As filed with the Securities and Exchange Commission on May 20, 1999.
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HI-Q WASON, INC.
------------------------
(Exact Name of registrant
as specified in charter)
British Virgin Islands 5149 Not Applicable
---------------------- ---- --------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of incorporation Industrial Classification Identification
or organization) Code Number) Number)
4th Floor, 52 Lane 232, Hu Lin Street
Hsin Yi District
Taipei, Taiwan, Republic of China
011 886(2)2990-8306
--------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Gary A. Agron
5445 DTC Parkway, Suite 520
Englewood, Colorado 80111
(303) 770-7254
--------------------------------------------------
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of all communications to:
Gary A. Agron, Esq.
Law Office of Gary A. Agron
5445 DTC Parkway, Suite 520
Englewood, Colorado 80111
(303) 770-7254
(303) 770-7257(fax)
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this registration statement.
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,
check the following box. [ ]
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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:
|_| [EXHIBIT INDEX LOCATED PAGE _____ OF THIS FILING]
<TABLE>
<CAPTION>
===================================================================================================
CALCULATION OF REGISTRATION FEE
Title of Each Class Amount Proposed Proposed Maximum Amount
of Securities To Be Maximum Aggregate of
to be Registered Registered Price Per Offering Price(1) Registration Fee
Share
===================================================================================================
<S> <C> <C> <C> <C>
Common Stock, no 1,265,000 $7.00 $8,855,000 $2,613
par value Shares(2)
Common Stock 110,000 $8.40 $ 924,000 $ 272
underlying the Shares
Representative's
Warrants (3)
- ---------------------------------------------------------------------------------------------------
Total................................................................... $2,885
===================================================================================================
</TABLE>
(1) Estimated solely for computing the amount of the registration fee pursuant
to Rule 457(a) under the Securities Act.
(2) Includes the overallotment option granted to the Representative of 210,000
shares.
(3) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number
of shares of common stock issuable upon exercise of the Representative's
Warrants is subject to adjustment in accordance with the anti-dilution
provisions of such warrants.
THE REGISTRANT HEREBY AMENDS THE 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.
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion dated , 1999
1,100,000 Shares of Common Stock
HI-Q WASON, INC. [LOGO]
We are one of Taiwan's largest providers of bottled water delivered
directly to residences and businesses.
We are offering 1,100,000 shares of common stock priced at $7.00 per share.
We intend to apply for listing of our common stock on the Nasdaq SmallCap
Market under the symbol "HIQW."
See "Risk Factors" beginning on page _______ to read about factors you
should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
Per Share Total
--------- -----
Public offering price: $7.00 $7,700,000
Underwriting discounts and commissions: $ .70 $ 770,000
Proceeds to Hi-Q Wason, Inc.: $6.30 $6,930,000
We have granted the underwriters an option for 45 days to purchase up
to an additional 165,000 shares at the same price indicated above solely to
cover overallotments.
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER PAGE: PICTURE OF INTERIOR OF WATER BOTTLING FACILITY]
2
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES AND CERTAIN
FOREIGN ISSUER CONSIDERATIONS
We are a British Virgin Islands holding company, and all of our assets are
located in the Republic of China. In addition, all of our directors and officers
are non-residents of the United States, and all or a substantial portion of the
assets of these non-residents are located outside the United States. As a
result, it may be difficult for investors to effect service of process within
the United States upon these non-residents or to enforce against them judgments
obtained in United States courts, including judgments predicated upon the civil
liability provisions of the securities laws of the United States or any state
thereof. There is uncertainty as to whether courts of the Republic of China or
the British Virgin Islands would enforce (i) judgments of United States courts
obtained against us or these non-residents predicated on the civil liability
provisions of the securities laws of the United States or any state thereof or
(ii) in original actions brought in the Republic of China or the British Virgin
Islands, liabilities against the Company or these non-residents predicated upon
the securities laws of the United States or any state thereof. We have
designated the Law Office of Gary A. Agron, 5445 DTC Parkway, Suite 520,
Englewood, Colorado 80111, as our agent for service of process in the United
States with respect to this offering.
There are no treaties between the Republic of China and the United States,
nor between the British Virgin Islands and the United States providing for the
reciprocal enforcement of foreign judgments. However, the courts of the Republic
of China and the British Virgin Islands may accept a foreign judgment as
evidence of a debt due. An action may be commenced in the Republic of China or
the British Virgin Islands for recovery of this debt. However, a Chinese or
British Virgin Islands court will only accept a foreign judgment as evidence of
a debt due, if: (i) the judgment is for a liquidated amount in a civil matter;
(ii) the judgment is final and conclusive and has not been stayed or satisfied
in full; (iii) the judgment is not directly or indirectly for the payment of
foreign taxes, penalties, fines or charges of a like nature (in this regard, a
Chinese or British Virgin Islands court is unlikely to accept a judgment of an
amount obtained by doubling, trebling or otherwise multiplying a sum assessed as
compensation for the loss or damages sustained by the person in whose favor the
judgment is given); (iv) the judgment was not obtained by actual or constructive
fraud or duress; (v) the foreign court has taken jurisdiction on grounds that
are recognized by the private international law rules in the Republic of China
as to conflict of laws in the Republic of China or common law rules as to
conflict of laws in the British Virgin Islands; (vi) the proceedings in which
the judgment was obtained were not contrary to natural justice (i.e., the
concept of fair adjudication); (vii) the proceedings in which the judgment was
obtained, the judgment itself and the enforcement of the judgment are not
contrary to the public policy of the Republic of China or the British Virgin
Islands; (viii) the person against whom the judgment is given is subject to the
jurisdiction of the Chinese or the British Virgin Islands courts; and (ix) the
judgment is not on a claim for contribution in respect of damages awarded by a
judgment that does not satisfy the foregoing. Enforcement of a foreign judgment
in the Republic of China or the British Virgin Islands 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.
Under United States law, majority and controlling stockholders generally
have certain "fiduciary" responsibilities to minority stockholders. Shareholder
action must be taken in good faith and actions by controlling stockholders that
are obviously unreasonable may be declared null and voice. While we believe
there are no material differences between the protection afforded to minority
stockholders of a company organized as an International Business Company under
3
<PAGE>
the law of the British Virgin Islands from those generally available to
stockholders of corporations organized in the United States, there may be
circumstances where the British Virgin Islands law protecting the interests of
minority stockholders may not be as protective as the law protecting minority
stockholders in United States jurisdictions. Under British Virgin Islands law, a
shareholder of a company organized as an International Business Company under
the laws of the British Virgin Islands may bring an action against a company,
even if other stockholders do not wish to bring an action and even though no
wrong has been done to the shareholder personally. This is a representative
action (i.e., an action on the shareholder's own behalf and on behalf of other
persons in his class, or similarly situated). Instances where such
representative actions may be brought include: (i) to compel a company to act in
a manner consistent with the Memorandum of Association and Articles of
Association; (ii) to restrain directors from acting on resolutions, where notice
of a stockholders' meeting failed adequately to inform stockholders of a
resolution proposed at the meeting; (iii) to restrain a company, where it
proposes to perform an act not authorized by the Memorandum of Association and
the Articles of Association or to seek damages from director to compensate a
company from the consequences of such an unauthorized act, or to recover
property of a company disposed of pursuant to such unauthorized act; (iv) to
restrain a company from acting upon a resolution that was not made in good faith
and for the benefit of stockholders as a whole; (v) to redress where a
resolution passed at a stockholders' meeting was not properly passed (e.g., it
was not passed with the necessary majority); (vi) to restrain a company from
performing an act which is contrary to law; and (vii) to restrain a company from
taking any action in the name and for the benefit of a company. Such an action
also may be brought against directors and promoters who have breached their
fiduciary duties to the company, though acts amounting to a breach of a
fiduciary duty can be ratified by a general meeting of stockholders, in the
absence of fraud. Such actions against directors and promoters only may be
taken, however, if such directors and promoters have power to influence the
action taken by a general meeting by means of, for instance, their votes as
stockholders, thereby preventing a company from suing them in the company's
name. Although British Virgin Islands law does permit a shareholder of a British
Virgin Islands company to sue its directors representatively or derivatively,
the circumstances in which any such action may be brought as set forth above may
result in the rights of stockholders of a British Virgin Islands company being
more limited than those of stockholders in a United States company.
CURRENCY TRANSLATIONS
Our published financial statements are presented in New Taiwan dollars, the
lawful currency of the Republic of China. In this Prospectus, references to
"U.S. dollars", "US$" or "$" are to U.S. currency and references to "New Taiwan
dollars" or "NT" are to the Republic of China currency. Solely for the
convenience of the reader, this prospectus contains translations of certain NT
amounts into U.S. dollars at specified rates. These translations should not be
construed as representations that the NT amounts actually represent such U.S.
dollar amounts or could be converted into U.S. dollars at the rate indicated.
Unless otherwise stated, the translations of NT to U.S. dollars have been made
at the exchange rate of NT33.17 to US$1.00, which represents the noon buying
rate of the Federal Reserve Bank of New York on March 31, 1999. See "Exchange
Rates" for historical information regarding the exchange rate.
4
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus.
Our Business
We are one of Taiwan's largest providers of bottled water delivered
directly to residences and businesses and have a leading market share position
in Taipei and Hsinchu, Taiwan. Our primary focus is on the bottling, marketing
and delivery of high quality drinking water in five-gallon and three-gallon
bottles to homes and offices, and the related sale or rental of water coolers.
Our Opportunity
We believe that the alternative to tap water market represents an
attractive industry opportunity due to the strong growth in demand for bottled
water. According to the Taiwan Beverage Industry Union, per capita water
consumption in Taiwan increased ten-fold between 1980 and 1997 from 1.2 gallons
per capita to 12.1 gallons per capita and is expected to reach 18.2 gallons per
capita by 2001. Moreover, sales of bottled water in Taiwan grew at an annual
rate of 13.9% from 1986 to 1996 and is projected to grow at an annual rate of
16.5% between 1996 and 2001. Moreover, bottled water volume in Taiwan increased
from 28.7 million gallons in 1980 to 242.8 million gallons in 1997 and is
projected to reach 364 million gallons in 2001. We believe this growth will
continue to be driven by concerns related to the quality of tap water, the trend
toward consumer selection of healthy products and consumer taste preferences for
bottled water.
We deliver bottled water to an installed base of approximately 5,000 water
coolers in our markets. We believe that direct delivery bottled water companies
enjoy certain advantages over retailers of bottled water because:
o Bottled water customers are reluctant to change from one company to
another due to increased cost and inconvenience; and
o Competition tends to be limited due to the capital costs associated
with the purchase of water coolers, reusable water bottles, bottling
equipment and delivery trucks.
By virtue of our market share position in the Taiwanese bottled water
market, we believe we have a number of competitive advantages over smaller
operators, including more efficient distribution operations, the availability of
purchasing synergies, superior customer service and better established
infrastructure. We intend to use a portion of the proceeds of the offering to
purchase a number of these smaller bottled water companies who do not have a
sufficiently developed distribution system, management infrastructure or
financial resources to compete with larger companies.
5
<PAGE>
Our Strategy
We expect to benefit from the growing demand for quality drinking water by
increasing our installed base of water coolers, increasing the water and related
products we offer through our delivery system, and consolidating a part of the
highly fragmented bottled water industry in Taiwan. Specifically, we intend to
continue to pursue the following business strategies:
o Focus on the water cooler segment within the growing "alternative to
tap water" market, which enjoys higher margins, less competition and
greater operating leverage than either the retail bottled water or the
water filter businesses;
o Pursue strategic acquisitions by consolidating some of the more than
500 small water bottling companies in Taiwan and improving the
operations of these companies;
o Leverage our infrastructure by increasing route density and by using
our route systems to offer products which are complementary to our
bottled water, including cups, cooler sanitation services and related
products; and
o Provide outstanding customer service by:
o reliably delivering bottled water on schedule;
o meeting customer shortages with the quick delivery of refills;
o providing regular maintenance and sanitation of water coolers;
and
o effectively addressing other customer needs.
Our History and Offices
We were incorporated as an international business company of the British
Virgin Islands in April 1999, at which time we acquired all of the common stock
of Hi-Q Wason, Inc., a Taiwanese corporation, for 471,429 shares of our common
stock. Hi-Q Wason was organized in November 1995 to provide bottled water
delivered directly to residences and businesses and is now our operating
subsidiary. Our corporate offices are located at 4th Floor, 52 Lane 232, Hu Lin
Street, Hsin Yi District, Taipei, Taiwan, Republic of China, telephone number
011-886-2-2990-8306.
The Offering
Securities offered (1)................. 1,100,000 shares of common stock.
Common Stock Outstanding
Prior to Offering .................... 471,429 shares of common stock.
Common Stock to be Outstanding
After Offering (2).................... 1,571,429 shares of common stock.
Use of Proceeds........................ Developing new bottling facilities,
marketing expenses, acquisition of
other bottling companies and working
capital. See "Use of Proceeds."
6
<PAGE>
Proposed Nasdaq SmallCap
Market Symbol......................... HIQW
Risk Factors........................... Please read the Risk Factors section
of this prospectus as investment in
our common stock involves a high
degree of risk and could result in a
loss of your entire investment.
(1) If the overallotment option granted to the underwriters is exercised in
full, 165,000 additional shares of common stock will be sold, with
estimated net proceeds to be received of $1,004,850 after deducting
commissions and expenses.
(2) Excludes 110,000 shares of common stock issuable upon exercise of purchase
warrants to be issued to _______________________ , as the representative of
the underwriters upon completion of the offering. See "Underwriting."
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
We prepare our financial statements in accordance with generally accepted
accounting principles in the United States, which we refer to as US GAAP. The
following summary statement of operations data for the years ended December 31,
1998, 1997 and 1996 and the balance sheet data as of December 31, 1998 and 1997
were derived from our audited financial statements included elsewhere in this
prospectus. The following summary statement of operations data for the period
from November 20, 1995 (inception) to December 31, 1995 and the balance sheet
data as of December 31, 1996 and 1995 was derived from our audited financial
statements, not included in this prospectus. The following summary statement of
operations data for the three months ended March 31, 1999 and 1998, and the
selected balance sheet data as of March 31, 1999 was derived from our unaudited
financial statements included elsewhere in this prospectus and, in our opinion,
includes all adjustments, consisting only of normal recurring adjustments,
necessary to fairly state this information. The results of operations for these
interim periods are not necessarily indicative of the results that may be
expected for the full year. Since the information presented below is only a
summary and does not provide all of the information contained in our financial
statements, including the related notes, you should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements.
Unless otherwise indicated, all information in this prospectus assumes no
exercise of the overallotment option granted to the underwriters.
8
<PAGE>
<TABLE>
<CAPTION>
Three-months ended March 31, Years ended December 31,
----------------------------- -----------------------------------------------------------
1999 1998 1998 1997 1996 1995(1)
------------- ---- ----------------- ---- ---- ------
$(2) NT NT $(2) NT NT NT NT
---- -- -- ---- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues 231,420 7,676,197 5,053,631 912,971 30,283,239 19,784,732 9,187,588 170,640
Cost of revenues (89,027) (2,953,039) (2,186,780) (339,870) (11,273,488) (8,330,002) (4,451,269) (798,891)
Selling, general and
administrative expense (106,055) (3,517,829) (2,448,342) (395,424) (13,116,209) (10,088,498) (5,581,969) (657,751)
Operating income (loss) 36,338 1,205,329 418,509 177,677 5,893,542 1,366,232 (845,650) (1,286,002)
Other income (expense),
net (3,650) (121,079) (27,011) (9,257) (307,068) (115,305) 10,815 1,192
Income tax expense (8,172) (271,063) (97,874) (42,534) (1,410,847) (305,250) -0- -0-
Net income (loss) 24,516 813,187 293,624 125,886 4,175,627 945,677 (834,835) (1,284,810)
Basic earnings (loss)
per common share 0.05 1.72 0.62 0.27 8.86 2.01 (1.77) (2.73)
Weighted average common
shares outstanding(3) 471,429 471,429 471,429 471,429 471,429 471,429 471,429 471,429
March 31, 1999 Years ended December 31,
---------------- --------------------------------------------------------------
1998 1997 1996 1995(1)
----------------------- ---- ---- ------
$(2) NT $(2) NT NT NT NT
---- -- ---- -- -- -- --
Balance sheet data:
Working capital 127,233 4,220,346 45,442 1,507,324 6,207,750 (2,375,014) 1,083,459
Property and equipment,
net 679,308 22,532,647 688,711 22,844,554 13,193,564 5,339,769 2,451,331
Total assets 1,016,221 33,708,051 936,446 31,061,917 21,397,061 8,887,655 5,348,568
Capital lease obligations
and short-term
borrowings 119,388 3,960,108 132,456 4,393,576 1,267,400 5,472,089 -0-
Stockholders' equity 718,566 23,834,846 693,447 23,001,659 18,826,032 2,880,355 3,715,190
</TABLE>
(1) Period from November 20, 1995 (inception) to December 31, 1995.
(2) Translated into United Stated dollars solely for the convenience of the
readers using the noon buying rate of the Federal Reserve Bank of New York
on March 31, 1999 of NT33.17 to $1.
(3) Represents the shares we issued to acquire Hi-Q Wason, Inc., the Taiwanese
corporation, in April 1999. See "Our History and Offices."
9
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. If
any of these risks occur, our business, results of operations and financial
condition could be adversely affected. This could cause the trading price of our
common stock to decline, and you might lose part or all of your investment.
This prospectus also contains certain forward-looking statements that are
based on beliefs and assumptions of our management. Often, you can recognize
these statements because we use words such as "believe", "anticipate", "intend",
"estimate" and "expect" in the statements. Our actual performance in 1999 and
beyond could differ materially from the forward-looking statements contained in
this prospectus. However, we are not obligated to release publicly any revisions
to the forward-looking statements contained in this prospectus.
In Order To Grow Through Acquisitions We Must Obtain Acquisition Candidates,
Personnel and Capital
We intend to grow internally as well as through the acquisition of other
water bottling companies. Our ability to grow will require the availability of
suitable acquisition candidates and the availability of financing, neither of
which can be assured. Growth through acquisitions also involves risks that could
adversely affect our operating results, including difficulties in integrating
the operations and personnel of acquired companies and the potential loss of key
employees of acquired companies.
Implementation of our proposed expansion strategy will also be dependent
upon our ability to:
o Hire and retain skilled management, financial, marketing and other
personnel;
o Monitor operations;
o Control costs; and
o Maintain effective quality and inventory controls.
Our growth strategy and plans may be affected by:
o Delays in our marketing efforts;
o Changes in economic or market conditions;
o Our ability to make capital expenditures; and
o Competition.
There can be no assurance that we will be able to successfully implement
our acquisition strategy or otherwise expand our operations.
We may require additional debt or equity financing beyond the proceeds of
the offering to fund our operations. To the extent that we raise additional
funds, we will be subject to potentially significant interest expense for debt
financing or dilution to our stockholders for equity financing. There can be no
assurance that additional financing will be available to us on reasonable terms
or at all.
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Our Foreign Operations Involve Risk That Could Materially Affect Our Business
All of our operations are in Taiwan. Foreign operations are subject to a
number of special risks, such as risks of fluctuations in currency exchange
rates, regional and national economic conditions, economic and political
destabilization, restrictive actions by foreign governments such as restrictions
on transfer of funds and unexpected changes in the regulatory environment, and
changes in foreign laws regarding trade, investment and taxes. Any of these
factors could have a material adverse effect on our business.
Our Business Is Subject To Government Regulation That Could Subject Us To
Significant Penalties
Our operations are subject to the jurisdiction of governmental and
regulatory agencies which regulate the quality of drinking water in Taiwan. We
believe that we are in substantial compliance with all applicable laws and
regulations and have all required permits and licenses to conduct our business.
However, any failure by us to comply with existing and future laws and
regulations could subject us to significant penalties. In addition, there can be
no assurance that current laws or regulations will not be modified in a manner
that imposes additional costs on us.
We Face Significant Competition From Larger Competitors
The beverage industry in general, and the bottled water market in
particular, are competitive. We compete with local bottled water companies and
larger beverage companies. Certain of our competitors possess greater financial,
personnel, marketing and other resources than we and may be better able to
withstand market conditions within the beverage industry. We may encounter
increased competition in the future. In addition, a change in consumer
preferences from bottled water to other beverages would have a material adverse
effect on our business.
We Depend On Certain Key Personnel To Manage Our Company
We are dependent on the continued services of certain members of our
management team, including Tuan-Yuan Hu, our Chief Executive Officer. The loss
of, or inability to replace, any key personnel could have a material adverse
effect on our business.
We Could Be Liable For Personal Injury Claims Resulting From Product Defects
We are engaged in a business which could expose us to possible liability
claims from others, including personal injury claims for providing water that
injures or sickens the user. We maintain insurance coverage that we believe is
typical for companies in our industry. There can be no assurance, however, that
our insurance will be sufficient to cover potential claims or that an adequate
level of coverage will be available in the future on acceptable terms.
It May Be Difficult To Serve Us With Legal Process Or Enforce Judgments Against
Us Or Our Management
We are a British Virgin Islands holding company, and all of our assets are
located in Taiwan. In addition, all of our directors and officers are
non-residents of the United States, and all or a substantial portion of the
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assets of these non-residents are located outside the United States. As a
result, it may not be possible to effect service of process within the United
States upon such persons. Moreover, there is doubt as to whether the courts of
the British Virgin Islands or Taiwan would enforce (1) judgments of United
States courts against us, or directors or our officers predicated on the civil
liability provisions of the securities laws of the United States or any state
thereof or (2) in original actions brought in the British Virgin Islands or
Taiwan, liabilities against us or other non-residents predicated upon the
securities laws of the United States or any state thereof.
Our New Investors' Stock Value Will Be Diluted
New investors will incur an immediate and substantial reduction in the book
value per share of our common stock of approximately $2.44 per share between the
net tangible book value per share after the offering of $4.56 and the public
offering price of $7.00 per share. Our existing stockholders acquired their
shares of common stock at prices below $7.00 and, accordingly, new investors
will bear most of the risks inherent in an investment in us.
Our Underwriters May Influence Our Common Stock Price
A significant amount of our common stock may be sold to customers of our
underwriters. Such customers subsequently may engage in transactions for the
sale or purchase of common stock through or with these underwriters. Although
they have no obligation to do so, the underwriters may make a market in the
common stock, and this market-making activity may be discontinued at any time.
The price and liquidity of our common stock may be significantly affected by the
degree, if any, of the underwriters' participation in such market. If the
underwriters cease making a market, the market and market price for our common
stock may be adversely affected and the holders may be unable to sell our common
stock.
As A Non-U.S. Company, We Are Not Required To Provide Timely Information To The
Public
We are a foreign private issuer within the meaning of the rules under the
Securities Exchange Act of 1934, as amended. As such, we are exempt from certain
provisions applicable to United States public companies, including: (1) the
rules under the Securities Exchange Act requiring the filing with the Securities
and Exchange Commission of quarterly reports on Form 10-Q or current reports on
Form 8-K; (2) the sections of the Securities Exchange Act regulating the
solicitation of proxies, consents or authorizations in respect of a security
registered under the Securities Exchange Act; and (3) the sections of the
Securities Exchange Act requiring insiders to file public reports of their stock
ownership and trading activities and establishing insider liability for profits
realized from any "short-swing" trading transaction. Because of these
exemptions, investors in the offering are not afforded the same protections or
information generally available to investors in public companies organized in
the United States.
Failure Of Our Computer System Or The Systems Of Third Parties To Achieve Year
2000 Compliance Could Adversely Affect Our Business
Many currently installed computer systems and software products are coded
to accept only two- digit entries to represent years in the date code field.
Computer systems and products that do not accept four-digit entries will need to
be upgraded or replaced to accept four-digit entries to distinguish years
beginning with 2000 from prior years. We are currently evaluating the Year 2000
issue as it relates to our entire internal computer system as well as computer
systems operated by third parties. We anticipate that which may incur internal
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staff costs as well as consulting and other expenses related to making our
computer systems Year 2000 compliant. We will expense these costs as incurred.
In addition, computer systems operated by third parties with which our systems
interface may not continue to properly interface with our systems or be
compliant on a timely basis with Year 2000 requirements. Any failure of our
computer system or the systems of third parties to achieve Year 2000 compliance
could adversely affect our business.
Future Sales Of Our Common Stock Or Shares Issuable Upon Exercise Of Stock
Options Could Adversely Affect Our Stock Price And Our Ability To Raise Funds In
New Stock Offerings
We currently have 471,429 shares of common stock outstanding which may be
sold beginning in April 2000 under Rule 144 of the Securities Act. Sale of
substantial amounts of common stock, or the perception that sales could occur,
could reduce the market price of our common stock. All of our stockholders have
agreed not to sell or otherwise transfer any of their shares until one year from
the date of this prospectus without the prior written consent of the
representative of the underwriters. A total of 300,000 shares of common stock
have been reserved for issuance upon the exercise of stock options which may be
granted under our 1999 Stock Option Plan and 110,000 shares have been reserved
upon exercise of common stock purchase warrants to be issued to the
representative of the underwriters. The holders of any stock options or common
stock purchase warrants we issue will have the opportunity to profit from an
increase in the market price of our common stock. The existence of these stock
options and common stock purchase warrants may also affect our ability to obtain
other financing.
13
<PAGE>
USE OF PROCEEDS
After payment of underwriting commissions and other expenses of the
offering, the net proceeds of the offering are estimated to be $6,449,000
($7,453,850 if the overallotment option is exercised). We expect to use
approximately $1,385,000 of such proceeds to develop new bottling facilities,
approximately $700,000 for marketing expenses including the salaries and
expenses of newly hired sales and marketing personnel, approximately $500,000
for equipment, including reusable water bottles, approximately $2,700,000 to
acquire other small bottling companies in Taiwan, and approximately $1,164,000
for working capital. There may be changes in our proposed use of proceeds due to
changes in our business.
Proceeds not immediately needed will be invested in bank certificates of
deposit, insured bank deposit accounts or similar investments.
DIVIDEND POLICY
We do not intend to pay dividends on our common stock in the foreseeable
future. Instead, we will retain our earnings to finance the expansion of our
business and for general corporate purposes.
EXCHANGE RATES
We have prepared our financial statements in accordance with US GAAP and
have published these statements in NT, which is the legal tender currency of the
Republic of China. All references to "U.S. dollars", "dollars" or "$" are to
United States dollars. Conversion of amounts from NT to United States dollars
for the convenience of the reader has been made at the noon buying rate of the
Federal Reserve Bank on March 31, 1999 of $1.00 = NT33.17.
The following table sets forth certain information concerning exchange
rates between NT and U.S. dollars for the periods indicated:
Noon Buying Rate (1)
---------------------------------------
Period End Average(2) High Low
---------- ---------- ---- ---
Calendar Year (NT per US$)
1994 . . . . . . . . . . . . . . 26.29 26.43 27.09 26.02
1995 . . . . . . . . . . . . . . 27.29 26.51 27.55 25.17
1996 . . . . . . . . . . . . . . 27.52 27.48 27.95 27.17
1997 . . . . . . . . . . . . . . 32.80 29.06 32.80 27.34
1998 . . . . . . . . . . . . . . 32.27 33.50 35.00 32.05
1999 (through March 31) . . . . 33.17 32.88 33.20 32.13
(1) The noon buying rate in New York for cable transfers payable in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of
New York.
(2) Determined by averaging the rates on the last business day of each month
during the relevant period.
14
<PAGE>
DILUTION
All information provided in the two dilution tables below has been reported
in United States dollars for the convenience of the reader using the noon buying
rate of the Federal Reserve Bank of New York on March 31, 1999 of NT33.17 to $1.
At March 31, 1999, the net tangible book value of our outstanding shares of
common stock was $718,566 or $1.52 per share. "Net tangible book value" per
share represents the total amount of our tangible assets, less the total amount
of our liabilities, divided by the number of shares of common stock outstanding
and has been prepared as if we acquired Hi Q Wason, Inc., the Taiwanese
corporation, as of March 31,1999. Without taking into account any changes in net
tangible book value after March 31, 1999, other than to give effect to the sale
of the shares of common stock offered hereby at an initial public offering price
of $7.00 per share, less underwriting discounts and commissions and estimated
costs of the offering, our net tangible book value at March 31, 1999 would have
been $7,165,716 or approximately $4.56 per share. This represents an immediate
increase in net tangible book value of $3.04 per share of common stock to our
existing stockholders and an immediate dilution of $2.44 per share to new
investors. "Dilution" per share represents the difference between the price to
be paid by the new stockholders and the net tangible book value per share of
common stock immediately after this offering.
The following table illustrates this per share dilution:
Initial public offering price per share $7.00
Net tangible book value per share before
the offering (1) $1.52
Increase in net tangible book value per share
attributable to new investors purchasing
in the offering $3.04
Net tangible book value per share after the offering $4.56
-----
Dilution per share to new investors $2.44
The following table sets forth the number of shares of common stock
purchased, the total consideration paid and the average price per share paid by
our existing stockholders as of March 31, 1999 and new investors purchasing the
shares of common stock offered hereby:
Average
Shares Purchased Total Consideration Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
New investors 1,100,000 70.0% $7,700,000 92.7% $7.00
Existing
stockholders(1) 471,429 30.0% $ 602,954 7.3% $1.28
---------- ---- ---------- ----
TOTALS 1,571,429 100.0% $8,302,954 100.0%
(1) Computed as if we acquired Hi-Q Wason, Inc., the Taiwanese corporation, as
of March 31, 1999.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization and short-term debt as of
March 31, 1999, and as adjusted capitalization, after deducting underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1999
Historical (As Adjusted) (1)
---------- -----------------
$ (2) NT $ NT
----- -- ---- --
<S> <C> <C> <C> <C>
Current installments of
capital lease obligations 47,578 1,578,164 47,578 1,578,164
------ --------- ------ ---------
Capital lease obligations,
excluding current installments 71,810 2,381,944 71,810 2,381,944
Stockholders' equity (3)
Preferred stock, 5,000,000
no par value shares
authorized, no shares
issued -0- -0- -0- -0-
Common stock, 20,000,000
no par value shares
authorized, 471,429
shares outstanding,
1,571,429 shares
outstanding as adjusted (1) -0- -0- -0- -0-
Additional paid-in capital 602,954 20,000,000 7,051,954 233,913,310
Retained earnings 115,612 3,834,846 115,612 3,834,846
---------- ----------- ---------- ------------
Total stockholders' equity 718,566 23,834,846 7,167,566 237,748,156
---------- ----------- ---------- ------------
Total capitalization 790,376 26,216,790 7,239,376 240,130,100
========== =========== ========== ============
</TABLE>
(1) As adjusted to reflect the sale of 1,100,000 shares of common stock offered
hereby at an offering price of $7.00 and the application of the net
proceeds. See "Use of Proceeds."
(2) Translated into United States dollars solely for the convenience of the
readers using the noon buying rate of the Federal Reserve Bank of New York
on March 31, 1999 of NT33.17 to $1.
(3) The historical stockholders' equity information represents our consolidated
stockholders' equity as if we owned 100% of the common shares of Hi-Q
Wason, Inc. (Taiwan) as of March 31, 1999.
16
<PAGE>
SELECTED FINANCIAL DATA
We prepare our financial statements in accordance with US GAAP. The
following summary statement of operations data for the years ended December 31,
1998, 1997 and 1996 and the balance sheet data as of December 31, 1998 and 1997
were derived from our audited financial statements included elsewhere in this
prospectus. The following summary statement of operations data for the period
from November 20, 1995 (inception) to December 31, 1995 and the balance sheet
data as of December 31, 1996 and 1995 was derived from our audited financial
statements, not included in this prospectus. The following summary statement of
operations data for the three months ended March 31, 1999 and 1998, and the
selected balance sheet data as of March 31, 1999 was derived from our unaudited
financial statements included elsewhere in this prospectus and, in our opinion,
includes all adjustments, consisting only of normal recurring adjustments,
necessary to fairly state this information. The results of operations for these
interim periods are not necessarily indicative of the results that may be
expected for the full year. Since the information presented below is only a
summary and does not provide all of the information contained in our financial
statements, including the related notes, you should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Three-months ended March 31, Years ended December 31,
----------------------------- -----------------------------------------------------------
1999 1998 1998 1997 1996 1995(1)
------------- ---- ----------------- ---- ---- ------
$(2) NT NT $(2) NT NT NT NT
---- -- -- ---- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues 231,420 7,676,197 5,053,631 912,971 30,283,239 19,784,732 9,187,588 170,640
Cost of revenues (89,027) (2,953,039) (2,186,780) (339,870) (11,273,488) (8,330,002) (4,451,269) (798,891)
Selling, general and
administrative expense (106,055) (3,517,829) (2,448,342) (395,424) (13,116,209) (10,088,498) (5,581,969) (657,751)
Operating income (loss) 36,338 1,205,329 418,509 177,677 5,893,542 1,366,232 (845,650) (1,286,002)
Other income (expense),
net (3,650) (121,079) (27,011) (9,257) (307,068) (115,305) 10,815 1,192
Income tax expense (8,172) (271,063) (97,874) (42,534) (1,410,847) (305,250) -0- -0-
Net income (loss) 24,516 813,187 293,624 125,886 4,175,627 945,677 (834,835) (1,284,810)
Basic earnings (loss)
per common share 0.05 1.72 0.62 0.27 8.86 2.01 (1.77) (2.73)
Weighted average common
shares outstanding(3) 471,429 471,429 471,429 471,429 471,429 471,429 471,429 471,429
March 31, 1999 Years ended December 31,
---------------- --------------------------------------------------------------
1998 1997 1996 1995(1)
----------------------- ---- ---- ------
$(2) NT $(2) NT NT NT NT
---- -- ---- -- -- -- --
Balance sheet data:
Working capital 127,233 4,220,346 45,442 1,507,324 6,207,750 (2,375,014) 1,083,459
Property and equipment,
net 679,308 22,532,647 688,711 22,844,554 13,193,564 5,339,769 2,451,331
Total assets 1,016,221 33,708,051 936,446 31,061,917 21,397,061 8,887,655 5,348,568
Capital lease obligations
and short-term
borrowings 119,388 3,960,108 132,456 4,393,576 1,267,400 5,472,089 -0-
Stockholders' equity 718,566 23,834,846 693,447 23,001,659 18,826,032 2,880,355 3,715,190
</TABLE>
(1) Period from November 20, 1995 (inception) to December 31, 1995.
(2) Translated into United Stated dollars solely for the convenience of the
readers using the noon buying rate of the Federal Reserve Bank of New York
on March 31, 1999 of NT33.17 to $1.
(3) Represents the shares we issued to acquire Hi-Q Wason, Inc., the Taiwanese
corporation, in April 1999. See "Our History and Offices."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
We were incorporated and began operations in 1995. Our revenue consists
primarily of the sale of bottled water and the related sale or rental of water
coolers. As of December 31, 1998, we served an installed base of approximately
5,000 water coolers as compared to 3,500 at December 31, 1997. The growth in
customer accounts resulted in increased revenue during 1998, which we attribute
to an effective customer retention and referral program and increased customer
water consumption. We anticipate that our customer base and revenue will
continue to expand as sales of bottled water increase and we expand into new
markets.
Transportation expenses comprise the largest controllable component of our
variable expenses. Transportation expenses include truck drivers' salaries and
bonuses, lease expenses and fuel, insurance, repair and maintenance expenses
associated with our delivery trucks.
Depreciation and amortization expenses consist primarily of the
depreciation of our delivery trucks, water coolers, bottles and the bottling
equipment. Depreciation and amortization are expected to increase as we continue
to purchase additional assets.
Bottled water sales are subject to seasonal variations with decreased sales
during cold weather months and increased sales during warm weather months. Water
cooler rentals are typically paid monthly and do not reflect any seasonal
effects.
Results of Operations
Three Month Period Ended March 31, 1999 and 1998
Revenue. Total revenue increased 52% to NT7,676,000 from NT5,054,000 in
1998 due to our customer retention program, increased marketing efforts,
additional customers and increased water consumption from existing customers.
Bottled water sales increased from NT4,698,000 in 1998 to NT7,064,000 in 1999,
which represented an increase of 50%. Our marketing efforts increased our water
cooler sales and rental income 72% to NT612,000 in 1999 from NT355,000 in 1998.
We believe that as a percentage of sales, water cooler sales and rental income
are expected to remain at approximately 8% of sales.
Cost of Revenue. Cost of revenue increased from NT2,187,000 in 1998 to
NT2,953,000 in 1999 which represents an increase of 35%. Cost of bottled water
sales increased 31% to NT2,596,000 in 1999 from NT1,989,000 in 1998. Cost of
water cooler sales and rentals increased to NT357,000 in 1999 from NT197,000 in
1998 as a result of increased water cooler and rental income. The increase in
cost of revenue was due to increased sales and increased depreciation and rental
expenses resulting from our new facilities in Hsinchu, Taiwan. Cost of water
sales included NT700,000 and NT515,100 for water purification fees for 1999 and
1998, respectively, charged by Han Tao Pure Water Proprietor, a company that
holds a license to produce purified water, which is wholly-owned by our Chief
Executive Officer.
19
<PAGE>
We have a contract under which Han Tao provides purified water to us at Han
Tao's cost. We recently applied for our own water purification license and
expect to obtain it by December 1999. When we obtain the license, we will
terminate our contract with Han Tao.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to NT3,518,000 in 1999 from NT2,448,000 in
1998. This is primarily due to additional transportation costs which included
delivery drivers' salaries, depreciation costs of the delivery trucks and fuel
costs. Additional sales and marketing staff salaries also contributed to
increased selling, general and administrative expenses. We expect selling,
general and administrative expenses, as a percentage of sales, to decrease as
revenue increases.
Operating Income. Operating income increased to NT1,205,000 in 1999 from
NT418,000 in 1998. As a percentage of sales, operating income increased to 16%
for the three months ended March 31, 1999 from 8% during the same period in
1998. The increase in operating income was due to increased sales volume and
increased gross profit and was somewhat offset by increased personnel costs and
depreciation expenses due to the expansion of our operations. We believe that
operating income will continue to increase as our sales increase.
Interest Expense. Interest expense increased from NT29,000 for the
three-month period of 1998 to NT109,000 in the same period in 1999. This
increase was primarily due to new capital leases entered into for production
equipment through sale-leaseback transactions in the last half of 1998. We were
not charged any interest on our short-term borrowings from our Chief Executive
Officer in 1999 or 1998. The short-term borrowings from our Chief Executive
Officer were fully paid as of March 31, 1999. We do not anticipate borrowing
funds from our Chief Executive Officer in the future.
Income Taxes. Our effective income tax rate remained consistent at 25% in
both 1999 and 1998, and we expect to remain at 25% in the future.
Net Income. Net income increased from NT293,624 (NT0.62 per share) in 1998
to NT813,187 (NT1.72 per share) in 1999 due to the factors described above.
Years Ended December 31, 1998 and 1997
Revenue. Total revenue increased 53% to NT30,283,000 from NT19,785,000 in
1997. Bottled water sales increased from NT17,335,000 in 1997 to NT27,946,000 in
1998, which represented an increase of 61%. Water cooler sales and rental income
decreased slightly to NT2,337,000 in 1998 from NT2,449,000 in 1997. This
increase in total revenue was primarily the result of new customers and the
opening of our new bottling facilities in Hsinchu.
Cost of Revenue. Cost of revenue increased from NT8,330,000 in 1997 to
NT11,273,000 in 1998, which represents an increase of 35%. Cost of bottled water
sales increased 40% to NT9,740,000 in 1998 from NT6,969,000 in 1997. Cost of
water cooler sales and rentals increased to NT1,534,000 in 1998 from NT1,361,000
from 1997 as a result of increased water cooler costs. The increase in cost of
revenue was due to an increase in sales of bottled water and increased
depreciation and overhead expenses resulting from the new facilities in Hsinchu.
Cost of water sales include NT3,134,000 and NT2,176,000 for water purification
fees for 1998 and 1997, respectively, charged by Han Tao Pure Water Proprietor.
20
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales, decreased to 43% or
NT13,116,000 during 1998 from 51% or NT10,088,000 in 1997. This decrease was
primarily due to sales increases without proportional increases in fixed
expenses such as depreciation and salaries.
Operating Income. Operating income increased to NT5,894,000 during 1998
from NT1,366,000 in 1997. As a percentage of sales, operating income increased
to 19% in 1998 from 7% in 1997. The increase in operating income is due to
increased sales volume and increased gross profit. We believe that operating
income will continue to increase as sales increase.
Interest Expense. Interest expense increased from NT127,000 in 1997 to
NT227,000 in 1998. This is primarily due to a new capital lease entered into for
production equipment through a sale-leaseback transaction in 1998. During 1998
and 1997, we also had average outstanding borrowings from our Chief Executive
Officer of approximately NT1,500,000 and NT2,700,000. The funds were loaned to
us on an interest-free basis and were used for working capital.
Income Taxes. Our effective income tax rate increased from 24% in 1997 to
25% in 1998. The effective tax rate in 1997 was slightly lower than our
statutory rate of 25% due to a reversal of the deferred tax asset valuation
allowance of NT67,000.
Net Income. Net income increased from NT946,000 (NT2.01 per share) in 1997
to NT4,176,000 (NT8.86 per share) in 1998 due to the factors described above.
Years Ended December 31, 1997 and 1996
Revenue. Total revenue increased 115% to NT19,785,000 from NT9,188,000 in
1996. Bottled water sales increased from NT7,898,000 in 1996 to NT17,335,000 in
1997, which represented an increase of 120%. Water cooler sales and rental
income increased 90% to NT2,449,000 in 1997 from NT1,290,000 in 1996. The
increase was primarily due to new customers, the retention of existing customers
and increases in consumption of bottled water during 1997.
Cost of Revenue. Cost of revenue increased from NT4,451,000 in 1996 to
NT8,330,000 in 1997, which represents an increase of 87%. Cost of bottled water
sales increased 81% to NT6,969,000 in 1997 from NT3,842,000 in 1996. Cost of
water cooler sales and rentals increased to NT1,361,000 in 1997 from NT610,000
in 1996 as a result of increased water cooler sales and rental income. The
increase in cost of revenue is primarily due to an increase in sales and an
increase in depreciation expenses. Cost of water sales include NT2,176,000
andNT1,284,000 for water purification fees for 1998 and 1997, respectively,
charged by Han Tao Pure Water Proprietor.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of sales, decreased to 51% or
NT10,088,000 during 1997 from 61% or NT5,582,000 in 1996. This is primarily due
to sales increases without proportional increases in fixed expenses. The overall
increase from 1996 to 1997 is primarily due to increased depreciation of
delivery vehicles and the addition of employees.
21
<PAGE>
Operating Income. Operating income increased to NT1,366,000 during 1997
from an operating loss of NT846,000 in 1996. The increase in operating income
was due to increases in sales of bottled water and water coolers without
proportional increases in operating expenses such as salaries, depreciation and
office expenses.
Interest Expense. Total interest expense of NT127,000 was incurred in 1997
due to new capital leases for bottling equipment. There was no interest charged
in 1997 or 1996 relative to borrowings from our Chief Executive Officer of
approximately NT2,700,000 and NT4,200,000, respectively.
Income Taxes. We did not record a tax benefit on pre-tax losses of
NT835,000 in 1996. The taxable loss incurred in 1996 was not available for
future carryforward. We also provided full valuation allowance against our
deferred income tax asset balance as of December 31, 1996. The valuation
allowance was subsequently reversed in 1997, which reduced our effective tax
rate to 24% from the statutory rate of 25%.
Net Income (loss). Net income increased to NT946,000 (NT2.01 per share)
from a net loss of NT885,000 (NT1.77 per share) due to the factors described
above.
Liquidity and Capital Resources
We have generally financed our operations from a combination of vendor
financing, short-term borrowings from our Chief Executive Officer, capital
leases and cash generated from operations. We purchase water coolers and cooler
equipment through vendor financing. Generally, vendors extend credit without
interest charges for a period of 90 days to 120 days. We lease water processing
and bottling equipment and trucks from financial institutions under capital
lease arrangements.
Cash provided by operating activities for the period ended March 31, 1999
was NT1,167,000 compared to NT1,634,000 during the same period in 1998. The
decrease in our cash provided by operating activities was primarily the result
of an increase in other current assets due to costs incurred related to this
offering. The decrease in cash provided by operating activities was somewhat
offset by an increase in accounts payable as a portion of these costs were not
paid as of March 31, 1999.
During the three months ended March 31, 1999, we made capital expenditures
of NT762,000 mainly for reusable water bottles. We entered into a
sales-leaseback transaction to refinance bottling equipment and to provide funds
for other capital expenditures and to pay off the short-term borrowings from our
Chief Executive Officer, which was NT1,300,000 as of December 31, 1998.
Cash provided by operating activities was NT9,291,000 in 1998 compared to
cash used in operating activities of NT695,000 in 1997. The increase in our cash
provided by operating activities was primarily the result of increases in net
income and accrued liabilities and a decrease in prepaid assets. The increase in
cash provided by operating activities was somewhat offset by an increase in
accounts receivable. As of December 31, 1998, our working capital was
NT1,507,000 compared to NT6,208,000 in 1997. The decrease in working capital was
primarily due to capital expenditures made in 1998 using cash generated from
operations.
During 1998, we made capital expenditures of NT12,746,000 for bottling
equipment, reusable water bottles and delivery trucks. Most of the capital
expenditures were financed through cash generated from operations,
sale-leaseback transactions and short-term borrowings from our Chief Executive
Officer.
22
<PAGE>
Cash used by operating activities in 1997 was NT695,000 compared to
NT2,813,000 in 1996. The decrease in cash used by operating activities was
primarily the result of an increase in net income. The increase in net cash
provided by operating activities was somewhat offset by an increase in accounts
receivable and prepaid assets.
During 1997, we made capital expenditures of NT9,435,000 for bottling
equipment, reusable water bottles and delivery trucks. Most of the capital
expenditures were financed through the issuance of common stock and proceeds
from sale-leaseback transactions. Capital expenditures of NT3,559,000 in 1996
were financed by short-term borrowings from our Chief Executive Officer. These
borrowings were repaid in 1997 with the proceeds from a common stock issuance.
During 1997, we issued additional shares of our common stock for
NT15,000,000. We reduced borrowing from our Chief Executive Officer by
NT5,472,000 and made NT1,033,000 in capital lease principle payments.
We anticipate that we will be able to meet our ongoing cash requirements
for at least the next 12 months with cash generated from operations and from
proceeds of this offering.
Economy of Taiwan, Republic of China
The economy of Taiwan differs from the economies of other Asian countries.
Many productive assets in Taiwan are owned by small or mid-sized companies which
primarily export electronic components, computers and other OEM products to U.S.
electronic companies. Up to now, the relatively stable demand for these goods
and a relatively low debt structure have enabled these companies to endure the
Asian financial crisis. The Taiwanese gross domestic product grew at a 3.7% rate
in the fourth quarter of 1998 according to economic data released by the Taiwan
Ministry of Economic Affairs and is expected to grow at a 5% rate for 1999. We
expect to benefit from the growth of the Taiwanese economy in general and the
increased consumption of bottled water in particular. We do not believe
inflation has had a material impact on our operations.
Currency and Exchange Rate
Our functional currency is the NT. Substantially all of our revenue and
expenses are generated in Taiwan and are denominated in NT. Therefore,
fluctuations in exchange rates are not expected to have a significant impact on
our operations.
Year 2000 Issue
The "Year 2000 Issue" is typically the result of limitations of certain
software written using two digits rather than four to define the applicable
year. If software with date-sensitive functions is not Year 2000 compliant, it
may recognize a date using "00" as the year 1900 rather than the year 2000. The
Year 2000 Issue could result in a system failure or miscalculations causing
significant disruption of our operations, including, among other things,
ordering of products and accounts receivable and payable calculations. It is
possible that this disruption could continue for an extended period of time.
23
<PAGE>
We depend on information contained primarily in electronic format in
databases and computer systems maintained by third parties and us. The
disruption of third-party systems or our systems interacting with these third
party systems could prevent us from processing transactions and ordering
products and could materially adversely affect our business and results of
operations.
We have not completed an audit of our internal systems. We are seeking
written confirmation of the Year 2000 status of our third party software. We
have not yet received written confirmation of Year 2000 compliance from any
third parties.
We may be required to modify or replace portions of our software so that
our systems will function properly with respect to dates in the year 2000 and
thereafter. If we are unable to make the required modifications or conversions
in a timely and cost-effective manner or if there is a malfunction in our
systems, potential systems interruptions or delays in services may have a
material adverse effect on our business and results of operations. Further, if
we fail to successfully resolve these issues, some or all of our operations may
shut down, which would have a material adverse effect on our business and
results of operations.
We have not yet fully developed a comprehensive contingency plan to address
situations that may result if we are unable to achieve Year 2000 readiness of
our critical operations. Development of a contingency plan is in progress and is
expected to be developed in detail and expanded during the second half of 1999.
We may not be able to develop a contingency plan that will adequately address
all Year 2000 issues. Our failure to develop and implement, if necessary, an
appropriate contingency plan could materially adversely affect our business and
results of operations.
As of the date of this prospectus, we believe we have achieved substantial
compliance. We do not believe third party non-compliance will materially
adversely affect our business operations.
24
<PAGE>
OUR BUSINESS
Introduction
We are one of Taiwan's largest providers of bottled water delivered
directly to residences and businesses and have a leading market share position
in Taipei and Hsinchu, Taiwan. Our primary focus is on the bottling, marketing
and delivery of high quality drinking water in five-gallon and three-gallon
bottles to homes and offices, and the related sale or rental of water coolers.
By virtue of our significant market share position in the Taiwan bottled
water market, we expect to benefit from certain competitive advantages over
smaller operators, including what we believe to be more efficient distribution
operations, the availability of purchasing synergies, superior customer service
and better established infrastructure.
We deliver bottled water to an installed base of approximately 5,000 water
coolers in our markets. We believe that direct delivery bottled water companies
enjoy certain advantages over retailers of bottled water because
o Customers are reluctant to change from one bottled water company to
another due to increased cost and inconvenience; and
o Competition tends to be limited due to the capital costs associated
with the purchase of water coolers, reusable water bottles, bottling
equipment and delivery trucks.
Our Industry
According to the Taiwan Beverage Industry Union:
o The Taiwan bottled water market grew at a compounded annual rate of
13.9% from 1986 to 1996, and is projected to grow at an annual rate of
16.5% between 1996 and 2001;
o Bottled water volume in Taiwan increased from 28.7 million gallons in
1980 to 242.85 million gallons in 1997, and is projected to reach 364
million gallons in 2001;
o Per capita bottled water consumption increased ten-fold in Taiwan from
1980 to 1997 with annual consumption increasing from 1.2 gallons per
capita in 1980 to 12.1 gallons per capita in 1997;
o Per capita consumption is expected to reach 18.2 gallons in Taiwan by
2001; and
o Bottled water sales in Taiwan totaled $104 million in 1997.
We believe that growth in bottled water sales has been and will continue to
be driven by the following factors:
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o Tap Water Concerns. The aging of the tap water supply infrastructure and
the high cost of adequately maintaining or replacing existing water
delivery systems have resulted in an increasein tap water contamination
incidences in recent years.
o Health Concerns. There is a movement in Taiwan, as well as in many
industrial nations, toward a healthier lifestyle and the consumption of
healthier products. Within the "healthy products" segment, clear or
naturally colored products are experiencing significant growth. Bottled
water is perceived as a product with strong health and fitness appeal.
o Taste Preferences. The taste of tap water is affected by cleaning
substances used to filter water. Products used to sterilize tap water, such
as chlorine, are safe but often produce an undesirable after-taste and
consequently, many people prefer to drink bottled water.
o Favorable Demographics. Consumption of bottled water is much more prevalent
among younger consumers. We believe that, as younger consumers age and
their purchasing power increases, sales of bottled water will continue to
grow.
The bottled water industry is highly fragmented throughout the world. In
Taiwan, the bottled water market is comprised of approximately 500 companies
generating approximately NT3.4 billion of sales. Of these companies, the five
largest companies account for approximately 20% of the total market, with the
remainder comprised of small regional and local companies. We believe that the
industry in Taiwan will consolidate due to the operating advantages of larger
companies, succession issues at many smaller, family-owned companies and the
pressure to meet improving water quality standards. With a significant market
share in Taiwan, we believe that we are well-positioned to benefit from the
growth and consolidation trends in the industry.
Our Business Strategy
We believe that the growth in bottled water sales stems from consumer
dissatisfaction with tap water and increased consumer health consciousness
resulting in the substitution of water for other less healthy beverages. We
expect to benefit from the growing demand for quality drinking water by
increasing our installed base of water coolers, increasing the water and related
products we offer through our delivery system and consolidating a part of the
highly fragmented bottled water industry in Taiwan. Specifically, we intend to
continue to pursue the following business strategies:
o Focus On The Water Cooler Segment Within The Growing Alternative To Tap
Water Market.
We believe that the overall growth of the bottled water industry and the
relatively low level of water cooler penetration in Taiwan compared to the
United States provide us with significant growth opportunities. We believe that
health concerns and problems with the taste and odor of tap water have generated
consumer demand for an alternative to tap water, driving consumers to
increasingly rely on bottled water and filtration systems in order to satisfy
their drinking water needs. We intend to take advantage of this growth in demand
by offering premium bottled water to the direct delivery water cooler segment.
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The water cooler segment enjoys higher margins, less competition and
greater operating leverage than the retail bottled water or the water filter
businesses. Sales in this segment are believed to be less price sensitive than
retail sales of bottled water because the customer is generally more concerned
with service and convenience than price. In addition, there are cost and
inconvenience factors associated with changing bottled water suppliers.
Furthermore, bottled water companies have lower advertising costs than retailers
of bottled water because consumers generally do not select a bottled water
provider on the basis of brand name. Competition in the water cooler segment
tends to be more limited than other segments of the industry due to the capital
costs associated with the purchase of water coolers, reusable water bottles,
bottling equipment and delivery trucks. Finally, the significant growth
potential in the bottled water market allow industry participants to focus on
attracting new customers rather than on capturing market share from competitors.
o Pursue Strategic Acquisitions.
We intend to pursue an acquisition strategy which seeks to consolidate the
highly-fragmented Taiwanese bottled water industry. We believe our acquisitions
will be comprised of two segments: larger entities with more sophisticated
management, or "platforms", and smaller, less sophisticated entities known as
"fill-ins" or "spokes" which can be consolidated with platforms. Our approach to
acquiring companies in new markets will be to identify one of the larger bottled
water companies in a market as a platform acquisition, and complement it with
smaller fill-in acquisitions in neighboring or overlapping geographic
territories. We will be generally unwilling to enter a new market through
acquisition unless the company being acquired is one of the market share leaders
and provides the critical mass necessary to act as a platform in that market.
While the purchase price paid for a platform company may be higher than that for
a fill-in acquisitions, we believe we will be able to reduce our average
acquisition cost by acquiring the fill-in companies at more attractive prices
due to the limited strategic options available to these smaller operators. With
over 500 bottled water companies in Taiwan, we anticipate that, for the
foreseeable future, attractive acquisition opportunities will be available for
us.
We believe that consolidation will offer the following cost savings and
synergies:
o Decreased operating costs through elimination of duplicative
administrative costs;
o Decreased production and distribution costs through integration with a
larger, geographically adjacent entity, and the resulting achievement
of greater delivery route density;
o Decreased purchasing costs through realization of economies of scale;
o Improved management control through centralized accounting and
reporting systems;
o Improved marketing efficiency.
We are not currently negotiating any acquisitions, and there can be no
assurance we can successfully negotiate any acquisitions in the future.
o Leverage Existing Infrastructure.
Due to the fixed costs associated with bottled water delivery systems,
additional operating leverage can be achieved by increasing the number of
customers in any one route. We believe we will improve our route density by
increasing our overall customer base and increasing per capita customer
consumption. We also intend to use our route delivery systems to offer products
which are complementary to our bottled water, including cups, cooler sanitation
services and related products.
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o Provide Outstanding Customer Service.
We believe quality of service and reliability of delivery are the primary
competitive factors in the water cooler business. We intend to continue to
provide outstanding customer service by:
o reliably delivering bottled water on schedule;
o meeting customer shortages with the quick delivery of refills;
o providing regular maintenance and sanitation of water coolers; and
o effectively addressing other customer needs.
We monitor on a monthly basis the non-renewal rate of our water cooler
rental agreements, in an effort to continually enhance customer service. Our
non-renewal rate averaged approximately 1.6% per month in 1998 and 1.3% per
month for the three months ended March 31, 1999.
Business and Products
We generated approximately 92.25% of our 1998 revenue from the sale of
bottled water products and 7.5% from the sale or rental of water coolers. The
remaining .25% of 1998 revenue was generated from the sale of paper cups and
related products.
Bottled Water. We sell bottled water for water coolers in two sizes: a
five-gallon (19 liter) bottle and a three-gallon (12 liter) bottle. We also
offer a smaller package for residential customers who may not be able to lift
five- or three-gallon bottles or who may have storage constraints. We offer
water bottles in plastic packages that facilitate storage and that have
non-spill "closed system" caps, preventing water from spilling from the mouth of
the bottle during insertion or removal from the water cooler. While our pricing
varies from market to market, and we frequently offer promotional discounts in
certain markets, we charge on average approximately NT71 for a five-gallon
bottle of water.
We offer only premium drinking water which is drawn from local municipal
sources. The water is passed through a series of carbon filters, processed by
reverse osmosis, passed through a micron filter, ozonated and then bottled. As a
result, our bottled water has 99.9% of all impurities removed from it, including
its natural mineral content.
We have two bottling facilities located in Taipei and Hsinchu, Taiwan,
along with a separate distribution center in Tainan, Taiwan. The Taipei facility
occupies 4,000 square feet and employs 16, while the Hsinchu facility occupies
6,000 square feet and employs 11.
Water Coolers. We have an installed base of approximately 5,000 water
coolers in our markets. Customers usually purchase their water coolers, which
provides us with a relatively stable stream of revenue from the sale of bottled
water. In addition, our installed customer base creates operating efficiencies
that can be used to support additional water cooler installations at an improved
marginal profitability rate. While our pricing varies from market to market and
depends on the water cooler selected by the customer, our current average
monthly rental charge for water coolers is approximately NT363, and our average
sales price is approximately NT5,181.
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We purchase our water coolers from one of three suppliers. We strip down,
clean and redeploy returned water coolers prior to all new installations. Our
average cost per water cooler is approximately NT3003, and we estimate that the
average life of a water cooler is five years. The typical pay back period on a
water cooler investment (assuming only rental revenue) is approximately nine
months. In the event of termination of the rental agreement, water coolers can
be readily redeployed at a relatively low cost.
Customers
We have grown from an installed base of approximately 200 water coolers in
1995 to an installed base of approximately 5,000 water coolers as of December
31, 1998. No customer accounted for more than 10% of our revenue in 1998 or in
the three months ended March 31, 1999. Approximately 95% of our revenue in 1998
was derived from sales to commercial establishments, with the remaining 5%
attributable to residential customers. Our commercial customers are generally
larger established businesses, including firms listed on the Taiwan Stock
Exchange, smaller regional and local shops, offices, warehouses, production
facilities and many of Taiwan's international airlines.
Sales and Marketing
We market our products principally through yellow page advertisements,
newspaper advertisements, coupons, product sponsorship programs, direct mail and
various referral programs which are supported by the efforts of salaried sales
and marketing personnel. To supplement this effort, we solicit potential new
customers in specific geographical areas in which we desire to increase the
density of existing routes or in which we desire to establish new routes. A
potential new customer may be offered various introductory promotions including
a free trial offer. Our marketing activity emphasizes the benefits of bottled
water and the convenience of a water cooler.
An important part of our sales, marketing and customer service strategy is
our focus on retaining customers. We experienced an average non-renewal rate for
water cooler rental agreements of 1.6% per month in 1998, which we believe is
lower than the industry average. Our primary strategy for minimizing non-renewal
rates is our focus on customer service. In addition, we employ marketing
strategies to retain customers who indicate they wish to discontinue receiving
bottled water, including commission payments to service representatives for the
customers they help to retain.
Distribution
As of December 31, 1998, we owned or leased 16 trucks used in our
distribution operations. The average cost per new truck is approximately
NT594,000, and we generally deliver to customers within a ninety minute drive
from our facilities. Each truck has a useful life of five years and can hold 100
to 120 five-gallon bottles. Our drivers are generally paid on a
per-delivered-bottle basis, promoting efficiency and therefore, higher
utilization of the delivery trucks. On average, a truck driver services
approximately 300 customers, who typically receive deliveries once a week. In
addition, our drivers actively generate sales and are compensated for each new
customer contract they originate.
We believe that one of the most important factors in the bottled water
business is delivery route efficiency. The average cost of local delivery per
bottle is over four times the cost of preparing a bottle for distribution,
whereas, the marginal distribution cost of an additional bottle on an existing
route is relatively low.
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Competition
We compete in the alternative to tap water market in two areas. First, we
compete directly with the approximately 500 bottled water companies in Taiwan.
This segment is highly fragmented with the vast majority of the companies being
operated as small entrepreneurial and family-owned businesses. We believe
quality of service and reliability of delivery are the primary competitive
factors in the bottled water business. Additionally, we believe that the capital
costs associated with the purchase of water coolers, bottling equipment and
delivery trucks create certain barriers to entry.
We also compete indirectly with companies that distribute water through
retail stores and vending machines. The competitive advantage of water coolers
over these alternative distribution channels is primarily based on the
convenience of home or office delivery and, to a lesser extent, price.
Similarly, we compete with providers of on-premises water filtration systems,
including systems distributed through retail outlets. The competitive advantages
of water coolers over filtration systems include better quality assurance of the
water, fewer maintenance requirements and the elimination of filter replacement
requirements.
Properties
We lease a 4,000 square foot bottling and office facility in Taipei, Taiwan
on a lease which expires in October 1999 at a monthly rental of NT70,000. We
also lease a 6,000 square foot bottling and office facility in Hsinchu, Taiwan
on a lease which expires in September 2004 at a monthly rental of NT60,000.
We believe that our bottling and distribution facilities are in good
operating condition and generally have sufficient capacity to handle current
sales volumes.
Employees
As of March 31, 1999, we had approximately 27 full-time employees, of which
15 were in sales, services and distribution, four in maintenance, water
production and warehousing and eight in administration. Our workforce is
non-unionized and temporary workers are used during peak demand periods. We
believe that we enjoy good relations with our employees.
Regulation
Our operations are subject to various laws and regulations, which require
us, among other things, to obtain licenses for our business, to pay annual
license and inspection fees and to comply with quality standards regarding our
bottled water, plants and equipment. We believe that we are currently in
substantial compliance with these laws and regulations. In addition, we do not
believe that the cost of compliance with applicable laws and regulations is
material to our business. However, laws and regulations are subject to change,
and no assurance can be given that future actions by governmental authorities
will not have an adverse effect on our business.
We are in good standing with the International Bottled Water Association,
which mandates compliance with quality control standards worldwide.
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OUR MANAGEMENT
Officers and Directors
Information concerning each of our executive officers and directors is set
forth below:
Name Age Position
- ---- --- --------
Tuan-Yuan Hu 43 Chairman of the Board of Directors, Chief
Executive Officer and Chief Financial Officer
Yu Feng Cheng 34 Vice President--Marketing
Terry Tsao 45 Vice President--Operations
Ben-Yu Chow 76 Director
Ben-Yuan Chou 66 Director
F.C. Toyo Tsai 60 Director
Andrew Chu 28 Director
Directors hold office for a period of one year from their election at the
annual meeting of stockholders or until their successors are duly elected and
qualified. Officers are elected by, and serve at the discretion of, the Board of
Directors. Our audit committee consists of Messrs. Chou, Tsai and Chu, and our
compensation committee consists of Messrs. Chou, Hu and Chu.
Tuan-Yuan Hu founded our company in 1995 and has been our Chairman and
Chief Executive Officer since that time. From 1983 to 1993, he was the Vice
President--Operations for Hwa Seng Bottled Water Corporation, one of the largest
and oldest bottled water companies in Taiwan. From 1980 to 1983, Mr. Hu was
general manager of Hsing Feng Advertisement, Ltd., a Taiwan-based advertising
and marketing company.
Yu Feng Cheng joined us as our Vice President--Marketing in 1995. Her
responsibilities include marketing and sales, including advertising development,
direct mail and Yellow Page campaigns. From 1991 to 1995, Ms. Cheng attended and
graduated from Japan University in Japan with a Bachelor of Arts degree. From
1985 to 1991, she was employed by An-Ching Corporation, an investment services
company, as a marketing and customer service manager, managing a team of 25
customer representatives.
Terry Tsao joined us as our Vice President--Operations in 1995. Mr. Tsao is
responsible for the production of bottled water, scheduling of delivery drivers,
sales and promotional campaign execution and delivery routing. From 1992 to
1995, he was the regional manager of Hwa Seng Bottled Water Corporation, where
he was responsible for the daily operation of Hwa Seng's regional offices. From
1983 to 1992, Mr. Tsao was employed by First Bank (Taipei) as its office
manager. His duties included staff scheduling, customer services, administrative
tasks and peer performance evaluations. He graduated from Tan Chang University
in 1992 with a Bachelor of Science degree.
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Ben-Yu Chow joined us as a director in 1999. He has served as a consultant
to the International Commercial Bank of China since 1989. From 1938 to 1989, Mr.
Chow was employed by the International Commercial Bank of China in a number of
capacities, including Senior Vice President and subsequently, Executive Vice
President. He served as President of Asia Trust and Investment Corporation and
Director of the National Credit Card Center during his employment with the
International Commercial Bank of China. Mr. Chow earned a Bachelor's degree in
economics from Central University in China.
Ben-Yuan Chou joined us as a director in 1999 and since 1997, has served as
Chairman of Chou's Enterprises, Ltd., a trading and finance company. From 1984
to 1997, Mr. Chou served as President of Chou's Enterprises, Ltd. From 1972 to
1984, he served as the Chairman of the Board for Singapore-based Asia Kingdoms
PTE, Ltd., a trading company. Mr. Chou earned a Bachelor's degree in economics
from Soo-Chow University.
F.C. Toyo Tsai joined us as a director in 1999. Since 1989, Mr. Tsai has
been the Chairman of Jen Tsong Lace Co., Ltd., a Taiwan-based lace manufacturer,
and a director of Triocean Textile Company. From 1954 to 1989, Mr. Tsai served
as President of Lian Zune Textile Co., Ltd.
Andrew Chu joined us as a director in 1999. Since 1997, Mr. Chu has served
as Chief Financial Officer for CPC International Investment Inc., which
specializes in corporate financial consulting for Asian companies. From 1994 to
1997, Mr. Chu served as the Chief Financial Officer of ProtoSource Corporation,
a Nasdaq-traded company.
Executive Compensation
The following table provides certain summary information concerning
compensation paid to our Chief Executive Officer for the years ended December
31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Other Restricted Shares All
Name and Annual Stock Underlying Other
Principal Position Year Salary Bonus Compensation Award(s) Options Compensation
------------------ ---- ------ ----- ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tuan-Yuan Hu......... 1998 NT1,200,000 0 0 0 0 0
Chief Executive 1997 NT1,200,000 0 0 0 0 0
Officer 1996 NT 600,000 0 0 0 0 0
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</TABLE>
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1999 Stock Option Plan
In April 1999, we adopted a stock option plan (the "Plan") which provides
for the grant of options to officers, directors and key employees. The purposes
of the Plan are to attract and retain the best available personnel, to provide
additional incentives to our employees and to promote the success of our
business.
We have reserved 300,000 shares of common stock for issuance under the
Plan, which is administered by our Board of Directors. Under the Plan, the Board
of Directors determines which individuals will receive options, the time period
during which the options may be partially or fully exercised, the number of
shares of common stock that may be purchased under each option and the option
price. As of the date hereof, no options have been issued.
The per share exercise price of the common stock subject to options must
not be less than the fair market value of the common stock on the date the
option is granted. The stock options are subject to anti-dilution provisions in
the event of stock splits, stock dividends and the like. No stock options are
transferable by an optionee other than by will or the laws of descent and
distribution, and during the lifetime of an optionee, the option is only
exercisable by the optionee. The exercise date of an option granted under the
Plan must not be later than ten years from the date of grant. Any options that
expire unexercised or that terminate upon an optionee's ceasing to be employed
by us will become available once again for issuance. Shares issued upon exercise
of an option rank equally with other shares then outstanding.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the holdings
of common stock (1) by each person who, as of this date, holds of record or is
known by us to hold beneficially or of record, more than 5% of our common stock,
(2) by each director, and (3) by all officers and directors as a group. The
address of each person is our address at 4th Floor, 52 Lane 232, Hu Lin Street,
Hsin Yi District, Taipei, Taiwan, Republic of China.
Percent Percent
Shares of Class of Class
Name Owned(2) Prior to Offering(1) After Offering
---- -------- -------------------- --------------
Tuan-Yuan Hu................ 157,143 33.3 10.0
Yu Feng Cheng............... -0- -0- -0-
Terry Tsao.................. -0- -0- -0-
Ben-Yu Chow................. -0- -0- -0-
Ben-Yuan Chou............... -0- -0- -0-
F.C. Toyo Tsai.............. -0- -0- -0-
Andrew Chu.................. -0- -0- -0-
Lai Ling Tse................ 137,498 29.2 8.8
Sun Hin Enterprise Co., Ltd. 137,498 29.2 8.8
All executive officers and
directors as a group
(7 persons)................ 157,143 33.3 10.0
CERTAIN TRANSACTIONS
In April 1999, we entered into a ten-year contract with Han Tao Pure Waters
Proprietor ("HanTao"), a company owned by Tuan-Yuan Hu, our Chief Executive
Officer, to provide purified water to us. Han Tao holds a license to produce
purified water and provides us with our purified water at NT20 per five gallons
of water, which is approximately Han Tao's production cost. The contract does
not require Han Tao to produce or us to purchase water from the other party. We
have applied and expect to obtain by approximately December 1999 our own license
to purify water.
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DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 20,000,000 shares of no par value common stock,
of which 471,429 shares are outstanding as of the date of this prospectus. Each
share of common stock is entitled to one vote on all matters submitted to a vote
of the stockholders, and cumulative voting is not permitted. Upon issuance,
shares of common stock are not subject to further assessment or call. Subject to
the prior rights of any series of preferred stock that may be issued by us in
the future, holders of common stock are entitled to receive ratably such
dividends that may be declared by the Board of Directors out of funds legally
available therefor and are entitled to share ratably in all assets remaining
after payment of liabilities in the event of our liquidation, dissolution or
winding up. Holders of common stock have no preemptive rights or rights to
convert their common stock into any other securities. The outstanding common
stock is fully paid and nonassessable.
Preferred Stock
Our Memorandum of Association authorizes the issuance of up to 5,000,000
shares of no par value preferred stock with such rights and preferences as may
be determined from time to time by our Board of Directors. Accordingly, under
the Memorandum of Association, the Board of Directors may, without stockholder
approval, issue preferred stock with dividend, liquidation, conversion, voting,
redemption or other rights which could adversely affect the voting power or
other rights of the holders of the common stock. The issuance of any shares of
preferred stock having rights superior to those of the common stock may result
in a decrease of the value or market price of the common stock and could further
be used by the Board of Directors as a device to prevent a change in our
control. We have no other anti-takeover provisions in our Memorandum of
Association. Holders of the preferred stock may have the right to receive
dividends, certain preferences in liquidation and conversion rights.
Shares Eligible for Future Sale
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices. Furthermore, since only a
limited number of shares will be available for sale shortly after the offering
because of certain contractual and legal restrictions on resale (as described
below), sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding 1,571,429 shares
of common stock. Of these shares, 1,100,000 shares sold in the offering (plus
any shares issued upon exercise of the underwriters' overallotment option) will
be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act (generally, officers, directors or 10% stockholders).
The remaining 471,429 shares outstanding are "restricted securities" within
the meaning of Rule 144 under the Securities Act. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144. Sales of restricted securities in the public
market, or the availability of such securities for sale, could adversely affect
the market price of the common stock.
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Our stockholders have entered into lock-up agreements providing that they
will not offer, sell, contract to sell, pledge, hypothecate or grant any option
to purchase or otherwise dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a period
of one year from the effective date of the registration statement filed pursuant
to this offering without the prior written consent of the representative of the
underwriters. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rule 144, shares
subject to lockup agreements will not be salable until such agreements expire or
are waived by the representative of the underwriters. In addition to the lock-up
agreements, all 471,429 shares of our outstanding securities may not be sold
until at least April 2000 under Rule 144.
In general, under Rule 144, a person who has beneficially owned restricted
securities for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of: (i) one percent
of the number of shares of common stock then outstanding (which will equal
15,714 shares immediately after the offering); or (ii) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
sale. Under Rule 144(k), a person who is not deemed to have been our affiliate
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the volume limitations of Rule 144.
We have granted certain demand and piggy-back registration rights covering
110,000 shares of common stock underlying the common stock purchase warrants to
be issued to the representative of the underwriters.
Transfer Agent
Corporate Stock Transfer, Inc., Denver, Colorado, is our transfer agent.
The transfer agent's address is 370-17th Street, Suite 2350, Denver, Colorado
80202-4614, and its telephone number is (303) 595-3300.
Exchange Controls and Other Limitations Affecting Stockholders
There are no exchange control restrictions in the Republic of China on the
repatriation of dividends by our subsidiaries. In addition, there are no
material British Virgin Islands laws that impose foreign exchange controls on us
or that affect the payment of dividends, interest or other payments to
non-resident holders of our capital stock. British Virgin Islands law and our
Memorandum of Association and Articles of Association impose no limitations on
the right of non-resident or foreign owners to hold or vote the common stock.
Differences in Corporate Law
Under the laws of most jurisdictions in the U.S., majority and controlling
stockholders generally have certain "fiduciary" responsibilities to the minority
stockholders. Stockholder action must be taken in good faith and actions by
controlling stockholders which are obviously unreasonable may be declared null
and void. British Virgin Islands law protecting the interests of minority
stockholders may not be as protective in all circumstances as the law protecting
minority stockholders in U.S. jurisdictions.
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<PAGE>
While British Virgin Islands law does permit a stockholder of a British
Virgin Islands company to sue its directors derivatively (i.e., in the name of
and for the benefit of our company) and to sue a company and its directors for
his benefit and for the benefit of others similarly situated, the circumstances
in which any such action may be brought, and the procedures and defenses that
may be available in respect to any such action, may result in the rights of
stockholders of a British Virgin Islands company being more limited than those
of stockholders of a company organized in the U.S.
Our directors have the power to take certain actions without stockholder
approval, including an amendment of our Memorandum of Association or Articles of
Association or an increase or reduction in our authorized capital, which would
require stockholder approval under the laws of most U.S. jurisdictions. In
addition, the directors of a British Virgin Islands corporation, subject in
certain cases to court approval but without stockholder approval, may, among
other things, implement a reorganization, certain mergers or consolidations, the
sale, transfer, exchange or disposition of any assets, property, part of the
business, or securities of the corporation, or any combination thereof, if they
determine it is in the best interests of the corporation, its creditors, or its
stockholders. Our ability to amend our Memorandum of Association and Articles of
Association without stockholder approval could have the effect of delaying,
deterring or preventing our change in control without any further action by the
stockholders, including, but not limited to a tender offer to purchase the
common stock at a premium over then current market prices.
As in most U.S. jurisdictions, the board of directors of a British Virgin
Islands corporation is charged with the management of the affairs of the
corporation. In most U.S. jurisdictions, directors owe a fiduciary duty to the
corporation and its stockholders, including a duty of care, pursuant to which
directors must properly apprise themselves of all reasonably available
information, and a duty of loyalty, pursuant to which they must protect the
interests of the corporation and refrain from conduct that injures the
corporation or its stockholders or that deprives the corporation or its
stockholders of any profit or advantage. Many U.S. jurisdictions have enacted
various statutory provisions which permit the monetary liability of directors to
be eliminated or limited. Under British Virgin Islands law, liability of a
corporate director to the corporation is primarily limited to cases of willful
malfeasance in the performance of his duties or to cases where the director has
not acted honestly and in good faith and with a view to the best interests of
the corporation. However, under our Articles of Association, we will be
authorized to indemnify any director or officer who is made or threatened to be
made a party to a legal or administrative proceeding by virtue of being one of
our directors or officers, provided such person acted honestly and in good faith
and with a view to our best interests and, in the case of a criminal proceeding,
such person had no reasonable cause to believe that his conduct was unlawful.
Our Articles of Association also enable us to indemnify any director or officer
who was successful in such a proceeding against expense and judgments, fines and
amounts paid in settlement and reasonably incurred in connection with the
proceeding.
The foregoing description of certain differences between British Virgin
Islands and U.S. corporate laws is only a summary and does not purport to be
complete or to address every applicable aspect of such laws. However, we believe
that all material differences are disclosed above.
37
<PAGE>
TAXATION
The following is a summary of certain anticipated material U.S. federal
income and British Virgin Islands tax consequences of an investment in the
common stock. The summary does not deal with all possible tax consequences
relating to an investment in the 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 (e.g., non-U.S. and
non-British Virgin Islands) tax laws. Accordingly, each prospective investor
should consult its own tax advisor regarding the particular tax consequences to
it of an investment in the common stock. The following discussion is based upon
laws and relevant interpretations thereof in effect as of the date of this
Prospectus, all of which are subject to change.
United States Federal Income Taxation
The following discussion addresses only the material U.S. federal income
tax consequences to a U.S. person (i.e., a U.S. citizen or resident, a U.S.
corporation, or an estate or trust subject to U.S. federal income tax on all of
its income regardless of source) making an investment in the common stock. For
taxable years beginning after December 31, 1996, a trust will be a U.S. person
only if (i) a court within the United States is able to exercise primary
supervision over its administration and (ii) one or more United States persons
have the authority to control all of its substantial decisions. In addition, the
following discussion does not address the tax consequences to a person who holds
(or will hold), directly or indirectly, 10% or more of the common stock (a "10%
Stockholder"). Non-U.S. persons and 10% Stockholders are advised to consult
their own tax advisors regarding the tax considerations incident to an
investment in the common stock.
A U.S. Investor receiving a distribution with respect to the common stock
will be required to include such distribution in gross income as a taxable
dividend, to the extent of our current or or accumulated earnings and profits as
determined under U.S. federal income tax principles. Any distributions in excess
of such earnings and profits will first be treated, for U.S. federal income tax
purposes, as a nontaxable return of capital, to the extent of the U.S.
Investor's adjusted tax basis in the common stock, and then as gain from the
sale or exchange of a capital asset, provided that the common stock constitutes
a capital asset in the hands of the U.S. Investor. U.S. corporate stockholders
will not be entitled to any deduction for distributions received as dividends on
the common stock.
Gain or loss on the sale or exchange of the common stock will be treated as
capital gain or loss if the common stock is held as a capital asset by the U.S.
Investor. Such capital gain or loss will be long-term capital gain or loss if
the U.S. Investor has held the common stock for more than one year at the time
of the sale or exchange.
A holder of common stock may be subject to "backup withholding" at the rate
of 31% with respect to dividends paid on such common stock if such dividends are
paid by a paying agent, broker or other intermediary in the United states or by
a U.S. broker or certain United States-related brokers to such holder outside
the United States. In addition, the proceeds of the sale, exchange or redemption
of 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.
38
<PAGE>
Backup withholding may be avoided by the holder of 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 common stock who are not U.S.
persons are generally exempt from backup withholding, although such holders may
be required to comply with certification and identification procedures in order
to prove their exemption.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be refunded (or credited against the holder's U.S. federal income
tax liability, if any) provided that amount withheld is claimed as federal taxes
withheld on the holder's U.S. federal income tax return relating to the year in
which the backup withholding occurred. A holder who is not otherwise required to
file a U.S. income tax return must generally file a claim for refund (or, in the
case of non-U.S. holders, an income tax return) in order to claim refunds of
withheld amounts.
British Virgin Islands Taxation
Under the International Business Companies Act of the British Virgin
Islands as currently in effect, a holder of common stock who is not a resident
of the British Virgin Islands is exempt from British Virgin Islands income tax
on dividends paid with respect to the common stock and all holders of common
stock are not liable to British Virgin Islands income tax on gains realized
during that year on sale or disposal of such shares; the British Virgin Islands
does not impose a withholding tax on dividends paid by a company incorporated
under the International Business Companies Act.
There are no capital gains, gift or inheritance taxes levied by the British
Virgin Islands on companies incorporated under the International Business
Companies Act. In addition, the common stock is not subject to transfer taxes,
stamp duties or similar charges.
There is no income tax treaty or convention currently in effect between the
United States and the British Virgin Islands.
39
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
this date, the underwriters named below have agreed to purchase from us the
number of shares of common stock set forth opposite their names below.
Number of
Underwriters Shares
------------ ------
_________________ ..................................
Total............................................... 1,100,000
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered hereby (other than
those shares covered by the overallotment option described below) if any are
purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may re-allow, to certain other dealers
a concession not in excess of $ per share. We will also pay to the
representative of the underwriters a nonaccountable expense allowance of 3% of
the purchase price of all common stock sold in the offering and issue to the
Representative common stock purchase warrants (the "Representative's Warrants")
to purchase up to 110,000 shares at $7.00 per share. After the initial offering
of the common stock, the public offering price and other selling terms may be
changed by the representative of the underwriters at any time without notice.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have granted to the underwriters an option, exercisable within 45 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of 165,000 additional shares of common stock at the
initial public offering price less underwriting discounts and commissions. The
underwriters may exercise such option solely to cover overallotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such underwriter's percentage underwriting commitment as indicated above.
We have agreed to issue the Representative's Warrants to the representative
of the underwriters for a consideration of $100. The Representative's Warrants
are exercisable at any time in the four-year period commencing one year from the
date of this prospectus to purchase up to 110,000 shares of common stock for
$8.40 per share. The Representative's Warrants are not transferable (nor may
they be sold, hypothecated or pledged) for one year from the date of this
prospectus except (i) to an underwriter or a partner or officer of an
underwriter or (ii) by will or operation of law. During the term of the
Representative's Warrants, the holder is given the opportunity to profit from a
rise in the market price of our securities. If we file a registration statement
relating to an equity offering under the provisions of the Securities Act of
1933 at any time during the five-year period following the date of this
prospectus, the holders of the Representative's Warrants or underlying common
stock will have the right, subject to certain conditions, to include in such
registration statement, at our expense, all or part of the underlying common
stock at the request of the holders. Additionally, we have agreed, for a period
of five years commencing on the date of this prospectus, on demand of the
holders of a majority of the Representative's Warrants or the common stock
40
<PAGE>
issued or issuable thereunder, to register the common stock underlying the
Representative's Warrants one time at our expense. The registration of
securities pursuant to the Representative's Warrants may result in substantial
expense to us at a time when we may not be able to afford such expense. The
number of shares of common stock covered by the Representative's Warrants and
the exercise price are subject to adjustment under certain events to prevent
dilution.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect thereof. We have also
agreed to (1) cause all of our stockholders to sign lockup agreements
prohibiting them from selling, transferring or conveying their shares to anyone
for a period of one year from the date hereof without the written consent of the
representative, (2) elect for five years as one of our directors a nominee
proposed by the representative and (3) grant the representative for three years
the right of first refusal to match the terms of any sale of securities offered
by any other selling agent.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered hereby will be determined by negotiation among us and the representative
of the underwriters. Among the factors to be considered in determining the
initial public offering price were:
o the history of and the prospects for the industry in which we compete;
o our past and present operations;
o our historical results of operations;
o our prospects for future earnings;
o the recent market prices of securities of generally comparable
companies; and
o the general condition of the securities markets at the time of the
offering.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the securities,
including overallotment, stabilizing and short-covering transactions in such
securities, and the imposition of a penalty bid in connection with the offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Harney Westwood & Riegels, as to British Virgin Islands law. Certain legal
matters in connection with the offering will be passed upon for us by the Law
Office of Gary A. Agron, Englewood, Colorado, and for the underwriters
by ________________ .
EXPERTS
Our financial statements as of December 31, 1998 and 1997, and for each of
the years in the three-year period ended December 31, 1998, have been included
herein and in the registration statement in reliance upon the report of KPMG
Certified Public Accountants, appearing elsewhere herein, and upon the authority
of this firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act, covering the common stock. As permitted by
the rules and regulations of the Commission, this prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits.
For further information with respect to our company and the common stock,
reference is made to the Registration Statement and the exhibits, which may be
examined without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549,
copies of which may be obtained from the Commission upon payment of the
prescribed fees.
41
<PAGE>
We will be subject to the foreign private issuer informational requirements
of the Securities Exchange Act but intend to file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected at the public reference facilities of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of these materials may be obtained at prescribed rates from the
Commission at that address. The reports, proxy statements and other information
can also be inspected at the Commission's regional offices at 7 World Trade
Center, Suite 300, New York, New York 10048, at Northwestern Atrium Center, 500
West Madison, Chicago, Illinois 60621 and on the Commission's Web site at
www.sec.gov.
We will furnish to our stockholders annual reports which will include
audited financial statements. We may also furnish to our stockholders quarterly
financial statements and other reports that may be authorized by our Board of
Directors.
42
<PAGE>
HI-Q WASON INC.
Financial Statements
December 31, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996 Financial Statements
Independent Auditors' Report............................................ F-2
Balance Sheets as of December 31, 1998 and 1997......................... F-3
Statements of Operations for the years
ended December 31 1998, 1997 and 1996.................................. F-4
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996....................................... F-5
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................................... F-6
Notes to Financial Statements........................................... F-7
March 31, 1999 and 1998 Quarterly Financial statements (Unaudited)
Balance Sheet as of March 31, 1999...................................... F-13
Statements of Operations for the three-months
ended March 31, 1999 and 1998.......................................... F-14
Statements of Cash Flows for the three-months
ended March 31, 1999 and 1998.......................................... F-15
Notes to Quarterly Financial Statements................................. F-16
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Hi-Q Wason, Inc.:
We have audited the accompanying balance sheets of Hi-Q Wason, Inc. as of
December 31, 1998 and 1997, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the Republic of China, which are substantially equivalent to auditing
standards generally accepted in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Hi-Q Wason, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles in the United States.
The accompanying financial statements as of and for the year ended December 31,
1998 have been translated into United States dollars soley for the convenience
of the readers. We have audited the translation and, in our opinion, the
financial statements expressed in New Taiwan dollars have been translated into
United States dollars on the basis set forth in note 1 of the notes to the
financial statements.
/s/ KPMG Certified Public Accountants
--------------------------------------
KPMG Certified Public Accountants
January 23, 1999, except as to note
1 which is as of April 26, 1999
Taipei, Taiwan
F-2
<PAGE>
<TABLE>
<CAPTION>
HI-Q WASON, INC.
Balance Sheets
December 31, 1998 and 1997
Assets 1998 1997
-----------------------------
US$ NT$ NT$
--- --- ---
<S> <C> <C> <C>
Current assets:
Cash 28,303 938,791 1,189,299
Notes and accounts receivable, net of allowance for doubtful
accounts of NT$20,000 and NT$15,000, respectively 176,329 5,848,850 3,640,386
Inventories 23,291 772,579 685,896
Prepaid assets (including prepayments of NT$1,000,000 as
of December 31, 1997 to a related party for water purification) 5,826 193,238 2,247,995
Other current assets 145 4,805 94,571
----------- ----------- -----------
Total current assets 233,894 7,758,263 7,858,147
Property and equipment:
Equipment 209,242 6,940,548 3,712,261
Delivery trucks 178,529 5,921,822 4,084,397
Furniture and fixtures 81,487 2,702,898 1,595,947
Reusable water bottles 305,784 10,142,862 5,220,046
Water coolers held for rental 65,027 2,156,956 869,664
Less: accumulated depreciation (151,358) (5,020,532) (2,288,751)
----------- ----------- -----------
Net property and equipment 688,711 22,844,554 13,193,564
Refundable deposits 6,862 227,600 200,600
Deferred income tax assets 6,979 231,500 144,750
----------- ----------- -----------
Total assets 936,446 31,061,917 21,397,061
=========== =========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings from related party 39,192 1,300,000 --
Current installments of capital lease obligations 66,634 2,210,257 925,768
Accrued expenses and other current liabilities 23,932 793,809 275,353
Income tax payable 58,694 1,946,873 449,276
----------- ----------- -----------
Total current liabilities 188,452 6,250,939 1,650,397
Capital lease obligations, excluding current installments 26,630 883,319 341,632
Accrued pension 27,917 926,000 579,000
----------- ----------- -----------
Total liabilities 242,999 8,060,258 2,571,029
----------- ----------- -----------
Stockholders' equity:
Common stock, NT$10 par value, authorized, issued
and outstanding shares of 2,000,000 602,954 20,000,000 20,000,000
Retained earnings (accumulated deficit) 90,493 3,001,659 (1,173,968)
----------- ----------- -----------
Total stockholders' equity 693,447 23,001,659 18,826,032
----------- ----------- -----------
Commitments
Total liabilities and stockholders' equity 936,446 31,061,917 21,397,061
=========== =========== ===========
See accompanying notes to financial statements
F-3
<PAGE>
HI-Q WASON, INC.
Statements of Operations
Years ended December 31, 1998, 1997 and 1996
1998
-------------------- 1997 1996
US$ NT$ NT$ NT$
--- --- --- ---
Revenues:
Bottled water sales 842,511 27,946,072 17,335,408 7,897,594
Water cooler sales and rentals 70,460 2,337,167 2,449,324 1,289,994
----------- ----------- ----------- -----------
Total revenues 912,971 30,283,239 19,784,732 9,187,588
Costs and expenses:
Cost of bottled water sales (including
water purification fees of
NT$3,133,600, NT$2,176,100
and NT$1,283,890, respectively,
from a related party) 293,633 9,739,823 6,968,926 3,841,646
Cost of water cooler sales and rentals 46,237 1,533,665 1,361,076 609,623
Selling, general and administrative expenses 395,424 13,116,209 10,088,498 5,581,969
----------- ----------- ----------- -----------
Operating income (loss) 177,677 5,893,542 1,366,232 (845,650)
Interest expense (6,854) (227,342) (127,400) --
Interest income 215 7,120 7,292 10,815
Other income (loss), net (2,618) (86,846) 4,803 --
----------- ----------- ----------- -----------
Income (loss) before income taxes 168,420 5,586,474 1,250,927 (834,835)
Income tax expense (42,534) (1,410,847) (305,250) --
----------- ----------- ----------- -----------
Net income (loss) 125,886 4,175,627 945,677 (834,835)
=========== =========== =========== ===========
Basic earnings (loss) per common share 0.27 8.86 2.01 (1.77)
=========== =========== =========== ===========
Weighted average common shares outstanding 471,429 471,429 471,429 471,429
=========== =========== =========== ===========
See accompanying notes to financial statements
F-4
<PAGE>
HI-Q WASON, INC.
Statements of Changes in Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
Common stock Reained earnings
------------ (accumulated
Par value deficit) Total
Shares NT$ NT$ NT$
------ --- --- ---
Balance at January 1, 1996 500,000 5,000,000 (1,284,810) 3,715,190
Net loss -- -- (834,835) (834,835)
----------- ----------- ----------- -----------
Balance at December 1, 1996 500,000 5,000,000 (2,119,645) 2,880,355
Issuance of common shares 1,500,000 15,000,000 -- 15,000,000
Net income -- -- 945,677 945,677
----------- ----------- ----------- -----------
Balance at December 31, 1997 2,000,000 20,000,000 (1,173,968) 18,826,032
Net income -- -- 4,175,627 4,175,627
----------- ----------- ----------- -----------
Balance at December 31, 1998 2,000,000 20,000,000 3,001,659 23,001,659
=========== =========== =========== ===========
See accompanying notes to financial statements
F-5
<PAGE>
HI-Q WASON, INC.
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
1998
------------------ 1997 1996
US$ NT$ NT$ NT$
--- --- --- ---
Cash flows from operating activities:
Net income (loss) 125,886 4,175,627 945,677 (834,835)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt expense 192 6,366 15,000 --
Depreciation 87,526 2,903,220 1,593,005 670,221
Deferred income tax benefit (2,615) (86,750) (144,750) --
Loss (gain) on disposal of property and equipment 2,618 86,846 (12,121) --
Changes in operating assets and liabilities:
Notes and accounts receivable (66,772) (2,214,830) (1,686,696) (1,829,764)
Inventories (2,613) (86,683) (100,962) 220,591
Prepaid assets 61,946 2,054,757 (2,220,660) --
Other current assets 2,706 89,766 81,054 126,313
Accounts payable -- -- -- (1,610,045)
Accounts payable to related party -- -- (30,939) 30,939
Income tax payable 45,149 1,497,597 449,276 --
Accrued expenses and other current liabilities 15,630 518,456 106,081 145,939
Accrued pension 10,461 347,000 311,000 268,000
----------- ----------- ----------- -----------
Cash provided by (used in) operating activities 280,114 9,291,372 (695,035) (2,812,641)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (384,257) (12,745,818) (9,434,679) (3,558,659)
Proceeds from sale of property and equipment 3,158 104,762 -- --
Increase in refundable deposits (814) (27,000) (17,000) (3,200)
----------- ----------- ----------- -----------
Cash used in investing activities (381,913) (12,668,056) (9,451,679) (3,561,859)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net decrease (increase) in short-term borrowings from
related party 39,192 1,300,000 (5,472,089) 5,472,089
Payments of capital lease obligations (50,462) (1,673,823) (1,032,600) --
Proceeds from sale-leaseback transactions 105,517 3,499,999 2,300,000 --
Issuance of common shares -- -- 15,000,000 --
----------- ----------- ----------- -----------
Cash provided by financing activities 94,247 3,126,176 10,795,311 5,472,089
----------- ----------- ----------- -----------
Net increase (decrease) in cash (7,552) (250,508) 648,597 (902,411)
Cash at beginning of year 35,855 1,189,299 540,702 1,443,113
----------- ----------- ----------- -----------
Cash at end of year 28,303 938,791 1,189,299 540,702
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest 6,854 227,342 127,400 --
=========== =========== =========== ===========
See accompanying notes to financial statements
F-6
</TABLE>
<PAGE>
HI-Q WASON, INC.
Notes to Financial Statements
(1) Organization, Principal Activities and Basis of Presentation
Hi-Q Wason, Inc. (the "Company") was incorporated on July 4, 1995 under the
Company Law of the Republic of China (Taiwan). The Company commenced its
operations on November 20, 1995. The Company is primarily engaged in the
manufacture and sale of bottled water and sale and rental of water coolers
in Taiwan.
In April 1999, the stockholders of the Company established a holding
company in the British Virgin Islands to acquire 100% of the outstanding
shares of the Company. The newly formed company, Hi-Q Wason, Inc. ("BVI")
issued 471,429 shares of common stock to the stockholders of the Company in
exchange for their common share ownership in the Company on April 26, 1999.
The BVI intends to issue an additional 1,100,000 shares of common stock in
an initial public offering in the United States.
The accompanying financial statements have been prepared on a historical
cost basis to reflect the financial position and results of operations of
the Company in accordance with accounting principles generally accepted in
the United States. Earnings per share information has been prepared using
the outstanding common shares of BVI.
The financial statements are stated in New Taiwan dollars. Translations of
New Taiwan dollar amounts into United States dollars in the 1998 financial
statements are included solely for the convenience of the readers, using
the noon buying rate of the Federal Reserve Bank of New York on March 31,
1999 of NT$33.17 to US$1. The convenience translations should not be
construed as representations that the New Taiwan dollar amounts have been,
could have been, or could in the future be, converted into United States
dollars at this or any other rate of exchange.
(2) Summary of Significant Accounting Policies
Revenue recognition
The Company recognizes revenue from the sale of water coolers and bottled
water upon shipment. Income earned from the rental of water coolers is
recognized over the rental service period.
Inventories
Inventories primarily consist of water coolers. Inventories are valued at
the lower of cost or net realizable value. Cost determined is by the
first-in, first-out (FIFO) method.
Property and equipment
Property and equipment is stated at cost. The Company provides for
depreciation of plant and equipment utilizing the straight-line method over
the estimated useful lives of the assets. Equipment is depreciated over 5
to 10 years, furniture and fixtures over 5 to 8 years and reusable water
bottles and delivery trucks over 5 years.
F-7
<PAGE>
HI-Q WASON, INC.
Notes to Financial Statements
Water coolers held for rental are depreciated on a straight-line basis over
their estimated useful life of 5 years. Accumulated depreciation related to
these assets amounted to NT$240,793 (US$7,260) and NT$77,970 as of December
31, 1998 and 1997, respectively.
Assets recorded under capital leases are recorded at the lower of the
present value of the lease payments (including bargain purchase price) or
the fair value of the assets at the inception date of the lease.
Amortization of such assets is provided over the life of the lease for
leases that do not contain a bargain purchase option. For leases that
contain a bargain purchase option, amortization is provided over the
estimated useful lives of the assets.
Accrued pension
---------------
Pursuant to the ROC Labor Standards Law (the "Law") the Company has
established a defined benefit retirement plan for all full-time employees.
This plan provides for lump-sum retirement benefits to retiring employees
based on length of service, age and certain other factors. In addition, the
Law requires that the Company fund the plan annually at a rate of 2% to 15%
of total employee salaries. The plan is funded through deposits with the
Central Trust of China, a governmental institution that administrates
pension investments for all entities in Taiwan. As of December 31, 1998,
the Company had not yet contributed funds to the Central Trust of China.
In accordance with Statement of Financial Accounting Standards No. 87
"Employers' Accounting for Pensions," the Company records a pension accrual
in the financial statements based on the projected benefit obligation, less
the fair value of plan assets, plus or minus any unrecognized gains or
losses.
Advertising expense
-------------------
Advertising costs are expensed as incurred. Advertising costs, including
product promotion costs, amounted to NT$1,520,384 (US$45,836), NT$432,223
and NT$215,435 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Income taxes
------------
Income taxes are accounted for under the asset and liability. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax asset and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized as income
in the period that includes the enactment date.
F-8
<PAGE>
HI-Q WASON, INC.
Notes to Financial Statements
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(3) Related Party Transactions
The Company borrows funds for operations from Tuan-Yuan Hu, the chief
executive officer and a stockholder of the Company, on an interest free
basis. The average outstanding borrowings from Tuan-Yuan Hu were
approximately NT$1,500,000 (US$45,222), NT$2,700,000 and NT$4,200,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. The
outstanding balance relating to these borrowings was NT$1,300,000
(US$39,192) and NT$0 as of December 31, 1998 and 1997, respectively. The
borrowings are due on demand from Tuan-Yuan Hu.
In 1997, the Company entered into a contract with Han Tao Wason Pure Water
Proprietor, a company wholly owned by Tuan-Yuan Hu, for water purification.
The contract expired on December 31, 1998. The contract stipulated that Han
Tao Pure Water Proprietor would perform water purification services for the
Company at cost over the contract period. The processing fee amounted to
NT$3,133,600 (US$94,471), NT$ 2,176,100 and NT$1,283,890 for the years
ended December 31, 1998, 1997 and 1996, respectively. As of December 31,
1997, the related prepaid fees amounted to $1,000,000. The Company expects
to renew this contract in 1999.
(4) Allowance for Doubtful Accounts
The movements in the allowance for doubtful accounts from January 1, 1996
to December 31, 1998 is shown below:
<TABLE>
<CAPTION>
1998
------------------ 1997 1996
US$ NT$ NT$ NT$
--- --- --- ---
<S> <C> <C> <C> <C>
Balance at beginning of year 452 15,000 - -
Bad debt expense 192 6,366 15,000 -
Less: accounts receivable written off (41) (1,366) - -
--- -------- ------- ------
Balance at end of year 603 20,000 15,000 -
=== ====== ====== ======
</TABLE>
F-9
<PAGE>
HI-Q WASON, INC.
Notes to Financial Statements
(5) Capital Leases
As of December 31, 1998 and 1997, assets recorded under capital leases were
as follows:
1998
---------------- 1997
US$ NT$ NT$
--- --- ---
Equipment 174,856 5,799,999 2,300,000
Less: accumulated depreciation (11,579) (384,091) (121,970)
-------- --------- ---------
163,277 5,415,908 2,178,030
======== ========= =========
The equipment recorded under capital leases resulted from sale-leaseback
transactions. Cash received from the sale-leaseback transactions equaled
the new book value of the assets on the dates of the leaseback
transactions.
Future minimum payments for capitalized leases were as follows as of
December 31, 1998:
US$ NT$
--- ---
1999 75,897 2,517,500
2000 29,921 992,500
-------- ----------
Total minimum lease payments 105,818 3,510,000
Less: amount representing interest (12,554) (416,424)
-------- ----------
Present value of net minimum lease payment 93,264 3,093,576
Less: current installments (66,634) (2,210,257)
-------- ---------
Long-term obligation 26,630 883,319
======== ==========
(6) Income Taxes
The Company is subject to income tax at a rate of 25%. Additionally, the
Company is subject to a retained earnings tax of 10% related to earnings
generated after December 31, 1997 if the earnings are not distributed to
the stockholders in the following year. The dividend distribution may be in
the form of stock or cash. The Company plans to avoid the payment of the
10% tax related to 1998 earnings by distributing a stock dividend and/or
employing other tax planning strategies.
The components of income tax expense (benefit) for the years ended December
31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998
---------------- 1997 1996
US$ NT$ NT$ NT$
--- --- --- ---
<S> <C> <C> <C>
Current income tax expense 45,149 1,497,597 450,000 -
Deferred income tax benefit (2,615) (86,750) (144,750) -
------- --------- ------- ----
Total income tax expense (benefit) 42,534 1,410,847 305,250 -
======= ========= ======= ====
F-10
</TABLE>
<PAGE>
HI-Q WASON, INC.
Notes to Financial Statements
The following is a reconciliation of income taxes calculated at the
statutory rate of 25% to the actual income tax expense for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998
-------------- 1997 1996
US$ NT$ NT$ NT$
--- --- --- ---
<S> <C> <C> <C> <C> <C>
Income tax expense (benefit) at 25% statutory rate 42,105 1,396,619 312,732 (208,709)
Expenses disallowed for tax purposes 429 14,228 59,518 -
Non-deductible operating loss - - - 141,709
Valuation allowance - - - 67,000
Reversal of valuation allowance - - (67,000) -
------- ---------- -------- --------
Actual income tax expense 42,534 1,410,847 305,250 -
======= ========== ======== ========
</TABLE>
A valuation allowance of NT$67,000 was recorded as of December 31, 1996 to
offset the related deferred income tax asset balance. The valuation
allowance was reversed in 1997.
The deferred income tax asset balance of NT$231,500 (US$6,979) and
NT$144,750 as of December 31, 1998 and 1997 relates to temporary
differences between the financial statement carrying amount of the accrued
pension balance and the tax basis of this balance. Management believes that
the Company will more likely than not recover the deferred income tax asset
balance through future earnings.
(7) Pension Plan
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 132, "Employers' Disclosures about Pensions and Others
Postretirement Benefits." The provisions of SFAS No. 132 revise employers'
disclosures about pension plans. The statement does not change the
measurement or recognition of these plans. The following provides a
reconciliation of the projected benefit obligation and the unfunded status
of the Company's pension plan.
<TABLE>
<CAPTION>
1998
-------------- 1997
US$ NT$ NT$
--- --- ---
<S> <C> <C> <C>
Projected benefit obligation at beginning of year 15,375 510,000 268,000
Service cost 9,436 313,000 294,000
Interest cost 1,056 35,000 17,000
(Gain) loss on projected benefit obligation 1,176 39,000 (69,000)
------- ------- -------
Projected benefit obligation at end of year 27,043 897,000 510,000
Fair value of plan assets - - -
Unfunded status of plan 27,043 897,000 510,000
Unrecognized actuarial gain 874 29,000 69,000
------- ------- -------
Accrued pension at end of year 27,917 926,000 579,000
======= ======= =======
F-11
</TABLE>
<PAGE>
HI-Q WASON, INC.
Notes to Financial Statements
The discount rate and rate of compensation increase used in the above
calculation was 6.5% and 5.0%, respectively, at both December 31, 1998 and
1997.
The components of net pension cost for the years ended December 31, 1998,
1997 and 1996 are summarized as follows:
1998
-------------- 1997 1996
US$ NT$ NT$ NT$
--- --- --- ---
Service cost 9,436 313,000 294,000 260,000
Interest cost 1,055 35,000 17,000 8,000
Amortization of actuarial gain (30) (1,000) - -
------ ------- ------- -------
Net pension cost 10,461 347,000 311,000 268,000
====== ======= ======= =======
(8) Commitments
The Company has entered into operating leases for office and manufacturing
space. Minimum lease payments in future years under these noncanceable
operating leases are as follows:
US$ NT$
--- ---
1999 22,309 740,000
2000 23,515 780,000
2001 24,118 800,000
2002 25,324 840,000
2003 16,883 560,000
------- ---------
112,149 3,720,000
======= =========
The Company recorded rental expense aggregating NT$798,000 (US$24,058),
NT$396,000 and NT$756,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
(9) Fair Value of Financial instruments
The carrying amount of short-term borrowings to related party at December
31, 1998 and 1997 approximates fair value due to the short-term nature of
the borrowings.
(10) Segment Information
The Company classifies its operations into one operating segment, consumer
water products. For the years ended December 31, 1998, 1997 and 1996, all
sales were made to customers located in Taiwan. Additionally, all assets of
the Company were located in Taiwan as of December 31, 1998 and 1997.
F-12
<PAGE>
HI-Q WASON, INC.
Condensed Balance Sheet (Unaudited)
March 31, 1999
Assets US$ NT$
--- ---
Current assets:
Cash 27,798 922,066
Notes and accounts receivable
net of allowance for doubtful
accounts of NT$20,000 184,462 6,118,582
Inventories 21,494 712,964
Prepaid assets 6,599 218,896
Other current assets 81,884 2,716,099
----------- -----------
Total current assets 322,237 10,688,607
Property and equipment:
Equipment 204,808 6,793,487
Delivery trucks 178,529 5,921,822
Furniture and fixtures 81,487 2,702,898
Reusable water bottles 323,209 10,720,842
Water coolers held for rental 65,027 2,156,956
Less: accumulated depreciation (173,752) (5,763,358)
----------- -----------
Net property and equipment 679,308 22,532,647
Refundable deposits 6,966 231,047
Deferred income tax assets 7,710 255,750
----------- -----------
Total assets 1,016,221 33,708,051
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of capital
lease obligations 47,578 1,578,164
Accounts payable 57,277 1,899,875
Accrued expenses and other current
liabilities 22,552 748,036
Income tax payable 67,597 2,242,186
----------- -----------
Total current liabilities 195,004 6,468,261
Capital lease obligations, excluding
current installments 71,810 2,381,944
Accrued pension 30,841 1,023,000
----------- -----------
Total liabilities 297,655 9,873,205
----------- -----------
Stockholders' equity:
Common stock, NT$10 par value,
authorized, issued and
outstanding shares of 2,000,000 602,954 20,000,000
Retained earnings 115,612 3,834,846
----------- -----------
Total stockholders' equity 718,566 23,834,846
----------- -----------
Commitments
Total liabilities and
stockholders' equity 1,016,221 33,708,051
=========== ===========
See accompanying notes to condensed financial statements
F-13
<PAGE>
<TABLE>
<CAPTION>
HI-Q WASON, INC.
Condensed Statements of Operations (Unaudited)
Three-months ended March 31, 1999 and 1998
1999
----------------------- 1998
US$ NT$ NT$
--- --- ---
<S> <C> <C> <C>
Revenues:
Bottled water sales 212,950 7,063,566 4,698,188
Water cooler sales and rentals 18,470 612,631 355,443
---------- ---------- ----------
Total revenues 231,420 7,676,197 5,053,631
Costs and expenses:
Cost of bottled water sales
(including water purification fees of
NT$700,000 and NT$515,100,
respectively, from a related party) 78,257 2,595,780 1,989,288
Cost of water cooler sales and rentals 10,770 357,259 197,492
Selling, general and administrative expenses 106,055 3,517,829 2,448,342
---------- ---------- ----------
Operating income 36,338 1,205,329 418,509
Interest expense (3,287) (109,032) (28,811)
Interest income 54 1,800 1,800
Other loss, net (417) (13,847) --
---------- ---------- ----------
Income before income taxes 32,688 1,084,250 391,498
Income tax expense (8,172) (271,063) (97,874)
---------- ---------- ----------
Net income 24,516 813,187 293,624
========== ========== ==========
Basic earnings per common share 0.05 1.72 0.62
========== ========== ==========
Weighted average common shares outstanding 471,429 471,429 471,429
========== ========== ==========
See accompanying notes to condensed financial statements
F-14
<PAGE>
HI-Q WASON, INC.
Condensed Statements of Cash Flows (Unaudited)
Three-months ended March 31, 1999 and 1998
1999
--------------------- 1998
US$ NT$ NT$
--- --- ---
Cash flows from operating activities:
Net income 24,516 813,187 293,624
Adjustments to reconcile net income to cash
flows provided by operating activities:
Depreciation 31,503 1,044,940 499,814
Deferred income tax benefit (731) (24,250) (21,750)
Gain on disposal of equipment 417 13,847 --
Changes in operating assets and liabilities:
Notes and accounts receivable (7,529) (249,732) (685,222)
Inventories 1,798 59,615 183,948
Prepaid assets (774) (25,658) 501,694
Other current assets (81,739) (2,711,294) 9,401
Accounts payable 57,277 1,899,875 --
Income tax payable 8,903 295,313 119,624
Accrued expenses and other current liabilities (1,380) (45,773) 646,156
Accrued pension 2,924 97,000 87,000
---------- ---------- ----------
Cash provided by operating activities 35,185 1,167,070 1,634,289
---------- ---------- ----------
Cash flows from investing activities:
Additions to property and equipment (22,972) (761,980) (703,608)
Proceeds from sale of property and equipment 455 15,100 --
Increase in refundable deposits (104) (3,447) --
---------- ---------- ----------
Cash used in investing activities (22,621) (750,327) (703,608)
---------- ---------- ----------
Cash flows from financing activities:
Net decrease in short-term borrowings from related party (39,192) (1,300,000) --
Payments of capital lease obligations (33,235) (1,102,407) (158,689)
Proceeds from sale-leaseback transactions 59,359 1,968,939 --
---------- ---------- ----------
Cash used in financing activities (13,068) (433,468) (158,689)
---------- ---------- ----------
Net increase in cash (504) (16,725) 771,992
Cash at beginning of period 28,302 938,791 1,189,299
---------- ---------- ----------
Cash at end of period 27,798 922,066 1,961,291
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest 3,287 109,032 28,811
========== ========== ==========
See accompanying notes to condensed financial statements
F-15
</TABLE>
<PAGE>
HI-Q WASON, INC.
Notes to Quarterly Financial Statements (Unaudited)
(1) Organization and Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the United States Securities and Exchange
Commission Regulation S-X for interim financial statements and do not
include all the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the unaudited condensed financial statements include all
adjustments, consisting primarily of recurring accruals, considered
necessary for a fair presentation of the financial position and the results
of operations.
In April 1999, the stockholders of Hi-Q Wason, Inc. ("the Company")
established a holding company in the British Virgin Islands to acquire 100%
of the outstanding shares of the Company. The newly formed company, Hi-Q
Wason, Inc. ("BVI") issued 471,429 shares of common stock to the
stockholders of the Company in exchange for their common share ownership in
the Company on April 26, 1999. The BVI intends to issue an additional
1,100,000 shares of common stock in an initial public offering in the
United States.
The financial statements have been prepared on a historical cost basis to
reflect the financial position and results of operations of the Company in
accordance with accounting principles generally accepted in the United
States. Earnings per share information has been prepared using the
outstanding common shares of BVI.
The financial statements are stated in New Taiwan dollars. Translations of
New Taiwan dollar amounts into United States dollars in the 1999 financial
statements are included solely for the convenience of the readers, using
the noon buying rate of the Federal Reserve Bank of New York on March 31,
1999 of NT$33.17 to US$1. The convenience translations should not be
construed as representations that the New Taiwan dollar amounts have been,
could have been, or could in the future be, converted into United States
dollars at this or any other rate of exchange.
(2) Inventories
Inventories primarily consist of water coolers. Inventories are valued at
the lower of cost or net realizable value. Cost determined is by the
first-in, first-out (FIFO) method.
(3) Other Current Assets
Cost directly related to the pending initial public offering of
NT$2,637,692 (US$79,520) were included in other current assets as of March
31, 1999. These cost will be offset against the proceeds from the offering
as a reduction in additional paid-in capital. In the event that the pending
initial public offering is not finalized, these costs will be expensed in
the period it becomes probable that the offering will not occur.
F-16
<PAGE>
No dealer, salesman or other person has been
authorized to give any information or to make any
representations other than contained in this
prospectus in connection with the offering
described herein, and if given or made, such
information or representations must not be relied
upon as having been authorized by us. This
prospectus does not constitute an offer to sell, 1,100,000 Shares
or the solicitation of an offer to buy, the
securities offered hereby to any person in any
state or other jurisdiction in which such offer or
solicitation is unlawful. Neither the delivery of
this prospectus nor any sale hereunder shall,
under any circumstances, create any implication
that there has been no change in our affairs since
the date hereof.
Hi-Q Wason, Inc.
---------------
TABLE OF CONTENTS Common Stock
Page
Enforceability of Civil Liabilities
and Certain Foreign Issuer
Considerations ................................3
Currency Translations..........................4
Prospectus Summary.............................5
Summary Financial Information..................8
Risk Factors..................................10
Use of Proceeds...............................14
Dividend Policy...............................14
Exchange Rates................................14
Dilution......................................15
Capitalization................................16
Selected Financial Data.......................17
Management's Discussion and --------------------
Analysis of Financial Condition
and Results of Operations...................19
Our Business..................................25 PROSPECTUS
Our Management................................31
Principal Stockholders........................34
Certain Transactions..........................34 ---------------------
Description of Securities.....................35
Taxation......................................38
Underwriting..................................40
Legal Matters.................................41
Experts.......................................41
Additional Information........................41
Financial Statements.........................F-1
Until __________, 1999 (25 days after the
date of this prospectus), all dealers effecting
transactions in the registered securities, whether
or not participating in this distribution, may be
required to deliver a prospectus. This is in _________, 1999
addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with
respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
SEC Registration Statement................................ $ 2,885
NASD Filing Fee........................................... $ 1,478
NASDAQ Application Fee.....................................$ 10,000
Blue Sky Filing Fees.......................................$ 10,000
Blue Sky Legal Fees........................................$ 15,000
Printing Expenses..........................................$ 30,000
Legal Fees and Expenses....................................$ 85,000
Accounting Fees............................................$ 70,000
Transfer Agent Fees....................................... $ 5,000
Miscellaneous Expenses.....................................$ 20,637
---------
Total......................................................$ 250,000
(1) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As in most United States jurisdictions, the board of directors of a British
Islands company is charged with the management and affairs of the company, and
subject to any limitations to the contrary in the Memorandum of Association of
the Company, the Board of Directors is entrusted with the power to manage the
business and affairs of the Company (hereinafter the "Company" or the
"Registrant"). In most United States jurisdictions, directors owe a fiduciary
duty to the company and its stockholders, including a duty of care, pursuant to
which directors must properly apprise themselves of all reasonably available
information, and a duty of loyalty, pursuant to which they must protect the
interests of the company and refrain from conduct that injures the company or
its stockholders or that deprives the company or its stockholders of any profit
or advantage. Many United States jurisdictions have enacted various statutory
provisions which permit the monetary liability of directors to be eliminated or
limited. Under British Virgin Islands law, liability of a director to the
company is basically limited to cases of wilful malfeasance in the performance
of his duties or to cases where the director has not acted honestly and in good
faith and with a view to the best interests of the company. However, under its
Memorandum of Association, the Company is authorized to indemnify any person who
is made or threatened to be made a party to a legal or administrative proceeding
by virtue of being a director, officer or liquidator of the Company, provided
such person acted honestly and in good faith and with a view to the best
interests of the Company and, in the case of a criminal proceeding, such person
had no reasonable cause to believe that his conduct was unlawful. The Company's
Memorandum of Association also permits the Company to indemnify any director,
officer or liquidator of the Company who was successful in any proceeding
against expenses and judgments, fines and amounts paid in settlement and
reasonably incurred in connection with the proceeding, where such person met the
standard of conduct described in the preceding sentence.
The Company has provisions in its Memorandum of Association that insure or
indemnify, to the full extent allowed by the laws of the Territory of the
British Virgin Islands, directors, officers, employees, agents or persons
serving in similar capacities in other enterprises at the request of the
Company.
The Company may obtain a directors' and officers' insurance policy.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following securities
which were not registered under the Securities Act, as amended.
In April 1999 the Registrant issued all 471,429 shares of its unregistered
outstanding common stock to the following persons in exchange for all of the
outstanding common stock of Hi-Q Wason, a Taiwanese corporation.
Name Number of Shares
---- ----------------
Tuan-Yuan Hu 157,143
Lai Ling Tse 137,498
Sun Hin Enterprises, Inc. 137,498
James Clark 39,290
With respect to the sales made, the Registrant relied on the securities
laws of Taiwan, where these transactions occurred, and on Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). No advertising or
general solicitation was employed in offering the securities. The securities
were offered to a limited number of persons all of whom were business associates
of the Registrant or its executive officers and directors, and the transfer
thereof was appropriately restricted by the Registrant. All persons were capable
of analyzing the merits and risks of their investment and acknowledged that they
were acquiring the securities for investment and not with a view toward
distribution or resale and that they understood the speculative nature of their
investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit No. Title
- ----------- -----
1.01 Form of Underwriting Agreement (to be filed by Amendment)
1.02 Form of Representative's Warrant (to be filed by Amendment)
3.01 Memorandum of Association of the Registrant
3.02 Articles of Association of the Registrant
5.02 Opinion of Harney Westwood & Riegels, as British Virgin Island
counsel to the Registrant (to be filed by Amendment)
10.01 Taipei Facilities Lease
10.02 Hsinchu Facilities Lease
10.03 Han Tao Contract For Water Production
23.01 Consent of Harney Westwood & Riegels (Included in 5.01, above.)
23.02 Consent of KPMG Certified Public Accountants
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant, 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 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
II-2
<PAGE>
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 of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and
Exchange Commission such supplementary and periodic information, documents
and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority
conferred in that section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at the
time such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(e) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(g) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(h) To provide to the Underwriter, at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriter to permit prompt delivery to
each purchaser.
(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to
directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, 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 act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful
II-3
<PAGE>
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 poliicy as expressed in the Act and will be governed by the
final adjudication of such issue.
(j) The undersigned registrant hereby undertakes that it will:
(i) For purposes of determining any liability under the
Securities Act of 1933, as amended, treat the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by
the registrant under Rule 424(b)(1) or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time
the Commission declared it effective;
(ii) For the purpose of determining any liability under the
Securities Act of 1933, as amended, treat each post-effective
amendment that contains a form of prospectus as a new registration
statement relating to the securities offered therein, and that
offering of such securities at that time as the initial bona fide
offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant hereby certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form F-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Republic of China, on May 14, 1999.
HI-Q WASON, INC.
By: /s/ Tuan-Yuan Hu
-------------------------------------------
Tuan-Yuan Hu, Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
registration statement has been signed below by the following persons on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Tuan-Yuan Hu Chairman of the Board of May 14, 1999
- -------------------------- Directors, Chief Executive
Tuan-Yuan Hu Officer, Chief Financial
Officer (Principal
Accounting Officer)
/s/ Yu Feng Cheng Vice President--Marketing May 14, 1999
- -------------------------- and Director
Yu Feng Cheng
/s/ Terry Tsao Vice President--Operations May 14, 1999
- --------------------------
Terry Tsao
/s/ Ben-Yu Chow Director May 14, 1999
- --------------------------
Ben-Yu Chow
/s/ Ben-Yuan Chou Director May 14, 1999
- --------------------------
Ben-Yuan Chou
/s/ F.C. Toyo Tsai Director May 14, 1999
- --------------------------
F.C. Toyo Tsai
/s/ Andrew Chu Director May 14, 1999
- --------------------------
Andrew Chu
/s/ Gary A. Agron Authorized Representative May 14, 1999
- -------------------------- in the United States
Gary A. Agron
II-5
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EXHIBIT INDEX
Exhibit No. Title
- ----------- -----
1.01 Form of Underwriting Agreement (to be filed by Amendment)
1.02 Form of Representative's Warrant (to be filed by Amendment)
3.01 Memorandum of Association of the Registrant
3.02 Articles of Association of the Registrant
5.02 Opinion of Harney Westwood & Riegels, as British Virgin Islands
counsel to the Registrant (to be filed by Amendment)
10.01 Taipei Facilities Lease
10.02 Hsinchu Facilities Lease
10.03 Han Tao Contract For Water Production
23.01 Consent of Harney Westwood & Riegels (Included in 5.01, above.)
23.02 Consent of KPMG Certified Public Accountants
Exhibit 3.01
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(Cap. 291)
MEMORANDUM OF ASSOCIATION
OF
HI-Q WASON, INC.
NAME
1. The name of the Company is HI-Q Wason, Inc.
REGISTERED OFFICE
2. The Registered Office of the Company will be at Craigmuir Chambers, P.O.
Box 71, Road Town, Tortola, British Virgin Islands.
REGISTERED AGENT
3. The Registered Agent of the Company will be HWR Services Limited of
Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin
Islands.
GENERAL OBJECTS AND POWERS
4. (1) The object of the Company is to engage in any act or activity that is
not prohibited under any law for the time being in force in the British
Virgin Islands.
(2) The Company may not
(a) carry on business with persons resident in the British Virgin
Islands;
(b) own an interest in real property situate in the British Virgin
Islands, other than a lease referred to in paragraph (e) of
subclause (3);
(c) carry on banking or trust business, unless it is licensed to do
so under the Banks and Trust Companies Act, l990;
(d) carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed under
an enactment authorizing it to carry on that business;
(e) carry on the business of company management, unless it is
licensed under the Company Management Act, l990; or
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(f) carry on the business of providing the registered office or the
registered agent for companies incorporated in the British Virgin
Islands.
(3) For purposes of paragraph (a) of subclause (2), the Company shall not
be treated as carrying on business with persons resident in the
British Virgin Islands if
(a) it makes or maintains deposits with a person carrying on banking
business within the British Virgin Islands;
(b) it makes or maintains professional contact with solicitors,
barristers, accountants, bookkeepers, trust companies,
administration companies, investment advisers or other similar
persons carrying on business within the British Virgin Islands;
(c) it prepares or maintains books and records within the British
Virgin Islands;
(d) it holds, within the British Virgin Islands, meetings of its
directors or members;
(e) it holds a lease of property for use as an office from which to
communicate with members or where books and records of the
Company are prepared or maintained;
(f) it holds shares, debt obligations or other securities in a
company incorporated under the International Business Companies
Act or under the Companies Act; or
(g) shares, debt obligations or other securities in the Company are
owned by any person resident in the British Virgin Islands or by
any company incorporated under the International Business
Companies Act or under the Companies Act.
(4) The Company shall have all such powers as are permitted by law for the
time being in force in the British Virgin Islands, irrespective of
corporate benefit, to perform all acts and engage in all activities
necessary or conducive to the conduct, promotion or attainment of the
object of the Company.
CURRENCY
5. Shares in the Company shall be issued in the currency of the United States
of America.
AUTHORIZED CAPITAL
6. The Company has no authorized capital.
CLASSES, NUMBER AND PAR VALUE OF SHARES
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7. The authorized capital is made up of two class and one series of shares
divided into 20,000,000 common shares of no par value and 5,000,000
preferred shares of no par value.
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES
8. (1) All common shares shall
(a) have one vote each;
(b) be subject to redemption, purchase or acquisition by the Company
for fair value; and
(c) have the same rights with regard to dividends and distributions
upon liquidation of the Company.
(2) With respect to the preferred shares, the directors are hereby
authorized to fix by resolution of directors the designations, powers,
preferences, rights, qualifications, limitations and restrictions
thereof. The directors shall not allocate different rights as to the
voting , dividends, redemption or distribution on liquidation, unless
the Memorandum shall have been amended to create different classes of
shares.
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VARIATION OF CLASS RIGHTS
9. If at any time the authorized capital is divided into different classes or
series of shares, the rights attached to any class or series (unless
otherwise provided by the terms of issue of the shares of that class or
series) may, whether or not the Company is being wound up, be varied with
the consent in writing of the holders of not less than three-fourths of the
issued shares of that class or series and of the holders of not less than
three-fourths of the issued shares of any other class or series of shares
which may be affected by such variation.
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
10. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed to be
varied by the creation or issue of further shares ranking pari passu
therewith.
REGISTERED SHARES
11. Shares in the Company may only be issued as registered shares and may not
be exchanged for shares issued to bearer.
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
13. The Company may amend its Memorandum of Association and Articles of
Association by a resolution of members only.
DEFINITIONS
14. The meanings of words in this Memorandum of Association are as defined in
the Articles of Association.
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We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British
Virgin Islands for the purpose of incorporating an International Business
Company under the laws of the British Virgin Islands hereby subscribe our name
to this memorandum of Association the 23rd day of April, 1999 in the presence
of:
Witness Subscriber
...................... .....................
Ibn K. Thomas Adel K. Clyne
Craigmuir Chambers Authorized Signatory
Road Town, Tortola HWR Services Limited
Company Administrator
5
Exhibit 3.02
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
ARTICLES OF ASSOCIATION
OF
HI-Q WASON, INC.
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context, the
words and expressions standing in the first column of the following table
shall bear the meanings set opposite them respectively in the second column
thereof.
Words Meaning
----- -------
capital The sum of the aggregate par value of all outstanding shares
with par value of the Company and shares with par value held
by the Company as treasury shares plus
(a) the aggregate of the amounts designated as capital of
all outstanding shares without par value of the Company
and shares without par value held by the Company as
treasury shares, and
(b) the amounts as are from time to time transferred from
surplus to capital by a resolution of directors.
member A person who holds shares in the Company.
person An individual, a corporation, a trust, the estate of a
deceased individual, a partnership or an unincorporated
association of persons.
resolution
of directors (a) A resolution approved at a duly convened and
constituted meeting of directors of the Company or of a
committee of directors of the Company by the
affirmative vote of a simple majority of the directors
present at the meeting who voted and did not abstain;
or
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(b) a resolution consented to by all directors or of all
members of the committee, as the case may be;
except that where a director is given more than one vote, he
shall be counted by the number of votes he casts for the
purpose of establishing a majority.
resolution
of members
(a) A resolution approved at a duly convened and
constituted meeting of the members of the Company by
the affirmative vote of
(i) a simple majority of the votes of the shares
entitled to vote thereon which were present at
the meeting and were voted and not abstained, or
(ii) a simple majority of the votes of each class or
series of shares which were present at the
meeting and entitled to vote thereon as a class or
series and were voted and not abstained and of a
simple majority of the votes of the remaining
shares entitled to vote thereon which were present
at the meeting and were voted and not abstained; or
(b) a resolution consented to in writing by
(i) an absolute majority of the votes of shares
entitled to vote thereon, or
(ii) an absolute majority of the votes of each class
or series of shares entitled to vote thereon as a
class or series and of an absolute majority of the
votes of the remaining shares entitled to vote
thereon;
2
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securities Shares and debt obligations of every kind, and options,
warrants and rights to acquire shares, or debt obligations.
surplus The excess, if any, at the time of the determination of the
total assets of the Company over the aggregate of its total
liabilities, as shown in its books of account, plus the
Company's capital.
the Act The International Business Companies Act (Cap 291) including
any modification, extension, re-enactment or renewal thereof
and any regulations made thereunder.
the
Memorandum The Memorandum of Association of the Company as originally
framed or as from time to time amended.
the Seal Any Seal which has been duly adopted as the Seal of the
Company.
these
Articles These Articles of Association as originally framed or as
from time to time amended.
treasury
shares Shares in the Company that were previously issued but were
repurchased, redeemed or otherwise acquired by the Company
and not cancelled.
2. "Written" or any term of like import includes words typewritten, printed,
painted, engraved, lithographed, photographed or represented or reproduced
by any mode of reproducing words in a visible form, including telex,
facsimile, telegram, cable or other form of writing produced by electronic
communication.
3. Save as aforesaid any words or expressions defined in the Act shall bear
the same meaning in these Articles.
4. Whenever the singular or plural number, or the masculine, feminine or
neuter gender is used in these Articles, it shall equally, where the
context admits, include the others.
5. A reference in these Articles to voting in relation to shares shall be
construed as a reference to voting by members holding the shares except
that it is the votes allocated to the shares that shall be counted and not
the number of members who actually voted and a reference to shares being
present at a meeting shall be given a corresponding construction.
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6. A reference to money in these Articles is, unless otherwise stated, a
reference to the currency in which shares in the Company shall be issued
according to the provisions of the Memorandum.
REGISTERED SHARES
7. Every member holding registered shares in the Company shall be entitled to
a certificate signed by a director or officer of the Company and under the
Seal specifying the share or shares held by him and the signature of the
director or officer and the Seal may be facsimiles.
8. Any member receiving a share certificate for registered shares shall
indemnify and hold the Company and its directors and officers harmless from
any loss or liability which it or they may incur by reason of any wrongful
or fraudulent use or representation made by any person by virtue of the
possession thereof. If a share certificate for registered shares is worn
out or lost it may be renewed on production of the worn out certificate or
on satisfactory proof of its loss together with such indemnity as may be
required by a resolution of directors.
9. If several persons are registered as joint holders of any shares, any one
of such persons may give an effectual receipt for any dividend payable in
respect of such shares.
SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS
10. Subject to the provisions of these Articles and any resolution of members,
the unissued shares of the Company shall be at the disposal of the
directors who may, without limiting or affecting any rights previously
conferred on the holders of any existing shares or class or series of
shares, offer, allot, grant options over or otherwise dispose of shares to
such persons, at such times and upon such terms and conditions as the
Company may by resolution of directors determine.
11. No share in the Company may be issued until the consideration in respect
thereof is fully paid, and when issued the share is for all purposes fully
paid and non-assessable save that a share issued for a promissory note or
other written obligation for payment of a debt may be issued subject to
forfeiture in the manner prescribed in these Articles.
12. Shares in the Company shall be issued for money, services rendered,
personal property, an estate in real property, a promissory note or other
binding obligation to contribute money or property or any combination of
the foregoing as shall be determined by a resolution of directors.
13. Shares in the Company may be issued for such amount of consideration as the
directors may from time to time by resolution of directors determine,
except that in the case of shares with par value, the amount shall not be
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less than the par value, and in the absence of fraud the decision of the
directors as to the value of the consideration received by the Company in
respect of the issue is conclusive unless a question of law is involved.
The consideration in respect of the shares constitutes capital to the
extent of the par value and the excess constitutes surplus.
14. A share issued by the Company upon conversion of, or in exchange for,
another share or a debt obligation or other security in the Company, shall
be treated for all purposes as having been issued for money equal to the
consideration received or deemed to have been received by the Company in
respect of the other share, debt obligation or security.
15. Treasury shares may be disposed of by the Company on such terms and
conditions (not otherwise inconsistent with these Articles) as the Company
may by resolution of directors determine.
16. The Company may issue fractions of a share and a fractional share shall
have the same corresponding fractional liabilities, limitations,
preferences, privileges, qualifications, restrictions, rights and other
attributes of a whole share of the same class or series of shares.
17. Upon the issue by the Company of a share without par value, if an amount is
stated in the Memorandum to be authorized capital represented by such
shares then each share shall be issued for no less than the appropriate
proportion of such amount which shall constitute capital, otherwise the
consideration in respect of the share constitutes capital to the extent
designated by the directors and the excess constitutes surplus, except that
the directors must designate as capital an amount of the consideration that
is at least equal to the amount that the share is entitled to as a
preference, if any, in the assets of the Company upon liquidation of the
Company.
18. The Company may purchase, redeem or otherwise acquire and hold its own
shares but only out of surplus or in exchange for newly issued shares of
equal value.
19. Subject to provisions to the contrary in
(a) the Memorandum or these Articles;
(b) the designations, powers, preferences, rights, qualifications,
limitations and restrictions with which the shares were issued; or
(c) the subscription agreement for the issue of the shares,
the Company may not purchase, redeem or otherwise acquire its own
shares without the consent of members whose shares are to be
purchased, redeemed or otherwise acquired.
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20. No purchase, redemption or other acquisition of shares shall be made unless
the directors determine that immediately after the purchase, redemption or
other acquisition the Company will be able to satisfy its liabilities as
they become due in the ordinary course of its business and the realizable
value of the assets of the Company will not be less than the sum of its
total liabilities, other than deferred taxes, as shown in the books of
account, and its capital and, in the absence of fraud, the decision of the
directors as to the realizable value of the assets of the Company is
conclusive, unless a question of law is involved.
21. A determination by the directors under the preceding Regulation is not
required where shares are purchased, redeemed or otherwise acquired
(a) pursuant to a right of a member to have his shares redeemed or to have
his shares exchanged for money or other property of the Company;
(b) by virtue of a transfer of capital pursuant to Regulation 49;
(c) by virtue of the provisions of Section 83 of the Act; or
(d) pursuant to an order of the Court.
22. Shares that the Company purchases, redeems or otherwise acquires pursuant
to the preceding Regulation may be cancelled or held as treasury shares
except to the extent that such shares are in excess of 80 percent of the
issued shares of the Company in which case they shall be cancelled but they
shall be available for reissue.
23. Where shares in the Company are held by the Company as treasury shares or
are held by another company of which the Company holds, directly or
indirectly, shares having more than 50 percent of the votes in the election
of directors of the other company, such shares of the Company are not
entitled to vote or to have dividends paid thereon and shall not be treated
as outstanding for any purpose except for purposes of determining the
capital of the Company.
24. The Company may purchase, redeem or otherwise acquire its shares at a price
lower than the fair value if permitted by, and then only in accordance
with, the terms of
(a) the Memorandum or these Articles; or
(b) a written agreement for the subscription for the shares to be
purchased, redeemed or otherwise acquired.
25. The Company may by a resolution of directors include in the computation of
surplus for any purpose the unrealized appreciation of the assets of the
Company, and, in the absence of fraud, the decision of the directors as to
the value of the assets is conclusive, unless a question of law is
involved.
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MORTGAGES AND CHARGES OF REGISTERED SHARES
26. Members may mortgage or charge their registered shares in the Company and
upon satisfactory evidence thereof the Company shall give effect to the
terms of any valid mortgage or charge except insofar as it may conflict
with any requirements herein contained for consent to the transfer of
shares.
27. In the case of the mortgage or charge of registered shares there may be
entered in the share register of the Company at the request of the
registered holder of such shares
(a) a statement that the shares are mortgaged or charged;
(b) the name of the mortgagee or chargee; and
(c) the date on which the aforesaid particulars are entered in the share
register.
28. Where particulars of a mortgage or charge are registered, such particulars
shall be cancelled
(a) with the consent of the named mortgagee or chargee or anyone
authorized to act on his behalf; or
(b) upon evidence satisfactory to the directors of the discharge of the
liability secured by the mortgage or charge and the issue of such
indemnities as the directors shall consider necessary or desirable.
29. Whilst particulars of a mortgage or charge are registered, no transfer of
any share comprised therein shall be effected without the written consent
of the named mortgagee or chargee or anyone authorized to act on his
behalf.
FORFEITURE
30. When shares issued for a promissory note or other written obligation for
payment of a debt have been issued subject to forfeiture, the following
provisions shall apply.
31. Written notice specifying a date for payment to be made and the shares in
respect of which payment is to be made shall be served on the member who
defaults in making payment pursuant to a promissory note or other written
obligations to pay a debt.
32. The written notice specifying a date for payment shall
(a) name a further date not earlier than the expiration of 14 days from
the date of service of the notice on or before which payment required
by the notice is to be made; and
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(b) contain a statement that in the event of non-payment at or before the
time named in the notice the shares, or any of them, in respect of
which payment is not made will be liable to be forfeited.
33. Where a written notice has been issued and the requirements have not been
complied with within the prescribed time, the directors may at any time
before tender of payment forfeit and cancel the shares to which the notice
relates.
34. The Company is under no obligation to refund any moneys to the member whose
shares have been forfeited and cancelled pursuant to these provisions. Upon
forfeiture and cancellation of the shares the member is discharged from any
further obligation to the Company with respect to the shares forfeited and
cancelled.
LIEN
35. The Company shall have a first and paramount lien on every share issued for
a promissory note or for any other binding obligation to contribute money
or property or any combination thereof to the Company, and the Company
shall also have a first and paramount lien on every share standing
registered in the name of a member, whether singly or jointly with any
other person or persons, for all the debts and liabilities of such member
or his estate to the Company, whether the same shall have been incurred
before or after notice to the Company of any interest of any person other
than such member, and whether the time for the payment or discharge of the
same shall have actually arrived or not, and notwithstanding that the same
are joint debts or liabilities of such member or his estate and any other
person, whether a member of the Company or not. The Company's lien on a
share shall extend to all dividends payable thereon. The directors may at
any time either generally, or in any particular case, waive any lien that
has arisen or declare any share to be wholly or in part exempt from the
provisions of this Regulation.
36. In the absence of express provisions regarding sale in the promissory note
or other binding obligation to contribute money or property, the Company
may sell, in such manner as the directors may by resolution of directors
determine, any share on which the Company has a lien, but no sale shall be
made unless some sum in respect of which the lien exists is presently
payable nor until the expiration of twenty-one days after a notice in
writing, stating and demanding payment of the sum presently payable and
giving notice of the intention to sell in default of such payment, has been
served on the holder for the time being of the share.
37. The net proceeds of the sale by the Company of any shares on which it has a
lien shall be applied in or towards payment of discharge of the promissory
note or other binding obligation to contribute money or property or any
combination thereof in respect of which the lien exists so far as the same
is presently payable and any residue shall (subject to a like lien for
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debts or liabilities not presently payable as existed upon the share prior
to the sale) be paid to the holder of the share immediately before such
sale. For giving effect to any such sale the directors may authorize some
person to transfer the share sold to the purchaser thereof. The purchaser
shall be registered as the holder of the share and he shall not be bound to
see to the application of the purchase money, nor shall his title to the
share be affected by any irregularity or invalidity in the proceedings in
reference to the sale.
TRANSFER OF SHARES
38. Subject to any limitations in the Memorandum, registered shares in the
Company may be transferred by a written instrument of transfer signed by
the transferor and containing the name and address of the transferee, but
in the absence of such written instrument of transfer the directors may
accept such evidence of a transfer of shares as they consider appropriate.
39. The Company shall not be required to treat a transferee of a registered
share in the Company as a member until the transferee's name has been
entered in the share register.
40. Subject to any limitations in the Memorandum, the Company must on the
application of the transferor or transferee of a registered share in the
Company enter in the share register the name of the transferee of the share
save that the registration of transfers may be suspended and the share
register closed at such times and for such periods as the Company may from
time to time by resolution of directors determine provided always that such
registration shall not be suspended and the share register closed for more
than 60 days in any period of 12 months.
TRANSMISSION OF SHARES
4l. The executor or administrator of a deceased member, the guardian of an
incompetent member or the trustee of a bankrupt member shall be the only
person recognized by the Company as having any title to his share but they
shall not be entitled to exercise any rights as a member of the Company
until they have proceeded as set forth in the next following three
Regulations.
42. The production to the Company of any document which is evidence of probate
of the will, or letters of administration of the estate, or confirmation as
executor, of a deceased member or of the appointment of a guardian of an
incompetent member or the trustee of a bankrupt member shall be accepted by
the Company even if the deceased, incompetent or bankrupt member is
domiciled outside the British Virgin Islands if the document evidencing the
grant of probate or letters of administration, confirmation as executor,
appointment as guardian or trustee in bankruptcy is issued by a foreign
court which had competent jurisdiction in the matter. For the purpose of
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establishing whether or not a foreign court had competent jurisdiction in
such a matter the directors may obtain appropriate legal advice. The
directors may also require an indemnity to be given by the executor,
administrator, guardian or trustee in bankruptcy.
43. Any person becoming entitled by operation of law or otherwise to a share or
shares in consequence of the death, incompetence or bankruptcy of any
member may be registered as a member upon such evidence being produced as
may reasonably be required by the directors. An application by any such
person to be registered as a member shall for all purposes be deemed to be
a transfer of shares of the deceased, incompetent or bankrupt member and
the directors shall treat it as such.
44. Any person who has become entitled to a share or shares in consequence of
the death, incompetence or bankruptcy of any member may, instead of being
registered himself, request in writing that some person to be named by him
be registered as the transferee of such share or shares and such request
shall likewise be treated as if it were a transfer.
45. What amounts to incompetence on the part of a person is a matter to be
determined by the court having regard to all the relevant evidence and the
circumstances of the case.
REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL
46. The Company may by a resolution of members only amend the Memorandum to
increase or reduce its authorized capital and in connection therewith the
Company may in respect of any unissued shares increase or reduce the number
of such shares, increase or reduce the par value of any such shares or
effect any combination of the foregoing.
47. The Company may amend the Memorandum to
(a) divide the shares, including issued shares, of a class or series into
a larger number of shares of the same class or series; or
(b) combine the shares, including issued shares, of a class or series into
a smaller number of shares of the same class or series,
provided, however, that where shares are divided or combined under (a)
or (b) of this Regulation, the aggregate par value of the new shares
must be equal to the aggregate par value of the original shares.
48. The capital of the Company may by a resolution of directors be increased by
transferring an amount of the surplus of the Company to capital.
49. Subject to the provisions of the two next succeeding Regulations, the
capital of the Company may by resolution of directors be reduced by
transferring an amount of the capital of the Company to surplus.
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50. No reduction of capital shall be effected that reduces the capital of the
Company to an amount that immediately after the reduction is less than the
aggregate par value of all outstanding shares with par value and all shares
with par value held by the Company as treasury shares and the aggregate of
the amounts designated as capital of all outstanding shares without par
value and all shares without par value held by the Company as treasury
shares that are entitled to a preference, if any, in the assets of the
Company upon liquidation of the Company.
51. No reduction of capital shall be effected unless the directors determine
that immediately after the reduction the Company will be able to satisfy
its liabilities as they become due in the ordinary course of its business
and that the realizable assets of the Company will not be less than its
total liabilities, other than deferred taxes, as shown in the books of the
Company and its remaining capital, and, in the absence of fraud, the
decision of the directors as to the realizable value of the assets of the
Company is conclusive, unless a question of law is involved.
MEETINGS AND CONSENTS OF MEMBERS
52. The directors of the Company may convene meetings of the members of the
Company at such times and in such manner and places within or outside the
British Virgin Islands as the directors consider necessary or desirable.
53. Upon the written request of members holding 10 percent or more of the
outstanding voting shares in the Company the directors shall convene a
meeting of members.
54. The directors shall give not less than 7 days notice of meetings of members
to those persons whose names on the date the notice is given appear as
members in the share register of the Company and are entitled to vote at
the meeting.
55. The directors may fix the date notice is given of a meeting of members as
the record date for determining those shares that are entitled to vote at
the meeting.
56. A meeting of members may be called on short notice:
(a) if members holding not less than 90 percent of the total number of
shares entitled to vote on all matters to be considered at the
meeting, or 90 percent of the votes of each class or series of shares
where members are entitled to vote thereon as a class or series
together with not less than a 90 percent majority of the remaining
votes, have agreed to short notice of the meeting, or
(b) if all members holding shares entitled to vote on all or any matters
to be considered at the meeting have waived notice of the meeting and
for this purpose presence at the meeting shall be deemed to constitute
waiver.
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57. The inadvertent failure of the directors to give notice of a meeting to a
member, or the fact that a member has not received notice, does not
invalidate the meeting.
58. A member may be represented at a meeting of members by a proxy who may
speak and vote on behalf of the member.
59. The instrument appointing a proxy shall be produced at the place appointed
for the meeting before the time for holding the meeting at which the person
named in such instrument proposes to vote.
60. An instrument appointing a proxy shall be in substantially the following
form or such other form as the Chairman of the meeting shall accept as
properly evidencing the wishes of the member appointing the proxy.
(Name of Company)
I/We being a member of the above Company with
shares HEREBY APPOINT
of or failing him
of to be my/our proxy to vote for me/us at
the meeting of members to be held on the day of
and at any adjournment thereof.
(Any restrictions on voting to be inserted here.)
Signed this day of
.............................
Member
6l. The following shall apply in respect of joint ownership of shares:
(a) if two or more persons hold shares jointly each of them may be present
in person or by proxy at a meeting of members and may speak as a
member;
(b) if only one of the joint owners is present in person or by proxy he
may vote on behalf of all joint owners, and
(c) if two or more of the joint owners are present in person or by proxy
they must vote as one.
62. A member shall be deemed to be present at a meeting of members if he
participates by telephone or other electronic means and all members
participating in the meeting are able to hear each other.
63. A meeting of members is duly constituted if, at the commencement of the
meeting, there are present in person or by proxy not less than 50 percent
of the votes of the shares or class or series of shares entitled to vote on
resolutions of members to be considered at the meeting. If a quorum be
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present, notwithstanding the fact that such quorum may be represented by
only one person then such person may resolve any matter and a certificate
signed by such person accompanied where such person be a proxy by a copy of
the proxy form shall constitute a valid resolution of members.
64. If within two hours from the time appointed for the meeting a quorum is not
present, the meeting, if convened upon the requisition of members, shall be
dissolved; in any other case it shall stand adjourned to the next business
day at the same time and place or to such other time and place as the
directors may determine, and if at the adjourned meeting there are present
within one hour from the time appointed for the meeting in person or by
proxy not less than one third of the votes of the shares or each class or
series of shares entitled to vote on the resolutions to be considered by
the meeting, those present shall constitute a quorum but otherwise the
meeting shall be dissolved.
65. At every meeting of members, the Chairman of the Board of Directors shall
preside as chairman of the meeting. If there is no Chairman of the Board of
Directors or if the Chairman of the Board of Directors is not present at
the meeting, the members present shall choose some one of their number to
be the chairman. If the members are unable to choose a chairman for any
reason, then the person representing the greatest number of voting shares
present in person or by prescribed form of proxy at the meeting shall
preside as chairman failing which the oldest individual member or
representative of a member present shall take the chair.
66. The chairman may, with the consent of the meeting, adjourn any meeting from
time to time, and from place to place, but no business shall be transacted
at any adjourned meeting other than the business left unfinished at the
meeting from which the adjournment took place.
67. At any meeting of the members the chairman shall be responsible for
deciding in such manner as he shall consider appropriate whether any
resolution has been carried or not and the result of his decision shall be
announced to the meeting and recorded in the minutes thereof. If the
chairman shall have any doubt as to the outcome of any resolution put to
the vote, he shall cause a poll to be taken of all votes cast upon such
resolution, but if the chairman shall fail to take a poll then any member
present in person or by proxy who disputes the announcement by the chairman
of the result of any vote may immediately following such announcement
demand that a poll be taken and the chairman shall thereupon cause a poll
to be taken. If a poll is taken at any meeting, the result thereof shall be
duly recorded in the minutes of that meeting by the chairman.
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68. Any person other than an individual shall be regarded as one member and
subject to the specific provisions hereinafter contained for the
appointment of representatives of such persons the right of any individual
to speak for or represent such member shall be determined by the law of the
jurisdiction where, and by the documents by which, the person is
constituted or derives its existence. In case of doubt, the directors may
in good faith seek legal advice from any qualified person and unless and
until a court of competent jurisdiction shall otherwise rule, the directors
may rely and act upon such advice without incurring any liability to any
member.
69. Any person other than an individual which is a member of the Company may by
resolution of its directors or other governing body authorize such person
as it thinks fit to act as its representative at any meeting of the Company
or of any class of members of the Company, and the person so authorized
shall be entitled to exercise the same powers on behalf of the person which
he represents as that person could exercise if it were an individual member
of the Company.
70. The chairman of any meeting at which a vote is cast by proxy or on behalf
of any person other than an individual may call for a notarially certified
copy of such proxy or authority which shall be produced within 7 days of
being so requested or the votes cast by such proxy or on behalf of such
person shall be disregarded.
71. Directors of the Company may attend and speak at any meeting of members of
the Company and at any separate meeting of the holders of any class or
series of shares in the Company.
72. An action that may be taken by the members at a meeting may also be taken
by a resolution of members consented to in writing or by telex, telegram,
cable, facsimile or other written electronic communication, without the
need for any notice, but if any resolution of members is adopted otherwise
than by the unanimous written consent of all members, a copy of such
resolution shall forthwith be sent to all members not consenting to such
resolution. The consent may be in the form of counterparts, each
counterpart being signed by one or more members.
DIRECTORS
73. The first directors of the Company shall be appointed by the subscribers to
the Memorandum; and thereafter, the directors shall be elected by the
members for such term as the members determine.
74. The minimum number of directors shall be one and the maximum number shall
be 7.
75. Each director shall hold office for the term, if any, fixed by resolution
of members or until his earlier death, resignation or removal.
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76. A director may be removed from office, with or without cause, by a
resolution of members or, with cause, by a resolution of directors.
77. A director may resign his office by giving written notice of his
resignation to the Company and the resignation shall have effect from the
date the notice is received by the Company or from such later date as may
be specified in the notice.
78. The directors may at any time appoint any person to be a director either to
fill a vacancy or as an addition to the existing directors. A vacancy
occurs through the death, resignation or removal of a director, but a
vacancy or vacancies shall not be deemed to exist where one or more
directors shall resign after having appointed his or their successor or
successors.
79. The Company may determine by resolution of directors to keep a register of
directors containing
(a) the names and addresses of the persons who are directors of the
Company;
(b) the date on which each person whose name is entered in the register
was appointed as a director of the Company; and
(c) the date on which each person named as a director ceased to be a
director of the Company.
80. If the directors determine to maintain a register of directors, a copy
thereof shall be kept at the registered office of the Company and the
Company may determine by resolution of directors to register a copy of the
register with the Registrar of Companies.
8l. With the prior or subsequent approval by a resolution of members, the
directors may, by a resolution of directors, fix the emoluments of
directors with respect to services to be rendered in any capacity to the
Company.
82. A director shall not require a share qualification and may be an individual
or a company.
POWERS OF DIRECTORS
83. The business and affairs of the Company shall be managed by the directors
who may pay all expenses incurred preliminary to and in connection with the
formation and registration of the Company and may exercise all such powers
of the Company as are not by the Act or by the Memorandum or these Articles
required to be exercised by the members of the Company, subject to any
delegation of such powers as may be authorized by these Articles and to
such requirements as may be prescribed by a resolution of members; but no
requirement made by a resolution of members shall prevail if it be
inconsistent with these Articles nor shall such requirement invalidate any
prior act of the directors which would have been valid if such requirement
had not been made.
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84. The directors may, by a resolution of directors, appoint any person,
including a person who is a director, to be an officer or agent of the
Company. The resolution of directors appointing an agent may authorize the
agent to appoint one or more substitutes or delegates to exercise some or
all of the powers conferred on the agent by the Company.
85. Every officer or agent of the Company has such powers and authority of the
directors, including the power and authority to affix the Seal, as are set
forth in these Articles or in the resolution of directors appointing the
officer or agent, except that no officer or agent has any power or
authority with respect to the matters requiring a resolution of directors
under the Act.
86. Any director which is a body corporate may appoint any person its duly
authorized representative for the purpose of representing it at meetings of
the Board of Directors or with respect to unanimous written consents.
87. The continuing directors may act notwithstanding any vacancy in their body,
save that if their number is reduced to their knowledge below the number
fixed by or pursuant to these Articles as the necessary quorum for a
meeting of directors, the continuing directors or director may act only for
the purpose of appointing directors to fill any vacancy that has arisen or
for summoning a meeting of members.
88. The directors may by resolution of directors exercise all the powers of the
Company to borrow money and to mortgage or charge its undertakings and
property or any part thereof, to issue debentures, debenture stock and
other securities whenever money is borrowed or as security for any debt,
liability or obligation of the Company or of any third party.
89. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed or otherwise executed, as the
case may be, in such manner as shall from time to time be determined by
resolution of directors.
90. The Company may determine by resolution of directors to maintain at its
registered office a register of mortgages, charges and other encumbrances
in which there shall be entered the following particulars regarding each
mortgage, charge and other encumbrance:
(a) the sum secured;
(b) the assets secured;
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(c) the name and address of the mortgagee, chargee or other encumbrancer;
(d) the date of creation of the mortgage, charge or other encumbrance; and
(e) the date on which the particulars specified above in respect of the
mortgage, charge or other encumbrance are entered in the register.
91. The Company may further determine by a resolution of directors to register
a copy of the register of mortgages, charges or other encumbrances with the
Registrar of Companies.
PROCEEDINGS OF DIRECTORS
92. The directors of the Company or any committee thereof may meet at such
times and in such manner and places within or outside the British Virgin
Islands as the directors may determine to be necessary or desirable.
93. A director shall be deemed to be present at a meeting of directors if he
participates by telephone or other electronic means and all directors
participating in the meeting are able to hear each other.
94. A director shall be given not less than 3 days notice of meetings of
directors, but a meeting of directors held without 3 days notice having
been given to all directors shall be valid if all the directors entitled to
vote at the meeting who do not attend, waive notice of the meeting and for
this purpose, the presence of a director at a meeting shall constitute
waiver on his part. The inadvertent failure to give notice of a meeting to
a director, or the fact that a director has not received the notice, does
not invalidate the meeting.
95. A director may by a written instrument appoint an alternate who need not be
a director and an alternate is entitled to attend meetings in the absence
of the director who appointed him and to vote or consent in place of the
director.
96. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate not
less than one-half of the total number of directors, unless there are only
2 directors in which case the quorum shall be 2.
97. If the Company shall have only one director the provisions herein contained
for meetings of the directors shall not apply but such sole director shall
have full power to represent and act for the Company in all matters as are
not by the Act or the Memorandum or these Articles required to be exercised
by the members of the Company and in lieu of minutes of a meeting shall
record in writing and sign a note or memorandum of all matters requiring a
resolution of directors. Such a note or memorandum shall constitute
sufficient evidence of such resolution for all purposes.
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98. At every meeting of the directors the Chairman of the Board of Directors
shall preside as chairman of the meeting. If there is no Chairman of the
Board of Directors or if the Chairman of the Board of Directors is not
present at the meeting the Vice-Chairman of the Board of Directors shall
preside. If there is no Vice-Chairman of the Board of Directors or if the
Vice-Chairman of the Board of Directors is not present at the meeting the
directors present shall choose some one of their number to be chairman of
the meeting.
99. An action that may be taken by the directors or a committee of directors at
a meeting may also be taken by a resolution of directors or a committee of
directors consented to in writing or by telex, telegram, cable, facsimile
or other written electronic communication by all directors or all members
of the committee as the case may be, without the need for any notice. The
consent may be in the form of counterparts, each counterpart being signed
by one or more directors.
100. The directors shall cause the following corporate records to be kept:
(a) minutes of all meetings of directors, members, committees of
directors, committees of officers and committees of members;
(b) copies of all resolutions consented to by directors, members,
committees of directors, committees of officers and committees of
members; and
(c) such other accounts and records as the directors by resolution of
directors consider necessary or desirable in order to reflect the
financial position of the Company.
101. The books, records and minutes shall be kept at the registered office of
the Company, its principal place of business or at such other place as the
directors determine.
102. The directors may, by resolution of directors, designate one or more
committees, each consisting of one or more directors.
103. Each committee of directors has such powers and authorities of the
directors, including the power and authority to affix the Seal, as are set
forth in the resolution of directors establishing the committee, except
that no committee has any power or authority to amend the Memorandum or
these Articles, to appoint directors or fix their emoluments, or to appoint
officers or agents of the Company.
104. The meetings and proceedings of each committee of directors consisting of 2
or more directors shall be governed mutatis mutandis by the provisions of
these Articles regulating the proceedings of directors so far as the same
are not superseded by any provisions in the resolution establishing the
committee.
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OFFICERS
105. The Company may by resolution of directors appoint officers of the Company
at such times as shall be considered necessary or expedient. Such officers
may consist of a Chairman of the Board of Directors, a Vice-Chairman of the
Board of Directors, a President and one or more Vice-Presidents,
Secretaries and Treasurers and such other officers as may from time to time
be deemed desirable. Any number of offices may be held by the same person.
106. The officers shall perform such duties as shall be prescribed at the time
of their appointment subject to any modification in such duties as may be
prescribed thereafter by resolution of directors or resolution of members,
but in the absence of any specific allocation of duties it shall be the
responsibility of the Chairman of the Board of Directors to preside at
meetings of directors and members, the Vice-Chairman to act in the absence
of the Chairman, the President to manage the day to day affairs of the
Company, the Vice-Presidents to act in order of seniority in the absence of
the President but otherwise to perform such duties as may be delegated to
them by the President, the Secretaries to maintain the share register,
minute books and records (other than financial records) of the Company and
to ensure compliance with all procedural requirements imposed on the
Company by applicable law, and the Treasurer to be responsible for the
financial affairs of the Company.
107. The emoluments of all officers shall be fixed by resolution of directors.
108. The officers of the Company shall hold office until their successors are
duly elected and qualified, but any officer elected or appointed by the
directors may be removed at any time, with or without cause, by resolution
of directors. Any vacancy occurring in any office of the Company may be
filled by resolution of directors.
CONFLICT OF INTERESTS
109. No agreement or transaction between the Company and one or more of its
directors or any person in which any director has a financial interest or
to whom any director is related, including as a director of that other
person, is void or voidable for this reason only or by reason only that the
director is present at the meeting of directors or at the meeting of the
committee of directors that approves the agreement or transaction or that
the vote or consent of the director is counted for that purpose if the
material facts of the interest of each director in the agreement or
transaction and his interest in or relationship to any other party to the
agreement or transaction are disclosed in good faith or are known by the
other directors.
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l10. A director who has an interest in any particular business to be considered
at a meeting of directors or members may be counted for purposes of
determining whether the meeting is duly constituted.
INDEMNIFICATION
l1l. Subject to the limitations hereinafter provided the Company may indemnify
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred in connection
with legal, administrative or investigative proceedings any person who
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil, criminal,
administrative or investigative, by reason of the fact that the person
is or was a director, an officer or a liquidator of the Company; or
(b) is or was, at the request of the Company, serving as a director,
officer or liquidator of, or in any other capacity is or was acting
for, another company or a partnership, joint venture, trust or other
enterprise.
112. The Company may only indemnify a person if the person acted honestly and in
good faith with a view to the best interests of the Company and, in the
case of criminal proceedings, the person had no reasonable cause to believe
that his conduct was unlawful.
113. The decision of the directors as to whether the person acted honestly and
in good faith and with a view to the best interests of the Company and as
to whether the person had no reasonable cause to believe that his conduct
was unlawful is, in the absence of fraud, sufficient for the purposes of
these Articles, unless a question of law is involved.
114. The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself, create
a presumption that the person did not act honestly and in good faith and
with a view to the best interests of the Company or that the person had
reasonable cause to believe that his conduct was unlawful.
115. If a person to be indemnified has been successful in defence of any
proceedings referred to above the person is entitled to be indemnified
against all expenses, including legal fees, and against all judgments,
fines and amounts paid in settlement and reasonably incurred by the person
in connection with the proceedings.
116. The Company may purchase and maintain insurance in relation to any person
who is or was a director, an officer or a liquidator of the Company, or who
at the request of the Company is or was serving as a director, an officer
or a liquidator of, or in any other capacity is or was acting for, another
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company or a partnership, joint venture, trust or other enterprise, against
any liability asserted against the person and incurred by the person in
that capacity, whether or not the Company has or would have had the power
to indemnify the person against the liability as provided in these
Articles.
SEAL
117. The Company may have more than one Seal and references herein to the Seal
shall be references to every Seal which shall have been duly adopted by
resolution of directors. The directors shall provide for the safe custody
of the Seal and for an imprint thereof to be kept at the Registered Office.
Except as otherwise expressly provided herein the Seal when affixed to any
written instrument shall be witnessed and attested to by the signature of a
director or any other person so authorized from time to time by resolution
of directors. Such authorization may be before or after the Seal is
affixed, may be general or specific and may refer to any number of
sealings. The Directors may provide for a facsimile of the Seal and of the
signature of any director or authorized person which may be reproduced by
printing or other means on any instrument and it shall have the same force
and validity as if the Seal had been affixed to such instrument and the
same had been signed as hereinbefore described.
DIVIDENDS
118. The Company may by a resolution of directors declare and pay dividends in
money, shares, or other property, but dividends shall only be declared and
paid out of surplus. In the event that dividends are paid in specie the
directors shall have responsibility for establishing and recording in the
resolution of directors authorizing the dividends, a fair and proper value
for the assets to be so distributed.
119. The directors may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the profits of the
Company.
120. The directors may, before declaring any dividend, set aside out of the
profits of the Company such sum as they think proper as a reserve fund, and
may invest the sum so set aside as a reserve fund upon such securities as
they may select.
121. No dividend shall be declared and paid unless the directors determine that
immediately after the payment of the dividend the Company will be able to
satisfy its liabilities as they become due in the ordinary course of its
business and the realizable value of the assets of the Company will not be
less than the sum of its total liabilities, other than deferred taxes, as
shown in its books of account, and its capital. In the absence of fraud,
the decision of the directors as to the realizable value of the assets of
the Company is conclusive, unless a question of law is involved.
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122. Notice of any dividend that may have been declared shall be given to each
member in manner hereinafter mentioned and all dividends unclaimed for 3
years after having been declared may be forfeited by resolution of
directors for the benefit of the Company.
123. No dividend shall bear interest as against the Company and no dividend
shall be paid on treasury shares or shares held by another company of which
the Company holds, directly or indirectly, shares having more than 50
percent of the vote in electing directors.
124. A share issued as a dividend by the Company shall be treated for all
purposes as having been issued for money equal to the surplus that is
transferred to capital upon the issue of the share.
125. In the case of a dividend of authorized but unissued shares with par value,
an amount equal to the aggregate par value of the shares shall be
transferred from surplus to capital at the time of the distribution.
126. In the case of a dividend of authorized but unissued shares without par
value, the amount designated by the directors shall be transferred from
surplus to capital at the time of the distribution, except that the
directors must designate as capital an amount that is at least equal to the
amount that the shares are entitled to as a preference, if any, in the
assets of the Company upon liquidation of the Company.
127. A division of the issued and outstanding shares of a class or series of
shares into a larger number of shares of the same class or series having a
proportionately smaller par value does not constitute a dividend of shares.
ACCOUNTS AND AUDIT
128. The Company may by resolution of members call for the directors to prepare
periodically a profit and loss account and a balance sheet. The profit and
loss account and balance sheet shall be drawn up so as to give respectively
a true and fair view of the profit and loss of the Company for the
financial period and a true and fair view of the state of affairs of the
Company as at the end of the financial period.
129. The Company may by resolution of members call for the accounts to be
examined by auditors.
130. The first auditors shall be appointed by resolution of directors;
subsequent auditors shall be appointed by a resolution of members.
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131. The auditors may be members of the Company but no director or other officer
shall be eligible to be an auditor of the Company during his continuance in
office.
132. The remuneration of the auditors of the Company
(a) in the case of auditors appointed by the directors, may be fixed by
resolution of directors; and
(b) subject to the foregoing, shall be fixed by resolution of members or
in such manner as the Company may by resolution of members determine.
133. The auditors shall examine each profit and loss account and balance sheet
required to be served on every member of the Company or laid before a
meeting of the members of the Company and shall state in a written report
whether or not
(a) in their opinion the profit and loss account and balance sheet give a
true and fair view respectively of the profit and loss for the period
covered by the accounts, and of the state of affairs of the Company at
the end of that period; and
(b) all the information and explanations required by the auditors have
been obtained.
134. The report of the auditors shall be annexed to the accounts and shall be
read at the meeting of members at which the accounts are laid before the
Company or shall be served on the members.
135. Every auditor of the Company shall have a right of access at all times to
the books of account and vouchers of the Company, and shall be entitled to
require from the directors and officers of the Company such information and
explanations as he thinks necessary for the performance of the duties of
the auditors.
136. The auditors of the Company shall be entitled to receive notice of, and to
attend any meetings of members of the Company at which the Company's profit
and loss account and balance sheet are to be presented.
NOTICES
137. Any notice, information or written statement to be given by the Company to
members may be served in the case of members holding registered shares in
any way by which it can reasonably be expected to reach each member or by
mail addressed to each member at the address shown in the share register
and in the case of members holding shares issued to bearer, in the manner
provided in the Memorandum.
138. Any summons, notice, order, document, process, information or written
statement to be served on the Company may be served by leaving it, or by
sending it by registered mail addressed to the Company, at its registered
office, or by leaving it with, or by sending it by registered mail to, the
registered agent of the Company.
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139. Service of any summons, notice, order, document, process, information or
written statement to be served on the Company may be proved by showing that
the summons, notice, order, document, process, information or written
statement was delivered to the registered office or the registered agent of
the Company or that it was mailed in such time as to admit to its being
delivered to the registered office or the registered agent of the Company
in the normal course of delivery within the period prescribed for service
and was correctly addressed and the postage was prepaid.
PENSION AND SUPERANNUATION FUNDS
140. The directors may establish and maintain or procure the establishment and
maintenance of any non-contributory or contributory pension or
superannuation funds for the benefit of, and give or procure the giving of
donations, gratuities, pensions, allowances or emoluments to, any persons
who are or were at any time in the employment or service of the Company or
any company which is a subsidiary of the Company or is allied to or
associated with the Company or with any such subsidiary, or who are or were
at any time directors or officers of the Company or of any such other
company as aforesaid or who hold or held any salaried employment or office
in the Company or such other company, or any persons in whose welfare the
Company or any such other company as aforesaid is or has been at any time
interested, and to the wives, widows, families and dependents of any such
person, and may make payments for or towards the insurance of any such
persons as aforesaid, and may do any of the matters aforesaid either alone
or in conjunction with any such other company as aforesaid. Subject always
to the proposal being approved by resolution of members, a director holding
any such employment or office shall be entitled to participate in and
retain for his own benefit any such donation, gratuity, pension allowance
or emolument.
ARBITRATION
141. Whenever any difference arises between the Company on the one hand and any
of the members or their executors, administrators or assigns on the other
hand, touching the true intent and construction or the incidence or
consequences of these Articles or of the Act, touching anything done or
executed, omitted or suffered in pursuance of the Act or touching any
breach or alleged breach or otherwise relating to the premises or to these
Articles, or to any Act or Ordinance affecting the Company or to any of the
affairs of the Company such difference shall, unless the parties agree to
refer the same to a single arbitrator, be referred to 2 arbitrators one to
be chosen by each of the parties to the difference and the arbitrators
shall before entering on the reference appoint an umpire.
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142. If either party to the reference makes default in appointing an arbitrator
either originally or by way of substitution (in the event that an appointed
arbitrator shall die, be incapable of acting or refuse to act) for 10 days
after the other party has given him notice to appoint the same, such other
party may appoint an arbitrator to act in the place of the arbitrator of
the defaulting party.
VOLUNTARY WINDING UP AND DISSOLUTION
143. The Company may voluntarily commence to wind up and dissolve by a
resolution of members but if the Company has never issued shares it may
voluntarily commence to wind up and dissolve by resolution of director.
CONTINUATION
144. The Company may by resolution of members or by a resolution passed
unanimously by all directors of the Company continue as a company
incorporated under the laws of a jurisdiction outside the British Virgin
Islands in the manner provided under those laws.
We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola,
British Virgin Islands for the purpose of incorporating an International
Business Company under the laws of the British Virgin Islands hereby subscribe
our name to these Articles of Association the 23rd day of April, 1999 in the
presence of:
Witness Subscriber
............................ ....................................
Ibn K. Thomas Adel K. Clyne
Craigmuir Chambers Authorized Signatory
Road Town, Tortola HWR Services Limited
25
Exhibit 10.01
LEASE AGREEMENT
This Lease Agreement is made and entered into this 22th day of October 1998 by
and between Huang Lin Yueh-Chiao(hereinafter called Party A ) and Hu Tuan-Yuan,
Hi-Q WASON INC..( hereinafter called Party B )with Party B's
Co-Surety.................(hereinafter called Party C) in connection with the
lease of the dwelling house with the following terms and conditions:
Article 1 : Location and the scope of Party A's house:
Article 2 : Terms of the lease: One year from the 1st day of November 1998 to
the 31st day of October, 1999.
Article 3 : Monthly rental shall be NT$69,458.- (receipt shall be issued) and
Party B shall not refuse or delay the rental with any
excuse(electricity and water bills shall be paid by Party B).
Article 4 : The rental shall be paid on or before the first day of each month
and each payment shall be one month and Party B shall not delay
with any excuse.
Article 5 : When signing this Agreement, Party B shall pay to Party A a sum
of NT$180,000.- as Deposit and Party A shall return this Deposit
to Party B when Party B decides not to lease this house and
vacates the house back to Party A.
Article 6 : On termination of the lease, unless Party A agree to lease the
house continuously, Party B shall vacate the house with its
original and prior condition and shall not ask for any right or
excuse. If Party B does not vacate the house in due time, Party A
shall have the right to collect a penalty equal to five times of
the rental monthly until the house is vacated and Party C and
Party B shall have no objection.
Article 7 : During the term of this Agreement, if Party B wants to move to
other place, Party B shall not ask Party A any reimbursement of
rental, moving charges or any rights and shall vacate and return
the house to Party A without any objection.
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Article 8 : Without Party A's consent, Party B shall not let, re-lease,
assign or in any other way give the use of the part or whole of
the house to any third party.
Article 9 : When necessary, Party B shall have the right to decorate the
house with the consent of Party A. However, the decoration shall
not damage the original building and Party B shall restore any
altered portion to original and prior condition.
Article 10 : The house shall not be used illegally and no dangerous articles
shall be stored to affect the public safety.
Article 11 : Party B shall use the house with good will and shall be
responsible for any damage owing to negligence of Party B except
for Force Majeaure causes. If the house is damaged owing to
natural uses, Party A shall pay the repair expenses.
Article 12 : Should Party B violate this Agreement and cause the loss of Party
A's right, it shall pay the penalty claimed by party A. Any
proceeding costs, lawyer's fees occurred in an action against
Party A shall be reimbursed by Party B.
Article 13 : Should Party B violate this Agreement or the house is damaged,
Party C shall be responsible to bear the reimbursement and shall
waver the Beneficium Odenis.
Article 14 : Party A, Party B and Party C shall all abide by the terms and
conditions of this Agreement. Should any breach is found, Party A
shall have the right to terminate this Agreement at any time and
any loss or damage suffered by Party B shall not be borne by
Party A.
Article 15 : The Stamp Duty shall be borne by each party. The Tax and Duty of
the house shall be borne by Party A and Party B shall bear the
Tax and Duty concerning the Electricity Water and Business.
Article 16 : If any increased amount of House Tax or Consolidated Income Tax
resulted owing to the Agreement, Party B shall be responsible for
the increased portion without any objection.
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Article 17 : On termination of this Agreement, any furniture, articles
belonging to Party B which is not removed shall be deemed wastes
and shall be disposed of by Party A and Party B shall have no
objection.
Article 18 : Party B shall responsible for the Withholding Tax on the Rentals.
Article 19 : The maximum increment of the rental is five (5) percent per
annum(based on the current rental)
In witness whereof, the parties hereto have executed this Agreement on the date
first above written and this Agreement is made in duplicate, with each party
holding one copy.
Party A: Huang Lin Yueh-Chiao (Affixed with seal)
Party B: Hu Tuan-Yuan, Hi-Q Wason. INC. (Affixed with seal)
Address: 1F, No.52, Lane 232, Hu-Lin St., Taipei City, Taiwan, R.O.C.
ID. Card No.: A120796482
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Exhibit 10.02
LEASE AGREEMENT
---------------
This Lease Agreement is made and entered into this 28th day of June 1997 by and
between Hi-Q Wason INC.. (hereinafter called Party B) and Mr. Huang Ching Huo
(hereinafter called Party A) and the parties shall abide by the following terms
and conditions:
Article 1: Location and scope of the premises owned by Party A and to be
leased to Party B: Whole area of the ground floor (including the
backyard but kitchen not included ) of the building at No. 6,
Alley 21, Lane 576, Sec. 1, Kuang-Fu Rd., Hsinchu City; plus the
whole area of the building at No.4.
1.1 Party A reserves the right to use the floors of the second floor and above
at No.6 and will make in/out access which shall not block the
superintendent of Security Guard of Party B. Party A agrees that Party B
may erect large scale signs and the water tower on the roof. ( When Party B
set up the Water Tower on the roof, it shall take the safety of Party A's
living into consideration and the total weight shall be limited to 10 tons.
Please refer to Article 7 for the details. )
1.2 Party A shall, before the date this Agreement is enforced, be responsible
for the restoration of the 36HP Industrial Electricity Power ( this is the
preeminent condition of this Lease Agreement ) on Party A's own account. In
the event the electricity power for Party B is insufficient in the future,
it shall be responsible for the fees and expenses for the application and /
or for the alteration of the Name of the User of the Electricity Power.
Being the owner of the premises, Party A shall assist in the proceeding and
consultation for the same.
1.3 Party A shall be responsible for the cleaning of the premises before the
date this Agreement is enforced and to dispose of all of the wastes left by
the former Leasee and to hand the empty premises to Party B.
Article 2: Term of this Lease Agreement is six (6) years from September 1st
1997 through August 31st 2003 and this Lease Agreement will be
automatically renewed for another six (6) years on the same terms
and conditions if the parties shall have no objection. ( The
Receipt issued by Party A for the check paid as the rent for the
month September 2003 shall be considered the formal Agreement. )
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Article 3 : The Monthly Rent is Sixty Thousand New Taiwan Dollars which does
not include the Water and Electricity Bills. Since the parties
share the same Water Meter, Party A shall reimburse to Party B
the average amount of the Water Bills of the past. ( In case the
rate is adjusted, reimbursement shall be made based on new rate.)
Article 4: The Monthly Rent shall be paid on or before the first day of each
month. The rent will be adjusted every two years and increment
will be NT$5,000.- each time.
4.1 Party B reserves the right of purchasing the premises under first
consideration. (This shall be agreed upon separately by the parties. )
Article 5: Upon signing this Lease Agreement, Party B shall pay to Party One
Hundred Fifty Thousand New Taiwan Dollars as the Deposit along
with the check for the rent of the first month. In case Party B
decides to terminate this Lease Agreement, Party A shall, upon
the vacation of the premises, return the Deposit without any
interest.
Article 6 : In case any modifications of the premises is necessary, Party B
may do the modification by itself and Party B shall be
responsible for the restoration of the premises to its original
conditions.
Article 7: Party B shall take good care of the premises and unless for the
Force Majeure reasons Party B shall be responsible for the
reimbursement for any damage of the premises resulted from the
negligence. In case the premises is damaged owing to natural
causes and needs repair, Party A shall be responsible for the
repair.
Article 8: In case Party B violates the terms and conditions of this
Agreement, Party A may terminate this Agreement and ask Party B
for reimbursement.
Article 9: Party A shall be responsible for the taxes and duties of the
premises while Party B shall be responsible for the Water and
Electricity Bills and taxes and duties if any.
Article 10: The Withholding Income Tax for this Lease Agreement shall be paid
by Party B to the Tax Authorities.
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Article 11: When evicting the premises upon expiry of this Agreement, any and
all of the wastes and belongings of Party B left will be disposed
of by Party A and Party B shall not have any objection.
In witness whereof, the parties hereto have executed this Agreement on the date
first above written and this Agreement is made with each party holding. Any
modification, remarks or corrections of this Agreement shall be void.
Article 12: This Lease Agreement is made in duplicate, with each party
holding one copy for filing purposes.
Party A: Huang Ching Huo (Affixed with seal)
ID. Card No.J100268298
Address: No.6, Alley 21, Lane 576, Sec. 1, Kuang-Fu Rd., Hsinchu City, Taiwan,
R.O.C.
Party B: Hi-Q Wason INC. (Affixed with seal)
Hu Tuan-Yuan ; General Manager
Address: No.932-3, Hua-Cheng Rd., Hsinchuang City, Taiwan, R.O.C.
TEL: (02) 990-8306(10 Lines)
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EXHIBIT 10.03
CONTRACT FOR SERVICES
This contract is by and between the Han Tao Wason Pure Waters Prooprrietor
,hereinafter referred to as "Provider," located at No 932-3, Huacheng road,
Shinjuang, Taipei Hsien, Taiwan. R.O.C and Hi-Q Wason, Inc. hereinafter referred
to as "Client," located at 4th floor, 52 lane, 232 Hu Lin Street, Hsin Yi
District, Taipei, Taiwan and shall be effective as of the date written below at
signatures.
1. INTENT It is the purpose of Provider, through this contract to create
bottled water, for a fee set forth below.
2. FEE Fees will be paid within SEVEN DAYS (7 days) upon issuing an invoice
from Provider. Fees will be the aggregate operrating costs of Provider in
creating bottled waterr for Client
3. GOVERNING LAW This Contract shall be construed in accordance with and
governed by the laws of Republic of China, irrespective of the fact that a
party hereto may not be a resident of or maintain a place of business in
Rrepublic of China.
4. ASSIGNMENT This Contract and any rights granted thereunder shall not be
assigned by any party hereto any person, firm or corporation without first
obtaining the prior written consent of all parties to this Contract.
5. ENTIRE AGREEMENT It is agreed between the parties hereto that there are no
other agreements or understandings between them relating to the subject
matter of this Contract. This Contract supersedes all prior agreements,
oral or written, between the parties and is intended as a complete and
exclusive statement of the agreement between the parties, and thereby
creating this Contract. Neither this Contract, nor its execution, have been
induced by any reliance, representation, stipulation, warranty, agreement
or understanding of any kind other than those herein expressed. No change
or modification of this Contract shall be valid unless the same be in
writing and signed by the parties hereto.
6. HEADINGS/CAPTIONS The headings and captions contained in this Contract are
for convenience purposes only and are not determinative nor are they to be
considered in construction of the terms or provisions herein.
7. DISPUTE Any disputes arising out of this Contract between the parties
hereto as to their rights, responsibilities or liabilities under the
foregoing instrument, or any other instrument made pursuant to the
stipulations herein contained for more completely carrying this instrument
into effect shall be settled through and subject to binding arbitration.
The arbitrator's decisions shall be final as to the contents and
interpretation of such instrument or instruments and as to the proper mode
of carrying the same into effect. Judgment may be entered in any Court of
Law.
If one party does not make an appearance at the arbitration hearing and
acts in default, the arbitrator hereby has the consent of both parties to
go forward with the hearing and render a decision.
8. DURATION The term of this contract shall be ten years. Client has the right
to terminate the contract with 30 days written notice.
DATED: DATED:
------------------------- -----------------------------
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Client, Provider,
By: By:
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Exhibit 23.02
The Board of Directors
Hi-Q Wason,, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Certified Public Accountants
Taipei, Taiwan
May 18, 1999