<PAGE>
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ASIA RESOURCES HOLDINGS LIMITED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transactions apply:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transactions computed
pursuant to Exchange Act Rule 0-11:
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials:
$6,026.22
---------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
-----------------------------------------------------------------------
(3) Filing party:
-----------------------------------------------------------------------
(4) Date filed:
-----------------------------------------------------------------------
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED
52/F, BANK OF CHINA TOWER
1 GARDEN ROAD
CENTRAL, HONG KONG
November 2, 1999
To Our Stockholders:
On behalf of the Board of Directors of Asia Resources Holdings Limited (the
"Company" or "Asia Resources"), I cordially invite you to attend the Special
Meeting of Stockholders of Asia Resources (the "Special Meeting") to be held at
52/F, Bank of China Tower, 1 Garden Road, Central, Hong Kong, on November 30,
1999 at 11:00 a.m. local time.
At the Special Meeting, you will be asked to approve (a) the Disposal
Agreement (the "Disposal Agreement") by and between the Company and Horler
Holdings. Ltd. ("Horler") and (b) the Assignment Agreement (the "Assignment
Agreement") by and between the Company and China Strategic Holdings Limited
("CSH"). The Disposal Agreement provides that the Company will sell to Horler,
in full and final settlement of the outstanding indebtedness owed to Horler by
the Company under a 9% Secured Convertible Note, the entire share capital of
Westronix Limited ("WL"). WL owns all of the outstanding capital stock of China
Construction Holdings Limited ("CCHL"), which in turn is a holder of a 51%
interest in Hangzhou Zhongche Huantong Development Co., Ltd. ("HZHD"). HZHD, the
only operating subsidiary of the Company, is a Sino-foreign joint venture
company established to develop the Hangzhou Toll Road. The Assignment Agreement
provides that the Company will assign to CSH, in full and final settlement of
the outstanding indebtedness of the Company owed to CSH, two promissory notes
executed in favor of the Company in the aggregate principal amount of
US$1,700,000. Following the closing of the transactions contemplated by the
Disposal Agreement and the Assignment Agreement but immediately prior to the
consummation of the transaction contemplated by the Acquisition Agreement
discussed in the paragraph below, the Company will hold no assets other than at
least US$150,000 in cash or cash equivalents and no liabilities.
Approval of the Disposal Agreement and the Assignment Agreement by the
stockholders of the Company is a condition precedent to the closing of the
transactions contemplated by the Acquisition Agreement (the "Acquisition
Agreement") among Horler, Far Beyond Investments Limited ("Far Beyond") and the
shareholders of Far Beyond named on the signature pages thereto (the "FB
Shareholders"). Pursuant to the Acquisition Agreement, the Company will issue
8,757,951 shares of common stock, par value US$0.01 per share, of the Company to
the FB Shareholders in exchange for all of the issued and outstanding shares of
the capital stock, par value US$1.00 per share, of Far Beyond. Far Beyond owns a
70% equity interest in Harbin Asibao Chemical Fiber Company Limited, a
Sino-foreign joint venture company that produces and distributes polyester
filament and polyester staple fiber.
In addition, you will be asked to approve an amendment to the Certificate of
Incorporation of the Company that will (i) decrease the authorized common stock
of the Company from 1,100,000,000 shares to 30,000,000 shares; and (ii) change
the name of the Company to Asia Fiber Holdings Limited.
Horwath Corporate Solutions Limited, a wholly-owned subsidiary of Horwath
CPA Hong Kong Limited, has rendered a written opinion to the Board of Directors
that, as of October 14, 1999, the considerations to be received by the Company
pursuant to the Disposal Agreement and the Assignment Agreement were fair from a
financial point of view to the stockholders of the Company.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE DISPOSAL AGREEMENT, THE
ASSIGNMENT AGREEMENT, THE TRANSACTIONS CONTEMPLATED THEREBY AND THE AMENDMENTS
TO THE CERTIFICATE OF INCORPORATION, AND DETERMINED THAT THEY ARE ADVISABLE,
FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF ASIA RESOURCES. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
DISPOSAL AGREEMENT, THE ASSIGNMENT AGREEMENT AND THE AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION.
<PAGE>
Adoption of the Disposal Agreement, the Assignment Agreement and the
amendments to the Certificate of Incorporation will require the affirmative vote
of the holders of a majority of the voting power of all shares of the common
stock of the Company outstanding on October 15, 1999, the record date, with each
share of common stock of the Company entitled to one vote.
Details of the Disposal Agreement, the Assignment Agreement, the
transactions contemplated thereby, and the amendments to the Certificate of
Incorporation appear in the accompanying Proxy Statement. Please give this
material your careful attention.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy and return it in the enclosed prepaid envelope.
If you hold shares of common stock of the Company and attend the Special
Meeting, you may vote in person even if you have previously returned your proxy
card. Your prompt cooperation will be greatly appreciated.
Sincerely,
[/S/ MA WAI MAN, CATHERINE]
Ma Wai Man, Catherine
PRESIDENT AND SECRETARY
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED
52/F, BANK OF CHINA TOWER
1 GARDEN ROAD
CENTRAL, HONG KONG
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 30, 1999
------------------------
To the stockholders of Asia Resources Holdings Limited:
NOTICE IS HEREBY GIVEN that the Special Meeting of stockholders of Asia
Resources Holdings Limited, a Delaware corporation (the "Company" or "Asia
Resources"), will be held at 11:00 a.m., local time, on November 30, 1999, at
52/F, Bank of China Tower, 1 Garden Road, Central, Hong Kong (the "Special
Meeting"), for the following purposes:
1. To vote on a proposal to approve (a) the Disposal Agreement (the
"Disposal Agreement") by and between the Company and Horler Holdings Ltd.
("Horler") and (b) the Assignment Agreement (the "Assignment Agreement") by
and between the Company and China Strategic Holdings Limited ("CSH"). The
Disposal Agreement provides that the Company will sell to Horler the entire
share capital of Westronix Limited ("WL"), in full and final settlement of
the outstanding indebtedness owed to Horler by the Company under a 9%
Secured Convertible Note. The Assignment Agreement provides that the Company
will assign to CSH, in full and final settlement of the outstanding
indebtedness of the Company owed to CSH, two promissory notes executed in
favor of the Company in the aggregate principal amount of US$1,700,000.
2. To vote on a proposal to amend the Certificate of Incorporation of
the Company to (i) decrease the authorized common stock of the Company from
1,100,000,000 shares to 30,000,000 shares; and (ii) change the name of the
Company to Asia Fiber Holdings Limited.
3. To transact any other busines that may properly come before the
Special Meeting, including any motion to adjourn the meeting to a later date
to permit further soliciation of proxies, or any postponements or
adjournments thereof.
Only stockholders of record at the close of business on October 15, 1999 are
entitled to notice of and to vote at the Special Meeting of Stockholders and any
postponement or adjournment thereof.
By Order of the Board of Directors.
[/S/ MA WAI MAN, CATHERINE]
MA WAI MAN, CATHERINE
PRESIDENT AND SECRETARY
Hong Kong November 2, 1999
All stockholders are cordially invited to attend the Special Meeting. To
ensure your representation at the Special Meeting, however, you are urged to
mark, sign, date and return the enclosed proxy card in the accompanying
envelope, whether or not you expect to attend the Special Meeting. Any holder of
common stock of the Company attending the Special Meeting may vote in person
even if that stockholder has returned a proxy card.
<PAGE>
YOUR VOTE IS IMPORTANT.
WE HAVE SENT PROXY CARDS TO HOLDERS OF COMMON STOCK.
TO VOTE YOUR SHARES, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
PLEASE DO NOT SEND US YOUR ASIA RESOURCES STOCK CERTIFICATES.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
THE SPECIAL MEETING........................................................................................ 1
DATE, TIME AND PLACE; MATTERS TO BE CONSIDERED........................................................... 1
RECORD DATE; QUORUM; VOTING AT THE SPECIAL MEETING....................................................... 1
VOTING OF PROXIES........................................................................................ 2
REVOCATION OF PROXIES AND VOTING INSTRUCTIONS............................................................ 2
PROXY SOLICITATION....................................................................................... 2
PROPOSAL I: APPROVAL OF THE DISPOSAL AGREEMENT AND THE ASSIGNMENT AGREEMENT................................ 3
GENERAL.................................................................................................. 3
REASONS FOR THE PROPOSAL; RECOMMENDATIONS OF THE BOARD OF DIRECTORS...................................... 3
OPINION OF HORWATH CORPORATE SOLUTIONS LIMITED........................................................... 4
SUMMARY OF THE DISPOSAL AGREEMENT AND THE ASSIGNMENT AGREEMENT........................................... 7
SUMMARY OF THE ACQUISITION AGREEMENT..................................................................... 9
BUSINESSES OF ASIA RESOURCES AND FAR BEYOND.............................................................. 11
REGULATORY MATTERS....................................................................................... 18
ANTICIPATED ACCOUNTING TREATMENT......................................................................... 18
FEDERAL INCOME TAX CONSEQUENCES.......................................................................... 18
RIGHTS OF DISSENTING STOCKHOLDERS........................................................................ 18
CHANGE IN RIGHTS OF STOCKHOLDERS......................................................................... 18
MATERIAL CONTRACTS....................................................................................... 18
PROPOSAL II: AMENDMENT OF THE CERTIFICATE OF INCORPORATION................................................. 20
PRINCIPAL STOCKHOLDERS..................................................................................... 21
SELECTED FINANCIAL DATA.................................................................................... 22
MARKET PRICE AND RELATED STOCKHOLDER MATTERS............................................................... 22
FORWARD LOOKING STATEMENTS................................................................................. 23
INDEPENDENT ACCOUNTANTS.................................................................................... 23
OTHER MATTERS.............................................................................................. 23
AVAILABLE INFORMATION...................................................................................... 23
STOCKHOLDER PROPOSALS...................................................................................... 24
EXHIBIT A--Disposal Agreement
EXHIBIT B--Assignment Agreement
EXHIBIT C--Acquisition Agreement
EXHIBIT D--Opinion of Horwath Corporation Solutions
EXHIBIT E--Selected Financial Statements of Far Beyond
</TABLE>
i
<PAGE>
ASIA RESOURCES HOLDINGS LIMITED
52/F, BANK OF CHINA TOWER
1 GARDEN ROAD
CENTRAL, HONG KONG
------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 30, 1999
THE SPECIAL MEETING
DATE, TIME AND PLACE; MATTERS TO BE CONSIDERED
This Proxy Statement is being furnished to holders of common stock, par
value US$0.01 per share, of the Company in connection with the solicitation of
proxies by the Board of Directors for use at the Special Meeting and any
adjournments or postponements thereof. The Special Meeting will be held at
11:00 a.m., local time, on November 30, 1999, at 52/F, Bank of China Tower, 1
Garden Road, Central, Hong Kong. At the Special Meeting the holders of common
stock of the Company will be asked to vote on proposals to approve the Disposal
Agreement, the Assignment Agreement, amendments to the Certificate of
Incorporation of the Company (the "Certificate Amendment") and to transact any
business that may properly come before the Special Meeting or any adjournments
or postponements thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE DISPOSAL AGREEMENT, THE
ASSIGNMENT AGREEMENT, THE TRANSACTIONS CONTEMPLATED THEREBY AND THE CERTIFICATE
AMENDMENT AND DETERMINED THAT THEY ARE ADVISABLE, FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF ASIA RESOURCES. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT ASIA RESOURCES' STOCKHOLDERS APPROVE THE DISPOSAL
AGREEMENT, THE ASSIGNMENT AGREEMENT AND THE CERTIFICATE AMENDMENT.
RECORD DATE; QUORUM; VOTING AT THE SPECIAL MEETING
The Board of Directors has fixed the close of business on October 15, 1999
as the Record Date for determining the holders of common stock of the Company
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were issued and outstanding 597,139 shares of common stock of the Company.
A quorum is necessary in order for a vote on the proposals presented at the
Special Meeting. The presence in person or by proxy of the holders of record of
a majority of the voting power of the outstanding shares of common stock of the
Company is necessary for there to be a quorum for purposes of voting on the
Disposal Agreement, the Assignment Agreement and the Certificate Amendment.
Abstentions (i.e., votes withheld by stockholders who are present and
entitled to vote) and broker non-votes (i.e., shares held by a broker for its
customers that are not voted because the broker does not receive instructions
from the customer or because the broker does not have discretionary voting power
with respect to the item under consideration) will be counted as present for
purposes of determining whether there is a quorum for the transaction of
business.
In accordance with the Delaware General Corporation Law (the "DGCL"), the
Certificate of Incorporation, as amended, of the Company (the "Certificate of
Incorporation") and the By-laws of the Company, the affirmative vote of the
holders of a majority of the voting power of all outstanding shares of
<PAGE>
the common stock of the Company, with each share of common stock of the Company
entitled to one vote, is required to approve the Disposal Agreement, the
Assignment Agreement and the Certificate Amendment. Accordingly, abstention and
broker non-votes will have the effect of votes against the approval of the
Disposal Agreement, the Assignment Agreement and the Certificate Amendment.
VOTING OF PROXIES
All shares of common stock of the Company that are entitled to vote and are
represented at the Special Meeting by properly executed proxy cards received
prior to or at the Special Meeting, and not duly and timely revoked, will be
voted at the Special Meeting (or adjournment or postponement thereof) in
accordance with the instructions indicated on the proxy cards. If no
instructions are indicated, the proxies will be voted FOR approval of the
Disposal Agreement, the Assignment Agreement and the Certificate Amendment.
If any other matters are properly presented for consideration at the Special
Meeting, then Ma Wai Man, Catherine and Richard N. Gray, and each of them (the
persons named in the enclosed proxy card as the proxies for the common stock of
the Company) will have discretion to vote on these matters in accordance with
their best judgment.
REVOCATION OF PROXIES AND VOTING INSTRUCTIONS
A holder of common stock of the Company may revoke a proxy card given
pursuant to this solicitation at any time before the proxy card is voted by
returning a subsequently dated proxy card to the Secretary of Asia Resources, by
filing an instrument in writing with the Secretary of Asia Resources revoking
the proxy card, or by voting in person at the Special Meeting. Attendance at the
Special Meeting will not in and of itself revoke a proxy card.
Holders of common stock of the Company who are entitled to revoke their
proxy card may do so via facsimile at (852) 2537-6591. Any beneficial owner of
common stock of the Company whose shares are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to revoke
should contact the registered holder promptly and instruct the registered holder
to revoke on his behalf. There can be no assurance that the registered holder
will have sufficient time prior to the Special Meeting to deliver a revocation
upon instruction by the beneficial owner.
PROXY SOLICITATION
Asia Resources will pay its own expenses incurred in connection with this
Proxy Statement and the Special Meeting, including the disbursements of legal
counsel and accountants. In addition to solicitation by mail, proxies may be
solicited by directors, officers and employees of Asia Resources in person or by
telephone, facsimile or other means of communication. The directors, officers
and employees will not be additionally compensated, but will be reimbursed for
reasonable out-of-pocket expenses, in connection with their solicitation.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by the custodians, nominees and fiduciaries, and Asia Resources will
reimburse the custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
2
<PAGE>
PROPOSAL I: APPROVAL OF THE DISPOSAL AGREEMENT AND THE ASSIGNMENT AGREEMENT
GENERAL
On September 10, 1999, the Company entered into an Acquisition Agreement
(the "Acquisition Agreement") with Horler, Far Beyond Investments Limited ("Far
Beyond") and the shareholders of Far Beyond named on the signature pages thereto
(the "FB Shareholders"). Upon satisfaction or waiver of the conditions contained
in the Acquisition Agreement, the Company will issue 8,757,951 shares of common
stock of the Company to the FB Shareholders in exchange for all of the issued
and outstanding shares of the capital stock, par value US$0.01 per share, of Far
Beyond (the "Far Beyond Acquisition"). Following the closing of the Far Beyond
Acquisition, the FB Shareholders will own 88% of the outstanding shares of
common stock of the Company and the Company will own 100% of the outstanding
shares of Far Beyond capital stock. Far Beyond owns a 70% equity interest in
Harbin Asibao Chemical Fiber Company Limited ("Asibao"), a Sino-foreign joint
venture company that produces and distributes polyester filament and polyester
staple fiber.
As a condition precedent to the closing of the Far Beyond Acquisition, the
stockholders of the Company are required to approve the Disposal Agreement and
the Assignment Agreement. The Disposal Agreement provides that the Company will
sell to Horler the entire share capital of WL in full and final settlement of
the outstanding indebtedness owed to Horler by the Company under a 9%
Convertible Note (the "Horler Note"). WL owns all of the outstanding capital
stock of China Construction Holdings Limited ("CCHL"), which in turn is a holder
of a 51% interest in Hangzhou Zhongche Huantong Development Co., Ltd. ("HZHD").
HZHD, the only operating subsidiary of the Company, is a Sino-foreign joint
venture company established to develop the Hangzhou Toll Road. See "Proposal
I--Businesses of Asia Resources and Far Beyond." The Assignment Agreement
provides that the Company will assign to CSH, in full and final settlement of
the outstanding indebtedness of the Company owed to CSH, two promissory notes
executed in favor of the Company in the aggregate principal amount of
US$1,700,000. Pursuant to the Disposal Agreement and the Assignment Agreement,
the Company will dispose of all of its assets other than at least US$150,000 in
cash or cash equivalents and all of its liabilities.
Horler holds approximately 49% of the Company's common stock. CSH has direct
voting and investment power with respect to 49% of the Company's common stock
held by Horler, a wholly-owned subsidiary of CSH. Three (3) of the directors of
the Company are also directors of CSH.
REASONS FOR THE PROPOSAL; RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors believes that the terms of the Disposal Agreement and
the Assignment Agreement are advisable, fair to, and in the best interests of
the stockholders of the Company. The Board of Directors also believes that the
business being acquired by the Far Beyond Acquisition has greater potential for
the Company than the existing business involving the Hangzhou Toll Road.
Accordingly, the Board of Directors has unanimously approved the Disposal
Agreement and the Assignment Agreement. In reaching its conclusion to approve
the Disposal Agreement, the Assignment Agreement and the transactions
contemplated thereby, the Board of Directors consulted with the Company's
management as well as the Company's legal and financial advisors, and considered
a number of factors, including the following:
(a) Pursuant to a supplemental shareholders' agreement (the "Guaranteed
Distribution Agreement") dated May 18, 1998 by and between CCHL and Hangzhou
City Transportation Development, the Chinese joint venture partner of HZHD (the
"Chinese Partner"), CCHL is entitled to a fixed annual distribution from HZHD of
Rmb15,300,000 (US$1,847,826) (the "Guaranteed Distribution") from January 1,
1998 through the expiration of the joint venture period of HZHD. Any surplus
income generated from Hangzhou Toll Road in excess of the amount of the
Guaranteed Distribution would belong to the Chinese Partner and the Chinese
Partner would make up any shortfall in the event HZHD's income in any year was
less than the Guaranteed Distribution. In addition, as part of the Guaranteed
Distribution
3
<PAGE>
Agreement, an amount of Rmb178,500,000 (US$21,557,971) would be paid to CCHL
upon the expiration of the joint venture period of HZHD and the assets of the
joint venture would be surrendered to the Chinese Partner at no further
consideration. This Guaranteed Distribution Agreement is subject to approvals by
the Chinese governmental authorities which originally approved the formation of
the joint venture. To date, HZHD has not obtained such approvals despite efforts
to do so by the management of the joint venture and the Company. The Board of
Directors of the Company is currently of the view that the necessary approvals
may not be obtained and the Guaranteed Distribution Agreement cannot be
effectuated without such approvals.
(b) The Horler Note is a US$30 million convertible note bearing interest at
9% after an initial six-month interest-free period, with all principal being due
and payable on September 10, 1999. The principal and any unpaid interest due on
the Horler Note are convertible into 7,198,388 shares of common stock of the
Company. CSH currently holds approximately 49% of the outstanding common stock
of the Company through Horler, its wholly-owned subsidiary. On conversion of the
Horler Note, CSH would indirectly hold approximately 96.10% of the outstanding
common stock of the Company through Horler. On April 14, 1998, Horler agreed to
reduce the interest rate of the Horler Note from 9% to 5% per annum for the year
ended December 31, 1997. In addition, Horler agreed that after December 31,
1998, no principal repayment of the Horler Note would be demanded until the
Company was financially capable of doing so. However, since January 1, 1998, the
Horler Note has continued to bear interest at 9% per annum. See "Proposal I:
Businesses of Asia Resources and Far Beyond."
(c) The written opinion of Horwath Corporate Solutions Limited ("Horwath")
(including a consideration of the assumptions and methodologies underlying its
analyses) given to the Board of Directors on October 14, 1999 that, as of
October 14, 1999, the considerations to be received by the Company pursuant to
the Disposal Agreement and the Assignment Agreement were fair from a financial
point of view to the stockholders of the Company. See "Proposal I--Opinion of
Horwath Corporate Solutions Limited."
The discussion contained herein of the information and factors considered by
the Board of Directors is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the Disposal
Agreement, the Assignment Agreement and the transactions contemplated thereby,
the Board of Directors did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to any of the factors discussed
herein. In addition, individual members of the Board of Directors may have given
different weight to these factors.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE DISPOSAL AGREEMENT, THE
ASSIGNMENT AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED
THAT THEY ARE ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS
OF THE COMPANY. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS APPROVE THE DISPOSAL AGREEMENT AND THE ASSIGNMENT AGREEMENT.
OPINION OF HORWATH CORPORATE SOLUTIONS LIMITED
On October 14, 1999 Horwath Corporate Solutions Limited delivered its
written opinion to the Board of Directors that, as of the date of such opinion,
the considerations to be received by the Company pursuant to the Disposal
Agreement and the Assignment Agreement were fair from a financial point of view
to the stockholders of the Company.
THE FULL TEXT OF THE WRITTEN OPINION OF HORWATH DATED OCTOBER 14, 1999,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS EXHIBIT
D TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS
OF THE COMPANY ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
4
<PAGE>
In connection with its opinion, Horwath reviewed, among other things,
(i) the audited financial statements of the Company and Far Beyond for the three
years ended December 31, 1998, 1997 and 1996; (ii) quarterly report on
Form 10-QSB of the Company for the six months ended June 30, 1999; and (iii) a
draft of this proxy statement. Horwath also held discussions with members of
management of the Company and reviewed similar information for certain other
companies whose operations Horwath considered related to the Company.
Horwath relied upon the accuracy and completeness of the information
contained in the draft of the proxy statement that it reviewed and did not
conduct an in-depth investigation into the business affairs of the Company or
Far Beyond for the purpose of forming an opinion. Horwath did not review profit
forecasts or projected cash flows for either the Hangzhou Toll Road or Asibao.
Therefore, their assessment was based only on historical information.
The following is a summary of certain of the financial and comparative
analyses which provided the basis for Horwath's October 14, 1999 written
opinion:
(a) Horwath prepared a pro forma consolidated balance sheet as at
December 31, 1998 and pro forma consolidated statements of operations of the
Company and its subsidiaries for the three years ended December 31, 1998, 1997
and 1996, as if the proposed transactions as contemplated by the Disposal
Agreement and the Assignment Agreement took effect from January 1, 1996. Horwath
compared the pro forma consolidated net current liabilities per share, net
assets per share and earnings per share to the historical actual amounts. A
summary of the pro forma financial statements and the historical audited
financial statements is as follows:
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------
PRO FORMA HISTORICAL
----------- ---------------
RMB'000 RMB'000
<S> <C> <C>
Current assets...................................................................... 219,393 19,957
Current liabilities................................................................. (240,832) (75,179)
Net current liabilities............................................................. (21,439) (55,222)
Total assets........................................................................ 435,975 769,664
Net assets/(liabilities)............................................................ 173,866 (136,893)
----------- ---------------
Net current liabilities per share................................................... Rmb (2.15) Rmb (92.48)
Total assets per share.............................................................. Rmb 43.81 Rmb 1,288.93
Net assets/(liabilities) per share.................................................. Rmb 17.47 Rmb (229.25)
Number of common shares............................................................. 9,952,217 597,133
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1996 1997 1998
--------------------------- ---------------------------- ------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL
---------- --------------- ---------- ---------------- ---------- ------------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
<S> <C> <C> <C> <C> <C> <C>
Toll revenue..................... N/A 38,463 N/A 45,100 N/A 54,217
Sales............................ 633,695 N/A 494,897 N/A 460,448 N/A
Gross Profit..................... 96,284 N/A 87,045 N/A 84,889 N/A
Income (loss) before income taxes
and minority interests......... 56,894 23,167 50,981 (10,566) 54,400 (61,527)
Income before minority
interests...................... 56,894 23,167 50,981 (10,566) 50,232 (61,527)
Net income/(loss)................ 37,827 11,876 34,150 (11,237) 33,730 (43,358)
Earnings (loss) per share
("EPS")........................ Rmb3.80 Rmb19.89 Rmb3.43 Rmb(18.82) Rmb3.39 Rmb(72.61)
Number of shares for EPS
computation.................... 9,952,217 597,133 9,952,217 597,133 9,952,217 597,133
</TABLE>
(b) Horwath calculated the projected share price of the Company based on the
price-earning ("P/E") ratio of companies listed on the Stock Exchange of Hong
Kong Limited ("SEHK") and engaged in the manufacture of synthetic fiber and
similar products. In Horwath's opinion comparable companies listed on NASDAQ
would likely command higher P/E ratio while the P/E ratio of comparable
companies listed on the SEHK would provide a more conservative and prudent basis
for its assessment purposes. Horwath provided the following examples of
comparable companies:
<TABLE>
<CAPTION>
SHARE PRICE AT
CODE NAME OF LISTED COMPANY PRINCIPAL ACTIVITY 9/28/99 P/E EPS
- --------- --------------------------------- --------------------------------- --------------------- --------- ---------
<C> <S> <C> <C> <C> <C>
263 Ploy Investments Holdings Ltd. Manufacture and trading of
chemical fibers and property
investment 0.39 -- N/A
420 Fountain Set (Holdings) Ltd. Manufacture of knitted cotton
fabrics 1.03 3.5 0.294
648 Cheung Wah Development Co. Ltd. Dyestuffs distribution, household
fabric, garment manufacturing and
property investment 0.295 -- N/A
1131 Kwong Hing International Holdings Manufacture, sales of knitted
(Bermuda) Limited fabrics and provision of fabric
knitting, bleaching, dyeing and
setting services 0.183 9.4 0.1947
</TABLE>
Horwath projected that if the transactions contemplated in the Disposal
Agreement and the Assignment Agreement were consummated, the share price of the
common stock of the Company would be as follows:
<TABLE>
<CAPTION>
LOWEST HIGHEST
------------ ------------
<S> <C> <C>
P/E of comparable listed companies............................... 3.50 9.40
Pro forma EPS of the Company and its subsidiaries................ RMB 3.39 RMB 3.80
Projected share price............................................ RMB 11.87 RMB 35.72
Equivalent to.................................................... US$ 1.43 US$ 4.30
</TABLE>
6
<PAGE>
(c) Horwath also considered the high and low prices in dollars per share for
the common stock of the Company as of the end of each of the four quarters of
1997 and 1998 and as of the end of each of the first three quarters of 1999.
Horwath concluded that if the transactions as contemplated in the Disposal
Agreement and the Assignment Agreement had taken effect from January 1, 1996,
with respect to the Company and its subsidiaries: (i) pro forma consolidated net
current liabilities per share and net assets per share would have improved from
historical actual amounts at December 31, 1998, while pro forma total assets per
share would have deteriorated from historical actual amounts; (ii) pro forma
consolidated earnings per share would have improved significantly from
historical actual amounts for the two years ended December 31, 1998 and 1997;
and (iii) the estimated pro forma share price of the Company would have been
comparable with the historical actual price from January 1, 1997 onwards.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Horwath's opinion. In arriving at its fairness determination, Horwath
considered the results of all such analyses. No company used in the above
analyses as a comparison is directly comparable to the Company. The analyses
were prepared solely for the purpose of Horwath's providing its opinion to the
Board of Directors of the Company as to the fairness of the considerations to be
received by the Company from the Disposal Agreement and the Assignment Agreement
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. As described above, Horwath's
opinion to the Board of Directors of the Company was one of many factors taken
into consideration by the Board of Directors of the Company in making its
determination to approve the Disposal Agreement and the Assignment Agreement.
The foregoing summary does not purport to be a complete description of the
analysis performed by Horwath and is qualified by reference to the written
opinion of Horwath attached hereto as Exhibit D.
Horwath, incorporated in Hong Kong, is a part of The Horwath Hong Kong Group
which specializes in the provision of audit, accounting, taxation and related
services. Horwath is the head office in Asia of Horwath International which is
the seventh largest accounting group in Asia and currently ranks number four in
China.
Horwath has broad experience in providing financial advisory services,
business appraisals and business reconstruction services to Hong Kong companies
with China-based assets and businesses. In selecting Horwath to provide the
fairness opinion with respect to the Disposal Agreement and the Assignment
Agreement, the Board of Directors of the Company took into consideration the
above factors and Horwath's knowledge of companies based in China.
Pursuant to a letter agreement dated September 8, 1999 (the "Engagement
Letter"), the Company engaged Horwath to render an opinion as to the fairness
from a financial point of view to the stockholders of the Company of the
proposed Disposal Agreement and Assignment Agreement and the considerations to
be paid to the Company pursuant thereto. Pursuant to the terms of the Engagement
Letter, the Company will pay Horwath a fee of US$12,886 upon delivery of the
fairness opinion to the Company.
SUMMARY OF THE DISPOSAL AGREEMENT AND THE ASSIGNMENT AGREEMENT
The following is a summary of the material provisions of the Disposal
Agreement and the Assignment Agreement, copies of which are attached hereto as
Exhibits A and B and incorporated herein by reference. This summary does not
purport to be a complete description of the Disposal Agreement and the
Assignment Agreement and is qualified in its entirety by reference to the full
text of the Disposal Agreement and the Assignment Agreement. STOCKHOLDERS ARE
URGED TO READ THE DISPOSAL AGREEMENT AND THE ASSIGNMENT AGREEMENT IN THEIR
ENTIRETY FOR A COMPLETE DESCRIPTION OF TRANSACTIONS CONTEMPLATED THEREBY.
7
<PAGE>
DISPOSAL AGREEMENT
GENERAL
As a condition precedent to the closing of the Acquisition Agreement, the
stockholders of Asia Resources are required to approve the Disposal Agreement.
Pursuant to the Disposal Agreement, by and between Asia Resources and Horler, a
holder of approximately 49% of the common stock of the Company, the Company
agrees to sell and Horler agrees to purchase one share of capital stock, par
value US$1.00 per share, of WL, which represents the entire issued share capital
stock of WL (the "Sale Shares"), in exchange for the cancellation by Horler of
the indebtedness owed to Horler by the Company under the Horler Note. The Horler
Note is convertible into 7,198,388 shares of common stock of the Company.
COMPLETION
Completion of the Disposal Agreement (the "Disposal Agreement Completion")
will take place immediately prior to the closing of the transactions
contemplated by the Acquisition Agreement. If the closing of the transactions
contemplated by the Acquisition Agreement does not take place, the Disposal
Agreement Completion will not take place. In addition, the Disposal Agreement
Completion will not take place unless the stockholders of the Company approve
the Disposal Agreement.
Prior to the Disposal Agreement Completion, the Company must deliver to
Horler (i) an instrument of transfer relating to the Sale Shares executed by the
registered and beneficial owner thereof in favor of Horler or its nominee;
(ii) the share certificate relating to the Sale Shares; (iii) certified copies
of any power of attorney or other authority pursuant to which the Disposal
Agreement or the documents in clause (i) above are executed; (iv) the corporate
seal, books and all copies of the memorandum and articles of association of WL;
(v) the statutory books of WL and any unissued share certificates and such other
records of WL; and (vi) all current insurance policies, books and records and
title documents of the WL, all contracts of WL and all licenses and
registrations granted to or owned by WL.
Prior to the Disposal Agreement Completion, Horler will deliver to the
Company the original Horler Note marked cancelled.
CLAIMS
The Company agrees to waive all claims it may have against WL or in respect
of any assets of WL.
ASSIGNMENT AGREEMENT
GENERAL
As a condition precedent to the closing of the transactions contemplated by
the Acquisition Agreement, the stockholders of Asia Resources are required to
approve the Assignment Agreement. Pursuant to the Assignment Agreement between
Asia Resources and CSH, a holder of approximately 49.10% of the common stock of
the Company through Horler, its wholly-owned subsidiary, the Company agrees to
assign to CSH and CSH agrees to accept in full and final settlement of the
outstanding indebtedness of the Company to CSH (i) a promissory note dated
July 27, 1998 executed by Harlequin Investment Holdings Limited ("Harlequin") in
favor of the Company for the sum of US$800,000 (the "Harlequin Promissory
Note"); and (ii) a promissory note dated February 13, 1996 issued by Regal (New)
International Inc. ("New Regal") in favor of the Company for the sum of
US$900,000 (the "New Regal Promissory Note" and together with the Harlequin
Promissory Note, the "Promissory Notes"). After the Assignment Agreement
Completion (as defined below), the Company will have no liability whatsoever to
CSH.
8
<PAGE>
DESCRIPTION OF THE PROMISSORY NOTES
The Harlequin Promissory Note bears no interest and is due and payable in
one installment on February 1, 2001. The New Regal Promissory Note bears
interest at nine percent (9%) per annum and is payable in sixty (60) equal
monthly installments of principal and interest. New Regal's obligations under
the Promissory Notes are secured by a pledge of all of the issued and
outstanding shares of capital stock of New Regal. The Promissory Notes are both
secured by a pledge agreement granted by Harlequin in favor of the Company dated
February 13, 1996 pledging the entire capital stock of New Regal, as amended by
a Deed of Variation date July 27, 1998 by and among the Company, Harlequin and
New Regal (the "Pledge Agreement"). All the issued and outstanding shares of New
Regal were owned by Harlequin. Harlequin was at the time of this transaction the
beneficial owner of approximately fifty-five percent (55%) of the then currently
outstanding shares of the Company's common stock. Subsequent to this
transaction, Harlequin reduced its beneficial ownership of the Company to less
than one percent.
Pursuant to a Deed of Variation dated July 27, 1998 among the Company, New
Regal and Harlequin, Harlequin agreed and undertook to assume all the
obligations and liabilities of New Regal under the New Regal Note in
consideration of the Company's agreement to release New Regal from all
obligations relating to the New Regal Promissory Note. All other terms of the
New Regal Promissory Note remain the same.
During 1998, New Regal and the Company agreed on a revised payment schedule
relating to the Harlequin Promissory Note. Under the revised payment schedule,
the payment of several monthly installments by New Regal in 1998 and 1999 was
suspended and the outstanding principal balance was revised to be settled by
sixty (60) equal monthly installments commencing March 1999. The Harlequin
Promissory Note continued to bear interest at nine percent (9%) per annum during
the period of payment suspension in 1998 and 1999 and thereafter.
ASSIGNMENT AGREEMENT COMPLETION
Completion of the Assignment Agreement (the "Assignment Agreement
Completion") will take place immediately prior to the closing of the Acquisition
Agreement. If the closing of the Acquisition Agreement does not take place, the
Assignment Agreement Completion will not take place. In addition, the Assignment
Agreement Completion will not take place unless the stockholders of the Company
approve the Assignment Agreement.
Prior to Assignment Agreement Completion, the Company must deliver to CSH
(i) assignments to the Promissory Notes (the "Assignments"); (ii) other
documents necessary to perfect CSH's title in the Promissory Notes and to enable
it or its nominees to become the legal and/or beneficial owners of the
Promissory Notes; (iii) certified copies of the minutes of the Board of
Directors of the Company approving the Assignments; (iv) a pledge agreement
containing substantially the same terms and conditions as the Pledge Agreement,
duly executed by Harlequin in favor of CHS and the original Pledge Agreement
marked canceled; and (v) the original Promissory Notes.
SUMMARY OF THE ACQUISITION AGREEMENT
The following is a summary of the material provisions of the Acquisition
Agreement, a copy of which is attached hereto as Exhibit C and incorporated
herein by reference. This summary does not purport to be a complete description
of the Acquisition Agreement and is qualified in its entirety by reference to
the full text of the Acquisition Agreement.
THE FAR BEYOND ACQUISITION
If Asia Resources' stockholders approve the Disposal Agreement and the
Assignment Agreement, and if the other conditions contained in the Acquisition
Agreement are satisfied or waived, then the
9
<PAGE>
Company will issue and deliver to the FB Shareholders, as set forth on
Schedule I to the Acquisition Agreement, an aggregate of 8,757,951 shares of
common stock of the Company and the FB Shareholders will deliver, or cause to be
delivered, to the Company all of the capital stock, US$1.00 par value per share,
of Far Beyond (the "Far Beyond Stock"). Following the closing of the
transactions contemplated by the Acquisition Agreement, the FB Shareholders will
own eighty-eight (88%) of the aggregate issued and outstanding common stock of
the Company and the Company will own 100% of the issued and outstanding Far
Beyond Stock.
CONDITIONS
The obligation of the Company to consummate the transactions contemplated by
the Acquisition Agreement is subject to the satisfaction of certain conditions,
including (a) the representations and warranties of the FB Shareholders and Far
Beyond contained in the Acquisition Agreement being accurate in all material
respects; (b) the FB Shareholders and Far Beyond having each signed and
delivered to the Company an instrument certifying that the FB Shareholders have
performed and complied with terms and conditions of the Acquisition Agreement;
(c) all required third party approvals having been obtained; (d) Hearty Holdings
Limited, Megastone Development Limited and Horler having entered into a Co-Sale
Agreement; and (e) Far Beyond having delivered certain documents and instruments
required by the Acquisition Agreement.
The obligation of the FB Shareholders to consummate the Exchange is subject
to the satisfaction of certain conditions, including (a) the representations and
warranties of the Company and Horler contained in the Acquisition Agreement
being accurate in all material respects; (b) the Company and Horler having each
signed and delivered to the FB Shareholders an instrument certifying that the
Company and Horler have performed and complied with terms and conditions of the
Acquisition Agreement; (c) the FB Shareholders having received an opinion of
counsel for the Company; (d) all required third party approvals having been
obtained; (e) the Company having paid all of its own costs and expenses
associated with the Far Beyond Acquisition; (f) the Company and Horler having
entered into the Disposal Agreement; (g) the Company and China Strategic
Holdings Limited having entered into the Assignment Agreement; (h) the Company,
Horler and all of the FB Shareholders having entered into the Registration
Rights Agreement; (i) the Acquisition Agreement, the Disposal Agreement, the
Assignment Agreement and the transactions contemplated thereby being approved by
the stockholders of the Company; and (j) receipt by the Company of a fairness
opinion from Horwath Corporate Solutions Limited.
ACTIONS AT CLOSING
On the Closing Date, the Company will deliver to the FB Shareholders
(a) certificates representing the Far Beyond Shares (the Company will pay all
taxes required to be paid in connection with the issuance and delivery of such
shares); (b) certified copies of all resolutions authorizing the execution,
delivery and performance of the Acquisition Agreement, the Disposal Agreement,
the Assignment Agreement, the Registration Rights Agreement and the transactions
contemplated thereby; (c) written resignations of all directors and such
officers of the Company as may be designated by the FB Shareholders; and
(d) all registration certificates, minute books, statutory books, seal of the
Company, account books, documents and papers in connection with the affairs of
the Company and documents of title relating to the Company's assets as required
by the FB Shareholders.
On the Closing Date, the Company will deliver to Orient Financial Services
Limited, the corporate finance arranger of the Exchange ("OFS"), 597,133 shares
of common stock of the Company to be issued to OFS (or such other parties that
OFS may direct) as set forth in a letter of instructions to be delivered to the
Company on or prior to the Closing Date.
On the Closing Date, the FB Shareholders will each deliver to the Company
(a) certificates representing the Far Beyond Stock, accompanied by an instrument
of transfer executed in favor of the
10
<PAGE>
Company (the FB Shareholders will pay all taxes required to be paid in
connection with the deliver of such shares); and (b) certified copies of all
resolutions authorizing the execution, delivery and performance of the
Acquisition Agreement and the Registration Rights Agreement.
BUSINESSES OF ASIA RESOURCES AND FAR BEYOND
ASIA RESOURCES
GENERAL
Asia Resources is a Delaware corporation and its common stock is quoted on
the National Association of Securities Dealers ("NASD") OTC Electronic Bulletin
Board. The Company changed its name from Regal International, Inc. to Asia
Resources Holdings Limited effective as of February 8, 1999.
Pursuant to an Asset Purchase Agreement (the "New Regal Agreement") dated
February 8, 1996 by and between Asia Resources and New Regal, the Company sold
and transferred the operating assets and real property of Asia Resources
existing as of January 31, 1996 to New Regal in exchange for US$2.5 million and
New Regal's assumption of all liabilities incurred, accrued or arising from the
operations of Asia Resources prior to the closing date of such transaction,
other than a US$13.5 million promissory note from Asia Resources to Horler
bearing interest at 9% per annum after an initial 6-month interest-free period,
which note has since been repaid. See "Proposal I--Material Contracts." Pursuant
to the New Regal Agreement, the US$2.5 million portion of the purchase price was
paid US$800,000 in cash and the balance by delivery of the Harlequin Promissory
Note and the New Regal Promissory Note with an aggregate principal amount of
US$1.7 million. See "Proposal I--Summaries of the Disposal Agreement and the
Assignment Agreement."
In connection with an Acquisition Agreement dated September 10, 1996 between
Asia Resources and WL, a wholly-owned subsidiary of CSH, Asia Resources acquired
the entire issued share capital of WL at a consideration of US$30 million to be
satisfied by the Horler Note executed in favor of Horler by Asia Resources. The
Horler Note is a US$30 million convertible note bearing interest at 9% per annum
after an initial 6-month interest-free period with all principal being due and
payable on September 10, 1999. The Horler Note is secured by all assets of WL
and its subsidiaries. The principal and any unpaid interest due on the Horler
Note are convertible into 7,198,388 shares of common stock of the Company. On
conversion, CSH would indirectly hold approximately 96.10% of the outstanding
capital stock of the Company. On April 14, 1998, Horler agreed to reduce the
interest rate of the Horler Note from nine percent (9%) to five percent (5%) per
annum for the year ended December 31, 1997. In addition, Horler agreed that
after December 31, 1998 no principal repayment of the Horler Note would be
demanded until the Company was financially capable of doing so. However, since
January 1, 1998 the Horler Note has continued to bear interest at 9% per annum.
As of March 31, 1999, the Company had the following subsidiaries (together
with the Company, collectively referred to as the "Group"):
WL--a holding company incorporated in the British Virgin Islands.
CCHL--a company incorporated in Hong Kong, formerly known as China
Construction International Group Limited.
HZHD--a Sino-foreign joint venture company located in Hangzhou, Zhejiang
Province, the People's Republic of China ("PRC" or "China").
The Company holds a 100% interest in WL. WL holds a 100% interest in CCHL
which in turn holds a 51% interest in HZHD.
11
<PAGE>
DESCRIPTION OF ASIA RESOURCES BUSINESS--HANGZHOU TOLL ROAD
On September 10, 1996, Asia Resources acquired, as its sole asset, all of
the issued and outstanding capital stock of WL, which owns all the outstanding
capital stock of CCHL. CCHL is a holder of fifty-one percent (51%) interest
HZHD. HZHD is the only operating subsidiary of the Company. HZHD, established on
June 23, 1993, is a Sino-foreign joint venture company in China between CCHL and
its Chinese partner, Hangzhou City Transportation Development Company (the
"Chinese Partner").
Key provisions of the joint venture agreement include the following:
- the joint venture period is thirty (30) years from the date of formation;
and
- the Board of Directors consists of seven (7) members: four (4) designated
by CCHL and three (3) designated by the Chinese Partner.
HZHD was established to develop the construction project called the Hangzhou
Ring Road (the "Hangzhou Toll Road"). The Hangzhou Toll Road is designed to
direct the congested traffic outside the city of Hangzhou. The city of Hangzhou,
which covers an area of approximately 16,000 square kilometers and has a
population of approximately 5.6 million, is the capital of Zhejiang Province in
China. The city is located about 150 kilometers from Shanghai and has
experienced rapid growth in its light manufacturing industry in recent years,
most notably in electronic instruments, refined chemicals, machinery and
electrical appliances.
The Hangzhou Toll Road is 38.2 kilometers long and it comprises of:
- 13.2 kilometers of existing Class 2 wide single carriageway linking
Jichang (Airport) Road to Xiangfuqiao. The traffic capacity is estimated
at about 20,000 vehicles per day (two way flow).
- 25.0 kilometers of Class 1 (six kilometers of four-lane wide single
carriageway with slow lanes and 19 kilometers of dual two-lanes with hard
shoulders for emergency) including 21 bridges and three grade-separated
junctions. The implementation of this section of the toll road consists of
two phases: Northwest section (Xiangfuqiao to Liuxai, 13.7 kilometers),
completed in December 1996 and West section (Liuxai to Lingjiaqiao, 11.3
kilometers), completed in December 1997. This section encompasses
extensive bridge works including:
- river crossing bridges
- bridges for road interchanges
- underpasses and underground crossings for pedestrians and vehicles
The section of the road from Jichang Road to Xiangfuqiao is now in operation
and has been generating revenues from toll collection from the toll plazas at
Xiangfuqiao. The section from Xiangfuqiao to Liuxai was completed in 1996 and
obtained approval from the government to collect tolls. The section from Liuxai
to Lingjiaqiao was completed in December 1997 and also obtained approval from
the government to collect tolls commencing in June 1998.
The total cash consideration paid by CCHL for its interest in HZHD amounted
to Rmb102,000,000 (US$12,318,841). Tolls collected from the first phase of the
toll road, which was contributed by the Chinese Partner as its share of the
registered capital in the joint venture, as well as cash contributed by CCHL,
were utilized to finance the construction of the second and third phases of the
toll road.
Pursuant to the Guaranteed Distribution Agreement dated May 18, 1998 by and
between CCHL and the Chinese Partner, CCHL is entitled to a fixed annual
distribution of Rmb15,300,000 (US$1,847,826) (the "Guaranteed Distribution")
from January 1, 1998 through the expiration of the joint venture period of HZHD.
Any surplus income generated from HZHD in excess of the amount of the Guaranteed
Distribution would belong to the Chinese Partner and the Chinese Partner would
make up any shortfall in the event HZHD's income in any year was less than the
Guaranteed Distribution. In addition, as part of
12
<PAGE>
the Guaranteed Distribution Agreement, an amount of Rmb178,500,000
(US$21,557,971) would be paid to CCHL upon the expiration of the joint venture
period of HZHD and the assets of the joint venture would be surrendered to the
Chinese Partner at no further consideration. This Guaranteed Distribution
Agreement is subject to approvals by the Chinese governmental authorities which
originally approved the set up of the joint venture. To date, HZHD has not
obtained such approvals despite efforts to do so by the management of the joint
venture and the Company. The Board of Directors of the Company is currently of
the view that the necessary approvals may not be obtained and the Guaranteed
Distribution Agreement cannot be effectuated without such approvals.
HZHD operates in the PRC and accordingly is subject to special
considerations and significant risks not typically associated with investments
in equity securities of the United States and Western European companies. These
include risks associated with, among others, the political, economic and legal
environments and foreign currency exchange. These are described further in the
following paragraphs:
POLITICAL ENVIRONMENT
The value of the Company's interests in HZHD may be adversely affected by
changes in policies by the Chinese government including, among others: changes
in laws, regulations or the interpretation thereof; confiscatory taxation;
restrictions on foreign currency conversion, imports or sources of suppliers; or
the expropriation or naturalization of private enterprises.
ECONOMIC ENVIRONMENT
The economy of the PRC differs significantly from the economies of the
United States and Western Europe in such respects as structure, level of
development, gross national product, growth rate, capital reinvestment, resource
allocation, self-sufficiency, rate of inflation and balance of payments
position, among others. Only recently has the Chinese government encouraged
substantial private economic activities.
The Chinese economy has experienced significant growth in the past, but such
growth has been uneven among various sectors of the economy and geographic
regions. Actions by the Chinese central government to control inflation have
significantly restrained economic expansion recently. Similar actions by the
central government of the PRC in the future could have a significant adverse
effect on the economic conditions in the PRC and the economic prospects for the
HZHD and the Company.
More recently, the Company has been exposed to economic crisis in Asia. The
central government has from time to time adopted various measures designed to
stabilize the economy, regulate growth and control inflation. All such economic
events and measures could adversely affect the results of operations and
expansion plans of the HZHD and the Company.
FOREIGN CURRENCY EXCHANGE
The Chinese central government imposes control over its foreign currency
reserves through control over imports and through direct regulation of the
conversion of its national currency into foreign currencies. As a result, the
Renminbi is not freely convertible into foreign currencies.
HZHD conducts substantially all of its business in the PRC, and its
financial performance and condition are measured in terms of Renminbi. HZHD's
source of income, toll revenue, is denominated in Renminbi. Revenues and profits
have to be converted to United States Dollars or Hong Kong Dollars to pay
dividends to the Company. Should the Renminbi devalue against the United States
Dollar, such devaluation would have a material adverse effect on the Company's
profits measured in foreign currency and reduce the foreign currency that could
be repatriated by HZHD to the Company. The Company currently is not able to
hedge its Renminbi--United States Dollars exchange rate exposure in the PRC
13
<PAGE>
because neither the banks in the PRC nor any other financial institutions
authorized to engage in foreign exchange transactions offer forward exchange
contracts.
LEGAL SYSTEM
Since 1979, many laws and regulations dealing with economic matters in
general and foreign investment in particular have been enacted in the PRC.
However, the PRC still does not have a comprehensive system of laws and
enforcement of existing laws may be uncertain and sporadic.
TOLL REVENUE
Any increase in toll rates proposed by HZHD is subject to approval by the
Zhejiang Municipal Government and Zhejiang Provincial Transportation Department.
However, there is no assurance that proposed increases will be approved by these
government authorities. If such proposals are denied, profit margins of HZHD
could be reduced.
PROPERTIES
The Company shares the office space at 52/F, Bank of China Tower, 1 Garden
Road, Hong Kong and administrative support with CSH, a major shareholder of the
Company. In fiscal 1998, the Company was charged $155,000 by CSH as a management
fee for the use of the office space and staff support.
All land in the PRC is owned by the government. According to the PRC law,
land may be leased (under land use rights) for certain periods of time to
businesses. Therefore, the fact that the HZHD does not have title but only a
land use right is the norm in the PRC for businesses. While Chinese law
expressly protects the status and rights of Sino-foreign joint venture
enterprises, including their right to use land during the term of their
respective joint venture contracts, the state reserves the right, in extreme and
exceptional circumstances, to terminate the joint venture and provide
compensation therefor. In such an event, a joint venture's right to use land
would terminate and all facilities would revert to the state in exchange for
just compensation. Although the Company sees little risk in not having title to
the land use rights, no assurances can be given that such land use rights may
not be terminated by the government.
LITIGATION
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceedings.
The mailing address of Asia Resources' principal executive office is 52/F,
Bank of China Tower, 1 Garden Road, Central, Hong Kong, and its telephone number
is (852) 2514-0300.
Additional information regarding Asia Resources is included in its Annual
Report on Form 10-KSB for the year ended December 31, 1998 which is incorporated
herein by reference.
FAR BEYOND
GENERAL
Far Beyond is a private limited company incorporated in the British Virgin
Islands whose only significant asset is its 70% interest in Asibao, a
Sino-foreign joint venture company incorporated in the PRC on October 18, 1995.
Far Beyond contributed cash in the amount of US$8.40 million in exchange for
its 70% equity interest in Asibao. Heilongjiang Longdi Group Co. Limited
("Longdi"), a PRC state-owned enterprise and the other party to the Asibao joint
venture agreement, contributed its operating assets, having an aggregate fair
market value of US$3.60 million, to Asibao in exchange for its 30% equity
interest in the joint venture. The registered capital of Asibao is
US$12 million.
14
<PAGE>
Asibao has assumed substantially all of the business previously engaged in
by Longdi, which business consists primarily of the production and distribution
in China of polyester filament and polyester staple fiber. Polyester fiber is
mainly used by the textile industry for apparel, household, industrial and other
fabrics. Before the formation of Asibao, Longdi produced polyester filament and
polyester staple fiber in standardized forms and as "differential" fiber with
particular specifications.
Asibao's products are primarily distributed throughout China to a
diversified customer base and a small proportion of its products are sold
overseas. Currently, management of Asibao believes that demand in China for
polyester filament and staple fiber exceeds the locally produced supply.
HISTORY AND DEVELOPMENT
Longdi was established in 1993 in connection with the Heilongjiang Polyester
Fiber Factory (the "Factory"), an entity founded in 1975 to produce polyester
chip, polyester staple fiber and polyester filament in the Heilongjiang
Province. Construction of the Factory began in July 1975 and the first
production line, consisting of 16,000 tons of polyester staple fiber, was
finished in July 1980.
Upon the formation of Asibao, Longdi transferred all of its production
facilities to Asibao and Far Beyond and Longdi became the owners of seventy
percent (70%) and thirty percent (30%), respectively, of the equity interest of
Asibao.
THE POLYESTER INDUSTRY
Polyester is a synthetic polymer formed by the reaction between an organic
acid (usually PTA) and organic alcohol (usually MEG). Both PTA and MEG are
petrochemical derivatives. The production of polyester involves two phases:
(1) the polymerization phase which leads to the formation of a viscous paste
known as polyester melt and (2) the processing phase in which polyester melt if
formed into a range of end products. The production process can either be
continuous from the initial reactants to the end products or it can be
interrupted (the batch process) by allowing the polyester melt to solidify. This
intermediate product, known as polyester chip, reverts to polyester melt on
reheating and can then be further processed.
At the end of the processing phase, polyester can take one of the following
forms: staple fiber, filament, resin or film. Polyester fiber (staple and
filament) accounts for approximately seventy-five percent (75%) of worldwide
polyester production. It is the leading synthetic fiber in commercial production
worldwide. Polyester fiber is either drawn into continuous strands known as
filament or into bundles of strands which are then cut into short lengths to
form staple fiber. Staple fibers more closely resembles the physical
characteristics of naturally occurring fibers, such as cotton and wool. It is
typically used in pure form or blended with cotton, wool, acrylic or viscose.
<TABLE>
<S> <C>
APPLICATIONS
INCLUDE:
Apparel Outerwear, lingerie, sweaters, socks, leisure-wear, workwear,
medical staff wear
Household carpet pile and backing, upholstery, household textiles, fiberfill
Industrial tire cord, other rubber reinforcements, geotextiles, composites,
ropes and cordage, coated fabrics, seat belts and filter media
</TABLE>
PRODUCTS
Asibao currently produces two main products: polyester staple fiber and
polyester filament. Asibao sells its polyester staple fiber with approximately
fifty (50) different specifications under the brand name of "Yin Chau". It sells
its polyester filament with approximately twenty-five (25) different
specifications kinds under the brand names "Asibao," "Baiyu" and "Yinling."
Asibao sells its products in over 180 factories in
15
<PAGE>
eighteen (18) different provinces, cities and autonomous regions in China and
eighteen (18) of its products have been honored with the title of top quality
product of the ministry and the province in China.
The polyester staple fiber produced by Asibao has the characteristics of
high tenacity, low elongation and high resistance of heat so that it is widely
used in the textile industry. The three-dimensional crimped hollow fiber is one
of the variations of staple fiber and was introduced in the 1980s. It is used
mainly as an insulation and stuffing material for pillows, quilts, upholstery,
ski-wear, and toys, as well as for processing suede-like woven products.
Asibao is one of the largest manufacturers in the PRC of polyester filament.
Polyester filament is generally used to make carpet pile and backing,
upholstery, household textiles and fiberfill.
RAW MATERIALS
The principal raw material used by Asibao is polyester chip. Approximately
85% of Asibao's total cost of sales is attributable to raw materials. Raw
materials are purchased from suppliers in Japan, Korea, Thailand, India and
Taiwan, as well as from domestic suppliers, including Liaoyang Petrochemical,
Yinshan Petrochemical, Shanghai Jinshan Petrochemical and Longdi.
Asibao has yearly supply agreements with domestic suppliers that are renewed
annually. The prices of the raw materials vary depending upon the market
fluctuations. Asibao is not committed to any supply agreements with foreign
suppliers. Asibao chooses its suppliers based upon the price and quality of
their polyester chip.
Asibao generally maintains a reserve of polyester chip sufficient to meet
its production needs for thirty (30) days (approximately 5,000 tons). It has not
experienced any problems in obtaining adequate supplies of polyester chip in the
past. Asibao's policy is to maintain active relations with a number of suppliers
to ensure competitive pricing and an adequate supply of polyester chip.
MARKETING
Asibao conducts its marketing efforts through its sales and marketing
division, comprised of approximately fifty-three (53) employees working in
Liaoning, Shandong, Beijing, Tienjin, Zhejiang and Heilongjiang. Approximately
thirty-one (31) of such employees are market promotion staff and after-sales
technicians and are responsible for conducting market research, sales planning,
marketing strategy, order consultation with customers, sales coordination and
control, and payment collection.
PRICING
Until the end of 1992, a control price for polyester products sold by
Chinese producers in China was set for each calendar year by the Commodities
Price Bureau in consultation with the Textile Ministry. Individual producers
could apply to the Commodities Price Bureau for permission to sell specific
products at higher prices, but not at lower prices.
In 1993, the pricing system was reformed and the price of polyester staple
fiber was deregulated while the price for its primary raw material, polyester
chip, was based on a pre-set reference control price around which producers
could adjust up or down within a range of ten percent (10%) for standard
products.
However, in 1994, the pricing system was reformed once again and now the
producers themselves may determine the prices of polyester chip, as well as
polyester staple fiber. In response to these changes, Asibao reviews pricing
policy on a quarterly basis and adjusts prices according to such factors as
changes in demand, international product prices, costs of raw materials and
exchange rates. The sales prices for all orders are now determined by direct
negotiations with the customers and slightly favorable terms are granted to
regular customers.
16
<PAGE>
COMPETITION
In the domestic market, Asibao's main competitors are mainly large
manufacturers located close to the coastal regions. Such competitors include
Yizheng Chemical Fiber Company Limited, Tianjin Petrochemical Company, Liaoyaong
Petrochemical Fiber Company, Shanghai Petrochemical Polyester Factory and
Guangdong Zinhui Chemical Fiber Factory, among others.
Asibao competes with domestic producers on the basis of product quality,
wide variety of product specifications, delivery performance and after-sales
services. Far Beyond believes that Asibao has a pricing advantage over its
competitors due to a number of factors including, economies of sale, its ability
to purchase cheaper raw materials through various channels and its use of the
raw materials in its production of not only the polyester staple fiber, but also
the polyester filament.
Longdi owns a polyester chip plant that commenced operations in 1996 with a
production capacity of 80,000 tons polyester chip per annum. On January 10,
1996, Longdi and Asibao entered into a purchase agreement pursuant to which
Longdi agreed to guarantee the supply of polyester chip to Asibao at a five
percent (5%) to ten percent (10%) discount to the prevailing market prices
offered to other purchasers of polyester chip with a right of first refusal to
Asibao.
Far Beyond believes that product price is the major competitive advantage
that Asibao has over importers of similar products. The import prices of staple
fibers and filament are generally about twenty (20%) higher than those of
Asibao. Presently, the domestic market in China is protected by tariffs on
imported chip and staple fiber. Even if China becomes a signatory of GATT and
import tariffs decrease, Far Beyond anticipates that the PRC government will
likely promulgate appropriate regulations to protect local manufacturers against
overseas dumping.
RESEARCH AND DEVELOPMENT
Asibao has a research and development division, known as the research
institute, which originated in 1983. The research institute provides technical
expertise for the improvement of the production facilities. The research
institute also provides advanced technical training for employees.
The research institute currently has approximately 110 employees, most of
whom are technicians working on scientific and technical research, experimental
production lines, repairs and maintenance.
PROPERTIES, PLANT AND MACHINERY
The principal office and production facilities of Asibao are located in
Harbin City, the capital of Heilongjiang Province, with a site area of
approximately 244,000 square meters.
Heilongjiang Province is rich in natural resources and is well known as a
base of grains, wood, coal and petroleum. Heilongjiang's transportation and
communication systems are conveniently connected. The network of railways,
roads, inland water transports and aviation connects all parts of the provinces
and links Heilongjiang to other provinces in the PRC. The road transportation
network has already been developed around cities including Harbin, Qiqihaer,
Mudanjiang, Jiamusi, Heihe and Daquing. Far Beyond believes that the
Heilongjiang Province has formulated more preferential policies than many other
provinces in the PRC in order to create more favorable conditions for economic
and technological cooperation between foreign investors and local industrial
enterprises.
Asibao's production facilities at present consist of a polyester staple
fiber plant and two polyester filament plants. Other supporting facilities
include a power plant and a thermo-electricity plant. Longdi holds long-term
land use rights for the land on which these facilities are situated and leases
such rights to Asibao.
17
<PAGE>
MANAGEMENT AND EMPLOYEES
Asibao employs approximately 1,300 employees. The number of employees,
categorized by function, is approximately as follows:
<TABLE>
<CAPTION>
FUNCTION NUMBER OF EMPLOYEES
- ------------------------------------------------------------------------ ---------------------
<S> <C>
Production, Engineers and Technicians................................... 1,255
Sales and Marketing..................................................... 15
Accounting, General and Administration.................................. 42
</TABLE>
LITIGATION
Far Beyond is not a party to any material pending legal proceedings.
Additional information regarding Far Beyond is included in its financial
statements for the years ended December 31, 1998, 1997 and 1996 and for the six
months ended June 30, 1999 which are attached hereto as Exhibit E and
incorporated herein by reference.
The mailing address of Far Beyond's principal executive office is Rm 2005,
20/F, Universal Trade Center, 3-5A Arbuthnot Road, Central, Hong Kong and its
telephone number is (852) 2810-6226.
REGULATORY MATTERS
To federal or state regulatory requirements or approvals must be complied
with or obtained in connection with the transactions contemplated by the
Disposal Agreement or the Assignment Agreement.
ANTICIPATED ACCOUNTING TREATMENT
In accordance with the requirements of the general accepted accounting
practice, the transactions contemplated by the Disposal Agreement and the
Assignment Agreement will be accounted for in the accounting records of Asia
Resources as disposals of assets. Asia Resources will record a loss to the
extent that the consideration to be received by Asia Resources relating to these
transactions is lower than the net book values of these assets as reflected in
the accounting records of Asia Resources as at the date of the Disposal
Agreement and the Assignment Agreement.
FEDERAL INCOME TAX CONSEQUENCES
The Company believes that the sale of WL as contemplated in the Disposal
Agreement and the Assignment Agreement will not result in any capital gains tax
as the consideration for the sale is lower the Company's tax cost basis in WL.
RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, the holders of the Company's common stock are not
entitled to appraisal rights or similar dissenter rights for their shares in
connection with the proposed transactions contemplated by the Disposal Agreement
or the Assignment Agreement.
CHANGE IN RIGHTS OF STOCKHOLDERS
There will be no material differences in the rights of the Company's
stockholders as a result of the transactions contemplated by the Disposal
Agreement and the Assignment Agreement.
MATERIAL CONTRACTS
On February 8, 1996, the Company acquired all the issued and outstanding
shares of capital stock of Acewin Profits Limited, a British Virgin Islands
corporation ("Acewin") from CSH. Acewin's sole asset is
18
<PAGE>
all the issued and outstanding shares of China Machine (Holdings) Limited, a
Hong Kong company ("CMHL"). CMHL's sole asset is a fifty-five percent (55%)
joint venture equity interest in Wuxi CSI Vibration Isolator Co., Ltd, a
Sino-foreign joint venture incorporated in the PRC and established
September 1993.
The consideration paid by the Company for the Acewin capital stock (the
"Acewin Stock") was US$13.5 million. The purchase price was paid by the
Company's delivery of a convertible note (the "Acewin Note") to Horler, bearing
interest at the rate of nine percent (9%) per annum after an initial six month
interest-free period. Interest on the Acewin Note was payable at an annual
basis, with all principal being due and payable on January 31, 1999. The
principal and any unpaid interest owing on the Acewin Note were convertible into
shares of the common stock of the Company at a conversion price of $0.0302 per
share. The Acewin Note was secured by a Pledge Agreement granting CSH a security
interest in the Acewin Stock. The Acewin Note was fully repaid upon the sale of
Acewin Stock in 1996, as described below.
On March 8, 1996, Horler purchased 40,500,000 shares of common stock
representing 49.51% of the then issued and outstanding share capital of the
Company from a major stockholder of the Company for US$1,223,000, thus becoming
its major stockholder.
On September 11, 1996, the Company disposed of all the issued and
outstanding shares of Acewin to BTR China Holdings B.V., a Netherlands company
("BTR"), pursuant to an Agreement between the Company and BTR dated
September 11, 1996. The consideration paid by BTR was US$13,950,000. The major
portion of the proceeds were used to repay the US$13,500,000 Acewin Note payable
to Horler.
HZHD guaranteed bank borrowings of CSH in the amounts of Rmb56 million
(US$6,763,285) and Rmb93 million (US$11,231,884) as of December 31, 1997 and
1998, respectively.
The Company paid to CSH management fees of US$155,000 each year during 1996,
1997 and 1998 and US$38,000 during the three months ended March 31, 1999 for
administrative services rendered on behalf of the Company by CSH.
CSH has committed to provide continuing financial support to the Company to
the extent of CSH's interest in the Company for a period ending on December 31,
1999.
FOR THE REASONS STATED HEREIN, THE BOARD OF DIRECTORS OF THE COMPANY
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY VOTE FOR APPROVAL OF THE
DISPOSAL AGREEMENT AND THE ASSIGNMENT AGREEMENT.
19
<PAGE>
PROPOSAL II: AMENDMENT OF THE CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously approved, subject to stockholder
approval, amendments to the Certificate of Incorporation, as amended, of the
Company (the "Certificate of Incorporation") to (i) change the name of the
Company to Asia Fiber Holdings Limited and (ii) decrease the number of
authorized shares of common stock of the Company from 1,100,000,000 shares to
30,000,000 shares (the "Certificate Amendment").
The text of Article I, as it is proposed to be amended, is as follows: "The
name of the Corporation is Asia Fiber Holdings Limited."
In the judgment of the Board of Directors, the change of corporate name is
desirable in view of the significant change in the character and strategic focus
of the business of the Company that will result from the consummation of the Far
Beyond Acquisition.
The text of Article IV(A), as it is proposed to be amended, is as follows:
"The total number of shares of stock which the Corporation is authorized to
issue is 40,000,000 shares, consisting of 30,000,000 shares of common stock
having a par value of $0.01 per share (the "Common Stock") and 10,000,000 shares
of preferred stock having a par value of $0.01 per share (the "Preferred
Stock")."
At October 15, 1999, there were 597,139 shares of common stock of the
Company outstanding and an additional 7,198,388 shares issuable upon conversion
of the Horler Note. Other than the Acquisition Agreement, the Company has not
entered into any agreements or understandings, and has no present plans, for the
issuance of additional shares of its common stock.
If the stockholders of the Company approve the Assignment Agreement, the
Company will sell the entire capital stock of WL in full satisfaction of the
Horler Note. Thereafter, no shares of common stock of the Company will be
issuable in connection with the Horler Note. If the transactions contemplated by
the Acquisition Agreement are consummated, the Company will issue
8,757,951 shares of its common stock to Far Beyond and 9,355,090 shares of its
common stock will be outstanding.
In the judgment of the Board of Directors, the Company does not require at
the present time the large number of authorized shares as currently reflected in
the Company's Certificate of Incorporation. The Board of Directors believes that
the current authorized number of shares results in an unnecessarily high
Delaware franchise tax.
If the Company amends Article IV of the Certificate of Incorporation to
decrease the authorized number of shares of common stock of the Company to
30,000,000, the Company will continue to have a sufficient number of shares of
its authorized and unissued common stock which can be issued for or in
connection with such corporate purposes as may, from time to time, be considered
advisable by the Board of Directors. Such corporate purposes could include,
without limitation, (a) issuance in connection with any desirable acquisitions
which may be presented to the Company, (b) payment of stock dividends or
issuance pursuant to stock splits, (c) issuance of common stock of the Company
upon the conversion of any preferred stock, the exercise of warrants or the
conversion of other securities convertible into common stock of the Company
which may be outstanding from time to time, and (d) issuance in connection with
an offering to raise capital for the Company.
If approved by the stockholders of the Company, the Certificate Amendment
will become effective upon the filing of a Certificate of Amendment of the
Certificate of Incorporation with the Secretary of State of Delaware.
FOR THE REASONS STATED HEREIN, THE BOARD OF DIRECTORS OF THE COMPANY
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR APPROVAL OF
THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE
COMPANY AND TO DECREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
20
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the common stock
of the Company, as of October 15, 1999, the record date, by: (i) each person
known to the Company to own more than five percent (5%) of the common stock of
the Company, (ii) each of the executive officers and directors, and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)(2)(3)
--------------------------------
NAME NUMBER OF SHARES PERCENT
- ---- ---------------- ----------
<S> <C> <C>
China Strategic Holdings Ltd.(4) ........................... 7,491,867 96.10%
Harlequin Investment Holdings Ltd.(5)(6).................... 32,262 0.41%
Richard N. Gray(5)(6) ...................................... 32,262 0.41%
Director
Oei Hong Leong(4) .......................................... 7,491,867 96.10%
Chairman of the Board of Directors
Ma Wai Man (4) ............................................. 0 0%
President, Secretary and Director
Lien Kait Long (4) ......................................... 0 0%
Chief Financial Officer and Director
Directors and Executive Officers as a Group (4 persons) .... 7,524,129 96.52%
</TABLE>
- ------------------------
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), a person is deemed to be a "beneficial owner"
of a security if he, she or it has or shares the power to vote or direct the
voting of such security or the power to dispose or direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
securities of which that person has the right to acquire beneficial
ownership within sixty (60) days of October 15, 1999. More than one person
may be deemed to be the beneficial owner of the same securities. The
percentage ownership of each stockholder is calculated based on the total
number of outstanding shares of common stock of the Company as of the Record
Date and those shares of common stock of the Company that may be acquired by
such stockholder within sixty (60) days of October 15, 1999. Consequently,
the denominator for calculating such percentage may be different for each
stockholder.
(2) This table is based upon information supplied by directors and executive
officers of the Company. Unless otherwise indicated in the footnotes to this
table, each of the stockholders named in this table has sole voting and
investment power with respect to the shares shown as beneficially owned.
(3) As of October 15, 1999 there were approximately 1,209 beneficial owners of
record. The percentage of beneficial ownership is based upon 597,139 shares
of common stock of the Company outstanding as of October 15, 1999 and
7,198,388 shares of common stock of the Company issuable upon conversion of
the US$30,000,000 Convertible Note held by Horler. See "The
Proposal--Businesses of Asia Resources and Far Beyond."
(4) CSH has direct voting and investment power with respect to 293,479 shares of
common stock of the Company held by Horler, a wholly-owned subsidiary of
CSH, and indirect voting and investment power with respect to 7,198,388
shares issuable upon the conversion of a US$30,000,000 Convertible Note held
by Horler. Mr. Oei Hong Leong is a majority shareholder of China Strategic
Holdings Limited.
(5) Harlequin has sole voting and investment power with respect to the shares of
common stock. The beneficial ownership set forth herein does not include
57,972 shares of common stock which can be acquired upon an exercise of a
Stock Purchase Option granted by CSH to Harlequin.
(6) Harlequin is a wholly owned subsidiary of GHL (Senior) Pension Fund (the
"Fund"), Noble House, Queens Road, St. Peter Port, Guernsey, Channel
Islands. Richard N. Gray is a director of the Fund. Mr. Gray disclaims
beneficial ownership of the shares of common stock of the Company.
21
<PAGE>
SELECTED FINANCIAL DATA
Selected financial data for the Company for the years ended December 31,
1998, 1997 and 1996 is included in Item 7 of the Company's Annual Report on
Form 10-KSB which is incorporated herein by reference. Financial data for the
Company for the six months ended June 30, 1999 is included in Item 1 of the
Company's Quarterly Report on Form 10-QSB for June 30, 1999 which is
incorporated herein by reference. Selected financial data for Far Beyond for the
years ended December 31, 1998, 1997 and 1996 and for the six months ended
June 30, 1999 is attached hereto as Exhibit E and incorporated herein by
reference.
MARKET PRICE AND RELATED STOCKHOLDER MATTERS
The Company's common stock was listed on the New York Stock Exchange
("NYSE") under the symbol RGL until December 7, 1994, at which time the NYSE
suspended its trading due to the Company's failure to meet the continued listing
requirements. On February 5, 1995, the common stock of the Company was removed
from registration and listing on the NYSE. The Company's common stock began
trading on the NASD OTC Electronic Bulletin Board (the "OTC") in August 1995.
The following information sets forth the high and low prices in dollars per
share for the common stock of the Company during the periods indicated:
<TABLE>
<CAPTION>
HIGH* LOW*
------------ ----------
<S> <C> <C>
1997
First Quarter (through March 31, 1997).................... 12 61/64 2 5/32
Second Quarter (through June 30, 1997).................... 4 5/16 2 5/32
Third Quarter (through September 30, 1997)................ 2 5/32 2 5/32
Fourth Quarter (through December 31, 1997)................ 2 5/32 2 5/32
1998
First Quarter (through March 31, 1998).................... 2 5/32 2 5/32
Second Quarter (through June 30, 1998).................... 2 5/32 2 5/32
Third Quarter (through September 30, 1998)................ 2 49/64 1 3/8
Fourth Quarter (through December 31, 1998)................ 2 49/64 2 5/32
1999
First Quarter (through March 31, 1999).................... 4 3/4 1/4
Second Quarter (through June 30, 1999).................... 4 1/2 1/4
Third Quarter (through September 30, 1999)................ 4 1/2 1 1/4
</TABLE>
- ------------------------
* On February 18, 1999, the Company effectuated a 1-for-138 reverse stock
split of the common stock of the Company. The high and low price quotations
for 1997 and 1998 have been adjusted to reflect the 1-for-138 reverse stock
split.
On October 15, 1999 there were 1,209 stockholders of record for the common
stock of the Company. The Company estimates that there are approximately 2,849
beneficial owners of its common stock held in "street name" accounts.
No dividends have been declared or paid on the common stock of the Company
since the Company's incorporation. It is the current policy of the Board of
Directors to retain earnings, if any, to provide funds for the Company's
operations. The payment of dividends is at the discretion of the Board of
Directors, and dividends may be paid only out of current earnings and profits or
retained earnings.
22
<PAGE>
FORWARD LOOKING STATEMENTS
This Proxy Statement, including the Exhibits attached hereto, contains
forward-looking statements. Future events and actual results, financial or
otherwise, may differ materially from the results set forth in or implied in the
forward-looking statements. Factors that might cause such a difference include
the risks and uncertainties involved in the Company's business, including, but
not limited to, the effect of economic and market conditions, the level and
volatility of interest rates, the impact of current or pending legislation and
regulation and the other risks and uncertainties discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998, which is incorporated by reference to this Proxy Statement.
INDEPENDENT ACCOUNTANTS
The Company's accountants, Arthur Andersen & Co., are not expected to be
present at the stockholders' meeting, although they will be presented an
opportunity to attend such meeting and to make a statement, if they desire to do
so. They are expected to be available to respond to any appropriate questions
raised at the meeting via telephone at (852) 2852-0222.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at the
Special Meeting. However, if any other matters are properly brought before the
Special Meeting, the persons named in the accompanying form of proxy card as
proxies by the holders of the Common Stock will vote thereon in accordance with
their best judgment.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). The
reports, proxy statements and other information filed by the Company with the
SEC can be inspected and copied at the public reference facilities maintained by
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the following Regional Offices of the SEC: Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
material also can be obtained from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Asia
Resources is an electronic filer under the EDGAR (Electronic Data Gathering,
Analysis and Retrieval) system maintained by the SEC. The SEC maintains a Web
site (http://www.sec.gov) on the Internet that contains reports, proxy and
information statements and other information regarding companies that file
electronically with the SEC.
23
<PAGE>
STOCKHOLDER PROPOSALS
Under the rules of the SEC, any Company stockholder who wishes to submit a
proposal for presentation at the Company's 1999 Annual Meeting of Stockholders
must submit the proposal to the Company at its principal executive offices,
Attention: Secretary. The proposal must be received no later than December 1,
1999 for inclusion, if appropriate, in the Company's proxy statement and form of
proxy card relating to the 2000 Annual Meeting. Proposals which the Company's
stockholders intend to present at the 2000 Annual Meeting of Stockholders
pursuant to Rule 14a-8 promulgated under the Exchange Act and wish to have
included in the Company's proxy materials relating to that meeting must be
received by the Company a reasonable time prior to the date that the Company
distributes the proxy materials to its stockholders. Under the rules of the SEC,
if a stockholder fails to notify the Company of its intention to bring a
non-Rule 14a-8 proposal before the 2000 Annual Meeting within a reasonable time
prior to the date that the Company distributes the proxy materials relating to
such meeting to its stockholders, then the proxy card solicited by the Board of
Directors of Asia Resources may grant discretionary voting authority to the
proxies named in the proxy card with respect to the non-Rule 14a-8 proposal.
BY ORDER OF THE BOARD OF DIRECTORS
[/S/ MA WAI MAN, CATHERINE]
Ma Wai Man, Catherine
PRESIDENT AND SECRETARY
24
<PAGE>
EXHIBIT A
DISPOSAL AGREEMENT
(SEE ATTACHED)
<PAGE>
THIS AGREEMENT dated , 1999 is made
BETWEEN:--
(1) ASIA RESOURCES HOLDINGS LIMITED, a company incorporated in Delaware whose
registered office is at P.O. Box 1237 Corsicana, TX 75151 (the "Vendor");
and
(2) HORLER HOLDINGS LIMITED, a company incorporated in British Virgin Islands
whose registered office is at P.O. Box 71, Craigmuir Chambers, Road Town,
Tortola, British Virgin Islands (the "Purchaser").
WHEREAS the Vendor has agreed to sell and the Purchaser has agreed to
purchase the Sale Shares subject to the terms and conditions hereinafter set
out.
IT IS HEREBY AGREED:--
1. INTERPRETATION
(A) In this Agreement and the Recitals hereto, unless the context otherwise
requires:--
"Acquisition Agreement" means the agreement of even date between the Vendor,
the Purchaser, Far Beyond Investments Limited ("Far Beyond") and
shareholders of Far Beyond;
"Business day" means a day other than a Saturday on which banks are open for
business in Hong Kong;
"Company" means Westronix Limited, details of which are set out in
Schedule 1;
"Completion" means the time fixed for completion pursuant to Clause 3(B) and
where the context requires also means the performance by the parties of
their respective obligations in accordance with the provisions of Clause 3;
"Condition" means the condition set out in Clause 3(A);
"Consideration" means an amount equivalent to the aggregate amount due from
the Vendor to the Purchaser as at Completion under the Secured Convertible
Promissory Note including any interest accrued thereon and any late charges;
"Hong Kong" means the Hong Kong Special Administrative Region of the
People's Republic of China;
"Sale Shares" means the one share of US$1.00 of the Company which represents
the entire issued share capital of the Company;
"Secured Convertible Promissory Note" means the 9% Secured Convertible
Promissory Note of US$30,000,000 issued by the Vendor (formerly known as
Regal International, Inc.) to the Purchaser dated 10th September 1996;
"US$" means dollars of the United States of America.
(B) In this Agreement, words importing the singular include the plural and vice
versa, words importing gender or the neuter include both genders and the
neuter and references to persons include bodies corporate or unincorporate.
(C) References in this Agreement to statutory provisions are references to those
provisions as respectively amended or re-enacted from time to time (if and
to the extent that the provisions as amended or re-enacted are for the
purposes hereof equivalent to those provisions before such amendment or
re-enactment) and shall include any provision of which they are
re-enactments (if and to the extent aforesaid) and any subordinate
legislation made under such provisions.
A-1
<PAGE>
(D) References herein to "Clauses" and "Schedules" are to clauses of and
schedules to this Agreement respectively and a reference to this Agreement
includes a reference to each Schedule hereto.
(E) The headings and table of contents in this Agreement are for convenience
only and shall not affect its interpretation.
2. SALE AND PURCHASE OF THE SALE SHARES
Subject to satisfaction of the Condition, the Vendor as beneficial owner
shall sell and the Purchaser shall purchase or procure the purchase of the
Sale Shares at the Consideration (payable at Completion pursuant to
Clause 3) free from all rights of pre-emption options, hens, claims,
equities, charges, encumbrances or third-party rights of any nature and with
all dividends, benefits and other rights now or hereafter being attached or
accruing thereto as from the date of this Agreement.
3. COMPLETION
(A) Completion of this Agreement is conditional upon the shareholders of the
Vendor in general meetings having approved this Agreement which is a related
party transaction.
(B) Completion shall take place immediately before the closing pursuant to the
Acquisition Agreement provided that if closing of the Acquisition Agreement
does not take place, Completion shall be deemed not to have taken place.
Completion shall take place at the offices of 20/F., Asia Pacific Finance
Tower, Citibank Plaza, 3 Garden Road, Hong Kong when all (but not part only)
of the following businesses set out in subclauses (C) and (D) shall be
transacted.
(C) The Vendor shall procure that before Completion a board meeting of the
Company is held and that at such meeting resolutions are passed to approve
the registration of the transfer of the Sale Shares to the Purchaser or its
nominee upon presentation of duly executed transfers.
(D) At Completion:--
(a) the Vendor shall deliver or procure the delivery to the Purchaser of:--
(i) instruments of transfer in respect of the Sale Shares duly executed
by the registered and beneficial owner thereof in favour of the
Purchaser and/or its nominee;
(ii) the share certificates in respect of the Sale Shares;
(iii) certified true copies of any power of attorney or other authority
pursuant to which this Agreement and any document referred to in
(i) above may have been executed;
(b) the Vendor shall deliver to the Purchaser in respect of the Company:--
(i) the corporate seal, cheque books, chops and all copies of the
memorandum and articles of association of the Company;
(ii) the statutory books of the Company duly made up to date and any
unissued share certificates and such other records (including all
title documents to the assets including financial records) of the
Company as may exist;
(iii) all current insurance policies, books and records, title documents
of the Company, all contracts to which the Company is a party and
such licenses, authorisations and registrations granted to or owned
by the Company.
(c) The Purchaser shall (i) deliver to the Vendor the original Secured
Convertible Promissory Note marked cancelled and (H) pursuant to
Clause 4, pay to the Vendor the Consideration.
(E) The Purchaser shall not be obliged to complete the purchase of the Sale
Shares or perform any obligations hereunder unless the Vendor complies fully
with its obligations under Sub-Clauses (C) and (D).
A-2
<PAGE>
(F) For avoidance of doubt, this Agreement shall automatically terminate if the
Acquisition Agreement is terminated and the parties shall in such event be
released from all their obligations hereunder and shall have no claims
against each other for such termination.
4. SET-OFF
The parties agree that the Purchaser shall with effect from Completion
set-off the sum of the Consideration which is otherwise payable on
Completion against the indebtedness due from the Vendor to the Purchaser as
at Completion under the Secured Convertible Promissory Note. Upon
Completion, the Vendor shall be deemed to be released from all liabilities
and obligations under the Secured Convertible Promissory Note and the
Consideration shall be deemed to be fully paid and satisfied by the
Purchaser.
5. CLAIMS
(A) The Vendor hereby waives and agrees to waive all claim which it may have
against the Company or in respect of any assets of the Company.
(B) For the purpose hereof "Claims" means any and all rights and claims,
contingent or otherwise and whether or not known to the parties or any of
them, which the Vendor and may have against the Company subsisting at or
before Completion, together with any such rights or claims arising out of
any events or omissions at or before Completion.
6. THE PURCHASER INDEMNITY
It is being understood that the Purchaser is fully familiar with the
operation of the Company. The Purchaser shall indemnify and hold harmless the
Vendor (i) from any obligation and liabilities arising from this transaction,
and (ii) any claim by or any obligation or liability to any third party arising
out of or in relation to the Company or any assets of the Company, whether known
or unknown, actual or contingent, to the extent the same are arisen on or before
the closing under the Acquisition Agreement, provided that notice of any claim
under this Clause 6 by the Vendor must be delivered by the Vendor to the
Purchaser within 2 years from Completion.
7. TAX INDEMNITY
(A) Subject to other provisions of this clause, the Purchaser hereby covenants
with and undertakes to indemnify and keep indemnified the Vendor against any
loss and liability suffered by the Vendor and costs and expenses reasonably
incurred as a result of or in connection with any claim by any fiscal
authorities falling on the Vendor resulting from or by reference to or
arising out of the sale and purchase of the Sale Shares herein.
(B) If the Vendor shall become aware of a claim relevant for the purpose of this
clause the Vendor shall forthwith give written notice thereof to the
Purchaser at the address given in this Agreement (or such other address or
addresses as the Purchaser may from time to time notify the Vendor for the
purpose of this Agreement) and shall take such action as the Purchaser may
reasonably request and at the costs of the Purchaser to avoid, resist or
compromise any such claim.
(C) The liabilities of the Purchaser under this clause shall cease after
24 months from Completion except in respect of matters which have been the
subject of a bona fide written claim made within the said period by the
Vendor to the Purchaser.
8. ANNOUNCEMENTS AND CONFIDENTIALITY
(A) Each of the parties hereby undertakes to the other that it will not, at any
time after the date of this Agreement, divulge or communicate to any person
other than to their respective professional advisers, or when required by
law, or to their respective officers or employees whose province it is to
know the contents of this Agreement or the negotiations in respect thereof
and that it will not, at any time after
A-3
<PAGE>
Completion, divulge or communicate to any person other than to their
respective professional advisers, or when required by law or to their
respective officers or employees whose province it is to know, any
confidential information concerning the business, accounts, finance or
contractual arrangements or other dealings, transactions or affairs of the
Company which may be within or may come to its knowledge and that it shall
prevent the publication or disclosure of any such confidential information
concerning such matters provided that the parties' obligations under this
Sub-Clause (A) shall cease and determine upon Completion.
(B) No public announcement or communication of any kind shall be made in respect
of the subject matter of this Agreement unless specifically agreed between
the parties or unless an announcement is required pursuant to relevant law
or statutory requirements. Any announcement by either party required to be
made pursuant to any relevant law or statutory requirements shall be issued
only after such prior consultation with the other party as is reasonably
practicable in the circumstances.
9. NOTICES
Each notice, demand or other communication given or made under this
Agreement shall be in writing and delivered or sent by post or airmail or by
facsimile transmission to the relevant party at its address or fax number
set out below (or such other address or fax number as the addressee has by
five (5) days' prior written notice specified to the other parties):--
To the Purchaser:
52/F., Bank of China Tower,
1 Garden Road
Central
Hong Kong
Fax Number: 25376591
Attention: Ms Catherine Ma
To the Vendor:
Rm 2005, 20/F., Universal Trade Centre,
3-5A Arbuthorot Road
Central
Hong Kong
Fax Number: 27577535
Attention: Mr. David Ching
Any notice, demand or other communication so addressed to the relevant party
shall be deemed to have been delivered (a) if given or made by letter, 3
business days after the date of dispatch, and (b) if given or made by fax,
when dispatched.
10. MISCELLANEOUS
(A) AB provisions of this Agreement shall, so far as they are capable of being
performed or observed, continue in full force and effect notwithstanding
Completion except in respect of those matters then already performed.
(B) If at any time one or more provisions hereof is or becomes invalid, illegal
unenforceable or incapable of performance in any respect under the laws of
any relevant jurisdiction, the validity, legality, enforceability or
performance in that jurisdiction of the remaining provisions hereof or the
validity, legality, enforceability or performance under the laws of any
other relevant jurisdiction of these or any other revisions hereof shall not
thereby in any way be affected or impaired.
(C) Time shall be of the essence of this Agreement.
A-4
<PAGE>
(D) Each party shall bear its own legal and professional fees, costs and
expenses incurred in connection with this Agreement.
(E) This Agreement shall be binding on and shall enure for the benefit of the
successors and assigns of the parties hereto but shall not be capable of
being assigned by any party without the written consent of the other party.
(F) This Agreement sets forth the entire agreement and understanding between the
parties or any of them in relation to the sale and purchase of the Sale
Shares the other transactions contemplated by this Agreement and supersedes
and cancels in all respects all previous agreements, letters of intent,
correspondence, understandings, agreements and undertakings (if any) between
the parties hereto with respect to the subject matter hereof, whether such
be written or oral.
(G) This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and each of
which shall be binding on and enforceable against the party who shall have
executed it.
(H) No variation or amendment to or waiver of any of the provisions of this
Agreement shall be valid or effective unless in writing and signed by or on
behalf of each party.
(I) Each of the parties to this Agreement shall cooperate with the other and
shall execute and deliver to the other such other instruments and documents
and take such other action as may reasonably be requested from time to time
by that other party in order to carry out, evidence and confirm their
respective rights and the intended purpose of this Agreement.
11. GOVERNING LAW AND JURISDICTION
(A) This Agreement is governed by and shall be construed in accordance with the
laws of Hong Kong and the parties hereto hereby submit to the non-exclusive
jurisdiction of Hong Kong in connection herewith.
(B) The submission to the jurisdiction of the courts of Hong Kong shall not (and
shall not be construed so as to) limit the right of either of the parties
hereto to take proceedings against the other in any court of competent
jurisdiction nor shall the taking of proceedings by either of the parties
hereto in any one or more jurisdictions preclude it from taking proceedings
in any other jurisdiction (whether concurrently or not) if and to the extent
permitted by applicable law.
IN WITNESS whereof the parties hereto have executed this Agreement the day
and year first before written.
Signed by )
For and on behalf of )
ASIA RESOURCES HOLDINGS LIMITED )
in the presence of:-- )
Signed by )
For and on behalf of )
HORLER HOLDINGS LIMITED )
in the presence of:-- )
A-5
<PAGE>
SCHEDULE 1
<TABLE>
<S> <C> <C> <C>
1. Company Name : Westronix Limited
2. Place of : British Virgin Islands
Incorporation
3. Date of : 3rd July 1996
Incorporation
& Certificate Number : 190869
4. Registered Office : P.O. Box 957, Offshore Incorporations
Centre, Road Town, Tortola, British Virgin Islands
5. Directors : Oei Hong Leong
(Alternate Li Ling Xiu
Directors)
Lien Kait Long
Ma Wai Man, Catherine
6. Secretary : Treasure Way Services Limited
7. Share Capital : Authorised:--US$50,000 (50,000 shares of US$ 1.00 each)
Issued:--1 share of US$1.00
8. Shareholders : Asia Resources Holdings Limited
9. Auditors : Arthur Andersen
</TABLE>
A-6
<PAGE>
EXHIBIT B
ASSIGNMENT AGREEMENT
(SEE ATTACHED)
<PAGE>
DATED THE DAY OF 1999
ASIA RESOURCES HOLDINGS LIMITED
AND
CHINA STRATEGIC HOLDINGS LIMITED
------------------------
ASSIGNMENT AGREEMENT
RELATING TO THE SALE AND PURCHASE OF
CERTAIN PROMISSORY NOTES OF
ASIA RESOURCES HOLDINGS LIMITED
------------------------
B-1
<PAGE>
THIS AGREEMENT dated the day of 1999 is made between:-
(1) ASIA RESOURCES HOLDINGS LIMITED a company incorporated in Delaware whose
registered office is at P.O. Box 1237 Corsicana, TX 75151 (the "Vendor").
(2) CHINA STRATEGIC HOLDINGS LIMITED a company incorporated in Hong Kong whose
principal place of business is situate at 52/F., Bank of China Tower, 1
Garden Road, Central, Hong Kong (the "Purchaser").
WHEREAS:-
(A) The Vendor was the holder of the New Regal Promissory Note and the Harlequin
Promissory Note hereinafter defined.
(B) The New Regal Promissory Note and the Harlequin Promissory Note are both
secured by a pledge agreement issued by Harlequin in favour of the Vendor
dated 13(th) February 1996 on the entire capital stock of Regal (New)
International Inc. ("New Regal") which pledge agreement was further varied
by a Deed of Variation dated 27(th) July 1998 made between the Vendor, New
Regal and Harlequin Investment Holdings Limited.
(C) The Vendor is indebted to the Purchaser in the sum of US$131,096.00.
(D) The Vendor has agreed to assign to the Purchaser and the Purchaser has
agreed to accept the New Regal Promissory Note and the Harlequin Promissory
Note in full and final settlement of the outstanding indebtedness of the
Vendor to the Purchaser as at Completion as part of satisfaction of the
terms and conditions of the Acquisition Agreement.
IT BE HEREBY AGREED:-
1. INTERPRETATION
(A) In this Agreement and the Recitals hereto, unless the context otherwise
requires:-
"Acquisition Agreement" means the agreement of even date between the Vendor,
Horler Holdings Limited, Far Beyond Investments Limited ("Far Beyond") and
shareholders of Far Beyond,
"Completion" means the completion of the assignment under this Agreement in
accordance with the provisions of Clause 3;
"Consideration" means an amount equivalent to the aggregate amount due from
the Vendor to the Purchaser as at Completion including any interest accrued
thereon.
"Harlequin Promissory Note" means a promissory note dated 27(th) July 1998
issued by Harlequin Investment Holdings Limited ("Harlequin") to the Vendor
for the sum of US$800,000.00, a copy of which is annexed to Schedule A of
this Agreement;
"New Regal Promissory Note" means a promissory note dated 13(th)
February 1996 issued by New Regal to the Vendor for the sum of
US$900,000.00, a copy of which is annexed to Schedule B of this Agreement;
"Pledge Agreement" means a pledge agreement made by Harlequin in favour of
the Vendor dated 13(th) February 1996 on the entire capital stock of New
Regal and varied by a Deed of Variation dated 27(th) July 1998 made between
the Vendor, New Regal and Harlequin, copies of the pledge agreement and the
Deed of Variation are annexed to Schedule C of this Agreement;
"Promissory Notes" means -the New Regal Promissory Note and the Harlequin
Promissory Note;
the singular includes the plural and vice versa, words importing gender or
the neuter include both genders and the neuter and references to persons
include bodies corporate or unincorporate;
B-2
<PAGE>
references to statutory provisions are references to those provisions as
respectively amended or re-enacted from time to time (if and to the extent
that the provisions as amended or re-enacted are for the purposes hereof
equivalent to those provisions before such amendment or re-enactment) and
shall include any provision of which they are re-enactments (if and to the
extent aforesaid) and any subordinate legislation made under such
provisions; and
a reference to a "Clause" or a "Sub-Clause" or a "Schedule" is a reference
to a clause or a sub-clause of the relevant Clause or a schedule to this
Agreement and a reference to this Agreement includes a reference to each
Schedule.
(B) The table of contents and headings in this Agreement are for convenience
only and shall not affect its interpretation.
2. CONSIDERATION
The Vendor shall on the terms of this Agreement sell or procure the sale of
the Promissory Notes for the Consideration and the Purchaser shall purchase
or procure the purchase of the Promissory Notes at the Consideration with
effect from the date of Completion free from all rights of pre-emption,
options, liens, claims, equities, charges, encumbrances or third-party
rights of any nature and with all rights attached or accruing thereto at or
after Completion.
3. COMPLETION
(A) Completion of this Agreement is conditional upon the shareholders of the
Vendor in general meetings having approved this Agreement which is a related
party transaction.
(B) Completion shall take place immediately prior to the closing pursuant to the
Acquisition Agreement provided that if closing of the Acquisition Agreement
does not take place, Completion shall be deemed to have not taken place.
Completion shall take place at 20/F., Asia Pacific Finance Tower, Citibank
Plaza, 3 Garden Road, Hong Kong when all (but not part only) of the
following business shall be transacted:-
the Vendor shall deliver to the Purchaser:-
(i) assignments of the Promissory Notes substantially in the form set
out in Schedule D (the "Assignments");
(ii) (such other documents as may be necessary to give the Purchaser or
its nominees a good title to the Promissory Notes and to enable the
Purchaser or its nominees to become the legal and/or beneficial
owners thereof, and
(iii) certified board minutes of the Vendor pursuant to which the
Assignments and the execution of the Assignments by the Vendor is
approved and authorised.
(iv) a pledge agreement substantially in the same terms and conditions
of the Pledge Agreement, duly executed by Harlequin in favour of
the Purchaser together with the original Pledge Agreement marked
cancelled; and
(v) the original Promissory Notes.
(C) For avoidance of doubt, this Agreement shall automatically terminate if the
Acquisition Agreement is terminated and the parties shall in such event be
released from all their obligations hereunder and shall have no claims
against each other for such termination.
4. SET-OFF
The parties agree that the Purchaser shall with effect from Completion
set-off the sum of the Consideration which is otherwise payable on
Completion against the outstanding indebtedness due
B-3
<PAGE>
from the Vendor to the Purchaser as at Completion so that as of Completion,
the Vendor shall have no liability whatsoever to the Purchaser.
5. TAX INDEMNITY
(A) Subject to other provisions of this clause, the Purchaser hereby covenants
with and undertakes to indemnify and keep indemnified the Vendor against any
loss and liability suffered by the Vendor and costs and expenses reasonably
incurred as a result of or in connection with any claim by any fiscal
authorities falling on the Vendor resulting from or by reference to or
arising out of the assignment of the Promissory Notes contemplated herein.
(B) If the Vendor shall become aware of a claim relevant for the purpose of this
clause, the Vendor shall forthwith give written notice thereof to the
Purchaser at the address given in this Agreement (or such other address or
addresses as the Purchaser may from time to time notify the Vendor for the
purpose of this Agreement) and shall take such action as the Purchaser may
reasonably request and at the costs of the Purchaser to avoid, resist or
compromise any such claim.
(C) The liabilities of the Purchaser under this clause shall cease after
24 months from Completion except in respect of matters which have been the
subject of a bona fide written claim made within the said period by the
Vendor to the Purchaser.
6. MISCELLANEOUS
(A) No public disclosure of any kind may be made by any party with respect to
this Agreement without consultation with and the consent of the others (such
consent not to be unreasonably withheld).
(B) Save as herein otherwise provided, all provisions of this Agreement shall,
so far as they are capable of being performed or observed, continue in full
force and effect notwithstanding Completion except in respect of those
matters then already performed.
(C) If at any time one or more provisions hereof is or becomes invalid, illegal,
unenforceable or incapable of performance in any respect, the validity,
legality, enforceability or performance of the remaining provisions hereof
shall not thereby in any way be affected or impaired.
(D) Time is of the essence of this Agreement. Any extension, waiver or variation
of any provision of this Agreement shall not be deemed to affect this
provision, which shall apply to any such extended, waived or varied
provision and, except to that extent, there shall be no implied waiver of
this provision.
(E) Each party shall bear its own costs including but not limited to all the
legal and professional fees, costs and expenses incurred in connection with
this Agreement unless otherwise provided in this Agreement.
(F) This Agreement is binding upon and shall enure for the benefit of the
successors of the parties.
7. GOVERNING LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the
laws of Hong Kong and the parties hereto hereby irrevocably submit to the
non-exclusive jurisdiction of the Hong Kong courts.
B-4
<PAGE>
IN WITNESS WHEREOF this Agreement has been executed on the day and year first
above written.
<TABLE>
<S> <C>
SIGNED BY )
for and on behalf of )
ASIA RESOURCE HOLDINGS LIMITED )
in the presence of:- )
SIGNED BY )
for and on behalf of )
CHINA STRATEGIC HOLDINGS LIMITED )
in the presence of:- )
</TABLE>
B-5
<PAGE>
SCHEDULE A
B-6
<PAGE>
SCHEDULE A
PROMISSORY NOTE
Principal Amount
US$800,000.00
FOR VALUE RECEIVED, Harlequin Investment Holdings Limited, a British Virgin
Islands corporation (the "Maker") does hereby promise to pay to the order of
Regal International, Inc., a Delaware corporation (hereinafter "Holder"), at the
address described by Holder, the amount of Eight Hundred Thousand US Dollars
(US$800,000). This Note shall bear no interest.
The outstanding principal balance of this Note shall be due and payable in full
on February 1, 2001.
This Note is secured by a Pledge Agreement dated 13(th)February 1996 granting
the Holder a security interest in all the outstanding shares of Regal (New)
International, Inc. registered in the name of the Maker.
The Maker waivers presentment, demand, protest, notice of dishonor and notice of
intent to accelerate.
If any provision of this Note shall be determined to be invalid or unenforceable
under law, such determination shall not affect the validity or enforcement of
the remaining provisions of this Note. This Note is executed under seal and
shall be binding upon the successors and assigns of the Maker.
Upon default, the Maker shall be liable for interest at the rate of 23% per
annum on the unpaid principal balance and accrued and unpaid interest plus all
reasonable costs of collection including, but not limited to, reasonable
attorneys' fees.
This Note shall be governed by and construed in accordance with the laws of the
State of New York and the United States of America.
EXECUTED this day of , 1998
<TABLE>
<S> <C>
HARLEQUIN INVESTMENT HOLDINGS
LIMITED
by: -------------------------
</TABLE>
B-7
<PAGE>
SCHEDULE B
B-8
<PAGE>
SCHEDULE B
CONVERTIBLE PROMISSORY NOTE
Principal Amount
US$900,000.00
FOR VALUE RECEIVED, Regal (New) International, Inc., a Texas corporation
(the "Maker") does hereby promise to pay to the order of Regal
International, Inc., a Delaware corporation (hereinafter "Holder"), at the
address described by Holder, the principal amount of Nine Hundred Thousand US
Dollars (US $900,000 with interest (computed on the basis of a 365 day year) on
the unpaid principal balance of such principal amount at the rate of nine
percent (9%) per annum from the date hereof until maturity. Principal and
interest shall be due and payable in sixty (60) equal, monthly installments of
$18,682.37 payable on the seventh day of March 1996 and continuing on the
seventh day of each month thereafter until paid in full.
This Note is secured by a certain Pledge Agreement of even date herewith
granting the Holder a security interest in all the outstanding shares of Regal
(New) International, Inc. registered in the name of the Harlequin Investment
Holdings Limited.
The Maker waives presentment, demand, protest, notice of dishonor and notice
of intent to accelerate.
If any provision of this Note shall be determined to be invalid or
unenforceable under law, such determination shall not affect the validity or
enforcement of the remaining provisions of this Note. This Note is execute under
seal and shall be binding upon the successors and assigns of the Maker.
Upon default, the Maker shall be liable for interest at the rate of 18% per
annum on the unpaid principal balance and accrued and unpaid interest plus all
reasonable costs of collection including, but not limited to, reasonable
attorneys' fees.
This Note shall be governed by and construed in accordance with the laws of
the State of New York and the United States of America.
The indebtedness represented by this Note is subordinate and inferior to a
certain. $1,500,000 Secured Credit Facility by and between Fremont Financial
Corporation and Maker.
The conversion privileges with respect to this Note are attached hereto as
Exhibit A and made a part hereof for all purposes.
EXECUTED the 13(th) day of February, 1996, but effective as of January 31,
1996.
<TABLE>
<S> <C> <C>
REGAL (NEW) INTERNATIONAL, INC.
BY: -----------------------------------------
JANAK DESAI PRESIDENT
</TABLE>
B-9
<PAGE>
CONVERSION OF NOTE.
A. Subject to and upon compliance with the provisions hereof, at the option
of the holder thereof, this Note may, during the 30-day period beginning on the
date Holder receives the audited Balance Statement of the Maker as of the
Valuation Date (herein defined) of each year and at the maturity hereof, be
converted at the principal amount thereof and accrued interest thereon into
fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock, $0.10 par value, of the Maker (the
"Common Stock"), at the Conversion Price, determined as hereinafter provided, in
effect at the time of conversion.
B. The conversion price (herein called the "Conversion Price") shall be an
amount per share of Common Stock equal to the Book Value (as herein defined)
divided by the number of shares outstanding on Net Valuation Date. The
Conversion Price shall be subject to adjustment from time to time as herein
provided. The Conversion Price prior to any adjustment and the adjusted
Conversion Price after each adjustment are hereinafter referred to as the actual
Conversion Price.
C. The term "Net Book Value' as used herein shall be an amount equal to the
amount of the Corporation's assets, less the amount of its liabilities, as of
the end of the most recent fiscal year (the "Valuation Date') as disclosed by
the Maker's books of account regularly maintained in accordance with generally
accepted accounting principles consistently applied.
D. In no event shall this Note be convertible into a number of shares of
Common Stock which would result in the Holder owning more than forty-nine
percent (49%) of the total issued and outstanding shares of Common Stock after
the conversion. In such event, the Conversion Price will be automatically
increased so that this Note is convertible into an amount of shares which is
equal to forty-nine percent (49%) of the issued and outstanding shares of Common
Stock after the conversion of this Note.
RESTRICTIONS ON TRANSFER; COMPLIANCE WITH SECURITIES ACT.
A. The holder acknowledges that the securities issued upon conversion of the
Note are characterized as "restricted securities" under the federal securities
laws since they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Act only in
compliance with certain conditions and under limited circumstances, including
the following:
(i) A registration statement with respect thereto has become effective
under the Act, or
(ii) (There is presented to the Company an opinion of counsel reasonably
satisfactory to the Company to the effect that registration under the Act is
not necessary; or
(iii) There is presented to the Company a letter from the staff of the
Securities and Exchange Commission to the effect that the staff will not
recommend that said Commission take any action in respect of such offer or
transfer and to the effect that said staff concurs in the opinion that such
registration or compliance is not necessary (provided that the Company
reasonably agrees with the facts stated in such letter insofar as they
pertain to it); or
(iv) There is presented to the Company written evidence that the sale,
pledge or transfer complies with the provisions of Rule 144 as amended under
the Act.
B. It is understood that the certificates evidencing the Common Stock
issuable upon conversion of this Note, when issued, will bear legends
substantially to the following effect:
"THE SHARES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION, BUT HAS BEEN ISSUED PURSUANT TO THE PRIVATE OFFERING EXEMPTION
UNDER THE SECURITIES ACT OF 1993, AS AMENDED (THE "ACT"), AND THE PRIVATE
OFFERING EXEMPTION UNDER THE SECURITIES LAWS OF
B-10
<PAGE>
THE STATES OF DELAWARE AND TEXAS, AND THE REGISTERED HOLDER OF SUCH SECURITY
HAS EXECUTED AN INVESTMENT REPRESENTATION WITH RESPECT THERETO. ACCORDINGLY,
THE SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS
SECURITY IS RESTRICTED AND MAY NOT BE ACCOMPLISHED EXCEPT IN ACCORDANCE WITH
THE ACT AND THE APPLICABLE RULES ADOPTED UNDER IT AND WITHIN THE PERMISSION
OF THE COMPANY UPON THE FURNISHING OF AN OPINION OF COUNSEL SATISFACTORY TO
COUNSEL FOR THE COMPANY THAT REGISTRATION IS UNNECESSARY FOR SUCH
TRANSACTIONS."
C. This Note shall be non-transferable except to a group, company or
affiliate of CSH ceases to be group, company or affiliate of CSH, this Note must
be transferred to CSH or another group or affiliated company.
B-11
<PAGE>
SCHEDULE C
B-12
<PAGE>
SCHEDULE C
PLEDGE AGREEMENT
This Pledge Agreement (the "Agreement"), dated February 13, 1996 to be
effective as of January 31, 1996, is made by and between Harlequin Investment
Holdings Limited ("Pledgor") and Regal International, Inc. (the "Secured
Party").
INTRODUCTORY PROVISIONS:
A. Regal (New) International, Inc., a Texas corporation ("New Regal"), has
as of this day executed a promissory note in the principal amount of $900,000
(the "$900,000 Note") payable to the order of the Secured Party and a second
promissory note in the principal amount of $800,000 (the "$800,000 Note")
payable to the order of Secured Party.
B. As a condition to accepting the $900,000 Note and the $800,000 Note, the
Secured Party requires that Pledgor pledge to and grant a security interest in
Pledgor's shares of Capital Stock of the New Regal to secure the payment of the
$900,000 Note and $800,000 Note and performance of the New Regal's obligations
to Secured Party.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto agree as follows:
1. THE PLEDGE AND SECURITY INTEREST. The Pledgor hereby grants to the
Secured Party a security interest in and to any and all present or future rights
of the Pledgor in and to all of the following rights, interests, and property
(all of the following being herein sometimes called the "Collateral");
(a) 100,000 shares of the common stock of New Regal registered in the name of
the Pledgor represented by Stock Certificate No. 001, (b) any and all
substitutes, replacements, accessions, attachments, increases, profits,
revisions, additions thereto, or dividends and coupons thereon; and (c) any and
all proceeds arising from or by virtue of the sale or other disposition of, or
from the collection of, the Collateral described in (a) and (b) preceding.
2. THE INDEBTEDNESS. This Agreement is being executed and delivered to
secure and the security interest herein granted (the "Security Interest") shall
secure full payment and performance by New Regal of all of the indebtedness and
obligations owing to the Secured Party by New Regal pursuant to the terms of the
$900,000 Note and the $800,000 Note, together with any and all renewals and
extensions thereof [all of such debts, indebtedness, liabilities and duties
referred to in this paragraph are hereinafter collectively referred to
collectively as the "Indebtedness"].
3. NEGATIVE COVENANTS OF THE PLEDGOR. The Pledgor further covenants and
agrees that, without the prior written consent of the Secured Party, the Pledgor
will not (a) sell, assign or transfer any of the Pledgor's rights in the
Collateral; or (b) create any other security interest in, mortgage or otherwise
encumber the Collateral, or any part thereof, or permit the same to be or become
subject to any lien, attachment, execution, sequestration, other legal or
equitable process or any encumbrance of any kind or character, except the
Security Interests herein created; or (c) take any action, or allow the
Corporation to take any action, which would dilute the equity percentage of the
Shares without the prior written consent of Secured Party.
4. DEFAULT. As used herein, the term "Default" means the occurrence of one
or more of the following: (a) the failure to timely pay or perform any
obligations or covenants of the Indebtedness as and when due and payable or
performable; (b) the sale, loss, theft, destruction, encumbrance or transfer of
any of the Collateral in violation hereof, or substantial damage to any of the
Collateral; (c) the levy on, seizure or attachment of the Collateral, or any
part thereof.
B-13
<PAGE>
5. REMEDIES. Upon the occurrence of an event of Default, in addition to
any and all other rights and remedies which the Secured Party may then have
hereunder, under the Uniform Commercial Code of the State of New York or of any
other pertinent jurisdiction (the "Code"), or otherwise, the Secured Party may,
at its option (a) reduce its claim to judgment or foreclose or otherwise enforce
the Security Interest, in whole or in part, by any available judicial procedure;
(b) after notification, if any, provided for herein, sell, lease, or otherwise
dispose of, at the office of the Secured Party, on the premises of the Pledgor,
or elsewhere, all or any part of the Collateral, in its then condition or
following any commercially reasonable preparation or processing, and any such
sale or other disposition may be as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the sale
of any part of the Collateral shall not exhaust the Secured Party's power of
sale, but sales may be made from time to time, and at any time, until all of the
Collateral has been sold or until the Indebtedness has been paid and performed
in full), and at any such sale it shall not be necessary to exhibit any of the
Collateral; (c) at its discretion, retain the Collateral in satisfaction of the
Indebtedness whenever the circumstances are such that the Secured Party is
entitled to do so under the Code or otherwise; (d) exercise any and all other
rights, remedies, and privileges it may have under any document which secures
the Indebtedness; and (e) take any other action allowed under applicable law.
Any and all proceeds ever received by the Secured Party from any sale or
other disposition of the Collateral, or any part thereof, or the exercise of any
other remedy pursuant here to shall be applied by the Secured Party to the
Indebtedness in such order and manner as the Secured Party, in its sole
discretion, may deem appropriate, notwithstanding any directions or instructions
to the contrary by the Pledgor.
With respect to any part of the Collateral which is stock certificates,
bonds, or other securities, the Secured Part shall have authority, upon the
occurrence of an event of Default, without notice to the Pledgor, either to have
them registered in the Secured Party's name, or in the name of a nominee, and,
with or without such registration, to demand of the entity issuing the same, and
to receive and receipt for, any and all dividends and other distributions
payable in respect thereof, regardless of the medium in which paid and whether
they be ordinary or extraordinary. Any entity making payment to the Secured
Party hereunder shall be fully protected in relying upon the written statement
of the Secured Party that the Secured Party then holds the Security Interests
which entitles it to receive such payment, and the receipt of the Secured Party
for such payment shall be full acquittance therefor to the person making such
payment.
6. RIGHTS CUMULATIVE. All rights and remedies of the Secured Party
hereunder are cumulative of each other and of every other right or remedy which
the Secured Party may otherwise have at law or in equity or under any other
contract or other writing for the enforcement of the Security Interests herein
or in the collection of the Note or the Indebtedness, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
7. POWER OF ATTORNEY. The Secured Party is hereby appointed the
attorney-in-fact of the Pledgor for the purpose of carrying out the provisions
of this Agreement and taking any action and executing any instruments which the
Secured Party may deem necessary or advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable and coupled with an
interest.
8. NO WAIVERS. No failure on the part of the Secured Party to exercise,
and no delay in exercising, any right, power or remedy hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise by the Secured
Party of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
9. BINDING EFFECT. This Agreement shall be binding on the Pledgor and the
Pledgor's heirs and assigns and shall inure to the benefit of the Secured Party,
and the Secured Party's successors and assigns.
10. TERMINATION. This Agreement and the Security Interests in the
Collateral will terminate when the Indebtedness secured hereby has been paid in
full by extinguishment thereof but not by renewal, modification or extension
thereof.
B-14
<PAGE>
11. GOVERNING LAW. THE LAW GOVERNING THIS AGREEMENT WILL BE THAT OF THE
STATE OF NEW YORK IN FORCE ON THE DATE OF EXECUTION OF THIS AGREEMENT.
12. AGREEMENT AS FINANCING STATEMENT. The Secured Party shall have the
right at any time to execute and file this Agreement as a financing statement,
but the failure of the Secured Party to do so shall not impair the validity or
enforceability of this Agreement.
<TABLE>
<S> <C> <C>
PLEDGOR:
HARLEQUIN INVESTMENT HOLDINGS, LTD.
BY: -----------------------------------------
RICHARD N. GRAY
DIRECTOR
</TABLE>
B-15
<PAGE>
SCHEDULE C
THIS DEED OF VARIATION is made the 27(th) day of July 1998
BETWEEN:-
1. REGAL INTERNATIONAL, INC. a Delaware corporation, whose principal executive
office is situate at 17(th) Floor, Printing House, 6 Duddell Street Central,
Hong Kong
2. REGAL (NEW) INTERNATIONAL, INC. a Texas corporation whose registered office
is situate at PO Box 1237, Highway 31 East, Texas 75151, USA ("New Regal")
3. HARLEQUIN INVESTMENT HOLDINGS LIMITED, a British Virgin Islands corporation,
whose registered office is situate at Creque Building, Road Town, Tortola,
BVI ("Harlequin")
WHEREAS:-
1. New Regal is a wholly owned subsidiary of Harlequin.
2. By an Asset Purchase Agreement made between Regal, New Regal and Harlequin
dated 8(th) February 1996 (the "AP Agreement"), New Regal has agreed to
purchase certain assets from Regal under the terms and conditions of the AP
Agreement.
3. Pursuant to the terms and conditions of the AP Agreement:-
a. New Regal has issued and delivered a promissory note to Regal for the
sum of US$900,000, bearing interest at nine percent (9%) per annum and
being payable (principal and interest) in sixty (60) equal monthly
payments of US$18,682, and such note to be convertible on each
anniversary date thereof into shares of common stock of New Regal at a
conversion price based on the net book value of New Regal's most recent
audited annual balance sheet.
b. New Regal has also issued and delivered to Regal a promissory note dated
13th February 1996 for the sum of US$800,000, bearing no interest and
being due and payable in full on 1st February 2001 (the "US$800,000
Note").
4. The above promissory notes are secured by a pledge agreement made by
Harlequin in favour of Regal dated 13(th) February 1996 on the entire
Capital Stock of New Regal (the "Pledge Agreement").
5. Harlequin has requested and Regal has agreed to vary the above arrangement
by Harlequin assuming all the obligations and liabilities of New Regal under
the US$800,000 Note without affecting the validity and enforceability of the
Pledge Agreement.
NOW THIS DEED WITNESSETH:-
1. THE US$800,000 NOTE
1.1. In consideration of Regal's agreement to release New Regal from the
US$800,000 Note, Harlequin agrees and undertakes to assume all the
obligations and liabilities of New Regal under the US$800,000 Note.
1.2. Harlequin shall forthwith execute and deliver to Regal the promissory note
annexed to the Schedule herein (the "Harlequin Promissory Note").
1.3. Upon Regal's receipt of the duly executed Harlequin Promissory Note, New
Regal shall be deemed to be released and discharged from the US$800,000.00
Note.
2. THE PLEDGE AGREEMENT
2.1. The parties agree that the Harlequin Promissory Note shall also be secured
by Harlequin's shares of Capital Stock of New Regal.
B-16
<PAGE>
2.2. With effect from Regal's receipt of the duly executed Harlequin Promissory
Note:-
a. Any reference to the "$800,000 Note" in the Pledge Agreement shall mean
reference to the "Harlequin Promissory Note".
b. Clause 2 of the Pledge Agreement shall be replaced by the following
provisions:-
"2. THE INDEBTEDNESS. This Agreement is being executed and delivered to
secure and the security interest herein granted (the "Security
Interest") shall secure full payment and performance by New Regal of
all the indebtedness and obligations owing to the Secured Party by
New Regal pursuant to the terms of the $900,000 Note and by the
Pledgor of all the indebtedness and obligations owing to the Secured
Party by the Pledgor pursuant to the terms of the Harlequin
Promissory Note, together with any and all renewals and extensions
thereof (all of such debts, indebtedness, liabilities and duties
referred to in this paragraph are hereinafter collectively referred
to collectively as the "Indebtedness")".
2.3. Save and except as provided in this Deed, the Pledge Agreement shall remain
in full force and effect.
2.4. The parties further agree and undertake to execute and deliver to the other
parties such other deeds and documents as may be necessary to perfect the
transactions contemplated herein.
3. MISCELLANEOUS
3.1. The terms and conditions of this Deed shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
However, neither this Deed nor any of the rights, interests or obligations
hereunder of any party hereto shall be assigned without the prior written
consent of other party.
3.2. Each of the parties shall bear the costs of its own expenses and
professional fees incurred in connection with the negotiation and execution
of this Deed.
3.3. This Deed shall be governed by and construed in accordance with the laws of
the State of New York and the United States of America in force and on the
date of execution of this Deed.
IN WITNESS WHEREOF the parties hereto have caused this Deed to be executed on
the date hereinbefore written.
<TABLE>
<S> <C>
SEALED with the COMMON SEAL of )
REGAL INTERNATIONAL INC in the )
presence of:- )
SEALED with the COMMON SEAL of )
REGAL (NEW) INTERNATIONAL INC )
in the presence of:- )
SEALED with the COMMON SEAL of )
HARLEQUIN INVESTMENT )
HOLDINGS LIMITED in the presence of:- )
</TABLE>
B-17
<PAGE>
SCHEDULE D
ASSIGNMENT OF PROMISSORY NOTE
DATED , 1999
ASIA RESOURCES HOLDINGS LIMITED
AND
CHINA STRATEGIC HOLDINGS LIMITED
------------------------
PROMISSORY NOTE ASSIGNMENT
------------------------
B-18
<PAGE>
THIS AGREEMENT dated day of August 1999 is made between:-
(1) ASIA RESOURCES HOLDINGS LIMITED a company incorporated in Delaware whose
registered office is at P.O. Box 1237 Corsicana, TX 75151 (the "Assignee").
(2) CHINA STRATEGIC HOLDINGS LIMITED a company incorporated in Hong Kong whose
principal place of business is situate at 52/F., Bank of China Tower, 1
Garden Road, Central, Hong Kong (the "Assignee").
WITH THE CONSENT OF:-
(3) [NEW REGAL/HARLEQUIN], a company incorporated under the laws of ( )
with its registered office at [ ] (the "Debtor").
WHEREAS the Debtor is at the date hereof indebted to the Assignor in the amount
set opposite its name in Schedule 1 and the Assignor has agreed to assign and
the Assignee has agreed to accept this assignment of the Debt.
IT IS HEREBY AGREED:-
1. INTERPRETATION
(A) In this Agreement and the Recital hereto, unless the context otherwise
requires:-
"Debt" means the debt of aggregate amount of US$[ ]owed by the
Debtor to the Assignor as at the date hereof which amount is the total and
au amounts of debts owed by the Debtor to the Assignor;
"Debtor" means [New Regal/Harlequin];
"US$" means Dollars of United States of America.
(B) References herein to "Clauses", "Sub-clauses", "Schedules" are references to
those contained in this Agreement.
(C) Words herein importing the singular include the plural and vice versa, words
importing gender or the neuter include both genders and the neuter and
references to persons include bodies corporate or unincorporated.
(D) Headings herein are for convenience only and shall not affect the
construction of this Agreement.
2. ASSIGNMENT
The Assignor hereby as beneficial owner assigns with the consent of the
Debtor to the Assignee absolutely all the right title and interest of the
Assignor in the Debt free and clear of all mortgages, charges, liens or any
other third party rights.
3. SEVERABILITY
If at any time one or more provisions hereof is or becomes invalid, illegal,
unenforceable or incapable of performance in any respect, the validity,
legality, enforceability or performance of the remaining provisions hereof
shall not in any way be affected or impaired thereby.
4. FURTHER ASSURANCE
Each of the parties hereto shall sign or execute any document or do any
deed, act or things as may reasonably be requested by the other parties
hereto to give full force and effect to the terms of this Agreement provided
that the party which makes such request shall be responsible for the cost
incurred by the other parties.
B-19
<PAGE>
5. COUNTERPARTS
This Agreement may be executed in any number of counterparts by the parties
hereto on separate counterparts, each of which when executed and delivered
shall constitute an original and all of which when taken together shall
constitute one and the same document.
6. GOVERNING LAW
This Agreement is governed by and shall be construed in accordance with the
laws of Hong Kong Special Administrative Region of People's Republic of
China ("Hong Kong") and the parties hereto hereby submit to the
non-exclusive jurisdiction of the Hong Kong Courts.
IN WITNESS whereof the parties hereto have executed this Agreement the day and
year first above written.
<TABLE>
<S> <C>
SIGNED BY )
for and on behalf of )
ASIA RESOURCE HOLDINGS LIMITED )
in the presence of:- )
SIGNED BY )
for and on behalf of )
CHINA STRATEGIC HOLDINGS LIMITED )
in the presence of:- )
SIGNED BY )
for and on behalf of )
[NEW REGAL/HARLEQUIN] )
in the presence of:- )
</TABLE>
B-20
<PAGE>
SCHEDULE 1 TO PROMISSORY NOTES ASSIGNMENT
DETAILS OF TOTAL AMOUNT DUE FROM THE DEBTOR
TO THE ASSIGNOR
<TABLE>
<CAPTION>
DEBTOR PRINCIPAL AMOUNT EVIDENCED BY INTEREST ACCRUED
- -------------------------- ------------------ ------------------- ----------------------
<S> <C> <C> <C>
[New Regal/Harlequin] [US$900,000.00/ Promissory Note [9% per annum/Nil]
US$800,000.00]
</TABLE>
B-21
<PAGE>
EXHIBIT C
ACQUISITION AGREEMENT
<PAGE>
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "AGREEMENT"), is dated as of September 10,
1999, by and among Asia Resources Holdings Limited, a Delaware corporation (the
"COMPANY"), Horler Holdings Ltd., a British Virgin Islands corporation
("Horler"); Far Beyond Investments Limited, a British Virgin Islands corporation
(hereinafter "FAR BEYOND"); and the shareholders of Far Beyond named on the
signature pages hereof (the "FB SHAREHOLDERS").
RECITALS
WHEREAS, the Company has agreed to transfer, convey and assign, and Horler
has agreed to accept and assume, all of the assets and properties (other than at
least U.S. $150,000 in cash or cash equivalents) and all of the liabilities and
obligations of the Company, in each case as the same shall exist on the Closing
Date (as defined below), immediately prior to the consummation of the Exchange
(as defined below);
WHEREAS, the FB Shareholders own all of the issued and outstanding ordinary
shares of U.S.$1.00 each in the capital of Far Beyond (hereinafter collectively
referred to as the "FAR BEYOND STOCK");
WHEREAS, the Company wishes to acquire all of the Far Beyond Stock in
exchange for a total of 8,757,951 shares of common stock of the Company, with a
par value of US$0.01 per share (the "COMPANY COMMON STOCK"), which shares of
Company Common Stock shall equal, in the aggregate, 88% of the aggregate issued
and outstanding Company Common Stock following the closing referred to in
Section 7 hereof;
WHEREAS, the FB Shareholders wish to exchange their Far Beyond Stock for
Company Common Stock;
WHEREAS, Horler is the principal stockholder of the Company and will
directly benefit by the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises herein contained, the
mutual covenants hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
TERMS
1. EXCHANGE OF SECURITIES.
Subject to the terms and conditions hereinafter set forth, at the time of
the closing referred to in Section 8 hereof (the "CLOSING DATE"), the Company
will issue and deliver to the FB Shareholders (or their nominees), as set forth
on the SCHEDULE 1 ATTACHED HERETO, an aggregate of 8,757,951 shares of the
Company Common Stock in exchange for which the FB Shareholders will deliver, or
cause to be delivered to the Company, all of the Far Beyond Stock (the
"EXCHANGE").
2. REPRESENTATIONS AND WARRANTIES BY FAR BEYOND, HEARTY AND MEGASTONE.
Far Beyond, Hearty Holdings Limited ("Hearty") and Megastone Development
Limited ("Megastone") jointly and severally represent and warrant to the Company
and Horler that, as of the date hereof and as of the Closing Date:
(a) Far Beyond is a corporation duly organized, validly existing and in
good standing under the laws of the British Virgin Islands. Copies of the
Memorandum and Articles of Association for Far Beyond have heretofore been
furnished to the Company and such documents are true and correct copies of
the Memorandum and Articles of Association of Far Beyond and include all
amendments thereto.
C-1
<PAGE>
(b) Far Beyond is the owner of a 70% joint venture interest in Harbin
Asibao Chemical Fiber Company Limited ("Asibao"), a Sino-foreign equity
joint venture established under the laws of the People's Republic of China
("PRC").
(c) The consolidated balance sheets of Far Beyond and its subsidiary,
including Asibao (the "Far Beyond Group") as at December 31, 1997 and 1998,
and the consolidated statements of income, consolidated changes in
stockholders' equity and consolidated statements of cash flow for each of
the years ended December 31, 1996, 1997 and 1998 attached hereto as
Schedule 2(c) (the "Far Beyond Financial Statements") prepared by Far Beyond
and audited by Ernst & Young, Certified Public Accountants, fairly present,
as of such dates the consolidated financial condition of the Far Beyond
Group and the results of operations, changes in stockholders equity and cash
flow for the periods then ended, and since December 31, 1998, no dividends
or distributions of capital, surplus, or profits has been paid or declared
by Far Beyond (in redemption of its outstanding shares or otherwise). The
consolidated audited financial statements of the Far Beyond Group have been
prepared in accordance with generally accepted accounting principles in the
United States ("US GAAP").
(d) Since December 31, 1998, the Far Beyond Group has not experienced
any material adverse changes with respect to its business condition
(financial or otherwise), results of operations, assets, liabilities or
prospects taken as a whole. Without limiting the generality of the
foregoing:
(i) Far Beyond has not declared, paid or made nor is proposing to
declare, pay or make any dividend or other distribution;
(ii) The financial year-end of Far Beyond has continued to be and has
not changed from December 31.
(iii) No event has occurred which would entitle any third party (with
or without the giving of notice, the lapse of time, or both) to call for
the repayment of indebtedness prior to its normal maturity date;
(iv) The business of Far Beyond Group has been carried on in the
ordinary and usual course and in the same manner (including nature and
scope) as in the past, no fixed asset or stock has been written up nor
any debt of an aggregate amount more than US$100,000 written off, and no
unusual or abnormal contract has been entered into by Far Beyond Group;
(v) No asset of Far Beyond Group has been acquired or disposed of, or
has been agreed to be acquired or disposed of, otherwise than in the
ordinary course of business and there has been no disposal or parting
with possession of any of its property, assets (including know-how) or
stock in trade or any payments by Far Beyond Group, and no contract
involving expenditure by it on capital account has been entered into by
Far Beyond Group, and no liability has been created or has otherwise
arisen (all other than in the ordinary course of business as previously
carried on);
(vi) There has been no disposal of any asset (including stock) or
supply of any service or business facility of any kind (including a loan
of money or the letting, hiring or licensing of any property whether
tangible or intangible) in circumstances where the consideration actually
received or receivable for such disposal or supply was less than the
consideration which could be deemed to have been received for tax
purposes;
(vii) No event has occurred which gives rise to a tax liability to any
member of the Far Beyond Group or deemed (as opposed to actual) income,
profits or gains or which results in any member of the Far Beyond Group
becoming liable to pay or bear a tax liability directly or primarily
chargeable against or attributable to another person or entity, other
than in the ordinary course of business or for the transactions
contemplated by this Agreement; and
(viii) No remuneration (including bonuses) or benefit payable to any
officer or employee of Far Beyond Group has been increased nor has any
member of the Far Beyond Group undertaken
C-2
<PAGE>
any obligation to increase any such remuneration at any future date with
or without retrospective effect other than in the ordinary course of
business.
(e) Far Beyond Group has complied, in all material respects, with the
terms and provisions of all agreements to which it is a party and all laws,
rules, regulations and orders to which it or its assets are subject.
(f) No member of the Far Beyond Group has provided any guarantees to any
third party save as disclosed in the Far Beyond Financial Statements of
Schedule 2(c).
(g) Except as set forth on Schedule 2(g) attached hereto, no member of
the Far Beyond Group has any pension plan, profit sharing plan, or
stock-purchase plan for any of its employees.
(h) Far Beyond will use its reasonable endeavors to do, or cause to be
done at the earliest practicable date, all things reasonably necessary,
proper or advisable to consummate the transactions contemplated hereby.
(i) The Far Beyond Group is not involved in any pending litigation which
would materially adversely affect the Far Beyond Group taken as a whole,
which has not been provided for or referred to in the Far Beyond Financial
Statements and there are no facts or circumstances known to the Far Beyond
Group which might give rise to any such litigation and there are no
unsatisfied judgments or court orders against any member of the Far Beyond
Group.
(j) The Far Beyond Group has good and marketable title to all the
properties owned by it, free and clear of all liens, security interests,
charges, encumbrances and defects, except for such liens, security
interests, charges, encumbrances and defects as would not have a material
adverse effect on the Far Beyond Group taken as a whole.
(k) The parties to the joint venture of Asibao have paid their
respective capital contributions in full in accordance with the provisions
of the joint venture contract of Asibao and all relevant laws and
regulations of the PRC.
(l) Asibao has been duly established and is validly existing as a
sino-foreign equity joint venture in the PRC in accordance with the laws,
the relevant rules and regulations of the PRC. The copies of the joint
venture contract, articles of association, approval certificates, letters
and business licenses and all amendments thereto of Asibao supplied to the
Company are complete and accurate in all respects and all legal and
procedural requirements and all other formalities concerning the said
documents have been duly and properly complied with in all material
respects.
(m) Asibao has obtained all requisite material permits, consents or
approvals, including but not limited to these relating to environmental
protection, required in relation to its business and operations.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS BY HEARTY.
Hearty represents and warrants to the Company and Horler that, as at the
date hereof and as of the Closing Date, none of the members of the Far Beyond
Group use any processes or products and is not engaged in any activities which
infringe any patents, copyrights, trademarks, service marks, designs, trade or
business names or other registrable or unregistrable intellectual property
rights of any third party.
4. REPRESENTATIONS AND WARRANTIES BY THE FB SHAREHOLDERS.
Each FB Shareholder, severally and not jointly, represents and warrants to
the Company that, as of the date hereof and as of the Closing Date:
(a) Such FB Shareholder has good and marketable title to all of the
shares of Far Beyond Stock which it is selling, transferring and exchanging,
free and clear of any and all liens or encumbrances.
C-3
<PAGE>
(b) Such FB Shareholder has full power to exchange its shares of Far
Beyond Stock upon the terms provided for in this Agreement.
(c) Such FB Shareholder understands that (i) the Company is relying upon
an exemption from registration under the Securities Act of 1933, as amended
(the "Securities Act"), as set forth in Section 4 thereof, which relate to
"transactions by an issuer not involving any public offering," and
applicable regulations promulgated by the Securities and Exchange Commission
("SEC") thereunder or other exemption under such Act; and (ii) the Company
is also relying upon the securities laws of any state on the basis that the
Exchange is a transaction exempt from the registration requirements of such
laws.
(d) The Company has made available to such FB Shareholder and its
representative, if any, the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the Exchange
and to obtain any additional information desired by the FB Shareholder
concerning the Company.
(e) The investment by such FB Shareholder in the Company Common Stock is
a suitable investment for such FB Shareholder, given the investment goals
and objectives of such FB Shareholder.
(f) Such FB Shareholder, either individually or together with his
purchaser representative, if one has been retained, has such knowledge and
experience in financial and business matters that he is capable of
evaluating the merits and risks of an investment in the Company Common
Stock. The FB Shareholder understands the effect of accepting the Exchange
and the differing rights, restrictions and obligations of a holder of
Company Common Stock.
(g) Such FB Shareholder is purchasing the Company Common Stock for his
own account, for investment purposes only, and not with a view to the sale,
pledge, hypothecation, or other distribution or disposition thereof or of
any interest therein, except as referenced in Section 4(h).
(h) Such FB Shareholder understands that resale or transfer of the
Company Common Stock will be prohibited indefinitely unless either (i) the
Company causes the Company Common Stock to be registered under the
Securities Act or, (ii) an exemption from such registration is available and
such resale or transfer will not otherwise violate federal or state
securities laws. Such FB Shareholder further understands that a legend will
be affixed to the certificates representing the Company Common Stock setting
forth the foregoing limitations.
(i) The FB Shareholder will use their reasonable endeavors to do, or
cause to be done at the earliest practical date, all things reasonably
necessary, proper or advisable to consummate the transactions contemplated
hereby.
(j) Far Beyond and FB Shareholder have relied solely upon written
materials and investigations made by Far Beyond in making the decision to
effect the Exchange, and has not relied upon undocumented representations of
the Company or Horler.
5. REPRESENTATION, WARRANTIES AND COVENANTS BY THE COMPANY AND HORLER
Each of the Company and Horler jointly and severally represents and warrants
to the FB Shareholders and Far Beyond that, as of the date hereof and as of the
Closing Date (except as modified by the conditions precedent):
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power to own its properties and carry on its business as now being conducted
and as proposed to be conducted and has authorized capital stock consisting
of (i) as of the date hereof, 7,971,014 shares of Company Common Stock and
as of the Closing Date, 30,000,000 shares of Company Common Stock of which
597,133 shares of Company
C-4
<PAGE>
Common Stock and as of Closing Date, 9,952,217 shares of Company Common
Stock are duly and validly issued and outstanding, fully paid and
non-assessable and (ii) 10,000,000 shares of Preferred Stock, none of which
is outstanding. Certified copies of the Certificate of Incorporation,
Amendments of the Certificate of Incorporation and the By-Laws for the
Company have been furnished by the Company to the FB Shareholders and Far
Beyond and such documents are true and correct copies of the Certificate of
Incorporation and the By-Laws of the Company and include all amendments
thereto. No other securities of the Company, or rights, options or warrants
to subscribe for or acquire securities of the Company, other than the
above-described shares, exist or are issued, outstanding or agreed to be
issued. The Company has not granted to any party registration or similar
rights with respect to its capital stock.
(b) The Company has all of the corporate power and authority necessary
to execute, deliver and perform this Agreement, and as of the Closing Date,
the Registration Rights Agreement, the Disposal Agreement and the Assignment
Agreement (each defined below) and to issue and deliver the Company Common
Stock required to be delivered hereunder.
(c) The execution, delivery and performance of this Agreement and as at
the Closing Date, the Registration Rights Agreement, the Disposal Agreement
and the Assignment Agreement have been duly authorized by all necessary
corporate (including stockholder) action of the Company. This Agreement, the
Disposal Agreement, the Registration Rights Agreement, and the Assignment
Agreement constitute the valid and binding obligations of the Company
enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditor's rights and by general principles of
equity. As at the Closing Date, the execution, delivery and performance by
the Company and Horler of this Agreement, the Disposal Agreement, the
Registration Rights Agreement and the Assignment Agreement, the consummation
of the Exchange, the issuance and sale of the Company Common Stock to the FB
Shareholders, the consummation of the Exchange, the issuance and sale of
Company Common Stock to the FB Shareholders and the consummation of the
other transactions contemplated by this Agreement, the Disposal Agreement,
the Registration Rights Agreement and the Assignment Agreement to be
performed by the Company and Horler do not and will not require the
authorization, consent, permit or approval of, or declaration to or filing
with, any court, regulatory or public body or governmental authority not
already obtained or made, or result in the creation of any lien, security
interest, charge or encumbrance upon the capital stock or assets of the
Company.
(d) The Company has good marketable title to all the properties owned by
it, free and clear of all liens, security interests, charges, encumbrances
and defects.
(e) The consolidated balance sheets of the Company and its consolidated
subsidiaries (the "Company Group") prepared by the Company and audited by
Arthur Andersen & Co., Certified Public Accountants, as at December 31,
1996, 1997 and 1998, and the consolidated statements of operations and cash
flow for each of the years ended December 31, 1996, 1997 and 1998, and the
consolidated statements of changes in shareholders' equity (deficit) for
each of the years ended December 31, 1996, 1997 and 1998 attached hereto as
SCHEDULE 4(e) (THE "COMPANY FINANCIAL STATEMENTS"), present fairly as of
such dates the consolidated financial condition of the Company Group and the
results of the operations for the periods then ended and, since
December 31, 1998, no dividends or distributions of capital, surplus, or
profits has been paid or declared by the Company (in redemption of its
outstanding shares or otherwise) and no additional shares have been issued
by the Company. The audited consolidated financial statements of the Company
have been prepared in accordance with US GAAP
C-5
<PAGE>
(f) Since December 31, 1998, no member of the Company Group has
experienced any material adverse changes with respect to its business
condition (financial or otherwise), results of operations, assets,
liabilities or prospects taken as a whole. Without limiting the generality
of the foregoing:
(i) The Company has not declared, paid or made nor is proposing to
declare, pay or make any dividend or other distribution;
(ii) The financial year end of the Company has continued to be and
has not changed from December 31.
(iii) No event has occurred which would entitle any third party (with
or without the giving of notice, the lapse of time, or both) to call for
the repayment of indebtedness prior to its normal maturity date;
(iv) The business of each member of the Company Group has been
carried on in the ordinary and usual course and in the same manner
(including nature and scope) as in the past, no fixed asset or stock has
been written up nor any debt written off, and no unusual or abnormal
contract has been entered into by the Company;
(v) Save and except as provided by the Disposal Agreement and the
Assignment Agreement (as defined below) no asset of the Company has been
acquired or disposed, or has been agreed to be acquired or disposed of,
otherwise than in the ordinary course of business and there has been no
disposal or parting with possession of any of its property, assets
(including know-how) or stock in trade or any payments by the Company,
and no contract involving expenditure by it on capital account has been
entered into by the Company, and no liability has been created or has
otherwise arisen (other than in the ordinary course of business as
previously carried on);
(vi) There has been no disposal of any asset (including stock) or
supply of any service or business facility of any kind (including a loan
of money or the letting, hiring or licensing of any property whether
tangible or intangible) in circumstances where the consideration actually
received or receivable for such disposal or supply was less than the
consideration which could be deemed to have been received for tax
purposes;
(vii) No event has occurred which gives rise to a tax liability to the
Company or deemed (as opposed to actual) income, profits or gains or
which results in the Company becoming liable to pay or bear a tax
liability directly or primarily chargeable against or attributable to
another person or entity; and
(viii) No remuneration (including bonuses) or benefit payable to any
officer or employee of the Company has been increased nor has the Company
undertaken any obligation to increase any such remuneration at any future
date with or without retrospective effect.
(g) The Company has complied, in all material respects, with the terms
and provisions of all agreements to which it is a party and all laws, rules,
regulations and orders or to which it or its assets are subject.
(h) Since December 31, 1998, except for the transactions provided
herein, the Company has not engaged in any business other than in the
ordinary and usual course of business through its wholly owned subsidiary,
Westronix Ltd. The Company has not provided any guarantees to any party.
(i) Except as set forth on Schedule 5(i) attached hereto, the Company
does not have any pension plan, profit sharing plan, or stock-purchase plan
for any of its employees.
(j) Neither the execution or delivery of this Agreement nor the issuance
of the Company Common Stock hereunder, nor the performance, observance or
compliance with the terms and provisions of this Agreement, will violate any
provision of law, rule or regulation, any order of any
C-6
<PAGE>
court or other governmental agency, the Certificate of Incorporation or
By-laws of the Company or any indenture, agreement or other instrument to
which the Company is a party, or by which the Company is bound or by which
any of its property is bound.
(k) The Company Common Stock deliverable hereunder will, upon their
delivery in accordance with the terms hereof, be duly authorized, validly
issued, fully paid and non-assessable and will comprise 88% of the issued
and outstanding shares of Company Common Stock as at the Closing Date.
(l) The Company Common Stock is currently listed for trading on the OTC
Bulletin Board, and the Company has received no notice that its Common Stock
is subject to being delisted therefrom.
(m) The Company has complied with all applicable foreign, federal and
state laws, rules and regulations, including, without limitation, the
requirements of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and the Securities Act.
(n) As of the date hereof, except for its shares of capital stock in
Westronix Ltd., the Company does not have any subsidiary or hold directly or
indirectly any equity security or interest in any third party, and as of the
Closing Date, the Company will not have any subsidiary or hold directly or
indirectly any equity security or interest in any third party.
(o) The Company is required to file reports under Section 12(g) of the
Exchange Act, and is current in its filings thereunder. All of the filings
made by the Company under the Securities Act or the Exchange Act ("Filings")
comply with the requirements thereof and the rules and regulations of the
Securities and Exchange Commission thereunder. None of the Filings made by
the Company make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading.
(p) The Company has not received any demand for payment of any and has
paid all outstanding obligations of the Company relating to sales tax, use
tax, Social Security Tax, Federal Income Withholding Tax, all foreign,
federal and state income tax, workmen's compensation, unemployment
compensation taxes and any other foreign, federal and state taxes incurred
by the Company.
(q) Except as set forth on Schedule 5(q) attached hereto, the Company
has no contracts, agreements, leases, licenses, arrangements, commitments or
other undertakings (collectively, the "Company Contracts") to which the
Company is a party or to which it or its property is subject. The Company is
not in material default, or alleged to be in material default, under any
Company Contract and, to the knowledge of the Company, no other party to any
Company Contract to which the Company is a party is in default thereunder
nor, to the knowledge of the Company, does there exist any condition or
event which, after notice or lapse of time or both, would constitute a
default by any party to any such Company Contract.
(r) There are no contracts, agreements, arrangements or other
transactions between the Company and any officer, director, or any
stockholder who owns at least 5% of the Company's currently issued and
outstanding stock (a "5% Stockholder"), a member of any such officer,
director or 5% stockholder's family, or any affiliate of any such officer,
director or 5% stockholder which will continue to subsist after the Closing
Date.
(s) The Company is not involved in any pending or threatened litigation
and there is no dispute, claim, arbitration, proceeding or, to the knowledge
of the Company, threatened against the Company affecting any of its
properties or assets that might call into question the validity of this
Agreement, the Registration Rights Agreement, the Disposal Agreement, and
the Assignment Agreement, or any action taken or to be taken pursuant hereto
or thereto.
C-7
<PAGE>
(t) The Company and Horler will use their reasonable endeavors to do, or
cause to be done, all things necessary, proper or advisable to consummate
the transactions contemplated hereby, at the earliest practicable date,
including without limitation the Exchange on the Closing Date.
(u) The Company hereby acknowledges that the Far Beyond Stock to be
exchanged for the Company Common Stock is not registered under the
Securities Act or the laws of any other jurisdiction and are subject to
restrictions on their transfer and resale under applicable federal and state
law.
(v) The Company understands that (i) in agreeing to transfer their Far
Beyond Stock to the Company in the Exchange, the FB Shareholders are relying
upon an exemption from registration under the Securities Act, as set forth
in Section 4 thereof, which relate to private resales of securities, and
(ii) the FB Shareholders are also relying upon the securities laws of any
state on the basis that the Exchange is a transaction exempt from the
registration requirements of such laws.
(w) As of the Closing Date, the Company and Horler will have had access
to and will have thoroughly reviewed all documents and instruments,
including but not limited to the Memorandum and Articles of Association, of
Far Beyond, as amended, and will have been able to obtain such information,
and have had the opportunity to ask all questions of, and receive answers
from Far Beyond and the FB Shareholders, which they deem necessary or
relevant to the Exchange and will have utilized such opportunity to the
extent deemed necessary by it to allow it to make a fully informed decision
which respect to the Exchange.
(x) The Company is purchasing the Far Beyond Stock for its own account,
for investment purposes only, and not with a view to the sale, pledge,
hypothecation, or other distribution or disposition thereof or of any
interest therein.
(y) The Company understands that resale or transfer of the Far Beyond
Stock will be prohibited indefinitely unless the Far Beyond Stock is
registered under the Securities Act or an exemption from such registration
is available and such resale or transfer will not otherwise violate federal
or state securities laws.
(z) As of the Closing pursuant to Section 8, the Company will have no
liabilities or obligations of any kind whatsoever including, without
limitation, any tax liabilities arising from the transactions contemplated
by the Assignment Agreement and Disposal Agreement and will have no assets
of any kind other than cash or cash equivalents of at least U.S. $150,000
(aa) The Company is not an investment company as such term is defined in
the Investment Company Act of 1940 and the General Rules and Regulations
promulgated thereunder or a company controlled by an investment company.
(bb) The Company has relied solely upon written materials and
investigations made by the Company in making the decision to effect the
Exchange, and has not relied upon undocumented representations of Far Beyond
or the FB Shareholders.
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to consummate the Exchange pursuant to
Section 1 is subject to the satisfaction of the following conditions as of the
Closing Date:
(a) the representations and warranties made by the FB Shareholders and
Far Beyond shall be accurate in all material respects as of the date hereof
and as of the Closing Date and the terms and conditions of this Agreement to
be performed and complied with by the FB Shareholders on or prior to the
Closing Date shall have been performed and complied with by the FB
Shareholders on or prior to the Closing Date, and the Company will have
received a certificate, in the form attached as
C-8
<PAGE>
Exhibit 6(a), signed by each of the FB Shareholders and Far Beyond, dated
the Closing Date, certifying to such effect;
(b) Far Beyond and the FB Shareholders shall have received all
corporate, regulatory and other third party approvals and authorizations
necessary to consummate the Exchange.
(c) Hearty Holdings Limited, Megastone Development Limited and Horler
shall have entered into a Co-Sale Agreement in form and substance reasonably
acceptable to the parties thereto and the other FB Shareholders; and
(d) Far Beyond and the FB Shareholders shall have delivered to the
Company the documents as set out in Exhibit 6(d).
7. CONDITIONS TO THE OBLIGATIONS OF FAR BEYOND AND THE FB SHAREHOLDERS.
The obligation of the FB Shareholders to consummate the Exchange pursuant to
Section 1 is subject to the satisfaction of the following conditions as of the
Closing Date:
(a) the representations and warranties made by the Company and Horler
shall be accurate in all material respects as of the date hereof and as of
the Closing Date and the terms and conditions of this Agreement to be
performed and complied with by the Company and Horler on or prior to the
Closing Date shall have been performed and complied with by the Company and
Horler on or prior to the Closing Date, and the FB Shareholders will have
received a certificate, in the form attached as EXHIBIT 7(A), signed by each
of the Company and Horler, dated the Closing Date, certifying to such
effect;
(b) the FB Shareholders shall have received the opinion, dated the
Closing Date, of counsel for the Company, acceptable to the FB Shareholders,
to the effect that (i) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
that it has the corporate power and authority to execute, deliver and
perform each of this Agreement, the Registration Rights Agreement, the
Disposal Agreement and the Assignment Agreement and to own and operate its
properties wherever the same may be located as of the Closing Date;
(ii) each of this Agreement, the Registration Rights Agreement, the Disposal
Agreement and the Assignment Agreement has been duly authorized, executed
and delivered by the Company and each of this Agreement, the Registration
Rights Agreement, the Disposal Agreement and the Assignment Agreement is a
legal, valid and binding obligation of the Company, enforceable in
accordance with its terms; (iii) the Company Common Stock to be delivered to
the FB Shareholders pursuant to the terms of this Agreement have been duly
authorized and validly issued, and are fully paid and nonassessable;
(iv) the authorized share capital of the Company consists of (a) 30,000,000
shares of Company Common Stock of which 9,952,217 shares of Company Common
Stock are issued and outstanding after giving effect to the transactions
contemplated hereby and (b) 10,000,000 shares of Preferred Stock, none of
which is issued or outstanding; and (v) the issuance of the Company Common
Stock herein contemplated does not violate any Federal or Delaware law or
require the registration of the Company Common Stock pursuant to any Federal
or state law dealing with the issuance, sale, transfer, and/or exchange of
securities;
(c) The Company shall have received all of the regulatory, stockholder
and other third party approvals and authorizations necessary to
(a) consummate the Exchange and the disposal of the assets and liabilities
as set forth in subparagraph (e) below and Section 11 including, without
limitation, increasing the authorized number of shares of Common Stock to
30,000,000, and (b) authorize a change in the corporate name of the Company
as designated by Far Beyond;
(d) The Company shall have paid all of its own costs and expenses
associated with the acquisition of Far Beyond by the Company;
C-9
<PAGE>
(e) The Company shall have transferred all of its assets (except cash
and cash equivalents of at least US$150,000) and assigned all of its
liabilities to the effect that, as of the Closing, the only asset of the
Company shall be cash and cash equivalents of at least US $150,000, and the
Company shall have no liabilities whatsoever, contingent or otherwise, save
and except for liability for costs and taxes incurred for the assignment and
transfer, all of which shall be the responsibility of Horler. All such
transfers and assignments shall be in form and substance reasonably
satisfactory to FB Shareholders and its counsel. The Company and Horler
shall have executed a disposal agreement (the "Disposal Agreement") and have
complied with their respective obligations under Section 11 while the
Company and China Strategic Holdings Limited shall have executed an
assignment agreement (the "Assignment Agreement") both in the form
substantially of Exhibit 7(e) attached hereto;
(f) The Company shall have entered into a registration rights agreement
with Horler, all the FB Shareholders, including NJI No. 2 Investment Fund,
JADT Limited, and Orient Financial Services Limited who is the corporate
finance arranger of this acquisition (the "OFS") in the form attached as
EXHIBIT 7(f) (the "Registration Rights Agreement"); and
(g) The Company shall have delivered evidence reasonably satisfactory to
Far Beyond and the FB Shareholders regarding the approval of the
stockholders of this Company for this Agreement, the Disposal Agreement and
the Assignment Agreement, and the transactions contemplated herein and
therein; and
(h) The Company shall have received a fairness opinion from Horwath
Corporate Solutions Limited, a wholly owned subsidiary of Horwath CPA Hong
Kong Limited (or other independent professional firm as agreed by the
parties) or a comparable professional entity, and such fairness opinion
shall be included as part of the preparation of a proxy statement for
approval of the stockholders of the Company as to the transactions
contemplated by this Agreement, the Assignment Agreement and the Disposal
Agreement.
8. CLOSING DATE.
The Closing Date shall take place on, or prior, to November 30, 1999 at
20/F., Asia Pacific Finance Tower, Citibank Plaza, 3 Garden Road, Hong Kong, or
at such other time and place as the parties hereto shall mutually agree
("Closing Date").
9. ACTIONS AT CLOSING.
On the Closing Date, the Company and the FB Shareholders will each deliver,
or cause to be delivered to the other, certificates representing the Company
Common Stock and Far Beyond Stock to be exchanged in accordance with Section 1
respectively, and each party shall pay any and all taxes required to be paid in
connection with the issuance and delivery of its own securities. All share
certificates shall be in the name of the party to which the same are deliverable
or its nominees except the Far Beyond Stock, which will be accompanied by an
instrument of transfer executed in favor of the Company.
In addition, the Company will deliver to the FB Shareholders, as the case
may be:
(1) certified copies of all corporate resolutions and other corporate
proceedings taken by the Company to authorize the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Assignment Agreement and the Disposal Agreement;
(2) certified copies of resolutions of the directors and shareholders of
the Company electing or appointing (as the case may be) such number of new
directors and officers of the Company as may be designated by the FB
Shareholders;
(3) the written resignations of all directors and such officers and
auditors of the Company required by the FB Shareholders, which resignations
will contain an acknowledgment from each of
C-10
<PAGE>
them that they have no claims against the Company for loss of office, unpaid
compensation, or otherwise; and
(4) all registration certificates, statutory books, minute books and
common seal of the Company, all account books and all documents and papers
in connection with the affairs of the Company and all documents of title
relating to the Company's assets (unless already in the possession of the FB
Shareholders) as are required by the FB Shareholders.
The Company will deliver to OFS (or such other parties that OFS may direct)
certificates representing a total of 597,133 shares of the Company Common Stock
to be issued to OFS (or such other parties that OFS may direct) as set forth in
a letter of instructions to be delivered to the Company on or prior to the
Closing Date.
Far Beyond, Horler and the FB Shareholders will deliver to the Company
certified copies of all corporate resolutions and other corporate proceedings
taken by their respective board of directors to authorize the execution,
delivery and performance of this Agreement.
Horler, the FB Shareholders and OFS will deliver to the Company certified
copies of all corporate resolutions and other corporate proceedings taken by
their respective board of directors to authorize the execution, delivery and
performance of the Registration Rights Agreement.
10. UNDERTAKING BY HEARTY.
Hearty hereby irrevocably undertakes to the Company and Horler that Hearty
will not, within 2 years from the Closing Date, sell, transfer, pledge, mortgage
or otherwise dispose of any of the Common Stock of the Company exchanged and
received by Hearty in accordance with the provisions of this Agreement.
11. TRANSFER OF ASSETS AND LIABILITIES BY COMPANY AND HORLER.
Subject to the approval of the shareholders of the Company in general
meeting having been obtained and except for cash or cash equivalents of at least
US$150,000 which shall be retained by the Company, the Company hereby assigns,
transfers and conveys to Horler, and Horler hereby accepts and assumes the
assignment, transfer and conveyance of any and all rights, properties and assets
and any and all liabilities and obligations of the Company, in each case as the
same shall exist on Closing Date, immediately prior to the consummation of the
Exchange. The Company hereby undertakes, to (a) procure any and all consents and
approvals required for the valid assignment, transfer and conveyance of such
assets, properties, liabilities and obligations and (b) execute and deliver to
Horler or its nominees any and all instruments of assignment, transfer and
conveyance of the Company's assets, properties, liabilities and obligations, and
any consents or approvals required in respect thereof, prior to the Closing
Date.
12. CONFIDENTIAL INFORMATION; DELIVERY; RETURN; NON-DISCLOSURE.
(a) DELIVERY OF INFORMATION. Until the earlier of the Closing Date or the
termination of this Agreement (such date hereinafter the "Termination Date"),
pursuant to the terms of this Agreement:
(1) Far Beyond will provide the Company and its officers, directors,
employees, agents, counsel, accountants, financial advisors, consultants and
other representatives and Horler (together "COMPANY REPRESENTATIVES") with
reasonable access, upon reasonable prior notice, to all officers, employees
and accountants of Far Beyond and Asibao and to their assets, properties,
contracts, books, records and all such other information and data concerning
the business and operations of Far Beyond or Asibao as the Company
Representatives reasonably may request in connection with such
investigation, but only to the extent that such access does not unreasonably
interfere with the business and operations of Far Beyond or Asibao.
(2) The Company will provide the FB Shareholders and Far Beyond and
their officers, directors, employees, agents, counsel, accountants,
financial advisors, consultants and other representatives (together "FAR
BEYOND REPRESENTATIVES") with reasonable access, upon reasonable prior
notice, to all
C-11
<PAGE>
officers, employees and accountants of the Company and to its assets,
properties, contracts, books, records and all such other information and
data concerning the business and operations of the Company as the Far Beyond
Representatives reasonably may request in connection with such
investigation.
(b) ACKNOWLEDGEMENTS; DEFINITIONS:
(1) The Company has been and, pursuant to the terms of this Section,
shall continue to be privy to certain proprietary and confidential
information of Far Beyond, Asibao and/or the FB Shareholders (the "FAR
BEYOND CONFIDENTIAL INFORMATION"). As used herein, the term "FAR BEYOND
CONFIDENTIAL INFORMATION" shall include, but not be limited to, any and all
information or documentation whatsoever which has been disclosed or made
available to the Company Representatives by Far Beyond, the FB Shareholders
or Asibao, regarding their products, services, techniques, manufacturing or
other processes, activities, businesses, properties, operations, clients,
customers, prospective clients, price lists, suppliers, business associates
equipment, Trade Secrets (as defined herein), computer software, scientific
discoveries, experiments, data, equipment designs, training, devices,
charts, manuals, payroll, financial statements and improvements thereto and
any other information or materials disclosed or delivered to the Company
Representatives which the disclosing party may from time to time designate
and treat as confidential, proprietary or as a trade secret, including
without limitation all information relating (directly or indirectly) to the
material set forth in the Far Beyond business plan delivered or to be
delivered to the Company Representatives.
(2) Far Beyond and/or the FB Shareholders have been and, pursuant to the
terms of this Section, shall continue to be privy to certain proprietary and
confidential information of the Company (the "COMPANY CONFIDENTIAL
INFORMATION"). As used herein, the term "COMPANY CONFIDENTIAL INFORMATION"
shall include, but not be limited to, any and all information or
documentation whatsoever which has been disclosed or made available to Far
Beyond Representatives by the Company regarding its products, services,
techniques, manufacturing or other processes, activities, businesses,
properties, operations, clients, customers, prospective clients, price
lists, suppliers, business associates, equipment, Trade Secrets (as defined
herein), computer software, scientific discoveries, experiments, data,
equipment designs, training devices, charts, manuals, payroll, financial
statements and improvements thereto and any other information or materials
disclosed or delivered to Far Beyond Representatives which the disclosing
party may from time to time designate and treat as confidential, proprietary
or as a trade secret.
(3) Reference to "CONFIDENTIAL INFORMATION" herein shall include and
relate to both Far Beyond Confidential Information and the Company
Confidential Information.
(4) As used herein, the term "TRADE SECRET" shall mean the whole or any
portion of any formula, pattern, device, combination of devices, or
compilation of information which is for use, or is used in the operation of
the other party's businesses and which provides such party's business as
advantage, or an opportunity to obtain an advantage, over those who do not
know or use it. For purposes of interpretation hereunder the following shall
apply:
Irrespective of novelty, invention, patentability, the state of the prior
art, and the level of skill in the business, art or field to which the subject
matter pertains, when the owner thereof takes measures to prevent it from
becoming available to persons other than those selected by the owner to have
access thereto for limited purposes, a trade secret is considered to be a
secret, of value, for use or in use by the business, and of advantage to the
business, or providing an opportunity to obtain an advantage, over those who do
not know or use it.
In addition, a "TRADE SECRET" shall include information (not readily
compiled from publicly available sources) which has been made available by Far
Beyond, Asibao and/or the FB Shareholders to the Company Representatives or by
the Company to the Far Beyond Representatives, as the case may be,
C-12
<PAGE>
during the course of their involvement with each other, including but not
limited to the names, addresses, telephone numbers, qualifications, education,
accomplishments, experience and resumes of all persons who have applied or been
recruited for employment, for either or both permanent and temporary jobs, job
order specifications and the particular characteristics and requirements of
persons generally hired by the disclosing party, as well as specific job
listings from companies with whom the disclosing party does, or attempts to do,
business, as well as mailing lists, computer runoffs, financial or other
information not generally available to others.
(c) NON-DISCLOSURE; THE COMPANY:
(1) The Company, for itself, its officers, employees, directors, agents,
affiliates, subsidiaries, independent contractors, and related parties,
including Horler (all of whom are to be deemed included in any reference
herein to the Company) agrees that it will not at any time during or after
the termination or expiration of this Agreement, except as authorized or
directed herein or in writing by Far Beyond and/or the FB Shareholders, use
for the Company's own benefit, copy, reveal, sell, exchange or give away,
disclose, divulge or make known or available in any manner to any person,
firm, corporation or other entity (whether or not the Company receives any
benefit therefrom), any Far Beyond Confidential Information.
(2) The Company will take all actions necessary to ensure that the Far
Beyond Confidential Information is maintained as secret and confidential and
its disclosure shall only be made to the extent necessary, to a limited
group of the Company's employees, officers and/or directors who are actually
engaged in the evaluation of the Far Beyond Confidential Information;
provided however, the Company acknowledges and agrees that it shall be
responsible and held liable for the actions or inactions of such employees,
officers and directors (regardless whether or not such actions or inactions
are within their scope of employment) with respect to the maintenance of the
secrecy and confidentiality of the Far Beyond Confidential information.
(3) The Company understands that if it discloses to others, use for its
own benefit (other than as part of an agreement with Far Beyond and the FB
Shareholders, which expressly provides for such use) or for the benefit of
any person or entity other than Far Beyond and/or the FB Shareholders,
copies or makes notes of any such Far Beyond Confidential Information, such
conduct will constitute a breach of the confidence and trust bestowed upon
the Company by Far Beyond and the FB Shareholders and will constitute a
breach of this Agreement and render the Company responsible for any and all
damages suffered by Far Beyond and/or the FB Shareholders as a result
thereof.
(4) Provided, however, notwithstanding the foregoing, the terms of this
subsection (c) shall not be applicable to any information which the Company
is compelled to disclose by judicial or administrative process or by other
requirements of law (including, without limitation, in connection with
obtaining the necessary approvals of the Exchange of governmental or
regulatory authorities), except that the Company shall procure the
confidential treatment of any Far Beyond Confidential Information which it
is compelled to disclose by this Section 9(c)(4) and that access thereto
shall be strictly restricted to persons to whom such judicial and
administrative process requires. In the event of any such disclosure of any
Far Beyond Confidential Information, Far Beyond and the FB Shareholders
shall have the right to petition any court of competent jurisdiction for any
remedy or order (interim or otherwise) for the protection of confidentiality
of such Far Beyond Confidential Information.
(d) NON-DISCLOSURE: FAR BEYOND AND THE FB SHAREHOLDERS:
(1) Far Beyond and the FB Shareholders, for themselves, their officers,
employees, directors, agents, affiliates, subsidiaries, independent
contractors, and related parties (all of whom are to be deemed included in
any reference herein to Far Beyond and the FB Shareholders) severally (but
not jointly) agree that they will not at any time during or after the
termination or expiration of any agreement or negotiations for an agreement
with the Company, except as authorized or directed
C-13
<PAGE>
herein or in writing by the Company, use for Far Beyond and the FB
Shareholders' own benefit, copy, reveal, sell, exchange or give away,
disclose, divulge or make known or available in any manner to any person,
firm, corporation or other entity (whether or not Far Beyond and the FB
Shareholders receive any benefit therefrom), any Company Confidential
Information.
(2) Far Beyond and the FB Shareholders severally (but not jointly) agree
to take all actions necessary to ensure that the Company Confidential
Information is maintained as secret and confidential and its disclosure
shall only be made, to the extent necessary, to a limited group of Far
Beyond and/or the FB Shareholders' own employees, officers, directors and/or
professional advisors who are actually engaged in the evaluation of the
Company Confidential Information; provided, however, Far Beyond and the FB
Shareholders severally (but not jointly) acknowledge and agree that they
shall be responsible and held liable for the actions or inactions of such
employees, officers, directors and/or professional advisors (regardless
whether or not such actions or inactions are within their scope of
employment) with respect to the maintenance of the secrecy and
confidentiality of the Company Confidential Information.
(3) Far Beyond and the FB Shareholders understand that if they disclose
to others, use for their own benefit (other than as part of an agreement
with the Company, which contemplates such use) or for the benefit of any
person or entity other than the Company, copies or make notes of any such
Company Confidential Information, such conduct will constitute a breach of
the confidence and trust bestowed upon Far Beyond and the FB Shareholders by
the Company and will constitute a breach of this Agreement and render Far
Beyond and the FB Shareholders severally (but not jointly) responsible for
any and all damages suffered by the Company as a result thereof.
(4) Provided, however, notwithstanding the foregoing, the terms of this
subsection (d) shall not be applicable to (i) any information which Far
Beyond and/or the FB Shareholders are compelled to disclose by judicial or
administrative process or by other requirements of law (including, without
limitation, in connection with obtaining the necessary approvals of the
Exchange of governmental or regulatory authorities), (ii) information that
is publicly available, (iii) information previously in the possession of Far
Beyond and/or the FB Shareholders, (iv) information obtained independently
from third parties and (v) with respect to the FB Shareholders, information
that is disclosed for inter-fund reporting purposes.
(e) RETURN OF INFORMATION:
(1) At any time after the Termination Date, upon request of Far Beyond
or any FB Shareholder, the Company will, and will cause the Company
Representatives to promptly (and in no event later than five days after such
request) redeliver or cause to be redelivered to Far Beyond or the FB
Shareholder (as applicable) all Far Beyond Confidential Information and
destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings relating thereto or based thereon prepared
by the Company or any Company Representative. Such destruction shall be
certified in writing to Far Beyond and the FB Shareholders by an authorized
officer supervising such destruction.
(2) At any time after the Termination Date, upon request of the Company,
the FB Shareholders and/or Far Beyond will, and will cause the Far Beyond
Representatives to, promptly (and in no event later than five days after
such request) redeliver or cause to be redelivered to the Company all
original Company Confidential Information.
13. EQUITABLE RELIEF.
The Company, Far Beyond and the FB Shareholders agree that money damages
would not be a sufficient remedy for any breach or threatened breach of any
provision set forth in Sections 12, 14(b) or 15 by the other, and that, in
addition to all other remedies which any party hereto may have, each party will
be entitled to specific performance and injunctive or other equitable relief as
a remedy for any such breach or
C-14
<PAGE>
threatened breach. No failure or delay by any party hereto in exercising any
right, power or privilege hereunder will operate as a waiver thereof, nor will
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege hereunder.
14. CONDUCT AND BUSINESS.
(a) Between the date hereof and the Closing Date, Far Beyond shall conduct
its business and the business of all members of the Far Beyond Group in
substantially the same manner in which it has heretofore been conducted, and the
FB Shareholders will not permit any member of the Far Beyond Group to:
(1) enter into any contracts, agreements or arrangements, other than in the
ordinary course of business, or (2) declare or make any distribution of any kind
to the FB Shareholders.
(b) Between the date hereof and the Closing Date, the Company shall conduct
its business in substantially the same manner in which it has heretofore been
conducted, and the Company will not; (1) enter into any contracts, agreements or
arrangements, other than in the ordinary course of business, or (2) declare or
make any distribution of any kind to the shareholders of the Company. Further,
also during such time period, the Company hereby agrees that neither the Company
nor any of its affiliates or associates (as such terms are defined in
Rule 12b-2 under the Exchange Act) will, and the Company and they will not
assist or encourage others to, directly or indirectly, except as expressly
permitted by this Agreement (1) sell or dispose of or agree, offer, seek or
propose to sell or dispose of (or request permission to do so from any person)
ownership (including, but not limited to, beneficial ownership as defined in
Rule 13d-3 under the Exchange Act) of (x) any of the assets or business of the
Company, (y) any securities of the Company (whether outstanding or to be issued
or (z) any rights or options to acquire such ownership (including to or from a
person other than the Company), or (2) enter into any discussions, negotiations,
arrangements or understandings with any person or entity with respect to any of
the foregoing save and except for the Disposal Agreement and the Assignment
Agreement.
15. NO PUBLIC DISCLOSURE.
(a) Far Beyond and the FB Shareholders hereby acknowledge that they are
aware (and that the Far Beyond Representatives who have been apprised of this
Agreement and the FB Shareholders' consideration of the Exchange have been, or
upon becoming so apprised will be advised) of the restrictions imposed by
federal and state securities laws on a person possessing material "non-public"
information about a company with a class of securities registered under the
Exchange Act. In this regard, each such FB Shareholder agrees that while it is
in possession of material non-public information with respect to the Company and
its subsidiaries, such FB Shareholder will not purchase or sell any securities
of the Company, or communicate such information to any third party, in violation
of any such laws.
(b) Without the prior written consent of the other, neither the FB
Shareholder or Far Beyond, on the one hand, nor the Company or Horler, on the
other, will, and will each cause their respective representatives not to, make
any release to the press or other public disclosure with respect to either the
fact that discussions or negotiations have taken place concerning the Exchange,
the existence or contents of this Agreement or any prior correspondence relating
to this transaction, except for such public disclosure as may be necessary, in
the written opinion of outside counsel (reasonably satisfactory to the other
party) for the party proposing to make the disclosure not to be in violation of
or default under any applicable law, regulation or governmental order. If either
party proposes to make any disclosure based upon such an opinion, that party
will deliver a copy of such opinion to the other party, together with the text
of the proposed disclosure, as far in advance of its disclosure as is
practicable, and will in good faith consult with and consider the suggestions of
the other party concerning the nature and scope of the information it proposes
to disclose.
16. BROKERAGE FEE.
Each party hereto represents that no brokers have been employed in this
transaction except that OFS shall be entitled to 597,133 shares of Company
Common Stock at the Closing Date.
C-15
<PAGE>
17. AGREEMENT TO INDEMNIFY.
Subject to the terms and conditions of this Section, Horler and the Company
each hereby agree, jointly and severally, to indemnify, defend and hold the FB
Shareholders harmless from and against all demands, claims, actions or causes of
action, assessments, losses, damages, liabilities, costs and expenses, including
without limitation, interest, penalties, court costs and reasonable attorneys'
fees (including paralegal and law clerk fees and other legal expenses and costs)
and expenses, asserted against, relating to, imposed upon or incurred by the FB
Shareholders by reason of or resulting from a breach of (i) any agreement set
forth in this Agreement by the Company or the Company Representatives, or
(ii) any representation or warranty given by the Company or Horler contained in
or made pursuant to this Agreement, or (iii) any liability of the Company Group
existing, accruing or arising on or before the Closing Date; provided that, in
the case of clause (ii), notice of such breach of representation or warranty is
given to the Company or Horler within two years of the Closing Date, except with
respect to the representations and warranties contained in Sections 5(a) through
5(d), 5(k) and 5(l), which shall survive without limitation.
Subject to the terms and conditions of this Section, each of Far Beyond and
the FB Shareholders hereby agrees, severally and not jointly, to indemnify,
defend and hold the Company harmless from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including without limitation, interest, penalties, court costs and
reasonable attorneys' fees (including paralegal and law clerk fees and other
legal expenses and costs) and expenses, asserted against, relating to, imposed
upon or incurred by the Company by reason of or resulting from a breach of
(i) any agreement set forth in this Agreement by Far Beyond or such FB
Shareholder, or (ii) any representation or warranty given by Far Beyond or such
FB Shareholder contained in or made pursuant to this Agreement, provided that
notice of such breach of representation or warranty is given to Far Beyond or
the FB Shareholder within two years of the Closing Date, except with respect to
the representations and warranties contained in Sections 2(a)--2(b), 4(a) and
4(b), which shall survive without limitation.
All of the foregoing are hereinafter collectively referred to as "CLAIMS"
and singularly as a "CLAIM."
(a) CONDITIONS OF INDEMNIFICATION.
The obligations and liabilities of the FB Shareholders, Far Beyond, and
Horler and the Company, with respect to Claims resulting from the assertion
of liability by any of them, shall be subject to the following terms and
conditions:
(1) The party hereto seeking indemnification (the "INDEMNITEE") will
give the other party hereto from whom indemnification is sought (the
"INDEMNITOR") notice of any such Claim reasonably promptly after the
Indemnitee receives notice thereof, and the Indemnitor will have the
right to undertake the defense thereof by representatives of its own
choosing. The failure of any Indemnitee to give notice as provided herein
shall not relieve the Indemnitor of its obligations under Section 14
above, except to the extent that the Indemnitor is prejudiced by the
failure to give such notice. When the Indemnitor undertakes the defense
of any claim, the Indemnitee shall have the right to participate in
contesting such claim at its own costs and expense.
(2) In the event that the Indemnitor, within ten (10) business days
after notice of any such Claim, fails to defend such Claim, the
Indemnitee will (upon giving written notice to the Indemnitor) have the
right, but not the obligation, to undertake the defense, compromise or
settlement of such Claim on behalf of and for the account and risk of the
Indemnitor, subject to the right of the Indemnitor to assume the defense
of such Claim at any time prior to settlement, compromise or final
determination thereof.
(3) The Indemnitor shall not, without the Indemnitee's written
consent, settle or compromise any Claim or consent to entry of any
judgment which does not include an unconditional
C-16
<PAGE>
release from all liability in respect of such Claim, other than liability
specified in the settlement, from the claimant or plaintiff to the
Indemnitee. To the greatest extent reasonably possible, the parties shall
attempt to obtain general releases from such plaintiff or claimant.
18. COST AND EXPENSES.
Except as contemplated by Section 7(d), each party hereto shall pay its own
costs and expenses incident to the negotiation and preparation of this
Agreement, the Registration Rights Agreement, the Assignment Agreement and the
Disposal Agreement and to the consummation of the transactions contemplated
herein and therein, provided that if the transactions contemplated by this
Agreement are not completed because (i) Far Beyond and the FB Shareholders
cannot deliver to the Company any of the documents mentioned in Section 6(d) or
any of the Far Beyond, Hearty and Megastone representations and warranties in
Section 2 is not accurate in all material respects, Far Beyond shall forthwith
indemnify and reimburse the Company and Horler for the costs and expenses
incurred by the Company and Horler on this Agreement, the Disposal Agreement and
the Assignment Agreement provided that the aggregate liability shall not exceed
HK $600,000 or (ii) the Company and Horler cannot satisfy any of the conditions
contemplated by Section 7 hereof, or any of the Company or Horler
representations and warranties in Section 4 is not accurate in all material
respects, the Company shall forthwith indemnify and reimburse Far Beyond and FB
Shareholders collectively for the costs and expenses incurred in relation to
this Agreement provided that the aggregate liability of the Company hereunder
shall not exceed HK $600,000. Such amounts shall constitute liquidated damages
and, upon receipt of such amount, the parties shall be released from any further
liability or obligation hereunder.
19. MISCELLANEOUS.
(a) WAIVER; STRICT CONSTRUCTION:
No change or modification of this Agreement shall be valid unless the same
is in writing and signed by all the parties hereto. No waiver of any provision
of this Agreement shall be valid unless in writing and signed by the person
against whom sought to be enforced. The failure of any party at any time to
insist upon strict performance of any condition, promise, agreement or
understanding set forth herein shall not be construed as a waiver of
relinquishment of the right to insist upon strict performance of the same
condition, promise, agreement or understanding at a future time.
(b) ENTIRE AGREEMENT.
This Agreement, together with all schedules and exhibits hereto sets forth
all of the promises, agreements, conditions, understandings, warranties and
representations among the parties hereto, and there are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, among them other than as set forth herein. This Agreement
is, and is intended by the parties to be, an integration of any and all prior
agreements or understandings, oral or written.
(c) HEADINGS.
The headings in this Agreement are inserted for convenience of reference
only and are not to be used in construing or interpreting the provisions of this
Agreement.
(d) COUNTERPARTS.
This Agreement may be executed in two or more identical counterparts, each
of which will be deemed an original and all of which will constitute one
instrument.
(e) CONSTRUCTION.
Unless the context clearly otherwise requires the use of the singular will
include the plural and the use of the plural will include the singular, and the
use of any gender will include the other two genders.
C-17
<PAGE>
(f) SEVERABILITY.
If a covenant or provision provided in this Agreement is deemed to be
contrary to law, that covenant or provision will be deemed ineffective and will
not affect the validity, interpretation, or effect of the other provisions of
either this Agreement or any agreement executed pursuant to it or the
application of that covenant or provision to other circumstances not contrary to
law
(g) COMPUTATION OF TIME.
Whenever the last day for the exercise of any privilege or the discharge of
any duty hereunder falls upon Saturday, Sunday, or any public or legal holiday,
whether Delaware or federal, the party having the privilege or duty will have
until 5:00 p.m. Pacific Standard Time on the next succeeding regular business
day to exercise the privilege or discharge the duty.
(h) INTERPRETATION.
No provision of this Agreement will be construed against or interpreted to
the disadvantage of any party by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
(i) GOVERNING LAW.
This Agreement and the obligations of the parties hereunder will be
interpreted, construed, and enforced in accordance with the Laws of the State of
Delaware.
(j) ATTORNEYS' FEES.
In the event a lawsuit is brought by any party to enforce or interpret the
terms hereof, or for any dispute arising out of this transaction, the party
prevailing in any such lawsuit shall be entitled to recover from the
non-prevailing party its costs and expenses thereof, including its legal fees in
reasonable amount and prejudgment and post-judgment interest at the highest rate
allowable under Delaware law.
(k) ASSIGNMENT.
This Agreement shall not be assignable by any party without the prior
written consent of the other.
(l) NOTICES.
All notices, requests, instructions or other documents to be given hereunder
shall be in writing and sent by registered mail or overnight courier:
If to Far Beyond, then:
Far Beyond Investments Limited
Rm 2005, 20/F., Universal Trade Center
3-5A Arbuthnot Road
Central, Hong Kong
Attn: David Ching
C-18
<PAGE>
with copies to:
Bernard Chan
Orient Financial Services Ltd.
13C, Chinaweal Centre
414-424 Jaffee Road
Wanchai, Hong Kong
David L. Ficksman, Esq.
Loeb & Loeb
1000 Wilshire Boulevard
Suite 1800
Los Angeles, California 90017-2475
If to the Company, then:
c/o 52/F, Bank of China Tower
1 Garden Road
Central, Hong Kong
Attn: Ms. Catherine Ma
If to Horler, then:
c/o 52/F, Bank of China Tower
1 Garden Road
Central, Hong Kong
Attn: Ms. Catherine Ma
If to the FB Shareholders then:
To the names and addresses of the FB Shareholders set out on the signature
page of this Agreement.
(m) BENEFIT AND BURDEN.
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their legatees, distributees, estates, executors or
administrators, successors and assigns, and personal and legal representatives.
IN WITNESS WHEREOF, on the date first written above, the parties hereto have
duly executed this Agreement and the Company and Far Beyond have caused their
corporate seal to be affixed hereto as of the date and year first above written.
ASIA RESOURCES HOLDINGS LIMITED
By: ______________________________
Name: Lien Kait Long
Its: Director
ATTEST: ______________________________
Name: Ma Wai Man Catherine
Its: Secretary
C-19
<PAGE>
FAR BEYOND INVESTMENTS LIMITED, A BRITISH VIRGIN ISLANDS CORPORATION
By: ______________________________
Name: Ching Lung Po
Its: Chairman
ATTEST: ______________________________
Name: Liu Ming Xue
Its: Secretary
HORLER HOLDINGS LTD
P.O. Box 71
Craigmuire Chamber
Road Town
Tortola, British Virgin Islands
By: ______________________________
Name: Ma Wai Man Catherine
Its: Director
SHAREHOLDERS OF FAR BEYOND INVESTMENTS LIMITED:
HEARTY HOLDINGS LIMITED
c/o Room 2005, Universal Trade Centre
3-5A, Arbuthnot Road
Central, Hong Kong
By: ______________________________
Name: Cao Yashan
Its: Managing Director
ATTEST: ______________________________
Name: Liu Ming Xue
Its: Secretary
WELL GAIN INVESTMENTS LIMITED
Room 2103-2104, 21/F., Treasure Centre
42 Hung To Road
Kwun Tong, Hong Kong
By: ______________________________
Name: Zhu Yi Xin
Its: Managing Director
ATTEST: ______________________________
Name: Zhu Yi Li
Its: Secretary
C-20
<PAGE>
JADT LIMITED
c/o Nomura/Jafco Investment
(Asia) Ltd.
6 Battery Road #42-01
Singapore, 049909
Republic of Singapore
By: ______________________________
Name: Daisuke Fujie
Its: Director
NJI NO. 2 INVESTMENT FUND
c/o Nomura/Jafco Investment
(Asia) Ltd.
6 Battery Road #42-01
Singapore, 049909
Republic of Singapore
By: ______________________________
Name: Masaki Kotake
MEGASTONE DEVELOPMENT LIMITED
c/o Room 2005, Universal Trade Centre
3-5A, Arbuthnot Road
Central, Hong Kong
By: ______________________________
Name: Ching Lung Po
Its: Director
C-21
<PAGE>
EXHIBIT D
OPINION OF HORWATH CORPORATE SOLUTIONS LIMITED
(SEE ATTACHED)
<PAGE>
FAIRNESS OPINION
OCTOBER 14, 1999
Our ref: CC/HN/SHS/ASIA42/CSP1/c
PRIVATE AND CONFIDENTIAL
The Directors
Asia Resources Holdings Limited
52/F Bank of China Tower
1 Garden Road
Central
Hong Kong
Attn: Mr. Lien Kait Long
Dear Sirs:
ASIA RESOURCES HOLDINGS LIMITED
FAIRNESS OPINION
1. INTRODUCTION
1.1 Asia Resources Holdings Limited (the "Company"), a Delaware corporation and
listed on the United States Over-the-counter Bulletin Board, and Horler
Holdings Limited ("Horler"), a British Virgin Islands ("BVI") corporation
which controls the Company, entered into a disposal agreement (the
"Disposal Agreement") pursuant to which the Company will sell to Horler, in
full and final settlement of the outstanding indebtedness owed to Horler by
the Company under a 9% secured convertible promissory note of
US$30,000,000, the entire share capital of Westronix Limited ("WL"), a BVI
corporation and a then wholly owned subsidiary of the Company.
The Company, via WL, holds a 51% interest in a toll road in Hangzhou,
Zhejiang Province, the People's Republic of China (the "PRC").
1.2 The Company and China Strategic Holdings Limited ("CSH"), a company
incorporated in Hong Kong and listed on The Stock Exchange of Hong Kong
Limited (the "SEHK") and the then controlling shareholder of the Company,
entered into an assignment agreement (the "Assignment Agreement") pursuant
to which the Company will sell to CSH in full and final settlement of the
outstanding indebtedness of the Company amounted to US$1,422,388 to CSH
under two promissory notes issued to the Company in the aggregate principal
amount of US$1,700,000.
1.3 Completion of the Disposal Agreement and the Assignment Agreement is
conditional and will take place immediately prior to the closing of an
acquisition agreement (the "Acquisition Agreement") pursuant to which the
Company agrees to issue 8,757,951 shares of common stock, par value of
US$0.01 per share to the shareholders of Far Beyond Investments Limited
("Far Beyond"), a BVI corporation in exchange for the entire issued capital
stock of Far Beyond. Following the closing of the acquisition agreement,
Far Beyond shareholders will own 88% of the outstanding shares of the
common stock of the Company and the Company will own 100% of the
outstanding shares of the Far Beyond capital stock. The principal
investment of Far Beyond is a 70% equity interest in Harbin Asibao Chemical
Fibre Co., Limited ("Asibao"), a sino-foreign joint venture company in the
PRC engaging in the manufacture and sale of synthetic fibre products.
D-1
<PAGE>
FAIRNESS OPINION
1.4 In accordance with our engagement letter dated September 8, 1999, we are
required to give an opinion as to whether the consideration to be received
by the Company pursuant to the Disposal Agreement and Assignment Agreement
was fair, from a financial point of view, to the existing shareholders of
the Company. As mentioned in paragraph 1.3 above, completion of the
Disposal Agreement and Assignment Agreement is conditional upon the closing
of the Acquisition Agreement. Accordingly, we have also reviewed and
considered the financial implications of the Acquisition Agreement to the
Company in forming our opinion.
1.5 Our review is primarily based on a comparison between the existing
situation and the pro forma situation as if the Disposal Agreement, the
Assignment Agreement and the Acquisition Agreement were in place.
1.6 In forming our opinion, we have relied on the accuracy of the information
and representations contained in the draft proxy statement dated
October 1, 1999 (the "Proxy Statement") of which this report form part, and
have assumed that all information and representations made or referred to
in the Proxy Statement were true at the time they were made and continued
to be true at the date of the Proxy Statement. We have also assumed that
all statements of belief, opinion and intention made by the respective
directors of the Company and Far Beyond (the "Directors") in the Proxy
Statement were reasonably made after due enquiry. We have no reason to
doubt the truth, accuracy and completeness of the information and
representations provided to us by the Directors and have been advised by
the Directors that no material factors have been omitted from the
information provided and referred to in the Proxy Statement. We have not,
however, conducted an independent in-depth investigation into the business
affairs of the Company or Far Beyond for the purpose of forming an opinion.
1.7 Our assessment is based on the review of the following:
(i) Audited financial statements of the Company and of Far Beyond for the
three years ended 31 December 1998;
(ii) Quarterly report pursuant to section 13 of 15(d) of the Securities
Exchange Act of 1934 for small business issuer ("Form 10-QSB") of the
Company for the quarter ended June 30, 1999;
(iii) The draft of the Company's proxy statement dated October 1, 1999 (the
"Proxy Statement"); and
(iv) Other relevant information concerning companies engaging in similar
businesses.
1.8 No profit forecast nor projected cash flows, neither of the Hangzhou Toll
Road nor of Asibao, is available to us for our assessment purposes.
Accordingly, our assessment is only based on historical information
furnished to us.
2. BASIS OF ASSESSMENT
2.1 We have prepared a pro forma consolidated balance sheet and pro forma
consolidated statements of operations (the "pro forma financial
statements") of the Company and its subsidiaries (the "Group"), as of and
for the three years ended December 31, 1998, as if the proposed
transactions that stipulated in the Disposal Agreement and the Assignment
Agreement took effect from January 1, 1996 (see Appendix A).
D-2
<PAGE>
FAIRNESS OPINION
2.2 A summary of the pro forma financial statements and the historical audited
financial statements is as follows:
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------
PRO-FORMA HISTORICAL
----------- ---------------
RMB'000 RMB'000
<S> <C> <C>
Current assets............................................................ 219,393 19,957
Current liabilities....................................................... (240,832) (75,179)
Net current liabilities................................................... (21,439) (55,222)
Total assets.............................................................. 435,975 769,664
Net assets/(liabilities).................................................. 173,866 (136,893)
----------- ---------------
Net current liabilities per share......................................... Rmb (2.15) Rmb (92.48)
Total assets per share.................................................... Rmb43.81 Rmb1,288.93
Net assets/(liabilities) per share........................................ Rmb17.47 Rmb (229.25)
Number of common shares................................................... 9,952,217 597,133
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------
1996 1997 1998
----------------------- ------------------------ ------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL
---------- ----------- ---------- ------------ ---------- ------------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
<S> <C> <C> <C> <C> <C> <C>
Toll revenue............................. N/A 38,463 N/A 45,100 N/A 54,217
Sales.................................... 633,695 N/A 494,897 N/A 460,448 N/A
Gross profit............................. 96,284 N/A 87,045 N/A 84,889 N/A
Income/(loss) before income taxes and
Minority interests..................... 56,894 23,167 50,981 (10,566) 54,400 (61,527)
Income/(loss) before Minority
interests.............................. 56,894 23,167 50,981 (10,566) 50,232 (61,527)
Net income/(loss)........................ 37,827 11,876 34,150 (11,237) 33,730 (43,358)
Earnings/(loss) per share ("EPS") Rmb3.80 Rmb19.89 Rmb3.43 Rmb(18.82) Rmb3.39 Rmb(72.61)
Number of shares for EPS computation..... 9,952,217 597,133 9,952,217 597,133 9,952,217 597,133
</TABLE>
2.3 We have estimated the share price of the Company based on the P/E multiple
of companies listed on the SEHK in similar business of Far Beyond. We
consider comparable companies listed on NASDAQ
D-3
<PAGE>
FAIRNESS OPINION
are likely to command a higher P/E multiple. Accordingly, we consider the
P/E multiple of comparable companies listed on the SEHK provides a
conservative and prudent basis for our assessment purposes. Examples of
these comparable listed companies are:
<TABLE>
<CAPTION>
NAME OF SHARE PRICE AT
CODE LISTED COMPANY PRINCIPAL ACTIVITY 9/28/99 P/E EPS
- --------- -------------------------------- -------------------------------- --------------- ----------- ---------
HK$
<S> <C> <C> <C> <C> <C>
263 Ploy Investments Holdings Ltd. Manufacture and trading of 0.39 -- N/A
chemical fibres and property
investment
420 Fountain Set (Holdings) Ltd. Manufacture of knitted cotton 1.03 3.5 0.294
fabrics
648 Cheung Wah Development Co. Ltd. Dyestuffs distribution, 0.295 -- N/A
household fabric, garment
manufacturing and property
investment
1131 Kwong Hing International Manufacture, sales of knitted 0.183 9.4 0.1947
Holdings (Bermuda) Limited fabrics and provision of fabric
knitting, bleaching, dyeing and
setting services
</TABLE>
2.4 The share price of the Company, as if the transactions that stipulated in
the Disposal Agreement and the Assignment Agreement were in place, can be
estimated as follows:
<TABLE>
<CAPTION>
LOWEST HIGHEST
------------ ------------
<S> <C> <C>
P/E of comparable listed companies............................... 3.50 9.40
Pro forma EPS of the Group (see paragraph 2.2)................... RMB 3.39 RMB 3.80
Estimated share price............................................ RMB11.87 RMB35.72
Equivalent to.................................................... US$ 1.43 US$ 4.30
</TABLE>
2.5 The following information sets forth the historical actual high and low
price quotations in dollars per share for the common stock of the Company
as reported in the consolidated transaction reporting system during the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
US$ US$
<S> <C> <C> <C>
1997 (Note(a))
First Quarter (through March 31, 1997)..................................... 12 61/64 2 5/32
Second Quarter (through June 30, 1997)..................................... 4 5/16 2 5/32
Third Quarter (through September 30, 1997)................................. 2 5/32 2 5/32
Fourth Quarter (through December 31, 1997)................................. 2 5/32 2 5/32
1998 (Note (a))
First Quarter (through March 31, 1998)..................................... 2 5/32 2 5/32
Second Quarter (through June 30, 1998)..................................... 2 5/32 2 5/32
Third Quarter (through September 30, 1998)................................. 2 49/64 1 3/8
Fourth Quarter (through December 31, 1998)................................. 2 49/64 2 5/32
</TABLE>
D-4
<PAGE>
FAIRNESS OPINION
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
US$ US$
<S> <C> <C> <C>
1999
First Quarter (through March 31, 1999) (Note a)............................ 4 3/4 1/4
Second Quarter (through June 30, 1999)..................................... 4 1/2 1/4
Third Quarter (through September 30, 1999)................................. 4 1/2 1 1/4
</TABLE>
- ------------------------
(a) On February 19, 1999, the Company effected a 1-for-138 reverse stock split
for the common stock. As a result, the outstanding 81,806,198 shares of the
common stock with a par value of US$0.01 each have become 597,133 shares of
common stock with a par value of US$0.01 each. The high and low bid
quotations in dollars per share for 1997 and 1998 have been restated to
reflect the 1-for-138 reverse stock split.
3. CONCLUSIONS
3.1 In summary, based on the above analyses, had the transactions that
stipulated in the Disposal Agreement and the Assignment Agreement taken
effect from January 1, 1996, in respect of the Group:
(i) Pro forma consolidated net current liabilities per share and net assets
per share would have improved from historical actual amounts at
December 31, 1998, while pro forma total assets per share would have
deteriorated from historical;
(ii) Pro forma consolidated earnings per share would have improved
significantly from historical actual amounts for the two years ended
December 31, 1998; and
(iii) The estimated pro forma share price of the Company would have been
comparable with the historical actual from 1 January 1997 onwards.
3.2 Based on the review of the information and documents provided, in our
opinion, the consideration to be received by the Company pursuant to the
Disposal Agreement and the Assignment Agreement was fair, from a financial
point of view, to the existing shareholders of the Company.
3.3 We have tried to apply objective measures of value in rendering our
opinion. However, such a value is based necessarily on certain subjective
interpretation of other value. We understand that we are not obligated to
revise our opinion due to events and fluctuating economic conditions
occurring subsequent to the date of this opinion.
3.4 We here by consent to the use of this opinion in the Proxy Statement.
Yours faithfully
For and on behalf of
Horwath Corporate Solutions Limited
<TABLE>
<S> <C>
/s/ Clement Chan /s/ Hong Ng
Clement Chan Hong Ng
Director Director
</TABLE>
Encl.
D-5
<PAGE>
APPENDIX A
(PAGE 1 OF 2)
ASIA RESOURCES HOLDINGS LIMITED
BALANCE SHEETS
AT DECEMBER 31, 1998
(EXPRESSED IN THOUSANDS OF RENMINBI EXCEPT OTHERWISE SPECIFIED)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
----------- ---------
RMB'000 RMB'000
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalent................................................................. 6,698 17,769
Trade receivable......................................................................... 75,185 --
Bills receivable......................................................................... 5,399 --
Other receivable and prepayments......................................................... 731 1,508
Inventories.............................................................................. 38,611 --
Amount due from a minority joint venture partner......................................... 81,230 --
Amounts due from related companies....................................................... 11,539 680
--------- ---------
219,383 19,957
Notes receivable........................................................................... -- 11,373
Fixed assets............................................................................... 191,379 738,334
Investment................................................................................. 11,050 --
Goodwill................................................................................... 14,153 --
--------- ---------
TOTAL ASSETS............................................................................... 435,975 769,664
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans............................................................................... 178,400 50,000
Accounts payable......................................................................... 1,896 18,288
Deposits from customers.................................................................. 12,060 --
Accrued liabilities and other payables................................................... 36,471 6,594
Amount due to a director................................................................. 1,168 --
Amounts due to related companies......................................................... 3,457 10
Taxes payables........................................................................... 2,468 287
Dividend payable......................................................................... 3,912 --
--------- ---------
Total current liabilities.................................................................. 240,832 75,179
Long-term bank loans....................................................................... -- 344,526
Convertible note payable................................................................... -- 248,451
Due to Chinese joint venture partner....................................................... -- 80,156
Due to immediate holding company........................................................... -- 32,401
Due to ultimate holding company............................................................ -- 1,175
Deferred income taxes...................................................................... 2,242 --
Minority interests......................................................................... 19,035 124,669
--------- ---------
Total liabilities and minority interests................................................... 262,109 906,557
Contingency................................................................................ -- --
Shareholders' equity
Preferred stock, per value US$01 each; 10,000,000 shares authorized
Common stock, par value US$0.01 each; 30,000,000 (historical: 7,971,014) shares
authorized; 9,952,217 (historical: 597,133) shares outstanding......................... 824 49
Additional paid-in-capital............................................................... 184,379 22,530
Accumulated deficit...................................................................... (21,337) (159,472)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIT)....................................................... 173,886 (136,893)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................................. 435,975 769,664
========= =========
</TABLE>
D-6
<PAGE>
APPENDIX A
(PAGE 2 OF 2)
ASIA RESOURCES HOLDINGS LIMITED
PROFIT AND LOSS STATEMENTS
FOR THE YEARS ENDED DECEMBER 31 1996, 1997 AND 1998
(EXPRESSED IN THOUSANDS OF RENMINBI EXCEPT OTHERWISE SPECIFIED)
<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ------------------------ ------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL
----------- ----------- ----------- ----------- ----------- -----------
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
<S> <C> <C> <C> <C> <C> <C>
Sales....................................... 633,695 N/A 494,897 N/A 460,448 N/A
Cost of sales............................... (537,411) N/A (407,852) N/A (375,559) N/A
--------- --------- ---------
Gross profit................................ 96,284 N/A 87,045 N/A 84,889 N/A
Toll revenue................................ N/A 38,463 N/A 45,100 N/A 54,217
Selling and administrative expenses......... (21,099) (15,419) (18,658) (32,951) (19,795) (45,547)
Interest income............................. 922 796 363 1,036 5,434 806
Interest expenses........................... (19,170) (1,023) (17,870) (23,735) (16,129) (72,137)
Exchange gain/(loss)........................ (43) 350 101 (16) 1 1,134
--------- --------- --------- --------- --------- ---------
Income/(loss) before income taxes........... 56,894 23,167 50,981 (10,566) 54,400 (61,527)
Income taxes................................ -- -- -- -- (4,168) --
--------- --------- --------- --------- --------- ---------
Income/(loss) before minority interests..... 56,894 23,167 50,981 (10,566) 50,232 (61,527)
Minority interests.......................... (19,067) (13,486) (16,831) (671) (16,502) 18,169
--------- --------- --------- --------- --------- ---------
Net income/(loss)........................... 37,827 9,681 34,150 (11,237) 33,730 (43,358)
Net gain on disposal of investment.......... -- 3,730 -- -- --
--------- --------- --------- --------- --------- ---------
Loss from discontinued operations........... -- (1,535) -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income/(loss)........................... 37,827 11,876 34,150 (11,237) 33,730 (43,358)
========= ========= ========= ========= ========= =========
</TABLE>
D-7
<PAGE>
EXHIBIT E
SELECTED FINANCIAL DATA OF FAR BEYOND
(SEE ATTACHED)
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
DECEMBER 31, 1996, 1997 AND 1998
E-1
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
CONTENTS
<TABLE>
<CAPTION>
PAGES
------------
<S> <C>
Report of Independent Auditors...................................................................... E-3
Consolidated Balance Sheets......................................................................... E-4
Consolidated Statements of Income................................................................... E-6
Consolidated Statements of Changes in Shareholders' Equity.......................................... E-7
Consolidated Statements of Cash Flows............................................................... E-8
Notes to Consolidated Financial Statements.......................................................... E-9--E-21
</TABLE>
E-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Far Beyond Investments Limited
We have audited the accompanying consolidated balance sheets of Far Beyond
Investments Limited (the "Company") and its subsidiary (collectively the
"Group") as of December 31, 1997 and 1998 and the related consolidated
statements of income, cash flows and changes in shareholders' equity for each of
the years ended December 31, 1996, 1997 and 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Group as of December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the years ended December 31, 1996,
1997 and 1998 in conformity with accounting principles generally accepted in the
United States of America.
/s/ ERNST & YOUNG
Hong Kong
February 4, 1999
E-3
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES 1997 1998 1998
--------- --------- --------- ---------
RMB RMB US$
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ 6,872 5,456 659
Trade receivables.................................................... 59,625 75,185 9,080
Bills receivable..................................................... 9,479 5,399 652
Other receivables and prepayments.................................... 1,110 731 88
Inventories.......................................................... 6 52,446 38,611 4,663
Amount due from a minority joint venture partner..................... 12 61,814 81,230 9,810
Amounts due from related companies................................... 12 10,924 11,539 1,395
--------- --------- ---------
TOTAL CURRENT ASSETS................................................. 202,270 218,151 26,347
FIXED ASSETS......................................................... 7 208,399 191,379 23,114
INVESTMENT........................................................... 8 -- 11,050 1,334
GOODWILL............................................................. 9 14,677 14,153 1,709
--------- --------- ---------
TOTAL ASSETS......................................................... 425,346 434,733 52,504
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans........................................................... 10 179,800 179,400 21,667
Accounts payable..................................................... 3,465 1,896 229
Deposits from customers.............................................. 24,056 12,060 1,457
Accrued liabilities and other payables............................... 18,464 36,471 4,405
Amount due to a director............................................. 12 662 1,168 141
Amounts due to related companies..................................... 12 11,361 3,457 418
Income taxes payable................................................. -- 2,468 298
Dividend payable..................................................... -- 3,912 472
--------- --------- ---------
TOTAL CURRENT LIABILITIES............................................ 237,808 240,832 29,087
MINORITY INTERESTS................................................... 46,202 19,035 2,298
DEFERRED INCOME TAXES................................................ 5 2,442 2,242 271
--------- --------- ---------
TOTAL LIABILITIES AND MINORITY INTERESTS............................. 286,452 262,109 31,656
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES........................................ 15
SHAREHOLDERS' EQUITY
Ordinary shares, par value of US$1 each
Authorized:
30,000,000 ordinary shares
Issued and fully paid:
75,000 ordinary shares........................................... 11 622 622 75
Additional paid-in capital........................................... 11 65,960 65,960 7,966
Reserves............................................................. 14 7,866 11,637 1,405
Retained earnings.................................................... 64,090 94,049 11,359
Accumulated other comprehensive income............................... 356 356 43
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY........................................... 138,894 172,624 20,848
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... 425,346 434,733 52,504
========= ========= =========
</TABLE>
The accompanying notes form an integral part of these consolidate financial
statements.
E-4
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1996 1997 1998 1998
----------- ------------ ------------ ------------ ------------
RMB RMB RMB US$
<S> <C> <C> <C> <C> <C>
SALES.......................................... 633,695 494,897 460,448 55,610
COST OF SALES, including raw materials
purchased from related parties of RMB314,707,
RMB286,463 and RMB275,041; utility charges
paid to related parties of RMB23,783,
RMB28,302 and RMB23,941; rental expenses for
leasing of plant and machinery from related
parties of RMB1,004, RMB1,004 and RMB1,004 in
1996, 1997 and 1998, respectively............ (537,411) (407,852) (375,559) (45,357)
---------- ---------- ---------- ----------
GROSS PROFIT................................... 96,284 87,045 84,889 10,253
SELLING AND ADMINISTRATIVE EXPENSES............ (21,099) (18,658) (19,795) (2,391)
FINANCIAL EXPENSES, NET........................ 4 (18,291) (17,406) (10,694) (1,292)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES..................... 56,894 50,981 54,400 6,570
INCOME TAXES................................... 5 -- -- (4,168) (503)
---------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS............... 56,894 50,981 50,232 6,067
MINORITY INTERESTS............................. (19,067) (16,831) (16,502) (1,993)
---------- ---------- ---------- ----------
NET INCOME..................................... 37,827 34,150 33,730 4,074
========== ========== ========== ==========
EARNINGS PER SHARE............................. 3(1) 591.93 455.33 449.73 54.32
========== ========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
E-5
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
ADDITIONAL EARNINGS/ OTHER
SHARE PAID-IN (ACCUMULATED COMPREHENSIVE
NOTES CAPITAL CAPITAL RESERVES LOSSES) INCOME/(LOSS) TOTAL
----- ------- ---------- -------- ------------ ------------- -------
RMB RMB RMB RMB RMB RMB
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996........................... 415 -- -- (21) (55) 339
Issue of 25,000 ordinary shares, net of share issuing
costs.............................................. 11 207 25,712 -- -- -- 25,919
Forgiveness of shareholders' loans................... 11 -- 40,248 -- -- -- 40,248
Net income........................................... -- -- -- 37,827 -- 37,827
Transfer to/(from) reserves.......................... 14 -- -- 4,190 (4,190) -- --
Currency translation adjustments..................... -- -- -- -- 411 411
--- ------ ------ ------ ------ -------
Balance at December 31, 1996......................... 622 65,960 4,190 33,616 356 104,744
Net income........................................... -- -- -- 34,150 -- 34,150
Transfer to/(from) reserves.......................... 14 -- -- 3,676 (3,676) -- --
--- ------ ------ ------ ------ -------
Balance at December 31, 1997......................... 622 65,960 7,866 64,090 356 138,894
Net income........................................... -- -- -- 33,730 -- 33,730
Transfer to/(from) reserves.......................... 14 -- -- 3,771 (3,771) -- --
--- ------ ------ ------ ------ -------
Balance at December 31, 1998......................... 622 65,960 11,637 94,049 356 172,624
=== ====== ====== ====== ====== =======
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
E-6
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF DECEMBER 31, 1997 AND 1998
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1996 1997 1998 1998
-------- ------------ ------------ ------------ ------------
RMB RMB RMB US$
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... 37,827 34,150 33,730 4,074
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation......................................... 17,678 17,614 17,581 2,123
Amortization of goodwill............................. 524 524 524 63
Minority interests................................... 19,067 16,831 16,502 1,993
Decrease/(increase) in assets:
Trade receivables.................................... (51,511) 12,322 (15,560) (1,879)
Bills receivable..................................... (25,283) 37,199 4,080 493
Other receivables and prepayments.................... 29,299 (356) 379 46
Inventories.......................................... 129,973 12,116 13,835 1,671
Amount due from related companies.................... (8,039) 18,384 (332) (40)
Increase(decrease) in liabilities:
Accounts payable..................................... 4,442 (977) (1,569) (189)
Deposits from customers.............................. 45,359 (30,366) (11,996) (1,449)
Accrued liabilities and other payables............... 4,513 9,179 10,857 1,311
Amount due to a director............................. 1,130 (468) 506 60
Amount due to related companies...................... 36,618 (37,224) (7,718) (932)
Income taxes payable................................. -- -- 2,468 298
Deferred income taxes................................ -- -- (200) (24)
-------- ------- -------- -------
Net cash provided by operating activities.............. 241,597 88,928 63,087 7,619
-------- ------- -------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of a subsidiary.......................... 13 (69,720) -- -- --
Purchases of fixed assets............................ (1,420) (1,836) (561) (68)
Advanced to a minority joint venture partner......... (305,117) (91,212) (19,416) (2,345)
Increase in investment............................... -- -- (3,900) (471)
-------- ------- -------- -------
Net cash used in investing activities.................. (376,257) (93,048) (23,877) (2,884)
-------- ------- -------- -------
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES
Issue of share capital and increase in additional
paid-in capital.................................... 66,167 -- -- --
Repayment to a shareholder........................... (1,161) -- -- --
Amount due from related companies.................... (9,309) (1,009) (283) (34)
Proceeds from bank borrowings........................ 93,540 2,660 138,800 16,763
Repayments of bank borrowings........................ (6,700) -- (139,200) (16,812)
Advances to related companies........................ 830 186 (186) (22)
Dividend paid to minority joint venture partner...... -- -- (39,757) (4,801)
-------- ------- -------- -------
Net cash provided by/(used in) financing activities.... 143,367 1,837 (40,626) (4,906)
-------- ------- -------- -------
Exchange differences on cash and cash equivalents...... 439 -- -- --
-------- ------- -------- -------
Net increase/(decrease) in cash and cash equivalents... 9,146 (2,283) (1,416) (171)
Cash and cash equivalents, at beginning of year........ 9 9,155 6,872 830
-------- ------- -------- -------
Cash and cash equivalents, at end of year.............. 9,155 6,872 5,456 659
======== ======= ======== =======
</TABLE>
The accompanying notes form an integral part of these consolidated financial
statements.
E-7
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Far Beyond Investments Limited (the "Company" or "Far Beyond") was
incorporated in the British Virgin Islands on March 21, 1995. The Company's
principal activity is to conduct activities through its subsidiary and its
principal investment is a 70% equity interest in Harbin Asibao Chemical Fibre
Co., Limited ("Asibao" or the "Joint Venture"). The principal activity of Asibao
is the manufacture and sale of synthetic fibre products.
Asibao was established as a Sino-foreign joint venture company in the
People's Republic of China (the "PRC") between Heilongjiang Londgi Group Co.,
Limited ("HLG") (30%) and Far Beyond (70%) on October 18, 1995 with a tenure of
30 years from the date of the business license. The tenure can be extended by
agreement between the joint venture partners with the necessary approval from
the relevant government agencies. The registered capital of Asibao is
US$12 million, contributed by HLG as to US$3.60 million (approximately
RMB29.88 million) and by Far Beyond as to US$8.40 million (approximately
RMB69.72 million).
The business comprises the operations (the "Business"), assets and
liabilities held by HLG and certain of its subsidiaries (the "HLG
subsidiaries"). Pursuant to the restructuring agreements (the "Restructuring
Agreements") dated September 28, 1995, the operating assets and liabilities
("Transferred Assets") of the HLG Subsidiaries, which formed part of the
Business, were transferred to HLG.
Pursuant to the Joint Venture and Restructuring Agreements (the
"Reorganization") dated September 28, 1995, HLG contributed into the Joint
Venture certain fixed assets with an aggregate fair value of US$3.60 million
(approximately RNM29.88 million) as capital. The remaining net Transferred
Assets of the Business, with an aggregate fair value of US$46.81 million
(approximately RMB388.51 million) were acquired from HLG by the Joint Venture.
Far Beyond has contributed cash amounting to, US$7.86 million (approximately
RMB65.24 million) as capital as of 31 December 1998. Pursuant to a supplemental
agreement dated January 20, 1999, the due date for the remaining unpaid capital
of US$0.54 million (approximately RMB4.48 million) to be injected by Far Beyond
was extended to September 30, 1999.
Pursuant to an agreement between the Company and HLG, the Transferred Assets
and the Business are deemed to have been transferred to the Joint Venture on
January 1, 1996. Such agreement has been approved by the relevant government
authorities in the PRC. The financial statements have been prepared under the
purchase method and includes the Business and the Transferred Assets of HLG as
described above from January 1, 1996.
2. BASIS OF PRESENTATION
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America ("US
GAAP"). This basis of accounting differs from that used in the statutory
financial statements of the Joint Venture in the PRC which are prepared in
accordance with the accounting principles and the relevant PRC financial
regulations.
The principal adjustment made to the statutory financial statements of the
Joint Venture to conform with US GAAP is the reclassification of the staff bonus
and welfare reserve appropriation from reserves to a charge to income.
E-8
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
3. PRINCIPAL ACCOUNTING POLICIES
(a) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. The results of the subsidiary acquired during the year
are consolidated from its acquisition date. All material intercompany
balances and transactions have been eliminated on consolidation.
(b) GOODWILL
Goodwill represents the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over a period of
30 years.
The carrying amount of goodwill is reviewed if facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill will
not be recoverable, as determined based on the estimated undiscounted cash
flows of the assets acquired over the remaining amortisation period, the
carrying amount of the goodwill is reduced by the estimated shortfall of
cash flows. In addition, the Company assesses long-lived assets for
impairment under FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Under those
rules, goodwill associated with assets acquired in a purchase business
combination is included in impairment evaluations when events or
circumstances exist that indicate the carrying amount of those assets may
not be recoverable.
(c) CASH AND CASH EQUIVALENTS
The Group considers cash and cash equivalents to include cash on hand and
deposits with banks with original terms of maturity of three months or less
at the date of acquisition.
At December 31, 1998, cash and cash equivalents included foreign currency
deposits equivalent to RMB166 (US$20) (1997: RMB206 (US$25)).
(d) INVENTORIES
Inventories are stated at the lower of cost and market value. Cost is
determined on the weighted average cost basis and, in the case of work in
progress and finished goods, comprises direct materials, direct labour and
an appropriate portion of overheads.
Market value is based on estimated selling prices less any further costs
expected to be incurred for completion and disposal.
(e) FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line basis to write off the cost
less estimated residual value of each asset over its estimated useful life.
The estimated useful lives of fixed assets are as follows:
<TABLE>
<S> <C>
Plant, machinery and equipment................................... 8-15 years
Motor vehicles................................................... 10 years
</TABLE>
E-9
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(f) INVESTMENT
The unlisted equity investment, not being the subsidiary or company over
which the Group is in a position to exercise a significant influence or to
control the financing and operating decisions, is accounted for by the cost
method.
(g) REVENUE RECOGNITION
Sales represent the invoiced value of goods sold, net of returns and
allowances. Revenue is recognised upon delivery of goods to customers.
(h) FOREIGN CURRENCY TRANSACTIONS
The financial records of the Company are maintained in Hong Kong dollars.
The records of the Company are translated into Renminbi ("RN4B") using the
respective applicable rates of exchange quoted by the People's Bank of China
(the "Exchange Rates") prevailing at the dates of the transactions. Monetary
assets and liabilities in Hong Kong dollars and other foreign currencies are
translated using the applicable Exchange Rates at the respective balance
sheet dates. The resulting exchange gains or losses are reported separately
as a component of shareholders' equity.
The financial records of Asibao are maintained in RNIB. In preparing these
financial statements, foreign currency transactions and monetary assets and
liabilities denominated in foreign currencies are translated into RMB using
the applicable Exchange Rates. Monetary assets and liabilities denominated
in foreign currencies are translated into RMB at the applicable Exchange
Rates at the respective balance sheet dates. The resulting exchange gains or
losses are credited or charged to the statements of income.
Translation of amounts from RMB into United States dollars ("US$") for the
convenience of the reader has been made at the Exchange Rate on
December 31, 1998 of US$1.00 = RMB8.28 and, accordingly, differs from the
underlying foreign currency amounts. No representation is made that the RMB
amounts could have been, or could be, converted into US$ at that rate on
December 31, 1998 or at any other date.
The market risks associated with changes in exchange rates and the
restriction over the convertibility of RMB into foreign currencies are
discussed in note 16 to the financial statements.
(i) INCOME TAXES
Income taxes are determined under the liability method as required by
Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes".
(j) COMPREHENSIVE INCOME
The Group adopted Statement of Financial Accounting Standards No. 130
"Comprehensive Income" ("SFAS 130") in 1998, which established standards for
reporting and display of comprehensive income/loss and its components.
SFAS 130 requires foreign currency translation adjustments to be included in
other comprehensive income/loss. Accumulated other comprehensive
income/loss, which consists of the foreign currency translation adjustments
only, is reported in the consolidated statements of shareholders' equity.
The adoption of SFAS 130 did not have a material effect on the Group's
financial position or results of operations.
E-10
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
3. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(k) RETIREMENT BENEFITS
The Company does not have any retirement plans while Asibao has a defined
contribution retirement plan for its staff. As stipulated by the regulations
of the PRC Government, Asibao is required to make an annual contribution to
an insurance company equivalent to 15% of its annual basic salaries paid to
its PRC staff. All staff of Asibao are covered under the plan and upon
retirement, the retired staff are entitled to a monthly pension payment
borne by the above-mentioned insurance company under the plan. Asibao is not
responsible for any payments beyond the contributions to the plan as noted
above.
The contributions to the retirement plans for the employees are charged to
the statement of income as services are provided. The amounts of
contribution paid by Asibao, which were charged to the consolidated
statements of income, were RMB2,019 for the year ended December 31, 1998
(1997: RMB2,134 and 1996: RMB1,861).
(l) EARNINGS PER SHARE
The calculation of earnings per share is based on the weighted average
number of ordinary shares of 63,904, 75,000 and 75,000 outstanding during
each of the years ended December 31, 1996, 1997 and 1998, respectively.
(m) USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
4. FINANCIAL EXPENSES, NET
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
RMB RMB RMB
<S> <C> <C> <C>
Interest expenses..................................................... (19,170) (17,870) (16,129)
Interest income....................................................... 922 363 5,434
Foreign exchange gains/(losses), net.................................. (43) 101 1
---------- ---------- ----------
(18,291) (17,406) (10,694)
========== ========== ==========
</TABLE>
5. INCOME TAXES
Under the current British Virgin Islands' law, any dividends the Company
will distribute in the future, and capital gains arising from the Company's
investments are not subject to income taxes in the British Virgin Islands.
Asibao is governed by the Income Tax Laws of the PRC. Being a Sino-foreign
joint venture established in the Harbin Economic Development Zone and being
awarded the status of "advanced technology enterprise", Asibao is exempted from
income taxes for a period of two years commencing from its first profitable year
and is entitled to a preferential income tax rate of 15% for the remaining years
of the Joint
E-11
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
5. INCOME TAXES (CONTINUED)
Venture with a 50% reduction for 3 consecutive years commencing from its third
profitable year. No income taxes were provided for each of the years ended
December 31, 1996 and 1997 because they were the first and second profitable
year, respectively. 1998 is the third profitable year and the income taxes are
provided accordingly. Asibao's net income was originated in the PRC.
The current and deferred income taxes for the year ended December 31, 1996,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
--------------- --------------- ---------------
RMB RMB RMB
<S> <C> <C> <C>
Current........................................... -- -- 4,368
Deferred.......................................... -- -- (200)
--------- --------- ---------
-- -- 4,168
========= ========= =========
</TABLE>
A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory PRC tax rate applicable to foreign investment
enterprises operating in the Harbin Development Zone in the PRC to the income
before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------- ------------- -------------
RMB RMB RMB
<S> <C> <C> <C>
Statutory PRC income tax rate..................... 15% 15% 15%
Computed expected tax expense..................... 8,534 7,647 8,160
Impact of tax holiday of Asibao (RMB53.87 (1997:
RMB103.33 and 1996: RMB138.79) per ordinary
share, based on the weighted average of 75,000
(1997: 75,000 and 1996: 63,904) ordinary
shares)......................................... (8,869) (7,750) (4,040)
Item which gives rise to no tax benefit:
Net losses of the Company....................... 455 225 177
Others............................................ (120) (122) (129)
--------- --------- ---------
-- -- 4,168
========= ========= =========
</TABLE>
Deferred income tax relates primarily to temporary differences on
revaluation of fixed assets between Asibao's PRC financial statements for tax
purposes and its US GAAP financial statements.
E-12
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
6. INVENTORIES
<TABLE>
<CAPTION>
1997 1998
--------- ---------
RMB RMB
<S> <C> <C>
Raw materials.............................................................. 33,962 32,393
Work in progress........................................................... 4,089 3,819
Finished goods............................................................. 16,302 4,306
--------- ---------
54,353 40,518
Less: Provision for inventories............................................ (1,907) (1,907)
--------- ---------
52,446 38,611
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------- ------------- -------------
RMB RMB RMB
<S> <C> <C> <C>
Movement of provision for inventories:
Balance at beginning of year.................... -- 1,907 1,907
Provision for the year.......................... 1,907 -- --
--------- --------- ---------
Balance at end of year.......................... 1,907 1,907 1,907
========= ========= =========
</TABLE>
7. FIXED ASSETS
<TABLE>
<CAPTION>
1997 1998
--------- ---------
RMB RMB
<S> <C> <C>
Cost:
Plant, machinery and equipment........................................ 242,800 243,361
Motor vehicles........................................................ 891 891
--------- ---------
243,691 244,252
Accumulated depreciation................................................ (35,292) (52,873)
--------- ---------
Net book value.......................................................... 208,399 191,379
========= =========
</TABLE>
8. INVESTMENT
The balance represents the investment in unlisted shares in Heilongjiang
Longdi Limited Liability Company ("Longdi"), a subsidiary of HLG, in which the
Group does not have a significant influence over its operating and financing
policies.
E-13
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
9. GOODWILL
<TABLE>
<CAPTION>
1997 1998
--------- ---------
RMB RMB
<S> <C> <C>
Cost....................................................................... 15,725 15,725
Accumulated amortization................................................... (1,048) (1,572)
--------- ---------
Net book value............................................................. 14,677 14,153
========= =========
</TABLE>
10. BANK LOANS
<TABLE>
<CAPTION>
1997 1998
--------- ---------
RMB RMB
<S> <C> <C>
Short term bank loans denominated in RMB................................ 179,800 179,400
========= =========
</TABLE>
All of the Company's assets are pledged to secure certain bank loans
amounting to RMB93,800 (1997: nil).
All of the Group's short term bank loans are secured by corporate guarantees
given by HLG (1997: by HLG and Longdi). The weighted average interest rate for
the Group's short term bank loans was 8.58% (1997: 9.50%) per annum as at
December 31, 1998.
11. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
The Company was incorporated with an authorized capital of US$50 (RMB415),
divided into 50,000 ordinary shares of par value of US$l (RMB8.3) each, of which
10 ordinary shares were issued at par for cash to the subscribers.
On July 26, 1995, the authorized share capital of the Company was increased
by US$29,950 (RMB248,585) with the creation of an additional 29,950,000 ordinary
shares, par value of US$1 each, which rank pari passu with the existing ordinary
shares of the Company.
On December 20, 1995 and March 27, 1996, 49,990 and 5,500 ordinary shares,
par value of US$l each, were issued at par for cash, respectively.
On May 15, 1996, the shareholders unconditionally and irrevocably
surrendered any claim to the repayment of the shareholders' loans amounting to
HK$37,615 (RMB40,248) at that date. The waiver of the shareholders' loans has
been accounted for in the additional paid-in capital account.
On July 3, 1996, 19,500 ordinary shares, par value of US$1 each, were issued
for a cash consideration of US$4,000 (RMB33,200). The excess of the proceeds
over the par value of the shares, net of share issuing costs, was transferred to
the additional paid-in capital account.
E-14
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
12. RELATED PARTY BALANCES AND TRANSACTIONS
The Group's amounts due from/to related companies owned and/or controlled by
HLG comprise:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
RMB RMB
<S> <C> <C>
Due from related companies
Harbin Long Xing Chemical Fibre Co. Ltd ("Long Xing").................... 606 606
Heilongjiang North Chemical Fibre Company ("North Chemical")............. 6,903 6,692
Heilongjian Dragon Flying Chemical Fibre Company ("Dragon Flying")....... 500 453
Heilongjiang Longdi Economic Trading Co. Ltd............................. 2,915 3,456
Heilongjiang Longdi Staff's Family Members Factory ("Factory")........... -- 332
--------- ---------
10,924 11,539
========= =========
Due from a minority joint venture partner--HLG............................. 61,814 81,230
========= =========
Due to related companies:
Heilongjiang Longdi Asibao Company....................................... 830 850
Dragon Rising............................................................ 10,345 2,607
Heilongjiang Electrical Equipment Co. Ltd................................ 186 --
--------- ---------
11,361 3,457
========= =========
</TABLE>
Except for the balance with HLG which bears interest at the prevailing
3-month bank loans interest rate in the PRC (1997: interest-free), the balances
with the above related companies and a director are unsecured and interest-free.
A significant portion of transactions undertaken by the Group has been
effected with HLG and companies owned and/or controlled by HLG, as follows:
(n) PURCHASES OF POLYESTER CHIPS
Pursuant to a purchase agreement dated January 10, 1996 between Longdi and
Asibao, Longdi agreed to guarantee the supply of polyester chips, to Asibao
at a 5%-10% discount to the prevailing market prices offered to other
purchasers of polyester chips with a first right of refusal to Asibao. The
discount was agreed based on mutual negotiation and after taking into
account the savings in transportation costs (excluding packaging costs) and
wastage on transportation. In addition, an additional 3% discount was also
granted by Longdi Group to allow for savings of packaging materials as a
result of the reduced distance of transportation. The polyester chips
purchased from Longdi or its subsidiary, Long Xing, through HLG in 1998
amounted to RMB260,247 (1997: RMB276,862 and 1996: RMB160,453).
(o) LEASE OF FACTORIES AND OFFICE BUILDINGS
Pursuant to the supplementary Restructuring Agreement, as amended, HLG
agreed to lease to Asibao the factories and office buildings in Harbin, the
PRC commencing on January 1, 1996. The rental agreement is for a period of
15 years at an annual rental of RMB1,004, which is adjustable, based on
further mutual negotiation, every three years.
E-15
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
12. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
(p) SALES OF POLYESTER PRODUCTS
Pursuant to a resolution passed on July 18, 1996 by the directors of Longdi
in respect of its 1995 dividend distribution, in lieu of 1995 cash dividends
payable by Longdi to its minority shareholders, these minority shareholders
were allowed by Longdi to apply their dividend rights to purchase certain
types of polyester products from Asibao at a discount of RMB300 per tonne
for the period from July 1, 1996 to June 30, 1997. Such discount utilised by
these minority shareholders was borne by Longdi in the form of reduced
dividend distribution thereto and was reimbursed by Longdi to Asibao.
The total amount of the polyester products sold to Longdi's minority
shareholders during 1997 (1996: RMB31,195) under the above scheme were
RMB74,713, including the above-mentioned discount (effectively the dividend
distributed to these minority shareholders) of RMB2,388 (1996: RMB868).
(q) OTHER TRANSACTIONS WITH RELATED COMPANIES ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
RMB RMB RMB
<S> <C> <C> <C>
Sales of finished goods to HLG.................... 1,133 10,766 7,146
Sales of finished goods to Dragon Rising.......... 3,528 4,529 2,889
Sales of finished goods to Factory................ 920 250 326
Interest expenses from HLG........................ -- -- 5,242
Purchase of raw materials from HLG................ (154,254) (9,601) (14,794)
Utilities charged by HLG.......................... (23,783) (28,302) (23,941)
========== ========== ==========
</TABLE>
E-16
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------- ------------- -------------
RMB RMB RMB
<S> <C> <C> <C>
Cash paid during the year for:
Interest expenses......................................... 19,170 17,870 16,129
========= ========= =========
Income taxes paid......................................... -- -- 1,900
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1996
----------
RMB
<S> <C>
Acquisition of Asibao:
Fair value of net assets acquired:
Trade receivables......................................................................... 20,436
Bills receivable.......................................................................... 21,395
Other receivables and prepayments......................................................... 26,969
Inventories............................................................................... 194,535
Fixed assets.............................................................................. 260,039
Goodwill.................................................................................. 15,725
Bank loans................................................................................ (90,300)
Deposits from customers................................................................... (9,063)
Accrued liabilities....................................................................... (3,179)
Deferred income taxes..................................................................... (2,442)
Amount due to a minority joint venture partner............................................ (334,515)
Minority interests........................................................................ (29,880)
----------
69,720
==========
Satisfied by:
Cash...................................................................................... 65,240
Loan from a minority joint venture partner................................................ 4,480
----------
69,720
==========
</TABLE>
14. RESERVES AND DISTRIBUTION OF PROFITS
The Company's ability to pay dividends is primarily dependent on the Company
receiving distributions from its subsidiary, Asibao. In accordance with the
relevant PRC regulations and the articles of association of Asibao,
appropriations of the net income as reflected in its statutory financial
statements will be allocated to each of the general reserve, enterprise
expansion reserve and staff bonus and welfare reserve, respectively, as
determined by the resolution of the board of directors annually.
The appropriations to general reserve and enterprise expansion reserve
attributable to the Company totaling RMB11,637 were reflected as reserves in the
consolidated balance sheet as at December 31, 1998 (1997: RMB7,866 and 1996:
RMB4,190).
E-17
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
14. RESERVES AND DISTRIBUTION OF PROFITS (CONTINUED)
The staff bonus and welfare reserve are set aside for the provision of bonus
and welfare benefits to the employees of Asibao. In accordance with US GAAP, the
amounts designated for payments of staff bonus and welfare benefits to employees
have been charged to income before arriving at the net consolidated income. The
staff bonus and welfare benefits to employees charged to the statement of income
amounted to RNM539 for the year ended December 31, 1998 (1997: RMB525 and 1996:
RMB2,992).
As described in note 2 to the consolidated financial statements, the net
income as reported in the US GAAP financial statements differs from those as
reported in the statutory financial statements. In accordance with the relevant
laws and regulations in the PRC, the profits available for distribution are
based on the statutory financial statements. At December 31, 1998, the Group's
share of the distributable profits of Asibao amounted to RMB106,041 (1997:
RNM66,861).
15. COMMITMENTS AND CONTINGENCIES
As at December 31, 1998, the Group had the following commitments:
(a) The future minimum payments under the operating leases for factories and
office buildings located in the PRC for a period of 15 years commencing
on January 1, 1996 are as follows:
<TABLE>
<CAPTION>
RMB
---------
<S> <C>
Payable in:
1999............................................................................... 1,004
2000............................................................................... 1,004
2001............................................................................... 1,004
2002............................................................................... 1,004
2003............................................................................... 1,004
Thereafter......................................................................... 7,028
---------
Total minimum lease payments......................................................... 12,048
=========
</TABLE>
Rental expense under the operating leases for the year ended December 31,
1998 amounted to RMB1,004 (1997: RMB1,004 and 1996: RMB1,004).
16. FOREIGN CURRENCY EXCHANGE
RMB is not freely convertible into foreign currencies.
Effective from January 1, 1994, a single rate of exchange is quoted daily by
the People's Bank of China (the "Exchange Rate"). However, this does not imply
convertibility of RMB into United States dollars ("US$") or other foreign
currencies. All foreign exchange transactions continue to take place either
through the Bank of China or other institutions authorized to buy and sell
foreign currencies at the exchange rates quoted by the People's Bank of China.
Approval of foreign currency payments by the Bank of China or other institutions
requires submitting a payment application form together with suppliers'
invoices, shipping documents and signed contracts.
The Exchange Rates at December 31, 1996, 1997 and 1998 were US$1: RMB8.30,
US$1: RMB8.29 and US$1: RMB8.28, respectively.
E-18
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Group's cash and cash equivalents, trade
receivables, bills receivable and accounts payable approximate their fair value
because of their short maturity period.
The carrying amounts of the balances with a minority joint venture partner,
directors and related companies are reasonable estimates of the fair values due
to the short maturity of these assets and liabilities.
It was not practicable to estimate the fair values of the Group's cost
method investment in non-traded investments because of the lack of quoted market
prices and the inability to estimate fair values without incurring excessive
costs. The carrying amounts of RMB11,050 at December 31, 1998 represent the
Group's best estimates of current economic values of this investment.
The carrying amounts of the bank loans approximate their fair value based on
the borrowing rates currently available for bank loans with similar terms and
average maturity.
18. CONCENTRATION OF CREDIT RISKS
The financial instruments which potentially subject the Group to a
significant concentration of credit risk consist are principally the following:
(a) CASH DEPOSITS
The Group places its cash deposits with various PRC State-owned banks.
(b) TRADE RECEIVABLES
The Group manufactures and sells synthetic fibre products to garment
manufacturers in the PRC. Concentration of credit risks with respect to
trade receivables is limited due to the large number of entities
comprising the Group's customer base.
Management considers that the Group's current customers are generally
creditworthy and credit is extended based on an evaluation of the
customers' financial conditions and, therefore, generally collateral is
not required.
As of December 31, 1998, trade receivables totaled RMB75,185 (1997:
RMB59,625) and are generally due within 60 days.
(c) BILLS RECEIVABLE
As of December 31, 1998, bills receivable amounted to RMB5,399 (1997:
RMB9,479) and their collectability was guaranteed by banks. The bills
receivable have normal terms of maturity of four to six months.
(d) DUE FROM RELATED COMPANIES
The balances due from related companies include the advances to and trade
receivables from related companies.
The Group does not require collateral and all of the balances are
unsecured.
E-19
<PAGE>
FAR BEYOND INVESTMENTS LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
18. CONCENTRATION OF CREDIT RISKS (CONTINUED)
(e) DUE FROM A MINORITY JOINT VENTURE PARTNER
The balance due from a minority joint venture partner includes the
advances to HLG less the amounts payable to HLG for purchase of raw
materials and utilities.
The Group does not require collateral and all of the balances are
unsecured.
19. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Group's operating assets and primary source of income and cash flows are
located in the PRC, and may be adversely affected by significant political,
economic and social uncertainties in the PRC. Although the PRC government has
been pursuing economic reform policies for the past 20 years, no assurance can
be given that the PRC government will continue to pursue such policies or that
such policies may not be significantly altered, especially in the event of a
change in leadership, social or political disruption or unforeseen circumstances
affecting the PRC's political, economic and social conditions. There is also no
guarantee that the PRC government's pursuit of economic reforms will be
consistent or effective.
The Group is dependent on HLG and its subsidiaries for providing
substantially all of the supply of polyester chips and some auxiliary materials.
While Asibao has entered into an agreement with Longdi which requires Long Xing,
a subsidiary of HLG, to prioritize allocation of polyester chips in favor of
Asibao, there can be no assurances that this agreement will result in continued
allocations of satisfactory supplies of polyester chips.
Currently, a large proportion of the Group's revenue comes from the sales of
synthetic fibre products manufactured in the PRC, which is vulnerable to an
increase in the level of competition or a change in the supply and demand
relationship in the synthetic fibre industry in the PRC.
20. SEGMENT FINANCIAL INFORMATION
The Group is engaged in the manufacture and sale of synthetic fibre
products. Its assets, operations and customer base are principally within the
PRC.
E-20
<PAGE>
FAR BEYOND INVESTMENT LIMITED AND SUBSIDIARY
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
FOR THE PERIOD ENDED JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RMB US$
---------- ---------
<S> <C> <C>
Sales....................................................................................... 170,855 20,635*
Cost of sales............................................................................... (142,712) (17,236)
---------- ---------
Gross profit................................................................................ 28,143 3,399
Selling & administrative expenses........................................................... (5,317) (642)
Financial expenses, net..................................................................... (6,097) (736)
---------- ---------
Income before income taxes.................................................................. 16,729 2,021
Income taxes................................................................................ (1,173) (142)
---------- ---------
Income before minority interests............................................................ 15,556 1,879
Minority interests.......................................................................... (5,375) (649)
---------- ---------
Net income.................................................................................. 10,181 1,230*
========== =========
</TABLE>
- ------------------------
* Major repairs and maintenance exercises need to carry out once every
2 years for the production of nylon yarn. It was implemented during the
first quarter of 1999. However, production of nylon yarn is back in service
from July and management expects net income for the 12 months ending
December 31, 1999 will reach at least US$4.0 million.
E-21
<PAGE>
FAR BEYOND INVESTMENT LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RMB US$
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................................... 6,949 839
Trade receivables............................................................................ 74,256 8,968
Bills receivable............................................................................. 4,350 525
Other receivables and prepayments............................................................ 593 72
Inventories.................................................................................. 50,233 6,067
Amount due from a minority joint venture partner............................................. 101,478 12,256
Amounts due form related companies........................................................... 33,835 4,086
--------- ---------
TOTAL CURRENT ASSETS......................................................................... 271,694 32,813
FIXED ASSETS................................................................................. 182,238 22,010
INVESTMENT................................................................................... 13,390 1,617
GOODWILL..................................................................................... 13,891 1,678
--------- ---------
TOTAL ASSETS................................................................................. 481,213 58,118
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans................................................................................... 189,200 22,850
Deposits from customers...................................................................... 45,791 5,531
Accrued liabilities and other payables....................................................... 27,039 3,266
Amount due to a director..................................................................... 937 113
Amounts due to related companies............................................................. 1,236 149
Income taxes payable......................................................................... 3,741 452
Dividend payable............................................................................. 3,912 472
--------- ---------
TOTAL CURRENT LIABILITIES.................................................................... 271,856 32,833
MINORITY INTERESTS........................................................................... 24,410 2,948
DEFERRED INCOME TAXES........................................................................ 2,142 259
--------- ---------
TOTAL LIABILITIES AND MINORITY INTERESTS..................................................... 298,408 36,040
--------- ---------
SHAREHOLDERS' EQUITY
Share capital................................................................................ 622 75
Additional paid in capital................................................................... 65,960 7,966
Reserve...................................................................................... 11,637 1,405
Retained earnings............................................................................ 104,230 12,589
Accumulated other comprehensive income....................................................... 356 43
--------- ---------
TOTAL SHAREHOLDERS' EQUITY................................................................... 182,805 22,078
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................................... 481,213 58,118
========= =========
</TABLE>
E-22
<PAGE>
FORM OF PROXY
ASIA RESOURCES HOLDINGS LIMITED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR SPECIAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Ma Wai Man, Catherine and Richard N.
Gray, and each of them, as proxies, with full power of substitution, to
represent and vote all shares of Common Stock of Asia Resources Holdings
Limited (the "Company") which the undersigned would be entitled to vote at
the Special Meeting of the Company, to be held at 52/F, Bank of China Tower,
1 Garden Road, Central, Hong Kong, on Tuesday, November 30, 1999, at 11:00
a.m., and at any adjournments thereof on Proposal I and Proposal II as I have
specified and such other matters as may come before the meeting.
You are encouraged to specify your choices by marking the appropriate
boxes on the reverse side, but you need not mark any boxes if you wish to
vote in accordance with the Board of Director's recommendations.
SEE REVERSE SIDE
<PAGE>
[X] Please mark your votes as in this example.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL I AND PROPOSAL II.
The Board of Directors recommends a vote FOR Proposal I and Proposal II.
1. Approval of (A) the Disposal Agreement by and between the Company and
Horler Holdings Ltd. and (B) the Assignment Agreement by and between
the Company and China Strategic Holdings Limited ("CSH");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of an amendment of the Certificate of Incorporation of the
Company to (A) decrease the number of authorized shares of common
stock of the Company from 1,100,000,000 shares to 30,000,000 shares
and (B) change the name of the Company to Asia Fiber Holdings Limited;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In the discretion of the proxies on any other matters that may properly
come before the meeting or any adjournment thereof.
Change of Address/Comments on reverse side [ ]
If more than one of the proxies listed on the reverse side shall be
present at the meeting or any adjournment thereof, the majority of said
proxies so present and voting shall exercise all of the powers conferred
hereby.
The undersigned hereby revokes any proxy heretofore given to vote upon
or act with respect to such shares and hereby ratifies and confirms all that
the proxies listed on the reverse side, or either of them, may lawfully do by
virtue hereof.
____________ Date: _______, 1999 _________________________ Date: _______, 1999
Signature Signature if Held Jointly
NOTE: Please sign exactly as name appears on the certificate or certificates
representing shares to be voted by this proxy, as shown on the label
above. When signing as executor, administrator, attorney, trustee, or
guardian, please give full title as such. If a corporation, please sign
full corporation name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person(s).
2
