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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 31, 2000
MORROW SNOWBOARDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 0-27002 93-1011046
(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NUMBER)
2600 PRINGLE ROAD, S.E.
SALEM, OR 97302
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(503) 375-9300
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
FORWARD-LOOKING STATEMENTS. This Current Report on Form 8-K contains
forward-looking statements which are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. When used in this report,
the words "anticipate," "believe," "estimate," "expect" and similar expressions
as they relate to Morrow Snowboards, Inc. dba Granite Bay Technologies ("Granite
Bay") or its management, including without limitation, IDW (as defined herein)
and Granite Bay's other subsidiaries, are intended to identify such
forward-looking statements. Granite Bay's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by these forward-looking statements. Granite Bay wishes to caution readers of
the important factors, among others, that in some cases have affected, and in
the future could affect Granite Bay's actual results and could cause actual
consolidated results for fiscal Year 2000, and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
Granite Bay. These factors include without limitation, Granite Bay's change in
business lines, Granite Bay's ability to obtain capital and other financing in
the amounts and the times needed, initiatives by competitors, price pressures,
changes in the political climate for business in China, and the loss of one or
more of IDW's significant customers, and the risk factors listed from time to
time in Granite Bay's SEC reports, including but not limited to the report on
Form 10K for the year ended December 26, 1998 and risk factors listed under "A
Variety of Factors Will Affect Granite Bay's Operating Results" herein.
IDW AND PRC COMPANIES ACQUISITION. In a Form 8-K filed February 1, 2000
with the Securities and Exchange Commission ("SEC") Granite Bay reported its
acquisition on January 31, 2000 of International DisplayWorks, Inc. ("IDW"), a
Delaware corporation with offices and headquarters at 599 Menlo Drive, Suite
200, Rocklin, California 95765; telephone: 916-415-0645, and IDW's subsequent
acquisition on February 1, 2000, through its wholly owned subsidiary,
International DisplayWorks Hong Kong ("IDW HK"), a company organized under the
laws of Hong Kong, People's Republic of China ("PRC") of (i) MULCD
Microelectronics Company Ltd. ("MULCD") and (ii) IDW Shenzhen Technology
Development Company, Ltd. ("IDW STD"), two companies organized under PRC law
(collectively, the "PRC Companies"). IDW, IDW HK and the PRC Companies will
operate as an integrated company. The business activities of each of the
companies is discussed under "IDW Business" herein.
The acquisition of IDW was pursuant to a Securities Purchase Agreement
under which Granite Bay exchanged 2,680,000 shares of its Common Stock (no par
value) ("Common Stock") for all the outstanding securities and rights to acquire
securities of IDW. A copy of the Securities Purchase Agreement is attached as
Exhibit 99.13. Following such share exchange, IDW became a wholly owned
subsidiary of Granite Bay. Additionally, Granite Bay loaned approximately $4.3
million to IDW to finance the acquisition of MULCD and IDW STD, as outlined
below, and to provide for working capital needs. It expects to advance up to a
total of $10 million to IDW to provide financing for the balance of the purchase
price for the PRC Companies and additional working capital. The loans are
evidenced by demand promissory
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notes that bear interest at the rate of 6% per annum, subject to adjustment.
Unless otherwise noted, all references herein to monetary amounts are to United
States Dollars ("US $").
IDW's corporate offices consist of 9300 square feet in an industrial
park in Rocklin, California. The lease is for a term of 62 months expiring April
2005. Besides the base rent of $8,816.85 per month, IDW pays a proportionate
share of operating expenses not to exceed $2,149.20 per month. After 32 months,
the base rent will adjust to $9,257.69 for the remainder of the lease.
IDW's officers and Board of Directors are as follows:
PRINCIPAL EXECUTIVE OFFICERS
ANTHONY G. GENOVESE, PRESIDENT AND CEO, age 57, founded IDW in June
1999 to purchase the shares of MULCD and VKSTD. IDW operated MULCD and VKSTD
under a management contract with Vikay Industrial, (Singapore) Limited (Vikay),
MULCD's and VKSTD's parent company, from August 1, 1999 through the acquisition
of the PRC Companies on February 1, 2000. From 1997 to 1999, Mr. Genovese was
President, joint member of the Office of the Chief Executive and member of Board
of Directors of Vikay. Vikay entered Judicial Management, a form of bankruptcy
proceeding in Singapore, in December 1997. Mr. Genovese was selected for this
position by the Judicial Managers of Vikay. Vikay is a public company listed on
the SESDAQ exchange in Singapore. In 1986, Mr. Genovese founded VGI, a joint
venture company, with Vikay to market Vikay LCD's and to help Vikay enter the
LCD module business in the United States. He introduced custom products to
major companies as ADEMCO, GE, Honeywell, Schlumberger, AT&T, Milton Bradley,
Lifescan and White-Rogers. In 1992, VGI became a subsidiary of Vikay, Vikay
America, Inc., and Mr. Genovese continued as President and CEO of Vikay
America from 1992 to 1997.
From 1976 to 1985, Mr. Genovese served as General Manager of PCI
Displays (Singapore) Pte. Limited, a subsidiary of Printed Circuit International
("PCI"), Sunnyvale, California. PCI is a manufacturer of printed circuit boards
and other electronics. During this period, he pioneered the use of LCD's in
automobiles from after-market to OEM with Renault and Ford and headed up R&D in
the improvement of chip-on-board technology that was pioneered by PCI. From 1972
to 1976, Mr. Genovese served as an R&D Engineer at Beckman Instruments to
develop proprietary LCD technologies. He produced the first reliable twisted
nematic LCD's that were used in the digital watches by Gruen and Timex and
supervised all LCD R&D activities at Beckman, including production processes for
the first TN displays, many of which are still industry standards.
Mr. Genovese started his professional career in 1966 as a research
physicist at the R&D Division of North American Aviation (now Rockwell
International) in Display Systems Research and later in Advanced Technology. He
wrote part of the proposal for the displays and controls for the B-1 bomber that
won a $4 billion contract from General Dynamics. He worked on the team that
developed the first liquid crystal display for consumer applications and the
first LCD calculator in 1969. Mr. Genovese received a BS in Physics from
Manhattan College in 1964, an MS in Physics & Mathematics from NYU & Courant
Institute of Mathematical Sciences in 1966, attended USC
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for 18 graduate credits towards Master Degree in Systems Management in 1975 and
1976. He also instructed at UCLA Extension from 1987 to 1998 in an LCD
Technology seminar.
ALAN LEFKO, CHIEF FINANCIAL OFFICER, age 52, joined IDW as of February
2000. From July 1999 to January 2000, Mr. Lefko was the Chief Financial Officer
of The Original Bungee Company (Bungee) in Oxnard, California, a manufacturer
and distributor of stretch cord and webbing products. Mr. Lefko was responsible
for the reorganization of Bungee's financing structure, establishment of an
asset based lending program and implementation of cost accounting systems and
controls.
From 1989 to 1999, Mr. Lefko served as Chief Financial Officer and
Controller of Micrologic, a manufacturer and distributor of Global Positioning
Systems and Vikay America, Inc., a subsidiary of Vikay Industrial (Singapore)
Limited, based in Chatsworth, California.
From 1979 to 1989, Mr. Lefko served as President of a 1,000 room
residential living complex for seniors and was Corporate Controller of
Huntington Health Services, Inc. a public health care provider. Mr. Lefko has a
BA degree in Business Administration and Accounting from California State
University, Northridge, California.
BEN TANG, VICE PRESIDENT, FAR EAST OPERATIONS, age 53, was one of the
founders of the predecessor company to Vikay. Mr. Tang was responsible for
Vikay's original China assembly operation. Mr. Tang joined Mr. Genovese while
Vikay was under judicial management to help operate the PRC Companies. From 1997
to 1999, he acted as a consultant to Vikay and the Stoval Company, Singapore, a
manufacturer of smart cards (cash cards for phone services) and, during the same
period was involved in consulting and investing in a number of technologies and
technology companies through Ben Tang & Associates, Singapore, a wholly owned
consulting firm. From 1996 to 1997, Mr. Tang was Acting Managing Director and
later Director of Finance for Printed Circuits International (Singapore) Pte.
LTD. ("PCIs"), with responsibility for running a printed circuit board plant for
PCIs. From 1993 to 1996, he was Business Development Director for Pacifica Can
Manufacturing, Singapore, a manufacturer of metal cans. Mr. Tang has been
involved with the electronics industry, including the LCD industry, for most of
the past 30 years. Mr. Tang did undergraduate work in Physics and holds a degree
in Accounting and was an auditor at Ernst & Young.
BOARD OF DIRECTORS
STEPHEN C. KIRCHER, age 46, has served as a Chairman of the Board and
Director of IDW since formation of IDW in June 1999. Mr. Kircher presently
serves as Chairman of the Board of Granite Bay, since February 15, 2000, and as
a Director of Granite Bay since October 1999. Since 1993, Mr. Kircher has served
as President & Chief Executive Officer, Capitol Bay Group, Inc. ("CBG"), a
holding company which he owns, and as Chief Executive Officer of Capitol Bay
Securities, Inc., a NASD licensed broker-dealer, and Capitol Bay Management,
Inc., an investment company, both wholly-owned subsidiaries of CB. Prior to
1993, Mr. Kircher formed and managed Spinner Corporation, a corporation that
engaged in leveraged buyouts of troubled companies. Mr. Kircher has extensive
experience as a principal in equity private placements, sale and leaseback
financing, multiple forms of debt financing, and initial public offerings. Mr.
Kircher
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began his career with Dean Witter in 1975 before joining Bateman, Eichler, Hill
& Richards, a regional investment banking firm in 1978. Mr. Kircher has a BA
degree from the University of California, San Diego.
P. BLAIR MULLIN, age 46, has served as a director of IDW since February
2000. Mr. Mullin has served as Chairman of the Board of Granite Bay from April
1999 to February 2000 and as a Director of Granite Bay since October 1998. Mr.
Mullin has also served as Granite Bay's President since May 1998 and as Chief
Financial Officer since Granite Bay's acquisition of Westbeach Snowboard Canada
Ltd. ("Westbeach") in November 1997. In addition, he has served as Treasurer and
Secretary of Granite Bay since January 1998. Mr. Mullin served as President and
Chief Executive Officer of Westbeach from July 1995 to November 1997, and from
May 1998 to present. Mr. Mullin was responsible for the sale of the snowboard
manufacturing assets and the snowboard apparel trademarks in 1999. From 1992 to
1995, Mr. Mullin was a private business consultant, serving companies in
distress situations. From 1988 to 1992, Mr. Mullin served as Chief Financial
Officer of Bradbury International Equities Ltd., a holding company, and as
General Manager of Padovano Foods, Inc., a food processing company, from 1990 to
1992. From 1982 to 1988, Mr. Mullin managed loan portfolios with banks in
Toronto and Calgary, Canada, and Houston, Texas. Mr. Mullin received an MBA from
the University of Western Ontario in 1982 and a Bachelor of Arts (Economics)
degree from Wilfrid Laurier University in 1975.
ANTHONY G. GENOVESE, see discussion above under "Executive Officers."
Granite Bay expects to expand the IDW Board of Directors to up to five
directors and is currently evaluating further additions to the Board.
IDW HK. On February 1, 2000, using funds advanced by Granite Bay to
IDW, IDW HK acquired pursuant to a Sale and Purchase Agreement ("Purchase
Agreement") from the Judicial Manager, KMPG Peat Marwick, in a Judicial
Management Proceeding in Singapore (a form of bankruptcy proceeding), all of the
outstanding voting stock and rights to acquire stock and other equity interests
in MULCD and IDW STD. The Purchase Agreement is attached as Exhibit 99.14. The
Singapore Judicial Management Proceeding resulted from the bankruptcy of the
parent of the PRC Companies, Vikay Industrial, Ltd. ("Vikay"), headquartered in
Singapore. Prior to December 6, 1997, Vikay was a publicly listed company on the
SESDAQ Exchange in Singapore, with its trading privileges suspended when it went
under judicial management on December 6, 1997. The total net adjusted purchase
price for the equity interests was $8,816468 (US$) with $4,271,729 paid at
closing and notes for $4,544,739, bearing interest at the rate of 6% per annum,
given for the balance of the purchase price, with such notes being due and
payable in the amount of $3,584,347 plus accrued interest on April 30, 2000 and
the balance of $960,392 plus accrued interest on May 31, 2000, such numbers
being based on the January 27, 2000 conversion rate of the Singapore dollar into
the US Dollar of 1.6855 to 1. As noted, the initial payment for the PRC
Companies was funded through loans from Granite Bay. The April 30, 2000 payment
is expected to be financed from collection of certain existing accounts
receivable of the PRC Companies. The May 31, 2000 payment, plus any portion of
the April 30, 2000 payment not covered by accounts receivable collections,
presently estimated at a total payment of $1 million, and future working capital
needs of IDW, is expected to be financed by
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Granite Bay from its existing liquid assets consisting of cash and accounts
receivable in excess of $2 million, through a sale or refinancing of its real
property or, if necessary through a private placement or other financing by
Granite Bay. Such financing, if necessary, would result in dilution in the
percentage ownership of existing shareholders due to the issuance of additional
securities.
Besides the Purchase Agreement, IDW HK entered into a Supplemental Deed
and Charge ("Charge Agreement") among IDW and IDW HK, as Chargors, and Vikay
Industrial (Hong Kong) Ltd. and Vikay Industrial, Ltd., as Chargees. A copy of
the Charge Agreement is attached as Exhibit 99.15. Under the Charge Agreement,
IDW pledged the Common Stock of IDW HK and the PRC Companies' assets to secure
the payment of the balance of the purchase price for the PRC Companies, of which
$3,584,347 plus accrued interest is due April 30, 2000 and the balance of
$960,392 plus accrued interest which is due and payable on May 31, 2000. While
Granite Bay presently expects to be fully able to finance those payments if the
payments are not made, if such payments are not timely made, the security
interest in the IDW HK Common Stock could be foreclosed upon short notice and
IDW's investment through IDW HK in the PRC Companies lost.
IDW HK's corporate offices consist of 3,100 square feet in a high-rise
office building in Hong Kong, SAZ (Special Administrative Zone). The lease is
for 6 months with a base rent of HK$30,000 per month and a building management
fee of HK$11,000 per month. Management of IDW is reviewing a possible extension
to this lease.
THE PRC COMPANIES. The PRC Companies are located in Heng Gang,
Shenzhen, China. The PRC Companies are involved in the manufacture of liquid
crystal displays (LCD's), turnkey assemblies, front panel display systems,
subassemblies and products incorporating LCD's for use in telecommunications and
other electronics equipment, including cellular telephones. The PRC Companies
employ approximately 1,350, and own a manufacturing facility in Heng Gang,
Shenzhen, China. The manufacturing facilities consist of three buildings
totaling approximately 270,000 sq.ft. with its own electric power generation
plant (diesel fuel), situated on four acres in Heng Gang Industrial Estate,
located 30 minutes from the city of Shenzhen and about one hour from Hong Kong.
The PRC Companies' facilities are on land leased pursuant to a 50-year land
lease expiring in 2043. The PRC Companies must pay annual land rent of
approximately US$70,000, subject to certain periodic rent increases. Space is
also leased in Singapore for sales and design staff personnel of the PRC
Companies. Mr. Tang, whose business background is described above under IDW,
will be primarily responsible for overseeing and managing the PRC Companies'
operations.
Since the acquisition of the PRC Companies, Granite Bay and IDW have
taken over control of operations and financial records of the PRC Companies. IDW
and IDW's auditors are currently reviewing and auditing the performance of the
PRC Companies for 1999. Until IDW and IDW HK have completed their review of the
PRC Companies' financial records, have completed the audit of the PRC Companies,
had the opportunity to fully analyze the financial performance and operations of
the PRC Companies prior to their acquisition by IDW HK, IDW is limiting the
scope and detail of the financial information provided regarding the PRC
Companies. Further, much of the information included herein is an estimate only
of financial
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results or percentages of various categories and may be subject to a change upon
review and audit. In many cases, the adjustments may be material. Granite Bay
intends to file audited financial statements and other financial information in
accordance with the United States securities law requirements and SEC rules and
regulations on or before March 31, 2000.
IDW BUSINESS.
INTRODUCTION. Following the acquisition of the PRC Companies, IDW,
together with IDW HK and the PRC Companies, will design, market and produce
LCD's and products incorporating LCD's, principally in Asia, the United States
and Europe, with design and manufacture of such products to be at the facilities
of the PRC Companies, with a focus on high-volume original equipment
manufacturers ("OEMs") who are leaders in their fields. IDW's corporate mission
is to create an efficient display manufacturing operation that will maintain the
latest product and production technologies. Unless the context indicates
otherwise, IDW means IDW, IDW and the PRC Companies and references to IDW's
electronics business, unless the context indicates otherwise, is to the business
conducted by the PRC Companies prior to their acquisition by IDW HK by IDW and
its subsidiaries thereafter.
IDW designs and manufactures a wide range of display modules including
liquid crystal display ("LCD") products, turnkey assemblies, front panel display
systems and subassemblies with integrated circuits ("ICs") for use in the end
products of original equipment manufacturers ("OEMs"). Over 60% of IDW's sales
in 1999 were believed to consist of custom display modules developed in close
collaboration with its customers. Devices designed and manufactured by IDW
include applications in telecommunications (cell phones and other wireless
communication services), as well as in medical equipment, appliances, utility
applications, automotive equipment, retail and office equipment, and consumer
electronic products, including entertainment systems. Targeted areas for new
applications include office equipment (copiers, facsimile machines, and
printers) and high resolution graphic display products for personal digital
assistance and small computer and map displays. Approximately 30% of 1999 sales
were believed to be to the office machinery market (principally calculators) and
approximately 20% to the telecommunications industry (principally cellular
telephones) with the balance spread over a variety of products and industries.
IDW currently specializes in LCD components and technology and providing design
and manufacturing services for its customers. IDW currently markets its services
primarily in Hong Kong and, to as lesser extent, Asia, but intends to expand
sales efforts in the United States, Europe and Asia. IDW maintains design
centers at its manufacturing facilities and in Singapore, a country which
contains corporate headquarters or regional headquarters for many major
electronics firms.
IDW took over management of the two PRC Companies beginning August 1,
1999 while the PRC Companies' parent, Vikay, was under Judicial Management (a
form of bankruptcy) by KMPG Peat Marwick in Singapore. IDW estimates that the
PRC Companies had sales of $24.3 million in 1999, and sales of less than $24.0
million in 1998, which 1999 and 1998 sales declined from an estimated high of
$55.0 million in 1997. The exact 1998 sales can not presently be determined. IDW
believes that the decline in sales, which has been reversed in 1999 under IDW
HK's management reflects the uncertainty, financing problems, and other factors
related to the bankruptcy of Vikay which began in December 1997 and delay of
implementation of the new
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LCD production line until late 1998. IDW believes that prior sales and
performance for the PRC Companies over the past several years are not reflective
or predictive of IDW's current or future operations due to the Vikay bankruptcy
and related factors.
IDW believes it is positioned to recapture sales lost during judicial
management, expand production capacity and capabilities, open sales offices in
North America, Europe and Asia, capture large OEM and foundry accounts, focus on
high-volume production and management support to increase yields, reduce
inventories through careful planning and scheduling of components to arrive on a
just-in-time plan ("JIT Plan") thus improving cash flow, increase design staff
to support new projects and products, reduce overhead and lower operating costs
and establish a new inter-company computer system that integrates the functions
of IDW HK and the PRC Companies, increasing communication between the factories,
sales offices and customers so information flow will be rapid and accurate with
sales quotes and invoices done in a timely manner.
IDW believes that such positioning will restore sales of the PRC
Companies to prior levels, generate sales growth in excess of 25% per year for
at least the next five years, expand the customer base and markets IDW serves,
give IDW strength in designing prototypes and producing products on a timely and
cost-efficient basis, including a wide variety of custom design-quality display
modules required in the end products of OEMs and increase IDW's range of
standard display module products. IDW expects the sales growth to come equally
from increased production and replacement of existing production with
higher-price, higher-margin LCD displays.
INDUSTRY OVERVIEW. Since the commercial production of the first light
emitting diodes, ("LEDs") in the 1960s and twisted pneumatic liquid crystal
displays in the 1970s, the use of LCD and LED indicators has become widespread
in industrial and consumer electronic products with LCD now the predominant
technology. These new technologies were developed to overcome limitations in
uses, principally in terms of size, life, and power consumption, of prior common
displays or indicators.
LCD modifies light that passes through or is reflected by it, rather
than emitting light like an LED. An LCD generally consists of a layer of liquid
crystalline material suspended between two glass plates. The crystals align
themselves in a predictable manner, which alignment changes when stimulated
electrically. The change in alignment produces a visual representation of the
information desired when used in conjunction with a polarizer and either an
external light source or natural ambient light.
The flexibility of liquid crystal technology allows for easy
customization in both size and design. For instance, displays are manufactured
in sheet form; and, the images can be changed by generating artwork to the
customer's requirements. Display size can be controlled by programming the
cutting tool to the desired dimensions. There is no significant additional
manufacturing cost for a fully custom display that allows each product to have
its own unique appearance such as icons, annunciators, and color printing.
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OEMs often design their products to contain unique display modules and
features as a highly cost-effective means of differentiating their products from
competing products. OEMs then make the decision whether to use standard devices,
design and produce devices in-house or outsource design and/or production. In
making the decision, OEMs often recognize that their greatest strengths are
consumer recognition of their brand names, market research and product
development expertise and effective sales and distribution channels. OEMs also
recognize the time constraints and limitation of available resources often
preclude them from maintaining the specialized in-house expertise and equipment
necessary to design and manufacture custom devices and that standard
"off-the-shelf" devices are not always available. As a result, many OEMs decide
to outsource the design and production of devices and components in which they
lack the requisite technology and expertise and focus their resources on the
areas where they have the greatest expertise and leverage. Outsourcing allows
them to gain access to specialized design and manufacturing technology and
expertise, accelerate the design process, reduce their own investment in
equipment, facilities, and personnel necessary for specialized design and
production capabilities, reduce design and manufacturing costs by utilizing the
specialized resources of the supplier, and concentrating their resources on
their strengths in the production and distribution of their core products.
IDW expects to benefit from the decision by certain OEMs in the
electronics industry to outsource the design and production of certain
components included in the end products of those OEMs. IDW believes that the
following factors, among others, have contributed to this growing trend among
OEMs: 1) major companies such as Xerox, Hewlett-Packard and IBM have decided to
focus efforts on designing concepts, software and marketing the finished
product; and 2) low cost suppliers, offering design capabilities and who take
responsibility for quality and reliability, and who can provide lower overall
product and service costs.
The estimated world market for segmented and character LCD's is
reported to be $1.3 billion, of which $225 million is in North America. The
majority of IDW's business is small alpha-numeric displays and modules which
represents a significant portion of that market. IDW will concentrate on
high-volume applications with preferred customers who are leaders in the field.
PRODUCTS AND SERVICE. IDW's products consist of LCD's and sub
assemblies, ranging from the low-end LCD's for calculators, watches and
electronic games to STN-LCD's for use in applications that require high
multiplex rates and wide viewing angles. Such devices are used in cellular
telephones, consumer appliances, office equipment, bar code readers, automotive
equipment, and medical electronics. The display division, MULCD, produces the
LCD's. The electronics division, IDW STD, designs and manufactures customized
LCD modules adding value to the basic displays with electronics, keypads,
interface circuitry, back lighting and mounting hardware. This division also
produces assemblies without LCD's. IDW STD has production and design capability
in module processes, including surface mount technology ("SMT"), chip-on-board
("COB"), chip-on-film ("COF"), tape automated bonding ("TAB"), keypads and back
lighting and expects to add chip-on-glass ("COG") processing during the next
year.
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IDW currently emphasizes custom-design display modules. IDW believes
that custom devices represent approximately 85% of its sales and 85% profit and
the best opportunity for higher profits and potential growth. For each custom
device, IDW works directly with its customer to develop and produce the original
design and manufacture the device in accordance with the customer's
specifications. IDW attempts to identify the specific needs of existing and
prospective customers' applications. IDW then assigns a cross-functional team of
IDW engineers to a custom design project to develop the product working with the
customer's engineers throughout the design phase, prototype development and
manufacturing process. This effort normally results in a complete system or
product requiring a specific visual display (cellular telephone, medical
instrument or hand-held data collection device). IDW has a number of previously
prepared custom designs that are currently generating revenue and are expected
to generate additional revenue in the future.
IDW also designs and produces standard or "off-the-shelf" devices which
include designs that are adaptable to various fixed-end uses without
modifications or with slight modification. Standard devices encompass a wide
variety of LCD devices having varied applications including dot matrix modules,
graphic modules, and watch and calculator displays.
IDW will pursue a product development strategy designed to enable it to
establish its position as a major, worldwide supplier of custom-design and
manufacture display modules for products distributed by OEMs in various high
growth industries. Approximately 30% of IDW's sales are to the telecommunication
industry, an industry IDW expects to continue growing and 25-40 % to medical
products, office equipment and automotive and the balance to various industries.
IDW is instituting a careful marketing and customer selection process to more
closely align its growth and development with that of the customers and
industries IDW believes offer the greatest opportunity for growth. IDW's
research and development will focus upon technological developments and products
that meet the current and future requirements of those industries and companies.
With its high-volume LCD manufacturing line at its MULCD facilities,
IDW will focus its efforts on creating advanced display technologies. These
advanced display technologies will allow IDW to provide its customers with
differentiating products or products that provide higher information content in
either custom or standard devices.
MANUFACTURING. The PRC Companies have a broad range of production
processes to manufacture a variety of LCD types and features, including TN and
STN displays which incorporate a wide variety of interface technology, as well
as appearance and environmental options. Various assembly processes are in
production to support the requirements of telecommunications, consumer and
outdoor applications. IDW's manufacturing operations are comprised of two
manufacturing divisions. MULCD, the display subsidiary, has a state-of-the-art,
fully automated, LCD front-end sheet processing production line started in 1998,
supported by backend processing and testing operators. The existing LCD
front-end processing production line is currently operating at 90% capacity with
the majority of the business supporting the local Hong Kong market. IDW will
focus on shifting existing production to higher priced displays for the USA,
European and selective Asian markets and longer production runs to reduce the
cost of product changes. If IDW is successful in increasing orders, IDW's future
plans are to add a
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second automated LCD production line and ITO production line that will
complement the present line by adding capabilities for thin glass production and
chip-on-glass displays. IDW expects to finance the expected $14 million cost of
such additional line through internally generated funds, equipment leasing, and
if necessary, private placement by Granite Bay of additional shares of Common
Stock. MULCD's LCD line was awarded an ISO 9001 certification for quality.
IDW STD, the module and assembly division, is an ISO 9002 certified
high volume display module and assembly production facility geared for customers
having $1-$5 million per month production volumes. This factory is currently
running at approximately 20% capacity and is qualified to produce LCD modules
for several major cell phone and telecommunication manufacturers. Current
manufacturing technologies are COB, SMT, TAB assembly and heat seal flex
circuitry assembly. IDW STD has the option to buy displays from outside sources
in order to expand its production capabilities or to have a second source to
meet customers' requirements. IDW STD's production capabilities include five (5)
SMT lines for high-speed electronic component placement and seventeen (17)
production lines for LCD Modules, PCB assemblies. IDW STD also produces printed
circuit board assemblies without LCD's. MULCD and IDW STD run separate cost
centers; and, IDW is reviewing the operations and cost allocation of those
companies currently. Due to the judicial management proceeding, it is not in a
position to release information regarding the sales and profitability of each
cost center at this time.
IDW's manufacturing operations are located in China. IDW believes that
wage costs are currently materially lower in China, a competitive advantage that
will allow IDW to compete effectively for business in the United States and
Europe and throughout Asia, with companies with facilities located closer to
customers in those countries or areas. IDW may be unable to compete for
customers outside China with companies with closer manufacturing facilities if
this wage advantage were to disappear or lessen other cost differentials
affecting IDW's ability to provide products at competitive prices.
IDW seeks to increase its value to its customers by providing
responsive, flexible, total design and manufacturing services. To date,
manufacturing services have been concentrated towards the manufacture of LCD's
and assembly of IDW-design display module assemblies. IDW will provide extended
manufacturing services beyond those base services if the customer requests them.
Extended services may include design, process development and turnkey
manufacturing.
The PRC Companies' manufacturing facilities consist of three buildings
comprising a 270,000 sq. ft. facility with its own electric power generation
plant (diesel fuel fired) located on four acres in the Heng Gang Industrial
Estate, located 30 minutes from the city of Shenzhen and about one hour from
Hong Kong. The buildings are approximately ten years old, the LCD production
line approximately two years old, the SMT production machinery approximately two
to three years old and the balance of the machinery of varying ages. There is
sufficient land to accommodate future expansion and growth of the business.
Since the business is operating below peak capacity, there is additional
production floor space for available support and
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expansion in IDW's manufacturing operations. The facilities are located on
property that is leased through year 2043.
QUALITY CONTROL. IDW has an aggressive quality control program and
maintains quality systems and processes that meet or exceed the requirements set
by many leading OEMs in targeted industries. IDW bases its quality control
program upon Total Quality Management ("TQM"). IDW routinely performs
product-like testing on its standard and custom products to ensure product
reliability and quality. IDW analyzes test results and takes actions to adjust
the manufacturing process or enhance product design and quality. IDW primarily
competes for customers based on customer expectations regarding design and
performance, price, delivery, and quality. IDW's customers generally evaluate
price in the quotation process, while delivery and quality are evaluated after
the product is shipped. Therefore, many customers evaluate a company's quality
by reviewing the quality systems employed. IDW's receipt of an ISO 9001
certification for quality for the MULCD facility and an ISO 9002 certification
for the IDW STD facility should give its clients assurance as to IDW's quality
control processes. ISO is a quality standard established by the International
Organization for Standardization. IDW expects to be certified with QS9000 by
third quarter 2000 for automotive products.
SALES AND MARKETING. IDW has established a network of sales
representatives in much of the USA and Canada to be supplemented and supported
by IDW regional sales managers and engineers. IDW expects to establish OEM and
distribution sales managers in Europe in the first half of 2000. In the Far
East, IDW HK and IDW Singapore were established to provide engineering and sales
support to sales representatives and direct local sales in the region. Sales
offices are currently maintained in Hong Kong and Singapore with design services
available at the plant facilities and Singapore office.
IDW's sales to customers in Asia are believed to represent
approximately 60% of net sales in 1999, with 50% of sales believed to be to
customers in Hong Kong and the balance to customers in other areas in Asia. The
United States is believed to account for 20-30% of sales and Europe 10-15%.
Further, approximately 20% of those sales were to customers in the
telecommunications industry and 40% in the consumer, appliance and watch
industries.
CUSTOMERS. IDW operates under Non-Disclosure Agreements with many of
its major customers and thus cannot provide specific customer detail. However,
no customer accounted for more than 15% of sales in 1999, and approximately five
to six customers each represented up to 5% of sales. IDW major customers
included, among others, QUALCOMM, Lucent Technologies, General Electric
Corporation and Ecowater. IDW expects to continue to focus on the personal
communications market, and could increase its percentage of sales to that
industry to more than the current 35% of sales.
BACKLOG. As of February 15, 2000, IDW had a backlog of orders in excess
of US $3.0 million, all of which is believed to be firm and expected to be
filled during calendar year 2000.
IDW's business has some seasonality due to the significant percentage
of retail products in which its products are incorporated, the production of
which tends to ramp up in the second quarter and start to decline in the fourth
quarter because of the holiday sales season, with the
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potential for a disproportionate lower percentage of the year's total sales
being in the first quarter of the calendar year.
INTELLECTUAL PROPERTY. IDW relies upon a combination of trade secrets,
trademark laws, confidentiality procedures and contractual provisions to protect
its intellectual property. IDW's core business is not dependent on any patent or
trademark protection and IDW does not expect to seek patent protection for any
technology in the near future.
RAW MATERIALS. The principal raw materials used in producing IDW's
products consists of raw and coated glass, polarizers, liquid crystal,
chemicals, PCBs, driver IC's, molded plastic parts, electronic components and
packaging materials. The PRC Companies electric power plant uses diesel fuel to
generate electricity. IDW has alternative sources of supply for the majority of
these materials and believes that additional sources would be available if any
of its existing suppliers were to go out of business or not be able to furnish
materials. Several of these materials, however, must be obtained from foreign
suppliers, which subjects IDW to the risk inherent in obtaining materials from
foreign sources, including currency fluctuations and supply interruptions. IDW's
ability to produce significant percentage of its requirements of LCD glass and
its training facility has reduced its dependence on foreign LCD glass suppliers.
COMPETITION. IDW believes Three-Five Systems, Wintek, Varitronix and
Optrex, constitute the principal competitors for IDW's LCD devices. These
competitors are presently larger companies that are believed to have greater
financial, technical, marketing, manufacturing, research and development, and
personnel resources than IDW. IDW's success, including its revenue and
profitability, depends substantially upon its ability to compete with the
other suppliers of display modules. There is no assurance that IDW will
continue to be able compete successfully with such companies.
IDW currently competes principally on the basis of the technical
innovation and performance for display modules, their cost, quality and timely
delivery. To remain competitive and increase market share, IDW needs to develop
more sophisticated, higher-end LCD modules. IDW could also be adversely affected
if one or more of its existing significant customers or potential customers
determined to design and manufacture their own display modules or to secure them
from other OEM manufacturers.
RESEARCH AND DEVELOPMENT. IDW will conduct active and ongoing research
and development that is focused on improving technology, developing improved
designs, improving manufacturing processes, and improving the overall quality of
the products and services that IDW offers. IDW's research and development is
focused on LCD technology. IDW expects to increase its research and development
efforts on new display technologies and more sophisticated display technologies.
While Vikay was under judicial management, no material funding was allocated to
and spent on research and development for the PRC Companies. IDW expects to
restore research and development funding activities to appropriate levels and is
hiring research personal to accomplish that goal.
IDW is currently developing LCD technology to compete for the
automotive dashboard and clock business, laser printer and copier business and
the point-of-sale market (through
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development of cold cathode fluorescent ("CCF" back-lighting production
capability) and, through development of large graphic LCD's, portable word
processing, medical instrument, ticketing machines, hand-held computers,
financial terminals and point-of-sale and other electronics markets.
ENVIRONMENTAL REGULATION. IDW's operations generate small amounts of
hazardous waste as manufacturing byproducts, including various gases, epoxies,
inks, solvents, and other wastes. The PRC Companies also operate a diesel-fired
electricity plant on its property. As IDW's operations expand, the amount of
such hazardous waste produced may increase. Over time, hazardous waste has
received increased regulation from federal, state, local, and international
governments and agencies. IDW believes that its operations comply with
applicable environmental regulations and hazardous waste is being stored, used
and disposed of in accordance with applicable laws.
EMPLOYEES. As of December 31, 1999, IDW employed a total of 1375
persons, including approximately 1358 of those employees employed by the PRC
Companies, 4 by IDW in California and 10 by IDW HK in Hong Kong. Ninety percent
(90%) of those persons employed by the PRC Companies work in manufacturing. IDW
considers its relationship with its employees to be good, its benefits to be
similar to comparable employees in the same geographic markets, with none of its
employees currently represented by a union or similar organization in collective
bargaining with IDW.
A VARIETY OF FACTORS WILL AFFECT GRANITE BAY'S OPERATING RESULTS.
Granite Bay's principal assets consist of its equity interests in
Globalgate E-Commerce, Inc. ("Globalgate") and IDW. No immediate return is
expected from Granite Bay's interest in Globalgate. As a result, Granite Bay's
operating results will primarily reflect IDW's operating results. A wide variety
of factors will affect IDW's operating results and could adversely impact its
net sales and profitability. Significant factors in IDW's success will be its
ability to establish and, in certain cases, re-establish design and
manufacturing relationships with key OEM customers that will generate sufficient
orders, including orders of higher margin products, to increase revenues and
profitability. Although IDW products are incorporated in a wide variety of
communications, consumer and appliance products, approximately 20% of its sales
in 1999 were for display modules for cellular products and 30% for use in
calculators. A slowdown in demand for cellular products or calculators that
utilize IDW's devices as a result of economic or other conditions and the market
served by IDW or other factors could adversely affect IDW's operating results.
IDW's products are sold into an industry characterized by increasingly rapid
product turnaround, increasingly shorter lead times, product obsolescence, order
cancellation and other factors that make it difficult to forecast future orders,
production and personnel needs and other resources requirements with a high
level of certainty. IDW's ability to anticipate such factors and respond to them
in a timely fashion will affect its ability to utilize its manufacturing
capacity effectively, maintain a proper product mix and avoid downtimes due to
product conversions and other factors. Such uncertainty also creates
difficulties in maintaining adequate supplies of raw materials to meet shifting
customer needs and customer orders placed on short notice.
Page 14-FORM 8-K
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Other factors, many of which could be beyond Granite Bay's and IDW's
control, include the following:
- IDW's ability to increase sales, including sales of higher
margin products and sales in Asia, Europe and the United
States;
- IDW's ability to expand sales into other industries that have
significant growth potential and to establish strong and
long-lasting relationships with companies in those industries;
- IDW's ability to provide significant design and manufacturing
services for those companies in a timely and cost-efficient
manner;
- Granite Bay's and IDW's ability to raise sufficient working
capital to fund IDW's operations and growth;
- Over the long run, Granite Bay's ability to raise additional
capital for IDW to buy equipment and expand plant facilities
to expand into higher margin products;
- IDW's success in maintaining customer satisfaction with its
design and manufacturing services and its products'
performance and reliability;
- Customer order patterns, changes in order mix, and the level
and timing of customer orders placed by customers that IDW can
complete in a calendar quarter;
- Market acceptance and demand for customer products and the
product life;
- The availability and effective utilization of manufacturing
capacity;
- The quality, availability and cost of raw materials, equipment
and supplies;
- Continuation of IDW's wage cost advantages;
- The cyclical nature of the electronics industries;
- Technological changes and technological obsolescence; and
- Competition and competitive pressure on prices.
DEPENDENCE ON KEY PERSONNEL. IDW's success is largely dependent upon
the sales and expertise of Anthony Genovese, President and CEO. Loss of his
services could materially and adversely affect IDW's business, its future
prospects and operating results, including its ability to penetrate the United
States market. IDW presently has no long-term employment agreements with Mr.
Genovese or other key employees. IDW's business and operating results also
depends substantially on its efforts and ability of its senior management and
technical personnel. The
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competition for qualified management and technical personnel is intense. The
loss of service of one or more of its key employees or the ability to add and
retain key personnel (including those required to manage the manufacturing
facilities) have a material adverse effect on IDW. IDW does not presently
maintain key-person life insurance. IDW intends to implement employment
agreements and obtain key-person life insurance with key employees, including
appropriate non-disclosure and assignment of inventions provisions.
A FEW CUSTOMERS AND APPLICATIONS ACCOUNT FOR A SIGNIFICANT PORTION OF
IDW'S SALES; ORDER CANCELLATIONS. For the past several years, IDW has generated
most of its revenue from sales to a few significant customers. In 1999, five to
six customers including QUALCOMM, Lucent Technologies, General Electric
Corporation and Ecowater generated approximately 35% of Granite Bay's sales.
Further, devices used in cellular telephones accounted for approximately 20% of
Granite Bay's sales 1999 and devices used in calculators for approximately 30%
of Granite Bay's sales in 1999.
Generally, customers do not make firm long-term buying purchase
commitments. Further, most orders are subject to cancellation on short notice.
Cancellation, delay or reduction of customer orders could result in IDW holding
excess or obsolete inventory and having unfavorable manufacturing variances as a
result of under-absorption of manufacturing capacity. These risks are enhanced
because of the large percentage of sales to customers in the electronic industry
which is subject to severe competitive pressures, rapid technological change and
obsolescence. While IDW expects to continue to receive orders from the four
customers named herein and new customers, there is no assurance orders will be
received, and if received, not cancelled, delayed or reduced, which could have a
material adverse effect on IDW's results of operations. To address this problem,
IDW expects to increase sales to the above customers or new customers for custom
devices where purchase orders are generally longer term with more limited
cancellation provisions.
NEED FOR ADDITIONAL FINANCING. The opportunities for growth in IDW's
lines of business are dependent upon having sufficient capital resources
available to realize the rapid growth potential significant OEM key accounts
which IDW has identified and targeted. IDW is expected to need working capital
commensurate with its growth and up to $14 million to install and implement new
production lines, a significant portion of which is expected to be obtained from
equipment financing. Based on expected production increases, additional working
capital will be needed.
Certain types of display devices require expensive manufacturing
equipment, in certain cases costing in excess of several hundred million dollars
for the manufacturing line and facility. An example is Active Matrix production
equipment. IDW does not expect to create sufficient capital, or, through Granite
Bay, raise the capital, to design and manufacture such display devices. The
inability to include such display devices in its product offerings may affect
Granite Bay's ability to seek business from certain customers who want complete
solutions to all their display device needs or adversely affect Granite Bay's
operating results if technology shifts to such higher-end devices in general.
Page 16-FORM 8-K
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RAMIFICATIONS OF A LONG PERIOD OF JUDICIAL MANAGEMENT. Since the parent
of MULCD and VIK STD was under judicial management from December 6, 1997 through
January 2000, many of IDW customers found second sources of supply or purchased
goods elsewhere. The probability of recovering much of that lost business has
been impaired by the passage of time. Judicial management also affected the
pricing, terms and conditions of payments to its suppliers. In many cases,
supplier relationships may have been adversely impacted in the short and long
run. IDW will need to reestablish credit and verify that material costs are in
line with the industry. In some cases, IDW may have to establish new sources of
supply. IDW also believes that the judicial management resulted in financial and
operating performances that are not reliable in terms of predicting future
financial performance operations.
IDW FACES INTENSE COMPETITION. IDW operates in a competitive
environment that is characterized by price erosion, rapid technological change
and foreign competition. IDW competes with major Asian and international
companies. Most of IDW's competitors have greater market recognition and
substantially greater financial, technical, marketing, distribution,
manufacturing and other resources than IDW. Further, many of IDW's competitors
have manufacturing and sales forces that are geographically diversified allowing
them to reduce transportation, tariff costs and currency fluctuations for
certain customers in markets where their facilities are located. Many
competitors have production lines that allow them to produce more sophisticated
and complex devices than IDW and to offer a broader range of display devices to
customers. New emerging companies or companies in related industries may also
increase their participation in the display module market increasing
competition.
IDW currently competes principally on the basis of price, timely
delivery and quality in its standard devices and lower-end devices and, also on
the basis of design and manufacturing capability and technical innovation and
performance on its more complex display models and custom devices, including
their ease of use and reliability. IDW's ability to compete successfully depends
on a number of factors, both in and outside of its control. Those factors
include: the price, quality, performance, reliability, ease of use and features
of its products; the variety of its product solutions; foreign currency
fluctuation; trade barriers and custom duties which may effect the cost of
products; ability to design and manufacture new product solutions, including
incorporating new technology; the availability and price of raw materials; IDW's
ability to fully utilize its manufacturing facility; new product technology or
solutions by IDW's competitors; the number and success of competitors; and
general market and economic conditions. IDW's competitive position can also be
adversely affected if one or more of its customers, including its key customers,
decide to design and manufacture their own display modules, use different
devices or purchase devices from competitors. IDW cannot assure that it will
compete successfully in the future.
RISK OF INABILITY TO PRODUCE HIGH-END PRODUCTS. IDW's success and
Granite Bay's profitability will be dependent upon IDW's ability to effectively
offer or manufacture higher-end products such as large graphic STN, Color
graphic displays, micro-displays and black mask automotive products.
These products offer both the opportunity to increase utilization of
existing manufacturing capacity, and also the opportunity to generate higher
margins and profits at given
Page 17-FORM 8-K
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revenue levels. The production of such products requires increased custom design
and manufacturing and the maintenance of strong customer relationships. This
will require IDW to maintain and upgrade its research, engineering and designing
capabilities to remain in the forefront of developments in the industries.
RAPIDLY CHANGING TECHNOLOGIES. IDW operates in an industry
characterized by constant technological advances, the introduction of new
products, and new design and manufacturing techniques. As a result, IDW will be
required to extend substantial funds and commit significant resources to
continuing research and development activities, engaging additional engineering
and other technical personnel, purchasing new design, production and test
equipment, and continually enhancing design and manufacturing processes and
techniques.
IDW's future operating results will depend significantly on its ability
to timely provide design and manufacturing services for new products that
compete favorably with the design and manufacturing capabilities of OEMs and
third-party suppliers.
IDW could invest significant sums in design and manufacturing services
for new product solutions that may not receive or maintain customer or market
acceptance or effectively address customer needs which could adversely affect
its future operating results. Further, customers may change or delay product
introductions or terminate existing products without notice for any number of
reasons unrelated to IDW, including lack of market acceptance for a product.
As noted, IDW's LCD line is operating near full capacity, while its
manufacturing facilities and lines in its module subsidiary are operating at
significantly less than full capacity. The conversion of that line to
higher-end, higher-margin displays may result in having to drop some current
customers and increase downtime for that line due to change over time to new
products. In the short run, this exchange may produce lower margins due to loss
of orders from existing customers and downtime. Increasing manufacturing
capacity utilization and increasing the product mix to higher-end products will
be primary goals for IDW in 2000 and subsequent years. Further, IDW will attempt
to convert the higher-end products without losing any of its existing customers
and minimizing the downtime due to such conversion.
IDW's efforts to expand and diversify its product and customer base is
expected to cause IDW's overhead and selling expenses to increase. IDW may also
be required to increase its design staff and other personnel and incur other
expenses on capital equipment, leasehold permits and other items to meet the
anticipated or actual demand of its customers. Those additional costs may
adversely impact operating margins in the short term.
MAINTENANCE OF SATISFACTORY MANUFACTURING YIELDS AND CAPACITIES;
VARIABILITY OF CUSTOMER REQUIREMENTS. The profitability and operating results of
IDW are dependent upon a variety of factors, including product mix, utilization
rates of its manufacturing lines, down time due to product changeover,
impurities in raw materials causing shutdowns, maintenance of contaminant-free
operations and other factors.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. IDW has made a decision
to locate all of its manufacturing operations in China and to establish sales
offices in Asia, Europe and the
Page 18-FORM 8-K
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United States. The geographical distance between its manufacturing facilities in
China and in North America create a number of logistical and communications
challenges. Because of the location of the manufacturing facilities in China,
IDW may be affected by economic and political conditions in that country, as
well as economic and political conditions in the countries in which it markets
and distributes its products, including without limitation, problems related to
labor unrest, lack of developed infrastructure, variances in payment cycles,
currency fluctuations, overlapping taxes and multiple taxation issues,
employment and severance taxes, compliance with local laws and regulatory
requirements, greater difficulty in collecting accounts receivable, political
and economic instability, and the burdens of cost and compliance with a variety
of foreign laws.
Further, changes in policies by the United States or other foreign
governments resulting in, among other things, increased duties, higher taxation,
currency conversion, limitations and restrictions on the transfer or
repatriation of funds or limitations on imports or exports, or the expropriation
of private enterprises could also have a material adverse effect on IDW and its
results of operations. In addition, IDW could be adversely affected if China
were to change its current policies encouraging foreign investment or foreign
trade. IDW could also be adversely impacted if the United States were to
withdraw the "most favored nation" status and trade preferences currently being
extended to China. That status is annually reviewed and there is no assurance
the United States will renew China's MFN status in future years. The nonrenewal
of China's MFN status could adversely affect IDW by increasing the cost to
United States customers or products manufactured by IDW in China. IDW's
operators are further subject to significant political, economic, legal and
other uncertainties in China. Despite progress in developing its legal system,
China does not have a comprehensive nor highly developed system of laws,
particularly with respect to foreign investment activities and foreign trade.
Enforcement of existing future laws and contracts is uncertain, and
implementation and interpretation of such laws may be inconsistent. Changes in
existing laws, the adoption of new laws and preemption of local regulations by
national laws may adversely affect foreign investment in China. IDW could also
be adversely affected by other factors, including the imposition of austerity
and other monetary measures to fight inflation or to achieve other economic
objectives; inadequate development or maintenance of infrastructure, including
adequate power and water supplies, transportation or raw materials in parts or
the deterioration in the general political, economic or social environment.
RISKS ASSOCIATED WITH COLLECTIBILITY OF RECEIVABLES. IDW extends credit
to its customers based on an assessment of a customer's financial circumstances,
generally without requiring collateral. Additionally, the PRC Companies have
given certain Asian customers extended payment terms, subject to a careful
credit assessment, where customary and to meet competition. These extended
payment terms, if continued, may increase IDW's exposure to risk of uncollected
receivables. The inability to collect on these accounts receivables taking into
account normal bad debt reserves, could have a material adverse affect on IDW
and Granite Bay's results of operations and profitability.
RISKS ASSOCIATED WITH CURRENCY FLUCTUATIONS AND INTERNATIONAL TRADE.
Sales outside China represented approximately 95% of IDW's net sales in 1999.
Sales in foreign markets, primarily Europe, the United States and other parts of
Asia, are expected to increase significantly
Page 19-FORM 8-K
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in 2000 and subsequent years. Economic and political conditions outside China
may adversely affect the manufacture and sale of IDW's products. Protectionist
trade legislation in the United States or foreign countries, such as a change in
export or import compliance laws, tariff or duty structures, or other trade
policies, could adversely affect IDW's ability to sell devices in foreign
markets, to purchase raw materials or equipment from foreign suppliers.
IDW transacts business in a variety of currencies including HK dollars,
Singapore dollars, US dollars and the Chinese renmimbi ("RMB"). Increased sales
to Europe may result in payments in other currencies, such as the Euro. Further,
IDW accounts for a portion of its costs, such as payroll, land rent and certain
other costs in RMB. While foreign currency exchange fluctuations are not
believed to materially affect IDW's operations, changes in the relation of the
RMB or other currencies to the U.S. dollar, could affect IDW's cost of goods
sold, operating margins and result in exchange losses. In addition, currency
devaluations, changes in exchange rate fluctuations could affect the value of
deposits of currencies IDW holds or results of operations. The Chinese RMB has
experienced significant devaluation against most major currencies in the past.
Establishment of the current exchange rate system as of January 1, 1994 produced
a significant devaluation of the RMB from $1.00 to RMB 5.7 to approximately
$1.00 to RMB 8.7. Any future material decrease in the value of the RMB relative
to the U.S. dollar would adversely increase IDW's cost and expenses and
therefore have a material adverse affect on IDW's profitability and results of
operations. Further, any decrease in the value could also affect the value of
any U.S. dollar-denominated intercompany loans from Granite Bay or its
subsidiaries to IDW. Because the RMB is not freely traded, hedging that currency
is difficult.
IDW MAY EXPERIENCE SHORTAGES OF RAW MATERIALS AND SUPPLIES. Principal
raw materials used in producing IDW's products consist of raw and coated glass,
polarizers, liquid crystal, chemicals, PCBs, driver IC's, molded plastic parts,
electronic components and packaging materials. IDW purchases most of these
materials from Asian sources. IDW does not have long term supply contracts with
its suppliers. IDW believes that it has secondary sources of supplies for most
of its products and, if it were to lose any of its primary or secondary
suppliers, could develop new sources of supply. Because IDW sources many
materials from foreign suppliers, IDW may be subject to certain risks, including
tariffs, currency fluctuations and supply interruptions.
IDW IS SUBJECT TO ENVIRONMENTAL REGULATIONS. IDW's operations result in
the creation of small amounts of hazardous wastes, including various gases,
epoxies, inks, solvents and other coal wastes. IDW is, therefore, subject to
national, state and local governmental regulations related to the use, storage
and disposal of such hazardous wastes used in its manufacturing processes. IDW
also has its own electric power generation plant which operates on diesel fuel.
The amounts of such hazardous waste are expected to increase in the future as
IDW's manufacturing operations increase. The failure to comply with present and
future environmental regulation can result in the imposition of fines,
suspension or halting of production, or closure of manufacturing operations.
Environmental compliance may also require IDW to purchase costs or equipment or
to incur significant capital expenses. Although IDW believes it is operating in
compliance with applicable environmental laws, there is no assurance that IDW is
in compliance or will remain in compliance as such laws and regulations change.
Page 20-FORM 8-K
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GOVERNMENTAL REGULATIONS. IDW is subject to numerous foreign, state and
local government regulation. It is subject to laws and regulation governing its
relationship with its employees, including wage and hour requirements, working
and safety conditions, citizenship requirements, work permits and travel
restrictions. Further, the PRC Companies are leasing the land under their
facilities under a 50-year lease, expiring in the year 2043. IDW is also subject
to significant government regulation relating to property ownership and use,
import restrictions, currency restrictions and other areas, all of which
consistently impact profits and operating results. Chinese law and/or employment
customs in the area extend certain severance and other benefits to longer term
employees (over one year), where employees are involuntarily terminated, which
laws and customs in the future could affect IDW's decision and the cost of a
decision to shut down or relocate plants.
YEAR 2000 COMPLIANCE. IDW has updated and tested its software to
correct for the Year 2000 problem. However, there can be no assurances these
software corrections will be free of errors. IDW's manufacturing facilities
operate independently of the municipal power supply, as IDW has its own power
generation plant onsite. IDW does not expect Year 2000 problems to adversely
affect operations or its power supply. IDW has been verifying that its vendors
are Year 2000 compliant. While that verification has not been completed, to
date, IDW has not encountered any significant problems with any suppliers it has
contacted. Presently, IDW does not expect to incur any material expenses due to
Year 2000 compliance
ACQUISITION OF PRC PROPERTY. The PRC Companies have not yet received
all the land use transfers necessary for their 50-year lease in the land in
which the industrial facilities are located, together with ownership of the
improvements constructed thereon. Based on advice from PRC counsel, IDW HK
believes that such transfers have received all necessary PRC governmental
approvals, all transfer fees have been paid and the issuance of such permits and
this point is merely administrative in nature. Such formal land transfers are
expected within the next two to three months. If such land transfers were not
received for some unexpected reason, the PRC Companies' operations may be
impacted, although the exact impact cannot presently be determined.
OTHER RISKS. Other risks IDW faces include the prior cyclical nature of
the electronics industry, the protection of IDW's trade secrets and technology,
management of expected rapid growth in personnel, capital equipment, outside
sales force, sales and accounts receivable and other items, and maintenance of
adequate research and development efforts and personnel.
Besides the general risk factors noted above, there are several
specific risks that should be noted:
PAYMENT FOR BALANCE OF PURCHASE PRICE FOR THE PRC COMPANIES. As noted,
IDW HK must pay the balance of the purchase price of $4,544,739, plus accrued
interest, in installments on April 30, 2000 and May 31, 2000. IDW HK's
outstanding Common Stock has been pledged to secure payment of those amounts. As
noted, IDW HK expects to pay the $3,584,347 million, plus accrued interest,
owing on April 30, 2000, through the collection of existing accounts receivable
in the amount of approximately $3.5 million with any shortfall covered by
Granite Bay's excess working capital. Granite Bay currently estimates that
approximately $1.5 million
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will be needed to fund the May 31, 2000 payment of $960,392, plus accrued
interest and provide necessary short term working capital for IDW and its
subsidiaries. Granite Bay has or expects to have an $2.5 million available to
fund the balance of the purchase price and to provide needed working capital and
planned capital expenditures or meet its other working capital and debt
obligations outlined in the next paragraph. If IDW HK is unsuccessful in timely
collecting all its accounts receivable and the resources of Granite Bay were
insufficient to cover the shortfall, then Granite Bay could face a total risk of
loss of its investment in IDW and the underlying PRC Companies.
GRANITE BAY'S CAPITAL RESOURCES AND LIQUIDITY. Granite Bay currently
has no operating businesses that generate income that will provide working
capital, other than prospective future income from the PRC Companies, which
income is not expected to be available in significant amounts in the near
future. Granite Bay has approximately $2.8 million of debt, secured by its real
property due in June 2000. Additionally, Granite Bay expects to have additional
liabilities through that period of approximately $200,000, not covered by
collection of accounts receivable or other amounts owing Granite Bay from third
parties. Besides needing to raise additional financing to allow IDW HK to pay
the balance of the purchase price for the PRC Companies and to provide working
capital, Granite Bay will need to refinance its existing debt to creditors or
raise additional financing to cover such debt through the issuance of additional
Common Stock and/or sale of its Salem, Oregon facility. While Granite Bay
believes it will be able to raise such additional financing, there is no
assurance such additional financing will be raised. In such event, Granite Bay
could face a loss of its investment in the PRC Companies and possible action by
its domestic creditors. Granite Bay also has or expects to have cash and
accounts receivable totaling approximately $2.5 million available to meet those
various obligations.
ITEM 5. OTHER EVENTS.
Stephen Kircher, a Granite Bay director, was elected Chairman of
Granite Bay's Board of Directors, effective February 15, 2000.
Granite Bay has changed its CUSIP No. to 387242100 and its trading
symbol with NASDAQ to "GBAY" from "MRRW," such symbol change to be effective
February 18, 2000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
EXHIBITS. The following exhibits are included with this filing:
1. Securities Purchase Agreement, effective as of January 31,
2000, among Morrow Snowboards, Inc. and the Sellers (listed on Exhibit A).
2. Sale and Purchase Agreement, [February 1, 2000] among Vikay
Industrial Ltd., Vikay Industrial (Hong Kong) Ltd. and International
DisplayWorks, Inc.
3. Supplemental Deed and Charge, dated [February 1, 2000] between
International DisplayWorks (Hong Kong) Ltd. and International DisplayWorks,
Inc., as Chargors, and Vikay Industrial ltd. (in Judicial Management) and Vikay
Industrial (Hong Kong) Ltd., as Chargees.
Page 22-FORM 8-K
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Salem, State of Oregon, on February 15, 2000.
MORROW SNOWBOARDS, INC.
By: /s/ P. Blair Mullin
-------------------------------------
P. Blair Mullin
PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL EXECUTIVE, FINANCIAL AND
ACCOUNTING OFFICER
Page 23-FORM 8-K
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT DESCRIPTION
99.13 Securities Purchase Agreement, effective as of January
31, 2000, among Morrow Snowboards, Inc. and the
Sellers (listed on Exhibit A).
99.14 Sale and Purchase Agreement, [February 1, 2000] among
Vikay Industrial Ltd., Vikay Industrial (Hong Kong)
Ltd. and International DisplayWorks, Inc.
99.15 Supplemental Deed and Charge, dated [February 1, 2000]
between International DisplayWorks (Hong Kong) Ltd.
and International DisplayWorks, Inc., as Chargors, and
Vikay Industrial ltd. (in Judicial Management) and
Vikay Industrial (Hong Kong) Ltd., as Chargees.
Page 24-FORM 8-K
<PAGE>
--------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
AMONG
MORROW SNOWBOARDS, INC.,
INTERNATIONAL DISPLAYWORKS, INC.,
AND
THE SELLERS
(LISTED ON EXHIBIT A)
--------------------------------------------------------------
EFFECTIVE JANUARY 31, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I ACQUISITION OF IDW 2
1.01 Stock of MSI and IDW 2
(a) IDW COMMON STOCK 2
(b) SURRENDER AND EXCHANGE OF IDW COMMON STOCK 2
ARTICLE II STOCKHOLDER APPROVAL, BOARD OF DIRECTORS' RECOMMENDATIONS,
EFFECTIVE TIME. 3
2.01 Stockholder Approvals, Board of Director's Recommendations 3
ARTICLE III REPRESENTATIONS AND WARRANTIES 3
3.01 Representations and Warranties of Seller 3
(a) DUE AUTHORIZATION 3
(b) TITLE TO SECURITIES 4
(c) SECURITIES ACT REPRESENTATIONS 4
(1) COMPLIANCE WITH LAW 4
(2) INFORMATION 5
(d) BROKERS'AND FINDERS'FEES; OTHER COSTS AND ADJUSTMENTS 6
(e) KNOWLEDGE OF SELLER 6
(f) SHAREHOLDERS'AGREEMENT 6
(g) INVESTOR STATUS 6
3.02 Representations and Warranties of IDW 6
(a) SECURITY HOLDERS; CAPITALIZATION 7
(b) FINANCIAL STATEMENTS 7
(c) UNDISCLOSED LIABILITIES; ENVIRONMENTAL MATTERS 7
(d) ABSENCE OF CHANGES 9
(e) LITIGATION AND CLAIMS 10
(f) DUE ORGANIZATION AND QUALIFICATION 11
(g) TAX MATTERS 11
(h) MATERIAL AGREEMENTS AND EMPLOYMENT CONTRACTS 11
(i) TITLE TO PROPERTY AND RELATED MATTERS 12
(j) CORPORATE RECORDS 12
(k) LICENSES, TRADEMARKS AND TRADE NAMES 12
(l) CORPORATE AUTHORITY 13
(m) BINDING OBLIGATION OF IDW 13
(n) CAPITALIZATION 13
(o) FULL DISCLOSURE 13
(p) FINDERS OR BROKERS 13
(q) PAYMENTS 13
Page 2--SECURITIES PURCHASE AGREEMENT
<PAGE>
(r) SHARE OWNERSHIP 14
(s) APPROVALS REQUIRED 14
(t) SUBSIDIARIES AND AFFILIATES 14
(u) NO CONFLICTS 14
(v) RELATED-PARTY TRANSACTIONS 15
(w) INSURANCE 15
(x) COMPLIANCE WITH LAWS 15
(y) MINUTE BOOKS 15
3.03 Representations and Warranties of MSI 15
(a) SHARES OF MSI COMMON STOCK 16
(b) DUE AUTHORIZATION AND QUALIFICATION 16
(c) FINANCIAL STATEMENTS 16
(d) LITIGATION AND CLAIMS 16
(e) DUE ORGANIZATION AND QUALIFICATION 16
(g) BROKERAGE FEES 17
(h) REGULATORY FILINGS 17
(i) CORPORATE RECORDS 17
(j) CORPORATE AUTHORITY 17
(k) BINDING OBLIGATION OF MSI 17
(l) DISCLOSURE 18
ARTICLE IV COVENANTS 18
4.01 Covenants of IDW 18
(a) CONDUCT OF BUSINESS 18
(b) NO SOLICITATION 18
(c) IDW ACTIONS 19
4.02 Covenants of MSI 19
(a) CONDUCT OF BUSINESS 19
(b) NO SOLICITATION 19
(c) MSI ACTIONS 20
(d) AGREEMENT TO VOTE 20
4.03 Covenants of MSI and IDW 20
(a) ACCESS TO INFORMATION 20
(b) COMMERCIALLY REASONABLE EFFORTS; OTHER EFFORTS 21
(c) PUBLIC ANNOUNCEMENTS 21
(d) NOTIFICATION OF CERTAIN MATTERS 21
(e) EXPENSES 21
(f) FAILURE TO TAKE ACTION 21
(g) EXHIBITS, CLOSING STATEMENTS AND SCHEDULES 22
4.04 Covenants of Sellers 22
(a) STOCK OWNERSHIP 22
(b) SHAREHOLDER ACTION 22
(c) NOTICE 22
Page 3--SECURITIES PURCHASE AGREEMENT
<PAGE>
(d) RETENTION OF STOCK 22
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES 22
5.01 Conditions Precedent to Obligations of IDW and Sellers 22
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES 22
(b) COMPLIANCE WITH COVENANTS 23
(c) FORM OF NEW CERTIFICATES 23
(d) APPROVAL BY COUNSEL 23
(e) OPINION OF COUNSEL 23
(f) OFFICERS'CERTIFICATE 24
(g) CLOSING FINANCIAL STATEMENTS 24
5.02 Conditions Precedent to Obligations of MSI 24
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES 24
(b) COMPLIANCE WITH COVENANTS 24
(c) APPROVAL BY COUNSEL 24
(d) OPINION OF COUNSEL 24
(e) OFFICERS'AND SELLERS'CERTIFICATE 24
(f) CLOSING FINANCIAL STATEMENTS 25
(g) COMPLETION OF ACQUISITION OF THE PRC COMPANIES BY
INTERNATIONAL DISPLAYWORKS HONG KONG 25
5.03 Conditions Precedent to Obligations of Sellers, IDW and MSI 25
(a) IDW STOCKHOLDER APPROVAL 25
(b) CERTAIN PROCEEDINGS 25
ARTICLE VI CLOSING 25
6.01 Time and Place 25
6.02 Documents at Closing 26
(a) DOCUMENTS BY IDW 26
(b) DOCUMENTS BY MSI 26
ARTICLE VII TERMINATION AND ABANDONMENT 27
7.01 Termination 27
(a) MUTUAL CONSENT 27
(b) ORDER OF JUDICIAL OR REGULATORY AUTHORITY 27
7.02 Termination by IDW 28
7.03 Termination by MSI 28
7.04 Procedure for Termination 28
7.05 Effect of Termination and Abandonment 28
ARTICLE VIII DISPUTE RESOLUTION 29
8.01 Agreement Disputes 29
8.02 Arbitration in Accordance with American Arbitration
Association Rules 29
Page 4--SECURITIES PURCHASE AGREEMENT
<PAGE>
8.03 Final and Binding Awards 29
8.04 Costs of Arbitration 29
8.05 Settlement by Mutual Agreement 29
8.06 Indemnification by Sellers 30
ARTICLE IX OTHER MATTERS 30
9.01 The Closing 30
</TABLE>
SCHEDULES
3.02 Disclosure Schedule of IDW
3.03 Disclosure Schedule of MSI
EXHIBITS
A. IDW Common Stock Owned by Stockholders (Pursuant to Section 3.01(b))
and MSI Common Stock to be Issued (Pursuant to Section 1.01(a))
B. Form of Certificate of MSI Common Stock (Pursuant to Section 5.01(b))
C. Form of Opinion of MSI's Counsel (Pursuant to Section 5.01(e))
D. Form of Opinion of IDW's Counsel (Pursuant to Section 5.02(d))
E-1 Form of Officers' Certificate of MSI (Pursuant to Section 5.01(f))
E-2 Form of Officers' Certificate of IDW (Pursuant to Section 5.02(e))
E-3 Form of Certificate of Sellers (Pursuant to Section 5.02(e))
F. List of Definitions and Meaning of Terms
Page 5--SECURITIES PURCHASE AGREEMENT
<PAGE>
SECURITIES PURCHASE AGREEMENT
PARTIES:
MORROW SNOWBOARDS, INC., an Oregon corporation ("MSI"),
INTERNATIONAL DISPLAYWORKS, INC., a Delaware corporation ("IDW"), and
ANTHONY GENOVESE, a resident of California,
SHARON GENOVESE, a resident of California,
DELAWARE TRUST FBO ANTHONY GENOVESE IRA, a trust domiciled in Delaware,
EUREKA CAPITAL CORPORATION, LTD., a Hong Kong corporation,
PETER LIN, a resident of Taiwan,
CAPITOL BAY SECURITIES, INC., a California corporation,
TONY LIU, a resident of California, and
CRAIG CHRISTENSEN, a resident of California
(constituting all the shareholders of IDW whose share ownership in IDW
is listed on the attached Exhibit A, who have executed this Agreement
and who are referred to herein individually as a "Seller" and
collectively, as the "Sellers")
RECITALS:
A. The respective Boards of Directors of MSI and IDW have approved the
acquisition of IDW by MSI pursuant and subject to the terms and conditions of
this Agreement (the "Reorganization"), whereby each issued and outstanding
share of IDW Common Stock, par value $0.001 per share, at the Effective Time
will be exchanged for 1.32673 shares of MSI Common Stock, no par value;
B. Sellers own all the issued and outstanding shares of IDW Common
Stock (the "IDW Common Stock" listed on Exhibit A);
Page 6--SECURITIES PURCHASE AGREEMENT
<PAGE>
C. MSI desires to acquire from Sellers and each Seller desires to
transfer to MSI, the IDW Common Stock listed in Exhibit A on the terms and
subject to the conditions set forth in this Agreement;
D. MSI and IDW contemplate that the Reorganization will be classified
as a tax-free reorganization pursuant to Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended ("Code");
E. The parties hereto desire to make certain representations,
warranties and agreements in connection with the Reorganization and also to
set forth the various conditions to the Reorganization;
F. The respective Boards of Directors of MSI, IDW and the Shareholders
(where a corporation) have adopted resolutions approving this Agreement, the
Reorganization and the transactions contemplated herein; and
G. The terms used in this Agreement shall have the meanings
respectively ascribed to them in Exhibit F hereto.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
AGREEMENTS:
ARTICLE I
ACQUISITION OF IDW
1.01 STOCK OF MSI AND IDW.
(a) IDW COMMON STOCK. At the Effective Time, MSI shall acquire
all of the issued and outstanding shares of IDW. Each outstanding share of
IDW Common Stock, par value $.001 per share, outstanding at the Effective
Time shall be exchanged for 1.32673 shares of MSI Common Stock, no par value
per share. If at the Closing, MSI does not acquire "control" (as such term is
defined in Section 368(c) of the Code) of IDW, and all the outstanding IDW
Common Stock and all rights to acquire IDW securities, MSI may terminate this
Agreement.
(b) SURRENDER AND EXCHANGE OF IDW COMMON STOCK. At the
Closing, each holder of an outstanding certificate or certificates (the "Old
Certificates") theretofore representing shares of IDW Common Stock, upon
surrender thereof to MSI, shall be entitled to receive and exchange therefor
a certificate or certificates (the "New Certificates"), which MSI agrees to
make available at the Effective Time, representing the number of whole shares
of MSI
Page 7--SECURITIES PURCHASE AGREEMENT
<PAGE>
Common Stock into and for which the shares of IDW Common Stock theretofore
represented by such surrendered Old Certificates have been converted. No
certificates or scrip for fractional shares of MSI Common Stock will be
issued, no IDW stock split or dividend shall relate to any fractional share
interest and no such fractional share interest shall entitle the owner
thereof to vote or to any rights as a stockholder of MSI.
ARTICLE II
STOCKHOLDER APPROVAL, BOARD OF DIRECTORS
RECOMMENDATIONS, EFFECTIVE TIME.
2.01 STOCKHOLDER APPROVALS, BOARD OF DIRECTORS RECOMMENDATIONS. Each
party hereto which is a corporation agrees to obtain any and all necessary
approvals, consents or votes and give any required notice to its shareholders
regarding the execution or performance of this Agreement and the approval and
completion of the Reorganization and other transactions contemplated hereby.
Subject to their respective fiduciary duty to stockholders, the board of
directors and shareholders of IDW and MSI shall adopt and approve this
Agreement, the Reorganization and the other transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 REPRESENTATIONS AND WARRANTIES OF SELLER. Each Seller, as a
material inducement to MSI to enter into this Agreement and consummate the
transactions contemplated hereby, makes the following representations and
warranties to MSI, which representations and warranties will be true and
correct in all material respects at the Effective Time:
(a) DUE AUTHORIZATION. Seller has full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller and, if Seller is other than an individual, the person signing is duly
authorized to sign this Agreement on behalf of such Seller and bind such
Seller. Seller is under no legal or other incapacity and, if other than an
individual, such Seller has taken all action under applicable law to maintain
its existence and authority to contract. Seller is not able to assert any
defense to enforcement of this Agreement under applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights
of creditors generally. Seller is not entering into this Agreement under
duress and Seller believes MSI has acted in good faith. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, (a) violate or conflict with any permit, order,
license, decree, judgment, statute, law, ordinance, rule or regulation
applicable to Seller or (b) result in any breach or violation of, constitute
a default (with or without notice or lapse of time, or both) under, give rise
to a right of termination, cancellation or acceleration of,
Page 8--SECURITIES PURCHASE AGREEMENT
<PAGE>
result in the creation of any mortgage, pledge, lien, encumbrance, charge or
other security interest (a "Lien") on any of Seller's IDW Common Stock
pursuant to, or require the consent of any party to any mortgage, indenture,
lease, contract, agreement, instrument, bond, note, concession, franchise or
understanding (collectively, "Undertaking") applicable to Seller or any of
Seller's IDW Common Stock. No consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency
or commission or other governmental authority or instrumentality ("Government
Entity") is required by or with respect to Seller in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(b) TITLE TO SECURITIES. Seller has, and will convey at
Closing, good and marketable title to the IDW Common Stock set forth next to
his, her or its name on Exhibit A, free and clear of any restriction on
transfer (other than any restriction on further transfer under United States,
state and foreign securities laws); any private or governmental action, suit,
proceeding, claim, arbitration or investigation (collectively, "Claim"); any
preemptive right, right of first refusal or similar right; and any option,
warrant, put, call, purchase right, equity, claim, demand or other
commitment, right or Undertaking of any nature. Seller represents that there
is no lien on any of the IDW Common Stock set forth next to Seller's name on
Exhibit A. Seller represents that, if there is a lien, encumbrance or Lien on
any of Seller's IDW Common Stock listed on Exhibit A at the Closing, Seller
will deliver that IDW Common Stock free of such lien or encumbrance. Seller
is not a party to any option, warrant, put, call, purchase right or other
commitment or agreement that could require Seller to sell, transfer or
otherwise convey any IDW Common Stock or interest therein, other than
pursuant to this Agreement. If Seller is a natural person, he or she is a
competent adult. Seller is the record and beneficial owner of the IDW Common
Stock so listed in Seller's name, with the sole right to exercise all rights
attached to that IDW Common Stock, including, to the extent applicable, the
right to vote, dispose of and receive dividends or distributions with respect
to that IDW Common Stock. If Seller is a trust, the relevant trustee has the
sole right to exercise all rights attached to Seller's IDW Common Stock on
behalf of the beneficiary. Seller has no other right in or right to acquire
any other securities of IDW.
(c) SECURITIES ACT REPRESENTATIONS.
(1) COMPLIANCE WITH LAW. Seller acknowledges that the
shares of Common Stock of MSI ("MSI Common Stock") to be delivered to Seller
pursuant to this Agreement have not been and will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and therefore may
not be resold without compliance with the Securities Act. The MSI Common
Stock to be acquired by Seller pursuant to this Agreement is being acquired
solely for Seller's own account, for investment purposes only and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. Seller will not offer, sell, assign, pledge,
hypothecate, transfer or otherwise dispose of any shares of MSI Common Stock
issued to Seller, except after full compliance with all applicable
Page 9--SECURITIES PURCHASE AGREEMENT
<PAGE>
provisions of the Securities Act, the rules and regulations of the Securities
and Exchange Commission ("SEC") and other applicable securities law
(including state and foreign securities laws). Seller acknowledges that all
MSI Common Stock issued to Seller shall bear the following legend, together
with any other legends required under state and foreign securities or
corporate laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT FOR DISTRIBUTION OR RESALE. THEY MAY NOT BE
MORTGAGED, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933 AND OTHER APPLICABLE SECURITIES LAWS OR AN OPINION OF
COUNSEL FOR THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT AND OTHER APPLICABLE SECURITIES LAWS. THE HOLDER MAY BE
REQUIRED TO PROVIDE AN OPINION AT THE HOLDER'S COST TO THE CORPORATION
THAT SUCH TRANSFER IS PERMITTED WITHOUT REGISTRATION UNDER APPLICABLE
STATE SECURITIES LAWS, WHICH OPINION MUST BE ACCEPTABLE TO THE
CORPORATION'S COUNSEL.
(2) INFORMATION. Seller has received the following
information with respect to MSI (collectively, the "Public Filings"):
REGARDING MSI
Annual Report on Form 10-K for the fiscal year ended December 26, 1998, as
filed with the SEC.
Quarterly Report on Form 10-Q as filed with the SEC for the Quarterly Period
Ended September 25, 1999.
Quarterly Report on Form 10-Q as filed with the SEC for the Quarterly Period
Ended June 26, 1999.
Quarterly Report on Form 10-Q as filed with the SEC for the Quarterly Period
Ended March 27, 1999.
Private Placement Memorandum dated December 23, 1999 for MSI's sale of
approximately 5.8 million shares of Common Stock.
Page 10--SECURITIES PURCHASE AGREEMENT
<PAGE>
Current Reports on Form 8-K, filed on February 1, March 9, March 22, April 5,
July 13, September 9, October 15, November 15, November 29 and December 10,
1999 and January 11, 2000.
Schedules 13D/A Amended Statements of Beneficial Ownership filed with the SEC
on October 12, 1999 and January 10, 2000.
REGARDING IDW
IDW's Confidential Business Plan dated September 27, 1999.
Seller has also had an adequate opportunity to ask questions of and
receive answers from MSI's officers concerning any and all matters relating
to the transactions contemplated by this Agreement, including, without
limitation, the background and experience of MSI's current and proposed
officers and directors, the business, operations and financial condition of
MSI and any plans for additional acquisitions and the like. Each Seller
originally signing this Agreement acknowledges having met or having had the
opportunity to meet with MSI's Chief Executive Officer to address such
questions.
(d) BROKERS AND FINDERS FEES; OTHER COSTS AND ADJUSTMENTS.
Seller has not incurred, and will not incur, any liability for brokerage or
finders' fees, agents' commissions, investment bankers' fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
(e) KNOWLEDGE OF SELLER. Seller has no knowledge of any
falsity or inaccuracy in any representation or warranty made by another
Seller under Section 3.01 or by IDW pursuant to Section 3.02. For purposes of
this Section 3.01,"knowledge" means the actual knowledge of that Seller,
including in his or her capacity as an officer or director of IDW, and if an
officer or director, his or her knowledge after reasonable inquiry of other
members of senior management and relevant employees of IDW.
(f) SHAREHOLDERS AGREEMENT. By executing this Agreement, each
Seller who is a party to any Shareholders' Agreement or similar agreement or
understanding as to its IDW Common Stock hereby agrees to terminate any such
Shareholders' Agreement effective as of the date prior to Closing and waive
any rights or claims under such agreement.
(g) INVESTOR STATUS. Seller represents that he, she or it is
an"accredited" investor either because (i) the investor, if an individual,
either alone or together with his or her spouse, has a net worth of $1.0
million or more; (ii) each equity owner or settlor/beneficiary of a trust or
corporation that is a Seller is an accredited investor; or (iii) the investor
is a director.
Page 11--SECURITIES PURCHASE AGREEMENT
<PAGE>
Further, Seller represents it has only been contacted by MSI from or in the
following jurisdictions: California, Oregon, Hong Kong, Delaware and Taiwan.
3.02 REPRESENTATIONS AND WARRANTIES OF IDW. IDW, as a material
inducement to MSI to enter into this Agreement and consummate the
transactions contemplated hereby, makes the following representations and
warranties to MSI, which representations and warranties will be true and
correct in all material respects at the Effective Time, except as set forth
on Schedule 3.02, the Disclosure Schedule:
(a) SECURITY HOLDERS; CAPITALIZATION. The authorized capital
of IDW consists of Thirty Million (30,000,000) shares divided into one (1)
class of Twenty-Five Million (25,000,000) Common shares ($.001 par value) and
one (1) class of Five Million (5,000,000) Preferred shares ($.001 par value),
of which there are issued and outstanding Two Million Twenty Thousand
(2,020,000) Common shares and no Preferred shares. There are no other
outstanding shares of capital or other securities of IDW and no outstanding
subscriptions, options, warrants, puts, calls, rights, exercisable,
exchangeable or convertible into IDW equity securities or other commitments
of agreements of any nature relating to the capital or other securities of
IDW, or otherwise any obligation IDW to issue, transfer, sell, purchase,
redeem or otherwise acquire such capital or securities. All outstanding IDW
Shares are duly authorized, validly issued, fully paid and non-assessable,
are, to IDW's knowledge without inquiry, free and clear of any Lien and are
not subject to preemptive rights or rights of first refusal created by
statute, by the Company's Articles of Incorporation, as amended, Bylaws, as
amended, and other governing documents ("Governing Documents ") or by any
Undertaking to which IDW is a party or by which it is bound. The list of
security holders of IDW and the number and type of IDW Common Stock held by
each security holder set forth on Exhibit A to this Agreement are complete
and accurate. The stockholders listed on Exhibit A are the only owners, of
record and beneficially, of all of the issued and outstanding shares of IDW
Common Stock.
(b) FINANCIAL STATEMENTS. IDW has delivered pro forma and/or
compiled financial statements of IDW at December 31, 1998 and 1999, including
balance sheets and income statements and statements of cash flows
(collectively the"Financial Statements").
The Financial Statements fairly and accurately present the
financial condition of IDW as of the date thereof and the consolidated
results of its operations for the periods covered; and have been prepared in
accordance with generally accepted accounting principles, consistently
applied, except as otherwise stated therein; and the books and records,
financial and others, of IDW are in all material respects complete and
correct and have been maintained in accordance with good business and
accounting practices.
(c) UNDISCLOSED LIABILITIES; ENVIRONMENTAL MATTERS. Except as
set forth in Schedule 3.02, at the Effective Time: (i) IDW is aware of no
liabilities or obligations of any nature, fixed or contingent, matured or
unmatured, which are not shown or otherwise provided
Page 12--SECURITIES PURCHASE AGREEMENT
<PAGE>
for in the Financial Statements except for liabilities and obligations
arising in the ordinary course of business, none of which is materially
adverse; and (ii) to the best of IDW's knowledge and belief, no reserves have
been established by IDW and, therefore, are not set forth in the Financial
Statements.
To its knowledge, IDW has complied with, and is in compliance
with, all Environmental Laws (as defined in Section 3.02(c)) applicable to
its business, properties and assets. IDW has, and IDW has provided to MSI,
true and complete copies of each permit, approval, registration, license and
other authorization required by any Government Entity pursuant to any
Environmental Law applicable to its business, properties and assets, the
absence of which would have a Material Adverse Effect on IDW. To IDW's
knowledge (including external investigation if appropriate), there is no
pending or threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, investigation, inquiry or
information request by any Government Entity relating to any Environmental
Law, to which IDW is a party or, to IDW's knowledge, threatened to be made a
party. There is no pending or outstanding or, to IDW's knowledge, threatened,
notice of defect or noncompliance, work order, pollution abatement order,
remediation order or any other order from any Government Entity applicable to
IDW's business, properties or assets.
For purposes of this Agreement,"Environmental Law" means any
local or foreign (including state and U.S. federal) law, statute, rule or
regulation or the common law relating to the environment or occupational
health and safety, including any statute, regulation or order pertaining to
(i) treatment, storage or disposal, generation and transportation of
industrial, toxic, or hazardous substances or solid or hazardous waste, or
explosive, radioactive materials, asbestos materials, special wastes or
wastes of any kind or dangerous goods; (ii) air, water and noise pollution;
(iii) groundwater and solid contamination; (iv) the release or threatened
release into the environment of industrial, toxic or hazardous substances, or
solid or hazardous waste, or explosives, radioactive materials, asbestos
materials, special wastes or wastes of any kind or dangerous goods,
including, without limitation, emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants, chemicals, explosives,
radioactive materials, asbestos materials, special wastes or wastes of any
kind or dangerous goods; (v) the protection of wildlife, marine sanctuaries,
wetlands and fish, including, without limitation, all endangered and
threatened species and protected species; (vi) storage tanks, vessels and
containers; (vii) underground and other storage tanks or vessels, abandoned,
disposed or discarded barrels, containers and other closed receptacles;
(viii) health and safety of employees and other persons, including
occupational health and safety laws; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or oil or petroleum products or solid or hazardous waste, or
explosives, radioactive materials, asbestos materials, special wastes or
wastes of any kind or dangerous goods.
To IDW's knowledge (such knowledge being without inquiry),
there has been no
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<PAGE>
release of any Material of Environmental Concern (as defined in the next
paragraph) into the environment at any parcel of real property or any
facility presently or formerly owned by IDW, or by IDW at any parcel of real
property or any facility presently or formerly leased, operated or controlled
by IDW or at any parcel of real property or any facility to which IDW has a
right to possession, directly or indirectly, through a Seller or any other
party.
For purposes of this Agreement,"Materials of Environmental
Concern" means any chemicals, pollutants or contaminants, hazardous
substances, solid wastes, hazardous wastes, toxic materials, special wastes
or wastes of any kind as defined under Environmental Law, including oil or
petroleum and petroleum products, whether or not the same at that point have
become waste.
There is no environmental report, investigation or audit in
IDW's possession with respect to the operations of, or real property leased
by, IDW (whether conducted by or on behalf of IDW or a third party and
whether done at the initiative of IDW or directed by a Government Entity or
third party).
(d) ABSENCE OF CHANGES. Except as set forth in Schedule 3.02,
since the date of the Financial Statements, to the best of IDW's knowledge
and belief there has not been:
(i) Any material adverse change in the condition
(financial or otherwise), assets, liabilities, earnings, net worth, business
or prospects of IDW or its subsidiaries for such period, in the aggregate, or
at any time during such period;
(ii) Any damage, destruction or loss (whether or not
covered by insurance) materially adversely affecting IDW or its businesses;
(iii) Any declaration, setting aside, or payment of
any dividend or other distribution in respect of any shares of capital stock
of IDW, or any direct or indirect redemption, purchase or other acquisition
of any such stock;
(iv) Any issuance or sale by IDW or agreement to sell
any of its securities or grant of any right to acquire its securities;
(v) Any statute, rule, regulation or order adopted
(including orders of regulatory authorities with jurisdiction over IDW or its
business) which materially adversely affects IDW or its business;
(vi) Any sale, lease or other transfer or disposition
of any property or asset of IDW, except for the sale of inventory or other
assets in the ordinary course of business;
(vii) Any change in any accounting method, practice or
polity
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<PAGE>
(including any change in any depreciation or amortization policy or rate) by
IDW or any revaluation by IDW or any of its assets, except as described in
the notes to the Annual Financial Statements;
(viii) Any entering into, amendment or termination of,
or default under, by IDW, of any Undertaking to which IDW is a party or by
which it is bound, other than in the ordinary course of business;
(ix) Any damage, destruction or loss (whether or not
covered by insurance) to any property or asset or the business of IDW having
a Material Adverse Effect on IDW;
(x) Any commitment, transaction or Undertaking, or
amendment thereto (including any capital expenditure, capital financing or
sale of assets), by IDW for any amount that requires or could require
payments in excess of Fifteen Thousand Dollars ($15,000) in the aggregate
with respect to any individual Undertaking or series of related Undertakings;
(xi) Any new lien on any asset allowed to exist by
IDW;
(xii) Any cancellation of any debt or waiver or
release of any right or claim by IDW, other than in the ordinary course of
business;
(xiii) Any payment, discharge or satisfaction of any
claim, liability or obligation by IDW, other than as reflected or reserved
against in the Financial Statements or in the ordinary course of business
consistent with past practice;
(xiv) Any labor dispute, litigation or governmental
investigation affecting IDW's business or financial condition;
(xv) Except as contemplated by this Agreement, any
issuance or sale of capital stock or other securities, exchangeable or
convertible securities, options, warrant, puts, calls or other rights to
acquire capital stock or other securities of IDW;
(xvi) Any indebtedness for borrowed money incurred,
assumed or guaranteed by IDW, other than in the ordinary course of business;
(xvii) Any loan or advance (other than advances to
employees in the ordinary course of business for travel and entertainment) in
accordance with past practice in an aggregate amount less than Two Thousand
Dollars ($2,000)) to any person;
(xviii) Except as disclosed in Schedule 3.02, any
increase in any salary, wage, benefit or other remuneration payable to or to
become payable to any current or former officer, director, employee, agent or
shareholder of IDW; any bonus or severance payment or
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<PAGE>
arrangement made to, for or with any officer, director, employee or agent of
IDW; or any supplemental retirement plan or other program or special
remuneration for any officer, director, employee or agent of IDW, except for
normal salary or wage increases relating to periodic performance reviews and
annual bonuses consistent with IDW's past practices;
(xix) Any strike, walkout, labor dispute, slowdown,
work stoppage or organizational effort that has or could have a Material
Adverse Effect on IDW;
(xx) Any disposition or failure to keep in effect any
rights in, to or for the use of any patent, trade mark, service mark, trade
name or copyright, or any disclosure to any person not an employee or other
disposition of any trade secret, process or know-how; or
(xxi) Any Undertaking by IDW, in writing or otherwise,
to do any of the foregoing.
(e) LITIGATION AND CLAIMS. Except as set forth in Schedule
3.02 or in the Financial Statements; IDW is aware of no actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or threatened against IDW, its assets or business, whether at law or
in equity, or before or by any federal, state, municipal, local, foreign or
other governmental department, commission, board, bureau, agency or
instrumentality; nor does IDW know of a threat of such litigation or any
basis for any such action, suit, claim, investigation or proceeding.
(f) DUE ORGANIZATION AND QUALIFICATION. IDW is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is qualified to do business and is in good standing in
California and in each state where it is required to be so qualified and such
qualification is material to its business. IDW has the power to own its
properties and assets and to carry on its business as now presently conducted.
(g) TAX MATTERS. Except as set forth in Schedule 3.02, IDW has
filed all federal, state and local tax or related returns and reports due or
required to be filed, which reports accurately reflect in all material
respects the amount of taxes due. IDW has paid all amounts of taxes or
assessments which would be delinquent if not paid as of the date of this
Agreement, other than taxes or charges being contested in good faith or not
yet finally determined.
(h) MATERIAL AGREEMENTS AND EMPLOYMENT CONTRACTS. Schedule
3.02 contains a true and complete list and brief description of all written
or oral contracts, agreements (including employment agreements), mortgages,
obligations, understandings, arrangements, restrictions, and other
instruments to which IDW is a party or by which IDW or its assets may be
bound. True and correct copies of all such items set forth on Schedule 3.02
have been or will be made available to MSI prior to Closing. Except as set
forth in Schedule 3.02, there are no "employee pension benefit plans" as
defined in Section 3(2) of the Employee Retirement Income
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<PAGE>
Security Act of 1974, as amended ("ERISA"), covering employees (or former
employees), maintained or contributed to by IDW or any of its Subsidiaries or
any of their ERISA Affiliates (as hereinafter defined), or to which IDW or
any of its Subsidiaries or any of their ERISA Affiliates contributes or is
obligated to make payments thereunder or otherwise may have any liability
("IDW Pension Benefit Plans"). For purposes of this Agreement, "ERISA
Affiliate" shall mean any person (as defined in Section 3(9) of ERISA) that
is a member of any group of persons described in Section 414(b), (c), (m) or
(o) of the Code, which includes the referent person, or its Subsidiaries. No
event has occurred which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute a default
under any of the agreements set forth in Schedule 3.02.
The attached Schedule 3.02 contains a complete and accurate
list of all existing employees and all proposed executive officers of IDW,
including each employee's age, term of employment, job description, salary
and benefits to which the employee is entitled. Schedule 3.02 also lists each
employment agreement, expense entitlement, and each pension, bonus,
profit-sharing or other agreement or arrangement providing for employee
remuneration or benefits, present or prospective, to which IDW is a party or
by which it is bound (collectively, "Employee Agreements") and any
Undertaking pursuant to which a party provides services to IDW; each Employee
Agreement is in full force and effect, and neither IDW nor any other party is
in material default under any Employee Agreement. There has been no claim of
default and, to IDW's knowledge, there is no fact or condition which, if
continued, or on notice, will result in a default under any Employee
Agreement. Except as set forth on Schedule 3.02, each individual Employee
Agreement is terminable at will without penalty. There is no pending or, to
IDW's knowledge, threatened, labor dispute, strike or work stoppage that
would have a Material Adverse Effect on IDW. IDW is in compliance in all
respects with all current applicable United States state, territorial, local
and foreign laws and regulations (collectively, "Applicable Laws") respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices.
There is no pending claim against IDW under any workers' compensation plan or
policy or for long-term disability. There is no unfair labor practice
complaint pending or, to IDW's knowledge, threatened, against IDW, and there
is not private Undertaking restricting IDW's ability to relocate, close or
terminate any of IDW's operations.
IDW is not a party to any union, collective bargaining or other
labor agreement with any labor organization, union, group or association with
respect to any of its employees, and there is no organizing drive or
application for certification pending with respect to any such labor
organization or union.
(i) TITLE TO PROPERTY AND RELATED MATTERS. IDW has good and
marketable title to all the properties, interests in properties and assets,
real, personal and mixed, reflected as being owned by it on the Financial
Statements or acquired by it after the date of the Financial Statements, of
any kind or character, free and clear of any liens or encumbrances, except
(i) those
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<PAGE>
referred to in the notes to the Financial Statements, (ii) those set forth in
Schedule 3.02, and (iii) liens for current taxes not yet delinquent. Except
as set forth in Schedule 3.02 and except for matters which may arise in the
ordinary course of business, IDW's assets are in good operating condition and
repair. To the best of knowledge of IDW, there does not exist any condition
that materially interferes with the use thereof in the ordinary course of
IDW's business.
(j) CORPORATE RECORDS. The corporate minute books and other
documents and records of IDW are complete and correct. MSI shall have the
right to review all corporate records of IDW prior to the Effective Time.
(k) LICENSES, TRADEMARKS AND TRADE NAMES. Schedule 3.02
contains a true and complete list of all licenses and all trademarks, trade
names, service marks, copyrights, know-how, patents and applications for any
of the foregoing owned by or registered in the name of IDW. There is no
pending or threatened claim or litigation against IDW contesting the right to
use any of the trademarks, trade names and know-how or the validity of any of
the licenses, copyrights and patents listed on Schedule 3.02, or asserting
the misuse of any thereof, nor has there ever been any such claim or
litigation.
To its actual knowledge, IDW has not used and is not using any
intellectual property, including, without limiting the generality of the
foregoing, any patent, trade mark or copyright (collectively, "Intellectual
Property"), in a manner that infringes or breaches the rights of any third
party, except to the extent that such use could not reasonably be expected to
have a Material Adverse Effect on IDW.
(l) CORPORATE AUTHORITY. IDW is authorized to enter into this
Agreement and has taken all corporate action necessary to authorize the
execution of this Agreement and consummation of the transactions contemplated
herein. The execution, delivery and performance of this Agreement by IDW and
consummation of the transactions contemplated herein will not be in conflict
with or constitute a default under any provisions of applicable law, IDW's
Certificate of Incorporation or Bylaws, or any agreement or instrument to
which IDW is a party or by which it or its assets are bound.
(m) BINDING OBLIGATION OF IDW. This Agreement constitutes a
valid and binding agreement of IDW, enforceable in accordance with its terms
except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium, and other similar laws relating to, limiting or
affecting the enforcement of creditors rights generally; and neither the
execution and delivery of this Agreement nor the consummation by IDW of the
transactions contemplated hereby, nor compliance with any of the provisions
hereof, will violate any statute, law, rule or regulation or any order, writ,
injunction or decree of any court or governmental authority, or violate or
conflict with or constitute a default under (or give rise to any right of
termination, cancellation or acceleration under) the terms or conditions or
provisions of any note, bond, lease, mortgage, obligation, agreement,
understanding, arrangement or restriction of any
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<PAGE>
kind to which IDW is a party or by which IDW or its properties may be bound.
(n) CAPITALIZATION. The authorized capitalization of IDW is as
set forth in the Financial Statements. Except as set forth in Schedule 3.02,
there are no outstanding or presently authorized securities, warrants,
preemptive rights, subscription rights, options or related commitments of any
nature to issue any of IDW's securities which are not reflected in the
Financial Statements or in Schedule 3.02.
(o) FULL DISCLOSURE. IDW has, and at the Effective Time will
have, disclosed to MSI all events, conditions and facts materially affecting
the business and prospects of IDW which are known to IDW has not and will not
have, at the Effective Time, withheld disclosure of any events, conditions,
or facts which it may have knowledge of, or have reasonable grounds to know,
may materially, adversely affect the business and prospects of IDW.
(p) FINDERS OR BROKERS. Neither IDW nor any subsidiary (as
defined below) of IDW has employed any investment banker, broker, finder or
intermediary in connection with the transactions contemplated hereby who
might be entitled to a fee or any commission the receipt of which is
conditioned in whole or part upon consummation of the Reorganization.
(q) PAYMENTS. No director or officer of IDW nor, to IDW's
knowledge after normal review of internal expense records and expense
reimbursements, any agent, employee or other person acting on behalf of IDW
has, directly or indirectly, paid any fee, commission or other sum of money
or delivered any item of property of anything of value, however
characterized, to any finder, agent, customer, government official or other
party, in the United States or any other country, that in any manner is
related to IDW's business or operations, and that has violated any Applicable
Law. Neither IDW nor, to its knowledge, any agent, employee or other person
acting on behalf of IDW or any other party, has accepted, received, made or
given any contribution, payment, gift, expenditure or other thing of value
that is unlawful, outside IDW policies or could reasonably by viewed as
fraudulent as a general business practice, based on normal review of orders
and other relevant IDW documents. Neither IDW nor any officer, director,
agent or employee thereof has participated, directly or indirectly, in any
boycott or similar practice. No violation of FIRPTA involving IDW, its
officers, directors, employees or agents has occurred.
(r) SHARE OWNERSHIP. To the best knowledge of IDW, the shares
of IDW Common Stock are owned, of record and beneficially, as specified on
Exhibit A, free and clear of all liens and encumbrances of any kind and
nature, and have not been sold, pledged, assigned or otherwise transferred
except pursuant to this Agreement.
(s) APPROVALS REQUIRED. To the best knowledge of IDW, no
approval, authorization, consent, order or other action of, or filing with,
any person, firm or corporation or any court is required in connection with
the execution and delivery by IDW of this Agreement or
Page 19--SECURITIES PURCHASE AGREEMENT
<PAGE>
the consummation of the transactions described herein, except as disclosed
herein, and except to the extent that the parties are required to obtain
approval by any governmental authority or administrative agency or to file
reports in accordance with relevant regulations under federal and state
securities and tax laws.
(t) SUBSIDIARIES AND AFFILIATES. Except as set forth on the
attached Schedule 3.02, IDW does not own, directly or indirectly, any equity
or similar interest in, or any interest convertible into or exchangeable or
execrable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity. For
purposes of this Agreement, the term "Subsidiary" means any entity listed on
Schedule 3.02 and any corporation, partnership, joint venture or other
business association or entity in which any entity listed on Schedule 3.02
owns, directly or indirectly, any equity or similar interest. IDW
beneficially owns the entire equity interest in each Subsidiary. IDW also
hereby represents and warrants that each Subsidiary is duly organized,
validly existing and in good standing under the laws where the Subsidiary was
formed, and as to each Subsidiary, IDW, after due inquiry, makes the
representations and warranties set forth in Section 3.02 with respect to each
Subsidiary and, to the extent applicable, the Schedules referenced in Section
3.02 include relevant information with respect to each Subsidiary.
(u) NO CONFLICTS. Except as set forth on the attached Schedule
3.02, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, (a) violate or
conflict with the Articles of Incorporation or Bylaws of IDW, as amended; (b)
violate or conflict with any permit, order, license, decree, judgment,
statute, law, ordinance, rule or regulation applicable to IDW or IDW's
properties or assets; or (c) result in any breach or violation of, constitute
a default (with or without notice or lapse of time, or both (under, give rise
to a right of termination, cancellation or acceleration of, result in the
creation of any Lien on any of IDW's properties or assets pursuant to, or
require the consent of any party to any Undertaking applicable to IDW or any
of its properties or assets. Except as set forth on Schedule 3.02, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Government Entity is required by or with respect to IDW in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(v) RELATED-PARTY TRANSACTIONS. Except as disclosed on the
attached Schedule 3.02, IDW is not indebted to any shareholder, director,
officer, employee or agent of IDW (except for amounts due as normal salaries
and bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to IDW. No such person has any interest in any property or assets of
IDW or has any contractual or other claim, express or implied, of any kind
against IDW. Schedule 3.02 includes all related party or "affiliate"
transactions that would be required to be disclosed if IDW were a company
subject to the public reporting requirements under the Securities Exchange
Act of 1934, as amended.
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<PAGE>
(w) INSURANCE. Except as described on the attached Schedule
3.02, IDW has insurance policies and bonds (collectively, "Insurance
Policies") of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of IDW. Schedule 3.02
contains a complete and accurate list of all Insurance Policies, including in
each case applicable coverage limits, deductibles and policy expiration
dates. There is no material claim pending under any Insurance Policy as to
which IDW has received a denial, or, to IDW's knowledge, which coverage has
been questioned, denied or disputed by the underwriters of the Insurance
Policies. All premiums due and payable under all Insurance Policies have been
paid and IDW is otherwise in compliance in all material respects with the
terms of each Insurance Policy. IDW has no knowledge of any threatened
termination of, or material premium increase with respect to, any Insurance
Policy. To the knowledge of IDW, each Insurance Policy is in full force and
effect and will continue to be in full force and effect following the
consummation of the transactions contemplated hereby.
(x) COMPLIANCE WITH LAWS. IDW, to its knowledge, has complied
with, is not in violation of, and has not received any notices of violation
with respect to, any Applicable Law with respect to the conduct or ownership
of its business, except for such violation or failure to comply as could not
be reasonably expected to have a Material Adverse Effect on IDW.
(y) MINUTE BOOKS. IDW's minute books made available to MSI
contain complete and accurate summaries of all meetings of directors and
shareholders or actions by written consent since incorporation, and reflect
all transactions referred to in those minutes accurately in all material
respects.
3.03 REPRESENTATIONS AND WARRANTIES OF MSI. MSI, as a material
inducement to IDW and the Sellers to enter into this Agreement and consummate
the transactions contemplated hereby, makes the following representations and
warranties to IDW and the Sellers, which representations are true and correct
at this date, and will be true and correct on the Effective Time as though
made on and as of such date:
(a) SHARES OF MSI COMMON STOCK. The New Certificates to be
delivered to the shareholders of IDW at Closing will be valid and legally
issued shares of MSI Common Stock, free and clear of all liens, encumbrances,
and preemptive rights, and will be fully-paid and non-assessable shares.
Further, such shares of MSI Common Stock are not and shall not be the same
shares issued or to be issued by MSI in connection with its Private Placement
Memorandum dated December 23, 1999.
(b) DUE AUTHORIZATION AND QUALIFICATION. This Agreement has
been duly authorized, executed, and delivered by MSI, and constitutes a
legal, valid, and binding obligation of MSI, enforceable in accordance with
its terms; no consent of any federal, state, municipal or other governmental
authority is required by MSI for the execution, delivery or performance of
this Agreement by MSI and all transactions contemplated herein; no consent of
any party to any
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<PAGE>
contract or agreement to which MSI is a party or by which any of their
respective property or assets are subject is required for the execution,
delivery or performance of this Agreement by MSI and all transactions
contemplated herein.
(c) FINANCIAL STATEMENTS. MSI has delivered to IDW its audited
financial statements for fiscal 1998 and 1997 and unaudited quarterly reports
for the first three fiscal quarters of fiscal 1999 in the Public Filings (the
"Statements"). Except for the restatement of the Statements due to the
termination of the Westbeach apparel business, the Statements fairly and
accurately reflect the financial condition of MSI as of the dates thereof and
the results of operations for the periods reflected therein. The Statements
have been prepared in accordance with generally accepted accounting
principles, consistently applied, except as otherwise stated therein; and the
books and records, financial and others, of MSI are in all material respects
complete and correct and have been maintained in accordance with good
business and accounting practices.
(d) LITIGATION AND CLAIMS. Except as set forth in its Public
Filings or in the Statements, there are no material actions, suits, claims,
investigations or legal or administrative or arbitration proceedings pending
or threatened against MSI, its assets or business, whether at law or in
equity, or before or by any federal, state, municipal, local, foreign or
other governmental department, commission, board, bureau, agency or
instrumentality; nor does MSI know or have any reason to know of a threat of
such litigation or any basis for any such action, suit, claim, investigation
or proceeding which could materially and adversely affect the business or
properties of MSI.
(e) DUE ORGANIZATION AND QUALIFICATION. MSI is a corporation
duly organized and validly existing under the laws of the State of Oregon, is
qualified to do business and in good standing in each state where it is
required to be qualified and such qualification is material, and has the
corporate power to own its property and to carry on its business as now being
conducted. The Articles and Bylaws of MSI, as in effect at the Effective
Time, have been delivered to MSI and are made a part hereof.
(f) CAPITALIZATION. The authorized capitalization of MSI is as
set forth in the Statements and Schedule 3.03. Except as set forth in the
Statements or in Schedule 3.03, there are no outstanding or presently
authorized securities, warrants, preemptive rights, subscription rights,
options or related commitments of any nature to issue any of MSI's securities
which are not reflected in the Statements or in Schedule 3.03. All
outstanding shares of capital stock have been duly authorized, validly
issued, and are fully-paid and non-assessable, and all such shares were
issued in compliance with all applicable federal and state securities laws.
Except as set forth in the statements or in Schedule 3.03 and except for the
issuances of securities referred to in this Agreement between MSI and IDW
with respect to the Reorganization, there are no outstanding or presently
authorized securities, warrants, preemptive rights, subscription rights,
options or related commitments of any nature to issue any of MSI's securities.
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<PAGE>
(g) BROKERAGE FEES. MSI has not incurred, nor will it incur,
any liability for brokerage or finder's fees or similar charges in connection
with this Agreement or any of the transactions contemplated hereby.
(h) REGULATORY FILINGS. MSI will deliver to IDW's management,
with a copy to its counsel (at the addresses set forth herein), all reports,
registration statements and other documents, as filed with the SEC or the
National Association of Securities Dealers, Inc. ("NASD").
(i) CORPORATE RECORDS. The corporate minute books and other
documents and records of MSI are complete and correct. IDW shall have the
right to review all corporate records of MSI prior to the Effective Time.
(j) CORPORATE AUTHORITY. MSI is authorized to enter into this
Agreement and has taken all corporate action necessary to authorize the
execution of this Agreement and consummation of the transactions contemplated
herein. The execution, delivery and performance of this Agreement by MSI will
not be in conflict with or constitute a default under any provisions of
applicable law, MSI's Articles of Incorporation or Bylaws, or any agreement
or instrument to which MSI is a party or by which it or its assets are bound.
(k) BINDING OBLIGATION OF MSI. This Agreement constitutes a
valid and binding agreement of MSI, enforceable in accordance with its terms
except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium, and other similar laws relating to, limiting or
affecting the enforcement of creditors rights generally; and neither the
execution and delivery of this Agreement nor the consummation by MSI of the
transactions contemplated hereby, nor compliance with any of the provisions
hereof, will violate any statute, law, rule or regulation or any order, writ,
injunction or decree of any court or governmental authority, or violate or
conflict with or constitute a default under (or give rise to any right of
termination, cancellation or acceleration under) the terms or conditions or
provisions of any note, bond, lease, mortgage, obligation, agreement,
understanding, arrangement or restriction of any kind to which MSI is a party
or by which MSI or its properties may be bound. No consent or approval by any
governmental authority is required in connection with the execution and
delivery by MSI of this Agreement or the consummation of the transactions
contemplated hereby.
(l) DISCLOSURE. The representations and warranties by MSI
herein, including any Schedules referenced in Section 3.03 or in any
certificate furnished by MSI pursuant to this Agreement, and the information
and documents provided by MSI and listed in Section 3.03, when all such
documents are read together in their entirety, do not contain and will not
contain at the Closing Date (as defined below) any untrue statement of a
material fact, and do not omit and will not omit at the Closing Date any
material fact necessary in order to make the statements
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<PAGE>
contained herein or therein, in the light of the circumstances under which
made, not misleading; provided, however, that MSI has relied on IDW with
respect to any IDW information contained in the Private Placement Memorandum
dated December 23, 1999. MSI has delivered or made available true and
complete copies of each document that has been requested by Sellers, IDW or
their respective counsel in connection with their legal and accounting review
of MSI.
ARTICLE IV
COVENANTS
4.01 COVENANTS OF IDW. IDW, as a material inducement to MSI to enter
into this Agreement and consummate the transactions contemplated hereby,
covenants and agrees as follows:
(a) CONDUCT OF BUSINESS. Except as contemplated by this
Agreement or as expressly agreed to in writing by MSI, during the period from
the date of this Agreement to the Effective Time, IDW will conduct its
operations according to its ordinary and usual course of business consistent
with past practice, and will use all commercially reasonable efforts to
preserve intact its business organization, to keep available the services of
its officers and employees and to maintain satisfactory relationships with
registered representatives, suppliers, customers and others having business
relationships with it and will take no action which would adversely affect
its ability to consummate the Reorganization or the other transactions
contemplated hereby.
(b) NO SOLICITATION. IDW agrees that subsequent to the
execution date hereof, it shall not, and shall not authorize or permit any of
its directors, officers, employees, agents or representatives to, directly or
indirectly, solicit, initiate, facilitate or encourage (including by way of
furnishing or disclosing information) any merger, consolidation, other
business combination involving IDW, acquisition of all or any substantial
portion of the assets or capital stock of IDW, or inquiries or proposals
concerning or which may reasonably be expected to lead to, any of the
foregoing (an "IDW Transaction") or negotiate, explore or otherwise
communicate in any way with any third party (other than MSI or its
affiliates) with respect to any IDW Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Reorganization or any other transactions contemplated by this
Agreement. IDW shall be obligated to advise MSI immediately of any inquiries
or proposals relating to an IDW Transaction.
(c) IDW ACTIONS. IDW shall not take or omit to take any action
within its reasonable control which would (i) cause a breach of any
representation or warranty of IDW contained in this Agreement such that the
closing conditions set forth in Section 5.02(a) would not be satisfied, or
(ii) prevent fulfillment of the conditions in Article V.
4.02 COVENANTS OF MSI. MSI, as a material inducement to IDW to enter
into this
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<PAGE>
Agreement and consummate the transactions contemplated hereby, covenants and
agrees as follows:
(a) CONDUCT OF BUSINESS. Except as contemplated by this
Agreement or as expressly agreed to in writing by IDW, during the period from
the date of this Agreement to the Effective Time, MSI will conduct its
operations according to its ordinary and usual course of business consistent
with past practice, and will use all commercially reasonable efforts to
preserve intact its initial capital, to keep available the services of its
officers and employees and to maintain satisfactory relationships with
existing and prospective suppliers, customers, registered representatives,
clearing firms and others having existing or prospective business
relationships with MSI, and will take no action which would adversely affect
its ability to consummate the Reorganization or the other transactions
contemplated hereby.
(b) NO SOLICITATION.
(i) MSI agrees that subsequent to the execution date
hereof and subject to subsection (ii) below, it shall not, and shall not
authorize or permit any of its Subsidiaries or any of its or its
Subsidiaries' directors, officers, employees, agents or representatives to,
directly or indirectly, solicit, initiate, facilitate or encourage (including
by way of furnishing or disclosing information) any merger, consolidation,
other business combination involving MSI or its Subsidiaries, an acquisition
primarily relating to all or a substantial portion of the assets or of the
capital stock of MSI or its Subsidiaries or inquiries or proposals concerning
or which may reasonably be expected to lead to, any of the foregoing (an "MSI
Transaction") or negotiate, explore or otherwise communicate in any way with
any third party (other than MSI or its affiliates) with respect to any MSI
Transaction or enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Reorganization
or any other transactions contemplated by this Agreement. MSI shall be
obligated to immediately advise IDW of any inquiries or proposals relating to
a MSI Transaction.
(ii) Notwithstanding the foregoing, in the event that
there is an unsolicited written proposal for any merger, consolidation or
other business combination primarily involving the securities brokerage
business or inquiries or proposals concerning which or may reasonably be
expected to lead to, any of the foregoing (a "Broker-Dealer Transaction")
from a bona fide financially capable third party or member of the NASD, MSI
may furnish non-public information to, and negotiate with, such third party
only if (A) MSI shall have provided two business days' written notice to IDW
of such proposal and IDW approves the proposed Broker-Dealer Transaction, or
(B) MSI's Board of Directors, after having received advice from its
investment banker or bankers and outside counsel to MSI, shall have
determined that failure to take the proposed action, furnish such information
or to commence negotiations would be inconsistent with such Board of
Directors' fiduciary duties.
(c) MSI ACTIONS. MSI shall not take or omit to take, and shall
not cause or
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<PAGE>
permit any of its Subsidiaries to take or omit to take, any action within its
reasonable control which would (i) cause a breach of any representation or
warranty of MSI contained in this Agreement such that the Closing conditions
set forth in Section 5.01(a) would not be satisfied, or (ii) prevent
fulfillment of the conditions in Article V.
(d) AGREEMENT TO VOTE. The owners of all of the shares of MSI
Common Stock have agreed, if a shareholder vote is required by applicable
state law or the Bylaws, to vote their shares of MSI Common Stock in favor of
approving this Agreement and the transactions contemplated hereby and, except
as may be required by subsection (b) of this Section 4.02, not to approve or
support any competing transaction.
4.03 COVENANTS OF MSI AND IDW. MSI and IDW, as a material inducement
to enter into this Agreement and consummate the transactions contemplated
hereby, covenant and agree, with each other as follows:
(a) ACCESS TO INFORMATION. From the date of this Agreement
until the Effective Time, IDW will give MSI and its authorized
representatives (including counsel, consultants, accountants, auditors, and
broker-dealer regulatory counsel and agents) reasonable access in light of
the terms of this Agreement during normal business hours to all facilities,
personnel and operations and to all books and records of IDW, will permit MSI
to make such inspections as it may reasonably require (including, without
limitation, any agreements for the issuance of securities or agreements with
potential registered representatives deemed necessary by it) and will cause
its officers and counsel and those of its Subsidiaries to furnish MSI with
such financial and operating data and other information with respect to the
business carried on and proposed to be carried on by IDW as MSI may from time
to time reasonably request.
From the date of this Agreement until the Effective Time, MSI
will give IDW, the Sellers and their authorized representatives (including
counsel, consultants, accountants, auditors, and agents) reasonable access in
light of the terms of this Agreement during normal business hours to all
facilities, personnel and operations and to all books and records of MSI,
will permit IDW and the Sellers to make such inspections as it may reasonably
require (including, without limitation, agreements with registered
representatives, registered investment advisors, affinity groups and clearing
firms) and will cause its officers and counsel and those of its Subsidiaries
to furnish IDW with such financial and operating data and other information
with respect to the businesses and properties of MSI as IDW and the Sellers
may from time to time reasonably request.
(b) COMMERCIALLY REASONABLE EFFORTS; OTHER EFFORTS. Subject to
the terms and conditions provided in this Agreement, IDW and MSI shall use
all commercially reasonable efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, the obtaining of all necessary third-party consents, approvals or
waivers which are required in order
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<PAGE>
to consummate the Reorganization and the other transactions contemplated
hereby. To such party's knowledge Schedules 3.02 and 3.03 list all such
material consents, approvals or waivers that must be obtained by that party,
IDW and MSI, respectively. IDW shall not take any action that would cause MSI
to fail to perform its obligations hereunder. IDW shall not take any action
that would cause MSI to fail to perform its obligations hereunder.
(c) PUBLIC ANNOUNCEMENTS. Before issuing any press release or
otherwise making any public statement with respect to the Reorganization, or
any of the other transactions contemplated hereby, IDW and MSI will consult
with, and obtain the consent of, each other as to its form and substance and
shall not issue any such press release or make any such public statement
prior to obtaining such consent, except as may be required by law or pursuant
to any order of any court or governmental agency, tribunal or regulatory
authority. MSI will deliver to IDW's management any public documents which
report the completion of this transaction so that IDW's management can review
and comment on the descriptions contained therein of IDW and the terms of the
transactions accomplished by this Agreement.
(d) NOTIFICATION OF CERTAIN MATTERS. Each of IDW and MSI shall
give prompt notice to the other party of any notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by IDW or MSI subsequent to
the date of this Agreement and prior to the Effective Time, which could be
reasonably expected to have a material adverse effect upon IDW or a material
adverse effect upon MSI. Each of IDW and MSI shall give prompt notice to the
other party of (a) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the Reorganization or any other transactions contemplated by
this Agreement, or (b) any notice or other communication from any third party
alleging and act or thing which could be reasonably expected to have a
material adverse effect upon IDW or a material adverse effect upon MSI.
(e) EXPENSES. Except as set forth in Sections 3.02 or 3.03 by
that party, IDW and MSI, respectively, shall each bear its own expenses
incurred in connection with the Reorganization, including, without
limitation, the preparation, execution and performance of this Agreement and
the transactions contemplated hereby, and all fees and expenses of investment
bankers, finders, brokers, agents, representatives, counsel and accountants.
(f) FAILURE TO TAKE ACTION. Neither IDW nor MSI will take any
action, or fail to take any action, if such action (or failure to act) would
reasonably be expected to cause the Reorganization to fail to qualify as a
reorganization within the meaning of Section 368(a)1)(B) of the Code.
(g) EXHIBITS, CLOSING STATEMENTS AND SCHEDULES. IDW and MSI
agree that as promptly as possible upon the execution of this Agreement they
will negotiate in good faith, finalize and attach all necessary exhibits to
this Agreement.
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<PAGE>
4.04 COVENANTS OF SELLERS. The Sellers, as a material inducement to
MSI to enter into this Agreement and consummate the transactions contemplated
hereby, covenant and agree, with each other as follows:
(a) STOCK OWNERSHIP. To maintain their IDW Common Stock free
and clear of any and all liens and to not transfer, option, or grant any
other rights in such shares to any other party.
(b) SHAREHOLDER ACTION. Subject to the fulfillment of the
obligations of MSI hereunder, to take all corporate action necessary to
approve the Reorganization and all transactions contemplated hereby and to
refrain from taking any action which would prevent or cause IDW to be unable
to fulfill its obligations hereunder.
(c) NOTICE. To notify IDW and MSI of any event as to the
Seller, for which IDW or MSI would have to give notice under Sections 4.01,
4.02 or 4.03 and, if applicable, take all action IDW or MSI are required to
take under Sections 4.01, 4.02 or 4.03.
(d) RETENTION OF STOCK. To retain the MSI Common Stock they
receive under this Agreement for such period as necessary to ensure that the
transactions contemplated under this Agreement are treated as a tax-free
reorganization, as determined by MSI's board of directors and independent
auditors.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
5.01 CONDITIONS PRECEDENT TO OBLIGATIONS OF IDW AND SELLERS. All
obligations of IDW and Sellers under this Agreement are subject to the
fulfillment, prior to or at the Effective Time, of each of the following
conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties by MSI contained in this Agreement or in any
certificate or document delivered to IDW and Sellers pursuant to the
provisions hereof shall be true in all material respects at and as of the
Effective Time as though such representations and warranties were made at and
as of such time.
(b) COMPLIANCE WITH COVENANTS. MSI shall have performed and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by it prior to or at the Effective
Time.
(c) FORM OF NEW CERTIFICATES. The New Certificates delivered
to the Sellers and their respective counsel shall conform in all material
respects to the form of such New
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<PAGE>
Certificates attached as Exhibit B.
(d) APPROVAL BY COUNSEL. MSI shall have delivered all of the
exhibits and schedules required herein to IDW or the Sellers, as the case may
be, and such exhibits and schedules shall have been reasonably acceptable to
IDW and the Sellers and their respective counsel.
(e) OPINION OF COUNSEL. MSI shall have delivered to IDW and
the Sellers an opinion of MSI's counsel in the form of Exhibit C, dated the
Effective Time, to the effect that:
(i) MSI is a corporation duly organized and validly
existing under the laws of the State of Oregon;
(ii) MSI has the corporate power to carry on its
businesses as now being conducted;
(iii) This Agreement has been duly authorized,
executed and delivered by MSI and is a valid and binding obligation of MSI,
enforceable in accordance with its terms, except to the extent that
enforcement is limited by applicable bankruptcy, reorganization, insolvency,
moratorium, or similar laws affecting creditors' rights and remedies
generally or by general equitable principles (and excepting specific
performance as a remedy);
(iv) MSI has taken all corporate action necessary for
its due performance under this Agreement;
(v) The execution and delivery by MSI of this
Agreement and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach of any provisions of, MSI's
Certificate of Incorporation or Bylaws or, to such counsel's knowledge after
inquiry and based upon information provided by MSI, constitute a default
under or give rise to a right of termination, acceleration, or cancellation
by any agreement under which MSI or any of its properties are bound or
violate any court order, writ or decree of injunction applicable to MSI;
(vi) Such counsel does not know, after inquiry of
MSI, of any actions, suits or other legal proceedings or investigations
pending or threatened against, relating to or materially adversely affecting
MSI, except as disclosed in the Public Filings;
(vii) The authorized and, to such counsel's best
knowledge after inquiry, outstanding capitalization of MSI is as set forth in
Schedule 3.03 of the Agreement. All of the outstanding shares of MSI's
capital stock are validly issued, fully-paid and non-assessable, without
preemptive rights, and to the best of our knowledge after inquiry, there are
no outstanding subscriptions, options, rights, warrants or other transfer
agreements (whether oral or
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<PAGE>
written), other than as set forth in Schedule 3.03 of this Agreement.
(f) OFFICERS' CERTIFICATE. There shall have been delivered to
IDW and Sellers a certificate, signed by the president and secretary of MSI,
to the effect that all of the representations and warranties of MSI set forth
herein are true and complete in all material respects as of the Effective
Time, and that MSI has complied in all material respects with its covenants
and agreements set forth herein required to be complied with by the Effective
Time substantially in the form of Exhibit E-1 hereto.
(g) CLOSING FINANCIAL STATEMENTS. There shall have been
delivered to IDW and Sellers unaudited financial statements (the "Closing
Statements") dated no earlier than five days prior to the Effective Time. The
Closing Statements shall fairly and accurately reflect the consolidated
financial condition of MSI as of the dates thereof and the results of
operations for the period reflected therein and shall reflect no material
adverse change in the financial condition or results of operations from the
Statements. The Closing Statements shall be prepared in accordance with
generally accepting accounting principles, consistently applied, except as
otherwise stated therein.
5.02 CONDITIONS PRECEDENT TO OBLIGATIONS OF MSI. All obligations of
MSI under this Agreement are subject to the fulfillment, prior to or at the
Effective Time, of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties by IDW and Sellers contained in this Agreement
or in any certificate or document delivered to MSI pursuant to the provisions
hereof shall be true in all material respects at and as of the Effective Time
as though such representations and warranties were made at and as of such
time.
(b) COMPLIANCE WITH COVENANTS. IDW and Sellers shall have
performed and complied with all covenants, agreements, and conditions
required by this Agreement to be performed or complied with by each of them
prior to or at the Effective Time.
(c) APPROVAL BY COUNSEL. IDW and Sellers shall have delivered
all of the exhibits and schedules required herein to MSI and such exhibits
and schedules shall have been reasonably acceptable to MSI and its counsel.
(d) OPINION OF COUNSEL. IDW shall have delivered to MSI an
opinion of IDW's counsel, in the form of Exhibit D hereto, dated the
Effective Time.
(e) OFFICERS' AND SELLERS' CERTIFICATE. There shall have been
delivered to MSI a certificate executed by the president and secretary of IDW
and certificates executed by Sellers, to the effect that all of the
representations and warranties of IDW and Sellers, respectively, set
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<PAGE>
forth herein are true and complete in all material respects as of the
Effective Time, and that IDW has complied in all material respects with its
covenants and agreements set forth therein required to be complied with by
the Effective Time substantially in the form of Exhibits E-2 and E-3 hereto.
(f) CLOSING FINANCIAL STATEMENTS. There shall have been
delivered to MSI unaudited financial statements (the "Closing Financial
Statements") dated no earlier than five days prior to the Effective Time. The
Closing Financial Statements shall fairly and accurately reflect the
consolidated financial condition of IDW as of the date thereof and the
results of operations for the period reflected therein and shall reflect no
material adverse change in the financial condition or results of operations
from the Financial Statements. The Closing Statements shall be prepared in
accordance with generally accepting accounting principles, consistently
applied, except as otherwise stated therein.
(g) COMPLETION OF ACQUISITION OF THE PRC COMPANIES BY
INTERNATIONAL DISPLAYWORKS HONG KONG. IDW's wholly owned Hong Kong
subsidiary, International DisplayWorks (Hong Kong) LTD., shall have completed
the acquisition of the two PRC Companies as described in IDW's Confidential
Business Plan dated September 27, 1999, on terms and conditions satisfactory
to MSI in its sole discretion.
5.03 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS, IDW AND MSI.
The respective obligations of each party to effect the Reorganization shall
be subject to the fulfillment at or prior to the Closing of each of the
following conditions:
(a) IDW STOCKHOLDER APPROVAL. If required by Delaware law, the
approval of the Reorganization, including the execution and performance of
this Agreement and all of the transactions contemplated hereby, by a majority
of the outstanding shares of IDW Common Stock shall have been obtained.
(b) CERTAIN PROCEEDINGS. No writ, order, decree or injunction
of a court of competent jurisdiction or governmental entity shall have been
entered against MSI which, and no proceedings therefor shall have been
threatened or commenced by any governmental entity which seek to, prohibit or
restrict the consummation of the Reorganization.
ARTICLE VI
CLOSING
6.01 TIME AND PLACE. Subject to the provisions of Articles V and
VII, the closing of the Reorganization (the "Closing") shall take place at
the offices of Christensen and Barrus, Inc., or such other place as the
parties may agree upon, as soon as practicable but in no event later than
9:30 a.m., local time, on the second business day after the date on which
each of the
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<PAGE>
conditions set forth in Article V have been satisfied or waived by the party
or parties entitled to the benefit of such conditions; or at such other
place, at such other time, or on such other date as IDW and MSI may mutually
agree. The date on which the Closing actually occurs is herein referred to as
the "Closing Date."
6.02 DOCUMENTS AT CLOSING. At the Closing, the following
transactions shall occur, all of such transactions being deemed to occur
simultaneously:
(a) DOCUMENTS BY IDW. IDW (and the Sellers, where appropriate)
will deliver, or cause to be delivered, to MSI the following:
(i) stock certificates for the shares of IDW Common
Stock being exchanged hereunder, duly endorsed or with stock powers attached
in blank but subject to a customary restrictive stock legend;
(ii) a certificate of the president and secretary of
IDW and each Seller to the effect that all representations and warranties
made by IDW and each Seller, respectively, under this Agreement are true and
correct as of the Effective Time, as though originally given to MSI on said
date attaching thereto the following:
(A) certified copy of resolutions of IDW
authorizing this Agreement;
(B) Certificate of Incorporation of IDW as
amended to the Closing Time;
(C) Bylaws of IDW as amended to the Closing
Time;
(D) a certificate from the Secretary of State
of Delaware dated at or about the date of
Closing that IDW is in good standing under
the laws of said state;
(iii) the opinions of IDW's counsel set forth herein;
and
(iv) such other instruments, documents and
certificates, if any, as are required to be delivered pursuant to the
provisions of this Agreement or which may be reasonably requested in
furtherance of the provisions of this Agreement.
(b) DOCUMENTS BY MSI. MSI will deliver or cause to be
delivered to IDW:
(i) the New Certificates, in the form of Exhibit B
hereto, representing the shares of MSI Common Stock which MSI has agreed to
deliver pursuant to Section 1.01(a);
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(ii) a certificate of the president and secretary of
MSI, to the effect that all representations and warranties of MSI made under
this Agreement are reaffirmed at the Effective Time, as though originally
given to Stockholder and MSI on said date attaching thereto the following:
(A) certified copy of resolutions of MSI
authorizing this Agreement;
(B) Articles of Incorporation of MSI as amended
to the Closing Time;
(C) Bylaws of MSI as amended to the Closing
Time;
(D) a certificate from the Secretary of State
of Oregon dated at or about the date of
Closing that MSI is validly existing under
the laws of that state;
(iii) the opinions of MSI's counsel set forth herein;
(iv) unaudited financial statements of MSI; and
(v) such other instruments and documents, if any, as
are required to be delivered pursuant to the provisions of this Agreement, or
which may be reasonably requested in furtherance of the provisions of this
Agreement.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.01 TERMINATION. This Agreement may be terminated and the
Reorganization may be abandoned any time prior to the Effective Time, whether
before or after approval by the stockholders of IDW or MSI, as follows:
(a) MUTUAL CONSENT. The Reorganization may be abandoned any
time prior to the Effective Time by mutual consent of the Boards of Directors
of IDW and MSI; or
(b) ORDER OF JUDICIAL OR REGULATORY AUTHORITY. The
Reorganization may be abandoned any time prior to the Effective Time by
either IDW or MSI, if any court of competent jurisdiction in the United
States or other governmental body in the United States, other than at the
request of the parties, or any affiliate thereof, seeking to terminate this
Agreement pursuant to this clause (b), shall have issued an order (other than
a temporary restraining order), decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the
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Reorganization, and such order, decree, ruling or other action shall have
become final and nonappealable.
7.02 TERMINATION BY IDW. This Agreement may be terminated and the
Reorganization may be abandoned by action of the Board of Directors of IDW,
at any time prior to the Effective Time, before or after the approval by the
stockholders of IDW, if (a) MSI shall have failed to comply in any material
respect with any of the covenants or agreements contained in Articles IV and
V of this Agreement to be complied with or performed by MSI at or prior to
such date of termination, or (b) there exists a breach or breaches of any
representation or warranty of MSI contained in this Agreement or any of the
closing conditions set forth in Section 5.01 are not satisfied; provided,
however, that if such breach or breaches are capable of being cured prior to
the Effective Time, such breaches shall not have been cured within 15
calendar days of delivery to MSI of written notice of such breach or breaches.
7.03 TERMINATION BY MSI. This Agreement may be terminated and the
Reorganization may be abandoned at any time prior to the Effective Time,
before or after the approval by the stockholders of MSI, by action of the
Board of the Directors of MSI, if: (a) IDW or any Seller shall have failed to
comply in any material respect with any of the covenants or agreements
contained in this Agreement to be complied with or performed by IDW or any
Seller at or prior to such date of termination; (b) there exists a breach or
breaches of any representation or warranty of IDW or any Seller contained in
this Agreement such that the closing conditions set forth in Section 5.02
would not be satisfied; provided, however, that if such breach or breaches
are capable of being cured prior to the Effective Time, such breaches shall
not have been cured within 15 calendar days of delivery to IDW of written
notice of such breach or breaches; or (c) if the closing condition set forth
in Section 5.02(g) regarding completion of the acquisition of the two PRC
Companies has not been satisfied.
7.04 PROCEDURE FOR TERMINATION. In the event of termination and
abandonment of the Reorganization by IDW or MSI pursuant to this Article VII,
written notice thereof shall forthwith be given to the other.
7.05 EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and abandonment of the Reorganization pursuant
to this Article VII, no party hereto (or any of its directors or officers)
shall have any liability or further obligation to any other party to this
Agreement, except as otherwise provided in Section 4.03, and except that: (a)
nothing herein shall relieve any party from liability for any breach of this
Agreement and (b) upon termination, IDW shall use its best efforts to procure
the return of the funds in the amount of approximately $4,271,729.46 advanced
by MSI and deposited in the trust account of KPMG Peat Marwick LLP in
Singapore. In the event of termination, each party hereto shall be
responsible for its own costs and expenses incurred in all activities related
hereto prior to such termination.
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ARTICLE VIII
DISPUTE RESOLUTION
8.01 AGREEMENT DISPUTES. In the event of a controversy, dispute or
claim arising out of, in connection with, or in relation to the
interpretation, performance, nonperformance, validity or breach of this
Agreement or otherwise arising out of, or in any way related to this
Agreement, including, without limitation, any claim based on contract, tort,
statute or constitution (singly, an "Agreement Dispute" and collectively,
"Agreement Disputes"), the party asserting the Agreement Dispute shall give
written notice to the other party of the existence and nature of such
Agreement Dispute. Thereafter, the general counsels (or other designated
representatives) of the respective parties shall negotiate in good faith for
a period no less than 60 days after the date of the notice in an attempt to
settle such Agreement Dispute. If after such 60 calendar day period such
representatives are unable to settle such Agreement Dispute, any party hereto
may commence arbitration by giving written notice to all other party that
such Agreement Dispute has been referred to the American Arbitration
Association for arbitration in accordance with the provisions of this Article.
8.02 ARBITRATION IN ACCORDANCE WITH AMERICAN ARBITRATION ASSOCIATION
RULES. All Agreement Disputes shall be settled by arbitration in Sacramento,
California, before a single arbitrator in accordance with the rules of the
American Arbitration Association (the "Rules"). The arbitrator shall be
selected by the mutual agreement of all parties, but if they do not so agree
within 20 days after the date of the notice of arbitration referred to above,
the selection shall be made pursuant to the Rules from the panels of
arbitrators maintained by the American Arbitration Association. The
arbitrator shall be an individual with substantial professional experience
with regard to resolving or settling sophisticated commercial disputes.
8.03 FINAL AND BINDING AWARDS. Any award rendered by the arbitrator
shall be conclusive and binding upon the parties hereto; provided, however,
that any such award shall be accompanied by a written opinion of the
arbitrator giving the reasons for the award. This provision for arbitration
shall be specifically enforceable by the parties and the decision of the
arbitrator in accordance therewith shall be final and binding, and there
shall be no right of appeal therefrom. The parties agree to comply with any
award made in any such arbitration proceedings that has become final in
accordance with the Rules, and agree to the entry of a judgment in any
jurisdiction upon any award rendered in such proceedings becoming final under
the Rules.
8.04 COSTS OF ARBITRATION. In the award the arbitrator shall
allocate, in his or her discretion, among the parties to the arbitration all
costs of the arbitration, including, without limitation, the fees and
expenses of the arbitrator and reasonable attorneys' fees, costs and expert
witness expenses of the parties. Absent such an allocation by the arbitrator,
each party shall pay its own expenses of arbitration, and the expenses of the
arbitrator shall be equally shared.
8.05 SETTLEMENT BY MUTUAL AGREEMENT. Nothing contained in this
Article shall
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<PAGE>
prevent the parties from settling any Agreement Dispute by mutual agreement
at any time.
8.06 INDEMNIFICATION BY SELLERS. Each Seller agrees to indemnify and
hold MSI harmless for any falsity in the representations and warranties by
that Seller as set forth in Section 3.01. Such indemnity obligations shall
survive indefinitely, to indemnify and hold MSI harmless for any falsity in
any representation or warranty which the Seller knew was false when made,
provided, such latter indemnity shall survive for a period of three (3)
years. Such indemnity shall extend to MSI, its respective officers,
directors, employees and agents, from and against any and all Losses (as
defined below) incurred by such party arising out of a breach or inaccuracy
of any representation or warranty made by the Seller or IDW for which
indemnity is provided herein. For purposes of this Agreement, "Losses" means
(i) all losses, liabilities, damages, actions, demands, claims, fines and
penalties; and (ii) all out-of-pocket costs, including, without limitation,
reasonable expenses of investigation, remediation and the response costs,
reasonable attorneys' and paralegals' fees (at trial, on appeal, and in
connection with any petition for review in any agency proceeding) and
reasonable consulting, expert and accounting fees incurred in investigating,
defending and prosecuting any claim.
ARTICLE IX
OTHER MATTERS
9.01 THE CLOSING. The Closing shall take place upon such date (the
"Effective Time") as the parties hereto may mutually agree upon, but shall be
no later than January 31, 2000. The Closing shall take place at such place as
may be mutually agreed upon by the parties.
9.02 SURVIVABILITY AND INVESTIGATIONS. The respective
representations and warranties of IDW and MSI contained herein or in any
certificates or other documents delivered prior to or at the Closing shall
not be deemed waived or otherwise affected by any investigation made by any
party hereto and shall not survive the Closing.
9.03 NATURE OF REPRESENTATIONS AND WARRANTIES. All of the parties
hereto are executing and carrying out the provisions of this Agreement in
reliance on the representations, warranties, covenants and agreements
contained in this Agreement or at the Closing of the transactions herein
provided for, and any investigation which they might have made or any other
representations, warranties, agreements promises or information, written or
oral, made by the other party or any other person shall not be deemed a
waiver of any breach of any such representation, warranty, covenant or
agreement.
9.04 FURTHER ASSURANCES. At any time, and from time to time, after
the Closing, each party will execute such additional instruments and take
such action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of this Agreement.
Page 36--SECURITIES PURCHASE AGREEMENT
<PAGE>
9.05 WAIVER OF COMPLIANCE AND CONSENTS. Any failure of IDW and the
Sellers, on the one hand, or MSI, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by IDW and
the Sellers or MSI, respectively, only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf
of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this Section 9.06.
9.06 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given if delivered in person
or sent by prepaid first class registered or certified mail, return receipt
requested, to the following addresses, or such other addresses as are given
to other parties in the manner set forth herein:
MSI: Morrow Snowboards, Inc.
Attn: P. Blair Mullin, President
2600 Pringle Road SE
Salem, OR 97302
With a copy to: Robert A. Stout, Esq.
Hershner, Hunter, Andrews, Neill & Smith, LLP
180 East 11th Avenue
PO Box 1475
Eugene, OR 97440
IDW: International DisplayWorks, Inc.
Attn: Anthony G. Genovese, President
c/o 2999 Douglas Boulevard, Suite 185
Roseville, CA 95661
With a copy to: Craig G. Christensen, Esq.
Christensen and Barrus, Inc.
2999 Douglas Boulevard, Suite 185
Roseville, CA 95661
Sellers: Addresses shown on the corporate records
9.07 INTERPRETATION. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i) the term
"person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an association, a company, an unincorporated
organization, a government or
Page 37--SECURITIES PURCHASE AGREEMENT
<PAGE>
any department, political subdivision or agency thereof; and (ii) the term
"Subsidiary" of any specified corporation shall mean any corporation of which
a majority of the outstanding securities having ordinary voting power to
elect a majority of the board of directors is directly or indirectly
beneficially owned by such specified corporation or any other person of which
a majority of the equity interests therein is, directly or indirectly, owned
by such specified corporation.
9.08 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
9.09 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Oregon.
9.10 BINDING EFFECT. This Agreement shall be binding upon the
parties hereto and inure to the benefit of the parties, their respective
heirs, administrators, executors, successors and assigns.
9.11 ENTIRE AGREEMENT. This Agreement is the entire agreement of the
parties covering everything agreed upon or understood in the transaction.
There are no oral promises, conditions, representations, understandings,
interpretations or terms of any kind as conditions or inducements to the
execution hereof.
9.12 SEVERABILITY. If any part of this Agreement is determined by a
court of competent jurisdiction to be unenforceable, the balance of the
Agreement shall remain in full force and effect.
9.13 DEFAULT COSTS. In the event any party hereto has to resort to
legal action to enforce any of the terms hereof, such party shall be entitled
to collect attorneys' fees and other costs from the party in default at trial
and upon any appeal.
[Remainder of page intentionally left blank]
Page 38--SECURITIES PURCHASE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
Attest: MORROW SNOWBOARDS, INC.
By: By: /s/ P. BLAIR MULLIN
------------------------------------------
Secretary P. Blair Mullin, President
INTERNATIONAL DISPLAYWORKS, INC.
By: /s/ ANTHONY GENOVESE
------------------------------------------
Anthony Genovese, Chairman & CEO
/s/ ANTHONY GENOVESE
---------------------------------------------
Anthony Genovese
/s/ SHARON GENOVESE
---------------------------------------------
Sharon Genovese
DELAWARE TRUST FBO ANTHONY GENOVESE
IRA
By: /s/ ANTHONY GENOVESE
------------------------------------------
Its: TRUSTOR
------------------------------------------
EUREKA CAPITAL CORPORATION, LTD.
By: /s/ CRAIG CHRISTENSEN
------------------------------------------
Its: ATTORNEY-IN-FACT
------------------------------------------
---------------------------------------------
Peter Lin
CAPITOL BAY SECURITIES, INC.
By: /s/ STEPHEN C. KIRCHER
------------------------------------------
Its: CHIEF EXECUTIVE OFFICER
------------------------------------------
---------------------------------------------
Tony Liu
/s/ CRAIG CHRISTENSEN
---------------------------------------------
Craig Christensen
Page 39--SECURITIES PURCHASE AGREEMENT
<PAGE>
SCHEDULE 3.02
DISCLOSURE SCHEDULE OF IDW
(h) IDW is the tenant under a commercial lease agreement for office and
warehouse space in Rocklin, California.
(t) IDW's only directly owned subsidiary is International DisplayWorks
(Hong Kong) LTD.
<PAGE>
SCHEDULE 3.03
DISCLOSURE SCHEDULE OF MSI
<TABLE>
<CAPTION>
Security Authorized Outstanding
-------- ---------- -----------
<S> <C> <C>
Common Stock 50,000,000 14,976,566(1)
Preferred Stock(2) 10,000,000
</TABLE>
(1) Includes 9,176,566 outstanding at 12-31-99 and 5,800,000 shares issued
thereafter in private placement, but excludes 2,680,000 shares expected to be
issued in the Reorganization.
(2) The rights, privileges and preferences of the Preferred Stock as to
voting, election of directors, approval of corporate action, dividend and
liquidation preferences, and other matters may be established by the MSI
Board without shareholder approval.
<PAGE>
EXHIBIT A
IDW COMMON STOCK OWNED BY STOCKHOLDERS
PURSUANT TO SECTION 3.01(b)
<TABLE>
<CAPTION>
Name Number of
Shares
- ------------------------------------------------- ----------
<S> <C>
Anthony and Sharon Genovese, 505,000
as joint tenants with right of survivorship
7965 Haley Drive
Granite Bay, CA 95746
Delaware Trust FBO 505,000
Anthony Genovese IRA
7965 Haley Drive
Granite Bay, CA 95746
Eureka Capital Corporation, Ltd. 376,871
3rd Floor, Jonsim Place
228 Queens Road East
Wanchai, Hong Kong
Peter Lin 301,485
5F, No. 16, Sec. 2 Chung Yang S. Road
Peitou 12
Taipei, Taiwan
Capitol Bay Securities, Inc. 241,189
2424 Professional Drive
Roseville, CA 95661
Tony Liu 75,366
13032 Charleston Court
Chino, CA 91710
Craig Christensen 15,089
2999 Douglas Blvd., Suite 185 ------
Roseville, CA 95661
Total: 2,020,000
</TABLE>
<PAGE>
EXHIBIT A (CONTINUED)
MSI COMMON STOCK TO BE ISSUED
PURSUANT TO SECTION 1.01(a)
<TABLE>
<CAPTION>
Name Number of Percent of Total Issued &
Shares Outstanding Shares
- ------------------------------------------------- ---------- -------------------------
<S> <C> <C>
Anthony and Sharon Genovese, 670,000 3.8%
as joint tenants with right of survivorship
7965 Haley Drive
Granite Bay, CA 95746
Delaware Trust FBO 670,000 3.8%
Anthony Genovese IRA
7965 Haley Drive
Granite Bay, CA 95746
Eureka Capital Corporation, Ltd. 500,007 2.8%
3rd Floor, Jonsim Place
228 Queens Road East
Wanchai, Hong Kong
Peter Lin 399,990 2.3%
5F, No. 16, Sec. 2 Chung Yang S. Road
Peitou 12
Taipei, Taiwan
Capitol Bay Securities, Inc. 319,992 1.8%
2424 Professional Drive
Roseville, CA 95661
Tony Liu 99,991 0.6%
13032 Charleston Court
Chino, CA 91710
Craig Christensen 20,020 0.1%
2999 Douglas Blvd., Suite 185 ------
Roseville, CA 95661
Total: 2,680,000
</TABLE>
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF MSI COMMON STOCK
<PAGE>
EXHIBIT C
FORM OF OPINION OF MSI'S COUNSEL
PURSUANT TO SECTION 5.01(e)
_____________, 2000
International DisplayWorks, Inc.
2999 Douglas Blvd., Suite 185
Roseville, CA 95661
Ladies and Gentlemen:
We are acting as counsel to Morrow Snowboards, Inc., an Oregon
corporation ("MSI"), in connection with the transactions contemplated by the
Securities Purchase Agreement dated January 27, 2000 (the "Agreement") among
MSI; International DisplayWorks, Inc., a Delaware corporation (IDW); and
certain stockholders of IDW.
In our examination we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to
this opinion which we did not independently establish or verify, we have
relied upon statements and representations of MSI and its officers and other
representatives and of public officials.
In rendering the opinions set forth herein, we have examined
and relied on originals or copies, certified or otherwise identified to our
satisfaction, of the following:
(i) the Agreement;
(ii) the certificate of the officers of MSI, dated
the date hereof (the "Officers' Certificate");
(iii) certified copies of the Articles of
Incorporation and Bylaws, as amended, of MSI;
(iv) a certified copy of certain resolutions of the
Board of Directors of MSI, each adopted on ___, 2000; and
(v) such other documents as we have deemed necessary
or appropriate as a basis for the opinion set forth below.
Members of this Firm are admitted to practice in the State of
Oregon. We express
<PAGE>
no opinion as to the laws of any jurisdiction other than (i) the laws of the
State of Oregon; (ii) the General Corporation Law of the State of Delaware;
and (iii) the federal laws of the United States of America to the extent
specifically referred to herein.
As to factual matters, we have relied, without investigation,
on the Officers' Certificate provided by MSI and the representations and
warranties contained in the Agreement.
Based on the foregoing, we are of the opinion that:
(i) MSI is a corporation duly organized and validly
existing under the laws of the State of Oregon;
(ii) MSI has the corporate power to carry on its
businesses as now being conducted;
(iii) The Agreement has been duly authorized, executed
and delivered by MSI and is a valid and binding obligation of MSI,
enforceable in accordance with its terms, except to the extent that
enforcement is limited by applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights and remedies generally
or by general equitable principles (and excepting specific performance as a
remedy);
(iv) MSI has taken all corporate action necessary for
its due performance under the Agreement;
(v) The execution and delivery by MSI of the
Agreement and the consummation of the transactions contemplated thereby will
not conflict with or result in a breach of any provisions of, MSI's Articles
of Incorporation or Bylaws or, to the best of our knowledge after inquiry and
based upon information provided by MSI, constitute a default under or give
rise to a right of termination, acceleration, or cancellation under any
agreement by which MSI or any of its properties are bound or violate any
court order, writ or decree of injunction applicable to MSI;
(vi) We have no knowledge, after inquiry of MSI, of
any actions, suits or other legal proceedings or investigations pending or
threatened against, relating to or materially adversely affecting MSI, except
as disclosed in MSI's filings under the Securities Exchange Act of 1934, as
amended; and
(vii) The authorized and, to our best knowledge after
inquiry, outstanding capitalization of MSI is as set forth in Schedule 3.03
to the Agreement All of the outstanding shares of MSI's capital stock are
validly issued, fully-paid and non-assessable, without preemptive rights, and
to the best of our knowledge after inquiry, there are no outstanding
subscriptions, options, rights, warrants or other transfer agreements
(whether oral or written), other than as set forth in Section 3.03 of the
Agreement.
<PAGE>
This opinion is being furnished only to you and is solely for your
benefit and is not to be used, circulated, quoted, relied upon or otherwise
referred to for any purpose without our prior written consent.
Yours very truly,
HERSHNER, HUNTER, ANDREWS,
NEILL & SMITH, LLP
<PAGE>
EXHIBIT D
OPINION OF IDW'S COUNSEL
PURSUANT TO SECTION 5.02(d)
_____________, 2000
Morrow Snowboards, Inc.
2600 Pringle Road SE
Salem, OR 97302
Ladies and Gentlemen:
We are acting as counsel to International DisplayWorks, Inc., a
Delaware corporation ("IDW"), and certain stockholders of IDW (the
"Stockholders") in connection with the transaction contemplated by the
Securities Purchase Agreement dated January 27, 2000 (the "Agreement") among
Morrow Snowboards, Inc., an Oregon corporation, IDW and the Stockholders.
In our examination we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such copies. As to any facts
material to this opinion, which we did not independently establish or verify,
we have relied upon statements and representations of MSI and its officers
and Stockholders and their representatives and of public officials.
In rendering the opinions set forth herein, we have examined
and relied on originals or copies, certified or otherwise identified to our
satisfaction, of the following:
(i) the Agreement;
(ii) the certificate of the officers of IDW, dated
the date hereof (the "Officers' Certificate");
(iii) the certificate of the Stockholders (the
"Stockholders' Certificates");
(iv) certified copies of the Certificate of
Incorporation and Bylaws, as amended, of IDW;
(v) certified copy of certain resolutions of the
Board of Directors of IDW adopted on________, 2000; and
<PAGE>
(vi) such other documents as we have deemed necessary
or appropriate as a basis for the opinion set forth below.
Members of this firm are admitted to practice in the State of
California. We express no opinion as to the laws of any jurisdiction other
than (i) the laws of the State of Delaware; and (ii) the federal laws of the
United States of America to the extent specifically referred to herein.
As to factual matters, we have relied, without investigation,
on the Officers' and Stockholders' Certificates provided by IDW and the
representations and warranties contained in the Agreement.
Based on the foregoing, we are of the opinion that:
(i) IDW is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly qualified to do business in any jurisdiction where so required;
(ii) IDW has the corporate power to carry on its
business as now being conducted;
(iii) The Agreement has been duly authorized, executed
and delivered by IDW, and is a valid and binding obligation of IDW,
enforceable in accordance with its terms, except to the extent that
enforcement is limited by applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights and remedies generally
or by general equitable principles (and excluding specific performance as a
remedy), including limitations on enforcement by reason of fraudulent
conveyance and corporate and other laws restricting indemnification by
corporations, shareholders of a corporation, or its affiliates;
(iv) Except as referred to herein, we know, after
inquiry, of no actions, suit or other legal proceedings or investigations
pending or threatened against, relating to or materially adversely affecting
IDW or its properties or business;
(v) The execution and delivery by IDW of the
Agreement and the consummation of the transactions contemplated thereby will
not conflict with or result in a breach of any provisions of IDW's
Certificate of Incorporation or Bylaws or, to the best of our knowledge after
inquiry and based upon information provided by IDW and its officers and
directors, constitute a default under or give rise to a right of termination,
acceleration or cancellation under any agreement by which IDW or any of its
properties are bound or violate any court order, writ or decree of injunction
applicable to IDW; and
(vi) The authorized capitalization of IDW is as set
forth in Section 3.02 of the Agreement. All of the outstanding shares of
IDW's capital stock are validly issued,
<PAGE>
fully-paid and non-assessable, without preemptive rights, and to the best of
our knowledge after inquiry, there are no outstanding subscriptions, options,
rights, warrants or other transfer agreements (whether oral or written)
obligating IDW to issue or transfer from treasury any of its securities
except as set forth in Section 3.02 of the Agreement. When duly transferred
to MSI as provided therein, to the best of our knowledge after inquiry, MSI
will own all of the issued and outstanding common stock of IDW.
This opinion is being furnished only to you and is solely for
your benefit and is not to be used, circulated, quoted, relied upon or
otherwise referred to for any purpose without our prior written consent.
Yours very truly,
______________________
<PAGE>
EXHIBIT E-1
FORM OF OFFICERS' CERTIFICATE OF MSI CONCERNING ACCURACY
PURSUANT TO SECTION 5.01(f)
THE UNDERSIGNED HEREBY CERTIFY, on behalf of Morrow Snowboards, Inc., an
Oregon corporation ("MSI"), and pursuant to Section 5.01(f) of the Securities
Purchase Agreement (the "Agreement") dated January 27, 2000 among MSI,
International DisplayWorks, Inc., a Delaware corporation ("IDW"), and certain
stockholders of IDW, that we are the duly elected and qualified president and
chief executive officer and the duly elected and qualified secretary of MSI,
and that all representations and warranties of MSI contained in the Agreement
were accurate when made and, in addition, are accurate as of the Closing (as
defined in the Agreement) as though such representations and warranties were
made as of the Closing in exactly the same language by MSI and regardless of
knowledge or lack thereof on the part of MSI or any stockholder or changes
beyond its or his control, and as of the Closing, MSI has performed and
complied with all covenants and agreements and satisfied all conditions
required to be performed and complied with by any of them at or before such
time by the Agreement.
IN WITNESS WHEREOF, we have hereunto set our hands and the seal of MSI
this _____ day of ___________, 2000.
, President
, Secretary
<PAGE>
EXHIBIT E-2
FORM OF OFFICERS' CERTIFICATE OF IDW CONCERNING ACCURACY
PURSUANT TO SECTION 5.02(e)
THE UNDERSIGNED HEREBY CERTIFY, on behalf of International DisplayWorks,
Inc., a Delaware corporation ("IDW"), and pursuant to Section 5.02(e) of the
Securities Purchase Agreement (the "Agreement") dated January 27, 2000 among
Morrow Snowboards, Inc., an Oregon corporation, IDW and certain stockholders
of IDW, that we are the duly elected and qualified president and chief
executive officer and the duly elected and qualified secretary of IDW, and
that all representations and warranties of IDW contained in the Agreement
were accurate when made and, in addition, are accurate as of the Closing (as
defined in the Agreement) as though such representations and warranties were
made as of the Closing in exactly the same language by IDW and regardless of
knowledge or lack thereof on the part of IDW or any stockholder or changes
beyond its or his control, and as of the Closing, IDW has performed and
complied with all covenants and agreements and satisfied all conditions
required to be performed and complied with by any of them at or before such
time by the Agreement.
IN WITNESS WHEREOF, we have hereunto set our hands and the seal of IDW
this _____ day of ________, 2000.
, President
, Secretary
[corporate seal]
<PAGE>
EXHIBIT E-3
FORM OF CERTIFICATE OF SELLERS CONCERNING ACCURACY
PURSUANT TO SECTION 5.02(e)
THE UNDERSIGNED HEREBY CERTIFIES, pursuant to Section 5.02(e) of the
Securities Purchase Agreement (the "Agreement") dated January 27, 2000 among
Morrow Snowboards, Inc., an Oregon corporation, International DisplayWorks,
Inc., a Delaware corporation ("IDW"), and certain stockholders of IDW,
including the undersigned, that all of my representations and warranties
contained in the Agreement were accurate when made and, in addition, are
accurate as of the Closing (as defined in the Agreement) as though such
representations and warranties were made as of the Closing in exactly the
same language and regardless of knowledge or lack thereof on my part or
changes beyond my control, and as of the Closing, I have performed and
complied with all covenants and agreements and satisfied all conditions
required to be performed and complied with by me at or before such time by
the Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand this _____ day of
________, 2000.
<PAGE>
EXHIBIT F
LIST OF DEFINITIONS AND MEANING OF TERMS
<TABLE>
<S> <C>
Broker 19
Closing 25
Closing Financial Statements 25
Closing Statements 24
Code 2
Effective Time 30
ERISA 11
FIRPTA 14
Governing Documents 7
Government Entity 4
IDW 1
IDW Benefit Plans 11
IDW Common Stock 1
IDW Transaction 18
MSI 1
MSI Common Stock 4
MSI Transaction 19
NASD 17
New Certificates 2
Old Certificates 2
Person 31
Reorganization 1
SEC 4
Statements 16
Subsidiary 31
</TABLE>
<PAGE>
DATED THIS DAY OF 1999
BETWEEN
1. VIKAY INDUSTRIAL LTD
------------------------
(In Judicial Management)
2. VIKAY INDUSTRIAL (HONG KONG) LTD
--------------------------------
(as "Vendors")
AND
INTERNATIONAL DISPLAYWORKS. INC.
(as "Purchaser")
- --------------------------------------------------------------------------------
SALE AND PURCHASE AGREEMENT
relating to
A. VIKAY SCIENCE & TECHNOLOGY
DEVELOPMENT (SHENZHEN) CO LTD
B. MULCD MICROELECTRONICS
(SHENZHEN) CO LTD
- --------------------------------------------------------------------------------
RAJAH & TANN
SINGAPORE
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
CLAUSE HEADING PAGE
- ------ ------- ----
========================================================================================
<S> <C> <C>
1. DEFINITIONS...................................................................2
2. DEPOSIT.......................................................................4
3. SALE OF EQUITY INTERESTS......................................................4
4. CONDITIONS PRECEDENT..........................................................5
5. COMPLETION....................................................................6
6. MANAGEMENT OF PRC COMPANIES...................................................7
7. ASSETS, RECEIVABLES AND LIABILITIES..........................................10
8. REPRESENTATIONS AND WARRANTIES...............................................11
9. SEPARATE TRANSFER AGREEMENT..................................................13
10. OWN EVALUATION...............................................................13
11. CONFIDENTIALITY..............................................................13
12. RELEASE AND INDULGENCE.......................................................13
13. CONTINUING EFFECT OF AGREEMENT...............................................14
14. SUCCESSORS AND ASSIGNS.......................................................14
15. JUDICIAL MANAGERS............................................................14
16. TIME OF ESSENCE..............................................................14
17. COSTS AND EXPENSES...........................................................15
18. NOTICES......................................................................15
19. PARTIAL INVALIDITY...........................................................15
20. GOVERNING LAW................................................................15
<PAGE>
CLAUSE HEADING PAGE
- ------ ------- ----
========================================================================================
<S> <C> <C>
21. ENTIRE AGREEMENT.............................................................15
22. COUNTERPARTS.................................................................15
SCHEDULE 1-1..........................................................................16
SCHEDULE 1-2..........................................................................17
SCHEDULE 1-3..........................................................................18
SCHEDULE 2-1..........................................................................19
SCHEDULE 2-2..........................................................................20
SCHEDULE 2-3..........................................................................21
</TABLE>
<PAGE>
THIS AGREEMENT is made on day of 1999
BETWEEN:-
(1) VIKAY INDUSTRIAL LTD (In Judicial Management) care of 16
Raffles Quay, #22-00 Hong Leong Building Singapore 048581,
facsimile no: (65) 221 7204 Attention: Mr Tham Sai Choy ("VKS");
(2) VIKAY INDUSTRIAL (HONG KONG) care of 16 Raffles Quay, #22-00
Hong Leong Building Singapore 048581, facsimile no: (65) 221
7204 Attention: Mr Tham Sai Choy ("VKHK");
AND
(3) INTERNATIONAL DISPLAYWORKS. INC., a company incorporated in the
State of Delaware, United States of America and having its place
of business at 2424 Professional Drive, Suite A, Roseville, CA
95661, facsimile no: (916) 782 4455 Attention: Anthony Genovese
for and on behalf of INTERNATIONAL DISPLAYWORKS (HONG KONG)
LTD., a Hong Kong company to be formed prior to the Completion
Date (the "PURCHASER").
WHEREAS:-
(A) VKS is a company limited by shares incorporated in Singapore
and has at the date of this Agreement an authorised share capital of
S$87,500,000 consisting of 350,000,000 ordinary shares of S$0.25 each, of
which 170,802,000 of the said ordinary shares have been issued, are fully
paid-up and are listed on the Stock Exchange of Singapore Dealing and
Automated Quotation System. The Vendor has been placed under judicial
management pursuant to an order of court made 6 December 1997, which order of
court has been extended to 31 July 2000.
(B) VKHK is a company limited by shares incorporated in Hong Kong
and is, at the date of this Agreement, a wholly-owned subsidiary of VKS.
(C) Vikay Science & Technology Development (Shenzhen) Co., Ltd.
("VKSTD") is a wholly foreign-owned enterprise established in the People's
Republic of China with a total investment of US$8,000,000 and a registered
capital of US$6,000,000. VKS has contributed US$6,000,000 to the registered
capital of VKSTD, representing 100% of the equity interest in VKSTD, and is
in the process of injecting further assets into VKSTD thereby increasing the
total investment amount and registered capital of VKSTD.
(D) MULCD Microelectronics (Shenzhen) Co., Ltd. ("MULCD") is a
wholly foreign-owned enterprise established in the People's Republic of China
with a total investment of US$15,000,000 and a registered capital of
US$6,000,000. VKHK has contributed US$6,000,000 to the registered capital of
MULCD, representing 100% of the equity interest in MULCD, and is in the
process of injecting further assets into MULCD thereby increasing the total
investment amount and registered capital of MULCD.
(E) At a creditors' meeting held under section 227M of the
Companies Act, Singapore on 5 May 1999, the creditors of VKS approved a
Statement of Proposal which included, inter alia, the proposed sale of the
equity interests in each of VKSTD and MULCD.
(F) Pursuant to the aforesaid approval, both VKS and VKHK have
agreed to sell to the Purchaser their respective equity interests (including
the increased equities after the aforesaid asset injection) in VKSTD and
MULCD, and the Purchaser has agreed to purchase such equity interests
<PAGE>
from each of VKS and VKHK respectively upon the terms and subject to the
conditions of this Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. DEFINITIONS
1.1 In this Agreement (including the recitals), unless the
context otherwise requires, the following words or expressions shall have the
following meanings respectively:
"BUSINESS DAY" means a day (other than a Saturday, Sunday or public holiday
in Singapore) on which commercial banks are open for business in Singapore;
"COMPLETION" means the completion of the sale and purchase of the Equity
Interests;
"COMPLETION DATE" means the date falling ninety (90) days from the date of
this Agreement (or such other date as the Parties may agree in writing);
"CONFIDENTIALITY INFORMATION" means the information and data identified or
defined as confidential information in the Confidentiality Undertaking,
including those referred to in Clause 11.2;
"CONFIDENTIALITY UNDERTAKING" means the confidentiality undertaking
dated 11 June 1998 executed by the Purchaser in favour of the Vendors;
"EFFECTIVE DATE" means:-
(i) where the Purchaser is permitted to manage the PRC Companies
pursuant to Clause 6, 31 July 1999 (or such other date as the Parties
may agree in writing); or
(ii) in any other case, the Completion Date;
"EQUITY INTERESTS" means the VKSTD Equity Interest and the MULCD Equity
Interest, which include (i) the assets listed in Schedule 1 hereto and all
other assets legally owned by either VKSTD or MULCD (excluding the Excluded
Assets), including, but not limited to VKSTD Inventory and MULCD Inventory;
and (ii) the Property;
"EXCLUDED ASSETS" means the assets set out in Schedule 2 herein, which are in
the possession or held to the order of the PRC Companies, and shall also
include such other assets (if any) falling into the possession of the PRC
Companies during the period between the date of signing of this Agreement and
the Effective Date, but do not belong to any of the PRC Companies;
"JUDICIAL MANAGERS" means the judicial managers of VKS appointed pursuant to
the order of court made on 6 December 1997 and such other judicial managers
or officers of VKS as may be appointed pursuant to an order of court in
addition to or replacement or substitution of the Judicial Managers;
"MANAGEMENT PERIOD" means the period beginning from 1 August 1999 (or such
other date as the Parties may agree in writing) and ending on the earlier of
the following dates (or such other dates as the Parties may agree in
writing):-
(i) the Completion Date, subject to Completion taking place on that date;
or
(ii) the date of termination of this Agreement;
"MULCD ASSETS" means the assets of MULCD set out in Schedule 1 herein;
<PAGE>
"MULCD EQUITY INTEREST" means the one hundred per cent (100%) investment in
the registered capital of MULCD held by VKHK on Completion Date, together
with all rights, interests and benefits of VKHK in connection therewith;
"MULCD INVENTORY" means all goods and products (whether finished, partially
finished or otherwise), raw materials, work in progress and stock in trade of
MULCD;
"MULCD LIABILITIES" means, in respect of any period, all indebtedness,
payment obligations and liabilities (whether contingent or otherwise)
incurred by MULCD during that period;
"MULCD RECEIVABLES" means, in respect of any period, all cash, deposits,
receivables and book debts of MULCD accruing during that period;
"PARTIES" means VKS, VKHK and the Purchaser and "PARTY" means each or any one
of them;
"PRC" means the People's Republic of China;
"PRC COMPANIES" means VKSTD and MULCD and "PRC COMPANY" means each or any of
them;
"PRICE" means SINGAPORE DOLLARS EIGHTEEN MILLION TWO HUNDRED THOUSAND
(S$18,200,000.00), being the purchase consideration for the Equity Interests,
payable to the Judicial Managers as set out in Clause 5 herein subject to the
adjustments under Clause 3.4;
"PRICE ADJUSTMENT" means the aggregate total of all amounts to be adjusted
pursuant to Clause 3.3;
"PROPERTY" means the piece of land located at Heng Gang Vikay Science Park,
Heng Gang Industrial Estate, Long Gang Zone, Shenzhen, PRC with an estimated
land area of 17,901.1 square metres, and shall where the context so admits
include the buildings erected thereon;
"RENMINBI" or "RMB" means the lawful currency of the People's Republic of
China;
"SCOFTEC" means the Shenzhen Commission of Foreign Trade and Economic
Cooperation;
"SHA WAN CUSTOMS" means the customs authority in Sha Wan;
"SINGAPORE DOLLARS" or "S$" means the lawful currency of the Republic of
Singapore;
"SLAB" means the Shenzhen Land Administration Bureau;
"UNITED STATES DOLLARS" or "US$" means the lawful currency of the United
States of America;
"VEC" means Vikay Electronics Company;
"VENDORS" means VKS and VKHK;
"VKSTD ASSETS" means the assets of VKSTD set out in Schedule 1 herein;
"VKSTD EQUITY INTEREST" means the one hundred per cent (100%) investment in
the registered capital of VKSTD held by VKS on Completion Date, together with
all rights, interests and benefits of VKS in connection therewith;
"VKSTD INVENTORY" means all goods and products (whether finished, partially
finished or otherwise), raw materials, work in progress and stock in trade of
VKSTD;
"VKSTD LIABILITIES" means, in respect of any period, all indebtedness,
payment obligations and liabilities (whether contingent or otherwise)
incurred by VKSTD during that period;
<PAGE>
"VKSTD RECEIVABLES" means, in respect of any period, all cash, deposits,
receivables and book debts of VKSTD accruing during that period; and
"XEC" means Xinhui Electronics Company.
1.2 Except to the extent that the context requires otherwise, any
reference to a statutory provision shall include such provision and any
regulations made in pursuance thereof as from time to time modified or
re-enacted whether before or after the date of this Agreement.
1.3 The headings in this Agreement are inserted for convenience
only and shall be ignored in construing this Agreement. Unless the context
otherwise requires, words (including words defined in this Agreement)
denoting the singular number only shall include the plural and vice versa.
References to Clauses in this Agreement are to be construed as references to
clauses of this Agreement.
1.4 In the event any translation of this Agreement into Chinese
or any other language is required for the purpose of any approval,
registration, filing, legal proceedings or any other purpose whatsoever, that
translation shall be ignored in constructing this Agreement and in the event
of any inconsistency between this Agreement and any such translation, this
Agreement shall prevail.
2. DEPOSIT
The Purchaser shall, on the signing of this Agreement pay the
Vendors the sum of United States Dollars One Million (US$1,000,000.00) by way
of a cashier's order in favour of the Judicial Managers or telegraphic
transfer (with a value date not later than two (2) Business Days after the
date of this Agreement) to a bank account specified by the Judicial Managers
as a deposit (the "DEPOSIT") for the purchase of the Equity Interests, which
sum shall be placed in an interest-bearing account as determined by the
Judicial Managers. The Deposit together with interest accrued thereon shall
be applied towards payment of the Price on Completion or utilised for such
other purposes in accordance with the terms of this Agreement.
3. SALE OF EQUITY INTERESTS
3.1 Subject to the terms and conditions of this Agreement:-
(a) VKS shall sell and the Purchaser shall purchase
the VKSTD Equity Interest (excluding the
Excluded Assets); and
(b) VKHK shall sell and the Purchaser shall purchase the
MULCD Equity Interest (excluding the Excluded
Assets).
3.2 The Parties acknowledge and agree that the Price comprises:
(a) the agreed value of VKSTD Assets and MULCD Assets;
(b) the agreed value of VKSTD Inventory and MULCD
Inventory, subject to Clauses 3.3 and 7 below; and
(c) the agreed value of the Property, subject to Clause
3.4 below,
but excludes INTER ALIA all VKSTD Liabilities, VKSTD
Receivables, MULCD Liabilities, MULCD Receivables and Excluded
Assets as at the Effective Date, which shall be dealt with by
the Parties in accordance with Clause 7.
3.3 In the event that the inventory levels of VKSTD Inventory and
MULCD Inventory as at the Effective Date are at variance with those set out
in Schedule 1 herein, the Parties hereby agree to adjust the Price as follows
to take into consideration the aforesaid difference in inventory levels:-
<PAGE>
A = B x D% x Q
whereby:-
"A" is the amount to be adjusted for each inventory item;
"B" is the gross value of that inventory item as set out in
Schedule 1 herein;
"D" is the discount to be given by the Vendors to the Purchaser
or the Purchasers to the Vendors (as the case may be) for the
adjustment of the inventory, which is agreed by the Parties to
be fifty per cent (50%).
"Q" is the quantity of an inventory item as at the Effective
Date less the quantity of that inventory item as set out in
Schedule 1.
3.4 The agreed value of the Property does not include the land
premium payable by VKSTD to SLAB for the grant of the land use rights in
respect of the Property and the Purchaser shall bear such land premium
imposed by SLAB by increasing the Price payable to the Vendors on Completion
by the same amount or by such other methods as may be agreed between the
Parties.
3.5 All toolings, drawings, process specifications and such other
items owned by the customers of the PRC Companies and which are in the
custody or possession of the PRC Companies or the Vendors on the Effective
Date shall, subject to the customers instructing otherwise, be retained in
the PRC Companies and the Purchaser shall be responsible for and be
accountable to the respective customers for such toolings, drawings,
specifications and items with effect from the Effective Date provided always
that the Vendors shall not be obliged to hand over or account for any of the
aforesaid tooling, drawings, process specifications and items to the
Purchaser and/or the PRC Companies if they comprise part of the business
assets sold to Lantech (M) Sdn. Bhd. under the Sale and Purchase Agreement
dated 24 March 1999 ("Lantech Agreement") or if such act would result in the
Vendors being in breach of the provisions under the Lantech Agreement.
4. CONDITIONS PRECEDENT
4.1 The Parties agree that the sale and purchase of the Equity
Interests is subject to the following conditions precedent:-
4.1.1 this Agreement and the transactions contemplated herein
being approved or sanctioned by the courts of Singapore;
4.1.2 the transfer of VKSTD Equity Interest from VKS to the Purchaser
and the transfer of MULCD Equity Interest from VKHK to the
Purchaser being approved by SCOFTEC and/or such other relevant
government body or regulatory authority in the PRC in accordance
with the relevant PRC laws and regulations;
4.1.3 VKSTD obtaining a grant of the land use rights of the Property
from the SLAB;
4.1.4 the transfer of the assets of VEC and XEC to VKSTD and MULCD
being approved by the Sha Wan Customs and/or such other relevant
government body or regulatory authority in the PRC in accordance
with the relevant PRC laws and regulations; and
4.1.5 the increase in the total investment amount and registered
capital of VKSTD and MULCD being approved by SCOFTEC and/or such
other relevant government body or regulatory authority in the
PRC in accordance with the relevant PRC laws and regulations.
4.2 The Purchaser undertakes to furnish all necessary information
and documents and do all such acts and things as may be required by the
Vendors in procuring the approvals or sanction set out in Clause 4.1 above.
<PAGE>
4.3 If the condition precedent under Clause 4.1.1 above is not
satisfied by Completion Date, this Agreement shall ipso facto cease and be
determined and the Vendors shall within seven (7) Business Days thereafter
refund the Deposit together with all interest accrued thereon to the
Purchaser (subject to such deductions that the Vendors may make in accordance
with Clauses 6 and 7) and thereafter, neither Party shall have any claim
against the others for costs, damages, compensation or otherwise save for
those expressly provided herein.
5. COMPLETION
5.1 Subject to the satisfaction of the conditions precedent
contained in Clause 4.1, Completion shall take place on Completion Date at
the Singapore office of the Judicial Managers (or at such other place as the
Parties may mutually agree in writing).
5.2 On Completion Date,
5.2.1 the Purchaser shall pay to the Judicial Managers the
difference between:-
(a) the Price (after taking into account the Price
Adjustment and any adjustment to the Price pursuant
to Clause 3.4); and
(b) the aggregate total of the Deposit and all interest
accrued thereon (which amount shall be converted from
the currency of the Deposit to the currency of the
Price based on such exchange rate to be agreed
between the Parties two (2) Business Days prior to
the Completion Date and failing such agreement, it
shall be the United States Dollars buying rate quoted
by Keppel TatLee Bank in Singapore two (2) Business
Days prior to the Completion Date); and
by way of a cashier's order in favour of the Judicial Managers
or telegraphic transfer (with a value date not later than the
Completion Date) to such account of the Judicial Managers as
they may notify in writing to the Purchaser at least two (2)
Business Days prior to the Completion Date;
5.2.2 in addition to the amount set forth in Clause 5.2.1, the
Purchaser shall (where applicable) pay to the Judicial Managers
a further sum equal to the Cash Balance referred to in Clause
6.1.5 in the same currency or such other currency as the Parties
may agree in writing (and if necessary, such amount shall be
converted from Renminbi to Singapore Dollars (or such other
currency to be agreed between the Parties) based on such
exchange rate to be agreed between the Parties two (2) Business
Days prior to the Completion Date and failing such agreement, it
shall be the official rate quoted by State Administration of
Foreign Exchange in PRC two (2) Business Days prior to the
Completion Date) by way of a cashier's order in favour of the
Judicial Managers or telegraphic transfer (with a value date not
later than the Completion Date) to such account of the Judicial
Managers as they may notify in writing to the Purchaser at least
two (2) Business Days prior to the Completion Date;
5.2.3 the Vendors shall, against payment by the Purchaser as referred
to in Clauses 5.2.1 and 5.2.2 above, deliver to the Purchaser
the following:-
(a) an investment certificate in respect of VKSTD Equity
Interest, duly issued by VKSTD in favour of the
Purchaser;
(b) an investment certificate in respect of MULCD Equity
Interest, duly issued by MULCD in favour of the
Purchaser;
(c) the approvals (or certified copies thereof)
referred to in Clauses 4.1.2 and 4.1.5; and
<PAGE>
(d) the duly executed Sale and Purchase Agreement in
respect of the Property with SLAB.
5.3 If any of the provisions of Clause 5.2 are not complied with
on Completion Date, the Party not in default may (without prejudice to its
other rights and remedies) elect to:-
5.3.1 defer Completion to a date not later than seven (7) days after
the Completion Date (so that the provisions of this Clause 5
shall apply to Completion as so deferred); or
5.3.2 rescind this Agreement,
and shall forthwith inform the defaulting Party of its decision in writing.
5.4 In the event that the Purchaser fails to comply with its
payment obligation under Clause 5.2.1 above and the Vendors elect to rescind
the Agreement, the Vendors shall (in addition to and without prejudice to all
other rights and remedies available to it) be entitled to forfeit the Deposit
together with all interests accrued thereon and thereafter, this Agreement
shall ipso facto cease and be determined and thereafter, neither Party shall
have any claim against the others for costs, damages, compensation or
otherwise, save for those expressly provided herein.
5.5 In the event that the Vendors fail to deliver the documents
under Clause 5.2.2 above and the Purchaser elects to rescind the Agreement,
the Vendors shall, within seven (7) Business Days of their receipt of the
Purchaser's notice under Clause 5.3, refund the Deposit together with all
interests accrued thereon to the Purchaser (subject to such deductions that
the Vendors may make in accordance with Clauses 6 and 7) and thereafter,
neither Party shall have any claim against the others for costs, damages,
compensation or otherwise, save for those expressly provided herein.
5.6 Upon the termination of this Agreement (for any reason
whatsoever), if the approval under Clause 4.1.2 has been obtained, the
Purchaser shall, in addition, sign all necessary documents and do all such
acts and things as may be required by the Vendors to reverse the transaction
so that the Vendors remain the legal and beneficial owner of the VKSTD Equity
Interest and MULCD Equity Interest respectively.
6. MANAGEMENT OF PRC COMPANIES
6.1 Pending Completion, the Vendors shall, at the Purchaser's
request, permit the Purchaser to manage and operate the PRC Companies during
the Management Period subject to the following terms and conditions:-
6.1.1 the Purchaser shall be entitled to the profits but shall also
bear the losses of the PRC Companies accrued during the
Management Period. For the purpose of this provision:-
(a) the term "profits" shall be construed as the net
operating income of the PRC Companies after interest,
tax and (subject to sub-paragraph (b) below)
depreciation expenses;
(b) the Parties agree that a fixed depreciation sum of
Singapore Dollars Ninety-Five Thousand (S$95,000.00)
per month shall be taken into account for the
computation of the "profits" of the PRC Companies for
the purpose of this provision provided that if the
PRC Companies are deemed to have suffered losses
after such computation, the Purchaser need not bear
such losses if they are less than the aggregate total
of the aforesaid depreciation sum during such period.
The conversion from Renminbi to Singapore Dollars (or
vice versa) shall be based on such exchange rate to
be agreed between the Parties and failing such
agreement, it shall be the official rate quoted by
State Administration of Foreign Exchange in PRC on
the date of computation of "profits"; and
<PAGE>
(c) the Parties agree that the amortisation of
balances prior to the Effective Date shall be
excluded from the computation of "profits"
hereunder;
6.1.2 during the Management Period, the Purchaser shall consult with
the Judicial Managers and seek their consent (which consent
shall not be unreasonably withheld) prior to implementing any of
the matters referred to below:-
(a) the appointment, renewal of tenure of or dismissal of
any managers and employees in each of the PRC
Companies, provided always that such appointment,
renewal and/or dismissal shall comply with the
applicable law, the articles of association of the
relevant PRC Company and the terms of any employment
agreement between the relevant PRC Company and the
manager or employee;
(b) any change of use of the premises and the facilities
and/or use of intellectual property rights, goodwill,
licences, permits, computer data, confidential
information, trade secrets, know-how, price lists,
suppliers, contractors and customers list of the PRC
Companies otherwise than in the ordinary course of
business and for the benefit of the PRC Companies;
(c) the acquisition and/or disposal of any asset of the
PRC Companies;
(d) the termination of any inter-company contracts and
arrangements; and
(e) the incurring of any indebtedness or liabilities by
the PRC Companies other than in the ordinary course
of business;
6.1.3 during the Management Period, the Purchaser shall undertake to:-
(a) perform and execute all transactions dealings acts
and things as may be necessary or expedient for
managing and operating the PRC Companies;
(b) faithfully and diligently manage, operate, supervise
and run the PRC Companies in an efficient and proper
manner with prudent management practices;
(c) obey all resolutions and directions consistent with
the terms of this Agreement as may, from time to
time, be made by the Judicial Managers;
(d) provide the Judicial Managers with such periodic
reports as may be requested from time to time by the
Judicial Managers in respect of the management,
supervision and operation of the PRC Companies and
consult the Judicial Managers on and keep the
Judicial Managers informed of all significant matters
relating to the PRC Companies;
(e) second such members of its own staff to the PRC
Companies to manage and operate the PRC Companies,
where necessary, at its own cost and expenses;
(f) ensure that all machineries, equipment, properties
and assets of the PRC Companies are maintained in
proper working order and condition (fair, wear and
tear excepted) or in the same condition as received
by the Purchaser on the Effective Date;
<PAGE>
6.1.4 during the Management Period, the Purchaser shall not and shall
procure that the PRC Companies do not:-
(a) sell, transfer, lease, grant licences over, alienate
or otherwise assign, deal with or dispose of all or
any part of the PRC Companies' business, the
Property, the VKTSD Assets or the MULCD Assets or any
part thereof;
(b) create or attempt or agree to create or permit to
arise or subsist any encumbrance whatsoever on the
Property, the VKSTD Assets or the MULCD Assets or any
part thereof;
(c) engage in any activities other than those permitted
under the respective articles of associations and
business licences of the PRC Companies; and
6.1.5 any cash, including bank account balances, owned by the PRC
Companies on the Effective Date ("Cash Balance") shall remain in
the possession and control of the PRC Companies during the
Management Period and may be utilised by the Purchaser as
working capital for the PRC Companies provided that such Cash
Balance shall not exceed United States Dollars Three Hundred
Thousand (US$300,000.00) and that the Purchaser shall account to
and pay to the Judicial Managers the full Cash Balance on the
Completion Date in accordance with Clause 5.2.2 or Clause 6.4.2
(as the case may be);
6.2 The Vendors shall be entitled forthwith to terminate the
management arrangement under Clause 6.1 by written notice to
the Purchaser if:-
6.2.1 the Purchaser commits any material breach of any of the
provisions under Clause 6.1 and, in the case of a breach capable
of remedy, fails to remedy the same within fourteen (14) days
after receipt of a written notice requiring it to be remedied;
or
6.2.2 the Purchaser goes into liquidation; or
6.2.3 a provisional liquidator, judicial manager, receiver or manager
is appointed in respect of the whole of the undertaking,
property or assets or any part thereof of the Purchaser; or
6.2.4 the Purchaser makes any voluntary arrangement with its
creditors or becomes subject to an administration order; or
6.2.5 anything analogous to any of the foregoing under the law
of any jurisdiction occurs in relation to the Purchaser.
6.3 For the purpose of Clause 6.2.1, a breach shall be considered
capable of remedy if the Purchaser can comply with the provision in question
in all respects other than as to the time of performance. The rights to
terminate the management arrangement given by Clause 6.2 shall be without
prejudice to any other right or remedy of the Vendors in respect of the
breach concerned (if any) or any other breach.
6.4 In the event that the management arrangement under Clause 6.1
is terminated pursuant to Clause 6.2 herein or this Agreement is terminated
pursuant to Clause 4.3, Clause 5.4 or Clause 5.5:-
6.4.1 the Purchaser shall immediately cease to manage and operate the
PRC Companies and shall hand over the management and operation
of the PRC Companies to the Vendors;
6.4.2 the Purchaser shall within thirty (30) calendar days thereof
account to the Vendors:-
<PAGE>
(a) the profits and losses of the PRC Companies accrued
during the Management Period and shall forthwith
where applicable indemnify the Vendors against all
such losses, including without limitation all VKSTD
Liabilities and MULCD Liabilities incurred by the PRC
Companies during the Management Period;
(b) the VKSTD Inventory and MULCD Inventory depleted by
the PRC Companies during the Management Period and
shall forthwith where applicable indemnify the
Vendors in accordance with the formula set out in
Clause 3.3 (except that "Q" shall then refer to the
quantity of inventory item depleted during the
Management Period);
(c) the Cash Balance referred to in Clause 6.1.5 and
forthwith pay to the Judicial Managers a sum
equivalent to the full Cash Balance in the same
currency or such other currency as the Parties may
agree in writing (and if necessary, such amount shall
be converted from Renminbi to Singapore Dollars (or
such other currency as may be agreed between the
Parties) based on such exchange rate to be agreed
between the Parties two (2) Business Days prior to
the date of payment and failing such agreement, it
shall be the official rate quoted by State
Administration of Foreign Exchange in PRC two (2)
Business Days prior to the payment date); and
(d) all toolings, drawings, process specifications and
such other items owned by the customers of the PRC
Companies and which are in the custody or possession
of the PRC Companies during the Management Period and
shall indemnify the Vendors against all losses and
damages in relation thereto.
6.4.3 subject to the full payment by the Purchaser of all such sums
arising under Clause 6.4.2 and compliance by the Purchaser of
the terms and conditions in this Agreement, the Vendors shall
pay the Purchaser the balance of any VKSTD Receivables and MULCD
Receivables that accrued during the Management Period as and
when payment is received from the debtors.
6.5 The Purchaser further undertakes to indemnify the Vendors
against all liabilities, losses, damages, actions, claims, demands,
proceedings, costs and expenses (including legal costs on a full indemnity
basis) as may be suffered or incurred by any of them in relation to its
management and operation of the PRC Companies pursuant to Clause 6.1 above.
6.6 Notwithstanding anything to the contrary provided herein,
neither of the Parties shall represent itself as the agent or legal
representative of the other Party for any purpose whatsoever or shall have
any right to create or assume any obligations of any kind (express or
implied) for and on behalf of the other Party in any way whatsoever and
nothing in this Agreement shall be deemed to constitute a partnership between
the Parties for any purpose.
7. ASSETS, RECEIVABLES AND LIABILITIES
7.1 The Parties agree that:-
7.1.1 the assets and liabilities of the PRC Companies (save for the
VKSTD Assets, VKSTD Inventory, MULCD Assets, MULCD Inventory and
Property) shall be apportioned as at the Effective Date such
that:-
(a) VKS shall be entitled to the VKSTD Receivables but
shall bear the VKSTD Liabilities as reflected in the
accounts of VKSTD as at the Effective Date;
(b) VKHK shall be entitled to the MULCD Receivables but
shall bear the MULCD Liabilities as reflected in the
accounts of MULCD as at the Effective Date;
<PAGE>
(c) subject to Clause 6, the Purchaser shall be entitled
to the VKSTD Receivables and MULCD Receivables but
shall bear the VKSTD Liabilities and MULCD
Liabilities accrued during the Management Period;
7.1.2 without prejudice to Clause 7.1.1, the Purchaser shall account
to and pay the Vendors in full all VKSTD Inventory and MULCD
Inventory ordered or paid by the PRC Companies prior to the
Effective Date but received by or delivered to the PRC Companies
on or after the Effective Date. For the avoidance of doubt, it
is hereby agreed that Clause 3.3 shall not be applicable to the
computation of the value of the inventories referred to herein
and the Purchaser is required to account for such inventories,
based on the full purchase price, ordered or paid by the PRC
Companies;
7.1.3 for the purpose of Clauses 7.1.1 and 7.1.2, the Purchaser shall,
with effect from the Effective Date, provide the Judicial
Managers a monthly report on the status of the receivables and
liabilities referred to in Clauses 7.1.1(a) and (b) and the
inventories referred to in Clause 7.1.2, together with a
statement from the General Manager of the respective PRC
Companies certifying whether there is a net gain or net loss
after effecting a contra of the payments received or made (as
the case may be) by the PRC Companies in respect of the
aforesaid receivables and liabilities during the reporting
period, as well as the amount of the aforesaid inventories
received by or delivered to the PRC Companies during the said
period;
7.1.4 within fifteen (15) Business Days after the Judicial Managers'
receipt of the report and statement under Clause 7.1.3, the
Purchaser shall, if there is a net gain or inventory payment due
to the Vendors, forthwith pay to the Judicial Managers the said
net gain and/or inventory payment (as the case may be) and the
Judicial Managers shall, if there is a net loss attributable to
the Vendors, pay the Purchaser the said net loss; and
7.1.5 the Purchaser shall hold and shall procure the PRC Companies to
hold the Excluded Assets to the order of the Vendors subject to
such other arrangements that the Parties may agree regarding the
storage and disposal of the said assets.
7.2 The Purchaser further undertakes to provide the Judicial
Managers full and immediate access to the accounting records of the PRC
Companies for purposes of verifying the report and statement referred to in
Clause 7.1.3.
7.3 The Vendors shall be entitled to deduct from the Deposit and
all sums payable by the Vendors to the Purchaser under this Agreement, any
amounts due or owing from the Purchasers to the Vendors (including, without
limitation, any amount that the Purchaser is required to indemnify or account
to the Vendors pursuant to the terms of this Agreement).
7.4 The rights and obligations of the Parties under this Clause 7
shall survive the Completion and the termination of this Agreement.
8. REPRESENTATIONS AND WARRANTIES
8.1 Each of VKS and VKHK represent and warrant to and for the
benefit of the Purchaser and its successors in title as follows:-
8.1.1 subject to the approval under Clause 4.1 being obtained, they
have or will on Completion Date, have the full power and
capacity to enter into, exercise its rights and perform and
comply with their respective obligations under this Agreement;
8.1.2 all actions, conditions and things required to be taken,
fulfilled and done (including the obtaining of any necessary
consents) in order: (a) to enable each of VKS and VKHK
respectively to lawfully enter into, exercise their respective
rights and perform and
<PAGE>
comply with their respective obligations under this
Agreement; and (b) to ensure that such obligations are valid,
legally binding and enforceable, have been taken, authorised,
fulfilled and done;
8.1.3 subject to the approvals under Clause 4.1 being obtained, their
respective obligations under this Agreement are or will be
valid, binding and enforceable;
8.1.4 VKS will, on the Completion Date be the legal and beneficial
owner of the VKSTD Equity Interest and that the VKSTD Equity
Interest is or will at the Completion Date be free and clear
from all claims, charges, trust, liens, equities and other
encumbrances and that such VKSTD Equity Interest will be
transferred to the Purchaser together with all rights, benefits
and entitlements attached thereto on Completion Date in
accordance with the terms of this Agreement;
8.1.5 VKHK will, on the Completion Date be the legal and beneficial
owner of the MULCD Equity Interest and that the MULCD Equity
Interest is or will at the Completion Date be free and clear
from all claims, charges, trust, liens, equities and other
encumbrances and that such MULCD Equity Interest will be
transferred to the Purchaser together with all rights, benefits
and entitlements attached thereto on Completion Date in
accordance with the terms of this Agreement;
8.1.6 each of the foregoing provisions of this Clause 8.1 will be
true and accurate in all respects as at Completion.
8.2 The Purchaser represents and warrants to and for the
benefit of each of VKHK and VKS as follows:-
8.2.1 it has full power and capacity to enter into, exercise its
rights and perform and comply with its obligations under this
Agreement;
8.2.2 all actions, conditions and things required to be taken,
fulfilled and done (including the obtaining of any necessary
consents) in order: (a) to enable it to lawfully enter into,
exercise its rights and perform and comply with its obligations
under this Agreement; and (b) to ensure that such obligations
are valid, legally binding and enforceable, have been taken,
authorised, fulfilled and done;
8.2.3 its obligations under this Agreement are or will be valid,
binding and enforceable;
8.2.4 it has or will on Completion Date have sufficient financial
resources to make payment of the Price in full; and
8.2.5 each of the foregoing provisions of this Clause 8.2 will be
true and accurate in all respects as at Completion.
8.3 Each of the representations and warranties in Clause 8.1 and
Clause 8.2 shall be separate and independent and shall not be limited by
anything in this Agreement and shall continue to have full force and effect
notwithstanding Completion.
8.4 It is hereby acknowledged and confirmed that save for the
representations and warranties made by the Vendors contained in this
Agreement, the Vendors make no other representations and warranties in
relation to PRC Companies or to themselves respectively or to their
respective assets or to the assets of the PRC Companies or the VKSTD Equity
Interest or the MULCD Equity Interest and the Purchaser hereby confirms that
it has not relied on any such representations and warranties and has entered
into this Agreement based on its own independent assessment of the PRC
Companies.
<PAGE>
9. SEPARATE TRANSFER AGREEMENT
The Parties hereby agree to execute a separate and simplified
version of this Agreement in Chinese for purposes of submission to the
relevant PRC government and/or other relevant authorities for the approval of
the transfer of the Equity Interests as referred to in Clause 4.1.2 above,
and the aforesaid agreement shall contain such terms and conditions as the
Parties may agree.
10. OWN EVALUATION
The Purchaser acknowledges and confirms that it places no
reliance on any discussions or presentations made by either VKHK or VKS and
any of their directors, officers, auditors, employees, agents, advisers and
other representatives (including the Judicial Managers) in relation to this
Agreement or any matter in connection herewith.
11. CONFIDENTIALITY
11.1 The Purchaser hereby acknowledges and confirms that the terms
of the Confidentiality Undertaking shall remain binding upon it as if it were
incorporated into this Agreement.
11.2 The Purchaser further acknowledges that it may from time to
time be in possession of confidential information about the PRC Companies,
VKS, VKHK and/or the Judicial Managers and hereby undertakes that it will use
such confidential information solely for the purpose of this Agreement and
that it shall not disclose whether directly indirectly to any person such
information other than as may be required to carry out the purpose of this
Agreement. Where such disclosure is made to any other person as aforesaid,
the Purchaser shall ensure that such other person complies with this Clause.
11.3 In the event of termination of this Agreement, the Purchaser
shall, upon the Vendors' request, promptly deliver to them or destroy (and
give written notice to either of them of such destruction) all Confidential
Information (including all copies thereof) in the Purchaser's possession or
under its control.
11.4 The Purchaser hereby irrevocably and unconditionally
undertakes to indemnify and hold harmless each of VKHK and VKS and any of
their directors, officers, advisers and other representatives (including the
Judicial Managers) from and against all and any liabilities, losses, damages,
actions, claims, demands, proceedings, costs and expenses (including legal
costs on a full indemnity basis in disputing or defending any of the
foregoing) which any of such persons may incur or suffer pursuant to or in
connection with any breach by the Purchaser or any of its directors,
officers, employees, advisers or representatives of this Clause 11.
12. RELEASE AND INDULGENCE
Any liability of any Party under this Agreement may in whole
or in part be released, compounded or compromised, or time or indulgence
given by it in its absolute discretion as regards the other Parties without
in any way prejudicing or affecting its rights against such other Party. No
failure to exercise and no delay in exercise on the part of any Party of any
right or remedy under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any right or remedy prevent any
further or other exercise thereof or the exercise of any other right or
remedy. The rights and remedies provided in this Agreement are cumulative and
not exclusive of any other rights or remedies (whether provided by law or
otherwise).
<PAGE>
13. CONTINUING EFFECT OF AGREEMENT
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 of the transfer of the Equity Interests except in
respect of those matters then already duly performed.
14. SUCCESSORS AND ASSIGNS
This Agreement shall be binding on and shall enure for the
benefit of each Party's successors and permitted assigns. Any reference in
this Agreement to each of the Parties shall be construed accordingly. None of
the Parties may assign or transfer any of its rights and/or obligations under
this Agreement to any person without the prior written consent of the other
Parties.
15. JUDICIAL MANAGERS
15.1 The Judicial Managers are hereby authorised by the Vendors:-
(a) to receive the Price and all sums owing and
payable to the Vendors under this Agreement; and
(b) to discharge and satisfy all sums owing and payable
by the Vendors under this Agreement,
(c) to make any arrangement or enter into any compromise
with the Purchaser in respect of this Agreement and
the transactions contemplated herein;
(d) to take or defend proceedings in the name of the
Vendors and to negotiate, compromise, abandon and
settle any claims and proceedings in respect of this
Agreement and the transactions contemplated herein;
(e) to demand, receive, give valid receipt for or
discharge any of the foregoing; and
(f) to do or cause to be done all such acts or things
incidental to the exercise of the foregoing powers or
as may be necessary for the transactions contemplated
herein.
15.2 The Purchaser hereby acknowledges and confirms that the
Judicial Managers are acting as agents for and on behalf of the Vendors in
relation to this Agreement and all matters in connection herewith and that
none of the Judicial Managers assumes any personal liability in relation to
this Agreement or any other matter in connection herewith.
16. TIME OF ESSENCE
Time shall be of the essence of this Agreement, both as
regards the dates and periods mentioned and as regards any dates and periods
which may be substituted for them in accordance with this Agreement or by
agreement in writing between the Parties, provided that any time prescribed
by this Agreement for the performance by the Purchaser of its obligations
under this Agreement may be extended by both of VKHK and VKS in their
discretion until such time and subject to such conditions as they may deem
fit.
<PAGE>
17. COSTS AND EXPENSES
All expenses incurred by or on behalf of the Parties in
connection with the negotiation, preparation and execution of this Agreement
shall be borne solely by the Party which incurred them save that the
Purchaser shall bear any goods and services tax, stamp duty or any other
taxes imposed by any governmental, statutory or taxing authority in
connection with this Agreement and the sale and purchase of the Equity
Interests.
18. NOTICES
All notices, demands or other communications required or
permitted to be given or made under or in connection with this Agreement
shall be in writing and delivered personally or sent by prepaid registered
post or by fax addressed to the intended recipient thereof at its address or
fax number, and marked for the attention of such person (if any), set out
under its name at the beginning of this Agreement (or to such other address
or fax number as such Party may from time to time notify the other). Any such
notice, demand or communication shall be deemed to have been duly served (if
given or made by fax) immediately or (if given or made by letter) immediately
if hand delivered or seven days after posting and in proving the same it
shall be sufficient to show that the envelope containing the same was duly
addressed, stamped and posted.
19. PARTIAL INVALIDITY
If any term or provision in this Agreement shall be held to
be illegal or unenforceable, in whole or in part, under any applicable law,
such term or provision or part shall to that extent be deemed not to form
part of this Agreement but the enforceability of the remainder of this
Agreement shall not be affected.
20. GOVERNING LAW
This Agreement shall be governed by, and construed in
accordance with, the laws of Singapore and the Parties hereby irrevocably
submit to the non-exclusive jurisdiction of the courts of Singapore and waive
any objection to proceedings in any such court on the grounds of venue or on
the grounds that the proceedings have been brought in an inconvenient forum.
21. ENTIRE AGREEMENT
This Agreement sets out the entire agreement and
understanding between the Parties in connection with the matters dealt with
herein. This Agreement supersedes any previous agreement (oral or otherwise)
between the Parties in relation to the matter dealt with herein and
represents the entire understanding between the Parties in relation thereto.
22. COUNTERPARTS
This Agreement may be executed and delivered in several
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same agreement.
<PAGE>
SCHEDULE 1-1
FIXED ASSETS LISTING
Plant and Machinery
<PAGE>
SCHEDULE 1-2
FIXED ASSETS LISTING
Assets other than Plant and Machinery
<PAGE>
SCHEDULE 1-3
INVENTORY LISTING
<PAGE>
SCHEDULE 2-1
LIST OF EXCLUDED ASSETS
Assets on Hire Purchase
<PAGE>
SCHEDULE 2-2
LIST OF EXCLUDED ASSETS
Property owned by Related Parties
<PAGE>
SCHEDULE 2-3
LIST OF EXCLUDED ASSETS
Property owned by PRC Companies' customers
<PAGE>
IN WITNESS WHEREOF the Parties hereto have entered into this
Agreement on the day and year first above written.
THE VENDORS:-
SIGNED by )
)
for and on behalf of )
VIKAY INDUSTRIAL LTD ) /s/ THAM SAI CHOY
- -------------------- ) ---------------------------------
(IN JUDICIAL MANAGEMENT) )
in the presence of:- )
SIGNED by )
)
for and on behalf of )
VIKAY INDUSTRIAL (HONG KONG) LTD ) /s/ RICHARD HUI
- -------------------------------- ) ---------------------------------
in the presence of:- )
THE PURCHASER:-
SIGNED by )
)
for and on behalf of )
INTERNATIONAL DISPLAYWORKS. INC. ) /s/ ANTHONY GENOVESE
- -------------------------------- ) -----------------------------------
in the presence of:- )
<PAGE>
DATED THE DAY OF 2000
BETWEEN
1. INTERNATIONAL DISPLAYWORKS
(HONG KONG) LTD
2. INTERNATIONAL DISPLAYWORKS, INC.
(as Chargors)
AND
3. VIKAY INDUSTRIAL LTD
( in Judicial Management)
4. VIKAY INDUSTRIAL (HONG KONG) LTD
(as Chargees)
SUPPLEMENTAL DEED
AND CHARGE
RAJAH & TANN
4 BATTERY ROAD
#26-01 BANK OF CHINA BUILDING
SINGAPORE 049908
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
NO. CLAUSE PAGE
- --- ------ ----
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2. COMPLETION AND COVENANT TO PAY. . . . . . . . . . . . . . . . . . . . . .6
3. CHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4. CONVERSION OF FLOATING SECURITY INTO FIXED CHARGE . . . . . . . . . . . 11
5. OTHER SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. DEPOSIT OF DEEDS AND PERFECTION OF SECURITY . . . . . . . . . . . . . . 13
7. POSITION OF OTHER SECURITY. . . . . . . . . . . . . . . . . . . . . . . 13
8. CONTINUING SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 14
10. COVENANTS AND UNDERTAKINGS. . . . . . . . . . . . . . . . . . . . . . . 18
11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12. POWERS OF THE CHARGEES ON DEFAULT BY THE CHARGORS . . . . . . . . . . . 28
13. APPOINTMENT OF RECEIVER . . . . . . . . . . . . . . . . . . . . . . . . 29
14. RECEIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15. APPLICATION OF MONIES BY RECEIVER . . . . . . . . . . . . . . . . . . . 31
16. APPOINTMENT OF RECEIVER NOT AFFECTING OTHER POWERS. . . . . . . . . . . 32
17. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18. NO ENQUIRY BY THIRD PARTY . . . . . . . . . . . . . . . . . . . . . . . 33
19. THE CHARGEES NOT ANSWERABLE FOR LOSS. . . . . . . . . . . . . . . . . . 33
20. WAIVER NOT TO PREJUDICE RIGHT OF THE CHARGEES . . . . . . . . . . . . . 33
21. INDULGENCE, REMEDIES AND WAIVERS. . . . . . . . . . . . . . . . . . . . 34
22. SET-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
23. DISCRETION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
24. EXPENSES AND STAMP DUTY . . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
C O N T E N T S
NO. CLAUSE PAGE
- --- ------ ----
<S> <C> <C>
25. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
26. COMMUNICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
27. PARTIAL INVALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
28. JUDICIAL MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
29. GOVERNING LAW AND JURISDICTION. . . . . . . . . . . . . . . . . . . . . 37
30. PROCESS AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
31. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SCHEDULE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SCHEDULE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
<PAGE>
THIS SUPPLEMENTAL DEED AND CHARGE is made the day of
February 2000 between:-
(1) VIKAY INDUSTRIAL LTD (In Judicial Management) care of 16 Raffles Quay,
#22-00 Hong Leong Building Singapore 048581 ("VKS");
(2) VIKAY INDUSTRIAL (HONG KONG) LTD care of 16 Raffles Quay, #22-00 Hong
Leong Building Singapore 048581 ("VKHK");
(3) INTERNATIONAL DISPLAYWORKS, INC., a company incorporated in the State of
Delaware, United States of America and having its place of business at
2424 Professional Drive, Suite A, Roseville, CA 95661 ("IDWI"); and
(4) INTERNATIONAL DISPLAYWORKS (HONG KONG) LTD, a company incorporated in the
Hong Kong Special Administrative Region and having its place of business
at 3/F Jonsim Place, 228 Queen's Road East, Hong Kong ("IDWHK").
(collectively the "Parties", and each of them a "Party").
WHEREAS:-
(A) VKS, VKHK and IDWI had on the 22nd day of July 1999 entered into a Sale
and Purchase Agreement ("Sale Agreement") in respect of the sale and
purchase of equity interests ("Equity Interests") in Vikay Science &
Technology Development (Shenzhen) Co., Ltd. and MULCD Microelectronics
(Shenzhen) Co., Ltd.
(B) IDWI is the beneficial owner of all the ordinary shares ("Shares") in the
capital of IDWHK and will, on Completion (as hereinafter defined), be
holding the Equity Interests through IDWHK.
(C) VKS and VKHK have agreed to permit IDWI and IDWHK to pay the Agreed Total
(as hereinafter defined) by instalments on inter alia the conditions
that:-
(i) IDWI creates in favour of both VKS and VKHK a first fixed charge
over its Shares;
(ii) IDWHK creates in favour of both VKS and VKHK a first fixed and
floating charge over its assets and undertakings,
as security for the payment and repayment of the aforesaid Agreed Total.
(D) The Parties hereby agree to enter into this Deed to set out inter alia
the terms and conditions of the aforesaid charges and their mutual
agreement to amend certain terms and their mutual understanding on
certain other matters relating to the Sale Agreement.
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS:-
1. DEFINITIONS
1.1 INTERPRETATION : In this Deed, unless the context otherwise requires, all
capitalised terms shall have the meanings as defined below:-
"ACCOUNT" means the current account or such other account designated by
the Chargees and maintained in the name of IDWHK with the Hongkong and
Shanghai Banking Corporation in Hong Kong.
"AGREED TOTAL" has the meaning ascribed to it in Schedule 1.
"BUSINESS DAY" means a day, other than Saturday, Sunday and public
holidays, when banks are open for business in Singapore, Hong Kong and
USA.
"CHARGED PROPERTY" means the property and assets of the Chargors charged
or assigned pursuant to Clause 3 hereof.
"CHARGEES" means VKS and VKHK, including their successors and assigns,
and shall where the context so admits, include the Judicial Managers
acting for and on behalf of VKS and VKHK and "CHARGEE" shall mean each or
any of them.
"CHARGORS" means IDWI and IDWHK, includes their successors, and "CHARGOR"
shall mean each or any of them.
"COLLECTED RECEIVABLES" means the Receivables in respect of goods
supplied by VKSTD and/or MULCD for which the Chargees have received
actual payments from the Chargees' customers in connection with the
sub-sale of the said goods by the Chargees.
"COMPLETION" means the completion of the sale and purchase of the Equity
Interests pursuant to the Sale Agreement, subject to the terms and
conditions set out in this Deed.
"COMPLETION DATE" means 1 February 2000 or such other date as the Parties
may agree in writing.
"COMPLETION STATEMENT" means the Statement of Account set out in Schedule
1 hereto.
"DEED" means this Supplemental Deed and Charge, as it may be amended,
modified or supplemented from time to time, and includes references to
any deed, debenture, agreement or other document executed in order to
perfect the security constituted by this Deed or in pursuance of any of
the provisions contained or incorporated herein.
"EQUITY INTERESTS" means VKS's and VKHK's respective interests in the
registered capital of VKSTD and MULCD.
<PAGE>
"EVENTS OF DEFAULT" means the events mentioned in Clause 11 or any event
or circumstance which, with the giving of any notice, and/or the lapse of
any period of time, and/or the fulfillment of any other requirement could
become in the view of the Chargees one of the events mentioned in that
Clause; and "EVENT OF DEFAULT" means each and any one of them.
"FUNDED AMOUNT" means the aggregate amount advanced by the Chargees to
VKSTD and/or MULCD for the period from 1 August 1999 to the date of this
Deed, as set out in Schedule 2 hereto, together with interests payable on
such amount which shall accrue at the rate of 6% per annum from the
respective dates of advance up to and excluding the date of actual
payment.
"HONG KONG" means the Hong Kong Special Administrative Region.
"IDWHK RECEIVABLES" means
(1) All present and future book and other debts, invoice debts,
notes, bills, acceptances and other forms of obligation owned by
or owing to IDWHK (including all rights to receive payments under
presently existing or hereafter acquired or created letters of
credit), or by virtue of merchandise or goods sold or leased,
services rendered whether or not evidenced by any writing, and
other monies and receivables due, owing, payable or incurred or
which may become due, owing, payable or become incurred by any
person to IDWHK including, without prejudice to the generality of
the foregoing, any amounts from time to time standing to the
credit of any bank or other accounts of IDWHK;
(2) the benefit of any guarantees, indemnities or other assurances
against financial loss, the benefit of any present or future
insurance policies and all proceeds thereof;
(3) all things in action which may give rise to any debt, revenue or
claim and any other rights relating thereto including without
limitation, reservations of proprietary rights, rights of
tracing, unpaid vendor's liens and associated rights; and
(4) all rights now owned or hereafter acquired or created, to payment
under any contract not yet earned by performance including the
right to receive lease and hire charges due to IDWHK under any
lease or hire purchase agreements.
"JUDICIAL MANAGERS" means the judicial managers of VKS appointed pursuant
to the order of court made on 6 December 1997 and such other judicial
managers or officers of VKS as may be appointed pursuant to an order of
court in addition to or replacement or substitution of the Judicial
Managers.
"MULCD" means MULCD Microelectronics (Shenzhen) Co., Ltd.
"RECEIVABLES" means the invoiced amounts due from the Chargees to VKSTD
or MULCD (as the case may be) in respect of goods sold and delivered by
VKSTD or MULCD (as the case may be) to the Chargees after 31 July 1999.
<PAGE>
"SALE AGREEMENT" means the Sale and Purchase Agreement dated the 22nd day
of July 1999 entered into between the Chargors and the Chargees in
respect of the sale and purchase of the Equity Interests.
"SECURED INDEBTEDNESS" means all monies and liabilities (whether
contingent or otherwise and including, without limitation, the Agreed
Total and all amounts for which the Chargors have agreed to indemnify the
Chargees) at any time and from time to time owing or payable by the
Chargors under the Transaction Documents (including all fees, charges,
costs and expenses arising out of, in connection with or in enforcement
of, the provisions of the Transaction Documents).
"SHARES" means all the 5,000,002 ordinary shares of HK$1.00 each in the
capital of IDWHK, including without limitation, any stocks, shares or any
other securities of any kind whatsoever acceptable to the Chargees, which
are given by the Chargors in substitution therefor, or in addition
thereto, and shall, for the avoidance of doubt, include the 2 ordinary
shares in IDWHK held by the Trustees for and on behalf of IDWI.
"SINGAPORE" means the Republic of Singapore.
"SINGAPORE DOLLARS" or "S$" means the lawful currency of Singapore.
"TRANSACTION DOCUMENTS" means this Deed, the Sale Agreement and any other
agreement, deed, undertaking or arrangement whatsoever now or from time
to time and at any time hereafter made in respect of the sale and
purchase of the Equity Interests and/or the Secured Indebtedness.
"TRUSTEES" means Mr Stephen Charles Kircher and Mr Anthony George
Genovese.
"UNCOLLECTED RECEIVABLES" means the Receivables in respect of goods
supplied by VKSTD and/or MULCD for which the Chargees have not received
actual payments from the Chargees' customers in connection with the
sub-sale of the said goods by the Chargees.
"USA" means the United States of America.
"VKA" means Vikay America, Inc.
"VKA RECEIVABLES" means such of VKA's receivables relating to goods
supplied by VKSTD and/or MULCD that gave rise to the Uncollected
Receivables.
"VKD" means Vikay Distribution Europe Limited.
"VKD RECEIVABLES" means such of VKD's receivables relating to goods
supplied by VKSTD and/or MULCD that gave rise to the Uncollected
Receivables.
"VKHK RECEIVABLES" means such of VKHK's receivables relating to goods
supplied by VKSTD and/or MULCD that gave rise to the Uncollected
Receivables.
"VKS RECEIVABLES" means such of VKS's receivables relating to goods
supplied by VKSTD and/or MULCD that gave rise to the Uncollected
Receivables.
"VKSTD" means Vikay Science & Technology Development (Shenzhen) Co., Ltd.
<PAGE>
1.2 MISCELLANEOUS :
1.2.1 Any reference in this Deed to:-
(a) any statute or other legislation, subsidiary legislation or
rules shall be read as referring to such statute or other
legislation, subsidiary legislation or rules as amended or
re-enacted from time to time;
(b) a "certified copy" means a copy certified by an authorised
signatory as being a true, complete and up to date copy of
an original then currently in full force and effect;
(c) an "encumbrance" includes any mortgage, charge (whether
fixed or floating), pledge, lien, hypothecation, trust,
assignment, attachment, security interest or any other type
of preferential agreement or arrangement having
substantially the same economic effect (including sale and
repurchase agreements, title retention or flawed asset
arrangements);
(d) a "person" shall be construed as a reference to any person,
firm, company, corporation, government, state or agency of
a state or any association or partnership (whether or not
having separate legal personality) or two or more of the
foregoing;
(e) "tax" shall be construed so as to include any present or
future tax, levy, impost, duty, goods and service tax or
other charge of a similar nature (including, without
limitation, any penalty or interest payable in connection
with any failure to pay or any delay in paying any of the
same) imposed, levied, collected, withheld or assessed by
any authority;
(f) the "winding-up", "dissolution" or "judicial management" of
a company, the appointment of a receiver and/or manager,
liquidator, administrator, judicial manager or trustee
shall be construed so as to include any equivalent or
analogous proceedings or appointment under the law of the
jurisdiction in which such company is incorporated or any
jurisdiction in which such company carries on business or
has assets;
(g) a "Receiver" includes a reference to a "Receiver and
Manager" or "Manager";
(h) a "year", "month" or "day" shall be construed as a
reference to a calendar year, a calendar month or a
calendar day; and
(i) a time of day is a reference to Hong Kong time.
1.2.2 The headings in this Deed are inserted for convenience only and
shall be ignored in construing this Deed.
1.2.3 Unless the context otherwise requires, words (including words
defined in this Deed) denoting the singular number only shall
include the plural and vice versa.
<PAGE>
References to Clauses in this Deed shall, unless the context
otherwise provides, be construed as references to clauses of
this Deed.
1.2.4 In the event any translation of this Deed into Chinese or any
other language is required for the purpose of any approval,
registration, filing, legal proceedings or any other purpose
whatsoever, that translation shall be ignored in constructing
this Deed and in the event of any inconsistency between this Deed
and any such translation, this Deed shall prevail.
2. COMPLETION AND COVENANT TO PAY
2.1 COMPLETION : The Parties hereby agree that Completion shall take place on
the Completion Date at the office of the Judicial Managers at 16 Raffles
Quay, #22-00 Hong Leong Building Singapore 048581 in accordance with the
Completion Statement, which statement shall be conclusive and binding on
the Parties.
2.2 PAYMENT OF AGREED TOTAL : The Chargors hereby irrevocably and
unconditionally, jointly and severally undertake and covenant to pay to
the Chargees the Agreed Total by the following instalments and in such
manner as the Parties may agree in writing:-
2.2.1 The first instalment of S$7,200,000 shall be paid by the Chargors
to the Judicial Managers on the Completion Date.
2.2.2 The second instalment of S$6,028,405 shall be paid by the
Chargors to the Judicial Managers within 90 days after the
Completion Date ("Second Instalment Payment Date"), together with
interests on the aforesaid sum of S$6,041,417 accruing at the
rate of 6% per annum from the Completion Date up to and including
the date of actual payment.
2.2.3 The third instalment of S$1,618,740 shall be paid by the Chargors
to the Judicial Managers on or before 31 May 2000, together with
interests on the aforesaid sum of S$1,618,740 accruing at the
rate of 6% per annum from the Completion Date up to and including
the date of actual payment.
All interests payable hereunder shall be calculated on the basis of a
360-day year. For the avoidance of doubt, the Parties hereby confirm
that the Chargors may prepay any of the aforesaid sums before their
respective due dates.
2.3 RECEIVABLES : In respect of goods sold and delivered by VKSTD and/or
MULCD to the Chargees after 31 July 1999, the Parties hereby agree that
subject to the Chargors complying with Clauses 2.2 and 2.4:-
2.3.1 the Chargees shall set-off the Collected Receivables against the
Funded Amount as and when such Collected Receivables are received
by the Chargees;
2.3.2 the Chargees shall upon their receipt of the payment for the
aforesaid second instalment:-
<PAGE>
(a) pay to VKSTD and MULCD (as the case may be) the Collected
Receivables (if any) less the Funded Amount (including all
accrued interest);
(b) assign and procure VKA and VKD to assign to IDWHK the VKA
Receivables, VKD Receivables, VKHK Receivables and VKS
Receivables provided that, for each amount collected by
IDWHK (whether by way of cash, deduction, set-off or
otherwise) in respect of any of the aforesaid VKA
Receivables, VKD Receivables, VKHK Receivables and VKS
Receivables, IDWHK shall forthwith pay to the Chargees the
difference between that collected VKA Receivable, VKD
Receivable, VKHK Receivable or VKS Receivable (as the case
may be) and the corresponding Uncollected Receivables
relating to the same goods supplied by VKSTD and/or MULCD
that gave rise to that collected VKA Receivable, VKD
Receivable, VKHK Receivable or VKS Receivable (as the case
may be);
2.3.3 in the event that the Collected Receivables are not sufficient to
repay the Funded Amount (including all accrued interests thereto)
on the Second Instalment Payment Date, the Chargors shall
forthwith pay to the Judicial Managers the difference between the
Funded Amount (including all accrued interests thereto) and the
Collected Receivables; and
2.3.4 the Collected Receivables shall carry interest at the rate of 6%
per annum from the first day of the month immediately following
the date such Collected Receivables are received by the Chargees
up to and excluding the date of set-off pursuant to Clause 2.3.1
above or date of payment pursuant to Clause 2.3.2(a) above (as
the case may be).
2.4 ASSIGNMENT AND RELEASE: The Chargors shall procure VKSTD and MULCD to
enter into a Deed of Assignment and Release (in such form and substance
satisfactory to the Chargees) with the Chargees, VKD and VKA to effect
the assignment referred to in Clause 2.3.2(b) above and to discharge and
release the Chargees from all actions, proceedings, claims, demands,
liabilities, obligations, costs and expenses in respect of the
Receivables and the aforesaid duly executed Deeds shall be delivered to
the Chargees on or before the Second Instalment Payment Date.
2.5 UPDATE ON RECEIVABLES: The Chargees shall provide IDWHK a fortnightly
written update on the Collected Receivables and Uncollected Receivables.
2.6 COSTS AND EXPENSES: Without prejudice to the generality of the
aforesaid, the Chargors hereby irrevocably and unconditionally, jointly
and severally undertake and covenant to pay to the Chargees all legal and
other costs, charges and expenses which the Chargees may incur in
relation to this Deed or the Charged Property on a full indemnity basis
or which the Chargees may incur in connection with enforcing this Deed
and their rights over the Charged Property, such legal and other costs to
be payable by the Chargors to the Chargees on demand.
2.7 CURRENCY INDEMNITY: All payments to be made by the Chargors under this
Deed shall be made in Singapore Dollars without any set-off, deduction or
withholding whatsoever. Any amount received or recovered in a currency
other than Singapore Dollars (whether as a result of, or of the
enforcement of, a judgment or order of a court of any jurisdiction, in
the dissolution of any of the Chargors or otherwise) by the Chargees in
<PAGE>
respect of any sum expressed to be due to them from the Chargors under
this Deed shall only constitute a discharge to the Chargors to the extent
of the amount of Singapore Dollars which the Chargees are able, in
accordance with their usual practice, to purchase with the amount so
received or recovered in that currency on the date of that receipt or
recovery (or, if it is not practicable to make that purchase on that
date, on the first date on which it is practicable to do so). If that
amount in Singapore Dollars is less than the amount of Singapore Dollars
expressed to be due to the Chargees under this Deed, the Chargors shall
indemnify the Chargees against any loss sustained by them as a result
thereof. In any event, the Chargors shall indemnify the Chargees upon
demand against the cost of making any such purchase.
2.8 ORDER OF PAYMENT: For the avoidance of doubt, the Parties hereby agree
that any amount paid to the Chargees under this Deed shall be applied in
the following order:-
2.8.1 in the payment of all fees, costs, charges and expenses which the
Chargors are obliged to pay or indemnify the Chargees under the
Transaction Documents;
2.8.2 in or towards the satisfaction of all interests remaining unpaid
on the Secured Indebtedness owing to the Chargees; and
2.8.3 in or towards the satisfaction of all of the Secured Indebtedness
owing to the Chargees.
3. CHARGE
3.1 FIXED AND FLOATING CHARGES: In consideration of the Chargees agreeing to
permit the Chargors to pay the Agreed Total by instalments, the Chargors
as legal and beneficial owners of their respective assets mentioned
below, and as a continuing security for the payment and discharge of the
Secured Indebtedness and for the observance and performance by the
Chargors of all their obligations to the Chargees including those under
or in connection with the Transaction Documents, hereby CHARGE AND ASSIGN
in favour of the Chargees as follows:-
3.1.1 IDWI hereby charges and assigns in favour of the Chargees by way
of FIRST FIXED CHARGE all its rights, title, benefit and interest
in and to the Shares together with all interest, benefits, rights
and entitlements of any nature attaching to or relating to or
arising out of the Shares at any time whether by way of
dividends, interest, rights, money or property accruing, paid,
offered, issued or deriving therefrom or otherwise howsoever at
any time in respect thereof and all proceeds of sale and
realisation of the Shares hereby charged;
3.1.2 IDWHK hereby charges and assigns in favour of the Chargees by way
of FIRST FIXED CHARGE:-
(a) all immovable property, wheresoever situate now or
hereafter belonging to IDWHK and all buildings, trade and
other fixtures, plant and machinery from time to time on
any such immovable property;
(b) all IDWHK Receivables and all rights enabling IDWHK to
enforce or obtain the IDWHK Receivables
<PAGE>
(c) all encumbrances;
(d) all Equity Interests, stocks, shares, debentures, loan
capital, bonds and securities of any kind whatsoever and
all other interests, including without limitation, rights
of IDWHK to subscribe for, convert other securities into or
otherwise acquire any stocks, shares, debentures, loan
capital, bonds and securities of any kind whatsoever,
together with all dividends, interest and other income and
all other rights, benefits and advantages of whatsoever
kind deriving from or incidental to any of the foregoing;
(e) the goodwill of IDWHK and its uncalled capital now or at
any time hereafter in existence and future calls (whether
made by the directors of IDWHK or by a Receiver or a
liquidator or any other person);
(f) all copyright, trade marks, patents, inventions, fees and
royalties, all intellectual and technology property rights
of whatsoever name and description, together with all other
rights of every kind deriving from the aforesaid, now or at
any time hereafter belonging to IDWHK;
(g) all moveable properties, assets, plants, machinery and
equipment now or at any time hereafter belonging to IDWHK
(other than those charged in Clause 3.1.2(a)), whether
affixed to any land forming part of the Charged Property or
not so affixed;
(h) all chattels now at any time hereafter hired, leased or
rented by IDWHK to any other person, together in each case
subject to and with the benefit of the related hiring,
leasing or rental contract, and any guarantee, indemnity or
other security for the performance of the obligations of
any person under or in respect of such contract; and
(i) all leases, tenancies, licences and other contracts of
whatsoever kind which are or at any time may be entered
into by or on behalf of IDWHK for the occupation,
possession or use of any immovable property, together with
all rental and other monies of whatsoever kind which are or
at any time may be or become due or payable to or for the
account of IDWHK arising therefrom;
3.1.3 IDWHK further charges and assigns in favour of the Chargees by
way of FIRST FLOATING CHARGE the whole of IDWHK's undertaking and
all its present and future estate, right, title and interest in
and to all benefits accrued and to accrue to IDWHK in relation to
its property and assets, including all property and assets which
may be acquired by IDWHK after the conversion referred to in
Clause 4.1 hereof or any crystallisation of the floating charge
hereby created, whatsoever and wheresoever present other than any
property or asset from time to time or for the time being
effectively charged by way of fixed charge by Clause 3.1.2 above
or otherwise under or pursuant to this Deed.
3.2 PROHIBITIONS : The Chargors hereby irrevocably and unconditionally,
jointly and severally undertake that from the date hereof:-
<PAGE>
3.2.1 they shall not create, permit to arise or subsist, any
encumbrance, in respect of the Charged Property or any part
thereof, whether in priority to, PARI PASSU with, or ranking
after the security created in this Deed;
3.2.2 they shall have no power, without the prior written consent of
the Chargees, to factor, discount or assign any part of IDWHK
Receivables or enter into any agreement for such factoring,
discounting or assignment for any purpose whatsoever provided
that the Chargees shall not withhold its consent if the proceeds
arising from such factoring, discounting or assignment are
deposited into the Account; and
3.2.3 they shall not at any time, save in the ordinary course of
business, sell, transfer, lease, lend, rent, let, sub-let, hire
out or part with in any way or otherwise dispose of, whether by
means of one or a number of transactions (whether related or not)
and whether at one time or over a period of time, the whole or
any part of the Charged Property, or enter into an agreement
(other than an agreement conditional upon such consent or
agreement of the Chargees being obtained) for any such sale,
transfer, lease, loan, rental, letting, sub-letting, hiring or
other disposal, or grant any right or licence or permission to
any person to occupy, use or operate the whole or any part of the
Charged Property or any licence to assign or sub-let the whole or
any part of the Charged Property.
3.3 ASSIGNMENT: In furtherance of the charge aforesaid and without prejudice
thereto, IDWHK as legal and beneficial owner HEREBY ASSIGNS ABSOLUTELY to
the Chargees by way of security, all the rights in whatever form
comprised in the IDWHK Receivables, including in particular the benefit
of all contracts and/or agreements whereby IDWHK leases or hires goods to
third parties under any lease agreement or hire-purchase agreement.
IDWHK further agrees to assign to the Chargees by way of security, all
the rights in whatever form comprised in the IDWHK Receivables which may
from time to time and at any time after the date of this Deed come into
existence. Without prejudice to the foregoing, IDWHK undertakes, at its
own expense to execute any further or additional assignment of all or any
of its rights in the IDWHK Receivables in the form required by the
Chargees as and when requested by the Chargees.
3.4 NOTICE OF ASSIGNMENT: Upon the occurrence of an Event of Default, IDWHK
shall immediately send a notice of assignment (in such form specified by
the Chargees) to each of its debtors in relation to current IDWHK
Receivables, and shall also in respect of IDWHK Receivables arising after
the date hereof and in the future, as and when each debt arises,
immediately upon the occurrence of an Event of Default send a notice of
assignment (in such form specified from time to time by the Chargees) to
each debtor in respect of the relevant IDWHK Receivable, failing which
the Chargees may (but shall not be obliged) give such notice of
assignment.
3.5 CONTINUING OBLIGATIONS: Notwithstanding anything in this Deed to the
contrary, all obligations of the Chargors in respect of the Charged
Property shall continue to be the obligations of and shall be promptly
and duly performed and complied with by the Chargors.
3.6 RIGHTS AND PRIVILEGES : The Charged Property shall be charged in favour
of the Chargees together with all rights and privileges connected
therewith.
<PAGE>
3.7 GIVING OF NOTICE: The Chargees may from time to time at its discretion,
be at liberty to give any notice which may be deemed necessary by the
Chargees to any person(s) owing monies to the Chargors that all such
monies be paid to the Chargees and the Chargors hereby irrevocably and
unconditionally, jointly and severally appoint the Chargees to be its
attorney in fact to demand, sue for, recover and take all appropriate
legal proceedings to recover such monies and to give a good receipt for
the same and to give such notices to the debtors of the Chargors and to
take all necessary steps to complete the assignment of such monies to the
Chargees.
3.8 SUBSISTENCE OF THIS DEED: For the avoidance of doubt, the security of
this Deed shall subsist and remain in full force and effect for so long
as the Secured Indebtedness or any part thereof remains unpaid.
3.9 DISCHARGE AND RELEASE: In the event that the Secured Indebtedness and
all other monies and liabilities covenanted to be paid or satisfied under
the Transaction Documents have been duly paid and satisfied to the
Chargees in accordance with the provisions herein and therein, the
Chargees will at any time thereafter and at the request and cost of the
Chargors discharge the security hereby created.
3.10 SUBSTITUTE SECURITY: Without prejudice to the aforesaid, the Chargors
may, at any time after the payment of the first and second instalments as
referred to in Clause 2.2 above, request for a discharge of the security
hereby created by providing substitute security acceptable to the
Chargees.
4. CONVERSION OF FLOATING SECURITY INTO FIXED CHARGE
4.1 CONVERSION: The Chargees, may at any time by notice in writing to the
Chargors forthwith convert any floating security into a specific charge
as regards the Charged Property or any part thereof as specified in the
notice, including any part of the Charged Property which the Chargees
shall reasonably consider to be in danger of being seized or sold under
any form of distress or execution levied or threatened, and may appoint a
Receiver in respect thereof.
4.2 AUTOMATIC CONVERSION: Without prejudice to the rights of the Chargees,
the floating charge created by this Deed shall automatically and without
notice to the Chargors, be converted into a fixed charge in respect of
the relevant part of the Charged Property or any part thereof if:-
4.2.1 the Chargors shall commit a breach of any of its obligations
under Clause 3.2;
4.2.2 an Event of Default shall occur;
4.2.3 any person levies or attempts to levy any distress, execution,
sequestration or other legal process against the relevant part of
the Charged Property or any part thereof;
4.2.4 a receiver shall be appointed for the Chargors' property, assets
or undertaking or any part thereof by any security holder other
than the Chargees under any power contained in any instrument or
statute or by order of appointment of any court of competent
jurisdiction or if any security holder other than the Chargees
take possession or attempt to take possession of the
<PAGE>
Chargors' property or assets or undertaking or any part
thereof under and by virtue of any security or otherwise
howsoever;
4.2.5 if any floating charge or other security given in favour of any
security holder other than the Chargees shall in respect of the
Chargors' property or assets or undertaking or any part thereof
automatically attach or become affixed or specific or otherwise
crystallise upon the happening of some event as mentioned
therein; or
4.2.6 if any of the Chargors applies to the court or any other
authority to restrain the Chargees and/or any of its other
creditors or any of them from proceeding in any manner whatsoever
to enforce whether in a court of law or otherwise.
4.3 RECEIVER: If at any time it shall reasonably appear to the Chargees that
any part of the Charged Property shall be in danger of seizure, distress
or other legal process, or that the security therein shall for any other
reason be in jeopardy, the Chargees shall be entitled without notice to
the Chargors to take possession of and hold the same or to appoint a
Receiver thereof. The provisions of Clauses 13, 14 and 15 below shall
govern the appointment, removal and powers of a Receiver appointed under
this Clause as if he were a Receiver appointed under Clause 13.
4.4 DECRYSTALLISATION: At any time after the floating charge shall
crystallise over any of the assets hereby charged (hereinafter called the
"Crystallised Charge") whether pursuant to a notice or by automatic
crystallisation but before the appointment of any Receiver or Receivers
pursuant to the provisions of Clause 14 or otherwise howsoever, the
Crystallised Charge shall, upon the written consent of the Chargees (such
consent to be given at the absolute discretion of the Chargees), cease to
attach to all or any of the aforesaid charged assets and shall refloat as
a floating charge over all or any of the assets subject thereto by notice
in writing to that effect to the Chargors.
5. OTHER SECURITY
The Chargors shall, as a continuing security for the payment and
discharge of the Secured Indebtedness and for the observance and
performance by the Chargors of its obligations under the Transaction
Documents, and in the event that the Chargees in its reasonable
discretion deems that the Transaction Documents are insufficient or
unsatisfactory to secure the payment of the Secured Indebtedness, the
Chargors shall within fourteen (14) days after the first demand by the
Chargees, whether themselves or shall procure another party to forthwith
pay to or deposit or pledge with the Chargees such sums in cash or at the
Chargees' option to deliver to the Chargees such additional stocks,
shares, securities, goods, bills of lading and documents of title as may
be acceptable to the Chargees or execute such further security over any
of the Charged Property in form and substance satisfactory to the
Chargees as additional and/or substituted security to this Deed or any
part thereof.
6. DEPOSIT OF DEEDS AND PERFECTION OF SECURITY
6.1 DEPOSIT OF DEEDS : The Chargors shall deposit with the Chargees, and the
Chargees during the continuance of this security shall be entitled to
hold and retain, all deeds,
<PAGE>
shipping documents, documents of title and any other documents
relating to the Charged Property (including, without limitation, all
certificates or other documents of title to the Shares, together with
duly executed transfers and sold notes in respect thereof).
6.2 PERFECTION OF SECURITY: The Chargors shall from time to time, upon
request by the Chargees and at the Chargors' cost, execute in favour of
the Chargees, such further or other legal assignments, transfers,
mortgages, legal or other charges or securities as in each such case the
Chargees shall stipulate over the Chargors' estate or interest in any
property or asset of whatsoever nature or tenure and wheresoever situate
(being part of the Charged Property) for the purpose of more effectively
providing security for the payment or discharge of the Secured
Indebtedness. Without prejudice to the generality of the foregoing, such
assignments, transfers, mortgages, legal or other charges or securities
shall be prepared by and on behalf of the Chargees at the cost of the
Chargors and shall be in such form as shall be determined by the Chargees
and may contain provisions such as are herein contained or provisions to
the like effect and/or such other provisions of whatsoever kind as the
Chargees shall consider requisite for the improvement, protection,
maintenance or perfection of the security constituted by or pursuant to
this Deed.
7. POSITION OF OTHER SECURITY
7.1 DEED NOT TO PREJUDICE OTHER SECURITIES: This Deed is in addition and
without prejudice to nor shall it affect any other charge, mortgage,
guarantees, security interest or other instruments or letters of set-off
which the Chargees may now or hereafter hold from time to time from or on
account of the Chargors, nor shall such collateral or other security or
any encumbrance to which the Chargees may otherwise be entitled
(including any security, charge or encumbrance prior to the date of this
Deed), or the liability of any person(s) not parties hereto for all or
any part of the Secured Indebtedness, be in any way prejudiced or
affected by this Deed. The Chargees shall have full powers and absolute
discretion to deal with, exchange, release, vary, modify, omit, neglect
or abstain from perfecting or enforcing any such collateral, other
securities, guarantees or rights which the Chargees may now or hereafter
have from or against such person(s) or to give time for payment or any
indulgence to any such other person(s) without discharging or in any way
affecting the Chargors' liabilities or the Secured Indebtedness or the
security created hereunder.
7.2 OTHER SECURITIES NOT TO PREJUDICE DEED: Nothing contained in any other
charge, mortgage, encumbrance or security which the Chargees hold or may
at any time hold from any of the Chargors alone or jointly with any other
person on any account whatsoever anywhere whether in or outside
Singapore, shall prejudice or affect this Deed.
8. CONTINUING SECURITY
8.1 NO DISCHARGE BY PART PAYMENT: This security shall not be considered as
satisfied by any intermediate payment or satisfaction of the whole or any
part of the Secured Indebtedness but shall constitute and be a continuing
security to the Chargees and extend to cover all or any of the Secured
Indebtedness.
<PAGE>
8.2 AVOIDANCE OF SECURITY: No assurance, security or payment which may be
avoided under the provisions of any relevant laws in any jurisdiction
relating to undue or fraudulent preference, and no release, settlement or
discharge which may have been given or made on the faith of any such
assurance, security or payment, shall prejudice or affect the right of
the Chargees, or any of them, to recover from the Chargors to the full
extent of all moneys payable by the Chargors in connection with the
Transaction Documents, as if such assurance, security, payment, release,
settlement, or discharge (as the case may be) had never been granted
given or made.
8.3 SECURITY TO CONTINUE TO BE VALID AND BINDING: This security shall
continue to be valid and binding on the Chargors for all purposes
notwithstanding:-
8.3.1 any change by amalgamation, consolidation, reconstruction or
otherwise which may be made in the constitution of the company by
which the business of the Chargees may for the time being be
carried on and shall be available to the company carrying on the
business of the Chargees for the time being; or
8.3.2 the insolvency, liquidation or winding-up of any of the Chargors
or the commencement of any of the foregoing; or
8.3.3 any change in constitution, amalgamation, consolidation,
reconstruction or reorganisation of or affecting any of the
Chargors; or
8.3.4 the illegality, invalidity or unenforceability of or any defect
in any provision of any of the Transaction Documents or any other
security, guarantee or indemnity or any of the obligations of any
of the parties thereunder.
9. REPRESENTATIONS AND WARRANTIES
The Chargors hereby irrevocably and unconditionally, jointly and
severally represent and warrant to and for the benefit of the Chargees
(including any assignee or transferee of the Chargees) as follows:-
9.1 STATUS: IDWHK is a limited liability company and IDWI is a company duly
incorporated, organised and validly existing under the laws of Hong Kong
or USA (as the case may be) and each of the Chargors will, until all the
Secured Indebtedness have been fully paid by the Chargors to the
Chargees, maintain its corporate existence as a company with limited
liability under the laws of Hong Kong or USA (as the case may be);
9.2 BUSINESS: each of the Chargors has full power and authority to carry on
the business currently carried on by it and to own assets, to carry on
the business currently carried on by it;
9.3 POWERS AND AUTHORISATION: each of the Chargors has full corporate power
and authority and the legal right and title to enter into, exercise its
rights and perform and comply with its obligations under the Transaction
Documents, including, without limitation, the charge of the Charged
Property on the terms and conditions herein contained;
<PAGE>
9.4 CORPORATE ACTION: each of the Chargors has taken or obtained all
necessary corporate and other action to authorise the execution and
delivery of the Transaction Documents and all other documents to be
executed and delivered by it in connection herewith, and the consummation
and performance of the transactions contemplated by this Deed and such
aforesaid documents and no limitation on its powers will be exceeded as a
result of the transactions to be undertaken pursuant to the Transaction
Documents;
9.5 VALID AND BINDING OBLIGATIONS: each of the Transaction Documents
constitutes legal, valid and binding obligations on the Chargors
enforceable in accordance with their respective terms. The execution,
delivery and performance of the Transaction Documents and the payment by
each of the Chargors of all amounts due on the dates and in the currency
provided for herein and therein (a) will not contravene any provision of
law or other governmental directive, whether or not having the force of
law, which is applicable to it; (b) will not conflict with its Articles
of Association (or other constitutive documents); (c) will not conflict
with or result in the breach of any provision of, or in the imposition of
any mortgage, trust, lien, pledge, security interest, charge or
encumbrance or other preferential arrangement under, any agreement or
instrument to which it is a party or by which it or its assets is bound;
and (d) will not constitute an Event of Default or a default under any
such agreement or instrument;
9.6 NO MATERIAL ADVERSE EFFECT: the financial condition and operations of
each of the Chargors is such that it is able to fully and effectively
perform all its obligations under the Transaction Documents, and there
has been no material adverse change in its financial condition and
operations since the date of the latest available audited financial
statements. No litigation, arbitration, mediation or administrative
proceedings before or of any court or governmental authority is current,
presently pending or, to the best of the knowledge and belief of each of
the Chargors, threatened against any of the Chargors or its assets to
restrain the entry into, exercise of any of the Chargors' rights under
and/or performance or enforcement of or compliance with its obligations
under the Transaction Documents or which might have a material adverse
effect on the business, assets or condition of any of the Chargors or
which would impair the rights of any of the Chargors to carry on its
business substantially as now conducted, or which would adversely affect
the ability of any of the Chargors to perform its obligations under any
Transaction Document to which it is a party, and to the best of the
knowledge and belief of the Chargors, each of the Chargors has complied
with all applicable laws statutes and regulations and with the
requirements of all government authorities having jurisdiction over it;
9.7 REGISTRATIONS AND APPROVALS: all consents, authorisations, approvals and
waivers from and resolutions of the holders of any class of shares in or
from any of the creditors of the Chargors or from any other party to any
relevant deed or document or from any governmental or other authority
required in order for the Chargors to execute, deliver and perform the
Transaction Documents have been duly obtained, passed and delivered to
the Chargees and are in full force and effect. All declarations, filings
and registrations have been made, as may be necessary, for the valid
execution, delivery, performance and enforceability of the Transaction
Documents;
9.8 COMPLIANCE WITH LAW AND OTHER AGREEMENTS: the execution and delivery of
this Deed will not or would not:-
9.8.1 conflict with, or result in any breach of or default under, any
provision of any law, government directive (whether or not having
the force of law), order,
<PAGE>
agreement, instrument, franchise, concession, licence, permit,
liability, obligation or duty applicable to any of the
Chargors or by which it is bound; or
9.8.2 cause any limit on any of the borrowing, guaranteeing, charging
or other powers of the Chargors (whether imposed by the
Memorandum or Articles of Association (or other constituent
documents), or by agreement, instrument or others) or on any of
the powers of the board of directors of the Chargors to exercise
any of such powers, or any other limit affecting the Chargors to
be exceeded; or
9.8.3 conflict with, result in the breach of, create or result in, or
(except for the Transaction Documents) oblige the Chargors to
create any encumbrance; or
9.8.4 constitute an Event of Default or a default under any agreement
or document binding upon the Chargors or any of them;
9.9 NO DEFAULT: each of the Chargors and/or its related companies are not in
breach of or in default under any agreement relating to borrowed money to
an extent or in a manner which has or could have a material adverse
effect on it; and each of the Chargors and/or its related companies are
not in default under any agreement or document to which they are a party
to or by which they are legally bound;
9.10 ACCOUNTS: the most recent annual consolidated audited financial
statements of each of the Chargors, as delivered to the Chargees:-
9.10.1 include a balance sheet and profit and loss account and such
other financial statements (if any) as are required by the laws
of Hong Kong or USA (as the case may be);
9.10.2 save as stated in the notes thereto, were prepared in accordance
with accounting principles and practices generally accepted in
Hong Kong or USA (as the case may be) and consistently applied
and have been prepared, examined, reported on and approved in
accordance with all procedures required by its constitutive
documents and/or the laws of Hong Kong or USA (as the case may
be);
9.10.3 together with those notes, give a true and fair view of its
financial condition and operations as at that date and for the
financial year then ended; and
9.10.4 together with those notes, disclose (to the extent required by
accounting principles and practices generally accepted in Hong
Kong or USA (as the case may be) and consistently applied) or
reserve against all its liabilities (contingent or otherwise) as
at that date and all unrealised or anticipated losses from any
commitment entered into by it and which existed on that date;
The financial condition and operations of each of the Chargors and its
related corporations are such that the Chargors are able to fully and
effectively perform their obligations under the Transaction Documents;
9.11 NO IMMUNITY: neither the Chargors nor any of their assets are entitled
to immunity from suit, execution, attachment or other legal process and
each of the Chargors' entry into the Transaction Documents constitutes,
and the exercise of its rights and
<PAGE>
performance of and compliance with its obligations under the Transaction
Documents will constitute private and commercial acts done and performed
for private and commercial purposes;
9.12 TAXES: each of the Chargors has filed or caused to be filed all
requisite tax returns required to be filed in all jurisdictions in which
it is situated or carry on business or is otherwise subject to taxation
and it has paid all taxes shown to be due and payable in such returns or
on any assessments made against them (other than those being contested in
good faith and against which adequate reserves are being maintained) and,
to its knowledge, no claims are being asserted with respect to such taxes
which, if adversely determined, would have a material adverse effect on
it or upon its ability to fulfil its obligations hereunder;
9.13 NO DISSOLUTION: no steps have been taken by the Chargors or their
respective shareholders nor have any legal proceedings been started or
threatened for the dissolution of any of the Chargors or for the
appointment of a receiver, trustee, judicial manager or similar officer
of it, its assets or any of them;
9.14 NO MISSTATEMENT: each of the Chargors has fully disclosed in writing to
the Chargees all facts relating to it which it knows or should reasonably
know and which are material for disclosure to the Chargees in the context
of the Transaction Documents; and no information, exhibit or report
furnished in writing by it to the Chargees in connection with the
negotiation of the Transaction Documents contains any misstatement of
fact as at the date of such exhibit or report or as at the date when such
information was given which is material in the context of the Transaction
Documents, or omits to state a fact as at such date which in any such
case would be materially adverse to the interests of the Chargees under
the Transaction Documents;
9.15 FULL TITLE: the full legal and beneficial ownership of the Charged
Property is, at the date of the execution of this Deed vested in the
Chargors, absolutely free from all and any mortgages, charges, pledges,
encumbrances, liabilities, claims or other security interests whatsoever
over or in respect thereof, and that the full legal and beneficial
ownership of the Charged Property shall so remain and continue to so
remain during the continuance of this Deed;
9.16 SHARES: IDWI is and will remain the only beneficial owner of the Shares
and that all the Shares are validly issued and fully paid, and there are
no monies or liabilities outstanding or payable in respect of the same;
9.17 FIRST PRIORITY: the security created by this Deed is legal, valid,
binding and enforceable as a first priority security of the Charged
Property;
9.18 NO KNOWLEDGE: none of the Chargors has any knowledge of any fact which
would impair the validity or enforceability of the security herein
created;
9.19 NO FURTHER ENCUMBRANCE: except with the prior written consent of the
Chargees, the Chargors shall not make or suffer to exist any assignment,
charge, sale, transfer or encumbrance of the Charged Property or any part
thereof, other than the security created by this Deed;
<PAGE>
9.20 NO SET-OFF: the Chargors has not subjected and will not subject the
Charged Property, or any part thereof, to any defence, set-off or
counterclaim;
9.21 NO LOANS OR DEBTS: there are no loans or debts owing by IDWHK to any
party whatsoever (including, without limitation, IDWI or any director or
shareholder of IDWI) save for those approved by the Chargees in writing
or trading debts incurred by IDWHK in the ordinary course of its
business;
9.22 NO BANKRUPTCY: no bankruptcy or insolvency proceedings has been started
or threatened or are pending against any of the Chargors; and
9.23 REPETITION: each of the above representations and warranties shall
survive and continue to have full force and effect after the execution of
this Deed, and will be true and correct and fully observed at all times
with reference to the facts and circumstances existing at all such times
until the Secured Indebtedness shall have been paid in full.
10. COVENANTS AND UNDERTAKINGS
10.1 AFFIRMATIVE COVENANTS AND UNDERTAKINGS: The Chargors hereby irrevocably
and unconditionally, jointly and severally covenant and undertake with
the Chargees that, so long as any part of the Secured Indebtedness is
outstanding, each of the Chargors shall:-
10.1.1 PUNCTUAL PAYMENT: punctually pay all amounts due owing or
remaining unpaid under the Transaction Documents on the due dates
thereof and in accordance with the provisions of the Transaction
Documents. Each of the Chargors shall also duly observe, perform
and comply with all the terms, conditions, obligations,
undertakings, stipulations and covenants to be observed and
performed and complied with by it in accordance with the
Transaction Documents or any other documents called for by the
terms of the Transaction Documents;
10.1.2 BUSINESS: carry on and conduct its business and affairs with due
diligence and efficiency in accordance with sound technical,
financial and managerial standards and practices, with qualified
personnel and in accordance with its Memorandum and Articles of
Association or other constitutive documents;
10.1.3 INFORMATION: furnish and provide the Chargees, their employees
and agents with and permit the Chargees to obtain all such
statements, information, explanation and data (except those of a
proprietary nature), as the Chargees may reasonably require,
regarding the affairs, operations, administration, financial,
corporate or other whatsoever state or condition of the Chargors;
10.1.4 ADVERSE CHANGE: promptly advise the Chargees of any material
adverse change in the condition (financial or otherwise) of the
Chargors, and notify the Chargees immediately of the institution
of any litigation, arbitration or administrative proceedings
against the Chargors before any court or administrative agency
which might materially affect the continued operations or
financial condition of the Chargors;
<PAGE>
10.1.5 EVENT OF DEFAULT: immediately notify the Chargees upon becoming
aware of any of the following events:-
(a) any Event of Default; or
(b) the giving of notice by it to convene any meeting for
passing a resolution to wind up any of the Chargors; or
(c) the filing of any application for placing itself under any
scheme with a view to readjustment, reschedule or defer its
indebtedness generally, or under a judicial manager, or any
analogous or equivalent process in any jurisdiction in
which it has assets or carries on business;
10.1.6 PREPARATION OF ACCOUNTS: (a) keep its books of accounts and
prepare all financial statements to be delivered by it under this
Deed so as to comply with Clause 10.1.7 where applicable; and (b)
permit the Chargees and any person authorised by the Chargees to
have access to and inspect its books of account at any time
during office hours, with not less than 7 days' notice in
writing;
10.1.7 ACCOUNTS: maintain an accounting system in accordance with
generally accepted accounting principles in Hong Kong or USA (as
the case may be) consistently applied and shall deliver to the
Chargees sufficient copies of the following:-
(a) certified copies of its most recent annual consolidated
audited financial statements within four (4) months after
the date hereof and thereafter, within 90 days after the
end of each of its financial years, its annual consolidated
audited financial statements in respect of that financial
year;
(b) at the same time as is sent to its shareholders, any other
documents or information sent to its shareholders as such.
10.1.8 CERTIFICATE: together with each of the financial statements
aforesaid deliver to the Chargees a certificate of a director or
authorised officer of the respective Chargors certifying that (i)
no Event of Default has occurred or (ii) such an Event of Default
has occurred, accompanied by a reasonably detailed description
thereof and of the action contemplated by the Chargors to remedy
such Event of Default;
10.1.9 CHANGE IN OWNERSHIP: ensure and procure that there shall be no
change in the legal and beneficial ownership of the share capital
of the Chargors without the prior written consent of the Chargees
being obtained;
10.1.10 RESOLUTIONS: furnish the Chargees with certified copies of all
resolutions passed at shareholders' meetings and/or directors'
meetings of IDWHK as soon as practicable thereafter, but in any
event within 14 days from the date of the passing of such
resolutions;
10.1.11 PAYMENTS: duly pay or cause to be paid, all rents, rates,
assessments, duties, taxes and all outgoings and government
charges upon the Chargors or against the Chargors' properties or
any land and/or premises at which it carries
<PAGE>
on business prior to the date on which penalties attach
thereto, unless and to the extent only that the same shall be
contested in good faith and by appropriate proceedings of the
Chargors, and produce to the Chargees on demand all receipts
for such payments (and in default of payment or production as
aforesaid it shall be lawful but not obligatory for the
Chargees to pay all or any of such aforesaid monies on behalf
of the Chargors, and thereupon the sums so paid by the
Chargees shall on demand be repaid to the Chargees and until
so repaid shall be secured by this Deed) and make timely
filings of all tax returns and governmental reports required
to be filed or submitted under any applicable laws or
regulations, and obtain all necessary licences and comply with
all laws regulations rules and orders relating to the carrying
on of its business;
10.1.12 AUTHORISATIONS: at its own cost and expense, maintain in full
force and effect all governmental consents, licences,
authorisations, approvals, declarations, filings and
registrations (collectively "Authorisations") obtained or made in
connection with the Transaction Documents and every document, the
execution and delivery of which is contemplated hereby and take
all such additional action as may be proper or advisable in
connection therewith, and obtain or effect any new or additional
Authorisations as may become necessary for the performance of any
of the terms and conditions of the Transaction Documents or for
maintaining, perfecting and/or protecting the security hereby
created over the Charged Property and the interest of the
Chargees hereunder, or for facilitating the enforcement and
realisation of such security and/or interest of for the exercise
of all powers, authorities and discretions vested in the
Chargees;
10.1.13 MAINTENANCE: maintain its corporate existence and right to carry
on operations and acquire, maintain and renew all rights,
contracts, powers, privileges, leases, lands, sanctions and
franchises which it deems necessary or prudent for the conduct of
its operations and promptly provide the Chargees with evidence
thereof upon request;
10.1.14 INSPECTION OF CHARGED PROPERTY: unconditionally grant to the
Chargees, their officers, employees and agents any right which it
has with respect to the inspection of the Charged Property or any
part thereof, and provide every assistance reasonably required by
the Chargees, their employees and agents to exercise such right
of inspection and render to the Chargees, their employees and
agents at such times as the Chargees may require, statements
giving descriptions and quantities of any of the Charged Property
with particulars of their situation and of insurance thereon, and
permit any employees and agents of the Chargees at any time,
after giving prior notice to the Chargors, to enter into and upon
any land or premises where the Chargors carries on its business
or the Charged Property is situate and to inspect such Charged
Property, or any part thereof, and all records, manuals and
documents pertaining thereto and all accounts records and
statements, wherever the same may be situated and to make
inventories and records thereof, Provided Always That in the
event that upon carrying out such inspection it is discovered
that any of the Chargors has committed an Event of Default, the
costs of carrying out such inspection shall be borne by the
Chargors and in all other cases the cost of inspection shall be
borne by the Chargees;
<PAGE>
10.1.15 PRESERVATION: except in the usual course of business, not pull
down, remove or alter any part of the Charged Property without
the prior written consent of the Chargees, and shall forthwith
replace or make good the same in the event of such pulling down,
removal or alteration, and shall keep the Charged Property in
good and substantial repair and proper working condition and take
all such measures for the maintenance, preservation, protection
and security of the Charged Property as the Chargees may from
time to time require, and permit the Chargees, their employees
and agents free access at all the times to view the site and
condition of the Charged Property without becoming liable to
account as mortgagee in possession. If any of the Chargors fails
to comply with the provisions of this Clause, the Chargees may at
their discretion (but without any obligation on their part to do
so) take all such measures for the maintenance, preservation,
protection and security of the Charged Property as the Chargees
may require, and all monies so expended by the Chargees shall be
repaid by the Chargors with interest calculated from the date of
payment thereof by the Chargees up to the date of repayment by
the Chargors and until so repaid shall be secured by the security
herein created;
10.1.16 RESTRICTIVE COVENANTS: observe and perform all restrictive and
other covenants and stipulations for the time being affecting any
part of the Charged Property or the use or enjoyment of the same
or any part thereof;
10.1.17 ENDORSEMENT, ASSIGNMENT: upon the request of the Chargees,
endorse and assign to the Chargees all leases, documents of
title, negotiable instruments, policies and other documents
evidencing, representing or securing any of the Charged Property;
10.1.18 NO COMPROMISE: not, without the prior written consent of the
Chargees, extend the time for payment of or settle or compromise
the amount of any Charged Property or any contract in connection
therewith, nor take or omit to take any action which act or
omission could materially and adversely affect or diminish the
value of any of the Charged Property, and shall, at its own
expense, promptly take all action which is at any time necessary
and desirable to protect the value of its and the Chargees'
interest in and rights to the Charged Property;
10.1.19 NOTIFICATION: forthwith upon becoming aware of the same, inform
the Chargees of any event which may affect the right, interest or
title of the Chargors and/or the Chargees to any of the Charged
Property;
10.1.20 INSURANCE: at its own expense, effect and maintain or cause to
be effected and maintained adequate insurance over Charged
Property;
10.1.21 REPLACEMENT PARTS: renew and replace to the satisfaction of the
Chargees all such parts machinery appurtenances accessories
equipment and effects of the Charged Property as and when they
shall be worn out damaged lost or destroyed with others of a
similar nature and of at least equal value;
10.1.22 PAYMENT OF IDWHK RECEIVABLES: forthwith pay all moneys it
receives in connection with the IDWHK Receivables into the
Account, and until such moneys are so paid, hold all such moneys
on trust for the Chargees;
<PAGE>
10.1.23 CHANGES OR CESSATION OF BUSINESS: forthwith notify the Chargees
of any intention it has of changing the nature of its business,
or ceasing its business;
10.1.24 PROOF OF DEBT: any right or proof of IDWI in the bankruptcy or
insolvency of IDWHK in respect of any indebtedness whatsoever
shall be exercised and enforced by IDWI only in such manner and
on such terms as the Chargees may stipulate and to the extent
permitted by applicable law, and any amount received or recovered
by IDWI as a result of any exercise by IDWI of any of its rights
herein shall be immediately paid to the Chargees, and until so
paid, shall be held in trust for the Chargees to the extent
permitted by applicable law;
10.1.25 SHARES: IDWI shall and shall procure the Trustees to duly and
promptly perform and comply with their obligations under, in
respect of or arising out of the Shares, as the legal
shareholders of IDWHK and shall duly and promptly pay all calls,
instalments, subscription monies or other payments which may be
due or become due in respect of any of the Shares and/or take up
any right or option when directed by the Chargees or their
nominees to do so, and to pay for such right or option, provided
that in default of IDWI doing so, the Chargees may (but shall not
be obliged to) make such payment, and any sums so paid by the
Chargees for that purpose shall be repayable by IDWI on demand;
10.1.26 VOTING RIGHTS: upon the occurrence of an Event of Default, IDWI
shall and shall procure the Trustees to exercise all voting
rights and all other rights in respect of or arising out of the
Shares in such manner as directed by the Chargees;
10.1.27 INCOME FROM SHARES: IDWI shall at all times ensure and procure
that all monies accruing on or payable in respect of the Shares
shall be paid forthwith to the Chargees, and until such moneys
are so paid, IDWI shall hold such money on trust for the
Chargees;
10.1.28 INDEMNITY: indemnify and keep the Chargees harmless against any
claim or demand which may be made against the Chargees by any
purchaser or other person(s), and against any liability, loss,
costs or expense (including legal costs on a full indemnity
basis) which the Chargees may suffer or incur by reason of:-
(i) any defect in any of the Chargors' title to the Charged
Property; and
(ii) all actions, proceedings, losses, costs, claims and demands
suffered or incurred in respect of anything done or omitted
in any way relating to the Charged Property or in the
exercise or purported exercise of the powers contained in
this Deed;
10.1.29 FURTHER ACTS: do or permit to be done such further acts and
shall execute such additional documents which the Chargees may
from time to time request to be done or executed for the purpose
of enforcing the rights of the Chargees under the Transaction
Documents and under the Charged Property and for obtaining the
full benefits of this Deed and of the rights and powers hereby
granted to the Chargees; and
10.2 NEGATIVE COVENANTS AND UNDERTAKINGS: Each of the Chargors hereby
irrevocably and unconditionally, jointly and severally covenants and
undertakes with the
<PAGE>
Chargees that so long as any amount is or may be outstanding under the
Transaction Documents, it shall not without the prior written consent
of the Chargees:-
10.2.1 undertake or permit any reorganisation, amalgamation,
reconstruction, take-over, substantial change of shareholders or
any other schemes of compromise or arrangement affecting its
present constitution or the Charged Property; or
10.2.2 effect or permit any change in the management (including the
board of directors) of any of the Chargors or any change (whether
in the number of shares, types of shares or the percentages held)
in the registered or beneficial shareholdings of the Chargors but
this prohibition shall not apply to changes or increases in the
registered or beneficial shareholdings of IDWI's preferential
shareholders; or
10.2.3 declare, make or pay any dividends or other distribution (whether
out of capital or otherwise) nor will it make any capital or
asset distribution to its shareholders; or
10.2.4 incur any additional loan, advance or other credit facility from
any person, corporation, banks or financial institutions except
from its shareholders and in the latter case, subject to Clause
10.3 below; or
10.2.5 repay any debts to directors, shareholders and associated,
affiliated or subsidiary companies of the Chargors; or
10.2.6 effect any substantial alteration to the nature of its business
or amend or alter any of the provisions in its Memorandum and
Articles of Association or other constitutive documents relating
to its borrowing powers or principal business activities; or
10.2.7 make advances or loans to any person including but not limited to
shareholders, directors, employees, associated, affiliated or
subsidiary companies of the Chargors; or
10.2.8 either in a single transaction or in a series of transactions
(whether related or not) sell, convey, transfer or otherwise
dispose of all or any part of the Charged Property; or
10.2.9 incur any liability or issue or give guarantees or indemnities
for the account or on behalf of any person or otherwise become
contingently liable for or in connection with any obligation or
indebtedness of any person (save for things done in its ordinary
course of business); or
10.2.10 omit to do or permit or suffer to be done or omitted anything by
reason whereof any of the insurances referred to in Clause
10.1.20 or any other policy of insurance effected on the assets
of the Chargors may be rendered void or voidable; or
10.2.11 fail to keep on foot any insurance against any risk in respect of
the assets of the Chargors where any insurance referred to in
Clause 10.1.20 has been
<PAGE>
effected or kept on foot except with the prior written consent
of the Chargees; or
10.2.12 use its assets or suffer the same to be used for purposes other
than those for which the same is built nor do or omit to do or
permit or suffer to be done or omitted anything by reason whereof
any policy of insurance effected on its assets may be rendered
void or voidable except with the prior consent in writing of the
Chargees; or
10.2.13 sell or attempt to sell, transfer, mortgage, pledge create, grant
or suffer to exist any encumbrances or any security interest
whatsoever over or in any way dispose of the Equity Interests,
the assets and property of VKSTD and MULCD (save in the ordinary
course of business), or any part thereof or agree to do any of
the same; or
10.2.14 do or suffer to be done or omitted any act matter or thing in or
on or in respect of any of its assets, which shall contravene the
provisions of any law, interest or agreement affecting the same,
and it will at all times hereafter indemnify and keep indemnified
the Chargees in full against all actions, proceedings, costs,
expenses, claims and demands in respect of any such act matter or
thing done or omitted to be done in contravention of the said
provisions; or
10.2.15 exercise any right or power in any manner which may have a
material adverse effect on the Charged Property, its financial
position or on the interests of the Chargees under the
Transaction Documents; or
10.2.16 take or omit to take any action, the taking or omission of which
might result in any alteration, waiver, release or impairment of
or any of the rights created by this Deed;
10.2.17 do or cause or permit to be done anything which may in any way
depreciate, jeopardise or otherwise prejudice the value of any of
the Charged Property;
10.2.18 do anything which may result in an injunction or other court
order or administrative order being made or issued, which would
have the effect of restraining the transfer or dealing in any of
the Charged Property, and to forthwith notify the Chargees if any
such order is made or issued;
10.2.19 hold the Chargees and/or their nominees liable for any failure to
communicate any notice or information affecting the Charged
Property, and for any failure to exercise or any delay in
exercising any right or benefit pertaining to the Charged
Property;
10.2.20 hold the Chargees liable for any loss arising from or
attributable to any brokers or others employed or engaged in or
in connection with the sale or disposal of the Charged Property,
or for any loss or depreciation in value of any of such Charged
Property, arising from or through any cause whatsoever, save for
any loss or depreciation caused directly by the intentional
actions or gross negligence of the Chargees;
10.2.21 withdraw or utilise the monies in the Account except for the
purposes as specified below:-
<PAGE>
(a) in or towards payment of the Secured Indebtedness and all
monies and liabilities covenanted to be paid or satisfied
by the Chargors under the Transaction Documents;
(b) in or towards payment of the working capital (including
operating expenses) of IDWHK, VKSTD and MULCD;
(c) in or towards any other payments as may be approved by the
Chargees.
10.3 SUBORDINATION: IDWI further undertakes and covenants with the Chargees
that:-
10.3.1 it shall subordinate all loans and advances made to IDWHK and
shall procure all of its shareholders and directors and all of
IDWHK's directors which have made loans and advances to IDWHK to
agree to subordinate such loans and advances and/or any interest,
fees or other amounts payable on such loans and advances
(collectively "Subordinated Indebtedness") to the Secured
Indebtedness and upon such loans and advances being made to
forthwith inform the Chargees, and execute and procure that such
shareholder or director, as the case may be, execute a deed of
subordination (in form and substance satisfactory to the
Chargees) in favour of the Chargees (if required) and deliver it
to the Chargees;
10.3.2 for so long as the Secured Indebtedness is owing by the Chargors
to the Chargees or remains outstanding, the Subordinated
Indebtedness shall not directly or indirectly be repayable or
repaid and that IDWI shall not and shall procure that its
aforesaid shareholders and directors and IDWHK's directors shall
not demand from IDWHK repayment of the Subordinated Indebtedness
or any part thereof or take any steps, actions or proceedings
anywhere, directly or indirectly, to recover or enforce repayment
of the same or any part thereof in any way;
10.3.3 should any payment be received or recovered by IDWI or any of its
aforesaid shareholders and directors or IDWHK's directors from or
on behalf of IDWHK in breach of Clause 10.3.2 hereof, IDWI shall
and shall procure that such of its shareholders and directors and
IDWHK's directors shall hold the proceeds of such payment on
trust for the Chargees and shall pay to the Chargees the whole of
the said payment and in making such payment shall discharge (in
whole or in part, as the case may be) its obligations in respect
of the trust referred to above in respect of the moneys so paid;
10.3.4 IDWI shall not and shall procure that its aforesaid shareholders
and directors and IDWHK's directors shall not prove in
competition with the Chargees for all or any of the Subordinated
Indebtedness but shall give to the Chargees the benefit of any
proof in respect of the Subordinated Indebtedness in the
liquidation of IDWHK or in any arrangement or composition with
creditors until the Chargees shall have received all monies
outstanding and remaining unpaid by the Chargors to the Chargees.
11. EVENTS OF DEFAULT
<PAGE>
11.1 The Secured Indebtedness shall immediately become due and payable and the
security hereby created shall immediately become enforceable upon the
occurrence of any of the following events:-
11.1.1 NON-PAYMENT: any of the Chargors fails to punctually pay the
Secured Indebtedness or any part thereof or any other monies due
and payable to the Chargees, at the times, dates and in the
manner provided in the Transaction Documents; or
11.1.2 BREACH OF REPRESENTATION OR WARRANTY: any representation,
warranty or statement made by the Chargors in this Deed or in any
document delivered under it now or at any later date is not
complied with or is incorrect or untrue or ceases to be correct
or true in any respect; or
11.1.3 BREACH OF OBLIGATION OR UNDERTAKING: any of the Chargors commits
or threatens to commit any breach of or fails to observe any of
the obligations, undertakings, stipulations, terms and conditions
or provisions contained herein or in the Transaction Documents or
threatens or is likely to commit any breach of or threatens or is
likely not to observe any of the obligations, undertakings,
stipulations, terms and conditions or provisions contained herein
or in the Transaction Documents; or
11.1.4 CROSS DEFAULT: any other indebtedness or part thereof of the
Chargors, VKSTD or MULCD (to whomsoever owing) (i) is not paid at
its stated maturity, on its original due date, or within any
applicable grace period or (ii) by reason of any default or on
the occurrence of any event, become due, or is declared due prior
to its stated maturity or original due date; or
11.1.5 INSOLVENCY: any of the Chargors, VKSTD or MULCD becomes
insolvent, is unable to pay its debts as they fall due, stops
suspends or threatens to stop or suspend its business or payment
of its debts, begins negotiations or takes any proceedings or
other step with a view to re-adjustment, rescheduling or deferral
of its indebtedness or proposes or makes a general assignment or
any statutory or other arrangement or composition with or for the
benefit of its creditors or a moratorium is agreed or declared in
respect of or affecting the indebtedness of the Chargors, VKSTD
or MULCD; or
11.1.6 ENFORCEMENT PROCEEDINGS: a distress, attachment, encumbrance,
execution or other legal process is levied or enforced upon or
issued against any of the properties or assets of the Chargors,
VKSTD or MULCD and is not discharged within 30 days of being
levied or enforced; or
11.1.7 SECURITY ENFORCEABLE: any present or future security on or over
the assets of the Chargors, VKSTD or MULCD becomes enforceable
and any step (including the taking of possession or the
appointment of a receiver, manager or similar officer) is taken
to enforce that security; or
11.1.8 DISSOLUTION: any step is taken by any person for the dissolution
(including judicial management) of the Chargors, VKSTD or MULCD
(including if a petition is presented, an order is made or a
resolution is passed for such dissolution (including judicial
management)) (except for the purpose of and
<PAGE>
followed by a reconstruction, amalgamation or reorganisation
on terms approved by the Chargees before that step is taken);
or for the appointment of a liquidator (including a
provisional liquidator), receiver, judicial manager, trustee,
assignee, administrator, agent or similar officer of the
Chargors, VKSTD or MULCD or over any part of the assets of the
Chargors, VKSTD or MULCD; or
11.1.9 CHANGE IN OWNERSHIP: any change occurs in the ownership or
control of Chargors, VKSTD or MULCD or a significant portion of
their assets, which in the opinion of the Chargees constitutes a
material adverse change affecting the financial condition or
operations of Chargors, VKSTD or MULCD, or a material adverse
change affecting the consolidated financial condition or business
of the Chargors, VKSTD or MULCD; or
11.1.10 ILLEGALITY: it is or will become unlawful for the Chargors or
any party to this Deed to perform or comply with any one or more
of their respective obligations hereunder; or
11.1.11 TRANSACTION DOCUMENTS: the Transaction Documents or any
provisions thereof or hereof ceases for any reason to be in full
force and effect or is terminated or becomes invalid or
unenforceable or if there is any purported termination of the
Transaction Documents or any part thereof or if it becomes
impossible for or any other party to the Transaction Documents to
perform any of its obligations thereunder or hereunder or for the
Chargees to exercise all or any of its rights, powers and
remedies thereunder or hereunder; or
11.1.12 LEGAL PROCEEDINGS: any suit or action of any kind whatsoever
(whether criminal or civil) shall be instituted or threatened
against the Chargors, VKSTD or MULCD which in the opinion of the
Chargees is not frivolous and will materially and adversely
affect the ability of the Chargors to perform or observe any of
its obligations under the Transaction Documents; or
11.1.13 COMPULSORY ACQUISITION: if a notice or proposal for compulsory
acquisition of the assets of the Chargors, VKSTD or MULCD or any
material or substantial part thereof is issued or made under or
by virtue of any law; or
11.1.14 SECURITY IN JEOPARDY: if any other security created or to be
created in accordance with the terms of the Transaction Documents
shall in the opinion of the Chargees be in jeopardy, and notice
thereof has been given to the Chargors and the latter fail to
remedy the same or provide additional securities to the
satisfaction of the Chargees within fourteen (14) days after the
issuance of the aforesaid notice; or
11.1.15 ANALOGOUS EVENTS: any event occurs which under the law of any
relevant jurisdiction, has an analogous or equivalent effect to
any of the events mentioned in this Clause; or
11.1.16 MATERIAL ADVERSE CHANGE: any event occurs or circumstance arises
which gives the Chargees reasonable grounds for believing that
the Chargors will not or will be unable to perform or comply with
any one or more of its obligations under this Deed or any other
documents called for by this Deed.
<PAGE>
12. POWERS OF THE CHARGEES ON DEFAULT BY THE CHARGORS
12.1 POWERS: Upon the occurrence of any Event of Default, the Chargees shall,
without prejudice to their rights, powers and remedies under the
Transaction Documents and/or at law, be entitled to exercise all or any
of the following powers, that is to say:-
12.1.1 PAYMENT OF SECURED INDEBTEDNESS: the Secured Indebtedness and
all other moneys secured by this Deed shall immediately become
due and payable without any demand or notice, which is hereby
expressly waived by the Chargors;
12.1.2 ENTRY: the Chargees or any person authorised by them may enter
into the land or premises wheresoever situate where the Charged
Property is located without notice and may take possession and
control of the whole or any part of the Charged Property without
being held liable as a mortgagee in possession;
12.1.3 DISPOSAL OF CHARGED PROPERTY: the Chargees may sell, dispose of
or to the extent permitted by law, appropriate to their own use
and benefit the Charged Property or any part thereof in such
manner as they may think fit, and the Chargees may apply the
proceeds or deemed proceeds of such sale, disposal or
appropriation in or towards the discharge of the Secured
Indebtedness;
12.1.4 SHARES: upon the Chargees' request, the Chargors shall and shall
procure the Trustees to execute, sign and deliver such other
documents as the Chargees may require (including, without
limitation, written resolutions of the directors of IDWHK
approving the transfer of the Shares to the Chargees and/or their
nominees or any purchaser), all in form and substance acceptable
to the Chargees, and do or procure to be done such other acts and
things to enable the Chargees to register, transfer and vest the
Shares in the name of the Chargees and/or their nominees or any
purchaser;
12.1.5 STATUTORY POWERS OF MORTGAGEE: the Chargees shall forthwith be
entitled to exercise all or any of the statutory powers of
mortgagee in respect of the Charged Property, and in particular
and without prejudice to the generality of the foregoing, the
power of sale, without any restriction whatsoever imposed by
Section 25 of the Conveyancing and Law of Property Act (Chapter
61, 1994 Revised Edition) and the provisions of the said Section
25 shall be so varied or extended in their application to this
Deed that the power of sale may be exercised in accordance with
the provisions of this Clause.
12.2 EXERCISABLE AT CHARGEES' DISCRETION: All or any of the rights, powers or
remedies conferred by this Deed shall be exercisable by the Chargees at
its discretion, or at any time and from time to time and in any order as
may be determined by the Chargees.
12.3 CHARGEES TO GIVE GOOD DISCHARGE: The Chargees may give a good discharge
for any monies received in the exercise of their power of sale and
disposal hereunder and for any rights, monies or property received or
receivable in respect of the Charged Property and no purchaser or other
person dealing with the Chargees shall be concerned to enquire whether
the monies and liabilities hereby secured have become
<PAGE>
payable or whether any power which it is purporting to exercise has
become exercisable or whether any monies are due under this Deed or as
to the application of any monies paid raised or borrowed or as to the
propriety or regularity of any sale by or other dealing with the
Chargees.
12.4 CONCLUSIVE EVIDENCE: A certificate signed by any of the Judicial
Managers that an Event of Default has occurred and that the power of sale
has become exercisable shall be conclusive evidence of the fact in favour
of any purchaser and/or any person(s) to whom the Charged Property or any
part thereof may be transferred under such sale.
12.5 SHORTFALL: If the proceeds arising from the exercise of the Chargees'
rights hereunder are insufficient to discharge the Secured Indebtedness
in full, the Chargees shall be entitled to claim against the Chargors in
respect of such insufficiency in such manner as may be permitted by law.
13. APPOINTMENT OF RECEIVER
13.1 APPOINTMENT: At any time after any part of the Secured Indebtedness
shall have become payable under Clause 11 hereof; or (ii) the Chargors
shall have requested the Chargees to appoint a Receiver hereunder, the
Chargees may appoint one or more persons to be a Receiver of the Charged
Property.
13.2 REMOVAL: The Chargees may (i) remove any Receiver previously appointed
hereunder; and (ii) appoint another person or other persons as Receiver
or Receivers, either in the place of a Receiver so removed or who has
otherwise ceased to act or to act jointly with a Receiver or Receivers
previously appointed hereunder. If at any time and by virtue of any such
appointments) any two or more persons shall hold office as Receivers of
the Charged Property, each Receiver shall be entitled (unless the
contrary shall be stated in any of the deed(s) or other instruments)
appointing them) to exercise all the powers and discretions hereby
conferred on Receivers individually and to the exclusion of the other or
others of them.
13.3 BY DEED OR IN WRITING: Every such appointment or removal, and every
delegation, appointment or removal by the Chargees in the exercise of any
right to delegate powers or to remove delegates herein contained, may be
made either by deed or by instrument in writing under the hand of any
officer of the Chargees and/or any of the Judicial Managers or by any
person authorised in writing in that behalf by any of such officer or
Judicial Manager.
14. RECEIVER
14.1 POWERS OF RECEIVER: A Receiver so appointed shall be the agent of the
Chargors and the Chargors shall be solely responsible for his acts and
defaults and remuneration. Such Receiver shall have power:-
14.1.1 ENTRY ONTO LAND: to enter into and take possession of or control
any land or premises of the Chargors or any part thereof or
collect and get in any Charged Property and for that purpose to
take any proceedings in the name of the Chargors or otherwise as
may seem expedient;
<PAGE>
14.1.2 CARRY ON BUSINESS: to carry on, manage or concur in carrying on
and managing the business of the Chargors or any part thereof,
including the power (where the Chargors has one or more
subsidiaries) of supervising, controlling and financing such
subsidiaries and their businesses and the conduct thereof, and
for any of those purposes, to raise or borrow any money from the
Chargees or any other person, with or with security on assets of
the Chargors;
14.1.3 CALL ON SHARES: where any capital in respect of any such capital
or shares of the Chargors is outstanding and uncalled, to require
the directors of the Chargors forthwith to call up all or so much
of such uncalled capital of the Chargors, and to enforce payment
of calls so made and any previous unpaid calls by taking
proceedings in the name of the Chargors or his own name or
otherwise as may seem expedient and as may be sufficient to pay
to the Chargees all monies then due and owing hereunder;
14.1.4 SELL OR LEASE PROPERTY: forthwith and without restriction to
sell, lease or otherwise dispose of or agree in selling, leasing,
accepting surrenders or otherwise disposing (obtaining only when
and where necessary the leave of the Court) of the whole or any
part of the Charged Property (and for this purpose, to sever, if
necessary, plant, machinery and other fixtures from the land) by
public auction or by private contract on such terms and
conditions as he may think fit, with power to vary any contract
for sale and to resell without being answerable for any loss
occasioned thereby; any such sale may be for cash, shares or
stocks, debenture stock or other valuable consideration to be
paid or satisfied at such time(s) as the Receiver shall think
fit;
14.1.5 LICENSE PROPERTY: to lease, let, hire and license or agree in
leasing, letting, hiring and licensing or accept surrenders of
leases, tenancies or licences of all or any part of the Charged
Property on such terms and for such consideration as he may deem
fit;
14.1.6 ARRANGEMENT OR COMPROMISE: to make any arrangement or enter into
any compromise which he shall think expedient;
14.1.7 REPAIR PROPERTY: to repair and keep in repair and make and
effect all or any improvements of the Charged Property, and for
this purpose, to apply in the name of the Chargors for such
licences or approvals as may be required by any law or
regulation, and to take out maintain and renew all insurances in
respect of the Charged Property against loss or damage by fire or
any other risk as he shall think fit;
14.1.8 EMPLOY PROFESSIONAL ADVISERS: to employ, engage, appoint and
terminate the services of such managers and other employees and
professional advisers or otherwise on such terms and conditions
as to remuneration or otherwise as he shall think fit, including
without limitation, the power to engage his own firm in the
conduct of the receivership;
14.1.9 ACQUIRE SHARE CAPITAL: to promote or otherwise acquire the share
capital of any body corporate with a view to such body corporate
becoming a subsidiary of the Chargors, and purchasing, leasing or
otherwise acquiring an interest in the whole or any part of the
Charged Property, or carrying on any business in succession to
the Chargors or any subsidiary of the Chargors;
<PAGE>
14.1.10 TAKE PROCEEDINGS: to take or defend proceedings in the name of
the Chargors, including proceedings for the compulsory winding-up
of the Chargors, and to submit to arbitration, negotiate,
compromise, abandon and settle any claims and proceedings
concerning the Charged Property, and to demand, receive, give
valid receipt for or discharge the same;
14.1.11 INCIDENTAL ACTS: to execute and do all such acts, deeds and
things as to him or the Chargees may appear incidental or
conducive to any of the powers vested in him or to be conducive
to the realisation of the security constituted by or pursuant to
this Deed and which he lawfully may or can do as agent for the
Chargors; and
14.1.12 GENERAL: generally to do or cause to be done such acts or things
which the Chargors may have done in the ordinary conduct of its
business for the protection as well as for the improvement of the
Charged Property.
14.2 CONSIDERATION FOR SALE OR DISPOSAL: In making any sale or other disposal
of any of the Charged Property in the exercise of their respective powers
(including a disposal by the Receiver to any such subsidiary as is
referred to in Clause 14.1), the Receiver or the Chargees may accept, as
and by way of consideration for such sale or other disposal, cash,
shares, loan capital or other obligations, including without limitation,
consideration fluctuating according to or dependent upon profit or
turnover and consideration the amount whereof is to be determined by a
third party. Any such consideration may be receivable in a lump sum or
by instalments and upon receipt by the Receiver shall ipso facto be and
become charged with the payment of the Secured Indebtedness. Any
contract for any such sale or other disposal may contain conditions
excluding or restricting the personal liability of the Receiver or the
Chargees. Plant, machinery and other fixtures may be severed and sold in
the exercise of their respective powers by the Receiver or the Chargees
separately from the premises to which they are attached without any
consent being obtained from the Chargors.
15. APPLICATION OF MONIES BY RECEIVER
15.1 ORDER OF APPLICATION: All monies received by any Receiver appointed
under this Deed shall (subject to the rights and claims of any person
having a security ranking in priority to the security constituted by or
pursuant to this Deed) be applied in the following order:-
15.1.1 in the payment of the fees, costs, charges and expenses of and
incidental to the Receiver's appointment and the payment of his
remuneration;
15.1.2 in the payment and discharge of any liabilities incurred by the
Receiver on the Chargors' behalf in the exercise of any of the
powers of the Receiver;
15.1.3 in or towards payment of any debt or claim which are by statute
payable in preference to the Secured Indebtedness but only to the
extent to which such debt or claim have such preference;
15.1.4 in or towards payment of any other fees or expenses accruing
hereunder;
<PAGE>
15.1.5 in or towards the satisfaction of all interest remaining unpaid
on the Secured Indebtedness owing to the Chargees;
15.1.6 in or towards the satisfaction of all of the Secured Indebtedness
owing to the Chargees;
and any surplus shall be paid to the Chargors or other person entitled
thereto.
15.2 REMUNERATION: Every Receiver so appointed shall be entitled to
remuneration for his services at a rate to be fixed by agreement between
him and the Chargees (or, failing such agreement, to be fixed by the
Chargees) appropriate to the work and responsibilities involved upon the
basis of charging from time to time adopted in accordance with his
current practice or the current practice of his firm.
15.3 APPLICATION: Only monies actually paid by the Receiver to the Chargees
in satisfaction or discharge of the Secured Indebtedness shall be capable
of being applied in satisfaction thereof.
15.4 NO LIABILITY: Save as aforesaid the Chargees shall be under no liability
whatsoever to the Receiver for his remuneration, costs, charges, expenses
or otherwise.
15.5 EXCLUSIONS: The provisions of Sections 29(6) and (8) of the Conveyancing
Law of Property Act (Chapter 61, 1 994 Revised Edition) shall not apply
to this Deed.
16. APPOINTMENT OF RECEIVER NOT AFFECTING OTHER POWERS
The powers of appointment of a Receiver hereunder shall be in addition to
and not to the prejudice of any statutory and other powers (whether of
sale, receiving rents, distraining for rents or otherwise) whether
pursuant to any law or equity or otherwise, of the Chargees, so that such
powers shall be and remain exercisable by the Chargees in respect of the
Charged Property or any part thereof.
17. POWER OF ATTORNEY
17.1 APPOINTMENT: The Chargors hereby irrevocably and unconditionally,
jointly and severally appoint the Chargees and any and every Receiver
appointed as aforesaid and his substitutes, together with every delegate
or sub-delegate referred to in Clause 17.2, and each of them jointly and
severally, to be the attorneys in fact of the Chargors (with full powers
of substitution and delegation) for the Chargors and in its name and on
its behalf, and as its acts and deeds to execute, sign, seal and deliver
and otherwise perfect any deed, assurance, agreement, instrument or act,
which the Chargors may or ought to do pursuant to the covenants and
provision of this Deed, and which may be required or may be deemed proper
for any of the purposes set out in the Clause 14, and generally to use
the name of the Chargors and to execute and deliver and otherwise perfect
any deed, assurance, agreement, instrument or act, which the Chargees or
any Receiver may deem proper in the exercise of all or any of the powers,
authorities or discretions conferred on any of them pursuant to this Deed
provided that in the case of IDWI only, the appointment of the attorneys
hereunder shall take effect from the date of occurrence of an Event of
Default.
<PAGE>
17.2 DELEGATION : The Chargees may at any time and from time to time delegate
by power of attorney or in any other manner to any person or persons all
or any of the powers, authorities and discretions which are for the time
being exercisable by the Chargees under this Deed, and on such terms and
conditions as the Chargees shall think fit, and the Chargees shall not be
bound to supervise or be in any way liable or responsible for any loss or
damage arising from any act, default, omission or misconduct on the part
of any such delegate or sub-delegate, save for the Chargees' intentional
actions or gross negligence.
17.3 RATIFICATION: The Chargors hereby declares that such power of attorney
has been given for valuable consideration and shall be and remain
irrevocable for as long as the Secured Indebtedness is outstanding. The
Chargors hereby ratify and confirm and agrees to ratify and confirm
whatever any such attorney appointed pursuant to Clauses 17.1 and 17.2
shall do or purport to do in the exercise or purported exercise of all or
any of the powers, authorities and discretions referred to in Clauses
17.1 and 17.2.
18. NO ENQUIRY BY THIRD PARTY
Any person dealing with the Chargees or any of its delegates or the
Receiver appointed hereunder shall not be bound to see or enquire whether
any event has happened upon which any of the powers contained in this
Deed are or may be exercisable by the Chargees or the Receiver or
otherwise as to the propriety or regularity of any exercise thereof, or
any act purporting or intended to be an exercise thereof, or whether any
money remains owing upon this security, or be concerned to see whether
any such delegation shall have lapsed for any reason or been revoked.
19. THE CHARGEES NOT ANSWERABLE FOR LOSS
The Chargees shall not be answerable for any involuntary loss happening
in or about the exercise or execution of the powers of any trust which
may be vested in the Chargees by virtue of this Deed or by law for the
time being in force, save where such loss is caused by the gross
negligence or wilful default of the Chargees.
20. WAIVER NOT TO PREJUDICE RIGHT OF THE CHARGEES
The Chargees may from time to time and at any time waive either
unconditionally or on such terms and conditions as it may deem fit, any
breach by the Chargors of the covenants, undertakings, stipulations,
terms and conditions herein contained and any modification thereof but
without prejudice to any power, right and remedy for enforcement thereof
Provided that:-
20.1 no neglect or forbearance of the Chargees to require and enforce payment
of any monies under the Transaction Documents, or the performance and
observance of any covenant, undertaking, stipulation, term and condition
contained in the Transaction Documents, nor any time which may be given
to the Chargors or any person shall in any way prejudice or affect any of
the rights powers or remedies of the Chargees at any time afterwards to
act strictly in accordance with the provisions hereof; and
<PAGE>
20.2 no such waiver of any breach as aforesaid shall prejudice the rights of
the Chargees in respect of any other or subsequent breach of any of the
covenants undertakings stipulations terms or conditions aforesaid.
21. INDULGENCE, REMEDIES AND WAIVERS
21.1 TIME: The liability of the Chargors hereunder shall not be impaired or
discharged by reason of any time or other indulgence being granted by or
with the consent of the Chargees to any person who may be in any way
liable to pay any of the Secured Indebtedness, or by reason of any
arrangement being entered into, or composition accepted by the Chargees
modifying the operation of law or otherwise its rights and remedies under
the provisions of the Transaction Documents.
21.2 ABSTENTION: The Chargees may at any time, without discharging or in any
way affecting the security created by or pursuant to this Deed or any
remedy in respect of such security, grant to the Chargors time or
indulgence, or abstain from asserting, calling, exercising or enforcing
any remedy, security, guarantee or other rights, which it may now or
hereafter have from or against the Chargors.
22. SET-OFF
In addition to any right of set-off or other right which the Chargees may
have and for so long as the Secured Indebtedness remains outstanding or
owing, each of the Chargees shall be entitled and is hereby authorised at
any time and without prior notice to the Chargors to set-off any sum
owing by the Chargees to the Chargors, VKSTD and/or MULCD against the
Secured Indebtedness. The Chargees shall inform the Chargors of the
aforesaid set-off as soon as practicable thereafter. Where such set-off
requires the conversion of one currency to another, each of the Chargees
is hereby authorised to effect such conversion at the its own rate of
exchange.
23. DISCRETION
Any liability or power which may be exercised or any determination which
may be made hereunder by the Chargees may be exercised or made in the
reasonable discretion of the Chargees which shall not be under any
obligation to give reasons therefor.
24. EXPENSES AND STAMP DUTY
The Chargors shall pay:-
24.1 INITIAL EXPENSES : on demand, all fees costs expenses and disbursements
(including but not limited to legal fees on a full indemnity basis) and
all goods and services, value added or other duties or taxes payable on
such fees, cost, expenses and disbursements, incurred by the Chargees in
connection with the preparation, negotiation, execution and registration
(if any) of the Transaction Documents and any other documentation
contemplated thereby or executed in connection thereto (including any
amendment, waiver or consent required in respect of such documents)
provided
<PAGE>
that the costs to be borne by the Chargors in respect of the
preparation of this Deed (excluding any subsequent amendment thereto)
shall not exceed United States Dollar Twenty Thousand (US$20,000);
24.2 ENFORCEMENT EXPENSES: on demand, all fees costs expenses and
disbursements (including but not limited to taxes thereon and legal fees
on a full indemnity basis) and all goods and services, value added or
other duties or taxes payable on such fees, costs, expenses and
disbursements, incurred by the Chargees in protecting or enforcing any
right under the Transaction Documents and/or any such amendment or waiver
and the certificate of the Chargees setting out the amount and basis for
such amount shall, in the absence of manifest error, be conclusive; and
24.3 STAMP DUTY: promptly, and in any event before any penalty becomes
payable, any stamp, documentary, registration, goods and services, value
added or similar duty or tax payable in connection with the entry into,
registration, performance, enforcement or admissibility in evidence of
the Transaction Documents and/or any such amendment or waiver, and
indemnify the Chargees against any liability with respect to or resulting
from any delay in paying or omission to pay any such tax.
25. ASSIGNMENT
25.1 BENEFIT AND BURDEN OF THIS DEED: This Deed shall benefit and be binding
on the parties, their respective successors and any permitted assignee or
transferee of some or all of a party's rights or obligations under this
Deed. Any reference in this Deed to any party shall be construed
accordingly.
25.2 CHARGORS: The Chargors may not assign or transfer all or any part of its
rights or obligations under this Deed.
25.3 CHARGEES:
25.3.1 The Chargees may at any time and from time to time without notice
to the Chargors assign or transfer all or any part of its rights
and/or obligations under the Transaction Documents (including
this Deed) to another party (the "Assignee").
25.3.2 Upon an assignment made pursuant to Clause 25.3.1 taking effect,
the Assignee shall be treated as a party to the Transaction
Documents for purposes herein, and shall be entitled to the full
benefit of each Transaction Document to the same extent as if it
were an original party in respect of the rights and obligations
assigned or transferred to it.
26. COMMUNICATIONS
26.1 Except as otherwise expressly provided herein, any notice, request,
demand or other communication to be given or served under this Deed to or
on any party under this Deed may be delivered at or sent by facsimile
transmission to the address or facsimile number and marked for the
attention of the person or department (if any) from time to time
designated by that party for the purpose of this Deed and shall be deemed
to be duly served:-
<PAGE>
26.1.1 if it is delivered, at the time of delivery; or
26.1.2 if it is sent by facsimile transmission, immediately after
transmission thereof.
26.2 Each notice, request, demand or other communication in connection
herewith may be given or served to the relevant party at its address or
facsimile number set out below:-
<TABLE>
<CAPTION>
THE CHARGORS :
<S> <C>
Name : International Displayworks, Inc.
Address : c/o Christensen and Barrus, Inc.
29999 Douglas Boulevard, Suite 185
Roseville, CA 95661 USA
Fax No. : (916) 786-9977
Attn : Craig G. Christensen
copy to:
Name : Capitol Bay Securities, Inc.
2424 Professional Drive
Roseville, CA 95661 USA
Fax No. : (916) 782-6779
Attn : Mr Stephen C. Kircher
Name : International Displayworks (Hong Kong) Ltd
Address : c/o Christensen and Barrus, Inc.
29999 Douglas Boulevard, Suite 185
Roseville, CA 95661 USA
Fax No. : (916) 786-9977
Attn : Craig G. Christensen
COPY TO:
Name : Capitol Bay Securities, Inc.
2424 Professional Drive
Roseville, CA 95661 USA
Fax No. : (916) 782-6779
Attn : Mr Stephen C. Kircher
THE CHARGEES:
Name : Vikay Industrial Ltd
Address : care of 16 Raffles Quay,
#22-00 Hong Leong Building,
Singapore 048581
Fax No. : (65) 221 7204
Attn : Mr Tham Sai Choy
Name : Vikay Industrial (Hong Kong) Ltd
Address : care of 16 Raffles Quay,
#22-00 Hong Leong Building,
<PAGE>
<S> Singapore 048581
Fax No. : (65) 221 7204
Attn : Mr Tham Sai Choy
</TABLE>
27. PARTIAL INVALIDITY
The illegality, invalidity or unenforceability of any provision of this
Deed under the laws of any jurisdiction shall not affect its legality,
validity or enforceability under the laws of any other jurisdiction nor
the legality, validity or enforceability of any other provision.
28. JUDICIAL MANAGERS
The Chargors hereby acknowledges and confirms that the Judicial Managers
are acting as agents for and on behalf of the Chargees in relation to
this Deed and all matters in connection therewith and that none of the
Judicial Managers shall assume any personal liability in relation to this
Deed of any other matter in connection therewith.
29. GOVERNING LAW AND JURISDICTION
This Deed shall be governed by, and construed in accordance with, the
laws of Singapore and the Parties hereby irrevocably submit to the
non-exclusive jurisdiction of the courts of Singapore and waive any
to proceedings in any such court on the grounds of venue or on the
grounds that the proceedings have been brought in an inconvenient forum.
30. PROCESS AGENT
Each of the Chargors hereby irrevocably and unconditionally, jointly and
severally, undertake and covenant:-
30.1 to appoint International Displayworks Pte Ltd of Eunos Techpark
#06-04, 60 Kaki Bukit Place, Singapore 415979 as its agent to
receive service of process in Singapore. In the event of such
process agent ceasing to be able to act as such (whether because
of liquidation, cessation of business or otherwise) or no longer
having an address in Singapore, each of the Chargors hereby
irrevocably and unconditionally, jointly and severally undertake
and covenant that it would within thirty (30) days of such event
appoint a substitute process agent acceptable to the Judicial
Managers; and
30.2 that service of legal process on it may be effected by serving it
on the process agent mentioned above or by posting a copy of the
process by registered or certified prepaid airmail post to its
address stated in Clause 26.2, such service to be effective
fourteen (14) days after such posting, regardless of whether it
has or has not been returned or unclaimed by it, provided nothing
herein shall affect the right to effect service of process in any
other manner permitted by law.
31. COUNTERPARTS
<PAGE>
This Deed may be executed and delivered in several counterparts, each of
which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF this Deed has been executed by the parties hereto and is
intended to be and is hereby delivered on the day and year first above
written.
THE CHARGEES:-
The Common Seal of )
VIKAY INDUSTRIAL LTD )
(IN JUDICIAL MANAGEMENT) ) /s/ THAM SAI CHOY
was hereunto affixed ) ---------------------------------
in the presence of :- )
The Common Seal of )
VIKAY INDUSTRIAL (HONG KONG) LTD )
was hereunto affixed )
in the presence of :- )
THE CHARGOR:-
The Common Seal of )
INTERNATIONAL DISPLAYWORKS )
(HONG KONG) LTD ) /s/ ANTHONY GENOVESE
was hereunto affixed ) -----------------------------------
in the presence of :- )
The Common Seal of )
INTERNATIONAL DISPLAYWORKS, INC. )
was hereunto affixed )
in the presence of :- )
<PAGE>
SCHEDULE 1
COMPLETION STATEMENT
<TABLE>
<CAPTION>
Singapore Dollars (S$)
----------------------
<S> <C>
Sale Price as stipulated in Sale Agreement 18,200,000
Add:
- ----
Adjustment to VKSTD's and MULCD's Inventory 33,549
Land Premium paid by VKSTD 650,561
Prepaid Inventory 808,808
Redemption of Hire-Purchase Agreement 253,000
Cash Balances in VKSTD and MULCD 252,028
Prepaid expenses and deposits of VKSTD and MULCD 85,721
Sub-total 2,083,667
Less:
- -----
Deposit paid under Sale Agreement 1,686,500
Interest on Deposit from 5/8/1999 to 24/1/2000 44,048
Accounts payable in respect of VKSTD and MULCD 3,705,975
(as at 31/7/1999)
Sub-total 5,436,523
Total amount payable by Chargor ("Agreed Total") 14,847,144
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
FUNDING STATEMENT
1. SUMS ADVANCED BY THE CHARGEES TO VKSTD AND MULCD:
<S> <C>
MONTH S$ EQUIVALENT
August 1999 2,103,147
September 1999 2,551,456
October 1999 2,868,720
November 1999 2,167,779
December 1999 2,226,793
Total amount advanced 11,917,895
Accrued interest as at 31 Jan 2000 212,007
Total funded amount (a) 12,129,902
</TABLE>
<TABLE>
<CAPTION>
2. COLLECTED RECEIVABLES RECEIVED BY THE CHARGEES:
<S> <C> <C>
MONTH S$ EQUIVALENT
August 1999 444,743
September 1999 171,888
October 1999 1,952,472
November 1999 3,800,643
December 1999 2,022,669
Total receivables collected 8,392,415
Accrued interest as at 31 Jan 2000 112,944
Total (b) 8,505,359
</TABLE>
3. BALANCE FUNDED AMOUNT TO BE SET-OFF AGAINST COLLECTED RECEIVABLES:
(a) - (b) = S$3,624,543
NOTE:- The Parties hereby acknowledge and confirm that the above figures on the
sums advanced and the Collected Receivables are correct as at 31 December
1999 and the Parties further agree to finalise the sums advanced by the
Chargees to VKSTD and/or MULCD, as well as the Collected Receivables
received by the Chargees, for the month of January 2000 within thirty
(30) days from the date of signing of this Deed.
