As filed with the Securities and Exchange Commission on June 29,
1998
Registration No. 333-47879
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
To
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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Integrated Transportation Network Group Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 7514
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
13-3993618
(I.R.S. Employer
Identification 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
Proposed maximum
Title of each class of Amount to be offering price
securities to be registered registered per unit(1)
___________________________ ____________ _________________
Common Stock, par value 7,623,000 $4.97
$.01 per share shares
Proposed maximum aggregate
offering price(1) Amount of registration fee
________________________ __________________________
$37,886,310 $11,176.46
(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.
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- ----------------------------------------------------------
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.
PROSPECTUS (Subject to Completion)
Dated June 29, 1998
7,623,000 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 June 30, 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
June 30, 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."
All the assets and operations of the Company will be located
in China, and, as a consequence, the Company will be exposed to
risks particularly associated with doing business in China. See
"Risk Factors - Risks Relating to China".
Immediately after the distribution to Dawson's shareholders,
Wu Zhi Jian ("Mr. Wu"), the chairman of the board, members of his
immediate family and certain officers and directors of the
Company will beneficially own 36.0% of the outstanding shares of
Company Common Stock. As a consequence, Mr. Wu and such other
parties will be able to exercise substantial control in the
election of the Company's directors and all other material
decisions relating to the Company. See "Risk Factors -- Control
by Mr. Wu and Certain Other Persons".
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 will
be made to list the Company Common Stock on the NASDAQ National
Market System ("NMS")under the symbol "ITN". However, there can
be no assurance the Company Common Stock will be approved for
listing on NMS or elsewhere. See "Risk Factors - Limited Market;
Volatility of Share Price".
-----------------
The Company Common Stock involves a high degree of
risk. See "Risk Factors" beginning on page 5.
-----------------
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.
Dated June 29, 1998
TABLE OF CONTENTS
Page
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . .3
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . .5
The Reorganization. . . . . . . . . . . . . . . . . . . . . . 10
Enforceability of Civil Remedies. . . . . . . . . . . . . . . 11
Market for the Common Stock . . . . . . . . . . . . . . . . . 12
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 13
Selected Consolidated Financial Data. . . . . . . . . . . . . 14
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 15
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certain Relationships and Related Transactions. . . . . . . . 33
Principal Shareholders. . . . . . . . . . . . . . . . . . . . 34
Shares Eligible for Future Sale . . . . . . . . . . . . . . . 35
Description of Capital Stock. . . . . . . . . . . . . . . . . 35
Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Validity of Shares. . . . . . . . . . . . . . . . . . . . . . 46
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Available Information . . . . . . . . . . . . . . . . . . . . 47
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 September 30, 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 7,596,936 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 470,000. Unless the context otherwise indicates,
all references to the "Company" refer collectively to Integrated
Transportation Network Group Inc. and its predecessors and
subsidiaries. All monetary amounts in this prospectus are
presented in United States dollars, and the financial statements
in this prospectus have been prepared in accordance with United
States generally accepted accounting principles.
-------------------------
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 in early 1999.
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 Transport further expanded its
transportation business to include automobile rental services in
Jiangxi Province, Guangdong Province, Jiangsu Province and
Shaanxi Province.
The Company does not have any operating business, other than
the businesses operated through Jinzhenghua Transport.
See "Business".
The Reorganization
On March 19, 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 accountants, 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.
Dawson's board of directors and shareholders, on June 25,
and June 29, 1998, respectively, approved a plan of
reorganization that provides for the distribution to Dawson's
shareholders of all the outstanding shares of common stock, par
value $.01 per share, of the Company (the "Company Common Stock")
on or about June 30, 1998. In that connection, each holder of
record shares of Dawson Common Stock at the close of business on
June 30, 1998 will receive, for each four shares of Dawson Common
Stock, one share of Company Common Stock. In lieu of issuing a
fractional share to a holder, the Company will round the number
of shares issued to a holder to the next higher number of shares,
or, at the Company's option, pay the holder an amount in cash
equal to the product of that fraction and 400% of the average low
bid prices of a share of Dawson Common Stock on the 20 trading
days immediately preceding the distribution. Immediately before
the distribution to Dawson's shareholders, Dawson will transfer
to the Company all its assets, including all its interest in
Jinzhenghua Transport, and the Company will assume, and agree to
pay, perform and discharge, and indemnify and hold Dawson
harmless from and against, all Dawson's disclosed liabilities and
obligations.
Promptly following the distribution to Dawson's
shareholders, Dawson will wind-up its affairs and seek to be
dissolved.
As a result of these transactions, shareholders of Dawson
will become shareholders of the Company, which will own the
businesses Dawson currently owns, and Dawson will cease to
operate.
See "The Reorganization".
Summary Selected Consolidated Financial Data
(US$ in thousands, except per share amounts)
Statement of Operations Data:
Three months
Year Ended December 31, ended March 31,
----------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
Revenue, net. . . . $6,208 $9,211 $12,538 $2,316 $5,161
Total expenses. . . 2,910 4,091 5,858 1,096 2,454
Income before
minority interest . 3,146 4,720 6,223 1,119 2,506
Net income. . . . . 3,023 4,563 5,886 1,080 2,313
Pro forma net income
per common share:
Basic. . . . . .50 .76 .97 .18 .38
Diluted. . . . .50 .76 .97 .18 .33
Balance Sheet Data:
At March 31, 1998
----------------------
Revenue earning equipment . . . . . . $30,910
Total assets . . . . . . . . . . . . 58,110
Total liabilities . . . . . . . . . . 18,995
Minority interest . . . . . . . . . . 2,182
Total shareholders' equity. . . . . . 36,933
RISK FACTORS
The following risk factors should be considered carefully in
addition to the other information in this prospectus. This
prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from
those discussed in this prospectus. Factors that could cause or
contribute to such differences include, but are not limited to,
those discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in
this prospectus.
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. These 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
rate of economic growth, unemployment or inflation or 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 of laws and regulations),
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 more than
11.0% between 1991 and 1997; the GNP growth rates in 1995, 1996
and 1997 were 10.5%, 9.7% and 8.8%, respectively. 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 under the Company Law
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 is an FIE. Jinzhenghua Transport
intends to apply for a foreign currency transaction account with
a designated bank. In the event it obtains the foreign currency
transaction account, 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. 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 the
exchange rate will not become volatile again or that there will
be no further devaluation of the Renminbi.
Risks Associated with Dawson
Under the plan of reorganization contemplated by this
prospectus, immediately before the distribution of Company Common
Stock to Dawson's 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. Although the
Company will not assume any undisclosed liabilities, and although
current management is not aware of any such liabilities, or the
assertion of any such liabilities by third parties, there can be
no assurance such liabilities, which may have arisen from the
activities of Dawson or its predecessors, do not exist. If such
liabilities exist and the parties to whom Dawson or its
predecessors may be liable assert claims against Dawson or the
Company in respect of such liabilities, there can be no assurance
the Company would not be responsible for such liabilities, and,
if the Company were responsible for such liabilities, there can
be no assurance such liabilities would not materially and
adversely affect the Company.
Limited Operating History of Rental Business; Risks Associated
with a New Business
Jinzhenghua Transport has been engaged in the Rental
Business for less than a year, and therefore has only a limited
operating history in that business. Accordingly, the Rental
Business is subject to all risks associated with a new business,
and it is difficult to anticipate many of the factors that will
affect the Rental Business's operations. Although the Rental
Business has had earnings since its inception in August 1997,
there can be no assurance the Rental Business will achieve or
sustain growth in revenues or profitability, or even maintain
profitability, in the future.
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 March 31, 1998, $3,833,000 aggregate
principal amount of indebtedness was due and payable within one
year, $320,000 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. In
addition, the Company has committed to purchase 2,000 new
automobiles for an aggregate of $31,366,000, and requires
approximately $1,740,000 to complete construction of the
Company's hotel project. The Company will seek to obtain capital
to finance these commitments and 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, the terms on which such capital
will be raised. To date, the Company has obtained a substantial
portion of its capital from affiliates, and a substantial portion
of the Company's indebtedness to unaffiliated third parties has
been personally guaranteed by Mr. Wu. 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 Condition 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 2,732,217 shares of Company Common Stock, or
36.0% of the then outstanding shares of Company Common Stock
(2,131,860 of which, or 28.1% 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. 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".
Members of the Company's senior management also hold
positions with other companies, including affiliates of the
Company, and are not required to devote their services to the
Company on a full-time basis. The following table sets forth the
approximate percentage of business time the Company's executive
officers devoted to the Company in 1997:
Approximate Percentage of Business Time
Name Devoted to the Company in 1997*
________ ________________________________________
Wu Zhi Jian 50%
Andrew Lee 50
Willy Wu 50
Peng Jun 100
Zhang Li Wei 100
Li Yong Yuan 80
Mona Ng 30
_______________________
* From the date the individual began devoting business time to
the Company.
Although there is no requirement that these individuals' other
employers permit these individuals to continue to devote to the
Company the percentages of their business time set forth above,
the Company expects such other employers to permit these
individuals to continue to devote these percentages of their
business time to the Company at least through June 30, 1999.
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 upon such non-residents
within the United States 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
(i) courts in China would enforce 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, courts in China would enforce
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
Although application will be made to list the Company Common
Stock on NMS, there can be no assurance the Company Common Stock
will be approved for listing on NMS or elsewhere.
The Company and R.I.P. Consultants ("R.I.P.") have entered
into an agreement, pursuant to which R.I.P. will provide the
Company with advice and assistance in connection with the
Company's listing of its common stock on NMS and the Company's
relationship with NMS. In consideration for these services, the
Company has issued 7,500 shares of Company Common Stock to R.I.P.
and will pay R.I.P. $9,000 a month beginning on the first day of
the fourth calendar month after the Company Common Stock is
listed on NMS. The Company or R.I.P. may terminate the agreement
at any time on 30 days' notice. See "Market for the Common
Stock".
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 transactions contemplated by
this prospectus, the Company will have 7,596,936 shares of
Company Common Stock outstanding (excluding shares issuable upon
exercise or conversion of options, warrants and convertible
securities and shares, if any, issued to round up fractional
shares). Of the 7,596,936 shares, an aggregate of 2,432,018
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
On March 19, 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
Dawson's board of directors and shareholders, on June 25,
and June 29, 1998, respectively, 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 June 30, 1998. In that connection, although
management has not been able to satisfy itself that Dawson's
books and records had been correctly maintained in the past,
management has no reason to believe its current list of
shareholders of record is inaccurate. In the distribution, each
holder of record of shares of Dawson Common Stock at the close of
business on June 30, 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 June 30, 1998, the Company will issue to the Dawson
shareholders of record at the close of business on June 30, 1998
certificates evidencing their shares of Company Common Stock.
Immediately before the distribution to Dawson's 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 wind-up its affairs and seek to be
dissolved.
As a result of these transactions (the "Reorganization"),
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
United States 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-United States) 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 of laws 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 United States Internal
Revenue Code of 1984 (the "Code"). Accordingly, for United
States 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 Dawson's shareholders upon
the Reorganization. Each Dawson shareholder's basis, for United
States 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 United States federal income
tax 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 upon such
non-residents within the United States 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. The Company has been
advised by Jun He Law Offices, that there is uncertainty as to
whether (i) courts in China would enforce 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, would enforce liabilities against the
Company or such non-residents predicated upon the securities laws
of the United States or any state.
The Company has been advised by 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 two quarters 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 . . . . . . . . . . 1.30 3.38
Second Quarter (through June 25) . 1.88 2.97
On June 25, 1998, the closing bid price of the Dawson Common
Stock as quoted on NASDAQ was $2.06.
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 June 30, 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. See
"Risk Factors - Limited Market; Volatility of Share Prices".
Application will be made to list the Company Common Stock on
NMS under the symbol "ITN". However, there can be no assurance
the Company Common Stock will be approved for listing on NMS or
elsewhere. 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 March 31, 1998. See "Selected
Consolidated Financial Data" and "Certain Relationships and
Related Transactions".
March 31, 1998
______________
(US$ in thousands,
except numbers of
shares)
Debt:
Bank loans. . . . . . . . . . . . . . . . $ 3,513
Notes payable . . . . . . . . . . . . . . 320
Due to affiliates . . . . . . . . . . . . 5,596
________
Total debt . . . . . . . . . . . . . 9,429
________
Shareholders' equity:
Common Stock, par value $.01 per share:
50,000,000 shares authorized;
7,390,686 shares issued and
outstanding. . . . . . . . . . . . . . 74
Preferred Stock, par value $.01 per share:
5,000,000 shares authorized;
no shares issued or outstanding. . . . 0
Additional paid-in capital . . . . . . . . 17,088
Retained earnings . . . . . . . . . . . . . 19,363
Accumulated other comprehensive income --
foreign currency translation adjustments 408
_______
Total shareholders' equity . . . . . . . . 36,933
_______
Total capitalization . . . . . . . . . $46,362
=======
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. The following selected
consolidated financial data with respect to the Company's
financial position at March 31, 1998 and its results of
operations for the three months ended March 31, 1997 and 1998
have been derived from the unaudited consolidated financial
statements of the Company included elsewhere in this prospectus;
in the opinion of management, such financial data include all
adjustments (consisting of normal recurring adjustments)
necessary to present fairly the information set forth in such
financial data. Interim results are not necessarily indicative
of results for the entire year. 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 ended
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.
<TABLE>
Three months
Year Ended December 31, ended March 31
----------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
Statement of
Operations Data: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue, net. . . .$3,188 $4,728 $6,208 $9,211 $12,538 $2,316 $5,161
Expenses:
Depreciation of
revenue earning
equipment. . . . 759 1,133 1,357 1,755 2,174 444 898
Amortization of
taxi licenses. . 136 199 247 264 266 59 67
Other operating
expenses . . . . 251 439 649 1,468 2,692 479 1,237
Interest expense,
net of interest
income . . . . . 620 641 657 604 726 114 252
Total expenses . 1,766 2,412 2,910 4,091 5,858 1,096 2,454
Income before
provision for
income tax and
minority
interest 1,422 2,316 3,298 5,120 6,680 1,220 2,707
Provision for
income tax . . . 0 7 152 400 457 101 201
Income before
minority
interest 1,422 2,309 3,146 4,720 6,223 1,119 2,506
Minority interest 71 100 123 157 337 39 193
Net income. . . . 1,351 2,209 3,023 4,563 5,886 1,080 2,313
Pro forma net
income per common
share:
Basic. . . . . .22 .37 .50 .76 .97 .18 .38
Diluted. . . . .22 .37 .50 .76 .97 .18 .38
</TABLE>
<TABLE>
December 31, March 31,
--------------------------------------- ---------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Balance Sheet Data: (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue earning
equipment. . . . $5,188 $8,938 $10,269 $8,705 $31,488 $30,910
Taxi licenses. . . 6,822 11,702 12,435 12,200 12,093 12,026
Total assets . . . 12,671 23,717 27,111 29,099 55,954 58,110
Debt:
Bank loans . . . 5,265 4,414 3,873 4,082 3,776 3,513
Notes payable. . 0 0 0 0 4,320 320
Due to affiliates 3,505 6,185 4,542 1,517 6,220 5,596
Total liabilities. 10,254 14,957 14,440 11,475 24,206 18,995
Total shareholders'
equity. . . . . . 2,209 8,483 12,051 16,760 30,181 36,933
</TABLE>
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 scheduled to commence
operations in early 1999.
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,
and from $2,316,000 in the three months ended March 31, 1997 to
$5,161,000 in the three months ended March 31, 1998. Net income
increased from $3,023,000 in 1995 to $4,563,000 in 1996 to
$5,886,000 in 1997, and from $1,080,000 in the three months ended
March 31, 1997 to $2,313,000 in the three months ended March 31,
1998.
The Rental Business, which began operations in August 1997,
accounted for $2,636,000, or 21.0%, of the Company's total
revenue, net, in 1997 and $2,770,000, or 53.7%, of the Company's
total revenue, net, in the three months ended March 31, 1998. At
September 30, 1997, December 31, 1997 and March 31, 1998, the
Rental Business had deployed 370, 570 and 1,218 automobiles,
respectively. The Company's average purchase price for each
automobile deployed in the Rental Business during 1997 and the
three months ended March 31, 1998 was $19,432 and $19,760,
respectively; the average depreciation and other operating
expenses for each such automobile during 1997 and the three
months ended March 31, 1998 was $1,381 and $1,286, respectively;
and the average revenue, net, from each such automobile during
1997 and the three months ended March 31, 1998 was $4,625 and
$4,860, respectively. 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 in 1997 and 74.1%,
or $2,007,000, to the Company's $2,707,000 total income before
provision for income tax and minority interest in the three
months ended March 31, 1998.
The Taxi Business accounted for 96.5%, 83.8%, 67.2% and
39.2% of the Company's total revenue, net, in 1995, 1996, 1997
and the three months ended March 31, 1998, respectively. At
December 31, 1995, 1996 and 1997 and March 31, 1998, the Taxi
Business had deployed 678, 678, 728 and 728 taxi cabs,
respectively. An amount equal to the sum of the Company's
average purchase price for each taxi license plus the average
purchase price for each automobile deployed in the Taxi Business
during 1997 and the three months ended March 31, 1998 was $18,379
and $18,380, respectively, and $19,200 and $20,330, respectively;
the depreciation, amortization and other operating expenses for
each such taxi during 1997 and the three months ended March 31,
1998 was $4,277 and $1,066, respectively; and the average
revenue, net, from each such taxi during 1997 and the three
months ended March 31, 1998 was $11,573 and $2,782, respectively.
The Taxi Business contributed $3,100,000, $4,349,000, $5,161,000
and $1,168,000 to income before provision for income tax and
minority interest in 1995, 1996, 1997 and the three months ended
March 31, 1998, respectively, representing 94.0%, 84.9%, 77.3%
and 43.2%, respectively, of the Company's total income before
provision for income tax and minority interest in 1995, 1996,
1997 and the three months ended March 31, 1998.
The Repair Business accounted for 3.5%, 16.2%, 11.8% and
7.1% of the Company's total revenue, net, and 6.0%, 15.1% , 9.6%
and 4.9% of the Company's total income before provision for
income tax and minority interest in 1995, 1996, 1997 and the
three months ended March 31, 1998, respectively.
The Company's only operations besides the Rental Business,
the Taxi Business and the Repair Business relate to the hotel
being developed in Hunan Province, in respect of which neither
revenue nor expenses were recorded through March 31, 1998.
In 1997 and the three months ended March 31, 1998, the
Company's income before provision for income tax and minority
interest reflects $822,000 and $459,000, respectively, of
accounting, legal and other professional and advisory expenses
that began to accrue in mid-1997 and related primarily to the
proposed Reorganization.
During 1995, 1996, 1997 and the three months ended March 31,
1998, the Company had interest expense, net of interest income,
of $657,000, $604,000, $726,000 and $252,000, respectively, which
reflected interest expense of $673,000, $623,000, $767,000 and
$286,000, respectively, and interest income of $16,000, $19,000,
$41,000 and $34,000, respectively.
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. Enterprises
in Shenzhen are subject to an income tax rate of 15%, compared
with the standard enterprise income tax rate in China of 33%. In
addition, enterprises in the transportation service industry have
a 100% income tax credit for the first year in which they have a
profit, and a 50% income tax credit for the second and third
years.
Three Months Ended March 31, 1997 Compared With
Three Months Ended March 31, 1998
- ------------------------------------------------
Three Three
Months Percent- Months Percent-
Ended age of Ended age of
March 31, Revenue, March 31, Revenue,
1997 Net 1998 Net
--------- -------- --------- --------
Revenue, net $2,316,000 100.0% $5,161,000 100.0%
Total expenses 1,096,000 47.3 2,454,000 47.6
Income before
provision for
income tax
and minority
interest 1,220,000 52.7 2,707,000 52.5
Income before
minority
interest 1,119,000 48.3 2,506,000 48.6
Net income 1,080,000 46.6 2,313,000 44.8
Revenue, net, was $5,161,000 in the three months ended March
31, 1998, an increase of 122.8% from $2,316,000 in the three
months ended March 31, 1997. The increase was primarily due to
the contribution of $2,770,000 in the 1998 period from the new
Rental Business. The Taxi, Rental and Repair Businesses
contributed 39.2%, 53.7% and 7.1%, respectively, to revenue, net,
in the 1998 period, compared with 84%, 0% and 16%, respectively,
in the 1997 period. Revenue, net, from the Taxi Business
increased to $2,025,000 in 1998 from $1,945,000 in 1997, a 4.1%
increase. The increase was primarily due to $76,000 of revenue
from the expanded Taxi Business in Ganzhou. Revenue, net, from
the Repair Business was $366,000 in the 1998 period, an
immaterial change from $371,000 in the 1997 period.
Total expenses were $2,454,000 in the three months ended
March 31, 1998, an increase of $1,358,000, or 123.9%, from
$1,096,000 in the three months ended March 31, 1997. The
increase was comprised of $454,000 of depreciation of revenue
earning equipment, $138,000 of net interest expense, $8,000 of
amortization of taxi licenses and $758,000 of other operating
expenses. The increase in depreciation of revenue earning
equipment was primarily due to $369,000 of depreciation on rental
cars related to the new Rental Business and to an $85,000
increase in depreciation of new taxis. The increase in net
interest expense was primarily due to an increase in new bank
loans. The increase in other operating expenses was primarily
due to $364,000 of other operating expenses related to the new
Rental Business, which commenced operations in August 1997,
$459,000 of accounting, legal and other professional and advisory
expenses that began to accrue in mid-1997 and related to the
proposed Reorganization (see "General" above), and to a $41,000
increase in other operating expenses relating to the Repair
Business, primarily associated with a $39,000 increase in the
provision for bad debts. The increase in other operating
expenses was offset, in part, by a $43,000 reduction in
administrative expenses due to reductions in staff costs, sundry
expenses and depreciation, and to an operating expense reduction
of $62,000 related mainly to decreases in certain taxi regulation
fees, road maintenance charges and insurance. The Rental, Taxi
and Repair Businesses contributed 43.9%, 54.2% and 1.9%,
respectively, to total depreciation and amortization in the 1998
period, compared to 0%, 96.3% and 3.7%, respectively, in the 1997
period.
Income before provision for income tax and minority interest
was $2,707,000 in the three months ended March 31, 1998, an
increase of 121.9% from $1,220,000 in the three months ended
March 31, 1997. The Rental, Taxi and Repair Businesses
contributed 74.1%, 43.2% and 4.9%, respectively, to total income
before provision for income tax and minority interest in the 1998
period, compared with 0%, 85.3% and 15.2%, respectively, in the
1997 period. The increase in income before provision for income
tax and minority interest is primarily attributable to income
from the Company's new Rental Business, income generated from
additional taxi cabs in Ganzhou, as well as reductions in
operating expenses associated with the Taxi Business. The
increase in income before provision for income tax and minority
interest was partially offset by increases in operating expenses
associated with the Repair Business. Income before provision for
income tax and minority interest as a percentage of revenue, net,
did not change materially from the 1997 period to the 1998
period.
Provision for income tax was $201,000 in the three months
ended March 31, 1998 (7.4% of income before provision for income
tax and minority interest), compared with $101,000 in the three
months ended March 31, 1997 (8.3% of income before provision for
income tax and minority interest). The increase was primarily a
result of increased taxable income.
Minority interest was $193,000 in the three months ended
March 31, 1998, an increase of 394.9% from $39,000 in the three
months ended March 31, 1997, which reflects the fact that the
Company entered into new joint venture projects in 1997.
As a result of the foregoing, net income was $2,313,000 in
the three months ended March 31, 1998, an increase of 114.2% from
$1,080,000 in the three months ended March 31, 1997.
1996 Compared With 1997
Percent- Percent-
age of age of
Revenue, Revenue,
1996 Net 1997 Net
--------- -------- --------- --------
Revenue, net $9,211,000 100.0% $12,538,000 100.0%
Total expenses 4,091,000 44.4 5,858,000 46.7
Income before
provision for
income tax
and minority
interest 5,120,000 55.6 6,680,000 53.3
Income before
minority
interest 4,720,000 51.2 6,223,000 49.6
Net income 4,563,000 49.5 5,886,000 46.9
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. The increase was primarily
due to $151,000 of revenue from 50 additional taxi cabs in
Ganzhou, $180,000 of revenue from increases in night-shift taxi
driver activities, $262,000 of revenue from renewals of taxi
driver contracts and $110,000 of revenue from increases in
monthly rental payments from taxi drivers. 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
$1,767,000, or 43.2%, from $4,091,000 in 1996. The increase, as
a percentage of revenue, net, was comprised of $419,000 of
depreciation of revenue earning equipment, $122,000 of net
interest expense, $2,000 of amortization of taxi licenses and
$1,224,000 of other operating expenses. The increase in
depreciation of revenue earning equipment was primarily due to
$385,000 of depreciation on rental cars related to the new Rental
Business. The increase in net interest expense was primarily due
to fees paid to banks for the extension of short-term loans and
an increase in interest-bearing debt. The increase in other
operating expenses was primarily due to $403,000 of expenses
related to the new Rental Business, which commenced operations in
August 1997, and $934,000 of accounting, legal and other
professional and advisory expenses that began to accrue in
mid-1997 and related primarily to the proposed Reorganization.
See "General" above. In addition, increases in direct fixed
costs and management expenses related to the Repair Business
($123,000) and increases in operating costs due to expansion of
the Taxi Business ($95,000) were 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.
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.
1995 Compared With 1996
Percent- Percent-
age of age of
Revenue, Revenue,
1995 Net 1996 Net
--------- -------- --------- --------
Revenue, net $6,208,000 100.0% $9,211,000 100.0%
Total expenses 2,910,000 46.9 4,091,000 44.4
Income before
provision for
income tax
and minority
interest 3,298,000 53.1 5,120,000 55.6
Income before
minority
interest 3,146,000 50.7 4,720,000 51.2
Net income 3,023,000 48.7 4,563,000 49.5
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 November 1995. The additional taxis
generated $1,202,000 in additional revenue, $330,000 in
additional night-shift taxi driver activities and $200,000 in
additional monthly rental payments from taxi drivers. 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
$1,181,000, or 40.6%, from $2,910,000 in 1995. The increase, as
a percentage of revenue, net, was primarily due to $398,000 of
additional depreciation of revenue earning equipment, $17,000 of
amortization of licenses associated with the Taxi Business and
$819,000 of other operating expenses related to the Taxi and
Repair Businesses, offset by a $53,000 decrease in interest
expense, net of interest income. The increase in depreciation of
revenue earning equipment was primarily due to $381,000 of
depreciation in the Taxi Business relating to the establishment
of a new subsidiary at the end of 1995. The increase in other
operating expenses includes $200,000 in the Taxi Business and
$679,000 in the Repair Business. The $200,000 increase in other
operating expenses in the Taxi Business was 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. The
increase in other operating expenses of $679,000 in the Repair
Business was primarily due to the expiration of the service
contract with the Third Party Contractor, who had been
responsible for such expenses. 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.
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 55.2% 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 an increase in 1996 of
minority shareholders' share of net income earned by the
subsidiaries.
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 and
the three months ended March 31, 1998, the Company had net cash
flow from operating activities of $13,616,000 and $2,281,000,
respectively.
The Company made capital expenditures in 1995, 1996, 1997
and the three months ended March 31, 1998 of $4,215,000,
$3,271,000, $25,669,000 and $437,000, respectively, for the
acquisition of vehicles for its taxi and rental operations, the
acquisition of taxi licenses, the expansion of operations
generally and the development of the hotel project; almost all
capital expenditures for the three months ended March 31, 1998
were for replacement of old taxis. The Company has relied on
cash flow from operations, borrowings and capital contributions
by the Zhenghua Group to finance these expenditures.
During 1997, net cash used in financing activities totaled
$7,928,000, which consisted of $11,565,000 of repayment of
advances to the Zhenghua Group and $1,288,000 of repayment of
other debt, offset by $4,320,000 of borrowings pursuant to notes
payable and $605,000 of borrowings from banks. During the first
quarter of 1998, net cash used in financing activities totaled
$800,000, which consisted of $737,000 of repayments of advances
to the Zhenghua Group and $63,000 of repayment of other debt.
At March 31, 1998, the Company had $18,995,000 aggregate
principal amount of indebtedness, (i) $3,513,000 of which was
comprised of bank loans, which the banks may declare due and
payable at any time after March 1999, (ii) $320,000 of which is
comprised of notes payable to others, which currently are due and
payable, and (iii) $5,596,000 of which was 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%; notes
payable of $320,000 bear interest at an annual rate of 8%; and
the debt to the Zhenghua Group does not bear interest.
At present, the Company expects to make capital expenditures
in 1998 and thereafter primarily for the purchase of new
automobiles for the Rental Business, and, to a lesser extent, for
new automobiles for the Taxi Business and the completion of
construction of the Company's hotel project. At March 31, 1998,
the Company had committed to purchase 2,000 new automobiles for
an aggregate purchase price of $31,366,000. At March 31, 1998,
the estimated cost of completing construction of the hotel
project was approximately $1,740,000.
The Company will require additional capital to finance
capital expenditures, including the purchase of the 2,000 new
automobiles referred to above, and to refinance debt. In May
1998, the Company issued, for an aggregate of $750,000, an
aggregate of 206,250 shares of Company Common Stock and warrants
to purchase an aggregate of 220,000 shares of Company Common
Stock to Super Fund Enterprise Ltd., AIM Fund Managers Ltd., Moon
Poo Lew, Kitty Bing-kit Lew and Kam Sheik Yeung Tiu. At present,
the Company has no other commitments from third parties to
finance capital expenditures or to refinance any of its existing
indebtedness, and does not have sufficient resources to finance
such expenditures, or 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, the terms on which such capital will be
raised. 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 has been
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 assessing performance.
Both of these new standards are effective for financial
statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be restated.
Results of operations and financial position will be unaffected
by implementation of these new standards. As of January 1, 1998,
the Company adopted these two standards. The adoption of these
two standards did not 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 a 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 is developing a hotel in a resort town in Hunan Province,
which is scheduled to commence operations in early 1999.
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 150
taxis in Shimen, 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 hotel the Company is developing, the Yin Du Hotel (the
"Hotel"), is expected to have 124 rooms, a restaurant, a disco
entertainment area, a variety of conference rooms and a retail
shop. The Company does not intend to expand the hotel business
beyond the 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 that
company's operations in Beijing have approximately 500
automobiles available for rent; in that company's 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:
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 has grown rapidly
in recent years.
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.
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.
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).
Taxi 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, or "medallions",
for which the historical cost is between $5,422, in smaller
cities, and $26,265, in major cities; these medallions are valid
for 50 years. A taxi medallion allows a driver to pick up
passengers in the city where the taxi is licensed. However,
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 is expected
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 repair services is highly
fragmented, with substantially all repair 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 the
lessees are individual tourists and other foreigners located in
China, who pay an average rent of $1,500 per month. The Company
also plans to have long-term leases primarily with corporate and
governmental organizations, and to continue to have 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, which
will entitle them to discounts and waivers of 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. Although the Company does not currently own any
taxi licenses in these cities, the Company will attempt to
acquire licenses through acquisitions of companies that already
own licenses in these cities. Such acquisitions would be subject
to, among other things, certain governmental approvals. There
can be no assurance such acquisitions will be made, or, if they
are made, that the terms on which such acquisitions are made will
be favorable to the Company.
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. See "Business
Operations -- Taxi Business" below.
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
the 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 cars 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.
Hotel
The Company intends to market the Hotel primarily to upscale
customers and to tourists who visit the nearby scenic
attractions. In addition, the Hotel will market its conference
facilities to businesses and other groups for meetings and
special events.
Business Operations
Rental Business
The Company began the Rental Business with 100 cars in
August 1997 in the city of Ganzhou. At present, 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 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, short-term leases to foreign tourists and
foreigners living in China account for 62% of the 1,218 cars
deployed in the Rental Business. 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. At present, short-term leases to
Chinese individuals account for 6% of the 1,218 cars
deployed in the Rental Business.
In a long-term lease, the Company plans 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.
Customers may 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 cost of the insurance is
incorporated into the rental fee.
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).
The Rental Business has approximately 100 employees.
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 Shimen, Hunan
Province and 50 taxis in Ganzhou, in Jiangxi Province.
The Company's taxi headquarters, located in Shenzhen in a
modern two-floor office space with 2,000 square meters per floor,
has 52 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 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 "Lease Payment"); the Lease
Payment generally ranges from approximately $6,046 to $10,278
(depending on whether the taxi is new or used); 20% of the Lease
Payment 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 Lease
Payment, 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 upon renewing the lease and making another
Lease Payment 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
approximately $800 a month as a rental fee pursuant to a lease
agreement, regardless of mileage or the number of customers
served. The rental fee is the principal revenue the Company
receives from the Taxi Business. In addition, taxi drivers pay
the Company approximately $160 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. A driver is
responsible for paying a night time rental fee averaging $109 a
month, if the driver has associates driving the taxi during the
night shift. At present, most drivers have associates driving
during the night shift.
Taxi related costs the Company pays (supplemented by the
approximately $160 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 following table sets forth the Company's average revenue
per taxi in 1997, and the components of such revenue:
Components of Revenue Per Taxi Amount
------------------------------ ------
Rental fee. . . . . . . . . . . $9,624
Allocable portion of Lease Payment 2,420
Night shift rental fee . . . . 1,192
-------
$13,236
=======
The Company estimates that the average Shenzhen driver earns
$70 to $90 a day in taxi fares from his taxi. The following table
sets forth the average operating expense per taxi in 1997, and
the components of such expense. The taxi driver pays all the
operating expenses.
Components of Operating Expense
Per Taxi Amount
------------------------------- ------
Insurance . . . . . . . . . . . $1,099
Road maintenance fee . . . . . 624
Traffic regulation fee . . . . 116
Motor vehicle tax . . . . . . . 29
Communication fee . . . . . . . 26
Personal income tax . . . . . . 145
------
$1,904
======
The Taxi Business has approximately 65 employees, in
addition to approximately 1,500 taxi drivers, who are not
employees.
Repair Business
The Company has a repair shop, which is located in Shenzhen.
The shop is based in a 908 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.
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:
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.
A staff of four automotive electrical system
specialists handles electrical problems with a wide range of
metering, gauging and sensor equipment.
Six employees use bumping equipment, hydraulic tools
and finishing tools for repairing body damage.
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
based on the category of repair and the model of automobile; the
Company does not charge on the basis of time and parts.
Automobile repair relating to insurance claims must be
performed at designated repair stations. The Company has one of
only two city-wide designated repair stations for insurance
claims in Shenzhen. 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 non-insurance
repair services. Revenue attributable to insurance claims in
1997 and 1996 was approximately 20% and 24%, respectively, of
Repair Business revenue.
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 $8 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.
Hotel
The Hotel will be located in Shimen in northwest Hunan
Province. The Hotel currently is scheduled to commence
operations in early 1999. Shimen is near the route from Beijing,
Shanghai and Guangzhou to Tao Hua Yuan, the largest national park
in Hunan Province with an estimated annual tourist population of
approximately 10,000,000. Shimen also is 150 kilometers from the
Three Gorges Dam and is adjacent to the Zhang Jia Je, a
well-known resort area.
The Hotel is designed to be the most upscale hotel in
Shimen. The rooms are currently planned to rent for
approximately $30 per room per night. The Hotel's restaurant is
expected to have 15 tables and 12 private rooms. The Hotel is
expected to have approximately 160 employees.
Seven individuals currently are employed in the development
of the Hotel. The construction of the mainframe structure of the
Hotel is complete. The next phase of development is the interior
design and decoration of the Hotel. The estimated cost of
completing the Hotel is approximately $1,740,000. To date,
development of the Hotel has cost approximately $2,333,000.
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 908 square meter facility.
The Hotel will be in the city of Shimen in northwest Hunan
Province. It is scheduled to commence operations in early 1999.
The Hotel is located on 6,666 square meters, on which the Hotel's
12,800 square meter, 12-story structure is built. The Hotel is
expected to have 124 rooms, a restaurant, a disco entertainment
area, a variety of conference rooms and a retail shop.
Legal Proceedings
The Company is not involved in any material legal
proceedings.
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.
At present, the Company has no agreements, plans or
arrangements under which its executive officers or other
significant employees are being, or in the future are to be,
compensated.
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 and the three months ended March 31, 1998, the
Company received interest-free loans totaling $24,182,000 and
$200,000, respectively from the Zhenghua Group, of which the
Company has repaid a total of $13,468,000 as of March 31, 1998.
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
March 31, 1998, the Company owed the Zhenghua Group a total of
$5,596,000. 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 $3,500,000 aggregate
principal amount from 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 bore
interest at the rate of 12% a year and matured 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
was 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 wished to
convert by 50% of the average closing bid price of the Company
Common Stock on the five trading days immediately before the
conversion. Mr. Yeung and Neolite converted the outstanding
balances on the loans into 665,078 and 492,993 shares of
Company's Common Stock, respectively, in late March 1998. The
loans were secured by 35%, 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 had
guaranteed the Company's obligations under each loan, and had
pledged an aggregate of 875,000 shares of Company Common Stock he
owned to secure that guarantee, 500,000 of which were pledged to
secure the guarantee to Mr. Yeung and 375,000 of which were
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 43,750 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. Except through their
beneficial ownership of shares of Company Common Stock, neither
Mr. Yeung nor Neolite is affiliated with the Company. 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.
For information concerning the Reorganization, see "The
Reorganization".
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to
the Company Common Stock beneficially owned as of May 26, 1998 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 2,131,860(1) 28.1%
7/F, Business Bldg.
No. 1 Suncang
Bao'an North Rd.,
Shenzhen City
People's Republic of
China
Ventureglobe Limited 421,976 5.6%
1st Floor, Moore Stephens
House
Kamul Highway
Port Vila, Vanuatu
South Pacific
Other Executive Officers
and Directors
- -------------------------
Peng Jun 240,158 3.2%
7/F, Business Bldg.
No. 1 Suncang
Bao'an North Rd.,
Shenzhen City
People's Republic of China
Zhang Li Wei 30,000 0.4%
7/F, Business Bldg.
No. 1 Suncang
Bao'an North Rd.,
Shenzhen City
People's Republic of China
Li Yong Yuang 30,000 0.4%
7/F, Business Bldg.
No. 1 Suncang
Bao'an North Rd.,
Shenzhen City
People's Republic of China
Directors and executive 2,432,018 32.1%
officers as a group
(four individuals)
- -----------------
(1) Excludes 300,199 shares of Company Common Stock owned
by Mr. Wu's mother, Wu Qu Mei, which Mr. Wu disclaims beneficial
ownership.
SHARES ELIGIBLE FOR FUTURE SALE
The 7,596,936 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.
2,432,018 of the Company's 7,596,936 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 (75,969 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 $0.01 per share.
The following is a description of all the material features
of the Company's capital stock, and the Company's certificate of
incorporation and bylaws. The description 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 7,956,936 shares of Company Common Stock
outstanding. 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
662[ ]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 ChaseMellon Shareholder Services, L.L.C.
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 all the material 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
United States 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 United States 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-United States 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 United
States federal income tax consequences to a United States person
(i.e., a United States citizen or resident, a United States
corporation, or an estate or trust subject to United States
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 United States
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 United
States federal income tax principles. Any distributions in
excess of such earnings and profits of the Company will first be
treated, for United States federal income tax purposes, as a
nontaxable return of capital, to the extent of the United States
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 United States 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-United States
corporations, and on the shareholders of United States
corporations that are shareholders of non-United States
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 United States source income and certain types
of its foreign source income that are effectively connected with
the conduct of a United States 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-United
States corporation classified as a foreign personal holding
company ("FPHC") and include in the gross income of a United
States person that is a shareholder of such a corporation its
proportionate share of the undistributed income of the
corporation. A non-United States corporation will be classified
as a FPHC if (i) five or fewer individuals who are United States
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 United States
persons (including United States 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 United States persons (including United States
corporations) that individually own at least 10% of a non-United
States corporation's voting stock own, in the aggregate, more
than 50% (measured by voting power or value) of the shares of the
non-United States 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 United States person disposes of
stock in a non-United States 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%
United States shareholder of the stock of a United States
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% United States 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
United States shareholders of a passive foreign investment
company ("PFIC"). A non-United States corporation is a PFIC if
75% or more of its gross income (including the pro rata share of
the gross income of any corporation (United States or foreign) in
which the non-United States 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-United States 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-United States 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-United States corporation is not treated as a PFIC
with respect to any United States shareholder for any year during
which the corporation is a CFC and the United States shareholder
is a 10% shareholder.
If a non-United States corporation is a PFIC, each United
States shareholder of the corporation will (regardless of whether
the corporation remains a PFIC), in the absence of an election by
such United States 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 United States 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
United States 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 United States
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 United States 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 United
States shareholder's adjusted basis in the stock is included in
the United States 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 United States shareholder included in
income in previous years. If a United States shareholder makes a
mark-to-market election after the beginning of its holding
period, the United States shareholder does not avoid the interest
charge rule discussed above with respect to the inclusion of
ordinary income attributable to periods before the election.
Jinzhenghua Transport was not a PFIC in 1997 and currently
is not a PFIC. 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.
United States 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 United States
broker or certain United States-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 United States persons ("non-United States
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 United States federal income tax liability, if any)
provided that amount withheld is claimed as federal taxes
withheld on the holder's United States federal income tax return
relating to the year in which the backup withholding occurred. A
holder who is not otherwise required to file a United States
income tax return must generally file a claim for refund (or, in
the case of non-United States 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
a standard 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 service industry enterprises for an operating period
of ten years or more, the joint ventures are eligible for one
year of full exemption, starting from the first profit-making
year, and a 50% reduction for the next two years on enterprises
income tax.
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 one year of full exemption,
starting from the first profit-making year, and a 50% reduction
for the next two years on enterprises income tax 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 of the Company included in this
prospectus have been audited by BDO Binder, independent certified
public accountants, to the extent and for the periods set forth
in their report appearing elsewhere herein, and are included in
reliance upon such report 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-26
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 United States
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 United States generally accepted accounting
principles.
BDO Binder
Hong Kong
January 30, 1998 (except for Note 9, which is as of March 31,
1998, and Note 1, which is as of June 29, 1998)
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
December 31, March 31,
1996 1997 1998
----- ----- -----
(unaudited)
Assets
Cash and cash equivalents...... $ 1,259 $ 4,723 $ 5,518
Trade receivables, net of
allowance of $15, $67 and
$118, respectively ........... 96 719 480
Other assets (Note 13) ........ 787 366 2,801
Inventories ................... 29 97 63
Property and equipment,
net (Note 2).................. 1,168 1,363 1,252
Revenue earning equipment,
net (Notes 3 and 8)........... 8,705 31,488 30,910
Taxi licenses, net
(Notes 4 and 8)............... 12,200 12,093 12,026
Construction-in-progress
(Note 5)...................... 2,766 2,321 2,349
Organization costs, net........ 161 847 774
Deposit (Note 6)............... 1,928 1,937 1,937
------ ------ ------
$29,099 $55,954 58,110
====== ====== ======
Liabilities and Shareholders'
Equity
Liabilities:
Bank loans (Note 8)......... $ 4,082 $ 3,776 $ 3,513
Notes payable (Note 9)...... - 4,320 320
Trade payables.............. 186 1,619 1,217
Other payables (Note 7)..... 2,572 3,522 3,870
Due to directors............ - 286 286
Due to affiliates (Note 10). 1,517 6,220 5,596
Due to minority shareholders,
net (Note 10)............. 381 19 19
Deferred revenue (Note 11).. 2,153 2,983 2,859
Accrued expenses............ 17 476 123
Income tax payable.......... 492 883 957
Deferred income taxes
(Note 12).................. 75 102 235
------ ------ ------
Total liabilities....... 11,475 24,206 18,995
====== ====== ======
Minority interest........... 864 1,567 2,182
------ ------ ------
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 and
7,390,686 shares at
March 31, 1998........... - 60 74
Additional paid-in capital 5,249 12,665 17,088
Retained earnings......... 11,164 17,050 19,363
Accumulated other
comprehensive income -
foreign currency translation
adjustments.............. 347 406 408
------ ------ -------
Total shareholders'
equity................ 16,760 30,181 36,933
------ ------ -------
$29,099 $55,954 $58,110
======= ======= ======
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)
Three months
ended
Year ended December 31, March 31,
1995 1996 1997 1997 1998
----- ----- ----- ---- ----
(unaudited)
Revenue, net.......... $6,208 $9,211 $12,538 $2,316 $5,161
------ ------ ------- ------ ------
Expenses:
Depreciation of
revenue earning
equipment......... 1,357 1,755 2,174 444 898
Amortization of taxi
licenses.......... 247 264 266 59 67
Other operating
expenses......... 649 1,468 2,692 479 1,237
Interest expense,
net of interest
income............ 657 604 726 114 252
------ ------ ------ ------ ------
Total expenses.. 2,910 4,091 5,858 1,096 2,454
------ ------ ------ ------ ------
Income before provision
for income tax and
minority interest.... 3,298 5,120 6,680 1,220 2,707
Provision for income
tax (Note 12)........ 152 400 457 101 201
------ ------ ------ ------ ------
Income before minority
interest............. 3,146 4,720 6,223 1,119 2,506
Minority interest..... 123 157 337 39 193
------ ------ ------ ------ ------
Net income............ $3,023 $4,563 $5,886 1,080 2,313
Other comprehensive
income net of tax -
foreign currency
translation
adjustments......... 134 39 59 - 2
------ ------ ------ ------ ------
Comprehensive income $3,157 $4,602 $5,945 $1,080 $2,315
====== ====== ====== ====== ======
Pro forma net income
per common share
(Note 14):
Basic.............. $.50 $.76 $.97 $.18 $.38
Diluted............ .50 .76 .97 .18 .33
====== ====== ====== ====== ======
Weighted average
common shares
outstanding
(Note 14):
Basic............. 6,042 6,042 6,042 6,042 6,057
Diluted........... 6,042 6,042 6,132 6,042 7,383
====== ====== ====== ====== ======
See accompanying notes to consolidated financial statements.
<TABLE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(US dollars in thousands except per share amounts)
Years ended December 31, 1995, 1996 and 1997 and three months ended March 31,
1998
Accmu-
ulated
other
compre-
hensive
income-
foreign
Common Stock currency
----------------- Addi- trans- Total
tional lation share-
paid-in Retained adjust- holders'
Shares Amount capital earnings ments equity
------ ------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994.......$ - $ - $ 4,731 $ 3,578 $ 174 $ 8,483
Contribution
of capital. - - 411 - - 411
Foreign
currency
translation
adjustments.. - - - - 134 134
Net income... - - - 3,023 - 3,023
---------- ------ ------- ------- ------- ------
Balance,
December 31,
1995........ - - 5,142 6,601 308 12,051
Contribution
of capital.. - - 107 - - 107
Foreign currency
translation
adjustments.. - - - - 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
translation
adjustments.. - - - - 59 59
Net income... - - - 5,886 - 5,886
---------- ------ ------- ------- ------- ------
Balance,
December
31, 1997... 6,041,573 60 12,665 17,050 406 30,181
Issuance of
shares for
consulting
services
(Note 13)
(unaudited).. 7,500 - 33 - - 33
Issuance of
shares for
liquidated
damages under
financing
agreement
(Note 9)
(unaudited).. 17,268 1 163 - - 164
Issuance of
shares with
respect to
conversion of
promissory
notes (Note 9)
(unaudited).. 1,324,345 13 4,227 - - 4,240
Foreign currency
translation
adjustments
(unaudited).. - - - - 2 2
Net income
(unaudited).. - - - 2,313 - 2,313
---------- ------ ------- ------- ------- -------
Balance,
March 31,
1998
(unaudited). 7,390,686 $ 74 $17,088 $ 19,363 $ 408 $36,933
========== ====== ======= ======== ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 16)
(US dollars in thousands)
Three months
Year ended December 31, ended March 31,
1995 1996 1997 1997 1998
----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from operating
activities:
Net income................... $3,023 $4,563 $5,886 $1,080 $2,313
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
of property, equipment and
revenue earning equipment. 1,422 1,884 2,617 501 961
Amortization of taxi licenses. 247 264 266 59 67
Minority interest............ 339 244 703 39 615
Amortization of organization
costs....................... 36 35 50 5 314
Deferred income tax.......... 19 56 27 10 133
Exchange adjustment.......... (43) (18) (10) - 2
Loss on disposal of fixed
assets..................... - - - - 58
Changes in assets and
liabilities:
(Increase) decrease in trade
and other receivables.... (164) (428) (204) 566 (2,196)
(Increase) decrease in
inventories.............. - (29) (68) 15 34
(Decrease) increase in trade
and other payables....... 552 (200) 2,669 253 118
(Decrease) increase in
accrued expenses........ (7) 17 459 18 (88)
Increase in income tax
payable.................. 124 361 391 78 74
(Decrease) increase in
deferred income.......... 979 (764) 830 (392) (124)
------ ------ ------ ------ ------
Net cash provided by
operating activities... 6,527 5,985 13,616 2,232 2,281
------ ------ ------ ------ ------
Cash flows from investing activities:
Acquisition of property and
equipment.................. (273) (608) (1,489) - (437)
Proceeds from sale of property,
equipment and revenue earning
equipment.................. 188 94 - 33 20
Organization costs.......... (25) (51) (735) - (241)
Payment for construction-in-
progress.................. - - - - (28)
------ ------ ------ ------ ------
Net cash provided by (used
in) investing activities. (110) (565) (2,224) 33 (686)
------ ------ ------ ------ ------
Cash flows from financing
activities:
Borrowing on bank loans....... - 200 605 - -
Repayments of debt............ (604) - (926) (461) (63)
Repayments of amount due to
affiliates................... (5,263) (5,210) (11,565) (1,924) (737)
Amount due from (to) minority
shareholder.................. - 20 (362) - -
Proceeds from notes payable... - - 4,320 - -
------ ------ ------ ------ ------
Net cash used in financing
activities.............. (5,867) (4,990) (7,928) (2,385) (800)
------ ------ ------ ------ ------
Net increase (decrease) in cash and
cash equivalents............. 550 430 3,464 (120) 795
Cash and cash equivalents,
beginning of period......... 279 829 1,259 1,259 4,723
------ ------ ------ ------ ------
Cash and cash equivalents,
end of period............... $ 829 $1,259 $4,723 $1,139 $5,518
====== ====== ====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
INTEGRATED TRANSPORTATION NETWORK GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the three months ended
March 31, 1997 and 1998 is unaudited)
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 Group 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. Dawson's board of
directors and shareholders, on June 25 and June 29, 1998,
respectively, 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 June 30, 1998. In the
distribution, each holder of record of shares of Dawson Common
Stock at the close of business on June 30, 1998 will receive, for
each four shares of Dawson Common Stock, one share of Company
Common Stock. 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 was converted into 10,500,000 shares of Common Stock
on June 29, 1998, 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. General and administrative expenses of $934 and $601 were
incurred in the United States during the nine and one-half months
ended December 31, 1997 and three months ended March 31, 1998,
respectively. 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 98%
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 98
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.
Interim Financial Statements
The accompanying unaudited interim financial statements as
of March 31, 1998 and for the three months ended March 31, 1997
and 1998 include all adjustments that, in the opinion of
management, are necessary for a fair presentation of the
Company's financial position and results of operations and cash
flows for the periods presented. All such adjustments are of a
normal recurring nature. The results of the Company's operations
for the three months ended March 31, 1997 and 1998 are not
necessarily indicative of the results of operations for a full
fiscal year.
Foreign Currency Translation and Transactions
The financial position and results of operations of the
Company's foreign subsidiaries are determined using local
currency, Renminbi yuan ("RMB"), as the functional currency.
Assets and liabilities of these subsidiaries are translated at
the exchange rate in effect at each year or period-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 as a component of stockholders' equity as "Accumulated
other comprehensive income - foreign currency translation
adjustments." 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 6-8
Repair shop equipment 5-10
Property and equipment
Land usage rights 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. Jinzhenghua has unremitted retained
earnings at March 31, 1998 of $20,898.
Pro Forma Net Income 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 net income 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, 1996 and 1997 and March 31, 1998,
because of the relatively short-term maturity of these
instruments. The carrying value of debts approximates fair value
as of December 31, 1996 and 1997 and March 31, 1998, 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. Through March 31, 1998, no such stock options had been
granted. 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.
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130
("Reporting Comprehensive Income"). The adoption of this
statement had no impact on the Company's net income or
stockholders' equity. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components.
Comprehensive income is comprised of net income and all changes
to stockholders' equity, except those due to investments by
owners (changes in paid-in capital) and distributions to owners
(dividends).
SFAS No. 130 requires foreign currency translation
adjustments which, prior to adoption, were reported separately in
stockholders' equity, to be included in other comprehensive
income. Amounts for all periods have been presented and, where
appropriate, reclassified to conform to SFAS No. 130
requirements.
Segment Information
On January 1, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information", which supersedes SFAS No. 14, "Financial Reporting
Segments of a Business Enterprise", and establishes standards for
the way that public enterprises report information about
operating segments in financial statements. 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.
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, March 31,
------------------ ---------
1996 1997 1998
-------- -------- ---------
(US dollars in thousands) (unaudited)
Land usage rights $ 416 $ 416 $ 363
Furniture and fixtures 9 11 15
Transportation equipment 705 1,324 1,115
Other equipment 400 434 498
------ ------ ------
1,530 2,185 1,991
Less: Accumulated 362 822 739
depreciation
and amortization ------ ------ ------
$1,168 $1,363 $1,252
Depreciation and amortization charged to operations was $65,
$128 and $443 in 1995, 1996 and 1997, respectively, and $57 and
$63 for the three-month periods ended March 31, 1997 and 1998,
respectively.
NOTE 3 - REVENUE EARNING EQUIPMENT
Revenue earning equipment consists of:
December 31, March 31,
------------------ ---------
1996 1997 1998
-------- -------- ---------
(US dollars in thousands) (unaudited)
Taxi vehicles $13,681 $14,570 $13,978
Rental car - 24,067 24,890
Repair shop equipment 199 200 200
------- ------- -------
13,880 38,837 39,068
Less: Accumulated
depreciation 5,175 7,349 8,158
------- ------- -------
$ 8,705 $31,488 $30,910
======= ======= =======
Depreciation charged to operations was $1,357, $1,756 and
$2,174 in 1995, 1996 and 1997, respectively, and $444 and $898
for the three-month periods ended March 31, 1997 and 1998,
respectively.
NOTE 4 - TAXI LICENSES
The Company has a total of 728 taxi licenses as of March 31,
1998, all of which were acquired through public auction. Taxi
licenses consist of:
December 31, March 31,
------------------ ---------
1996 1997 1998
-------- -------- ---------
(US dollars in thousands) (unaudited)
Taxi licenses, at cost $13,218 $13,381 $13,381
Less: Accumulated
amortization 1,018 1,288 1,355
------- ------- -------
$12,200 $12,093 $12,026
======= ======= =======
Amortization charged to operations was $247, $264 and $266
in 1995, 1996 and 1997, respectively, and $59 and $67 for the
three-month periods ended March 31, 1997 and 1998, 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, March 31,
------------------ ---------
1996 1997 1998
-------- -------- ---------
(US dollars in thousands) (unaudited)
Current portion:
Deposits from rental car
customers - $ 332 $ 436
Others 666 1,101 1,644
------ ------ ------
666 1,433 2,080
------ ------ ------
Long-term portion:
Deposits from taxi drivers 967 1,042 944
Taxi car maintenance fund 168 273 72
Due to Traffic Authority 771 774 774
------ ------ ------
1,906 2,089 1,790
------ ------ ------
$2,572 $3,522 $3,870
====== ====== ======
NOTE 8 - BANK LOANS
The Company obtained various lines of credit from
creditworthy commercial banks in China to finance its operations.
Certain loans were secured by the Company's assets and other
loans were secured by Zhenghua's properties. All the lending
banks are Chinese. Except for $200 of U.S. dollar loans at
December 31, 1996 and 1997, all loans are denominated in RMB.
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
4/97 and Properties of
200 15.1 renewed 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
======
Three months ended March 31, 1998 (unaudited)
(US dollars in thousands)
---------------------------------------------------------
Interest
Principal rate Maturity Collateral
--------- -------- -------- -----------------
$ 585 18.0% 3/99 50 taxi vehicles
418 15.1 3/99 50 taxi vehicles
675 15.1 3/99 50 taxi vehicles
257 15.1 3/99 50 taxi vehicles
1,180 15.1 3/99 50 taxi licenses
398 15.1 3/99 50 taxi licenses
------ -------- --------- -----------------
$3,513
======
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% 4/02/98 (a)
500 12.0 3/18/98 (b)
1,500 12.0 3/29/98 (b)
2,000 12.0 5/02/98 (b)
------ -------- --------- -----------------
$4,320
======
Three months ended March 31, 1998 (unaudited)
(US dollars in thousands)
---------------------------------------------------------
Interest
Principal rate Maturity Collateral
--------- -------- -------- -----------------
$320 8.0% 4/02/98 (a)
====== -------- --------- -----------------
- -------------------
(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
and March 31, 1998 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,
certain shares of common stock were due the lender as
liquidated damages. As of December 31, 1997, these shares
had not been issued but the liability for such issuance was
included in accrued expenses at December 31, 1997. The
Company issued 17,268 shares as liquidated damages on March
31, 1998.
(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, were convertible into shares of the Company's
Common Stock equal to an amount determined by formula, as
defined, in the agreement. The notes were collateralized by
1,000,000 shares of common stock pledged personally by a
principal shareholder. On March 31, 1998, upon default
under these notes due to non-payment of interest and
principal, the holders opted to convert such debt ($4,000)
and accrued interest ($240) into shares of the Company's
common stock. Accordingly, under the terms of the three
agreements, 1,324,345 shares of common stock were issued in
settlement of such obligations.
NOTE 10 - RELATED PARTY TRANSACTIONS
(a) The amount due to minority shareholders represents a net
balance. The amount due to a minority shareholder of the
hotel project was $381 as of December 31, 1996 and 1997 and
March 31, 1998, 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, March 31,
------------------ ---------
1996 1997 1998
-------- -------- ---------
(US dollars in thousands) (unaudited)
Zhenghua
Beginning balance $4,790 $ 2,150 $6,220
Acquisition of revenue
earning equipment - 24,067 -
Acquisition of taxi licenses - 115 -
Exchange difference 11 8 -
Construction cost 2,302 (455) -
Repayments of advances (5,210) (11,565) (670)
Expenses paid on behalf
of Zhenghua (net) - (624) (67)
Jinzhenghua expenses paid
by Zhenghua (net) 257 - -
Transferred to additional
paid in capital - (7,476) -
Disposal of properties
and equipment - - (87)
Repayment of bank loan - - 200
------ ------- ------
Ending balance 2,150 6,220 5,596
------ ------- ------
Peng Jun
Beginning balance (248) (633) -
Repayment - 633 -
Fund advance (385) - -
------ ------- ------
Ending balance (633) - -
------ ------- ------
$1,517 $ 6,220 $5,596
====== ======= ======
NOTE 11 - DEFERRED REVENUE
December 31, March 31,
------------------ ---------
1996 1997 1998
-------- -------- ---------
(US dollars in (unaudited)
thousands)
Deferred revenue $2,153 $2,983 $2,859
Less: Current portion 791 1,235 1,352
------ ------ ------
$1,362 $1,748 $1,507
====== ====== ======
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:
Three months
ended
Year ended December 31, March 31,
1995 1996 1997 1997 1998
----- ----- ------ ----- -----
(US dollars in thousands) (unaudited)
Current income taxes $133 $344 $430 $ 91 $ 68
Deferred income taxes 19 56 27 10 133
----- ----- ------ ----- -----
$152 $400 $457 $ 101 $201
===== ===== ====== ===== =====
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.
Three months
ended
Year ended December 31, March 31,
1995 1996 1997 1997 1998
----- ----- ------ ----- -----
(US dollars in thousands) (unaudited)
Standard income
tax rate 33.0% 33.0% 33.0% 33.0% 33.0%
Usage of temporary
difference (.5) (1.4) (1.3) (1.6) (1.7)
Result of income tax
incentive programs (27.9) 23.8) (25.8) (23.3) (25.4)
Other - - .9 .2 1.5
Effective income
tax rate 4.6% 7.8% 6.8% 8.3% 7.4%
----- ----- ----- ---- ----
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:
Three
months
Year ended ended
December 31, March 31,
------------------ ---------
1996 1997 1998
------- ------ ---------
(US dollars in thousands) (unaudited)
Bad debt reserves $ (1) $ (8) $(17)
Depreciation and
amortization 76 110 252
---- ---- ----
$ 75 $102 $235
==== ==== ====
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:
Period Operating leases
------------------------------------ ------------------
(US dollars in
thousands)
Nine months ended December 31, 1998 $176
Year ended December 31, 1999 137
Year ended December 31, 2000 107
Year ended December 31, 2001 63
------------------------------------ ------------------
$483
==================
Rent expense for the years ended December 31, 1995, 1996 and
1997 was $137, $104 and $177, respectively, and $27 and $31 for
the three months ended March 31, 1997 and 1998, 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. The
Company has also contracted with a car manufacturing company in
early 1998 to purchase two thousand cars for rental business
purposes. The contracted amount is $31,366. At March 31, 1998,
a deposit of $2,418 for acquisition of such cars is included in
other assets.
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. The agreement has expired.
On September 1, 1997, the Company entered into a consulting
agreement with a financial institution to provide business
development services for $12 monthly. 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; the options have not
been canceled.
On March 31, 1998, the Company issued 7,500 shares to a
consultant as consideration for provision of consulting services.
The Company is presently negotiating an agreement with such
consultant to provide consulting services for $9 monthly.
NOTE 14 - PRO FORMA EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted pro forma earnings per share:
December 31, March 31,
------------------- -------------
1995 1996 1997 1997 1998
----- ----- ----- ----- ----
US dollars in thousands (unaudited)
except per share amounts)
Numerator:
Net income, numerator for
basic earnings per share
- income available to
common shareholders $3,023 $4,563 $5,886 $1,080 $2,313
Effect of diluted
securities:
Interest on convertible
debt fter tax - - 63 - 108
------ ----- ------ ------ ------
Numerator for diluted
earnings per share -
income available to
common shareholders
after assumed
conversions $3,023 $4,563 $5,949 $1,080 $2,421
====== ====== ====== ====== ======
Denominator:
Denominator for basic
earnings per share -
weighted average shares 6,042 6,042 6,042 6,042 6,057
Effect of dilutive
securities:
Convertible debt - - 90 - 1,326
------ ------ ------ ------ ------
Dilutive potential
common shares:
Denominator for dilutive
earnings per share -
adjusted weighted average
shares and assumed
conversions 6,042 6,042 6,132 6,042 7,383
====== ====== ====== ====== ======
Pro forma basic earnings
per share $.50 $.76 $.97 $.18 $.38
====== ====== ====== ====== ======
Pro forma diluted earnings
per share $.50 $.76 $.97 $.18 $.33
====== ====== ====== ====== ======
NOTE 15- FUTURE RENTAL INCOME
Rental income from taxi drivers under noncancellable taxi lease
terms in excess of one year is as follows:
Period
- ------------------------------------- -------------------------
(US dollars in thousands)
Nine Months ended December 31, 1998 $8,022
Year ending December 31, 1999 4,951
Year ending December 31, 2000 3,482
Year ending December 31, 2001 2,070
Year ending December 31, 2002 19
Thereafter 36
- ------------------------------------- -------------------------
$18,580
=========================
NOTE 16 - STATEMENTS OF CASH FLOWS
Supplemental Disclosures of Cash Flow Information
Three months ended
December 31, March 31,
------------------- ------------------
1995 1996 1997 1997 1998
----- ----- ----- ----- ----
(US dollars in thousands)(unaudited)
Cash paid for:
Interest $657 $604 $587 $116 $144
Taxes 9 - 39 23 5
------ ----- ----- ----- -----
Supplemental Schedule of Noncash Investing and Financing
Activities
Three months ended
December 31, March 31,
------------------- ------------------
1995 1996 1997 1997 1998
----- ----- ----- ----- ----
(US dollars in (unaudited)
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 con-
tributed by
shareholder - - 7,476 - -
Acquisition of
properties and
equipment from
affiliates - - - 449 -
Disposal of
hotel con-
struction items
to affiliates - - - 465 -
Disposal of
property and
equipment to
affiliates - - - - 87
Repayment of
bank loan
through related
party - - - - 200
Issuance of
shares for
consulting
services and
liquidated
damages - - - - 197
Issuance of
shares from
conversion of
debt and
accrued
interest - - - - 4,240
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, income before income
tax and minority interest, total assets, addition of long-term
assets, depreciation and amortization for the years ended
December 31, 1995, 1996 and 1997 and the three months ended March
31, 1997 and 1998, 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
------ ----- ---- ---- ------
3 Months ended March 31, 1997
---------------------------------------------
Car Car
Taxi rental repairs Other Total
------ -------- --------- ------- -------
(US dollars in thousands)
Revenue, net $1,945 $- $371 $- $ 2,316
Income before
income tax and
minority interest 1,040 - 185 (5) 1,220
Total assets as at
March 31, 1997 24,425 - 1,039 2,743 28,207
Additions of
productive long-
term assets 449 - - - 449
Depreciation and
amortization 539 - 21 - 560
------ ----- ---- ---- ------
3 Months ended March 31, 1998
---------------------------------------------
Car Car
Taxi rental repairs Other Total
------ -------- --------- ------- -------
(US dollars in thousands)
Revenue, net $2,025 $2,770 $366 $- $ 5,161
Income before
income tax and
minority interest 1,168 2,007 133 (601) 2,707
Total assets as at
March 31, 1998 26,398 28,247 688 2,777 58,110
Additions of
productive long-
term assets 429 8 - - 437
Depreciation and
amortization 557 451 20 - 1,028
------ ----- ---- ---- ------
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
------- ------ ------ ---------
3 Months ended March 31, 1997 (unaudited)
-------------------------------------------
Guangdong Hunan Others Total
--------- -------- -------- ---------
(US dollars in thousands)
Revenue, net $2,008 $308 $- $2,316
Income before
income tax and
minority interest 1,096 129 (5) 1,220
Total assets 22,384 5,823 - 28,207
------- ----- ------ ---------
3 Months ended March 31, 1998 (unaudited)
-------------------------------------------
Guangdong Hunan Others Total
--------- -------- -------- ---------
(US dollars in thousands)
Revenue, net $2,920 $282 $1,959 5,161
Income before
income tax and
minority interest 1,737 155 815 2,707
Total assets 30,942 13,370 13,798 58,110
------- ------ ------ ---------
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 . . . . . . . . . . . . . . . .$11,176.46
Legal fees and expenses . . . . . . . . . . . . . .$200,000.00
Printing and engraving expenses. . . . . . . . . . .$5,000.00
Accounting fees and expenses . . . . . . . . . . . .$125,000.00
Blue sky fees and expenses . . . . . . . . . . . . .$1,000.00
Transfer agent and registrar fees and expenses . . .$15,000.00
----------
Total . . . . . . . . . . . . . . . . . . . . . .$357,176.46
==========
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 suit,
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 late 1997, Dawson Science Corporation ("Dawson") issued
convertible notes to Yeung Ming-Sum, Neolite Neon Co. Pty. Ltd.
and Yeung Shu-Kin in consideration for $2,000,000, $1,500,000 and
$500,000, respectively, in private placements exempt from the
registration requirements of the Securities Act of 1933 by virtue
of section 4(2) of that Act.
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 7,596,936 shares pursuant to an
amendment to the Company's certificate of incorporation.
In February 1998, Dawson agreed to issue to R.I.P.
Consultants 30,000 shares of its common stock (which will be
entitled to 7,500 shares of Company Common Stock by virtue of the
Reorganization) in consideration for certain consulting services
in a private placement exempt from the registration requirements
of the Securities Act of 1933 by virtue of section 4(2) of that
Act.
In late March 1998, the convertible notes that were issued
in late 1997 were converted into 2,660,309, 1,971,971 and 665,098
shares of Dawson common stock, respectively (which will be
entitled to 665,077, 492,993 and 166,275 shares of Company Common
Stock, respectively, by virtue of the Reorganization) in
transactions exempt from the registration requirements of the
Securities Act of 1933 by virtue of section 3(a)(9) of that Act.
In May 1998, Dawson issued an aggregate of 825,000 shares of
Dawson common stock and warrants to purchase, for $3.00 a share,
an aggregate of 880,000 shares of Dawson common stock (which will
be entitled, in the aggregate, to 206,250 shares of Company
Common Stock and warrants to purchase, for $12.00 a share, an
aggregate of 220,000 shares of Company Common Stock,
respectively, by virtue of the Reorganization) to Super Fund
Enterprise Ltd., AIM Fund Managers Ltd., Moon Poo Lew, Kitty
Bing-kit Lew and Kam Sheik Yeung Tiu in private placements exempt
from the registration requirements of the Securities Act of 1933
by virtue of section 4(2) of that Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 Agreement and Plan of Reorganization.*
3.1 Certificate of Incorporation of the Company, as
Amended.*
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.*
10.10 Agreement, dated May 28, 1998 between Dawson
Science Corporation, Integrated Transportation
Network Group Inc. and R.I.P. Consultants.**
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.**
_____________________
* Filed herewith
** Filed with Amendment No. 2
(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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the undersigned registrant certifies that it has duly caused
Amendment No. 3 to 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 29th day of June,
1998.
By: /s/ Andrew Lee
---------------------------
Andrew Lee
Pursuant to the requirements of the Securities Act of 1933,
Amendment No. 3 to 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, June 29, 1998
Director (Principal
Executive Officer)
/s/ Andrew Lee
- ----------------------
Andrew Lee President and Director June 29, 1998
/s/ Willy Wu
- ----------------------
Willy Wu Executive Vice June 29, 1998
President, Chief
Financial Officer
(Principal Accounting
Officer)
/s/ Peng Jun*
- ----------------------
Peng Jun Executive Vice June 29, 1998
President, Treasurer,
Director
/s/ Zhang Li Wei*
- ----------------------
Zhang Li Wei Director June 29, 1998
/s/ Li Yong Yuan*
- ----------------------
Li Yong Yuan Director June 29, 1998
/s/ Andrew Lee *
---------------------------
Andrew Lee, Attorney-in-Fact
* Original powers of attorney authorizing Andrew Lee and Wu
Zhi Jian, or either of them, to sign the Registration Statement
and any amendments thereto on behalf of the above-named directors
and officers of the Company have been previously filed.
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
Dated June 29, 1998
The parties to this agreement and plan of
reorganization are Integrated Transportation Network Group Inc.,
a Delaware corporation ("ITN"), and Dawson Science Corporation, a
Nevada corporation ("Dawson").
The parties wish to provide for (a) the contribution by
Dawson to ITN of all Dawson's assets, (b) the assumption by ITN
of certain of Dawson's liabilities and obligations and (c) the
distribution by Dawson to its shareholders of all the outstanding
capital stock of ITN.
Accordingly, the parties agree as follows:
1. Contribution and Assumption. Simultaneously with
the execution and delivery of this agreement, (a) Dawson is
hereby transferring to ITN, and ITN is acquiring from Dawson,
free and clear of all claims, liens, security interests and other
encumbrances, all Dawson's assets and properties, tangible and
intangible, including, without limitation, all rights under
agreements, and (b) ITN is hereby assuming and agreeing to pay,
perform and discharge, and indemnify and hold Dawson harmless
from and against, all Dawson's liabilities and obligations,
actual and contingent, including liabilities and obligations
under agreements, in each case that are reflected on, or
expressly referred to in, Dawson's balance sheet at March 31,
1998 and the notes to that balance sheet (which is attached to
this agreement as schedule 1) (including the notes, the "Balance
Sheet"), and all liabilities, and obligations that have arisen in
the ordinary course of business since the date of the Balance
Sheet (it being understood and agreed that ITN shall have no
liability or obligation, and Dawson shall indemnify and hold ITN
harmless from and against, all Dawson's liabilities and
obligations that are not reflected on, or expressly referred to
in, the Balance Sheet or that have not arisen in the ordinary
course of business since the date of the Balance Sheet).
2. Distribution and Winding-Up
2.1 Distribution. As promptly as practicable after
the execution and delivery of this agreement, Dawson shall take
all action necessary to distribute to holders of record of shares
of its common stock at the close of business on June 30, 1998 one
share of common stock of ITN for each four shares of common stock
of Dawson held of record by them at that time. Any shares not
distributed to the shareholders shall be contributed by Dawson to
ITN.
2.2 Fractional Shares. In lieu of issuing any
fractional shares of common stock of ITN pursuant to section 2.1,
the number of shares of common stock of ITN to be distributed to
a holder of record of shares of common stock of Dawson pursuant
to section 2.1 shall be rounded to the next higher integral
number of shares of common stock of ITN, or, at ITN's option, ITN
shall 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 common stock of Dawson on the 20 trading days immediately
preceding the date of this agreement.
2.3 Winding-Up. Promptly after carrying out the
provisions of sections 2.1 and 2.2, Dawson shall wind-up its
affairs and seek to be dissolved.
3. Representations and Warranties
3.1 Representations and Warranties of Dawson. Dawson
represents and warrants to ITN as follows:
3.1.1. Existence and Power. Dawson is a corporation
validly existing and in good standing under the law of the state
of Nevada and has the full power and authority to enter into and
perform this agreement.
3.1.2. Authorization. The execution, delivery and
performance of this agreement by Dawson have been duly authorized
by all necessary action, and this agreement constitutes the valid
and binding obligation of Dawson enforceable against it in
accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
3.1.3. Consents of Third Parties. The execution,
delivery and performance of this agreement by Dawson will not:
(a) violate or conflict with its articles of incorporation or by-
laws; (b) conflict with, or result in the breach, termination or
acceleration of, or constitute a default under, any lease,
agreement, commitment or other instrument to which Dawson is a
party or by which it or its properties are bound; or
(c) constitute a violation of any law, regulation, order, writ,
judgment, injunction or decree applicable to Dawson or any of its
properties or require any governmental consent or approval, other
than those set forth on schedule 3.1.3.
3.1.4. Litigation. There is no judicial or
administrative action or proceeding pending or, to the best of
Dawson's knowledge, threatened, nor, to the best of Dawson's
knowledge, is there any governmental investigation pending or
threatened, that questions the validity of this agreement or any
action taken or to be taken by Dawson in connection with this
agreement. Except as set forth on schedule 3.1.4, there is no
litigation or proceeding pending or, to the best of Dawson's
knowledge, threatened, nor, to the best of Dawson's knowledge, is
there any governmental investigation pending or threatened nor is
there any order, injunction or decree outstanding against Dawson.
3.2. Representations and Warranties of ITN. ITN
represents and warrants to Dawson as follows:
3.2.1. Existence and Power. ITN is a corporation
validly existing and in good standing under the law of the state
of Delaware and has the full power and authority to enter into
and perform this agreement.
3.2.2. Authorization. The execution, delivery and
performance of this agreement by ITN have been duly authorized by
all necessary action, and this agreement constitutes the valid
and binding obligation of ITN enforceable against ITN in
accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights in general and subject to general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
3.2.3. Consents of Third Parties. The execution,
delivery and performance of this agreement by ITN will not: (a)
violate or conflict with its certificate of incorporation or by-
laws; (b) conflict with, or result in the breach, termination or
acceleration of, or constitute a default under, any lease,
agreement, commitment or other instrument to which ITN is a party
or by which it or its properties are bound; or (c) constitute a
violation of any law, regulation, order, writ, judgment,
injunction or decree applicable to ITN or any of its properties
or require any governmental consent or approval, other than those
set forth on schedule 3.2.3.
3.2.4. Litigation. There is no judicial or
administrative action or proceeding pending or, to the best of
ITN's knowledge, threatened, nor, to the best of ITN's knowledge,
is there any governmental investigation pending or threatened,
that questions the validity of this agreement or any action taken
or to be taken by ITN in connection with this agreement. Except
as set forth on schedule 3.2.4, there is no litigation or
proceeding pending or, to the best of ITN's knowledge,
threatened, nor, to the best of ITN's knowledge, is there any
governmental investigation pending or threatened nor is there any
order, injunction or decree outstanding against ITN.
4. Indemnification
4.1. By ITN. Subject to this section 4, ITN shall
indemnify and hold Dawson harmless from and against all losses,
liabilities, damages and expenses (including reasonable
attorneys' fees) resulting from any breach of warranty or
agreement or any misrepresentation by ITN under this agreement.
4.2. By Dawson. Subject to this section 4, Dawson
shall indemnify and hold ITN harmless from and against all
losses, liabilities, damages and expenses (including reasonable
attorneys' fees) resulting from any breach of warranty or
agreement or any misrepresentation by Dawson under this
agreement.
4.3. No Other Representations. Except as specifically
set forth in this agreement, neither ITN nor Dawson has made, nor
shall either have liability for, any representation or warranty,
express or implied, in connection with the transactions
contemplated by this agreement. The parties agree that the
remedies provided in this section 4 are the exclusive remedies
for breach of warranty and misrepresentation under this
agreement.
4.4. Survival. The representations and warranties in
this agreement shall survive the execution and delivery of this
agreement.
4.5. Defense of Claims by Third Parties. If any claim
is made against any person or entity that, if sustained, would
give rise to a liability of a party for breach of warranty or
misrepresentation under this agreement, ITN and its counsel, at
ITN's sole expense, shall control the defense and settlement of
the claim, and shall do so in a manner intended to minimize each
party's liability.
5. Miscellaneous
5.1 Governing Law. This agreement shall be governed
by and construed in accordance with the law of the state of New
York applicable to agreements made and to be performed wholly in
the state of New York.
5.2. Notices. All notices and other communications
under this agreement shall be in writing and may be given by any
of the following methods: (a) personal delivery; (b) facsimile
transmission; (c) registered or certified mail, postage prepaid,
return receipt requested; or (d) overnight delivery services.
Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or
facsimile number for that party as shall be specified by notice
given under this section 5.2):
if to either party, to that party at:
c/o Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Fax: (212) 969-2900
Attention: Edward W. Kerson, Esq.
All such notices and communications shall be deemed received upon
(a) actual receipt by the addressee, (b) actual delivery to the
appropriate address or (c) in the case of a facsimile
transmission, upon transmission by the sender and issuance by the
transmitting machine of a confirmation slip confirming the number
of pages constituting the notice have been transmitted without
error. In the case of notices sent by facsimile transmission,
the sender shall contemporaneously mail a copy of the notice to
the addressee at the address provided for above. However, such
mailing shall in no way alter the time at which the facsimile
notice is deemed received.
5.3. Further Assurances. From time to time, each party
shall take such action and execute and deliver such documents as
the other may reasonably request to carry out the transactions
contemplated by this agreement.
5.4. Counterparts. This agreement may be executed in
counterparts, each of which shall be considered an original, but
both of which together shall constitute the same instrument.
5.5 Separability. If any provision of this agreement
is invalid or unenforceable, the balance of this agreement shall
remain in effect, and if any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable
to all other persons and circumstances.
5.6. Entire Agreement. This agreement contains a
complete statement of all the arrangements between the parties
with respect to its subject matter, supersedes all existing
agreements between them with respect to that subject matter, may
not be changed or terminated orally and any amendment or
modification must be in writing and signed by the party to be
charged.
INTEGRATED TRANSPORTATION NETWORK GROUP
INC.
By: /s/ Andrew Lee
Andrew Lee, President
DAWSON SCIENCE CORPORATION
By: /s/ Wu Zhi Jian
Wu Zhi Jian, Chief Executive Officer
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
The undersigned incorporator, in order to form a
corporation under the General Corporation Law of Delaware,
certifies as follows:
FIRST: The name of the corporation is Integrated
Transportation Network Group Inc.
SECOND: The registered office of the corporation is
to be located at 1013 Centre Road, Wilmington, Delaware, 19805-
1297, New Castle County. The name of its registered agent at
that address is Corporation Service Company
THIRD: The purpose of the corporation is to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The corporation shall have the authority to
issue 100 shares of common stock, par value $0.01 per share.
FIFTH: The name and mailing address of the
incorporator are as follows:
Edward W. Kerson, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
SIXTH: A director of this corporation shall not be
personally liable to the corporation or its stockholders for
monetary damages for the breach of any fiduciary duty as a
director, except in the case of (a) any breach of the director's
duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (c) under section 174
of the General Corporation Law of the State of Delaware or (d)
for any transaction from which the director derives an improper
personal benefit. Any repeal or modification of this Article by
the stockholders of the corporation shall not adversely affect
any right or protection of a director of the corporation existing
at the time of such repeal or modification with respect to acts
or omissions occurring prior to such repeal or modification.
SEVENTH: Unless, and except to the extent that, the
by-laws of the corporation shall so require, the election of
directors of the corporation need not be by written ballot.
EIGHTH: The corporation hereby confers the power to
adopt, amend or repeal bylaws of the corporation upon the
directors.
IN WITNESS WHEREOF, I have hereunto set my hand this
5th day of January, 1998.
/s/ Edward W. Kerson
----------------------------
Edward W. Kerson
Sole Incorporator
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTEGRATED TRANSPORTATION NETWORK GROUP INC.
Pursuant to section 242 of the Delaware General
Corporation Law
The undersigned, Zhi-Jian Wu, chairman of the board of
Integrated Transportation Network Group Inc., a Delaware
corporation, certifies as follows:
1. Article FOURTH of the certificate of incorporation
of the corporation is amended to read in its entirety as follows:
"FOURTH: The corporation shall have authority to
issue 55,000,000 shares, consisting of 50,000,000
shares of common stock, par value $.01 per share,
and 5,000,000 shares of preferred stock, par value
$.01 per share. The board of directors may
authorize the issuance from time to time of
preferred stock in one or more series and with
such designations, preferences, relative,
participating, optional and other special rights,
and qualifications, limitations or restrictions
(which may differ with respect to each series) as
the board may fix by resolution."
2. This amendment was duly adopted in accordance with
section 242 of the Delaware General Corporation Law.
June 26, 1998
/s/ Zhi-Jian Wu
Zhi-Jian Wu
Chairman of the Board
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
Wu Zhi Jian 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
Wu Zhi Jian 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.
Mr. Wu 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 /s/ Wu Zhi Jian
Barry R. Minsky Wu Zhi Jian
Chief Executive Officer Authorized Signature
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
Wu Zhi Jian
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 [name in Chinese
characters]. 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 shall 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
joint 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 the 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 relevant 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 that 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 contract 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 contra 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 notary organization for
explaining the reason of its inability to execute or delay the
execution of all or part of the contract. Both parties shall,
through consultations, decide whether to terminate the contract
or whether to delay the execution of the contract according to
the effects of the events of the performance of the 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 related 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 40
During the arbitration, the contract shall be executed
continuously by both parties except for matters in disputes.
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
Zhi Jian Wu 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 [name in Chinese
characters].
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
Wu Zhi Jian 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
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/Andrew Lee /s/ Zhi-Jian Wu
Andrew Lee 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
1. 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."
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 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.
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 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 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.
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 25,000 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/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.
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.
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.
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) 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").
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"):
(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.
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: September 19, 1997
WITNESS: DAWSON SCIENCE CORPORATION
/s/ Andrew Lee By: /s/ Zhi-Jian Wu
Name: Andrew Lee Zhi-Jian Wu,
Address: 43 Appleton Pl. President,
Dobbs Ferry, NY 10522 duly authorized
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
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:
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 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.
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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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).
18. 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.
19. 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.
20. 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.
21. 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.
22. 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
Andrew Lee 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: Fanny Paulits
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:
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/ 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. Nossiff, Jr.
John G. Nossiff, 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: Fanny Paulits
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
1. 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."
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 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.
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 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 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.
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 75,000 shares of Common Stock of 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/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.
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.
DAWSON SCIENCE CORPORATION
By: /s/ Zhi-Jian Wu
Zhi-Jian Wu, President, duly
authorized
LENDER:
NEOLITE NEON CO. PTY. LTD.
By: /s/ L. Lollback
[Corporate Seal] Name: L. Lollback
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.
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) 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").
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"):
(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.
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 (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").
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: 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
Fanny Paulits
Notary Public
My Commission Expires: 11/30/97
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:
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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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).
18. 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.
19. 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.
20. 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.
21. 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.
22. 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
Andrew Lee 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: Fanny Paulits
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:
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 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.
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:
NEOLITE NEON CO. PTY. LTD.
By: /s/ L. Lollback
[Company Seal] Name: L. Lollback
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: Fanny Paulits
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 5.1
[Proskauer Rose LLP Letterhead]
June 29, 1998
Integrated Transportation Network Group Inc.
575 Lexington Avenue, Suite 410
New York, NY 10022
Dear Sirs:
We have acted as special counsel to Integrated
Transportation Network Group Inc. (the "Company"), a Delaware
corporation, in connection with the preparation and filing of the
Company's Registration Statement on Form S-1 (Registration No.
33-47879) (the "Registration Statement") under the Securities Act
of 1933 relating to the proposed Reorganization (as defined in
the Registration Statement) pursuant to which the Company will
issue up to 7,623,000 shares of its common stock.
We have made such investigation and examined such
documents and records (including certificates of certain public
officials and certificates furnished by officers of the Company)
as we have deemed necessary, and on that basis we are of the
following opinion:
The shares of the Company's common stock to be issued
by the Company in the Reorganization have been duly authorized
and, when issued in the manner described in the Registration
Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of our name under the caption
"Validity of Shares" in the prospectus constituting a part of the
Registration Statement and to the use of this opinion for filing
as exhibit 5.1 to the Registration Statement. In giving this
consent, we do not hereby admit that we come within the category
of persons whose consent is required under section 7 of the
Securities Act of 1933, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Proskauer Rose LLP
PROSKAUER ROSE LLP
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 9, which is as of March
31, 1998 and Note 1 which is as of June 29, 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
June 29, 1998
Exhibit 8.1
[Proskauer Rose LLP Letterhead]
June 29, 1998
Integrated Transportation Network Group, Inc.
575 Lexington Avenue, Suite 410
New York, NY 10022
Gentlemen:
We have acted as special counsel to Integrated Transportation
Network Group Inc., a Delaware corporation (the "Company"), in
connection with the filing by the Company of a Registration
Statement on Form S-1, Registration No. 333-47879 (the
"Registration Statement") with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933
(the "Securities Act").
We have examined the Registration Statement, the prospectus
included in the Registration Statement(the "Prospectus") and such
other documents as we have deemed necessary or appropriate for
purposes of this opinion.
On that basis, it is our opinion that the description in the
Prospectus under the heading "TAXATION--United States Federal
Income Taxation" correctly sets forth the material United States
federal income tax consequences to a U.S. Investor.
We consent to the use of our name under the caption "THE
REORGANIZATION Tax Effects of the Reorganization" and
"TAXATION United States Federal Income Taxation" in the
prospectus constituting a part of the Registration Statement and
to the use of this opinion for filing as exhibit 8.1 to the
Registration Statement. In giving this consent, we do not hereby
admit that we come within the category of persons whose consent
is required under section 7 of the Securities Act, or the rules
and regulations of the Commission thereunder.
Very truly yours,
/s/ Proskauer Rose LLP
PROSKAUER ROSE LLP
Exhibit 8.2
[Letterhead for Jun He Law Office]
June 29, 1998
Integrated Transportation Network Group, Inc.
575 Lexington Avenue, Suite 410
New York, NY 10022
Re: Form S-1, Registration Statement under the Securities
Act of 1933
-------------------------------------------------------
Gentlemen:
This opinion is being provided at the request of Integrated
Transportation Network Group Inc., a Delaware corporation (the
"Company"), in connection with the filing by the Company of a
Registration Statement on Form S-1, Registration No. 333-47879
(the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933
(the "Securities Act").
For the purposes of giving this opinion, we have examined the
Registration Statement, the prospectus included in the
Registration Statement(the "Prospectus"), and such other
documents as we have deemed necessary or appropriate but have not
conducted any relevant factual investigation. We do not express
any opinion concerning any part of the Registration Statement and
the Prospectus or the filing thereof except the following.
Based upon and subject to the foregoing and assuming that all
factual statements in the Registration Statement and the
Prospectus are true and accurate, and the Company and its joint
venture in China have or will comply with all applicable legal
requirements on taxation in China, we are of the opinion that the
statements in the Prospectus under the caption "TAXATION--China
Taxation", insofar as such statements constitute summaries of
Chinese legal matters, fairly and accurately summarize the
matters referred to.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under
the captions "Enforceability of Civil Remedies" and "Taxation" in
the Prospectus. In so doing, we do not admit that we are in the
category of persons whose consent is required under section 7 of
the Securities Act and the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Jun He Law Office
Jun He Law Office
