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As filed with the Securities and Exchange Commission on January 7, 2000
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 ISSUES UNDER SECTION 12(b) OR 12(g)
OF THE SECURITIES ACT OF 1934
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CHINA GATEWAY HOLDINGS INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
CLI BUILDING, SUITE 1003
313 HENNESSY ROAD
HONG KONG
(Address of Principal Executive Offices) (Zip Code)
011-852-2893-9676
(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 $.0001
(Title of Class)
DOCUMENTS INCORPORATED BY REFERENCE: None
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BUSINESS
OVERVIEW
China Gateway Holdings Inc., formerly Orient Packaging
Holdings Limited (the "Company"), is a manufacturer of paperboard products
used in packaging material for the Chinese market. All of the Company's
manufacturing operations are conducted through Wuhan Dong Feng Paper Company
Limited, the Company's 60%-owned joint venture ("Wuhan Limited" or the "Joint
Venture"). Wuhan Limited has a term of 30 years that expires in 2027. The
Company's manufacturing facilities are located in Wuhan, Hubei Province,
which is in the Yangtze River basin area of Central part of the People's
Republic of China ("China" or "PRC"). The Wuhan facilities have an annual
production capacity of 35,000 tons of paperboard products.
The Company manufactures bleached (white top) paperboard, a
product used primarily as covering in the manufacture of corrugated packaging
for the food and beverage industry. The Company provides such paperboard
products to customers in China. Major manufacturers of food and beverages in
China, especially foreign brand manufacturers, have increasingly turned to
bleached paperboard covering of corrugated boxes for wholesale distribution
of products. This is in response to the increasing awareness and
sophistication of Chinese consumers.
The Company's objective is to continue to develop as a
supplier of high quality packaging material to foreign brand name consumer
product companies in the Chinese market.
INDUSTRY
According to the industry publication Pulp & Paper
International (July 1999), in 1998, China ranked third, trailing only the
United States and Japan, for the consumption of paper and paperboard products
in the world. The demand for paperboard packaging material is correlated to
the rate of economic growth and consumer spending. The Company believes that
China's rapid growth in recent years and its entry into the World Trade
Organization Pact in November 1999 will increase the Company's market
opportunity in China's fragmented paper industry.
As a result of the Chinese government's earlier attempts at
producing a self-sufficient paper industry based on local enterprise
production, the paper industry in China is highly fragmented into many small
capacity paper mills. This has resulted in large inefficiencies in the
industry as well as a general low level of training and technical expertise.
A large number of `backyard' mills with annual production capacity of less
than 5,000 tons per annum account for a significant proportion of China's
total paper production capacity. Due to the difficulties in regulating
environmental pollution from such a large number of paper mills, and
inefficiencies in such an industry structure, the Chinese government has
introduced regulations, effective from 1997, to phase-in a close down of all
paper mills with a capacity of less than 10,000 tons per annum. The resulting
reorganization of the industry will produce a consolidation of business among
those paper mills currently operating above this threshold, resulting in
significant investment incentives to expand production capacity at each mill
and a trend towards developing higher capacity mills. With the decreasing
number of suppliers in the market, there will be a window for the Company to
expand its market share.
PRODUCTS
The Company produces mainly uncoated and coated white-lined
chipboard in a range of paperboard weights ranging from 180g/m(2) to 400g/m(2).
Uncoated white-lined chipboard is used in
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consumer corrugated packaging. Coated white-lined chipboard is used for
applications that require higher quality printed surfaces. In addition, the
Company also produces small quantities of other types of paperboard products,
including whiteback paperboard used for the packaging of foodstuffs.
Paperboard in China is graded according to Chinese national
technical standards, which are used as an indicator of the quality of the
paperboard but have no formal influence on the sales price achieved, which is
market driven. The white-lined chipboard produced by the Company is primarily
graded as Class C paperboard. Class C paperboard accounts for approximately
80% of China's total domestic paperboard production. Class B paperboard,
produced by relatively few premium mills, accounts for the balance of China's
domestic production. The highest quality paperboard available in the China
market (Class A paperboard) is imported paperboard, mainly from South Korea,
Taiwan and Japan, which is used almost exclusively by foreign-owned joint
venture operations in some specialized high-quality end-uses.
The Company's product is used in a wide range of packaging
for both domestic and international consumer product manufacturers in China.
Generally, consumer product manufacturers subcontract the conversion and
printing of their packaging to corrugated box manufacturers. These corrugated
box manufacturers in turn assemble and fold containers using white-lined
chipboard supplied by the Company and kraft linerboard imported or
manufactured domestically. Corrugated paper is glued on the inside of the
white-lined chipboard and the kraft linerboard covers onto the corrugated
paper and forms a sandwich structure. Kraft linerboard is a kind of
unbleached paperboard, which maintains a light brown finishing. White-lined
chipboard is a bleached paperboard that has a white finishing like writing
paper. The white-lined chipboard surface of these containers may be printed
with the end users' designs and logos.
The Company's products have been utilized in final
packaging by a number of international beverage manufacturers, including
Coca-Cola, Pepsi Cola and Pabst Blue Ribbon beer for domestic China sales.
The Company's customers, comprised of both paper dealers
and corrugated box manufacturers, are based predominantly in Southern China
and the eastern coastal regions including Shanghai, Fujian and Zhejiang
provinces. The Company also has several customers based in the Sichuan
province in Central China. As of September 1999, the Company had
approximately 20 major customers of which the largest accounted for
approximately 8.8% of sales for the nine-month period ended September 30,
1999.
MARKETING & SALES
The Company's sales and marketing activities are centered
in Wuhan with additional support from the Company's executive office in Hong
Kong. The Company employs 22 salespersons with key sales regions controlled
by a total of five regional sales managers who operate on a salary and
commission basis. In addition to the Company's sales team in Wuhan, the
Company utilizes a network of five independent sales agents throughout the
major markets in China.
The Company markets its white-lined chipboard under the
"Golden Horse" brand name. The brand name has been used by the Wuhan Dong
Feng Paper Mill Company ("Wuhan Company"), the Company's joint venture
partner in Wuhan Limited, for over 40 years.
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MANUFACTURING PROCESS
PRODUCTION
In the production process, the fiber stock for paperboard
is prepared from raw materials by placing wastepaper or pulp sheets into
large digesting tanks where, with the addition of certain chemicals, a fiber
slurry is produced. This slurry is delivered from the tanks by pipelines to
the paper machines where it is laid on to large moving mats which carry the
slurry through various rollers where it is pressed and dried, producing a
continuous line of board that is either wound onto reels or cut up separately
into sheets.
The Wuhan facilities have six individual paper machines for
paperboard production and four separate digesting tanks for producing the
fiber slurry to be used in the paperboard production process. The trend in
Western paper mills is towards single large and high capacity paper machines,
which are able to produce significant economies of scale. However the
existence of several small paper machines creates a competitive advantage for
a paper mill by allowing quick and efficient production of paperboard with
varying dimensions to meet customized customer specifications while
minimizing the amount of wastage produced.
RAW MATERIAL SUPPLY
The major component of the Company's manufacturing
expenditures is the cost of raw material for the preparation of the fiber
stock, which generally accounts for between 60% - 75% of the paperboard's
sales price. In addition to being a major cost, the type and amount of fiber
used directly correlates to the quality characteristics of the paperboard. As
a result, fiber supply is a crucial aspect of the Company's manufacturing
process.
The Company utilizes four different types of fiber: virgin
bleached kraft softwood pulp (BKSP), straw pulp and two main types of
recycled paper (mixed wastepaper and de-inked newspaper). The BKSP used is
imported from North America and trades at a price determined by international
commodity markets. The price of recycled paper is also determined by the
international commodity markets. The Company imports approximately 30% of its
recycled paper requirements, with the remainder being sourced from the China
domestic market. The Company manufactures its own straw pulp from straw
purchased from the region around Wuhan. However, the Company's use of straw
pulp will shortly be discontinued and replaced with de-inked old newspaper
fiber.
The international market for BKSP is cyclical. However, as
the actual proportion of BKSP used in the paperboard production process is
less than 10% of the total fiber requirements, the Company's exposure to
volatility in these markets is limited.
More important to the Company's operations is the
volatility of the recycled paper market, which Management believes is
generally more stable than that for virgin pulp products. Most of the
internationally traded wastepaper originates from the United States, so
movements in international prices closely track demand and supply in that
market. The Company imports approximately 35% of its wastepaper requirements,
of which two-thirds originate from Hong Kong and one-third from the United
States.
Domestic Chinese wastepaper supply is less volatile than
that of internationally traded wastepaper since it is generally of lower
quality than the international product and often requires further processing
before it can be used. As a result, Chinese wastepaper trades at a
significantly lower price than internationally traded wastepaper. The Company
carries out its own wastepaper collection activities
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within Wuhan and in addition obtains domestic wastepaper from wastepaper
brokers in Southern China where domestic wastepaper is available in plentiful
supply. The Company carries out barter trade arrangements with these domestic
wastepaper brokers. Specifically, the Company exchanges paperboard products
for wastepaper, which gives it a competitive advantage in securing a reliable
wastepaper supply.
Other significant inputs in the paperboard production
process include chemicals (for pulping, papermaking, pigmentation and
coating), water, electricity and steam. All chemicals required are sourced
from China domestic manufacturers, which ensures reliable supply and
significant lower cost than that of imported chemicals. The Company's paper
mill is located near the banks of the Yangtze River, and the Company has
constructed its own water treatment facilities at this source to ensure a
cost-effective and reliable water supply. Electricity is purchased from the
Wuhan grid. The large quantities of steam required for the paperboard
production processes are produced on-site at the Company's paper mill by coal
powered boilers.
COMPETITION
The paper industry is highly fragmented in China as a
result of the Chinese government's earlier attempts at producing a
self-sufficient paper industry based on local enterprise production. The
Company believes that as a result of the consolidation of the industry, the
Company is positioned to increase its market share in the industry. In
particular, the Company believes that it has the following competitive
advantages:
PRODUCTION VERSATILITY - The ability to produce paperboard
according to customized customer specification is a unique advantage that the
Company has over other Chinese manufacturers. In larger paper mills in the
West, significant investment in automated sheeting operations and inventory
management is required in order to be able to efficiently meet customer
requirements. Management believes that no paper mill in China has such
systems installed. The Company, however, is able to simulate the process
because the Company has six individual paper machines that provides it
flexibility in scheduling production.
PRODUCT DISTRIBUTION - The Company has established
distribution systems throughout its main customer markets in China. These
include a network of independent agencies in Fuijian and Guangzhou province,
allowing effective servicing of customers in these key markets.
RELIABILITY OF RAW MATERIAL SUPPLY - With fiber being the
most important item in paperboard production, it is essential that reliable
sources of supply exist. The Company has established relationships with
suppliers through its barter trade arrangements with brokers for wastepaper.
ESTABLISHED BRANDS - Wuhan Limited's "Golden Horse" brand
paperboard has been established in the China domestic market for over 40
years. The Company believes that Golden Horse is one of the oldest brands in
the market and is well known for its quality and reliability. Accordingly,
the Company is able to charge a premium for its product as compared to
similarly situated paper mills.
The Company believes that the signing of the World Trade
Organization Pact between the U.S. and China in November 1999 will lead to
the opening of the Chinese market to foreign competitors who will be able to
import paper products into the Chinese market with lower import duties. The
lower price of imported paper products will increase competition in the
Chinese market.
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GAMMA LINK ENTERPRISES CORP. ACQUISITION
In October 1999, the Company and Gamma Link Enterprises Corp.,
a British Virgin Islands corporation ("Gamma"), entered into a Purchase
Agreement pursuant to which the Company will acquire 100% of the outstanding
capital stock of Gamma in exchange for 3,600,000 shares of the Company's common
stock. The acquisition is scheduled to close in the first quarter of 2000.
Gamma owns a 51% interest in Sino-Panel (Gaoyao) Limited, a
Sino-foreign joint venture company ("Sino-Panel"). The remaining 49% of
Sino-Panel is owned by a party unrelated to the Company. Sino-Panel owns
equipment for a particle panel production line in Gaoyao, China, which consists
of reconditioned wood particle grinding equipment, multi-layer press, and other
ancillary equipment and facilities that were manufactured in Finland.
Following closing of the acquisition, Sino-Panel will
construct new production facilities along the West River in the Gaoyao Economic
Development Zone in Guangdong Province, China, for the manufacture of
particleboard panels and doors with high quality overlays. These products are to
be used in the production of door cores, cabinet panels and shelving. The
production facilities will be capable of production, at their full production
level, of 75,000 m(3)/annum of particleboard or 1,250,000 doors. Construction is
scheduled for completion by December 2000.
The demand for particleboard in China has been growing
rapidly since 1980 when China began its economic reform. The increased demand
for particleboard was primarily driven by the expansion and modernization of
the Chinese furniture industry. The Company believes that the demand for
furniture in China will continue to grow rapidly, with annual growth rates
ranging from 8-10%. The Company believes that Sino-Panel's planned
facilities, using imported equipment, will be capable of manufacturing high
quality particleboard panels that will be superior in quality to currently
available domestic produced particleboard panels.
HISTORY OF THE COMPANY
The Company was incorporated in the State of Delaware on
June 26, 1997 as Orient Packaging Holdings, Ltd. On June 27, 1997 all the
outstanding shares of Orient Investments Limited ("Orient Investments") were
acquired by the Company in exchange for the issuance by the Company of a 100%
interest in the Company to the former shareholders of Orient Investments. On
December 1, 1999, the Company changed its name to China Gateway Holdings Inc.
Orient Investments, a British Virgin Islands corporation
incorporated on January 8, 1997, is a holding company for Orient Packaging
Limited (f/k/a Orient Financial Services Limited) ("Orient Packaging"), a
British Virgin Islands corporation incorporated on May 25, 1993. Orient
Packaging is the owner of a 60% interest in Wuhan Limited; a PRC registered
Sino-foreign equity joint venture company. The remaining 40% interest is
owned by Dong Feng Paper Mill Company, a China state-owned enterprise.
COMPLIANCE WITH ENVIRONMENTAL LAWS
There is a levy of RMB35,000/month paid by Wuhan Limited to
the local environment protection office for the discharge of the water after
the papermaking process. Wuhan Limited has upgraded its pollution controls
system so that the levy is not expected to be increased.
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WUHAN LIMITED
The Company presently owns a 60% interest in Wuhan Limited
pursuant to a Joint Venture Agreement dated December 20, 1997 (the "Joint
Venture Agreement"). The validity, interpretation, execution and settlement
of disputes is to be governed under Chinese law and disputes are to be
submitted for arbitration to the Foreign Economic and Trade Arbitration
Commission of the China Council for the Promotion of International Trade.
Despite some progress in developing a legal system, China does not have a
comprehensive system of laws. The interpretation of Chinese laws may be
subject to policy changes reflecting domestic political factors. Enforcement
of existing laws, including laws pertaining to Chinese joint ventures, may be
uncertain and sporadic, and implementation may be inconsistent.
EMPLOYEES
The Company and its subsidiaries have approximately 900
full-time employees. The Company's executive officers are based in the
Company's executive office in Hong Kong. All other employees of the Company
are based in China.
PATENTS AND TRADEMARKS
The Golden Horse band name has been registered as a trade
name in China since 1958 by Wuhan Company. The trade name has been registered
by Wuhan Company since 1958. The trade name is licensed to Wuhan Limited by
Wuhan Company for the term of the Joint Venture.
PROPERTIES
HONG KONG. The Company occupies office space in Wanchai, Hong
Kong. The lease expires May 9, 2001.
WUHAN, HUBEI. The Company's joint venture, Wuhan Dong Feng
Paper Company Limited, leases a paper manufacturing plant in Wuhan,
consisting of 25,730 square meters. The lease expires concurrent with the
term of Wuhan Limited in 2027.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of
the Private Securities Litigation 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 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. Although the Company believes that the assumptions on which
forward-looking statements are based are reasonable, and the forward-looking
statements are within the definition of the Private Securities Litigation
Reform Act of 1995, 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:
China Gateway Holdings Inc., formerly Orient Packaging
Holdings Limited (the "Company"), was incorporated in the State of Delaware
on June 26, 1997. Effective June 27, 1997, the Company issued 2,310,000
shares of common stock to the shareholders of Orient Investments Limited, a
British Virgin Islands corporation incorporated on January 9, 1997 ("OIL"), in
exchange for 100% of the capital stock of OIL. OIL owned a 100% interest in
Orient Packaging Limited ("OPL"), which was incorporated in the British
Virgin Islands on May 25, 1993, originally as Orient Financial Services
Limited. OPL owned a 60% interest in Wuhan Dong Feng Paper Company Limited, a
Sino-foreign equity joint venture ("Wuhan Limited" or the "Joint Venture"),
with the remaining 40% owned by Wuhan Dong Feng Paper Mill Company, a PRC
state-owned enterprise ("Wuhan Company").
In accordance with an agreement between OPL and Wuhan
Company dated December 20, 1996 (the "Joint Venture Agreement"), the Joint
Venture was established with a term of 30 years from the date the business
license is issued to engage in the manufacture and sale of cartonboard
packaging materials. The Joint Venture produces primarily coated and uncoated
white-lined chipboard, which are the most common types of cartonboard used in
consumer packaging for beverages, dry foodstuffs, pharmaceutical products and
other consumer items. The Joint Venture's production facilities and
operations are located in the city of Wuhan, Hubei Province, PRC. The Company
had no significant operations prior to the commencement of the Joint
Venture's operations effective March 1, 1997.
Through December 31, 1997, OPL had contributed cash of RMB
4,876,893 to Wuhan Limited, and Wuhan Company had contributed a building and
machinery, accounts receivable and inventory, net of certain liabilities,
with a carrying value of RMB 7,102,039, which approximated fair value at the
date of contribution to Wuhan Limited. During the year ended December 31,
1998, OPL contributed cash of RMB 5,752,718 to Wuhan Limited. All initial
capital contributions required by the Joint Venture Agreement had been
completed as of December 31, 1998.
Pursuant to an amendment to the Joint Venture Agreement
dated February 26, 1998, the parties to the Joint Venture Agreement agreed to
expand its registered capital in order to facilitate the expansion of the
Joint Venture by March 31, 1999. OPL agreed to contribute additional cash of
RMB 34,362,000 to the Joint Venture, consisting of RMB 20,000,000 by December
31, 1998 and RMB 14,362,000 by March 31, 1999, and Wuhan Company agreed to
contribute machinery and equipment with
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a total value of RMB 22,908,000. OPL did not fund its required capital
contributions during 1998 and 1999. The funding of this capital contribution
would most likely be accomplished through a sale of the Company's equity
securities. The parties to the Joint Venture Agreement are currently in
discussions regarding deferring OPL's funding commitment. Management of the
Company believes that such discussions will be successfully concluded during
the next several months with no effect on the respective equity interests of
the Joint Venture parties. However, there can be no assurances that such
discussions with be successfully concluded or that the Company will be able
to successfully raise its capital contribution through the sale of its equity
securities.
Pursuant to an amendment to the Joint Venture Agreement
dated April 19, 1999, certain assets and liabilities related to Wuhan Company
aggregating RMB 26,112,048 were extinguished, consisting of amounts due to
Wuhan Company of RMB 32,122,132, less amounts due from Wuhan Company of RMB
6,010,084, and were reflected as a contribution to capital to the Joint
Venture effective December 31, 1998. The amounts due to Wuhan Company that
were forgiven reflected unrecoverable charges to the Joint Venture for raw
material inventory. Based on the agreement by Wuhan Company to forgive such
amounts, OPL agreed to contribute sufficient capital to the Joint Venture as
may be required to fund its operations at current levels.
Effective October 4, 1999, the Company entered into an
agreement (the "Purchase Agreement") to acquire 100% of the outstanding
capital stock of Gamma Link Enterprises Corp., a British Virgin Islands
company ("Gamma"), in exchange for 3,600,000 shares of the Company's common
stock valued at RMB 44,712,000 (RMB 12.42 per share). Gamma owns a 51% equity
interest in Sino-Panel (Gaoyao) Limited, a Sino-foreign equity joint venture
("Sino-Panel"), with the remaining 49% owned by an unrelated company.
Sino-Panel's only assets consists of a particle panel production line
consisting of reconditioned wood particle grinding equipment, multi-layer
presses, and other ancillary equipment and facilities that were originally
manufactured and operated in Finland. Such equipment has not been employed in
revenue-generating operations for the past several years. The Purchase
Agreement is expected to close in the first quarter of 2000, at which time
Sino-Panel expects to begin construction of new production facilities for the
manufacture of particleboard panels and doors with high quality overlays,
which will be used in the production of door cores, cabinet panels and
shelving, and which will be marketed in the PRC and internationally.
Construction of the new manufacturing facilities in Gaoyao City, Guangdong
Province, PRC, is scheduled for completion by December 2000, and operations
are expected to commence during the year ended December 31, 2001.
The acquisition of OIL by the Company was accounted for as
a recapitalization of OIL, as the shareholders of OIL acquired all of the
capital stock of the Company in a reverse acquisition. Accordingly, the
assets and liabilities of OIL have been recorded at historical cost, and the
shares of common stock issued by the Company have been reflected in the
consolidated financial statements giving retroactive effect as if the Company
had been the parent company from inception. The historical consolidated
financial statements for the nine months ended September 30, 1999 and 1998,
the year ended December 31, 1998, and the ten months ended December 31, 1997
consist of the combined financial statements of the Company and its direct
and indirect subsidiaries and joint venture interests from the dates of their
respective formation or acquisition. The financial statements for the two
months ended February 28, 1997 reflect the operations of Wuhan Company, the
predecessor of Wuhan Limited.
The Company's customers are concentrated in the PRC. Sales
to such customers are generally on an open account basis and are denominated
in RMB. Through September 30, 1999, the Company's revenues were generated
through its interest in Wuhan Limited, which supplies paperboard directly or
indirectly to major international consumer brands. Approximately 15%, 19%,
22% and 9% of the Company's sales were generated by one customer during the
year ended December 31, 1998, the ten months ended December 31, 1997, the two
months ended February 28, 1997, and the nine months ended
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September 30, 1999, respectively. During such periods, the Company also had
significant purchases of raw material inventory from the same customer. As of
December 31, 1998 and 1997, and as of September 30, 1999, approximately 30%,
32% and 33%, respectively, of net trade receivables were due from five
customers, of which one customer accounted for greater than 10% of the net
trade receivables balance.
The consolidated financial statements have been presented
in Chinese Renminbi ("RMB"). Transactions and monetary assets denominated in
currencies other than the RMB are translated into RMB at the respective
applicable exchange rates. Monetary assets and liabilities denominated in
other currencies are translated into RMB at the applicable rate of exchange
at the balance sheet date. The resulting exchange gains or losses are
credited or charged to the consolidated statements of operations. Currency
translation adjustments arising from the use of different exchange rates from
period to period are included in comprehensive income.
CONSOLIDATED RESULTS OF OPERATIONS:
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
Sales. Sales remained relatively constant in 1999 as
compared to 1998. For the nine months ended September 30, 1999, sales were
RMB 42,659,988, all to unrelated parties, as compared to sales of RMB
43,082,891, consisting of RMB 40,477,695 (94.0%) to unrelated parties and RMB
2,605,196 (6.0%) to a related party, for the nine months ended September 30,
1998. During the nine months ended September 30, 1999, the Company sold
10,665 metric tons of cartonboard at an average selling price of RMB 4,000
per metric ton, as compared to selling 11,337 metric tons of cartonboard at
an average selling price of RMB 3,800 per metric ton for the nine months
ended September 30, 1998.
Gross Profit. For the nine months ended September 30, 1999,
gross profit was 10.4% of sales, as compared to a gross profit of (2.1%) of
sales for the nine months ended September 30, 1998. The Company incurred a
negative gross profit during the nine months ended September 30, 1998 as a
result of its cost of raw material inventory including certain unrecoverable
costs. The Company was unable to sell its products in 1998 at a price
sufficient to recover such excess inventory costs because of management's
concentration at that time on sales to related parties and on maintaining
market share at the expense of profitability. The purchase liability
associated with such excess inventory costs was forgiven by Wuhan Company
effective December 31, 1998, as described above.
Sales and Marketing Expenses. For the nine months ended
September 30, 1999, sales and marketing expenses were RMB 850,756 or 2.0% of
sales, as compared to sales and marketing expenses of RMB 772,222 or 1.8% of
sales for the nine months ended September 30, 1998.
General and Administrative Expenses. For the nine months
ended September 30, 1999, general and administrative expenses were RMB
12,626,134 or 29.6% of sales, as compared to general and administrative
expenses of RMB 10,711,622 or 24.9% of sales for the nine months ended
September 30, 1998. The increase in general and administrative expenses in
1999 as compared to 1998 was primarily a result of increased
personnel-related expenses.
Other Income (Expense). The Company recorded commission
income of RMB 2,785,030 during the nine months ended September 30, 1999. The
Company did not have any commission income during the nine months ended
September 30, 1998. For the nine months ended September 30, 1999, interest
expense was RMB 728,229, as compared to RMB 2,370,274 for the nine months
ended September 30, 1998. Interest expense decreased in 1999 as compared to
1998 primarily as a result of a reduction in interest bearing debt to Wuhan
Company, which decreased as a result of Wuhan
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Company forgiving approximately RMB 32,000,000 of such debt, which was
recorded effective December 31, 1998.
Income Taxes. The Company did not recognize any income tax
expense for the nine months ended September 30, 1999 and 1998. The Company is
subject to income taxes on an entity basis on income arising in or derived
from the tax jurisdiction in which each entity is domiciled. The Company's
British Virgin Islands subsidiaries are not liable for income taxes. The
Company's PRC joint venture is subject to income taxes at an effective rate
of 33%. The joint venture is exempt from income taxes in the PRC for the
first two years starting from the first year of profitable operations,
followed by a 50% exemption for the next three years. Losses incurred by the
joint venture may be carried forward for five years.
Minority Interest. For the nine months ended September 30,
1999 and 1998, the Company recorded a minority interest of RMB 3,483,934 and
RMB 4,967,679, respectively, to reflect the 40% interest of Wuhan Company in
the Joint Venture.
Net Loss. Net loss was RMB 4,605,056 for the nine months
ended September 30, 1999, as compared to a net loss of RMB 10,847,495 for the
nine months ended September 30, 1998.
YEAR ENDED DECEMBER 31, 1998 AND THE TEN MONTHS ENDED DECEMBER 31, 1997:
Sales. Sales for the year ended December 31, 1998 were RMB
60,321,795, consisting of RMB 55,416,605 (91.9%) to unrelated parties and RMB
4,905,190 (8.1%) to a related party. Sales for the ten months ended December
31, 1997 were RMB 93,577,458, consisting of RMB 75,366,279 (80.5%) to
unrelated parties and RMB 18,211,179 (19.5%) to a related party. During the
year ended December 31, 1998, the Company sold 15,847 metric tons of
cartonboard at an average selling price of RMB 3,800 per metric ton. During
the ten months ended December 31, 1997, the Company sold 27,648 metric tons
of cartonboard at an average selling price of RMB 3,380 per metric ton.
The decrease in sales in 1998 as compared to 1997 was a
result of several factors. The Company abandoned its previous policy of
reducing prices to maintain or increase market share. Due to low profit
margins and credit risk, the Company intentionally reduced sales to related
parties in 1998. The Company also reduced its customers from 273 in 1997 to
82 in 1998 by implementing a program in 1998 to focus on its key customers,
particularly multi-national consumer product companies that operate in the
PRC. The Company believes that these customers can generate larger orders
that will allow the Company to operate its manufacturing facilities more
efficiently, which in turn will generate improved profit margins. Although
these factors had the effect of significantly reducing sales in 1998 as
compared to 1997, the Company believes that these policies will ultimately
result in increased sales with improved profit margins and reduced credit
risk.
Gross Profit. Gross profit for the year ended December 31,
1998 was (10.3%) of sales, as compared to a gross profit of 17.6% of sales
for the ten months ended December 31, 1997. The Company incurred a negative
gross profit during the year ended December 31, 1998 as a result of its cost
of raw material inventory including certain unrecoverable costs. The Company
was unable to sell its products in 1998 at a price sufficient to recover such
excess inventory costs because of management's concentration at that time on
sales to related parties and on maintaining market share at the expense of
profitability. The purchase liability associated with such excess inventory
costs was forgiven by Wuhan Company effective December 31, 1998, as described
above.
10
<PAGE>
Sales and Marketing Expenses. Sales and marketing expenses
for the year ended December 31, 1998 were RMB 1,779,781 or 3.0% of sales.
Sales and marketing expenses for the ten months ended December 31, 1997 were
RMB 952,338 or 1.0% of sales. Sales and marketing expenses increased
substantially in 1998 as compared to 1997, both on an absolute basis and as a
percentage of sales, primarily as a result of increased sales commission
rates.
General and Administrative Expenses. General and
administrative expenses for the year ended December 31, 1998 were RMB
17,189,503 or 28.5% of sales. General and administrative expenses for the ten
months ended December 31, 1997 were RMB 8,008,362 or 8.6% of sales. General
and administrative expenses increased substantially in 1998 as compared to
1997, both on an absolute basis and as a percentage of sales, primarily as a
result of increased personnel-related expenses.
Other Income (Expense). For the year ended December 31,
1998, interest expense was RMB 3,488,795. For the ten months ended December
31, 1997, interest expense was RMB 3,567,295.
Income Taxes. The Company did not recognize any income tax
expense for the year ended December 31, 1998 and the ten months ended
December 31, 1997. The Company is subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which each
entity is domiciled. The Company's British Virgin Islands subsidiaries are
not liable for income taxes. The Company's PRC joint venture is subject to
income taxes at an effective rate of 33%. The joint venture is exempt from
income taxes in the PRC for the first two years starting from the first year
of profitable operations, followed by a 50% exemption for the next three
years. Losses incurred by the joint venture may be carried forward for five
years.
Minority Interest. For the year ended December 31, 1998 and
the ten months ended December 31, 1997, the Company recorded a minority
interest of RMB 9,629,089 and (RMB 1,380,167), respectively, to reflect the
40% interest of Wuhan Company in the Joint Venture. The minority interest
recorded for the year ended December 31, 1998 reflects the increase in equity
in the Joint Venture attributable to the minority interest as the result of
the debt forgiveness by Wuhan Company, as described above.
Net Income (Loss). Net loss was RMB 20,271,018 for the year
ended December 31, 1998. Net income was RMB 2,070,255 for the ten months
ended December 31, 1997.
CONSOLIDATED FINANCIAL CONDITION:
LIQUIDITY AND CAPITAL RESOURCES:
Operating. For the year ended December 31, 1998, the
Company's operations utilized cash resources of RMB 8,783,639. For the ten
months ended December 31, 1997, the Company's operations utilized cash
resources of RMB 8,310,310. The Company had net working capital of RMB
13,500,096 at December 31, 1998, as compared to net working capital of RMB
9,328,880 at December 31, 1997, reflecting a current ratio of 1.39:1 at
December 31, 1998 as compared to 1.17:1 at December 31, 1997. The Company's
operations utilized cash resources during the ten months ended December 31,
1997 primarily to support increased receivables and inventories. The
Company's operations utilized cash resources during the year ended December
31, 1998 as a result of the substantial operating loss. The Company had net
working capital of RMB 13,500,096 at December 31, 1998 as a result of the
extinguishment of certain assets and liabilities to Wuhan Company of RMB
26,112,048 effective December 31, 1998, as described above.
11
<PAGE>
For the nine months ended September 30, 1999, the Company's
operations utilized cash resources of RMB 8,653,732, as compared to utilizing
cash resources of RMB 4,579,540 for the nine months ended September 30, 1998.
The Company had net working capital of RMB 6,719,791 at September 30, 1999,
as compared to net working capital of RMB 13,500,096 at December 31, 1998,
reflecting a current ratio of 1.20:1 at September 30, 1999 as compared to
1.39:1 at December 31, 1998. The Company's operations utilized an increased
amount of cash resources in 1999 as compared to 1998 primarily as a result of
decreases in accounts payable and accrued expenses, offset in part by a
decrease in inventories.
Receivables decreased by RMB 759,109, to RMB 32,014,034 at
September 30, 1999, from RMB 32,773,143 at December 31, 1998. Net of the
amount extinguished effective December 31, 1998 of RMB 6,010,084, receivables
decreased by RMB 3,392,478, to RMB 32,773,143 at December 31, 1998, from RMB
42,175,705 at December 31, 1997. Bad debt expense was RMB 117,163 for the
nine months ended September 30, 1999, RMB 166,532 for the year ended December
31, 1998, and RMB 60,875 for the ten months ended December 31, 1997.
Inventories decreased by RMB 6,682,828, to RMB 5,415,551 at
September 30, 1999, from RMB 12,098,379 at December 31, 1998. Inventories
decreased by RMB 9,565,996, to RMB 12,098,379 at December 31, 1998, from RMB
21,664,375 at December 31, 1997.
Investing. During the year ended December 31, 1998,
additions to property, plant and equipment aggregated RMB 2,350,671. During
the ten months ended December 31, 1997, additions to property, plant and
equipment aggregated RMB 590,906.
During the nine months ended September 30, 1999, the
Company had no additions to property, plant and equipment, but generated RMB
134,474 from the sale of property, plant and equipment. During the nine
months ended September 30, 1998, additions to property, plant and equipment
aggregated RMB 2,302,370.
As of September 30, 1999, the Company had budgeted capital
expenditures of approximately RMB 500,000 through December 31, 1999.
Financing. The Company has relied on the credit provided by
Wuhan Company, the 40% interest holder in the Joint Venture, supplemented by
the sale of its securities and short-term bank loans, for the working capital
resources to fund its operations from March 1997 through September 1999.
In conjunction with the reverse merger transaction on June
27, 1997 pursuant to which 2,310,000 shares of common stock were issued, the
Company received net assets with an historical cost basis of RMB 1,655,780.
During the ten months ended December 31, 1997, the Company sold 212,000
shares of common stock for net proceeds of RMB 4,393,414, and issued an
additional 465,000 shares of common stock to entities arranging such
financing for consideration of RMB 24,836. During the year ended December 31,
1998, the Company issued 773,466 shares of common stock for net proceeds of
RMB 9,131,001. In addition, during the year ended December 31, 1998, stock
options and warrants were exercised, resulting in the issuance of 393,692
shares of common stock for net proceeds of RMB 28,200.
During the nine months ended September 30, 1999, the
Company issued 153,000 shares of common stock for net proceeds of RMB 612,770.
Additional transactions with respect to the Joint Venture
are discussed above at "Overview".
12
<PAGE>
Due to Wuhan Company increased by RMB 1,433,069 during the
ten months ended December 31, 1997 and by RMB 4,242,125 during the year ended
December 31, 1998, net of the amount extinguished effective December 31, 1998
of RMB 32,122,132. During the nine months ended September 30, 1999, due to
Wuhan Company increased by RMB 6,905,996.
The Company had short-term bank loans of RMB 2,503,539 at
December 31, 1997, as compared to RMB 1,227,057 at December 31, 1998 and RMB
1,101,361 at September 30, 1999.
During the nine months ended September 30, 1999, certain
shareholders made advances to the Company totaling RMB 667,023, which are
unsecured, non-interest bearing and payable on demand.
The Company anticipates, based on currently proposed plans
and assumptions relating to its operations, that its projected cash flows
from operations, combined with the credit provided by Wuhan Company, the cash
that the Company expects to generate from the issuance of its securities, and
advances provided by certain shareholders during the year ending December 31,
1999, will be sufficient to support its planned operations for 12 months.
Depending upon the rate of growth, the Company may seek additional capital in
the future to support the expansion of operations and acquisitions.
INFLATION AND CURRENCY MATTERS:
In recent years, the Chinese economy has experienced
periods of rapid 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.
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 may occur periodically and may, in certain instances,
materially affect the Company's results of operations. Both the conversion of
Renminbi into foreign currencies and the remittance of foreign currencies
abroad requires the approval of the government of China. The Renminbi is not
freely convertible into foreign currencies, and the ability to convert the
Renminbi is subject to the availability of foreign currencies. As a result of
the Asian financial crisis, China tightened foreign exchange controls in
1998. Effective December 1, 1998, all foreign exchange transactions involving
the Renminbi must take place through authorized banks in China at the
prevailing exchange rates quoted by the People's Bank of China. The Company
expects that a portion of its revenues will need to be converted into other
currencies to meet foreign currency exchange obligations, including the
payment of any dividends declared.
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. During the last two years, the effects of the
Asian financial crisis have negatively impacted the Company. In addition,
although the central government of China has repeatedly indicated that it
does not intend to devalue its currency in the near future, recent
announcements by the central government of China indicate that devaluation is
an increasing possibility. Should the central government of China decide to
devalue the Renminbi, the Company does not believe that such an action would
have a detrimental effect on the Company's operations, since the Company
conducts virtually all of its business in China, and the sale of
13
<PAGE>
its products is settled in Renminbi. However, devaluation of the Renminbi
against the United States dollar would adversely affect the Company's
financial performance when measured in United States dollars.
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 defined
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's only current
component of comprehensive income is foreign currency translation adjustment.
The Company adopted SFAS No. 130 for its fiscal year beginning January 1,
1998. Adoption of SFAS No. 130 did not have a material effect on the
Company's financial statement presentation and disclosures.
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. 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 operates in only one segment, the manufacture and
sale of cartonboard packaging materials. The Company adopted SFAS No. 131 for
its fiscal year beginning January 1, 1998. Adoption of SFAS No. 131 did not
have a material effect on the Company's financial statement presentation and
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 does not have any pension or other
post retirement benefit plans. The Company adopted SFAS No. 132 for its
fiscal year beginning January 1, 1998. Adoption of SFAS No. 132 did not have
a material effect on the Company's financial statement presentation and
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
14
<PAGE>
for financial statements for all fiscal quarters of all fiscal years
beginning after June 15, 2000. 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 will adopt SFAS No. 133 for its fiscal year beginning
January 1, 2001. The Company currently does not have any derivative
instruments nor is it engaged in any hedging activities, thus the Company
does not believe that implementation of SFAS No. 133 will have a material
effect on its financial statement presentation and disclosures.
YEAR 2000 ISSUE:
The Year 2000 Issue results from the fact that certain
computer programs have been 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 disruption
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 recognize dates
subsequent to December 31, 1999. The Company believes that the cost to modify
its existing software and/or convert to new software will not be significant,
and will have been completed prior to December 31, 1999.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December
31, 1999 with respect to 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, (i) the number of
shares of common stock owned by each such person and group and (ii) 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. The address of
those persons for which an address is not otherwise indicated is:
CLI Building, Suite 1003
313 Hennessy Road
Hong Kong
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER OF SHARES OF PERCENTAGE OUTSTANDING
------------------------ COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
------------------ ---------------------
<S> <C> <C>
Danny Wu 1,250,000(2) 29.02%
Lawrence Hon 1,250,000(2) 29.02%
Vincent Chan 172,868 (3) 4.01%
Steven Tang -- --%
All Directors & Executive Officers as a 1,422,868 33.03%
group (4 person)
5% BENEFICIAL OWNERS
Gateway Worldwide Ltd. 1,250,000 29.02%
Cartier-Fleming International Limited 518,606 12.04%
13C Chinaweal Centre
414-424 Jaffe Road
Wanchai, Hong Kong
</TABLE>
(1) Calculations based upon 4,307,158 shares outstanding on December 31, 1999.
(2) Represents 1,250,000 shares held by Gateway Worldwide Ltd., a British Virgin
Islands corporation owned 50-50 by Messieurs Hon and Wu.
(3) Represents 172,868 shares held by Critical Success Ltd., a British Virgin
Islands corporation, of which Mr. Chan is the sole shareholder.
16
<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 December 31, 1999. 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. 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>
Danny Wu 39 Chairman of the Board, Chief
Executive Officer and Secretary
Lawrence Hon 51 Director
Vincent Chan 36 Director
Steven Tang 44 Director
Chen Yuen Chen 29 Vice President - Business Department
Oscar Shen 25 Accounting and Finance Manager
</TABLE>
BACKGROUND AND EXPERIENCE
DANNY W. WU, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND SECRETARY
Mr. Wu was appointed Chairman, CEO and Secretary of the Company in March
1999. Mr. Wu has extensive experience in investing and operating in Asia. He
started as a credit officer in a bank in Hong Kong. In 1985, Mr. Wu later
joined Hong Kong Trade Development Council taking charge of promoting export
trade and investment of Hong Kong.
In 1990, he went private and joined Quanta Group, a Taiwanese conglomerate,
and were responsible for negotiating licensing and franchise agreements. Mr.
Wu also involved in planning and setting up joint venture enterprises in
China and Taiwan with multinational companies. He acquired knowledge and
experience in investing and operating under an international environment. His
projects included catering, cable manufacturing, gifts and premiums and
computer peripherals. Mr. Wu also participated in the financial and general
management in these companies.
17
<PAGE>
In 1994, Mr. Wu joined Sino-Wood Partners Limited in Hong Kong and was
responsible for business development. In 1995, Mr. Wu found an investment
company, and invested in a number of ventures in China, Hong Kong and the
U.S. Mr. Wu joined the Company in 1999. He is a graduate of University of
Hong Kong, with a degree in management studies and economics.
LAWRENCE HON , DIRECTOR
Mr. Hon was appointed a director of the Company in March 1999. Mr. Hon has
over twenty years of senior managerial experience, in trading and
manufacturing environment, covering different functions. He started his
career as a professional accountant. He served as accounting manager, company
secretary and financial controller in the early stage of his career.
Throughout his career, Mr. Hon has worked mainly for multinational companies.
In 1984, Mr. Hon joined Modern Printing Equipment Ltd. as the Financial
Director. Modern Printing was a subsidiary of KNP BT, a Dutch based
multinational group. KNP BT is the World's eighth largest forestry group
specializing in paper, packaging and printing business. He was promoted to
KNP BT's Regional Financial Director in 1986 and Deputy Managing Director of
Asian Operations in 1990, responsible for Hong Kong, China, Taiwan and Korea.
Between 1994 and 1996 Mr. Hon served as the Senior Vice President of
Sino-Forest Corporation, a company listed on the Toronto Stock Exchange. Mr.
Hon was in charge of tree plantation, which provide wood fiber for both
paper, packaging and panel-board production.
Mr. Hon is currently the CEO and President of AgroCan Corporation, a company
specialized in producing and distributing of fertilizers in China. Mr. Hon is
a professional accountant with fellowship in the respective accountants'
associations in Hong Kong and U.K. He also holds a MBA degree and a
professional qualification in Information Technology.
STEVEN TANG, DIRECTOR
Mr. Tang was appointed a director of the Company in March 1999. Mr. Tang is
the President of Viasystems Asia Pacific Ltd. based in Hong Kong. Viasystems
Asia Pacific Ltd. is the Asia subsidiary of Viasystems Group, Inc., with
sales turnover of over US$1.4 billion in the printed circuit board and
electronic assembly business. Steven has extensive experience operating in
China, Asia and USA. He was the managing director for Utilux Asia Ltd. for
five years since 1994. Previously, he was the general manager for Amphenol
East Asia Ltd. in the electronics and interconnect business. Steven has a
B.Sc. degree in electrical and electronics engineering from Nottingham
University and an MBA degree from Bradford University in the United Kingdom.
VINCENT C.H. CHAN, DIRECTOR
Mr. Chan was appointed a director of the Company in March 1999. Mr. Chan is
an investment director of a leading Asian direct investment firm. Formerly,
he served in various capacities in the financial field, including, corporate
finance and direct investment for Standard Chartered Asia Limited and HSBC
Private Equity Management Limited. He has over 11 years experience in direct
investments and merger and acquisition in Asia, including China. Mr. Chan was
graduated with a Bachelor of Arts degree in Geography and Economics from the
University of Hong Kong, and a MBA degree from the Manchester Business School
in the United Kingdom.
YUAN-CHENG CHEN, VICE PRESIDENT, BUSINESS DEVELOPMENT
Mr. Chen was appointed Vice President of Business Development for the Company
in March 1999. Mr. Chen is the VP, Business Development, and is responsible
for sales and market development for the Company's products of the Packaging
and Wood Divisions. Mr. Chen has a strong technical background
18
<PAGE>
and an extensive experience in printing and packaging industry in China.
Before joining the Company, Mr. Chen worked six years in a major toy
manufacturer in Guangzhou as the Marketing Manager. He managed a team of 30
sales and marketing personnel. He is a graduate of the Faculty of Electronics
of Beijing Printing Institute, majoring in electronic publishing.
OSCAR SHEN, ACCOUNTING AND FINANCE MANAGER
Mr. Shen was appointed Accounting and Finance Manager of the Company in March
1999. Mr. Shen was born in the U.S.A. and received his education in Hong Kong,
Canada and U.S.A. He is a graduate of University of Wisconsin-Madison, with an
accounting major. In 1995, he joined Lippo Asia Investment Management (HK)
Limited and was involved in financial analysis and corporate finance. He joined
Hong Kong Metal Work Co. Ltd. in 1996, and was involved in establishing a new
computerized accounting system for the accounting and shipping departments. Mr.
Shen joined Ernst and Young in 1997 as an auditor, and participated in auditing
of major listed companies in Hong Kong.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during
fiscal year ended December 31, 1998 to the Company's Chief Executive Officer. No
officer of the Company received annual compensation in excess of US$100,000 per
annum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION YEAR SALARY
------------------ ---- ------
<S> <C> <C>
Nils A. Ollquist(1), Chairman, President, Chief 1998 US$86,710
Executive Officer and Secretary 1997 US$88,258
</TABLE>
(1) Mr. Ollquist resigned as Chairman, President, Chief Executive Officer and
Secretary and Mr. Danny Wu became Chairman, Chief Executive Officer and
Secretary on March 20, 1999.
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, 1998, 12 meetings of the
Board of Directors were held; certain corporate actions were also conducted by
unanimous written consent of the Board of Directors. Directors receive no
compensation for serving on the Board of Directors, but are reimbursed for any
out-of-pocket expenses incurred in attending board meetings. The Company had no
audit, nominating or compensation committees, or committees performing similar
functions, during the year ended December 31, 1998.
19
<PAGE>
STOCK OPTION PLAN
As of December 31, 1999, the Company has not adopted a
stock option plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1998 and 1997, and at September 30, 1999
(unaudited) the Company has RMB 266,929, RMB 121,352 and RMB110,118,
respectively due from shareholders and RMB 500,037, RMB 818,891 and RMB451,512,
respectively, due from employees of the Company, which represent unsecured,
non-interest bearing advances, due on demand.
During the year ended December 31, 1998, net debt in the
amount of RMB 26,112,048 due to Wuhan Company was extinguished. When the Joint
Venture was formed in 1997, it owed Wuhan Company net current payables in excess
of RMB 33,000,000. In order to assist the economic viability of the Joint
Venture, effective December 31, 1998, Wuhan Company forgave a major portion of
the initial indebtedness. Because the debt forgiveness was made by a significant
equity investor in the Joint Venture, the Company has accounted for the debt
extinguishment as a capital contribution by Wuhan Company resulting in an
increase in minority interest of RMB 10,444,819 and an increase in capital in
excess of par of RMB 15,667,229.
At December 31, 1998 and 1997, and at September 30, 1999
(unaudited), the Company has RMB 4,730,373, RMB 32,610,380 and RMB 11,636,369,
respectively, due to Wuhan Company, which is unsecured, bears interest at the
current market rate (9.2% at December 31, 1997 and 5.8% at September 30, 1999)
and is due on demand. Interest expense related to this obligation was
approximately RMB 3,115,937, RMB 3,117,027, and RMB 2,336,952 for the year ended
December 31, 1998, the ten months ended December 31, 1997 and the nine months
ended September 31, 1999 (unaudited), respectively, and is included in total
debt amounts extinguished during 1998. The weighted average interest rate on the
short-term loans and the amount due to Wuhan Company was 9.54% at December 31,
1998 and 6.5% at September 30, 1999 (unaudited).
At December 31, 1998 and 1997, and at September 30, 1999
(unaudited), the Company has a receivable of RMB 1,634,478, RMB 1,135,377 and
RMB1,310,213, respectively, due from an affiliate of Wuhan Company. During the
year ended December 31, 1998, the ten months ended December 31, 1997, the two
months ended February 28, 1997 and the nine months ended September 30, 1999
(unaudited), the Company purchased RMB 4,551,242, RMB 15,239,725, RMB 2,790,271
and RMB 0, respectively, of raw material inventory and had net sales of RMB
4,905,190, RMB 18,211,179, RMB 3,486,087 and RMB 0, respectively, to this
affiliate.
During the nine months ended September 30, 1999, certain
shareholders made advances to the Company totaling RMB 677,023. The advances are
unsecured, noninterest bearing and are payable on demand.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Certificate of Incorporation
to issue an aggregate of 50,000,000 shares of common stock, par value US$0.0001
per share.
20
<PAGE>
The following summary descriptions are qualified in their
entirety by reference to the Company's Certificate of Incorporation, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of common
stock, par value US$0.0001 per share. As of December 31, 1999, 4,307,158 shares
of common stock were issued and outstanding. 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. 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. 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.
SECTION 203 OF DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66-2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person, who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
Section 203 may have a depressive effect on the market price of the common stock
and/or the Units.
TRANSFER AGENT
The Transfer Agent and Registrar for the common stock is U.S.
Stock Transfer Corporation, Glendale, California.
21
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company was formed on June 26, 1997. Since October, 1997,
the Company's common stock has been listed for trading on the OTC Electronic
Bulletin Board under the symbol "ORPK." The trading market is limited and
sporadic and should not be deemed to constitute an "established trading market."
In connection with the change of the Company's name to China Gateway, the
Company's symbol was changed to "CNGH" on December 13, 1999.
The following table sets forth the range of bid prices of the
Company's common stock as quoted on the OTC Electronic Bulletin Board during the
periods indicated. Such prices reflect prices between dealers in securities and
do not include any retail markup, markdown or commission and may not necessarily
represent actual transactions. The information set forth below was provided by
NASDAQ Trading & Market Services.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1998
First Quarter $9.99 $2.67
Second Quarter 6.25 4.50
Third Quarter 5.13 0.38
Fourth Quarter 2.88 1.13
FISCAL YEAR ENDED DECEMBER 31, 1999
First Quarter 2.00 .59
Second Quarter 3.59 .75
Third Quarter 2.25 .94
Fourth Quarter 2.44 .69
FISCAL YEAR ENDING DECEMBER 31, 2000
Period from January 1, 2000 to
January 6, 2000 .81 .56
</TABLE>
On January 6, 2000, the closing bid price for the common stock
as reported by OTC Electronic Bulletin Board was $.625.
As of December 31, 1999, the number of security holders of
record of the Company's common stock was 44. As of such date, 4,307,158 shares
were outstanding.
DIVIDEND POLICY
The Company has never paid dividends on the common stock and
does not anticipate paying dividends on its common stock in the foreseeable
future. It is the present policy of the Board of Directors to retain all
earnings to provide for the future growth of the Company. Earnings of the
Company, if any, not paid as dividends are expected to be retained to finance
the expansion of the Company's business. The payment of dividends on its common
stock in the future will depend on the
22
<PAGE>
results of operations, financial condition, capital expenditure plans and
other cash obligations of the Company and will be at the sole discretion of
the Board of Directors.
ITEM 2. LEGAL PROCEEDINGS
There are no pending proceedings against the Company or any of
its properties nor, to the knowledge of the Company, are any legal proceedings
threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following is information for all securities that the
Company has sold since inception without registering the securities under the
Securities Act:
1. On June 27, 1997, the Company issued a total of 2,310,000
shares of common stock, consisting of 1,684,856 shares of common stock to
Cartier-Fleming International Limited, 561,619 shares of common stock to
Critical Success Limited, 57,750 to Mr. Xiang Bin and 5,775 shares to Mr.
Lachlan J. Christie, in connection with the acquisition of 100% of the interest
in Orient Investments Limited. The shares were issued in a private transaction
not involving an offering pursuant to Section 4(2) of the Securities Act. This
transaction was characterized as a reincorporation and had no financial impact
on the Company.
2. On June 27, 1997, the Company issued 285,000 shares of
common stock to 4 unrelated accredited financial consultants of the Company for
services rendered in connection with the reincorporation discussed in
Transaction 1. The shares were issued pursuant to Rule 506 of Regulation D.
3. On June 27, 1997, the Company issued 180,000 shares of
common stock and an option to purchase 150,000 shares of common stock at $1.66
per share to an unrelated accredited financial consultant of the Company for
services rendered in connection with the reincorporation discussed in
Transaction 1. The common stock were issued pursuant to Rule 504 of Regulation D
and the option was issued pursuant to 4(2) of the Securities Act.
4. From July 1997 through March 1998, the Company issued an
aggregate of 317,700 shares of common stock to 23 accredited investors at $2.50
per share in a private placement, for an aggregate purchase price of $794,250.
The investors either had pre-existing personal or business relationships with
the Company's officers and/or directors or were introduced to the Company by
financial consultants of the Company who were affiliated with registered
broker-dealers. The offering was done pursuant to Rule 504 of Regulation D.
5. From January 1998 through May 1998, the Company issued
45,800 shares of common stock to 8 accredited investors at $2.50 per share in a
private placement, for an aggregate purchase price of $114,500. The investors
were introduced to the Company by financial consultants of the Company who were
affiliated with registered broker-dealers. The shares were issued pursuant to
Rule 506 of Regulation D.
6. From January 1998 through April 1998, the Company issued
23,050 shares of common stock to 12 accredited investors for $2.75 per shares in
a private placement, for an aggregate purchase of $63,387.50. The investors were
introduced to the Company by financial consultants of the
23
<PAGE>
Company who were affiliated with registered broker-dealers. The shares were
issued pursuant to Rule 504 of Regulation D.
7. On October 31, 1997, March 20, 1998 and April 3, 1998, the
Company issued warrants to an accredited unrelated financial consultant of the
Company to purchase 45,000, 30,000 and 45,000 shares, respectively, at the
exercise price of $.10 per share, for services rendered in connection with the
private placements described in Transactions 4, 5 and 6. The warrants were
issued pursuant to Rule 504 of Regulation D.
8. In March and April 1998, the warrants issued in Transaction
7 were exercised for an aggregate of 120,000 shares of common stock. The shares
were issued pursuant to Rule 504 of Regulation D.
9. On April 8, 1998, the option issued in Transaction 3 was
exercised pursuant to the cashless exercise provision as provided in the Stock
Option Agreement for an aggregate of 111,692 shares of common stock. The shares
were issued pursuant to Section 4(2) of the Securities Act.
10. On March 27, 1998, the Company issued 3,000 shares of
common stock and warrants to purchase 125,000 shares of common stock at $.10 per
share, which were immediately exercised, to an accredited investor for an
aggregate purchase price of $100,000. The investor had a pre-existing business
relationship with the Company. The 3,000 shares of common stock were issued
pursuant to Rule 504 of Regulation D and the warrants for the 125,0000 shares
and the 125,000 shares of common stock, were issued pursuant to Rule 506 of
Regulation D.
11. On April 16, 1998, the Company issued warrants to purchase
3,905 shares of common stock to an accredited investor in Transaction 4 as
compensation for services rendered in connection with Transaction 4. The
warrants were issued pursuant to Rule 504 of Regulation D.
12. On May 15, 1998, the Company issued 235,316 units, each
unit consisting of one share of common stock and a warrant to purchase one share
of common stock at the exercise price of $2.75 per share at $2.75 per unit in a
private placement to 24 accredited investors for an aggregate purchase price of
$647,119. The investors were introduced to the Company by financial consultants
of the Company who were affiliated with registered broker-dealers. The units
were issued pursuant to Rule 506 of Regulation D.
13. On August 10, 1998, the Company issued 15,000 shares of
common stock to an accredited unrelated financial consultant for financial
services rendered in connection with Transaction 12. The shares were issued
pursuant to Rule 504 of Regulation D.
14. In August and September 1998, the Company issued 10,600
shares of common stock to 3 accredited unrelated financial consultants for
services rendered in connection with Transaction 12. The shares were issued
pursuant to Rule 504 of Regulation D.
15. From September to November 1998, the Company issued
250,000 units, each unit consisting of one share of common stock and a warrant
to purchase one share of common stock at the exercise price of $.10, at $1.00
per unit to 4 accredited investors, for an aggregate purchase price of $250,000.
The investors were introduced to the Company by financial consultants of the
Company who were affiliated with registered broker-dealers. The units were
issued pursuant to Rule 504 of Regulation D.
24
<PAGE>
16. On November 5, 1998, the Company issued 20,000 units, each
unit consisting of one share of common stock and a warrant to purchase one share
of common stock at the exercise price of $.10, at $1.50 per unit to 1 accredited
investor, for an aggregate purchase price of $30,000. The investor was
introduced to the Company by a financial consultant of the Company who was
affiliated with a registered broker-dealer. The units were issued pursuant to
Rule 504 of Regulation D.
17. From September 1998 to January 1999, warrants issued in
Transactions 15 and 16 were exercised for an aggregate of 27,000 shares of
common stock. The shares were issued pursuant to Rule 504 of Regulation D.
18. From October to December 1998, the Company issued 35,000
shares of common stock to 2 accredited unrelated consultants to the Company for
services rendered in connection with Transaction 12. The shares were issued
pursuant to Rule 504 of Regulation D.
19. On December 18, 1998, the Company issued 30,000 shares to
an accredited unrelated advisor for investor relation services. The shares were
issued pursuant to Rule 504 of Regulation.
20. On December 8, 1998, the Company granted an option to an
employee to purchase 10,000 shares of common stock, at the exercise price of
$.10, as compensation. The option was issued pursuant to Rule 504 of Regulation
D.
21. On December 31, 1998, the option granted in Transaction 20
was exercised for 10,000 shares of common stock. The shares were issued pursuant
to Rule 504 of Regulation D.
22. On March 17, 1999, the Company issued 148,000 shares of
common stock to 2 accredited investors at $.50 per share, for an aggregate
purchase price of $74,000. The investors were introduced to the Company by
financial consultants of the Company who were affiliated with registered
broker-dealers. The shares were issued pursuant to Rule 504 of Regulation D.
23. On April 6, 1999, the Company issued 5,000 shares of
common stock to an accredited unrelated financial consultant for services
rendered in connection with Transaction 22. 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 because
the Company was not a development stage company, the aggregate amount of the
subject securities was less than $1,000,000 and the subject securities were,
sold to a limited group of persons, each of whom was believed to have been a
sophisticated investor or had a pre-existing business or personal relationship
with the Company or its Management and was purchasing for investment without a
view to further distribution. Restrictive legends were placed, as applicable, on
stock certificates evidencing the securities.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's 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
25
<PAGE>
involve intentional misconduct or a knowing and culpable violation of law,
that constitute an unexcused pattern or inattention that amounts to an
abdication of his or her duty to the Company or its stockholders, or that
show a reckless disregard for duty to the Company or its stockholders in
circumstances in which he or she was, or should have been aware, in the
ordinary course of performing his or her duties, of a risk of serious injury
to the Company or its stockholders, or (iii) based on transactions between
the Company and its directors or another corporation with interrelated
directors or based on improper distributions, loans or guarantees under
applicable sections of Delaware Law. This limitation of directors' liability
also does not affect the availability of equitable remedies, such as
injunctive relief or rescission.
The Company has been advised that it is the position of the
Commission that insofar as the provision in the Company's Certificate of
Incorporation may be invoked for liabilities arising under the Securities Act,
the provision is against public policy as expressed in the Securities Act and is
therefore unenforceable.
26
<PAGE>
==============================================================================
CHINA GATEWAY HOLDINGS, INC.
(FORMERLY ORIENT PACKAGING HOLDINGS LIMITED)
==============================================================================
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
TEN MONTHS ENDED DECEMBER 31, 1997,
TWO MONTHS ENDED FEBRUARY 28, 1997 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<PAGE>
==============================================================================
CHINA GATEWAY HOLDINGS, INC.
(FORMERLY ORIENT PACKAGING HOLDINGS LIMITED)
==============================================================================
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998,
TEN MONTHS ENDED DECEMBER 31, 1997,
TWO MONTHS ENDED FEBRUARY 28, 1997 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Independent auditors' report F-2
Consolidated balance sheets F-3
Consolidated statements of operations F-5
Consolidated statements of shareholders' equity and comprehensive income (loss) F-7
Consolidated statements of cash flows F-8
Notes to consolidated financial statements F-11
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
China Gateway Holdings, Inc.
(formerly Orient Packaging Holdings Limited)
We have audited the accompanying consolidated balance sheets of China Gateway
Holdings, Inc. (formerly Orient Packaging Holdings Limited) and subsidiaries
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and comprehensive income (loss), and cash
flows for the year ended December 31, 1998, the ten months ended December 31,
1997, and the two months ended February 28, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 China
Gateway Holdings, Inc. (formerly Orient Packaging Holdings Limited) and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the year ended December 31, 1998, the ten
months ended December 31, 1997, and the two months ended February 28, 1997,
in conformity with generally accepted accounting principles.
HORWATH GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
May 14, 1999
F-2
<PAGE>
==============================================================================
CHINA GATEWAY HOLDINGS, INC.
(FORMERLY ORIENT PACKAGING HOLDINGS LIMITED)
==============================================================================
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
----------------------------------------------- ---------------------------
1998 1998 1997 1999 1999
-------------- ----------- ------------ ------------ -----------
US DOLLARS RMB RMB US DOLLARS RMB
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash $ 284,556 2,355,811 1,361,250 $ 148,415 1,228,712
Receivables:
Trade, less allowance for
doubtful accounts (Note 3)
1999: RMB 1,487,950 (unaudited)
1998: RMB 1,370,787,
1997: RMB 3,221,347 3,308,086 27,387,313 35,431,639 3,333,911 27,601,115
Employees (Note 8) 60,399 500,037 818,891 54,538 451,512
Affiliates (Note 8) 229,669 1,901,407 1,256,729 171,560 1,420,331
Other (Note 3) 360,481 2,984,386 4,668,446 306,934 2,541,076
Inventories (Note 4) 1,461,351 12,098,379 21,664,375 654,139 5,415,551
Prepaid expenses and other 142,030 1,175,852 552,625 154,496 1,279,047
----------- ----------- ----------- ------------ -----------
Total current assets 5,846,572 48,403,185 65,753,955 4,823,993 39,937,344
----------- ----------- ----------- ------------ -----------
Property, plant and equipment, net
of accumulated depreciation
(Note 5) 1,102,627 9,128,539 7,315,749 1,018,458 8,431,712
----------- ----------- ----------- ------------ -----------
$ 6,949,199 57,531,724 73,069,704 $ 5,842,451 48,369,056
=========== =========== =========== ============ ===========
</TABLE>
(Continued)
F-3
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------------------------- ---------------------------
1998 1998 1997 1999 1999
------------ ----------- ----------- ------------ -----------
US DOLLARS RMB RMB US DOLLARS RMB
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term loans (Note 6) $ 148,215 1,227,057 2,503,539 $ 133,032 1,101,361
Accounts payable 2,036,802 16,862,480 14,078,667 1,716,492 14,210,675
Accrued expenses 1,110,032 9,189,844 5,384,067 307,180 2,543,113
Due to Joint Venturer (Note 8) 571,377 4,730,373 32,610,380 1,405,547 11,636,369
Due to related parties (Note 8) 80,569 667,023
Value added tax payable (Note 7) 349,483 2,893,335 1,848,422 369,495 3,059,012
----------- ----------- ----------- ------------ -----------
Total liabilities (all current) 4,215,909 34,903,089 56,425,075 4,012,315 33,217,553
----------- ----------- ----------- ------------ -----------
Minority interest 1,123,096 9,297,996 8,482,205 702,276 5,814,061
----------- ----------- ----------- ------------ -----------
Commitments and contingencies
(Notes 7, 10, and 11)
Shareholders' equity (Note 9):
Common stock, US $0.0001 par
value, authorized 50,000,000
shares; issued and outstanding:
1999: 4,307,158 shares, (unaudited)
1998: 4,154,158 shares,
1997: 2,987,000 shares 415 3,436 2,475 431 3,568
Capital in excess of par 3,805,561 31,505,861 6,071,555 3,879,561 32,118,499
Retained (deficit) earnings (2,198,452) (18,200,763) 2,070,255 (2,754,692) (22,805,819)
Other comprehensive income 2,670 22,105 18,139 2,560 21,194
----------- ----------- ----------- ------------ -----------
Total shareholders' equity 1,610,194 13,330,639 8,162,424 1,127,860 9,337,442
----------- ----------- ----------- ------------ -----------
$6,949,199 57,531,724 73,069,704 $ 5,842,451 48,369,056
=========== =========== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
The consolidated statements of operations for the two months ended February 28,
1997 reflect the operations of the predecessor Company; see Note 1 to the
consolidated financial statements.
<TABLE>
<CAPTION>
Ten months Two months
Year ended December 31, ended ended Nine Months ended September 30,
---------------------- December 31, February 28, ---------------------------------
1998 1998 1997 1997 1999 1999 1998
----------- ---------- ------------- ----------- ----------- ----------- ------------
US DOLLARS RMB RMB RMB US DOLLARS RMB RMB
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Substantially to a
related party (Note 8) $ 592,493 4,905,190 18,211,179 3,486,087 - - 2,605,196
Others 6,693,716 55,416,605 75,366,279 10,036,618 $ 5,152,857 42,659,988 40,477,695
------------ ------------ ------------ ------------ ------------ ------------ ------------
7,286,209 60,321,795 93,577,458 13,522,705 5,152,857 42,659,988 43,082,891
------------ ------------ ------------ ------------ ------------ ------------ ------------
Cost of sales:
Substantially to a related
party (Note 8) 549,740 4,551,242 15,239,725 2,790,271 - - 3,020,449
Others 7,485,569 61,972,277 61,903,090 10,097,153 4,615,199 38,208,771 40,946,529
------------ ------------ ------------ ------------ ------------ ------------ ------------
8,035,309 66,523,519 77,142,815 12,887,424 4,615,199 38,208,771 43,966,978
------------ ------------ ------------ ------------ ------------ ------------ ------------
Gross (loss) profit (749,100) (6,201,724) 16,434,643 635,281 537,658 4,451,217 (884,087)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing expenses 214,978 1,779,781 952,338 230,650 102,763 850,756 772,222
General and administrative
expenses 2,076,303 17,189,503 8,008,362 1,245,792 1,525,116 12,626,134 10,711,622
Rent expense, related party
(Note 11) 181,488 1,502,521 1,251,770 - 136,118 1,126,891 1,126,825
------------ ------------ ------------ ------------ ------------ ------------ ------------
2,472,769 20,471,805 10,212,470 1,476,442 1,763,997 14,603,781 12,610,669
------------ ------------ ------------ ------------ ------------ ------------ ------------
(Loss) income from operations (3,221,869) (26,673,529) 6,222,173 (841,161) (1,226,339) (10,152,564) (13,494,756)
------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
(Continued)
F-5
<PAGE>
The consolidated statements of operations for the two months ended February 28,
1997 reflect the operations of the predecessor Company, see Note 1 to the
consolidated financial statements.
<TABLE>
<CAPTION>
Ten months Two months
Year ended December 31, ended ended Nine Months ended September 30,
--------------------- December 31, February 28, ------------------------------
1998 1998 1997 1997 1999 1999 1998
------------ ------------ ------------ ------------ ----------- ------------- ------------
US DOLLARS RMB RMB RMB US DOLLARS RMB RMB
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Other income (expense):
Interest income $ 6,513 53,920 746,616 86,730 $ 818 6,773 43,108
Interest expense (Note 8) (421,408) (3,488,795) (3,567,295) (973,706) (87,963) (728,229) (2,370,274)
Commission income - - - - 336,405 2,785,030 -
Other 25,160 208,297 48,928 90,314 - - 6,748
----------- ----------- ----------- ----------- ----------- ----------- -----------
(389,735) (3,226,578) (2,771,751) (796,662) 249,260 2,063,574 (2,320,418)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) income before minority
interest (3,611,604) (29,900,107) 3,450,422 (1,637,823) (977,079) (8,088,990) (15,815,174)
Minority interest 1,163,088 9,629,089 (1,380,167) - 420,821 3,483,934 4,967,679
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net (loss) income $(2,448,516) (20,271,018) 2,070,255 (1,637,823) $ (556,258) (4,605,056) (10,847,495)
=========== =========== =========== =========== =========== =========== ===========
Basic net (loss) earnings per
common share $ (0.67) (5.60) 0.69 $ (0.13) (1.09) (3.04)
=========== =========== =========== =========== =========== ===========
Diluted net (loss) earnings per
common share $ (0.67) (5.60) 0.65 $ (0.13) (1.09) (3.04)
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(LOSS) (NOTE 1)
Year ended December 31, 1998, ten months ended December 31, 1997,
two months ended February 28, 1997, and the nine months ended
September 30, 1999 (unaudited)
(Expressed in Chinese Renminbi)
<TABLE>
<CAPTION>
Foreign
Common shares Retained currency
Predecessor ------------- Capital in earnings translation
equity Shares Amount excess of par (deficit) adjustments Total
----------- ----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
THE PREDECESSOR:
Balances at December 31, 1996 7,602,224 - - - - - 7,602,224
Comprehensive income (loss):
Net loss for the two months
ended February 28, 1997 (1,637,823) (1,637,823)
Other comprehensive income 6,665 6,665
Comprehensive loss - - - - - (1,631,158)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at February 28, 1997 5,971,066 - - - - - 5,971,066
=========== =========== =========== =========== =========== =========== ===========
THE COMPANY:
Issuance of common stock at
inception, March 1, 1997 2,310,000 2,301 1,653,479 - - 1,655,780
Issuance of common stock 677,000 174 4,418,076 4,418,250
Comprehensive income (loss):
Net income for the ten months
ended December 31, 1997 - - - 2,070,255 - 2,070,255
Other comprehensive income 18,139 18,139
Comprehensive income 2,088,394
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 2,987,000 2,475 6,071,555 2,070,255 18,139 8,162,424
Issuance of common stock 1,122,158 900 9,158,301 - - 9,159,201
Common stock issued for services 45,000 61 608,776 608,837
Extinguishment of debt by - - 15,667,229 15,667,229
Joint Venturer
Comprehensive income (loss):
Net loss for the year ended
December 31, 1998 (20,271,018) (20,271,018)
Other comprehensive income 3,966 3,966
Comprehensive loss - - - - - (20,267,052)
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 4,154,158 3,436 31,505,861 (18,200,763) 22,105 13,330,639
Issuance of common stock (unaudited) 153,000 132 612,638 612,770
Comprehensive income (loss):
Net loss for the nine months ended
September 30, 1999 (unaudited) (4,605,056) (4,605,056)
Other comprehensive income
(unaudited) (911) (911)
Comprehensive loss (unaudited) - - - - - (4,605,967)
----------- ----------- ----------- ----------- ----------- -----------
Balances at September 30, 1999
(unaudited) 4,307,158 3,568 32,118,499 (22,805,819) 21,194 9,377,442
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
The consolidated statements of cash flows for the two months ended February 28,
1997, reflect the operations of the predecessor Company; see Note 1 to the
consolidated financial statements.
<TABLE>
<CAPTION>
Ten months Two months
Year ended December 31, ended ended Nine months ended September 30,
------------------------ December 31, February 28, -------------------------------------
1998 1998 1997 1997 1999 1999 1998
----------- ----------- ------------ ------------ ------------ ----------- ------------
US DOLLARS RMB RMB RMB US DOLLARS RMB RMB
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(2,448,516) (20,271,018) 2,070,255 (1,637,823) $ (556,258) (4,605,056) (10,847,495)
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Depreciation 64,970 537,881 377,195 71,033 82,106 679,590 403,406
Gain on sale of property, plant and
equipment - - - - (14,161) (117,238) -
Minority interest (1,163,088) (9,629,089) 1,380,167 - (420,821) (3,483,934) (4,967,679)
Compensation expense related to stock
issuance 73,541 608,837 - - - - -
Decrease (increase) in assets
Receivables 409,774 3,392,478 (5,919,273) 2,718,998 91,692 759,109 1,409,946
Inventories 1,155,467 9,565,996 (10,118,538) (2,962,646) 807,212 6,682,828 2,676,908
Prepaid expenses and other (75,279) (623,227) 164,536 2,472,758 (12,465) (103,195) 807,814
Increase (decrease) in liabilities
Accounts payable 336,254 2,783,813 4,888,343 (2,268,368) (320,309) (2,651,805) 4,764,639
Accrued expenses 459,696 3,805,777 796,794 (3,374,811) (802,852) (6,646,731) 312,619
Amounts due to related parties 80,569 667,023 -
Value added tax payable 126,214 1,044,913 (1,949,789) - 20,012 165,677 860,302
----------- ----------- ----------- ----------- ----------- ---------- -----------
Net cash used in operating activities (1,060,967) (8,783,639) (8,310,310) (4,980,859) (1,045,275) (8,653,732) (4,579,540)
----------- ----------- ----------- ----------- ----------- ---------- -----------
Cash flows from investing activities:
Capital expenditures (283,935) (2,350,671) (590,906) - - - (2,302,370)
Sale of property, plant and
equipment - - - - 16,243 134,474 -
----------- ----------- ----------- ----------- ----------- ---------- -----------
Net cash (used in) provided by
investing activities (283,935) (2,350,671) (590,906) - 16,243 134,474 (2,302,370)
----------- ----------- ----------- ----------- ----------- ---------- -----------
</TABLE>
(Continued)
F-8
<PAGE>
The consolidated statements of cash flows for the two months ended February 28,
1997 reflect the operations of the predecessor Company, see Note 1 to the
consolidated financial statements.
<TABLE>
<CAPTION>
Ten months Two months
Year ended December 31, ended ended Nine months ended September 30,
------------------------ December 31, February 28, -------------------------------------
1998 1998 1997 1997 1999 1999 1998
----------- ----------- ------------ ------------ ------------ ----------- ------------
US DOLLARS RMB RMB RMB US DOLLARS RMB RMB
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Increase (decrease) in short-term
loans $ (154,185) (1,276,482) 2,503,539 (1,466,980) $ (15,183) (125,696) (299,572)
Increase in due to Joint Venturer 512,402 4,242,125 1,433,069 3,798,210 834,168 6,905,996 429,335
Issuance of common stock 1,106,338 9,159,262 6,074,030 - 74,016 612,770 7,931,501
----------- ----------- ----------- ----------- ----------- ----------- ----------
Net cash provided by financing
activities 1,464,555 12,124,905 10,010,638 2,331,230 893,001 7,393,070 8,061,264
----------- ----------- ----------- ----------- ----------- ----------- ----------
Effect of exchange rate changes on cash 479 3,966 - - (110) (911) 12,352
----------- ----------- ----------- ----------- ----------- ----------- ----------
Increase (decrease) in cash 120,132 994,561 1,109,422 (2,649,629) (136,141) (1,127,099) 1,191,706
Cash, beginning 164,424 1,361,250 251,828 2,901,456 284,556 2,355,811 1,361,250
----------- ----------- ----------- ----------- ----------- ----------- ----------
Cash, ending $ 284,556 2,355,811 1,361,250 251,827 $ 148,415 1,228,712 2,552,956
=========== =========== =========== =========== =========== =========== ==========
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 44,404 367,616 3,119,142 973,706 $ 87,963 728,229 2,370,274
=========== =========== =========== =========== =========== =========== ==========
</TABLE>
(Continued)
F-9
<PAGE>
The consolidated statements of cash flows for the two months ended February
28, 1997 reflect the operations of the predecessor Company, see Note 1 to the
consolidated financial statements.
Supplemental disclosure of noncash investing and financing activities:
Effective December 31, 1998, certain assets and liabilities related to the
Joint Venturer were extinguished as follows:
<TABLE>
<CAPTION>
RMB
-----------
<S> <C>
Receivables (6,010,084)
Due to joint venturer 32,122,132
-----------
26,112,048
===========
</TABLE>
On March 1, 1997, the Joint Venturer contributed the following assets, net of
certain liabilities, in exchange for a 40% equity interest in the Joint
Venture:
<TABLE>
<CAPTION>
RMB
------------
<S> <C>
Cash 251,828
Receivables 36,238,293
Inventories 11,545,837
Prepaid expenses 717,160
Building and equipment 7,102,038
Accounts payable and accrued expenses (13,777,596)
Short-term loans due to Joint Venturer (31,177,311)
Value added tax payable (3,798,210)
-----------
Net assets contributed 7,102,039
===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and basis of consolidated financial statements:
(a) The accompanying consolidated financial statements include the accounts of
China Gateway Holdings, Inc. (formerly Orient Packaging Holdings Limited),
the "Company" and its subsidiaries, Orient Investments Limited ("OIL"),
Orient Packaging Limited ("OPL"), and Wuhan Dong Feng Paper Company
Limited ("Wuhan Limited" or the "Joint Venture"), collectively referred to
as the "Group". The Company, OIL and OPL were formed for the purpose of
entering into a Joint Venture agreement with Wuhan Dong Feng Paper Mill
Company (the "Joint Venturer"). All significant intercompany transactions
have been eliminated in consolidation.
(b) The Company was incorporated in Delaware. Effective June 27, 1997, the
Company issued 2,310,000 shares of common stock to the shareholders of OIL
in exchange for their interests in OIL. Prior to the exchange, the Company
had no substantial operations and, under generally accepted accounting
principles, the transaction was accounted for as a recapitalization, as
the shareholders of OIL acquired all of the stock of the Company.
Accordingly, there was no revaluation of assets or liabilities for
financial statement accounting purposes. For financial reporting purposes,
the consolidated financial statements reflect the above-mentioned
reorganization similar to a pooling of interests, with assets and
liabilities recorded at historical cost. The consolidated financial
statements incorporate the results of operations and assets and
liabilities of the Company and its subsidiaries. OIL and OPL are
wholly-owned, British Virgin Islands incorporated companies. On December
20, 1996, OPL entered into a 30-year Joint Venture agreement with Wuhan
Dong Feng Paper Mill Company. Pursuant to the Joint Venture agreement,
Wuhan Limited was formed to engage in the manufacturing and sales of
cartonboard packaging materials, primarily used in consumer product
packaging for items such as beverages, dry foodstuffs, pharmaceutical
products and other consumer items. The Joint Venture commenced operations
in March 1, 1997. The Joint Venture facilities and operations are located
in the city of Wuhan, Hubei Province, People's Republic of China ("PRC").
(c) Pursuant to terms of the Joint Venture agreement, OPL acquired a 60%
interest in Wuhan Limited and the Joint Venturer acquired 40% in Wuhan
Limited. Profits and losses of Wuhan Limited are shared based on the
respective ownership interests, and the board of directors of Wuhan
Limited consists of ten members, six of which are appointed by OPL.
Minority interest represents the Joint Venturer's share of Wuhan Limited.
(d) Through December 31, 1997, OPL had contributed cash of RMB 4,876,893 to
Wuhan Limited, and the Joint Venturer had contributed a building and
machinery, accounts receivable and inventory, net of certain liabilities,
with a carrying value of RMB 7,102,039, which approximates fair value at
the date of contribution to Wuhan Limited. During 1998, OPL contributed
cash of RMB 5,752,718 as the remaining portion of its original capital
contribution to the Joint Venture. According to the Joint Venture
agreement, the Joint Venturer's initial forty percent ownership interest
was predicated upon its contributing current assets and current
liabilities of equal amount plus RMB 7,102,039 in property, plant and
equipment. In 1998, the Joint Venture agreement was amended, and OPL
agreed to contribute an additional RMB 34,362,000 and the Joint Venturer
agreed to contribute additional machinery and equipment valued at RMB
22,908,000. As of September 30, 1999 (unaudited), the Company had
contributed none of the additional agreed upon amounts. The parties are
negotiating a timetable for the Company to contribute the additional
agreed upon amounts.
F-11
<PAGE>
1. Organization and basis of consolidated financial statements (continued):
The statements of operations, equity and cash flows for the two months
ended February 28, 1997 reflect the operations of the predecessor (the
Joint Venturer). The Company had no significant operations prior to the
commencement of the Joint Venture in March 1997.
(e) The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP"),
and are presented in Chinese Renminbi ("RMB"), the national currency of
the PRC (note 2(e)).
(f) The consolidated balance sheet as of September 30, 1999, the consolidated
statements of operations and cash flows for the nine months ended
September 30, 1999 and 1998, and the consolidated statement of
shareholders' equity and comprehensive income (loss) for the nine months
ended September 30, 1999 have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all such periods have been made.
2. Principal accounting policies:
(a) The consolidated financial statements include the accounts of the Company
and its wholly and majority owned subsidiaries. Material intercompany
accounts have been eliminated on consolidation.
(b) Cash and cash equivalents:
For financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturities of three months or less to
be cash equivalents.
(c) Inventories:
Inventories are stated at the lower of cost or market. Cost includes the
cost of raw materials computed using the weighted average method and in
the case of finished goods, direct labor and an appropriate proportion of
production overhead.
(d) Property, plant and equipment:
Property, plant and equipment are stated at cost. Depreciation is provided
by use of the straight-line method over the estimated useful lives of the
related assets as follows:
Building 18 years
Office equipment 18 years
Machinery 16 years
F-12
<PAGE>
2. Principal accounting policies (continued):
(d) Property, plant and equipment (continued):
Repairs and maintenance costs are expensed when incurred.
Construction in progress represents building renovation and machinery
upgrades, which are not depreciated until placed into service.
Management assesses the carrying values of its long-lived assets for
impairment when circumstances warrant such a review. Generally, assets to
be used in operations are considered impaired if the sum of expected
undiscounted future cash flows is less than the assets' carrying values.
If an impairment is indicated, the loss is measured based on the amounts
by which the assets' carrying values exceed their fair values. Based on
its review, management does not believe any impairment has occurred as of
December 31, 1998 (or September 30, 1999, unaudited).
(e) Translation of foreign currencies:
Transactions and monetary assets and liabilities denominated in currencies
other than RMB are translated into RMB at the respective applicable rates
of exchange quoted by the People's Bank of China (the "Exchange Rate").
Monetary assets and liabilities denominated in other currencies are
translated into RMB at the applicable Exchange Rate at the respective
balance sheet dates. The resulting exchange gains or losses are credited
or charged to the consolidated statements of operations. Currency
translation adjustments arising from the use of different exchange rates
from period to period are included as a separate component in
shareholders' equity, and the amount was not material for any period
presented.
The translation of amounts from RMB into US Dollars for the convenience of
the reader has been made at the rate of exchange quoted by the People's
Bank of China on the respective balance sheet dates of US$1.00 equal RMB
8.28, and accordingly, differs from the underlying foreign currency
amounts. No representation is made that the RMB amounts could have been,
or could be, converted into US Dollars at that rate on the respective
balance sheet dates or at any other date.
(f) Income taxes:
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in the consolidated statement of operations in the period that
includes the enactment date.
F-13
<PAGE>
2. Principal accounting policies (continued):
(g) Earnings per share:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128 during 1997. This statement requires dual presentation of basic
and diluted earnings per share ("EPS") with a reconciliation of the
numerator and denominator of the EPS computations. Basic per share amounts
are based on the weighted average shares of common stock outstanding.
Diluted earnings per share assumes the conversion, exercise or issuance of
all potential common stock instruments such as options, warrants and
convertible securities, unless the effect is to reduce a loss or increase
earnings per share. Accordingly, this presentation has been adopted for
all periods presented. The basic and diluted weighted average shares
outstanding at December 31, 1998 and September 30, 1999 and 1998
(unaudited) are 3,616,745, 4,241,426 and 3,568,583, respectively. Options
and warrants to purchase common stock were not included in the computation
of diluted EPS for the year ended December 31, 1998 or the nine months
September 30, 1999 and 1998, (unaudited) because they would decrease the
loss per share. The basic and diluted weighted average shares outstanding
as of December 31, 1997 are 2,987,000 and 3,182,000, respectively.
The weighted average outstanding share calculations and the earnings
(loss) per share for each period presented have been calculated assuming
that the shares of stock and warrants issued in connection with the
formation of the Company and the shares of stock issued during the ten
months ended December 31, 1997, had been outstanding at March 1, 1997.
(h) Fair value of financial instruments:
The fair values of receivables from affiliates and amounts due to the
Joint Venturer and related parties are not practicable to estimate due to
the indefinite payment terms and due to the related party nature of the
underlying transactions. The carrying values of the Company's cash, other
receivables and other liabilities approximate fair values primarily
because of the short maturities of these instruments.
(i) Stock-based compensation:
SFAS No. 123, "Accounting for Stock-Based Compensation" allows companies
to choose whether to account for employee stock-based compensation on a
fair value method, or to account for such compensation under the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company has
chosen to account for employee stock-based compensation using APB 25.
F-14
<PAGE>
2. Principal accounting policies (continued):
(j) Recently issued 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's only current component of comprehensive income are foreign
currency translation adjustments. The Company adopted SFAS No. 130 for the
year beginning, January 1, 1998. The financial statements of earlier
periods have been reclassified to reflect the application of SFAS No. 130.
Adoption of SFAS No. 130 did not have a material effect on the Company's
financial statement presentation and disclosures.
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. 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 yers to be restated. The Company adopted SFAS No. 131 for the year
beginning January 1, 1998. The Company's results of operations and
financial position were not affected by implementation of SFAS No. 131 as
it operates in only one segment, cartonboard packaging materials.
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 adopted SFAS No. 132 for the
year beginning January 1, 1998. The Company's results of operations and
financial position were not affected by implementation of SFAS No. 132.
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, 2000. SFAS
No. 133 standardizes the accounting for derivative instruments, including
certain derivative instruments embeded in other contracts, by requiring
thant 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 certain hedging activities. The
Company currently does not have any derivative instruments nor is it
engaged in hedging activities, thus the Company does not believe
implementation of SFAS No. 133 will have a material impact on its
financial statement presentation or disclosures.
F-15
<PAGE>
2. Principal accounting policies (continued):
(k) Use of estimates in the preparation of financial statements:
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 periods. Management makes these estimates using the
best information available at the time the estimates are made; however
actual results could differ materially from these estimates.
(l) Risk considerations:
As a majority of the Company's operations are conducted in the PRC, the
Company is subject to special considerations and significant risks not
typically associated with investments in equity securities of North
American and Western European companies. The Company's operations may be
adversely affected by significant political, economic and social
uncertainties in the PRC. Although the PRC government has been pursuing
economic reform policies for the past several years, no assurance can be
given that the PRC government will continue to pursue such policies or
that such policies may not be significantly altered, especially in the
event of a change in leadership, social or political disruption or
unforeseen circumstances affecting the PRC's political, economic and
social life. There is also no guarantee that the PRC government's pursuit
of economic reforms will be consistent or effective.
The Company expects that substantially all of its revenues will be
denominated in RMB. A portion of such revenues will need to be converted
into other currencies to meet foreign currency obligations such as payment
of any dividends declared. Both the conversion of RMB into foreign
currencies and the remittance of foreign currencies abroad require PRC
government approval. No assurance can be given that the operating
subsidiaries within the Company will continue to be able to convert
sufficient amounts of foreign currencies in the PRC's foreign exchange
markets in the future for payment of dividends.
3. Significant concentrations:
The Company grants credit to its customers, generally without collateral.
The Company's customers are concentrated in the PRC. Approximately 15%,
19%, 22% and 9% of the Company's sales were generated from one customer
during the year ended December 31, 1998, the ten months ended December 31,
1997, the two months ended February 28, 1997, and the nine months ended
September 30, 1999 (unaudited), respectively. No other customer accounted
for over 10% of sales in any reporting period.
Bad debt expense was RMB 166,532, RMB 60,875, RMB 0 and RMB 117,163 for
the year ended December 31, 1998, the ten months ended December 31, 1997,
the two months ended February 28, 1997, and the nine months ended
September 30, 1999 (unaudited), respectively.
At December 31, 1998 and 1997, and at September 30, 1999 (unaudited),
approximately 30%, 32% and 33%, respectively, of net trade receivables
were due from five customers, of which one customer accounted for greater
than 10% of the net trade receivables balance. Other receivables at
December 31, 1998 and 1997, and at September 30, 1999 (unaudited),
primarily consist of RMB 2,777,737, RMB 4,388,065 and RMB 2,326,160
respectively, due from four, ten and four non-affiliated companies,
respectively. These receivables represent pending reimbursements for
utility and other services shared by these companies with the Company and
paid by the Company on behalf of these companies.
F-16
<PAGE>
4. Inventories:
At December 31, 1998 and 1997 and September 30, 1999 (unaudited),
inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------- -----------------------------
1998 1998 1997 1999 1999
---------- ------------- ------------ ------------ -----------
US DOLLARS RMB RMB US DOLLARS RMB
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Raw materials $ 885,590 7,331,711 14,212,852 $ 348,329 2,883,781
Finished goods 575,761 4,766,668 7,451,523 305,810 2,531,770
----------- ----------- ----------- ----------- -----------
$ 1,461,351 12,098,379 21,664,375 $ 654,139 5,415,551
=========== =========== =========== =========== ===========
</TABLE>
5. Property, plant and equipment:
At December 31, 1998 and 1997 and September 30, 1999 (unaudited),
property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------ -----------------------------
1998 1998 1997 1999 1999
--------- ------------- ------------ ------------ -----------
US DOLLARS RMB RMB US DOLLARS RMB
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Building $ 71,856 594,889 594,731 $ 71,995 596,041
Machinery 791,237 6,550,572 6,548,825 766,620 6,346,765
Office equipment 32,560 269,561 79,295 32,123 265,943
Construction in progress 317,505 2,628,592 470,092 340,338 2,817,629
----------- ----------- ----------- ----------- -----------
1,213,158 10,043,614 7,692,943 1,211,076 10,026,378
Less accumulated depreciation 110,531 915,075 377,194 192,618 1,594,666
----------- ----------- ----------- ----------- -----------
$ 1,102,627 9,128,539 7,315,749 $ 1,018,458 8,431,712
=========== =========== =========== =========== ===========
</TABLE>
6. Short-term loans:
Short-term loans represent borrowings from various banks in the PRC. The
maturities of these short-term borrowings are generally 90 to 120 days.
Interest rates are based on the banks' prime lending rates of 5.10% to
7.70% at December 31, 1998 and 4.90% to 7.10% at September 30, 1999
(unaudited).
7. Value added tax:
PRC joint ventures are subject to a value added tax ("VAT"), which is the
principal indirect tax on the sales of tangible goods. The general VAT
rate applicable to the Joint Venture is 17% of net sales.
8. Related party transactions:
At December 31, 1998 and 1997, and at September 30, 1999 (unaudited), the
Company has RMB 266,929, RMB 121,352 and RMB 110,118, respectively, due
from shareholders and RMB 500,037, RMB 818,891 and RMB 451,512,
respectively, due from employees of the Company, which represent
unsecured, non-interest bearing advances, due on demand.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Related party transactions (continued):
During the year ended December 31, 1998, net debt in the amount of RMB
26,112,048 due to the Joint Venturer was extinguished. When the Joint
Venture was formed in 1997, it owed the Joint Venturer net current
payables in excess of RMB 33,000,000. In order to assist the economic
viability of the Joint Venture, effective December 31, 1998, the Joint
Venturer forgave a major portion of the initial indebtedness. Because the
debt forgiveness was made by a significant equity investor in the Joint
Venture, the Company has accounted for the debt extinguishment as a
capital contribution by the Joint Venturer resulting in an increase in
minority interest of RMB 10,444,819 and an increase in capital in excess
of par of RMB 15,667,229.
At December 31, 1998 and 1997, and at September 30, 1999 (unaudited),
the Company has RMB 4,730,373, RMB 32,610,380 and RMB 11,636,369,
respectively, due to the Joint Venturer, which is unsecured, bears
interest at the current market rate (9.2% at December 31, 1998 and 5.8%
at September 30, 1999) and is due on demand. Interest expense related
to this obligation was approximately RMB 3,115,937, RMB 3,117,027, and
RMB 2,336,952 for the year ended December 31, 1998, the ten months
ended December 31, 1997 and the nine months ended September 30, 1999
(unaudited), respectively, and is included in total debt amounts
extinguished during 1998. The weighted average interest rate on the
short-term loans and the amount due to the Joint Venturer was 9.54% at
December 31, 1998 and 6.5% at September 30, 1999 (unaudited).
At December 31, 1998 and 1997, and at September 30, 1999 (unaudited), the
Company has a receivable of RMB 1,634,478, RMB 1,135,377 and RMB
1,310,213, respectively, due from an affiliate of the Joint Venturer.
During the year ended December 31, 1998, the ten months ended December 31,
1997, the two months ended February 28, 1997 and the nine months ended
September 30, 1999 (unaudited), the Company purchased RMB 4,551,242, RMB
15,239,725, RMB 2,790,271 and RMB 0, respectively, of raw material
inventory and had net sales of RMB 4,905,190, RMB 18,211,179, RMB
3,486,087 and RMB 0, respectively, to this affiliate.
During the nine months ended September 30, 1999, certain shareholders made
advances to the Company totaling RMB 667,023. The advances are unsecured,
noninterest bearing and are payable on demand (unaudited).
9. Shareholders' equity:
Effective March 1, 1997, the Company issued 2,310,000 shares of common
stock for RMB 1,655,780, the historical cost basis of the net assets of
OIL on that date. During the year ended December 31, 1997, the Company
issued an additional 677,000 common shares under a private placement for
net consideration of RMB 4,418,250. A total of 212,000 shares of stock
were sold for RMB 4,393,414. Entities arranging the private placement
received 285,000 shares for their services, and paid the Company a nominal
amount of RMB 24,836 for an additional 180,000 shares.
During the year ended December 31, 1998, the Company issued a total of
1,167,158 shares for net consideration of RMB 9,159,201. A total of
682,866 shares were issued in private placements at prices ranging from US
$.78 per share to US $2.75 per share. In addition, 55,600 shares were
issued to investment bankers in connection with the 1997 and 1998 private
placements, 35,000 shares were issued for investment services, 10,000
shares were issued to an employee in exercise of an option issued for
services, 272,000 shares were issued as a result of warrant exercises and
111,692 shares were issued as a result of an option exercise. The 35,000
shares issued for investment services were valued at the market value at
the date of issue, and resulted in an expense of US $52,500 (RMB 434,642).
The stock issued to an employee resulted in compensation expense of
$21,031 (RMB 174,113) for the difference between the market value of the
stock at the date the option was granted and the exercise price. The
warrants and the option which were exercised had been issued in connection
with the original formation of the Company or subsequent stock issuance
transactions, and resulted in net proceeds to the Company of US $14,700
(RHB 121,716).
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Shareholders' equity (continued):
In connection with the 1997 and 1998 private placements, the Company
issued warrants to purchase 518,905 common shares of the Company at an
exercise price of US$0.10 (RMB 0.83) each and an option to purchase
150,000 shares at an exercise price of $1.66 (RMB 13.74). The warrants
expire April 2000 and 272,000 warrants were exercised in 1998. Also,
during the year ended December 31, 1998, the Company issued warrants to
purchase 235,316 common shares of the Company at US$2.75 (RMB 22.77) per
share. These warrants expire in March 2003. The option was exercised in
1998 and 111,692 shares were issued as a result.
At December 31, 1998 and September 30, 1999 (unaudited) warrants to
purchase 246,905 common shares of the Company at an exercise price of US
$0.10 (RMB 0.83) per share and warrants to purchase 235,316 common shares
of the Company at an exercise price of US $2.75 (RMB 22.77) per share
remain outstanding.
The following table summarizes stock option and warrant activity for the
ten months ended December 31, 1997, the year ended December 31, 1998 and
the nine months ended September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Warrants
-------------------------------------------------- --------------------------------------------------
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
---------- ----------- ---------- ---------- ---------- ---------- --------- -----------
US US US US
DOLLARS DOLLARS DOLLARS DOLLARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
March 1, 1997 - - - - - - - -
Granted 150,000 $ 1.66 45,000 $ 0.10 - -
Exercised - - - - - - - -
Forfeited - - - - - - - -
------- ----- ------- ----- ------- ----- ------- -----
Outstanding at
December 31, 1997 150,000 1.66 - - 45,000 0.10 - -
Granted 10,000 $ .10 473,905 0.10 235,316 $ 2.75
Exercised 111,692 1.66 10,000 .10 272,000 0.10 - -
Forfeited 38,308 1.66 - - - - - -
------- ----- ------- ----- ------- ----- ------- -----
Outstanding at
December 31, 1998 - - - - 246,905 0.10 235,316 2.75
Granted (unaudited) - - - - - - - -
Exercised
(unaudited) - - - - - - - -
------- ----- ------- ----- ------- ----- ------- -----
Outstanding at
September 30, 1999
(unaudited) - $ - - $ - 246,905 $ 0.10 235,316 $ 2.75
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
PRC rules and regulations governing joint ventures require allocations of
a portion of annual net income, if any, to three reserve funds; a general
reserve fund, an expansion fund and a welfare fund. The amounts to be
reserved are stipulated by PRC laws and regulations. The allocation
between required reserves is at the discretion of the board of directors.
These reserves cannot be used for purposes other than those for which they
are created and are not distributable as cash dividends.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Shareholders' equity (continued):
Pursuant to the joint venture agreement, the profit and loss allocation of
Wuhan Limited is subject to certain provisions. With the exception of the
first year of operations, allocation to the Joint Venture parties of
annual after-tax profits of the Joint Venture, after the deduction of
contributions to the reserve funds described above, shall be decided by
the board of directors according to the relative investments of the two
parties.
10. Income tax:
The Group is subject to income taxes on an entity basis on income arising
in or derived from the tax jurisdiction in which each entity is domiciled.
The Company's British Virgin Islands subsidiaries are not liable for
income taxes. The Joint Venture is subject to income taxes at an effective
rate of 33% (30% Chinese national income tax plus 3% Chinese local income
tax). However, newly-established joint ventures are exempt from income tax
in the first two years starting from the first year of profitable
operations, as well as being allowed a 50% reduction in tax in the third,
fourth and fifth years of profitable operations. Losses incurred by joint
ventures may be carried forward for five years. Deferred tax assets and
liabilities are not considered material at December 31, 1998 and 1997 or
at September 30, 1999 (unaudited). The reconciliation between the
effective tax rate and the statutory U.S. federal income tax rate is as
follows:
<TABLE>
<CAPTION>
Ten months Two months Nine months
Year ended ended ended ended
December 31, December 31, February 28, September 30,
1998 1997 1997 1999
--------------- --------------- ---------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Statutory U.S. federal tax rate 34% 34% 34% 34%
Difference in foreign statutory rates (1) (1) (1) (1)
Income tax exemption (33) (33) (33) -
Losses carried forward - - - (33)
--------------- --------------- ---------------- ---------------
Effective tax rate -% -% -% -%
=============== =============== ================ ===============
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Commitments and contingencies:
(a) Land and building lease with Joint Venturer:
In connection with the Joint Venture agreement, Wuhan Limited
entered into a 30-year cancelable lease with the Joint Venturer,
which expires in 2027. Under this agreement, Wuhan Limited is
leasing land and factory buildings from the Joint Venturer. Future
minimum lease payments are as follows:
<TABLE>
<CAPTION>
RMB
------------------
<S> <C>
1999 1,502,521
2000 1,502,521
2001 1,502,521
2002 1,502,521
2003 1,502,521
Thereafter 34,808,445
------------------
42,321,050
==================
</TABLE>
Lease expense for the year ended December 31, 1998, the ten months
ended December 31, 1997, the two months ended February 28, 1997
and the nine months ended September 30, 1999 (unaudited) was RMB
1,502,521, RMB 1,251,770, RMB 0 and RMB 1,126,891, respectively.
(b) Land and building lease with Joint Venturer (continued):
Pursuant to the Joint Venture agreement, the Joint Venturer is to
contribute the factory buildings under the lease by March 31,
1999, and continue leasing the land to Wuhan Limited.
(c) Other commitments:
Wuhan Limited is subject to certain labor contracts which require
it to fund various Chinese state-sponsored pension and
post-employment benefits. Pursuant to the Joint Venture agreement,
Wuhan Limited is to make monthly contributions equivalent to 29%
of the Joint Venture's annual wages. In addition, Wuhan Limited is
to make monthly payments of approximately RMB 60,435 to the Joint
Venturer for medical and insurance provisions, which are
administered by the Joint Venturer. Beginning in July 1998, the
Joint Venture is required to make monthly payments of
approximately RMB 116,730 to the Joint Venturer for medical and
pension allowances for terminated joint venture staff.
F-21
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Title
- ------- ------
<S> <C>
3.1 Certificate of Incorporation as filed with the Delaware
Secretary of State on June 27, 1997
3.2 By-laws
10.1 Joint Venture with Wuhan Dong Feng Paper Mill Company for
establishment of Wuhan Dong Feng Paper Company Limited
10.2 Tenancy Agreement
10.3 Agreement Associated with Amending the Joint Venture
Agreement and Articles of Association
10.4 Purchase Agreement with Gamma Link Enterprises Corp.
10.5 Amendment to the Joint Venture Agreement
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule
</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, thereonto duly authorized
Date: January 7, 2000
CHINA GATEWAY HOLDINGS INC.
By: /s/ Danny Wu
---------------------------------
Danny Wu
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND SECRETARY
III-2
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ORIENT PACKAGING HOLDINGS LTD.
(A DELAWARE CORPORATION)
FIRST: The name of the corporation is Orient Packaging Holdings Ltd.
SECOND: The address of the registered office of the corporation in
the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The
name of the registered agent of the corporation at such address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation
is authorized to issue is 50,000,000 shares of common stock with a par value
of $.0001 per share.
FIFTH: The business and affairs of the corporation shall be
managed by the board of directors, and the directors need not be elected by
ballot unless required by the by-laws of the corporation.
SIXTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the board of directors is
expressly authorized to adopt, amend or repeal the by-laws.
SEVENTH: The corporation reserves the right to amend and repeal any
provision contained in this certificate of incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein conferred
are granted subject to this reservation.
<PAGE>
EIGHTH: The incorporator is Gina Griffin, whose mailing address is
Loeb & Loeb LLP, 1000 Wilshire Boulevard, Suite 1800, Los Angeles, California
90017-2475.
NINTH: A Director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any 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) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit. If the Delaware General
Corporation Law is amended after the filing of this Certificate of
Incorporation to the effect that the personal liability of the directors is
further eliminated or limited, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted
then by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification.
I, the undersigned, being the incorporator, for the purpose of
forming a corporation under the laws of the State of Delaware, do make, file
and record this certificate of incorporation, do certify that the facts
herein stated are true, and, accordingly, have hereto set my hand and seal
this 26th day of June 1997.
/s/Gina Griffin
-------------------------------
Gina Griffin, Incorporator
2
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF ORIENT PACKAGING HOLDINGS LTD.
We, the undersigned, being the President and Secretary, respectively, of
Orient Packaging Holdings Ltd. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation law of the State
of Delaware,
DO HEREBY CERTIFY:
FIRST: That Article First of the Certificate of Incorporation of the
Corporation is hereby amended to read as follows:
"First: The name of the corporation is China Gateway Holdings Inc."
SECOND: That the Board of Directors of the Corporation duly adopted
the foregoing amendment to the Certificate of Incorporation of the
Corporation by unanimous written consent on November 19, 1999, in accordance
with Section 141(f) of the General Corporation Law of the State of Delaware.
THIRD: That the stockholders of the Corporation duly adopted the
foregoing amendment to the Certificate of Incorporation of the Corporation by
written consent in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.
FOURTH: That the foregoing amendment to the Certificate of
Incorporation of the Corporation was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
The undersigned further declare 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 their own knowledge.
Dated: December 1, 1999
/s/ Nils A. Ollquist
------------------------------
Nils A. Ollquist, President
/s/ Danny Wu
------------------------------
Danny Wu, Secretary
<PAGE>
BY-LAWS
OF
ORIENT PACKAGING HOLDINGS LTD.
(A DELAWARE CORPORATION)
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING.
An annual meeting of the stockholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such
place, on such date, and at such time as the Board of Directors shall each
year fix, which date shall be within thirteen (13) months of the last annual
meeting of stockholders or, if no such meeting has been held, the date of
incorporation.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of
Directors or the chief executive officer and shall be held at such place, on
such date, and at such time as they or he or she shall fix.
SECTION 3. NOTICE OF MEETINGS.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time
by the Delaware General Corporation Law or the Certificate of Incorporation
of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally noticed,
or if a new record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be transacted
which might have been transacted at the original meeting.
SECTION 4. QUORUM.
At any meeting of the stockholders, the holders of a majority of all
of the shares of the stock entitled to vote at the meeting, present in person
or by proxy, shall constitute a quorum for all purposes, unless or except to
the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares
of such
<PAGE>
class or classes present in person or represented by proxy shall constitute a
quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
SECTION 5. ORGANIZATION.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the chief executive officer of the Corporation or,
in his or her absence, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation,
the secretary of the meeting shall be such person as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her
in order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
SECTION 7. PROXIES AND VOTING.
At any meeting of the stockholders, every stockholder entitled to
vote may vote in person or by proxy authorized by an instrument in writing or
by a transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of
the entire original writing or transmission.
All voting, including on the election of directors but excepting
where otherwise required by law, may be by a voice vote; provided, however,
that upon demand therefore by a stockholder entitled to vote or by his or her
proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. The Corporation may, and to the extent required
by law, shall, in advance of any meeting of stockholders, appoint one (1) or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one (1) or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the person presiding at the meeting may,
and to the extent required by law, shall, appoint one (1) or more inspectors
to act at the meeting. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector
2
<PAGE>
with strict impartiality and according to the best of his ability. Every vote
taken by ballots shall be counted by an inspector or inspectors appointed by
the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law, all other matters shall be
determined by a majority of the votes cast affirmatively or negatively.
SECTION 8. STOCK LIST.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) 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 stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents 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 and shall be delivered
to the Corporation by delivery to its registered office in Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be made
by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty (60)
days of the date the earliest dated consent is delivered to the Corporation,
a written consent or consents signed by a sufficient number of holders to
take action are delivered to the Corporation in the manner prescribed in the
first paragraph of this Section.
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE.
The number of directors who shall constitute the whole Board shall
be such number as the Board of Directors shall from time to time have
designated, except that in the absence of any
3
<PAGE>
such designation, such number shall be one (1). Each director shall be
elected for a term of one (1) year and until his or her successor is elected
and qualified, except as otherwise provided herein or required by law.
Whenever the authorized number of directors is increased between
annual meetings of the stockholders, a majority of the directors then in
office shall have the power to elect such new directors for the balance of a
term and until their successors are elected and qualified. Any decrease in
the authorized number of directors shall not become effective until the
expiration of the term of the directors then in office unless, at the time of
such decrease, there shall be vacancies on the board which are being
eliminated by the decrease.
SECTION 2. VACANCIES.
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected
and qualified.
SECTION 3. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at such
place or places, on such date or dates, and at such time or times as shall
have been established by the Board of Directors and publicized among all
directors. A notice of each regular meeting shall not be required.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the chief executive officer and shall be held at such place, on such date,
and at such time as they or he or she shall fix. Notice of the place, date, and
time of each such special meeting shall be given each director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
SECTION 5. QUORUM.
At any meeting of the Board of Directors, a majority of the total
number of the whole Board shall constitute a quorum for all purposes. If a
quorum shall fail to attend any meeting, a majority of those present may adjourn
the meeting to another place, date, or time, without further notice or waiver
thereof.
SECTION 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
4
<PAGE>
SECTION 7. CONDUCT OF BUSINESS.
At any meeting of the Board of Directors, business shall be
transacted in such order and manner as the Board may from time to time
determine, and all matters shall be determined by the vote of a majority of
the directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
SECTION 8. POWERS.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent
with these By-laws, for the management of the Corporation's business and
affairs.
SECTION 9. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, their services as members of
committees of the Board of Directors.
5
<PAGE>
ARTICLE III - COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors may designate one (1) or more committees,
each committee to consist of one (1) or more of the directors of the
Corporation. The board may designate one (1) or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified number.
Any such committee, to the extent provided in the resolution of the Board of
Directors, or in the By-laws of the Corporation, shall have and may exercise
all the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal of
the Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by law to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any By-law of the
Corporation.
SECTION 2. CONDUCT OF BUSINESS.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be
made for notice to members of all meetings; one-third (1/3) of the members
shall constitute a quorum unless the committee shall consist of one (1) or
two (2) members, in which event one (1) member shall constitute a quorum; and
all matters shall be determined by a majority vote of the members present.
Action may be taken by any committee without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
ARTICLE IV - OFFICERS
SECTION 1. GENERALLY.
The officers of the Corporation shall consist of a President, a
Secretary, a Chief Financial Officer and such other officers as may from time
to time be appointed by the Board of Directors. The Corporation may also
have, at the discretion of the board, a Chairman of the Board, one (1) or
more Vice Presidents, one (1) or more Assistant Secretaries, a Treasurer and
one (1) or more Assistant Treasurers. Any number of offices may be held by
the same person. Officers shall be elected by the Board of Directors, which
shall consider that subject at its first meeting after every annual meeting
of stockholders. Each officer shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal.
SECTION 2. CHAIRMAN OF THE BOARD.
The Chairman of the Board, if any, shall, if present, preside at
meetings of the Board of Directors and exercise and perform such other powers
and duties as may from time to time be
6
<PAGE>
assigned to him or her by the Board of Directors. If there is no President,
the Chairman of the Board shall in addition be the chief executive officer of
the Corporation and shall have the powers and duties prescribed in Section 3
of this Article.
SECTION 3. PRESIDENT.
The President shall be the chief executive officer of the
Corporation. Subject to the provisions of these By-laws and to the direction
of the Board of Directors, he or she shall have the responsibility for the
general management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident
to the office of chief executive or which are delegated to him or her by the
Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the
other officers, employees and agents of the Corporation.
SECTION 4. VICE PRESIDENT.
Each Vice President, if any, shall have such powers and duties as
may be delegated to him or her by the Board of Directors. One (1) Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
SECTION 5. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer of the Corporation shall have the
responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized by the Board, taking proper vouchers or receipts for such
disbursements, and shall render to the Chairman, the President and the Board
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Chief Financial Officer shall also perform
such other duties as the Board of Directors may from time to time prescribe.
SECTION 6. SECRETARY.
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He
or she shall have charge of the corporate books and shall perform such other
duties as the Board of Directors may from time to time prescribe.
SECTION 7. DELEGATION OF AUTHORITY.
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officers or agents, notwithstanding any
provision hereof.
SECTION 8. REMOVAL.
Any officer of the Corporation may be removed at any time, with or
without cause, by the Board of Directors.
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SECTION 9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President
or any officer of the Corporation authorized by the President shall have
power to vote and otherwise act on behalf of the Corporation, in person or by
proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which the Corporation may hold
securities and otherwise to exercise any and all rights and powers which the
Corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE V - STOCK
SECTION 1. CERTIFICATES OF STOCK.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
SECTION 2. TRANSFERS OF STOCK.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall
be surrendered for cancellation before a new certificate is issued therefor.
SECTION 3. RECORD DATE.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders, or to
receive payment of any dividend or other distribution or allotment of any
rights or 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 fix a record date, which record date shall not precede the date
on which the resolution fixing the record date is adopted and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to
the time for such other action as hereinbefore described; provided, however,
that if no record date is fixed by the Board of Directors, 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, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of
change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
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.
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In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall be not more than ten (10) days after
the date upon which the resolution fixing the record date is adopted. If no
record date has been fixed by the Board of Directors and no prior action by
the Board of Directors is required by the Delaware General Corporation Law,
the record date shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation in the manner prescribed by Article I, Section 9 hereof. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by the Delaware General Corporation Law with
respect to the proposed action by written consent of the stockholders, the
record date for determining stockholders entitled to consent to corporate
action in writing shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
SECTION 5. REGULATIONS.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors
may establish.
ARTICLE VI - NOTICES
SECTION 1. NOTICES.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing
such notice in the mails, postage paid, or by sending such notice by prepaid
telegram or mailgram. Any such notice shall be addressed to such stockholder,
director, officer, employee or agent at his or her last known address as the
same appears on the books of the Corporation. The time when such notice is
received, if hand delivered, or dispatched, if delivered through the mails or
by telegram or mailgram, shall be the time of the giving of the notice.
SECTION 2. WAIVERS.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee or
agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
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ARTICLE VII - MISCELLANEOUS
SECTION 1. FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these By-laws, facsimile signatures of
any officer or officers of the Corporation may be used whenever and as
authorized by the Board of Directors or a committee thereof.
SECTION 2. CORPORATE SEAL.
The Board of Directors may provide a suitable seal, containing the
name of the Corporation, which seal shall be in the charge of the Secretary.
If and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
SECTION 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each director, each member of any committee designated by the Board
of Directors, and each officer of the Corporation shall, in the performance
of his or her duties, be fully protected in relying in good faith upon the
books of account or other records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by
any of its officers or employees, or committees of the Board of Directors so
designated, or by any other person as to matters which such director or
committee member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
SECTION 5. TIME PERIODS.
In applying any provision of these By-laws which requires that an
act be done or not be done a specified number of days prior to an event or
that an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. RIGHT TO INDEMNIFICATION.
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or
an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a
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director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section 3 of this ARTICLE VIII with
respect to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
SECTION 2. RIGHT TO ADVANCEMENT OF EXPENSES.
The right to indemnification conferred in Section 1 of this ARTICLE
VIII shall include the right to be paid by the Corporation the expenses
(including attorney's fees) incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section 2 or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections 1 and 2 of this ARTICLE VIII shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
SECTION 3. RIGHT OF INDEMNITEE TO BRING SUIT.
If a claim under Section 1 or 2 of this ARTICLE VIII is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty (20) days,
the indemnitee may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim. If successful in whole or in part
in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board
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of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders) that
the indemnitee has not met such applicable standard of conduct, shall create
a presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses hereunder, or
brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
ARTICLE VIII or otherwise shall be on the Corporation.
SECTION 4. NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification and to the advancement of expenses
conferred in this ARTICLE VIII shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, By-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 5. INSURANCE.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
SECTION 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
ARTICLE IX - AMENDMENTS
These By-laws may be amended or repealed by the Board of Directors
at any meeting or by the stockholders at any meeting.
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EXHIBIT 10.1
JOINT VENTURE AGREEMENT
CHAPTER 1 GENERAL PROVISIONS
In accordance with the "People's Republic of China on Joint Venture Using
Chinese and Foreign Investment" and other relevant Chinese laws and
regulations, Wuhan Dongfeng paper Mill Company and Orient Financial Services
Ltd., adhering to the principle of equality and mutual benefit and through
friendly consultations, agree to jointly invest to set up a joint venture
enterprise in Wuhan the People's Republic of China. The contract hereunder is
worked out.
CHAPTER 2 PARTIES AND THE JOINT VENTURE
ARTICLE 1
Parties of this contract are as follows : Wuhan Dongfeng Paper Mill Company
(hereafter referred to as Party!), registered at Wuhan City, China and its
legal address is at 61 Hanxier Road, Qiaokou District, Wuhan City, Hubei
Province, China
Legal representative : Name : Li Yi Chun
Position : General Manager
Nationality: Chinese
Qrient Financial Services Ltd. (hereafter refereed to as Party B), registered
with the Hong Kong Securities & Futures Commission. Its legal address at 13C,
chinaweal Center, 414-424 Jaffe Road, Wanchai, Hong Kong.
Legal representative : Name : Nils A Olliquist
Position : Managing Director
Nationality : Australian
CHAPTER 3 ESTABLISHMENT OF THE JOINT VENTURE COMPANY
In accordance with the Law of the People's Republic of China on Joint
Ventures Using Chinese and Foreign Investment" and other relevant Chinese
laws and regulations, both parties of the joint venture agrees to set up a
joint venture limited liability company (hereinafter referred to as the joint
venture company) at Wuhan City.
ARTICLE 2
The name of the joint venture company is Wuhan Dong Feng Paper Limited
Liability Company.
The legal address of the joint venture company is at 12 Jianyi Road, Qiaokou
District, Wuhan, Hebei Province, China.
<PAGE>
ARTICLE 3
All activities of the joint venture company shall be governed by the laws,
decrees and pertinent rules and regulations of the People's Republic of China.
ARTICLE 4
The organisation form of the joint venture company is a limited liability
company. Each party to the joint venture company is liable to the joint
venture company within the limit of the capital subscribed by it. The
profits, risks and losses of the joint venture company shall be shared by the
parities in proportion to their contribution of the registered capital.
ARTICLE 5
The joint venture is an independent organisation with the authority as
described in this contract and articles of association to independently carry
out production, sales and business activities.
ARTICLE 6
The joint venture will lease Party A's land use right to carry out business.
(Refer attachment concerning land and building lease agreement).
CHAPTER 4 THE PURPOSE, SCOPE AND SCALE AND PRODUCTION AND BUSINESS
ARTICLE 7
The purpose of the joint venture is to facilitate the transformation of this
business into one of the leading manufacturers and suppliers of paperboard
packaging in China through the application of additional capital and
international management expertise to provide a satisfactory return for the
investors
ARTICLE 8
The productive and business scope of the joint venture company is to expand
and improve on the production of the paperboard packaging products currently
manufactured by Party A and develop raw material supply and new products.
ARTICLE 9
The production scale of the joint venture company is as follows : -
1. The production capacity after the joint venture is put into operation is
35,000 tonnes per annum.
<PAGE>
2. The production scale will be increased up to 50,000 tonnes per annum by
December 31, 1998 through the reconfiguration and expansion of Party A's
existing production facilities.
3. According to regulations, the responsibility to providing all required
further investment capital rests with the joint venture parties. Amongst
this : Party A's 35,000 tonnes per annum production equipment (excluding
that already invested) will account for their investment. Party B
undertakes to provide foreign currency worth RMB 34.362 million as
additional funding for the expansion of capacity. Both parties must have
completed investment before 31 March 1998 establish a 50,000 tonnes per
annum mill (refer attached increase in capital agreement).
ARTICLE 10
After registration with the Chinese authorities the joint venture can
establish branches at every location in China.
CHAPTER 5 TOTAL AMOUNT OF INVESTMENT AND THE REGISTERED CAPITAL
ARTICLE 11
The total amount of investment of the joint venture company is RMB 5 million,
and registered capital is RMB 17.73 million.
ARTICLE 12
Party A shall contribute the Administration Building and Paper Machines #5,
#6 and #7 and associated fixed assets (according to the attached list
provided by Party A), worth RMB 7.092 million, according for 40% of the
registered capital. Party B will invest foreign currency equivalent to RMB
10.638 million, according for 60% of the registered capital.
ARTICLE 13
Both Parties' registered capital is to be contributed according to the following
regulations:
Party A According to Article 12 and the attachment of fixed assets, within
one month of issuance of business licence in one installment.
Party B According to Article 12, foreign currency equivalent according to
the following schedule completed within one year.
February 1997 June 1997 December 1997 Total
RMB 1,060,000 RMB 4,855,000 RMB 2,820,000 RMB 10,638,000
<PAGE>
After completion of contribution by both parties, a Chinese registered
accountant must inspect and issue a formal confirmation certificate.
ARTICLE 14
The joint venture's working capital loans shall be obtained form domestic or
foreign banks. Interest on working capital loans is the responsibility of the
joint venture. The working capital of Party A in existence before formation
of the joint venture (inventory and related expenses) after calculation by
both parties, shall be contributed to the joint venture. All working capital
assets and liabilities will be the responsibilities of the joint venture.
Party A will arrange for the transfer of their current working capital loans.
ARTICLE 15
In case any party to the joint venture intends to change the nature of his
investment or to assign all or part of his investment subscribed to a third
party, consent shall be obtained from the other party to the joint venture,
and approval from the Wuhan Investment Office is required. Within one month
all procedures required by the City Commercial Bureau should be completed.
When one party to the joint venture assigns all or party of his investment, the
other party has preemptive right.
ARTICLE 16
The joint venture must abide by the joint venture laws and regulations, and
must follow the joint venture scope and business purpose.
ARTICLE 17
Both parties' technology, trademarks and patents must be irrevocably provided
for use by the joint venture.
CHAPTER 6 RESPONSIBILITIES OF EACH PARTY TO THE JOINT VENTURE
ARTICLE 18
With the exception of other stipulations in this contract, Party A and Party B
shall be respectively responsible for the following matters:
- Handling of applications for approval, registration, business
license and other matters concerning the establishment of the joint
venture company from relevant departments in Wuhan City and Hubei
Province as required.
- Appoint a general manger.
- Complete stocktaking and all account before the end of 1996.
<PAGE>
- Contributing to the joint venture, all exiting working capital of
Party A, including but not limited to, cash, debtors, work in
progreess and inventory of raw materials and finished good arising
from its existing operations.
- Provide to the joint venture, on a lease basis, all land and
buildings currently utilised in the operations of Party A.
- Provide to the joint venture exclusive usage of all machinery
currently utilised in the operations of Party A on a basis free of
charge for the period to December 31, 1997. Party A will revert
the right to levy a charge on the joint venture for the continued
usage of said equipment should certain funding commitments pursuant
to the capital expansion program outlined above not be fulfilled
(refer to schedule by Party B)
- Assist in the management of the joint venture.
- Provide to the joint venture company, all personnel support and
systems utilised in the present operations of Party A.
- Assist with the recruitment of additional staff.
- Responsible for handling other matters entrusted by the joint
venture company, including assisting in obtaining work permits for
Party B personnel.
RESPONSIBILITIES OF PARTY B
- Appoint the Chairman of the Board of Directors.
- Providing cash according to the contract and schedule.
- Assist in the purchase of equipment, raw materials etc.
- Assuming full financial responsibility for the required and
proposed upgrading of the production facilities of the joint
venture company in accordance with the attached funding schedule.
- Responsible for other matters entrusted by the joint venture
company.
ARTICLE 19
Expenses relating to the formation of the joint venture are to be paid by
both parties separately before formation of the joint venture. After the
joint venture is authorized, the joint venture is to cover establishment
costs.
ARTICLE 20
The costs of any experts consultants required by the joint venture is to be
covered by the joint venture.
CHAPTER 7 PRODUCT SALES AND TRADEMARK
ARTICLE 21
The products of joint venture company will be sold on the Chinese market or
export markets on the basis of stable and fair principles.
<PAGE>
ARTICLE 22
The joint venture's products to be sold in China may be handled by means of
agency or exclusive sales, or may be sold by the joint venture company
directly.
ARTICLE 23
Both parties agree to use the trademark "Golden Horse" and the right to use
this trademark shall be for the length of the joint venture. Approval must be
obtained from Party A before this trademark is used overseas.
ARTICLE 24
If the joint venture terminates or Party B transfers shares, approval must be
obtained from Party A in writing to continue to use the trademark.
CHAPTER 8 THE BOARD DIRECTORS
ARTICLE 25
The date of registration of the joint venture company shall be the date of the
establishment of the board of directors of the joint venture company.
ARTICLE 26
The board of directors is composed of 8 directors, of which 3 shall be
appointed by Party A, 5 by Party B. the chairman of the board shall be
appointed by Party B, and its vice-chairman by party A. The term of office
for the directors, chairman and vice-chairman is four years, their term of
office may be renewed if continuously appointed by the relevant party.
ARTICLE 27
The highest authority of the joint venture company shall be its board of
directors. It shall decide the following major issues : 1) changes to the
contract and articles of association, 2) Extension and termination of the
joint venture, 3) Transfer or increase in shares, 4) Mergers with other
economic entities, 5) Long term development plans of the joint venture and
annual production budgets. Unanimous approval shall be required before any
decisions are made concerning the above major issues. As for other matters,
approval by majority or simple shall be required.
ARTICLE 29
The board of directors shall convene at least one meeting every year. The
meeting shall be called and presided over the chairman of the board. The
chairman may convene an interim meeting based on a proposal made by more than
one third of the total number of directors.
<PAGE>
Notice of a board meeting shall be given 30 days beforehand. The meeting
shall be held at the joint venture offices or at another place agreed upon by
both parties. Minutes of the meeting shall be placed on file.
CHAPTER 9 BUSINESS MANAGEMENT OFFICE
ARTICLE 30
The joint venture company shall establish a management office which shall be
responsible for its daily management. The management office shall have a
general manager, appointed by party A. The deputy general manager is to be
selected by the general manager. The general manger and deputy manager shall
be appointed by the board of directors.
ARTICLE 31
The responsibility of the general manger is to carry out the decisions of the
board meeting and organise and conduct the daily management of the joint
venture company The deputy general managers shall assist the general manager
in his work. The general manager shall regularly report to the board on such
matters.
ARTICLE 32
In case of graft or serious dereliction of deputy on the part of the general
manager and deputy general managers, the board of directors shall have the
power to dismiss them at any time.
ARTICLE 33
In the case of resignation by the general manager or deputy general manager,
thirty days notice.
ARTICLE 34
Several department managers may be appointed by the management office, they
shall be responsible for the works in various departments respectively, handle
the matters handled over the general manager and deputy general manager and
shall be responsible to them.
ARTICLE 35
The general manager and deputy general manager must not have a conflict of
interest arising from an association with other economic entitles.
CHAPTER 10 PURCHASE OF EQUIPMENT
<PAGE>
ARTICLE 36
The purchase of raw materials, fuel, parts, means of transportation and
articles for office use, etc shall be carried out following the joint
ventures' proper purchasing methods. First priority to purchase in China
shall be given where conditions are the same.
CHAPTER 11 LABOUR MANAGEMENT
ARTICLE 37
The joint venture shall first recruit staff from Party A where it can do so
without sacrificing quality and conditions.
ARTICLE 38
Labour contract covering the recruitment, employment, dismissal and
resignation, wages, labour insurance, welfare, rewards, penalty and other
matters concerning the staff and workers of the joint venture company shall
be drawn up between the joint venture company and the Trade Union of the
joint venture company as a while, or the individual employees in the joint
venture company as a whole or individual employees in accordance with the
"Regulations of the People's Republic of China on Labour Management in Joint
Venture Using Chinese and Foreign Investment and its Implementation Rules".
Report shall be made to the Wuhan Labour Office. The joint venture shall be
responsible for party A's staff who are presently on postings.
1. Once the joint ventures business licence has been issued and
according to the Wuhan City Superannuation Scheme Regulations, the
joint venture shall make monthly contributions to be superannuation
scheme equivalent to 29% of the joint ventures annual wage bill.
Administration of this shall be the responsibility of Party A.
2. Every month the joint venture shall pay RMB 60,000 to Party A to
contribute the retiree's medical and insurance scheme. Management
of this shall be the responsibility of Party A. The joint venture
shall be responsible for the medical cost of staff belonging to
Party A and working in the joint venture.
ARTICLE 39
The staff and workers of the joint venture company have the right to
establish trade union organisation and carry out activities in accordance
with the stipulations of the "Trade Union Law of the People's Republic of
China". The trade union in the joint venture company is representative of the
interests of the staff and workers. The tasks of the trade are : to protect
the democratic rights and material interests of the staff and workers
pursuant to the law; to assist the joint venture company to arrange and make
rational use of welfare funds and bonuses, to organise political,
professional, scientific and technical studies, carry out literary, art and
sports activities; and to educate staff and workers to observe labour
discipline and strive to fulfil the economic tasks of the joint venture.
<PAGE>
ARTICLE 40
The appointment of high-ranking administrative personnel recommended by both
parties, their salaries, social insurance, welfare and the standard of
travelling expenses etc. shall be decided by the general manager and the
board of directors.
ARTICLE 41
Exceptional staff are to be awarded with bonuses.
CHAPTER 12 TAXES, FINANCE AND AUDIT
ARTICLE 42
The joint venture company shall pay taxes in accordance with the stipulations
of Chinese laws and other relevant regulations.
ARTICLE 43
Staff members and workers of the joint venture company shall pay individual
income tax according to the "Individual Income Tax Law of the People's
Republic of China".
ARTICLE 44
The joint venture is to pay all relevant taxes according to government
regulations.
ARTICLE 45
Allocations for reserve funds, expansion funds of the joint venture company
and welfare funds and bonuses for staff and workers shall be set asise in
accordance with the stipulations in the "Law of the People's Republic of
China on Joint Ventures Using Chinese and Foreign Investment". The annual
proportion of allocations shall be decided by the board of directors
according to the business situations of the joint venture company.
ARTICLE 46
The fiscal year of the joint venture company shall be from January 1 to
December 31.
Monthly management accounts of the joint venture company shall be prepared
and submitted to the Board Directors on the last date of each month.
ARTICLE 47
The joint venture is to establish a RMB account at a local bank. All foreign
currency transactions shall be made via this bank.
<PAGE>
ARTICLE 48
Financial checking and examination of the joint venture company shall be
conducted by an auditor registered in China and reports shall be submitted to
the board or directors and the general manager.
ARTICLE 49
The joint venture is to produce regular reports to the relevant government
departments according to the relevant regulations, and co-operate with their
inspection.
ARTICLE 50
In the first three months of each fiscal year, the manager shall prepare
previous year's balance sheet, profit and loss statement and proposal
regarding the disposal of profits, and submit them to the board of directors
for examination and approval.
CHAPTER 13 FOREIGN CURRENCY MANAGEMENT
ARTICLE 51
All matters concerning foreign currency shall be handled by the joint venture
according to the "Provisional Regulations for the Foreign Exchange Control of
the People's Republic of China" and other relevant regulations.
ARTICLE 52
After approval and issue of the business licence the joint venture shall open
RMB and foreign currency accounts at a local bank and obtain approval of the
relevant department. The joint venture must not open a foreign exchange
account outside of China or in Hong Kong or Macau.
CHAPTER 14 DURATION OF THE JOINT VENTURE
ARTICLE 53
The duration of the joint venture company is 30 years. The establishment of
the joint venture company shall start from the date on which the business
license of the joint venture company is issued.
An application for the extension of the duration, proposed by one party and
unanimously approved by the board of directors, shall be submitted to the
Ministry of Foreign Economic Relations and Trade (or the examination and
approval authority entrusted by it) six months prior to the expiration date
of the joint venture.
<PAGE>
CHAPTER 15 THE DISPOSAL OF ASSETS AFTER THE EXPIRATION OF THE DURATION
ARTICLE 54
Upon the expiration of the duration, or termination before the date of
expiration of the joint venture, liquidation shall be carried out according to
the relevant law. The liquidation assets shall be distributed by Party A and
Party B.
CHAPTER 16 PROFIT ALLOCATION
ARTICLE 55
With the exception of the first year of the joint venture's operation,
allocation to the joint venture parties of annual after-tax profit of the joint
venture after the deduction of contributions to the three basic capital funds,
shall be decide by the board of directors according to the relative investment
of the two parties. The first profit shall not be allocated.
ARTICLE 56
The joint venture shall distribute profits only after any losses in previous
accounting periods have been made up.
ARTICLE 57
The joint venture shall allocate profits to the three reserve funds according to
the articles of association. The proportion of allocation is to be decided by
the board of directors.
ARTICLE 58
All legal profits of Party A can be distributed to Party A's nominated foreign
account according to the relevant Chinese government regulations.
ARTICLE 59
Insurance policies of the joint venture company on various kinds of risks shall
be underwritten with the bank or insurance company in the People's Republic of
China. Relevant imported equipment can be insured internationally.
Types, the value and duration of insurance shall be decided by the board of
directors in accordance with the relevant regulations.
CHAPTER 15 THE AMENDMENT, ALTERATION AND DISCHARGE OF THE CONTRACT
ARTICLE 60
<PAGE>
The amendment of the contract or other appendices shall come into force only
after the written agreement signed by Party A and Party B and approved by the
original examination and approval authority.
ARTICLE 61
In case of inability to fulfil the contract or to continue operation due to
heavy losses in successive years as a result of force majerure, the respective
party should be advised within 90 days and the duration of the joint venture and
the contract shall be terminated before the time of expiration after unanimously
agreed upon by the board of directors and approval by the original examination
and approval authority.
ARTICLE 62
Should the joint venture company be unable to continue its operation or achieve
the business purpose stipulated in the contract due to the fact that one of the
contracting parties fails to fulfil the obligations prescribed by the contract
the articles of association, or seriously violates the stipulations of the
contract and articles of association, that party shall be deemed as having
unilaterally terminated the contract. The other party shall have the right to
terminate the contract in accordance with the provisions of the contract
approval by the original examination and approval authority as well as to claim
damages. In case party A and Party B of the joint venture company agrees to
continue the operation, the party who fails to fulfil the obligations shall be
liable to the economic losses thus caused to the joint venture company.
CHAPTER 16 LIABILITIES FOR BREACH OF CONTRACT
ARTICLE 63
Should all or part of the contract and its appendices be unable to be fulfilled
owing to the fault of one party, the beaching party shall bear the
responsibilities thus caused. Should it be the fault of both parties, they
shall bear their respective responsibilities according to actual situations.
Should either Party A or Party B fail to pay on schedule the contributions in
accordance with the provisions of this contract, the beaching party shall pay to
the other party 3% per month of the outstanding contribution starting from the
first month after exceeding the time limit. Should either party fail to
contribute capital according to Articles 11, 12 and 13 of this contract, the
other party shall have the right to apply to the approving authorities to
terminate the joint venture or to seek another partner, and to claim damages
from the beaching party.
CHAPTER 17 FORCE MAJEURE
<PAGE>
ARTICLE 64
Should either of the parties to the contract be prevented from executing the
contract by force majeure, such as earthquake, typhoon, flood, fire and war and
other unforeseen events, and their happening and consequences are unpreventable
and unavoidable, the prevented party, shall notify the other party within 90
days and provide the detailed information of the events and a valid document for
evidence issued by the relevant public notary organisation for explaining the
reason of its inability to execute or delay the execution of all or part of the
contract. Both parties shall, through consultations, decide whether to
terminate the contract or to exempt the part of obligations for implementation
of the contract or whether to delay the execution of the contract according to
the effects of the events on the performance of the contract.
CHAPTER 18 APPLICABLE LAW
ARTICLE 65
The formation of this contract, its validity, interpretation, execution and
settlement of the disputes shall be governed by the related laws of the People's
Republic of China.
CHAPTER 19 SETTLEMENT OF DISPUTES
ARTICLE 66
Any disputes arising from the execution of, or in connection with the contract
shall be settled through friendly consultations between both parties. In case
no settlement can be reached, the disputes shall be submitted to the Foreign
Economic and Trade Arbitration Commission of the China Council for the Promotion
of International Trade for arbitration in accordance with its rules of
procedure. The arbitral award is final and binding upon both parties.
ARTICLE 67
During the arbitration, the contract shall be executed continually by both
parties except for matters in disputes.
CHAPTER 20 LANGUAGES
ARTICLE 68
The contract shall be written in Chinese version and in English version. Both
languages are equally authentic. In the event of any discrepancy between the
two aforementioned versions, the Chinese version shall prevail.
CHAPTER 21 EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS
<PAGE>
ARTICLE 69
The appendices drawn up in accordance with the principles of this contract are
integral part of this contract. If there is any discrepancy between the
appendices and the contract, the contract shall prevail.
ARTICLE 70
The contract and its appendices shall come into force beginning from the date of
approval of the Wuhan Foreign Investment Commission.
ARTICLE 71
Should notices in connection with any party's rights and obligations be sent by
either party A or Party B by telegram or telex, etc. the written letter notices
shall be also required afterward. The legal addresses of Party A and Party B
listed in this contract shall be the posting addresses. It will be assumed that
documents will have been received 30 days after posting.
ARTICLE 72
If any part of this contract is not clear both parties can agree to add
supplementary documents. Such supplementary documents shall first obtain the
approval of the relevant approving authorities.
ARTICLE 73
This contract's intention and articles are to be interpreted in accordance with
the People's Republic of China Foreign Joint Venture Laws and associated
regulations, or according to the agreement between the two parties.
ARTICLE 74
The contract is signed in Wuhan City, China by the authorised representatives of
both parties on 20 December, 1997.
Party A Party B
Wuhan Dong Feng Paper Mill Company Orient Financial Services Ltd
Representative : Representative
Position: Position:
Nationality : Nationality :
- ------------------------------------------ -----------------------
Appendices: 1. Increase in Joint Venture Investment Agreement
2. Land & Building Lease Agreement
<PAGE>
APPENDIX 1
AGREEMENT OF INCREASE IN JOINT VENTURE INVESTMENT
In order to ensure that the intention of Chapter 3 Article 9 of the Joint
venture contract is able to be easily achieved, and to allow the production
capacity to be expanded to 50,000 tonnes per annum, both parties agree, one year
after establishment of the joint venture, to increase total investment of the
joint venture to RMB 95 million. In accordance with his the following is agreed
to.
Article 1. Investment Amount and Percentage of Investment
Party A is to contribute all required production equipment as their investment,
with the exclusion of the equipment already contributed, worth RMB 22.9 million.
Party B shall contribute foreign exchange equivalent to RMB 34.362 million.
Article 2. Increase in Investment Method and Time.
1) Party A undertakes according to their responsibility under articles
9 and 18 of the contract, at the same time as Party A completes
clause 2 below, to provide to the joint venture all required
equipment in one installment as their increase kin investment.
2) Party B shall, within one year after issuance of the joint
venture's business licence, to provide their further investment.
Article 3. Supplementary
1) Both parties undertake to, within 30 days after fulfilling
obligations under the above two articles, to arrange for Chinese
registered accountant to issues a certificate certifying the
contributions and to provide such certificate to Wuhan Foreign
Investment Office and Wuhan Bureau of Commerce to complete
formalities.
2) If either party can not make their contributions by 31 December
1997, then the delaying party shall be subject to the following
penalty. Starting from 1 January 1998, for the first quarter of
1998 0.5% of the uncontriubted capital per quarter, for the second
quarter of 1998 2.5% of the uncontriubted capital per quarter, and
thereafter 5% of the uncontriubted capital per quarter.
3) This penalty shall be made by the delaying party directly to the
other party, and unrelated to the joint venture.
Article 4. There shall be six copies of this agreement, to be retained by each
party as well as given to the relevant government department.
<PAGE>
Article 5. This agreement is an integral part of the joint venture contract
and has the same legal effect.
<PAGE>
Party A Party B
Wuhan Dong Feng Paper Mill Company Orient Financial Services Ltd
Representative : Li Yi Chun Representative Nils A Ollquist
Position: Mill Manger Position: Managing Director
Nationality : Chinese Nationality : Australian
<PAGE>
APPENDIX 2
LAND AND BUILDINGS LEASE AGREEMENT
According to the Wuhan City Transfer of Land Use Right Regulations, and
according to the agreements held by Wuhan Paper Mill Company and Wuhan Dong Feng
Papers Ltd, both parties agree: Wuhan Dong Feng Paper Company's land and
factory buildings used in production shall be leased to Wuhan Dong Feng Paper
Company Ltd for production and business use. The following is agreed:
Article 1. Leasor: Wuhan Dong Feng Paper Mill Company (Party A)
Leasee: Wuhan Dong Feng Paper Company Ltd (Party B)
Article 2 Land Area: 18,373.96 square metres
Factory Building Area : 25,729.82 square metres
Enterprise Address : 12 Jainyi Road, Qiaokou District, Wuhan
Article 3. Lease Term
Lease Term shall be the same length as the joint venture.
Article 4. Lease Fee and Payment Method
Both parties agree to a lease fee to RMB 1.5 million per year, to be paid by
monthly installments of 125,000 to Party A's account.
Article 5. Supplementary
1) During the lease term all the joint venture's business activities
shall be in accordance with the laws and regulations of the
People's Republic of China.
2) The joint venture must abide by the Wuhan City Land Use Transfer
Laws and Wuhan City Foreign Investment Land Use Regulations.
3) Both parties agree that the Wuhan Land Department Document k153
(1996), requirements shall be met by: the joint venture payment
above this amount shall be paid by Party A.
4) If the joint venture fails to pay the lease fee, Party A may
terminate the lease agreement.
5) Any dispute regarding this agreement shall be settled by
discussions between both parties.
6) There shall be six copies of this agreement, to be retained by each
party as well as given to the relevant government departments.
7) This agreement is an integral part of the joint venture contract
and has the same legal effect.
<PAGE>
Party A Party B
Wuhan Dong Feng Paper Mill Company Orient Financial Services Ltd
Representative : Li Yi Chun Representative Nils A Ollquist
Position: Mill Manger Position: Managing Director
Nationality : Chinese Nationality : Australian
<PAGE>
List of Fixed Assets Accounting for Wuhan Dong Feng Paper Company's Investment
of RMB 7.092 million.
<TABLE>
<CAPTION>
Item Description Quality Value
<S> <C> <C> <C>
1 1 552,429.78
2 #5 Paper Machine 1 2,969,113.10
3 #6 Paper Machine 1 2,090,536.80
4 #7 Paper Machine 1 1,479,920.32
TOTAL 7,092,000.00
</TABLE>
<PAGE>
Dated the ______ day of ___________, 1999
SUNNOON DEVELOPMENT LIMITED
and
ORIENT PACKAGING LIMITED
*******************************************
TENANCY AGREEMENT
of
Unit 1003 on 10th Floor of C L I Building
(formerly known as Hennessy House),
Nos. 313-317B Hennessy Road and Nos. 314-318
Lockhart Road, Wanchai, Hong Kong
*******************************************
TSANG, CHAN & WONG
SOLICITORS & NOTARIES
HONG KONG
S/66588/99/C/cc/PT:au.LT2
<PAGE>
THIS AGREEMENT is made the 11th day of May, 1999 BETWEEN the Landlord whose
name, address or registered office and description are set out in Part I of the
First Schedule hereto (hereinafter called "the Landlord") of the one part and
the Tenant whose name, address or registered office and description are set out
in Part II of the First Schedule hereto (hereinafter called "the Tenant") of the
other part WHEREBY IT IS HEREBY MUTUALLY AGREED by and between the said parties
hereto as follows:
SECTION (I)
THE PREMISES AND THE TERM
The Landlord shall let and the Tenant shall take all the premises set out in
the Second Schedule hereto (hereinafter called "the said premises") together
with the chattels and fittings as more particularly described in Part X of
the First Schedule (the "Chattels") and together with the use in common with
all others having the like right of the common areas in the building of which
the said premises form part (hereinafter called "the Building") in so far as
the same are necessary for the proper use and enjoyment of the said premises
and except in so far as the Landlord may from time to time restrict such use
and together also with the use in common as aforesaid of the lifts,
escalators and central air-conditioning services whenever the same shall be
operating for a term set out in Part III of the First Schedule hereto paying
therefor the rent and other charges as hereinafter provided.
SECTION (II)
RENT AND OTHER CHARGES
The Tenant hereby agrees with the Landlord as follows:
(1) To pay rent as set out in Part IV of the First Schedule and the management
fee and air-conditioning and service charges (if any) as set out in Part VI of
the First Schedule (which are unless the context otherwise requires hereinafter
collectively included under the term "the Rent") on the days and the in manner
hereinafter provided for payment thereof and in banknotes if so demanded.
(2) (a) To pay and discharge all rates, taxes, assessments, maintenance,
duties, charges, impositions and outgoings of an annual or recurring
nature now or hereafter to be assessed, imposed or charged by The
Government of the Hong Kong Special Administrative Region or other
lawful authority upon the said premises or upon the owner or occupier
thereof (Government Rent and Property Tax only excepted).
(b) In the event that an assessment for rates in respect of the said
premises shall be raised upon the Landlord direct the Landlord shall
during the month immediately preceding any quarter in respect of
which such rates may fall due be at liberty to debit the Tenant with
the amount thereof and the same shall forthwith be paid by the Tenant
to the Landlord wherein upon the Landlord shall account for the same
to The Government of the Hong Kong Special Administrative Region.
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<PAGE>
(c) In the event that no valuation of the said premises or no separate
assessment in respect of the said premises shall have been made in
accordance with the Rating Ordinance (cap. 116) or any statutory
amendment or modification thereof for the time being in force the
Landlord shall be at liberty to make an interim valuation or
apportionment thereof and to debit the Tenant with the amount which
would be payable upon such interim valuation or apportionment and the
same shall forthwith be paid by the Tenant to the Landlord and any
over-payment or under-payment by the Tenant on such interim valuation
or apportionment shall be adjusted when a valuation under the Rating
Ordinance shall have been made known.
(d) The Landlord shall be entitled to treat non-payment of any amount
debited to the Tenant in accordance with this Section or any part
thereof in all respects as non-payment of the Rent under this
Agreement.
(3) To pay and discharge all charges (including deposits) for service
maintenance, telephone, gas, water and electricity consumed in the said premises
including charges for any air-conditioning fan-coil units installed therein,
whether as shown by the separate meter installed upon the said premises or by
accounts rendered to the Tenant. The Tenant may install at its own cost
separate meter(s) for the utilities aforesaid provided that plans for such
installation shall have been approved by the Landlord and all necessary
authorities.
(4) To pay on the days and in the manner hereinbefore provided the
air-conditioning and service charge as set forth in Part VI of the First
Schedule hereto for the supply of chilled water for use by the Tenant in
connection with its air-conditioning installation and for the provision of
management services for the Building Provided always that if at any time
during the term of this tenancy (i) the cost to the Landlord of supplying the
chilled water service for the Tenant's air-conditioning installation
including without limitation the unit cost (including fuel surcharge) of
electricity for the operation of the water chilling plant shall have risen
over such cost prevailing at the commencement of the term of this tenancy
and/or (ii) there shall be any increase in the costs to the Landlord of
operating the Building since the commencement of the term of this tenancy,
the Landlord shall be entitled to serve a notice in writing upon the Tenant
increasing the air-conditioning and service charge at that time payable as
set out in Part VI of the First Schedule hereto by a percentage amount equal
to the percentage increase in such costs and thereafter such increased charge
shall be payable in lieu of the air-conditioning and service charge provided
for herein and in Part VI of the Fist Schedule hereto. Further increases in
the air-conditioning and service charge may be made by the Landlord from time
to time in the event of any such costs as aforesaid rising after an earlier
notice of increase under the above proviso shall have become operative. The
Landlord's assessment of the appropriate increase shall (save in the case of
manifest error) be conclusive. All running, operating, maintenance, cleaning
and repair costs associated with the use of fan coil units or other air
handling plant installed at the said premises will be borne by the Tenant in
addition to the air-conditioning and service charge. The electric power for
such fan coil units or other air handling plant installed within or
exclusively for the said premises shall be connected to the Tenant's
electricity supply meter and the Tenant shall pay direct to the supply
authority or contractor for the electric power thereby consumed.
-2-
<PAGE>
SECTION (III)
TENANT'S OBLIGATIONS
The Tenant hereby agrees with the Landlord as follows:
(1) To obey and comply with and to indemnify the Landlord against the breach of
all ordinances, regulations, by-laws, rules and requirements of any Government
or other competent authority and the provisions of the Deed of Covenant and/or
the Sub-Deed of Covenant (if any) or Management Agreement in respect of the said
premises relating to the use and occupation of the said premises, and the
conduct and carrying out of the Tenant's business on the said premises or to any
other act, deed, matter or thing done, permitted, suffered or omitted therein or
thereon by the Tenant or any employee, agent or licensee of the Tenant and to
notify the Landlord forthwith in writing of any notice received from any
statutory or public authority concerning or in respect of the said premises or
any services supplied thereto.
(2) (a) To fit out the interior of the said premises in accordance with such
plans and specifications as shall have been first submitted by the
Tenant to and approved in writing by the Landlord in a good and
proper workmanlike fashion using good quality materials approved by
the Landlord and in all respects in a style appropriate to operate
within a first class commercial centre. Such fitting out to include
but not be limited to the following:
(i) Connection and reticulation of all electrical wiring including
wiring to air conditioning plant and to light fittings together
with control switching etc. within the said premises.
(ii) Any alteration to the sprinkler system necessitated by the
Tenant's layout of the said premises the same to be in all
respects in accordance with all permits and consents and in
compliance with the requirements of the Fire Services
Department.
(iii) Any installation of air-conditioning ducting that may be
required by the Tenant's internal layout of the said premises
PROVIDED that if the Tenant's fitting out proposals should
require the modification or relocation of any air handling
equipment installed at the said premises the Tenant shall pay
all costs incurred by the Landlord and his contractors in
connection with such modification or relocation.
(iv) Internal decoration, furnishings and specialised Tenant's
equipment.
Provided that:
(A) any and all work involving any alteration to or
modification of or in any way associated with the
sprinkler system, the security system, the plumbing and
drainage system and piping and the chilled water pipes
shall be carried out only by contractors nominated by
the Landlord and any and all work involving the
-3-
<PAGE>
electrical installation and/or wiring shall be carried
out only by a contractor approved by the Landlord in
writing for the purpose. All works to be carried out
by the Tenant its contractors or sub-contractors shall
be carried out in accordance with the FITOUT RULES to
be issued by the Landlord from time to time and to be
signed by the Tenant prior to commencement of Tenant's
works and the Tenant will pay to the Landlord the
vetting charges set out in Part VII of the First
Schedule hereto.
(B) the Tenant will not cause or permit to be made any
subsequent variation to the approved fitting out plans
and specifications or to the approved interior design
or layout of the said premises without the previous
approval in writing of the Landlord and in the event of
such approval being requested it shall be a condition
precedent to the granting thereof that the Tenant shall
pay to the Landlord any fees and/or costs properly
incurred by the Landlord in consulting its architect
and/or specialist consultants in respect of such
variation. In carrying out any approved work
hereunder, the Tenant shall and shall cause his
servants, agents, contractors and workmen to cooperate
fully with the Landlord and all servants, agents and
workmen of the Landlord. The Tenant shall obey and
cause his servants, agents, contractors and workmen to
obey and comply with all reasonable instructions and
directions which may be given by the Landlord's
servants or agents or other authorised representatives
in connection with the carrying out of such work.
(b) Where the permitted user of the said premises includes shop or retail
uses to install and fit out the shop front including but not limited
to the shop front window and show case of the said premises in strict
compliance with the Landlord's requirement and to a standard
appropriate in the opinion of the Landlord to the reputation and
standing of the Building.
(c) To fit out the said premises in accordance with such Ordinances and
other orders, rules and regulations of the Government, public utility
companies and competent authorities as shall from time to time be in
force during the term of this Agreement and to maintain, add to,
modify or alter the same in accordance with such Ordinance, orders,
rules and regulations as are in force from time to time. The Tenant
shall in carrying out the works hereunder use only such contractor(s)
as shall be approved by the Landlord in writing (which approval not be
unreasonably withheld).
(3) To make its own arrangements with such public utility company as previously
approved by the Landlord in writing with regard to the installation of
telephones or other communications systems within the said premises, but the
installation of telephone and communications lines outside the said premises
must be in the common ducting provided for that purpose and in all respects be
in accordance with the Landlord's directions.
-4-
<PAGE>
(4) To keep all the interior parts of the said premises including the
flooring and interior plaster or other finishing material or rendering to
walls, floors and ceilings and the shop front external grilles or shutters to
the said premises and the Landlord's fixtures and fittings therein and all
additions (whether of the Landlord or the Tenant) thereto including (without
limitation and wherever the same shall be installed in or upon the said
premises) all escalators, doors, windows, electrical installations and
wiring, light fittings, suspended ceiling, fire fighting apparatus and
air-conditioning plant and ducting exhaust ducts, scrubber and carbon
filters, grease traps and all pipes, plumbing and drainage facilities and all
painting, papering and decoration thereof in good, clean, tenentable,
substantial and proper repair and condition and as may be appropriate from
time to time properly painted and decorated, cleansed, cleared or replaced
and so to maintain the same at the expense of the Tenant and to deliver up
the same and all fittings, fixtures and additions therein and thereto other
than tenant's fixtures and fittings to the Landlord at the expiration or
sooner determination of the said term in like condition and without prejudice
to the generality of the foregoing during the last year of the term hereof
reserved if reasonably required by the Landlord to repaint and decorate the
interior of the said premises.
(5) To clean and clear every grease trap (if any, and whether within or
outside the said premises) serving the said premises or used by the Tenant as
often as is necessary to ensure the free, uninterrupted and efficient working
of the drainage and sewage facilities serving the Building. The Landlord
shall be entitled from time to time to require the Tenant to do such cleaning
and clearing at such regular intervals as may be prescribed by the Landlord.
If default shall be made by the Tenant in fulfilling its obligations under
this Clause the Landlord shall be entitled to do such cleaning and clearing,
entering the said premises whenever necessary and the cost thereof shall be a
debt due from the Tenant to the Landlord and be recoverable forthwith by
action.
(6) To install all wires pipes and cables and other services serving the
said premises in and through the duets trunkings and conduits in the Building
provided by the Landlord at its sole-discretion for such purposes and at all
times in accordance with the Landlord's directions and not to install any
such wires pipes cables or other services without first providing the
Landlord with full particulars and a fully detailed plan and diagram of such
intended installation and obtaining the Landlord's consent in regard thereto.
(7) To reimburse to the Landlord the cost of replacing all broken and
damaged windows and/or glass panels within and/or encompassing the said
premises whether or not the same be broken or damaged by the negligence of
the Tenant.
(8) To reimburse to the Landlord the cost of repairing or replacing the shop
front plate glass or open shutter or any air-conditioning fan-coil unit or
any other part of the air-conditioning system or installation which is
damaged or rendered defective.
(9) To repair or replace any electrical installation or wiring in the said
premises if the same becomes dangerous or if so reasonably required by the
Landlord and in so doing the Tenant shall use only a contractor designated by
the Landlord in writing for the purpose. The Tenant shall permit the
Landlord's agents to test the Tenant's wiring in the said premises at any
time upon request being made.
-5-
<PAGE>
(10) To keep the sanitary and water apparatus including drainage as are
located within the said premises used by the Tenant and its licensees (or
elsewhere if used exclusively by the Tenant and its licensees) in good, clean
and tenantable repair and condition to the satisfaction of the Landlord and
in accordance with the regulations or by-laws of all Public Health and other
Government Authorities concerned. In the event of any damage being incurred,
the Tenant shall forthwith repair the damage and restore the said premises
and those sanitary and water apparatus in the said Premises (or elsewhere if
used exclusively by the Tenant or its licensees) to their proper state and
condition in accordance with the covenant for repair contained in the
foregoing provisions.
(11) To keep the said premises including all external windows lights and
shopfront glass at all times in a clean and sanitary state and condition, and
for the better observance hereof the Tenant shall only employ as cleaners of
the said premises such persons or firms as shall be nominated by the
Landlord. Such Cleaners shall be employed at the expense of the Tenant.
(12) To pay to the Landlord on demand all costs incurred by the Landlord in
cleansing, clearing, repairing or replacing any of the drains, pipes or
sanitary or plumbing apparatus choked or stopped up owing to the careless or
improper use or neglect by the Tenant or its licensees.
(13) To take all reasonable precautions to protect the interior of the said
premises against damage by storm or typhoon or the like.
(14) To carry out any works by the Tenant to the said premises pursuant to
this Agreement subject to the prior written approval of the Landlord and the
inspection of the Landlord, the Landlord's architect and general contractor
from time to time.
(15) No approval by the Landlord is valid unless in writing, signed by the
Landlord or the Landlord's authorised representatives.
(16) To permit the Landlord and all persons authorised by the Landlord at all
reasonable times upon prior notice to enter with or without appliances and
view the state of repair of the said premises, to take inventories of the
fixtures therein and to carry out any work, repairs or maintenance which are
required to be done provided that in the event of an emergency the Landlord,
its servants or agents may enter without notice.
(17) On receipt of any notice from the Government, Manger of the Building,
the Landlord or its authorised representative or any other competent
authority specifying any works or repairs which are required to be done and
the time in which they are to be done and which are the responsibility of the
Tenant hereunder, forthwith to put in hand and execute the same with all
possible despatch. AND if the Tenant shall fail to comply with such notice
in any respects it shall be lawful (but without prejudice to the right of
re-entry and forfeiture hereinafter contained) for the Landlord, its agents,
servants and workmen to enter upon the premises and to carry out all or any
of the works referred to in such notice and the cost of so doing and all
expenses incurred thereby shall be paid by the Tenant forthwith to the
Landlord on demand and shall be recoverable as the Rent in arrear if the
Tenant fails to pay as aforesaid.
-6-
<PAGE>
(18) To give immediate notice to the Landlord or its agent of any damage that
may be suffered to the said premises and of any accident to or defects in the
water pipes, gas pipes, electrical wiring or fittings, fixtures or other
facilities provided by the Landlord.
(19) To allow at all reasonable times within three calendar months
immediately preceding the expiration of the said term of this Agreement the
Landlord and/or its estate, agents and/or employees and/or the prospective
tenants and/or buyers to enter, inspect and view the said premises and every
part thereof and allow the Landlord to exhibit or affix where the Landlord
shall think fit a notice indicating that the said premises are to be let or
sold with vacant possession and such other information in connection
therewith as the Landlord shall desire, which notice the Tenant shall not
deface or conceal.
(20) To obey and comply with such regulations as may from time to time be
adopted by the Landlord and its management agent in accordance with Section
IX hereof.
(21) To be responsible to the Landlord for the acts, neglects, omissions and
defaults of all licensees of the Tenant as if they were the acts, neglects,
omissions and defaults of the Tenant himself and to indemnify the Landlord in
full against all costs, claims, demands, actions, costs, proceedings,
expenses or liabilities to any person in connection therewith.
(22) To keep in operation battery operated emergency lighting and exit signs
in locations within the said premises as required by Fire Services Ordinance
or other Codes and Regulations made by the Government, any competent
authorities, the Landlord or its management agent and the Manager of the
Building.
(23) To provide at its own costs earthling within the said premises to meet
Fire Services Ordinance or other Codes Regulations made by the Government,
any competent authorities, the Landlord or its management agent and the
Manager of the Building.
(24) To permit utility lines to be erected in and passed through the said
premises in order to serve other premises and area of the building. For this
purpose, the Landlord and its agents, workmen and contractors and the Manager
of the Building shall have the right to enter the said premises to examine
the same.
(25) To permit the Landlord's servants or security guards to enter the said
premises at all reasonable times for security purposes, and to connect and
keep at its own costs the said premises connected to any communal alarm or
security system and, if required by the Landlord, to be linked up to the
security system for the Building provided and operated by the Landlord.
(26) To comply with Codes and Regulations stipulated by the Government and
all statutory or public or competent authorities for any additional fire
protection system apart from those provided by the Landlord, whether induced
by the business of the Tenant or otherwise, and the costs so incurred shall
be borne by the Tenant.
(27) To quietly yield up the said premises together with all the Landlord's
fixtures, fittings and additions therein and thereto (including the
air-conditioning ducts, if any) and the chattels at the expiration or sooner
determination of this tenancy in good, clean and tenantable repair and
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condition notwithstanding any rule of law or equity to the contrary provided
that where the Tenant has made any alterations or additions or installed any
fixtures or fittings whether of a structural or non-structural nature, to the
said premises with or without the Landlord's written consent, the Landlord
may at its discretion require the Tenant at the expense of the Tenant to
remove and/or do away with such alterations, fixtures or fitting or additions
or any part(s) or portion(s) thereof, to reinstate the said premises and to
make good and repair in a proper and workmanlike manner any damage to the
said premises and to the Landlord's fixtures and fittings therein as a result
thereof, and thereupon surrender to the Landlord all keys giving access to
all parts of the said premises held by the Tenant and remove at the Tenant's
expenses all lettering and characters from all the doors, walls or windows of
the said premises and make good any damage caused by such removal.
(28) To be wholly responsible for any loss, damage or injury caused to any
person whomsoever or to any property whatsoever directly or indirectly
through the defective or damaged condition or operation of any part of the
interior of the said premises o any machinery or plant or any fixtures or
fittings or wiring or piping therein for the repair of which the Tenant is
responsible hereunder or in any way caused by or owing to the spread of fire,
smoke or fumes or the leakage or overflow of water or any substance or
anything whatsoever origin from the said premises or any part thereof or
through the act, default or neglect of the Tenant or its licensees and to
make good the same by payment or otherwise and to indemnify the Landlord
against all costs, claims, demands, actions and legal proceedings whatsoever
made upon the Landlord by any person in respect of such loss, damage or
injury as aforesaid and all costs and expenses incidental thereto.
(29) For the better observance of the Tenant's obligations under the
preceding Clause (28) to permit the Landlord at the Tenant's expense and in
the name of the Tenant to effect and maintain insurance coverage to the
satisfaction of the Landlord in respect of all such risks as aforesaid with
such insurance company as the Landlord shall in its absolute discretion deem
fit. The policy of insurance so effected to be endorsed to show the interest
of the Landlord therein and to be in such amount as may be determined by the
Landlord and to contain a provision that the insurance cover thereby effected
and the terms and conditions thereof may not be altered modified restricted
or cancelled without the express prior written consent of the Landlord.
(30) To effect and maintain throughout the term hereby created with an
insurance company of repute adequate insurance cover in the full replacement
value thereof in respect of the following risks:
(a) Glass: All glass now or hereafter within or forming part of the said
premises.
(b) Water damage: including without limitation damage to trade fixtures
and fittings occurring in respect of the use or misuse of the fire
sprinkler system installed in the said premises or the misuse of water
therein.
(c) Fire and extraneous perils: including adequate cover against loss or
damage to stock, fixtures and fittings, articles of a decorative
nature and personal effects.
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And the Tenant shall have the Landlord's interest as landlord of the
said premises endorsed on the policy of insurance and shall whenever so
required by the Landlord produce the policy of insurance and last premium
receipt and a certificate from the said insurance company to confirm that the
said policy is duly paid up and is valid and subsisting.
(31) Where any plant machinery or equipment for cooling or circulating air is
installed in or about the said premises (whether by the Landlord or the
Tenant) the Tenant will to the extent of the Tenant's control over the same
at all times use and regulate the same to ensure that the air-conditioning
plant is employed to best advantage in the conditions from time to time
prevailing and without prejudice to the generality of the foregoing will
operate and maintain such plant within the ________ premises as the Landlord
may reasonably determine to ensure a reasonably uniform standard of air
cooling or conditioning throughout the Building.
(32) To be responsible for the removal of refuse and garbage from the said
premises to such ____________ as shall be specified by the Landlord from time
to time and to use only that type of refuse ___________ as is specified by
the Landlord from time to time. In the event of the Landlord providing
collection service for refuse and garbage the same shall be used by the
Tenant to the exclusion of other similar service and the use of such service
provided by the Landlord shall be at the sole of the Tenant.
(33) To load and unload goods only at such times and through such entrances
and by such service lifts (if any) as shall be designated by the Landlord for
this purpose from time to time.
(34) To pay or reimburse to the Landlord the cost of repairing any damage
caused to any part of the common areas of the Building occasioned by the
Tenant or his licensees or any other person claiming through or under the
Tenant.
(35) To pay the Landlord immediately upon demand the cost of affixing
repairing or replacing as necessary the Tenant's name in lettering to the
directory boards at the Building.
SECTION (IV)
LANDLORD'S OBLIGATIONS
The Landlord hereby agrees with the Tenant as follows:
(1) To permit the Tenant (who duly pay the Rent, rate and other charges
payable under this Agreement on the day sand in the manner herein provided
and observing and performing the agreements, covenants, stipulations and
conditions herein contained on the Tenant's part) to have quiet possession
and enjoyment of the said premises during the term of this Agreement without
any interruption by the Landlord or any person lawfully claiming under or in
trust for the Landlord.
(2) To pay the Government Rent and Property Tax payable in respect of the
said premises.
(3) (a) Subject to Clause (1) in Section VI hereto to provide a supply of
chilled water to the said premises for the purposes of the Tenant's
air-conditioning during the Normal Business Hours (hereinafter
defined).
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(b) Subject to Clause (1) in Section VI hereto to supply the Tenant with a
supply of chilled water to the said premises for the purposes of the
Tenant's air-conditioning during hours outside Normal Business Hours
upon request being made by the Tenant to the Landlord. The cost for
such additional hours of chilled water supply from time to time shall
be determined by the Landlord whose decision shall be final and
notified to the Tenant from time to time and shall be paid by the
Tenant to the Landlord with the Rent, rates and other charges payable
under this Agreement and shall be recoverable by the Landlord as part
of the air-conditioning and service charge hereunder.
(4) It is hereby agreed and expressly confirmed that the following rights
are excepted and reserved to the Landlord (its successors and assigns and all
persons having the like right) throughout the said term:
(a) the right of free and uninterrupted passage and running of water,
soil, gas, drainage, electricity and all other services or supplies
through such sewers, watercourses, conduits, pipes, wires, cables and
ducts as are now or may hereafter be in, on or under the said premises
and serving or capable of serving the Building or any adjoining or
neighboring property. TOGETHER WITH the right to enter upon the said
premises to inspect, repair, replace or maintain any such sewers,
watercourses, conduits, pipes, wires, cables and ducts.
(b) the full and free right and liberty to enter upon the said premises in
the circumstances in which the covenants by the Tenant contained in
these presents permit such entry and in particular but without
prejudice to the generality of the foregoing the right to enter into
and upon the said premises at all times for the purpose of obtaining
access to and egress from any machinery or switch rooms or the like
remaining under the control of the Landlord and located on any of the
floors of the Building on which any portion of the said premises is
situated.
(c) the right from time to time on giving reasonable notice to the Tenant
(such notice not to be required in case of emergency or breakdown) and
causing as little inconvenience to the Tenant as reasonably possible
to suspend the air-conditioning system, lifts, escalators, electric
power, water supply and any other building service provided in or
serving the Building for the purpose of servicing, maintaining,
repairing, renewing, improving or replacing the same and any of them.
(d) the right form time to time and without the necessity of joining the
Tenant or any other person to enter into such Deed of Mutual Covenant
or Sub-Deed of Mutual Covenant or Management Agreement affecting the
Building or any part thereof as the Landlord shall deem appropriate.
SECTION (V)
RESTRICTIONS AND PROHIBITIONS
The Tenant hereby agrees with the Landlord as follows:
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(1) (a) Not without the previous written consent of the Landlord to install or
use or permit or suffer to be installed in the said premises any
equipment, apparatus, machinery or object which imposes a weight or
any part of the flooring in excess of that for which it is designed or
which requires any additional electrical main wiring or which consumes
electricity not metered through the Tenant's separate meter.
(b) The Landlord shall be entitled to prescribe the maximum weight and
permitted location of safes and other heavy equipment and to require
that the same stand on supports of such dimensions and material to
distribute the weight as the Landlord may deem necessary. All
reasonable and proper fees incurred by the Landlord in obtaining the
approval of its architects to the location of heavy objects shall be
borne by the Tenant and payment therefor may be imposed as a
pre-requisite to the Tenant receiving such consent.
(2) (a) Not without the previous written consent of the Landlord to erect,
install, remove or alter any fixtures, partitioning or other erection
or installation in the said premises or any part thereof or without
the like consent to make or permit or suffer to be made alterations in
or additions to the electrical wiring and installations
air-conditioning plant or equipment of any kind or ducting (if any)
and lighting fixtures or any part thereof or other Landlord's fixtures
AND the Tenant shall comply with the directions and instructions of
the Landlord regarding installation and shall at its own expense be
responsible for their periodic inspection maintenance and repair and
for the replacement of defective wiring and the Tenant shall be
strictly liable for any damage caused by the installation operation
defect or removal of such units.
(b) In carrying out any approved work mentioned anywhere in this
Agreement, the Tenant shall and shall cause its servants, agents,
contractors and workmen to co-operate fully with the Landlord and all
servants, agents, contractors and workmen of the Landlord and with
other tenants or contractors carrying out any work in the Building.
The Tenant, its servants, agents and the contractors and workmen shall
obey and comply with all instructions and directions which may be
given by the Landlord's Architect, Project Manager or other authorised
representative in connection with carrying out of such work.
(c) Any fees or expenses incurred by the Landlord in connection with the
giving of consents hereunder shall be borne by the Tenant.
(d) In carrying out any approved work to the air-conditioning, electrical
installations and/or wiring and plumbing installation, the Tenant
shall use only an authorised contractor or contractors for such
purpose.
(3) (a) Not to install any air-conditioning plant or equipment of any kind on
or within or at any part of the said premises without the prior
consent of the Landlord in writing AND the Tenant shall comply with
the directions and instructions of the Landlord regarding installation
and shall at its own expense be responsible for
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their periodic inspection maintenance and repair and for the
replacement of defective wiring and the Tenant shall be strictly
liable for any damage caused by the installation operation defect
or removal of such units.
(b) Not to make or permit or suffer to be made any alterations in or
additions to the mechanical or electrical installations in the
Building nor to install or permit or suffer to be installed any
equipment, apparatus or machinery which exceeds the loading of the
electrical installations in the Building.
(4) Not without the previous written consent of the Landlord to cut, maim,
injure, drill into, mark or deface or permit or suffer to be cut, maimed,
injured, drilled into, marked or defaced any doors, windows, walls, beams,
air-conditioner ducts (if any), structural members or any part of the fabric
of the said premises nor any of the plumbing or sanitary apparatus or
installation included therein.
(5) Not without the previous written consent of the Landlord to alter the
existing locks, bolts and fittings on the entrance doors to the said
premises, not to install any additional locks, bolts or fittings thereon.
(6) Not to do or permit or suffer to be done any act or thing which may be
or become a nuisance or annoyance to the Landlord or to the tenants or
occupiers of other premises in the Building or in any adjoining or
neighbouring building.
(7) Not to produce or suffer or permit to be produced at any time in the
said premises any music or noise (including sound produced by broadcasting
from television, radio or any other service or by an equipment or instrument
capable of producing or reproducing music or sound) so as to constitute, in
the opinion of the Landlord (which opinion shall be conclusive) a nuisance or
to give cause for reasonable complaint from the occupants of any other units
in the Building or persons using or visiting the same. In the event of the
Tenant's permitted business use of the said premises as defined in Part V of
the First Schedule hereto requiring any sound or noise to be produced or
reproduced within the said premises or any part thereof to install and
maintain to the satisfaction of the Landlord appropriate and adequate sound
absorbing and insulating material so as to prevent such sound or noise from
escaping from the said premises and from becoming a nuisance or annoyance to
other tenants or occupiers of the Building or any part thereof or any
adjoining or adjacent premises.
(8) Save as permitted pursuant to Clause 35 in Section (III) hereto not to
exhibit or affix or display or permit or suffer to be exhibited affixed or
displayed outside the said premises any signboard, sign, decoration,
advertising matter or other device whether illuminated or not except with the
prior written approval from the Landlord. Provided always that the Tenant
shall be entitled to have its name and business displayed in lettering and/or
characters to a design and standard of workmanship approved by the Landlord
(which approval shall not be unreasonably withheld) on a signboard upon the
front of the said premises. If the Tenant carries on business under a name
other than its own name it shall be entitled to have that name displayed
aforesaid but the Tenant shall not be entitled to change the business name
without the previous written consent of the Landlord and without prejudice to
the foregoing the Landlord may in connection with any application for consent
under this clause require the Tenant to produce such evidence as
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it shall think fit to show that no breach of Clause 19 hereof has taken place
or is about to take place.
(9) Not to use or permit or suffer the said premises or any part thereof to
be used for any purpose other than for the Tenant's business the nature of
which business is set out in Part V of the First Schedule hereto and the
Tenant shall not be entitled to change the nature of its business carried out
at the said premises or any part thereof without the Landlord's prior written
consent.
(10) Not to use or permit or suffer the said premises or any part thereof to
be used for any illegal, improper or immoral purposes.
(11) Not to use or permit or suffer the said premises or any part thereof to
be used as sleeping quarters or as domestic premises within the meaning of
any Landlord and Tenant (Consolidation) Ordinance or similar legislation for
the time being in force, nor to allow any person to remain in the said
premises overnight.
(12) Not to use or permit or suffer the said premises to be used for the
purpose of the manufacture of goods and merchandise or as a workshop or for
the storage of goods and merchandise other than stock reasonably required in
connection with the Tenant's business carried on therein.
(13) Not to keep or store or permit or suffer to be kept or stored in the
said premises any extra hazardous or dangerous goods within the meaning of
the Dangerous Drugs Ordinance and the Dangerous Goods Ordinance and the
regulations thereunder or any Statutory modification or re-enactment thereof
including but not limited to illegal drugs, arms, ammunition, gun-powder,
saltpeter, kerosene or other explosive or unlawful, offensive combustible,
inflammable, radioactive substance or hazardous goods.
(14) Not to encumber or obstruct or permit or suffer to be encumbered or
obstructed with any boxes, merchandise, display, chattels, standing signs,
rubbish, packaging or other obstruction of any kind or nature at any of the
common areas of the Building or any area not in the exclusive occupation of
the Tenant. In addition to any other rights and remedies which the Landlord
may have hereunder, the Landlord and its servants, workmen, contractors and
management agents may without any prior notice to the Tenant remove any such
obstruction and dispose of the same as the Landlord may think fit from time
to time without incurring any liability whatsoever therefor and the Tenant
shall on demand pay and reimburse to the Landlord forthwith all costs and
expenses incurred in such removal.
(15) Not without prior written consent of the Landlord to lay, install, affix
or attach any wiring, cables or other article or thing in or upon any of the
entrances, staircases, landings, passages, lobbies, transformer rooms, switch
rooms or other parts of the Building in common use.
(16) Not to prepare or permit or suffer to be prepared any food in the said
premises or to cause or permit any offensive or unusual odours to be produced
upon, permeate through or emanate from the said premises.
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(17) Not to permit or allow any food stuffs or food containers to be brought
onto or removed from the said premises except by way or service entrances
service exits and (if any) service _________ otherwise as may be directed by
the Landlord from time to time.
(18) Not to keep or permit or suffer to be kept any animals pets or livestock
inside the _______ premises and to take all such steps and precautions to the
satisfaction of the Landlord to prevent the said premises or any part thereof
from becoming infested by termites, rates, mice, roaches or any other pests
or vermin and for the better observance hereof the Landlord may require the
Tenant at the Tenant's cost to employ such pest extermination contractors as
the Landlord may nominate and at such intervals as the Landlord may direct.
In the event of the said premises becoming so infested, the Tenant shall pay
and reimburse to the Landlord forthwith the cost of extermination as arranged
by the Landlord and the selected extermination contractors shall be given
full access to the said premises for such purposes.
(19) Not without previous written consent of the Landlord to assign underlet
or otherwise part with the possession of the said premises or any part
thereof in any way whether by way of subletting lending sharing or other
means whereby any person or persons not a party to this Agreement obtains the
use or possession of the said premises or any part thereof irrespective of
whether any rental or other consideration is given for such use or possession
and in the event of any such transfer sub-letting sharing assignment or
parting with the possession of the said premises (whether for monetary
consideration or not) this Agreement shall at the option of the Landlord
absolutely determine and the Tenant shall forthwith vacate the said premises
on notice to that effect from the Landlord. The Tenancy shall be personal to
the Tenant and without in any way limiting the generality of the foregoing
the following acts and events shall unless approved in writing by the
Landlord be deemed to be breaches of this clause.
(a) In the case of a tenant which is a partnership the taking in of one or
more new partners whether on the death or retirement of an existing
partner or otherwise.
(b) In the case of a tenant who is an individual (including a sole
surviving partner of a partnership tenant) the death insanity or
disability of that individual to the intent that the right to use
possess occupy or enjoy the said premises or any part thereof shall
vest in the executors administrators personal representatives next of
kin trustee or committee of any such individual.
(c) In the case of a tenant which is a corporation any take-over
reconstruction amalgamation merger voluntary liquidation or
presentation of petition for the winding up of the corporation or
change in the person or persons who owns or own a majority of its
voting shares or who otherwise has or have effective control thereof.
(d) The giving by the Tenant of a Power of Attorney or similar authority
whereby the donee of the Power obtains the right to use possess occupy
or enjoy the said premises or any part thereof or does in fact use
possess occupy or enjoy the same.
(e) The change of the Tenant's business name without the previous written
consent of the Landlord which consent the Landlord may give or
withhold at its discretion.
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(20) Not to cause, suffer or permit any contravention of the negative or
restrictive provisions of the Government Lease or Conditions of Grant under
which the Landlord holds the said premises or any Deed of Mutual Covenant or
any Sub-Deed of Mutual Covenant affecting the Building and to indemnify the
Landlord against any such breach.
(21) Not to do or permit or suffer to be done any act, deed, matter or thing
whatsoever whereby the insurance on the Building against loss or damage by
fire and/or other insurable perils and/or claims by third parties for the
time being in force may be rendered void or voidable or whereby the premium
thereon may be increased provided that if as the result of any act, deed,
matter or thing done, permitted or suffered by the Tenant, the premium on any
such policy of insurance shall be increased, the Landlord shall be entitled
without prejudice to any other remedy hereunder to recover from the Tenant
the amount of any such increase.
(22) Not to erect any serial on the roof or walls of the Building or on the
ceiling or walls of the said premises without the prior written consent of
the Landlord.
(23) Not to install air-conditioning facilities and/or heating facilities
without the prior written consent of the Landlord provided that such consent
shall not be unreasonably withheld.
(24) Not to suspend or permit or suffer to be suspended any excessive weight
from the main structure of the said premises.
(25) Not to permit or suffer to be held upon the said premises any sale by
auction, fire, bankruptcy, closing-down or sales or similar nature or any
discount-type of retail business or any form of unethical business operation.
Provided that this clause shall not preclude genuine promotional, clearance
or periodic seasonal sales.
(26) Not to do or permit or suffer to be done anything which may cause damage
of any kind to any part of the main structure or main services, equipment or
apparatus of the Building or make any alteration to the exterior of the said
premises.
(27) Not to hang any laundry, clothing or other articles or things outside
the said premises or the Building.
(28) Not to tout or solicit or procure or permit any touting or soliciting
for business or the distribution of any pamphlets, notices or advertising
matter outside the said premises or anywhere within the Building by any of
the Tenant's licensees.
(29) Not to park in, obstruct or otherwise use nor permit to be parked in
obstructed or otherwise used by any licensee of the Tenant those areas of the
Building allocated to parking the movement of or access for vehicles or
designated as loading/unloading areas other than in accordance with the
Regulations made from time to time by the Landlord or its management agent
and the Manager of the Building.
(30) Not to place, expose or leave or permit to be placed, exposed or left
for display, sale or otherwise any goods or merchandise whatsoever upon or
over the ground outside the said premises.
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(31) Not to place, expose or leave or permit to be placed, exposed or left
any free standing signs upon or over the ground outside the said premises or
in any of the staircases, passages or landings of the Building used in common
with other Tenants or the Landlord.
(32) Not without the previous written consent of the Landlord to name or
include in the name of the business or company operated by the Tenant the
name of the Building or any name similar thereto and not at any time to
change the name of the business or company to include any such name as
aforesaid.
(33) Not to discharge anything into the drains or sewers serving or used in
connection with the said premises which will be corrosive or harmful or which
may cause any obstruction or deposit in them.
SECTION (VI)
EXCLUSIONS
(1) The Landlord shall not in any circumstances be liable to the Tenant or
any other person whomsoever:
(a) In respect of any loss or damage or other liability (whether direct or
consequential) to person or property sustained by the Tenant or any
such other person caused by or through or in any way owing to any
defect in or the breakdown of the lifts or escalators or the
air-conditioning system (if any) of the Building or the leakage or the
cracking of the glass panels of the Building; or
(b) In respect of any loss or damage or other liability to person or
property sustained by the Tenant or any such other person caused by or
through or in any way owing to fire or the overflow of water from
anywhere within the Building or to any failure, explosion or
suspension of the electricity, water, gas or other utility supply to
the Building or the said premises; or
(c) For the security of safekeeping of the said premises or any contents
therein; or
Nor shall the Rent on ________ or other charges (if any) or any part thereof
abate or cease to be.
(2) The Landlord does not represent or warrant that the said premises are
suitable for the uses or purposes specified in Part V of the First Schedule
or for any purposes whatsoever, and the Landlord hereby declares to which the
Tenant hereby acknowledges that (a) any approval or direction or instruction
given by the Landlord or on its behalf may not represent in any way
consistency or compliance with the terms and conditions of the Deed of Mutual
Covenant or the Management Agreement, or (if any) the Sub-deed of Covenant;
and (b) the Tenant shall satisfy itself or shall be deemed to have satisfied
itself that the said premises are suitable for the purpose for which they are
to be used and that all requirements and restrictions to which the said
premises and the Building are subject are fully observed and complied with
under the said terms and conditions of the Deed of Mutual Covenant, the
Sub-Deed of Covenant (if any) and the Management Agreement.
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(3) The Landlord does not warrant and represent that the building system,
including but not limiting to security, fire, safety, and elevator systems,
are "Year 2000 Compliant" or that the building system has the ability for
continued normal use and operation on all dates prior to, on and after 1st
January 2000 without any impairment of performance or functionality because
of any date element or date format contained in or utilized by any hardware,
software, embedded microprocessor, or other component contained in, or
necessary to operation of, the building system. The Landlord shall not in
any circumstances be liable to the Tenant or any other person whomsoever, in
respect of any loss or damage to person or property sustained by the Tenant
or any such person as a result of the failure of the building system to "Year
2000 Compliant" nor shall the Rent, management fee, air-conditioning charges
or any part thereof abate or cease to be payable on account thereof. The
Tenant is advised to take such steps as it deem necessary including but not
limiting to obtain advice from the computer expert relating to action to be
taken to deal with the issue.
SECTION (VII)
ABATEMENT OF RENT
If the said premises or any part thereof shall be destroyed or so damaged or
shall be rendered inaccessible or unfit for use and occupation by fire,
typhoon, Act of God, Force Majeure or other cause beyond the control of the
Landlord and not attributable directly or indirectly to any act or default of
the Tenant and the policy or policies of insurance effected by the Landlord
shall not have been vitiated or payment of policy monies refused in whole or
in part in consequence of any act or default of the Tenant or at any time
during the continuance of this tenancy the said premises or the Building
shall be condemned as a dangerous structure or a demolition order or closing
order shall become operative in respect of the said premises or the Building
then the Rent hereby agreed to be paid or a part thereof proportionate to the
damage sustained shall cease to be payable until the said premises shall have
been restored or reinstated or rendered accessible or fit for use and
occupation or the demolition order or the closing order shall have been
uplifted provided always that the Landlord shall be under no obligation to
repair or reinstate the said premises if, in its opinion, it is not
reasonable economical or practicable so to do and provided further that if
the whole or substantially the whole of the said premises shall have been
destroyed or rendered unfit for use and occupation and shall not have been
repaired and reinstated or the demolition order or the closing order on the
said premises or the Building shall remain continue and not uplifted within 6
months of the occurrence of the destruction or damage demolition or closing
order (as the case may be) either party shall be entitled at any time before
the same are so repaired and reinstated to terminate this Agreement by notice
in writing to the other but without prejudice to the rights and remedies of
either party against the other in respect of any antecedent claim or breach
of the agreements, stipulations, terms and conditions herein contained or of
the Landlordin respect of the Rent payable hereunder prior to the coming into
effect of the suspension caused by the factors as aforesaid.
SECTION (VIII)
DEFAULT
It is hereby further expressly agreed and declared as follows:
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(1) If the Rent or any part thereof shall be unpaid for 15 days after the
same shall become payable (whether legally or formally demanded or not) or if
the Tenant shall fail or neglect to observe or perform any of the agreements,
stipulations or conditions herein contained and on the Tenant's part to be
observed and performed or if the Tenant shall stop or suspend payment of its
debts or be unable to or admit inability to pay its debts as they fall due or
if the Tenant shall become bankrupt or being a corporation shall go into
liquidation or if any petition shall be filed for the winding up of the
Tenant or if the Tenant shall otherwise become insolvent or have any
encumbrancer take possession of any of its assets in circumstances in which
the Landlord shall have reasonable grounds for believing that the ability of
the Tenant to pay the rentals and other charges hereby reserved and to
observe and perform its obligations under this Agreement shall have been
prejudiced or put at risk or have a receiving order made against it or in
such circumstances as aforesaid fail to satisfy any subsisting judgment that
may be given in any action against it after final appeal or shall suffer any
execution to be levied on the said premises or otherwise on the Tenant's
goods or if in such circumstances as aforesaid the Tenant shall suspend or
cease or threaten to suspend or cease to carry on its business or should any
event occur or proceedings be taken with respect to the Tenant in any
jurisdiction to which the Tenant is subject which has an effect equivalent or
similar to any of the events or circumstances described above, then and in
any such case it shall be lawful for the Landlord at any time thereafter to
re-enter on the said premises or any part thereof in the name of the whole
whereupon this Agreement shall absolutely cease and determine but without
prejudice to any right of action by the Landlord in respect of any
outstanding breach or non-observance or non-performance by the Tenant of any
of the agreements, stipulations and conditions herein contained.
(2) A written notice served by the Landlord on the Tenant in manner
hereinafter mentioned to the effect that the Landlord thereby exercises the
power of re-entry herein contained shall be a full and sufficient exercise of
such power without physical entry on the part of the Landlord notwithstanding
any statutory or common law provision to the contrary.
(3) All costs and expenses including any legal costs and fees incurred by
the Landlord in demanding payment of the Rent and other charges aforesaid (if
the Landlord elects to demand) and/or the extent of any loss to the Landlord
arising out of this Section (VIII) shall be paid by the Tenant and shall be
recoverable from the Tenant as a debt or be deductible by the Landlord from
the deposit paid by the Tenant in accordance with Section (X) hereto.
(4) Notwithstanding anything herein contained in the event of default in
payment of the Rent or other monies payable by the Tenant hereunder for a
period of 14 days from the date when payment is due (whether formally
demanded or not) the Tenant shall pay to the Landlord on demand daily
interest on all such sums outstanding at the rate of 1.5% per calendar month
calculated from the date on which the same shall be due for payment (in
accordance with the provisions contained in that behalf herein) until the
date of payment as liquidated damages and not as penalty provided that the
demand and/or receipt by the Landlord of interest pursuant to this Clause
shall be without prejudice to and shall not affect the right of the Landlord
to exercise any other right or remedy hereof (including but without prejudice
to the generality of the foregoing the right of re-entry) exercisable under
the terms of this Agreement.
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(5) Acceptance of the Rent and interest by the Landlord shall not be deemed
to operate as a waiver by the Landlord of any right to proceed against the
Tenant in respect of any breach, non-observance or non-performance by the
Tenant of any of the agreements, stipulations and conditions herein contained
and on the Tenant's part to be observed and performed. Any acceptance after
the Landlord's right to proceed against the Tenant as aforesaid shall be
deemed to be on account of mesne profits unless the Landlord shall expressly
waive the said right.
(6) For the purpose of these presents any act, default, neglect or omission
of any licensee of the Tenant shall be deemed to be the act, default, neglect
or omission of the Tenant.
(7) For the purpose of distress for rent in terms of Part III of the
Landlord and Tenant (Consolidation) Ordinance (Chapter 7) and of these
presents, the Rent, rates and other charges payable in respect of the said
premises shall be and be deemed to be in areas if not paid in advance at the
times and in manner hereinbefore provided for payment thereof.
SECTION (IX)
REGULATIONS
(1) The Landlord reserves the right from time to time and by notice in
writing to the Tenant to make and introduce, and subsequently amend, adopt or
abolish if necessary, such Regulations as it may consider necessary for the
operation and maintenance of the Building.
(2) Such Regulations shall be supplementary to the terms and conditions of
this Agreement and shall bind the Tenant and any breach of such Regulations
shall be deemed to be a breach of this Agreement for which the Landlord may
exercise all or any of its rights or remedies hereunder.
(3) In the event of conflict between such Regulations and the terms and
conditions of this Agreement of the terms and conditions of this Agreement
shall prevail.
(4) The Landlord shall not be liable for any loss or damage howsoever caused
arising from any non-enforcement of the Regulations or non-observance thereof
by any third party.
SECTION (X)
DEPOSIT
(1) The Tenant shall on or before the signing of this Agreement pay to the
Landlord a deposit as set out in part VIII of the First Schedule hereto to
secure the due observance and performance by the Tenant of the agreement,
stipulations and conditions herein contained and on the Tenant's part to be
observed and performed.
(2) The said deposit shall be retained by the Landlord throughout the said
term free of any interest to the Tenant. In the event of any breach or
non-observance or non-performance by the Tenant of any of the said
agreements, stipulations or conditions aforesaid (without prejudice to any
other right or remedy hereunder), the Landlord may deduct from the deposit
the amount of the Rent, rate and other charges payable hereunder, monetary
loss costs or damages incurred by the Landlord inconsequence of the breach,
non-observance or non-performance by the Tenant.
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In the event that the Landlord exercising its right of deduction of the
deposit under this provision, the Tenant shall, as a condition precedent to
the continuation of the tenancy, deposit with the Landlord, a further deposit
equivalent to the amount so deducted and, if the Tenant shall fail so to do,
the Landlord shall forthwith be entitled to re-enter on the said premises and
to determine this Agreement in which event the deposit and further deposit
(if any) may be forfeited to the Landlord as hereinbefore provided.
(3) The amount of the deposit shall be increased following each and every
increase in the Rent and air-conditioning and service charges provided for
herein to a sum equal to three (3) months' Rent and air-conditioning and
service charges at the rates payable therefor at the date or dates of such
increase becoming effective, and the Tenant shall make payment accordingly
and the provisions of this Clause shall apply to such further deposits as
mentioned in the preceding Clause (2),
(4) Subject as aforesaid the said deposit and the said further deposit (if
any) shall be refunded to the Tenant by the Landlord without interest within
30 days after the termination of this Agreement and the delivery of vacant
possession of the said premises to the Landlord or (without being construed
as a waiver of the Landlord's right under this Agreement) after the
settlement of the last outstanding claim which the Landlord may have against
the Tenant in respect of any breach, non-observance or non-performance of any
of the agreements, stipulations or conditions herein contained and on the
part of the Tenant to be observed and performed, whichever is the later,
PROVIDED HOWEVER, that the Landlord may prior to refund of the deposit and
the further deposit (if any) require the Tenant to produce the rates receipts
covering the whole of the term of this tenancy hereby granted or other
evidence satisfactory to the Landlord showing that the Tenant had paid all
rates for the said term.
SECTION (XI)
INTERPRETATION AND MISCELLANEOUS
(1) No condoning, excusing or overlooking by the Landlord of any default,
breach of non-observance or non-performance by the Tenant at any time or
times of any of the Tenant's obligations herein contained shall operate as a
waiver of the Landlord's rights hereunder in respect of any continuing or
subsequent default, breach or non-observance or non-performance or so as to
defeat or affect in any way the rights and remedies of the Landlord hereunder
in respect of any such continuing or subsequent default or breach and no
waiver by the Landlord shall be inferred from or implied by anything done or
omitted by the Landlord unless expressed in writing and signed by the
Landlord. Any consent given by the Landlord shall operate as a consent only
for the particular matter to which it relates and in no way shall be
considered as a waiver or release of any of the provisions hereto nor shall
it be construed as dispensing with the necessity of obtaining the specific
written consent of the Landlord in the future unless expressly so provided.
(2) Any notice required to be served hereunder shall, if to be served on the
Tenant, be sufficiently served if addressed to the Tenant and sent by prepaid
post or registered post to or delivered at the Tenant'' registered offices in
Hong Kong or the last known address of the Tenant or to the said premises and
if to be served on the Landlord shall be sufficiently served if addressed to
the Landlord and sent by prepaid post or registered post to or delivered at
the
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Landlord's registered office from time to time or any other address which the
Landlord may notify in writing to the Tenant from time to time. A notice
sent by post shall be deemed to have been received 48 hours after the time of
posting.
(3) The Landlord reserves the right (subject to any relevant provisions of
the Deed of Mutual Covenant and/or the Sub-Deed of Mutual Covenant (if any)
or Management Agreement in respect of the Building) to name the Building with
any such name or style as it in its sole discretion may determine and at any
time and from time to time to change alter substitute or abandon any such
name without thereby becoming liable to compensate the Tenant for any loss
expense or inconvenience caused to the Tenant as a consequence thereof
provided that the Landlord shall give the Tenant and the post office and
other relevant Government Authorities not less than two months notice of its
intention so to do.
(4) The Landlord reserves the right from time to time to improve, extend,
add to or reduce the Building or in any manner whatsoever alter or deal with
the Building (other than the said premises) Provided always that in
exercising such right the Landlord will endeavor to cause as little
inconvenience to the Tenant as is practicable in the circumstances and make
good any damage caused to the said premises within a reasonable period of
time.
(5) The Normal Business Hours of the said Building shall be between the
hours of 8:30 a.m. and 6:00 p.m. on Mondays to Fridays and between 8:00 a.m.
and 2:00 p.m. on Saturdays ("Normal Business Hours") provided always that
Normal Business Hours may be altered from time to time by the Landlord at its
discretion.
(6) Notwithstanding anything herein contained or implied to the contrary the
Landlord may permit any person or organization to hold any functions or
exhibition or display any merchandise in any part or parts or the common
areas of the Building (other than the said premises) at such times and upon
such terms and conditions as the Landlord may in its absolute discretion
think fit.
(7) Notwithstanding anything herein contained or implied to the contrary the
Landlord may (subject to any relevant provisions of the Deed of Mutual
Covenant and/or the Sub-Deed of Mutual Covenant (if any) or Management
Agreement in respect of the Building) provide and install a public address
system throughout the common areas of the Building and may play relay or
broadcast or permit any other person to play, relay or broadcast recorded
music or public announcements thereon.
(8) The Tenant acknowledges that no fine, premium, key money or other
consideration has been paid by the Tenant to the Landlord for the grant of
this tenancy.
(9) The said premises is and will be handed over on an "as is" basis. No
warranty is given by the Landlord as to the state and condition of the said
premises and/or any building or buildings, their composition, nature or their
manner of construction or the installation (if any) thereof.
(10) The Tenant is responsible to apply for installing electricity meter for
his own use and such installing must be met with the approval of the
necessary authorities.
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(11) For the purpose of calculating any increase in the air-conditioning or
service charge payable by the Tenant in accordance with the provisions of
this Agreement the following items and costs thereof will be deemed to
constitute the operating costs of the Building:
(a) The cleansing of all common areas lobbies and toilets and signs of the
Building whether external or internal and all external windows or
glass where the cost of such cleansing is not the responsibility of a
particular tenant or occupier of the Building.
(b) The lighting of all common areas lobbies and signs of the Building
whether external or internal.
(c) Maintenance and repairs of and to the common areas of the Building and
its exterior all approach ways, car parks and other facilities at on
or for the benefit of the Building its tenants and users thereof
excluding the cost of any structural work the cost of any work the
payment of which is the responsibility of a particular of a particular
tenant or occupier of the Building.
(d) Gardening and landscaping expenses in and around the Building
reasonably incurred by the Landlord.
(e) Maintenance and repairs of and to the security systems installed at
and within the Buildings.
(f) Costs and expenses of providing staff at and for the benefit of the
Building including the Manager and supporting staff building
supervisors caretakers guards carpark attendants traffic supervisors
and maintenance operatives.
(g) All running costs including electricity and any other source of power
used in respect of air-conditioning ventilation heating or cooling
plant and equipment condensed water supply system chilled water supply
system lifts escalators and any other mechanical services and
appurtenances installed by the Landlord in the said premises common
areas or elsewhere in the Building the cost of which is not the
responsibility of the individual tenants of the Building under the
terms of their leases.
(h) All maintenance and repair costs in respect of air-conditioning
ventilation heating or cooling plant and equipment condensed water
supply system chilled water supply system lifts escalators and any
other mechanical services and appurtenances installed by the Landlord
in the said premises common areas or elsewhere in the Building the
cost of which is not the responsibility of the individual tenants of
the Building under the terms of their leases.
(i) Garbage and trade waste disposal.
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(j) Costs and expenses properly incurred by the Landlord in providing
parcel pick up points, child minding areas, mail collection points
and other facilities for the benefit and promotion of the Building its
tenants and users.
(k) All Government rates assessed to be paid in respect of any areas not
leased to individual tenants.
(l) The premia in respect of all insurances held by the Landlord in
respect of the Building its contents of whatsoever nature, staff
employed at the Building and any other risk relating to the Landlord's
ownership or interest in the Building.
(m) The fees and remuneration of any manager appointed by the Landlord to
manage the Building.
(n) Any other items of expenditure which are in the sole discretion of the
manager considered to be necessary for the management of the Building.
(12) Each party shall bear its own legal costs and disbursement of and
incidental to the preparation and completion of this Agreement and the stamp
duty payable thereof shall borne by the parties thereto in equal shares.
(13) This Agreement sets out the full agreement reached between the parties
hereto and no other representations have been made or warranties given
relating to the Landlord or the Tenant or the Building or the said premises
and if any such representation or warranty has been made given or implied the
same is hereby waived.
(14) In this Agreement:
(a) The "Tenant" shall (where the context permits) mean and include the
party or parties specifically named herein and shall not include the
executors and administrators of any such party or where such party is
a corporate, any liquidator thereof. Where more than one person is
included in the expression "the Tenant" all such persons shall be
jointly and severally liable for the performance and observance of the
terms, conditions and agreements contained herein and on the part of
the Tenant to be performed and observed;
(b) The "licensee" shall include employee, servant, workman, customer,
agent and contractor of the Tenant and any person present in, using or
visiting the said premises with the consent of the Tenant, express or
implied;
(c) The "Government" shall mean the Government of the Hong Kong Special
Administrative Region;
(d) Reference to Ordinance, orders, statutes, legislation or enactments
shall be construed as a reference to such Ordinance, orders, statutes,
legislation or enactments as may be amended or re-enacted from time to
time and for the time being in force;
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(e) The common areas of the Building shall refer to such parts of the
Building as may be designated under the Deed of Mutual Covenant in
respect of the Building (if any) as common areas for use in common by
the co-owners for the time being of the Building or such other parts
of the Building as may be designated as common areas from time to time
by the Landlord.
(15) The parties hereto further agree that they shall respectively be bound
by and entitled to the benefit of the Special Conditions set out in Part IX
of the First Schedule hereto.
(16) The Tenant irrevocably appoints the Landlord to be its agent to store or
dispose of any effects left by the Tenant on the said premises for more than
seven days after the end of the term on any terms that the Landlord thinks
fit and without the Landlord being liable to the Tenant save to account for
the net proceeds of sale less the cost of storage (if any) and any other
expenses reasonably incurred by the Landlord.
(17) The Tenant acknowledges the right of the Landlord to change the name of
the Building and further acknowledges that upon the Landlord exercising that
right the Tenant shall have no rights to compensation or damages from the
Landlord.
(18) If the Landlord shall wish to sell demolish redevelop or refurbish the
Building or any part affecting the said premises it may give at least 6
months' notice to the Tenant to terminate this Agreement without prejudice to
the accrued liabilities of either party.
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<PAGE>
THE FIRST SCHEDULE ABOVE REFERRED TO
PART I
LANDLORD: SUNNOON DEVELOPMENT LIMITED whose registered office is situate at Room
2402, China Insurance Group Building, 141 Des Voeux Road Central, Hong
Kong
PART II
TENANT: ORIENT PACKAGING LIMITED a company incorporated in British Virgin
Islands whose registered office is situated at P.C. Box 71, Craigmuir
Chambers, Road Town, Tortola, British Virgin Islands
PART III
TERM: TWO YEARS commencing from the 10th day of May 1999 and expiring on the
9th day of May 2001 (both dates inclusive)
PART IV
Rent/Calendar Month (exclusive of rates,
RENT: PERIOD MANAGEMENT FEE, AND ALL OTHER CHARGES)
The whole term HONG KONG DOLLARS EIGHTEEN THOUSAND THREE
HUNDRED AND NINETY ONLY (HK$18,390.00) per
month
Rent shall be payable in advance without any deduction whatsoever on the 1st
day of each and every calendar month.
When the term of this tenancy does not commence on the 1st day of the month,
the Landlord may at any time during the said term require the Tenant to pay
rent for a particular month on a pro-rate basis, namely, from the
commencement day to the end of the month, and thereafter the Tenant shall pay
rent for each calendar month (including the last month of the said term also
on a pro-rata basis) on the 1st day of each such calendar month.
PART V
USER: The nature of the Tenant's business shall be: Office for commercial
use only.
PART VI
AIR-CONDITIONING AND SERVICE CHARGES:
HK$4,413.60 per month subject to review and in accordance with normal service
charge budgeting for the Building.
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PART VII
THE VETTING CHARGES:
The Landlord shall notify the Tenant of such amount when the Landlord gives its
approval to the plans submitted by the Tenant in accordance with Clause 2 in
Section (III) of this Agreement.
PART VIII
SECURITY DEPOSIT:
HONG KONG DOLLARS SIXTY EIGHT THOUSAND FOUR HUNDRED AND TEN AND CENTS EIGHTY
ONLY (HK$68,410.80) (equivalent to three months' rental and three months'
air-conditioning and service charges).
PART IX
SPECIAL CONDITIONS:
(1) RENT FREE PERIOD
Notwithstanding anything to the contrary contained in this Agreement, the
Tenant shall be entitled to occupy the said premises for a period of 3
months from and inclusive of the date of commencement of the term created
hereunder (i.e. from the 10th day of May 1999 to the 9th day of August
1999) free of rent provided that during the said rent free period the
Tenant shall pay all management fee, rates, air-conditioning and service
charge and other outgoings payable in respect of the said premises.
(2) APPOINTMENT OF AGENT
Notwithstanding anything herein contained, the Tenant hereby appoints
Amazing Grace Management Limited of Room 811, 8th Floor, Wing Shan Tower,
173 Des Voeux Road Central, Hong Kong as its agent in Hong Kong duly
authorized to accept any service of notice or process to be or required to
be served on the Tenant whether under this Agreement or otherwise in
relation to this tenancy and shall prior to the signing of this Agreement
produce an Acknowledgment of Appointment in the form annexed hereto duly
signed by the said service agent acknowledging consent to the said
appointment. The said appointment shall be valid and irrevocable
throughout the term of the tenancy unless substituted by another agent duly
appointed by the Tenant in writing which appointment shall be duly accepted
by the substitute agent. For the avoidance of doubt, service upon the said
service agent or any substitute thereof at the address specified in the
said Acknowledgment of Appointment or any written Notice of Change of
Address shall be deemed valid and good service upon the Tenant and failure
of the said service agent or any substitute thereof to give notice of such
service to the Tenant shall not impair or affect in any way the validity of
such service.
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(3) GUARANTEE
The Tenant shall prior to the signing of this Agreement procure a
personal guarantee given or to be given by in
favour of the Landlord to secure the due observance and performance by
the Tenant of the covenants, agreements, stipulations, terms and
conditions herein contained and on the part of the Tenant to be observed
and performed, such guarantee to be in the form annexed hereto.
PART X
LIST OF CHATTELS AND FIXTURES
Nil
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THE SECOND SCHEDULE ABOVE REFERRED TO
THE SAID PREMISES
ALL THAT UNIT 1003 on the 10TH FLOOR of C L I BUILDING (formerly known as
HENNESSY HOUSE), Nos. 313-317B Hennessy Road and Nos. 314-318 Lockhart Road,
Wanchai, Hong Kong (which Unit is shown for the purpose of identification
only on the plan hereto annexed and thereon colored pink) erected on ALL
THOSE pieces or parcels of ground registered in the Land Registry as THE
REMAINING PORTION OF SECTION A OF INLAND LOT NO. 2623, SECTION B OF INLAND
LOT NO. 2623, SECTION C OF INLAND LOT NO. 2623, THE REMAINING PORTION OF
SECTION D OF INLAND LOT NO. 2623, SECTION F OF INLAND LOT NO. 2623, SECTION G
OF INLAND LOT NO. 2623, THE REMAINING PORTION OF SECTION H OF INLAND LOT NO
2623 and THE REMAINING PORTION OF SECTION I OR INLAND LOT NO. 2623
AS WITNESS the hands of the parties hereto the day and year first
above written.
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SIGNED by Chen Wei and ) FOR AND ON BEHALF OF
Yang Yin Chi, its )
Directors ----------- for ) SUNNOON DEVELOPMENT LIMITED
and on behalf of the )
Landlord whose ________________________
signature(s) is/are Authorized Signature(s)
verified:
LINDY W. K. CHAN
Solicitor, Hong Kong SAR.
Messrs. Tsang, Chen &
Wong
FOR AND ON BEHALF OF
ORIENT PACKAGING LIMITED
SIGNED by Hon Kwok Ping )
Lawrence, its Director -- ) ________________________
--------- for and on ) Authorized Signature(s)
behalf of the Tenant in )
the presence of:
LINDY W. K. CHAN
Solicitor, Hong Kong SAR.
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<PAGE>
RECEIVED the day and year )
)
first above written of and )
)
from the Tenant the sum of ) FOR AND ON BEHALF OF
)
DOLLARS SIXTY EIGHT THOUSAND )
)
FOUR HUNDRED AND TEN AND CENTS )
)
EIGHTY ONLY Hong Kong Currency ) SUNNOON DEVELOPMENT LIMITED
)
being the deposit money above )
)
e x pressed be paid by the )
)
Tenant to the Landlord. ) HK$68,410.80...........................
) ============ AUTHORIZED SIGNATURE(S)
)
)
)
V E R I F I E D by:
LINDY W.K. CHAN
Solicitor, Hong Kong SAR.
Messrs. Tsang, Chan & Wong
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<PAGE>
Acknowledgment of Appointment
I/We, ____________________________ with address in Hong Kong at/whose
registered office/place of business in Hong Kong is situated at
______________________________________________________________________________
hereby consent to appointment by Orient Packaging Limited, a company
incorporated in British Virgin Islands, as its agent in Hong Kong duly
authorised to accept any service of notice or process in relation to the
tenancy of property known as Unit 1003 on the 10th Floor of C.L.I. Building,
Nos. 313-317B Hennessy Road and Nos. 314-318 Lockhart Road, Wanchai, Hong
Kong between Sunnoon Development Limited as the Landlord and the said Orient
Packaging Limited as the Tenant for the term of two years from 10th May 1999
to 9th May 2001 (both dates inclusive). I/we consent to the appointment
pursuant to Clause 2 of part IX of the First Schedule of the Tenancy
Agreement dated the ________ day of _____________ 1999 of the said tenancy.
I/We hereby declare that service of any notice or process on the said
Orient Packaging Limited in relation to the said tenancy can be effected by
serving the same on me/us at the above quoted address.
I/We acknowledge that the said appointment shall be irrevocable unless
and until the said Orient Packaging Limited shall have duly appointed a
substitute agent which appointment shall be duly accepted by the said
substitute agent and notified to the said Sunnoon Development Limited.
I/We shall notify the said Sunnoon Develpment Limited in writing of any
change of the above quoted service address.
Dated the ____________ day of __________________ 1999.
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DEED OF GUARANTEE
To: SUNNOON DEVELOPMENT LIMITED
whose registered office is situated at Room 2402, China Insurance
Group Building, 141 Des Voeux Road Central, Hong Kong
1. IN CONSIDERATION of your having agreed at my request to accept ORIENT
PACKAGING LIMITED ("the Tenant") as the Tenant of your property at Unit 1003
on the 10th Floor of CLI Building, Nos. 313-317B Hennessy Road and Nos.
314-318 Lockhart Road, Wanchai, Hong Kong ("the Premises") upon the terms of
an Agreement dated the _________ day of _______________ 1999 ("the Tenancy
Agreement") at the monthly rent of 11K$18,390.00 for the term of two years
from 10th May 1999 to 9th May 2001 exclusive of rates and management charges
payable in advance on the 1st day of each and every calendar month, I, the
undersigned, being Director of the Tenant, hereby GUARANTEE, the payment to
you on demand of all monies, obligations and liabilities whether present or
future, actual or contingent which are now or may at anytime hereafter be or
become from time to time due, owing or incurred to you from or by the Tenant
under the terms of the Tenancy Agreement together with interest up to date of
payment at such rates and upon such terms as may be payable by the Tenant (or
which would have been so payable but for the liquidation of the Tenant) under
the terms of the Tenancy Agreement and all reasonable expenses (including
legal and other costs on a full indemnity basis) howsoever incurred by you in
relation to this Guarantee.
2. I hereby guarantee the due performance or observance by the Tenant of
the terms of the Tenancy Agreement and if the Tenant defaults in the
performance or observance of any of the provisions on its part contained in
the Tenancy Agreement, I will indemnify you against all losses and damages
reasonable costs and expenses which may be suffered or incurred by you by
reason of any default on the part of the Tenant.
3. This Guarantee shall be a continuing security until the determination of
the Tenancy Agreement and the discharge of all monies obligations and
liabilities of the Tenant under the Tenancy Agreement.
4. This Guarantee shall not be discharged or affected by the winding up of
the Tenant or by my ceasing to be Director of the Tenant. Without prejudice
to the foregoing provisions this Guarantee shall not be discharged by your
giving the Tenant time in which to meet its rent or other indulgence in
respect of its obligations under the Tenancy Agreement.
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<PAGE>
5. This Guarantee may be enforced against me without your first making
demand on or instituting legal proceedings against the Tenant in the first
instance or to join in the Tenant as a party in the same proceedings against
me.
Dated this _______ day of _____________________ 1999.
SIGNED SEALED and DELIVERED by )
)
)
)
in the presence of: )
INTERPRETED by:
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EXHIBIT 10.3
AGREEMENT ASSOCIATED WITH AMENDING THE JOINT VENTURE AGREEMENT
AND ARTICLES OF ASSOCIATION
Meeting Venue: Wuhan Dong Feng Paper Company Limited
Meeting Time: February 26, 1998
Wuhan Dong Feng Paper Factory ("Party A") and Hong Kong Orient Packaging Limited
(originally known as Hong Kong Orient Financial Services Limited or "Party B")
have jointly agreed and signed the Joint Venture Agreement and Articles of
Association for establishing Wuhan Dong Feng Papers Co. Limited (the "JV") on
December 20, 1996. The JV's operations are satisfactory since its establishment
one year ago, however, both parties agreed that certain changes must be made to
improve the JV's operations that are vital to the JV's further development. On
this basis, Party A and Party B has reached the following agreements after
thorough and friendly discussions:
1. In JV agreement, Article 13, Party B's capital contribution of
Rmb10.638 million was to be completed by December 31, 1997. Up to now,
Party B has injected Rmb5,190,000. Party B is herein committed to an
additional Rmb5,450,000 before March 31, 1998 to complete Party B's
capital contribution.
Party B has loaned to the JV approximately Rmb2,000,000 in the past.
Party A herein agrees to allow the JV to payback this loan from Party B
for approximately Rmb2,000,000 immediately upon receiving this amount
from the capital injection from Party B.
2. In the JV agreement appendix, "JV registered capital expansion
agreement" Article 3.2, will be amended to, Party A and Party B agree
to complete the capital expansion by March 31, 1999. Party A will
contribute machinery and equipment valued in total at Rmb22.908
million. Party A's asset contribution must be approved by Party B.
Party B will contribute cash of total Rmb34.362 million. The total
registered capital of the JV will be expanded to Rmb75 million. Party
B's contribution will be as follows:
Date Amount
---- --------
Before June 30, 1998 Rmb5,000,000
Before September 30, 1998 Rmb5,000,000
Before December 31, 1998 Rmb10,000,000
Before March 31, 1999 Rmb14,362,000
-------------
Rmb34,362,000
Party A and Party B will amend the relevant articles associated with registered
capital increase in the Joint Venture Agreement and appendix agreement in
accordance with the above schedule.
3. The JV Agreement Article 30, General Manager will be appointed by Party
A will be amended. The Article 18 in the JV Agreement and Article 31 in
the Articles of Association; "General Manager will be nominated by
Party A" will be amended to allow
<PAGE>
that Party B will appoint the Chairman of the Board and General
Manager. This will reflect Party B's controlling interest in the JV and
allows Party B's full management control of personnel, finance and
materials. Party A will appoint Deputy Chairman, First Deputy General
Manager and Deputy Accountant. Party A appointed employees in the JV
will monitor the management of personnel, finance, and materials and
will also be responsible for holding Party A's financial chop.
4. The JV Agreement Article 26 and Articles of Association Article 20 "The
Board of Directors" will be amended. The Board of Directors will have
10 members. Party A will be entitled to 4 director seats and Party B
will be entitled to 4 director seats and Party B will be entitled to 6
director seats on the JV's board.
5. The JV Agreement Article 38.1 and Article of Association Article 57.1
relates to "Retirement Insurance Scheme" and JV Agreement, Article 38.2
and Article of Association Article 57.2 relates to "Medical Collective
Fee" and the JV Agreement appendix 2 relates to "Land, Property use
right agreement" on the payment due date, the JV agrees to pay Party A,
before the 5th day of each month, all relevant fees of the previous
month according to the Joint Venture Agreement. Should the JV fail to
perform, the daily penalty of the delay is 0.1% of the unpaid amount.
6. Any other amendment needed in the Joint Venture Agreement should be
discussed and agreed by Party A and Party B and then submitted to
relevant authorities for approval.
There will be 4 copies of this agreement. Each party should hold 2 copies. This
agreement will become effective immediately after being signed and chopped by
authorized persons.
Party A: Wuhan Dong Feng Paper Factory
Party B: Orient Packaging Limited
Date: February 27, 1998
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "AGREEMENT"), is dated as of October
4, 1999, by and among Orient Packaging Holdings Limited, a Delaware
corporation (the "COMPANY"), Gamma Link Enterprises Corp., a British Virgin
Islands corporation ("GAMMA"), Acamax Inc., a British Virgin Islands
corporation ("ACAMAX"), and Everford Comsec Limited, a Hong Kong corporation
("Everford"), (collectively, the "SHAREHOLDERS").
RECITALS
WHEREAS, the Shareholders own all of the issued and outstanding
ordinary shares in the capital of Gamma (hereinafter collectively referred to
as the "Gamma Stock");
WHEREAS, the Company wishes to acquire all of the Gamma Stock in
exchange for a total of 3,600,000 shares of the common stock of the Company
at US$1.50 per share, with a par value of $0.0001 per share (the "Company
Common Stock");
WHEREAS, the Gamma Shareholders wish to exchange the Gamma Stock for
the Company Common Stock;
WHEREAS, The Shareholders are the sole shareholders of the Company
and will directly benefit by the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises herein contained,
the mutual covenants hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto covenant and agree as follows:
TERMS
1. EXCHANGE OF SECURITIES.
Subject to the terms and conditions hereinafter set forth, at the
time of the closing referred to in Section 7 hereof (the "CLOSING DATE"), the
Company will issue and deliver to the Shareholders (or their nominees), as
set forth on the SCHEDULE 1 ATTACHED HERETO, an aggregate of 3,600,000 shares
of the Company Common Stock in exchange for which the Shareholders will
deliver, or cause to be delivered to the Company, all of the Gamma Stock (the
"EXCHANGE").
2. REPRESENTATIONS AND WARRANTIES BY GAMMA AND THE SHAREHOLDERS.
Each of Gamma and the Shareholders jointly and severally represent
and warrant to the Company that, as of the date hereof and as of the Closing
Date:
(a) Gamma is a corporation duly organized, validly existing
and in good standing under the laws of the British Virgin Islands. Copies of
the Memorandum and Articles of Association for Gamma have heretofore been
furnished to the Company and such documents are true and correct copies of
the Memorandum and Articles of Association of Gamma and
<PAGE>
include all amendments thereto. Gamma has authorized Capital Stock consisting
of 5,000,000 shares of Gamma stock of which 1,000,000 shares of Gamma stock
are duly and validly issued, and outstanding, fully paid and not assessable.
No other securities of Gamma, or rights, options or warrants to subscribe for
or acquire securities of Gamma, other than the above-described shares, exist
or issued, outstanding or agreed to be issued. Gamma has not granted to any
party registration or similar rights with respect to its capital stock.
(b) Gamma is the owner of a 51% interest in Sino-Panel
(Gaoyao) Limited , a British Virgin Islands corporation ("Sino-Panel") which
in turn owns a 75,000 m3/annum particleboard production line engineered by
Schauman Wood Oy, Finland and situated in Gaoyao, Guangdong, People's
Republic of China.
(c) The consolidated balance sheets of Gamma and its
subsidiary, (the "GAMMA GROUP") as at December 31, 1998, and the consolidated
statements of income, consolidated changes in stockholders' equity and
consolidated statements of cash flow for each of the years ended December 31,
1998 prepared by Gamma and audited by a Certified Public Accountants in Hong
Kong, fairly present, as of such dates the consolidated financial condition
of the Gamma Group and the results of operations, changes in stockholders
equity and cash flow for the periods then ended.
(d) Each member of the Gamma Group has the power to own its
properties and carry on its business as now being conducted and as proposed
to be conducted;
(e) Except as set forth on Schedule 2(e) attached hereto,
no member of the Gamma Group has contracts, agreements, leases, licenses,
arrangements, commitments, or other undertakings (collectively the "Gamma
Contracts") to which such member is a party or to which it or its property is
subject, except as disclosed on such schedule, no member of the Gamma Group
is in material default, or alleged to be in material default, under any Gamma
Contract, and, to the knowledge of Gamma or the Shareholders, no other party
to any Gamma Contract is in default thereunder nor, to the knowledge of Gamma
or the 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
such Gamma Contract.
(f) Except as set forth on Schedule 2(f) attached hereto,
there are no contracts, agreements, arrangements, or other transactions
between any member of the Gamma Group and any officer, director or five
percent (5%) shareholder thereof, a member of such officer, director or five
percent shareholder's family, or any affiliate of any such officer, director
or five percent shareholder.
(g) Each member of the Gamma Group has complied, in all
material respects, with the terms and provisions of all agreements to which
it is a party and all laws, rules, regulations and orders to which it or its
assets are subject.
(h) No member of the Gamma Group is involved in any pending
or threatened litigation and there is no dispute, claim, arbitration,
proceeding, or, to the knowledge of Gamma or the Shareholders, threatened
against any such member affecting any of its properties or assets that might
result, either in any case or in the aggregate, in a material average change
in the business, operations, affairs or financial condition of such member or
its properties or assets, or
2
<PAGE>
that might call into question the validity of this Agreement or any action
taken or to be taken pursuant hereto.
(i) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate (including
stockholder) action of Gamma and each of the Shareholders. This Agreement
constitutes the valid and binding obligation of Gamma and the Shareholders
enforceable in accordance with its terms, except as enforceability thereof
may be limited by applicable bankruptcy, insolvency and similar laws
effecting creditor's rights and by general principles of equity. The
execution, delivery and performance by Gamma and the Shareholders of this
Agreement, the consummation of the Exchange, the issuance and sale of the
Gamma Stock to Company, and the consummation of the other transactions
contemplated by this Agreement to be performed by Gamma and the Shareholders
do not and will not require the authorization, consent, permit or approval
of, or declaration to or filing with, any court, regulatory or public body or
governmental authority not already obtained or made, or result in the
creation of any lien, security interest, charge or encumbrance upon the
capital stock or assets of Gamma or any other member of the Gamma Group.
(j) Each member of the Gamma Group has good and marketable
title to all the properties owned by it, free and clear of all liens,
security interests, charges, encumbrances and defects.
(k) None of the members of the Gamma Group use any
processes or products and is not engaged in any activities which infringe any
patents, copyrights, trademarks, service marks, designs, trade or business
names or other registrable or unregistrable intellectual property rights of
any third party.
(l) Since December 31, 1998, no member of the Gamma Group
has experienced any material adverse changes with respect to its business
condition (financial or otherwise), results of operations, assets,
liabilities or prospects. Without limiting the generality of the foregoing:
(i) Such member has not declared, paid or made
nor is proposing to declare, pay or make any dividend or other distribution;
(ii) No event has occurred which would entitle
any third party (with or without the giving of notice, the lapse of time, or
both) to call for the repayment of indebtedness prior to its normal maturity
date;
(iii) The business of such member has been
carried on in the ordinary and usual course and in the same manner (including
nature and scope) as in the past, no fixed asset or stock has been written up
nor any debt written off, and no unusual or abnormal contract has been
entered into by such member; and
(iv) No asset of such member has been acquired or
disposed of, or has been agreed to be acquired or disposed of, otherwise than
in the ordinary course of business and there has been no disposal or parting
with possession of any of its property, assets (including know-how) or stock
in trade or any payments by such member, and no contract involving
expenditure by it on capital account has been entered into by such member,
and no liability has
3
<PAGE>
been created or has otherwise arisen (other than in the ordinary course of
business as previously carried on).
(m) Each member of the Gamma Group has complied, in all
material respects, with the terms and provisions of all agreements to which
it is a party and all laws, rules, regulations and orders or to which it or
its assets are subject.
(n) Since December 31, 1998, no member of the Gamma Group
has provided any guarantees to any third party.
3. REPRESENTATIONS AND WARRANTIES BY THE SHAREHOLDERS.
Each Shareholder, severally and not jointly, represents and warrants
to the Company that, as of the date hereof and as of the Closing Date:
(a) Such Shareholder has good and marketable title to all
of the shares of Gamma Stock which it is selling, transferring and
exchanging, free and clear of any and all liens or encumbrances.
(b) Such Shareholder has full power to exchange its shares
of Gamma Stock upon the terms provided for in this Agreement.
(c) Such Shareholder understands that the Company is
relying upon an exemption from registration under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), as set forth in Section 4 thereof, which
relate to "transactions by an issuer not involving any public offering," and
applicable regulations promulgated by the Securities and Exchange Commission
("SEC") thereunder.
(d) The Company has made available to such Shareholder and
its representative, if any, the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the Exchange
and to obtain any additional information desired by the Shareholder
concerning the Company.
(e) The investment by such Shareholder in the Company
Common Stock is a suitable investment for such Shareholder, given the
investment goals and objectives of such Shareholder.
(f) Such Shareholder, either individually or together with
his purchaser representative, if one has been retained, has such knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of an investment in the Company Common Stock.
The Shareholder understands the effect of accepting the Exchange and the
rights, restrictions and obligations of a holder of Company Common Stock.
(g) Such Shareholder is purchasing the Company Common Stock
for the Shareholders own account, for investment purposes only, and not with
a view to the sale, pledge, hypothecation, or other distribution or
disposition thereof or of any interest therein.
(h) Such Shareholder understands that resale or transfer of
the Company Common Stock will be prohibited indefinitely unless either (i)
the Company causes the
4
<PAGE>
Company Common Stock to be registered under the Securities Act or, (ii) an
exemption from such registration is available and such resale or transfer
will not otherwise violate federal or state securities laws. Such Shareholder
further understands that a legend will be affixed to the certificates
representing the Company Common Stock setting forth the foregoing limitations.
4. REPRESENTATION, WARRANTIES AND COVENANTS BY THE COMPANY
The Company represents and warrants to the Shareholders and Gamma
that, as of the date hereof and as of the Closing Date (except as modified by
the conditions precedent):
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to own its properties and carry on its business as now
being conducted and as proposed to be conducted and has authorized capital
stock consisting of 50,000,000 shares of Company Common Stock of which
4,154,158 shares of Company Common Stock are duly and validly issued and
outstanding, fully paid and non-assessable. Copies of the Certificate of
Incorporation, Amendments of the Certificate of Incorporation and the By-Laws
for the Company have been furnished by the Company to the Shareholders and
Gamma and such documents are true and correct copies of the Certificate of
Incorporation and the By-Laws of the Company and include all amendments
thereto. No other securities of the Company, or rights, options or warrants
to subscribe for or acquire securities of the Company, other than the
above-described shares, exist or are issued, outstanding or agreed to be
issued. The Company has not granted to any party registration or similar
rights with respect to its capital stock.
(b) The Company has all of the corporate power and
authority necessary to execute, deliver and perform this Agreement and to
issue and deliver the Company Common Stock required to be delivered hereunder.
(c) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate (including
stockholder) action of the Company. This Agreement, constitute the valid and
binding obligation of the Company enforceable in accordance with its terms,
except as the enforceability thereof may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditor's rights and by general
principles of equity. The execution, delivery and performance by the Company
of this Agreement, the consummation of the Exchange, the issuance and sale of
the Company Common Stock to the Shareholders, and the consummation of the
other transactions contemplated by this Agreement, to be performed by the
Company do not and will not require the authorization, consent, permit or
approval of, or declaration to or filing with, any court, regulatory or
public body or governmental authority not already obtained or made, or result
in the creation of any lien, security interest, charge or encumbrance upon
the capital stock or assets of the Company.
(d) The Company has good marketable title to all the
properties owned by it, free and clear of all liens, security interests,
charges, encumbrances and defects.
(e) The consolidated balance sheets of the Company and its
consolidated subsidiaries (the "Company Group") prepared by the Company and
audited by Horwath Hong Kong Limited, Accountants, as at December 31, 1997
and 1998, and the consolidated statements of operations and cash flow for the
years ended December 31, 1997 and 1998, and the consolidated statements of
changes in shareholders' equity for each of the years ended December
5
<PAGE>
31, 1997 and 1998 attached hereto as SCHEDULE 4(e) (THE "COMPANY FINANCIAL
STATEMENTS"), present fairly as of such dates the consolidated financial
condition of the Company Group and the results of the operations for the
periods then ended. The audited consolidated financial statements of the
Company have been prepared in accordance with US GAAP.
(f) Since December 31, 1998, no member of the Company Group
has experienced any material adverse changes with respect to its business
condition (financial or otherwise), results of operations, assets,
liabilities or prospects. Without limiting the generality of the foregoing:
(i) The Company has not declared, paid or made
nor is proposing to declare, pay or make any dividend or other distribution;
(ii) No event has occurred which would entitle
any third party (with or without the giving of notice, the lapse of time, or
both) to call for the repayment of indebtedness prior to its normal maturity
date;
(iii) The business of each member of the Company
Group has been carried on in the ordinary and usual course and in the same
manner (including nature and scope) as in the past, no fixed asset or stock
has been written up nor any debt written off, and no unusual or abnormal
contract has been entered into by the Company;
(iv) No asset of the Company has been acquired or
disposed, or has been agreed to be acquired or disposed of, otherwise than in
the ordinary course of business and there has been no disposal or parting
with possession of any of its property, assets (including know-how) or stock
in trade or any payments by the Company, and no contract involving
expenditure by it on capital account has been entered into by the Company,
and no liability has been created or has otherwise arisen (other than in the
ordinary course of business as previously carried on);
(g) The Company has complied, in all material respects,
with the terms and provisions of all agreements to which it is a party and
all laws, rules, regulations and orders or to which it or its assets are
subject.
(h) Since December 31, 1998, the Company has not provided
any guarantees to any third party.
(i) Neither the execution or delivery of this Agreement nor
the issuance of the Company Common Stock hereunder, nor the performance,
observance or compliance with the terms and provisions of this Agreement,
will violate any provision of law, rule or regulation, any order of any court
or other governmental agency, the Certificate of Incorporation or By-laws of
the Company or any indenture, agreement or other instrument to which the
Company is a party, or by which the Company is bound or by which any of its
property is bound.
(j) The Company Common Stock is currently listed for
trading on the OTC Bulletin Board, and the Company has received no notice
that its Common Stock is subject to being delisted therefrom.
6
<PAGE>
(k) The Company is not involved in any pending or
threatened litigation and there is no dispute, claim, arbitration, proceeding
or, to the knowledge of the Company, threatened against the Company affecting
any of its properties or assets 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 Company or 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.
(l) The Company hereby acknowledges that the Gamma Stock to
be exchanged for the Company Common Stock is not registered under the
Securities Act or the laws of any other jurisdiction and are subject to
restrictions on their transfer and resale under applicable federal and state
law.
(m) The Company understands that (i) in agreeing to
transfer their Gamma Stock to the Company in the Exchange, the Shareholders
are relying upon an exemption from registration under the Securities Act, as
set forth in Section 4 thereof, which relate to private resales of
securities, and (ii) the Shareholders are also relying upon the securities
laws of any state on the basis that the Exchange is a transaction exempt from
the registration requirements of such laws.
(n) The Company is purchasing the Gamma Stock for its own
account, for investment purposes only, and not with a view to the sale,
pledge, hypothecation, or other distribution or disposition thereof or of any
interest therein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to consummate the Exchange pursuant to
Section 1 is subject to the satisfaction of the following conditions as of
the Closing Date:
(a) the representations and warranties made by the
Shareholders and Gamma shall be accurate in all material respects as of the
date hereof and as of the Closing Date and the terms and conditions of this
Agreement to be performed and complied with by the Shareholders on or prior
to the Closing Date shall have been performed and complied with by the
Shareholders on or prior to the Closing Date, and the Company will have
received a certificate, in the form attached as EXHIBIT 5(a), signed by each
of the Shareholders and Gamma, dated the Closing Date, certifying to such
effect;
(b) Gamma and the Shareholders shall have received all
corporate, regulatory and other third party approvals and authorizations
necessary to consummate the Exchange.
(c) The Company shall have completed to its sole
satisfaction its due diligence on the business and affairs of the Gamma Group.
6. CONDITIONS TO THE OBLIGATIONS OF GAMMA AND THE SHAREHOLDERS.
The obligation of the Shareholders to consummate the Exchange
pursuant to Section 1 is subject to the satisfaction of the following
conditions as of the Closing Date:
(a) the representations and warranties made by the Company
shall be accurate in all material respects as of the date hereof and as of
the Closing Date and the terms and
7
<PAGE>
conditions of this Agreement to be performed and complied with by the Company
on or prior to the Closing Date shall have been performed and complied with
by the Company on or prior to the Closing Date, and the Shareholders will
have received a certificate, in the form attached as EXHIBIT 6(a), signed by
each of the Company , dated the Closing Date, certifying to such effect;
7. CLOSING DATE.
The Closing Date shall take place on, or prior, to December 4, 1999
at the offices of the Company, or at such other time and place as the parties
hereto shall mutually agree.
8. ACTIONS AT CLOSING.
At Closing, the Company and the Shareholders will each deliver, or
cause to be delivered to the other, certificates representing the Company
Common Stock and Gamma Stock to be exchanged in accordance with Section 1,
and each party shall pay any and all taxes required to be paid in connection
with the issuance and delivery of its own securities. All share certificates
shall be in the name of the party to which the same are deliverable or its
nominees except the Shareholders' shares, which will be accompanied by an
instrument of transfer executed in favor of the Company.
In addition, Gamma will deliver to the Company:
(1) the written resignations of all directors and
such officers and auditors of each member of the Gamma Group required
by the Company, which resignations will contain an acknowledgment from
each of them that they have no claims against such member for loss of
office, unpaid compensation, or otherwise; and
(2) all registration certificates, statutory books,
minute books and common seal of each member of the Gamma Group, all
account books and all documents and papers in connection with the
affairs of such member and all documents of title relating to such
member's assets (unless already in the possession of the Company) as
are required by the Shareholders.
9. CONFIDENTIAL INFORMATION; DELIVERY; RETURN; NON-DISCLOSURE.
(a) DELIVERY OF INFORMATION. Until the earlier of the
Closing Date or the termination of this Agreement (such date hereinafter the
"TERMINATION DATE"), pursuant to the terms of this Agreement:
(1) Gamma will provide the Company and its officers,
directors, employees, agents, counsel, accountants, financial advisors,
consultants and other representatives (together "COMPANY
REPRESENTATIVES") with reasonable access, upon reasonable prior notice,
to all officers, employees and accountants of each member of the Gamma
Group and to their assets, properties, contracts, books, records and
all such other information and data concerning the business and
operations of such member as the Company Representatives reasonably may
request in connection with such investigation, but only to the extent
that such access does not unreasonably interfere with the business and
operations of such member.
8
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(2) The Company will provide the Shareholders and
Gamma and their officers, directors, employees, agents, counsel,
accountants, financial advisors, consultants and other representatives
(together "GAMMA REPRESENTATIVES") with reasonable access, upon
reasonable prior notice, to all officers, employees and accountants of
the Company and to its assets, properties, contracts, books, records
and all such other information and data concerning the business and
operations of the Company as the Gamma Representatives reasonably may
request in connection with such investigation.
(b) ACKNOWLEDGEMENTS; DEFINITIONS:
(1) The Company has been and, pursuant to the terms
of this Section, shall continue to be privy to certain proprietary and
confidential information of Gamma, and/or the Shareholders (the "GAMMA
CONFIDENTIAL INFORMATION"). As used herein, the term "GAMMA
CONFIDENTIAL INFORMATION" shall include, but not be limited to, any and
all information or documentation whatsoever which has been disclosed or
made available to the Company Representatives by Gamma, the
Shareholders, regarding their products, services, techniques,
manufacturing or other processes, activities, businesses, properties,
operations, clients, customers, prospective clients, price lists,
suppliers, business associates equipment, Trade Secrets (as defined
herein), computer software, scientific discoveries, experiments, data,
equipment designs, training, devices, charts, manuals, payroll,
financial statements and improvements thereto and any other information
or materials disclosed or delivered to the Company Representatives
which the disclosing party may from time to time designate and treat as
confidential, proprietary or as a trade secret, including without
limitation all information relating (directly or indirectly) to the
material set forth in the Gamma business plan delivered or to be
delivered to the Company Representatives.
(2) Gamma and/or the Shareholders have been and,
pursuant to the terms of this Section, shall continue to be privy to
certain proprietary and confidential information of the Company (the
"COMPANY CONFIDENTIAL INFORMATION"). As used herein, the term "COMPANY
CONFIDENTIAL INFORMATION" shall include, but not be limited to, any and
all information or documentation whatsoever which has been disclosed or
made available to Gamma Representatives by the Company regarding its
products, services, techniques, manufacturing or other processes,
activities, businesses, properties, operations, clients, customers,
prospective clients, price lists, suppliers, business associates,
equipment, Trade Secrets (as defined herein), computer software,
scientific discoveries, experiments, data, equipment designs, training
devices, charts, manuals, payroll, financial statements and
improvements thereto and any other information or materials disclosed
or delivered to Gamma Representatives which the disclosing party may
from time to time designate and treat as confidential, proprietary or
as a trade secret.
(3) Reference to "CONFIDENTIAL INFORMATION" herein
shall include and relate to both Gamma Confidential Information and the
Company Confidential Information.
(4) As used herein, the term "TRADE SECRET" shall
mean the whole or any portion of any formula, pattern, device,
combination of devices, or compilation of information which is for use,
or is used in the operation of the other party's businesses
9
<PAGE>
and which provides such party's business as advantage, or an
opportunity to obtain an advantage, over those who do not know or use
it. For purposes of interpretation hereunder the following shall apply:
Irrespective of novelty, invention, patentability, the
state of the prior art, and the level of skill in the business, art or field
to which the subject matter pertains, when the owner thereof takes measures
to prevent it from becoming available to persons other than those selected by
the owner to have access thereto for limited purposes, a trade secret is
considered to be a secret, of value, for use or in use by the business, and
of advantage to the business, or providing an opportunity to obtain an
advantage, over those who do not know or use it.
In addition, a "TRADE SECRET" shall include information
(not readily compiled from publicly available sources) which has been made
available by Gamma, and/or the Shareholders to the Company Representatives or
by the Company to the Gamma Representatives, as the case may be, during the
course of their involvement with each other, including but not limited to the
names, addresses, telephone numbers, qualifications, education,
accomplishments, experience and resumes of all persons who have applied or
been recruited for employment, for either or both permanent and temporary
jobs, job order specifications and the particular characteristics and
requirements of persons generally hired by the disclosing party, as well as
specific job listings from companies with whom the disclosing party does, or
attempts to do, business, as well as mailing lists, computer runoffs,
financial or other information not generally available to others.
(c) NON-DISCLOSURE; THE COMPANY:
(1) The Company, for itself, its officers, employees,
directors, agents, affiliates, subsidiaries, independent contractors,
and related parties, including Horler (all of whom are to be deemed
included in any reference herein to the Company) agrees that it will
not at any time during or after the termination or expiration of this
Agreement, except as authorized or directed herein or in writing by
Gamma and/or the Shareholders, use for the Company's own benefit, copy,
reveal, sell, exchange or give away, disclose, divulge or make known or
available in any manner to any person, firm, corporation or other
entity (whether or not the Company receives any benefit therefrom), any
Gamma Confidential Information.
(2) The Company will take all actions necessary to
ensure that the Gamma Confidential Information is maintained as secret
and confidential and its disclosure shall only be made to the extent
necessary, to a limited group of the Company's employees, officers
and/or directors who are actually engaged in the evaluation of the
Gamma Confidential Information; provided however, the Company
acknowledges and agrees that it shall be responsible and held liable
for the actions or inactions of such employees, officers and directors
(regardless whether or not such actions or inactions are within their
scope of employment) with respect to the maintenance of the secrecy and
confidentiality of the Gamma Confidential information.
(3) The Company understands that if it discloses to
others, use for its own benefit (other than as part of an agreement
with Gamma and the Shareholders, which expressly provides for such use)
or for the benefit of any person or entity other than Gamma and/or the
Shareholders, copies or makes notes of any such Gamma Confidential
10
<PAGE>
Information, such conduct will constitute a breach of the confidence
and trust bestowed upon the Company by Gamma and the Shareholders and
will constitute a breach of this Agreement and render the Company
responsible for any and all damages suffered by Gamma and/or the
Shareholders as a result thereof.
(4) Provided, however, notwithstanding the foregoing,
the terms of this subsection (c) shall not be applicable to any
information which the Company is compelled to disclose by judicial or
administrative process or by other requirements of law (including,
without limitation, in connection with obtaining the necessary
approvals of the Exchange of governmental or regulatory authorities),
except that the Company shall procure the confidential treatment of any
Gamma Confidential Information which it is compelled to disclose by
this Section 9(c)(4) and that access thereto shall be strictly
restricted to persons to whom such judicial and administrative process
requires. In the event of any such disclosure of any Gamma Confidential
Information, Gamma and the Shareholders shall have the right to
petition any court of competent jurisdiction for any remedy or order
(interim or otherwise) for the protection of confidentiality of such
Gamma Confidential Information.
(d) NON-DISCLOSURE: GAMMA AND THE SHAREHOLDERS:
(1) Gamma and the Shareholders, for themselves, their
officers, employees, directors, agents, affiliates, subsidiaries,
independent contractors, and related parties (all of whom are to be
deemed included in any reference herein to Gamma and the Shareholders)
severally (but not jointly) agree that they will not at any time during
or after the termination or expiration of any agreement or negotiations
for an agreement with the Company, except as authorized or directed
herein or in writing by the Company, use for Gamma and the
Shareholders' own benefit, copy, reveal, sell, exchange or give away,
disclose, divulge or make known or available in any manner to any
person, firm, corporation or other entity (whether or not Gamma and the
Shareholders receive any benefit therefrom), any Company Confidential
Information.
(2) Gamma and the Shareholders severally (but not
jointly) agree to take all actions necessary to ensure that the Company
Confidential Information is maintained as secret and confidential and
its disclosure shall only be made, to the extent necessary, to a
limited group of Gamma and/or the Shareholders' own employees,
officers, directors and/or professional advisors who are actually
engaged in the evaluation of the Company Confidential Information;
provided, however, Gamma and the Shareholders severally (but not
jointly) acknowledge and agree that they shall be responsible and held
liable for the actions or inactions of such employees, officers,
directors and/or professional advisors (regardless whether or not such
actions or inactions are within their scope of employment) with respect
to the maintenance of the secrecy and confidentiality of the Company
Confidential Information.
(3) Gamma and the Shareholders understand that if
they disclose to others, use for their own benefit (other than as part
of an agreement with the Company, which contemplates such use) or for
the benefit of any person or entity other than the Company, copies or
make notes of any such Company Confidential Information, such conduct
will constitute a breach of the confidence and trust bestowed upon
Gamma and the
11
<PAGE>
Shareholders by the Company and will constitute a breach of this
Agreement and render Gamma and the Shareholders severally (but not
jointly) responsible for any and all damages suffered by the Company
as a result thereof.
(4) Provided, however, notwithstanding the foregoing,
the terms of this subsection (d) shall not be applicable to (i) any
information which Gamma and/or the Shareholders are compelled to
disclose by judicial or administrative process or by other requirements
of law (including, without limitation, in connection with obtaining the
necessary approvals of the Exchange of governmental or regulatory
authorities), (ii) information that is publicly available, (iii)
information previously in the possession of Gamma and/or the
Shareholders, (iv) information obtained independently from third
parties and (v) with respect to the Shareholders, information that is
disclosed for inter-fund reporting purposes.
(e) RETURN OF INFORMATION:
(1) At any time after the Termination Date, upon
request of Gamma or any Shareholder, the Company will, and will cause
the Company Representatives to promptly (and in no event later than
five days after such request) redeliver or cause to be redelivered to
Gamma or the Shareholder (as applicable) all Gamma Confidential
Information and destroy or cause to be destroyed all notes, memoranda,
summaries, analyses, compilations and other writings relating thereto
or based thereon prepared by the Company or any Company Representative.
Such destruction shall be certified in writing to Gamma and the
Shareholders by an authorized officer supervising such destruction.
(2) At any time after the Termination Date, upon
request of the Company, the Shareholders and/or Gamma will, and will
cause the Gamma Representatives to, promptly (and in no event later
than five days after such request) redeliver or cause to be redelivered
to the Company all original Company Confidential Information.
10. EQUITABLE RELIEF.
The Company, Gamma and the Shareholders agree that money damages
would not be a sufficient remedy for any breach or threatened breach of any
provision set forth in Sections 9, or 12 by the other, and that, in addition
to all other remedies which any party hereto may have, each party will be
entitled to specific performance and injunctive or other equitable relief as
a remedy for any such breach or threatened breach. No failure or delay by any
party hereto in exercising any right, power or privilege hereunder will
operate as a waiver thereof, nor will any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right,
power or privilege hereunder.
11. CONDUCT AND BUSINESS.
(a) Between the date hereof and the Closing Date, each
member of the Gamma Group shall conduct its business in substantially the
same manner in which it has heretofore been conducted, and the Shareholders
will not permit any such member to: (1) enter into any contracts, agreements
or arrangements, other than in the ordinary course of business, or (2)
declare or make any distribution of any kind to the Shareholders.
12
<PAGE>
(b) Between the date hereof and the Closing Date, the
Company shall conduct its business in substantially the same manner in which
it has heretofore been conducted, and the Company will not; (1) enter into
any contracts, agreements or arrangements, other than in the ordinary course
of business, or (2) declare or make any distribution of any kind to the
shareholders of the Company.
12. NO PUBLIC DISCLOSURE.
(a) Gamma and the Shareholders hereby acknowledge that they
are aware (and that the Gamma Representatives who have been apprised of this
Agreement and the Shareholders' consideration of the Exchange have been, or
upon becoming so apprised will be advised) of the restrictions imposed by
federal and state securities laws on a person possessing material
"non-public" information about a company with a class of securities
registered under the Exchange Act. In this regard, each such Shareholder
agrees that while it is in possession of material non-public information with
respect to the Company and its subsidiaries, such Shareholder will not
purchase or sell any securities of the Company, or communicate such
information to any third party, in violation of any such laws.
(b) Without the prior written consent of the other, neither
the Shareholders or Gamma, on the one hand, nor the Company, on the other,
will, and will each cause their respective representatives not to, make any
release to the press or other public disclosure with respect to either the
fact that discussions or negotiations have taken place concerning the
Exchange, the existence or contents of this Agreement or any prior
correspondence relating to this transaction, except for such public
disclosure as may be necessary, in the written opinion of outside counsel
(reasonably satisfactory to the other party) for the party proposing to make
the disclosure not to be in violation of or default under any applicable law,
regulation or governmental order. If either party proposes to make any
disclosure based upon such an opinion, that party will deliver a copy of such
opinion to the other party, together with the text of the proposed
disclosure, as far in advance of its disclosure as is practicable, and will
in good faith consult with and consider the suggestions of the other party
concerning the nature and scope of the information it proposes to disclose.
13. AGREEMENT TO INDEMNIFY.
Subject to the terms and conditions of this Section, the Company
hereby agrees, to indemnify, defend and hold the Shareholders harmless from
and against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without
limitation, interest, penalties, court costs and reasonable attorneys' fees
(including paralegal and law clerk fees and other legal expenses and costs)
and expenses, asserted against, relating to, imposed upon or incurred by the
Shareholders by reason of or resulting from a breach of (i) any agreement set
forth in this Agreement by the Company or (ii) any representation or warranty
given by the Company contained in or made pursuant to this Agreement, or
(iii) any liability of the Company Group existing, accruing or arising on or
before the Closing Date; provided that, in the case of clause (ii), notice of
such breach of representation or warranty is given to the Company within two
years of the Closing Date, except with respect to the representations and
warranties contained in Sections 4(a) through 4(d), 4(k) and 4(l), which
shall survive without limitation.
13
<PAGE>
Subject to the terms and conditions of this Section, each of Gamma
and the Shareholders hereby agrees, severally and not jointly, to indemnify,
defend and hold the Company harmless from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including without limitation, interest, penalties, court costs
and reasonable attorneys' fees (including paralegal and law clerk fees and
other legal expenses and costs) and expenses, asserted against, relating to,
imposed upon or incurred by the Company by reason of or resulting from a
breach of (i) any agreement set forth in this Agreement by Gamma or such
Shareholder, or (ii) any representation or warranty given by Gamma or such
Shareholder contained in or made pursuant to this Agreement, provided that
notice of such breach of representation or warranty is given to Gamma or the
Shareholder within two years of the Closing Date, except with respect to the
representations and warranties contained in Sections 2(a) - 2(b), 3(a) and
3(b), which shall survive without limitation.
All of the foregoing are hereinafter collectively referred to as
"CLAIMS" and singularly as a "CLAIM."
(a) CONDITIONS OF INDEMNIFICATION.
The obligations and liabilities of the Shareholders, Gamma,
and the Company, with respect to Claims resulting from the assertion of
liability by any of them, shall be subject to the following terms and
conditions:
(1) The party hereto seeking indemnification (the
"INDEMNITEE") will give the other party hereto from whom
indemnification is sought (the "INDEMNITOR") notice of any such Claim
reasonably promptly after the Indemnitee receives notice thereof, and
the Indemnitor will have the right to undertake the defense thereof by
representatives of its own choosing. The failure of any Indemnitee to
give notice as provided herein shall not relieve the Indemnitor of its
obligations under Section 14 above, except to the extent that the
Indemnitor is prejudiced by the failure to give such notice. When the
Indemnitor undertakes the defense of any claim, the Indemnitee shall
have the right to participate in contesting such claim at its own costs
and expense.
(2) In the event that the Indemnitor, within ten (10)
business days after notice of any such Claim, fails to defend such
Claim, the Indemnitee will (upon giving written notice to the
Indemnitor) have the right, but not the obligation, to undertake the
defense, compromise or settlement of such Claim on behalf of and for
the account and risk of the Indemnitor, subject to the right of the
Indemnitor to assume the defense of such Claim at any time prior to
settlement, compromise or final determination thereof.
(3) The Indemnitor shall not, without the
Indemnitee's written consent, settle or compromise any Claim or consent
to entry of any judgment which does not include an unconditional
release from all liability in respect of such Claim, other than
liability specified in the settlement, from the claimant or plaintiff
to the Indemnitee. To the greatest extent reasonably possible, the
parties shall attempt to obtain general releases from such plaintiff or
claimant.
14. COST AND EXPENSES.
14
<PAGE>
Each party hereto shall pay its own costs and expenses incident to the
negotiation and preparation of this Agreement, to the consummation of the
transactions contemplated herein and therein.
15. MISCELLANEOUS.
(a) WAIVER; STRICT CONSTRUCTION:
No change or modification of this Agreement shall be valid
unless the same is in writing and signed by all the parties hereto. No waiver of
any provision of this Agreement shall be valid unless in writing and signed by
the person against whom sought to be enforced. The failure of any party at any
time to insist upon strict performance of any condition, promise, agreement or
understanding set forth herein shall not be construed as a waiver of
relinquishment of the right to insist upon strict performance of the same
condition, promise, agreement or understanding at a future time.
(b) ENTIRE AGREEMENT.
This Agreement, together with all schedules and exhibits
hereto sets forth all of the promises, agreements, conditions, understandings,
warranties and representations among the parties hereto, and there are no
promises, agreements, conditions, understandings, warranties or representations,
oral or written, express or implied, among them other than as set forth herein.
This Agreement is, and is intended by the parties to be, an integration of any
and all prior agreements or understandings, oral or written.
(c) HEADINGS.
The headings in this Agreement are inserted for convenience of
reference only and are not to be used in construing or interpreting the
provisions of this Agreement.
(d) COUNTERPARTS.
This Agreement may be executed in two or more identical
counterparts, each of which will be deemed an original and all of which will
constitute one instrument.
(e) CONSTRUCTION.
Unless the context clearly otherwise requires the use of the
singular will include the plural and the use of the plural will include the
singular, and the use of any gender will include the other two genders.
(f) SEVERABILITY.
If a covenant or provision provided in this Agreement is
deemed to be contrary to law, that covenant or provision will be deemed
ineffective and will not affect the validity, interpretation, or effect of the
other provisions of either this Agreement or any agreement executed pursuant to
it or the application of that covenant or provision to other circumstances not
contrary to law
15
<PAGE>
(g) COMPUTATION OF TIME.
Whenever the last day for the exercise of any privilege or the
discharge of any duty hereunder falls upon Saturday, Sunday, or any public or
legal holiday, whether Delaware or federal, the party having the privilege or
duty will have until 5:00 p.m. Pacific Standard Time on the next succeeding
regular business day to exercise the privilege or discharge the duty.
(h) Interpretation.
No provision of this Agreement will be construed against or
interpreted to the disadvantage of any party by any court or other
governmental or judicial authority by reason of such party having or being
deemed to have structured or dictated such provision.
(i) GOVERNING LAW.
This Agreement and the obligations of the parties hereunder
will be interpreted, construed, and enforced in accordance with the Laws of
the State of Delaware.
(j) ATTORNEYS' FEES.
In the event a lawsuit is brought by any party to enforce
or interpret the terms hereof, or for any dispute arising out of this
transaction, the party prevailing in any such lawsuit shall be entitled to
recover from the non-prevailing party its costs and expenses thereof,
including its legal fees in reasonable amount and prejudgment and
post-judgment interest at the highest rate allowable under Delaware law.
(k) ASSIGNMENT.
This Agreement shall not be assignable by any party without
the prior written consent of the other.
(l) NOTICES.
All notices, requests, instructions or other documents to
be given hereunder shall be in writing and sent by registered mail or
overnight courier:
If to Gamma, then:
Gamma Link Enterprises Corp.
Omar Hodge Building, 2nd Floor
325 Waterfront Drive
Wickhams Cay
Roadtown, Tortola
British Virgin Islands
16
<PAGE>
If to the Company, then:
Orient Packaging Holdings Limited
CLI Building, Suite 1003
313 Hennessy Road
Wanchai, Hong Kong
Attn: Danny Wu
With a copy to:
David L. Ficksman, Esq.
Loeb & Loeb
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017-2475
If to the Shareholders then:
To the names and addresses of the Shareholders set out on the
signature page of this Agreement.
(m) BENEFIT AND BURDEN.
This Agreement shall inure to the benefit of, and shall be
binding upon, the parties hereto and their legatees, distributees, estates,
executors or administrators, successors and assigns, and personal and legal
representatives.
IN WITNESS WHEREOF, on the date first written above, the
parties hereto have duly executed this Agreement as of the date and year first
above written.
ORIENT PACKAGING HOLDINGS LIMITED, A DELAWARE CORPORATION
By:
--------------------------------------
Its: Chairman
ATTEST:
--------------------------------------
Its. Secretary
17
<PAGE>
GAMMA LINK ENTERPRISES CORP., A BRITISH VIRGIN ISLANDS CORPORATION
By:
--------------------------------------
Its: Chairman
ATTEST:
--------------------------------------
Its. Secretary
SHAREHOLDERS OF GAMMA INVESTMENTS LIMITED:
EVERFORD COMSEC LIMITED, A HONG KONG CORPORATION
Room 901, 9th Floor, Keen Hung Commercial Building
80 Queen's Road East, Hong Kong
By:
--------------------------------------
Its: Director
ACAMAX, INC., A BRITISH VIRGIN ISLANDS CORPORATION
The Lake Building, 1st Floor
Wickhams Cay
Roadtown, Tortola
British Virgin Islands
By:
--------------------------------------
Its: Director
18
<PAGE>
Wuhan Dong Feng Paper Company Limited Sino-Foreign Joint Venture
Sino-Foreign Investment Important Meeting's Issues
Time: April 19th, 1999 afternoon
Venue: Wuhan City Tian An Holiday Inn Hotel
Present: Wuhan Dong Feng Paper Mill Company's (Chinese party) Secretary and
Head of Paper Mill,
Wuhan Dong Feng Paper Company Limited's Vice-President Tang Si Hung,
Orient Packaging Holdings Limited's Director Danny Wu,
Orient Packaging Holdings Limited's Director Lawrence Hon,
Orient Packaging Limited's (Foreign party) Operation Director and Wuhan Dong
Feng Paper Company Limited's Director Albert Cheng,
Wuhan Dong Feng Paper Company Limited's Senior Manager Tong Yi Seng
1. The Foreign party informed the Chinese party that the restructuring of
share rights and the transfer of management controlling rights were
basically completed. The Chinese party showed their acceptance and will
continue to support the Joint Venture. The Foreign party was appreciated
and thankful for their support.
2. Both parties cooperatively formed the Wuhan Dong Feng Paper Company
Limited Joint Venture in 1997. Since then, both parties have been working
together to create a suitable and profitable environment for the Joint
Venture. Both parties hope the Joint Venture can continue to be successful
which will offer the society and investors benefits.
The Joint Venture is still at its sprout period. After the influence of
two years of poor market conditions, the Wuhan City flooding in 1998 and
other reasons, the operation and business plans of the Joint Venture
cannot be smoothly carried out and executed.
However, both parties are willing to work together to overcome the
obstacles and move forward.
3. Both parties agreed on the suggestion to improve the plant operation which
Wuhan Dong Feng Paper Company Limited's Senior Manager Tong Yi Seng
proposed. The proposal "Creating better conditions and promoting growth"
of January 22, 1999 suggested some ways to cut cost and improve the
operation.
4. Both parties exchanged different opinions and ideas regarding the
unreasonable operation cost and expense, receivable accounts and capital
injection issues. The following resolution are made:
a. The Chinese party agreed to bear part of the 1998 production cost and
operating expenses. The Chinese party further agreed to adjust and
settle part of the receivables for the Joint Venture. These
adjustments will be made on the 1998 year end financial statements.
b. The Chinese party agreed to adjust and paid for those unreasonable
cost which are prolonged to 1999.
<PAGE>
c. Based on the Chinese party willingness to settle and paid for all the
related cost and expenses mentioned, the Foreign party agreed to
inject capital to the Joint Venture according to the production and
operation need and the injection plan to ensure the Joint Venture will
develop smoothly.
5. Both parties agreed to hold regular meeting to discuss future development
plans for the Joint Venture to ensure future success of the Joint Venture.
<PAGE>
EXHIBIT 21.1
China Gateway Holdings Inc.
List of Subsidiaries
Name of Subsidiary State of Incorporation
1. Orient Investments Ltd. British Virgin Islands
2. Orient Packaging Ltd. British Virgin Islands
3. Wuhan Dong Feng Papers Company Limited People's Republic of China
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<PAGE>
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<CURRENCY> CHINESE RENMINBI
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<EXCHANGE-RATE> .12077 .12077
<CASH> 2,355,811 1,228,712
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<RECEIVABLES> 28,758,100 29,089,065
<ALLOWANCES> 1,370,787 1,487,950
<INVENTORY> 12,098,379 5,415,551
<CURRENT-ASSETS> 48,403,185 39,937,344
<PP&E> 10,043,614 10,026,378
<DEPRECIATION> 915,075 1,594,666
<TOTAL-ASSETS> 57,531,724 48,369,056
<CURRENT-LIABILITIES> 34,903,089 33,217,553
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0 0
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 57,531,724 48,369,056
<SALES> 60,321,795 42,659,988
<TOTAL-REVENUES> 60,321,795 42,659,988
<CGS> 66,523,519 38,208,771
<TOTAL-COSTS> 66,523,519 38,208,771
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 166,532 117,163
<INTEREST-EXPENSE> 3,488,795 728,229
<INCOME-PRETAX> (29,900,107) (8,088,990)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (20,271,018) (4,605,056)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (20,271,018) (4,605,056)
<EPS-BASIC> (5.60) (1.09)
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