating with third party lenders for the necessary funds to complete the
construction of the project. The Company is currently unable to predict the
ultimate outcome of these discussions. In the event that China National is
unsuccessful in its efforts to obtain such financing and construction efforts
are further suspended or terminated, the Company's anticipated revenues in
the future with regard to this contract may be reduced or eliminated. The
Company does not currently expect that it will recognize any significant
revenues from this contract during the year ending December 31, 1998. If
China National is unable to complete the project, management does not expect
that the ultimate resolution of this matter will have a material adverse
impact on the Company's financial position, results of operations or cash
flows, other than the loss of revenue, profits and cash flows that would have
been realized if the project had been completed.
Background of the Company
The Company was incorporated in the State of Delaware on November 4, 1988
as Sirone Corporation. On November 1, 1995, the Company changed its name to
Zentex Corporation. For a period of time prior to November 11, 1996, under
previous management, 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
16
<PAGE>
of a controlling interest in the Company to the Brighton Shareholders (the
"Reverse Merger"). The business purpose of the Reverse Merger was to facilitate
the consolidation of BIC and BECL into one publicly traded entity to attract
investment in the Company. 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. The Common Stock of the
Company underwent a 1 for 3 reverse stock split effective as of November 11,
1996, a 1 for 3 reverse stock split effective as of October 17, 1997, a 1 for 3
reverse stock split effective as of January 20, 1998 and a 1 for 3 forward stock
split effective as of April 15, 1998. In connection with the 1 for 3 reverse
stock split effective as of April 15, 1998, the Company's symbol on the OTC
Electronic Bulletin Board was changed to "BGHT." All Common Stock and per share
data have been restated to reflect the 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 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 Wireless Systems China Limited ("Aria
China") 59%; (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 Equipment also hold a 90% interest in
YangZhou Brighton, a PRC joint venture company. Brighton OLTP, Brighton Elevator
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.
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The following is a diagram of the Company's structure:
[GRAPHIC: DIAGRAM OF BRIGHTON TECHNOLOGIES STRUCTURE]
18
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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 operations business in China. In addition,
all such telecommunication operations 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
As of June 30, 1998, the Company and its subsidiaries had approximately 115
full-time employees, of which over 80% are professionals with specialized
skills. There are 21 employees based in Hong Kong, 85 based in China and nine 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 85 employees in China,
27 are dedicated to sales related activities for the industrial equipment
distribution business segment and 21 are engineering and technical support
personnel in the computer network integration business segment.
Patents and Trademarks
The Company owns no registered patents. The Company has applied to the PRC
Patent and Trademark Office to register its logo in June 1997. The Company
expects to receive approval for registration of its logo in mid-1999. The
Company believes that its business is not materially dependent on any patent or
trademark.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Registration Statement on Form 10-SB contains "forward-looking
statements" within the meaning of the Federal securities laws. These
forward-looking statements include, among others, statements concerning the
Company's expectations regarding sales trends, gross and net operating margin
trends, political and economic matters, the development of the STAQ project, the
availability of equity capital to fund the Company's capital requirements, and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this Registration
Statement on Form 10-SB are subject to risks and uncertainties that could cause
actual results to differ materially from those results expressed in or implied
by the statements contained herein.
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
at that time. 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 consolidate the
operating companies (BIC and BECL) owned by the Brighton Shareholders into one
entity and to attract and facilitate investment into the Company. 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 active Hong
Kong subsidiaries and joint ventures (See "BUSINESS - THE COMPANY'S CORPORATE
STRUCTURE"). All common share and per share amounts presented herein have been
adjusted to reflect the 1-for-3 reverse stock splits effective November 11,
1996, October 17, 1997 and January 26, 1998, and a three-for-one stock split
effective April 15, 1998.
BIC is a distributor of third party manufactured industrial equipment to
customers in China and other Pacific Basin countries. BECL is an investment and
holding company whose subsidiaries 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 China and other Pacific Basin countries.
In addition, during February 1998, the Company commenced initial operations of
the STAQ On-line Network for the STAQ Exchange. Revenues from the STAQ On-line
Network during the six months ended June 30, 1998 were not significant. The
Company considers its operations at June 30, 1998 to be in three business
segments: industrial equipment distribution, computer network integration and
information services.
On April 15, 1994, BIC entered into a long-term contract with expected
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 were outside the ordinary
scope of the Company's industrial equipment distribution business, given its
size and complexity, because of certain third party technology that was
available to the Company at that
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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 China, the Company does not
anticipate engaging in additional projects of this type or size in the
foreseeable future. This contract was temporarily suspended in February 1996 by
the municipal government due to environmental concerns relating to China
National's proposed methods of waste disposal by the plant, but activity under
this contract continued through 1997 as a result of existing commitments.
The Company has been advised by China National that they are currently
negotiating with third party lenders for the necessary funds to complete the
construction of the project. The Company is currently unable to predict the
ultimate outcome of these discussions. In the event that China National is
unsuccessful in its efforts to obtain such financing and construction efforts
are further suspended or terminated, the Company's anticipated revenues in the
future with regard to this contract may be reduced or eliminated. The Company
does not currently expect that it will recognize any significant revenues from
this contract during the year ending December 31, 1998. If China National is
unable to complete the project, management does not expect that the ultimate
resolution of this matter will have a material adverse impact on the Company's
financial position, results of operations or cash flows, other than the loss of
revenue, profits and cash flows that would have been realized if the project had
been completed.
Revenues under this contract for the years ended December 31, 1996 and 1997
were approximately $1,048,000 and $2,237,000, respectively, or 13% and 35% of
the Company's total revenues, respectively. Revenues under this contract for the
six months ended June 30, 1997 were approximately $2,066,000 or 46% of the
Company's total revenues; the Company did not record any revenues with respect
to this contract for the six months ended June 30, 1998. The Company had
recorded cumulative aggregate revenues of $6,798,000 through June 30, 1998 under
this contract, or approximately 62% of the contract's total expected revenues.
For the years ended December 31, 1996 and 1997, and the six months ended June
30, 1997 and 1998, this contract accounted for approximately 29%, 50%, 71% and
0% of industrial equipment distribution revenues, respectively.
During 1997, no customer other than China National accounted for as much
as 10% of revenues. During 1996, another customer accounted for approximately
17% of revenues. During the six months ended June 30, 1998, Changan
Automobile Works accounted for approximately 35% of revenues. Although the
Company's customers very from year to year, the Company has historically
relied on large contracts from a limited number of customers for a
substantial portion of its total revenues, the margins of which may vary
significantly. In addition, substantially all of the Company's business is
currently conducted with or in China. The Company expects that a significant
portion of its future revenues will continue to be generated by a limited
number of customers in China, and revenues 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. However, the Company expects
that revenues from the STAQ On-line Network project will represent an
increasing proportion of total China-based revenues in the future. 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 in
China or between the United States and China, or any currency restrictions or
devaluations relative to the United States dollar, could have a material
adverse effect on future results of operations.
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The following table sets forth certain historical operating data
for the periods presented:
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------ -------------------------
1996 1997 1997 1998
---- ---- ---- ----
Amount % Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 8,006,260 100.0 $ 6,446,617 100.0 $ 4,535,865 100.0 $ 8,851,331 100.0
Cost of revenues 5,785,507 72.3 4,519,381 70.1 3,205,144 70.7 6,540,501 73.9
Operating expenses 1,755,029 21.9 2,580,106 40.0 1,146,601 25.3 1,609,204 18.2
Consulting fees 434,899 6.8 274,581 6.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating income (loss) 465,724 5.8 (1,087,769) (16.9) (90,461) (2.0) 701,626 7.9
Other income (expense), net 49,026 .6 70,828 1.1 23,487 .5 (111,412) (1.2)
Write-off of offering costs (582,685) (9.0)
----------- ----- ----------- ----- ----------- ----- ----------- -----
Income (loss) before income
taxes and minority interests 514,750 6.4 (1,599,626) (24.8) (66,974) (1.5) 590,214 6.7
(Provision) benefit for
income taxes (309,000) (3.8) (31,000) (.7) 6,311 .1
Minority interests (7,226) (.1) 15,099 .2 5,950 .1 130 --
----------- ----- ----------- ----- ----------- ----- ----------- -----
Net income (loss) $ 198,524 2.5 $(1,584,527) (24.6) $ (30,024) (.7) $ 584,033 6.6
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
</TABLE>
22
<PAGE>
GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------ -------------------------
1996 1997 1997 1998
---- ---- ---- ----
Amount % Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
United States(1) $ 6,039,716 75.4 $ 5,275,052 81.8 $ 3,953,366 87.2 $ 5,269,130 59.5
Far East 1,966,544 24.6 1,171,565 18.2 582,499 12.8 3,582,201 40.5
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total $ 8,006,260 100.0 $ 6,446,617 100.0 $ 4,535,865 100.0 $ 8,851,331 100.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating Income (Loss):
United States $ 730,875 156.9 $ (6,984) (.6) $ 464,691 513.7 $ 947,252 135.0
Far East (265,151) (56.9) (376,402) (34.6) (155,396) (171.8) 84,862 12.1
Corporate(2) (704,383) (64.8) (399,756) (441.9) (330,488) (47.1)
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total $ 465,724 100.0 $(1,087,769) (100.0) $ (90,461) (100.0) $ 701,626 100.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
</TABLE>
- ----------
(1) Substantially all of the United States Revenues are derived from customers
based in the Far East.
(2) Costs attributable to corporate activities were not significant for the year
ended December 31, 1996.
23
<PAGE>
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------ -------------------------
1996 1997 1997 1998
---- ---- ---- ----
Amount % Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Computer network integration $ 4,341,827 54.2 $ 2,001,267 31.0 $ 1,617,221 35.7 $ 1,181,262 13.3
Industrial equipment
distribution 3,664,433 45.8 4,445,350 69.0 2,918,644 64.3 7,670,049 86.7
Information services (1)
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total $ 8,006,260 100.0 $ 6,446,617 100.0 $ 4,535,865 100.0 $ 8,851,331 100.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
Operating Income (Loss):
Computer network integration $ 251,209 53.9 $ 106,680 9.8 $ 78,105 86.3 $ 552,273 78.7
Industrial equipment
distribution 214,515 46.1 (490,066) (45.0) 231,190 255.6 626,136 89.2
Information services (1) (146,295) (20.8)
Corporate (2) (704,383) (64.8) (399,756) (441.9) (330,488) (47.1)
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total $ 465,724 100.0 $(1,087,769) (100.0) $ (90,461) (100.0) $ 701,626 100.0
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
</TABLE>
- ----------
(1) The information services business segment did not generate any operating
revenues through June 30, 1998. Costs attributable to the information services
business segment were not significant prior to 1998.
(2) Cost attributable to corporate activities were not significant for the year
ended December 31, 1996.
24
<PAGE>
Consolidated Results of Operations
Six Months Ended June 30, 1997 and 1998:
Revenues. Revenues for the six months ended June 30, 1998 were $8,851,331,
as compared to $4,535,865 for the six months ended June 30, 1997, an increase of
$4,315,466 or 95.1%. The increase in revenues in 1998 as compared to 1997
consisted of an increase in industrial equipment distribution revenues of
$4,751,405 or 162.8%, offset in part by a decrease of $435,959 or 27.0% in
computer network integration revenues. For the six months ended June 30, 1998
and 1997, industrial equipment distribution revenues represented approximately
86.7% and 64.3% of consolidated revenues, respectively, and computer network
integration revenues represented approximately 13.3% and 35.7% of consolidated
revenues, respectively. Revenues increased in 1998 as compared to 1997 primarily
as a result of the timing of certain industrial equipment distribution
contracts, including one contract for approximately $3,081,000 with Changan
Automobile Works recorded in 1998.
For the six months ended June 30, 1998 and 1997, revenues from the China
National contract were $0 and $2,066,000, respectively. For the six months ended
June 30, 1998 and 1997, the China National contract accounted for approximately
0% and 46% of consolidated revenues, respectively, and approximately 0% and 71%
of industrial equipment distribution revenues, respectively.
The Company's current focus in the computer network integration segment
of its business is in wireless telecommunication systems. Computer network
integration revenues include revenues from the sale and installation of the
Aria Wireless System (See "BUSINESS - COMPUTER NETWORK INTEGRATION - ARIA
WIRELESS SYSTEM"). During 1997, the Company was awarded ten contracts with
ICBC to customize integration of and install Aria Wireless Systems for ATM
linkage and for clearance and settlements for its bank branches. Seven of
these contracts were completed during 1997 and the remaining three contracts
are scheduled to be completed during 1998. For the six months ended June 30,
1998 and 1997, revenues from the sale and installation of the Aria Wireless
System were $918,433 and $987,103, respectively, or 77.8% and 61.0% of
computer network integration revenues, respectively.
For the six months ended June 30, 1998, revenues from United States export
sales to the Far East increased by $1,315,764 or 33.3%, to $5,269,130 in 1998
from $3,953,366 in 1997 as a result of a general increase in demand for
industrial goods, and revenues from Far East based operations increased by
$2,999,702 or 515.0%, to $3,582,201 in 1998 from $582,499 in 1997, primarily as
a result of the aforementioned contract for approximately $3,081,000 with
Changan Automobile Works. For the six months ended June 30, 1998 and 1997,
revenues from United States export sales to the Far East represented
approximately 59.5% and 87.2% of consolidated revenues, respectively, and
revenues from Far East based operations represented 40.5% and 12.8% of
consolidated revenues, respectively.
Gross Profit. Gross profit for the six months ended June 30, 1998 increased
by $980,109 or 73.7%, to $2,310,830 or 26.1% of revenues, as compared to
$1,330,721 or 29.3% of revenues for the six months ended June 30, 1997. The
decrease in gross profit margin in 1998 as compared to 1997 was a result of
generally increased competition in the industrial equipment distribution
business segment, which the Company expects will continue at least for the
remainder of 1998 and 1999.
General and Administrative Expenses. General and administrative expenses
increased by $434,132 or 51.5% to $1,276,668 or 14.4% of revenues for the six
months ended June 30, 1998, as compared to $842,536 or 18.6% of revenues for the
six months June 30, 1997, primarily as a result of increases in employee
compensation and occupancy costs incurred to develop the
25
<PAGE>
STAQ On-line Network and to support the Company's efforts to expand its
operations in the Far East, and corporate costs associated with the operation of
a public company.
For the six months ended June 30, 1998, corporate general and
administrative expenses decreased by $69,268 or 17.3%, to $330,488 in 1998 from
$399,756 in 1997, respectively, primarily as a result of reduced professional
fees.
Selling and Marketing Expenses. Selling and marketing expenses increased by
$24,238 or 9.5% to $280,566 or 3.2% of revenues for the six months ended June
30, 1998, as compared to $256,328 or 5.7% of revenues for the six months June
30, 1997, primarily as a result of increases in employee compensation and
occupancy costs incurred to develop and promote the STAQ On-line Network and to
support the Company's efforts to expand its operations in the Far East.
Consulting Fees. During the six months ended June 30, 1997, the Company
incurred consulting fees aggregating $274,581 for certain professional,
consulting and other costs incurred in connection with the Company's ongoing
business development and financing activities. The Company did not incur any
similar consulting fees during the six months ended June 30, 1998.
Included in the $274,581 of consulting fees are $175,000 of costs pursuant
to a consulting agreement with a consulting firm. The Company entered into the
consulting agreement with the consulting firm for business advisory services on
February 25, 1997. 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 was unsecured, with interest at 10% per annum to accrue until the due date
of February 24, 1998. Thereafter, such note is due and payable upon demand, with
interest at 12% per annum.
The Company has the option of converting the note, including accrued
interest, on or after the due date, into shares of common stock, with the value
of such common shares to be calculated at 75% of the market price on the
conversion 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, is 75,000 shares. Such shares, if issued, will be restricted and will
have piggyback registration rights.
Operating Income (Loss). For the six months ended June 30, 1998, operating
income was $701,626, as compared to an operating loss of ($90,461) for the six
months ended June 30, 1997. The Company had operating income in 1998, as
compared to an operating loss in 1997, primarily as a result of increased
revenues and reduced consulting fees.
For the six months ended June 30, 1998 and 1997, industrial equipment
distribution operating income represented approximately 8.2% and 7.9% of
industrial equipment distribution revenues, respectively, and computer
network integration operating income represented approximately 46.8% and 4.8%
of computer network integration revenues, respectively. Networking operating
income increased significantly in 1998 as compared to 1997 as a result of the
aforementioned focus by the Company on the sale and installation of the Aria
Wireless Systems (see "BUSINESS - COMPUTER NETWORK INTEGRATION - ARIA WIRELESS
SYSTEM"), from which the Company realized improved margins in 1998.
For the six months ended June 30, 1998 and 1997, operating income from
United States export sales to the Far East represented approximately 18.0% and
11.7% of revenues from United States export sales to the Far East, respectively,
and operating income (loss) from Far East based operations represented
approximately 2.4% and (26.7%) of revenues from Far East based operations,
respectively. Far East based operations had operating income in 1998 as compared
to
26
<PAGE>
operating loss in 1997 as a result of increased revenues and decreased costs
related to business development and financing activities.
The information services business segment, which consists of the STAQ
On-line Network, did not generate any revenues during the six months ended June
30, 1998 and 1997. For the six months ended June 30, 1998, the operating loss
from information services was $(146,295). Costs related to the STAQ On-line
Network were not significant during the six months ended June 30, 1997.
Other Income (Expense). For the six months ended June 30, 1998, interest
expense and bank fees increased by $85,144 or 302.7% to $113,268, as compared to
$28,124 for the six months ended June 30, 1997, primarily as a result of bank
fees related to a bank letter of credit issued in conjunction with an industrial
equipment purchase contract scheduled for completion in 1998.
For the six months ended June 30, 1998, interest income decreased by
$22,311 or 51.3%, to $21,209, as compared to $43,520 for the year ended December
31, 1996, primarily as a result of decreased cash balances.
Income Taxes. For the six months ended June 30, 1998, the Company had
consolidated income before income taxes and minority interests of $590,214, and
recorded a foreign provision for income taxes of $6,311. The Company recognized
the tax benefit of a $172,000 net operating loss carryforward, which was
previously reserved for at December 31, 1997. For the six months ended June
30, 1997, the Company had a loss before income taxes and minority interests of
($66,974), and recorded an income tax benefit of $31,000.
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). Net income for the six months ended June 30, 1998 was
$584,033 or $.15 per share, as compared to a net loss for the six months ended
June 30, 1997 of ($30,024) or ($.01) per share.
Years Ended December 31, 1996 and 1997:
Revenues. Revenues for the year ended December 31, 1997 were $6,446,617, as
compared to $8,006,260 for the year ended December 31, 1996, a decrease of
$1,559,643 or 19.5%. The decrease in revenues of $1,559,643 in 1997 as compared
to 1996 consisted of a decrease in computer network integration revenues of
$2,340,560 or 53.9%, which was partially offset by an increase in industrial
equipment distribution revenues of $780,917 or 21.3%. For the years ended
December 31, 1997 and 1996, industrial equipment distribution revenues
represented approximately 69.0% and 45.8% of consolidated revenues,
respectively, and computer network integration revenues represented
approximately 31.0% and 54.2% of consolidated revenues, respectively.
Industrial equipment distribution revenues for the year ended December 31,
1997 increased primarily because of increased revenues from the previously
described contract with China National. Revenue from this contract is included
in the Company's industrial equipment distribution business segment, and is
recognized using the percentage of completion method. Revenue from this contract
increased by approximately $1,189,000 in 1997 as compared to 1996, from
approximately $1,048,000 in 1996 to $2,237,000 in 1997.
27
<PAGE>
Computer network integration revenues decreased in 1997 as compared to 1996
primarily as a result of management's decision to allocate personnel and
resources during 1997 to continue the development of the STAQ On-line Network
(See "BUSINESS - STAQ ON-LINE NETWORK"). Due to the Company's limited capital
and operating resources, development of the STAQ On-line Network required the
Company to reduce its sales efforts with respect to the computer network
integration business segment.
The Company's current focus in the computer network integration segment
of its business is in wireless telecommunication systems. Computer network
integration revenues include revenues from the sale and installation of the
Aria Wireless System (See "BUSINESS - COMPUTER NETWORK INTEGRATION - ARIA
WIRELESS SYSTEM"). During 1997, the Company was awarded ten contracts with
ICBC to customize integration of and install Aria Wireless Systems for ATM
linkage and for clearance and settlements for its bank branches. Seven of the
contracts were completed during 1997 and the remaining three contracts are
scheduled to be completed during 1998. For the years ended December 31, 1997
and 1996, revenues from the sale and installation of the Aria Wireless System
were $1,557,707 and $266,758, respectively, or 77.8% and 6.1% of computer
network integration revenues, respectively.
Revenues from United States export sales to the Far East are derived from
industrial equipment distribution, while revenues from Far East based operations
are derived from both industrial equipment distribution and computer network
integration. For the year ended December 31, 1997, revenues from United States
export sales decreased by $764,664 or 12.7%, to $5,275,052 in 1997 from
$6,039,716 in 1996, and revenues from Far East based operations decreased by
$794,979 or 40.4%, to $1,171,565 in 1997 from $1,966,544 in 1996. For the years
ended December 31, 1997 and 1996, revenues from United States export sales
represented approximately 81.8% and 75.4% of consolidated revenues,
respectively, and revenues from Far East based operations represented
approximately 18.2% and 24.6% of consolidated revenues, respectively.
Gross Profit. Gross profit for the year ended December 31, 1997 was
$1,927,236 or 29.9% of revenues, as compared to $2,220,753 or 27.7% of revenues
for the year ended December 31, 1996. The increase in gross margin in 1997 as
compared to 1996 was primarily a result of increased revenues from the contract
with China National, and an improvement in gross margins on certain industrial
equipment distribution contracts.
General and Administrative Expenses. General and administrative expenses
increased by $616,420 or 46.3%, to $1,946,494 or 30.2% of revenues for the year
ended December 31, 1997, as compared to $1,330,074 or 16.6% of revenues for the
year ended December 31, 1996, primarily as a result of increases in employee
compensation and occupancy costs incurred to support the Company's efforts to
its expand operations in the Far East, and corporate costs associated with the
operation of a public company.
For the year ended December 31, 1997, corporate general and administrative
expenses aggregated $704,383. Corporate general and administrative expenses were
not significant during the year ended December 31, 1996.
Selling and Marketing Expenses. Selling and marketing expenses increased by
$135,737 or 35.1%, to $521,954 or 8.1% of revenues for the year ended December
31, 1997, as compared to $386,217 or 4.8% of revenues for the year ended
December 31, 1996, primarily as a result of increases in employee compensation
and occupancy costs incurred to support the Company's efforts to expand its
operations in the Far East.
Consulting Fees. During the year ended December 31, 1997, the Company
incurred consulting fees aggregating $434,899 for certain professional,
consulting and other costs incurred
28
<PAGE>
in connection with the Company's ongoing business development and financing
activities. The Company did not incur any similar consulting fees during the
year ended December 31, 1996.
Included in the consulting fees of $434,899 are $175,000 of costs pursuant
to a consulting agreement with a consulting firm. The Company entered into the
consulting agreement with the consulting firm for business advisory services on
February 25, 1997. 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 was unsecured, with interest at 10% per annum to accrue until the due date
of February 24, 1998. Thereafter, such note is due and payable upon demand, with
interest at 12% per annum.
The Company has the option of converting the note, including accrued
interest, on or after the due date, into shares of common stock, with the value
of such common shares to be calculated at 75% of the market price on the
conversion 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, is 75,000 shares. Such shares, if issued, will be restricted and will
have piggyback registration rights.
Operating Income (Loss). For the year ended December 31, 1997, operating
loss was ($1,087,769), as compared to operating income of $465,724 for the year
ended December 31, 1996. The Company incurred an operating loss in 1997 as
compared to operating income in 1996 primarily as a result of reduced revenues,
increased operating expenses related to business development and financing
activities, particularly with respect to the development of the STAQ On-line
Network and the consulting fees, and the corporate costs associated with the
operation of a public company.
For the years ended December 31, 1997 and 1996, operating income (loss)
from industrial equipment distribution represented approximately (11.0%) and
5.9% of industrial equipment distribution revenues, respectively, and operating
income from computer network integration represented approximately 5.3% and 5.8%
of computer network integration revenues, respectively. The increase in
operating loss from industrial equipment distribution of $704,581 or 328.5% in
1997 as compared to 1996 reflects a decrease in revenues and operating margins,
and an increase in business development and financing costs. The decrease in
operating income from computer network integration of $144,529 or 57.5% in 1997
as compared to 1996 reflects a decrease in computer network integration
revenues. Operating loss also increased in 1997 as compared to 1996 as a result
of a shift in the business mix to a higher proportion of lower margin industrial
equipment sales.
The decrease in operating income (loss) from United States export sales
to the Far East of $737,859 or 101.0% in 1997 as compared to 1996, and the
increased operating loss from Far East based operations of $111,251 or 42.0%
in 1997 as compared to 1996, were the result of a decrease in revenues and
operating margins. Operating loss also increased in 1997 as compared to 1996
as a result of a shift in the business mix to a higher proportion of lower
margin United States export sales to the Far East.
Other Income (Expense). For the year ended December 31, 1997, interest
expense and bank fees increased by $30,266 or 91.2% to $63,436, as compared to
$33,170 for the year ended December 31, 1996, primarily as a result of an
increase in notes payable and bank fees.
29
<PAGE>
For the year ended December 31, 1997, interest income increased by $62,130
or 165.9%, to $99,581, as compared to $37,451 for the year ended December 31,
1996, primarily as a result of increased cash balances generated by contract
advances.
During 1997, the Company had capitalized professional fees and related
costs in connection with its contemplated public offering of its securities.
Based on an assessment of market conditions and other factors, the Company
decided to abandon this offering and, accordingly, recognized a non-operating
charge to operations of $582,685 during the year ended December 31, 1997.
Income Taxes. For the year ended December 31, 1997, the Company incurred a
consolidated loss before income taxes and minority interests of $1,599,626,
which consisted of operating losses in both the United States and the Far East
jurisdictions in which the Company operates. Based on assessment of all
available information, including historical trends, the Company was unable to
conclude that realization of the deferred tax asset was more likely than not.
Accordingly, the Company established a 100% valuation allowance on the deferred
tax assets related to its domestic and foreign net operating losses. Reductions
in the valuation allowance will be recorded when, in the opinion of management,
the Company's ability to generate taxable income in the future is considered
more likely than not. For the year ended December 31, 1996, the Company had
income before income taxes and minority interests of $514,750, and recorded a
provision for income taxes of $309,000 or 60.0% of income before income taxes
and minority interests.
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). Net loss for the year ended December 31, 1997 was
($1,584,527) or ($.46) per share, as compared to net income for the year ended
December 31, 1996 of $198,524 or $.06 per share.
Consolidated Financial Condition
Liquidity and Capital Resources:
Operating. For the year ended December 31, 1997, the Company's operations
utilized cash resources of $2,475,543, as compared to generating cash resources
of $2,741,329 for the year ended December 31, 1996. The Company had a working
capital deficit of $1,560,352 at December 31, 1997, as compared to a working
capital deficit of $879,481 at December 31, 1996, reflecting current ratios of
.80:1 and .91:1, respectively. The Company incurred negative operating cash flow
in 1997, as compared to positive operating cash flow in 1996, primarily as a
result of the operating losses incurred in 1997, the costs incurred to support
the Company's efforts to expand its operations in the Far East, and the costs
associated with the operation of a public company.
For the six months ended June 30, 1998, the Company's operations provided
cash resources of $411,224, as compared to utilizing cash resources of
$1,576,867 for the six months ended June 30, 1997. The Company had net working
capital of $85,675 at June 30, 1998, as compared to a net working capital
deficit of ($1,560,352) at December 31, 1997, reflecting current ratios of
1.01:1 and .80:1, respectively. The Company's operations provided cash
resources in 1998 as compared to utilizing cash resources in 1997 primarily
as a result of increased revenues and improved profitability and project
management that focused on cash collection.
30
<PAGE>
Accounts receivable decreased by $4,083 to $1,335,235 at December 31, 1997,
from $1,339,318 at December 31, 1996. During the six months ended June 30, 1998,
accounts receivable increased by $1,143,359, reflecting increased operating
activity during 1998.
Advances to customers increased by $1,128,998 to $1,671,166 at December 31,
1997, from $542,168 at December 31, 1996. During the six months ended June 30,
1998, advances to customers decreased by $474,578.
During the year ended December 31, 1997, the Company received customer
advances aggregating $2,150,000 with respect to the China National contract,
which has been recorded as customer deposits at December 31, 1997 and June 30,
1998, and which is expected to be utilized in the fulfillment of the Company's
obligations under that contract in subsequent periods. As an accommodation to
China National for excess funds held by the Company, the Company has
periodically loaned funds to China National. These loans do not bear interest
and do not stipulate repayment dates. As of December 31, 1997 and June 30, 1998,
the Company had advanced $1,181,513 to China National, which is included in
advances to customers at those dates.
Investing. During the years ended December 31, 1997 and 1996, the Company
purchased fixed assets aggregating $322,331 and $154,484, respectively,
primarily in the form of project equipment that will be utilized in completing
future projects. The Company also acquired project equipment with an estimated
fair market value of $185,950 in a non-cash transaction from the Company's
majority stockholder in exchange for an equivalent reduction in the amount due
the Company from the majority stockholder. During the six months ended June 30,
1998, the Company acquired fixed assets aggregating $120,579. Other than
equipment which the Company purchases in the fulfillment of its contracts and
its commitment to Brighton-STAQ, the Company has no capital expenditure
commitments.
Cash set aside for customer purchases, which represents prepayments by
customers that are set aside to pay project related current liabilities and
commitments, was $2,636,000 at December 31, 1996, and was utilized in full
during 1997 to fund equipment purchases for the China National contract and
loans to China National.
Financing. During January 1996, the Company entered into a convertible
demand note agreement with a third party, with interest at 5% per annum,
providing proceeds of $575,603. The note had an outstanding balance, including
accrued interest, of $620,101 at December 31, 1997. During June 1998, the
Company settled the note, including accrued interest, by issuing 300,000 shares
of common stock for $425,000 of such amount and by making a cash payment of
$247,940 for the remaining amount.
During December 1996, the Company sold 33,333 shares of common stock for
aggregate proceeds of $450,000, less costs of $259,824, generating net proceeds
of $190,176. During the year ended December 31, 1997, the Company sold an
additional 24,006 shares of common stock for aggregate proceeds of $352,924,
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 6,090 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 aforementioned 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, 1998, the Company sold 731,046
shares of common stock for aggregate proceeds of $1,179,171, less costs of
$81,002, generating net proceeds of $1,098,169. Included in the 731,046
shares of common stock sold are 55,754 shares subscribed for during the six
months ended June 30, 1998, for which the cash consideration of $79,171 was
received by the Company subsequent to June 30, 1998.
31
<PAGE>
On March 9, 1998, the Company and an independent financial firm (the
"Firm") entered into an agreement whereby the Firm will seek to secure investors
for a contemplated private placement. The amount of the proceeds to the Company
is specified as not less than $5,000,000, and the Firm is entitled to a
commission of approximately 20% of the gross proceeds of the private placement.
If certain criteria are achieved, the Firm would also be entitled to nominate
two individuals to the Company's Board of Directors. During the six months
ended June 30, 1998, the Company issued 29,000 shares under this agreement for
gross proceeds of $145,000. The 29,000 shares are included in the 731,046
shares sold that are described above.
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, 1997 and 1996, amounts due from
Kit Kung and his family members aggregated $232,221 and $43,239, respectively;
outstanding non-current receivables from other related parties aggregated $0 and
$15,884, respectively; and amounts due to Kit Kung and his family members
aggregated $0 and $227,298, respectively. During the years ended December 31,
1997 and 1996, the Company repaid $330,157 and $1,118,625 of advances previously
made by Kit Kung and his family members to the Company. During 1997, the Company
reduced the receivable from stockholders and related parties by $185,950,
representing the estimated fair market value of project equipment acquired by
the Company from Kit Kung in a non-cash transaction. During the years ended
December 31, 1997 and 1996, advances to related parties aggregated $272,073 and
$43,239, respectively, and during the year ended December 31, 1996, payments of
accounts receivable from related parties totaling $424,872 were received.
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, 1998, the Company advanced $257,512 to
Kit Kung and his family members.
As of June 30, 1998, the Company had issued an irrevocable letter of credit
for approximately $163,000, representing a contingent commitment for the
purchase of equipment, none of which had been disbursed. During December 1997,
the wife of the Company's founder and majority stockholder, who is an officer
and director of the Company, provided a short-term credit facility to the
Company by depositing $500,000 into a short-term interest-bearing account with a
Hong Kong bank as security for the bank's letter of credit for $2,145,000 issued
to a supplier in conjunction with the aforementioned Changan Automobile Works
contract. The full amount of the letter of credit was disbursed during the six
months ended June 30, 1998, and was repaid in August 1998.
As a result of the delay in the China National project, the Company is
in the process of renegotiating the terms of certain obligations under the
technological licensing arrangements that it entered into in conjunction with
the China National contract (See "BUSINESS - CHINA NATIONAL CONTRACT"). The
contractual value of services currently under negotiation is approximately
$450,000, and the settlement of such obligation is predicated on the
resolution of the China National project (see "OVERVIEW"). The Company does
not currently expect that it will recognize any significant revenues from
this contract during the year ending December 31, 1998. If China National is
unable to complete the project, management does not expect that the ultimate
resolution of this matter will have a material adverse impact on the
Company's financial position, results of operations or cash flows, other than
the loss of revenue, profits and cash flows that would have been realized if
the project had been completed.
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. Although the Company's computer network integration
and industrial equipment distribution business segments on a combined basis
generate or have available sufficient working capital to support their
operations, the Company requires additional capital in connection with the
development of the STAQ On-line Network (See "BUSINESS - STAQ ON-LINE
NETWORK").
Brighton-STAQ was formed to design, develop, install and maintain a
computer network for the trading of securities in China (the "STAQ On-line
Network"). The Company owns a 90% interest in Brighton-STAQ and had invested
or advanced approximately $1,650,000 and $1,910,000 with respect to
Brighton-STAQ as of December 31, 1997 and June 30, 1998, respectively. As of
December 31, 1997, the Company had fully funded its original obligation to
invest $1,600,000 in Brighton-STAQ. The minority interest holders of
Brighton-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%. The Company had also committed to provide aggregate funding of
approximately $4,000,000 during 1998 in the form of loans, based on initial
estimates of the amount of working capital required during 1998 to support
the start-up and subsequent expansion of the STAQ On-line Network.
32
<PAGE>
To the extent that the Company is unable to timely fund its current
commitment to Brighton-STAQ during 1998, the planned expansion of the STAQ
On-line Network into additional cities in China will be deferred, thus
delaying the development of Brighton-STAQ and its ability to reach
operational viability. A delay in expanding the STAQ On-line Network may also
result in potential customers adopting alternative systems to trade
securities in China, thus diminishing the STAQ On-line Network's expansion
potential and competitive position in China. The occurrence of these events
could reduce the potential future commercial and economic value of the STAQ
On-line Network, which would adversely affect the future profitability of
Brighton-STAQ as it relates to the Company's consolidated results of
operations.
Based on revised and updated estimates of the cost to fund the expansion
of the STAQ On-line Network, the Company does not believe that the entire
$4,000,000 will be required during 1998. The Company currently expects to
meet its funding commitment to Brighton-STAQ through a private sale of its
common stock, although there can be no assurances that the Company will be
successful in this regard. To the extent that Brighton-STAQ were to be
funded by sources unrelated to the Company, the Company's interest in
Brighton-STAQ could be reduced or eliminated, which would adversely affect
the potential future profitability of Brighton-STAQ as it relates to the
Company's consolidated results of operations. Since the Company has fully
funded its original $1,600,000 commitment to Brighton-STAQ, the Company
believes that this event is unlikely.
Inflation and Currency Matters:
In recent years, the Chinese economy has experienced periods of rapid
economic growth as well as relatively high rates of inflation, which in turn has
resulted in the periodic adoption by the Chinese government of various
corrective measures designed to regulate growth and contain inflation. Since
1993, the Chinese government has implemented an economic program designed to
control inflation, which has resulted in the tightening of working capital
available to Chinese business enterprises. The recent Asian financial crisis has
resulted in a general reduction in domestic production and sales, and a general
tightening of credit, throughout China. The success of the Company depends in
substantial part on the continued growth and development of the Chinese economy.
Since the Company's contracts are generally denominated in United States
dollars and are usually of short duration, the Company is not subject to any
significant economic exposure from the effects of inflation in China.
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, the Renminbi is not freely
convertible into foreign currencies. All foreign exchange transactions involving
the Renminbi 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 the Renminbi is subject to
the availability of foreign currencies.
The continuing Asian financial crisis has had a negative impact on the
Company's operations by reducing the Chinese economy's growth and general level
of activity and causing uncertainty with respect to the ultimate cost of
equipment ordered from United States-based suppliers, which must be paid for by
converting Renminbi into United States dollars. Although the central government
of China has recently indicated that it does not intend to devalue its currency
in the near future, devaluation still remains a possibility. Should the central
government of China decide to devalue the Renminbi, the Company believes that
such an action would have a detrimental effect on the Company's operations, by
reducing the purchasing power of the Company's Chinese customers and by
decreasing the potential earnings from the STAQ On-line Network, when measured
in United States dollars. Although the functional currency of certain of the
Company's Far East operations is the Hong Kong Dollar or the Chinese Renminbi,
the majority of the Company's transactions are conducted in United States
dollars. Accordingly, the Company does not believe that devaluation of the
Chinese Renminbi would have a material effect on the Company's consolidated
financial position.
33
<PAGE>
However, the operations of the STAQ On-line Network will be subject to the
effects of inflation and the risk of currency devaluation in China, since its
operations will be conducted in Renminbi.
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," ("SFAS No. 130"), which is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income, its components and accumulated balances in a full set of
general purpose financial statements. SFAS No. 130 defines comprehensive income
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is presented with the same prominence as other
financial statements. The Company does not have any significant components of
comprehensive income other than net income (loss). Accordingly, adoption of SFAS
No. 130 did not have a material effect on the Company's financial statement
presentation and disclosures, and a separate statement of comprehensive income
has not been presented.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise" and which is effective for financial
statements issued for fiscal years beginning after December 15 ,1997. SFAS No.
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. SFAS No. 131 also establishes standards for disclosures by
public companies regarding information about their major customers, operating
segments, products and services, and the geographic areas in which they operate.
SFAS No. 131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 requires comparative information for earlier
years to be restated. The Company's results of operations and financial position
will not be affected by implementation of SFAS No. 131. The Company is
evaluating the effect that adoption of SFAS No. 131 will have on its financial
statement disclosures.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits" ("SFAS No. 132"), which is effective for financial statements issued
for fiscal years beginning after December 15, 1997. SFAS No. 132 revises
employers' disclosures about pension and other post retirement benefit plans.
SFAS No. 132 requires comparative information for earlier years to be restated.
The Company's results of operations and financial position will not be affected
by implementation of SFAS No. 132. The Company is evaluating the effect that
adoption of SFAS No. 132 will have on its financial statement disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), which is effective for financial statements for all fiscal quarters of
all fiscal years beginning after June 15, 1999. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133 also addresses the accounting for hedging
activities. The Company has not
34
<PAGE>
determined whether SFAS No. 133 will have a material impact on its financial
statement presentation or disclosures.
Year 2000 Issue:
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
programs that have sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Based on a recent internal assessment, the Company has determined that
certain of its software programs will have to be modified or replaced so that
its computer systems will properly utilize dates beyond December 31, 1999. The
Company is in the process of developing estimated costs to be Year 2000
compliant. However, the Company is in the process of developing estimated costs
to be Year 2000 compliant. However, the Company does not believe that the cost
to modify its existing software and/or convert to new software will be
significant.
The Company has also reviewed the business operations of its computer
network integration segment in order to determine the potential impact of the
Year 2000 Issue with respect to computer networks that the Company has installed
in China. Although the current computer networks that the Company installs are
Year 2000 compliant, certain prior computer networks may not have been Year 2000
compliant. However, the Company believes that any software modifications
necessary to make such computer networks Year 2000 compliant will be provided by
the companies that developed the hardware and software installed by the Company.
In addition, based on the Company's contracts with its customers, including the
standard one year warranty provision, the Company does not believe that it has
any obligation to modify or replace any network software that it has previously
installed that is not Year 2000 compliant. Accordingly, the Company does not
believe that it will incur any significant costs in this regard with respect to
the Year 2000 issue.
35
<PAGE>
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 Room 1001 on the 10th floor of Eastern
Centre. The lease expires on March 22, 2000.
Beijing. The facilities occupied by Brighton-STAQ in the Ritan Office
Building, Chao Yang District, Beijing are under two separate lease agreements.
In addition, Brighton-STAQ leases No. 11 Hall in the Beijing Workers' Stadium,
adjacent to the STAQ Exchange. The leases all expire on April 30, 1999.
Chongqing. Brighton-STAQ signed a three-year lease for its branch office,
effective June 15, 1998 and expiring June 15, 2001, for office space in
Chongqing, consisting of five offices on the 29th floor of the ICBC Building in
Chongqing.
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.
Shenzhen. The Brighton Elevator Shenzhen representative office occupies
office space in the Shenzhen Beijing Hotel in Shenzhen. The lease expires June
30, 1999.
Wuhan. The Brighton Elevator Wuhan representative office occupies 120
square feet of office space in Wuhan. The lease expires on October 1, 1998.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 15, 1998
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
Number of Shares of Outstanding Common
Name and Address of Common Stock Stock Beneficially
Beneficial Owner Beneficially Owned Owned
<S> <C> <C>
Kit Kung 2,760,335(1) 60.93%
c/o Brighton Technologies Corporation
6 Pearl Court
Allendale, NJ 07401
Hong Yun 166,667(2) 3.68%
c/o Brighton Technologies Corporation
6 Pearl Court
Allendale, NJ 07401
Nils A. Ollquist -- --
c/o Orient Financial Services 13C,
Chinaweal Centre
414-424 Jaffe Road
Wanchai, Hong Kong
Alan A. Jurewicz -- --
c/o Brighton Technologies Corporation
6 Pearl Court
Allendale, NY 07401
Michael Muldavin -- --
c/o Brighton Technologies Corporation
6 Pearl Court
Allendale, NJ 07401
All Directors and executive Officers 2,927,002 64.61%
as a group (5 persons)
</TABLE>
37
<PAGE>
- ----------
(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 2,760,335 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.
38
<PAGE>
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 15, 1998. 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
stockholders. 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>
Name Age Position
---- --- --------
<S> <C> <C>
Brighton Technologies Corporation
Kit Kung 47 Chairman of the Board,
President and Chief Executive Officer
Alan A. Jurewicz 45 Chief Financial Officer
Nils A. Ollquist 41 Director and Secretary
Hong Yun 43 Director;
Vice President/General Manager
of The Brighton Industries Corporation
Michael Muldavin 77 Director
Key Management Personnel
Wang Qian 28 Manager of Finance and Administration
Beijing Electronic Corporation Ltd. (Beijing)
He Ping 38 General Manager
Beijing Brighton Staq
Electronic System Company Limited (Beijing)
Xue Yong 30 Manager of Engineering
Department of Information Services Group
Brighton-STAQ
Dali Zhang 28 Deputy General Manager of Industrial
Automation Group (Southern China)
The Brighton Industries Corporation
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
Ping Yu 40 Deputy General Manager
The Brighton Industries Corporation
Li Zhong Hua 30 General Manager
YangZhou Brighton
</TABLE>
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.
Alan A. Jurewicz has served as Chief Financial Officer of the Company since
August 5, 1998. Prior to joining the Company, Mr. Jurewicz was the regional
controller for Global Passenger Services, a New York based transportation
services company from June 1997 to July 1998. Mr. Jurewicz served as chief
financial officer of Liberty Helicopter Corp., the largest helicopter operator
in the Northeast United States, from June 1992 to June 1997. Mr. Jurewicz
also served in controller positions with Trump Air, Texas Air Corp. (Continental
Airlines) and Pan American World Airways from March 1977 to June 1992. Mr.
Jurewicz holds a bachelor of science degree in accounting from Fairleigh
Dickinson University. He is a member of the Phi Omega Epsilon Honor Society,
American Institute of Certified Public Accountants and New Jersey Society of
Certified Public Accountants.
Hong Yun has been a director of the Company since October 1996. She 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 naturalization. Ms. Yun graduated from Beijing University
of Beijing, China specializing in electronics engineering. She is the wife of
Kit Kung.
Nils A. Ollquist has been a director of the Company since October 1996 and
Secretary of the Company since May 7, 1998. Mr. Ollquist also held the positions
of Chief Financial Officer and Vice President of the Company until his
resignation, in November 1997. 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.
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
40
<PAGE>
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.
Qian Wang has been the Manager of Finance and Administration for BECL's PRC
based operations since July 1998. Mr. Wang is responsible for corporate planning
and financial control functions for all of the operations in China. Prior to
joining the Company, Mr. Wang started his career as an auditor for Coopers &
Lybrand. Mr. Wang also served as the Financial Consultant to Hewlett Packard
China and the Senior Consultant to IBM China. Mr. Wang graduated from the
Management College of Zhongshan University majoring in auditing. He holds a
bachelor degree of economics. Mr. Wang is a native of Beijing and a Chinese
national.
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.
Xue Yong is the Manager of the Engineering Department of the Information
Services Group of Brighton-STAQ. Mr. Xue joined the Company in November 1991 and
was assigned a number of technical positions within the Company. Mr. Xue
presently is responsible to construct the nationwide network for the STAQ
On-Line Network project. Prior to joining the Company, Mr. Xue was an EDA System
Analyst for The No. 3 Research Institute under the Ministry of Electronics
Industry of China. Mr. Xue graduated from Hua Zhong University of Science and
Technology in 1987, majoring in Electronics and Information Engineering. Mr. Xue
is a native of Beijing and a Chinese national.
Dali Zhang is the Deputy General Manager of the Industrial Automation Group
of BIC responsible for the business activities in Southern China Region. Mr.
Zhang joined the Company in 1994 as a sales engineer and was gradually promoted
to the present position. Mr. Zhang graduated from China Yanjing Overseas Chinese
College in 1994 and holds a degree in international trade. Mr. Zhang is a native
of Beijing and a Chinese national.
Ping Yu has been Deputy General Manager of Allendale, New Jersey based
operations of BIC since 1994. Mr. Yu has more than 12 years of experience in
international trade business and held a number of managerial positions with
Chinese government owned trading organizations, such as China Technical
Corporation (CTC), USA and China National Technical Import & Export Corporation
prior to joining the Company. Mr. Yu worked as an engineer for two years for
Beijing Solar Energy Research Institute from 1982 to 1984. Mr. Yu graduated from
Beijing Electronics Engineering Institute in 1982 with a B.S. degree in
telecommunications. Mr. Yu is a native of Beijing and a Chinese national. He is
a permanent resident of the United States.
Li Zhong Hua joined BECL in October 1997 as the Deputy General Manager of
the Industrial Automation Group responsible for international trade as well as
the General Manager of YangZhou Brighton. Prior to joining the Company, Mr. Li
was employed by a large size Chinese Government owned import & export
corporation for 3 years as an in-house lawyer
41
<PAGE>
responsible for legal consulting on investment, contract negotiation and
preparation. Mr. Li graduated as a post-graduate of the University of
International Business and Economics in 1993 with a degree in international
investment laws. Mr. Li is a native of Shanghai and a Chinese national.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during fiscal years
ended December 31, 1996 and 1997 to the Company's Chief Executive Officer. No
officer of the Company received annual compensation in excess of $100,000 per
annum.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary
------------------ ---- ------
<S> <C> <C>
Kit Kung, Chairman, President and Chief 1997 $80,000
Executive Officer 1996 $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, 1997, 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 Board of Directors has established an
audit committee which consists of Messrs. Michael Muldavin and Nils A. Ollquist.
Stock Option Plan
As of June 30, 1998, the Company had not adopted a stock option plan.
43
<PAGE>
CERTAIN TRANSACTIONS
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. The advances relate to personal travel and related expenses
incurred on corporate charge cards. Such advances are unsecured and generally
bear no stated interest rate or terms of repayment. As of December 31, 1996 and
1997, amounts due from Kit Kung and his family members aggregated $43,239 and
$232,221, respectively; outstanding receivables from other related parties
aggregated $15,884 and $0, respectively; and amounts due to Kit King and his
family members aggregated $227,298 and $0, respectively.
At January 1, 1996, 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 March 1996. 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, payments of accounts receivable from related parties
totalling $424,872 was received.
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.
In 1997, Kit Kung sold project equipment to the Company with a fair market
value of $185,950, which is equivalent to the price that the Company would have
had to pay to purchase such equipment in the open market, in exchange for an
equivalent reduction in the amount due the Company from Kit Kung.
During December 1997, the wife of the Company's founder and majority
stockholder, who is an officer and director of the Company, provided a
short-term credit facility to the Company by depositing $500,000 into a
short-term interest-bearing account with a Hong Kong bank as security for the
bank's letter of credit for $2,145,000 issued to a supplier. The full amount of
the letter of credit was disbursed during the six months ended June 30, 1998,
and was repaid in August 1998. The estimated imputed cost of such credit
facility was not significant.
During the year ended December 31, 1997 and 1996, $27,804 and $105,731,
respectively, was paid to Orient Financial Services Limited, a Hong Kong-based
company in which Nils A. Ollquist is a principal.
Salaries and incentives expenses for Kit Kung and his family members
totaled approximately $135,000 in each of the years ended December 31, 1997 and
1996.
44
<PAGE>
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.
Common Stock
The Company is authorized to issue 100,000,000 shares of Common Stock, par
value $.001 per share. As of September 15, 1998, 4,530,379 shares of Common
Stock were issued and outstanding and held of record by 93 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 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.
45
<PAGE>
PART II
Item 1. 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 April 15, 1998, the Company's Common
Stock has been trading on the OTC Electronic Bulletin Board under the symbol
"BGHT." The Company's Common Stock initially began trading under the symbol
"BRTK" immediately after the Reverse Merger on November 12, 1996. 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 high ask and low bid prices for
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. All prices reflect the 1 for 3
reverse stock split effective November 11, 1996, the 1 for 3 reverse stock split
effective October 17, 1997, the 1 for 3 reverse stock split effective January
26, 1998 and the 1 for 3 forward stock split effective April 15, 1998.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended December 31, 1996
- -----------------------------------
Quarter Ended June 30, 1996 (1) 31.50 31.50
Quarter Ended September 30, 1996 (1) (2) (2)
Period from October 1, 1996 - November 11, 1996 (1) 20.82 11.25
Period from November 12, 1996 - December 31, 1996 21.39 18.75
Fiscal Year Ended 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
Quarter Ended December 31, 1997 7.13 1.50
Fiscal Year Ending December 31, 1998
- -----------------------------------
Quarter Ended March 31, 1998 7.33 1.96
Quarter Ended June 30, 1998 10.69 2.00
Period from July 1, 1998 to September 18, 1998 5.94 2.88
</TABLE>
- ----------
(1) High and low bid prices of the Company's Common Stock traded under the
symbol "ZNTX" prior to the reverse acquisition effective November 11, 1996.
(2) Not available.
On September 18, 1998, the closing bid price for the Common Stock
as reported by OTC Electronic Bulletin Board was $4.50.
As of September 15, 1998, the number of security holders of record
of the Company's Common Stock was 93. As of such date, 4,530,379 shares were
outstanding.
46
<PAGE>
Item 2. Legal Proceedings
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.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
47
<PAGE>
Item 4. 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 reflects the 1 for 3 reverse stock splits
effective November 11, 1996, October 17, 1997 and January 26, 1998 and the 3 for
1 forward stock split effective April 15, 1998):
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 pursuant to
Rule 504 of Regulation D.
3. On October 1, 1996, the Company issued an aggregate of 301,444
shares of common stock to eight investors. The offering was done 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 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 with an aggregate value of $138,504 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 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 with a value of $29,000 to a consultant for services to be rendered,
of which 10,000 shares were issued pursuant to Rule 504 of the Securities
Act and 556 shares were issued pursuant to Rule 701 of the Securities Act.
11. On March 31, 1998, the Company issued 423,528 shares of common
stock to four investors for an aggregate purchase price of $599,998. The
offering was done pursuant to Rule 504 of Regulation D.
12. On May 13, 1998, the Company issued 211,764 shares of common stock
to four investors for an aggregate purchase price of $300,000. The offering
was done pursuant to Rule 504 of Regulation D.
48
<PAGE>
13. From May 7, 1998 through August 24, 1998, the Company issued an
aggregate of 33,000 shares of common stock to 13 investors in Taiwan,
Republic of China for an aggregate purchase price of $165,000. The offering
was done pursuant to Regulation S.
14. On May 20, 1998, the Company issued an aggregate of 10,000 shares
of common stock to 5 investors for an aggregate purchase price of $50,000.
The offering was done pursuant to Rule 506 of Regulation D.
15. On August 24, 1998, pursuant to a stock purchase agreement
executed prior to June 30, 1998, the Company issued 55,754 shares of common
stock to an investor for the purchase price of $79,171. The shares were
issued pursuant to Rule 504 of Regulation D.
The Company believes that the transactions described above were exempt from
registration under Section 3(a)(9), 3(b) or 4(2) of the Securities Act or
Regulation S promulgated under the Securities Act.
Item 5. 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.
49
<PAGE>
BRIGHTON TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Audited Consolidated Financial Statements
for the Years Ended December 31, 1996 and 1997
- -----------------------------------------------------------
Report of Independent Certified Public Accountants.................... F-2
Consolidated Balance Sheets--
December 31, 1996 and 1997.......................................... F-3
Consolidated Statements of Operations--
Years Ended December 31, 1996 and 1997.............................. F-4
Consolidated Statements of Stockholders' Equity (Deficit)--
Years Ended December 31, 1996 and 1997.............................. F-5
Consolidated Statements of Cash Flows--
Years Ended December 31, 1996 and 1997.............................. F-6
Notes to Consolidated Financial Statements
Years Ended December 31, 1996 and 1997.............................. F-7
Unaudited Condensed Consolidated Financial
Statements as of June 30, 1998 and for the Six Months
Ended June 30, 1997 and 1998
- -----------------------------------------------------------
Condensed Consolidated Balance Sheet--
June 30, 1998....................................................... F-29
Condensed Consolidated Statement of Operations--
Six Months Ended June 30, 1997 and 1998............................. F-31
Condensed Consolidated Statement of Stockholders'
Equity (Deficit)--Six Months Ended June 30, 1998.................... F-32
Condensed Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1997 and 1998............................. F-33
Notes to Condensed Consolidated Financial Statements--
Six Months Ended June 30, 1997 and 1998............................. F-35
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
Brighton Technologies Corporation
and Subsidiaries
Allendale, New Jersey
We have audited the consolidated balance sheets of Brighton Technologies
Corporation and Subsidiaries (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Brighton
Technologies Corporation and Subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
June 5, 1998
F-2
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1997 1996
- ------------ ---- ----
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 260,127 $ 716,699
Cash set aside for customer purchases (Note 2) -- 2,636,000
Accounts receivable (net of allowance for doubtful accounts of $122,000 and 1,335,235 1,339,318
$30,000 in 1997 and 1996)
Costs and accumulated gross profit in excess of billings on uncompleted 2,104,631 2,056,987
contracts (Note 5)
Receivables from stockholders and related parties (Note 3) 232,221 43,239
Prepaid expenses 762,410 310,677
Deferred taxes (Note 8) -- 1,315,000
Advances to customers (Note 10) 1,671,166 542,168
Other 1,000 4,700
------------ ------------
Total current assets 6,366,790 8,964,788
------------ ------------
Fixed assets, net (Note 4) 1,923,972 1,536,458
Other assets:
Non-current accounts receivable - related parties (Note 3) -- 15,884
Deposits 14,490 9,245
Prepaid contract fees 34,375 171,875
Intangible assets, net 24,946 30,986
------------ ------------
Total other assets 1,997,783 1,764,448
------------ ------------
Total assets $ 8,364,573 $ 10,729,236
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity (Deficit)
Current:
Accounts payable $ 839,244 $ 958,550
Accrued expenses 659,486 313,337
Accrued licensing costs 450,000 450,000
Billings in excess of costs and accumulated gross profit on uncompleted 3,291,991 5,513,562
contracts (Note 5)
Customer deposits 2,150,000 --
Deferred revenue 91,759 83,421
Current portion of long-term debt (Note 6) 381,662 620,101
Payable to stockholders (Note 3) -- 227,298
Taxes payable (Note 8) 63,000 1,678,000
------------ ------------
Total current liabilities 7,927,142 9,844,269
Long-term:
Long-term debt (Note 6) 425,000 --
Deferred taxes (Note 8) 456,000 156,000
Minority interests (Note 2) 128,962 143,931
------------ ------------
Total liabilities 8,937,104 10,144,200
------------ ------------
Commitments and contingencies (Notes 6 and 9)
Stockholders' equity (deficit) (Notes 3, 6 and 7):
Common stock; $.001 par value; shares authorized - 100,000,000; issued and 3,495 3,449
outstanding - 3,495,333 and 3,448,677 in 1997 and 1996, respectively
Preferred stock; $.001 par value; shares authorized - 5,000,000; none issued -- --
and outstanding
Contributed capital 1,907,396 1,480,482
Accumulated deficit (2,483,422) (898,895)
------------ ------------
Total stockholders' equity (deficit) (572,531) 585,036
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 8,364,573 $ 10,729,236
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996
- ----------------------- ---- ----
<S> <C> <C>
Revenues (Notes 5 and 10) $ 6,446,617 $ 8,006,260
Cost of revenues (Note 5) 4,519,381 5,785,507
----------- -----------
Gross profit 1,927,236 2,220,753
----------- -----------
Operating expenses:
General and administrative 1,946,494 1,330,074
Selling and marketing 521,954 386,217
Depreciation and amortization 111,658 38,738
Consulting fees (Note 7) 434,899 --
----------- -----------
Total operating expenses 3,015,005 1,755,029
----------- -----------
Operating (loss) income (1,087,769) 465,724
----------- -----------
Other (expense) income:
Interest expense and bank fees (63,436) (33,170)
Interest income 99,581 37,451
Write-off of offering costs (Note 7) (582,685) --
Miscellaneous income 34,683 44,745
----------- -----------
Total other (expense) income (511,857) 49,026
----------- -----------
(Loss) income before income taxes and minority (1,599,626) 514,750
interests
----------- -----------
Provision for income taxes (Note 8) -- (309,000)
----------- -----------
Minority interests (Note 2) 15,099 (7,226)
----------- -----------
Net (loss) income $(1,584,527) $ 198,524
----------- -----------
----------- -----------
(Loss) earnings per share data:
Basic and diluted $ (.46) $ .06
----------- -----------
----------- -----------
Weighted average shares outstanding - basic 3,476,766 3,101,895
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Consolidated Statements of Stockholder's Equity (Deficit)
<TABLE>
<CAPTION>
Years ended December 31, 1997 and 1996
- --------------------------------------
Common Stock
------------
Contributed Accumulated
Shares Amount Capital Deficit
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 3,024,999 $ 3,023 $ 23,759 $(1,097,419)
Net shares issued in connection with reverse
merger (Note 1) 390,345 393 (393) --
Sale of common stock 33,333 33 449,967 --
Costs associated with the sale of common stock -- -- (259,824) --
Conversion of advances from majority -- -- 1,266,973 --
stockholder (Note 3)
Net income -- -- -- 198,524
--------- ----------- ----------- -----------
Balance at December 31, 1996 3,448,677 3,449 1,480,482 (898,895)
Sale of common stock 24,006 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 6,090 6 (6) --
Issuance of restricted common stock to employee 3,333 3 48,997 --
Issuance of restricted common stock for
consulting fees 13,167 13 46,429 --
Issuance of common stock from rounding as a
result of reverse stock split 60 -- -- --
Issuance of stock options for services -- -- 23,986 --
Net loss -- -- -- (1,584,527)
--------- ----------- ----------- -----------
Balance at December 31, 1997 3,495,333 $ 3,495 $ 1,907,396 $(2,483,422)
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996
- ----------------------- ---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,584,527) $ 198,524
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 265,257 176,238
Deferred income taxes 1,615,000 (1,014,000)
Minority interests (15,099) 7,226
Note payable issued for consulting fees 150,000 --
Non-cash compensation expense 119,428 --
Interest accrued on notes payable 36,561 15,124
Changes in assets and liabilities:
Accounts receivable and advances to customers (1,109,031) (1,185,943)
Costs and accumulated gross profit in excess of billings (47,644) (1,309,819)
Other current assets (448,033) 208,941
Other assets (6,195) (38,227)
Accounts payable (119,306) 530,673
Billings in excess of costs and accumulated gross profits (2,221,571) 3,811,206
Taxes payable (1,615,000) 1,318,000
Customer deposits 2,150,000 --
Other liabilities and deferred revenue 354,617 23,386
----------- -----------
Total adjustments (891,016) 2,542,805
----------- -----------
Net cash provided by (used in) operating activities (2,475,543) 2,741,329
----------- -----------
Cash flows from investing activities (Note 2):
Decrease (increase) in cash set aside for customer purchases 2,636,000 (2,036,000)
Purchases of fixed assets (322,331) (154,484)
----------- -----------
Net cash provided by (used in) investing activities 2,313,669 (2,190,484)
----------- -----------
Cash flows from financing activities (Note 2):
Proceeds from debt -- 575,603
Issuance of common stock, net of related costs 307,532 190,176
Repayments on Stockholder advances (330,157) (1,118,625)
Repayment of accounts receivable--related parties -- 424,872
Advances to related parties (272,073) (43,239)
----------- -----------
Net cash provided by (used in) financing activities (294,698) 28,787
----------- -----------
Net increase (decrease) in cash and cash equivalents (456,572) 579,632
Cash and cash equivalents, beginning of year 716,699 137,067
----------- -----------
Cash and cash equivalents, end of year $ 260,127 $ 716,699
----------- -----------
----------- -----------
Supplemental cash flow information:
Taxes paid $ -- $ 5,358
----------- -----------
----------- -----------
Interest paid $ 628 $ 18,046
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization of Company
General
Brighton Technologies Corporation (the "Company") serves as the 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 two
active joint ventures.
On October 23, 1996, Zentex Corporation ("Zentex"), an inactive public
company, effected 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.
F-7
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated 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 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
Notes 9 and 10).
BECL is located in and incorporated in Hong Kong and is an investment and
holding company for PRC 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 has committed to invest an
additional $4,000,000 ($1,650,000 had been invested or advanced as of
December 31, 1997 and 1996 (see Note 9)).
2. Summary of Significant Accounting Policies
Business Combination and Consolidation Policy
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.
F-8
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
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, 1997, the excess of such investments over accumulated losses
was approximately $13,000.
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, 1997 and 1996.
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.
Revenue Recognition
The Company accounts for long-term contracts on the
percentage-of-completion method and income is recognized as work on
contracts progress, 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, 1997 and 1996,
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 1997 and 1996.
For short-term contracts and projects, revenue is recognized on the accrual
basis as goods are shipped and services are performed.
F-9
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
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. Valuation allowances are
established against deferred tax assets when management concludes that the
realization of such deferred tax assets cannot be considered more likely
than not.
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 filed its 1996 income tax returns on a cash
basis and plans to file its 1997 income tax returns on an accrual 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.
Cash Set Aside for Customer Purchases
Cash that is set aside to pay project related liabilities and commitments
totaled $0 and $2,636,000 at December 31, 1997 and 1996, respectively.
Concentration of Credit Risk
The Company is potentially subject to a concentration of credit risk with
respect to its trade receivables and advances to customers.
F-10
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
The Company performs initial and ongoing credit evaluations of its
customers and periodically reviews the collectibility of accounts
receivable and advances to customers, although a significant portion of the
Company's business is done on the basis of letters of credit or cash
advances with a relatively limited number of customers. Accordingly, the
Company provides an allowance for its estimate of accounts deemed to be
uncollectible. Bad debt provisions for the years ended December 31, 1997
and 1996 amounted to $148,000 and $0, respectively.
Non-Cash Investing and Financing Activities
During 1997, the Stockholder transferred fixed assets valued at $185,950 to
BIC in lieu of repayments on the obligation owed to the Company (see Note
3). In 1996, the Stockholder contributed $1,266,973 of net advances owed by
the Company to contributed capital. Additionally, the Company received
fixed assets valued at $67,297 in lieu of payments on prior year 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 basis. 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.
F-11
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
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, 1997 and 1996 was
$137,500.
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, 1997 and 1996 were $18,909 and $20,416,
respectively.
Long-Lived Assets
The carrying values of long-lived assets are periodically reviewed by
management and impairments are recognized if the expected future operating
undiscounted cash flows derived from an asset are less than its carrying
value.
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 10) and in
recording accrued liabilities. Actual results could differ from those
estimates.
F-12
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
Earnings Per Share
In December 1997, as required, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
establishes standards for computing and presenting earnings per share. SFAS
128 replaces the presentation of primary earnings per share and fully
dilutive earnings per share with basic earnings per share and diluted
earnings per share, respectively. Basic earnings per share excludes the
dilutive effects of options and convertible securities, if any, and is
computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share is computed assuming the exercise or conversion
of common equivalent shares, if dilutive, consisting of unissued shares
under options, warrants and debt instruments. In accordance with SFAS 128,
all prior periods presented have been restated to conform to the new
presentation.
Potential common shares totaling 542,937 (comprised of options, warrants
and convertible notes) were not included in the calculation of diluted loss
per share for 1997 since such effects would be antidilutive. The amount of
potential common shares in 1996 was not material.
Effects of Recent Accounting Pronouncements
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. Adoption of this statement had
no effect on its current disclosures and presentation.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
F-13
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Related Information,"
which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Results of operations and
financial position will be unaffected by implementation of these new
standards. The Company, however, has not determined whether either of these
two standards will have a material impact on its financial statement
disclosure.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current year presentation.
F-14
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
3. 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,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
-------------------------------------- -------- --------
<S> <C> <C>
Receivables (current and non-current):
Stockholder and family members $232,221 $ 43,239
Other -- 15,884
-------------------------------------- -------- --------
$232,221 $ 59,123
-------------------------------------- -------- --------
Liabilities:
Stockholder and family members $ -- $227,298
-------------------------------------- -------- --------
</TABLE>
(a) At January 1, 1996, 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 "Payable to stockholders." In December 1996, the Stockholder
contributed outstanding borrowings (net of these advances) to the
Company's capital structure (see below).
F-15
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
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.
Fixed Assets
In 1997, the Company's Stockholder sold project equipment to the Company
with an estimated fair market value of $185,950, in exchange for an
equivalent reduction in the amount due the Company from the Stockholder.
Professional Fees
Fees paid to Directors and their affiliates for financial advisory services
totaled $27,804 and $105,731 for the years ended December 31, 1997 and
1996, respectively. The entire amount in 1996 was charged to contributed
capital (see Note 7).
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, 1997 and 1996.
4. Fixed Assets
Fixed assets at December 31, 1997 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1997 1996
------------------------------------------ ----------- ----------
<S> <C> <C>
Equipment $ 306,021 $ 210,367
Furniture and fixtures 16,902 18,834
Leasehold improvements 32,083 18,027
Vehicles 23,480 --
Less: Accumulated depreciation (163,125) (42,358)
------------------------------------------ ---------- ----------
215,361 204,870
STAQ Project equipment (assets to be 1,708,611 1,331,588
utilized in completing future projects)
------------------------------------------ ---------- ----------
Total $1,923,972 $1,536,458
------------------------------------------ ---------- ----------
</TABLE>
F-16
<PAGE>
5. Long-Term Contracts
At December 31, 1997 and 1996, costs, estimated gross profit and billings
on uncompleted long-term contracts accounted for on the percentage of
completion method are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
------------------------------------------ ----------- -------------
<S> <C> <C>
Costs incurred on long-term contracts $ 1,826,050 $ 6,205,662
Estimated gross profit 278,581 1,242,824
------------------------------------------ ----------- -------------
2,104,631 7,448,486
Less: Billings to date (3,291,991) (10,905,061)
------------------------------------------ ----------- -------------
$(1,187,360) $ (3,456,575)
------------------------------------------ ----------- -------------
</TABLE>
These amounts are included in the accompanying balance sheets under the
following captions:
<TABLE>
<CAPTION>
December 31, 1997 1996
---------------------------------------------- ---------- ----------
<S> <C> <C>
Costs and accumulated gross profit in $2,104,631 $2,056,987
excess of billing on uncompleted
contracts
Billings in excess of costs and accumulated 3,291,991 5,513,562
gross profit on uncompleted contracts
---------------------------------------------- ---------- ----------
</TABLE>
6. Demand Note
During 1996, BECL entered into a convertible demand note agreement with a
third party, with interest at 5% per annum. The note is con- vertible into
Company common stock at prevailing market values. In April 1998, the
creditor chose to convert $425,000 of the obligation into 300,000 shares of
common stock. Accordingly, such amount has been classified as non-current
in the accompanying December 31, 1997 balance sheet. The note, including
accrued interest, had a total balance of $656,662 and $620,101 as of
December 31, 1997 and 1996, respectively.
F-17
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
On February 25, 1997, the Company entered into an agreement with 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 charge ($175,000) is included in
"Consulting fees" in the 1997 statement of operations. The note is
unsecured, bears interest at 10% per annum, with interest to accrue until
the due date of February 24, 1998, and is convertible at the option of the
Company into a maximum 75,000 shares of common stock. Thereafter, such note
will become payable upon demand, with interest at 12% per annum. The
Company contemplates negotiating a settlement of this obligation and
related payment terms.
7. Stockholders' Equity
Private Placements (see Note 12)
In December 1996, the Company sold 33,333 shares of common stock in a
private underwriting for proceeds of approximately $450,000. In 1997, the
Company sold an additional 24,006 shares of common stock for proceeds of
approximately $353,000.
Costs directly related to the completion of these offerings amounted to
$45,416 and $259,824 and have been charged to contributed capital in 1997
and 1996, respectively.
Through May 1998, the Company sold 635,292 shares of common stock in a
private sale for aggregate proceeds of $900,000. Such sales and proceeds
are not related to the agreement described in Note 12.
Common Stock Reserved for Issuance
At December 31, 1997, the Company had reserved 542,937 shares for
fulfilling the conversion of demand notes payable to common stock and
common stock equivalents. The conversion terms are based on the fair market
value of the Company's common stock.
F-18
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
Stock Issued for Services
In 1997, the Company issued, for nominal consideration, 22,590 shares of
common stock to various individuals and firms. Of this issuance, 6,090
shares related to services rendered in connection with the 1997 Private
Placement. The charge to operations for the issuance of 16,500 shares of
common stock totaled $95,437 for the year ended December 31, 1997, which
was based upon the fair market value of the stock at the date of the
grants.
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, 1997 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.
Stock Options
During 1997, the Company entered into a letter of agreement with a public
relations firm to provide corporate and investor relations. In conjunction
therewith, the Company issued the public relations firm a three year stock
option to purchase 8,334 shares of common stock with an exercise price of
$7.50 per share, which was the fair market value on the date of the grant.
The imputed fair value of this stock option is approximately $24,000, which
has been charged to operations in 1997.
Write-Off of Offering Costs
During 1997, the Company had capitalized professional fees and related
costs in connection with its contemplated initial public offering of common
stock. Based on an assessment of market conditions and other factors, the
Company has decided to abandon this offering and, accordingly, recognized a
non-operating charge of $582,685 in 1997.
Consulting Fees
The Company incurred costs of $434,899 in professional fees related to
general business development and financing efforts.
F-19
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
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 one for three stock split of the
Company's common stock outstanding at that time. On October 17, 1997 and
January 26, 1998, the Company subsequently effected separate one for three
stock splits, and in April 1998, a three for one stock split was also
enacted. All share and per share data have been restated for all periods
presented to reflect these splits.
8. Income
Taxes The domestic and foreign components of (loss) income before income
taxes and minority interests are as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
------------------- ----- ---------
<S> <C> <C>
Domestic $ -- $ 764,000
Foreign -- (249,250)
------------------- ----- ---------
$ -- $ 514,750
------------------- ----- ---------
</TABLE>
The components of the (benefit) provision for income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
--------------------------------- ------------ -----------
<S> <C> <C>
Current:
Federal $(1,284,000) $ 988,000
Foreign (104,000) 47,000
State (227,000) 288,000
--------------------------------- ------------ -----------
(1,615,000) 1,323,000
--------------------------------- ------------ -----------
Deferred:
Federal 986,000 (802,000)
Foreign (104,000) (29,000)
State 174,000 (212,000)
--------------------------------- ------------ -----------
1,056,000 (1,043,000)
--------------------------------- ------------ -----------
Net change in valuation allowance 559,000 29,000
--------------------------------- ------------ -----------
Provision for income taxes $ -- $ 309,000
--------------------------------- ------------ -----------
</TABLE>
F-20
<PAGE>
The following table presents the principal reasons for the difference
between the actual income tax provision (benefit) and the tax provision
(benefit) computed by applying the U.S. Federal statutory income tax rate
to income (loss) before income taxes and minority interests:
<TABLE>
<CAPTION>
December 31, 1997 1996
------------------------------------------ ---------- --------
<S> <C> <C>
U.S. Federal income tax provision at $ (544,000) $ 175,000
statutory rates
State income taxes, net of Federal benefit (96,000) 50,000
Effects of foreign operations and tax rate 73,000 44,000
differentials
Valuation allowance 559,000 29,000
Non-deductible losses and expenses 7,000 7,000
Other, net 1,000 4,000
------------------------------------------ ---------- --------
Provision for income taxes $ -- 309,000
------------------------------------------ ---------- --------
</TABLE>
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:
F-21
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- -----------------------------------------
December 31, Asset Liability Net Asset Liability Net
----------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current deferred income taxes:
Accounts receivable $ 36,000 $ -- $ 36,000 $ -- $ (371,000) $ (371,000)
Liabilities 172,000 -- 172,000 1,706,000 -- 1,706,000
Other current 20,000 -- 20,000 -- (20,000) (20,000)
Valuation allowance (228,000) -- (228,000) -- -- --
----------- --------- ---------- ----------- ----------- -----------
$ -- $ -- $ -- $ 1,706,000 $ (391,000) $ 1,315,000
----------- --------- ---------- ----------- ----------- -----------
----------- --------- ---------- ----------- ----------- -----------
Non-current deferred income taxes:
Net operating loss carryforwards $ 692,000 $ -- $ 692,000 $ 116,000 $ -- $ 116,000
Change in tax reporting (cash to accrual) -- (456,000) (456,000)
Deferred costs -- (37,000) (37,000) -- (146,500) (146,500)
Fixed assets -- -- -- -- (9,000) (9,000)
Other non-current -- -- -- -- (500) (500)
Valuation allowance (692,000) 37,000 (655,000) (116,000) -- (116,000)
----------- --------- ---------- ----------- ----------- -----------
$ -- $(456,000) $ (456,000) $ -- $ (156,000) $ (156,000)
----------- --------- ---------- ----------- ----------- -----------
----------- --------- ---------- ----------- ----------- -----------
</TABLE>
At December 31, 1997 and 1996, the Company had established a valuation
allowance on the deferred tax assets related to its domestic net operating
loss and the foreign net operating loss carryforwards of BECL. Reductions
in the valuation allowance will be recorded when, in the opinion of
management, the Company's ability to generate taxable income in the future
is considered more likely than not.
At December 31, 1997, the Company has net operating loss carry-forwards for
Hong Kong tax purposes of approximately $599,000, which can be carried
forward indefinitely. At December 31, 1997, the Company has domestic net
operating losses of $1,500,000 for Federal and state tax purposes.
F-22
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
9. Commitments and Contingencies
Operating Leases
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, 1997 are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
<S> <C>
1998 $223,392
1999 103,417
2000 43,750
2001 25,521
- ------------------------------------------------------------------
Total minimum lease payments $396,080
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
Rent expense and related costs for 1997 and 1996 were $337,440 and
$260,396, respectively.
Legal Matters
The Company is either a plaintiff or a defendant in several pending legal
matters or threatened claims. 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.
China National Project
The original turn-key contract with China National for the engineering
design and implementation for a sodium bichromate production plant was
expected to generate total revenues of $11,000,000 for the Company.
Revenues under this contract for the years ended December 31, 1997 and 1996
were approximately $2,237,000 and $1,048,000, respectively, or 35% and 13%
of the Company's total revenues, respectively. The Company has recorded
cumulative aggregate revenues of $6,798,000 through December 31, 1997 under
this contract or approximately 62% of the contract's total expected
revenues.
F-23
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
The Company has been advised by China National that they are currently
negotiating with third party lenders for the necessary funds to complete
the construction of the project. The Company is currently unable to predict
the ultimate outcome of these discussions. In the event that China National
is unsuccessful in its efforts to obtain such financing and construction
efforts are suspended or terminated, the Company's anticipated revenues in
the future with regard to this contract may be reduced or eliminated. Based
on an assessment of discussions with China National and the timing involved
in obtaining the necessary funds, management of the Company does not expect
that any significant revenues will be earned from this contract during the
year ending December 31, 1998. If China National is unable to complete the
project, management does not expect that the ultimate resolution of this
matter will have a material adverse impact on the Company's financial
position, results of operations or cash flows, other than the loss of
revenue, profits and cash flows that may have realized if the project had
been completed.
STAQ Joint Venture
In addition to the $1,650,000 investment in the STAQ project at December
31, 1997, the Company has committed to provide additional funding of
approximately $4,000,000 through 1998. The Company currently expects to
meet its funding commitment through a private sale of its common stock,
although there can be no assurance that the Company will be successful in
this effort. To the extent that the Company is unable to timely fund its
$4,000,000 commitment to the STAQ project during 1998, 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 were to be
unable to fund the continuing development of the STAQ project, project
equipment aggregating $1,708,611 at December 31, 1997 would be liquidated
at net realizable value and the resulting loss, if any, would be charged to
operations.
F-24
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
Contractual Obligations
From time to time, the Company may be subject to claims or 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,
1997. 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, 1997, the Company had issued irrevocable letters of credit
of $2,145,000 representing contingent commitments on equipment purchases.
Income Taxes
The Company and the Internal Revenue Service are in preliminary discussions
regarding certain tax matters and related methodologies utilized in
previous tax years. The Company is unable to predict, with any degree of
certainty, the ultimate resolution of this matter. The Company does not
believe such resolution will have a material impact on the results of
operations, financial condition, or cash flows.
F-25
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
10. Concentrations
Major Customers
China National accounted for approximately 35% and 13% of revenues for the
years ended December 31, 1997 and 1996, respectively. A BECL customer
accounted for approximately 17% of revenues in 1996. As an accommodation to
China National for excess funds held by the Company, the Company has
periodically loaned funds to China National. These loans do not bear
interest and do not stipulate repayment dates. As of December 31, 1997 and
1996, the Company had advanced $1,181,513 and $542,168 to China National,
respectively, classified as "Advances to customers" in the accompanying
consolidated balance sheet. In addition, a deposit payable to China
National of $2,150,000 was outstanding at December 31, 1997.
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, primarily the PRC. 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 not significant, the
possibility of unanticipated events disrupting the Company's operations
exists.
F-26
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
11. Segment Information
Operations by Geographic Area
Net revenues, operating income (loss) and identifiable assets from United
States export sales to the Far East, the Company's operations based in the
Far East (principally, PRC and Hong Kong) and its Corporate parent are as
follows:
<TABLE>
<CAPTION>
U.S. Far East
December 31, 1997 Exports Far East Corporate Eliminations Consolidated
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $5,275,052 $1,171,565 $ - $ - $6,446,617
Operating income (6,984) (376,402) (704,383) - (1,087,769)
(loss)
Identifiable assets 5,124,662 5,082,861 144,372 (1,987,322) 8,364,573
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Far East
December 31, 1996 Exports Far East Corporate Eliminations Consolidated
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $6,039,716 $1,966,544 $ - $ - $8,006,260
Operating income 730,875 (265,151) - - 465,724
(loss)
Identifiable assets 7,694,717 4,299,370 - (1,264,851) 10,729,236
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
Corporate activities and results of operations were not material for the
year ended December 31, 1996. 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. Corporate activities and results of operations were not
material for the year ended December 31, 1996.
F-27
<PAGE>
Brighton Technologies Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
Net revenues, operating income (loss) and allocated assets for the
Company's segments are as follows:
<TABLE>
<CAPTION>
Equipment
December 31, 1997 Distribution Networking Corporate Consolidated
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $4,445,350 $2,001,267 $ - $ 6,446,617
Operating income (loss) (490,066) 106,680 (704,383) $(1,087,769)
Identifiable assets 3,252,340 5,082,861 29,372 8,364,573
Purchases of fixed assets 120,084 202,247 - 322,331
Depreciation and
amortization expense 34,153 70,649 6,856 111,658
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Equipment
December 31, 1996 Distribution Networking Corporate Consolidated
-----------------------------------------------------------------------------------------
Net revenues $3,664,433 $4,341,827 $ - $8,006,260
Operating income 214,515 251,209 - 465,724
Identifiable assets 4,721,270 6,007,966 - 10,729,236
Purchases of fixed assets 20,083 134,401 - 154,484
Depreciation and
amortization expense 33,702 5,036 - 38,738
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
12. Subsequent Event
(Unaudited)
On March 9, 1998, the Company and an independent financial firm (the
"Firm") entered into an agreement, whereby the Firm will seek to secure
investors for a contemplated private placement. The amount of the proceeds
to the Company must not be less than $5,000,000 and the Firm is entitled to
a commission of approximately 20% of the gross proceeds of the private
placement. The Firm, if certain criterion are met, would also be entitled
to nominate two individuals to the Company's Board of Directors. Through
June 5, 1998, subscription agreements totaling $125,000 for purchases of
25,000 shares of Company common stock had been executed.
F-28
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Condensed Consolidated Balance Sheet (Unaudited)
June 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,078,403
Common stock subscription
receivable (Note 3) 79,171
Accounts receivable, net 2,478,594
Costs and accumulated gross
profit in excess of billings
on uncompleted contracts 2,260,183
Receivables from stockholders
and related parties 489,733
Prepaid expenses 358,010
Advances to customers (Note 4) 1,196,588
----------
Total current assets 7,940,682
----------
Fixed assets:
Furniture and equipment 385,382
Less: Accumulated depreciation (217,717)
----------
167,665
STAQ project equipment (Note 4) 1,822,294
----------
Net fixed assets 1,989,959
----------
Other assets:
Deposits 22,351
Intangible assets, net 21,518
----------
Total other assets 43,869
----------
Total assets $9,974,510
----------
----------
</TABLE>
(continued)
F-29
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Condensed Consolidated Balance Sheet (Unaudited) (continued)
June 30, 1998
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,118,476
Accrued expenses 466,087
Accrued licensing costs (Note 4) 450,000
Billings in excess of costs
and accumulated gross profit
on uncompleted contracts 3,291,991
Customer deposits (Note 4) 2,150,000
Deferred revenue 165,453
Note payable (Note 5) 150,000
Taxes payable 63,000
-----------
Total current liabilities 7,855,007
-----------
Long-term liabilities:
Deferred taxes 456,000
Minority interests 128,832
-----------
Total long-term liabilities 584,832
-----------
Stockholders' equity (Note 3):
Preferred stock, $.001 par value;
authorized - 5,000,000 shares;
issued - none
Common stock, $.001 par value;
authorized - 100,000,000 shares;
issued - 4,526,379 shares 4,526
Contributed capital 3,429,534
Accumulated deficit (1,899,389)
-----------
Net stockholders' equity 1,534,671
-----------
Total liabilities and
stockholders' equity $9,974,510
-----------
-----------
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-30
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenues $4,535,865 $8,851,331
Cost of revenues 3,205,144 6,540,501
----------- ----------
Gross profit 1,330,721 2,310,830
----------- ----------
Operating expenses:
General and administrative 842,536 1,276,668
Selling and marketing 256,328 280,566
Depreciation and amortization 40,314 59,473
Consulting fees (Note 5) 274,581
Foreign currency transaction
(gains) losses 7,423 (7,503)
----------- ----------
Total operating expenses 1,421,182 1,609,204
----------- ----------
Operating income (loss) (90,461) 701,626
----------- ----------
Other income (expense):
Interest expense and bank fees (28,124) (113,268)
Interest income 43,520 21,209
Miscellaneous income (expense) 8,091 (19,353)
----------- ----------
Total other income
(expense), net 23,487 (111,412)
----------- ----------
Income (loss) before income
taxes and minority
interests (66,974) 590,214
Provision (benefit) for income
taxes (Note 1) (31,000) 6,311
Minority interests 5,950 130
----------- ----------
Net income (loss) $ (30,024) $ 584,033
----------- ----------
----------- ----------
Net income (loss) per common
share - basic and diluted
(Note 2) $ (.01) $ .15
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-31
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Condensed Consolidated Statement of Stockholders'
Equity (Deficit) (Unaudited)
Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Common Stock
---------------- Contributed Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance,
December
31, 1997 3,495,333 $3,495 $1,907,396 $(2,483,422) $ (572,531)
Sale of
common
stock 731,046 731 1,178,440 1,179,171
Costs
related
to the
sale of
common
stock (81,002) (81,002)
Conversion
of note
payable
and
accrued
interest
into
common
stock 300,000 300 424,700 425,000
Net income
for the
period 584,033 584,033
--------- ----- --------- --------- ---------
Balance,
June 30,
1998 4,526,379 $4,526 $3,429,534 $(1,899,389) $1,534,671
--------- ----- --------- --------- ---------
--------- ----- --------- --------- ---------
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-32
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (30,024) $ 584,033
---------- ----------
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 109,063 92,395
Deferred income taxes 509,500
Minority interests (5,950) (130)
Non-cash compensation expense 24,500
Note payable issued for
consulting fees 150,000
Changes in operating assets
and liabilities:
(Increase) decrease in -
Accounts receivable and
advances to customers 113,660 (668,781)
Costs and accumulated
gross profit in
excess of billings on
uncompleted contracts 1,381,591 (155,552)
Prepaid expenses (6,226) 404,400
Deposits (7,861)
Other current assets 4,700 1,000
Increase (decrease) in -
Accounts payable 917,287 279,232
Accrued expenses (154,816) (191,206)
Billings in excess of
costs and accumulated
gross profit on
uncompleted contracts (4,061,169)
Deferred revenue 24,017 73,694
Taxes payable (553,000)
---------- ----------
Total adjustments (1,546,843) (172,809)
---------- ----------
Net cash provided by (used in)
operating activities (1,576,867) 411,224
---------- ----------
</TABLE>
(continued)
F-33
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from investing activities:
Decrease in restricted cash $1,555,425 $
Acquisition of fixed assets (34,771) (120,579)
---------- ----------
Net cash provided by (used in)
investing activities 1,520,654 (120,579)
---------- ----------
Cash flows from financing activities:
Sale of common stock, net of
related costs 307,532 1,018,998
Repayment of note payable (233,855)
Advances to stockholder and
related parties (325,001) (257,512)
Decrease in payable to
stockholders (182,513)
Increase in deferred offering
costs (90,387)
---------- ----------
Net cash provided by (used in)
financing activities (290,369) 527,631
---------- ----------
Net increase (decrease) in cash
and cash equivalents (346,582) 818,276
Cash and cash equivalents,
at beginning of period 716,699 260,127
---------- ----------
Cash and cash equivalents,
at end of period $ 370,117 $1,078,403
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
F-34
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 1997 and 1998
1. Basis of Presentation
The accompanying condensed consolidated financial statements as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited but, in
the opinion of management of the Company, contain all adjustments necessary to
present fairly the financial position at June 30, 1998, the results of
operations for the six months ended June 30, 1997 and 1998, and the cash flows
for the six months ended June 30, 1997 and 1998. These adjustments are of a
normal recurring nature. However, during the six months ended June 30, 1998, the
Company recognized the tax benefit of a $172,000 net operating loss
carryforward, which was previously reserved for at December 31, 1997, the effect
of which is reflected in the provision for income taxes for the six months ended
June 30, 1998. 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, 1996 and
1997.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results of operations to be expected for the
full fiscal year ending December 31, 1998.
All common share, common share equivalent and per share amounts have been
restated for all periods presented to reflect one-for-three reverse stock splits
effective October 17, 1997 and January 26, 1998, and a three-for-one stock split
effective April 15, 1998.
F-35
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 1997 and 1998
2. Net Income (Loss) Per Common Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"), which
establishes standards for computing and presenting earnings per share. SFAS No.
128 replaces the presentation of primary earnings per share and fully diluted
earnings per share with basic earnings per share and diluted earnings per share,
respectively. Basic earnings per share excludes the dilutive effects of options
and convertible securities, if any, and is computed by dividing net income
(loss) available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
assuming the exercise or conversion of common equivalent shares, if dilutive,
consisting of unissued shares under stock options, warrants and debt
instruments. In accordance with SFAS No. 128, all prior periods presented have
been restated to conform to the new presentation.
At June 30, 1998, potentially dilutive securities representing 59,801
shares of common stock were outstanding, consisting of a stock option to
purchase 8,334 shares and a $150,000 convertible note payable (see Note 5), plus
accrued interest, convertible into 51,467 shares of common stock, and a stock
option exercisable at $7.50 per share (which was in excess of average fair
market value during 1998) to purchase 8,334 shares of common stock. The common
shares issuable upon conversion of the note payable were included in the
calculation of diluted net income per common share for 1998. However, the common
shares issuable upon exercise of the stock option were excluded from the
calculation of diluted net income per share for 1998 since the exercise price
exceeded the average fair market value of the common stock during the period.
The following tables present the components of basic and diluted earnings
(loss) per share for the six months ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
Basic Earnings (Loss)
Per Share Computation
- ---------------------
<S> <C> <C>
Net income (loss) - as reported $ (30,024) $ 584,033
---------- ----------
---------- ----------
Weighted average number of common
shares outstanding 3,467,630 3,795,621
---------- ----------
---------- ----------
</TABLE>
F-36
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
2. Net Income (Loss) Per Common Share (continued)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net income (loss) per common
share - Basic $ (.01) $ .15
---------- ----------
---------- ----------
Diluted Earnings (Loss)
Per Share Computation
- -----------------------
Net income (loss) - as reported $ (30,024) $ 584,033
Add: Reduction in interest
expense as a result of assumed
conversion of note payable
into shares of common stock,
net of income tax effect - (1) 8,500
---------- ----------
Net income (loss) - as adjusted
for Diluted computation $ (30,024) $ 592,533
---------- ----------
---------- ----------
Weighted average number of
common shares outstanding 3,467,630 3,795,621
Net shares of common stock
issuable upon conversion of
note payable (including
accrued interest) into shares
of common stock - (1) 51,467
---------- ----------
Weighted average number of
shares of common stock and
common stock equivalents
outstanding - as adjusted
for Diluted computation 3,467,630 3,847,088
---------- ----------
---------- ----------
Net income (loss) per
common share - Diluted $ (.01) $ .15
---------- ----------
---------- ----------
</TABLE>
- ----------
(1) Not calculated, as effect would be anti-dilutive.
F-37
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
3. Stockholders' Equity (Deficit)
During the six months ended June 30, 1998, the Company entered into the
following transactions relating to its capital structure:
(a) During the six months ended June 30, 1998, the Company sold 731,046
shares of common stock for gross proceeds of $1,179,171, and incurred related
costs of $81,002, generating net proceeds of $1,018,998. Included in the
731,046 shares of common stock sold are 55,754 shares subscribed for during
the six months ended June 30, 1998, for which the cash consideration of
$79,171 was received by the Company subsequent to June 30, 1998.
(b) During June 1998, the Company settled a note payable with a balance of
$672,940, including accrued interest, by issuing 300,000 shares of common stock
for $425,000 of such amount and by making a cash payment of $247,940 for the
remaining amount.
(c) On March 9, 1998, the Company and an independent financial firm (the
"Firm") entered into an agreement whereby the Firm will seek to secure
investors for a contemplated private placement. The aggregate amount of the
proceeds to the Company is specified as not less than $5,000,000, and the
Firm is entitled to a commission of approximately 20% of the gross proceeds
of the private placement. If certain criteria are achieved, the Firm would
also be entitled to nominate two individuals to the Company's Board of
Directors. During the six months ended June 30, 1998, the Company issued
29,000 shares under this agreement for gross proceeds of $145,000. The 29,000
shares are included in the 731,046 shares sold that are described above.
4. Commitments and Contingencies
China National Project -
During April 1994, the Company entered into a long-term turn-key contract
with China National Chemical Construction Chongqing Company ("China National")
to assist in the design and construction of a sodium bichromate production plant
in the PRC that was expected to generate total revenues of $11,000,000 for the
Company. Revenues under this contract for the years ended December 31, 1996 and
1997 were approximately $1,048,000 and $2,237,000, respectively, or 13% and 35%
of the Company's total revenues, respectively. Revenues under this contract for
the six months ended June 30, 1997 were approximately $2,066,000 or 46% of the
Company's total revenues; the Company did not record any revenues with respect
to this contract for the six months ended June 30, 1998. The Company has
recorded cumulative aggregate revenues of $6,798,000 through June 30, 1998 under
this contract, or approximately 62% of the contract's total expected
revenues. Management does not expect to enter any significant contracts of
this type in the future.
F-38
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
4. Commitments and Contingencies (continued)
The Company has been advised by China National that they are currently
negotiating with third party lenders for the necessary funds to complete the
construction of the project. The Company is currently unable to predict the
ultimate outcome of these discussions. In the event that China National is
unsuccessful in its efforts to obtain such financing and construction efforts
are further suspended or terminated, the Company's anticipated revenues in the
future with regard to this contract may be reduced or eliminated. The Company
does not currently expect that it will recognize any significant revenues from
this contract during the year ending December 31, 1998. If China National is
unable to complete the project, management does not expect that the ultimate
resolution of this matter will have a material adverse impact on the Company's
financial position, results of operations or cash flows, other than the loss of
revenue, profits and cash flows that would have been realized if the project had
been completed.
As an accommodation to China National for excess funds held by the
Company, the Company has periodically loaned funds to China National. These
loans do not bear interest and do not stipulate repayment dates. As of December
31, 1997 and June 30, 1998, the Company had advanced $1,181,513 to China
National, which is included in Advances to customers in the accompanying
condensed consolidated balance sheet. In addition, a deposit payable to China
National of $2,150,000 was outstanding at December 31, 1997 and June 30, 1998,
which is classified as Customer deposits in the accompanying condensed
consolidated balance sheet.
STAQ Joint Venture -
Beijing Brighton-STAQ Electronic System Company Limited (the "STAQ joint
venture") was formed to design, develop, install and maintain a computer network
for the trading of securities in China (the "STAQ On-line Network"). The
Company owns a 90% interest in the STAQ joint venture and had invested or
advanced approximately $1,650,000 and $1,910,000 with respect to the STAQ joint
venture as of December 31, 1997 and June 30, 1998, respectively. As of
December 31, 1997, the Company had fully funded its original obligation to
invest $1,600,000 in the STAQ joint venture. The minority interest holders of
the STAQ joint venture 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%. The Company had also committed to provide aggregate funding of
approximately $4,000,000 during 1998 in the form of loans, based on initial
estimates of the amount of working capital required during 1998 to support the
start-up and subsequent expansion of the STAQ On-line Network.
To the extent that the Company is unable to timely fund its current
commitment to the STAQ joint venture during 1998, the planned expansion of the
STAQ On-line Network into additional cities in China will be deferred, thus
delaying the development of the STAQ joint venture and its ability to reach
operational viability. A delay in expanding the STAQ On-line Network may also
result in potential customers adopting alternative systems to trade securities
in China, thus diminishing the STAQ On-line Network's expansion potential and
competitive position in China. The occurrence of these events could reduce the
potential future commercial and economic value of the STAQ On-line Network,
which would adversely affect the future profitability of the STAQ joint venture
as it relates to the Company's consolidated results of operations.
F-39
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
4. Commitments and Contingencies (continued)
Based on revised and updated estimates of the cost to fund the expansion of
the STAQ On-line Network, the Company does not believe that the entire
$4,000,000 will be required during 1998. The Company currently expects to meet
its funding commitment to the STAQ joint venture through a private sale of its
common stock (see Note 3), although there can be no assurances that the Company
will be successful in this regard. To the extent that the STAQ joint venture
were to be funded by sources unrelated to the Company, the Company's interest in
the STAQ joint venture could be reduced or eliminated, which would adversely
affect the potential future profitability of the STAQ joint venture as it
relates to the Company's consolidated results of operations. Since the Company
has fully funded its original $1,600,000 commitment to the STAQ joint venture,
the Company believes that this event is unlikely. If the STAQ joint venture
were to cease operations as a result of the Company's inability to provide
adequate and timely funding, the STAQ joint venture's equipment aggregating
$1,822,294 at June 30, 1998 would be liquidated at net realizable value and the
resulting loss, if any, would be charged to operations.
Contractual Obligations -
As a result of the delay in the China National project, 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.
Letters of Credit -
As of June 30, 1998, the Company had issued an irrevocable letter of credit
for approximately $163,000, representing a contingent commitment for the
purchase of equipment, none of which had been disbursed. During December 1997,
the wife of the Company's founder and majority stockholder, who is an officer
and director of the Company, provided a short-term credit facility to the
Company by depositing $500,000 into a short-term interest-bearing account with a
Hong Kong bank as security for the bank's letter of credit for $2,145,000 issued
to a supplier. The full amount of the letter of credit was disbursed during the
six months ended June 30, 1998 and was repaid in August 1998. The estimated
imputed cost of such credit facility was not significant.
F-40
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
4. Commitments and Contingencies (continued)
Income Taxes -
The Company and the Internal Revenue Service are in preliminary discussions
regarding certain tax matters and related methodologies utilized in previous tax
years. The Company is unable to predict, with any degree of certainty, the
ultimate resolution of this matter. The Company does not believe such resolution
will have a material impact on its results of operations, financial condition or
cash flows.
5. Consulting Fees
During the six months ended June 30, 1997, consulting fees aggregating
$274,581 were charged to operations for certain professional, consulting and
other costs incurred in connection with the Company's ongoing business
development and financing activities. Of such amount, $15,873 was paid to an
affiliate of a director of the Company, and $175,000 consisted of a cash payment
of $25,000 and a note payable for $150,000 for services rendered by a consulting
firm. The Company did not incur any similar consulting fees during the six
months ended June 30, 1998.
The $150,000 note payable was unsecured, with interest at 10% per annum to
accrue until the due date of February 24, 1998. Thereafter, such note is due and
payable upon demand, with interest at 12% per annum. The Company has the option
of converting the note, including accrued interest, on or after the due date,
into shares of common stock, with the value of such common shares to be
calculated at 75% of the market price on the conversion 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, is 75,000 shares. Such
shares, if issued, will be restricted and will have piggyback registration
rights. As of June 30, 1998, the note, including accrued interest, was
convertible into 51,467 shares of common stock.
6. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") which is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income, its components and accumulated balances in
F-41
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
6. Recent Accounting Pronouncements (continued)
a full set of general purpose financial statements. SFAS No. 130 defines
comprehensive income to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is presented with the same prominence as other
financial statements. The Company does not have any significant components of
comprehensive income other than net income (loss). Accordingly, adoption of SFAS
No. 130 did not have a material effect on the Company's financial statement
presentation and disclosures, and a separate statement of comprehensive income
has not been presented.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise" and which is effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS No.
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. SFAS No. 131 also establishes standards for disclosures by
public companies regarding information about their major customers, operating
segments, products and services, and the geographic areas in which they operate.
SFAS No. 131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 requires comparative information for earlier
years to be restated. The Company's results of operations and financial position
will not be affected by implementation of SFAS No. 131. The Company is
evaluating the effect that adoption of SFAS No. 131 will have on its financial
statement disclosures.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132") which is effective for financial statements issued
for fiscal years beginning after December 15, 1997. SFAS No. 132 revises
employers' disclosures about pension and other post retirement benefit plans.
SFAS No. 132 requires comparative information for earlier years to be restated.
The Company's results of
F-42
<PAGE>
Brighton Technologies Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
Six Months Ended June 30, 1997 and 1998
6. Recent Accounting Pronouncements (continued)
operations and financial position will not be affected by implementation of SFAS
No. 132. The Company is evaluating the effect that adoption of SFAS No. 132 will
have on its financial statement disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), which is effective for financial statements for all fiscal quarters of
all fiscal years beginning after June 15, 1999. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133 also addresses the accounting for hedging
activities. The Company has not determined whether SFAS No. 133 will have a
material impact on its financial statement presentation disclosures.
F-43
<PAGE>
PART III
<TABLE>
<CAPTION>
Exhibit
Number Title
- ------ -----
<S> <C>
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 November 1, 1995
3.4 Certificate of Amendment to Certificate of Incorporation, as filed with the
Delaware Secretary of State on October 31, 1996
3.5 Certificate of Amendment to Certificate of Incorporation, as filed with the
Delaware Secretary of State on October 10, 1997
3.6 Certificate of Amendment to Certificate of Incorporation, as filed with the
Delaware Secretary of State on January 22, 1998
3.7 Certificate of Amendment to Certificate of Incorporation, as filed with the
Delaware Secretary of State on April 15, 1998
3.8 By-laws
10.1 Lease Agreement (Allendale - The Company's and BIC's facilities)
10.2 Lease Agreement Summary (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 (Beijing)
10.6 Lease Agreement Summary (Chongqing)
10.7 Lease Agreement Summary (Shanghai)
10.8 Lease Agreement Summary (Shenzhen)
10.9 Lease Agreement Summary (Wuhan)
10.10 Agreement with China National
10.11 Agreement with AlliedSignal
10.12 Agreement with Huazheng for establishment of Brighton-STAQ
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule for the year ended December 31, 1997 and the six months ended
June 30, 1998
</TABLE>
III-1
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRIGHTON TECHNOLOGIES CORPORATION
(Registrant)
Date: September 22, 1998 By: /s/ Kit Kung
----------------------------------
Kit Kung
President/Chief Executive Officer
III-2
<PAGE>
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>
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>
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>
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>
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>
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>
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>
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>
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>
(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
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(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>
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>
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>
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>
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>
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>
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>
EXHIBIT 1.2
(SHARES ISSUED TO SHAREHOLDER AND/OR ITS DESIGNEE(S))
Hong Yun 1,500,000
Kit Kung 25,500,000
59 Peach Hill South
Ramsey NJ 07446
18
<PAGE>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
EXHIBIT 3.6
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 January 24,
1998, 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 Article IV, Section 5 of the Corporation's
By-laws, 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 and Article III,
Section 8 of the Corporation's By-laws.
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: January 13, 1998
/s/Warren Wang
-----------------------------
Warren Wang,
Secretary
<PAGE>
EXHIBIT 3.7
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 April 15,
1998, each outstanding one (1) share of common stock
shall be automatically subdivided, changed and
converted into three (3) shares of common stock."
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: April 2, 1998
/s/ Warren Wang
-----------------------------
Warren Wang,
Secretary
<PAGE>
EXHIBIT 3.8
SIRONE CORPORATION
BY-LAWS
<PAGE>
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>
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>
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>
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>
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>
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
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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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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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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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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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<PAGE>
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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(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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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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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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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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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
<TABLE>
<CAPTION>
The following constitutes the basic provisions of this Lease. These basic
provisions are more fully described under the applicable provisions of this
Lease:
<S> <C> <C> <C>
(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
</TABLE>
<PAGE>
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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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>
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>
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
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<PAGE>
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>
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
thereover. 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 representatives, 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. Section 6901 ET SEQ.; the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 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>
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>
TENANT: BRIGHTON INDUSTRIES CORPORATION
BY: /s/ KIT KUNG
-------------------------------------------
Kit Kung, Chairman
29
<PAGE>
EXHIBIT 10.2
HONG KONG LEASE
SUMMARY OF THE TENANCY AGREEMENT
1. Landlord: The Newtec Investments Limited
2. Tenant: Brighton Equipment Corporation Limited
3. Premises: Room 1001 Eastern Centre, 1065 King's Road, Quarry Bay,
Hong Kong
4. Tendency Period: March 23, 1998 to March 22, 2000
5. Rental: HK$40,000 per month (U.S. $5,175 per month)
6. Deposit: HK$90,000 (U.S. $11,643) (incl. 2 month rental & $10,000 (U.S.
$1,294) as electricity deposit)
<PAGE>
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
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
ASSIGNMENT: Not permitted.
GOVERNING JURISDICTION: China
<PAGE>
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>
EXHIBIT 10.5
BEIJING LEASE
SUMMARY OF THE TENANCY AGREEMENT
1. Landlord: Beijing Workers' Stadium in Chaoyang District
2. Tenant: Beijing Brighton Staq Electronic System Co., Ltd.
3. Premise: No. 11 Hall in the Workers' Stadium, Beijing, China
4. Tendency Period: May 1, 1998 to April 30, 1999
5. Rental: RMB 600,000.00 per annum (U.S. $75,000 per annum)
6. Deposit: None
<PAGE>
EXHIBIT 10.6
LEASE SUMMARY
TITLE OF LEASE: Building Lease Agreement
DATE OF LEASE: June 5, 1998
LESSOR: Industrial and Commercial Bank of China - Chongqing
Branch
LESSEE: Beijing Brighton Staq Electronic System
PROPERTY OR SUITE LEASED: Chongqing Industrial and Commercial Bank of China
Building
29th Floor
Chongqing, China
TERM: June 15, 1998 - June 15, 2001
TERMINATION RIGHTS: 1 month written notice by either party
RENT: Rmb 36,000/quarter (U.S. $4,500/quarter)
GOVERNING JURISDICTION: China
<PAGE>
EXHIBIT 10.7
LEASE SUMMARY
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
<PAGE>
EXHIBIT 10.8
LEASE SUMMARY
<TABLE>
<CAPTION>
<S> <C>
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 - June 30, 1999
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
</TABLE>
<PAGE>
EXHIBIT 10.9
LEASE SUMMARY
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
<PAGE>
EXHIBIT 10.10
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>
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
2
<PAGE>
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.
3
<PAGE>
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
<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>
4
<PAGE>
<TABLE>
<CAPTION>
CLAUSE 1 SCOPE OF SUPPLY
<S> <C>
1.1 The Seller's responsibility is to supply basic engineering design,
etchnical 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.
5
<PAGE>
The Seller also has the right to transfer the license 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.
6
<PAGE>
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.
7
<PAGE>
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.
</TABLE>
8
<PAGE>
Contract Attachment 8 - Hardware Equipment List & Price [APPENDIX 3-1]
Contract Number # 94 HNXH/3901 US
US Dollars Expressed In Thousand
<TABLE>
<CAPTION>
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>
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 Man-
Times days
<S> <C> <C> <C> <C> <C>
Phase 1--Contraction & [156 - 182] 1 PE 1 15
Installation
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>
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>
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.
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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,
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<PAGE>
authorizing the Seller to export the 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;
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(b) Four (4) copies of commercial invoice;
(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;
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(c) Four (4) copies of commercial invoice;
(d) Two (2) copies of sight draft.
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)
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<PAGE>
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) 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)
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<PAGE>
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) 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
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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.
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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<TABLE>
<CAPTION>
TEST ITEMS PENALTY PERCENTAGE
(% of total software price)
<S> <C> <C>
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:
</TABLE>
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.
22
<PAGE>
7.7 Upon validity of the contract, the Seller and the Buyer must strictly
comply with the contract. If one party 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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<PAGE>
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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<PAGE>
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.
25
<PAGE>
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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<PAGE>
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.
27
<PAGE>
Signed for and on behalf of the Buyer
CHINA NATIONAL CHEMICAL CONSTRUCTION CHONGQING CO.
/s/ (IN CHINESE CHARACTERS) 1944/4/15
- ------------------------------- --------------------
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>
EXHIBIT 10.11
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>
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>
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>
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
4
<PAGE>
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
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<PAGE>
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>
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>
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>
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>
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
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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.
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<PAGE>
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.
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<PAGE>
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>
APPENDIX I
<TABLE>
<CAPTION>
DOWN PAYMENT MAXIMUM NO. OF SPECIALTIES (1) MAN-
LICENSOR PEOPLE DAYS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PHASE 1 - BASIC ENGINEERING DESIGN
- -------------------------------------------------------------------------------------------------
1 Collecting & Sorting [1 - 9] 2 PE(1) 30
Documentation
Basic Data Sorting &
Consultation
- --------------------------------------------------------------------------------------------------
2 PFD(2) & Equipment Spec's Review [16 - 17] 2 PE 16
- --------------------------------------------------------------------------------------------------
3 PID(3) & [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>
APPENDIX II
<TABLE>
<CAPTION>
DOWN PAYMENT MAXIMUM NO. OF SPECIALTIES (1) MAN-
LICENSOR PEOPLE DAYS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PHASE 2 - DETAILED ENGINEERING DESIGN
REVIEW
- --------------------------------------------------------------------------------------------------
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>
EXHIBIT 10.12
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>
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.
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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.
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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
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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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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
YangZhou Brighton Equipment Corporation Ltd. China
</TABLE>
- ---------------------
(1) The subsidiary is doing business under the same name unless otherwise
indicated.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S
REGISTRATION STATEMENT ON FORM 10-SB AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 260,127 1,078,403
<SECURITIES> 0 0
<RECEIVABLES> 1,457,235 2,600,594
<ALLOWANCES> 122,000 122,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,366,790 7,940,682
<PP&E> 2,087,097 2,207,676
<DEPRECIATION> 163,125 217,717
<TOTAL-ASSETS> 8,364,573 9,974,510
<CURRENT-LIABILITIES> 7,927,142 7,855,007
<BONDS> 425,000 0
0 0
0 0
<COMMON> 3,495 4,526
<OTHER-SE> (576,026) 1,530,145
<TOTAL-LIABILITY-AND-EQUITY> 8,364,573 9,974,510
<SALES> 6,446,617 8,851,331
<TOTAL-REVENUES> 6,446,617 8,851,331
<CGS> 4,519,381 6,540,501
<TOTAL-COSTS> 4,519,381 6,540,501
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 148,114 0
<INTEREST-EXPENSE> 63,436 113,268
<INCOME-PRETAX> (1,599,626) 590,214
<INCOME-TAX> 0 6,311
<INCOME-CONTINUING> (1,584,527) 584,033
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,584,527) 584,033
<EPS-PRIMARY> (.46) .15
<EPS-DILUTED> (.46) .15
</TABLE>
