As filed with the Securities and Exchange Commission on March 12,
1998
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Integrated Transportation Network Group Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 7514 13-3993618
(State of other juris- (Primary Standard (I.R.S. Employer
diction of incorpora- Industrial Classi- Identification
tion of organization) fication Code Number Number
575 Lexington Avenue, Suite 410
New York, New York 10022
(212) 572-9612
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805-1297
Telephone: (800) 927-9800
(Name, address including zip code, and telephone number,
including area code, of agent for service)
Copies of Communications to:
Edward W. Kerson, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
(212) 969-3290
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the Registration Statement
becomes effective.
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following box.
If this form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ]________
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]_________
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]_________
If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box.
CALCULATION OF REGISTRATION FEE
Title of each Amount to Proposed Proposed Amount
class of be regis- maximum maximum of regi-
securities to tered offering aggregate stration
be registered price per offering fee
unit price(1)
Common Stock,
par value $.01
per share. 6,068,000 $4.97 $30,157,960 $8,896.60
shares
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(f)(2) under the Securities
Act of 1933.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such State
SUBJECT TO COMPLETION, DATED MARCH 12, 1998
PROSPECTUS
6,068,0000 Shares
INTEGRATED TRANSPORTATION
NETWORK GROUP INC.
Common Stock
Dawson Science Corporation ("Dawson"), upon the terms set
forth in this prospectus, intends to distribute to its
shareholders all the outstanding shares of common stock, par
value $.01 per share (the "Company Common Stock"), of its
wholly-owned subsidiary, Integrated Transportation Network Group
Inc. (the "Company"), on or about ___________, 1998. Each
holder of record of shares of common stock, par value $.001 per
share, of Dawson (the "Dawson Common Stock"), at the close of
business on ___________, 1998, will receive, for each four
shares of Dawson Common Stock, one share of Company Common Stock.
In lieu of issuing a fractional share to a holder, the Company
will round the number of shares issued to a holder to the next
higher number of shares, or, at the Company's option, pay the
holder an amount in cash equal to the product of that fraction
and 400% of the average of the low bid prices of a share of
Dawson Common Stock on the 20 trading days immediately preceding
the distribution.
Immediately before the distribution to Dawson's
shareholders, Dawson will transfer to the Company all its assets,
including all its interest in Shenzhen Jinzhenghua Transport
Industrial Development Co., Ltd, and the Company will assume, and
agree to pay, perform and discharge, and indemnify and hold
Dawson harmless from and against, all Dawson's disclosed
liabilities and obligations.
Promptly following the distribution to Dawson's
shareholders, Dawson will seek to be dissolved.
See "The Reorganization".
Prior to the distribution to Dawson's shareholders, there
has been no public market for the Company Common Stock, and there
can be no assurance an active market for the Company Common Stock
will develop or, if it develops, will continue. Application has
been made to list the Company Common Stock on _____________ under
the symbol "ITN".
The Company Common Stock involves a high degree of
risk. See "Risk Factors" beginning on page 5.
Dated __________, 1998
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . .3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . .5
the Reorganization . . . . . . . . . . . . . . . . . . . . . . .9
Enforceability of Civil Remedies . . . . . . . . . . . . . . . 14
Market for the Common Stock. . . . . . . . . . . . . . . . . . 15
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . 16
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 17
Selected Consolidated Financial Data . . . . . . . . . . . . . 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 19
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certain Relationships and Related Transactions . . . . . . . . 34
Principal Shareholders . . . . . . . . . . . . . . . . . . . . 35
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . 36
Description of Capital Stock . . . . . . . . . . . . . . . . . 36
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Validity of Shares . . . . . . . . . . . . . . . . . . . . . . 43
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Available Information. . . . . . . . . . . . . . . . . . . . . 43
Index to Consolidated Financial Statements . . . . . . . . . .F-1
No dealer, salesperson or any other person has been
authorized to give any information or to make any
representations other than those contained in this prospectus in
connection with the offer made by this prospectus and, if given
or made, such information or representations must not be relied
upon as having been authorized by the Company. Neither the
delivery of this prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date of
this prospectus. This prospectus does not constitute an offer
or solicitation by anyone in any jurisdiction in which such an
offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation.
Until __________, 1998, all dealers effecting transactions
in the Company Common Stock, whether or not participating in
this distribution, may be required to deliver a prospectus. This
is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
The Company intends to furnish holders of the Company Common
Stock annual reports that include audited consolidated financial
statements, and may furnish them quarterly financial reports for
each of the first three quarters that contain unaudited
consolidated financial statements.
_____________________________
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information
and financial statements and notes to the financial statements
appearing elsewhere in this prospectus, including information
under "Risk Factors". Except as otherwise noted, all
information in this prospectus assumes that (a) the transfer by
Dawson Science Corporation to Integrated Transportation Network
Group Inc. (the "Company") of all its assets, and the assumption
by the Company of all Dawson Science Corporation's disclosed
liabilities, has been effected, (b) the aggregate number of
shares of Company Common Stock distributed in the Reorganization
(as defined below) is 6,066,341 and (c) the aggregate number of
shares of Company Common Stock issuable by the Company upon
exercise or conversion of options, warrants and convertible
securities is 250,000. Unless the context otherwise indicates,
all references to the "Company" refer collectively to Integrated
Transportation Network Group Inc. and its predecessors and
subsidiaries.
__________________________
The Company
The Company, through its 92%-owned subsidiary, Shenzhen
Jinzhenghua Transport Industrial Development Co., Ltd.
("Jinzhenghua Transport"), primarily operates a group of
transportation related businesses (the "Transportation
Businesses"). The Transportation Businesses are comprised of the
automobile rental business (the "Rental Business"), the taxi
business (the "Taxi Business") and the automobile repair services
business (the "Repair Business"). All the Company's operations
are located in China. Jinzhenghua Transport also has been
developing a hotel in a resort town in Hunan Province, which is
scheduled to commence operations within one year.
In 1986, Wu Zhi Jian ("Mr. Wu") organized Shenzhen Zhenghua
Group Co. Ltd. (the "Zhenghua Group") to own and operate a
diversified group of businesses. In 1988, Jinzhenghua Transport,
an affiliate of the Zhenghua Group, established a transportation
business. The transportation business began with the
acquisition of taxi licenses in the first auction of such
licenses in 1988 in Shenzhen, China. Jinzhenghua Transport has
continued to acquire taxi licenses and expand its taxi business
into other cities and provinces.
In 1994, Jinzhenghua Transport expanded its transportation
business to include automobile repair services in Shenzhen.
In 1997, Jinzhenzhua Transportation further expanded its
transportation business to include automobile rental services in
Jianxi Province, Guangdong Province, and Chengdu Province.
The Company does not have any operating business, other than
the businesses operated through Jinzhenghua Transport.
See "Business".
The Reorganization
In early 1997, Jinzhenghua Transport became a 92%-owned
subsidiary of Dawson Science Corporation ("Dawson"). In
connection with the transaction pursuant to which Dawson acquired
Jinzhenghua Transport, the prior owners of Jinzhenghua Transport
received, in exchange for their interests in Jinzhenghua
Transport, an aggregate of 10,000,000 shares of common stock, par
value $.001 per share, of Dawson ("Dawson Common Stock"), and
2,100,000 shares of convertible preferred stock, par value $.001
per share ("Dawson Preferred Stock"), of Dawson, and Mr. Wu
became the chairman of the board of directors of Dawson. The
2,100,000 shares of Dawson Preferred Stock were subsequently
converted into an aggregate of 10,500,000 shares of Dawson Common
Stock.
Later in 1997, the new management of Dawson, after
consulting with counsel and concluded that it would be in the
best interests of Dawson's shareholders to reorganize Dawson in
order to provide shareholders with shares in a new Delaware
corporation that would own Jinzhenghua Transport.
In early 1998, Dawson's board of directors and shareholders
approved a plan of reorganization that provides for the
distribution to Dawson's shareholders of all the outstanding
shares of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") on or about , 1998.
In that connection, each holder of record shares of Dawson Common
Stock at the close of business on , 1998 will receive, for
each four shares of Dawson Common Stock, one share of Company
Common Stock. In lieu of issuing a fractional share to a holder,
the Company will round the number of shares issued to a holder to
the next higher number of shares, or, at the Company's option,
pay the holder an amount in cash equal to the product of that
fraction and 400% of the average low bid prices of a share of
Dawson Common Stock on the 20 trading days immediately preceding
the distribution. Immediately before the distribution to the
Dawson shareholders, Dawson will transfer to the Company all its
assets, including all its interest in Jinzhenghua Transport, and
the Company will assume, and agree to pay, perform and discharge,
and indemnify and hold Dawson harmless from and against, all
Dawson's disclosed liabilities and obligations.
Promptly following the distribution to Dawson's
shareholders, Dawson will seek to be dissolved.
As a result of these transactions, the shareholders of
Dawson will become shareholders of the Company, which will own
the businesses Dawson currently owns, and Dawson will cease to
operate.
See "The Reorganization".
Summary Selected Consolidated Financial Data
(In thousands, except per share amounts)
Statement of Operations Data:
Year Ended December 31,
1997 1996 1995
Revenue, net . . . $12,538 $9,211 $6,208
Total expenses . . 5,858 4,091 2,910
Income before minority
interest. . . 6,223 4,720 3,146
Net income . . 5,886 4,563 3,023
Earnings per common share:
Basic . . . .97 .76 .50
Diluted . . . .97 .76 .50
Balance Sheet Data:
At December 31, 1997
Revenue earning equipment. . . . $31,488
Total assets . . . . . . . 55,954
Total liabilities. . . . . 24,206
Minority interest. . . . . 1,567
Total shareholders' equity . . 30,181
RISK FACTORS
Risks Relating to China
General
The economy of China differs from the economies of most
countries belonging to the Organization for Economic Co-operation
and Development in such respects as structure, government
involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and
balance of payments position. Since 1949, the economy of China
has been a planned economy subject to one- and five- year state
plans adopted by central Chinese government authorities and
implemented, to a large extent, by provincial and local
authorities, which plans set out production and development
targets. Although the majority of productive assets in China are
still owned by the government, economic reform policies since
1978 have emphasized decentralization and the utilization of
market mechanisms in the development of the Chinese economy.
Such economic reform measures adopted by the Chinese government
may be inconsistent or ineffectual, and the Company may not be
able to benefit from all such reforms.
Since 1978, the Chinese government has been reforming,
and it is expected to continue to reform, China's economic
systems. Many of the reforms are unprecedented or experimental,
and are expected to be refined and improved. Various political,
economic and social factors, such as political changes, changes
in the rates of economic growth, unemployment or inflation, or in
the disparities in per capita wealth between regions within
China, also could lead to further readjustment of the reform
measures. This refining and readjustment process may not always
have a positive effect on the operations of the Company. The
Company's operating results may be adversely affected by changes
in China's political, economic and social conditions and by
changes in policies of the Chinese government, such as changes in
laws and regulations (or the interpretation thereof), measures
that may be introduced to control inflation, changes in the rate
or method of taxation or the imposition of additional
restrictions on currency conversion. Although historically
there have been periods of political instability, and certain of
the reform measures have from time to time been readjusted,
because of the broad support for the reform process and because
the economic system in China has already undergone extensive
changes as a result of the success of such reforms, the Company
believes that the basic principles underlying the reforms will
continue to provide the framework for China's economic system.
The Chinese economy has experienced rapid growth in
recent years, with GNP increasing at an average annual rate of
12.0% between 1991 and 1996. Such rapid growth has been
accompanied by imbalances in the Chinese economy, especially with
respect to inflation, which reached an annual rate of 21.7% in
1994. The inflation rate decreased to 14.8% in 1995, 6.1% in
1996 and 2.0% in 1997.
Risks Related to the Legal System of China
The Chinese legal system is based on written statutes
and is a system, unlike common law systems, in which decided
legal cases have little precedential value. The Chinese system
is similar to civil law systems in this regard. In 1979, China
began the process of developing its legal system by undertaking
to promulgate a comprehensive system of laws. On December 29,
1993, the National People's Congress promulgated the Company Law
of The People's Republic of China (the "Company Law"), which
became effective on July 1, 1994. In August 1994, pursuant to
the Company Law, the State Council issued the "PRC Special
Regulations on Overseas Offering and Listing of Shares by Joint
Stock Limited Companies" to regulate joint stock limited
companies that offer and list their shares overseas. The Company
Law, the rules and regulations promulgated thereunder and legal
prescriptions relating to Chinese companies provide the core of
the legal framework governing the corporate behavior of
companies, such as Jinzhenghua Transport, and their directors and
shareholders. Because these laws, regulations and legal
requirements are relatively recent, their interpretation and
enforcement involve significant uncertainty.
The Company is currently engaged in an expansion
program, the timing and cost of which will depend on numerous
factors, including the cost and availability of financing
(including foreign exchange), the ability of the Company to
obtain and maintain required business licenses or approvals from
relevant Chinese government authorities and changes in general
economic conditions in China. There can be no assurance the
Company's expansion program will not be adversely affected by any
of these factors or by factors commonly associated with expansion
programs.
Government Control of Currency Conversion and Exchange
Rate Risks
The Renminbi currently is not a freely convertible
currency. The State Administration for Foreign Exchange
("SAFE"), under the authority of the People's Bank of China (the
"PBOC"), controls the conversion of Renminbi into foreign
currency. Prior to January 1, 1994, Renminbi could be converted
to foreign currency through designated banks or other authorized
institutions at official rates fixed daily by the SAFE. Renminbi
also could be converted at swap centers ("swap centers") open to
Chinese enterprises and foreign invested enterprises ("FIEs"),
subject to SAFE approval of each foreign currency trade, at
exchange rates negotiated by the parties for each transaction.
Effective January 1, 1994, a unitary exchange rate system was
introduced in China, replacing the dual-rate system previously in
effect. In connection with the creation of a unitary exchange
rate, the Chinese government announced the establishment of an
inter-bank foreign exchange market, the China Foreign Exchange
Trading System ("CFETS"), and the phasing out of the swap
centers. However, the swap centers have been retained as an
interim measure.
In general, under existing foreign exchange
regulations, domestic enterprises operating in China must price
and sell their goods and services in China in Renminbi. Any
foreign exchange reserves received by such enterprises must be
sold to authorized foreign exchange banks in China.
Jinzhenghua Transport intends to apply for the status
of a FIE. In the event it obtains FIE status, it will be able to
purchase foreign exchange for settlement of current transactions
(as defined in the applicable regulations) and pay dividends
without the prior approval of SAFE. There can be no assurance
that Jinzhenghua Transport will obtain FIE status, that the
current authorizations for FIEs to retain their foreign exchange
in the future to satisfy foreign exchange liabilities or to pay
dividends will not be limited or eliminated or that Jinzhenghua
Transport will be able to obtain sufficient foreign exchange to
pay dividends or satisfy its foreign exchange liabilities.
The value of the Renminbi is subject to changes in
central government policies and to international economic and
political developments affecting supply and demand in the CFETS
market. Over the last five years, the Renminbi has experienced a
devaluation against most major currencies, and a significant
devaluation of the Renminbi occurred on January 1, 1994 in
connection with the adoption of the new unitary exchange rate.
On that date, the official exchange rate for conversion of
Renminbi to U.S. dollars changed from approximately RMB 5.8000 to
$1.00 to approximately RMB 8.7000 to $1.00, representing a
devaluation of approximately 50%. Since 1994, the official
exchange rate for the conversion of Renminbi to U.S. dollars has
been stable, and the Renminbi has appreciated slightly against
the U.S. dollar. However, there can be no assurance that such
rate will not become volatile again or that there will be no
further devaluation of the Renminbi.
Limited Operating History of Rental Business
Jinzhenghua Transport has been engaged in the Rental
Business for less than a year. Accordingly, the Rental Business
is subject to all the risks associated with new businesses.
Uncertain Ability to Achieve or Manage Rapid Growth
The Company intends to pursue a rapid growth strategy,
the success of which will depend upon a large number of factors,
many of which are beyond the Company's control, and there can be
no assurance the Company will successfully effect its growth
strategy. Factors that will affect the success of the Company's
growth strategy include risks relating to the market demand for
rental cars in China, risks relating to the Company's ability to
finance automobiles necessary for its business, risks relating to
the Company's ability to obtain and maintain appropriate
governmental permits, authorizations, licenses and approvals and
risks relating to the competitive environment in which the
Company operates. If the Company is unable successfully to
implement its growth strategy, its business, financial condition,
results of operations and prospects could be materially and
adversely affected.
Absence of Capital Commitments
The Transportation Businesses require substantial
capital in order to refinance existing indebtedness and to expand
in the manner contemplated. At December 31, 1997, $4,520,000
aggregate principal amount of indebtedness was due and payable
within one year, $2,520,000 of which was due and payable within
120 days. At present, the Company has no commitments from third
parties to refinance any of this indebtedness, and does not have
sufficient resources to repay such indebtedness without
refinancing. The Company will seek to obtain capital to support
its growth strategy from the sale of securities, borrowings,
vendor financing arrangements and operations. There can be no
assurance the Company will be successful in raising additional
capital, or, if it raises additional capital, of the terms on
which it raises such capital. To date, the Company has obtained a
substantial portion of its capital from affiliates, and
$4,000,000 aggregate principal amount of the Company's
indebtedness to unaffiliated third parties is personally
guaranteed by Mr. Wu, whose guarantee is secured by the pledge of
an aggregate of 1,000,000 shares of Company Common Stock. There
can be no assurance such affiliates will be willing or able to
provide capital in the future, or that Mr. Wu will be willing or
able to guarantee the Company's indebtedness in the future. If
the Company does not obtain sufficient capital to refinance its
existing indebtedness, the Company will be materially and
adversely affected. Even if the Company obtains sufficient
capital to refinance its existing indebtedness, the Company may
not obtain sufficient capital to expand as contemplated. See
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations-Liquidity and Capital Resources" and
"Certain Relationships and Related Transactions".
Control by Mr. Wu and Certain Other Persons
Immediately after the consummation of the transactions
contemplated by this prospectus, Mr. Wu, members of his immediate
family and certain officers and directors of the Company
(collectively, the "Related Shareholders") will beneficially own
an aggregate of 2,888,467 shares of Company Common Stock, or 47.6
% of the then outstanding shares of Company Common Stock
(2,288,110 of which, or 37.7% of the then outstanding shares, Mr.
Wu himself will beneficially own). As a consequence, Mr. Wu and
the Related Shareholders will be able to exercise substantial
control in the election of the Company's directors and all other
material decisions relating to the Company, including decisions
regarding acquisitions and dispositions, financings and corporate
governance. In that connection, Mr. Wu's guarantee of $4,000,000
aggregate principal amount of the Company's indebtedness is
secured by the pledge of an aggregate of 1,000,000 shares of Mr.
Wu's Company Common Stock. If all such shares are transferred to
the pledgees in order to satisfy any or all of Mr. Wu's
guarantees, Mr. Wu's ability to control the Company could be
materially and adversely affected. See "Certain Relationships
and Related Transactions" and "Principal Shareholders".
Potential Conflicts of Interest
The Company is one of many companies Mr. Wu directly or
indirectly controls. To date, the Company has depended on loans
from these affiliated companies, and on Mr. Wu's personal
guarantee of loans by others, to finance its growth. Although
the Company is seeking other sources of financing, any continued
dependence on these affiliated companies or Mr. Wu for financing
or otherwise would create a potential conflict of interest
between the Company and such affiliated companies. In addition,
because Mr. Wu controls the Company, and because his interests,
as the controlling person of various affiliated companies
(including affiliates that own minority interests in the
Company's subsidiaries) and as the guarantor of certain of the
Company's indebtedness, and the interests of the Company's other
shareholders are not the same, Mr. Wu could cause the Company to
take, or refrain from taking, actions that serve his interests
but not those of the Company's other shareholders, including the
exploitation of business opportunities in China and elsewhere.
See "Certain Relationships and Related Transactions" and
"Principal Shareholders".
Holding Company Structure; Restrictions on the Payment of
Dividends
The Company has no direct business operations, other
than its ownership of Jinzhenghua Transport. While the Company
has no intention of paying dividends, should it decide in the
future to do so, as a holding company the Company's ability to
pay dividends and meet other obligations depends upon the receipt
of dividends or other payments from Jinzhenghua Transport and
other holdings and investments. In addition, Jinzhenghua
Transport, from time to time, may be subject to restrictions on
its ability to make distributions to the Company, including as a
result of restrictive covenants in loan agreements, restrictions
on the conversion of local currency into U.S. dollars or other
hard currency and other regulatory restrictions.
Service and Enforcement of Legal Process
Substantially all the Company's assets are located in
China. In addition, most of the directors and officers of the
Company are not residents of the United States, and all or a
substantial portion of the assets of such non-residents are
located outside the United States. As a result, it may be
difficult for investors to effect service of process within the
United States upon such non-residents or to enforce against them
judgments obtained in United States courts, including judgments
predicated upon the civil liability provisions of the securities
laws of the United States or any state. There is uncertainty as
to whether courts of China would enforce (i) judgments of United
States courts obtained against the Company or such non- residents
predicated on the civil liability provisions of the securities
laws of the United States or any state or (ii) in original
actions brought in China, liabilities against the Company or such
non-residents predicated upon the securities laws of the United
States or any state. See "Enforceability of Civil Remedies".
Limited Market; Volatility of Share Price
There has been only a limited market for the Dawson
Common Stock, and there can be no assurance a more active trading
market will develop and be sustained for the Company Common
Stock. Moreover, there has been significant volatility in the
market price for the Dawson Common Stock, and, in the future,
there may be significant volatility in the market price for the
Company Common Stock. Volatility in operating results of the
Company, changes in conditions in the Chinese or international
economy or other developments affecting the Company could cause
the market price of the Company Common Stock to fluctuate
substantially. See "Market for the Common Stock".
Shares Eligible for Future Sale
Upon the consummation of the Reorganization, the
Company will have 6,066,341 shares of Company Common Stock
outstanding (excluding shares issuable upon exercise or
conversion of options, warrants and convertible securities and
shares, if any, issued in the Reorganization to round up
fractional shares). Of the 6,066,341 shares, an aggregate of
2,588,268 shares will be held by parties who may be deemed to be
affiliates of the Company. The shares held by affiliates may
only be sold in the public United States market pursuant to an
effective registration statement, or in accordance with Rule 144
under the Securities Act of 1933 or another exemption from the
registration requirements of the Securities Act of 1933. Sales
of substantial amounts of Company Common Stock under Rule 144 or
otherwise, or even the potential for such sales, could depress
the market price of the Company Common Stock, and could impair
the Company's ability to raise capital through the sale of equity
securities. See "Shares Eligible for Future Sale".
THE REORGANIZATION
Background of the Reorganization
In early 1997, Jinzhenghua Transport became a 92%-owned
subsidiary of Dawson. In connection with Dawson's acquisition of
Jinzhenghua Transport, the prior owners of Jinzhenghua Transport
received, in exchange for their interests in Jinzhenghua
Transport, an aggregate of 10,000,000 shares of Dawson Common
Stock and 2,100,000 shares of Dawson Preferred Stock (which were
subsequently converted into an aggregate of 10,500,000 shares of
Dawson Common Stock), and Mr. Wu became the chairman of the board
of directors of Dawson. See "Risk Factors Control by Mr. Wu".
Later in 1997, the new management of Dawson, after
consulting with counsel and accountants, concluded that
management might not be able to satisfy itself that Dawson's
books and records, including minute books, had been correctly
maintained and that all appropriate legal requirements relating
to issuances of securities, elections of officers and directors
and other corporate actions had been observed. As a consequence,
the new management of Dawson anticipated that, in the future,
Dawson could expect to encounter substantial difficulties in,
among other things, obtaining necessary financing for Jinzhenghua
Transport.
Accordingly, the new management of Dawson determined
that it would be in the best interests of Dawson's shareholders
to reorganize Dawson in order to provide shareholders with shares
in a new Delaware corporation that would own Jinzhenghua
Transport, but would not be subject to these anticipated
difficulties.
The Reorganization
In early 1998, Dawson's board of directors and
shareholders approved a plan of reorganization that provides for
the distribution to Dawson's shareholders of all the outstanding
shares of Company Common Stock on or about , 1998. In
that connection, each holder of record of shares of Dawson Common
Stock at the close of business on , 1998 will receive,
for each four shares of Dawson Common Stock, one share of Company
Common Stock. In lieu of issuing a fractional share to a holder,
the Company will round the number of shares issued to a holder to
the next higher number of shares, or, at the Company's option,
pay the holder an amount in cash equal to the product of that
fraction and 400% of the average low bid prices of a share of
Dawson Common Stock on the 20 trading days immediately preceding
the distribution. On or about __________, 1998, the Company will
issue to the Dawson shareholders of record at the close of
business on __________, 1998 certificates evidencing their shares
of Company Common Stock.
Immediately before the distribution to the Dawson
shareholders, Dawson will transfer to the Company all its assets,
including all its interest in Jinzhenghua Transport, and the
Company will assume, and agree to pay, perform and discharge, and
indemnify and hold Dawson harmless from and against, all Dawson's
disclosed liabilities and obligations.
Following the distribution to the Dawson shareholders,
Dawson will wind-up its affairs and seek to be dissolved.
As a result of these transactions (the
"Reorganization"), the shareholders of Dawson will become
shareholders of the Company, which will own the businesses Dawson
currently owns, and Dawson will cease to operate.
Tax Effects of the Reorganization
The following is a summary of certain anticipated
material U.S. federal income tax consequences of the
Reorganization. The summary represents the opinion of Proskauer
Rose LLP. The summary does not deal with all possible tax
consequences relating to the Reorganization. In particular, the
discussion does not address the tax consequences under state,
local and other national (i.e., non-U.S.) tax laws. Accordingly,
each prospective owner of Company Common Stock should consult its
own tax advisor regarding the particular tax consequences of the
Reorganization. The following discussion is based upon laws and
relevant interpretations thereof in effect as of the date of this
prospectus, all of which are subject to change.
The Company has been advised by counsel that the
Reorganization will constitute a "reorganization" within the
meaning of section 368(a)(1)(F) of the U.S. Internal Revenue Code
of 1984, as amended (the "Code"). Accordingly, for U.S. federal
income tax purposes, the Company will be treated as a
continuation of Dawson, and no gain or loss will be recognized by
Dawson, the Company or the Dawson shareholders upon the
Reorganization. Each Dawson shareholder's basis for U.S. federal
income tax purposes in the Company Common Stock received in the
Reorganization will be equal to that shareholder's basis in the
Dawson Common Stock with respect to which the Company Common
Stock is received, and each Dawson shareholder's holding period
for those purposes in that Company Common Stock will include that
shareholder's holding period in that Dawson Common Stock.
ENFORCEABILITY OF CIVIL REMEDIES
All the assets of the Company's subsidiaries are
located in China. In addition, most of the directors and
officers of the Company are not residents of the United States,
and all or a substantial portion of the assets of such
non-residents are located outside the United States. As a
result, it may be difficult for investors to effect service of
process within the United States upon such non-residents or to
enforce against them judgments obtained in United States courts,
including judgments predicated upon the civil liability
provisions of the securities laws of the United States or any
stat. The Company has been advised by its China counsel, Jun He
Law Offices, that there is uncertainty as to whether courts of
China would enforce (i) judgments of United States courts
obtained against the Company or such non-residents predicated on
the civil liability provisions of the securities laws of the
United States or any state or (ii) in original actions brought in
China, liabilities against he Company or such non-residents
predicated upon the securities laws of the United States or any
state.
The Company has been advised by its China counsel, Jun
He Law Offices, that there are no treaties between China and the
United States providing for the reciprocal enforcement of foreign
judgments. However, the judgment creditor of a legally effective
judgment of a foreign court may apply directly to courts in China
having jurisdiction over the case for recognition and
enforcement, or the foreign court that rendered the judgment may,
in accordance with the provisions of international treaties
applicable to both China and the country in which the foreign
court is located, or according to the principle of reciprocity,
request that the court in China recognize and enforce the foreign
judgment. A foreign judgment may be recognized and enforced by a
competent court in China, if the following conditions are
fulfilled: (i) the foreign judgment to be enforced is final and
conclusive; (ii) the jurisdiction of the court that rendered the
judgment is properly exercised and has not been precluded by law,
order or treaty; (iii) service of process in the relevant
proceedings in the foreign jurisdiction has been lawfully and
duly effected on the defendant/judgment debtor; and (iv) the
foreign judgment is not contrary to the basic principles of law
in the People's Republic of China or its sovereignty, security
and social and public interest. Enforcement of a foreign
judgment in China also may be limited or otherwise affected by
applicable bankruptcy, insolvency, liquidation, arrangement,
moratorium or similar laws relating to or affecting creditors'
rights generally and will be subject to a statutory limitation of
time within which proceedings may be brought.
MARKET FOR THE COMMON STOCK
The Dawson Common Stock has been traded in the
over-the-counter market under the NASDAQ symbol DWSC. The high
and low closing bid prices of the Dawson Common Stock as quoted
on NASDAQ during each calendar quarter of the past two years and
the first quarter of the current year are set forth in the
following table. Prices represent quotations between dealers
without adjustments for retail markups, markdowns or commissions,
and may not represent actual transactions.
Year Calendar Quarter Low High
1996 First Quarter . . . . . . . . 1.38 4.75
Second Quarter . . . . . . . . .75 4.25
Third Quarter . . . . . . . . .75 2.13
Fourth Quarter . . . . . . . . 1.50 4.00
1997 First Quarter . . . . . . . . 1.44 3.25
Second Quarter . . . . . . . . 2.38 9.94
Third Quarter . . . . . . . . 5.38 7.94
Fourth Quarter . . . . . . . . 1.25 5.13
1998 First Quarter (through March 10) 1.75 3.38
On April , 1998, the closing bid price of the Dawson
Common Stock as quoted on NASDAQ was $ .
There are approximately 500 shareholders of record of
the Dawson Common Stock. Such record holders include a number of
holders who are nominees for an undetermined number of beneficial
owners; the Company does not know the number of beneficial owners
of the shares of Dawson Common Stock.
As a result of the Reorganization, each holder of
record of Dawson Common Stock at the close of business on ,
1998 will receive one share of Company Common Stock for each four
shares of Dawson Common Stock. Prior to the Reorganization,
there has been no public market for the Company Common Stock, and
there can be no assurance that an active market for the Company
Common Stock will develop or, if it develops, will continue.
Application will be made to list the Company Common
Stock on the American Stock Exchange or the NASDAQ under the
symbol "ITN". See "Risk Factors Limited Market; Volatility of
Share Prices".
DIVIDEND POLICY
The Company currently intends to retain its earnings to
support its future growth strategy and does not anticipate paying
any dividends on the Company Common Stock in the foreseeable
future. As a holding company, the ability of the Company to pay
dividends depends upon the receipt of dividends or other payments
from Jinzhenghua Transport. Any determination to pay dividends
in the future will be at the discretion of the Company's board of
directors and will depend upon the Company's results of
operations, financial condition, contractual restrictions, and
other factors deemed relevant at that time by the Company's board
of directors. See "Risk Factors -- Holding Company Structure;
Restrictions on the Payment Dividends" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources".
CAPITALIZATION
The following table sets forth the consolidated
capitalization of the Company at December 31, 1997. See
"Selected Consolidated Financial Data" and "Certain Relationships
and Related Transactions".
December 31, 1997
(In thousands, except
numbers of shares)
Debt:
Bank loans $ 3,776
Notes payable 4,320
Due to affiliates 6,220
Total debt 14,316
Shareholders' equity:
Common Stock, par value $.01 per share:
50,000,000 shares authorized;
6,041,633 shares issued
and outstanding 60
Preferred Stock, par value $.01 per share:
5,000,000 shares authorized;
no shares issued or outstanding 0
Additional paid-in capital 12,665
Retained earnings 17,050
Foreign currency translation
adjustments 406
Total shareholders' equity 30,181
Total capitalization $44,497
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with
respect to the Company's financial position at December 31, 1997,
1996 and 1995 and its results of operations for the years ended
December 31, 1997, 1996 and 1995 have been derived from the
audited consolidated financial statements of the Company included
elsewhere in this prospectus. Particular reference is made to
Note 1 of such financial statements entitled "Basis of
Presentation and Reorganization". The selected consolidated
financial information with respect to the Company's financial
position at December 31, 1994 and 1993, and its results of
operations for the years ended December 31, 1994 and 1993, have
been derived from the Company's consolidated financial statements
for the years ended December 31, 1994 and 1993, which are not
included in this prospectus and, in the case of the year end
December 31, 1993, are not audited. The selected consolidated
financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
Year Ended December 31,
1997 1996 1995 1994 1993
Statement of Operations Data:
(In thousands, except per share data)
Revenue, net $12,538 $9,211 $6,208 $4,728 $3,188
Expenses:
Depreciation of revenue earning
equipment 2,174 1,755 1,357 1,133 759
Amortization of
taxi licenses 266 264 247 199 136
Other operating
expenses 2,692 1,468 649 439 251
Interest expense,
net of interest
income 726 604 657 641 620
Total expenses
5,858 4,091 2,910 2,412 1,766
Income before provision for
income tax and minority interest
6,680 5,120 3,298 2,316 1,422
Provision for income tax
457 400 152 7 0
Income before minority interest
6,223 4,720 3,146 2,309 1,422
Minority interest 337 157 123 100 71
Net income 5,886 4,563 3,023 2,209 1,351
Earnings per common share:
Basic .97 .76 .50 .37 .22
Diluted .97 .76 .50 .37 .22
December 31,
1997 1996 1995 1994 1993
Balance Sheet Data: (In thousands)
Revenue earning equipment
$31,488 $8,705 $10,269 $8,938 $5,188
Taxi licenses
12,093 12,200 12,435 11,702 6,822
Total assets 55,954 29,099 27,111 23,717 12,671
Debt:
Bank loans 3,776 4,082 3,873 4,414 5,265
Notes payable 4,320 0 0 0 0
Due to
affiliates 6,220 1,517 4,542 6,185 3,505
Total
liabilities 24,206 11,475 14,440 14,957 10,254
Total shareholders'
equity 30,181 16,760 12,051 8,483 2,209
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Transportation Businesses are comprised of the Rental
Business, the Taxi Business and the Repair Business. In addition
to its Transportation Businesses, the Company is developing a
hotel in Hunan Province, which is expected to commence operations
within one year.
On a consolidated basis, revenue, net, increased from
$6,208,000 in 1995 to $9,211,000 in 1996 to $12,538,000 in 1997.
Net income increased from $3,023,000 in 1995 to $4,563,000 in
1996 to $5,886,000 in 1997.
The Rental Business, which began operations in August 1997,
accounted for $2,636,000, or 21%, of the Company's total revenue,
net, in 1997. At September 30, 1997 and December 31, 1997, the
Rental Business had deployed 370 and 570 automobiles,
respectively. The Company's average purchase price for each
automobile deployed in the Rental Business during 1997 was
$19,600; the average depreciation and other operating expenses
for each such automobile during 1997 was $1,381; and the average
revenue, net, from each such automobile during 1997 was $5,608.
In 1997, the Rental Business contributed 27.2%, or $1,814,000, to
the Company's $6,680,000 of total income before provision for
income tax and minority interest.
The Taxi Business accounted for 67.2%, 83.8% and 96.5%,
respectively, of the Company's total revenue, net, in 1997, 1996
and 1995, respectively. At December 31, 1997, 1996 and 1995, the
Taxi Business had deployed 728, 678 and 678 taxi cabs,
respectively. The Company's average purchase price for each taxi
license and each automobile deployed in the Taxi Business during
1997 was $18,379 and $20,013, respectively; the depreciation,
amortization and other operating expenses for each such taxi
during 1997 was $3,758; and the average revenue, net, from each
such taxi during 1997 was $11,573. The Taxi Business contributed
$5,161,000, $4,349,000 and $3,100,000 to income before provision
for income tax and minority interest in 1997, 1996 and 1995,
respectively, representing 77.3%, 84.9% and 94.0%, respectively,
of the Company's total income before provision for income tax and
minority interest in 1997, 1996 and 1995.
The Repair Business accounted for 11.8%, 16.2% and 3.5% of
the Company's total revenue, net, and 9.6%, 15.1% and 6.0% of the
Company's total income before provision for income tax and
minority interest in 1997, 1996 and 1995, respectively.
At February 28, 1998, the Company had deployed a total of
1,218 automobiles in the Rental Business and 728 automobiles in
the Taxi Business.
The Company plans to continue to expand the Rental Business
as rapidly as the Company's capital resources permit. The
Company plans to continue to expand the Taxi Business through
selective acquisitions in certain cities. The Company plans to
expand the Repair Business as necessary to accommodate the
expansion of the Rental Business and Taxi Business.
The Company enjoys preferential tax treatment as a result
of its location in Shenzhen, a Special Economic Zone.
1997 Compared With 1996
Percentage of Percentage of
1997 Revenue, Net 1996 Revenue, Net
Revenue, net $12,538,000 100.0% $9,211,000 100.0%
Total expenses 5,858,000 46.7 4,091,000 44.4
Income before provision for
income tax and minority
interest 6,680,000 53.3 5,120,000 55.6
Income before minority
interest 6,223,000 49.6 4,720,000 51.2
Net income 5,886,000 46.9 4,563,000 49.5
Revenue, net was $12,538,000 in 1997, an increase of 36.1%
from $9,211,000 in 1996. The increase was primarily due to the
contribution of $2,636,000 in 1997 from the new Rental Business.
The Taxi, Rental and Repair Businesses contributed 67.2%, 21.0%
and 11.8%, respectively, to revenue, net, in 1997, compared
with 83.8%, 0% and 16.2%, respectively, in 1996. Revenue, net,
from the Taxi Business increased to $8,425,000 in 1997 from
$7,722,000 in 1996, a 9.1% increase, primarily due to revenue
generated from 50 additional taxi cabs in Ganzhou, increases in
night-shift taxi driver activities and renewals of taxi driver
contracts. Revenue, net, from the Repair Business was $1,477,000
in 1997, an immaterial change from $1,489,000 in 1996.
Total expenses were $5,858,000 in 1997, an increase of 43.2%
from $4,091,000 in 1996. The increase, as a percentage of
revenue, net, was primarily due to expenses related to the new
Rental Business and increases in direct fixed costs and
management expenses related to the Repair Business, which were
partially offset by efficiencies in office expenses, rent and
maintenance charges in the Taxi and Repair Businesses. The
Rental, Taxi and Repair Businesses contributed 15.1%, 82.2% and
2.7%, respectively, to total depreciation and amortization in
1997, compared to 0%, 96.2% and 3.8%, respectively, in 1996.
Interest expense, net of interest income was $726,000 in
1997 compared with $604,000 in 1996. The increase was primarily
due to fees paid to banks for the extension of short-term loans
and to an increase in interest-bearing debt.
Income before provision for income tax and minority interest
was $6,680,000 in 1997, an increase of 30.5% from $5,120,000 in
1996. The Rental, Taxi and Repair Businesses contributed 27.2%,
77.3% and 9.6%, respectively, to total income before provision
for income tax and minority interest in 1997, compared with 0%,
84.9% and 15.1%, respectively, in 1996. The increase in income
before provision for income tax and minority interest is
primarily attributable to income from the Company's new Rental
Business, revenue generated from 50 additional taxi cabs in
Ganzhou, additional income generated by increases in night-shift
taxi driver activities, additional income from renewals of taxi
driver contracts and efficiencies in office expenses, rent and
maintenance charges in the Taxi and Repair Businesses. The
increase in income before provision for income tax and minority
interest was partially offset by increases in direct fixed costs
and management expenses associated with the Repair Business. The
decrease in income before provision for income tax and minority
interest as a percentage of revenue, net, was primarily the
result of parent-company accounting, legal and other professional
and advisory costs and expenses incident to the proposed
Reorganization and related matters beginning in mid-1997.
Provision for income tax was $457,000 in 1997 (6.8% of
income before provision for income tax and minority interest),
compared with $400,000 in 1996 (7.8% of income before provision
for income tax and minority interest). The increase was
primarily a result of increased taxable income.
Minority interest was $337,000 in 1997, an increase of
114.6% from $157,000 in 1996, which reflects the fact that the
Company entered into new joint venture projects in 1997.
As a result of the foregoing, net income was $5,886,000 in
1997, an increase of 29.0% from $4,563,000 in 1996.
1996 Compared With 1995
Percentage of Percentage of
1996 Revenue, Net 1995 Revenue, Net
Revenue, net $9,211,000 100.0% $6,208,000 100.0%
Total expenses 4,091,000 44.4 2,910,000 46.9
Income before provision for
income tax and minority
interest 5,120,000 55.6 3,298,000 53.1
Income before minority
interest 4,720,000 51.2 3,146,000 50.7
Net income 4,563,000 49.5 3,023,000 48.7
Revenue, net was $9,211,000 in 1996, an increase of 48.4%
from $6,208,000 in 1995. The increase was primarily due to
expansion in the Repair Business in Shenzhen. The Taxi and Repair
Businesses contributed 83.8% and 16.2%, respectively, to revenue,
net, in 1996, compared with 96.5% and 3.5%, respectively, in
1995. Revenue, net, from the Taxi Business increased 28.9% to
$7,722,000 in 1996 from $5,990,000 in 1995, primarily due to the
addition of 150 new taxis in early 1996. Revenue, net, from the
Repair Business increased to $1,489,000 in 1996 from $218,000 in
1995, primarily due to the expiration of a fixed income
guaranteed service contract by a car repair management group (the
"Third Party Contractor") and aggressive marketing efforts
resulting in new contracts with business customers.
Total expenses were $4,091,000 in 1996, an increase of 40.6%
from $2,910,000 in 1995. The decrease, as a percentage of
revenue, net, was primarily due to additional depreciation and
amortization associated with the Taxi Business, and direct and
indirect expense increases related to the Taxi and Repair
Businesses. The Taxi and Repair Businesses contributed 96.2% and
3.8%, respectively, to depreciation and amortization in 1996,
compared with 98.8% and 1.2%, respectively, in 1995. Increases
in other operating expenses of the Taxi Business were primarily a
result of an increase in wages and bonuses due to staff
additions, a write-off of certain assets and leasehold
improvements, offset in part by efficiencies in office expenses,
and a reduction in contracted housing allowance, rent and
maintenance charges. Prior to 1996, other operating expenses
associated with the Repair Business reflected amounts payable to
the Third Party Contractor.
Interest expense, net of interest income was $604,000 in
1996, a decrease of 8.1% from $657,000 in 1995. The decrease was
primarily a result of a decrease in interest-bearing debt.
Income before provision for income tax and minority interest
was $5,120,000 in 1996, an increase of 56.5% from $3,298,000 in
1995. The Taxi and Repair Businesses contributed 84.9% and
15.1%, respectively, to income before provision for income tax
and minority interest in 1996, compared with 94.0% and 6.0%,
respectively, in 1995. The increase, as a percentage of revenue,
net, was primarily a result of increased revenue, net, without
corresponding increases in depreciation and amortization,
efficiencies in office expenses associated with the Taxi Business
and a decrease in net interest expense, partially offset by
increases in expenses related to improved staffing and operations
required to support increased sales levels in the Repair
Business. Other income increased primarily as a result of
foreign currency translation gains, gains on disposal of fixed
assets and penalties received from taxi drivers.
Provision for income tax was $400,000 in 1996 (7.8% of
income before provision for income tax and minority interest),
compared with $152,000 in 1995 ( 4.6% of income before provision
for income tax and minority interest). The increase was
primarily a result of increased taxable income and an increased
tax rate associated with expiring tax holidays.
Minority interest was $157,000 in 1996, an increase of 27.6%
from $123,000 in 1995, which reflects the fact that the Company
entered into new joint venture projects in 1996.
As a result of the foregoing, net income was $4,563,000 in
1996, an increase of 50.9% from $3,023,000 in 1995.
Liquidity and Capital Resources
Generally, the Rental and Taxi Businesses are cash flow
businesses that do not require significant amounts of working
capital. Working capital for the Repair Business was initially
financed mainly by cash flow from the Taxi Business. In 1997,
the Company had net cash flow from operating activities of
$13,616,000.
The Company made capital expenditures in 1997, 1996 and 1995
of $25,669,000, $3,271,000 and $4,215,000, respectively, for the
acquisition of vehicles for its taxi and rental operations, the
acquisition of taxi licenses and the expansion of operations
generally. The Company has relied on cash flow from operations,
borrowings and capital contributions by the Zhenghua Group to
finance these expenditures.
At December 31, 1997, the Company had $24,206,000 aggregate
principal amount of indebtedness, (i) $3,776,000 of which is
comprised of bank loans, $3,576,000 of which the banks may
declare due and payable at any time after March 1999 and $200,000
of which the banks may declare due and payable at any time after
April 1998, (ii) $4,320,000 of which is comprised of notes
payable to others, which are due and payable beginning March 18,
1998 and $4,000,000 of which is personally guaranteed by Mr. Wu
(see "Certain Relationships and Related Transactions"), and (iii)
$6,220,000 of which is comprised of debt to the Zhenghua Group,
which has no stated repayment terms, but which the Zhenghua Group
and the Company understand may be declared due and payable at any
time upon demand by the Zhenghua Group; the Zhenghua Group does
not presently intend to declare due and payable what the Company
owes it, until and unless the Company is able to refinance such
indebtedness. The bank loans bear interest at annual rates
ranging from 15.1% to 18.0%; of the $4,320,000 of notes payable,
$4,000,000 bear interest at an annual rate of 12% and $320,000
bear interest at an annual rate of 8%; and the debt to the
Zhenghua Group does not bear interest.
The Company will require additional capital to refinance
debt and to finance the acquisition of additional vehicles. At
present, the Company has no commitments to refinance any of its
existing indebtedness, and does not have sufficient resources to
repay such indebtedness without refinancing. The Company will
seek to obtain capital from the sale of securities, borrowings,
vendor financing arrangements and operations. There can be no
assurance the Company will be successful in raising additional
capital, or, if it raises additional capital, of the terms on
which it raises such capital. To date, the Company has obtained
a substantial portion of its financing from the Zhenghua Group,
and a substantial portion of the Company's indebtedness to third
parties is guaranteed by Mr. Wu. There can be no assurance the
Zhenghua Group will be willing or able to provide capital in the
future, or that Mr. Wu will be willing or able to guarantee the
Company's indebtedness in the future. If the Company does not
obtain sufficient capital to refinance its existing indebtedness,
the Company will be materially and adversely affected. Even if
the Company obtains sufficient capital to refinance its existing
indebtedness, the Company may not obtain sufficient capital to
expand as contemplated. See "Risk Factors" and "Certain
Relationships and Related Transactions".
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards board
issued two new disclosure standards.
Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), Reporting Comprehensive Income, establishes standards
for reporting and display of comprehensive income, its components
and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Account Standards No. 131 ("SFAS No.
131"), Disclosures about Segments of an Enterprise and Related
Information, which supersedes SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise, establishes standards for
the way that public enterprises report information about
operating segments in annual financial statements and requires
reporting of selected information about operating segments in
interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of an enterprise about
which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in asserting performance.
Both of these new standards are effective for financial
statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be restated.
Result of operations and financial position will be unaffected by
implementation of these new standards. The Company has not
determined whether either of these two standards will have a
material impact on its financial statement disclosure.
Year 2000 Compliance
The Company is modifying its computer systems to be Year
2000 compliant. The Company does not expect that the cost of
modifying such systems will be material. The Company believes it
will achieve Year 2000 compliance in advance of the year 2000,
and does not anticipate any material disruption in its operations
as the result of any failure by the Company to be in compliance.
BUSINESS
Overview
The Transportation Businesses are comprised of the Rental
Business, the Taxi Business, and the Repair Business. The
Company also has a hotel in a resort town in Hunan Province,
which is scheduled to commence operations within one year.
The Rental Business began operations in August 1997 with the
purchase of 350 new automobiles and establishment of automobile
rental stations in Ganzhou, Guangzhou, Nanchang, Nanjing and
Xian. The Rental Business has licenses to operate, but is not
yet operating, in three other cities in southern China, and in
Beijing, Shanghai and Chengdu.
The Taxi Business operates 528 taxis in Shenzhen out of a
current citywide total of 7,800; the remaining taxi companies in
Shenzhen are state controlled. The Taxi Business also has an
aggregate of 150 taxis in two cities in Hunan Province and 50
taxis in Ganzhou, in Jiangxi Province.
The Repair Business currently has one station, which is
located in Shenzhen. The repair station offers a full range of
repair services and is equipped with hoists, an air compression
system and a body work and painting department.
The Yin Du Hotel, when operational, will have 224 rooms, a
restaurant, a business center and several conference rooms. The
Company does not intend to expand the hotel business beyond the
Yin Du Hotel.
Industry Overview and Competitive Environment
Automobile Rental Industry
In 1995, approximately 50,000 automobiles were privately
owned in China. At present, private ownership is beyond the
means of the vast majority of Chinese individuals. However,
automobile rentals may be within the grasp of many individuals.
More than 50 million driver's licenses are issued in China.
An estimated 10,000 cars are currently available for rent
throughout China. The Company believes Beijing Ford Automobile
Rental Co. Ltd., which was formed in 1992 and was the first
automobile rental company in Beijing, is currently China's
largest automobile rental company. The Company believes its
operations in Beijing have approximately 500 automobiles
available for rent; in its smaller locations outside Beijing,
only a limited number of vehicles are available for rent. The
Company believes Shanghai Volkswagen Automobile Co. Ltd., which
is affiliated with Hertz Corporation, and is the largest rental
company in Shanghai, has approximately 300 automobiles available
for rent. Most other car rental organizations control only a few
automobiles. Most car rental organizations are based in only one
city, and restrict or prohibit travel by their customers between
cities.
The Company believes several factors should encourage growth
in the car rental business in China:
O Substantial resources are being allocated to the
improvement of the highway and road infrastructure in
China. The number of primary and secondary roads in
China have grown rapidly in recent years.
O Government organizations, which are required to have
access to specified numbers of automobiles, often have
limited budgets, which restrict their ability to
purchase automobiles. Typically, these organizations
lease, rather than own, their automobiles.
O According to a government report, the number of
individuals with driver's licenses in China exceeded 50
million in 1996. Most licensed individuals are in the
higher income brackets, and do not own vehicles. The
Company believes many of these individuals have an
interest in travel and are likely to rent cars.
O The growing number of foreign tourists in China and
China-based foreigners should increase the demand for
rental cars.
Taxi Industry
An estimated 580,000 taxis presently operate throughout
China. Until 1988, all taxi companies in China were state-owned.
In 1988, Shenzhen first auctioned taxi licenses to private
institutions and corporations. The only cities in China that
presently have taxis that are not all state-owned are Shenzhen,
Beijing and Shanghai. Only four cities in China regulate the
total number of taxis allowed: Beijing (80,000), Shanghai
(30,000), Guangzhou (30,000) and Shenzhen (7,800).
The taxi industry is regulated. Regulations vary from city
to city. Taxis require both license plates and annual
inspections. The one-time charge for plates on domestic and
foreign vehicles is 10% and 17%, respectively, of the car's
value. A one-time city capacity expansion fee, ranging from $500
to $720, also is applied in most cities. Local regulating
agencies in each city impose several layers of taxes in
connection with the operation of motor vehicles. Cities also
have road maintenance taxes that are levied on residents and
supplemented by tolls from transient vehicles. Automobile taxes
are levied on taxis once a year.
Taxis are required to have special plates (medallions), for
which the estimated costs will be between $36,000, in smaller
cities, and $100,000, in major cities, and are valid for 50
years. Taxi licenses allow drivers to pick up passengers in the
city where the taxi is licensed. However, the drivers are not
allowed to service customers originating from other cities.
Positions as taxi drivers are competitively sought by
individuals seeking higher income levels.
Automotive Repair Industry
As the number of automobiles increases in China, the market
for repair, maintenance and inspection services also to increase.
Repair work generated by insurance companies must be
performed at designated repair shops. In each major city, the
number of repair shops so designated is limited. Similarly,
government regulations require annual inspections for automobiles
and more frequent inspections for taxis; such inspections must be
made by a government certified inspection station.
At present, the market for services is highly fragmented,
with substantially all such services being performed by small,
individually operated repair shops.
Strategy
Rental Business
The Company's strategy is to create a Chinese nationwide
automobile rental system.
The Company intends to purchase as many automobiles for the
Rental Business as its capital resources, permit. At present, a
total of 1,218 cars are deployed in the Rental Business in eight
cities. Rental cars are available in five different models. The
cars are located either at the headquarters in each city or at
strategically located satellite stations.
At present, all the Company's 1,218 cars deployed in the
Rental Business are under short-term leases, a majority of whom
are individual tourists and other foreigners located in China,
with an average rent of $1,500 per month. The Company also plans
to have long-term leases primarily with corporate and
governmental organizations, and short-term leases primarily with
individuals. The average rent under a long-term lease is
expected to be $1,000 per month with a deposit of approximately
$3,600.
The Company will solicit individuals to enroll in membership
plans, in which members will pay an annual membership fee that
will entitle them to discounts and waivers of the deposits.
The Company plans to use a variety of marketing techniques
and media, including television, radio and print advertising,
direct selling, direct mail and public relations, and strategic
alliances with hotel chains, travel agencies and transportation
centers.
Taxi Business
The Company intends to expand its taxi fleet into the same
cities in which it will have automobile rental operations,
initially beginning with expansion into Wuhan, Chengdu, Beijing
and Shanghai.
The Company controls certain costs by engaging taxi drivers
as independent contractors, rather than hiring them as employees.
As independent contractors, the drivers, rather than the Company,
are responsible for certain costs, including certain taxes, road
maintenance fees, insurance and repairs.
Repair Business
The Company intends to open automotive repair shops in
cities in which it operates the Rental Business and Taxi
Business. The Company believes these shops should benefit from
growing use of automobiles in China, the fragmented market for
repair services in these cities and the repair services that will
be required for the growing number of cares in the Rental
Business and Taxi Business. The Company also believes that, by
providing repair services for the Rental Business and the Taxi
Business, the Company should be able to reduce repair,
maintenance and inspection expenses for its own automobiles and,
at the same time, provide repair, maintenance and inspection
services to others efficiently. In that connection, the Company
believes it should benefit from reductions in the purchase price
of spare parts because of bulk purchases of automobiles for the
Rental Business and Taxi Business.
In addition, the Company intends to work with a limited
group of major domestic Chinese automobile manufacturers to open
repair stations specializing in their automobiles.
Business Operations
Rental Business
The Company began the Rental Business with 50 cars in August
1997 in the city of Ganzhou. At present, the Rental Business
operates in Ganzhou and Guangzhou, and the Company plans to
commence operations in Beijing and Shanghai as soon as
practicable. The Company has deployed 1,218 automobiles in the
Rental Business: 100 in Ganzhou, 200 in Guangzhou, 100 in
Nanchang, 70 in Xian, 100 in Nanjing, 250 in Chengdu, 200 in
Changsha and 198 in Yueyang. The Company also has licenses to
operate in Congxing, Guilin, Beijing, Shanghai and Wuhan.
Generally, operations in each city are based in a 200 to 800
square meter rented space, which is supported by 100 to 200
square meters of satellite stations and a large rental lot. A
total of three to five employees in each city provide 24-hour
access to rental cars. Approximately one-third of the employees
are in each of sales and marketing, one-third in management and
one-third in operations. The Company has marketing agreements
with several hotels and airports.
The Company will be tailoring its Rental Business to three
main categories of customers:
Foreign Tourists and Foreigners Living in China. At
present, 62% of the 1,218 cars deployed in the Rental
Business are leased to tourists and foreigners in China.
The Company plans to rent automobiles on a short-term basis
to tourists and on a short- and long-term basis to
foreigners living in China. The process for foreigners to
obtain drivers licenses in China has recently been
simplified; tourists with the proper identification and
credit generally have access to cars within 24-hours.
Corporations and Government Agencies. Corporations and
government agencies in China typically rent automobiles for
most of their transportation needs. At present, short-term
leases to corporations (both foreign and domestic) and
government agencies account for 32% of the 1,218 cars
deployed in the Rental Business.
Chinese Individuals. The leases for domestic customers vary
in length from short-term (weekend) rentals to as long as
five-years. At present, short-term leases account for 6% of
the 1,218 cars deployed in the Rental Business.
In a long-term lease, the Company expects to charge a
deposit ranging from $3,000 to $6,000 for each leased automobile.
The typical long-term lease is expected to be one year at a
monthly rental of approximately $1,000. Rent on corporate and
government long-term leases generally is expected to be less than
rent on long-term leases for individuals; corporate and
government customers often receive volume discounts. The Company
will pay for the insurance on the automobile and standard repairs
resulting from general wear and tear, which will not be included
in the basic fees. Automobiles under long-term leases that are
two years old are expected either to be sold in the used
automobile market, converted into taxis, traded back to the
manufacturer or sold to the lessee under an option to purchase
agreement.
Depending on the length of each short-term lease, deposits
up to $600 are required. Rental charges are based on the
distance traveled in segments of time. Generally, there is a 10%
discount for rentals over three days, a 15% discount for monthly
rentals and a 20% or greater discount for leases of three months
or longer.
Individuals may utilize the Company's reservation system to
reserve cars. If reservations are canceled within the 24-hour
period prior to the anticipated rental, the Company retains 50%
of the advanced deposit. Domestic individuals who do not
participate in the Company's Rental Card Program are required to
deposit cash or present a credit or debit card for a deposit.
Two forms of a pictured identification are required. If an
individual does not have a debit card for the required deposit,
the Company requires that the individual's obligations be
guaranteed by a local resident whose identification and solvency
can be confirmed. For tourists, the Company checks the
identification of the driver, including his or her address, visa
and any prior violations on his or her driver's license.
The Company relies on insurance coverage as security against
damage. All automobile insurance contracts in China provide "no-
fault" coverage, with various deductible amounts typically
totaling the amount of the deposit. The lessee pays a daily
insurance charge.
The Company does not impose "drop charges" on customers who
return their cars to a Company rental location different from the
location in which the rental originated. However, a drop charge
is required for returning an automobile to a rental location not
owned by the Company (which are limited to locations where the
Company has entered into an agreement with an organization for
accepting returned automobiles).
Taxi Business
Prior to 1988, all taxi licenses and operations were state-
owned. Shenzhen was the first Chinese city to sell taxi licenses
to private citizens. The Company has 528, or 6.8%, of all the
taxi licenses in Shenzhen. The Company is the largest
independent taxi organization in Shenzhen. The remaining taxi
companies in Shenzhen are controlled by the government; most have
fewer than 50 cabs.
Additionally, the Company has 150 taxis in two cities in
Hunan Province and 50 taxis in Ganzhou, in Jiangxi Province, and
owns 600 licenses for cabs in six additional cities, including
Wuhan, Chengdu, Beijing and Shanghai.
The Company's taxi headquarters, located in Shenzhen in a
modern two-floor office space with 2,000 square meters per floor,
has 30 employees. Computer operations, a cashier center for
collecting payments from drivers, a dispatch center, all
accounting and financial functions, a large meeting room for bi-
monthly meetings and departments for safety, mechanical
maintenance and public records are located at these headquarters.
The Company controls its Shenzhen fleet and communicates with its
fleets in the other cities through its centralized control
facility in Shenzhen. The taxi operations outside Shenzhen have
separate accounting, administration and technical departments,
although Company-wide policies are promulgated and implemented
through the Shenzhen office.
The Company has a computerized phone reservation system,
which is staffed 24-hours a day. Continuous communication with
its taxis is maintained through the Company's central dispatch
system. This allows the Company to radio passenger locations to
its drivers and assign a taxi number to the passenger.
Reservations are generally made by passengers for long-distance
trips, such as trips to other cities or to the airport. The
Company does not charge its taxi drivers for referrals from the
reservation system. The Company offers its customers bottled
water for long trips and the availability of non-smoking taxis.
The Company's taxi drivers are organized by fleets of 100
drivers per fleet, partly for administration purposes and partly
to inspire a competitive spirit to foster the Company's demand
for high quality service. There are 50 cabs in each fleet with
two drivers per cab.
The Company has a structured training program for its taxi
drivers, with the objective of improving reliability and customer
service. All drivers are required to pass an initial training
program that involves procedures for customer courtesy, dress
codes, suggestions about personal care, the Company's reservation
and tracking systems and inspection and repair procedures.
Ongoing education is required for all drivers twice a month at
the Company's headquarters, and includes safety training,
security, new regulations and Company procedures, construction
and routing developments, customer courtesy tips and suggestions
for improvements in efficiency.
The Company attempts to provide an incentive to its drivers
by providing an annual "Most Excellent Driver Award", which is
awarded to the driver with the best record in terms of the least
number of accidents and tickets, honesty in reporting and
returning items lost by customers and favorable customer service
reports. The award recipients are given a sizable financial
reward and honored at the Company's annual dinner banquet. Each
year, the Company also provides permanent residence awards based
on merit to 10 drivers who are non-residents of Shenzhen.
A Company newsletter is regularly issued to all employees
and drivers focusing on performance achievements of the Company
as a whole, individual efforts and successes of its personnel, as
well as accident records and noteworthy penalties that
individuals may receive.
Since drivers are not hired as employees, the Company does
not extend full employee benefits, such as health insurance and
housing subsidies, to its drivers. The Company does provide
drivers clothing with the Company logo annually, new seat covers
as required, accommodations for visiting friends and relatives
and meals during Company meetings. Company sponsored events
include picnics, trips, banquets, health classes and lectures by
police and tradesmen about new mechanical techniques. The
Company believes those efforts provide a serious sense of pride
among its employees and taxi drivers.
The Company also implements a system of discipline and
penalties for drivers who digress from the Company's standards.
Financial penalties are imposed for missing Company meetings,
worsening accident records and violating traffic rules. In some
cases, the penalties that are levied on individual drivers also
are levied on the driver's peers and on management. Records of
performance, both favorable and unfavorable, are posted publicly
for all employees to view. Fines collected are added to the
Company's pool of capital supporting its reward programs.
Drivers are allowed to share the cost of leasing the taxi
with one or more associates so the taxi may run 24-hours a day.
Drivers in Shenzhen are required by the Transportation Department
to rest at regular intervals in order to assure alertness and
maximum safety. Primary and additional drivers are required to
be licensed by the local authorities and must pass both a
written and an oral test annually. Drivers usually work 12-hour
shifts and change at 7:00 a.m. and 7:00 p.m.
Drivers make an initial deposit with the Company for a
three-year lease of the car; the deposit generally ranges from
approximately $10,000 to $13,000 (depending on whether the taxi
is new or used); 20% of the deposit is refundable depending upon
the condition of the car and the performance by the driver of
obligations under the lease agreement. The lease is renewable,
for an identical deposit amount, for an additional four-year
period. At the end of seven years, the driver has the option to
continue driving the car as a taxi for the Company or to purchase
the automobile for his own use for the residual market value of
the automobile.
During the term of the lease, a driver pays the Company a
$1,445 as a management fee, regardless of mileage or the number
of customers served. In addition, taxi drivers pay the Company
approximately $110 a month for a variety of other items,
including a repair fund reserve, taxes to various regulatory
groups, insurance and a communications charge. Drivers also must
pay an average of $6 a month to the Company's repair shops to
supplement the repair reserve fund.
Taxi related costs the Company pays (supplemented by the
$110 collected from its drivers) include accident insurance,
insurance to benefit drivers in the event of the Company's
bankruptcy and certain taxes and inspection fees.
Once a driver enters into a lease with the Company, he has a
monthly appointment at the Company's headquarters for meter
monitoring and a monthly inspection at the Company's repair
shops. Taxi drivers are allowed to offer taxi services 24 hours
a day and to use the automobile for commuting purposes. The
Company estimates that the average Shenzhen driver has revenue of
$100 a day.
Repair Business
The Company has a repair shop, which is located in Shenzhen.
The shop is based in a 2,800 square meter facility near the
Company's headquarters. This facility offers a full range of
repair services and is equipped with hoists, air compression
systems and a sizable body work and painting department.
A total of 40 employees working two shifts are able to
service approximately 30 repair assignments simultaneously. Two
senior mechanics supervise the entire repair service staff, who
are assigned to four categories of repair operations:
O The most labor intensive repair services involve the
engine, the power train, the brakes and other
mechanical repairs. These services are handled by 25
individuals, including five mechanics.
O A staff of four automotive electrical system
specialists handles electrical problems with a wide
range of metering, gauging and sensor equipment.
O Six employees use bumping equipment, hydraulic tools
and finishing tools for repairing body damage.
O Five employees are assigned to the painting bin, where
paints of all colors and finishing surfaces are applied
to repaired metal components.
Approximately 50% of repair services revenues are generated
by engine and mechanical work, 40% by body and painting work and
10% by electrical systems repair. Prices for repair services are
set on a fixed-price basis according to the category of repair
and the model of automobile; the Company does not bill its
customers on the basis of time and parts for the repair service.
Automobile repair relating to insurance claims must be
performed at designated repair stations. In Shenzhen, the
Company has one of only two city-wide designated repair stations
for insurance claims. Insurance claims are a relatively
consistent source of business. When an accident occurs, the
Company sends an inspector to the accident scene to assess the
damages with the insurance company representative. By mutual
agreement, a fee is negotiated for the required repairs.
Insurance business generates a slightly higher profit margin than
the non-insurance repair services.
Government regulation requires an annual inspection for all
automobiles registered in a city. An inspection of the vital
mechanical functions of an automobile must be made by a
government certified inspection station. The Company's repair
shop is so designated. The Company provides inspection services
at no charge to the Rental Business and Taxi Business.
Taxis have stringent inspection requirements. In addition
to the ordinary annual inspection, quarterly inspections of taxis
also are required. The Repair Business provides this service at
no charge to the Taxi Business. The Company also requires
monthly inspections of its taxis; drivers pay a $1.00 monthly
charge for these inspections. The Company charges only modest
fees for inspection services, because inspections generate
maintenance and other repair assignments.
The Company generally charges customers for parts at about
120% to 130% of cost plus the labor for installation.
In addition to repair services offered at its repair shop,
the Company offers road side repair services. The Company has
two tow trucks in Shenzhen and plans to increase its tow truck
fleet as part of its expansion. The charge for towing depends on
the towing distance. For towing within Shenzhen, the Company
charges a fixed rate of $42. Towing services for the Rental
Business are paid by the Company; towing services for the Taxi
Business are paid by the taxi drivers.
The Repair Business employs a total of 56 individuals:
three managers, 13 administrators, seven licensed mechanics, five
assistant mechanics and 28 licensed technicians.
Description of Property
The Company leases two floors for its taxi headquarters,
which are located in a modern, seven-story building in Shenzhen
with 2,000 square meters per floor. The lease expires in 2001.
The annual rent under the lease is $6 per square meter per month.
The Company leases its facilities for the Rental Business in
each city in which it operates. The leases cover 200 to 800
square meters of office space in each location, 500 to 4,000
square meters of rental lot space in each location and 100 to 200
square meters of space in each satellite station. The leases
expire at various times over the next 5 years. The annual rent
under the leases ranges from $3 to $6 per square meter per month.
The Company owns its automobile repair shop in Shenzhen.
The shop occupies a 2,800 square foot facility.
The Company's hotel is located in the city of Shimeng in the
northwest area of Hunan Province and is scheduled to commence
operations within one year. The hotel site is located on a 6,666
square meter plot of land on which the 13,888 square meter 10-
story structure is built. The hotel consists of 224 rooms for
rent, a restaurant, a disco entertainment area, a variety of
conference rooms and a retail shop.
Legal Proceedings
The Company is not involved in any legal proceedings that
management believes would have a material adverse effect on the
Company's financial position or results of operations.
MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding the
directors and executive officers of the Company.
Name Age Positions
Wu Zhi Jian 38 Chairman of the Board, Director
Andrew Lee 49 President, Director
Willy Wu 36 Executive Vice President, Chief
Financial Officer
Peng Jun 27 Executive Vice President, Treasurer,
Director
Zhang Li Wei 38 Director
Li Yong Yuan 51 Director
Mona Ng 32 Secretary
Wu Zhi Jian has been the chairman and director of the
Company since February 1997. Mr. Wu founded Jinzhenghua
Transport in 1988. Mr. Wu is the chairman and founder of
Shenzhen Zhenghua Group Co. Ltd., which is a diversified group of
companies.
Andrew Lee has been the president and director of the
Company since 1997. Since 1997, Mr. Lee has been the co-chairman
and co-chief executive officer of Greater Alliance Corporation, a
company that provides financial services. Since 1992, Mr. Lee
has been the president and chief executive officer of First
Shanghai Corporation, a merchant bank, BOXX International
Corporation, a computer and electronics company, and TowerCom
Inc., a software company. Mr. Lee also is chairman of Valentine
USA Inc., a company that manufactures ladies' apparel. Mr. Lee
also is a director of Consygen Inc., a software development
company. Mr. Lee received graduate degrees in business
administration and electrical engineering at Columbia University.
Mr. Lee also holds a visiting professorship at Guangxi Institute
of Technology in Guangxi, China.
Willy Wu has been the executive vice president and chief
financial officer of the Company since January 1998. Since 1993,
Mr. Wu has been the vice president and treasurer of First
Shanghai Corporation, a merchant bank, and the chief financial
officer of Valentine USA Inc. and M.L.J. Fashions Inc., companies
that manufacture ladies' apparel. From 1985 to 1993, Mr. Wu was
employed as an accountant by KPMG Peat Marwick in the auditing
and the management consulting groups. Mr. Wu received a degree
in accounting and computer applications and information systems
from New York University Stern School of Business in 1985. Mr.
Wu is a certified public accountant in New York State.
Peng Jun has been the executive vice president, treasurer
and director of the Company since 1997. From 1994 to 1997, Mr.
Peng was standing director of the Board of Shenzhen Zhenghua
Group Co. Ltd. and chairman and general manager of Shenzhen Zheng
Hua Industrial Development Main Company. In 1994, Mr. Peng was
appointed vice general manager of Guo Run Taxi Service Company.
From 1991 to 1994, he was manager of Jun Peng Repair Shop.
Zhang Li Wei has been a director of the Company since March
1997. From 1995 to 1997, he was chief executive officer and a
director of Jinzhenghua Transport. From 1994 to 1995, he was a
director of the Shenzhen Zhenghua Group Co. Ltd. and chairman of
Zheng Hua Trading Company, and general manager of the Taxi
Business. From 1992 to 1994, Mr. Zhang was general manager of
Taolin Hotel in Changde.
Li Yong Yuan has been a director of the Company since 1997.
From 1994 to 1997, Mr. Li has been a standing director of
Jinzhenghua Transport and Shenzhen Zhenghua Group Co. Ltd. From
1993 to 1994, Mr. Li was assistant to the president and vice
general manager of Shenzhen Zheng Hua Industrial Development Main
Company. From 1988 to 1993, Mr. Li was standing vice general
manager of Shenzhen Zheng Hua Industrial Development Main
Company.
Mona Ng has been the secretary of the Company since February
1998. Since 1994, Ms. Ng has been the vice president and
secretary of First Shanghai Corporation, a merchant bank. In
October 1990, Ms. Ng co-founded Valentine USA Inc., a company
that manufactures ladies apparel. From 1988 to 1990, Ms. Ng was
employed as a loss control consultant in the commercial insurance
division of Cigna Corporation. Ms. Ng received a degree in
finance and economics from New York University Stern School of
Business in 1988.
Executive Compensation
In 1997, the Company did not provide compensation or other
benefits to any of its directors or executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Historically, Shenzhen Zhenghua Group Co. Ltd. (the
"Zhenghua Group"), of which Mr. Wu is chairman and founder, has
provided a significant portion of the Company's financing.
During 1997, the Company received interest-free loans totaling
$24,182,000 from the Zhenghua Group, of which the Company repaid
a total of $12,644,000. Additionally, during 1997, the Zhenghua
Group relieved the Company of its obligation to repay $7,476,000
of the outstanding balance by contributing that amount to the
Company's capital. At December 31, 1997, the Company owed the
Zhenghua Group a total of $6,220,000. The loans have no stated
terms or repayment provisions. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations
Liquidity and Capital Resources".
In late 1997, the Company borrowed $4,000,000 aggregate
principal amount from certain lenders, including Yeung Ming-Sum
("Mr. Yeung") and Neolite Neon Co. Pty. Ltd. ("Neolite"). Mr.
Yeung and Neolite loaned the Company $2,000,000 and $1,500,000,
respectively. Each loan bears interest at the rate of 12% a year
and matures 180 days after the respective loan was made. After
the due date of each loan and prior to payment in full, the
principal and interest on each loan is convertible, at the
lender's option, into the number of shares of Company Common
Stock determined by dividing the amount required to be paid under
the loan that the lender wishes to convert by 50% of the average
closing bid price of the Company Common Stock on the five trading
days immediately before the conversion. The loans are secured by
40%, in the aggregate, of the Company's ownership interest in
Jinzhenghua Transport (20% and 15% of the Company's ownership
interest, in respect of the loans from Mr. Yeung and Neolite,
respectively). In addition, Mr. Wu has guaranteed the Company's
obligations under each loan, and has pledged an aggregate of
1,000,000 shares of Company Common Stock he owns to secure that
guarantee, 500,000 of which are pledged to secure the guarantee
to Mr. Yeung and 375,000 of which are pledged to secured the
guarantee to Neolite. In addition, at the time the loans were
made, Mr. Wu transferred to the lenders an aggregate of 50,000
shares of Company Common Stock, 25,000 of which were transferred
to Mr. Yeung and 18,750 of which were transferred to Neolite.
Each lender also has certain so-called "piggy-back registration
rights" with regard to the shares of Company Common Stock
referred to above. See "Risk Factors", "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Principal Shareholders".
During 1997, Peng Jun ("Mr. Peng"), a director and executive
officer of the Company, was indebted to the Company at various
times in amounts up to $633,000. The indebtedness did not bear
interest. During 1997, Mr. Peng repaid the indebtedness in full.
Wu Qi Mei, Mr. Wu's mother, owns the 8% of Jinzhenghua
Transport that the Company does not own.
Zhenghua Group owns all the minority interests in the
Company's subsidiaries, other than (i) 25% of the hotel
subsidiary, which is owned by another affiliate of Mr. Wu; (ii)
15% of the hotel subsidiary, which is owned by an unaffiliated
party; and (iii) 30% of the car rental subsidiary that operates
in Jiangxi Province, which also is owned by an unaffiliated
party.
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to
the Company Common Stock beneficially owned as of December 31,
1997 by (i) each person known by the Company to be the beneficial
owner of more than 5% of the shares of Company Common Stock, (ii)
each director individually, (iii) each executive officer
individually and (iv) all executive officers and directors as a
group.
Name and Address Amount and Nature of Percent
5% Shareholders Beneficial Ownership of Class
Wu Zhi Jian 1,2 2,288,110 37.7%
Yeung Ming-Sum
Flat B, 13/F, Block D
Wylie Court, 19 Wylie Path
Homantin, Kowloon
Hong Kong 862,500 14.2
Neolite Neon Co. Pty. Ltd.
225 Queen Street
Beaconsfield 2015
Sydney, Australia 393,750 6.5
Wu Qi Mei 1,5 300,199 5.0
Other Executive Officers and Directors
Peng Jun 1 240,158 4.0
Zhang Li Wei 1 30,000 0.5
Li Yong Yuang 1 30,000 0.5
Directors and executive
officers as a group
(four individuals) 2,588,268 42.7
___________________
1 The party's address is 7/F, Business Bldg. No. 1 Suncang,
Bao'an North Rd., Shenzhen City, People's Republic of China.
2 Mr. Wu is Wu Qi Mei's son. Mr. Wu may be deemed to share
dispositive power with Yeung Ming-Sum ("Mr. Yeung") and with
Neolite Neon Co. Pty. Ltd. ("Neolite") with respect to 500,000
shares and 375,000 shares, respectively, of Company Common Stock
pledged to them to secure Mr. Wu's guarantee of certain Company
indebtedness. He also may be deemed to share dispositive power
with a third lender to the Company with respect to 125,000 shares
of Company Common Stock pledged to secure his guarantee of
certain Company indebtedness. See "Certain Relationships and
Related Transactions".
3 Includes 500,000 shares of Company Common Stock held in
pledge. See note 2 above.
4 Includes 375,000 shares of Company Common Stock held in
pledge. See note 2 above.
5 Ms. Wu is Mr. Wu's mother.
SHARES ELIGIBLE FOR FUTURE SALE
The 6,066,341 shares of Company Common Stock to be issued in
the Reorganization will be available for resale in the public
market without restriction or further registration under the
Securities Act, except for shares issued to affiliates of the
Company (in general, any person who has a control relationship
with the Company), which shares will be subject to the resale
limitations of Rule 144.
2,588,268 of the Company's 6,066,341 shares of Company
Common Stock will be issued to parties who may be deemed to be
affiliates. Under Rule 144 as currently in effect, an affiliate
is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Company Common Stock (60,663 shares
immediately after the Reorganization) or (ii) the average weekly
trading volume during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements.
Sales of substantial amounts of Company Common Stock under
Rule 144 or otherwise, or even the potential of such sales, could
depress the market price of the Company Common Stock, and could
impair the Company's ability to raise capital through the sale of
its equity securities.
Prior to the Reorganization, there has been no public market
for the Company Common Stock and there can be no assurance that a
market will develop or be sustained following the Distribution.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock having a par value of
$0.01 per share, and 5,000,000 shares of preferred stock having a
par value of $.01 per share.
The following description of the Company's capital stock and
certain provisions of the Company's certificate of incorporation
and bylaws is qualified in its entirety by the provisions of the
certificate of incorporation and bylaws and the Delaware General
Corporation law.
Common Stock
There are 6,066,341 shares of Company Common Stock
outstanding. All outstanding shares of Company Common Stock are
fully paid and nonassessable. The holders of Company Common
Stock are entitled to one vote for each share held of record on
all matters voted upon by shareholders and may not cumulate
votes. Thus, the owners of a majority of the Company Common
Stock outstanding may elect all the directors, if they choose to
do so, and the owners of the balance of the shares would not be
able to elect any directors. Subject to the rights of holders of
any future series of undesignated preferred stock that may be
designated, each share of outstanding Company Common Stock is
entitled to participate equally in any distribution of assets
made to the shareholders in liquidation, dissolution or winding-
up of the Company and is entitled to participate equally in
dividends as and when declared by the board of directors. There
are no redemption, sinking fund, conversion or preemptive rights
with respect to the shares of Company Common Stock. All shares
of Company Common Stock have equal rights and preferences.
Preferred Stock
The board of directors is authorized, without further
shareholder approval, to issue from time to time shares of
preferred stock in one or more series with such designations and
such powers, preferences and rights, and such qualifications,
limitations or restrictions (which may differ with respect to
each series) as the board may fix by resolution.
The board of directors is empowered to set the terms of such
shares (including terms with respect to redemption, sinking fund,
dividend, liquidation, preemptive, conversion and voting rights
and preferences). Accordingly, the board of directors, without
shareholder approval, may issue shares of preferred stock with
terms (including terms with respect to redemption, sinking fund,
dividend, liquidation, preemptive, conversion and voting rights
and preferences) that could adversely affect the voting power and
other rights of holders of the Company Common Stock.
The undesignated preferred stock may have the effect of
discouraging an attempt, through the acquisition of a substantial
number of shares of Company Common Stock, to acquire control of
the Company with a view to effecting a merger, sale or exchange
of assets or a similar transaction. For example, the board of
directors could issue such shares as a dividend to holders of
Company Common Stock or place such shares privately with
purchasers who may side with the board of directors in opposing a
takeover bid. The anti-takeover effects of the undesignated
preferred stock may deny shareholders the receipt of a premium on
their Company Common Stock and also may have a depressive effect
on the market price of the Company Common Stock.
Delaware Anti-Takeover Law and Certain Charter Provisions
The Company is subject to Section 203 of the Delaware
General Corporation Law ("Section 203"), which, subject to
certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested
shareholder for a period of three years following the date that
such shareholder became an interested shareholder, unless:
(i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder;
(ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced
(for the purposes of determining the number of shares
outstanding, under Delaware law, those shares owned (x) by
persons who are directors and also officers, and (y) by employee
stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer are excluded
from the calculation), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors
and authorized at an annual or special meeting of shareholders,
and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the
interested shareholder.
Section 203 defines a business combination to include:
(i) any merger or consolidation involving the corporation and the
interested shareholder; (ii) any sale, transfer, pledge or other
disposition of 10% or more of the assets of the corporation
involving the interested shareholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to
the interested shareholder; (iv) any transaction involving the
corporation which has the effect of increasing the proportionate
share of the stock of any class or series of the corporation
beneficially owned by the interested shareholder, or (v) the
receipt by the interested shareholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation. In general, Section 203
defines an interested shareholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or
controlling or controlled by such entity or person.
Anti-takeover Effect of Provisions of the Certificate of
Incorporation and Bylaws
Certain provisions of the Company's certificate of
incorporation and Delaware law may have a significant effect in
delaying, deferring or preventing a change in control of the
Company and may adversely affect the voting and other rights of
other holders of Company Common Stock. In particular, the
ability of the board of directors to issue preferred stock
without further shareholder approval may have the effect of
delaying, deferring or preventing a change in control of the
Company and may adversely affect the voting and other rights of
other holders of Company Common Stock. In addition, the
Company's certificate of incorporation does not permit
shareholders to vote cumulatively for directors.
Transfer Agent and Registrar
The transfer agent and registrar for the Company Common
Stock is ______________.
COMPARISON OF DELAWARE AND NEVADA CORPORATION LAWS
As a result of the Reorganization, holders of Dawson
Common Stock, which is subject to the Nevada General Corporation
Law (the "Nevada Law"), will become holders of Company Common
Stock, which is subject to the Delaware General Corporation Law (
the "GCL"). The Nevada Law is substantially similar to the GCL.
The following summarizes the most significant differences between
the Nevada Law and the GCL.
Preemptive Rights
Under the Nevada Law applicable to corporations
organized prior to October 1, 1991 (as Dawson was), shareholders
of Nevada corporations are permitted to have preemptive rights to
purchase newly issued shares, unless prohibited in the
certificate of incorporation. Dawson's articles of incorporation
do prohibit such rights. Under the GLC, shareholders do not have
preemptive rights, unless there is a specific provision granting
such rights in the certificate of incorporation. The Company's
certificate of incorporation does not contain such a provision.
Accordingly, the Reorganization will not have a practical impact
on shareholders in terms of preemptive rights.
Examination of Books and Records
Under the Nevada Law, a person must be the holder of
record of, or the holder of record of voting certificates for, or
have been authorized in writing by the holders of, at least 15%
of all outstanding shares of a corporation in order to examine
the books of account and all financial records of a corporation.
Under the GLC, any shareholder with a proper purpose may demand
inspection. The Nevada Law does not apply to any corporation
listed and traded on any recognized stock exchange or that
furnishes its shareholders a detailed annual financial statement.
Dividends
Under the GCL, unless otherwise provided in the
certificate of incorporation, a corporation may declare and pay
dividends out of surplus, or, if no surplus exists, out of net
profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year (provided the amount of capital
of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets). In
addition, the GCL provides that a corporation may redeem or
repurchase its shares only out of surplus.
The Nevada Law provides that no distribution (including
dividends on, or redemption or repurchase of, shares of capital
stock) may be made, if, after giving effect to the distribution,
the corporation would not be able to pay its debts as they become
due in the usual course of business, or the corporation's total
assets would be needed at the time of a liquidation to satisfy
the preferential rights of preferred shareholders.
Except pursuant to the Reorganization, neither Dawson
nor the Company currently intends to pay dividends or make any
other distributions on its capital stock. Nevertheless, the
difference between the GCL and the Nevada Law with respect to
amounts available for dividends or other distributions could
affect future dividends or other distributions, if any are
declared.
Anti-Takeover Legislation
Both the GCL and the Nevada Law contain provisions
restricting the ability of a corporation to engage in business
combinations with an interested shareholder. Under the GCL,
except under certain circumstances, a corporation is not
permitted to engage in a business combination with any interested
shareholder for a three-year period following the date such
shareholder became an interested shareholder. The GCL defines an
interested shareholder generally as a person who owns 15% or more
of the outstanding shares of such corporation's voting stock.
Under the Nevada Law, except under certain
circumstances that vary from the exceptions under the GCL,
business combinations with interested shareholders are not
permitted for a three-year period following the date such
shareholder became an interested shareholder, the same period
provided for under the GCL. The Nevada Law defines an interested
shareholder, generally, as a person who owns 10% or more, rather
than 15% or more as provided under the GCL, of the outstanding
shares of the corporation's voting stock.
In addition, the Nevada Law generally disallows the
exercise of voting rights with respect to "control shares" of an
"issuing corporation" held by an "acquiring person", unless such
voting rights are conferred by a majority vote of the
disinterested shareholders. "Control shares" are the shares of
an issuing corporation acquired in connection with the
acquisition of a "controlling interest". "Controlling interest"
is defined in terms of threshold levels of voting ownership,
which thresholds, whenever crossed, trigger application of the
voting prohibition with respect to the newly acquired shares.
The Nevada Law also contains general provisions
permitting directors to (i) take action to protect the interests
of the corporation and its shareholders, including the adoption
or execution of plans affecting the holder(s) of a specified
number of shares or percentage of share ownership or voting power
and (ii) to resist a change or potential change in control of the
corporation, if the directors determine that the change or
potential change is opposed to or not in the best interest of the
corporation.
Indemnification of Directors and Officers and
Advancement of Expenses
The GCL and the Nevada Law have nearly identical
provisions regarding indemnification by a corporation of its
officers, directors, employees and agents, except Nevada Law
provides broader indemnification in connection with shareholder
derivative lawsuits.
The GLC and the Nevada Law differ in their provisions
for advancement of expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding. The
GCL provides that expenses incurred by an officer or director in
defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit or
proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount, if it is ultimately
determined that he is not entitled to be indemnified by the
corporation. Thus, a corporation has the discretion to decide
whether or not to advance expenses.
Under the Nevada Law, the articles of incorporation,
bylaws or an agreement made by the corporation may provide that
the corporation must advance expenses before the final
disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount, if it is ultimately determined that he is not
entitled to be indemnified by the corporation. Thus, a Nevada
corporation may have no discretion to decide whether or not to
advance expenses.
Limitation on Personal Liability of Directors
Delaware corporations are permitted to adopt charter
provisions limiting, or even eliminating, the liability of a
director to a company and its shareholders for monetary damages
for breach of fiduciary duty as a director, provided that such
liability does not arise from certain proscribed conduct,
including breach of the duty of loyalty, acts or omissions not in
good faith or that involve intentional misconduct or a knowing
violation of law or liability to the corporation based on
unlawful dividends or distributions or improper personal benefit.
While the Nevada Law has a similar provision permitting
the adoption of provisions in the articles of incorporation
limiting personal liability, the Nevada provision differs in two
respects. First, the Nevada provision applies to both directors
and officers. Second, while the Delaware provision excepts from
limitation on liability a breach of the duty of loyalty, the
Nevada counterpart does not contain this exception. Thus, the
Nevada provision permits a corporation to limit the personal
liability of directors and officers for a breach of the duty of
loyalty.
The Company certificate of incorporation, like the
Dawson articles of incorporation, contains a provision limiting
the personal liability of directors. However, unlike the Company
certificate of incorporation, the Dawson articles of
incorporation also limit the liability of officers. Under the
laws of either state, the charter provision will not have any
effect on the availability of equitable remedies, such as an
injunction or recission based upon a breach of the duty of care,
or on liabilities that arise under certain federal statutes, such
as the securities laws.
Under the GCL, directors are jointly and severally
liable to a corporation for willful or negligent violations of
statutory provisions relating to the purchase or redemption of a
corporation's own shares or the payment of dividends for a period
of six years from the date of such unlawful act. A director who
was either absent or dissented from the taking of such action may
exonerate himself from liability by causing his dissent to be
entered in the corporation's minutes. Under the Nevada Law,
directors are jointly and severally liable to the corporation, if
they vote for or assent to acts that violate statutory provisions
relating to the purchase of a corporation's own shares, the
payment of dividends, the distribution of assets in liquidation
or any loans or guarantees made to a director, until the
repayment thereof. Under the Nevada Law, there is no express
standard of conduct that can protect a director from liability or
any express statute of limitations with respect to any such
illegal acts by a director, as there are under the GCL. Absent
directors are not liable, as long as they did not vote for or
assent to any of the illegal acts. The Nevada Law, unlike the
GCL, allows a director who was present at a meeting that approved
an illegal act to avoid liability, even if he does not register
his dissent in the minutes of the meeting, by voting against the
illegal act and registering his dissent at a later time in a
separate writing filed with the secretary of the meeting.
Amendment to Charter and Bylaws
The GCL and the Nevada Law require the approval of the
holders of a majority of all outstanding shares entitled to vote
(with each shareholder being entitled to one vote for each share
held) to approve proposed amendments to a corporation's charter.
Neither state requires shareholder approval for the board of
directors of a corporation to fix the voting powers, designation,
preferences, limitations, restrictions and rights of a class of
stock, provided that the corporation's charter documents grant
such power to its board of directors. The holders of the
outstanding shares of a particular class are entitled to vote as
a class on a proposed amendment, if the amendment would alter or
change the power, preferences or special rights of one or more
series of any class to affect the series adversely. The number
of authorized shares of any class of stock may be increased or
decreased (but not below the number of shares then outstanding)
by the affirmative vote of the holders of a majority of the stock
entitled to vote thereon (without a class vote), if so provided
in any amendment to the certificate of incorporation or
resolutions creating such class of stock.
Classified Board of Directors
The GCL permits any Delaware corporation to classify
its board of directors into as many as three classes with
staggered terms of office. The shareholders must elect only one
class each year and each class has a term of office at least one
year but no longer than three years. The Company's certificate
of incorporation does not provide for a staggered board.
The Nevada Law also permits corporations to classify
boards of directors, provided that at least one-fourth of the
directors are elected annually. The Dawson articles of
incorporation do not provide for a staggered board.
Cumulative Voting
Cumulative voting for directors entitles each
shareholder to cast a number of votes equal to the number of
voting shares held by such shareholder multiplied by the number
of directors to be elected and to cast all such votes for one
nominee or distribute such votes among up to as many candidates
as there are positions to be filled. Cumulative voting may
enable a minority shareholder or group of shareholders to elect
at least one representative to the board of directors, where such
shareholders would not be able to elect any directors without
cumulative voting.
The Nevada Law permits cumulative voting in the
election of directors, as long as certain procedures are
followed. Although the GCL does not explicitly grant cumulative
voting, a Delaware corporation may provide for cumulative voting
in the corporation's certificate of incorporation. Neither the
Dawson articles of incorporation nor the Company's certificate of
incorporation provide for cumulative voting.
Vacancies
Subject to the rights, if any, of any series of
preferred stock to elect directors and to fill vacancies on the
board of directors, vacancies during the year may be filled under
the GCL and the Nevada Law by the affirmative vote of a majority
of the remaining directors then in office, even if less than a
quorum. Any director appointed holds office for the remainder of
the full term of the class of directors in which the vacancy
occurred.
Removal of Directors
Under GCL, the holders of a majority of voting shares
of each class entitled to vote at an election of directors may
vote to remove any director or the entire board, without cause,
unless (i) the board is a classified board, in which case
directors may be removed only for cause, or (ii) the corporation
has cumulative voting, in which case, if less than the entire
board is to be removed, no director may be removed without cause,
if the vote cast against his removal would be enough to elect
him. The Nevada Law requires at least two-thirds of the voting
shares or class entitled to vote at an election of directors to
remove a director. Furthermore, the Nevada Law does not make a
distinction between removals for cause and removals without
cause.
Under the GCL, a director of a corporation that does
not have a classified board or permit cumulative voting may be
removed, without cause, by the affirmative vote of a majority of
the outstanding shares entitled to vote at an election of
directors.
Actions by Written Consent of Shareholders
The Nevada Law and the GCL each provide that any action
required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting, if the holders of
outstanding stock having at least the minimum number of votes
that would be necessary to authorize or take such action at a
meeting consent to the action in writing. In addition, the GCL
requires the corporation to give prompt notice of the taking of
corporate action without a meeting by less than unanimous written
consent to those shareholders who did not consent in writing.
Shareholder Vote for Mergers and Other Corporate
Reorganizations
In general, both jurisdictions require authorization by
an absolute majority of outstanding shares entitled to vote, as
well as approval by the board of directors, with respect to the
terms of a merger or a sale of substantially all the assets of
the corporation. Neither jurisdiction requires approval by the
shareholders of a surviving corporation in a merger or
consolidation, as long as the surviving corporation issues no
more than 20% of its voting stock in the transaction.
Appraisal Rights; Dissenter's Rights
Both jurisdictions provide that shareholders have the
right, in some circumstances, to dissent from certain corporation
reorganizations and instead to demand payment of the fair cash
value of their shares. Under the GCL, unless a corporation's
certificate of incorporation provides otherwise, dissenters do
not have appraisal rights with respect to: (i) a merger or
consolidation by a corporation, the shares of which are either
listed on a national securities exchange, designated as a
National Market System Security on an inter- dealer quotation
system by the National Association of Securities Dealers, Inc. or
held of record by at least 2,000 shareholders, or (ii)
shareholders of a corporation surviving a merger, if no vote of
shareholders of the surviving corporation is required to approve
the merger.
The Nevada Law also limits dissenters rights when the
shares of the corporation are listed on a national securities
exchange or are held by at least 2,000 shareholders, unless the
shareholders are required to accept in exchange for their shares
anything other than cash or: (i) shares in the surviving
corporation, (ii) shares in another entity that is publicly
listed or held by more than 2,000 shareholders or (iii) any
combination of cash or shares in an entity described in (i) or
(ii).
TAXATION
The following is a summary of certain anticipated material
U.S. federal income tax and China tax consequences of the
ownership of the Company Common Stock. The summary represents
the opinion of Proskauer Rose LLP, insofar as it relates to U.S.
federal income tax law, and the Jun He Law Offices, insofar as it
relates to China tax law. The summary does not deal with all
possible tax consequences relating to the ownership of the
Company Common Stock and does not purport to deal with the tax
consequences applicable to all categories of investors, some of
which (such as dealers in securities, insurance companies and
tax-exempt entities) may be subject to special rules. In
particular, the discussion does not address the tax consequences
under state, local and other national (i.e., non-U.S. and non-
China) tax laws. Accordingly, each prospective owner of Company
Common Stock should consult its own tax advisor regarding the
particular tax consequences to it of the receipt and ownership of
the Company Common Stock. The following discussion is based upon
laws and relevant interpretations thereof in effect as of the
date of this prospectus, all of which are subject to change.
United States Federal Income Taxation
The following discussion addresses only the material U.S.
federal income tax consequences to a U.S. person (i.e., a U.S.
citizen or resident, a U.S. corporation, or an estate or trust
subject to U.S. federal income tax on all of its income
regardless of source) owning Company Common Stock (a "U.S.
Owner"). For taxable years beginning after December 31, 1996, a
trust is a U.S. person only if (i) a court within the United
States is able to exercise primary supervision over its
administration and (ii) one or more United States persons have
the authority to control all of its substantial decisions.
A distribution with respect to the Company Common Stock made
to a U.S. Owner will be included in the owner's gross income as a
taxable dividend, to the extent of the Company's current or
accumulated earnings and profits as determined under U.S. federal
income tax principles. Any distributions in excess of such
earnings and profits of the Company will first be treated, for
U.S. federal income tax purposes, as a nontaxable return of
capital, to the extent of the U.S. Investor's adjusted tax basis
in the Company Common Stock, and then as gain from the sale or
exchange of a capital asset, provided that the Company Common
Stock constitutes a capital asset in the hands of the U.S. Owner.
Subject to the discussion below, gain or loss on the sale or
exchange of the Company Common Stock will be treated as capital
gain or loss if the Company Common Stock is held as a capital
asset by the U.S. Owner. Such capital gain or loss will be long-
term capital gain or loss if the U.S. Investor has held the
Company Common Stock for more than one year at the time of the
sale or exchange, and, in the case of an individual, will be
taxed at the lowest rates applicable to capital gains if the U.S.
Owner has a holding period in the Company Common Stock of more
than eighteen months.
Various provisions of the Code impose special taxes in
certain circumstances on the shareholders of non-U.S.
corporations, and on the shareholders of U.S. corporations that
are shareholders of non-U.S. corporations. The following is a
summary of certain provisions that could have an adverse impact
on the owners of Company Common Stock.
Personal Holding Company
Sections 541 through 547 of the Code relate to the
classification of certain corporations (including foreign
corporations) as a personal holding company ("PHC") and the
consequent taxation of such corporations on certain of their
taxable income, to the extent amounts at least equal to such
income are not distributed to their shareholders ("undistributed
PHC income"). A PHC is a corporation (i) more than 50% of the
value of the stock of which is owned, directly or indirectly
(including pursuant to certain rules attributing ownership from
related persons), by five or fewer individuals (without regard to
their citizenship or residence), and (ii) that receives 60% or
more of its gross income (in the case of a foreign corporation,
U.S.-related gross income), as specifically adjusted, from
certain passive sources, such as dividends, interest, royalties
or rents. (For this purpose, "U.S.-related gross income" means
the corporation's U.S. source income and certain types of its
foreign source income that are effectively connected with the
conduct of a U.S. trade or business.) If the Company or
Jinzhenghua Transport is classified as a PHC, a PHC tax (which is
in addition to the regular corporate tax) will be levied at the
rate of 39.6% on that corporation's undistributed PHC income.
While the Company and Jinzhenghua Transport and its
subsidiaries will each satisfy the 50% PHC ownership test
immediately following the Reorganization, the Company does not
expect that any of them will have significant passive income and
thereby be a PHC.
Foreign Personal Holding Company
Sections 551 through 558 of the Code relate to a non-U.S.
corporation classified as a foreign personal holding company
("FPHC") and include in the gross income of a U.S. person that is
a shareholder of such a corporation its proportionate share of
the undistributed income of the corporation. A non-U.S.
corporation will be classified as a FPHC if (i) five or fewer
individuals who are U.S. citizens or residents own, directly or
indirectly (including pursuant to certain ownership attribution
rules), more than 50% of the corporation's stock (measured either
by voting power or value) (the "FPHC shareholder test") and (ii)
the Company receives 50% or more of its gross income (regardless
of source), as specifically adjusted, from certain passive
sources such as dividends and interest (the "FPHC income test").
If a corporation is classified as a FPHC, a pro rata portion of
its undistributed income is taxable as a dividend to U.S. persons
(including U.S. corporations) that owned stock of the corporation
on the last day of the corporation's taxable year, even if no
distribution is actually made.
Although the Company believes that Jinzhenghua Transport and
its subsidiaries will not satisfy the FPHC shareholder test
immediately after the Reorganization, it is possible that
subsequent events could cause them to satisfy that test. In any
event, the Company does not expect Jinzhenghua Transport or any
of its subsidiaries to have significant passive income and
thereby satisfy the FPHC income test.
Controlled Foreign Corporation
Sections 951 through 964 and section 1248 of the Code relate
to controlled foreign corporations ("CFCs") and may operate to
cause certain undistributed income of such a corporation to be
included in the gross income of certain shareholders and to
convert into dividend income gains on dispositions of shares that
would otherwise qualify for capital gains treatment. The
imputation of undistributed income under section 951 applies only
if those U.S. persons (including U.S. corporations) that
individually own at least 10% of a non-U.S. corporation's voting
stock own, in the aggregate, more than 50% (measured by voting
power or value) of the shares of the non-U.S. corporation.
Ownership is measured by reference to direct and indirect
ownership (including pursuant to certain ownership attribution
rules). In addition, section 1248 of the Code provides that if a
U.S. person disposes of stock in a non-U.S. corporation and such
person owned, directly or indirectly (including pursuant to
certain ownership attribution rules), 10% or more of the voting
shares of the corporation at any time during the five-year period
ending on the date of disposition when the corporation was a CFC,
any gain from the sale or exchange of the shares will be treated
as ordinary income to the extent of the CFC's earnings and
profits during the period that the shareholder held the shares
(with certain adjustments). This rule also applies to a
disposition by a 10% U.S. shareholder of the stock of a U.S.
corporation formed or used principally for the holding of the
stock of a CFC.
Because 92% of the stock of Jinzhenghua Transport will be
owned by the Company immediately after the Reorganization,
Jinzhenghua Transport and its subsidiaries will be CFCs. The
Company, however, does not anticipate that Jinzhenghua Transport
or any of its subsidiaries will derive any significant amount of
the types of gross income that would be imputed to the Company.
The ordinary income treatment rule of section 1248 will be
applicable to gain derived by the Company on a disposition of the
stock of Jinzhenghua Transport. This rule may also be applicable
to gain derived by a 10% U.S. shareholder of the Company on a
disposition of Company stock. For purposes of applying section
1248, the Company's period of ownership of Jinzhenghua Transport
stock will include Dawson's period of ownership of such stock,
and a shareholder's period of ownership of Company stock will
include its period of ownership of the Dawson stock with respect
to which the Company stock was received.
Passive Foreign Investment Company
Sections 1291 through 1298 relate to the tax treatment of
U.S. shareholders of a passive foreign investment company
("PFIC"). A non-U.S. corporation is a PFIC if 75% or more of its
gross income (including the pro rata share of the gross income of
any corporation (U.S. or foreign) in which the non-U.S.
corporation is considered to own 25% or more of the shares by
value) in a taxable year is passive income (the "PFIC income
test"). A non-U.S. corporation is also a PFIC if at least 50% of
its assets (averaged over the year and generally determined based
on value, and including the pro rata share of the assets of any
corporation of which the non-U.S. corporation is considered to
own 25% or more of the shares by value) in a taxable year are
held for the production of, or produce, passive income (the "PFIC
asset test"). A non-U.S. corporation is not treated as a PFIC
with respect to any U.S. shareholder for any year during which
the corporation is a CFC and the U.S. shareholder is a 10%
shareholder.
If a non-U.S. corporation is a PFIC, each U.S. shareholder
of the corporation will (regardless of whether the corporation
remains a PFIC), in the absence of an election by such U.S.
shareholder to treat the corporation as a "qualified electing
fund" (the "QEF election"), or a mark-to-market election, as
discussed below, upon certain distributions by the corporation
and upon disposition of the corporation shares at a gain, be
liable to pay tax at the then prevailing income tax rates on
ordinary income plus interest on the tax, as if the distribution
or gain had been recognized ratably over the taxpayer's holding
period for the stock of the corporation.
If a U.S. shareholder has made a QEF election for all
taxable years that such shareholder has held stock of the
corporation and the corporation was a PFIC, distributions and
gain will not be deemed to have been recognized ratably over the
U.S. Investor's holding period or subject to an interest charge,
and gain on the sale of stock of the corporation will be
characterized as capital gain. Instead, each U.S. shareholder
who has made a QEF election is required for each taxable year in
which the corporation is a PFIC to include in income a pro rata
share of the ordinary earnings of the corporation, as ordinary
income, and a pro rata share of the net capital gain of the
Company, as long-term capital gain, regardless of whether the
corporation has made any distributions of such earnings or gain.
A U.S. shareholder of a PFIC the stock of which is
marketable (within the meaning of Section 1296(e) of the Code),
may make a mark-to-market election with respect to the stock of
the PFIC. Under the election, any excess of the fair market
value of the stock at the close of any tax year over the U.S.
shareholder's adjusted basis in the stock is included in the U.S.
shareholder's income as ordinary income. In addition, the excess
of the adjusted basis at the close of any taxable year over the
fair market value of the stock is deductible against ordinary
income, in an amount equal to the lesser of the amount of such
excess or the net mark-to-market gains on the stock that the U.S.
shareholder included in income in previous years. If a U.S.
shareholder makes a mark-to-market election after the beginning
of its holding period, the U.S. shareholder does not avoid the
interest charge rule discussed above with respect to the
inclusion of ordinary income attributable to periods before the
election.
As long as the Company owns more than 50% of the stock of
Jinzhenghua Transport, that corporation and its subsidiaries will
be CFCs, and therefore cannot be PFICs with respect to the
Company. In any event, the Company does not anticipate that
Jinzhenghua Transport will have a significant amount of passive
income or passive assets and thereby satisfy the PFIC income test
or PFIC asset test.
U.S. Backup Withholding
A holder of Company Common Stock may be subject to "backup
withholding" at the rate of 31% with respect to dividends paid on
such stock if such dividends are paid by a paying agent, broker
or other intermediary in the United States or by a U.S. broker or
certain U.S.-related brokers to such holder outside the United
States. In addition, the proceeds of the sale, exchange or
redemption of Company Common Stock may be subject to backup
withholding, if such proceeds are paid by a paying agent, broker
or other intermediary in the United States.
Backup withholding may be avoided by the holder of Company
Common Stock if such holder (i) is a corporation or comes within
certain other exempt categories or (ii) provides a correct
taxpayer identification number, certifies that such holder is not
subject to backup withholding and otherwise complies with the
backup withholding rules. In addition, holders of Company Common
Stock who are not U.S. persons ("non-U.S. holders") are generally
exempt from backup withholding, although such holders may be
required to comply with certification and identification
procedures in order to prove their exemption.
Any amounts withheld under the backup withholding rules from
a payment to a holder will be refunded (or credited against the
holder's U.S. federal income tax liability, if any) provided that
amount withheld is claimed as federal taxes withheld on the
holder's U.S. federal income tax return relating to the year in
which the backup withholding occurred. A holder who is not
otherwise required to file a U.S. income tax return must
generally file a claim for refund (or, in the case of non-U.S.
holders, an income tax return) in order to claim refunds of
withheld amounts.
China Taxation
Taxation of the Sino-Foreign Joint Venture Enterprises
Under the Income Tax Law of the People's Republic of China
concerning Foreign Investment Enterprises and Foreign Enterprises
(the "Tax Law"), a Sino-foreign joint venture is subject to a
national tax on worldwide income at the rate of 30%. In
addition, a local surtax of 3% is levied by the local government,
resulting in a combined tax rate of 33%. In order to simplify
tax administration, national and local income taxes are assessed
and collected concurrently. Pursuant to the Tax Law, the
national tax rate is reduced to 15% for joint ventures
established in the Special Economic Zones of Hainan, Shantou,
Shenzhen, Xiamen and Zhuhai that are engaged in production or
business operations and in the Economic Technology Development
Zones ("ETDZs") set up in China's open coastal cities that are
production-oriented. Joint venture companies established in
coastal economic open zones or in the old urban districts of
cities where the Special Economic Zones or the ETDZs are located
are subject to the national tax rate of 24%, if they are
production-oriented, or the rate of 15%, if they are considered
within the scope of projects encouraged by the state, such as
energy and communications. The Tax Law does not impose
withholding taxes on dividends distributed by a joint venture
company.
The Tax Law and related regulations provide a number of tax
holidays and other preferential treatment for production-oriented
enterprises with foreign investment scheduled to operate for a
period of ten years or more. Such enterprises are eligible for a
total exemption for taxation for two years commencing from the
first profit-making year, and a 50% reduction in the subsequent
three years. Longer tax reduction periods are available for
"export-oriented enterprises (50% reduction in income tax but not
less than 10% for each year the venture exports 70% by value of
its production) and "technologically advanced enterprises" (50%
reduction in income tax but not less than 10% for an additional
three years after the expiration of the normal tax holiday
period). In addition, some local governments offer tax holidays
and reductions with respect to local income surtax. The Tax Law
also provides that if a foreign party reinvests its share of the
profits in the joint venture or in another joint venture project
in China with a term of operation of more than five years, it may
be eligible, on application, for a refund of 40% of the income
tax paid on the reinvested amount. A full refund may be applied
for and granted if an existing Investor invests or reinvests its
share of profits in a "technologically advanced enterprise" or an
"export-oriented enterprise" with a term of operation of more
than five years.
Joint ventures also are required to pay a Value Added Tax if
they are engaged in sales or provide processing, repair or
installation services within or import goods into China; a
Business Tax if they are engaged in service businesses or if they
transfer intangible assets or sell immovable properties within
China; and a Consumption Tax if they manufacture, subcontract for
processing work or import certain enumerated consumer goods (such
as tobacco, liquor, cosmetics, jewelry, fireworks and small motor
vehicles). The Value Added Tax, Business Tax and Consumption Tax
are essentially a turnover tax on imports, sales receipts and
service income.
The Value Added Tax has a general rate of 17% for most goods
and services and a special rate of 13% for certain enumerated
goods, including foodstuffs, printed matter, agricultural
supplies and certain public utilities for civilian uses. Certain
items such as farm produce, contraceptive products, equipment
used in science and research, compensatory trade manufacturing
equipment and charitable items are exempt from the Value Added
Tax. The Business Tax rate schedule groups taxable service into
nine categories and imposes the tax at 3% to 5% for most services
and 5% to 20% for entertainment services. The Consumption Tax
rate schedule groups taxable products into 25 categories and
imposes the tax at 14 rates ranging from 3% to 45%.
An FIE is exempt from the Value Added Tax on raw material
imported for production for exports, if the FIE is registered
before January 1, 1994. In addition to the Value Added Tax, the
Consumption Tax and the Business Tax, customs duties are levied
on most goods imported into China. In general, items imported by
joint ventures that are exempt from the Value Added Tax also are
exempt from customs duties, except imports of certain office
equipment and production equipment, even if the importation is
within the limitation of an FIE's total investment. Joint
ventures also may be liable for Land Appreciation Tax which
ranges from 30 to 60% on the gain on sale of land use rights,
buildings and their attached facilities. Finally, joint ventures
may be subject to Resources Tax on exploitation and production of
selected natural resources.
The Company's PRC joint ventures are subject to the Tax Law.
Pursuant to the Tax Law, Sino-foreign equity joint venture
enterprises generally are subject to an enterprises income tax at
an effective rate of 33%, which is comprised of a state tax of
30% and a local tax of 3%. As the Company's PRC joint ventures
are qualified as production oriented enterprises for an operating
period of ten years or more, the joint ventures are eligible for
two years of full exemption and a 50% reduction for the next
three years on enterprises income tax starting from the first
profit-making year.
The Company is a joint venture established in Shenzhen, an
ETDZ. Because the Company qualifies as an FIE, its income tax
rate is reduced to 15% and it is exempt from the local tax of 3%.
The Company also will be eligible for two years of full
exemption and a 50% reduction for the next three years on
enterprises income tax starting from the first profit-making year
based on the reduced tax rate.
Generally, a joint venture will qualify as an FIE if the
foreign investor's investment in the registered capital of the
joint venture either alone or together with other foreign
investors, constitutes at least 25% of the total registered
capital of the joint venture. Because the Company's Chinese joint
ventures qualify or will qualify under the Tax Law, dividends and
profit distributions received by the Company from its joint
ventures will be exempt from any income tax, including any
withholding tax.
Income received by the Company from sources in China, such
as dividends (other than dividends from FIEs), interest, rent and
royalties will be subject to a withholding tax of 20%. The 20%
withholding tax rate will be reduced to 10% if the income is
received from sources in the Special Economic Zones, the Coastal
Open cities, the Pudong New Area in Shanghai and the Coastal Open
Economic Zones.
In the event the Company transfers its interest in its
Chinese joint ventures, the amount received in excess of its
original capital contribution would be subject to withholding tax
at the rate of 20%. The disposition may be subject to certain
taxes, including, but not limited to, the Business Tax of 5% of
the Company's interest and a stamp duty of 0.05% on the transfer
value.
In the event the Company's joint venture is liquidated, the
portion of the balance of its assets or remaining property, after
deducting undistributed profits, various funds and liquidation
expenses, that exceeds the Company's paid-in capital would be
income from liquidation, which would be subject to income tax at
the rate the Company would be subject to under the Tax Law and
related regulations.
VALIDITY OF SHARES
The validity of the shares of Company Common Stock being
distributed in the Reorganization is being passed upon for the
Company by Proskauer Rose LLP, New York, New York.
EXPERTS
The financial statements and schedules of the Company
included in this prospectus and in the Registration Statement
have been audited by BDO Binder, independent certified public
accountants, to the extent and for the periods set forth in their
reports appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). All
reports, proxy statements, and other information filed by the
Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048, and the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained by mail at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The
Commission maintains a web site that contains reports, proxy and
information statements, and other information regarding
registrants that file electronically with the Commission with a
web site address of http://www.sec.gov.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent certified
public accountants F-2
Consolidated Financial Statements
Balance sheets F-3
Statements of operations F-4
Statements of shareholders' equity F-5
Statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-22
THE FOLLOWING IS THE FORM OF OPINION BDO BINDER WILL BE IN A
POSITION TO ISSUE UPON THE COMPLETION OF THE TRANSACTION
DESCRIBED IN NOTE 1, "BASIS OF PRESENTATION AND REORGANIZATION."
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Integrated Transportation Network Group Inc.
New York, New York
We have audited the accompanying consolidated balance
sheets of Integrated Transportation Network Group Inc. and
subsidiaries ("ITN") as of December 31, 1996 and 1997, and the
related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are
the responsibility of ITN'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 Integrated Transportation Network Group
Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
BDO Binder
Hong Kong
January 30, 1998 (except for Note 1 which is as of ______ 1998)
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
December 31,
1996 1997
Assets
Cash and cash equivalents $1,259 $4,723
Trade receivables, net of allowance
of $15 and $67, respectively 96 719
Other assets 787 366
Inventories 29 97
Property and equipment, net (Note 2) 1,168 1363
Revenue earning equipment, net (Note 3) 8,705 31488
Taxi licenses, net (Note 4) 12,200 12,093
Construction-in-progress (Note 5) 2,766 2,321
Organization costs, net 161 847
Deposit (Note 6) 1,928 1,937
______ ______
$29,099 $55,954
Liabilities and Shareholders' Equity
Liabilities:
Bank loans (Note 8) $4,082 $3,776
Notes payable (Note 9) - 4,320
Trade payables 186 1,619
Other payables (Note 7) 2,572 3,522
Due to directors - 286
Due to affiliates (Note 10) 1,517 6,220
Due to minority shareholder (Note 10) 381 19
Deferred revenue (Note 11) 2,153 2,983
Accrued expenses 17 476
Income tax payable 492 883
Deferred income taxes (Note 12) 75 102
______ _______
Total liabilities 11,475 24,206
______ ______
Minority interest 864 1,567
______ ______
Commitments and contingencies (Note 13)
Shareholders' equity:
Common Stock, $.01 par value -
authorized 50,000,000 shares; issued
and outstanding 6,041,573 shares at
December 31, 1997 - 60
Additional paid-in capital 5,249 12,665
Retained earnings 11,164 17050
Foreign currency translation
adjustments 347 406
______ ______
Total shareholders' equity 16,760 30,181
______ ______
$29,099 $55,954
See accompanying notes to consolidated financial statements.
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(US dollars in thousands except per share amounts)
Year ended December 31,
1995 1996 1997
Revenue, net $6,208 $9,211 $12,538
______ ______ _______
Expenses:
Depreciation of revenue
earning equipment 1,357 1,755 2,174
Amortization of taxi
licenses 247 264 266
Other operating expenses 649 1,468 2,692
Interest expense, net
of interest income 657 604 726
______ ______ ________
Total expenses 2,910 4,091 5,858
Income before provision for income
tax and minority interest 3,298 5,120 6,680
Provision for income tax
(Note 12) 152 400 457
______ _______ _______
Income before minority interest 3,146 4,720 6,223
Minority interest 123 157 337
______ ______ _______
Net income $3,023 $4,563 $5,886
Earnings per common share (Note 14):
Basic $.50 $.76 $.97
Diluted .50 .76 .97
______ ______ ______
Weighted average common shares
outstanding (Note 14):
Basic 6,042 6,042 6,042
Diluted 6,042 6,042 6,132
______ ______ ______
See accompanying notes to consolidated financial statements.
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(US dollars in thousands except per share amounts)
Years ended December 31, 1995, 1996 and 1997
Addi- Trans- Total
Common tional lation share-
Stock paid-in Retained adjust-
holders'
Shares Amount capital earnings ments equity
Balance,
December
31,1994..... - - $ 4,731 $ 3,578 $ 174 $ 8,483
Contribu-
tion of
capital.... - - 411 - - 411
Foreign
currency
transla-
tion adjust-
ments ..... - - - - 134 134
Net income .. - - - 3,023 - 3,023
Balance,
December
31, 1995 . - - 5,142 6,601 308 12,051
Contribu-
tion of
capital ... - - 107 - - 107
Foreign
currency
transla-
tion adjust-
ments .... - - - - 39 39
Net income.. - - - 4,563 - 4,563
Balance,
December
31, 1996 . - - 5,249 11,164 347 16,760
Contribution
of capital
(Notes 10
and 16) ... - - 7,476 - - 7,476
Reorganiza-
tion, March
1997 (Note
1).........6,041,573 60 (60) - - -
Foreign
currency
transla-
tion adjust-
ments ..... - - - 59 59
Net income .. - - - 5,886 - 5,886
Balance,
December
31,
1997 ......6,041,573 $ 60 $12,665 $ 17,050 $ 406 $30,181
See accompanying notes to consolidated financial statements.
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 16)
(US dollars in thousands)
Year ended December 31,
1995 1996 1997
Cash flows from operating
activities:
Net income ............. $ 3,023 $ 4,563 $ 5,886
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization of
property, equip-
ment and revenue
earning
equipment ........ 1,422 1,884 2,617
Amortization of taxi
licenses ......... 247 264 266
Minority interest .. 339 244 703
Amortization of
organization
costs ............ 36 35 50
Deferred income
tax 19 56 27
Exchange adjust-
ment ............. (43) (18) (10)
Changes in assets and
liabilities:
Increase in trade
and other
receivables .. (164) (428) (204)
Increase in
inventories .. - (29) (68)
(Decrease)
increase in
trade and
other pay-
ables ........ 552 (200) 2,669
(Decrease)
increase in
accrued
expenses ..... (7) 17 459
Increase in
income tax
payable ...... 124 361 391
(Decrease) in-
crease in
deferred
income ....... 979 (764) 830
Net cash
pro-
vided
by
oper-
ating
activi-
ties ..... 6,527 5,985 13,616
Cash flows from investing
activities:
Acquisition of property
and equipment ....... (273) (608) (1,489)
Proceeds from sale of
property and equip-
ment ................ 188 94 -
Organization costs .... (25) (51) (735)
Net cash used
in invest-
ing activi-
ties ..... (110) (565) (2,224)
Cash flows from financing
activities:
Borrowing on bank
loans ............... - 200 605
Repayments of debt .... (604) - (926)
Repayments of Amount
due to affiliates ... (5,263) (5,210) (11,565)
Amount due from (to)
minority interest ... - 20 (362)
Proceeds from notes
payable ............. - - 4,320
Net cash
used in
financing
activi-
ties ..... (5,867) (4,990) (7,928)
Net increase in cash and
cash equivalents ........ 550 430 3,464
Cash and cash equivalents,
beginning of year ....... 279 829 1,259
Cash and cash equivalents,
end of year ............. $ 829 $ 1,259 $ 4,723
See accompanying notes to consolidated financial statements.
<PAGE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation and Reorganization
On January 25, 1998, a controlling shareholder of Dawson
Science Corporation ("Dawson") formed a new Delaware corporation,
Integrated Transportation Network Inc. ("ITN" or the "Company").
Subsequently, that controlling shareholder contributed all the
outstanding shares in ITN to Dawson. Dawson will cause this new
wholly-owned subsidiary to acquire all the equity in Dawson's
92%-owned Chinese subsidiary, Shenzhen Jinzhenghua Transport
Industrial Development Co. Ltd. ("Jinzhenghua Transport" or
"Jinzhenghua"). Upon the effectiveness of a registration
statement being filed with the Securities Exchange Commission,
Dawson will effect a plan of reorganization, and the shares of
ITN will be distributed pro rata to the common shareholders of
Dawson. The accompanying financial statements give effect to this
reorganization as if it had occurred as of the earliest date
reported and all references to the number of shares outstanding
and per share amounts have been restated for all periods to
reflect this.
Reverse Acquisition
On March 19, 1997, Dawson exchanged 10,000,000 shares of
its Common Stock and 2,100,000 shares of its convertible
preferred stock, which subsequently are to be converted into
10,500,000 shares of Common Stock, for 92% of the outstanding
common shares of Jinzhenghua Transport (the "Exchange").
The Jinzhenghua Transport acquisition and the exchange of
Common Stock with the former Jinzhenghua Transport shareholders
resulted in those former shareholders obtaining a majority voting
interest in Dawson. Generally accepted accounting principles
require that the company whose shareholders retain the majority
interest in a combined business be treated as the acquirer for
accounting purposes. As a consequence, the Jinzhenghua Transport
acquisition has been accounted for as a "reverse acquisition" for
financial reporting purposes and Jinzhenghua Transport is deemed
to have acquired a 92% interest in Dawson, as of the date of the
acquisition. The reverse acquisition process utilizes the capital
structure of Dawson and the assets and liabilities of Jinzhenghua
Transport are recorded at predecessor cost.
Jinzhenghua Transport is the continuing operating entity
for financial reporting purposes, and the financial statements
prior to March 19, 1997 represent Jinzhenghua Transport's
financial position and results of operations. The assets,
liabilities and results of operations of Dawson are included as
of March 19, 1997. Although Jinzhenghua Transport is deemed to be
the acquiring corporation for financial accounting and reporting
purposes, the legal status of Dawson as the surviving corporation
did not change.
Reorganization of Jinzhenghua Transport
Jinzhenghua Transport was registered as a privately owned
limited liability company under the laws of the People's Republic
of China ("PRC") on December 26, 1994. During the week from
March 18 through 25, 1997, Jinzhenghua Transport was reorganized
by combining with the majority of equity interest of seven
subsidiaries of Shenzhen Transport Zhenghua Group Co. Ltd.
("Zhenghua"), which was owned by substantially the same owners of
Jinzhenghua Transport. The seven subsidiaries are as follows:
Jinzhenghua's
Subsidiary Industry equity interest
Shenzhen Aorun
Taxi Co. Ltd. Taxi leasing 97%
Shenzhen Guorun
Taxi Co. Ltd. Taxi leasing 95
Shenzhen Anrun
Taxi Co. Ltd. Taxi leasing 97
Shenzhen Yunhua
Taxi Co. Ltd. Taxi leasing 97
Shimen Zhenghua
Taxi Co. Ltd. Taxi leasing 98
Shenzhen Junpeng Auto
Repair Plant Auto repair 100
Shimen Yindu Hotel
Co. Ltd. Hotel 56
Subsequent to the aforementioned reorganization,
Jinzhenghua Transport has established new subsidiaries as
follows:
Jinzhenghua's
Subsidiary Industry equity interest
Guangzhou Jinzhenghua
Transportation Co. Ltd. Car rental 100%
Jiangxi Gannan Jinzhenghua
Transportation Co. Ltd Car rental 70
Yueyang Jinzhenghua
Transportation Co. Ltd. Car rental 90
Shanxi Jinzhenghua
Transportation Co. Ltd. Car rental 100
Nanchang Jinzhenghua
Transportation Co. Ltd. Car rental 100
Jiangsu Jinzhenghua
Automobile Lease Co. Car rental 100
Hunan Jinzhenghua Automobile
Lease Co. Ltd. Car rental 75
Businesses
The Company mainly conducts taxi leasing, car rental, and
auto repair businesses in the PRC and has a hotel under
construction which is located in the Hunan Province in China.
Basis of Accounting
The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the
United States of America.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries. All material intercompany
transactions have been eliminated. The consolidated financial
statements are presented in U.S. dollars.
Foreign Currency Translation and Transactions
The financial position and results of operations of the
Company's foreign subsidiaries are determined using local
currency as the functional currency. Assets and liabilities of
these subsidiaries are translated at the exchange rate in effect
at each year-end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation
adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation
adjustment account in shareholders' equity. Gains and losses
resulting from foreign currency transactions are included in
other income (expense).
Revenue Recognition
Taxi leasing and car rental revenue is recognized when
rents (net of business tax) are due. Nonrefundable deposit
revenue is deferred and recognized on a straight-line basis over
the term of the relevant taxi lease. Revenue from car repair
services is recognized when services are rendered.
Inventories
Inventories, which consist primarily of transportation
equipment spare parts, are stated at the lower of cost (first-in,
first-out method) or market.
Revenue Earning Equipment, Property and Equipment and
Depreciation
Revenue earning equipment, property and equipment are
stated at cost. Depreciation is computed by utilizing the
straight-line method over the estimated useful lives of the
assets as follows:
Estimated
useful life
(in years)
Revenue earning equipment
Taxi vehicles and rental cars 6-10
Repair shop equipment 5-10
Property and equipment
Land usage rights 20-40
Furniture and fixtures 5-10
Transportation equipment 6-10
Other equipment 5-10
Maintenance, repairs and minor renewals are charged
directly to expense as incurred. Additions and betterments to
property and equipment are capitalized. When assets are disposed
of, the related cost and accumulated depreciation thereon are
removed from the accounts and any resulting gain or loss is
included in operations.
Taxi Licenses
Taxi licenses are stated at cost. Amortization is computed
utilizing the straight-line method over the taxi license term of
50 years.
Organization Costs
Organization costs represent costs incurred in connection
with the setting up of the Company and its subsidiaries in order
to operate on a commercial basis. Such costs are capitalized and
amortized over a period of five years from the date of
commencement of business.
Income Taxes
The Company accounts for income taxes using the liability
method, which requires an entity to recognize deferred tax
liabilities and assets. Deferred income taxes are recognized
based on the differences between the tax bases of assets and
liabilities and their reported amounts in the financial
statements which will result in taxable or deductible amounts in
future years. Further, the effects of enacted tax laws or rate
changes are included as part of deferred tax expenses or benefits
in the period that covers the enactment date. A valuation
allowance is recognized if it is more likely than not that some
portion, or all of, a deferred tax asset will not be realized.
The Company does not provide taxes on unremitted earnings
of its Chinese subsidiaries since the Company's intention is to
reinvest these earnings.
Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share". Statement 128 replaced
the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and, where
appropriate, restated to conform to the Statement 128
requirements.
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments,
including cash, accounts receivable and payables approximate fair
value as of December 31, 1995, 1996 and 1997 because of the
relatively short-term maturity of these instruments. The carrying
value of debts approximates fair value as of December 31, 1995,
1996 and 1997 based upon the borrowing rates currently available
to the Company for bank loans with similar terms and average
maturities. Fair value of the amounts due to or from affiliates
cannot be readily determined because of the nature of the terms.
Accounting for Stock-Based Compensation
In connection with its adoption of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the
Company will adopt the intrinsic value method of accounting for
employee stock options, and disclose the pro forma impact on net
income and earnings per share as if the fair value-based method
had been applied. For equity instruments, including stock options
issued to non-employees, including directors, the fair value of
the equity instruments issued or the fair value of the
consideration received, whichever is more readily determinable,
is used to determine the value of services or goods received and
the corresponding charge to operations.
New Accounting Standards Not Yet Adopted
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting
and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise",
establishes standards for the way that public enterprises report
information about operating segments in interim financial
statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas
and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance.
Both of these new standards are effective for financial
statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be restated.
Due to the recent issuance of these standards, management has
been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Among the more significant estimates included in these
financial statements are the estimated allowance for doubtful
accounts receivable, and the deferred tax asset valuation
allowance. Actual results could differ from those estimates and
other estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
December 31,
1996 1997
(US dollars in thousands)
Land usage rights $ 416 $ 416
Furniture and fixtures 9 11
Transportation equipment 705 1,324
Other equipment 400 434
1,530 2,185
Less: Accumulated depreciation
and amortization 362 822
$1,168 $1,363
Depreciation and amortization charged to operations was
$65, $128 and $443 in 1995, 1996 and 1997, respectively.
NOTE 3 - REVENUE EARNING EQUIPMENT
Revenue earning equipment consists of:
December 31,
1996 1997
(US dollars in thousands)
Taxi vehicles $13,681 $14,570
Rental cars - 24,067
Repair shop equipment 199 200
13,880 38,837
Less: Accumulated depreciation 5,175 7,349
$ 8,705 $31,488
Depreciation charged to operations was $1,357, $1,756 and
$2,174 in 1995, 1996 and 1997, respectively.
NOTE 4 - TAXI LICENSES
December 31,
1996 1997
(US dollars in thousands)
Taxi licenses, at cost $13,218 $13,381
Less: Accumulated amortization 1,018 1,288
$12,200 $12,093
Amortization charged to operations was $247, $264 and $266
in 1995, 1996 and 1997, respectively.
NOTE 5 - CONSTRUCTION-IN-PROGRESS
Construction-in-progress represents a hotel project located
in the Hunan Province, PRC. The construction-in-progress is
stated at cost. All direct costs relating to the construction of
the hotel are capitalized as long-term assets. No interest has
been capitalized.
NOTE 6 - DEPOSIT
The deposit paid is for the acquisition of real estate that
is situated in Shenzhen, PRC. The sales and purchase agreement of
the property was initially signed by an affiliate and the deposit
thereof was subsequently contributed to Jinzhenghua Transport as
additional paid-in capital. Construction work on the property has
not yet been completed.
NOTE 7 - OTHER PAYABLES
December 31,
1996 1997
(US dollars in thousands)
Current portion:
Deposits from rental
car customers - $ 332
Others 666 1,101
666 1,433
Long-term portion:
Deposits from taxi drivers 967 1,042
Taxi car maintenance fund 168 273
Due to Traffic Authority 771 774
1,906 2,089
$2,572 $3,522
NOTE 8 - BANK LOANS
Bank loans consist of the following:
Year ended December 31, 1996
(US dollars in thousands)
Interest
Principal rate Maturity Collateral
$1,497 14.0% 3/99 150 taxi vehicles
1,192 14.0 3/99 50 taxi licenses
1,193 14.0 3/99 50 taxi licenses
200 15.1 4/97 and renewed Properties of affiliates
$4,082
Year ended December 31, 1997
(US dollars in thousands)
Interest
Principal rate Maturity Collateral
$ 200 16.2% 4/98 Properties of affiliates
605 18.0 3/99 50 taxi vehicles
1,369 15.1 3/99 150 taxi vehicles
1,197 15.1 3/99 50 taxi licenses
405 15.1 3/99 50 taxi licenses
$3,776
NOTE 9 - NOTES PAYABLE
Notes payable consist of the following:
Year ended December 31, 1997
(US dollars in thousands)
Interest
Principal rate Maturity Collateral
$ 320 8.0% 4/2/98 (a)
500 12.0 3/18/98 (b)
1,500 12.0 3/29/98 (b)
2,000 12.0 5/2/98 (b)
$4,320
(a) On July 3, 1997, the Company entered into a financing
agreement which provides for borrowings of up to $1,000.
Advances are payable monthly. The loan is collateralized by
the Company's inventory, equipment and machinery, existing
or acquired. The balance outstanding at December 31, 1997
was $320.
Under the terms of the agreement, if the Company did not
file a registration statement with the Securities and
Exchange Commission declared effective by October 2, 1997,
16,436 shares of common stock were due the lender as
liquidated damages. As of December 31, 1997, these shares
have not been issued but the liability for such issuance
has been included in accrued expenses at December 31, 1997.
(b) On September 19, September 30 and November 3, 1997, the
Company issued convertible promissory notes to three
entities. Interest accrues at 12% per annum and is payable
monthly. At any time after the maturity date and prior to
repayment of all amounts due, the notes, at the option of
the holders, may be converted into shares of the Company's
Common Stock equal to an amount determined by formula, as
defined, in the agreement. The notes are collateralized by
1,000,000 shares of common stock pledged personally by a
principal shareholder.
NOTE 10 - RELATED PARTY TRANSACTIONS
(a) The amount due to a minority shareholder of the hotel
project was $381 as of December 31, 1996 and 1997 as the
minority shareholder contributed excessive amounts over its
necessary share of contributed capital in the form of land
usage rights. The amount did not bear any interest and also
did not have clearly defined terms of repayment. In late
1997, the Company advanced $362 to a minority shareholder
in Jiangxi Gannan Transportation Co. Ltd. The advance does
not bear any interest and did not clearly specify terms of
repayment.
(b) The Company, from time to time, received funding from or
provided funding to Zhenghua and Mr. Peng Jun, a family
member of a major shareholder. All advances are noninterest
bearing and are without stated terms of repayment. The
following is a summary of the balance of the amounts due to
affiliates:
December 31,
1996 1997
(US dollars in thousands)
Zhenghua
Beginning balance $4,790 $ 2,150
Acquisition of revenue
earning equipment - 24,067
Acquisition of taxi licenses - 115
Exchange difference 11 8
Construction cost 2,302 (455)
Fund transfer (4,953) (12,189)
Transferred to additional
paid in capital - (7,476)
Ending balance 2,150 6,220
Peng Jun
Beginning balance (248) (633)
Repayment - 633
Fund advance (385) -
Ending balance (633) -
$1,517 $6,220
NOTE 11 - DEFERRED REVENUE
December 31,
1996 1997
(US dollars in thousands)
Deferred revenue $2,153 $2,983
Less: Current portion 791 1,235
$1,362 $1,748
Deferred revenue, represents non-utilized portion of
non-refundable deposit revenue collected from contractual taxi
drivers, is to be recognized as revenue over unexpired taxi lease
terms.
NOTE 12 - INCOME TAXES
The standard enterprise income tax rate in China is 33% of
which 30% is attributed to central government and 3% to
provincial government. Enterprises in Shenzhen, a Special
Economic Zone, receive a special income tax incentive program in
which they are charged a lower income tax rate of 15% in
accordance with Shenzhen municipal government regulations. In
addition, enterprises in the transportation service industry
enjoy another special income tax incentive program composed of
100% income tax credit for first year and 50% income tax credit
for the next two years starting from the first profit taking
year. Certain other provincial governments have also stipulated
similar incentive programs. The Company's subsidiaries are in
different stages of enjoying the aforementioned types of income
tax incentive programs. Accordingly, the provision for income
taxes consists of the following:
Year ended December 31,
1995 1996 1997
(US dollars in thousands)
Current income taxes $ 133 $344 430
Deferred income taxes 19 56 27
$ 152 $400 $457
As a result of implementing these income tax incentive
programs, the effective income tax rate for the Company is
different from the standard income tax rate. The following
reconciliation shows the differences between the effective and
standard rates.
Year ended December 31,
1995 1996 1997
(US dollar in thousands)
Standard income tax rate 33.0% 33.0% 33.0%
Usage of temporary
difference (.5) (1.4) (1.3)
Result of income tax
incentive programs (27.9) (23.8) (25.8)
Effective income tax rate 4.6% 7.8% 5.9%
The types of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts that
give rise to the net deferred tax assets and liabilities and
their approximate tax effects are as follows:
Year ended December 31,
1996 1997
(US dollars in thousands)
Bad debt reserves $(1) $ (8)
Depreciation and
amortization 76 110
$75 $102
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
Minimum lease payments under operating leases with
noncancellable lease terms in excess of one year are as follows:
Year ended
December 31, Operating leases
(US dollars in thousands)
1998 $224
1999 137
2000 107
2001 63
$531
Rent expense for the years ended December 31, 1995, 1996
and 1997 was $137, $104 and $177, respectively.
Contractual Obligations
The Company has contracted with a building contractor in
1996 to construct the group's hotel in Hunan, PRC. The budgeted
costs of the whole project are estimated to be $4,073.
Consulting Agreements
As described in 9(a), the Company entered into an agreement
with a financial consultant to provide prospective offshore
purchases of the Company's securities offerings. The Company
agreed to pay a fee of 5% of the gross securities sold in
addition to issuing 25 warrants to purchase shares of Common
Stock of Dawson per $2,500 of financing secured to buy the
Company's Common Stock for a period of five years from the
closing date of the first sale at a strike price of 120% of the
market price at the time of closing.
On September 1, 1997, the Company entered into a consulting
agreement with financial institution to provide business
development services for $12,500 onthly. Options to purchase
250,000 shares of the Company's common stock at an exercise price
of $50.00 per share were also granted and expire on September 30,
2002. The agreement has been terminated.
NOTE 14 - EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
December 31,
1995 1996 1997
(US dollars in thousands except
per share amounts)
Numerator:
Net income, numerator
for basic earnings
per share - income
available to common
shareholders 3,023 4,563 5,886
Effect of diluted securities:
Interest on convertible debt
after tax - - 63
Numerator for diluted
earnings per share - income
available to common
shareholders after
assumed conversions $3,023 $4,563 $5,949
Denominator:
Denominator for basic
earnings per share -
weighted average shares 6,042 6,042 6,042
Effect of dilutive securities:
Convertible debt - - 90
Dilutive potential common shares:
Denominator for dilutive
earnings per share -
adjusted weighted average
shares and assumed
conversions 6,042 6,042 6,132
Basic earnings per share $.50 $.76 $.97
Diluted earnings per share $.50 $.76 $.97
NOTE 15- FUTURE RENTAL INCOME
Rental income from taxi drivers under noncancellable taxi lease
terms in excess of one year is as follows:
Year ending December 31,
(US dollars in thousands)
1998 $10,926
1999 4,951
2000 3,482
2001 2,070
2002 19
Thereafter 36
$21,484
NOTE 16 - STATEMENTS OF CASH FLOWS
Supplemental Disclosures of Cash Flow Information
Year ended December 31,
1995 1996 1997
US dollars in thousands)
Cash paid for:
Interest $657 $604 $587
Taxes 9 - 39
Supplemental Schedule of Noncash Investing and
Financing Activities
Year ended December 31,
1995 1996 1997
(US dollars in thousands)
Acquisition of revenue
earning equipment from
affiliates $2,668 $ 361 $24,067
Acquisition of taxi
licenses 811 - 115
Construction-in-progress
financed by affiliates 463 2,302 (455)
Additional paid-in capital
contributed by shareholder - - 7,476
NOTE 17 - SEGMENT INFORMATION
The Company's operations are comprised of taxi, car rental,
and auto repair businesses and a hotel project in Guangdong,
Hunan and other provinces in China. The industrial and
geographical information regarding revenue, cost of sales,
operating income, total assets, addition of long-term assets,
depreciation and amortization for the years ended December 31,
1995, 1996 and 1997 are as follows:
Industrial Segments
Year ended December 31, 1995
Car Car
Taxi rental repairs Other Total
(US dollars in thousands)
Revenue, net $ 5,990 $- $218 $ - $6,208
Income before
income tax
and minority
interest 3,100 - 198 - 3,298
Total assets
as at
December 31,
1995 26,473 - 147 491 27,111
Additions of
productive
long-term
assets 3,752 - - 463 4,215
Depreciation
and
amortization 1,649 - 20 - 1,669
Year ended December 31, 1996
Car Car
Taxi rental repairs Other Total
(US dollars in thousands)
Revenue, net $ 7,722 - $1,489 - $9,211
Income before
income tax
and minority
interest 4,349 - 771 - 5,120
Total assets
as at
December 31,
1996 25,120 - 692 3,287 29,099
Additions of
productive
long-term
assets 141 - 463 2,667 3,271
Depreciation and
amortization 2,066 - 81 1 2,148
Year ended December 31, 1997
Car Car
Taxi rental repairs Other Total
(US dollars in thousands)
Revenue, net $ 8,425 $ 2,636 $ 1,477 - $12,538
Income before
income tax
and minority
interest 5,161 1,814 639 (934) 6,680
Total assets
as at
December 31,
1997 27,630 24,772 791 2,761 55,954
Additions of
productive
long-term
assets 1,580 24,085 4 - 25,669
Depreciation
and
amortization 2,370 434 78 1 2,883
Geographical Segments
Year ended December 31, 1995
Guangdong Hunan Others Total
(US dollars in thousands)
Revenue, net $ 6,132 $76 $- $6,208
Income before
income tax and
minority interest 3,298 - - 3,298
Total assets 23,014 4,097 - 27,111
Year ended December 31, 1996
Guangdong Hunan Others Total
(US dollars in thousands)
Revenue, net $ 7,983 $1,228 - $9,211
Income before
income tax
and minority
interest 4,553 567 - 5,120
Total assets 22,671 6,428 - 29,099
Year ended December 31, 1997
Guangdong Hunan Others Total
(US dollars in thousands)
Revenue, net $ 9,525 $ 1,344 $ 1,669 $12,538
Income before
income tax
and minority
interest 5,858 647 175 6,680
Total assets 28,590 14,436 12,928 55,954
<PAGE>
Part II INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses and
costs expected to be incurred by the Company in connection with
the issuance and distribution of the securities being registered
under this registration statement. Except for the SEC filing
fee, all expenses have been estimated and are subject to future
contingencies.
SEC registration fee $8,896.60
Legal fees and expenses *
Printing and engraving expenses *
Accounting fees and expenses *
Blue sky fees and expenses *
Transfer agent and registrar fees and expenses *
Miscellaneous *
Total $ *
* To be filed by amendment
Item 14. Indemnification of Directors and Officers.
Article 6 of the Company's by-laws provide that the Company
shall indemnify each person who is or was an officer or director
of the corporation to the fullest extent permitted under section
145 of the Delaware General Corporation Law.
In addition, Article Sixth of the Company's certificate of
incorporation provides that no director shall be personally
liable for any breach of fiduciary duty. Article Sixth does not
eliminate a director's liability (i) for a breach of his or her
duty of loyalty to the Company or its shareholders, (ii) for acts
of or omissions of such director 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 transactions from which the director derived an
improper personal benefit.
Section 145 of the General Corporation Law of the State of
Delaware permits a corporation to indemnify its directors and
officers against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or
officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding had no reason to believe their conduct was unlawful.
In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in
connection with the defense or settlement of an action or a uit,
and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interest of the corporation,
except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to
the extent that the court in which the action or suit was brought
shall determine upon application that the defendant officers or
directors are reasonably entitled to indemnify for such expenses
despite such adjudication of liability.
Section 102(b)(7) of the General Corporation Law of the
State of Delaware provides that a corporation may eliminate or
limit the personal liability of a director of the Corporation or
its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach
of the director's duty of loyalty to the corporation or its
shareholders, (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 General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision
becomes effective.
Item 15. Recent Sales of Unregistered Securities
In early 1998, the Company issued 100 shares of Company
Common Stock to Wu Zhi Jian for nominal consideration in a
private placement exempt from the registration requirements of
the Securities Act of 1933 by virtue of section 4(2) of that Act.
Those 100 shares were subsequently contributed to Dawson Science
Corporation for nominal consideration. The 100 shares were
subsequently converted into 6,066,341 shares pursuant to an
amendment to the Company's certificate of incorporation.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 Agreement and Plan of Reorganization.*
3.1 Certificate of Incorporation of the Company.*
3.2 By-Laws of the Company.
5.1 Opinion of Proskauer Rose LLP*
8.1 Opinion of Proskauer Rose LLP*
8.2 Opinion of Jun He Law Offices*
10.1 Letter of Agreement, dated March 19, 1997 between
Dawson Science Corporation and Shenzhen City Zhenghua
Traffic and Transportation Main Company, Ltd.
10.2 Letter Agreement, dated June 27, 1997 between Dawson
Science Corporation and Wharton Capital Partners Ltd.
10.3 Consulting Agreement, dated February 11, 1998 between
Dawson Science Corporation and R.I.P. Consultants.*
10.4 Contract for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science
Corporation and Wu Qui Mei (Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd.).
10.5 Regulations for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science
Corporation and Shenzhen Jinzhenghua Transport
Industrial Development Co. Ltd.
10.6 Business Loan and Security Agreement, dated November
3, 1997 between Dawson Science Corporation and Yeung
Ming-Sum.
10.7 Business Loan and Security Agreement, dated September
19, 1997 between Dawson Science Corporation and Yeung
Shu-kin.
10.8 Business Loan and Security Agreement, dated September
30, 1997 between Dawson Science Corporation and
Neolite Neon Co. Pty. Ltd.
10.9 Grid Promissory Note, dated July 3, 1997 payable to
Wharton Capital Partners, Ltd.
__________________
* To be filed by amendment
21.1 List of Subsidiaries (incorporated by reference to
Note 1 to the financial statements in the prospectus
that is a part of this registration statement).
23.1 Consent of BDO Binder.
23.2 Consent of Proskauer Rose LLP (to be included in
opinions to be filed as exhibits 5.1 and
8.1).*
23.3 Consent of Jun He Law Offices (to be included in
opinion to be filed as exhibit 8.2).*
24.1 Power of Attorney (set forth on signature page of this
registration statement).
27.1 Financial Data Schedule.
(b) Financial Statement Schedules
All financial statement schedules for the Company are
omitted because either they are not applicable or the required
information is shown in the financial statements or notes
thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the provisions described in Item 14, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the undersigned registrant certifies that it has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 12th day of March, 1998.
By: /s/ Andrew Lee
Andrew Lee
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and
officer whose signature appears below hereby constitutes and
appoints Andrew Lee and Wu Zhi Jian, or either of them, as his
true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his behalf individually and in any and
all capacities (until revoked in writing), any and all amendments
(including post-effective amendments) to this Registration
Statement on Form S-1, and any registration statement relating to
the same offering as this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) and the Securities
Act of 1933, to file the same with all exhibits thereto and all
other documents in connection therewith with the Securities and
Exchange Commission, granting to such attorney-in-fact and
agents, and each of them, full power and authority to do all such
other acts and things requisite or necessary to be done, and to
execute all such other documents as they, or either of them, may
deem necessary or desirable in connection with the foregoing, as
fully as the undersigned might or could do in person, hereby
ratifying and confirming all that such attorney-in-fact and
agents, or either of them, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
Signatures Title Date
/s/Wu Zhi Jian
Wu Zhi Jian Chairman of the Board, March 12, 1998
Director
(Principal Executive
Officer)
/s/Andrew Lee
Andrew Lee President and Director March 12, 1998
/s/Willy Wu
Willy Wu Executive March 12, 1998
Vice President,
Chief Financial Officer
(Principal Accounting
Officer)
/s/Peng Jun
Peng Jun Executive March 12, 1998
Vice President,
Treasurer, Director
/s/Zhang Li Wei
Zhang Li Wei Director March 12, 1998
/s/Li Yong Yuan
Li Yong Yuan Director March 12, 1998
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization.*
3.1 Certificate of Incorporation of the Company.*
3.2 By-Laws of the Company.
5.1 Opinion of Proskauer Rose LLP*
8.1 Opinion of Proskauer Rose LLP*
8.2 Opinion of Jun He Law Offices*
10.1 Letter of Agreement, dated March 19, 1997 between
Dawson Science Corporation and Shenzhen City Zhenghua
Traffic and Transportation Main Company, Ltd.
10.2 Letter Agreement, dated June 27, 1997 between Dawson
Science Corporation and Wharton Capital Partners Ltd.
10.3 Consulting Agreement, dated February 11, 1998 between
Dawson Science Corporation and R.I.P. Consultants.*
10.4 Contract for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science
Corporation and Wu Qui Mei (Shenzhen Jinzhenghua
Transport Industrial Development Co. Ltd.).
10.5 Regulations for Chinese Foreign Equity Joint Venture,
dated October 8, 1997 between Dawson Science
Corporation and Shenzhen Jinzhenghua Transport
Industrial Development Co. Ltd.
10.6 Business Loan and Security Agreement, dated November
3, 1997 between Dawson Science Corporation and Yeung
Ming-Sum.
10.7 Business Loan and Security Agreement, dated September
19, 1997 between Dawson Science Corporation and Yeung
Shu-kin.
10.8 Business Loan and Security Agreement, dated September
30, 1997 between Dawson Science Corporation and
Neolite Neon Co. Pty. Ltd.
10.9 Grid Promissory Note, dated July 3, 1997 payable to
Wharton Capital Partners, Ltd.
__________________
* To be filed by amendment
21.1 List of Subsidiaries (incorporated by reference to
Note 1 to the financial statements in the prospectus
that is a part of this registration statement).
23.1 Consent of BDO Binder.
23.2 Consent of Proskauer Rose LLP (to be included in
opinions to be filed as exhibits 5.1 and
8.1).*
23.3 Consent of Jun He Law Offices (to be included in
opinion to be filed as exhibit 8.2).*
24.1 Power of Attorney (set forth on signature page of this
registration statement).
27.1 Financial Data Schedule.
Exhibit 3.2
BY-LAWS
OF
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
1. MEETINGS OF STOCKHOLDERS.
1.1 Annual Meeting. The annual meeting of
stockholders shall be held on the first Tuesday of May in each
year, or as soon thereafter as practicable, and shall be held at
a place and time determined by the board of directors (the
"Board").
1.2 Special Meetings. Special meetings of the
stockholders may be called by resolution of the Board or the
president and shall be called by the president or secretary upon
the written request (stating the purpose or purposes of the
meeting) of a majority of the directors then in office or of the
holders of a majority of the outstanding shares entitled to vote.
Only business related to the purposes set forth in the notice of
the meeting may be transacted at a special meeting.
1.3 Place and Time of Meetings. Meetings of the
stockholders may be held in or outside Delaware at the place and
time specified by the Board or the officers or stockholders
requesting the meeting.
1.4 Notice of Meetings; Waiver of Notice. Written
notice of each meeting of stockholders shall be given to each
stockholder entitled to vote at the meeting, except that (a) it
shall not be necessary to give notice to any stockholder who
submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given, except
when required under section 1.5 below or by law. Each notice of
a meeting shall be given, personally or by mail, not fewer than
10 nor more than 60 days before the meeting and shall state the
time and place of the meeting, and, unless it is the annual
meeting, shall state at whose direction or request the meeting is
called and the purposes for which it is called. If mailed,
notice shall be considered given when mailed to a stockholder at
his address on the corporation's records. The attendance of any
stockholder at a meeting, without protesting at the beginning of
the meeting that the meeting is not lawfully called or convened,
shall constitute a waiver of notice by him.
1.5 Quorum. At any meeting of stockholders, the
presence in person or by proxy of the holders of a majority of
the shares entitled to vote shall constitute a quorum for the
transaction of any business. In the absence of a quorum, a
majority in voting interest of those present or, if no
stockholders are present, any officer entitled to preside at or
to act as secretary of the meeting, may adjourn the meeting until
a quorum is present. At any adjourned meeting at which a quorum
is present, any action may be taken that might have been taken at
the meeting as originally called. No notice of an adjourned
meeting need be given, if the time and place are announced at the
meeting at which the adjournment is taken, except that, if
adjournment is for more than 30 days or if, after the
adjournment, a new record date is fixed for the meeting, notice
of the adjourned meeting shall be given pursuant to section 1.4.
1.6 Voting; Proxies. Each stockholder of record shall
be entitled to one vote for each share registered in his name.
Corporate action to be taken by stockholder vote, other than the
election of directors, shall be authorized by a majority of the
votes cast at a meeting of stockholders, except as otherwise
provided by law or by section 1.8. Directors shall be elected in
the manner provided in section 2.1. Voting need not be by
ballot, unless requested by a majority of the stockholders
entitled to vote at the meeting or ordered by the [chairman] of
the meeting. Each stockholder entitled to vote at any meeting of
stockholders or to express consent to or dissent from corporate
action in writing without a meeting may authorize another person
to act for him by proxy. No proxy shall be valid after three
years from its date, unless it provides otherwise.
1.7 List of Stockholders. Not fewer than 10 days
prior to the date of any meeting of stockholders, the secretary
of the corporation shall prepare a complete list of stockholders
entitled to vote at the meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of
shares registered in his name. For a period of not fewer than 10
days prior to the meeting, the list shall be available during
ordinary business hours for inspection by any stockholder for any
purpose germane to the meeting. During this period, the list
shall be kept either (a) at a place within the city where the
meeting is to be held, if that place shall have been specified in
the notice of the meeting, or (b) if not so specified, at the
place where the meeting is to be held. The list shall also be
available for inspection by stockholders at the time and place of
the meeting.
1.8 Action by Consent Without a Meeting. Any action
required or permitted to be taken at any meeting of stockholders
may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having
not fewer 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 voting.
Prompt notice of the taking of any such action shall be given to
those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of
Directors. The business of the corporation shall be managed by
the entire Board, which initially shall consist of one director.
The number of directors may be changed by resolution of a
majority of the Board or by the stockholders, but no decrease may
shorten the term of any incumbent director. Directors shall be
elected at each annual meeting of stockholders by a plurality of
the votes cast and shall hold office until the next annual
meeting of stockholders and until the election and qualification
of their respective successors, subject to the provisions of
section 2.9. As used in these by-laws, the term "entire Board"
means the total number of directors the corporation would have,
if there were no vacancies on the Board.
2.2 Quorum and Manner of Acting. A majority of the
entire Board shall constitute a quorum for the transaction of
business at any meeting, except as provided in section 2.10.
Action of the Board shall be authorized by the vote of the
majority of the directors present at the time of the vote, if
there is a quorum, unless otherwise provided by law or these by-
laws. In the absence of a quorum, a majority of the directors
present may adjourn any meeting from time to time until a quorum
is present.
2.3 Place of Meetings. Meetings of the Board may be
held in or outside Delaware.
2.4 Annual and Regular Meetings. Annual meetings of
the Board, for the election of officers and consideration of
other matters, shall be held either (a) without notice
immediately after the annual meeting of stockholders and at the
same place, or (b) as soon as practicable after the annual
meeting of stockholders, on notice as provided in section 2.6.
Regular meetings of the Board may be held without notice at such
times and places as the Board determines. If the day fixed for a
regular meeting is a legal holiday, the meeting shall be held on
the next business day.
2.5 Special Meetings. Special meetings of the Board
may be called by the president or by a majority of the directors.
2.6 Notice of Meetings; Waiver of Notice. Notice of
the time and place of each special meeting of the Board, and of
each annual meeting not held immediately after the annual meeting
of stockholders and at the same place, shall be given to each
director by mailing it to him at his residence or usual place of
business at least three days before the meeting, or by delivering
or telephoning or telegraphing it to him at least two days before
the meeting. Notice of a special meeting also shall state the
purpose or purposes for which the meeting is called. Notice need
not be given to any director who submits a signed waiver of
notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the
transaction of any business because the meeting was not lawfully
called or convened. Notice of any adjourned meeting need not be
given, other than by announcement at the meeting at which the
adjournment is taken.
2.7 Board or Committee Action Without a Meeting. Any
action required or permitted to be taken by the Board or by any
committee of the Board may be taken without a meeting, if all the
members of the Board or the committee consent in writing to the
adoption of a resolution authorizing the action. The resolution
and the written consents by the members of the Board or the
committee shall be filed with the minutes of the proceedings of
the Board or the committee.
2.8 Participation in Board or Committee Meetings by
Conference Telephone. Any or all members of the Board or any
committee of the Board may participate in a meeting of the Board
or the committee by means of a conference telephone or similar
communications equipment allowing all persons participating in
the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at the meeting.
2.9 Resignation and Removal of Directors. Any
director may resign at any time by delivering his resignation in
writing to the president or secretary of the corporation, to take
effect at the time specified in the resignation; the acceptance
of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any or all of the directors may
be removed at any time, either with or without cause, by vote of
the stockholders.
2.10 Vacancies. Any vacancy in the Board, including
one created by an increase in the number of directors, may be
filled for the unexpired term by a majority vote of the remaining
directors, though less than a quorum.
2.11 Compensation. Directors shall receive such
compensation as the Board determines, together with reimbursement
of their reasonable expenses in connection with the performance
of their duties. A director also may be paid for serving the
corporation or its affiliates or subsidiaries in other
capacities.
3. COMMITTEES.
3.1 Executive Committee. The Board, by resolution
adopted by a majority of the entire Board, may designate an
executive committee of one or more directors, which shall have
all the powers and authority of the Board, except as otherwise
provided in the resolution, section 141(c) of the General
Corporation Law of Delaware or any other applicable law. The
members of the executive committee shall serve at the pleasure of
the Board. All action of the executive committee shall be
reported to the Board at its next meeting.
3.2 Other Committees. The Board, by resolution
adopted by a majority of the entire Board, may designate other
committees of one or more directors, which shall serve at the
Board's pleasure and have such powers and duties as the Board
determines.
3.3 Rules Applicable to Committees. The Board may
designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at
any meeting of the committee. In case of the absence or
disqualification of any member of a committee, the member or
members present at a meeting of the committee and not
disqualified, whether or not a quorum, may unanimously appoint
another director to act at the meeting in place of the absent or
disqualified member. All action of a committee shall be reported
to the Board at its next meeting. Each committee shall adopt
rules of procedure and shall meet as provided by those rules or
by resolutions of the Board.
4. OFFICERS.
4.1 Number; Security. The executive officers of the
corporation shall be the president, one or more vice presidents
(including an executive vice president, if the Board so
determines), a secretary and a treasurer. Any two or more
offices may be held by the same person. The board may require
any officer, agent or employee to give security for the faithful
performance of his duties.
4.2 Election; Term of Office. The executive officers
of the corporation shall be elected annually by the Board, and
each such officer shall hold office until the next annual meeting
of the Board and until the election of his successor, subject to
the provisions of section 4.4.
4.3 Subordinate Officers. The Board may appoint
subordinate officers (including assistant secretaries and
assistant treasurers), agents or employees, each of whom shall
hold office for such period and have such powers and duties as
the Board determines. The Board may delegate to any executive
officer or committee the power to appoint and define the powers
and duties of any subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer
may resign at any time by delivering his resignation in writing
to the president or secretary of the corporation, to take effect
at the time specified in the resignation; the acceptance of a
resignation, unless required by its terms, shall not be necessary
to make it effective. Any officer elected or appointed by the
Board or appointed by an executive officer or by a committee may
be removed by the Board either with or without cause, and in the
case of an officer appointed by an executive officer or by a
committee, by the officer or committee that appointed him or by
the president.
4.5 Vacancies. A vacancy in any office may be filled
for the unexpired term in the manner prescribed in sections 4.2
and 4.3 for election or appointment to the office.
4.6 The President. The president shall be the chief
executive officer of the corporation. Subject to the control of
the Board, he shall have general supervision over the business of
the corporation and shall have such other powers and duties as
presidents of corporations usually have or as the Board assigns
to him.
4.7 Vice President. Each vice president shall have
such powers and duties as the Board or the president assigns to
him.
4.8 The Treasurer. The treasurer shall be the chief
financial officer of the corporation and shall be in charge of
the corporation's books and accounts. Subject to the control of
the Board, he shall have such other powers and duties as the
Board or the president assigns to him.
4.9 The Secretary. The secretary shall be the
secretary of, and keep the minutes of, all meetings of the Board
and the stockholders, shall be responsible for giving notice of
all meetings of stockholders and the Board, and shall keep the
seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he
shall have such powers and duties as the Board or the president
assigns to him. In the absence of the secretary from any
meeting, the minutes shall be kept by the person appointed for
that purpose by the presiding officer.
4.10 Salaries. The Board may fix the officers'
salaries, if any, or it may authorize the president to fix the
salary of any other officer.
5. SHARES.
5.1 Certificates. The corporation's shares shall be
represented by certificates in the form approved by the Board.
Each certificate shall be signed by the president or a vice
president, and by the secretary or an assistant secretary or the
treasurer or an assistant treasurer, and shall be sealed with the
corporation's seal or a facsimile of the seal. Any or all of the
signatures on the certificate may be a facsimile.
5.2 Transfers. Shares shall be transferable only on
the corporation's books, upon surrender of the certificate for
the shares, properly endorsed. The Board may require
satisfactory surety before issuing a new certificate to replace a
certificate claimed to have been lost or destroyed.
5.3 Determination of Stockholders of Record. The
Board may fix, in advance, a date as the record date for the
determination of stockholders entitled to notice of or to vote at
any meeting of the stockholders, or to express consent to or
dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for
the purpose of any other action. The record date may not be more
than 60 or fewer than 10 days before the date of the meeting or
more than 60 days before any other action.
6. INDEMNIFICATION AND INSURANCE.
The corporation shall indemnify each person who is or
was an officer or director of the corporation to the fullest
extent permitted under section 145 of the General Corporation Law
of Delaware, as amended from time to time.
7. MISCELLANEOUS.
7.1 Seal. The Board shall adopt a corporate seal,
which shall be in the form of a circle and shall bear the
corporation's name and the year and state in which it was
incorporated.
7.2 Fiscal Year. The Board may determine the
corporation's fiscal year. Until changed by the Board, the last
day of the corporation's fiscal year shall be December 31.
7.3 Voting of Shares in Other Corporations. Shares in
other corporations held by the corporation may be represented and
voted by an officer of this corporation or by a proxy or proxies
appointed by one of them. The Board may, however, appoint some
other person to vote the shares.
7.4 Amendments. By-laws may be amended, repealed or
adopted by the stockholders.
Exhibit 10.1
Dawson Science Corporation
Letter of Agreement
To acquire the Shenzhen City
Traffic and Transportation Main Company
Dawson Science Corporation, a Nevada USA Corporation, listed
on the NASDAQ NASD-BB (symbol DWSC) agrees to purchase 100% of
the shares of Shenzhen City Zhenghua Traffic and Transportation
Main (Group) Company, Ltd. "SCZTTM", a wholly-owned subsidiary
of Shenzhen Zhenghua (Group) Company, Ltd.
Dawson Science Corp. agrees to pay 10,000,000 shares of its
common stock @ US$5.00 per share and 2,100,000 shares of its
convertible preferred stock at US$25.00 per share. The preferred
stock may be converted after one year; five (5) shares of common
stock for one (1) share of preferred stock. The total price will
be:
No. of Shares Type Value
10,000,000 Common 50,000,000
2,100,000 Conv. Preferred 52,250,000
(10,500,000 after conversion)
Total 20,500,000 shares 102,250,000
Agreed to: Agreed to:
/s/ Wu Zhi Jian /s/ Robert Cosby on behalf of
Shenzhen Zhenghua.(Group) Cathy Cosby Corporate
Company, Ltd. Secretary
Dawson Science Corporation
Date 97-3-19 Date March 19, 1997
Dawson Science Corporation
Letter of Agreement
to acquire the
Shenzhen City Traffic and Transportation Main Company, Limited
Dawson Science Corp., a Nevada USA Corporation, listed on
the NASDAQ NASD-BB (symbol DWSC) agrees to purchase 100% of the
shares of Shenzhen City Traffic and Transportation Main (Group)
Company, Limited "SCZTTM", a wholly-owned subsidiary of Shenzhen
Zhenghua (Group) Company, Limited.
Dawson Science Corp. Agrees to pay 10,000,000 shares of its
common stock at US$5.00 per share and 2,100,000 shares of its
convertible preferred stock at US$25.00 per share. The preferred
stock may be converted after one year; five (5) shares of common
stock for one (1) share of preferred stock. The total price will
be:
Number of Shares Type Value
10,000,000 Common 50,000,000
2,100,000 Conv. Preferred 52,250,000
(10,500,000
after conversion)
Total 20,500,000 shares 102,250,000
Agreed to: Agreed to:
/s/ Wu Zhi Jian /s/ Cathy Cosby
Shenzhen Zhenghua.(Group) Dawson Science Corporation
Company, Ltd.
Date 97-3-19 Date 3/18/97
Dawson Science Corporation
Proforma Statement
After Acquisition of SCZTTM
Assets
800,000,000 RMB - US$96,386,000
Liabilities
150,000,000 RMB = US$18,072,000
Net Value
650,000,000 RMB = US$78,314,000
Capitalization
Authorized : 100,000,000 shares common stock at 0.001
par value
Issued : 13,516,291 shares common stock
Authorized : 2,500,000 shares conv. preferred
Issued : 2,100,000 shares conv. preferred
Value per share
US$78,314,000 divided y 13,516,291 shares common stock
equals US$5.79 per share
Earnings per share
Earnings - 65,000,000 RMB = US$7,831,400 divided by
13,516,291 shares = 0.58 per share
Market value: 20 US$0.58 = 11.60 per share
/s/ Mr. Wu /s/ R.C. for C.C.
Exhibit 10.2
WHARTON CAPITAL PARTNERS LTD.
June 20, 1997
Mr. Wu (Zhi Jian)
President & CEO
Dawson Science Corporation
1575 Delucchi Lane Ste. 115
Reno NV 89502
Dear Mr. Wu:
This letter is to confirm that Wharton Capital Partners, Ltd.
(Wharton) is authorized to act as an exclusive financial
consultant for Dawson Science Corp. (DWSC) through January 31,
1998 for the purpose of introducing prospective offshore
purchasers to DWSC in connection with the purchase of up to $50
million of various types of offerings including but not limited
to convertible debentures and convertible preferreds of DWSC
under Regulation D of the Securities Act of 1933, as amended and
carry terms contained in Exhibit A attached. Purchases of DWSC's
offerings may be made in a single tranche or in multiple
tranches. Signing this agreement does not restrict DWSC from
seeking and closing other financings which are not discounted or
offshore transactions.
At the closing of each tranche, DWSC agrees to pay to Wharton or
its designee a fee equal to 5% of the gross transaction amount
for such tranche, which fee may be deducted from the proceeds at
closing and/or paid directly by the escrow agent. As additional
compensation, DWSC agrees to pay Wharton or its designee 25,000
warrants per $2.5 million of financing subscribed for or pro
rated portion thereof, to buy fully registered DWSC common stock
for a period of five years from the closing date of the first
tranche at a strike price of 120% of the market price at the time
of closing each tranche.
The fees set forth above are due and payable to Wharton
irrespective of whether the transaction closes during the term
hereof or thereafter, provided that such transaction is
consummated with persons or entities introduced to DWSC by
Wharton and will be deemed earned when a ready, willing and able
purchaser has been identified and funds are ready for payment.
In addition, for each tranche Wharton shall have an exclusive on
any offshore or discounted financings (other than strategic
partners not in the business of investing) done by DWSC for a
period of sixty days from the date the underlying registration
statement becomes effective and a right of first refusal on any
offshore or discounted financings for a period of 6 months from
the date of closing.
DWSC acknowledges that the relationships between Wharton and the
persons and/or entities to be introduced to DWSC for the purposes
contemplated by this agreement are proprietary to Wharton and
essential to its business. Accordingly, DWSC agrees, to keep the
names of investors confidential, except for SEC reporting
purposes or if legally required and to a three-year period
following the execution of this agreement, that neither DWSC, nor
any of its officers directors or other representatives, will
contact, either directly or indirectly, any sources introduced to
DWSC by Wharton hereunder for the purpose of arranging any future
financing for DWSC or any of its affiliates, without the express
written consent of Wharton and without satisfactory compensation
to Wharton. DWSC also agrees not to issue any press releases
relating to this transaction without the prior review of Wharton.
DWSC agrees that the subject offerings will be available at the
closing and that the common stock reserved for conversion will be
duly authorized and will not hinder Wharton's efforts hereunder.
DWSC further agrees, in consideration of Wharton's consulting
services as set forth above, that DWSC will indemnify and hold
harmless Wharton, its affiliates, officers, directors, members,
partners, agents, controlling persons and employees against any
and all losses, claims, damages or liabilities (collectively,
"Losses") incurred in connection with or as a result of either
its engagement hereunder or any matter referred to in this
engagement letter (except to the extent that any such Losses
result form the gross negligence or bad faith of Wharton in
performing the services that are subject of this letter) and the
Company agrees that it will reimburse Wharton and such other
indemnified parties listed above for its and their legal and
other expenses.
Very truly yours,
WHARTON CAPITAL CORPORATION Agreed and Accepted
Dawson Science Corp.
/s/Barry R. Minsky _____________________________
Barry R. Minsky Authorized Signature
Chief Executive Officer
6/27/97
Date
WHARTON CAPITAL PARTNERS LTD.
July 8, 1997
Mr. Wu (Zhi Jian)
President and Chief Executive Officer
Dawson Science Corporation
1575 Delucchi Lane, Ste. 115
Reno, NV 89502
Dear Mr. Wu:
In accordance with our loan agreement dated June 3, 1997 between
Wharton Capital Partners, LTD. (Wharton) and Dawson Science
Corporation (DWSC), this letter will confirm that the number of
fully-registered free-trading common shares of (DWSC) due Wharton
on October 2, 1997 is 61.05 thousand shares ($500,000 divided by
$8.19-closing market price on July 7, 1997.)
Please indicate your agreement by signing in the space below.
Very truly yours,
WHARTON CAPITAL CORPORATION Agreed and Accepted
Dawson Science Corporation
/s/ Barry R. Minsky /s/ Wu Zhi Jian
Barry R. Minsky Wu Zhi Jian
Chief Executive Officer President and Chief Executive
Officer
CONFIDENTIAL
Exhibit A
DWSC Proposed Term Sheet - Expires 1/31/98
Regulation D Convertible Preferreds or Convertible Debentures
Issuer: Dawson Science Corp.
Amount: Up to $50 million - $5-$10 million upon conditions
for funding being achieved and the balance in
additional tranches subject to market conditions.
Conditions
for Funding: a) DWSC must be listed and in good standing on
the Small Cap or National Systems NASDAQ,
American or New York Stock Exchange.
b) The price per share must be above $5
c) The average 120-day trading volume prior to
closing must be at least 100,000 shares per
day
d) Market Cap must be above $65 million
e) Float of at least % 15-20% of the shares
outstanding.
DWSC will notify Wharton Capital Partners, Ltd.
(Wharton) in writing that the conditions for
funding have been met and DWSC would like to
proceed with funding. Upon receipt of such letter
Wharton shall have 30 days to produce a ready,
willing and able purchaser or the exclusivity in
the first paragraph of the June 20 agreement shall
cease.
Term: 60 months subject to conversion per tranche.
Instrument: Convertible Preferred Stock or Convertible
Debentures.
Conversion Convertible by the holders into common stock
Terms: of DWSC at 80% of the lowest five day average
closing bid price for the 25-day period prior
to conversion notice but at no time higher
than 120% of the market price on the day of
closing. Plus for every 5 shares of common
stock issued at conversion, the purchaser
will receive one five year warrant to
purchase fully registered common stock at a
strike price of 120% of the market price at
the time of closing.
Principal: Payable at maturity, if not previously converted.
Dividend/
Interest: 6% per annum payable in kind on conversion.
Registration: Common stock reserved for issue upon conversion of
the Preferred Stock or Debentures will be
registered within 90 days of closing. If not,
late registration fee of 2.5% of principal amount
in cash or additional shares will be issued for
each month or portion thereof after 90 days.
Redemption
Option: To be agreed upon by the parties.
Closing: 3 days or less after execution of final documents
by all parties and delivery of all closing items.
If not, exclusivity in the first paragraph of the
June 20 agreement with Wharton shall cease.
Legal Fees: Issuer pays legal fees not to exceed $20,000
payable at closing per tranche.
Fee: 5% of gross transaction amount plus 25,000
five-year warrants per $2.5 million of financing
to buy fully registered common stock at a strike
price equal to 120% of the market price at
closing.
Agreed and Accepted
Dawson Science Corp. CONFIDENTIAL
/s/ Wu Zhi Jian 6/27/97
Authorized Signature Date
WHARTON CAPITAL PARTNERS LTD.
October 30, 1997 Certified Mail
Return Receipt #-Z 061 117 426
Mr. Wu (Zhi Jian)
President and Chief Executive Officer
Dawson Science Corporation
70 East 55th Street
New, York, NY 10022
Dear Mr. Wu:
Dawson Science Corporation (DWSC) was to make an interest payment
due on October 1, 1997 in connection with the loan agreement
dated July 3, 1997 between Wharton Capital Partners, LTD.
(Wharton) and DWSC.
Attached you will find a new invoice reflecting all interest due
for the months of September (including an additional 8% late fee
on the past due monthly interest amount) and October 1997.
Kindly forward payment within the next 10 business days to avoid
incurring further charges. Thank you.
Very truly yours,
Wharton Capital Partners, LTD.
/s/ Sergio Urrutia
Sergio Urrutia
Account Executive
Certified Mail
Return Receipt # - Z 061 117 426
INVOICE
8% GRID PROMISSORY NOTE ISSUED BY DAWSON SCIENCE CORPORATION
DATED JULY 3,1997
INTEREST DUE FROM
SEPTEMBER 1st THROUGH
OCTOBER 31, 1997
Amount of Interest
Advance Due Date Amount Due Late Fee Total
$320,000 10/1/97 $2,104.11 $ 168.33 $2,272.44
11/1/97 $2,174.24 2,174.24
Total Due: 11/1/97 $4,446.68
MAKE CHECK PAYABLE TO WHARTON CAPITAL PARTNERS LTD.
WHARTON CAPITAL PARTNERS LTD.
January 30, 1998 Certified Mail
Return Receipt # -Z 061 117 425
Mr. Wu (Zhi Jian)
President and Chief Executive Officer
Dawson Science Corporation
575 Lexington Avenue, 4th Floor
Suite 410
New York, Ny 10022
Dear Mr. Wu:
In accordance with the loan agreement dated July 3, 1997 between
Wharton Capital Partners, LTD. (Wharton) and Dawson Science
Corporation (DWSC). Wharton was due to receive 61,050 fully-
registered free-trading common shares of DWSC on October 2, 1997.
If not, a late fee of 2.5% additional shares was to be issued for
each month or portion thereof after the delivery date of the
shares.
Please note, as of February 2, 1998, the number of fully-
registered free-trading common shares of DWSC due to Wharton is
67,386.83 (includes penalty shares for the months of October,
November, and December of 1997 and January 1998 in the amounts of
1,526.25, 1,564.40, 1.602.6, and 1,643.58 respectively).
Kindly forward the above mentioned number of DWSC shares within
10 business days to avoid further penalties. Thank you.
Very truly yours,
Wharton Capital Partners, LTD.
/s/ Sergio Urrutia
Sergio Urrutia
Account Executive
Exhibit 10.4
CONTRACT FOR CHINESE FOREIGN EQUITY
JOINT VENTURES
Chapter 1 General Provisions
In accordance with the "Law of the People's Republic of
China on Chinese-Foreign Equity Joint Ventures" and other
relevant laws and regulations for China's Special Economic Zones,
Qimei Wu and U.S. Dawson Science Corporation adhering to the
principle of equality and mutual benefit and through friendly
consultations, agree to set up a joint venture enterprise in
Shenzhen Special Economic zone, Guangdong Province, P.R. China.
The contract hereunder is concluded.
Chapter 2 Parties to the Joint Venture
Article 1
Parties to this contract are as follows: U.S. Dawson
Science Corporation (hereinafter referred to as Party A),
registered with the United States, legal address: Nevada, U.S.
Legal representative: Name: Zhijian Wu
Position: Chairman of the Board
Nationality: P.R. China
Legal representative: Qimei Wu (hereinafter referred to as
Party B)
Sex: Female
Nationality: Changde, Hunan Province, P.R.
China
Natural person
ID: 432401381012202
She is one of the stockholders of Shenzhen Jinzhenghua Transport
Industrial Development Co., Ltd., P.R. China
Chapter 3 Establishment of the Joint Venture Company
Article 2
In accordance with the "Law of the People's Republic of
China on Chinese-Foreign Equity Joint Ventures" and other
relevant laws and other regulations for China's Special Economic
Zones, both parties to the joint venture agree to set up a joint
venture limited liability company.
Article 3
The name of the joint venture company is _________________.
The name in foreign language is Shenzhen Jinzhenghua Traffic and
Transportation Industrial Development Co., Ltd. (hereinafter
referred to as the joint venture company).
The legal address of the joint venture company is at 3 & 4/F
Fu'an Bldg., Futian District, Shenzhen Special Economic Zone.
Article 4
All activities of the joint venture company shall be
governed by the laws and pertinent rules and regulations of the
People's Republic of China.
Article 5
The organization 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 parties in
proportion to their contributions of the registered capital.
Chapter 4 The Purpose and Scope of Production and Business
Article 6
The purpose of the parties to the joint venture is to
develop China's traffic and transportation industry through
making full use of the advantages of the two parties and the
potentiality in domestic freight with automobiles, and
introducing foreign investment; to create a scientific and
systematic service network to transport passengers and goods with
automobiles so as to serve for agriculture, industry, business
trade and travel industry and to gain the highest social and
economic returns.
Article 7
The productive and business scope of the joint venture
company is to invest into the entities (the specific projects
shall be applied separately), to transport goods and passengers
on highway, storage, automobile accessories, domestic trade, the
supply and marketing of goods and materials (the monoplied goods
are concluded).
Chapter 5 Total Amount of Investment and the Registered Capital
Article 8
The total amount of the joint venture company is $20
million.
Article 9
Investment contributed by the parties is $10 million, which
will be the registered capital of the joint venture company.
Of which: Party A shall pay $9.2 million, accounts for 92%,
Party B shall pay $800 thousand, accounts for 8%.
Article 10
Both Party A and Party B will contribute the following as their
investment:
Party A: cash $9.2 million (Party A contributes in
Renminbi, the exchange of RMB into US$ shall be based on China's
foreign exchange rate on the date of the registration)
Party B: cash $800 thousand, contributing in objects or
cash
(Note: When contributing industrial property as investment,
Party A and Party B shall conclude a separate contract to be a
part of this main contract.)
Article 11
The registered capital of the joint venture company shall be
paid in two installments by Party A and Party B according to
their respective proporation of their investment.
Each installment shall be as follows:
Party A shall pay 60% of the capital, that is $5.52 million;
Party B shall pay 60% of the capital, that is $480 thousand on
the date of registration;
Both Party A and Party B shall pay the remaining capital
within three months from the date of registration.
Article 12
In case any party to the joint venture intends 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 Shenzhen Municipal Government.
When one party to the joint venture assigns all or part of
his investment, the other party has preemptive right.
Chapter 6 Responsibilities of Each Party to the Joint Venture
Article 13
Party A and Party B shall be respectively responsible for
the following matters:
Responsibilities of Party A:
1. Handling of applications for approval of the joint
venture company from Shenzhen Municipal Government; handling of
application for registration, business license and other matters
concerning the establishment of the joint venture company from
Shenzhen Industrial and Commercial Management Administration;
2. Providing cash in accordance with the stipulation in
Article 10 and 11;
3. Assisting the joint venture company in purchasing or
leasing equipment, materials, articles for office use, means of
transportation and communication facilities etc.;
4. Assisting the joint venture company in contacting and
settling the fundamental facilities such as water, electricity,
transportation etc.;
5. Assisting the joint venture company in recruiting
Chinese management personnel, technical personnel, workers and
other personnel needed;
6. Assisting Party B for the certification for staying
temporarily, work license, and processing their travelling
matters;
7. Responsible for handling other matters entrusted by the
joint venture company;
Responsibilities of Party B:
1. Providing capital in accordance with the stipulation in
Article 10 and 11;
2. Training the technical personnel and workers of the
joint venture company;
3. Responsible for handling other matters entrusted by the
joint venture company.
Chapter 7 The Board of Directors
Article 14
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 15
The board of directors are composed of seven directors, of
which four shall be appointed by Party A, three by Party B. The
chairman of the board shall be appointed by Party B, and the
vice-chairman by Party A. The term of office for the directors,
chairman and vice-chairman is three years, their term of office
may be renewed if continuously appointed by the relevant party.
Article 16
The highest authority of the joint venture company shall be
its board of directors. It shall decide all major issues
concerning the joint venture company. Unanimous approval shall
be required before any decisions are made concerning major
issues. As for other matters, approval by a majority of 2/3 or
over majority shall be required.
Article 17
The chairman of the board is the legal representative of the
joint venture Company. Should the chairman be unable to exercise
his responsibilities for some reasons, he shall authorize the
vice-chairman or any other directors to represent the joint
venture company temporarily.
Article 18
The board of directors shall convene at least one meeting
every year. The meeting shall be called and presided over by the
chairman of the board. The chairman many convene and interim
meeting based on a proposal mande by more than one third of the
total number of directors. Minutes of the meeting shalll be
placed on file.
The meeting of the board of directors shall be convened at the
legal address of the joint venture company usually.
Chapter 8 Business Management Office
Article 19
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, a deputy general
manager both invited by the board of directors whose term of
office is three years.
Article 20
The responsibility of the general manager is to carry out
the decisions of the board meeting and organize and conduct the
daily management of the joint venture company. The deputy
general manager shall assist the general manager in his work.
When handling the major issues, the general manager shall
discuss with the deputy general manager.
Article 21
In case of graft or serious dereliction of duty on the part
of the general manager and deputy general manager, the board of
directors shall have the power to dismiss them at any time.
Chapter 9 Purchase of Equipment
Article 22
In its purchase of required raw materials, fuel, parts,
means of transportation and articles for office use, etc., the
joit venture company shall give first priority to purchase in
China where conditions are the same.
Chapter 10 Labor Management
Article 23
Labor contract covering the recruitment, employment,
dismissal and resignation, wages, labor 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 as a whole or individual employees in
accordance with the "Regulations of the People's Republic of
China on Labor Management in Chinese-Foreign Equity Joint
Ventures and its Implementation Rules."
The labor contracts shall, after being signed, be filed with
the Administration of Labor of Shenzhen.
Article 24
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 meeting of the board of directors.
Chapter 11 Taxes, Finance and Audit
Article 25
Joint venture company shall pay taxes in accordance with the
stipulations of Chinese laws and other relative regulations.
Article 26
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 27
Allocations of reserve funds, expansion funds of the joint
venture company and welfare funds and bonuses for staff and
workers shall be set aside in accordance with the stipulations in
the "Law of the People's Republic of China on Chinese-Foreign
Equity Joint Venture". The annual proporation of allocations
shall be decided by the joint venture board of directors
according to the business situations of the joint venture
company.
Article 28
The joint venture company shall form an accounting office,
provide accountants and stipulate the accounting system in
accordance with the "The Accounting System of the People's
Republic of China on Chinese-Foreign Equity Joint Venture".
The accounting system of the joint venture company shall be
filed in the Administration of Finance of Shenzhen and the
Administration of Taxes of Shenzhen.
Chapter 12 Duration of the Joint Venture
Article 29
The duration of the joint venture company is 15 years. The
establishment of the joint venture company shall start from the
date of 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 Shenzhen Municipal Government six months
prior to th expiry date of the joint venture.
Chapter 13 The Disposal of Assets After
the Expiration of the Duration
Article 30
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 relevent law. The liquidated assets
shall be distributed in accordance with the proportion of
investment contributed by Party A and Party B.
Chapter 14 Insurance
Article 31
The joint venture company shall carry every types of
insurance at People's Insurance Company of China. Types, the
value and duration of insurance shall be decided by the board of
directors in accordance with the stipulations of the People's
Insurance Company of China.
Chapter 15 The Amendment, Alteration and Discharge of
the Contract
Article 32
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 Shenzhen Municipal Government.
Article 33
In case of inability to fulfil the contract or to continue
operation due to heavy losses in successive years as a result of
force majeure, the duration of the joint venture and the contract
shall be terminated before the time of expiration after being
unanimously agree upon the board of directors and approved by
Shenzhen Municipal Government.
Chapter 16 Liabilities for Breach of Contract
Article 34
Should the joint venture company be unable to continue its
operations or achieve the business purpose stipulated in the
contract due to the fact thaat one of the contracting parties
fails to fulfil the obligations prescribed by the contract and
articles of association, or seriously violate the stipulations of
the contract and articles of association, or seriously violate
the stipulations of the contract and articles of association,
that party shall be deemed as unilaterally terminates the
contract. The other party shall have the right to terminate the
contract in accordance with the provisions of the ocntract after
being approved by Shenzhen Municipal Government as well as to
claim damages. In case Party A and party B of the joint venture
company agree to continue the operation, the party who fails to
fulfil the obligations shall be liable to the economic losses to
the joint venture company.
Article 35
Should either Party A or Party B fail to pay on schedule the
contributions in accordance with the provisions defined in
Chapter 5 of this contract, the breaching party shall pay to the
other party 3% of the contribution starting from the first month
after exceeding the time limit. Should the breaching party fail
to pay after 6 months, 3% of the contribution shall be paid to
the other party, who shall have the right to terminate the
contract and to claim damages to the breaching party.
Article 36
Should all or part of the contract and its appendices be
unable to be fulfilled owing to the fault of one party, the
breaching 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.
Chapter 17 Force Majeure
Article 37
Should either of the parties to the contract be prevented
from executing the contrac 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 by
cable without any delay, and within 15 days thereafter provide
the detailed information of the events and a valid document for
evidence issued by the relevant public notatry organization for
emplaing 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 whether to delay the execution of the contract according to
the effects of the events of the performance of th contract.
Chapter 18 Applicable Law
Article 38
The formation of this contract, its validity,
interpretation, execution and settlement of the disputes shall be
governed by the relatd laws of the People's Republic of China.
Chapter 19 Settlement of Disputes
Article 39
Any disputes arising from the execution of, or in connection
with the contract shall be settled through friendly
consultations, the disputes shall be submitted to China's
International Economic and Trade Arbitration Commission of the
Shenzhen Council in accordance with its rules of procedures. The
arbitral award is final and binding upon parties. The losing
party shall be responsible for the arbitral fee.
During the arbitration, the contract shall be executed
continuously by both parties except for matters in disputes.
Chapter 20 Effectiveness of the Contract and Miscellaneous
Article 41
The regulations of the joint venture drawn up in accordance
with the principles of this contract are integral part of this
contract.
Article 42
The contract and its appendices shall come into force
beginning from the date of approval of the Shenzhen Municipal
Government.
Article 43
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
afterwards. The legal addresses of Party A and Party B listed in
this contract shall be the posting addresses.
Article 44
The contract is signed in Shenzhen, Guangdong Province of
China by the authorized representatives of both parties on
October 8, 1997.
For Party A For Party B
(Seal) (Seal)
/s/Zhi Jian Wu /s/ Qi Mei Wu
Legal Representative(Signature) Legal Representative
Exhibit 10.5
REGULATIONS FOR CHINESE-
FOREIGN EQUITY JOINT
VENTURES
Chapter 1 General Provisions
Article 1
In accordance with the "Law of the People's Republic of
China on Chinese-Foreign Equity Joint Ventures" and the relevant
laws and regulations for Special Economic Zones of Guangdong
Province, China, U.S. Dawson Science Corporation (hereinafter
referred to as Party A) and Shenzhen Jinzhenghua Transport
Industrial Development Co., Ltd., P.R. China (hereinafter
referred to as Party B) has signed the contract for a Chinese-
foreign equity joit venture on October 8th, 1997 and has set up a
joint venture limited liability company (hereinafter referred to
as the joint venture). The regulations hereunder is concluded.
Article 2
The name of the joint venture company is _________________.
The name in foreign language is Shenzhen Jinzhenghua
Transport Industrial Development Co., Ltd. (hereinafter referred
to as the joint venture).
The legal address of the joint venture company is at 3 & 4/F
Fu'an Bldg, Futian District, Shenzhen Special Economic Zone.
Article 3
Parties to the joint venture are as follows: U.S. Dawson
Science Corporation (hereinafter referred to as Party A),
registered with the United States, legal address:
Nevada, U.S.
Legal representative: Name: Zhijian Wu
Position: Chairman of the Board
Nationality: P.R. China
Shenzhen Jinzhenghua Transport Industrial Development Co., Ltd.
(hereinafter referred to as Party B), registered with Shenzhen
Special Economic Zone in P.R. China, legal address: 3 & 4/F Fu'an
Bldg, Futian District, Shenzhen Special Economic Zone, P.R.
China.
Legal representative: Name: Zhijian Wu
Position: President
Nationality: P.R. China
Article 4
The organization form of the joint venture company is a
limited liability company. The joint venture company is a legal
person of China and therefore it shall be governed by the
relevant laws of China. All activities of the joint venture
company shall be governed by the laws and pertinent rules and
regulations of the People's Republic of China.
Chapter 2 The Purpose and Scope of Production and Business
Article 5
The purpose of the parties to the joint venture is to
develop China's transport industry through making full use of the
advantages of the two parties and the potentiality in domestic
freight with automobiles, and introducing foreign investment; to
creat a scientific and systematic service network to transport
passengers and goods with automobiles so as to serve for
agriculture, industry, business trade and travel industry and to
gain the highest social and economic returns. 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 parties in proportion to their contributions of the
registered capital.
Article 6
The productive and business scope of the joint venture
company is investment and development in industrial enterprises
(the specific projects shall be applied separately), highway
passenger and goods transport, storehouse transportation,
automobile auxiliaru parts, domestic trade, materials supply and
marketing (the monoplied goods are concluded).
Chapter 3 Total Amount of Investment and the Registered Capital
Article 7
The total amount of investment of the joint venture company
is $20 million. The registered capital is $10 million.
Article 8
Of which: Party A shall pay $9.2 million, accounts for 92%,
Party B shall pay $800 thousand, accounts for 8%.
Both Party A and Party B will contribute the following as
their investment:
Party A: $9.2 million, accounts for 92% of the registered
capital, contributing in cash;
Party B: $800 thousand, contributing in objects or cash
Article 9
The registered capital of the joint venture company shall be
paid by Party A and Party B according to the duration stipulated
in the contract.
Article 10
The accountant invited by the joint venture company shall
check the registered capital after both Party A and Party B pay
off it. The joint venture company issue the investment
certification based on the checking report by the accountant.
The major contents of the certification are: the name and the
date of establishment of the joint venture, the name and the
capital of the business partners, the date of payment of their
capital, the issue date of the capital certification, and so on.
Article 11
The joint venture company shall not reduce the registered
capital in the duration of the joint venture company.
Article 12
The raise of the registered capital shall be approved by
Both Paarty A and Party B and by the Shenzhen Municipal
Government of Shenzhen.
Article 13
In case any party to the joint venture intends 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 Shenzhen Municipal Government.
When one party to the joint venture assigns all or part of
his investment, the other party has preemptive right.
Chapter 4 The Board of Directors
Article 14
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. The highest authority of the joint
venture company shall be its board of directors.
Article 15
The board of directors shall decide all major issues
concerning the joint venture company. Its major authority is as
the following:
1. Decide and grant the major reports provided by the
business management [TEXT CUT OFF] operation report,
capital supply and marketing and so on);
2. Grant the annual finacial statement, the scheme for
balance budget and profit distribution;
3. Pass the important rules and regulations of the joint
venture company;
4. Conclude the labor contract;
5. Decide the establishment of branch;
6. Discuss and pass the revision of the regulations for
the joint venture company;
7. Discuss and decide the stop production, termination and
combination with another economic organization of the
joint venture company;
8. Decide to the invitation of the general manager, deputy
general manager, general engineer, chief accountant,
auditor and other senior officers;
9. Be responsible for the liquidation on the termination
in advance and expiration of the duration of the joint
venture company;
10. Be responsible for other major issues decided by the
board of directors.
Article 16
The board of directors is composed of seven directors, of
which four shall be appointed by Party A, three by Party B. The
term of office for the directors is three years, their term of
office may be renewed if continuously appointed by the relevant
party.
Article 17
The board of directors has one chairman and one vice-
chairman. The chairman of the board shall be appointed by Party
B, and the vice-chairman by Party A.
Article 18
Should the directors be designated or changed by either
parties to the joint venture company, a written notice is
required by the board of directors.
Article 19
The board of directors shall convene at least one meeting
every year. The chairman may convene an interim meeting based on
a proposal made by more than one third of the total number of
directors.
Article 20
The meeting of the board of directors shall be convened at
the legal address of the joint venture company in principle.
Article 21
The meeting shall be called and presided over by the
chairman of the board. Should the chairman of the board be
absent, the vice-chairman shall convene and preside over the
meeting.
Article 22
The chairman of the board shall issue the meeting notice in
written form five days before the meeting is convened. The
notice shall tell the contents, date and address of the meeting.
Article 23
Should the director be absent from the meeting for any
reason, he shall entrust an agent present in a written notice.
Should the director not be present at the meeting he is regarded
as absteation.
Article 24
The legal number of directors at the meeting shall be two
thirds of the total number of directors. Should the directors at
the meeting has less than two thirds of the total number, the
resolution passed by the meeting is invalid.
Article 25
The detailed written minutes of every meeting shall be
required. And the minutes shall obtain the signatures of all the
directors present. Should the agent be present he shall sign his
name. The minutes shall be written in Chinese or both in Chinese
and English. The minutes shall be placed on file and kept by the
special person designated by the board of directors. No one
shall alter or destroy the minutes on the duration of the joint
venture company.
Article 26
The following issues shall obtain the unanimous approval of
the board of directors:
1. The appointment and revision of the regulations for the
joint venture company;
2. The termination and dismissal of the joint venture
company;
3. The raise and transference of the registered capital of
the joint venture company;
4. The combination of the joint venture company with other
economic organization.
Article 27
Other issues except those mentioned in Article 26 shall
obtain two thirds of the total number of directors or half of
them.
Chapter 5 -- Business Management Office
Article 28
The joint venture company shall establish a management
office. The specific office establishment shall be decided by
the board of directors.
Article 29
The management office shall have a general manager, a deputy
general manager both invited by the board of directors.
Article 30
The general manager shall be responsible directly to the
board of directors, carry out the decisions of the board of
directors, organize and conduct the daily production, technology
and business management of the joint venture company. The deputy
general manager shall assist the general manager in his work.
When the general manager is absent the deputy general manager
take the responsibility.
Article 31
The decision of the major issues in daily work concerning
the joint venture company shall become effective on the
signatures of both the general manager and the deputy general
manager. The issues that need the signatures of both the general
manager and the deputy general manager shall be stipulated by the
board of directors.
Article 32
The term of office for the general manager and the deputy
general manager is three years. Their term of office may be
renewed if continuously invited by the board of directors.
Article 33
The chairman, vice-chairman, directors of the board cannot
be concurrently the general manager, deputy general manager or
other senior officers of the joint venture company.
Article 34
The general manager and deputy general manager cannot be
concurrently the general manager or the deputy general manager of
other economic organizations and cannot take part in the business
competition towards the joint venture by other companies.
Article 35
The joint venture company has a general engineer, a chief
accountant, an auditor, invited by the board of directors.
Article 36
The general engineer, chief accountant and auditor are under
the leadership of the general manager.
The chief accountant is responsible for the finance and
accounting of the joint venture company, organizes the joint
venture company, develops the whole economic accounting and takes
the economic responsibility.
The auditor is responsible for the auditing within the joint
venture company, checks and examines the financial balance and
accounting list of the joint venture company and report to the
general manager and the board of directors.
Article 37
Those general manager, deputy general manager, general
engineer, chief accountant, auditor and other senior officers who
ask for resignation shall hand in the written report 20 days in
advance.
In case of graft or serious dereliction of duty on the part
of the above-mentioned officers, the board of directors shall
have the power to dismiss them at any time.
Chapter 6 -- Financial Account
Article 38
The financial account of the joint venture company shall be
handled in accordance with the stipulations of "the Financial
Account System for Chinese-Foreign Equity Joint Venture" by the
Ministry of Finance of the People's Republic of China and other
relative regulations for Special Economic Zones of China.
Article 39
The fiscal year of the joint venture company shall take
calendar year. A fiscal year is from January 1 to December 31.
Article 40
All evidence, account books, statements of the joint venture
company shall be written in Chinese. Should another party ask,
they can be noted in English.
Article 41
The joint venture company takes Renminbi as the unit to keep
account. The exchange of Renminbi into other currencies shall be
based on China's foreign exchange rate issued by the National
Exchange Administration of China on the actual date.
Article 42
The joint venture company shall open the account for
Renmininbi and foreign currency in Bank of China or other banks
approved by Bank of China.
Article 43
The following contents shall be recorded on the account book
of the joint venture company:
1. The total volume of cash revenue and expenditure of the
joint venture company;
2. The supply and marketing of the materials of the joint
venture company;
3. The registered capital and the liabilities of the joint
venture company;
4. The date of payment, raise and transference of the
registered capital of the joint venture company.
Article 44
The management office shall compile a balance sheet and a
profit and loss statement on the first three months of every
fiscal year. The balance sheet and profit and loss statement
that are signed by the auditor shall submit to the board of
directors for passing.
Article 45
The parties to the joint venture company have the right to
invite the auditors at their own expenses to check the account
book of the joint venture company. The joint venture company
shall provide convenience on checking.
Article 46
The board of directors shall decide the depreciation years
of fixed assets of the joint venture company in accordance with
the stipulations of "Rules for the Implementation of the Income
Tax Law of the People's Republic of China".
Article 47
All the foreign exchange issues concerning the joint venture
company are handled in accordance with the relevant regulations
of "The Interim Regulations for Foreign Exchange Management of
People's Republic of China" and the regulations of the contract
for the joint venture company.
Chapter 7 -- The Allocation of the Profit
Article 48
Allocations of reserve funds, expansion funds of the joint
venture company and welfare funds and bonuses for staff and
workers shall be set aside from the after-income-tax profit in
accordance with the relevant law. The annual proportion of
allocations shall be decided by the joint venture board of
directors according to the business situations of the joint
venture company.
Article 49
The Profit after the joint venture company has paid the
income tax in accordance with the relevant law and has set aside
every funds shall be allocated to Party A and Party B according
to their respective proportion of their investment. Should the
board of directors grant unanimous approval to another allocation
of the above-mentioned profit the above-mentioned profit can be
allocated in the different way.
Article 50
The joint venture company allocate the profit once a year.
The allocation scheme of the profit and the profit sum that the
parties to the joint venture company shall get are issued in the
last three months of each fiscal year.
Article 51
The profit are not permitted to allocated before the loss of
last fiscal year has not been made up. The profit that doesn't
allocate last fiscal year can be allocated in this fiscal year.
Chapter 8 -- Staff and Workers
Article 23
Labor contract covering the recruitment, employment,
dismissal and resignation, wages, labor insurance, welfare,
rewards, penalty and other matters concerning the staff and
workers of the joint venture company shall be handled in
accordance with the "Regulations of the People's Republic of
China on Labor Management in Chinese-Foreign Equity Joint
Ventures and its Implementation Rules."
Article 53
The joint venture company recruits, examines and selects the
staff and workers by itself after obtaining the approval of the
Labor Administration of Shenzhen.
Article 54
The joint venture company has the right to give a
disciplinary warning, a demerit or cut down the salary to the
employees who violate the rules and labor regulations of the
joint venture company. The employees with the serious case can
be dismissed. The employees that are punished and dismissed
shall be filed in the Labor Administration of Shenzhen.
Article 55
The salaries of the employees shall be decided by the
meeting of the board of directors and be stipulated in the Labor
Contract in accordance with the relevant law of Shenzhen Special
Economic Zone.
As the development of the production, the improvement of the
employees' professional capability and skill the joint venture
company shall raise their salaries.
Article 56
The welfare, reward, labor security and labor insurance etc.
of the employees shall be stipulated in the rules of the joint
venture company to assure the employees can work and produce in
the normal conditions.
Chapter 9 -- Trade Union
Article 57
The employees of the joint venture company has the right to
establish the trade union and develop the activities on trade
union according to the "Regulations for the Trade Union in
Guangdong Special Economic Zone".
Article 58
The trade union of the joint venture company is the
representative of the employees. Its task is to maintain the
legal interest of the employees, discuss the relevant issues,
organize and educate the employees to improve the production,
obey the discipline and carry out the labor contract.
Article 59
The trade union of the joint venture can instruct and help
the employees to sign the individual labor contract or can
represent the employees to sign the collective labor contract and
supervise the implementation of the contract.
Article 60
The chief of the trade union of the joint venture company
has the right to attend, as non-voting delegate, the meeting of
the board of directors on the salaries, reward and punishment,
welfare, labor security, labor insurance and labor discipline
etc. He can reflect the suggestion and demand of the employees.
Article 61
The joint venture company distributes 2% of the actual total
salaries of the employees to the trade union as funds. The funds
shall be used by the trade union in accordance with the
"Regulations for the Management of the Trade Union Funds".
Chapter 10 -- Expiration and Liquidation
Article 62
The duration of the joint venture company is 15 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.
Article 63
An application for the extension of the duration, proposed
by one party and unanimously approved by the board of directors,
shall be submitted to Shenzhen Municipal Government six months
prior to the expiry date of the joint venture. The duration can
be extended with the approval of Shenzhen Municipal Government.
The parties shall handle the changing procedures in Shenzhen
Industrial and Commercial Administrative Management Bureau.
Article 64
Should both parties to the joint venture agree that the
termination of the duration of the joint ventures is in the
highest interest of both parties they can terminate the duration
of the joint venture before the date of the expiration.
Should the joint venture intend to terminate the joint
venture it needs the decision from the meeting of the board of
directors and the approval of Shenzhen Municipal Government.
Article 65
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
commission shall be established in accordance with the "Rules for
the Implementation of the Laws for Chinese-Foreign Equity Joint
Venture".
Article 66
The task of the liquidation commission is to liquidate the
creditor's rights and liabilities of the joint venture, to
compile the balance sheet and the assets list, to _____________.
Article 67
During the liquidation, the liquidation commission sue and
respond on behalf of the joint venture.
Article 68
The fee for liquidation and the reward for the committees of
the commission shall be paid in priority from the present assets
of the joint venture.
Article 69
On liquidation the liquidation commission reevaluates the
assets of the joint venture based on the book depreciation degree
and referring the then price.
Article 70
After the liquidation the joint venture shall submit to the
Shenzhen Municipal Government, handle the procedure of caneling
the registration, hand in the business license and notify the
public.
Article 71
After the joint venture doesn't operate any more all kinds
of the account books shall be kept by the original China party.
Chapter 11 -- The Rules and Regulations
Article 72
The rules and regulations of the joint venture stipulated
through the board of directors are as the following:
1. The rules for business and management including the
power regulations of management office;
2. The manual for employees;
3. The rules for labor salary;
4. The rules for work attendance, promotion, and reward
and punishment of employees;
5. The rules for welfare of employees;
6. The rules for finance;
7. The liquidation procedure on the dismissal of the
joint venture;
8. Other necessary rules.
Chapter 12 -- Supplementary Articles
Article 73
The revision of this regulations shall be approved
unanimously by the meeting of the board of directors and submit
to the Shenzhen Municipal Government for permission.
Article 74
This regulations are written in Chinese and English. Both
versions are equally authentic. Should the two versions have
discrepancy with each other, only the Chinese version will be
taken as the standard one.
Article 75
The uncompleted part of this regulations shall be revised
and complemented by the board of directors.
Article 76
Should this regulations have discrepancy with the laws and
regulations of People's Republic of China, only this regulations
will be taken as the standard one.
Article 77
This regulations shall become effective after obtaining the
approval of Shenzhen Municipal Government.
For Party A For Party B
(Seal) (Seal)
/s/ Wu Zhi Jian /s/ Wu Zhi Jian
Legal representative Legal representative
(Signature) (Signature)
Exhibit 10.6
BUSINESS LOAN AND SECURITY AGREEMENT
$2,000,000 November 3, 1997
1. PREAMBLE. Business Loan and Security Agreement made by the
undersigned (the "Borrower") for the benefit of Mr. Ming-Sum
Yeung, whose address is set forth on the signature page hereto
(the "Lender"), with respect to a loan in the original principal
amount of $2,000,000 as evidenced by a secured convertible
promissory note in such amount from the Borrower of even date
herewith (the "Note"). Simultaneously with the execution hereof,
as partial consideration to the Lender for making the loan
hereunder, Zhi-Jian Wu, President and a principal stockholder of
Borrower, has delivered the Lender 100,000 shares of Common Stock
of the Borrower (the "Bonus Shares"). Pursuant to a Guaranty
Agreement of even date, Mr. Wu has guaranteed the obligations of
the Borrower hereunder and under the Note, and has pledged
400,000 shares of Convertible Preferred Stock of the Borrower
(the "Pledged Shares") as collateral for his obligations under
the Guaranty Agreement. The Pledged Shares have been delivered
to Brown, Rudnick, Freed & Gesmer, Counselors at Law ("Escrow
Agent"), to be held in Escrow pursuant to that certain Escrow
Agreement of even date between Escrow Agent, Borrower, Lender and
Mr. Wu. This Agreement and the Note are hereinafter collectively
referred to as the "Transaction Documents."
2. SECURITY.
(a) As security for Borrower's indebtedness and other
obligations now or at any time hereafter owing by Borrower to
Lender, whether or not any of such are liquidated, unliquidated,
secured, unsecured, direct, indirect, absolute, contingent or of
any other type, nature or description, including without
limitation those arising under this agreement, Borrower hereby
grants Lender a security interest in 20% of the ownership
interest of the Borrower in Shenzhen City Zhenghua Traffic and
Transportation Industrial and Development Company, Ltd.
(b) Borrower has not granted any security interest with
respect to Borrower's collateral hereunder, and such collateral
is free of all liens and encumbrances, except those Borrower is
granting to Lender herein.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to and covenants with Lender as follows:
(a) the execution and delivery of each of the Transaction
Documents has been approved by all required corporate action and
does not violate or contravene any provision of Borrower's
corporate charter documents, by-laws or any other indenture or
contract to which Borrower is a party. Each of the Transaction
Documents is valid, binding and enforceable against Borrower in
accordance with their respective terms, and no consent of any
other party is required in connection with the execution,
delivery, performance or enforceability of any of the Transaction
Documents.
(b) Borrower has filed all federal, state, local and other
tax and similar returns required to be filed and has paid or
provided for the payment of all taxes and assessments due
thereunder.
(c) Borrower and each of the Borrower's subsidiaries is
duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of formation;
(d) any financial statements or projections Borrower has
delivered to Lender are true and correct in all material
respects, and have been prepared in accordance with generally
accepted accounting principles; and there has occurred no
material adverse change in Borrower's or any of its subsidiaries'
business or financial condition since the date of the most
recently delivered financial statements;
(e) there is no litigation pending or threatened against
Borrower or any of its subsidiaries, except as disclosed on
Borrower's financial statements or in a writing delivered to
Lender; and
(f) the issued and outstanding capital stock of the
Borrower is as set forth on Schedule 3(f) hereto, and, except as
set forth on such Schedule, there are no outstanding options,
warrants or other rights to acquire capital stock of the
Borrower.
4. AFFIRMATIVE COVENANTS. So long as any amount is unpaid
hereunder, Borrower will:
(a) keep proper books of account in a manner in accordance
with generally accepted accounting principles;
(b) permit, upon written notice and during normal business
hours, inspections and audits by Lender or by Lender's agents of
all books, records and papers in the custody or control of
Borrower or of others relating to any security for the
obligations hereunder or Borrower's or any of its subsidiaries
financial or business condition, including the making of copies
thereof and abstracts therefrom and inspection and appraisal of
any of Borrower's or its subsidiaries' assets;
(c) at the request of the Lender, deliver to Lender
financial information in such form and detail and at such times
as are satisfactory to Lender, including, without limitation,
Borrower's quarterly financial statements;
(d) promptly pay all taxes, assessments and other
governmental charges due from Borrower or its subsidiaries;
provided however, that nothing herein contained shall be
interpreted to require the payment of any such tax so long as its
validity is being contested in good faith and Borrower maintains
adequate reserves with respect to such tax;
(e) keep adequately insured at all times with responsible
insurance carriers against liability on account of damage to
persons or property;
(f) promptly inform Lender of the commencement of any
action, suit, proceeding or investigation against Borrower or any
of its subsidiaries, or the making of any counterclaim against
Borrower or any of its subsidiaries in any action, suit or
proceeding and of all liens against any of Borrower's or any of
its subsidiaries' property, and of the occurrence of any default
hereunder;
(g) pay all indebtedness to Lender and to third parties
when due; and
(h) maintain Borrower's and each of its subsidiaries'
corporate existence, comply with all applicable laws and
regulations and maintain all property useful and necessary in
Borrower's business in good repair and operating condition,
ordinary wear and tear excepted.
5. NEGATIVE COVENANTS. So long as any amount is unpaid
hereunder, Borrower will not, without Lender's prior written
consent:
(a) create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien or other encumbrance upon any of
the collateral hereunder, except in Lender's favor;
(b) sell, convey, lease or transfer any of Borrower's
assets other than in the ordinary course of business, or merge or
consolidate with or into any other company or corporation, except
with Lender's written consent;
(c) become a guarantor, surety or otherwise become liable
for the debts or other obligations of any person, firm or
corporation, except as an endorser of instruments for the payment
of money deposited to Borrower's account for collection in the
ordinary course of business;
(d) make any investments in or loans or advances to any
other person, firm or corporation (including, without limitation,
loans or advances to officers, partners or employees of Borrower
or any of its subsidiaries) except direct obligations of the
United States of America;
(e) purchase any of its capital stock or declare any
dividends thereon, without the written consent of Lender; and
(f) change the form in which Borrower conducts its
business, the location of such business, or the nature of the
business as conducted by Borrower on the date of this Agreement
or fail to maintain its business operation as a going concern.
6. DEFAULT. In addition to, and not by way of limitation of,
any of Lender's other rights hereunder, the entire unpaid balance
of all of Borrower's indebtedness to Lender, whether under this
Agreement, the Note or under any other instrument, document or
agreement with Lender, may be declared to be immediately due and
payable at Lender's sole election upon the happening of any one
of the following specified events of default (each an "Event of
Default"):
(a) Borrower's failure to make any payment when due
hereunder or under the Note, or to pay or perform any other
obligation to Lender, now existing or hereafter arising;
(b) Borrower's failure to pay any indebtedness to any
others when due, except where Borrower is reasonably and in good
faith asserting a legal defense in respect of its failure to pay
any such indebtedness when due;
(c) if any representation, warranty, statement or
certificate made to Lender by Borrower proves to have been or
becomes untrue;
(d) any change in the ownership of capital stock in the
Borrower which results in a change of control of the Borrower;
(e) with respect to the Borrower or any of its
subsidiaries, the commencement, whether voluntary or involuntary,
of a case under the United States Bankruptcy Code or any other
proceeding or action seeking reorganization, liquidation,
dissolution or other relief under federal bankruptcy or
insolvency statutes or similar laws, or seeking the appointment
of a receiver, trustee or custodian for the Borrower or all or a
part of Borrower's assets;
(f) if Borrower or any of its subsidiaries makes an
assignment for the benefit of creditors, or is unable to pay
debts as they mature; or
(g) any such event occurs with respect to any guarantor or
endorser of Borrower's obligations to Lender.
7. ADDITIONAL REMEDIES. Upon demand of payment of all amounts
due hereunder, or upon the occurrence of any Event of Default and
at any time thereafter, Lender shall have all of the rights and
remedies of a secured party upon default under the New York
Uniform Commercial Code, in addition to which Lender shall have
all of the following rights and remedies:
(a) to take possession and dispose of the collateral;
(b) the proceeds of any collection of the collateral shall
be applied toward any of Borrower's loan or loans in such order
and manner as Lender determines in Lender's sole discretion.
Borrower shall remain liable to Lender for any deficiency
remaining following such applications; and
8. FEES AND EXPENSES. Simultaneously with the execution
hereof, Borrower has paid Lender an origination fee equal to 4%
of the principal amount of the Note. Such origination fee has
been directly deducted from the proceeds of the loan delivered to
the Borrower, so that the proceeds delivered to the Borrower were
net of the origination fee. Borrower will reimburse Lender
promptly for any fees payable to the appropriate public officer
to perfect any lien or other security interest taken to secure
any indebtedness created pursuant hereto, or the premium, not in
excess of such filing fee, payable for insurance in lieu of such
filing. Borrower shall pay on demand all of Lender's expenses,
including, without limitation, attorneys' fees and disbursements,
incurred in connection with the loan made hereunder, and all
expenses which Lender may hereafter incur in connection with the
protection or enforcement of any of Lender's rights against
Borrower, any collateral, and any guarantor of Borrower's
obligations to Lender.
9. EQUITY PARTICIPATION. As additional consideration to the
Lender for making the loan hereunder, concurrently with the
execution and delivery of this Agreement, Zhi-Jian Wu, President
and a principal stockholder of the Borrower, has transferred to
the Lender 100,000 shares of Common Stock of the Borrower (the
"Bonus Shares").
10. REGISTRATION RIGHTS. At any time the Borrower proposes to
file a registration statement under the Act with respect to any
capital stock of the Borrower on any form, other than forms S-4
or S-8 or their then equivalents, then, the Borrower shall give
written notice of such proposed filing to the Lender at least
forty-five (45) days before the anticipated filing date, and such
notice shall offer to the Lender the opportunity to include in
such registration statement the number of Registrable Securities
(defined herein) which Lender may request. The Borrower shall
cause the managing underwriter of a proposed offering to offer
such shares of capital stock on the same terms and conditions as
the capital stock to be included therein by the Borrower. For
purposes of this Agreement, "Registrable Securities" means the
Bonus Shares, the Pledged Shares, and the shares of Common Stock
issuable or transferred pursuant to the Note. Any permitted
assignee of Lender shall also have the registration rights
granted hereunder with respect to Registrable Securities acquired
from Lender. References to Lender in this Agreement shall
include permitted assignees of the Lender.
Additional Obligations of the Borrower. Whenever the
Borrower is required to register shares of capital stock pursuant
to a request of the Lender hereunder, the Borrower shall:
(i) prepare for filing with the Securities and Exchange
Commission a registration statement, including a prospectus and
exhibits, amendments and supplements thereto and, prior to such
filing, furnish the same to Lender for review and comment;
(ii) file the registration statement with the Securities and
Exchange Commission and use commercially reasonably efforts to
cause such registration statement to become effective and remain
effective as provided herein;
(iii)prepare and file with the Securities and Exchange
Commission such amendments and supplements to said registration
statement and the prospectus used in connection therewith as may
be necessary to keep said registration statement effective and to
comply with the provisions of the Act with respect to the sale of
securities covered by said registration statement for the period
necessary to complete the proposed public offering, subject to
the terms hereof;
(iv) furnish to Lender such copies of the registration
statement including the preliminary and final prospectus and
copies of all exhibits, amendments and supplements thereto, as
well as such other documents as Lender may reasonably request to
facilitate the proposed public offering of capital stock;
(v) to use its best efforts to register or qualify the
capital stock covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as Lender may
request.
(vi) permit Lender and its counsel and other representatives
to inspect and copy such corporate documents and records as may
reasonably be requested by them;
(vii) furnish to Lender a copy of all documents filed
and all correspondence from or to the Securities and Exchange
Commission in connection with any such offering;
(viii) pay all expenses in connection with such
registration and offering (other than the fees and expenses of
Lender's counsel, if any), except that Lender shall bear all
underwriting commissions attributable to his or its shares so
registered; and
(ix) use its best efforts to file on a timely basis with the
Securities and Exchange Commission such information as the
Borrower may be obligated to file under Sections 13 or 15(d) of
the Securities Exchange Act of 1934, as then amended and in
effect.
Indemnification. Incident to any registration statement,
including any preliminary prospectus, prospectus, or any
amendments or supplements thereto (the "Registration Statement"),
or any application for exemption filed by the Borrower which
includes Registrable Securities, the Borrower will indemnify
Lender and its officers, directors, employees, stockholders,
partners and agents, as applicable, against all claims, losses,
damages and liabilities, including legal and other expenses
incurred in investigating or defending against the same, arising
out of any untrue statement of a material fact contained therein,
or by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or arising out of any violation by the Borrower of
the Act, any state securities or "blue-sky" laws or any rule or
regulation thereunder in connection with such registration or
sale, except insofar as the same may have been caused by an
untrue statement or omission based upon, and in conformity with,
information furnished in writing to the Borrower by Lender
expressly for use therein.
Promptly after receipt by Lender or any of its respective
officers, directors, employees, stockholders, partners or agents,
of notice of the assertion or commencement of any action in
respect of which indemnity may be sought against the Borrower,
Lender shall notify the Borrower in writing of the assertion or
commencement thereof, and, subject to the provisions hereinafter
stated, the Borrower shall assume the defense of such action
(including the employment of counsel and the payment of all fees
and expenses) insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the
Borrower. Lender and its officers, directors, employees,
stockholders, partners and agents, as the case may be, shall have
the right to employ separate counsel in any such action and to
participate in the defense thereof, provided that the Borrower
shall have the right to control any such litigation, but the fees
and expenses of such separate counsel shall not be at the expense
of the Borrower unless the employment of such counsel has been
specifically authorized by the Borrower or unless counsel
retained by the Borrower has, in the reasonable opinion of
Lender's counsel, a conflict of interest with respect to its
representation of Lender. The Borrower shall not be liable to
indemnify any person for any settlement of any such action
effected without the Borrower's consent.
Contribution. If the indemnification provided for herein is
unavailable to an indemnified party thereunder (other than by
reason of exceptions provided therein) in respect of any claims,
losses, damages or liabilities, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified
party as a result of such claims, losses, damages or liabilities,
in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified party in
connection with the actions, statements or omissions which
resulted in such claims, losses, damages or liabilities, as well
as any other relevant equitable considerations. The relative
fault of such indemnifying party and such indemnified party shall
be determined by reference to, among other things, whether any
action in question, including any untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or
relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action, statement or omission.
The parties hereto agree that it would not be just and
equitable if contribution hereunder were determined by pro rata
allocation or by any other method of allocation which does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the
Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
11. WAIVER, CUMULATIVE REMEDIES. No delay or omission by Lender
in exercising or enforcing any of Lender's rights or remedies
shall operate as, or constitute a waiver thereof. No waiver by
Lender of any event of default or of any default under any other
agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No exercise of any of
Lender's rights and remedies and no other agreement or
transaction of whatever nature entered into between Borrower and
Lender at any time, shall preclude any other exercise of Lender's
rights and remedies. No waiver by Lender of any of Lender's
rights and remedies on any one occasion shall be deemed a waiver
on any subsequent occasion, nor shall it be deemed a continuing
waiver. All of Lender's rights and remedies hereunder, and all
of Lender's rights and remedies, power, privileges, and
discretion under any other agreement or transaction are
cumulative and not alternative or exclusive and may be exercised
by Lender at such time or times and in such order of preference
as Lender in Lender's sole discretion may determine.
12. [RESERVED].
13. MISCELLANEOUS INFORMATION. It is agreed that references to
"Lender" shall mean the undersigned Lender and his heirs or
assigns, and references to "Borrower" or "the undersigned" shall
mean the undersigned Borrower and its successors and assigns.
Borrower will, in manner satisfactory to Lender, furnish other
documentation of a type and in such form as Lender may request
from time to time to further evidence or perfect the agreements
contemplated hereby.
14. APPLICABLE LAW. This agreement shall be construed and
interpreted in accordance with the laws of the State of New York,
without regard to the choice of law provisions thereof .
IN WITNESS WHEREOF, the Borrower and the Lender have executed
this Agreement as of the date first above written.
MR. WU
/s/__________________
Zhi-Jian Wu
BORROWER:
DAWSON SCIENCE CORPORATION
By: /s/Zhi Jian Wu
Zhi Jian Wu, President, duly
authorized
LENDER:
/s/Ming-Sum Yeung
Mr. Ming-Sum Yeung
Flat B, 13/F, Block D
Wylie Court
19 Wylie Path
Homantin, Kowloon
Hong Kong
SCHEDULE 3(f)
Issued and outstanding capital stock and options, warrants
and other rights to acquire capital stock:
1. 13,000,000 shares of Common Stock are issued and
outstanding. 2,100,000 shares of Convertible Preferred Stock are
issued and outstanding. Each share of Convertible Preferred
Stock is convertible into five (5) shares of Common Stock. No
other shares of capital stock are issued and outstanding.
2. There are no outstanding options, warrants or other
rights to acquire capital stock of the Borrower.
CONVERTIBLE
PROMISSORY NOTE
$2,000,000 Dawson Science Corporation
November 3, 1997
FOR VALUE RECEIVED, the undersigned, Dawson Science Corporation,
with a principal place of business at 70 East 55th Street, 20th
Floor, New York, New York 10022 ("Maker"), hereby promises to pay
to the order of Mr. Ming-Sum Yeung whose address is Flat B, 13/F,
Block D, Wylie Court, 19 Wylie Path, Homantin, Kowloon, Hong Kong
("Holder"), the sum of two million (U.S. $2,000,000) Dollars
together with interest on the unpaid principal amount from time
to time outstanding at a rate per annum equal to twelve (12%)
percent. Interest shall be payable monthly in arrears,
commencing November 15, 1997. The entire balance of principal,
accrued but unpaid interest, and other fees and charges shall be
due and payable on the earlier of (1) one hundred eighty (180)
days from the date hereof (the "Maturity Date") or (2) the
occurrence of an Event of Default, as defined below.
1. Interest. Interest and fees shall be calculated on the
basis of a 360-day year times the actual number of days elapsed.
In no event shall interest payable hereunder exceed the highest
rate permitted by applicable law. To the extent any interest
received by Holder exceeds the maximum amount permitted, such
payment shall be credited to principal, and any excess remaining
after full payment of principal shall be refunded to Maker.
2. Prepayment/Default Penalties. The principal balance of
this note may be paid at any time without penalty. Upon the
occurrence of an Event of Default and until such Event of Default
has been cured, the Holder shall be entitled to receive the
following penalty payments (in addition to regular interest
payments): (1) payment in cash, computed on a daily basis, at a
rate per annum equal to twelve (12%) percent of outstanding
principal and accrued interest and (2) 10,000 shares of Common
Stock of Maker (the "Default Shares") for each thirty (30) day
period, or any part thereof, during which there exists an Event
of Default. In the event the Lender is entitled to Default
Shares hereunder, Zhi-Jian Wu, President of Maker, shall, subject
to the terms hereof, transfer the Default Shares to the Lender.
In order to satisfy any obligation to the Lender hereunder or
under the Guaranty Agreement between Mr. Wu and Lender of even
date herewith, Mr. Wu has delivered an aggregate of 400,000
shares of Convertible Preferred Stock of Maker standing in his
name to Brown, Rudnick, Freed & Gesmer, Counselors at Law, as
escrow agent (the "Escrow Agent") to be held pursuant to that
certain Escrow Agreement between Escrow Agent, Mr. Wu, and Lender
of even date ("Escrow Agreement").
3. Costs and Expenses. Maker agrees to pay all costs and
expenses, including, without limitation, reasonable attorneys'
fees and expenses incurred, or which may be incurred, by Holder
in connection with the enforcement and collection of this Note
and any other agreements, instruments and documents executed in
connection herewith.
4. Waivers. Maker and all guarantors and endorsers hereby
waive presentment, demand, notice, protest, and all other demands
and notices in connection with the delivery, acceptance,
performance and enforcement of this Note, and assent to
extensions of the time of payment or forbearance or other
indulgence without notice. No delay or omission of Holder in
exercising any right or remedy hereunder shall constitute a
waiver of any such right or remedy. A waiver on one occasion
shall not operate as a bar to or waiver of any such right or
remedy on any future occasion.
5. Events of Default. The entire unpaid principal and
interest balance shall, at the option of the Holder, become
immediately due and payable, without notice or demand, upon the
occurrence of any of the following events (an "Event of
Default"):
(i) failure to make any payment herein provided within
five (5) days of the due date.
(ii) the making of an assignment for the benefit of
creditors, trust mortgage, or composition with
creditors or other arrangement of similar import by the
Maker or any guarantor or endorser of this Note; the
commencement of any voluntary proceedings under any
bankruptcy or insolvency law, now or hereafter enacted,
by the Maker or any guarantor or endorser; the
commencement of any involuntary proceedings under any
bankruptcy or insolvency laws now or hereafter enacted
which are not discharged within 60 days after the
filing thereof, by or against the Maker or any
guarantor or endorser of the undersigned.
(iii) All payments due hereunder shall be made at
the address of the Holder as set forth below, or at
such other place as the Holder may designate from time
to time in writing.
6. [RESERVED].
7. Convertibility of Note. At any time after the Maturity
Date and prior to repayment in full of all amounts due hereunder,
the original principal amount of this Note (and all accrued but
unpaid interest thereon and any costs and expenses payable
hereunder) shall at the option of the Holder be convertible into
that number of fully-paid nonassessable shares of Common Stock of
the Maker (the "Shares") equal to the quotient of (i) the
original principal amount of this Note (and all accrued but
unpaid interest thereon and any costs and expenses payable
hereunder) and (ii) fifty percent (50%) of the average closing
bid price of the Common Stock, as quoted on the National
Association of Securities Dealers Inc.'s OTC Bulletin Board,
during the five (5) trading days immediately preceding the date
of conversion (the "Conversion Price").
8. Conversion of Note. Subject to Section 7, the
conversion rights represented by this Note may be exercised in
whole, but not in part, by the surrender of this Note and the
duly executed Notice of Conversion (the form of which is attached
as Exhibit A) at the principal office of the Maker. Upon
conversion, the Holder shall be entitled to receive, within a
reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct,
for the number of Shares so acquired. The Shares so acquired
shall be deemed to be issued as of the close of business on the
date on which this Note shall have been converted. Subsequent to
the conversion of this Note, the penalty provisions of paragraph
2 of this Note shall no longer be applicable.
9. Shares to be Issued; Reservation of Shares. The Maker
covenants that the Shares issuable upon the conversion of this
Note will, upon issuance in accordance herewith, be fully paid
and non-assessable, and free from all liens and charges with
respect to the issue thereof. During the period within which the
conversion rights represented by the Note may be exercised, the
Maker will at all times have authorized and reserved, for the
purpose of issuance upon exercise of the conversion rights
represented by this Note, a sufficient number of shares of its
Common Stock to provide for the exercise of the conversion right
represented by this Note.
10. No Fractional Shares. No fractional shares shall be
issued upon the conversion of this Note. In lieu thereof, a cash
payment shall be made equal to such fraction multiplied by the
fair market value of such shares of Common Stock, as determined
in good faith by the Maker's Board of Directors.
11. Adjustments of Conversion Price and Number of Shares.
If there shall be any change in the Common Stock of the Maker
through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split or other change in the corporate
structure of the Maker, appropriate adjustments shall be made by
the Board of Directors of the Maker (or if the Maker is not the
surviving corporation in any such transaction, the Board of
Directors of the surviving corporation) in the aggregate number
and kind of shares subject to this Note, and the number and kind
of shares and the price per share then applicable to shares
covered by this Note.
12. No Rights as Shareholders. This Note does not entitle
the Holder to any voting rights or other rights as a shareholder
of the Maker prior to conversion and surrender of this Note.
Notwithstanding the foregoing, the Maker agrees, upon the request
of the Holder, to transmit to the Holder such information,
documents and reports as are generally distributed to holders of
the capital stock of the Maker. Upon valid conversion and
surrender of this Note in accordance with the terms hereof, the
Holder or the Holder's designee, as the case may be, shall be
deemed a shareholder of the Maker.
13. Sale or Transfer of the Note and the Shares; Legend.
For purposes hereof, the "Shares" include the Default Shares (to
the extent "restricted" under Rule 144 of the Securities Act of
1933, as amended) and the shares issuable upon conversion of this
Note. The Note and the Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the
Act and applicable State Securities laws, or (ii) such sale or
transfer is exempt from the registration requirements of the Act
and applicable State Securities laws. Each certificate
representing any Shares shall bear a legend substantially in the
following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
Such Shares may be subject to additional restrictions on transfer
imposed under applicable state and federal securities law.
14. Modifications and Waivers. This Note may not be
changed, waived, discharged or terminated except by an instrument
in writing signed by the party against which enforcement of the
same is sought.
15. Notices. Any notice, request or other document
required or permitted to be given or delivered to the Holder or
the Maker shall be delivered, or shall be sent by certified or
registered mail, postage prepaid, to the Holder at its address
shown on the books of the Maker or in the case of the Maker, at
the address indicated above, or, if different, at the principal
office of the Maker.
16. Loss, Theft, Destruction or Mutilation of Note. The
Maker covenants with the Holder that upon its receipt of evidence
reasonably satisfactory to the Maker of the loss, theft,
destruction or mutilation of this Note or any stock certificate
and, in the case of any such loss, theft or destruction, and upon
surrender and cancellation of this Note or stock certificate, if
mutilated, the Maker will make and deliver a new Note or stock
certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Note or stock certificate.
17. Representations and Warranties of Holder. By accepting
this Note, the Holder represents and warrants that he, she or it
is acquiring this Note and the Shares for his, her or its own
account, for investment and not with a view to, or for sale in
connection with, any distribution thereof or any part thereof.
Holder represents and warrants that he, she or it (a) is an
"accredited investor" as defined in Appendix A hereto (only
applicable to U.S. residents), (b) is experienced in the
evaluation of businesses similar to the Maker, (c) has such
knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in
the Maker, (d) has the ability to bear the economic risks of an
investment in the Maker, and (e) has been afforded the
opportunity to ask questions of and to receive answers from the
officers of the Maker and to obtain any additional information
necessary to make an informed investment decision with respect to
an investment in the Maker.
18. Binding Effect on Successors. This Note shall be
binding upon any corporation succeeding the Maker by merger,
consolidation or acquisition of all or substantially all of the
Maker's assets, and all of the obligations of the Maker relating
to the Shares issuable upon conversion of this Note shall survive
the conversion and termination of this Note and all of the
covenants and agreements of the Maker shall inure to the benefit
of the successors and assigns of the Holder.
19. Governing Law. This Note shall be construed and
enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New York, without regard
to the choice of law principals thereof.
IN WITNESS WHEREOF, DAWSON SCIENCE CORPORATION has caused
this Note to be executed by its officer thereunto duly
authorized.
ORIGINAL ISSUANCE DATE: As of November 3,1997
WITNESS: DAWSON SCIENCE CORPORATION
/s/ Andrew Lee By:/s/ Zhi-Jian Wu
Name: Andrew Lee Zhi-Jian Wu, President,
Address: Dobbs Ferry, NY 10522 duly authorized
/s/ Zhi-Jian Wu
Zhi-Jian Wu, individually, only
with respect to Paragraph 2
hereof.
NOTARIZATION
County: New York
State: New York
On this 3rd day of November, 1997, before me personally
appeared Zhi Jian Wu, to me known to be the person described in
and who executed the foregoing instrument, and acknowledged that
he executed the same as his free act and deed.
/s/ Fanny Paulits
Notary Public
My Commission Expires:
Notary Public, State of New York
No. 31-4792967
Commission Expires Nov. 30, 1997
EXHIBIT A
NOTICE OF CONVERSION
To: DAWSON SCIENCE CORPORATION
1. The undersigned hereby elects to convert the attached
Note into ___ shares of Common Stock of DAWSON SCIENCE
CORPORATION pursuant to the terms of the attached Note, and
tenders herewith the Note for cancellation.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name
or names as are specified below.
3. The undersigned represents that the aforesaid shares of
Common Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling
such shares. The undersigned further represents that such shares
shall not be sold or transferred unless either (i) they first
shall have been registered under applicable state securities laws
or (ii) or an exemption from applicable state registration
requirements is available.
_____________________
(Name)
_____________________
(Address)
_____________________
(Signature)
_____________________
(Date)
APPENDIX A
[For U.S. Residents Only]
An "Accredited Investor" within the meaning of Regulation D under
the Securities Act of 1933 includes the following:
Organizations
(1) A bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in
section 3(a)(5)(A) of the Act, whether acting in its individual
or fiduciary capacity; a broker or dealer registered pursuant to
section 15 of the Securities Exchange Act of 1934; insurance
company as defined in section 2(13) of the Act; an investment
company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of
that act; a Small Business Investment Company licensed by the
U.S. Small Business Administration under section 301 (c) or (d)
of the Small Business Investment Act of 1958; an employee benefit
plan within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, if the investment decision is made
by a plan fiduciary, as defined in section 3(21) of such act,
which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by
persons that are accredited investors.
(2) A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000,
(ii) not formed for the specific purpose of acquiring the
Securities, (iii) whose purchase is directed by a person who,
either alone or with his purchaser representative, has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an
organization described in section 501 (c)(3) of the Internal
Revenue Code, which was not formed for the specific purpose of
acquiring the Securities, and which has total assets in excess of
$5,000,000.
Individuals
(5) Individuals with income from all sources for each of
the last two full calendar years whose reasonably expected income
for this calendar year exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated
by adding to your adjusted gross income as calculated for Federal
income tax purposes any deduction for long term capital gains,
any deduction for depletion allowance, any exclusion for tax
exempt interest and any losses of a partnership allocated to you
as a partner.
(6) Individuals with net worth as of the date hereof
(individually or jointly with your spouse), including the value
of home, furnishings, and automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of
the Issuer.
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of November __, 1997 among
Zhi-Jian Wu, an individual whose address is c/o Dawson Science
Corporation, 70 East 55th Street, 20th Floor, New York, New York
10022 ("Mr. Wu"), Mr. Ming-Sum Yeung, an individual whose
address is Flat B, 13/F, Block D, Wylie Court, 19 Wylie Path,
Homantin, Kowloon, Hong Kong, Dawson Science Corporation, whose
address is 70 East 55th Street, 20th Floor, New York, NY 10022
(the "Borrower") and Brown, Rudnick, Freed & Gesmer, P.C.
("Escrow Agent").
WHEREAS, Borrower, of which Mr. Wu is President and a
principal stockholder, has entered into a Loan and Security
Agreement of even date herewith with Lender ("Loan Agreement")
and has issued Lender a Convertible Promissory Note of even date
("Note"), related to certain loans and extensions of credit
provided by Lender to the Borrower under the terms and conditions
set forth in the Loan Agreement (the Loan Agreement and the Note
are hereafter collectively referred to as the "Loan Documents");
WHEREAS, Mr. Wu has guaranteed the obligations of the
Borrower to the Lender under the Loan Documents pursuant to a
Guaranty Agreement of even date between Mr. Wu and Lender (the
"Guaranty Agreement");
WHEREAS, in order to secure Mr. Wu's obligations under the
Guaranty Agreement and Loan Documents to each Lender, Mr. Wu has
executed a Stock Pledge Agreement, of even date, in favor of
Lender, pursuant to which Mr. Wu has pledged capital stock of the
Borrower (the "Pledged Shares");
WHEREAS, the parties desire that the Escrow Agent hold the
Pledged Shares in escrow in accordance with the terms hereof;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Borrower, Lender and Mr. Wu hereby designate and
appoint Escrow Agent as the escrow agent for the purposes set
forth herein, and hereby authorize and direct the Escrow Agent to
hold the number of shares of Convertible Preferred Stock of the
Borrower (along with executed blank stock powers) specified on
Schedule I hereto (the "Shares"), pursuant to the terms set forth
herein.
2. The terms of this Escrow Agreement may be altered,
amended, modified or revoked only by the written consent of
Borrower, Lender, Mr. Wu and the Escrow Agent.
3. Escrow Agent shall only disburse the Shares in
accordance with written instructions, in form and substance
satisfactory to Escrow Agent, jointly executed by Mr. Wu and
Lender.
4. In the event that a dispute arises among the parties
involving any responsibility of the Escrow Agent hereunder,
Escrow Agent shall continue to hold the Shares until it has been
furnished with a statement in writing jointly signed by both
Lender and Mr. Wu, instructing Escrow Agent as to the manner in
which it is to dispose of the Shares. Upon receiving such
statement, Escrow Agent shall dispose of the Shares pursuant to
such statement and Borrower, Lender and Mr. Wu agree to hold
Escrow Agent harmless from any liability or responsibility
therefor. In the event that Escrow Agent is made a party, in
respect to the Shares or any of its responsibilities hereunder,
to any court action or arbitration proceedings, Escrow Agent
shall make no disposition of the Shares, except as required by a
court of competent jurisdiction, or by such arbitrators, and
Borrower, Lender and Mr. Wu shall hold Escrow Agent harmless from
and on account of any expenses which Escrow Agent may incur or
become liable to pay because of any such proceedings and the
holding of the Shares. In the event of a dispute as to the
disposition of any of the escrowed documents, Escrow Agent may
apply to any court of competent jurisdiction for a determination
of the rights of the parties with respect thereto, and shall be
relieved of any further liability on account hereof.
5. Escrow Agent assumes no obligation or responsibility
hereunder other than to make delivery of the Shares as provided
above. Escrow Agent shall not be bound by any agreement or
contract not expressly referenced herein, regardless of whether
Escrow Agent has knowledge thereof. Borrower, Lender and Mr. Wu
jointly and severally agree to assume liability for and do hereby
agree to indemnify, protect, save and hold harmless Escrow Agent
from and against any and all liabilities, obligations, losses,
damages, claims, actions, suits, costs and expenses of whatever
kind and nature, including attorneys' fees, imposed upon,
incurred by or asserted against Escrow Agent in any way related
to or arising out of this Escrow Agreement.
6. It is expressly understood by all parties that Brown,
Rudnick, Freed & Gesmer, P.C. acts as counsel to Borrower, and
that neither anything contained in this Escrow Agreement nor
Escrow Agent's execution hereof, shall in any way affect or
require termination of such representation of Borrower.
7. If the Escrow Agent reasonably requires other or
further instruments in connection with this Escrow Agreement or
obligations in respect hereto, the necessary parties hereto shall
join in furnishing such instruments.
8. Any notice required or permitted hereunder shall be
given in writing by registered or certified mail, at the
addresses set forth below.
9. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. Unless otherwise defined herein,
all capitalized terms used herein shall have the meanings
ascribed to them in the Loan Agreement.
EXECUTED as an instrument under seal as of the date first
above written.
MR. WU:
/s/ Zhi-Jian Wu
Zhi-Jian Wu
Notice Address:
c/o Dawson Science Corporation
70 East 55th Street 20th Floor
New York, New York 10022
BORROWER:
DAWSON SCIENCE
CORPORATION
By: /s/ Zhi-Jian Wu
Zhi-Jian Wu, President
Notice Address:
70 East 55th Street
20th Floor
New York, New York 10022
Attn.: Zhi-Jian Wu, President
LENDER:
/s/ Ming-Sum Yeung
Mr. Ming-Sum Yeung
Notice Address:
Flat B, 13/F, Block D
Wylie Court
19 Wylie Path
Homantin, Kowloon
Hong Kong
ESCROW AGENT:
BROWN, RUDNICK, FREED
& GESMER, P.C.
By: /s/ John G. Nossiff, Jr.
John G. Nossiff, Jr.
Notice Address:
One Financial Center
Boston, MA 02111
Attn: John G. Nossiff, Jr.
SCHEDULE I
400,000 shares of Convertible Preferred Stock of Dawson Science
Corporation (along with blank stock powers, with signature
guaranteed).
GUARANTY AGREEMENT
W I T N E S S E T H:
WHEREAS, Dawson Science Corporation ("Obligor"), a Nevada
corporation, is entering into a Loan and Security Agreement dated
the date hereof with Mr. Ming-Sum Yeung (the "Lender") pursuant
to which certain loans and other extensions of credit have been
and will be made by the Lender to Obligor (the "Loan and Security
Agreement") and, in connection therewith, is delivering to Lender
a Convertible Promissory Note dated the date hereof (the "Note");
WHEREAS, the undersigned, Zhi-Jian Wu (the "Guarantor"), is
a principal stockholder and an officer of Obligor;
WHEREAS, as a condition to entering into the Loan and
Security Agreement and the Note, and making advances thereunder,
the Lender has required that Guarantor guarantee the full and
prompt payment and performance of all obligations of Obligor to
Lender, including, without limitation, obligations respecting all
loans made under the Loan and Security Agreement and the Note
(the Loan and Security Agreement and the Note are hereinafter
collectively referred to as the "Loan Documents");
WHEREAS, to secure his obligations to the Lender hereunder,
the Guarantor has executed and delivered to the Lender a Stock
Pledge Agreement dated the date hereof under which he has pledged
shares of Borrower to Lender;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in
consideration of any and all loans, advances, and extensions of
credit now or hereafter made or extended by Lender to, for the
account of or on behalf of Obligor pursuant to and under the Loan
Documents and as an inducement for the Lender to make future
loans, advances and extensions of credit to Obligor, Guarantor
hereby unconditionally and absolutely guarantees to Lender the
full and prompt payment and performance by Obligor of all
obligations which Obligor now or hereafter may have to Lender,
whether now existing or hereafter arising, including without
limitation, all obligations which Obligor may now or hereafter
have to Lender under the Loan Documents, as the same may be
amended, extended, modified or renewed and the full and prompt
payment when due, subject to any applicable grace period, of all
principal, interest, charges and all other sums which Obligor may
now or hereafter owe to Lender arising under the Loan Documents
howsoever evidenced, whether secured or unsecured, and hereby
agrees to indemnify Lender against any losses Lender may sustain
and any expenses it may incur as a result of any default by
Obligor under the Loan Documents, or as a result of the
occurrence of any Event of Default under or as defined in the
Loan Documents, and/or as the result of the enforcement or
attempted enforcement by, or on behalf of, the Lender of any of
its rights against the Guarantor hereunder.
This Guaranty is a continuing, unconditional and absolute
guaranty of payment and performance. The obligations of the
Guarantor hereunder are primary, with no recourse necessary by
Lender against the Obligor or any collateral given to secure the
obligations guaranteed hereby prior to proceeding against the
Guarantor hereunder. If for any reason any installment or any
other sum or indebtedness now or hereafter owing by Obligor to
Lender under the Loan Documents shall not be paid promptly when
due, after the expiration of any applicable cure period,
Guarantor will forthwith pay such sum to Lender, without regard
to any counterclaim, set-off, deduction or defense of any kind
which Obligor or Guarantor may have or assert, and without
abatement, suspension, deferment or reduction on account of any
occurrence whatsoever. The Guarantor hereby waives notice of and
consents to all of the provisions of the Loan Documents, to any
amendments thereof, to any actions taken thereunder, and to the
execution by Obligor of the Loan Documents and of any other
agreements, documents and instruments now or hereafter executed
by Obligor in connection therewith. The Guarantor further waives
the following: notice of incurring of indebtedness and
obligations by Obligor; acceptance of this Guaranty by Lender;
presentment and demand for payment, protest, notice of protest
and notice of dishonor or non-payment of any instrument
evidencing the indebtedness or obligations to Obligor; any right
to require suit against Obligor or any other party before
enforcing this Guaranty; any right to have security applied
before enforcing this Guaranty; any right of subrogation to
Lender's rights against Obligor until Obligor's indebtedness and
obligations to Lender are paid in full; all defenses which might
constitute a legal or equitable discharge of a surety or
guarantor; and all other notices and demands otherwise required
by law which the Guarantor may lawfully waive. Guarantor agrees
that in the event this Guaranty is enforced by suit or otherwise,
Guarantor will reimburse Lender upon demand for all expenses
incurred in connection therewith, including without limitation,
reasonable attorneys' fees and expenses.
Guarantor's obligations hereunder shall not be released,
discharged, terminated or impaired in any manner whatsoever,
irrespective of the lack of any notice to or consent of the
Guarantor, by any of the following: (a) new agreements or
obligations of Obligor with or to Lender; (b) amendments,
indulgences, extensions, modifications, renewals or waivers of
default as to any existing or future agreements or obligations of
Obligor or third parties with or to Lender, or extensions of
credit by Lender to Obligor; (c) adjustments, compromises or
releases of any obligations of Obligor, Guarantor or other
parties, including any other guarantors, or exchanges, releases,
dispositions or sales of any security of Obligor, Guarantor or
other parties, including any other guarantors; (d) invalidity,
irregularity, defect, or unenforceability, for any reason, of any
provision of any of the Loan Documents, or of any instrument or
writing, or of any security or other guaranty, or acts or
omissions by Lender or Obligor; (e) failure to perfect any lien
securing the obligations of Obligor, Guarantor or other parties,
including any other guarantors; (f) interruptions in the business
relations between Lender and Obligor; (g) voluntary or
involuntary bankruptcy (including a reorganization in bankruptcy)
of Obligor or entry of an order for relief against or with
respect to the Obligor under Title 11 of the United States Code;
(h) composition, extension, moratoria or other forms of debtor
relief granted to Obligor pursuant to law presently in force or
hereafter enacted; (i) payment of any or all obligations and
indebtedness of Obligor in the event such payment is invalidated
or avoided by a trustee, custodian or receiver of Obligor; j) the
dissolution of Obligor; and (k) the reorganization, merger or
consolidation of Obligor into or with another entity, corporate
or otherwise, or the sale or disposition of all or substantially
all of the capital stock, business or assets of Obligor to any
other person or party.
For the purposes of this Guaranty and indemnity, all sums
owing to Lender by Obligor shall be deemed at Lender's election,
and without notice, to have become immediately due and payable if
Obligor defaults in any of its obligations or indebtedness to
Lender after expiration of any applicable cure period, or if
there shall occur an Event of Default as defined in any of the
Loan Documents, and the Guarantor shall thereupon promptly pay
Lender the entire amount of said indebtedness and obligations of
Obligor, and Lender shall, after the expiration of any applicable
cure period, be entitled to take any action deemed necessary or
advisable to enforce this Guaranty, including, without
limitation, the enjoining of any breach or threatened breach of
this paragraph.
Guarantor represents to Lender that after giving effect to
this Guaranty and the transactions contemplated by the Loan
Documents (and after taking into account all recoveries Lender is
likely to realize from Obligor on Obligor's obligations to
Lender): (i) the aggregate value of all of the assets and
properties of the Guarantor, at a fair valuation, will be greater
than the total amount which Guarantor is likely to be actually
required to pay on claims, including contingent claims; (ii) the
aggregate present fair saleable value of Guarantor's assets will
be greater than the amount that will be required to pay
Guarantor's probable liability on debts, including contingent
liabilities, as they become absolute and mature; (iii) Guarantor
has (and has no reason to believe that he will not have)
sufficient capital for the conduct of his business; and (iv)
Guarantor does not intend to incur, and does not believe that he
has incurred, debts beyond his ability to pay as they mature.
For purposes of any action or proceeding involving this
Guaranty or the Agreements or any other agreement or document
referred to therein, Guarantor hereby expressly submits to the
jurisdiction of all federal and state courts located in the State
of New York and consents that any order, process, notice of
motion or other application to or by any of said courts or a
judge thereof may be served within or without such court's
jurisdiction by registered mail or by personal service.
GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) (I) ANY RIGHT
HE MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR
RELATING TO THIS GUARANTY OR THE AGREEMENTS AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY
AND (II) ANY RIGHT TO CONTEST THE APPROPRIATENESS OF ANY ACTION
BROUGHT IN ANY COURT WITHIN THE JURISDICTION MENTIONED IN THE
PRECEDING PARAGRAPH BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE AND FORUM NON CONVENIENS.
This Guaranty and all terms and conditions hereof shall be
binding upon Guarantor, its successors and assigns, and shall
inure to the benefit of Lender and its successors and assigns.
Legal rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the State of New York.
Wherever the context so requires herein, the singular number
includes the plural, and the plural number includes the singular.
IN WITNESS WHEREOF, Guarantor has executed this instrument
and is effective as of the 3rd day of November, 1997.
WITNESS:
/s/ Andrew Lee /s/ Zhi-Jian Wu
Name: Andrew Lee Zhi-Jian Wu
Address: A3 Appleton Pl
Dobbs Ferry, NY 10522
COUNTY: NY
STATE: NY
On this 3rd day of November, 1997, before me personally
appeared Zhi-Jian Wu, to me known to be the person described in
and who executed the foregoing instrument, and acknowledged that
he executed the same as his free act and deed.
/s/ Fanny Paulits
Name Fanny Paulits
Notary Public State of New York
No. 31-4792957
Qualified in New York County
Commission Expires Nov. 30, 1997
STOCK PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of November 3, 1997, made by
Zhi-Jian Wu, an individual whose address is c/o Dawson Science
Corporation, 70 East 55th Street, 20th Floor, New York, New York
10022 (the "Stockholder"), in favor of Mr. Ming-Sum Yeung (the
"Lender ").
WHEREAS, Dawson Science Corporation ("Obligor"), a Nevada
corporation, is entering into a Loan and Security Agreement dated
as of the date hereof with Lender pursuant to which Lender is
extending credit to Obligor (the "Agreement"), as evidenced by
that certain Convertible Promissory Note (the "Note") dated as of
the date hereof in favor of the Lender;
WHEREAS, the Stockholder has executed and delivered to the
Lender a Guaranty Agreement (the "Guaranty Agreement"), dated as
of the date hereof, pursuant to which the Stockholder has
guaranteed the obligations of the Obligor to the Lender under the
Agreement and the Note;
WHEREAS, the Stockholder owns those shares of capital stock
of Obligor identified on Exhibit I hereto which are pledged to
Lender hereunder;
WHEREAS, the pledge hereunder is intended to secure the
performance of the Stockholder's obligations to the Lender under
the Guaranty Agreement;
WHEREAS, as a condition to the Lender entering into the
Agreement and accepting the Note, and in consideration of all
extensions of credit made and which may in the future be provided
to Obligor by Lender, the Stockholder has agreed to execute and
deliver the Guaranty Agreement and this Pledge Agreement;
NOW, THEREFORE, in consideration of these premises and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the Stockholder hereby agrees for the
benefit of the Lender as follows:
1. Defined Terms. Unless otherwise defined herein, the
following terms shall have the respective meanings set forth
below:
"Collateral" has the meaning specified in Section 2
hereof.
"Event of Default" shall mean failure to pay or perform
any of the Obligations when due, or an Event of Default
under the Agreement or the Note.
"Pledge Agreement" shall mean this Pledge Agreement, as
it may be amended, supplemented or otherwise modified.
"Obligations" shall mean (i) the prompt and complete
payment and performance when due of all of the Stockholder's
obligations under the Guaranty Agreement and the other
instruments and documents relating to or evidencing
obligations of Guarantor to Lender, whether as guarantor or
otherwise (collectively, the "Credit Documents"); (ii) the
prompt and complete payment and performance when due of any
and all other indebtedness, liabilities and obligations of
the Stockholder to the Lender, now existing or hereafter
incurred, direct or indirect, absolute or contingent,
secured or unsecured, matured or unmatured, joint or
several, liquidated or unliquidated.
"Pledged Stock" shall mean all of the shares of capital
stock of Dawson Science Corporation listed on Exhibit I
hereto and any stock, options or rights received by the
Stockholder and subject to Section 3 hereof.
2. Pledge. The Stockholder hereby (a) pledges,
hypothecates, assigns and transfers to Brown, Rudnick, Freed &
Gesmer, Counselors at Law, as escrow agent ("Escrow Agent"), all
of the Pledged Stock to be held by Escrow Agent subject to the
terms of that certain Escrow Agreement dated the date hereof
between Lender, Stockholder and Escrow Agent ("Escrow
Agreement"), and hereby grants to the Lender a lien on, and
security interest in, the Pledged Stock and all proceeds thereof
(which shall be a first lien) and (b) delivers to Escrow Agent
the stock certificates evidencing the Pledged Stock identified on
Exhibit I hereto, together with appropriate undated stock powers
duly executed in blank, all as collateral security for the
payment and performance of the Obligations. All property at any
time pledged to the Lender hereunder (whether described herein or
not) and all income therefrom and proceeds thereof are herein
sometimes collectively called the "Collateral".
3. Dividends, Distributions, etc. If, while this Pledge
Agreement is in effect, the Stockholder becomes entitled to
receive or receives any stock certificate (including, without
limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase or
reduction of capital or issued in connection with any
reorganization), option or rights, whether as an addition to, in
substitution of, or in exchange for, any shares of Pledged Stock
or otherwise, the Stockholder agrees to accept the same as agent
for the Lender, to hold the same in trust on behalf of and for
the benefit of the Lender and to deliver the same forthwith to
the Escrow Agent in the exact form received, with the endorsement
of the Stockholder when necessary and/or appropriate undated
stock or other powers duly executed in blank, to be held by the
Escrow Agent, subject to the terms of the Escrow Agreement, as
additional collateral security for the Obligations. Any sums
paid on or in respect of the Pledged Stock on the liquidation or
dissolution of the issuer thereof shall be paid over to the
Escrow Agent, to be held by the Escrow Agent, subject to the
terms and conditions of the Escrow Agreement, as additional
collateral security for the Obligations; and if any cash
dividends or any other distribution is made on or in respect of
the Pledged Stock or any property is distributed on or with
respect to the Pledged Stock, the cash or other property so
distributed shall be delivered to the Escrow Agent, to be held by
the Escrow Agent, subject to the terms and conditions of the
Escrow Agreement, as additional collateral security for the
Obligations. All sums of money and property so paid or
distributed in respect of the Pledged Stock that are received by
the Stockholder shall, until paid or delivered to the Escrow
Agent, be held by the Stockholder in trust as additional
collateral security for the Obligations.
1. Voting Rights. Prior to any sale of the Pledged Stock,
the Stockholder shall be entitled to vote the Pledged Stock and
to give consents, waivers and ratifications in respect thereof.
2. Rights of the Lender. The Lender shall not be liable
for failure to collect or realize upon the Obligations or any
collateral security or guaranty thereof, or any part thereof, or
for any delay in so doing, nor shall Lender be under any
obligation to take any action whatsoever with regards thereto.
Any or all shares of the Pledged Stock held by the Escrow Agent
hereunder may, if an Event of Default has occurred and is
continuing, and upon written notice by the Lender, be registered
in the name of the Lender or its nominee, for the benefit of the
Lender, and the Lender or its nominee may at any time thereafter,
without notice, exercise all voting and corporate rights of any
issuer of any and all rights of conversion, exchange,
subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if the Lender
were the absolute owner thereof, including (without limitation)
the right to exchange, at its discretion, any and all of the
Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of any such
shares or upon the exercise by any such issuer or the Lender of
any right, privilege or option pertaining to any shares of the
Pledged Stock and, in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee,
depository, transfer agent, registrar or other designated agency
on such terms and conditions as the Lender may determine, all
without liability except to account for property actually
received by it, but the Lender shall have no duty to exercise any
of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing.
3. Unconditional Obligations. The obligations and
liabilities of the Stockholder hereunder shall not be conditioned
or contingent upon the pursuit by the Lender or any other person
at any time of any right or remedy against any other person that
may be or become liable in respect of all or any part of the
Obligations or against any collateral security or guaranty
therefor or right of offset with respect thereto. This Pledge
Agreement shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the
Stockholder until all of the Obligations have been fully
satisfied and the Stockholder shall be free from any present or
future obligations under the Credit Documents.
4. Performance by Lender of Stockholder's Obligations. If
the Stockholder fails to perform or comply with any of its
agreements contained herein and the Lender, as provided for by
the terms of this Pledge Agreement, itself performs or complies,
or otherwise causes performance or compliance, with such
agreement, the reasonable expenses of the Lender incurred in
connection with such performance or compliance shall be borne and
paid by the Stockholder on demand and until so paid shall be
added to the principal amount of the Obligations and shall bear
interest (calculated on the basis of a 360-day year for the
actual days elapsed) from the date incurred until paid at the
highest rate applicable to any of the Obligations.
5. Remedies. If an Event of Default has occurred and is
continuing, then, and in any such event, the Lender may exercise,
in addition to all other rights and remedies granted to it in
this Pledge Agreement and in any other Credit Document, all
rights and remedies of a Lender under the Uniform Commercial Code
or other applicable law. Without limiting the generality of the
foregoing, the Stockholder expressly agrees that in any such
event, the Lender, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or on the
Stockholder or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived,
forthwith collect, receive, appropriate and realize on the
Collateral, or any part thereof, and forthwith sell, assign, give
option or options to purchase, contract to sell or otherwise
dispose of and deliver the Collateral, or any part thereof, in
one or more units, parcels, or lots at one or more public or
private sales, at any exchange or broker's board or at any of the
Lender's offices or elsewhere, on such terms and conditions as it
may deem advisable and at such prices as it may deem appropriate,
for cash or on credit or for future delivery without assumption
of any credit risk, with the right to the Lender upon any such
sale or sales, public or private, to purchase the whole or any
part of said Collateral so sold. Any purchaser at any such sale
or sales shall acquire the property sold absolutely free from any
claim or right on the part of Stockholder, and Stockholder hereby
waives (to the extent permitted by applicable law) all rights,
redemptions, stays and appraisal rights which Stockholder now
has, or may at any time in the future have, under any rule of law
or statute now existing or hereafter enacted. The net proceeds
of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the
care, safekeeping or otherwise of any and all of the Collateral
or in any way relating to the rights of the Lender hereunder,
including reasonable attorneys' fees and legal expenses, shall be
applied to the payment of the Obligations in such order as the
Lender may determine, and, after all of the Obligations have been
paid in full and after payment of any other amount required by
any provision of law, including (without limitation) Section
9-504(l)(c) of the Uniform Commercial Code, the balance (if any)
of such proceeds shall be remitted to the Stockholder or as
otherwise required by a court of competent jurisdiction. To the
extent permitted by applicable law, the Stockholder waives all
claims, damages and demands against the Lender arising out of the
retention or sale of the Collateral unless resulting from such
Lender's willful misconduct. The Stockholder agrees that the
Lender need not give more than ten (10) days' notice (which
notice shall be deemed given on the earlier of mailing or
receipt) of the time and place of any public sale or of the time
after which a private sale or other intended disposition is to
take place and that such notice is reasonable notification of
such matters. No notification need be given to the Stockholder
if it has signed after default a statement renouncing or
modifying any right to notification of sale or other intended
disposition. The Lender may, without notice or publication,
adjourn any public or private sale, or cause such sale to be
adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be
made at the time and place to which such sale is so adjourned.
Stockholder shall remain liable for any deficiency if the net
proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations.
6. Representations and Warranties. The Stockholder
represents and warrants to the Lender that:
(a) the execution, delivery and performance of this
Pledge Agreement, and the granting of liens pursuant hereto,
and the Escrow Agreement have been duly authorized by all
requisite action on its part, and do not require the consent
of any party;
(b) this Pledge Agreement and the Escrow Agreement
have been duly executed and delivered by the Stockholder and
are legal, valid and binding obligations, enforceable
against the Stockholder in accordance with their respective
terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of
creditors' rights generally or by general principles of
equity;
(c) the Stockholder is the record and beneficial owner
of, and has good and valid title to, the Pledged Stock
described on Exhibit I hereto, and it will be owner of, and
have such title to, all other Pledged Stock described in
Section 3 hereof owned by it subject to no lien whatsoever
(except the liens created hereby);
(d) all the shares of Pledged Stock described on
Exhibit I hereto have been, and all shares of Pledged Stock
described in Section 3 hereof will be, duly and validly
issued for good and valuable consideration and are, or will
be, fully paid and non-assessable; and
(e) the pledge, assignment and delivery of the Pledged
Stock described on Exhibit I hereto creates, and the
delivery of any Pledged Stock described in Section 3 hereof
will create, a valid lien on, and perfected security
interest in, such Pledged Stock and the proceeds thereof,
subject to no prior lien or option or any agreement
purporting to grant to any third party a prior lien on the
Stockholder's property or assets that would include such
Pledged Stock.
7. Covenants. The Stockholder covenants and agrees with
the Lender that so long as any Obligations are outstanding:
(a) it will, upon the Lender's written request, defend the
Secured Parties' right, title and first priority security
interest in and to the Pledged Stock and the proceeds
thereof against the claims and demands of all persons
whomsoever;
(b) it will have or obtain promptly good title (subject to
no lien whatsoever, except the liens created by this Pledge
Agreement) to and right to pledge any other property at any
time hereafter pledged to the Lender as collateral security
hereunder and will likewise defend the Lender's right and
title thereto and liens thereon;
(c) it will not sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to
any of the Collateral, nor will it create, incur or permit
to exist any lien with respect to any of the Collateral, any
interest therein or any proceeds thereof (except for the
liens created by this Pledge Agreement); and
(d) it will not vote to enable any issuer of any Pledged
Stock, and will not otherwise agree to permit any issuer of
any Pledged Stock, to merge or consolidate with, or into,
any other corporation or issue any stock or other securities
of any nature in addition to or in exchange or substitution
for any Pledged Stock.
8. Sale of Collateral.
(a) The Stockholder recognizes that the Lender may be
unable to effect a public sale of any or all of the Pledged
Stock by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws and may
be compelled to resort to one or more private sales thereof
to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such securities for
their own accounts for investment and not with a view to the
distribution or resale thereof. The Stockholder
acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the
seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that the private
(rather than public) nature of such sale shall be deemed to
be commercially reasonable. The Lender shall be under no
obligation to delay a sale of any of the Pledged Stock for
the period of time necessary to permit the issuer thereof to
register such securities for public sale under the
Securities Act or under applicable state securities laws,
even if such issuer would agree to do so.
(b) The Stockholder further agrees to do or cause to
be done all such other acts and things required to be done
by it to make such sale or sales of any portion or all of
the Pledged Stock valid and binding and in compliance with
any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts,
arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales,
all at the Stockholder's expense. The Stockholder further
agrees that a breach of any of the covenants contained in
this Section 11 will cause irreparable injury to the Lender,
that the Lender has no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and
every covenant contained in this Section 11 shall be
specifically enforceable against the Stockholder, and the
Stockholder hereby waives (to the extent permitted by
applicable law) and agrees not to assert any defenses
against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred.
9. Further Assurances. The Stockholder agrees that at any
time and from time to time, on the written request of the Lender,
the Stockholder will execute and deliver such further documents
and do such further acts and things as the Lender may reasonably
request in order to effectuate the purposes of this Pledge
Agreement.
10. Limitation on Lender's Duty in Respect of Collateral.
Beyond the safe custody thereof, the Lender shall not have any
duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of it or any income
thereon or as to the preservation of rights against prior parties
or any other rights pertaining thereto.
11. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications related to
this Pledge Agreement to or on the Stockholder or the Lender
shall be in writing (including teletransmissions), and shall be
given or made in accordance with the notice provisions set forth
in the Agreement.
12. Severability. Any provision of this Pledge Agreement
that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
13. No Waiver, Cumulative Remedies. The Lender shall not
by any act, delay, omission or otherwise be deemed to have waived
any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by the Lender, and then only to
the extent therein set forth. A waiver of any right or remedy
hereunder on any occasion shall not be construed as a bar to any
right or remedy that the Lender would otherwise have on any
future occasion. No failure to exercise nor any delay in
exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise of any right,
power or privilege hereunder or the exercise of any other right,
power or privilege. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
14. No Oral Modification, Successors, Governing Law. None
of the terms or provisions of this Pledge Agreement may be
waived, altered, modified or amended except by an instrument in
writing, duly executed by the Lender. This Pledge Agreement and
all obligations of the Stockholder hereunder shall be binding on
its successors and assigns and shall, together with the rights
and remedies of the Lender hereunder, inure to the benefit of the
Lender and its respective successors and assigns. This Pledge
Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York (United
States).
15. Submission to Jurisdiction, Waiver of Trial by Jury.
(a) For purposes of any action or proceeding involving
this Pledge Agreement or any other agreement or document
referred to herein, the Stockholder hereby expressly submits
to the jurisdiction of all federal and state courts located
in the State of New York (United States) and consents that
any order, process, notice of motion or other application to
or by any of said courts or a judge thereof may be served
within or without such court's jurisdiction by registered
mail or by personal service, provided a reasonable time for
appearance is allowed.
16. THE STOCKHOLDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW)
(i) ANY RIGHT HE MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE
ARISING UNDER OR RELATING TO THIS PLEDGE AGREEMENT OR ANY OTHER
DOCUMENT OR AGREEMENT REFERRED TO HEREIN, AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY
and (ii) ANY RIGHT TO CONTEST THE APPROPRIATENESS OF ANY ACTION
BROUGHT WITHIN THE JURISDICTION MENTIONED IN PARAGRAPH (a) OF
THIS SECTION 18 BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS.
Fees and Expenses. Any and all reasonable fees, costs
and expenses of whatever kind or nature, including the reasonable
fees and legal expenses incurred by the Lender's counsel in
connection with the payment or discharge of any taxes, counsel
fees, maintenance fees, encumbrances or otherwise protecting,
maintaining or preserving the Collateral, or in defending or
prosecuting any actions or proceedings arising out of or related
to the Collateral, shall be borne and paid by the Stockholder on
demand and until so paid shall be added to the principal amount
of the Obligations and shall bear interest (calculated on the
basis of 360-day year for the actual days elapsed) from the date
incurred until paid at the highest rate applicable to any of the
Obligations.
17. Termination. This Agreement shall terminate when all
of the Obligor's obligations under the Agreement and the Note
have been fully paid, and all of the Obligations have been fully
paid, at which time Lender shall reassign and deliver to the
Stockholder the Collateral, or such part thereof as shall not
have been sold or otherwise applied by Lender pursuant to the
terms hereof, and shall still be held by Escrow Agent under the
Escrow Agreement, together with appropriate instruments of
reassignment. Any such reassignment shall be without recourse to
or warranty by Lender and at the expense of Stockholder.
18. Counterparts. This Pledge Agreement may be executed in
any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same
instrument.
19. Descriptive Headings. The captions in this Pledge
Agreement are for convenience of reference only and shall not
define or limit the provisions hereof.
IN WITNESS WHEREOF, the Stockholder has caused this Pledge
Agreement to be duly executed and delivered under seal as of the
date first written above.
WITNESS:
/s/ /s/ Zhi-Jian Wu
Zhi-Jian Wu
COUNTY: __________NY_________________
STATE: _____________NY________________
On this ____ day of November, 1997, before me personally
appeared Zhi-Jian Wu, to me known to be the person described in
and who executed the foregoing instrument, and acknowledged that
he executed the same as his free act and deed.
Name
Notary Public
EXHIBIT I
PLEDGED STOCK
Issuer Class of Stock Number of Shares
Dawson Science Convertible 400,000
Corporation Preferred Stock
Exhibit 10.7
BUSINESS LOAN AND SECURITY AGREEMENT
$500,000 September 19, 1997
34. PREAMBLE. Business Loan and Security Agreement made by the
undersigned (the "Borrower") for the benefit of Yeung Shu-kin,
whose address is set forth on the signature page hereto (the
"Lender"), with respect to a loan in the original principal
amount of $500,000 as evidenced by a secured convertible
promissory note in such amount from the Borrower of even date
herewith (the "Note"). Simultaneously with the execution hereof,
as partial consideration to the Lender for making the loan
hereunder, Zhi-Jian Wu, President and a principal stockholder of
Borrower, has delivered the Lender 25,000 shares of Common Stock
of the Borrower (the "Bonus Shares"). Pursuant to a Guaranty
Agreement of even date, Mr. Wu has guaranteed the obligations of
the Borrower hereunder and under the Note, and has pledged
100,000 shares of Convertible Preferred Stock of the Borrower
(the "Pledged Shares") as collateral for his obligations under
the Guaranty Agreement. The Pledged Shares have been delivered
to Brown, Rudnick, Freed & Gesmer, Counselors at Law ("Escrow
Agent"), to be held in Escrow pursuant to that certain Escrow
Agreement of even date between Escrow Agent, Borrower, Lender and
Mr. Wu. In addition, Mr. Wu has pledged a portion of his
ownership interest in Shenzhen Zhenghua Group, Ltd. as additional
collateral to secure his obligations under the Guaranty
Agreement. This Agreement and the Note are hereinafter
collectively referred to as the "Transaction Documents."
35. SECURITY.
(a) As security for Borrower's indebtedness and other
obligations now or at any time hereafter owing by Borrower to
Lender, whether or not any of such are liquidated, unliquidated,
secured, unsecured, direct, indirect, absolute, contingent or of
any other type, nature or description, including without
limitation those arising under this agreement, Borrower hereby
grants Lender a security interest in 5% of the ownership interest
of the Borrower in Shenzhen City Zhenghua Traffic and
Transportation Industrial and Development Company, Ltd.
(b) Borrower has not granted any security interest with
respect to Borrower's collateral hereunder, and such collateral
is free of all liens and encumbrances, except those Borrower is
granting to Lender herein.
36. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to and covenants with Lender as follows:
(a) the execution and delivery of each of the Transaction
Documents has been approved by all required corporate action and
does not violate or contravene any provision of Borrower's
corporate charter documents, by-laws or any other indenture or
contract to which Borrower is a party. Each of the Transaction
Documents is valid, binding and enforceable against Borrower in
accordance with their respective terms, and no consent of any
other party is required in connection with the execution,
delivery, performance or enforceability of any of the Transaction
Documents.
(b) Borrower has filed all federal, state, local and other
tax and similar returns required to be filed and has paid or
provided for the payment of all taxes and assessments due
thereunder.
(c) Borrower and each of the Borrower's subsidiaries is
duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of formation;
(d) any financial statements or projections Borrower has
delivered to Lender are true and correct in all material
respects, and have been prepared in accordance with generally
accepted accounting principles; and there has occurred no
material adverse change in Borrower's or any of its subsidiaries'
business or financial condition since the date of the most
recently delivered financial statements;
(e) there is no litigation pending or threatened against
Borrower or any of its subsidiaries, except as disclosed on
Borrower's financial statements or in a writing delivered to
Lender; and
(f) the issued and outstanding capital stock of the
Borrower is as set forth on Schedule 3(f) hereto, and, except as
set forth on such Schedule, there are no outstanding options,
warrants or other rights to acquire capital stock of the
Borrower.
37. AFFIRMATIVE COVENANTS. So long as any amount is unpaid
hereunder, Borrower will:
(a) keep proper books of account in manner in accordance
with generally accepted accounting principles;
(b) permit, upon written notice and during normal business
hours, inspections and audits by Lender or by Lender's agents of
all books, records and papers in the custody or control of
Borrower or of others relating to any security for the
obligations hereunder or Borrower's or any of its subsidiaries
financial or business condition, including the making of copies
thereof and abstracts therefrom and inspection and appraisal of
any of Borrower's or its subsidiaries' assets;
(c) at the request of the Lender, deliver to Lender
financial information in such form and detail and at such times
as are satisfactory to Lender, including, without limitation,
Borrower's quarterly financial statements;
(d) promptly pay all taxes, assessments and other
governmental charges due from Borrower or its subsidiaries;
provided however, that nothing herein contained shall be
interpreted to require the payment of any such tax so long as its
validity is being contested in good faith and Borrower maintains
adequate reserves with respect to such tax;
(e) keep adequately insured at all times with responsible
insurance carriers against liability on account of damage to
persons or property;
(f) promptly inform Lender of the commencement of any
action, suit, proceeding or investigation against Borrower or any
of its subsidiaries, or the making of any counterclaim against
Borrower or any of its subsidiaries in any action, suit or
proceeding and of all liens against any of Borrower's or any of
its subsidiaries' property, and of the occurrence of any default
hereunder;
(g) pay all indebtedness to Lender and to third parties
when due; and
(h) maintain Borrower's and each of its subsidiaries'
corporate existence, comply with all applicable laws and
regulations and maintain all property useful and necessary in
Borrower's business in good repair and operating condition,
ordinary wear and tear excepted.
38. NEGATIVE COVENANTS. So long as any amount is unpaid
hereunder, Borrower will not, without Lender's prior written
consent:
(a) create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien or other encumbrance upon any of
the collateral hereunder, except in Lender's favor;
(b) sell, convey, lease or transfer any of Borrower's
assets other than in the ordinary course of business, or merge or
consolidate with or into any other company or corporation, except
with Lender's written consent;
(c) become a guarantor, surety or otherwise become liable
for the debts or other obligations of any person, firm or
corporation, except as an endorser of instruments for the payment
of money deposited to Borrower's account for collection in the
ordinary course of business;
(d) make any investments in or loans or advances to any
other person, firm or corporation (including, without limitation,
loans or advances to officers, partners or employees of Borrower
or any of its subsidiaries) except direct obligations of the
United States of America;
(e) purchase any of its capital stock or declare any
dividends thereon, without the written consent of Lender; and
(f) change the form in which Borrower conducts its
business, the location of such business, or the nature of the
business as conducted by Borrower on the date of this Agreement
or fail to maintain its business operation as a going concern.
39. DEFAULT. In addition to, and not by way of limitation of,
any of Lender's other rights hereunder, the entire unpaid balance
of all of Borrower's indebtedness to Lender, whether under this
Agreement, the Note or under any other instrument, document or
agreement with Lender, may be declared to be immediately due and
payable at Lender's sole election upon the happening of any one
of the following specified events of default (each an "Event of
Default"):
(a) Borrower's failure to make any payment when due
hereunder or under the Note, or to pay or perform any other
obligation to Lender, now existing or hereafter arising;
(b) Borrower's failure to pay any indebtedness to any
others when due, except where Borrower is reasonably and in good
faith asserting a legal defense in respect of its failure to pay
any such indebtedness when due;
(c) if any representation, warranty, statement or
certificate made to Lender by Borrower proves to have been or
becomes untrue;
(d) any change in the ownership of capital stock in the
Borrower which results in a change of control of the Borrower;
(e) with respect to the Borrower or any of its
subsidiaries, the commencement, whether voluntary or involuntary,
of a case under the United States Bankruptcy Code or any other
proceeding or action seeking reorganization, liquidation,
dissolution or other relief under federal bankruptcy or
insolvency statutes or similar laws, or seeking the appointment
of a receiver, trustee or custodian for the Borrower or all or a
part of Borrower's assets;
(f) if Borrower or any of its subsidiaries makes an
assignment for the benefit of creditors, or is unable to pay
debts as they mature; or
(g) any such event occurs with respect to any guarantor or
endorser of Borrower's obligations to Lender.
40. ADDITIONAL REMEDIES. Upon demand of payment of all amounts
due hereunder, or upon the occurrence of any Event of Default and
at any time thereafter, Lender shall have all of the rights and
remedies of a secured party upon default under the New York
Uniform Commercial Code, in addition to which Lender shall have
all of the following rights and remedies:
(a) to take possession and dispose of the collateral;
(b) the proceeds of any collection of the collateral shall
be applied toward any of Borrower's loan or loans in such order
and manner as Lender determines in Lender's sole discretion.
Borrower shall remain liable to Lender for any deficiency
remaining following such applications; and
41. FEES AND EXPENSES. Simultaneously with the execution
hereof, Borrower has paid Lender an origination fee equal to 3%
of the principal amount of the Note. Such origination fee has
been directly deducted from the proceeds of the loan delivered to
the Borrower, so that the proceeds delivered to the Borrower were
net of the origination fee. Borrower will reimburse Lender
promptly for any fees payable to the appropriate public officer
to perfect any lien or other security interest taken to secure
any indebtedness created pursuant hereto, or the premium, not in
excess of such filing fee, payable for insurance in lieu of such
filing. Borrower shall pay on demand all of Lender's expenses,
including, without limitation, attorneys' fees and disbursements,
incurred in connection with the loan made hereunder, and all
expenses which Lender may hereafter incur in connection with the
protection or enforcement of any of Lender's rights against
Borrower, any collateral, and any guarantor of Borrower's
obligations to Lender.
42. EQUITY PARTICIPATION. As additional consideration to the
Lender for making the loan hereunder, concurrently with the
execution and delivery of this Agreement, Zhi-Jian Wu, President
and a principal stockholder of the Borrower, has transferred to
the Lender 25,000 shares of Common Stock of the Borrower (the
"Bonus Shares").
43. REGISTRATION RIGHTS. At any time the Borrower proposes to
file a registration statement under the Act with respect to any
capital stock of the Borrower on any form, other than forms S-4
or S-8 or their then equivalents, then, the Borrower shall give
written notice of such proposed filing to the Lender at least
forty-five (45) days before the anticipated filing date, and such
notice shall offer to the Lender the opportunity to include in
such registration statement the number of Registrable Securities
(defined herein) which Lender may request. The Borrower shall
cause the managing underwriter of a proposed offering to offer
such shares of capital stock on the same terms and conditions as
the capital stock to be included therein by the Borrower. For
purposes of this Agreement, "Registrable Securities" means the
Bonus Shares, the Pledged Shares, and the shares of Common Stock
issuable or transferred pursuant to the Note.
Any permitted assignee of Lender shall also have the
registration rights granted hereunder with respect to Registrable
Securities acquired from Lender. References to Lender in this
Agreement shall include permitted assignees of the Lender.
Additional Obligations of the Borrower. Whenever the
Borrower is required to register shares of capital stock pursuant
to a request of the Lender hereunder, the Borrower shall:
(i) prepare for filing with the Securities and Exchange
Commission a registration statement, including a prospectus and
exhibits, amendments and supplements thereto and, prior to such
filing, furnish the same to Lender for review and comment;
(ii) file the registration statement with the Securities and
Exchange Commission and use commercially reasonably efforts to
cause such registration statement to become effective and remain
effective as provided herein;
(iii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to said registration
statement and the prospectus used in connection therewith as may
be necessary to keep said registration statement effective and to
comply with the provisions of the Act with respect to the sale of
securities covered by said registration statement for the period
necessary to complete the proposed public offering, subject to
the terms hereof;
(iv) furnish to Lender such copies of the registration
statement including the preliminary and final prospectus and
copies of all exhibits, amendments and supplements thereto, as
well as such other documents as Lender may reasonably request to
facilitate the proposed public offering of capital stock;
(v) to use its best efforts to register or qualify the
capital stock covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as Lender may
request.
(vi) permit Lender and its counsel and other representatives
to inspect and copy such corporate documents and records as may
reasonably be requested by them;
(vii) furnish to Lender a copy of all documents filed
and all correspondence from or to the Securities and Exchange
Commission in connection with any such offering;
(viii) pay all expenses in connection with such
registration and offering (other than the fees and expenses of
Lender's counsel, if any), except that Lender shall bear all
underwriting commissions attributable to his or its shares so
registered; and
(ix) use its best efforts to file on a timely basis with the
Securities and Exchange Commission such information as the
Borrower may be obligated to file under Sections 13 or 15(d) of
the Securities Exchange Act of 1934, as then amended and in
effect.
Indemnification. Incident to any registration statement,
including any preliminary prospectus, prospectus, or any
amendments or supplements thereto (the "Registration Statement"),
or any application for exemption filed by the Borrower which
includes Registrable Securities, the Borrower will indemnify
Lender and its officers, directors, employees, stockholders,
partners and agents, as applicable, against all claims, losses,
damages and liabilities, including legal and other expenses
incurred in investigating or defending against the same, arising
out of any untrue statement of a material fact contained therein,
or by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or arising out of any violation by the Borrower of
the Act, any state securities or "blue-sky" laws or any rule or
regulation thereunder in connection with such registration or
sale, except insofar as the same may have been caused by an
untrue statement or omission based upon, and in conformity with,
information furnished in writing to the Borrower by Lender
expressly for use therein.
Promptly after receipt by Lender or any of its respective
officers, directors, employees, stockholders, partners or agents,
of notice of the assertion or commencement of any action in
respect of which indemnity may be sought against the Borrower,
Lender shall notify the Borrower in writing of the assertion or
commencement thereof, and, subject to the provisions hereinafter
stated, the Borrower shall assume the defense of such action
(including the employment of counsel and the payment of all fees
and expenses) insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the
Borrower. Lender and its officers, directors, employees,
stockholders, partners and agents, as the case may be, shall have
the right to employ separate counsel in any such action and to
participate in the defense thereof, provided that the Borrower
shall have the right to control any such litigation, but the fees
and expenses of such separate counsel shall not be at the expense
of the Borrower unless the employment of such counsel has been
specifically authorized by the Borrower or unless counsel
retained by the Borrower has, in the reasonable opinion of
Lender's counsel, a conflict of interest with respect to its
representation of Lender. The Borrower shall not be liable to
indemnify any person for any settlement of any such action
effected without the Borrower's consent.
Contribution. If the indemnification provided for herein is
unavailable to an indemnified party thereunder (other than by
reason of exceptions provided therein) in respect of any claims,
losses, damages or liabilities, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified
party as a result of such claims, losses, damages or liabilities,
in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified party in
connection with the actions, statements or omissions which
resulted in such claims, losses, damages or liabilities, as well
as any other relevant equitable considerations. The relative
fault of such indemnifying party and such indemnified party shall
be determined by reference to, among other things, whether any
action in question, including any untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or
relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action, statement or omission.
The parties hereto agree that it would not be just and
equitable if contribution hereunder were determined by pro rata
allocation or by any other method of allocation which does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the
Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
44. WAIVER, CUMULATIVE REMEDIES. No delay or omission by Lender
in exercising or enforcing any of Lender's rights or remedies
shall operate as, or constitute a waiver thereof. No waiver by
Lender of any event of default or of any default under any other
agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No exercise of any of
Lender's rights and remedies and no other agreement or
transaction of whatever nature entered into between Borrower and
Lender at any time, shall preclude any other exercise of Lender's
rights and remedies. No waiver by Lender of any of Lender's
rights and remedies on any one occasion shall be deemed a waiver
on any subsequent occasion, nor shall it be deemed a continuing
waiver. All of Lender's rights and remedies hereunder, and all
of Lender's rights and remedies, power, privileges, and
discretion under any other agreement or transaction are
cumulative and not alternative or exclusive and may be exercised
by Lender at such time or times and in such order of preference
as Lender in Lender's sole discretion may determine.
45. [RESERVED].
46. MISCELLANEOUS INFORMATION. It is agreed that references to
"Lender" shall mean the undersigned Lender and his/her heirs or
assigns, and references to "Borrower" or "the undersigned" shall
mean the undersigned Borrower and its successors and assigns.
Borrower will, in manner satisfactory to Lender, furnish other
documentation of a type and in such form as Lender may request
from time to time to further evidence or perfect the agreements
contemplated hereby.
47. APPLICABLE LAW. This agreement shall be construed and
interpreted in accordance with the laws of the State of New York,
without regard to the choice of law provisions thereof .
IN WITNESS WHEREOF, the Borrower and the Lender have executed
this Agreement as of the date first above written.
DAWSON SCIENCE CORPORATION
By: /s/Zhi-Jian Wu
Zhi-Jian Wu, President,
duly authorized
LENDER:
/s/ Yeung Shu-Kin
Name: Yeung Shu-Kin
Address: Unit 1-2, 1/F
Join In Hang Sing Centre
71-75 Container Port Road
Kwai Chung, N.T.
Hong Kong
SCHEDULE 3(f)
Issued and outstanding capital stock and options, warrants
and other rights to acquire capital stock:
1. 13,000,000 shares of Common Stock are issued and
outstanding. 2,100,000 shares of Convertible Preferred Stock are
issued and outstanding. Each share of Convertible Preferred
Stock is convertible into five (5) shares of Common Stock. No
other shares of capital stock are issued and outstanding.
2. There are no outstanding options, warrants or other
rights to acquire capital stock of the Borrower.
CONVERTIBLE
PROMISSORY NOTE
$500,000 Dawson Science Corporation
September 19, 1997
FOR VALUE RECEIVED, the undersigned, Dawson Science Corporation,
with a principal place of business at 70 East 55th Street, 20th
Floor, New York, New York 10022 ("Maker"), hereby promises to pay
to the order of Yeung Shu-kin whose address is Unit 1-2 1/F, Join
In Hang Sing Centre, 71-75 Container Port Road, Kwai Chung, N.T.,
Hong Kong ("Holder"), the sum of five hundred thousand (U.S.
$500,000) Dollars together with interest on the unpaid principal
amount from time to time outstanding at a rate per annum equal to
twelve (12%) percent. Interest shall be payable on monthly in
arrears, commencing October 15, 1997. The entire balance of
principal, accrued but unpaid interest, and other fees and
charges shall be due and payable on the earlier of (1) one
hundred eighty (180) days from the date hereof (the "Maturity
Date") or (2) the occurrence of an Event of Default, as defined
below.
48. Interest. Interest and fees shall be calculated on the
basis of a 360-day year times the actual number of days elapsed.
In no event shall interest payable hereunder exceed the highest
rate permitted by applicable law. To the extent any interest
received by Holder exceeds the maximum amount permitted, such
payment shall be credited to principal, and any excess remaining
after full payment of principal shall be refunded to Maker.
49. Prepayment/Default Penalties. The principal balance of
this note may be paid at any time without penalty. Upon the
occurrence of an Event of Default and until such Event of Default
has been cured, the Holder shall be entitled to receive the
following penalty payments (in addition to regular interest
payments): (1) payment in cash, computed on a daily basis, at a
rate per annum equal to twelve (12%) percent of outstanding
principal and accrued interest and (2) 2,500 shares of Common
Stock of Maker (the "Default Shares") for each thirty (30) day
period, or any part thereof, during which there exists an Event
of Default. In the event the Lender is entitled to Default
Shares hereunder, Zhi-Jian Wu, President of Maker, shall, subject
to the terms hereof, transfer the Default Shares to the Lender.
In order to satisfy any obligation to the Lender hereunder or
under the Guaranty Agreement between Mr. Wu and Lender of even
date herewith, Mr. Wu has delivered an aggregate of 100,000
shares of Preferred Stock of Maker standing in his name to Brown,
Rudnick, Freed & Gesmer, Counselors at Law, as escrow agent (the
"Escrow Agent") to be held pursuant to that certain Escrow
Agreement between Escrow Agent, Mr. Wu, and Lender of even date
("Escrow Agreement").
50. Costs and Expenses. Maker agrees to pay all costs and
expenses, including, without limitation, reasonable attorneys'
fees and expenses incurred, or which may be incurred, by Holder
in connection with the enforcement and collection of this Note
and any other agreements, instruments and documents executed in
connection herewith.
51. Waivers. Maker and all guarantors and endorsers hereby
waive presentment, demand, notice, protest, and all other demands
and notices in connection with the delivery, acceptance,
performance and enforcement of this Note, and assent to
extensions of the time of payment or forbearance or other
indulgence without notice. No delay or omission of Holder in
exercising any right or remedy hereunder shall constitute a
waiver of any such right or remedy. A waiver on one occasion
shall not operate as a bar to or waiver of any such right or
remedy on any future occasion.
52. Events of Default. The entire unpaid principal and
interest balance shall, at the option of the Holder, become
immediately due and payable, without notice or demand, upon the
occurrence of any of the following events (an "Event of
Default"):
(a) failure to make any payment herein provided within
five (5) days of the due date.
(b) the making of an assignment for the benefit of
creditors, trust mortgage, or composition with
creditors or other arrangement of similar import by the
Maker or any guarantor or endorser of this Note; the
commencement of any voluntary proceedings under any
bankruptcy or insolvency law, now or hereafter enacted,
by the Maker or any guarantor or endorser; the
commencement of any involuntary proceedings under any
bankruptcy or insolvency laws now or hereafter enacted
which are not discharged within 60 days after the
filing thereof, by or against the Maker or any
guarantor or endorser of the undersigned.
(c) All payments due hereunder shall be made at the
address of the Holder as set forth below, or at such
other place as the Holder may designate from time to
time in writing.
53. [RESERVED].
54. Convertibility of Note. At any time after the Maturity
Date and prior to repayment in full of all amounts due hereunder,
the original principal amount of this Note (and all accrued but
unpaid interest thereon and any costs and expenses payable
hereunder) shall at the option of the Holder be convertible into
that number of fully-paid nonassessable shares of Common Stock of
the Maker (the "Shares") equal to the quotient of (i) the
original principal amount of this Note (and all accrued but
unpaid interest thereon and any costs and expenses payable
hereunder) and (ii) fifty percent (50%) of the average closing
bid price of the Common Stock, as quoted on the National
Association of Securities Dealers Inc.'s OTC Bulletin Board,
during the five (5) trading days immediately preceding the date
of conversion (the "Conversion Price").
55. Conversion of Note. Subject to Section 7, the
conversion rights represented by this Note may be exercised in
whole, but not in part, by the surrender of this Note and the
duly executed Notice of Conversion (the form of which is attached
as Exhibit A) at the principal office of the Maker. Upon
conversion, the Holder shall be entitled to receive, within a
reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct,
for the number of Shares so acquired. The Shares so acquired
shall be deemed to be issued as of the close of business on the
date on which this Note shall have been converted. Subsequent to
the conversion of this Note, the penalty provisions of paragraph
2 of this Note shall no longer be applicable.
56. Shares to be Issued; Reservation of Shares. The Maker
covenants that the Shares issuable upon the conversion of this
Note will, upon issuance in accordance herewith, be fully paid
and non-assessable, and free from all liens and charges with
respect to the issue thereof. During the period within which the
conversion rights represented by the Note may be exercised, the
Maker will at all times have authorized and reserved, for the
purpose of issuance upon exercise of the conversion rights
represented by this Note, a sufficient number of shares of its
Common Stock to provide for the exercise of the conversion right
represented by this Note.
57. No Fractional Shares. No fractional shares shall be
issued upon the conversion of this Note. In lieu thereof, a cash
payment shall be made equal to such fraction multiplied by the
fair market value of such shares of Common Stock, as determined
in good faith by the Maker's Board of Directors.
58. Adjustments of Conversion Price and Number of Shares.
If there shall be any change in the Common Stock of the Maker
through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split or other change in the corporate
structure of the Maker, appropriate adjustments shall be made by
the Board of Directors of the Maker (or if the Maker is not the
surviving corporation in any such transaction, the Board of
Directors of the surviving corporation) in the aggregate number
and kind of shares subject to this Note, and the number and kind
of shares and the price per share then applicable to shares
covered by this Note.
59. No Rights as Shareholders. This Note does not entitle
the Holder to any voting rights or other rights as a shareholder
of the Maker prior to conversion and surrender of this Note.
Notwithstanding the foregoing, the Maker agrees, upon the request
of the Holder, to transmit to the Holder such information,
documents and reports as are generally distributed to holders of
the capital stock of the Maker. Upon valid conversion and
surrender of this Note in accordance with the terms hereof, the
Holder or the Holder's designee, as the case may be, shall be
deemed a shareholder of the Maker.
60. Sale or Transfer of the Note and the Shares; Legend.
For purposes hereof, the "Shares" include the Default Shares (to
the extent "restricted" under Rule 144 of the Securities Act of
1933, as amended) and the shares issuable upon conversion of this
Note. The Note and the Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the
Act and applicable State Securities laws, or (ii) such sale or
transfer is exempt from the registration requirements of the Act
and applicable State Securities laws. Each certificate
representing any Shares shall bear a legend substantially in the
following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
Such Shares may be subject to additional restrictions on transfer
imposed under applicable state and federal securities law.
61. Modifications and Waivers. This Note may not be
changed, waived, discharged or terminated except by an instrument
in writing signed by the party against which enforcement of the
same is sought.
62. Notices. Any notice, request or other document
required or permitted to be given or delivered to the Holder or
the Maker shall be delivered, or shall be sent by certified or
registered mail, postage prepaid, to the Holder at its address
shown on the books of the Maker or in the case of the Maker, at
the address indicated above, or, if different, at the principal
office of the Maker.
63. Loss, Theft, Destruction or Mutilation of Note. The
Maker covenants with the Holder that upon its receipt of evidence
reasonably satisfactory to the Maker of the loss, theft,
destruction or mutilation of this Note or any stock certificate
and, in the case of any such loss, theft or destruction, and upon
surrender and cancellation of this Note or stock certificate, if
mutilated, the Maker will make and deliver a new Note or stock
certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Note or stock certificate.
64. Representations and Warranties of Holder. By accepting
this Note, the Holder represents and warrants that he, she or it
is acquiring this Note and the Shares for his, her or its own
account, for investment and not with a view to, or for sale in
connection with, any distribution thereof or any part thereof.
Holder represents and warrants that he, she or it (a) is an
"accredited investor" as defined in Appendix A hereto (only
applicable to U.S. residents), (b) is experienced in the
evaluation of businesses similar to the Maker, (c) has such
knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in
the Maker, (d) has the ability to bear the economic risks of an
investment in the Maker, and (e) has been afforded the
opportunity to ask questions of and to receive answers from the
officers of the Maker and to obtain any additional information
necessary to make an informed investment decision with respect to
an investment in the Maker.
65. Binding Effect on Successors. This Note shall be
binding upon any corporation succeeding the Maker by merger,
consolidation or acquisition of all or substantially all of the
Maker's assets, and all of the obligations of the Maker relating
to the Shares issuable upon conversion of this Note shall survive
the conversion and termination of this Note and all of the
covenants and agreements of the Maker shall inure to the benefit
of the successors and assigns of the Holder.
66. Governing Law. This Note shall be construed and
enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New York, without regard
to the choice of law principals thereof.
IN WITNESS WHEREOF, DAWSON SCIENCE CORPORATION has caused
this Note to be executed by its officer thereunto duly
authorized.
ORIGINAL ISSUANCE DATE: September 19, 1997
WITNESS: DAWSON SCIENCE CORPORATION
/s/ Andrew Lee By: /s/ Zhi-Jian Wu
Name: Zhi-Jian Wu,
President,
Address: 43 Appleton Pl. duly authorized
Dobbs Ferry, NY 10522
USA
/s/Zhi-Jian Wu
Zhi-Jian Wu, individually, only
with respect to Paragraph 2 hereof
NOTARIZATION
County: New York
State: New York
On this 19 day of September, 1997, before me personally
appeared Zhi-Jian Wu, to me known to be the person described in
and who executed the foregoing instrument, and acknowledged that
he executed the same as his free act and deed.
/s/ Fanny Paulits
Notary Public
My Commission Expires: Nov. 30, 1997
EXHIBIT A
NOTICE OF CONVERSION
To: DAWSON SCIENCE CORPORATION
1. The undersigned hereby elects to convert the attached
Note into _____ shares of Common Stock of DAWSON SCIENCE
CORPORATION pursuant to the terms of the attached Note, and
tenders herewith the Note for cancellation.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name
or names as are specified below.
3. The undersigned represents that the aforesaid shares of
Common Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling
such shares. The undersigned further represents that such shares
shall not be sold or transferred unless either (i) they first
shall have been registered under applicable state securities laws
or (ii) or an exemption from applicable state registration
requirements is available.
(Name)
(Address)
(Signature)
(Date)
APPENDIX A
[For U.S. Residents Only]
An "Accredited Investor" within the meaning of Regulation D under
the Securities Act of 1933 includes the following:
Organizations
(1) A bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in
section 3(a)(5)(A) of the Act, whether acting in its individual
or fiduciary capacity; a broker or dealer registered pursuant to
section 15 of the Securities Exchange Act of 1934; insurance
company as defined in section 2(13) of the Act; an investment
company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of
that act; a Small Business Investment Company licensed by the U.
S. Small Business Administration under section 301 (c) or (d) of
the Small Business Investment Act of 1958; an employee benefit
plan within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, if the investment decision is made
by a plan fiduciary, as defined in section 3(21), of such act,
which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by
persons that are accredited investors.
(2) A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000,
(ii) not formed for the specific purpose of acquiring the
Securities, (iii) whose purchase is directed by a person who,
either alone or with his purchaser representative, has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an
organization described in section 501(c)(3) of the Internal
Revenue Code, which was not formed for the specific purpose of
acquiring the Securities, and which has total assets in excess of
$5,000,000.
Individuals
(5) Individuals with income from all sources for each of
the last two full calendar years whose reasonably expected income
for this calendar year exceeds either of:
(i) $200,000 individual income; or
(ii) $3 00,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated
by adding to your adjusted gross income as calculated for Federal
income tax purposes any deduction for long term capital gains,
any deduction for depletion allowance, any exclusion for tax
exempt interest and any losses of a partnership allocated to you
as a partner.
(6) Individuals with net worth as of the date hereof
(individually or jointly with your spouse), including the value
of home, furnishings, and automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of
the Issuer.
STOCK PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of September 19, 1997, made by
Zhi-Jian Wu, an individual whose address is c/o Dawson Science
Corporation, 70 East 55th Street, 20th Floor, New York, New York
10022 (the "Stockholder"), in favor of Yeung Shu-kin (the
"Lender").
WHEREAS, Dawson Science Corporation ("Obligor"), a Nevada
corporation, is entering into a Loan and Security Agreement dated
as of the date hereof with Lender pursuant to which Lender is
extending credit to Obligor (the "Agreement"), as evidenced by
that certain Convertible Promissory Note (the "Note") dated as of
the date hereof in favor of the Lender;
WHEREAS, the Stockholder has executed and delivered to the
Lender a Guaranty Agreement (the "Guaranty Agreement"), dated as
of the date hereof, pursuant to which the Stockholder has
guaranteed the obligations of the Obligor to the Lender under the
Agreement and the Note;
WHEREAS, the Stockholder owns those shares of capital stock
of Obligor identified on Exhibit I hereto;
WHEREAS, the pledge hereunder is intended to secure the
performance of the Stockholder's obligations to the Lender under
the Guaranty Agreement;
WHEREAS, to further secure Stockholder's Obligations to
Lender under the Guaranty Agreement, Stockholder has pledged to
Lender a portion of his ownership interest in Shenzhen Zhenghua
Group, Ltd.;
WHEREAS, as a condition to the Lender entering into the
Agreement and accepting the Note, and in consideration of all
extensions of credit made and which may in the future be provided
to Obligor by Lender, the Stockholder has agreed to execute and
deliver the Guaranty Agreement and this Pledge Agreement;
NOW, THEREFORE, in consideration of these premises and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the Stockholder hereby agrees for the
benefit of the Lender as follows:
67. Defined Terms. Unless otherwise defined herein, the
following terms shall have the respective meanings set forth
below:
"Collateral" has the meaning specified in Section 2 hereof.
"Event of Default" shall mean failure to pay or perform any
of the Obligations when due, or an Event of Default under the
Agreement or the Note.
"Pledge Agreement" shall mean this Pledge Agreement, as it
may be amended, supplemented or otherwise modified.
"Obligations" shall mean (i) the prompt and complete payment
and performance when due of all of the Stockholder's obligations
under the Guaranty Agreement and the other instruments and
documents relating to or evidencing obligations of Guarantor to
Lender, whether as guarantor or otherwise (collectively, the
"Credit Documents"); (ii) the prompt and complete payment and
performance when due of any and all other indebtedness,
liabilities and obligations of the Stockholder to the Lender, now
existing or hereafter incurred, direct or indirect, absolute or
contingent, secured or unsecured, matured or umnatured, joint or
several, liquidated or unliquidated.
"Pledged Stock" shall mean all of the shares of capital
stock of Dawson Science Corporation listed on Exhibit I hereto
and any stock, options or rights received by the Stockholder and
subject to Section 3 hereof.
68. Pledge. The Stockholder hereby (a) pledges,
hypothecates, assigns and transfers to Brown, Rudnick, Freed &
Gesmer, Counselors at Law, as escrow agent ("Escrow Agent"), all
of the Pledged Stock to be held by Escrow Agent subject to the
terms of that certain Escrow Agreement dated the date hereof
between Lender, Stockholder and Escrow Agent ("Escrow
Agreement"), and hereby grants to the Lender a lien on, and
security interest in, the Pledged Stock and all proceeds thereof
(which shall be a first lien) and (b) delivers to Escrow Agent
the stock certificates evidencing the Pledged Stock identified on
Exhibit I hereto, together with appropriate undated stock powers
duly executed in blank, all as collateral security for the
payment and performance of the Obligations. All property at any
time pledged to the Lender hereunder (whether described herein or
not) and all income therefrom and proceeds thereof are herein
sometimes collectively called the "Collateral".
69. Dividends, Distributions, etc. If, while this Pledge
Agreement is in effect, the Stockholder becomes entitled to
receive or receives any stock certificate (including, without
limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase or
reduction of capital or issued in connection with any
reorganization), option or rights, whether as an addition to, in
substitution of, or in exchange for, any shares of Pledged Stock
or otherwise, the Stockholder agrees to accept the same as agent
for the Lender, to hold the same in trust on behalf of and for
the benefit of the Lender and to deliver the same forthwith to
the Escrow Agent in the exact form received, with the endorsement
of the Stockholder when necessary and/or appropriate undated
stock or other powers duly executed in blank, to be held by the
Escrow Agent, subject to the terms of the Escrow Agreement, as
additional collateral security for the Obligations. Any sums
paid on or in respect of the Pledged Stock on the liquidation or.
dissolution of the issuer thereof shall be paid over to the
Escrow Agent, to be held by the Escrow Agent, subject to the
terms and conditions of the Escrow Agreement, as additional
collateral security for the Obligations; and if any cash
dividends or any other distribution is made on or in respect of
the Pledged Stock or any property is distributed on or with
respect to the Pledged Stock, the cash or other property so
distributed shall be delivered to the Escrow Agent, to be held by
the Escrow Agent, subject to the terms and conditions of the
Escrow Agreement, as additional collateral security for the
Obligations. All sums of money and property so paid or
distributed in respect of the Pledged Stock that are received by
the Stockholder shall, until paid or delivered to the Escrow
Agent, be held by the Stockholder in trust as additional
collateral security for the Obligations.
70. Voting Rights. Prior to any sale of the Pledged
Stock, the Stockholder shall be entitled to vote the Pledged
Stock and to give consents, waivers and ratifications in respect
thereof.
71. Rights of the Lender. The Lender shall not be liable
for failure to collect or realize upon the Obligations or any
collateral security or guaranty thereof, or any part thereof, or
for any delay in so doing, nor shall Lender be under any
obligation to take any action whatsoever with regards thereto.
Any or all shares of the Pledged Stock held by the Escrow Agent
hereunder may, if an Event of Default has occurred and is
continuing, and upon written notice by the Lender, be registered
in the name of the Lender or its nominee, for the benefit of the
Lender, and the Lender or its nominee may at any time thereafter,
without notice, exercise all voting and corporate rights of any
issuer of any and all rights of conversion, exchange,
subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if the Lender
were the absolute owner thereof, including (without limitation)
the right to exchange, at its discretion, any and all of the
Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of any such
shares or upon the exercise by any such issuer or the Lender of
any right, privilege or option pertaining to any shares of the
Pledged Stock and, in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee,
depository, transfer agent, registrar or other designated agency
on such terms and conditions as the Lender may determine, all
without liability except to account for property actually
received by it, but the Lender shall have no duty to exercise any
of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing.
72. Unconditional Obligations. The obligations and
liabilities of the Stockholder hereunder shall not be conditioned
or contingent upon the pursuit by the Lender or any other person
at any time of any right or remedy against any other person that
may be or become liable in respect of all or any part of the
Obligations or against any collateral security or guaranty
therefor or right of offset with respect thereto. This Pledge
Agreement shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the
Stockholder until all of the Obligations have been fully
satisfied and the Stockholder shall be free from any present or
future obligations under the Credit Documents.
73. Performance by Lender of Stockholder's Obligations. If
the Stockholder fails to perform or comply with any of its
agreements contained herein and the Lender, as provided for by
the terms of this Pledge Agreement, itself performs or complies,
or otherwise causes performance or compliance, with such
agreement, the reasonable expenses of the Lender incurred in
connection with such performance or compliance shall be bome and
paid by the Stockholder on demand and until so paid shall be
added to the principal amount of the Obligations and shall bear
interest (calculated on the basis of a 360-day year for the
actual days elapsed) from the date incurred until paid at the
highest rate applicable to any of the Obligations.
74. Remedies. If an Event of Default has occurred and is
continuing, then, and in any such event, the Lender may exercise,
in addition to all other rights and remedies granted to it in
this Pledge Agreement and in any other Credit Document, all
rights and remedies of a Lender under the Uniform Commercial Code
or other applicable law. Without limiting the generality of the
foregoing, the Stockholder expressly agrees that in any such
event, the Lender, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or on the
Stockholder or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived,
forthwith collect, receive, appropriate and realize on the
Collateral, or any part thereof, and forthwith sell, assign, give
option or options to purchase, contract to sell or otherwise
dispose of and deliver the Collateral, or any part thereof, in
one or more units, parcels, or lots at one or more public or
private sales, at any exchange or broker's board or at any of the
Lender's offices or elsewhere, on such terms and conditions as it
may deem advisable and at such prices as it may deem appropriate,
for cash or on credit or for future delivery without assumption
of any credit risk, with the right to the Lender upon any such
sale or sales, public or private, to purchase the whole or any
part of said Collateral so sold. Any purchaser at any such sale
or sales shall acquire the property sold absolutely free from any
claim or right on the part of Stockholder, and Stockholder hereby
waives (to the extent permitted by applicable law) all rights,
redemptions, stays and appraisal rights which Stockholder now
has, or may at any time in the future have, under any rule of law
or statute now existing or hereafter enacted. The net proceeds
of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the
care, safekeeping or otherwise of any and all of the Collateral
or in any way relating to the rights of the Lender hereunder,
including reasonable attorneys' fees and legal expenses, shall be
applied to the payment of the Obligations in such order as the
Lender may determine, and, after all of the Obligations have been
paid in full and after payment of any other amount required by
any provision of law, including (without limitation) Section
9-504(l)(c) of the Uniform Commercial Code, the balance (if any)
of such proceeds shall be remitted to the Stockholder or as
otherwise required by a court of competent jurisdiction. To the
extent permitted by applicable law, the Stockholder waives all
claims, damages and demands against the Lender arising out of the
retention or sale of the Collateral unless resulting from such
Lender's willful misconduct. The Stockholder agrees that the
Lender need not give more than ten (10) days' notice (which
notice shall be deemed given on the earlier of mailing or
receipt) of the time and place of any public sale or of the time
after which a private sale or other intended disposition is to
take place and that such notice is reasonable notification of
such matters. No notification need be given to the Stockholder
if it has signed after default a statement renouncing or
modifying any right to notification of sale or other intended
disposition. The Lender may, without notice or publication,
adjourn any public or private sale, or cause such sale to be
adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be
made at the time and place to which such sale is so adjourned.
Stockholder shall remain liable for any deficiency if the net
proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations.
75. Representations and Warranties. The Stockholder
represents and warrants to the Lender that:
(a) the execution, delivery and performance of this
Pledge Agreement, and the granting of liens pursuant hereto,
and the Escrow Agreement have been duly authorized by all
requisite action on its part, and do not require the consent
of any party;
(b) this Pledge Agreement and the Escrow Agreement
have been duly executed and delivered by the Stockholder and
are legal, valid and binding obligations, enforceable
against the Stockholder in accordance with their respective
terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of
creditors' rights generally or by general principles of
equity;
(c) the Stockholder is the record and beneficial owner
of, and has good and valid title to, the Pledged Stock
described on Exhibit I hereto, and it will be owner of, and
have such title to, all other Pledged Stock described in
Section 3 hereof owned by it subject to no lien whatsoever
(except the liens created hereby);
(d) all the shares of Pledged Stock described on
Exhibit I hereto have been, and all shares of Pledged Stock
described in Section 3 hereof will be, duly and validly
issued for good and valuable consideration and are, or will
be, fully paid and non-assessable; and
(e) the pledge, assignment and delivery of the Pledged
Stock described on Exhibit I hereto creates, and the
delivery of any Pledged Stock described in Section 3 hereof
will create, a valid lien on, and perfected security
interest in, such Pledged Stock and the proceeds thereof,
subject to no prior lien or option or any agreement
purporting to grant to any third party a prior lien on the
Stockholder's property or assets that would include such
Pledged Stock.
76. Covenants. The Stockholder covenants and agrees with
the Lender that so long as any Obligations are outstanding:
(a) it will, upon the Lender's written request, defend
the Secured Parties' right, title and first priority
security interest in and to the Pledged Stock and the
proceeds thereof against the claims and demands of all
persons whomsoever;
(b) it will have or obtain promptly good title
(subject to no lien whatsoever, except the liens created by
this Pledge Agreement) to and right to pledge any other
property at any time hereafter pledged to the Lender as
collateral security hereunder and will likewise defend the
Lender's right and title thereto and liens thereon;
(c) it will not sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to
any of the Collateral, nor will it create, incur or permit
to exist any lien with respect to any of the Collateral, any
interest therein or any proceeds thereof (except for the
liens created by this Pledge Agreement); and
(d) it will not vote to enable any issuer of any
Pledged Stock, and will not otherwise agree to permit any
issuer of any Pledged Stock, to merge or consolidate with,
or into, any other corporation or issue any stock or other
securities of any nature in addition to or in exchange or
substitution for any Pledged Stock.
77. Sale of Collateral.
(a) The Stockholder recognizes that the Lender may be
unable to effect a public sale of any or all of the Pledged
Stock by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws and may
be compelled to resort to one or more private sales thereof
to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such securities for
their own accounts for investment and not with a view to the
distribution or resale thereof. The Stockholder
acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the
seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that the private
(rather than public) nature of such sale shall be deemed to
be commercially reasonable. The Lender shall be under no
obligation to delay a sale of any of the Pledged Stock for
the period of time necessary to permit the issuer thereof to
register such securities for public sale under the
Securities Act or under applicable state securities laws,
even if such issuer would agree to do so.
(b) The Stockholder further agrees to do or cause to
be done all such other acts and things required to be done
by it to make such sale or sales of any portion or all of
the Pledged Stock valid and binding and in compliance with
any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts,
arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales,
all at the Stockholder's expense. The Stockholder further
agrees that a breach of any of the covenants contained in
this Section 11 will cause irreparable injury to the Lender,
that the Lender has no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and
every covenant contained in this Section 11 shall be
specifically enforceable against the Stockholder, and the
Stockholder hereby waives (to the extent permitted by
applicable law) and agrees not to assert any defenses
against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred.
78. Further Assurances. The Stockholder agrees that at any
time and from time to time, on the written request of the Lender,
the Stockholder will execute and deliver such further documents
and do such further acts and things as the Lender may reasonably
request in order to effectuate the purposes of this Pledge
Agreement.
79. Limitation on Lender's Duty in Respect of Collateral.
Beyond the safe custody thereof, the Lender shall not have any
duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of it or any income
thereon or as to the preservation of rights against prior parties
or any other rights pertaining thereto.
80. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications related to
this Pledge Agreement to or on the Stockholder or the Lender
shall be in writing (including teletransmissions), and shall be
given or made in accordance with the notice provisions set forth
in the Agreement.
81. Severability. Any provision of this Pledge Agreement
that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
82. No Waiver, Cumulative Remedies. The Lender shall not
by any act, delay, omission or otherwise be deemed to have waived
any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by the Lender, and then only to
the extent therein set forth. A waiver of any right or remedy
hereunder on any occasion shall not be construed as a bar to any
right or remedy that the Lender would otherwise have on any
future occasion. No failure to exercise nor any delay in
exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise of any right,
power or privilege hereunder or the exercise of any other right,
power or privilege. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
83. No Oral Modification, Successors, Governing Law. None
of the terms or provisions of this Pledge Agreement may be
waived, altered, modified or amended except by an instrument in
writing, duly executed by the Lender. This Pledge Agreement and
all obligations of the Stockholder hereunder shall be binding on
its successors and assigns and shall, together with the rights
and remedies of the Lender hereunder, inure to the benefit of the
Lender and its respective successors and assigns. This Pledge
Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York (United
States).
84. Submission to Jurisdiction, Waiver of Trial by Jury.
(a) For purposes of any action or proceeding involving
this Pledge Agreement or any other agreement or document
referred to herein, the Stockholder hereby expressly submits
to the jurisdiction of all federal and state courts located
in the State of New York (United States) and consents that
any order, process, notice of motion or other application to
or by any of said courts or a judge thereof may be served
within or without such court's jurisdiction by registered
mail or by personal service, provided a reasonable time for
appearance is allowed.
(b) THE STOCKHOLDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE
LAW) (i) ANY RIGHT HE MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING UNDER OR RELATING TO THIS PLEDGE AGREEMENT
OR ANY OTHER DOCUMENT OR AGREEMENT REFERRED TO HEREIN, AND
AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE
SITTING WITHOUT A JURY and (ii) ANY RIGHT TO CONTEST THE
APPROPRIATENESS OF ANY ACTION BROUGHT WITHIN THE
JURISDICTION MENTION ED IN PARAGRAPH (a) OF THIS SECTION 18
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS.
85. Fees and Expenses. Any and all reasonable fees, costs
and expenses of whatever kind or nature, including the reasonable
fees and legal expenses incurred by the Lender's counsel in
connection with the payment or discharge of any taxes, counsel
fees, maintenance fees, encumbrances or otherwise protecting,
maintaining or preserving the Collateral, or in defending or
prosecuting any actions or proceedings arising out of or related
to the Collateral, shall be borne and paid by the Stockholder on
demand and until so paid shall be added to the principal amount
of the Obligations and shall bear interest (calculated on the
basis of 360-day year for the actual days elapsed) from the date
incurred until paid at the highest rate applicable to any of the
Obligations.
86. Termination. This Agreement shall terminate when all
of the Obligor's obligations under the Agreement and the Note
have been fully paid, and all of the Obligations have been fully
paid, at which time Lender shall reassign and deliver to the
Stockholder the Collateral, or such part thereof as shall not
have been sold or otherwise applied by Lender pursuant to the
terms hereof, and shall still be held by Escrow Agent under the
Escrow Agreement, together with appropriate instruments of
reassignment. Any such reassignment shall be without recourse to
or warranty by Lender and at the expense of Stockholder.
87. Counterparts. This Pledge Agreement may be executed in
any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same
instrument.
89. Descriptive Headings. The captions in this Pledge
Agreement are for convenience of reference only and shall not
define or limit the provisions hereof.
IN WITNESS HEREOF the Stockholder has caused this Pledge
Agreement to be duly executed and delivered under seal as of the
date first written above.
WITNESS:
/s/ Andrew Lee /s/ Zhi-Jian Wu
Zhi-Jian Wu
COUNTY: NEW YORK
STATE: NEW YORK
On this 19 of September, 1997, before me personally appeared
Zhi-Jian Wu, to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he
executed the same as his free act and deed.
/s/ Fanny Paulits
Name
Notary Public State of New York
Commission Expires Nov. 30, 1997
EXHIBIT I
PLEDGED STOCK
Issuer Class of Stock Number of Shares
Dawson Science Convertible Preferred 100,000
Corporation Stock
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of September 19, 1997 among
Zhi-Jian Wu, an individual whose address is c/o Dawson Science
Corporation, 70 East 55th Street, 20th Floor, New York, New York
10022 ("Mr. Wu"), Yeung Shu- kin, an individual whose address is
Unit 1-2 1/F, Join IN Hang Sing Centre, 71-75 Container Port
Road, Kwai Chung, N.T., Hong Kong ("Lender"), Dawson Science
Corporation, whose address is 70 East 55th Street, 20th Floor,
New York, NY 10022 (the "Borrower") and Brown, Rudnick, Freed &
Gesmer, P.C. ("Escrow Agent").
WHEREAS, Borrower, of which Mr. Wu is President and a
principal stockholder, has entered into a Loan and Security
Agreement of even date herewith with Lender ("Loan Agreement")
and has issued Lender a Convertible Promissory Note of even date
("Note"), related to certain loans and extensions of credit
provided by Lender to the Borrower under the terms and conditions
set forth in the Loan Agreement (the Loan Agreement and the Note
are hereafter collectively referred to as the "Loan Documents");
WHEREAS, Mr. Wu has guaranteed the obligations of the
Borrower to the Lender under the Loan Documents pursuant to a
Guaranty Agreement of even date between Mr. Wu and Lender (the
"Guaranty Agreement");
WHEREAS, in order to secure Mr. Wu's obligations under the
Guaranty Agreement and Loan Documents to each Lender, Mr. Wu has
executed a Stock Pledge Agreement, of even date, in favor of
Lender, pursuant to which Mr. Wu has pledged capital stock of the
Borrower (the "Pledged Shares");
WHEREAS, the parties desire that the Escrow Agent hold the
Pledged Shares in escrow in accordance with the terms hereof;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
89. Borrower, Lender and Mr. Wu hereby designate and
appoint Escrow Agent as the escrow agent for the purposes set
forth herein, and hereby authorize and direct the Escrow Agent to
hold the number of shares of Convertible Preferred Stock of the
Borrower (along with executed blank stock powers) specified on
Schedule I hereto (the "Shares"), pursuant to the terms set forth
herein.
90. The terms of this Escrow Agreement may be altered,
amended, modified or revoked only by the written consent of
Borrower, Lender, Mr. Wu and the Escrow Agent.
91. Escrow Agent shall only disburse the Shares in
accordance with written instructions, in form and substance
satisfactory to Escrow Agent, jointly executed by Mr. Wu and
Lender.
92. In the event that a dispute arises among the parties
involving any responsibility of the Escrow Agent hereunder,
Escrow Agent shall continue to hold the Shares until it has been
furnished with a statement in writing jointly signed by both
Lender and Mr. Wu, instructing Escrow Agent as to the manner in
which it is to dispose of the Shares. Upon receiving such
statement, Escrow Agent shall dispose of the Shares pursuant to
such statement and Borrower, Lender and Mr. Wu agree to hold
Escrow Agent harmless from any liability or responsibility
therefor. In the event that Escrow Agent is made a party, in
respect to the Shares or any of its responsibilities hereunder,
to any court action or arbitration proceedings, Escrow Agent
shall make no disposition of the Shares, except as required by a
court of competent jurisdiction, or by such arbitrators, and
Borrower, Lender and Mr. Wu shall hold Escrow Agent harmless from
and on account of any expenses which Escrow Agent may incur or
become liable to pay because of any such proceedings and the
holding of the Shares. In the event of a dispute as to the
disposition of any of the escrowed documents, Escrow Agent may
apply to any court of competent jurisdiction for a determination
of the rights of the parties with respect thereto, and shall be
relieved of any further liability on account hereof.
93. Escrow Agent assumes no obligation or responsibility
hereunder other than to make delivery of the Shares as provided
above. Escrow Agent shall not be bound by any agreement or
contract not expressly referenced herein, regardless of whether
Escrow Agent has knowledge thereof. Borrower, Lender and Mr. Wu
jointly and severally agree to assume liability for and do hereby
agree to indemnify, protect, save and hold harmless Escrow Agent
from and against any and all liabilities, obligations, losses,
damages, claims, actions, suits, costs and expenses of whatever
kind and nature, including attorneys' fees, imposed upon,
incurred by or asserted against Escrow Agent in any way related
to or arising out of this Escrow Agreement.
94. It is expressly understood by all parties that Brown,
Rudnick, Freed & Gesmer, P.C. acts as counsel to Borrower, and
that neither anything contained in this Escrow Agreement nor
Escrow Agent's execution hereof, shall in any way affect or
require termination of such representation of Borrower.
95. If the Escrow Agent reasonably requires other or
further instruments in connection with this Escrow Agreement or
obligations in respect hereto, the necessary parties hereto shall
join in furnishing such instruments.
96. Any notice required or permitted hereunder shall be
given in writing by registered or certified mail, at the
addresses set forth below.
97. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. Unless otherwise defined herein,
all capitalized terms used herein shall have the meanings
ascribed to them in the Loan Agreement.
EXECUTED as an instrument under seal as of the date first
above written.
MR. WU:
/s/Zhi-Jian Wu
Zhi-Jian Wu
Notice Address:
c/o Dawson Science Corporation
70 East 55th Street
20th Floor
New York, New York 10022
BORROWER:
DAWSON SCIENCE CORPORATION
By: /s/Zhi-Jian Wu
Zhi-Jian Wu, President
Notice Address:
70 East 55th Street
20th Floor
New York, New York 10022
Attn.: Zhi-Jian Wu, President
LENDER:
/s/ Yeung Shu-Kin
Yeung Shu-kin
Notice Address:
Unit 1-2, 1/F
Join In Hang Sing Centre
71-75 Container Port Road
Kwai Chung, N.T.
Hong Kong
Attn: Yeung Shu-kin
ESCROW AGENT:
BROWN, RUDNICK, FREED
& GESMER, P.C.
By: /s/ John G. Nossif, Jr.
John G. Nossif, Jr.
Notice address:
One Financial Center
Boston, MA 02111
Attn: John G. Nossiff, Jr.
SCHEDULE I
100,000 shares of Convertible Preferred Stock of Dawson Science
Corporation (along with blank stock powers, with signature
guaranteed).
GUARANTY AGREEMENT
W I T N E S S E T H:
WHEREAS, Dawson Science Corporation ("Obligor"), a Nevada
corporation, is entering into a Loan and Security Agreement dated
the date hereof with Yeung Shu-kin (the "Lender") pursuant to
which certain loans and other extensions of credit have been and
will be made by the Lender to Obligor (the "Credit Agreement")
and, in connection therewith, is delivering to Lender a
Convertible Promissory Note dated the date hereof (the "Note");
WHEREAS, the undersigned, Zhi-Jian Wu (the "Guarantor"), is
a principal stockholder and an officer of Obligor;
WHEREAS, as a condition to entering into the Credit
Agreement and the Note, and making advances thereunder, the
Lender has required that Guarantor guarantee the full and prompt
payment and performance of all obligations of Obligor to Lender,
including, without limitation, obligations respecting all loans
made under the Credit Agreement and the Note (the Credit
Agreement and the Note are hereinafter collectively referred to
as the "Loan Documents");
WHEREAS, to secure his obligations to the Lender hereunder,
the Guarantor has executed and delivered to the Lender a Stock
Pledge Agreement dated the date hereof under which he has pledged
shares of Borrower to Lender;
WHEREAS, to further secure his obligations to Lender
hereunder, Guarantor has pledged to Lender a portion of his
ownership interest in Shenzhen Zhenghua Group, Ltd.;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in
consideration of any and all loans, advances, and extensions of
credit now or hereafter made or extended by Lender to, for the
account of or on behalf of Obligor pursuant to and under the Loan
Documents and as an inducement for the Lender to make future
loans, advances and extensions of credit to Obligor, Guarantor
hereby unconditionally and absolutely guarantees to Lender the
full and prompt payment and performance by Obligor of all
obligations which Obligor now or hereafter may have to Lender,
whether now existing or hereafter arising, including without
limitation, all obligations which Obligor may now or hereafter
have to Lender under the Loan Documents, as the same may be
amended, extended, modified or renewed and the full and prompt
payment when due, subject to any applicable grace period, of all
principal, interest, charges and all other sums which Obligor may
now or hereafter owe to Lender arising under the Loan Documents
howsoever evidenced, whether secured or unsecured, and hereby
agrees to indemnify Lender against any losses Lender may sustain
and any expenses it may incur as a result of any default by
Obligor under the Loan Documents, or as a result of the
occurrence of any Event of Default under or as defined in the
Loan Documents, and/or as the result of the enforcement or
attempted enforcement by, or on behalf of, the Lender of any of
its rights against the Guarantor hereunder.
This Guaranty is a continuing, unconditional and absolute
guaranty of payment and performance. The obligations of the
Guarantor hereunder are primary, with no recourse necessary by
Lender against the Obligor or any collateral given to secure the
obligations guaranteed hereby prior to proceeding against the
Guarantor hereunder. If for any reason any installment or any
other sum or indebtedness now or hereafter owing by Obligor to
Lender under the Loan Documents shall not be paid promptly when
due, after the expiration of any applicable cure period,
Guarantor will forthwith pay such sum to Lender, without regard
to any counterclaim, set-off, deduction or defense of any kind
which Obligor or Guarantor may have or assert, and without
abatement, suspension, deferment or reduction on account of any
occurrence whatsoever. The Guarantor hereby waives notice of and
consents to all of the provisions of the Loan Documents, to any
amendments thereof, to any actions taken thereunder, and to the
execution by Obligor of the Loan Documents and of any other
agreements, documents and instruments now or hereafter executed
by Obligor in connection therewith. The Guarantor further waives
the following: notice of incurring of indebtedness and
obligations by Obligor; acceptance of this Guaranty by Lender;
presentment and demand for payment, protest, notice of protest
and notice of dishonor or non-payment of any instrument
evidencing the indebtedness or obligations to Obligor; any right
to require suit against Obligor or any other party before
enforcing this Guaranty; any right to have security applied
before enforcing this Guaranty; any right of subrogation to
Lender's rights against Obligor until Obligor's indebtedness and
obligations to Lender are paid in full; all defenses which might
constitute a legal or equitable discharge of a surety or
guarantor; and all other notices and demands otherwise required
by law which the Guarantor may lawfully waive. Guarantor agrees
that in the event this Guaranty is enforced by suit or otherwise,
Guarantor will reimburse Lender upon demand for all expenses
incurred in connection therewith, including without limitation,
reasonable attorneys' fees and expenses.
Guarantor's obligations hereunder shall not be released,
discharged, terminated or impaired in any manner whatsoever,
irrespective of the lack of any notice to or consent of the
Guarantor, by any of the following: (a) new agreements or
obligations of Obligor with or to Lender; (b) amendments,
indulgences, extensions, modifications, renewals or waivers of
default as to any existing or future agreements or obligations of
Obligor or third parties with or to Lender, or extensions of
credit by Lender to Obligor; (c) adjustments, compromises or
releases of any obligations of Obligor, Guarantor or other
parties, including any other guarantors, or exchanges, releases,
dispositions or sales of any security of Obligor, Guarantor or
other parties, including any other guarantors; (d) invalidity,
irregularity, defect, or unenforceability, for any reason, of any
provision of any of the Loan Documents, or of any instrument or
writing, or of any security or other guaranty, or acts or
omissions by Lender or Obligor; (e) failure to perfect any lien
securing the obligations of Obligor, Guarantor or other parties,
including any other guarantors; (f) interruptions in the business
relations between Lender and Obligor; (g) voluntary or
involuntary bankruptcy (including a reorganization in bankruptcy)
of Obligor or entry of an order for relief against or with
respect to the Obligor under Title 11 of the United States Code;
(h) composition, extension, moratoria or other forms of debtor
relief granted to Obligor pursuant to law presently in force or
hereafter enacted; (i) payment of any or all obligations and
indebtedness of Obligor in the event such payment is invalidated
or avoided by a trustee, custodian or receiver of Obligor; (j)
the dissolution of Obligor; and (k) the reorganization, merger or
consolidation of Obligor into or with another entity, corporate
or otherwise, or the sale or disposition of all or substantially
all of the capital stock, business or assets of Obligor to any
other person or party.
For the purposes of this Guaranty and indemnity, all sums
owing to Lender by Obligor shall be deemed at Lender's election,
and without notice, to have become immediately due and payable if
Obligor defaults in any of its obligations or indebtedness to
Lender after expiration of any applicable cure period, or if
there shall occur an Event of Default as defined in any of the
Loan Documents, and the Guarantor shall thereupon promptly pay
Lender the entire amount of said indebtedness and obligations of
Obligor, and Lender shall, after the expiration of any applicable
cure period, be entitled to take any action deemed necessary or
advisable to enforce this Guaranty, including, without
limitation, the enjoining of any breach or threatened breach of
this paragraph.
Guarantor represents to Lender that after giving effect to
this Guaranty and the transactions contemplated by the Loan
Documents (and after taking into account all recoveries Lender is
likely to realize from Obligor on Obligor's obligations to
Lender): (i) the aggregate value of all of the assets and
properties of the Guarantor, at a fair valuation, will be greater
than the total amount which Guarantor is likely to be actually
required to pay on claims, including contingent claims; (ii) the
aggregate present fair saleable value of Guarantor's assets will
be greater than the amount that will be required to pay
Guarantor's probable liability on debts, including contingent
liabilities, as they become absolute and mature; (iii) Guarantor
has (and has no reason to believe that he will not have)
sufficient capital for the conduct of his business; and (iv)
Guarantor does not intend to incur, and does not believe that he
has incurred, debts beyond his ability to pay as they mature.
For purposes of any action or proceeding involving this
Guaranty or the Agreements or any other agreement or document
referred to therein, Guarantor hereby expressly submits to the
jurisdiction of all federal and state courts located in the State
of New York and consents that any order, process, notice of
motion or other application to or by any of said courts or a
judge thereof may be served within or without such court's
jurisdiction by registered mail or by personal service.
GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) (I) ANY RIGHT
HE MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR
RELATING TO THIS GUARANTY OR THE AGREEMENTS AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY
AND (II) ANY RIGHT TO CONTEST THE APPROPRIATENESS OF ANY ACTION
BROUGHT IN ANY COURT WITHIN THE JURISDICTION MENTIONED IN THE
PRECEDING PARAGRAPH BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE AND FORUM NON CONVENIENS.
This Guaranty and all terms and conditions hereof shall be
binding upon Guarantor, its successors and assigns, and shall
inure to the benefit of Lender and its successors and assigns.
Legal rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the State of New York.
Wherever the context so requires herein, the singular number
includes the plural, and the plural number includes the singular.
IN WITNESS WHEREOF, Guarantor has executed this instrument
this 19th day of September, 1997.
WITNESS:
/s/ Andrew Lee /s/Zhi-Jian Wu
Name: Andrew Lee Zhi-Jian Wu
Address: 43 Appleton Pl.
Dobbs Ferry, NY 10522
COUNTY: NEW YORK
STATE: NEW YORK
On this 19 of September, 1997, before me personally appeared
Zhi-Jian Wu, to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he
executed the same as his free act and deed.
/s/ Fanny Paulits
Name:
Notary Public State of New York
Commission Expires Nov. 30, 1997
Exhibit 10.8
BUSINESS LOAN AND SECURITY AGREEMENT
$1,500,000 September 30, 1997
32. PREAMBLE. Business Loan and Security Agreement made by the
undersigned (the "Borrower") for the benefit of Neolite Neon Co.
Pty. Ltd., whose address is set forth on the signature page
hereto (the "Lender"), with respect to a loan in the original
principal amount of $1,500,000 as evidenced by a secured
convertible promissory note in such amount from the Borrower of
even date herewith (the "Note"). Simultaneously with the
execution hereof, as partial consideration to the Lender for
making the loan hereunder, Zhi-Jian Wu, President and a principal
stockholder of Borrower, has delivered the Lender 75,000 shares
of Common Stock of the Borrower (the "Bonus Shares"). Pursuant
to a Guaranty Agreement of even date, Mr. Wu has guaranteed the
obligations of the Borrower hereunder and under the Note, and has
pledged 500,000 shares of Common Stock and 200,000 shares of
Convertible Preferred Stock of the Borrower (the "Pledged
Shares") as collateral for his obligations under the Guaranty
Agreement. The Pledged Shares have been delivered to Brown,
Rudnick, Freed & Gesmer, Counselors at Law ("Escrow Agent"), to
be held in Escrow pursuant to that certain Escrow Agreement of
even date between Escrow Agent, Borrower, Lender and Mr. Wu. In
addition, Mr. Wu has pledged a portion of his ownership interest
in Shenzhen Zhenghua Group, Ltd. as additional collateral to
secure his obligations under the Guaranty Agreement. This
Agreement and the Note are hereinafter collectively referred to
as the "Transaction Documents."
99. SECURITY.
(a) As security for Borrower's indebtedness and other
obligations now or at any time hereafter owing by Borrower to
Lender, whether or not any of such are liquidated, unliquidated,
secured, unsecured, direct, indirect, absolute, contingent or of
any other type, nature or description, including without
limitation those arising under this agreement, Borrower hereby
grants Lender a security interest in 15% of the ownership
interest of the Borrower in Shenzhen City Zhenghua Traffic and
Transportation Industrial and Development Company, Ltd.
(b) Borrower has not granted any security interest with
respect to Borrower's collateral hereunder, and such collateral
is free of all liens and encumbrances, except those Borrower is
granting to Lender herein.
100. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to and covenants with Lender as follows:
(a) the execution and delivery of each of the Transaction
Documents has been approved by all required corporate action and
does not violate or contravene any provision of Borrower's
corporate charter documents, by-laws or any other indenture or
contract to which Borrower is a party. Each of the Transaction
Documents is valid, binding and enforceable against Borrower in
accordance with their respective terms, and no consent of any
other party is required in connection with the execution,
delivery, performance or enforceability of any of the Transaction
Documents.
(b) Borrower has filed all federal, state, local and other
tax and similar returns required to be filed and has paid or
provided for the payment of all taxes and assessments due
thereunder.
(c) Borrower and each of the Borrower's subsidiaries is
duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of formation;
(d) any financial statements or projections Borrower has
delivered to Lender are true and correct in all material
respects, and have been prepared in accordance with generally
accepted accounting principles; and there has occurred no
material adverse change in Borrower's or any of its subsidiaries'
business or financial condition since the date of the most
recently delivered financial statements;
(e) there is no litigation pending or threatened against
Borrower or any of its subsidiaries, except as disclosed on
Borrower's financial statements or in a writing delivered to
Lender; and
(f) the issued and outstanding capital stock of the
Borrower is as set forth on Schedule 3(f) hereto, and, except as
set forth on such Schedule, there are no outstanding options,
warrants or other rights to acquire capital stock of the
Borrower.
101. AFFIRMATIVE COVENANTS. So long as any amount is unpaid
hereunder, Borrower will:
(a) keep proper books of account in manner in accordance
with generally accepted accounting principles;
(b) permit, upon written notice and during normal business
hours, inspections and audits by Lender or by Lender's agents of
all books, records and papers in the custody or control of
Borrower or of others relating to any security for the
obligations hereunder or Borrower's or any of its subsidiaries
financial or business condition, including the making of copies
thereof and abstracts therefrom and inspection and appraisal of
any of Borrower's or its subsidiaries' assets;
(c) at the request of the Lender, deliver to Lender
financial information in such form and detail and at such times
as are satisfactory to Lender, including, without limitation,
Borrower's quarterly financial statements;
(d) promptly pay all taxes, assessments and other
governmental charges due from Borrower or its subsidiaries;
provided however, that nothing herein contained shall be
interpreted to require the payment of any such tax so long as its
validity is being contested in good faith and Borrower maintains
adequate reserves with respect to such tax;
(e) keep adequately insured at all times with responsible
insurance carriers against liability on account of damage to
persons or property;
(f) promptly inform Lender of the commencement of any
action, suit, proceeding or investigation against Borrower or any
of its subsidiaries, or the making of any counterclaim against
Borrower or any of its subsidiaries in any action, suit or
proceeding and of all liens against any of Borrower's or any of
its subsidiaries' property, and of the occurrence of any default
hereunder;
(g) pay all indebtedness to Lender and to third parties
when due; and
(h) maintain Borrower's and each of its subsidiaries'
corporate existence, comply with all applicable laws and
regulations and maintain all property useful and necessary in
Borrower's business in good repair and operating condition,
ordinary wear and tear excepted.
102. NEGATIVE COVENANTS. So long as any amount is unpaid
hereunder, Borrower will not, without Lender's prior written
consent:
(a) create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien or other encumbrance upon any of
the collateral hereunder, except in Lender's favor;
(b) sell, convey, lease or transfer any of Borrower's
assets other than in the ordinary course of business, or merge or
consolidate with or into any other company or corporation, except
with Lender's written consent;
(c) become a guarantor, surety or otherwise become liable
for the debts or other obligations of any person, firm or
corporation, except as an endorser of instruments for the payment
of money deposited to Borrower's account for collection in the
ordinary course of business;
(d) make any investments in or loans or advances to any
other person, firm or corporation (including, without limitation,
loans or advances to officers, partners or employees of Borrower
or any of its subsidiaries) except direct obligations of the
United States of America;
(e) purchase any of its capital stock or declare any
dividends thereon, without the written consent of Lender; and
(f) change the form in which Borrower conducts its
business, the location of such business, or the nature of the
business as conducted by Borrower on the date of this Agreement
or fail to maintain its business operation as a going concern.
103. DEFAULT. In addition to, and not by way of limitation of,
any of Lender's other rights hereunder, the entire unpaid balance
of all of Borrower's indebtedness to Lender, whether under this
Agreement, the Note or under any other instrument, document or
agreement with Lender, may be declared to be immediately due and
payable at Lender's sole election upon the happening of any one
of the following specified events of default (each an "Event of
Default"):
(a) Borrower's failure to make any payment when due
hereunder or under the Note, or to pay or perform any other
obligation to Lender, now existing or hereafter arising;
(b) Borrower's failure to pay any indebtedness to any
others when due, except where Borrower is reasonably and in good
faith asserting a legal defense in respect of its failure to pay
any such indebtedness when due;
(c) if any representation, warranty, statement or
certificate made to Lender by Borrower proves to have been or
becomes untrue;
(d) any change in the ownership of capital stock in the
Borrower which results in a change of control of the Borrower;
(e) with respect to the Borrower or any of its
subsidiaries, the commencement, whether voluntary or involuntary,
of a case under the United States Bankruptcy Code or any other
proceeding or action seeking reorganization, liquidation,
dissolution or other relief under federal bankruptcy or
insolvency statutes or similar laws, or seeking the appointment
of a receiver, trustee or custodian for the Borrower or all or a
part of Borrower's assets;
(f) if Borrower or any of its subsidiaries makes an
assignment for the benefit of creditors, or is unable to pay
debts as they mature; or
(g) any such event occurs with respect to any guarantor or
endorser of Borrower's obligations to Lender.
104. ADDITIONAL REMEDIES. Upon demand of payment of all amounts
due hereunder, or upon the occurrence of any Event of Default and
at any time thereafter, Lender shall have all of the rights and
remedies of a secured party upon default under the New York
Uniform Commercial Code, in addition to which Lender shall have
all of the following rights and remedies:
(a) to take possession and dispose of the collateral;
(b) the proceeds of any collection of the collateral shall
be applied toward any of Borrower's loan or loans in such order
and manner as Lender determines in Lender's sole discretion.
Borrower shall remain liable to Lender for any deficiency
remaining following such applications; and
105. FEES AND EXPENSES. Simultaneously with the execution
hereof, Borrower has paid Lender an origination fee equal to 3%
of the principal amount of the Note. Such origination fee has
been directly deducted from the proceeds of the loan delivered to
the Borrower, so that the proceeds delivered to the Borrower were
net of the origination fee. Borrower will reimburse Lender
promptly for any fees payable to the appropriate public officer
to perfect any lien or other security interest taken to secure
any indebtedness created pursuant hereto, or the premium, not in
excess of such filing fee, payable for insurance in lieu of such
filing. Borrower shall pay on demand all of Lender's expenses,
including, without limitation, attorneys' fees and disbursements,
incurred in connection with the loan made hereunder, and all
expenses which Lender may hereafter incur in connection with the
protection or enforcement of any of Lender's rights against
Borrower, any collateral, and any guarantor of Borrower's
obligations to Lender.
106. EQUITY PARTICIPATION. As additional consideration to the
Lender for making the loan hereunder, concurrently with the
execution and delivery of this Agreement, Zhi-Jian Wu, President
and a principal stockholder of the Borrower, has transferred to
the Lender 75,000 shares of Common Stock of Borrower (the "Bonus
Shares").
107. REGISTRATION RIGHTS. At any time the Borrower proposes to
file a registration statement under the Act with respect to any
capital stock of the Borrower on any form, other than forms S-4
or S-8 or their then equivalents, then, the Borrower shall give
written notice of such proposed filing to the Lender at least
forty-five (45) days before the anticipated filing date, and such
notice shall offer to the Lender the opportunity to include in
such registration statement the number of Registrable Securities
(defined herein) which Lender may request. The Borrower shall
cause the managing underwriter of a proposed offering to offer
such shares of capital stock on the same terms and conditions as
the capital stock to be included therein by the Borrower. For
purposes of this Agreement, "Registrable Securities" means the
Bonus Shares, the Pledged Shares, and the shares of Common Stock
issuable or transferred pursuant to the Note.
Any permitted assignee of Lender shall also have the
registration rights granted hereunder with respect to Registrable
Securities acquired from Lender. References to Lender in this
Agreement shall include permitted assignees of the Lender.
Additional Obligations of the Borrower. Whenever the
Borrower is required to register shares of capital stock pursuant
to a request of the Lender hereunder, the Borrower shall:
(i) prepare for filing with the Securities and Exchange
Commission a registration statement, including a prospectus and
exhibits, amendments and supplements thereto and, prior to such
filing, furnish the same to Lender for review and comment;
(ii) file the registration statement with the Securities and
Exchange Commission and use commercially reasonably efforts to
cause such registration statement to become effective and remain
effective as provided herein;
(iii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to said registration
statement and the prospectus used in connection therewith as may
be necessary to keep said registration statement effective and to
comply with the provisions of the Act with respect to the sale of
securities covered by said registration statement for the period
necessary to complete the proposed public offering, subject to
the terms hereof;
(iv) furnish to Lender such copies of the registration
statement including the preliminary and final prospectus and
copies of all exhibits, amendments and supplements thereto, as
well as such other documents as Lender may reasonably request to
facilitate the proposed public offering of capital stock;
(v) to use its best efforts to register or qualify the
capital stock covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as Lender may
request.
(vi) permit Lender and its counsel and other representatives
to inspect and copy such corporate documents and records as may
reasonably be requested by them;
(vii) furnish to Lender a copy of all documents filed
and all correspondence from or to the Securities and Exchange
Commission in connection with any such offering;
(viii) pay all expenses in connection with such
registration and offering (other than the fees and expenses of
Lender's counsel, if any), except that Lender shall bear all
underwriting commissions attributable to his or its shares so
registered; and
(ix) use its best efforts to file on a timely basis with the
Securities and Exchange Commission such information as the
Borrower may be obligated to file under Sections 13 or 15(d) of
the Securities Exchange Act of 1934, as then amended and in
effect.
Indemnification. Incident to any registration statement,
including any preliminary prospectus, prospectus, or any
amendments or supplements thereto (the "Registration Statement"),
or any application for exemption filed by the Borrower which
includes Registrable Securities, the Borrower will indemnify
Lender and its officers, directors, employees, stockholders,
partners and agents, as applicable, against all claims, losses,
damages and liabilities, including legal and other expenses
incurred in investigating or defending against the same, arising
out of any untrue statement of a material fact contained therein,
or by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or arising out of any violation by the Borrower of
the Act, any state securities or "blue-sky" laws or any rule or
regulation thereunder in connection with such registration or
sale, except insofar as the same may have been caused by an
untrue statement or omission based upon, and in conformity with,
information furnished in writing to the Borrower by Lender
expressly for use therein.
Promptly after receipt by Lender or any of its respective
officers, directors, employees, stockholders, partners or agents,
of notice of the assertion or commencement of any action in
respect of which indemnity may be sought against the Borrower,
Lender shall notify the Borrower in writing of the assertion or
commencement thereof, and, subject to the provisions hereinafter
stated, the Borrower shall assume the defense of such action
(including the employment of counsel and the payment of all fees
and expenses) insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the
Borrower. Lender and its officers, directors, employees,
stockholders, partners and agents, as the case may be, shall have
the right to employ separate counsel in any such action and to
participate in the defense thereof, provided that the Borrower
shall have the right to control any such litigation, but the fees
and expenses of such separate counsel shall not be at the expense
of the Borrower unless the employment of such counsel has been
specifically authorized by the Borrower or unless counsel
retained by the Borrower has, in the reasonable opinion of
Lender's counsel, a conflict of interest with respect to its
representation of Lender. The Borrower shall not be liable to
indemnify any person for any settlement of any such action
effected without the Borrower's consent.
Contribution. If the indemnification provided for herein is
unavailable to an indemnified party thereunder (other than by
reason of exceptions provided therein) in respect of any claims,
losses, damages or liabilities, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified
party as a result of such claims, losses, damages or liabilities,
in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified party in
connection with the actions, statements or omissions which
resulted in such claims, losses, damages or liabilities, as well
as any other relevant equitable considerations. The relative
fault of such indemnifying party and such indemnified party shall
be determined by reference to, among other things, whether any
action in question, including any untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or
relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action, statement or omission.
The parties hereto agree that it would not be just and
equitable if contribution hereunder were determined by pro rata
allocation or by any other method of allocation which does not
take into account the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the
Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
108. WAIVER, CUMULATIVE REMEDIES. No delay or omission by Lender
in exercising or enforcing any of Lender's rights or remedies
shall operate as, or constitute a waiver thereof. No waiver by
Lender of any event of default or of any default under any other
agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No exercise of any of
Lender's rights and remedies and no other agreement or
transaction of whatever nature entered into between Borrower and
Lender at any time, shall preclude any other exercise of Lender's
rights and remedies. No waiver by Lender of any of Lender's
rights and remedies on any one occasion shall be deemed a waiver
on any subsequent occasion, nor shall it be deemed a continuing
waiver. All of Lender's rights and remedies hereunder, and all
of Lender's rights and remedies, power, privileges, and
discretion under any other agreement or transaction are
cumulative and not alternative or exclusive and may be exercised
by Lender at such time or times and in such order of preference
as Lender in Lender's sole discretion may determine.
109. [RESERVED].
110. MISCELLANEOUS INFORMATION. It is agreed that references to
"Lender" shall mean the undersigned Lender and his/her heirs or
assigns, and references to "Borrower" or "the undersigned" shall
mean the undersigned Borrower and its successors and assigns.
Borrower will, in manner satisfactory to Lender, furnish other
documentation of a type and in such form as Lender may request
from time to time to further evidence or perfect the agreements
contemplated hereby.
111. APPLICABLE LAW. This agreement shall be construed and
interpreted in accordance with the laws of the State of New York,
without regard to the choice of law provisions thereof.
IN WITNESS WHEREOF, the Borrower and the Lender have
executed this Agreement as of the date first above written.
DAWSON SCIENCE CORPORATION
By: /s/ Zhi-Jian Wu
Zhi-Jian Wu, President, duly
authorized
LENDER:
NEOLITE NEON CO. PTY. LTD.
By: /s/ L. Louback
[Corporate Seal] Name: L. Louback
Title: Director
Address: 225 Queen Street
Beaconsfield 2015
Sydney, Australia
SCHEDULE 3(f)
Issued and outstanding capital stock and options, warrants
and other rights to acquire capital stock:
1. 13,000,000 shares of Common Stock are issued and
outstanding. 2,100,000 shares of Convertible Preferred Stock are
issued and outstanding. Each share of Convertible Preferred
Stock is convertible into five (5) shares of Common Stock. No
other shares of capital stock are issued and outstanding.
2. There are no outstanding options, warrants or other
rights to acquire capital stock of the Borrower.
CONVERTIBLE
PROMISSORY NOTE
$1,500,000 Dawson Science Corporation
September 30, 1997
FOR VALUE RECEIVED, the undersigned, Dawson Science Corporation,
with a principal place of business at 70 East 55th Street, 20th
Floor, New York, New York 10022 ("Maker"), hereby promises to pay
to the order of Neolite Neon Co. Pty. Ltd., whose address is 225
Queen Street, Beaconsfield 2015, Sydney, Australia ("Holder"),
the sum of one million five hundred thousand (U.S. $1,500,000)
Dollars together with interest on the unpaid principal amount
from time to time outstanding at a rate per annum equal to twelve
(12%) percent. Interest shall be payable on monthly in arrears,
commencing October 15, 1997. The entire balance of principal,
accrued but unpaid interest, and other fees and charges shall be
due and payable on the earlier of (1) one hundred eighty (180)
days from the date hereof (the "Maturity Date") or (2) the
occurrence of an Event of Default, as defined below.
112. Interest. Interest and fees shall be calculated on the
basis of a 360-day year times the actual number of days elapsed.
In no event shall interest payable hereunder exceed the highest
rate permitted by applicable law. To the extent any interest
received by Holder exceeds the maximum amount permitted, such
payment shall be credited to principal, and any excess remaining
after full payment of principal shall be refunded to Maker.
113. Prepayment/Default Penalties. The principal balance of
this note may be paid at any time without penalty. Upon the
occurrence of an Event of Default and until such Event of Default
has been cured, the Holder shall be entitled to receive the
following penalty payments (in addition to regular interest
payments): (1) payment in cash, computed on a daily basis, at a
rate per annum equal to twelve (12%) percent of outstanding
principal and accrued interest and (2) 7,500 shares of Common
Stock of Maker (the "Default Shares") for each thirty (30) day
period, or any part thereof, during which there exists an Event
of Default. In the event the Lender is entitled to Default
Shares hereunder, Zhi-Jian Wu, President of Maker, shall, subject
to the terms hereof, transfer the Default Shares to the Lender.
In order to satisfy any obligation to the Lender hereunder or
under the Guaranty Agreement between Mr. Wu and Lender of even
date herewith, Mr. Wu has delivered an aggregate of 500,000
shares of Common Stock and 200,000 shares of Convertible
Preferred Stock of Maker standing in his name to Brown, Rudnick,
Freed & Gesmer, Counselors at Law, as escrow agent (the "Escrow
Agent") to be held pursuant to that certain Escrow Agreement
between Escrow Agent, Mr. Wu, and Lender of even date ("Escrow
Agreement").
114. Costs and Expenses. Maker agrees to pay all costs and
expenses, including, without limitation, reasonable attorneys'
fees and expenses incurred, or which may be incurred, by Holder
in connection with the enforcement and collection of this Note
and any other agreements, instruments and documents executed in
connection herewith.
115. Waivers. Maker and all guarantors and endorsers hereby
waive presentment, demand, notice, protest, and all other demands
and notices in connection with the delivery, acceptance,
performance and enforcement of this Note, and assent to
extensions of the time of payment or forbearance or other
indulgence without notice. No delay or omission of Holder in
exercising any right or remedy hereunder shall constitute a
waiver of any such right or remedy. A waiver on one occasion
shall not operate as a bar to or waiver of any such right or
remedy on any future occasion.
116. Events of Default. The entire unpaid principal and
interest balance shall, at the option of the Holder, become
immediately due and payable, without notice or demand, upon the
occurrence of any of the following events (an "Event of
Default"):
(a) failure to make any payment herein provided within five
(5) days of the due date.
(b) the making of an assignment for the benefit of
creditors, trust mortgage, or composition with
creditors or other arrangement of similar import by the
Maker or any guarantor or endorser of this Note; the
commencement of any voluntary proceedings under any
bankruptcy or insolvency law, now or hereafter enacted,
by the Maker or any guarantor or endorser; the
commencement of any involuntary proceedings under any
bankruptcy or insolvency laws now or hereafter enacted
which are not discharged within 60 days after the
filing thereof, by or against the Maker or any
guarantor or endorser of the undersigned.
(c) All payments due hereunder shall be made at the address
of the Holder as set forth below, or at such other
place as the Holder may designate from time to time in
writing.
117. [RESERVED].
118. Convertibility of Note. At any time after the Maturity
Date and prior to repayment in full of all amounts due hereunder,
the original principal amount of this Note (and all accrued but
unpaid interest thereon and any costs and expenses payable
hereunder) shall at the option of the Holder be convertible into
that number of fully-paid nonassessable shares of Common Stock of
the Maker (the "Shares") equal to the quotient of (i) the
original principal amount of this Note (and all accrued but
unpaid interest thereon and any costs and expenses payable
hereunder) and (ii) fifty (50%) percent of the average closing
bid price of the Common Stock, as quoted on the National
Association of Securities Dealers Inc.'s OTC Bulletin Board,
during the five (5) trading days immediately preceding the date
of conversion (the "Conversion Price").
119. Conversion of Note. Subject to Section 7, the
conversion rights represented by this Note may be exercised in
whole, but not in part, by the surrender of this Note and the
duly executed Notice of Conversion (the form of which is attached
as Exhibit A) at the principal office of the Maker. Upon
conversion, the Holder shall be entitled to receive, within a
reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct,
for the number of Shares so acquired. The Shares so acquired
shall be deemed to be issued as of the close of business on the
date on which this Note shall have been converted. Subsequent to
the conversion of this Note, the penalty provisions of paragraph
2 of this Note shall no longer be applicable.
120. Shares to be Issued; Reservation of Shares. The Maker
covenants that the Shares issuable upon the conversion of this
Note will, upon issuance in accordance herewith, be fully paid
and non-assessable, and free from all liens and charges with
respect to the issue thereof. During the period within which the
conversion rights represented by the Note may be exercised, the
Maker will at all times have authorized and reserved, for the
purpose of issuance upon exercise of the conversion rights
represented by this Note, a sufficient number of shares of its
Common Stock to provide for the exercise of the conversion right
represented by this Note.
121. No Fractional Shares. No fractional shares shall be
issued upon the conversion of this Note. In lieu thereof, a cash
payment shall be made equal to such fraction multiplied by the
fair market value of such shares of Common Stock, as determined
in good faith by the Maker's Board of Directors.
122. Adjustments of Conversion Price and Number of Shares.
If there shall be any change in the Common Stock of the Maker
through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split or other change in the corporate
structure of the Maker, appropriate adjustments shall be made by
the Board of Directors of the Maker (or if the Maker is not the
surviving corporation in any such transaction, the Board of
Directors of the surviving corporation) in the aggregate number
and kind of shares subject to this Note, and the number and kind
of shares and the price per share then applicable to shares
covered by this Note.
123. No Rights as Shareholders. This Note does not entitle
the Holder to any voting rights or other rights as a shareholder
of the Maker prior to conversion and surrender of this Note.
Notwithstanding the foregoing, the Maker agrees, upon the request
of the Holder, to transmit to the Holder such information,
documents and reports as are generally distributed to holders of
the capital stock of the Maker. Upon valid conversion and
surrender of this Note in accordance with the terms hereof, the
Holder or the Holder's designee, as the case may be, shall be
deemed a shareholder of the Maker.
124. Sale or Transfer of the Note and the Shares; Legend.
For purposes hereof, the "Shares" include the Default Shares (to
the extent "restricted" under Rule 144 of the Securities Act of
1933, as amended) and the shares issuable upon conversion of this
Note. The Note and the Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the
Act and applicable State Securities laws, or (ii) such sale or
transfer is exempt from the registration requirements of the Act
and applicable State Securities laws. Each certificate
representing any Shares shall bear a legend substantially in the
following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
Such Shares may be subject to additional restrictions on transfer
imposed under applicable state and federal securities law.
125. Modifications and Waivers. This Note may not be
changed, waived, discharged or terminated except by an instrument
in writing signed by the party against which enforcement of the
same is sought.
126. Notices. Any notice, request or other document
required or permitted to be given or delivered to the Holder or
the Maker shall be delivered, or shall be sent by certified or
registered mail, postage prepaid, to the Holder at its address
shown on the books of the Maker or in the case of the Maker, at
the address indicated above, or, if different, at the principal
office of the Maker.
127. Loss, Theft, Destruction or Mutilation of Note. The
Maker covenants with the Holder that upon its receipt of evidence
reasonably satisfactory to the Maker of the loss, theft,
destruction or mutilation of this Note or any stock certificate
and, in the case of any such loss, theft or destruction, and upon
surrender and cancellation of this Note or stock certificate, if
mutilated, the Maker will make and deliver a new Note or stock
certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Note or stock certificate.
128. Representations and Warranties of Holder. By accepting
this Note, the Holder represents and warrants that he, she or it
is acquiring this Note and the Shares for his, her or its own
account, for investment and not with a view to, or for sale in
connection with, any distribution thereof or any part thereof.
Holder represents and warrants that he, she or it (a) is an
"accredited investor" as defined in Appendix A hereto (only
applicable to U.S. residents), (b) is experienced in the
evaluation of businesses similar to the Maker, (c) has such
knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in
the Maker, (d) has the ability to bear the economic risks of an
investment in the Maker, and (e) has been afforded the
opportunity to ask questions of and to receive answers from the
officers of the Maker and to obtain any additional information
necessary to make an informed investment decision with respect to
an investment in the Maker.
129. Binding Effect on Successors. This Note shall be
binding upon any corporation succeeding the Maker by merger,
consolidation or acquisition of all or substantially all of the
Maker's assets, and all of the obligations of the Maker relating
to the Shares issuable upon conversion of this Note shall survive
the conversion and termination of this Note and all of the
covenants and agreements of the Maker shall inure to the benefit
of the successors and assigns of the Holder.
130. Governing Law. This Note shall be construed and
enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New York, without regard
to the choice of law principals thereof.
IN WITNESS WHEREOF, DAWSON SCIENCE CORPORATION has caused
this Note to be executed by its officer thereunto duly
authorized.
ORIGINAL ISSUANCE DATE: September 30, 1997
WITNESS: DAWSON SCIENCE CORPORATION
/s/ Andrew Lee By: /s/ Zhi-Jian Wu
Name: Andrew Lee Zhi-Jian Wu, President
Address: 43 Appleton Place duly authorized
Dobbs Ferry, NY 10522
USA
/s/ Zhi-Jian Wu
Zhi-Jian Wu, individually,
only with respect to
Paragraph 2 hereof.
NOTARIZATION
County: New York
State: New York
On this 30th day of September, 1997, before me personally
appeared Zhi-Jian Wu, to me known to be the person described in
and who executed the foregoing instrument, and acknowledged that
he executed the same as his free act and deed.
/s/ Fanny Paulits
Notary Public
My Commission Expires:
EXHIBIT A
NOTICE OF CONVERSION
To: DAWSON SCIENCE CORPORATION
1. The undersigned hereby elects to convert the attached
Note into _____ shares of Common Stock of DAWSON SCIENCE
CORPORATION pursuant to the terms of the attached Note, and
tenders herewith the Note for cancellation.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name
or names as are specified below.
3. The undersigned represents that the aforesaid shares of
Common Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling
such shares. The undersigned further represents that such shares
shall not be sold or transferred unless either (i) they first
shall have been registered under applicable state securities laws
or (ii) or an exemption from applicable state registration
requirements is available.
(Name)
(Address)
(Signature)
(Date)
APPENDIX A
[For U.S. Residents Only]
An "Accredited Investor" within the meaning of Regulation D under
the Securities Act of 1933 includes the following:
Organizations
(1) A bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in
section 3(a)(5)(A) of the Act, whether acting in its individual
or fiduciary capacity; a broker or dealer registered pursuant to
section 15 of the Securities Exchange Act of 1934; insurance
company as defined in section 2(13) of the Act; an investment
company registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of
that act; a Small Business Investment Company licensed by the
U.S. Small Business Administration under section 301(c) or (d) of
the Small Business Investment Act of 1958; an employee benefit
plan within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, if the investment decision is made
by a plan fiduciary, as defined in section 3 (21) of such act,
which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by
persons that are accredited investors.
(2) A private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000,
(ii) not formed for the specific purpose of acquiring the
Securities, (iii) whose purchase is directed by a person who,
either alone or with his purchaser representative, has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an
organization described in section 501(c)(3) of the Internal
Revenue Code, which was not formed for the specific purpose of
acquiring the Securities, and which has total assets in excess of
$5,000,000.
Individuals
(5) Individuals with income from all sources for each of
the last two full calendar years whose reasonably expected income
for this calendar year exceeds either of:
(i) $200,000 individual income; or
(ii) $3 00,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated
by adding to your adjusted gross income as calculated for Federal
income tax purposes any deduction for long term capital gains,
any deduction for depletion allowance, any exclusion for tax
exempt interest and any losses of a partnership allocated to you
as a partner.
(6) Individuals with net worth as of the date hereof
(individually or jointly with your spouse), including the value
of home, furnishings, and automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of
the Issuer.
STOCK PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of September 30, 1997, made by
Zhi-Jian Wu, an individual whose address is c/o Dawson Science
Corporation, 70 East 55th Street, 20th Floor, New York, New York
10022 (the "Stockholder"), in favor of Neolite Neon Co. Pty. Ltd.
(the "Lender").
WHEREAS, Dawson Science Corporation ("Obligor"), a Nevada
corporation, is entering into a Loan and Security Agreement dated
as of the date hereof with Lender pursuant to which Lender is
extending credit to Obligor (the "Agreement"), as evidenced by
that certain Convertible Promissory Note (the "Note") dated as of
the date hereof in favor of the Lender;
WHEREAS, the Stockholder has executed and delivered to the
Lender a Guaranty Agreement (the "Guaranty Agreement"), dated as
of the date hereof, pursuant to which the Stockholder has
guaranteed the obligations of the Obligor to the Lender under the
Agreement and the Note;
WHEREAS, the Stockholder owns those shares of capital stock
of Obligor identified on Exhibit I hereto;
WHEREAS, the pledge hereunder is intended to secure the
performance of the Stockholder's obligations to the Lender under
the Guaranty Agreement;
WHEREAS, to further secure Stockholder's Obligations to
Lender under the Guaranty Agreement, Stockholder has pledged to
Lender a portion of his ownership interest in Shenzhen Zhenghua
Group, Ltd.;
WHEREAS, as a condition to the Lender entering into the
Agreement and accepting the Note, and in consideration of all
extensions of credit made and which may in the future be provided
to Obligor by Lender, the Stockholder has agreed to execute and
deliver the Guaranty Agreement and this Pledge Agreement;
NOW, THEREFORE, in consideration of these premises and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the Stockholder hereby agrees for the
benefit of the Lender as follows:
4. Defined Terms. Unless otherwise defined herein, the
following terms shall have the respective meanings set forth
below:
"Collateral" has the meaning specified in Section 2
hereof.
"Event of Default" shall mean failure to pay or perform
any of the Obligations when due, or an Event of Default
under the Agreement or the Note.
"Pledge Agreement" shall mean this Pledge Agreement, as
it may be amended, supplemented or otherwise modified.
"Obligations" shall mean (i) the prompt and complete
payment and performance when due of all of the Stockholder's
obligations under the Guaranty Agreement and the other
instruments and documents relating to or evidencing
obligations of Guarantor to Lender, whether as guarantor or
otherwise (collectively, the "Credit Documents"); (ii) the
prompt and complete payment and performance when due of any
and all other indebtedness, liabilities and obligations of
the Stockholder to the Lender, now existing or hereafter
incurred, direct or indirect, absolute or contingent,
secured or unsecured, matured or unmatured, joint or
several, liquidated or unliquidated.
"Pledged Stock" shall mean all of the shares of capital
stock of Dawson Science Corporation listed on Exhibit I
hereto and any stock, options or rights received by the
Stockholder and subject to Section 3 hereof.
5. Pledge. The Stockholder hereby (a) pledges,
hypothecates, assigns and transfers to Brown, Rudnick, Freed &
Gesmer, Counselors at Law, as escrow agent ("Escrow Agent"), all
of the Pledged Stock to be held by Escrow Agent subject to the
terms of that certain Escrow Agreement dated the date hereof
between Lender, Stockholder and Escrow Agent ("Escrow
Agreement"), and hereby grants to the Lender a lien on, and
security interest in, the Pledged Stock and all proceeds thereof
(which shall be a first lien) and (b) delivers to Escrow Agent
the stock certificates evidencing the Pledged Stock identified on
Exhibit I hereto, together with appropriate undated stock powers
duly executed in blank, all as collateral security for the
payment and performance of the Obligations. All property at any
time pledged to the Lender hereunder (whether described herein or
not) and all income therefrom and proceeds thereof are herein
sometimes collectively called the "Collateral".
6. Dividends, Distributions, etc. If, while this Pledge
Agreement is in effect, the Stockholder becomes entitled to
receive or receives any stock certificate (including, without
limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase or
reduction of capital or issued in connection with any
reorganization), option or rights, whether as an addition to, in
substitution of, or in exchange for, any shares of Pledged Stock
or otherwise, the Stockholder agrees to accept the same as agent
for the Lender, to hold the same in trust on behalf of and for
the benefit of the Lender and to deliver the same forthwith to
the Escrow Agent in the exact form received, with the endorsement
of the Stockholder when necessary and/or appropriate undated
stock or other powers duly executed in blank, to be held by the
Escrow Agent, subject to the terms of the Escrow Agreement, as
additional collateral security for the Obligations. Any sums
paid on or in respect of the Pledged Stock on the liquidation or
dissolution of the issuer thereof shall be paid over to the
Escrow Agent, to be held by the Escrow Agent, subject to the
terms and conditions of the Escrow Agreement, as additional
collateral security for the Obligations; and if any cash
dividends or any other distribution is made on or in respect of
the Pledged Stock or any property is distributed on or with
respect to the Pledged Stock, the cash or other property so
distributed shall be delivered to the Escrow Agent, to be held by
the Escrow Agent, subject to the terms and conditions of the
Escrow Agreement, as additional collateral security for the
Obligations. All sums of money and property so paid or
distributed in respect of the Pledged Stock that are received by
the Stockholder shall, until paid or delivered to the Escrow
Agent, be held by the Stockholder in trust as additional
collateral security for the Obligations.
7. Voting Rights. Prior to any sale of the Pledged Stock,
the Stockholder shall be entitled to vote the Pledged Stock and
to give consents, waivers and ratifications in respect thereof.
8. Rights of the Lender. The Lender shall not be liable
for failure to collect or realize upon the Obligations or any
collateral security or guaranty thereof, or any part thereof, or
for any delay in so doing, nor shall Lender be under any
obligation to take any action whatsoever with regards thereto.
Any or all shares of the Pledged Stock held by the Escrow Agent
hereunder may, if an Event of Default has occurred and is
continuing, and upon written notice by the Lender, be registered
in the name of the Lender or its nominee, for the benefit of the
Lender, and the Lender or its nominee may at any time thereafter,
without notice, exercise all voting and corporate rights of any
issuer of any and all rights of conversion, exchange,
subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if the Lender
were the absolute owner thereof, including (without limitation)
the right to exchange, at its discretion, any and all of the
Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of any such
shares or upon the exercise by any such issuer or the Lender of
any right, privilege or option pertaining to any shares of the
Pledged Stock and, in connection therewith, to deposit and
deliver any and all of the Pledged Stock with any committee,
depository, transfer agent, registrar or other designated agency
on such terms and conditions as the Lender may determine, all
without liability except to account for property actually
received by it, but the Lender shall have no duty to exercise any
of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing.
9. Unconditional Obligations. The obligations and
liabilities of the Stockholder hereunder shall not be conditioned
or contingent upon the pursuit by the Lender or any other person
at any time of any right or remedy against any other person that
may be or become liable in respect of all or any part of the
Obligations or against any collateral security or guaranty
therefor or right of offset with respect thereto. This Pledge
Agreement shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the
Stockholder until all of the Obligations have been fully
satisfied and the Stockholder shall be free from any present or
future obligations under the Credit Documents.
10. Performance by Lender of Stockholder's Obligations. If
the Stockholder fails to perform or comply with any of its
agreements contained herein and the Lender, as provided for by
the terms of this Pledge Agreement, itself performs or complies,
or otherwise causes performance or compliance, with such
agreement, the reasonable expenses of the Lender incurred in
connection with such performance or compliance shall be borne and
paid by the Stockholder on demand and until so paid shall be
added to the principal amount of the Obligations and shall bear
interest (calculated on the basis of a 360-day year for the
actual days elapsed) from the date incurred until paid at the
highest rate applicable to any of the Obligations.
11. Remedies. If an Event of Default has occurred and is
continuing, then, and in any such event, the Lender may exercise,
in addition to all other rights and remedies granted to it in
this Pledge Agreement and in any other Credit Document, all
rights and remedies of a Lender under the Uniform Commercial Code
or other applicable law. Without limiting the generality of the
foregoing, the Stockholder expressly agrees that in any such
event, the Lender, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or on the
Stockholder or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived,
forthwith collect, receive, appropriate and realize on the
Collateral, or any part thereof, and forthwith sell, assign, give
option or options to purchase, contract to sell or otherwise
dispose of and deliver the Collateral, or any part thereof, in
one or more units, parcels, or lots at one or more public or
private sales, at any exchange or broker's board or at any of the
Lender's offices or elsewhere, on such terms and conditions as it
may deem advisable and at such prices as it may deem appropriate,
for cash or on credit or for future delivery without assumption
of any credit risk, with the right to the Lender upon any such
sale or sales, public or private, to purchase the whole or any
part of said Collateral so sold. Any purchaser at any such sale
or sales shall acquire the property sold absolutely free from any
claim or right on the part of Stockholder, and Stockholder hereby
waives (to the extent permitted by applicable law) all rights,
redemptions, stays and appraisal rights which Stockholder now
has, or may at any time in the future have, under any rule of law
or statute now existing or hereafter enacted. The net proceeds
of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the
care, safekeeping or otherwise of any and all of the Collateral
or in any way relating to the rights of the Lender hereunder,
including reasonable attorneys' fees and legal expenses, shall be
applied to the payment of the Obligations in such order as the
Lender may determine, and, after all of the Obligations have been
paid in full and after payment of any other amount required by
any provision of law, including (without limitation) Section
9-504(l)(c) of the Uniform Commercial Code, the balance (if any)
of such proceeds shall be remitted to the Stockholder or as
otherwise required by a court of competent jurisdiction. To the
extent permitted by applicable law, the Stockholder waives all
claims, damages and demands against the Lender arising out of the
retention or sale of the Collateral unless resulting from such
Lender's willful misconduct. The Stockholder agrees that the
Lender need not give more than ten (10) days' notice (which
notice shall be deemed given on the earlier of mailing or
receipt) of the time and place of any public sale or of the time
after which a private sale or other intended disposition is to
take place and that such notice is reasonable notification of
such matters. No notification need be given to the Stockholder
if it has signed after default a statement renouncing or
modifying any right to notification of sale or other intended
disposition. The Lender may, without notice or publication,
adjourn any public or private sale, or cause such sale to be
adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be
made at the time and place to which such sale is so adjourned.
Stockholder shall remain liable for any deficiency if the net
proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations.
12. Representations and Warranties. The Stockholder
represents and warrants to the Lender that:
(a) the execution, delivery and performance of this
Pledge Agreement, and the granting of liens pursuant hereto,
and the Escrow Agreement have been duly authorized by all
requisite action on its part, and do not require the consent
of any party;
(b) this Pledge Agreement and the Escrow Agreement
have been duly executed and delivered by the Stockholder and
are legal, valid and binding obligations, enforceable
against the Stockholder in accordance with their respective
terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforceability of
creditors' rights generally or by general principles of
equity;
(c) the Stockholder is the record and beneficial owner
of, and has good and valid title to, the Pledged Stock
described on Exhibit I hereto, and it will be owner of, and
have such title to, all other Pledged Stock described in
Section 3 hereof owned by it subject to no lien whatsoever
(except the liens created hereby);
(d) all the shares of Pledged Stock described on
Exhibit I hereto have been, and all shares of Pledged Stock
described in Section 3 hereof will be, duly and validly
issued for good and valuable consideration and are, or will
be, fully paid and non-assessable; and
(e) the pledge, assignment and delivery of the Pledged
Stock described on Exhibit I hereto creates, and the
delivery of any Pledged Stock described in Section 3 hereof
will create, a valid lien on, and perfected security
interest in, such Pledged Stock and the proceeds thereof,
subject to no prior lien or option or any agreement
purporting to grant to any third party a prior lien on the
Stockholder's property or assets that would include such
Pledged Stock.
13. Covenants. The Stockholder covenants and agrees with
the Lender that so long as any Obligations are outstanding:
(a) it will, upon the Lender's written request, defend
the Secured Parties' right, title and first priority
security interest in and to the Pledged Stock and the
proceeds thereof against the claims and demands of all
persons whomsoever;
(b) it will have or obtain promptly good title
(subject to no lien whatsoever, except the liens created by
this Pledge Agreement) to and right to pledge any other
property at any time hereafter pledged to the Lender as
collateral security hereunder and will likewise defend the
Lender's right and title thereto and liens thereon;
(c) it will not sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to
any of the Collateral, nor will it create, incur or permit
to exist any lien with respect to any of the Collateral, any
interest therein or any proceeds thereof (except for the
liens created by this Pledge Agreement); and
(d) it will not vote to enable any issuer of any
Pledged Stock, and will not otherwise agree to permit any
issuer of any Pledged Stock, to merge or consolidate with,
or into, any other corporation or issue any stock or other
securities of any nature in addition to or in exchange or
substitution for any Pledged Stock.
14. Sale of Collateral.
(a) The Stockholder recognizes that the Lender may be
unable to effect a public sale of any or all of the Pledged
Stock by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws and may
be compelled to resort to one or more private sales thereof
to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such securities for
their own accounts for investment and not with a view to the
distribution or resale thereof. The Stockholder
acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the
seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that the private
(rather than public) nature of such sale shall be deemed to
be commercially reasonable. The Lender shall be under no
obligation to delay a sale of any of the Pledged Stock for
the period of time necessary to permit the issuer thereof to
register such securities for public sale under the
Securities Act or under applicable state securities laws,
even if such issuer would agree to do so.
(b) The Stockholder further agrees to do or cause to
be done all such other acts and things required to be done
by it to make such sale or sales of any portion or all of
the Pledged Stock valid and binding and in compliance with
any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts,
arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales,
all at the Stockholder's expense. The Stockholder further
agrees that a breach of any of the covenants contained in
this Section 11 will cause irreparable injury to the Lender,
that the Lender has no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and
every covenant contained in this Section 11 shall be
specifically enforceable against the Stockholder, and the
Stockholder hereby waives (to the extent permitted by
applicable law) and agrees not to assert any defenses
against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred.
15. Further Assurances. The Stockholder agrees that at any
time and from time to time, on the written request of the Lender,
the Stockholder will execute and deliver such further documents
and do such further acts and things as the Lender may reasonably
request in order to effectuate the purposes of this Pledge
Agreement.
16. Limitation on Lender's Duty in Respect of Collateral.
Beyond the safe custody thereof, the Lender shall not have any
duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of it or any income
thereon or as to the preservation of rights against prior parties
or any other rights pertaining thereto.
17. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications related to
this Pledge Agreement to or on the Stockholder or the Lender
shall be in writing (including teletransmissions), and shall be
given or made in accordance with the notice provisions set forth
in the Agreement.
18. Severability. Any provision of this Pledge Agreement
that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
19. No Waiver, Cumulative Remedies. The Lender shall not
by any act, delay, omission or otherwise be deemed to have waived
any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by the Lender, and then only to
the extent therein set forth. A waiver of any right or remedy
hereunder on any occasion shall not be construed as a bar to any
right or remedy that the Lender would otherwise have on any
future occasion. No failure to exercise nor any delay in
exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise of any right,
power or privilege hereunder or the exercise of any other right,
power or privilege. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
20. No Oral Modification, Successors, Governing Law. None
of the terms or provisions of this Pledge Agreement may be
waived, altered, modified or amended except by an instrument in
writing, duly executed by the Lender. This Pledge Agreement and
all obligations of the Stockholder hereunder shall be binding on
its successors and assigns and shall, together with the rights
and remedies of the Lender hereunder, inure to the benefit of the
Lender and its respective successors and assigns. This Pledge
Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York (United
States).
21. Submission to Jurisdiction, Waiver of Trial by Jury.
(a) For purposes of any action or proceeding involving
this Pledge Agreement or any other agreement or document
referred to herein, the Stockholder hereby expressly submits
to the jurisdiction of all federal and state courts located
in the State of New York (United States) and consents that
any order, process, notice of motion or other application to
or by any of said courts or a judge thereof may be served
within or without such court's jurisdiction by registered
mail or by personal service, provided a reasonable time for
appearance is allowed.
(b) THE STOCKHOLDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE
LAW) (i) ANY RIGHT HE MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING UNDER OR RELATING TO THIS PLEDGE AGREEMENT
OR ANY OTHER DOCUMENT OR AGREEMENT REFERRED TO HEREIN, AND
AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE
SITTING WITHOUT A JURY and (ii) ANY RIGHT TO CONTEST THE
APPROPRIATENESS OF ANY ACTION BROUGHT WITHIN THE
JURISDICTION MENTIONED IN PARAGRAPH (a) OF THIS SECTION 18
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS.
22. Fees and Expenses. Any and all reasonable fees, costs
and expenses of whatever kind or nature, including the reasonable
fees and legal expenses incurred by the Lender's counsel in
connection with the payment or discharge of any taxes, counsel
fees, maintenance fees, encumbrances or otherwise protecting,
maintaining or preserving the Collateral, or in defending or
prosecuting any actions or proceedings arising out of or related
to the Collateral, shall be borne and paid by the Stockholder on
demand and until so paid shall be added to the principal amount
of the Obligations and shall bear interest (calculated on the
basis of 360-day year for the actual days elapsed) from the date
incurred until paid at the highest rate applicable to any of the
Obligations.
23. Termination. This Agreement shall terminate when all
of the Obligor's obligations under the Agreement and the Note
have been fully paid, and all of the Obligations have been fully
paid, at which time Lender shall reassign and deliver to the
Stockholder the Collateral, or such part thereof as shall not
have been sold or otherwise applied by Lender pursuant to the
terms hereof, and shall still be held by Escrow Agent under the
Escrow Agreement, together with appropriate instruments of
reassignment. Any such reassignment shall be without recourse to
or warranty by Lender and at the expense of Stockholder.
24. Counterparts. This Pledge Agreement may be executed in
any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same
instrument.
25. Descriptive Headings. The captions in this Pledge
Agreement are for convenience of reference only and shall not
define or limit the provisions hereof.
IN WITNESS WHEREOF, the Stockholder has caused this Pledge
Agreement to be duly executed and delivered under seal as of the
date first written above.
WITNESS:
/s/ Andrew Lee /s/ Zhi-Jian Wu
Zhi-Jian Wu
COUNTY: NEW YORK
STATE: NEW YORK
On this 30 of September, 1997, before me personally appeared
Zhi-Jian Wu, to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he
executed the same as his free act and deed.
/s/ Fanny Paulits
Name:
Notary Public:
[SEAL]
EXHIBIT I
PLEDGED STOCK
Issuer Class of Stock Number of Shares
Dawson Science Common Stock 500,000
Corporation
Dawson Science Convertible Preferred 200,000
Corporation Stock
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of September 30, 1997 among
Zhi-Jian Wu, an individual whose address is c/o Dawson Science
Corporation, 70 East 55th Street, 20th Floor, New York, New York
10022 ("Mr. Wu"), Neolite Neon Co. Pty. Ltd, whose address is 225
Queen Street, Beaconsfield 2015, Sydney, Australia ("Lender"),
Dawson Science Corporation, whose address is 70 East 55th Street,
20th Floor, New York, NY 10022 (the "Borrower") and Brown,
Rudnick, Freed & Gesmer, P.C. ("Escrow Agent").
WHEREAS, Borrower, of which Mr. Wu is President and a
principal stockholder, has entered into a Loan and Security
Agreement of even date herewith with Lender ("Loan Agreement")
and has issued Lender a Convertible Promissory Note of even date
("Note"), related to certain loans and extensions of credit
provided by Lender to the Borrower under the terms and conditions
set forth in the Loan Agreement (the Loan Agreement and the Note
are hereafter collectively referred to as the "Loan Documents");
WHEREAS, Mr. Wu has guaranteed the obligations of the
Borrower to the Lender under the Loan Documents pursuant to a
Guaranty Agreement of even date between Mr. Wu and Lender (the
"Guaranty Agreement");
WHEREAS, in order to secure Mr. Wu's obligations under the
Guaranty Agreement and Loan Documents to each Lender, Mr. Wu has
executed a Stock Pledge Agreement, of even date, in favor of
Lender, pursuant to which Mr. Wu has pledged capital stock of the
Borrower (the "Pledged Shares");
WHEREAS, the parties desire that the Escrow Agent hold the
Pledged Shares in escrow in accordance with the terms hereof;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
26. Borrower, Lender and Mr. Wu hereby designate and
appoint Escrow Agent as the escrow agent for the purposes set
forth herein, and hereby authorize and direct the Escrow Agent to
hold the number of shares of Common Stock and Convertible
Preferred Stock of the Borrower (along with executed blank stock
powers) specified on Schedule I hereto (the "Shares"), pursuant
to the terms set forth herein.
27. The terms of this Escrow Agreement may be altered,
amended, modified or revoked only by the written consent of
Borrower, Lender, Mr. Wu and the Escrow Agent.
28. Escrow Agent shall only disburse the Shares in
accordance with written instructions, in form and substance
satisfactory to Escrow Agent, jointly executed by Mr. Wu and
Lender.
29. In the event that a dispute arises among the parties
involving any responsibility of the Escrow Agent hereunder,
Escrow Agent shall continue to hold the Shares until it has been
furnished with a statement in writing jointly signed by both
Lender and Mr. Wu, instructing Escrow Agent as to the manner in
which it is to dispose of the Shares. Upon receiving such
statement, Escrow Agent shall dispose of the Shares pursuant to
such statement and Borrower, Lender and Mr. Wu agree to hold
Escrow Agent harmless from any liability or responsibility
therefor. In the event that Escrow Agent is made a party, in
respect to the Shares or any of its responsibilities hereunder,
to any court action or arbitration proceedings, Escrow Agent
shall make no disposition of the Shares, except as required by a
court of competent jurisdiction, or by such arbitrators, and
Borrower, Lender and Mr. Wu shall hold Escrow Agent harmless from
and on account of any expenses which Escrow Agent may incur or
become liable to pay because of any such proceedings and the
holding of the Shares. In the event of a dispute as to the
disposition of any of the escrowed documents, Escrow Agent may
apply to any court of competent jurisdiction for a determination
of the rights of the parties with respect thereto, and shall be
relieved of any further liability on account hereof.
30. Escrow Agent assumes no obligation or responsibility
hereunder other than to make delivery of the Shares as provided
above. Escrow Agent shall not be bound by any agreement or
contract not expressly referenced herein, regardless of whether
Escrow Agent has knowledge thereof. Borrower, Lender and Mr. Wu
jointly and severally agree to assume liability for and do hereby
agree to indemnify, protect, save and hold harmless Escrow Agent
from and against any and all liabilities, obligations, losses,
damages, claims, actions, suits, costs and expenses of whatever
kind and nature, including attorneys' fees, imposed upon,
incurred by or asserted against Escrow Agent in any way related
to or arising out of this Escrow Agreement.
31. It is expressly understood by all parties that Brown,
Rudnick, Freed & Gesmer, P.C. acts as counsel to Borrower, and
that neither anything contained in this Escrow Agreement nor
Escrow Agent's execution hereof, shall in any way affect or
require termination of such representation of Borrower.
32. If the Escrow Agent reasonably requires other or
further instruments in connection with this Escrow Agreement or
obligations in respect hereto, the necessary parties hereto shall
join in furnishing such instruments.
33. Any notice required or permitted hereunder shall be
given in writing by registered or certified mail, at the
addresses set forth below.
34. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. Unless otherwise defined herein,
all capitalized terms used herein shall have the meanings
ascribed to them in the Loan Agreement.
EXECUTED as an instrument under seal as of the date first
above written.
MR. WU:
/s/ Zhi-Jian Wu
Zhi-Jian Wu
Notice Address:
c/o Dawson Science Corporation
70 East 55th Street
20th Floor
New York, New York 10022
BORROWER:
DAWSON SCIENCE
CORPORATION
By: /s/ Zhi-Jian Wu
Zhi-Jian Wu, President
Notice Address:
70 East 55th Street
20th Floor
New York, New York 10022
Attn.: Zhi-Jian Wu, President
LENDER:
NEOLITE NEON CO. PTY. LTD.
By: /s/ L. Louback
[Company Seal] Name: L. Louback
Title: Director
Notice Address:
225 Queen Street
Beaconsfield 2015
Sydney, Australia
Attn:
ESCROW AGENT:
BROWN, RUDNICK, FREED
& GESMER, P.C.
By: /s/ John G. Nossiff, Jr.
John G. Nossiff, Jr.
Notice Address:
One Financial Center
Boston, MA 02111
Attn: John G. Nossiff, Jr.
SCHEDULE I
200,000 shares of Convertible Preferred Stock of Dawson Science
Corporation and 500,000 shares of Common Stock of Dawson Science
Corporation (along with blank stock powers, with signature
guaranteed).
GUARANTY AGREEMENT
W I T N E S S E T H :
WHEREAS, Dawson Science Corporation ("Obligor"), a Nevada
corporation, is entering into a Loan and Security Agreement dated
the date hereof with Neolite Neon Co. Pty. Ltd. (the "Lender")
pursuant to which certain loans and other extensions of credit
have been and will be made by the Lender to Obligor (the "Credit
Agreement") and, in connection therewith, is delivering to Lender
a Convertible Promissory Note dated the date hereof (the "Note");
WHEREAS, the undersigned, Zhi-Jian Wu (the "Guarantor"), is
a principal stockholder and an officer of Obligor;
WHEREAS, as a condition to entering into the Credit
Agreement and the Note, and making advances thereunder, the
Lender has required that Guarantor guarantee the full and prompt
payment and performance of all obligations of Obligor to Lender,
including, without limitation, obligations respecting all loans
made under the Credit Agreement and the Note (the Credit
Agreement and the Note are hereinafter collectively referred to
as the "Loan Documents");
WHEREAS, to secure his obligations to the Lender hereunder,
the Guarantor has executed and delivered to the Lender a Stock
Pledge Agreement dated the date hereof under which he has pledged
shares of Borrower to Lender;
WHEREAS, to further secure his obligations to Lender
hereunder, Guarantor has pledged to Lender a portion of his
ownership interest in Shenzhen Zhenghua Group, Ltd.;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and in
consideration of any and all loans, advances, and extensions of
credit now or hereafter made or extended by Lender to, for the
account of or on behalf of Obligor pursuant to and under the Loan
Documents and as an inducement for the Lender to make future
loans, advances and extensions of credit to Obligor, Guarantor
hereby unconditionally and absolutely guarantees to Lender the
full and prompt payment and performance by Obligor of all
obligations which Obligor now or hereafter may have to Lender,
whether now existing or hereafter arising, including without
limitation, all obligations which Obligor may now or hereafter
have to Lender under the Loan Documents, as the same may be
amended, extended, modified or renewed and the full and prompt
payment when due, subject to any applicable grace period, of all
principal, interest, charges and all other sums which Obligor may
now or hereafter owe to Lender arising under the Loan Documents
howsoever evidenced, whether secured or unsecured, and hereby
agrees to indemnify Lender against any losses Lender may sustain
and any expenses it may incur as a result of any default by
Obligor under the Loan Documents, or as a result of the
occurrence of any Event of Default under or as defined in the
Loan Documents, and/or as the result of the enforcement or
attempted enforcement by, or on behalf of, the Lender of any of
its rights against the Guarantor hereunder.
This Guaranty is a continuing, unconditional and absolute
guaranty of payment and performance. The obligations of the
Guarantor hereunder are primary, with no recourse necessary by
Lender against the Obligor or any collateral given to secure the
obligations guaranteed hereby prior to proceeding against the
Guarantor hereunder. If for any reason any installment or any
other sum or indebtedness now or hereafter owing by Obligor to
Lender under the Loan Documents shall not be paid promptly when
due, after the expiration of any applicable cure period,
Guarantor will forthwith pay such sum to Lender, without regard
to any counterclaim, set-off, deduction or defense of any kind
which Obligor or Guarantor may have or assert, and without
abatement, suspension, deferment or reduction on account of any
occurrence whatsoever. The Guarantor hereby waives notice of and
consents to all of the provisions of the Loan Documents, to any
amendments thereof, to any actions taken thereunder, and to the
execution by Obligor of the Loan Documents and of any other
agreements, documents and instruments now or hereafter executed
by Obligor in connection therewith. The Guarantor further waives
the following: notice of incurring of indebtedness and
obligations by Obligor; acceptance of this Guaranty by Lender;
presentment and demand for payment, protest, notice of protest
and notice of dishonor or non-payment of any instrument
evidencing the indebtedness or obligations to Obligor; any right
to require suit against Obligor or any other party before
enforcing this Guaranty; any right to have security applied
before enforcing this Guaranty; any right of subrogation to
Lender's rights against Obligor until Obligor's indebtedness and
obligations to Lender are paid in full; all defenses which might
constitute a legal or equitable discharge of a surety or
guarantor; and all other notices and demands otherwise required
by law which the Guarantor may lawfully waive. Guarantor agrees
that in the event this Guaranty is enforced by suit or otherwise,
Guarantor will reimburse Lender upon demand for all expenses
incurred in connection therewith, including without limitation,
reasonable attorneys' fees and expenses.
Guarantor's obligations hereunder shall not be released,
discharged, terminated or impaired in any manner whatsoever,
irrespective of the lack of any notice to or consent of the
Guarantor, by any of the following: (a) new agreements or
obligations of Obligor with or to Lender; (b) amendments,
indulgences, extensions, modifications, renewals or waivers of
default as to any existing or future agreements or obligations of
Obligor or third parties with or to Lender, or extensions of
credit by Lender to Obligor; (c) adjustments, compromises or
releases of any obligations of Obligor, Guarantor or other
parties, including any other guarantors, or exchanges, releases,
dispositions or sales of any security of Obligor, Guarantor or
other parties, including any other guarantors; (d) invalidity,
irregularity, defect, or unenforceability, for any reason, of any
provision of any of the Loan Documents, or of any instrument or
writing, or of any security or other guaranty, or acts or
omissions by Lender or Obligor; (e) failure to perfect any lien
securing the obligations of Obligor, Guarantor or other parties,
including any other guarantors; (f) interruptions in the business
relations between Lender and Obligor; (g) voluntary or
involuntary bankruptcy (including a reorganization in bankruptcy)
of Obligor or entry of an order for relief against or with
respect to the Obligor under Title 11 of the United States Code;
(h) composition, extension, moratoria or other forms of debtor
relief granted to Obligor pursuant to law presently in force or
hereafter enacted; (i) payment of any or all obligations and
indebtedness of Obligor in the event such payment is invalidated
or avoided by a trustee, custodian or receiver of Obligor; (j)
the dissolution of Obligor; and (k) the reorganization, merger or
consolidation of Obligor into or with another entity, corporate
or otherwise, or the sale or disposition of all or substantially
all of the capital stock, business or assets of Obligor to any
other person or party.
For the purposes of this Guaranty and indemnity, all sums
owing to Lender by Obligor shall be deemed at Lender's election,
and without notice, to have become immediately due and payable if
Obligor defaults in any of its obligations or indebtedness to
Lender after expiration of any applicable cure period, or if
there shall occur an Event of Default as defined in any of the
Loan Documents, and the Guarantor shall thereupon promptly pay
Lender the entire amount of said indebtedness and obligations of
Obligor, and Lender shall, after the expiration of any applicable
cure period, be entitled to take any action deemed necessary or
advisable to enforce this Guaranty, including, without
limitation, the enjoining of any breach or threatened breach of
this paragraph.
Guarantor represents to Lender that after giving effect to
this Guaranty and the transactions contemplated by the Loan
Documents (and after taking into account all recoveries Lender is
likely to realize from Obligor on Obligor's obligations to
Lender): (i) the aggregate value of all of the assets and
properties of the Guarantor, at a fair valuation, will be greater
than the total amount which Guarantor is likely to be actually
required to pay on claims, including contingent claims; (ii) the
aggregate present fair saleable value of Guarantor's assets will
be greater than the amount that will be required to pay
Guarantor's probable liability on debts, including contingent
liabilities, as they become absolute and mature; (iii) Guarantor
has (and has no reason to believe that he will not have)
sufficient capital for the conduct of his business; and (iv)
Guarantor does not intend to incur, and does not believe that he
has incurred, debts beyond his ability to pay as they mature.
For purposes of any action or proceeding involving this
Guaranty or the Agreements or any other agreement or document
referred to therein, Guarantor hereby expressly submits to the
jurisdiction of all federal and state courts located in the State
of New York and consents that any order, process, notice of
motion or other application to or by any of said courts or a
judge thereof may be served within or without such court's
jurisdiction by registered mail or by personal service.
GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) (I) ANY RIGHT
HE MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR
RELATING TO THIS GUARANTY OR THE AGREEMENTS AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY
AND (II) ANY RIGHT TO CONTEST THE APPROPRIATENESS OF ANY ACTION
BROUGHT IN ANY COURT WITHIN THE JURISDICTION MENTIONED IN THE
PRECEDING PARAGRAPH BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE AND FORUM NON CONVENIENS.
This Guaranty and all terms and conditions hereof shall be
binding upon Guarantor, its successors and assigns, and shall
inure to the benefit of Lender and its successors and assigns.
Legal rights and obligations hereunder shall be governed by and
construed in accordance with the laws of the State of New York.
Wherever the context so requires herein, the singular number
includes the plural, and the plural number includes the singular.
IN WITNESS WHEREOF, Guarantor has executed this instrument
this 30 day of September, 1997.
WITNESS:
/s/ Andrew Lee /s/Zhi-Jian Wu
Name: Andrew Lee Name: Zhi-Jian Wu
Address: 48 Appleton Pl.
Dobbs Ferry, NY 10522
U.S.A.
COUNTY: New York
STATE: New York
On this 30 of September, 1997, before me personally appeared
Zhi-Jian Wu, to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that he
executed the same as his free act and deed.
/s/ Fanny Paulits
Name:
Notary Public
[SEAL]
Exhibit 10.9
GRID PROMISSORY NOTE
US$1,000,000.00 New York, New York
July 3, 1997
FOR VALUE RECEIVED, DAWSON SCIENCE CORPORATION, a
Nevada corporation (the "Borrower"), promises to pay to the order
of WHARTON CAPITAL PARTNERS, LTD., a New York corporation (the
"Lender"), at its address located at 545 Madison Avenue, New
York, New York 10022, or at such other address as to which the
Lender shall give written notice to the Borrower, in lawful money
of the United States of America and in immediately available
funds, the sum of One Million Dollars (US$1,000,000.00) or the
aggregate outstanding amount of all loans made by the Lender to
the Borrower from the date hereof through April 2, 1998, as
conclusively evidenced by written endorsement with respect
thereto by any officer of the Lender on the schedule hereto
annexed as Exhibit A, whichever is less; provided, however, that
the Lender's failure to make such notation with respect to any
loan described herein shall not limit or otherwise affect any
obligation of the Borrower with respect to payments of principal
and interest hereunder. The Borrower further promises to pay
interest at such address, in like money, from the date hereof on
the outstanding principal amount owing hereunder as set forth
herein.
Payment of principal on any loans hereunder
(regardless of when made) shall be due and payable in full on
April 2, 1998 or on such earlier date on which the principal
balance is due by reason of acceleration or otherwise (the
"Maturity Date").
Interest on the outstanding principal balance under
this Grid Promissory Note shall accrue at the rate of 8% per
annum. Interest hereunder shall accrue daily on the basis of a
360-day year and for the actual number of days elapsed. Payments
of interest hereunder shall be due and payable on the first
business day of each calendar month, with the first such payment
due on August 1, 1997 and the final payment due and payable on
the Maturity Date.
Any overdue amount hereunder shall bear interest at a
rate per annum equal to 10% on the amount overdue or on the
entire unpaid balance of principal and interest outstanding under
any loans hereunder, including accrued interest, if it has been
accelerated. In no event, however, shall interest hereunder
exceed the maximum rate allowed under applicable law.
This Grid Promissory Note may be prepaid in whole or
in
part without penalty. Any such prepayment shall be applied first
to interest and then to principal installments due in inverse
order of maturity.
To induce the Lender loan funds hereunder, the
Borrower
represents and warrants to the Lender that:
(a) The Borrower and each of its subsidiaries (the
"Subsidiaries") (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its organization, (b) has all requisite power and authority to
own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do
business in every jurisdiction where such qualification is
required, except where the failure so to qualify would not result
in a material adverse effect on the condition (financial and
otherwise) of the Company and the Subsidiaries taken as a whole
(a "Material Adverse Effect"), and (d) has the power and
authority to execute, deliver and perform its obligations under
this Grid Promissory Note, the Pledge Agreement (as defined
below) and each other agreement or instrument contemplated hereby
and thereby (collectively, the "Loan Documents") to which it is
or will be a party, and to borrow hereunder.
(b) The execution, delivery and performance by the
Borrower of each of the Loan Documents and any borrowings
hereunder (collectively, the "Transactions") (a) have been duly
authorized by all requisite corporate and, if required,
stockholder action, and (b) will not (i) violate (A) any
provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive
documents or by-laws of the Borrower or any Subsidiary, (B) any
order of any Federal, state, local or foreign court or
governmental agency, authority, instrumentality or regulatory
body (collectively, "Governmental Authority"), or (C) any
provision of any indenture, agreement or other instrument to
which the Borrower or any Subsidiary is a party or by which any
of them or any of their property is or may be bound, (ii) be in
conflict with, result in a breach of or constitute (alone or with
notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (iii) result in the
creation or imposition of any lien or encumbrance upon or with
respect to any property or assets now owned or hereafter acquired
by the Borrower or any Subsidiary.
(c) This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan
Document when executed and delivered by the Borrower will
constitute, a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms.
(d) No action, consent or approval of, registration
or
filing with or any other action by any Governmental Authority is
or will be required in connection with the Transactions, except
such as have been made or obtained and are in full force and
effect. The Borrower has made, or promptly after the execution
hereof will make, all public disclosures required under
applicable law (including applicable securities laws) in
connection with this Grid Promissory Note and the transactions
contemplated hereby.
(e) Each of the Borrower and the Subsidiaries has
good
and marketable title to, or valid leasehold interests in, all its
material properties and assets, except for minor defects in title
that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties and assets for
their intended purposes. All such material properties and assets
are held free and clear of all liens, encumbrances and defects.
(f) (i) There are no actions, suits or proceedings
at
law or in equity or by or before any Governmental Authority now
pending or, to the best knowledge of the Borrower after due
inquiry, threatened against or affecting the Borrower or any
Subsidiary or any business, property or rights of any such person
(A) which involve any Loan Document or any Transaction (B) as to
which there is a reasonable possibility of an adverse
determination and which, if adversely determined, could,
individually or in the aggregate, result in a Material Adverse
Effect.
(ii) Neither the Borrower nor any of the
Subsidiaries is in violation of any law, rule or regulation, or
in default with respect to any judgment, writ, injunction or
decree of any Governmental Authority, where such violation or
default could result in a Material Adverse Effect.
(g) Each of the Borrower and the Subsidiaries has
filed or caused to be filed all Federal, state, local and foreign
tax returns required to have been filed by it and has paid or
caused to be paid all taxes shown to be due and payable on such
returns or on any assessments received by it, except taxes that
are being contested in good faith by appropriate proceedings
under applicable law and for which the Borrower shall have set
aside on its books adequate reserves.
(h) No information, report, financial statement,
exhibit or schedule furnished by or on behalf of the Borrower to
the Lender in connection with the negotiation of any Loan
Document or included therein or delivered pursuant thereto
contained, contains or will contain any material misstatement of
fact or omitted, omits or will omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were, are or will be made, not
misleading.
Loans, if any under this Grid Promissory Note, may be
made from time to time as and in amounts determined in the sole
discretion of the Lender after receipt of a written request from
the Borrower to make such loans; provided, that (a) the Lender
shall be under no obligation to make any loans hereunder, (b) the
aggregate principal amount which may be borrowed hereunder shall
not exceed US$1,000,000.00 and (c) the giving by the Borrower of
a written request for a loan hereunder shall constitute the
remaking by the Borrower of all of the representations and
warranties set forth herein as of and on such date.
Upon the making of the first loan hereunder, the
Borrower shall issue and deliver to the Lender a number of shares
of the Borrower's common stock as equals US$500,000.00 divided by
the market price (or if there is then no market price, the fair
market value as determined jointly between the Borrower and the
Lender) of such common stock on the date of such loan and as
further agreed to and described in Exhibit B attached hereto.
Such shares shall be deemed a facility fee.
The proceeds of any loans hereunder are to be used by
the Borrower solely for working capital purposes (and only for
the Borrower's United States' operations and for payment of
certain obligations to Price Waterhouse LLP, Hong Kong), to
retain the Borrower's United States' legal counsel and the United
States and Hong Kong offices of Price Waterhouse LLP as the
Borrower's United States' independent public accountants, to pay
fees and related expenses relating to the preparation and filing
of a registration statement on Form 10 and listing of the
Company's common stock for trading on The Nasdaq Stock Market,
Inc. or American Stock Exchange.
This Grid Promissory Note is the "Note" referred to in
that certain Pledge and Security Agreement, dated as of the date
hereof, between the Borrower and the Lender, as the same may be
amended, modified or supplemented from time to time in accordance
with its terms (the "Pledge Agreement"), and is subject to the
terms and conditions set forth therein, which terms and
conditions are incorporated herein by reference.
If any payment under this Grid Promissory Note becomes
due and payable on a Saturday, Sunday or a legal bank holiday
under the laws of the State of New York, the maturity thereof
shall be extended to the next succeeding business day and
interest thereon shall be payable at the rates set forth above
during such extension.
The whole of the principal sum hereunder and accrued
interest thereon shall become due at the option of the Lender, on
demand, upon the occurrence of any "Event of Default" under the
Pledge Agreement.
Presentment for payment, notice of dishonor, protest,
and notice of protest are hereby waived.
The Borrower agrees to pay all reasonable costs
including all reasonable attorneys' fees and disbursements
incurred by the Lender in collecting or enforcing payment of this
Grid Promissory Note in accordance with its terms.
This Grid Promissory Note may be modified or cancelled
only by the written agreement of the Borrower and the Lender.
No delay or failure on the part of the Lender in
exercising any of its options, powers or rights, nor any partial
or single exercise of its options, powers or rights shall
constitute a waiver thereof or of any other option, power or
right, and no waiver on the part of the Lender of any of its
options, powers or rights shall constitute a waiver of any other
option, power or right.
This Grid Promissory Note and the rights and
obligations of the Borrower and the Lender hereof shall be
governed by and construed in accordance with the laws of the
State of New York.
THE BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS GRID PROMISSORY
NOTE AND AGREES THAT ANY SUCH PROCEEDING MAY, IF THE LENDER SO
ELECTS, BE BROUGHT AND ENFORCED IN THE SUPREME COURT OF THE STATE
OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND THE BORROWER HEREBY WAIVES ANY
OBJECTION TO JURISDICTION OR VENUE IN ANY SUCH PROCEEDING
COMMENCED IN ANY OF SUCH COURTS. THE BORROWER FURTHER AGREES
THAT ANY PROCESS REQUIRED TO BE SERVED ON IT FOR PURPOSES OF ANY
SUCH PROCEEDING MAY BE SERVED ON IT, WITH THE SAME EFFECT AS
PERSONAL SERVICE ON IT WITHIN THE STATE OF NEW YORK, BY
REGISTERED MAIL ADDRESSED TO IT AT ITS ADDRESS FOR PURPOSES OF
NOTICES AS PROVIDED IN THE CREDIT AGREEMENT.
If this Grid Promissory Note is lost, stolen,
mutilated or otherwise destroyed, the Borrower shall execute and
deliver to the Lender a new grid promissory note containing the
same terms, and in the same form, as this Grid Promissory Note.
In such event, the Borrower may require the Lender to deliver to
the Borrower an affidavit of lost instrument and customary
indemnity in respect thereof as a condition to the delivery of
any such new grid promissory note.
IN WITNESS WHEREOF, the Lender has caused this Grid
Promissory Note to be duly executed and delivered as of the day
and year first set forth above.
DAWSON SCIENCE CORPORATION
By: /s/ Wu Zhi Jian
Name: Wu Zhi Jian
ATTEST:
/s/ John Seeto
John Seeto
EXHIBIT B
EXHIBIT A
GRID PROMISSORY NOTE ISSUED BY DAWSON SCIENCE CORPORATION
DATED JULY 3,1997
SCHEDULE
OF
ADVANCES AND PAYMENTS OF PRINCIPAL
Date of Amount of
Date of Amount Repayment Repayment Notation
Advance Advance Prepayment Prepayment Made by
Exhibit B
The Borrower will file a registration statement (the
"Registration Statement") with the Securities and Exchange
commission to register such number of shares of Borrower's common
stock (the "Shares'') as are to be issued and delivered to the
Lender as a facility fee pursuant to the attached Grid Promissory
Note (the "Note") and will use its best efforts to have such
Registration Statement declared effective by October 2, 1997. If
such Registration Statement is not declared effective by October
2, 1997, the Borrower shall promptly pay to the Lender, as
liquidated damages and not a penalty, an amount in cash or free
trading shares of Borrower common stock (based upon the closing
bid price of the common stock on July 7, 1997) as equals 2.5% of
the principal balance outstanding under the Note. Such 2.5%
amount shall he paid to the Lender on the second day of each
month after October 1997 until such time as the Registration
Statement is declared effective by the Securities and Exchange
Commission.
Wharton agrees not to sell the Shares until October 1,
1997,
and thereafter, as set forth below:
(a) from October 2, 1997 until December 31, 1997,
Wharton may sell 33.4% of the Shares;
(b) from January 1, 1998 until March 30, 1998,
Wharton may sell 66% of the Shares; and
(c) after March 30, 1998, Wharton may sell 100% of
the Shares.
Notwithstanding anything to the contrary contained in the
Grid Promissory Note, the Shares shall not he delivered to the
Lender until later to occur of (a) October 2, 1997 and (b) the
date that the Registration Statement is declared effective by
the Commission.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Integrated Transportation Network Group Inc.
New York, New York
We hereby consent to the use in the Prospectus
constituting a part of this Registration Statement of our report
dated January 30, 1998, except for Note 1 which is as of
, 1998, relating to the consolidated financial statements of
Integrated Transportation Network Group Inc. and subsidiaries,
which is contained in that Prospectus.
We also consent to the reference to us under the
caption "Experts" in the Prospectus.
/s/ BDO Binder
BDO Binder
March 12, 1988
Exhibit 27.1
This schedule contains summary financial information extracted
from the financial statements of Integrated Transportation
Network Group Inc. and subsidiaries and is qualified in its
entirety by reference to such financial statements.
DOCUMENT
TYPE EX-27.1
DESCRIPTION Art 5 FDS
TEXT For S-1
ARTICLE 5
MULTIPLIER 1,000
CURRENCY US$
FISCAL YEAR-END 12-31-97
PERIOD-START 12-31-97
PERIOD-END 1-1-97
PERIOD TYPE YEAR
CASH 4723
SECURITIES --
RECEIVABLES 786
ALLOWANCES <67>
INVENTORY 97
CURRENT-ASSETS --
PP&E 2185
DEPRECIATION <822>
TOTAL-ASSETS 55954
CURRENT-LIABILITIES --
BONDS --
PREFERRED-MANDATORY --
PREFERRED --
COMMON 60
OTHER-SE 30121
TOTAL-LIABILITY-AND-EQUITY 55954
SALES 12538
TOTAL-REVENUES 12538
CGS --
TOTAL-COSTS 5132
OTHER-EXPENSES --
LOSS-PROVISION --
INTEREST-EXPENSE 726
INCOME-PRETAX 6680
INCOME-TAX 457
INCOME-CONTINUING 6223
DISCONTINUED --
EXTRAORDINARY --
CHANGES --
NET-INCOME 5886
EPS-BASIC .97
EPS-DILUTED .97
/TABLE
/TEXT
/DOCUMENT
/SUBMISSION
