Registration No. 0-28358
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
(Amendment No. 1 to Form 10)
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
CHINA CONTAINER HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
Nevada 11-2243727
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
61, East Garden Road
Yangzhou, Jiangsu
China 225003
(Address of principal
executive offices)
Copies to:
MA TIEYI, SECRETARY & TREASURER JUSTIN K. MACEDONIA
CHINA CONTAINER HOLDINGS LIMITED WINTHROP, STIMSON, PUTNAM & ROBERTS
1250 BROADWAY, 22nd FLOOR ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10001 NEW YORK, NEW YORK 10004
(212) 629-7378 (212) 858-1490
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.001 per share
This form consists of ____ consecutively numbered
pages. An index to the Exhibits to this form appears
on Page ____.
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CHINA CONTAINER HOLDINGS LIMITED
FORM 10
ITEM 1. BUSINESS.
General
China Container Holdings Limited ("Holdings") is a Nevada
corporation which owns 100% of the issued and outstanding common stock of an
intermediate holding company, China Container Holdings Limited ("CCHL-BVI"), a
British Virgin Islands company. CCHL-BVI owns 80% of the registered capital of
Yangzhou Tongyun Container Company Ltd., a Sino-foreign equity joint venture
company ("TY Container"), which manufactures and sells international standard
commercial freight ("ISO") containers. CCHL-BVI also owns 80% of the registered
capital of Yangzhou Tongsheng Container Co. Ltd. ("Tongsheng"), a Sino-foreign
equity joint venture company. The minority shareholdings in Tongsheng are
identical to that of TY Container. Since the completion of its production
facilities in May 1996, Tongsheng also manufactures and sells ISO containers.
See "Sino-Foreign Equity Joint Venture Enterprises in General," below, for more
detailed information.
References herein to the "Company" are to Holdings and its
direct and indirect subsidiaries, collectively.
In addition to TY Container and Tongsheng, Holdings
indirectly, through TY Container, has a majority interest in a company which
manufactures ISO integrated refrigerated containers, and minority interests in:
four manufacturers of container components, one manufacturer of container
chassis and specialized semi-trailers, one manufacturer of plastic injection
equipment, and one real estate development company.
In May 1995, Holdings (formerly known as Dial-A-Brand, Inc.)
acquired 100% of the issued and outstanding common stock of CCHL-BVI in exchange
for approximately 95% of the issued and outstanding common stock of Holdings
(the "Stock Swap"), and then took its present name. Immediately prior to the
Stock Swap, all of the former assets of Holdings, other than Holding's stock
books and other corporate records, were transferred to a separate corporation,
which assumed all of Holdings' then existing liabilities, and was itself
acquired by the former majority shareholder of Holdings. All historical
information relating to the Company disclosed in this Registration Statement is
presented as though the Reorganization and the Stock Swap had already occurred.
As of March 31, 1996, approximately 40% of the shares of
Holdings were owned indirectly by Jiangsu Tongyun Group Company ("TYG") through
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its wholly owned subsidiary, Jiangyang Automobile (H.K.) Limited, which owns 50%
of Sinocity Group Limited, which holds approximately 80% of the shares of
Holdings. TYG is owned by Yangzhou City, a city located in Jiangsu Province of
the People's Republic of China (the "PRC"). TYG owns equity interests, directly
or indirectly, in 13 enterprises, including TY Container, in Jiangsu Province.
TY Container's main facilities are located in Yangzhou City. See Item 7.
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," below, which is incorporated
in this Item 1 by reference. The term "Reorganization" is defined in Item 7.
The Company maintains its books of account in Renminbi
("RMB"), the national currency of the PRC. The Company believes that it is
easier for current and potential investors to understand the Company's financial
statements if the United States dollar is used as the Company's currency for
financial statement presentations. Accordingly, the Company's Consolidated
Financial Statements are stated in United States dollars ("US$"). All balance
sheet accounts have been translated from RMB to US$ using the exchange rates in
effect at December 31 of the applicable balance sheet date. All income statement
amounts have been translated using the average exchange rate for the applicable
year. Prior to January 1, 1994, the PRC maintained a dual exchange rate system
which included both an official rate and the rate available at the Foreign
Exchange Adjustment Centers, the so called "Swap Centers." The Swap Center rate
was in large part determined by the supply and demand for foreign currencies in
the PRC. On January 1, 1994, the PRC government abolished the dual rate system
and established a single floating official exchange rate. The conversion rates
used herein for currency translations are those quoted by the Swap Center in
Shanghai prior to January 1, 1994, and by the Bank of China on or after January
1, 1994.
The following table sets forth the RMB/US$ conversion rates
which were used for currency translations provided herein:
Year RMB Equivalent of US$1
As at 12/31 Average Rate
1991 5.90 5.90
1992 7.71 6.66
1993 8.70 8.70
1994 8.45 8.62
1995 8.32 8.35
The following organizational chart shows the corporate structure of the Company
and its ownership of the various affiliated entities.
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[Graphic omitted. Original graphic shows: CCHL (Nevada) owns 100% of CCHL-BVI;
CCHL-BVI owns 80% of TY Container and 80% of Tongsheng; TY Container owns 25%
of Beihai Container, 51% of Reefer, 35.57% of Tongda, 44% of Tongyang Machinery,
and 25% of Universal.]
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Operating Subsidiaries
Description of TY Container
History
TY Container, currently the Company's primary operating
subsidiary, was established as a Sino-foreign equity joint venture company in
the PRC on March 27, 1989. Pursuant to the joint venture contract and its
articles of association, TY Container has an initial term of 15 years, which may
be extended with the mutual consent of the on-going participants and the
approval of relevant PRC governmental authorities. The joint venture partners
contributed cash totaling US$6,205,500 and land use rights, buildings and
machinery valued at US$904,500, in exchange for their respective interests in
the joint venture, an aggregate of US$7,110,000, the full authorized registered
capital.
TY Container commenced operations in August 1990 and is
primarily engaged in the manufacture in the PRC of ISO containers for export and
sale outside the PRC. TY Container is among the first Sino-foreign equity joint
venture enterprises established to manufacture containers in China. The main
production line equipment was imported from South Korea. Additional production
equipment was later installed which increased the capacity of the plant. In
1990, its first year of operations, TY Container produced 424 20-foot, 407
40-foot, and 237 40-foot high-cube containers for a total production of 1,712
twenty-foot equivalent units ("TEU"). In 1995, TY Container produced a total of
39,792 TEU, making it the second largest Chinese container manufacturer, as
reported by Containerization, an industry journal published in China.
TY Container Historical Container Production
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
TEU 1,712 14,749 26,846 31,112 33,745 39,792
Principal Products
TY Container produces ISO containers for dry freight of the
following dimensions: 20'x 8'x 8'6", 40'x 8'x 8'6", 40'x 8'x 9'6" (High Cube)
and 45'x 8'x 9'6". In addition, TY Container manufactures non-standard
containers according to customers' specifications. The containers feature either
a corrugated door or a flat door and are constructed of either structuring steel
or Corton steel. Containers produced by TY Container have been certified by the
American Bureau of Shipping Industrial Verification, Inc. ("ABS") of the United
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States, Bureau Veritas Branche Industrie of France, Germanischer Lloyd of
Germany, Lloyd's Register of the United Kingdoms, and ZC of China.
TY Container has received numerous PRC national and provincial
enterprise awards and recognition. In 1995, TY Container was recognized as the
best export sales enterprise in Jiangsu Province and one of the ten best Foreign
Invested Enterprises in Jiangsu Province by the Association of Foreign Invested
Enterprises. TY Container received recognition in 1994 from the Development
Research Center of the State Council, placing it third among the largest metal
manufacturers in China. TY Container also was recognized in 1993 as one of the
fifty best industrial enterprises in Jiangsu Province by the Science and
Technology Committee of Jiangsu Province and one of the ten best industrial
engineering enterprises by the Engineering Industry Office of Jiangsu Province.
Sources and Availability of Raw Materials and Components
The raw materials required for the production of dry
commercial freight containers include steel, plywood, paint, and sealants. In
1995, approximately 70%, by cost, of TY Container's raw materials and components
were imported and paid for by TY Container in U.S. dollars; of the remaining
30%, all were purchased in PRC domestic transactions and paid for in RMB. In
order to take advantage of economies of scale, TY Container now purchases all of
its raw materials through its sales and purchasing agent, Jiangsu Tongyun Group
Trading Company ("TYG Trading Co."), a wholly owned subsidiary of TYG (see Item
1. "General" and Item 7. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
Historically, TY Container has purchased approximately
one-half of its steel requirements from sources in Japan, and the remaining
one-half from sources in South Korea. The price of all steel imported from Japan
into the PRC is negotiated on a semi-annual basis between the governments of the
PRC and Japan, and the price of steel imported from South Korea generally
follows the negotiated Japanese steel price. However, in 1995, following the
earthquake which struck Kobe and the rebuilding process that began afterwards,
Japanese steel prices increased 14% at the beginning of the year, followed by a
16% increase during the middle of the year. As a result of the large increase in
steel prices in 1995, TY Container and other container manufacturers with
operations in China are seeking domestic sources of steel which are capable of
meeting their requirements on a long-term basis. In 1995, TY Container purchased
15,000 metric tons of steel from Baoshan Iron and Steel Corporation ("Baoshan
Steel") in Shanghai at an average savings of US$50 per metric ton in price and
US$26 per metric ton in freight charges over what was paid for steel purchased
from Japanese and South Korean sources. TY Container intends to purchase
approximately 60,000 metric tons of steel from Baoshan Steel in 1996. The
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average price of steel purchased by TY Container in the first quarter of 1996
was approximately 9% lower for Corton steel and 11% lower for structuring steel,
than that paid in 1995. TY Container generally maintains an inventory of steel
sufficient for three months production.
Paint has been obtained from sources in Denmark and South
Korea. Plywood has been obtained from sources in Indonesia. Weather resistant
sealant has been obtained from Taiwan and domestically, including from Wuxi
Tongfa Economic & Technical Development Company Ltd., a company in which TY
Container holds a 10% equity interest. TY Container also purchases container
components from suppliers in Taiwan and South Korea, as well as domestically. TY
Container purchases some of those components from companies in which it holds a
minority equity interest, including Yangzhou Tongda Forging Ltd., in which it
owns a 35.57% interest, as described below in "TY Container Affiliated
Companies." Purchases from affiliated companies are at prices and on other terms
and conditions at least as favorable, and generally significantly more
favorable, to TY Container than it would receive from unaffiliated companies.
Plywood and paint are ordered as needed upon receipt of firm customer orders. TY
Container typically maintains a two month supply of sealant. All other container
components are purchased on an as needed basis, with next day delivery generally
available.
TY Container works closely with its suppliers to ensure
product quality and availability and believes it has established a reliable
network of suppliers for its raw materials and components. It is TY Container's
intention to further diversify its sources of raw materials and components, to
the extent consistent with its ability to obtain high quality raw materials and
components at low cost and on a timely basis.
Seasonal Nature of Business
Although the Company considers demand for containers to be
seasonal, as determined in accordance with generally accepted accounting
principals in the United States ("U.S. GAAP"), sales of commercial freight
containers are not highly seasonal, with 25.5%, 28.4%, 20.3% and 25.8% of TY
Container's sales in 1995 occurring in the first, second, third and fourth
quarters, respectively. In order to reduce the effects of seasonal fluctuations
in demand, and to avoid lost sales resulting from inadequate inventory
(primarily in the second quarter), a portion of TY Container's annual production
(3.3%, 2.5%, 0% and 1.5%, in the first, second, third and fourth quarters,
respectively) is based upon what it refers to as "stock orders" received from
its major customers. Stock orders are not firm orders, but, rather, represent a
customer's estimate of its requirements for the following quarters, and provide
for TY Container's holding the finished containers in inventory for delivery to
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the customer in three to six months. Stock orders are not considered "firm
orders" until a formal purchase order is received, typically within five days
prior to delivery. Payment is usually made within 15 days of delivery. TY
Container has found stock orders to be an accurate measure of future demand. TY
Container was the first Chinese container manufacturer to institute this
practice in 1992, and believes it has now been adopted by virtually all of its
competitors in the Yangtze Delta region.
Markets
TY Container's main facilities are located in Yangzhou City,
which is in the lower reaches of the Yangtze River, in Jiangsu Province, China.
Approximately 85% of TY Container's production is shipped to nearby ports in the
Yangtze River Delta (e.g. Shanghai, Nanjing, Zhenjiang, Nantong, Zhangjiagang,
Jiangyin, Wuhu and Lianyungang) for delivery to customers. The remaining 15% of
TY Container's production is delivered to Hong Kong and ports in Japan and South
Korea. These overseas deliveries are typically sold on a "Free Used" basis
(i.e., free freight, but used once), whereby the customer takes delivery of the
containers in its home markets once-used by an unrelated shipper, but at a
slight discount from the market price. TYG Trading Co. arranges to lease such
containers, for the first use, to a shipping or freight forwarding company for a
nominal amount. The lessee is responsible for any damage incurred during the
shipping, and is obligated to deliver the leased container empty and in good
condition to TY Container's customer at the destination port. This arrangement
benefits all three parties: the shipping company, for having access to
containers in a normally container-tight region (primarily in export zones such
as Shanghai); the customers, for paying a slight discount for an almost new
container; and TY Container, for receiving a small leasing fee and, more
importantly, not paying freight charges for shipment of the container.
TY Container does not have long term sales contracts with its
customers. All of its sales are based upon purchase orders, typically received
approximately 6 weeks prior to the desired delivery date (other than purchase
orders for containers manufactured pursuant to "stock orders," which are
typically received approximately five days prior to the desired delivery date.
See "Seasonality of Business," above).
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During the past three years, TY Container's consolidated sales
by major customers and by geographic region of destination are as follows:
Sales By Customer
Year Ended December 31,
-------------------------------------------
1993 1994 1995 1995
US$ US$ US$ % Sales
(amounts in millions)
A P Moller (Maersk Line) 8.5 7.7 2.3 2.6
Interpool Ltd 5.6 12.3 12.4 13.9
Orient Overseas Container --- --- 19.7 22.1
Line Ltd.
P & O 2.8 7.3 --- ---
Textainer Capital
Corporation 17.7 12.8 14.5 16.2
Transamerica Leasing Inc. 9.9 19.8 17.7 19.8
Triton Container
International Ltd. 9.4 12.7 19.5 21.8
Others 7.0 7.2 3.2 3.6
---- ---- ---- -----
60.9 79.8 89.3 100.0
==== ==== ==== =====
Sales By Region
Year Ended December 31,
----------------------------------------------
1993 1994 1995 1995
US$ US$ US$ % of Sales
(amounts in millions)
USA 42.6 57.6 65.9 73.9
Denmark 8.5 7.7 2.3 2.6
United Kingdoms 2.8 7.3 --- ---
Hong Kong 2.7 1.9 20.2 22.6
Others 4.4 5.3 0.8 0.9
------ ------ ------ -----
61.0 79.8 89.2 100.0
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Historically, TY Container has exported virtually all of its
production and almost all of its revenues have been based in U.S. dollars. TY
Container markets its products both directly, through the efforts of its
executives and employees, and indirectly, through independent sales agents. TY
Container currently has a non-exclusive sales representative agreement with
Container Trade and Services, Ltd. ("CTS"). While the agreement does not limit
CTS to a particular geographic area, in practice CTS has originated sales
primarily from customers in North America. In 1995, CTS was responsible for the
sale of approximately 80% of TY Container's total production. In March 1996, TY
Container and CTS executed a new agreement with a term of ten years.
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In April 1995, TY Container executed an agreement with TYG
Trading Co., a PRC company indirectly owned by Yangzhou City, under which TYG
Trading Co. agreed to provide certain services for TY Container which TY
Container had previously performed itself. These services include the purchase
of raw materials (see "Sources and Availability of Raw Materials and
Components", above), the design of containers to be made to customer
specifications, and certain sales support services, such as scheduling
deliveries and arranging the lease of containers to be delivered on a "Free
Used" basis. The agreement provides for the payment by TY Container to TYG
Trading Co. of an agency fee in an amount equal to TYG Trading Co.'s anticipated
costs, currently set at one percent of TY Container's sales. The aggregate
amount payable by TY Container to TYG Trading Co. under the agreement was $8,500
in 1995, and $759,500 for the six-month period ending June 30, 1996. TY
Container believes that its agreement with TYG Trading Co., which enables it to
take advantage of certain economies of scale, has resulted in significant
savings to TY Container.
Despite a significant increase in TY Container's production
capacity, during the past three years demand for certain types of TY Container's
containers has exceeded its capacity. In order to maintain good customer
relations, TY Container has on occasion subcontracted the production of
containers to other, unaffiliated, container manufacturers. The price paid by TY
Container for such containers, while not as low as its own marginal cost of
production, is still below the sales price to its customer. The Company intends
to eliminate the need for such practices by increasing production capacity
through the modernization of existing production lines (see "Modernization
Plan," below) and the construction of additional production lines (see
"Description of Yangzhou Tongsheng Container Co. Ltd.," below).
Modernization Plan
TY Container's management halted production at TY Container's
main facility for a period of approximately two months, commencing in July 1996,
and allocated the production to Tongsheng instead. During this period, TY
Container upgraded and modernized its main assembly line in order to enhance
production throughput and improve product quality. TY Container's management
estimates that the modernization plan cost approximately US$1.2 million in
capital expenditures, all of which was funded from TY Container's internal cash
flow. A portion of the workforce from TY Container was assigned to Tongsheng
(see "Description of Yangzhou Tongsheng Container Co. Ltd.," below) during the
modernization. As a result, TY Container did not have to furlough any of its
workforce and Tongsheng had sufficient experienced workers to assist the company
in the training of new hires.
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Backlog
As of March 31, 1996, TY Container had backlog orders believed
to be firm of US$14.8 million, as compared to US$12.8 million as of March 31,
1995. The Company expects all such orders to be filled within the current fiscal
year.
Competition
There are more than forty container manufacturers in China,
some of which are larger and better capitalized than TY Container. However, due
to the relatively high cost of shipping an empty container, TY Container
competes primarily with container manufacturers located in the Yangtze River
Delta. To a lesser extent, TY Container also competes with container
manufacturers in the Pearl River Delta and the northern China ports of Qingdao,
Dalian and Tianjin, to the extent these manufacturers can make use of the "Free
Used" method to transport their containers to Shanghai.
TY Container is the second largest container manufacturer in
the Yangtze River Delta, producing approximately 20% of the total containers
manufactured in that area. The largest container manufacturer in the Yangtze
River Delta is Shanghai Pacific International Container, a joint venture 60%
controlled by Singamas Container Company. TY Container also faces competition
from Associated Industries, Shanghai Jindo Container and Shanghai Hyundai
Container, which commenced operation in June, July and October 1995,
respectively. Management believes, although no assurance can be given, that when
(and if) Tongsheng reaches full production capacity in 1997, the Company will be
the largest manufacturer of containers in the Yangtze River Delta, capable of
producing 80,000 TEU annually. TY Container also faces potential competition for
foreign destinations from container companies around the world and faces
potential competition from new entrants, other than new foreign invested
enterprises in the PRC. In 1995, the PRC government promulgated new regulations
which prohibit any additional foreign investment in the PRC container industry,
whether through Sino-foreign joint ventures, sole foreign invested enterprises
or any other form of foreign investment.
TY Container competes with other container manufacturers on
the basis of price, quality, service and warranty. When necessary, TY Container
believes it is able to compete effectively on the basis of price because of a
lower cost structure resulting from certain economies of scale and its equity
interests in its suppliers of components. However, the high quality of its
products has generally enabled TY Container to sell its containers for prices
higher than its competitors'. TY Container has established a reputation in the
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industry for a high level of customer service and has been an industry leader in
devising innovative programs to meet its customers' needs. It was the first
Chinese container manufacturer to offer customers the non-standard 45 foot "High
Cube" container, the first Chinese container manufacturer to accept so called
"stock orders" and has recently introduced a program called "One Second
Delivery," which meets customers' unexpected container requirements by regularly
storing a number of containers on the customer's property in China, available
for immediate use. TY Container has also assisted customers in obtaining
financing, from unrelated third parties, for its container purchases. TY
Container's strong relationship with local banks has given it access to working
capital lines of credit which are not available to many of its competitors.
These credit lines provide TY Container with the financial ability to offer
programs such as "stock orders" to its customers. In addition, the high quality
of TY Container's products permit it to provide an attractive warranty to its
customers. Typically, TY Container provides a 12 to 24 months warranty on the
container structure, a three to five year warranty on the paint (which is backed
by the paint manufacturer's warranty), and a seven year warranty on the
markings. Normally, warranty claims are settled, without the acrimony common in
the industry, in accordance with a pre-determined payment schedule which sets
forth the amount of claim payment the customer is entitled to receive from TY
Container, based on the type and extent of the defect. Total warranty claims
made against TY Container during the last five years are less than US$140,000.
Employees
TY Container currently employs approximately 960 people, about
30 of whom are management personnel, 50 technical and administrative personnel,
30 security and auxiliary personnel and approximately 850 (including 2 shifts)
production workers and supervisors. TY Container typically pays its production
workers a fixed hourly wage plus a monthly bonus which is based on the job
classification and the production level achieved during the period. The average
annual cash compensation of TY Container's production workers in 1995 was
approximately US$1,916, which it believes is approximately two and one half
times the average annual cash compensation of a typical worker in Yangzhou City
(based upon data compiled by the Yangzhou City Bureau of Statistics). In
addition to cash compensation and pursuant to PRC government regulations, TY
Container provides certain pension and medical benefits for all but temporary
employees. TY Container pays an insurance company 23% of the basic salary of its
full time workers, and the insurance company bears the entire cost of the
pension and post-retirement medical benefits. TY Container does not provide free
housing for its employees, as is common for many Chinese companies; however, for
certain highly productive employees with at least three years of tenure, TY
Container provides a one-time home purchase allowance averaging
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US$4,800 for staff employees and US$6,000 for managers. The housing allowance is
generally calculated at one-half of the average market price, or two-thirds of
the minimum market price, of a typical one-family apartment. Approximately 215
employees have received the housing allowance through December 31, 1995 and
another 70 employees will be eligible in 1996. All of TY Container's employees
belong to the local trade union. TY Container has not been subject to any
strikes or other labor disturbances, and TY Container's management believes that
its relations with its employees are good. For 1995, TY Container's total labor
cost was less than 6% of its total costs of sales.
TY Container Subsidiary
Yangzhou Tonglee Reefer Container Company Ltd. Yangzhou
Tonglee Reefer Container Company Ltd. ("Reefer") was established as a
Sino-foreign equity joint venture company in the PRC on December 31, 1993, with
an initial term of 20 years, which may be extended with the mutual consent of
the participants and the approval of relevant PRC governmental authorities. The
joint venture partners contributed cash in the aggregate of US$8,000,000 in
exchange for their respective interests in the joint venture, the full
authorized registered capital. Reefer is located near the Biangang Port, in the
lower portion of the Yangtze River. Reefer operates a new manufacturing facility
which produces international standard integrated refrigerated containers
("reefers"). These containers are used for the international transport of
temperature sensitive cargo, including agricultural, biological and medical
products, which require a stable cold or warm environment. Reefer's
manufacturing facility, which came on line in May 1995, was designed to produce
4,000 TEU of reefer containers annually and produced 374 TEU of reefer
containers in 1995. The Company expects Reefer to produce at least 4,000 TEU of
reefer containers in 1996.
Reefer is China's first reefer manufacturer. Given the present
level of demand, reefer manufacturers, with the greater capital investment and
higher technical skill required in the manufacturing of refrigerated containers,
typically enjoy a higher profit margin than dry container manufacturers. The
Company expects demand for refrigerated containers in China to increase due to
rising exports of fresh and frozen produce and meats as well as silk, which
requires refrigeration during shipping. The total area of the reefer plant site
is over 50,000 square meters, including 13,700 square meters for the main
factory building and 5,500 square meters for supporting facilities. Reefer
currently employs approximately 530 people, 6 of whom are management personnel,
and about 60 technical and administrative personnel, 40 security and auxiliary
personnel and approximately 430 (including 2 shifts) are production workers and
supervisors.
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TY Container, which initially held a 50% interest in Reefer,
increased its interest to 51% in January 1996, giving Holdings a 40.8% indirect
interest in the company. TYG holds a 19% interest in the company (see Item 1.
"General" and Item 7. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"), Liuwei
Village Municipal Authority has a 5% interest, and Singapore Nanlee holds the
remaining 25% of the company.
TY Container Affiliated Companies
The Company reports its share in the earnings and losses of
those companies in which it owns greater than a 20% interest (but less than a
51% interest) on the equity method of accounting. In 1995, the net losses
attributable to affiliates, was US$1,308,000 (including a loss attributable to
the startup costs of Reefer, in which TY Container had only a 50% interest in
1995, of US$1,062,000), as reported in its Consolidated Statement of Income
under the line item "Share of Net Losses of Associated Companies." TY Container
owns minority interests in affiliated companies as follows:
Beihai Tonghai Container Company Ltd. (25%) Beihai Tonghai Container
Company Ltd. ("Beihai Container") was established as a Sino-foreign equity joint
venture company in the PRC on March 1, 1993. Beihai Container is located in the
vicinity of Beihai City in the southern province of Guangxi, south of the Pearl
River, making it a convenient delivery point to the port of Hong Kong. Beihai
Container operates a new manufacturing facility which was designed to produce
12,000 TEU annually of international standard commercial freight containers
primarily for export and sale outside the PRC. Beihai Container's manufacturing
facility came on line in May 1995 and produced 6,000 TEU in 1995. Measured by
annual TEU output, Beihai Container is currently the thirteenth largest
manufacturer of containers in China, as reported by Containerization, an
industry journal published in China. Beihai Container intends to expand its
annual capacity to 24,000 TEU by 1997. TY Container holds a 25% interest in
Beihai Container, giving Holdings a 20% indirect interest in the company. Beihai
Huarui Company, a Chinese company, holds a 45% interest in Beihai Container, and
Ocean Asia International Ltd., a Hong Kong company and 95% owned subsidiary of
TYG ("Ocean Asia"), holds the remaining 30% interest. As a result of startup
costs, Beihai had a loss in 1995, of which the Company's share was US$232,000.
Yangzhou Tongda Forging Ltd. (35.57%) Yangzhou Tongda Forging Ltd.
("Tongda") was established as a Sino-foreign equity joint venture company in the
PRC on June 28, 1993. Tongda produces container door hinges and locking devices
to be used as a complete set. These products meet the inspection standards of
ABS, receiving certification from Houston ABS. Approximately 37% of Tongda's
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production is sold to TY Containder, which accounts for nearly 100% of TY
Container's requirements for door hinges and locking devices. TY Container holds
a 35.57% interest in Tongda, giving Holdings a 28% indirect interest in the
company. Yangzhou Valve Factory, a PRC government owned company, holds a 39.43%
interest in Tongda, and Ocean Asia holds the remaining 25% of the company. The
Company's share of Tongda's 1995 net profits was US$40,000.
Yangzhou Universal Commercial Building Shareholdings Co., Ltd. (25%)
Yangzhou Universal Commercial Building Shareholdings Co., Ltd. ("Universal") was
established as a PRC company on May 29, 1993. Universal owns and manages the
largest shopping center in Yangzhou City. In November 1995, TY Container
purchased a 25% interest in Universal from Ocean Asia in exchange for
approximately US$900,000. TY Container holds a 25% interest in Universal, giving
Holdings a 20% indirect interest in the company. Jiaotong Bank, various bank
branches located in Yangzhou and certain other banking entities hold a 33.3%
interest in Universal, approximately 2,000 employees of the shopping center own
a 33.3% interest and a number of unrelated local companies own the remaining
8.4% of the company. In 1995, Universal had a net profit of approximately RMB
1,289,000 (US$154,000). The Company's share of such profit for the month of
December was US$6,492.
Yangzhou Tongyang Machinery Co., Ltd. (44%) Yangzhou Tongyang Machinery
Co., Ltd. ("Tongyang Machinery") was established as a Sino-foreign equity joint
venture company in the PRC on April 8, 1993. Tongyang Machinery manufactures and
sells plastic injection equipment used in the toy industry. On December 1, 1994,
TY Container entered into an agreement with Metchem Company Limited ("Metchem")
providing for the purchase by Metchem of TY Container's 44% interest in Tongyang
Machinery for a cash purchase price of US$880,000. The agreement was approved by
the relevant PRC government authorities on January 27, 1995; however, due to a
change in Metchem's investment plans, Metchem has postponed its purchase of TY
Container's interest in Tongyang Machinery. TY Container's management is
currently negotiating with Metchem regarding the consummation of the sale and
hopes to sell its interest in Tongyang Machinery in 1996. TY Container holds a
44% interest in Tongyang Machinery, giving Holdings a 35.2% indirect interest in
the company. The remaining 56% of Tongyang Machinery is held by Ocean Asia
(25%), TYG (11%), Jiangsu Machinery Import and Export Company (10%) and Dujiang
Village Industry Company (10%). In 1995, Tongyang Machinery had a net loss of
RMB 1,161,000 (US$139,042). The Company's share of such loss was US$61,198.
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Description of Yangzhou Tongsheng Container Co. Ltd.
Tongsheng was established as a Sino-foreign equity joint
venture company in the PRC in December 1995, with an initial term of 15 years,
which may be extended with the mutual consent of the participants and the
approval of relevant PRC governmental authorities. The joint venture partners
contributed an aggregate of US$4,800,000 in cash in exchange for their interests
in Tongsheng, the full authorized registered capital. Tongsheng produces ISO dry
containers. Tongsheng's facilities, which are located adjacent to TY Container's
main production facility, came on line in May 1996. Tongsheng has been designed
for an annual capacity of 40,000 TEU, and is expected to produce 30,000 TEU in
1996. Tongsheng is managed by TY Container's current management and shares some
common facilities, such as a container yard and office space, with TY Container.
A portion of TY Container's workforce was assigned to Tongsheng during the
modernization and upgrade of TY Container's production line (see "Description of
TY Container - Modernization Plan"). The presence of these experienced workers
enabled Tongsheng to efficiently train new hires. All of Tongsheng's production
will be marketed by TY Container. In June 1996, Tongsheng executed an agreement
with TYG Trading Co. under which TYG Trading Co. agreed to provide certain
support services to Tongsheng in exchange for an agency fee in an amount equal
to TYG Trading Co.'s anticipated costs, currently set at 1% of Tongsheng's
sales. This agreement is virtually identical to the April 1995 agreement between
TY Container and TYG Trading Co. (See "Description of TY Container Markets,"
above.) The ownership of Tongsheng is identical to that of TY Container, with
CCHL-BVI holding an 80% interest in the company (giving Holdings an 80% indirect
interest in the company), Bexi Iron and Steel Company holding 10%, China
Automobile Import and Export holding 5%, and Jiangsu Tongyun Group Company
holding the remaining 5% of the company. The Company's management considers
Tongsheng to be essentially a second production line for TY Container.
Proposed Acquisition
TY Container recently received PRC government approval to
acquire a 40% interest in Yangzhou Tonghua Semi-Trailer Company Ltd.
("Semi-Trailer") from TYG in exchange for RMB 19,568,640 (US$2,352,000).
Semi-Trailer was established as a Sino-foreign equity joint venture company on
December 14, 1991 and is located in Yangzhou City. Its principal business is the
manufacture and sale of container chassis and specialized semitrailers. The
Company intends to acquire its interest in SemiTrailer by December 1996.
Following the acquisition, TY Container will hold a 40% interest in
Semi-Trailer, giving Holdings an 32% indirect interest in the company. The
remaining 60% will be owned by TYG (5%), China National Foreign Trade
Transportation Company (commonly known as Sinotrans) (15%), Chung
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Yin Group Investments Ltd. (15%), KIC International Holdings Corporation (15%),
and China National Foreign Trade Transportation Company, Jiangsu Branch, (10%).
Semi-Trailer had 1995 net profits of RMB 12,620,650 (US$1,511,435), up 11% over
1994. (see Item 7. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS")
Sino-Foreign Equity Joint Venture Enterprises in General
Legal Framework
Each of TY Container, Tongsheng, and Reefer (the "Operating
Subsidiaries") is organized under PRC law as a Sino-foreign equity joint venture
enterprise, which is a distinct legal entity with limited liability. Such
entities are governed by the law of the PRC on Joint Ventures Using Chinese and
Foreign Investments and implementing regulations related thereto (the "Equity
Joint Venture Law"). The parties to an equity joint venture have rights in the
returns of the joint venture in proportion to the joint venture interests that
they hold. The operations of equity joint ventures are subject to an extensive
body of law governing such matters as formation, registration, capital
contribution, capital distributions, accounting, taxation, foreign exchange,
labor and liquidation.
Taxation
A Sino-foreign equity joint venture with a term of 10 years or
more and engaged in production is exempt from PRC central government income tax
for the first two years after it attains profitability, and for three years
thereafter it is eligible for a 50% reduction in such income tax. It is further
entitled to a 50% reduction in the PRC central government income tax for each
year in which its export sales exceed 70% of its total sales.
Governance, Operations and Dissolution
Governance, operations and dissolution of a Sino-foreign
equity joint venture enterprise are governed by the Equity Joint Venture Law and
by the parties' joint venture contract and the joint venture's articles of
association. The Board of Directors of each Operating Subsidiary exercises
authority by majority vote over major corporate decisions, including the
appointment of officers, strategic planning and budgeting, employee compensation
and welfare and distribution of after-tax profits. Pursuant to relevant PRC law,
certain major actions of each Operating Subsidiary require unanimous approval by
all of the directors present at the meeting called to decide upon such actions:
amendments to its contract and articles of association; increases in, or
assignments of, the registered capital of the joint venture; a merger of the
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joint venture with another entity; or dissolution of the enterprise. In
addition, PRC government approval is necessary for increases in authorized
registered capital and for certain borrowings.
Each Operating Subsidiary is subject to the Sino-foreign
Equity Joint Venture Enterprise Labor Management Regulations. In compliance with
these regulations, the management of each Operating Subsidiary may hire and
discharge employees and make other determinations with respect to wages,
welfare, insurance and discipline of its employees.
The term of a Sino-foreign equity joint venture enterprise may
be extended with the agreement of all the partners, subject to the approval of
the relevant PRC governmental authorities. Pursuant to the Equity Joint Venture
Law, Sino-foreign equity joint venture enterprises may be terminated prior to
the expiration of their term in certain limited circumstances, including the
inability of the enterprise to conduct its business owing to a breach by one of
its parties or insolvency or force majeure. Upon termination, the board of
directors establishes a liquidating committee to dissolve the enterprise, which
dissolution is subject to PRC government review and approval.
Resort to PRC courts to enforce a joint venture contract or to
resolve disputes between the parties over the terms of the contract is
permissible. In practice, however, disputes between the parties are often
resolved by negotiation. The Company believes that it has good working
relationships with the Chinese joint venture partners to the Operating
Subsidiaries and that it will be able to reach agreement with them on business
policies and decisions for the Operating Subsidiaries.
Taxes Applicable to Holdings and CCHL-BVI
Holdings generally will be subject to U.S. federal income tax
of 35 percent on distributions from CCHL-BVI that are out of its current or
accumulated earnings and profits, and such distributions will not be eligible
for the dividends-received deduction. Because CCHL-BVI and the Operating
Subsidiaries are "controlled foreign corporations" for U.S. federal income tax
purposes, Holdings may be required to include in gross income (x) those
companies' "Subpart F" income, which includes certain passive income and income
from certain transactions with related persons (whether or not such income is
distributed to Holdings), (y) increases in those companies' earnings invested in
certain U.S. property and (z) certain earnings of those companies invested in
"excess passive assets." Based on the current and expected income, assets and
operations of CCHL-BVI and the Operating Subsidiaries, the Company believes that
it will not have significant U.S. federal income tax consequences under the
"controlled foreign corporation" rules.
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So long as (x) Holdings owns ten percent or more of the voting
stock of CCHL-BVI, (y) CCHL-BVI owns ten percent or more of the voting stock of
TY Container and Tongsheng, and (z) the stock ownership percentages described in
(x) and (y) when multiplied together equal or exceed five percent, subject to
certain limitations CCHL-BVI will be deemed to have paid a proportionate amount
of TY Container's or Tongsheng's PRC income taxes when a dividend is distributed
from TY Container or Tongsheng, and Holdings generally will be entitled to claim
a credit for such PRC income taxes when a dividend is distributed from CCHL-BVI
to Holdings.
The Company believes that dividends received by CCHL-BVI from
TY Container or Tongsheng will not be subject to income taxation by the British
Virgin Islands and that CCHL-BVI will not be required to withhold British Virgin
Islands taxes on dividends paid to CCHL.
Environmental Compliance
The Operating Subsidiaries are subject to the PRC's national
Environmental Protection Law, which was promulgated on December 26, 1989, as
well as a number of other national and local laws and regulations regulating
air, water and noise pollution and setting pollutant discharge standards.
Violation of such laws and regulations could result in warnings, fines, orders
to cease operations and even criminal penalties, depending on the circumstances
of such violation. The Company believes that all manufacturing and other
operations of the Operating Subsidiaries are in compliance with all applicable
laws relating to air, water and noise pollution.
Certain Selected Risk Factors
Certain Risks Related to the Company
Ability to Manage Growth
The Company has grown rapidly since its inception and must
continue to expand to achieve its business objectives. To manage its growth
effectively, the Company must continue to develop, install and improve its
operating and information systems and coordinate its efforts with its suppliers.
The Company will also need to continue to expand, train and manage its employee
base and its management personnel will be required to assume even greater levels
of responsibility.
Customer Concentration
During 1995, TY Container sold containers to more than
10 customers. During this period, the top five customers
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accounted for approximately 93.8% of net sales. There can be no assurance that
the Company's principal customers will continue to purchase containers from TY
Container at current levels, if at all, and the loss of one or more major
customers could have a material adverse effect on TY Container and the Company.
Intense Competition
The Company is subject to intense competition and potential
competition. (see "Competition," above)
Dependence on Key Personnel
The Company depends to a large extent on the abilities and
participation of its Chairman, President and Chief Executive Officer, Mr. Cheung
Sau Yung. The loss of Mr. Cheung as an officer and director could have a
material adverse effect on the Company's business. On January 1, 1996, Mr.
Cheung signed a five year employment agreement with TY Container. The terms of
this agreement provide for Mr. Cheung to be compensated on substantially the
same basis as he was in 1995. The Company does not carry key man life insurance
for Mr Cheung and has no plans to do so in the near future.
Control by Majority Shareholder
The Company's majority shareholder, Sinocity Group Limited, owns
approximately 80% of the Company's issued and outstanding common stock.
Accordingly, this shareholder may continue to exert significant influence over
the outcome of most corporate actions requiring shareholder approval, including
the declaration of dividends and the election of directors. Jiangyang Automobile
(H.K.) Limited ("JAL"), a wholly owned subsidiary of TYG, is a 50% shareholder
of Sinocity Group Limited and TYG may be deemed to control Sinocity Group
Limited through JAL's 50% ownership interest. The other shareholders of Sinocity
Group Limited are China Everbest Motors Corp. (18.75%), Wide Shine Development
Ltd. (12.5%), Keep Benefit Ltd. (12.5%) and China Auto (USA) Corporation
(6.25%). (See Item 4. "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and Item 7. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
Limited Duration of Operating Subsidiaries
TY Container, Tongsheng and Reefer were established for
initial terms of 15, 15 and 20 years, respectively. Their remaining terms of 9,
14 and 17 years, respectively, may be extended by the mutual consent of the
participants in the respective company, subject to the approval of relevant PRC
governmental authorities. In the event that the term of an Operating Company is
not extended, such venture will be dissolved and liquidated pursuant to
provisions of applicable PRC law and the relevant joint venture contract.
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Certain Risks Related to China
Political Considerations
The value of Holding's interests in the Operating Subsidiaries
may be adversely affected by significant political, economic and social
uncertainties in the PRC. A change in policies by the PRC government could
adversely affect Holding's interests by, among other things, changes in laws,
regulations, or the interpretation thereof, confiscatory taxation, restrictions
on currency conversion, imports and sources of supplies, or the expropriation of
private enterprises. Although the PRC government has been pursuing economic
reform policies for the past 17 years, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies may not
be significantly altered, especially in the event of a change in leadership,
social or political disruption or unforeseen circumstances affecting the PRC's
political, economic and social conditions.
Economic Considerations
The economy of the PRC differs significantly from the United
States economy in such respects as structure, level of development, gross
national product, growth rate, capital reinvestment, resource allocation and
self-sufficiency, rate of inflation and balance of payments position, among
others. Only recently has the PRC government encouraged substantial private
economic activity. The PRC economy has experienced significant growth in the
past ten years, but such growth has been uneven among various sectors of the
economy and there can be no guarantee that the government's pursuit of economic
reforms will be consistent or effective. The increased demand for containers in
China since 1990 has in large measure been driven by the increase in exports of
other goods from the PRC and a general increase in world trade. There is no
assurance that exports of goods from the PRC will continue to increase at their
current rate or that such exports will not decline in the future. Action by the
central government of the PRC could have a significant adverse effect on
economic conditions in China and the economic prospects for the Operating
Subsidiaries and the Company. As virtually all of the sales by the Operating
Subsidiaries are to non-PRC entities, the prospects of the Operating
Subsidiaries and the Company may also be materially affected by developments in
the economies of the PRC's principal trading partners.
PRC Legal System
Since 1979, many laws and regulations dealing with economic
matters in general and foreign investment in particular have been promulgated in
the PRC. In December 1982, the National People's Congress of China amended the
Constitution of China to authorize foreign investment and to guarantee the
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"lawful rights and interests" of foreign investors in the PRC. Despite the
progress in developing its legal system, the PRC does not yet have a
comprehensive system of laws. In addition, enforcement of existing laws may be
uncertain and sporadic, and implementation and interpretation thereof
inconsistent. The PRC judiciary is relatively inexperienced in enforcing the
laws that exist, leading to a higher than usual degree of uncertainty as to the
outcome of any litigation. Even where adequate law exists in the PRC, it may be
difficult to obtain swift and equitable enforcement of such law, or to obtain
enforcement of a judgment by a court of another jurisdiction. The PRC's legal
system is based on written statutes and, therefore, decided legal cases are
without binding legal effect, although they are often followed by judges as
guidance. In particular, PRC laws, regulations and procedures with respect to
complex transactions, such as the Reorganization, the Stock Swap and the
Liquidation (as defined in Item 7. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS"), are currently being developed, are based in part on unwritten
and informal interpretations of government officials and may be subject to
changes which may have retroactive application. In the future, financings and
other complex transactions might be subject to PRC regulatory approval, which
can include elements that are discretionary with the PRC regulatory agencies. In
addition, the interpretation of PRC laws may be subject to policy changes
reflecting domestic political changes.
As the PRC legal system develops, the promulgation of new
laws, changes to existing laws and the preemption of local regulations by
national laws may adversely affect foreign investors. The trend of legislation
over the past 15 years has, however, significantly enhanced the protection
afforded foreign investment and allowed for more active control by foreign
parties of enterprises in the PRC. There can be no assurance, however, that the
current trend in economic legislation towards promoting market reforms and
experimentation as well as a further "opening to the outside world" will not be
slowed, curtailed or reversed, especially in the event of a change in
leadership, social or political disruption or unforeseen circumstances affecting
the PRC's political, economic or social life. Such a shift could have a material
adverse effect upon the business and prospects of the Operating Subsidiaries and
the Company.
While PRC law expressly protects the status and rights of
Sino-foreign joint venture enterprises, including their right to use land during
the term of their joint venture contracts, the PRC government reserves the
right, in extreme and exceptional circumstances, to terminate the joint venture
and provide compensation therefor. In such an event, a joint venture's right to
use land would terminate and all plant and facilities would revert to the PRC
government in exchange for just compensation.
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<PAGE>
Inflation
The PRC experienced a period of relatively high growth and
high inflation during the mid-1980's. The PRC government attempted to contain
and control inflation by applying corrective measures, but the inflationary
cycle was not broken until the imposition of drastic austerity measures
commencing in late 1988. Suppressed demand and tight control over prices and
credit led to a substantially reduced inflation rate in 1990. In 1993, the PRC's
overall cost of living index continued to rise. The overall cost of living index
increased by an estimated 14.5% during 1993 over 1992, and the urban cost of
living index increased by an estimated average of 19.5% for 35 large cities
during the same period. In response to this situation, the PRC government has
taken macroeconomic measures combined with limited administrative measures to
control economic growth and curb inflation. The principal measures taken include
raising interest rates on bank loans and central government securities,
generally restricting access to credit, revoking unauthorized tax exemptions
conferred by local governments, mandating banks to recover certain loans that
were improperly made or left outstanding, increasing efforts to gain control of
investments in capital assets made without proper governmental approval,
reducing government administrative expenses by 20%, temporarily suspending
further price reforms, restricting speculative investments (especially in the
area of real estate) and increasing regulation of imports of certain luxury
goods. During 1994, the overall cost of living index increased by an estimated
average of 21% and the urban cost of living index increased by an estimated
average of 14%. While the official figures for 1995 are not yet available, the
Company believes that such figures will be lower than those for 1994. As of
March 31, 1996, the average interest rate of RMB loans and US$ loans available
to TY Container was 9.18% and 6.4%, respectively. Although approximately 70%, by
cost, of the Operating Subsidiaries's raw materials and components are imported
and paid for in U.S. dollars, high inflation in the PRC could materially affect
the prospects of the Operating Subsidiaries and the Company. In addition,
continued high interest rates could also materially affect the prospects of the
Operating Subsidiaries and the Company. While the Operating Subsidiaries have
not been affected by restrictions on credit, there can be no assurance that such
restrictions would not be imposed on the Operating Subsidiaries in the future.
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ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The information set forth below with respect the Company's
fiscal years ended December 31, 1992, 1993, 1994 and 1995 has been selected from
the Consolidated Financial Statements of the Company, which have been audited by
Ernst & Young, independent public accountants, whose report on the Consolidated
Financial Statements of the Company for the three years ended December 31, 1993,
1994 and 1995 appears in Item 13 of this Registration Statement. This
information should be read in conjunction with, and is qualified in its entirety
by reference to, the Consolidated Financial Statements of the Company, including
the notes thereto, included in Item 13 of this Registration Statement. The
information set forth below with respect the Company's fiscal year ended
December 31, 1991 has not been audited but, in the opinion of management,
contain all the adjustments which are of a normal recurring nature, including
those for conforming with U.S. GAAP, necessary for the fair presentation of the
results of operations and cash flows for such period. Because the Stock Swap has
been accounted for as a reverse acquisition, the information set forth below has
been prepared based on the historical financial statements of CCHL-BVI, for the
period prior to the Stock Swap, and on the historical financial statements of TY
Container, for the period prior to the Reorganization, and gives effect to the
Reorganization and the Stock Swap as if they had been completed prior to January
1, 1991.
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<TABLE>
<CAPTION>
(Amounts in Thousands, except per share data)
Year Ended December 31,
1991 1992 1993 1994 1995
----------------------------------------------------------------------------------------
(Unaudited) (Audited)
---------------------------------------------------------------------
Income Statement Data: US$ US$ US$ US$ US $
<S> <C> <C> <C> <C> <C>
Net sales.............................. 28,284 61,549 60,960 79,771 89,265
Operating income....................... 2,082 6,561 5,875 6,116 7,702
Interest expense, net (1,129) (965) (883) (1,625) (2,540)
Foreign exchange gains/
(losses), net (876) (4,252) (5,079) 412 458
Reorganization expense................. - - - - (1,382)
Share of net losses of
Associated Companies............... - - (25) (90) (1,308)
------------- -------------- -------------- ------------ -----------
Income taxes...........................
- (160) (657) (742) (992)
Net income before minority
interests.......................... 2,261 6,235 5,163 5,932 3,808
------------- -------------- -------------- ------------ -----------
Minority interests.....................
(452) (1,247) (1,033) (1,187) (1,038)
Net income.............................
1,809 4,988 4,130 4,745 2,770
============= ============= ============== =========== ==========
Net income per share................... 0.07 0.20 0.17 0.19 0.11
Balance Sheet Data:
Current assets......................... 21,674 21,079 29,415 29,508 51,749
Fixed assets........................... 7,272 6,846 6,107 6,374 6,335
Construction in progress............... - - - - 5,325
Other assets...........................
------------- -------------- -------------- ------------ --------
370 763 4,391 8,006 7,896
Total assets........................... 29,316 28,688 39,913 43,888 71,305
Short-term debt........................ 21,539 16,466 23,305 25,147 48,175
Total liabilities...................... 24,321 22,927 32,136 33,128 56,587
Minority interests..................... 999 1,152 6,555 2,810 3,060
Total stockholders' equity............. 3,996 4,609 6,222 7,950 11,658
Cash dividends declared
per share............................. 0.04 0.11 0.08 0.13 -
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Holdings is a Nevada corporation whose principal activity is
the management of the business of its indirectly held operating subsidiaries,
which manufacture international standard commercial freight containers in the
PRC.
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The statements in this section under "Results of Operations"
and "Liquidity and Capital Resources" relate to the operations and conditions of
Holdings and its consolidated subsidiaries.
RESULTS OF OPERATIONS
The following table shows selected consolidated income
statements data of Holdings and its subsidiaries for the years ended December
31, 1993, 1994 and 1995. The data should be read in conjunction with the
Consolidated Financial Statements of Holdings and related Notes thereto set
forth in Item 13 of this Registration Statement, and other financial information
included elsewhere herein. The financial statements of Holdings are prepared in
conformity with U.S. GAAP.
Year ended December 31,
1993 1994 1995
Sales quantity (TEU) 26,002 35,022 38,107
Sales (US$ million) 61.0 79.8 89.3
Gross margin (US$ million) 14.6 11.1 14.0
Gross profit margin 24.0% 13.9% 15.7%
Selling and administrative
expenses (US$ million) (2.8) (3.8) (4.2)
Financial expenses
(US$ million) (6.0) (1.2) (2.1)
Reorganization expenses
(US$ million) 0 0 (1.4)
Share of net losses of
associated companies
(US$ million) 0 0 (1.3)
Net income (US$ million) 4.1 4.8 2.8
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994:
1. Sales increased by 11.3% from US$80 million in 1994 to
US$89 million in 1995, and sales quantity increased by 8.8% from 35,022 TEU in
1994 to 38,107 TEU in 1995, as both orders and capacity increased. Capacity
increased because of the following:
(i) At the end of 1994, TY Container acquired new
production equipment and machinery and also
upgraded its existing production lines; and
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(ii) Average working hours increased from 48 hours per
week at the beginning of the year to 65 hours per
week during the period from August to October 1995,
after which they decreased to 48 hours through the
end of the year.
2. The gross profit margin increase from 13.9% on net sales in
1994 to 15.7% in 1995 primarily because of a decrease in the unit cost of sales
due to the following:
(i) TY Container increased its purchases of Corton steel
from domestic suppliers, which, on average, was
approximately 17% less expensive than the steel from
Japan and Korea in 1994;
(ii) the manufacturers of container components in which TY
Container had invested became operational in 1995.
Once their quality was determined to be acceptable,
TY Container began to purchase such components, at
prices which were three to ten percent lower than
imported components in 1994;
(iii) paint and plywood suppliers lowered their prices;
and
(iv) a computer system was installed to optimize the
use of raw materials, reducing TY Container's unit
consumption of steel.
3. Selling and administrative expenses increased by
10.5% from US$3.8 million in 1994 to US$4.2 million in 1995.
In general, selling and administrative expenses increased as
sales activity increased. For example, sales commissions increased by 8.5%,
coinciding approximately with an 8.4% increase in sales, and more overtime
compensation (at 200% of the base salaries) was paid to administrative staff.
Overtime compensation was partly offset by the savings achieved by reducing the
number of administrative staff.
4. Financial expenses increased by 75% from US$1.2 million in
1994 to US$2.1 million in 1995, which was primarily due to the combined effect
of the following factors on interest expenses:
(a) the increase in the average interest rate of RMB
loans and US$ loans from 10.1% and 7.6%,
respectively, in 1994 to 13.18% and 8.49%,
respectively, in 1995; and
(b) the increase in US$ loan balances by US$22 million
in 1995. The following factors contributed to the
significant increase in the loan balances:
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(i) TY Container invested US$ 1.15 million in
Beihai Container and US$ 4 million in
Reefer. TY Container invested a further
US$5.17 million in Tongsheng and spent
US$638,000 upgrading and modernizing its
existing production lines.
(ii) TY Container's working capital requirements
increased as sales and production increased.
(iii) TY Container's working capital requirements
increased as TY Container began purchasing
steel from domestic suppliers, which
required a three month advance deposit to
secure the supply.
5. In 1995, the Company incurred US$1.38 of reorganization
expenses in relation to the Reorganization and Stock Swap.
The reorganization expenses included (i) US$577,000 of audit
and consultancy fees incurred, and (ii) US$805,000 that represented the fair
value of (A) the five percent of CCHL-BVI received by Bonnaire International
Limited, in connection with the Reorganization, and (B) the 12.5% of the issued
and outstanding shares of Holdings's common stock held by Holdings' shareholders
prior to the Stock Swap and certain other parties who received restricted shares
of common stock in exchange for services rendered in connection with the Stock
Swap. This US$805,000 does not represent any actual cash outlays incurred by
Holdings or any other party.
6. In 1995, the Company's share of losses of associated
companies was US$1.32 million.
In 1995, TY Container had the following five associated
companies: Yangzhou Tonglee Reefer Containers Company Ltd. ("Reefer"), Beihai
Tonghai Containers Co. Ltd. ("Beihai Container"), Yangzhou Tongda Forging Co.
Ltd., Yangzhou Tongyang Machinery Co. Ltd. and Yangzhou Universal Commercial
Building Shareholding Co. Ltd.
Reefer commenced its trial production in May 1995. In exchange
for the assistance of Wide Shine Development Limited ("Wide Shine") in promoting
Reefer's products overseas, Reefer sold 50 refrigerated containers to Wide Shine
at below market prices, resulting in a trading loss to Reefer in 1995. Together
with a write off, in accordance with U.S. GAAP, of pre-operating expenses as
other selling and administrative expenses the Company's share of Reefer's loss
in 1995 was US$1.06 million.
Beihai Container also commenced its production during 1995.
The Company's share of Beihai Container's loss was US$240,000 and mainly
consisted of the write off, in accordance with U.S. GAAP, of pre-operating
expenses as selling and administration expenses.
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The profit or loss of the other three associated companies
were also shared by the Company based on the equity holdings therein.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993:
1. Sales increased by 31.1% from US$61 million in 1993 to
US$80 million in 1994 and sales quantity increased by 34.7% from 26,002 TEU in
1993 to 35,022 TEU in 1994 as orders and capacity increased. Capacity increased
because TY Container added some equipment, eliminated production bottlenecks and
strengthened internal management, which significantly accelerated production.
2. The gross profit margin decreased from 24% on net
sales in 1993 to 13.9% in 1994 because of the following:
(i) changes in the customer base required a higher level
of technology and more expensive raw materials; for
example, almost all containers produced in 1994 were
made with Corton steel and pre-painted;
(ii) the continuous increase in the prices of steel
imported from Japan; with prices rising by 3% and 5%
in the first and second half of 1994, respectively;
(iii) the 16% rate of inflation in 1994, which increased TY
Container's costs of sales, particularly its labor
costs, which increased by approximately 20% in 1994;
and
(iv) new customer requirements for Corton steel
rendered much of the tariff-free soft steel which
TY Container had purchased in advance obsolete.
TY Container exchanged such steel for Corton steel
from other container manufacturers, but at a value
below TY Container's cost, raising its overall
production costs in 1994.
3. The following factors contributed to a 35.7%
increase in selling and administrative expenses from US$2.8 million in 1993 to
US$3.8 million in 1994:
(i) sales commissions increased by 29.6%, coinciding
with a 31.1% increase in sales;
(ii) administrative expenses increased in line with the
16% inflation rate in the PRC in 1994; and
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(iii) in response to the increased competition in the
container industry, where the number of container
factories in the PRC increased from 24 at the end of
1993 to 36 at the end of 1994, travel expenses,
advertising, exhibitions and other selling expenses
increased significantly.
4. The net financial expenses decreased from US$6.0 million in
1993 to US$1.2 million in 1994. Included in the financial expenses were foreign
exchange losses of US$5.1 million and gains of US$400,000 and US$500,000 for
1994 and 1995, respectively.
TY Container's books of account are maintained in RMB, and the
Company's consolidated financial statements are stated in US$. Currency
translations into US$ are made using the applicable rates of exchange quoted by
the Shanghai Foreign Exchange Adjustment Center prior to January 1, 1994 and by
the Bank of China on or after January 1, 1994. All balance sheet accounts have
been translated from RMB to US$ using the exchange rates in effect at December
31 of the applicable balance sheet date. All income statement amounts have been
translated using the average exchange rate for the applicable year.
The following table sets forth the RMB/US$ exchange rates, net
sales in US dollars, total TEU sold and average sales price per TEU in US
dollars, for each of 1993, 1994 and 1995.
1993 1994 1995
RMB equivalent of US$1:
At December 31, 8.70 8.45 8.32
High 10.60 8.70 8.44
Low 7.71 8.45 8.30
Average 8.70 8.62 8.35
Net sales in US$'000 60,960 79,771 89,265
Total TEU sold 26,002 35,022 38,107
Sales in US$ per TEU 2,344 2,278 2,342
During 1993, the exchange rates fluctuated from RMB 7.71 :
US$1 to RMB 10.60 : US$1. As TY Container had net foreign currency liabilities
in excess of its domestic currency obligations, reflecting primarily its U.S.
dollars bank loans, the devaluation of RMB led to a significant exchange loss
component in 1993.
During 1994, the dual exchange rates were unified. The
exchange rate appreciated from RMB 8.7 : US$1 at January 1, 1994 to RMB 8.45 :
US$1 at December 31, 1994. The appreciation in RMB in 1994 resulted in an
exchange gain of US$400,000 primarily in respect of TY Container's net U.S.
dollar liabilities.
As indicated in the above table, the average sales price per
TEU decreased by 3% in 1994 and increased by 3% in 1995. The sales volume
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increased by 35% and 9% in 1994 and 1995, respectively. The effect of exchange
rate fluctuations on the Company's revenues is minimal as the prices of
containers are quoted in US dollars and revenues are reported in US dollars.
While the Company has not employed hedging strategies in the
past, management is currently exploring its options in that regard. The material
unhedged monetary assets and liabilities of the Company at December 31, 1995 are
accounts receivable, accounts payable and bank loans, which amounted to US$7.6
million, US$2.2 million and US$47.0 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Operating subsidiaries' primary liquidity needs are to
finance accounts receivable, construction in progress, and the expansion of
business operations. Historically, the Operating Subsidiaries have financed
their working capital requirements through a combination of internally generated
cash and short term bank borrowings.
Net cash provided/(used) by operating activities was
(US$133,000), US$7.1 million and (US$6.0 million) in the years 1993, 1994 and
1995, respectively. Net cash flows from the Company's operating activities are
attributable to the Company's income and changes in its operating assets and
liabilities.
Accounts receivable increased to US$7.6 million as at December
31, 1995. TY Container's customers are mainly reputable international container
leasing companies and shipping lines including Textainer, Interpool and Triton.
For most of its customers, settlement terms of 30 days are allowed. However,
certain major customers have requested and, in negotiated arrangements, been
granted settlement terms as long as 45 days. Because sales to these customers
accounted for a significant percentage of the total sales of TY Container in
1995, the accounts receivable balance as at the 1995 year end increased
significantly.
Construction in progress increased to US$5.3 million as at
December 31, 1995. TY Container purchased from Semi-Trailer a factory building,
plant and machinery and 15 year land use rights to a site, in exchange for
US$2.8 million. These assets have been contributed to Tongsheng for the
construction of its production line in the factory building. Tongsheng commenced
production in May 1996. It produces the same type of containers as TY Container
and is designed for an annual production capacity of 40,000 TEU. Tongsheng is
expected to produce 30,000 TEU in 1996. In addition, in 1995 TY Container
purchased from Jiangyang Automobile Company 10 year land use rights to a site,
and plant and machinery, which are located near to the site purchased from
Semi-Trailer in exchange for US$3.0 million. Beginning in April 1996, TY
Container has used this site as a warehouse.
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To finance its working capital, TY Container obtained a US$44
million and a US$1.2 (denominated in RMB and valued as RMB 10 million) short
term bank loan and overdraft facility which are renewable in 1996. In this
facility, the bank has guaranteed the short term revolving borrowing for a
period of five years expiring in 2000 for an amount not less than US$26 million.
The Company had outstanding bank loans and overdrafts, mainly
with the Bank of China, Yangzhou Branch, amounting to US$48.1 million as at
December 31, 1995. As at December 31, 1995, the loans and overdraft facility
bore interest at rates ranging from 8.49% (for US dollar loans) to 13.18% (for
RMB loans) per annum. The bank loans, to the extent of US$26.0 million, are
collateralized by pledge of certain of TY Container's assets and, to the extent
of US$19.2 million, guaranteed by TYG.
Bill-and-Hold Transactions
A bill-and-hold transaction is a practice whereby a customer
purchases the goods but the seller retains physical possession until the
customer requests shipment to a designated location and delivery is made
thereto.
In 1995, US$8.9 million of TY Container's revenues consisted
of bill-and-hold transactions which have been recognized as sales (1994: Nil).
TY Container's bill-and-hold transactions arise as follows: upon satisfactory
inspection of the containers by quality control inspectors employed by the
customer, the customer then requests that the finished containers be stored at
TY Container's premises. The containers are held pursuant to such requests and
then subsequently delivered to specific locations as instructed by the customer
and transportation expenses incurred by TY Container are recovered from the
customers. TY Container's bill-and-hold transactions are always made upon the
request of the customer.
Normally, TY Container would recognize sales upon delivery of
goods to customers. The Company recognized certain bill-and-hold transactions as
sales in 1995, prior to delivery, because the customers, having inspected and
accepted the quality of the containers, had settled the invoiced amount for such
goods prior to year end, as required under the relevant sales contracts, and
under such contracts the legal title of the goods passed to the customer upon
the earlier of its settlement of the invoiced amount or physical delivery of the
goods. TY Container had transferred the commercial risk regarding those goods,
which were completed and held separately from other goods (identifiable by the
customers' logo and serial numbers), and the goods were delivered to customers
according to a fixed delivery schedule provided by the customers.
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Inflation
Virtually all of TY Container's products are exported and most
of its major components of raw materials are imported. Virtually all of these
transactions are settled in US dollars. Since the prices of such goods are
determined largely by market demand and supply in international trade, the
inflation in the PRC has only a minimal effect on the selling prices; however,
inflation in the PRC has generally resulted in upward pressure on wages and
salary payable to TY Container's employees. Selling prices may be affected by
global inflation and the fluctuation of foreign currencies, particularly US
dollars. The fluctuation of steel prices has the most significant effect on TY
Container's costs of raw materials, as it is the primary raw material used in
the construction of containers.
FASB Statement No. 121
In March 1995, the FASB issued Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted Statement No. 121 in the first
quarter of 1996 and, based on current circumstances, does not believe the effect
of adoption will be material.
Sales by Geographic Region
Approximately 74% of the Company's sales are to customers
based in the United States; up from 70% in 1993 and 72% in 1994. Because only
ten major container shipping and leasing companies control approximately 80% of
the world's container fleet, the Company's sales by geographic region are driven
by the orders of only a few customers. In 1995, the Company received orders from
a new customer, located in Hong Kong, valued at US$19.7; these orders increased
the Company's sales to Hong Kong by 963% over 1994. Sales to the United Kingdom
decreased from US$7.3 in 1994 to US$0 in 1995, because the Company, with orders
exceeding capacity in 1995, refused orders from one of its customers which was
located there, in favor of orders from a larger customer with a longer history
of doing business with the Company. The Company intends to aggressively compete
for orders from all of the major containers shipping and leasing companies,
regardless of where they are based.
Historically, the Company's domestic sales of containers have
been negligible. However, with the PRC Railway Ministry's recent announcement of
its intention to containerize the PRC's railroad system, the Company intends to
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compete for orders from PRC governmental agencies in the future. The Company
expects that domestic sales to PRC governmental agencies will constitute a
material portion of its overall sales in the future.
Modernization Plan
During July and August of 1996, the Company upgraded and
modernized TY Container's main production facilities (see Item 1, "BUSINESS,
Description of TY Container - Modernization Plan", above). TY Container's
management estimates that the modernization plan cost approximately US$1.2
million in capital expenditures, all of which was funded from TY Container's
internal cash flow. Management expects the modernization to improve the quality
of the containers and lower production costs by approximately 1.5%, but no
assurance can be given that it will have such an effect, nor can the Company
give any assurance that the modernization will have a material effect on its
results of operations and financial position.
Land Use Rights Certificates
TY Container's existing premises, which were either allocated
by the government to, or purchased by, TY Container during 1989 to 1992, are
situated in Yangzhou, Jiangsu Province. The Provincial Land Administration
Bureau of Jiangsu Province ("the Land Bureau") is in the process of measuring
the area of land used by every factory within Jiangsu Province so as to permit
the issuance of land-use rights certificates. The Company has obtained
confirmation from the Land Bureau that the land use rights in question were
granted to TY Container. The Company believes that the issuance of the land use
rights certificates is only a formality and management does not expect any
difficulty in obtaining certification. The Company has been informed by the Land
Bureau that land use rights certificates are expected to be issued in 1997.
ITEM 3. PROPERTIES.
The Company owns no real property. According to the laws of
the PRC, title to all land is retained by the PRC. Generally, the Company
occupies its facilities through "land use rights" of a specified term of years.
TY Container's main facilities are located in the City of
Yangzhou, Jiangsu Province, and are occupied under land use rights of 15 years,
with 9 years remaining. The facilities occupy approximately 65,000 square
meters, consisting of a 13,000 square meter (140,700 square foot) factory
building, a 36,000 square meter (390,000 square foot) container yard, a 1,462
square meter (15,800 square foot) administrative building, and a 14,500 square
meter (157,000 square feet) raw material storage and preparation facility. In
addition to the above facilities, TY Container has 50 years land use rights as
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to 66,000 square meters (713,000 square feet) of land near the Port of Yangzhou,
approximately 15 kilometers (9 miles) from TY Container's main facilities, for
container storage. The off-site container storage yard is adjacent to the main
facilities of Reefer. TY Container's production facilities have an annual
capacity of approximately 40,000 TEU. Those facilities are currently operating
at full capacity.
Reefer's plant site, located near the port of Yangzhou, are
occupied under land use rights of 50 years, with 48 years remaining, and cover
over 50,000 square meters (538,200 square feet), including 13,700 square meters
(147,470 square feet) for the main factory building and 5,500 square meters
(59,200 square feet) for supporting facilities. Reefer's production facilities
have an annual capacity of approximately 4,000 TEU. Those facilities are
currently operating at full capacity.
Tongsheng's plant is located in Yangzhou City, adjacent to TY
Container's main facilities, and are occupied under land use rights of 15 years,
with 14 years remaining. The facilities occupy 12,000 square meters (129,000
square feet) for the main factory building and 44,666 square meters (480,900
square feet) for supporting facilities. Tongsheng's production facilities have
been designed to have an annual capacity of 40,000 TEU and came on line in May
1996.
The Company leases a small amount of office space in New York
City for sales and other administrative purposes. The Company believes that the
foregoing properties are adequate in light of its current expansion plans.
The land use rights covering the majority of the site on which
TY Container's main facility at East Garden Road, Yangzhou City, is situated
were contributed by the Jiangsu Tongyun Group Company (formerly known as
Jiangyang Automobile Company; see Item 7. - "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS") in exchange for a portion of its interest in TY Container; the
remainder of such rights were purchased from the same company, which received
its land use rights through allocation by the PRC. TY Container's management is
in negotiation with the Provincial Land Administration Bureau of Jiangsu
Province (the "Land Bureau") for the issue of land use rights certificates for
the above sites to TY Container. The Company believes that upon obtaining formal
land use rights certificates for the above sites, a land use rights premium may
be levied on TY Container by the Land Bureau. While the Company is unable to
quantify the amount of the premium which may be levied on TY Container in the
absence of similar statistics in the area, based upon the current status of the
negotiations, the Company believes that the amount of any such premium will not
be material.
The land use rights for Reefer's facilities were contributed
by Liuwei Village Municipal Authority in exchange for its 15% interest in the
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company. Reefer has submitted an application to the provincial authority for a
formal granted land use rights certificate and is currently awaiting approval.
The land use rights for Tongsheng's facilities were purchased from Semi-Trailer
and Jiangyang Automobile Company. The Company has recently submitted
applications for formal land use rights certificates relating to Tongsheng's
facilities and expects to receive such certificates in 1997.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number and percentage of
the shares of Holdings's common stock owned of record and beneficially by each
person owning more than five percent of such common stock, as reflected in the
list of shareholders provided to Holdings by its transfer agent dated as of
April 23, 1996. Holdings's common stock is the only class of equity securities
issued by Holdings. None of Holdings's directors or executive officers, nor any
of TY Container's directors or executive officers, beneficially own any equity
securities in Holdings, or in any of its parents or subsidiaries.
Name and Address of Number of Shares Percent of
Beneficial Owner Owned Class
Sinocity Group Limited 20,068,750 80.274%
16th Floor,
1622-36 Swire House
9-25, Chater Road, Central
Hong Kong
Gordon Capital Limited 1,875,000 7.499%
c/o Ruffa & Ruffa
150 East 58th Street
New York, New York 10022
The Company is not aware of any arrangements the operation of
which may at a subsequent date result in a change in control of the Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The directors and executive officers of Holdings are
identified below. Each were elected and/or appointed to his or her position(s)
as of May 10, 1995. The directors and executive officers will serve in such
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capacity until the next annual stockholders meeting, and until their successors
are duly qualified and elected or appointed.
Name Age Position
- ---- --- --------
Cheung Sau Yung 51 Chairman of the Board, Director,
President and Chief Executive Officer
Liu Jingxin 56 Director
Sung Hiu Ngan 45 Director
Ma Tieyi 30 Secretary and Treasurer
Cheung Sau Yung, age 51, is the Chairman of the Board of Directors of
Holdings, CCHL-BVI, and TY Container. He is also the President and Chief
Executive Officer of CCHL-BVI and General Manager of TY Container, a position he
has held since 1989. Mr. Cheung is also Chairman of Jiangsu Tongyun Group
Company and acts as Chairman of the following companies in which TY Container
and/or TYG holds an equity interest: Sinocity Group Limited, Ocean Asia
International Ltd., Yangzhou Tonglee Reefer Container Company Ltd., and Yangzhou
Tonghua Semi-Trailer Company Ltd. Mr. Cheung began his career in 1966 with First
Auto Transport General Corp., rising to the position of Manager of their
Technology Department. From 1976 through 1984, he worked for China Foreign Trade
Transportation Company where he rose to the position of General Manager and also
became a Director. From 1984 through 1985, Mr. Cheung worked as a Manager at
China National Foreign Trade Transportation Company. From 1985 through 1987 Mr.
Cheung served as Deputy Commissioner of the Yangzhou Foreign Trade and Economic
Relations Commission. In 1987, he joined the Jiangsu Jiangyang Automobile
Company, where he held the position of Deputy General Manager until he joined TY
Container in 1989. Mr. Cheung holds a Bachelor of Science Degree and has 30
years of experience in the transportation industry. (see Item 7. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS")
Liu Jingxin, age 56, is a Director of Holdings, CCHL-BVI, and TY
Container. Mr. Liu also is a Director and the General Manager, a position he has
held since 1988, of Wide Shine Development Limited, a wholly-owned subsidiary of
China National Foreign Trade Transportation Corporation ("Sinotrans") engaged in
container cargo shipping and container leasing and handling. Prior to joining
Wide Shine, Mr. Liu was with Sinotrans, Beijing Branch, and American Huayun
Company. Mr. Liu has more than 33 years experience in the transportation
industry.
Sung Hiu Ngan, age 45, is a Director of Holdings and CCHL- BVI. Ms.
Sung also is the Deputy Chairperson and General Manager of Broadsino Investment
Company Limited, a Hong Kong investment company wholly owned by Jiangsu
International Investment Co. ("JITIC"), a position she has held since 1992. Ms.
Sung also serves as a Director of PSB Investments Limited and PSB
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Management Limited, two companies founded by Broadsino and Peregrine Investments
Holdings Limited. Prior to joining Broadsino, Ms. Sung worked in the Investment
Department of JITIC from 1988 to 1992, rising to the position of Department
Manager. Prior to joining JITIC, Ms. Sung held a number of management and
technical positions in the Ministry of Chemical Industry and at China Ocean
Shipping Company. Ms. Sung holds a Bachelor of Science Degree and has more than
25 years experience in the transportation industry and the investment business.
Ma Tieyi, age 30, is Secretary and Treasurer of Holdings. He is also
Deputy Director of the Investment & Securities Department at TY Container. Mr.
Ma received his Masters Degree in Electrical Engineering in 1992 and worked as
Deputy Manager in the Import Department of the Yangzhou Foreign Trade Corp., an
import/export company, from 1992 until joining TY Container in 1994.
Executive Officers and Key Managers of TY Container
In addition to Mr. Cheung, whose business experience is
described above, the executive officers and key managers of TY Container are
identified below.
Dong Xiaojun, age 46, is a Director and a Deputy General Manager of TY
Container. Mr. Dong has been employed by TY Container since 1989, holding
various managerial positions, including Office Manager, Head of Management, Head
of Production, and Head of Trade. Mr. Dong began his career with the Jiangsu
Jiangyang Automobile Company in 1978 as a worker, and advanced to the level of
Assistant Manager. Mr. Dong holds an Associate Degree, and has 18 years of
experience in the transportation industry.
Wang Gongqing, age 45, is a Deputy General Manager of TY Container. Mr.
Wang began working for TY Container in 1990 as an Office Manager and rose to the
level of Deputy General Manager. Mr. Wang began his career with the Yangzhou
Kaiguan Plant in 1964. He joined the Jiangsu Jiangyang Automobile Company in
1967 as a worker and advanced to the position of Office Manager. Mr. Wang holds
an Associates Degree and is an economist by profession. Mr. Wang has 32 years of
experience in the transportation industry.
Ai Zhiyuan, age 45, is a Deputy General Manager of TY Container. Mr. Ai
has been employed by TY Container since 1990. Mr. Ai began his career with the
Jiangsu Production Construction Military Unit, later moving to a Special Unit of
the People's Liberation Army and achieving the rank of Lieutenant. Mr. Ai joined
the Jiangsu Jiangyang Automobile Company in 1979 and rose to became the head of
the Party Department. Mr. Ai holds an Associate Degree and is an economist. Mr.
Ai has been associated with the transportation industry for 17 years.
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Wu Zhenyu, age 52, is the Chief Economist of TY Container. Mr. Wu began
working for TY Container in 1989 as the Director of Production. He has also held
the position of Assistant Chief Economist. Mr. Wu began his career in 1958 as a
worker and technician for the Jiangsu Jiangyang Automobile Company, where he
rose to the position of Production Manager. Mr. Wu has 38 years of experience in
the transportation industry.
Li Haixing, age 47, is a Director and Principal Engineer of TY
Container. Mr. Li began working for TY Container in 1989 as an Assistant Chief
Engineer, later becoming Director of Quality Control. Mr. Li began his career in
1970 at the Taixing Machinery Repair Plant. He later went on to study machinery
at Tianjin University. After receiving his Associate Degree, Mr. Li joined the
Design Department of Jiangsu Jiangyang Automobile Company and became an
Assistant Manager for the company. Mr. Li has 26 years of experience as an
engineer in the transportation industry.
TY Container Directors
The Board of Directors of TY Container currently consists of
11 members, each of which serves for a term of four years and until their
successors are duly qualified and elected. TY Container's Articles of
Association provide the partners with the right to designate a certain number of
directors, based upon the amount of their interest in the company. Until
recently, it provided as follows: 5-14.9%, one director; 15-24.9%, two
directors; 25-34.9%, three directors; 35-44.9%, four directors; and 45% or more,
five directors. At elections held prior to the Reorganization, this provision
resulted in Jiangyang Automobile (H.K.) Limited and China Everbest Motors
designating four and two directors, respectively, for election to TY Container's
Board, and China Automobile Import and Export Company, Bexi Iron and Steel, Keep
Benefit Limited, Wide Shine Development, China Auto (USA) Corporation and
Jiangsu Tongyun Group Company each designating one director. (China Auto (USA)
Corporation and China Automobile Import and Export Company have each designated
the same individual as director and such individual has two votes on the Board.)
(see Item 7. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
Following the completion of the Liquidation, TY Container's
Articles of Association were amended to provide that CCHL-BVI shall have the
right to designate eight directors to the company's board. As a result, at the
next election CCHL-BVI will have the right to designate eight of the 11
directors, with eight of the 12 votes on the board.
In April 1996, the shareholders of Sinocity executed a
shareholders agreement under which they agreed to use their best efforts to
cause Sinocity to cause Holdings to cause CCHL-BVI to designate four nominees
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of Jiangyang Automobile (H.K.) Limited, two nominees of China Everbest Motors,
and one nominee of each of Keep Benefit Limited and Wide Shine Development,
respectively, to TY Container's board of directors.
ITEM 6. EXECUTIVE COMPENSATION
None of the directors and executive officers of Holdings
received any compensation as such for the fiscal year ended in 1995. The
following table sets forth the compensation of the chief executive officer and
the four most highly compensated executive officers of TY Container for the last
three fiscal years.
SUMMARY COMPENSATION TABLE
Name and Principal
Position Year Salary Bonus
Cheung Sau Yung
CEO 1995 US$5,445 US$448
1994 US$3,634 US$339
1993 US$2,627 US$240
Ai Zhiyuan
Deputy General
Manager 1995 US$4,961 US$409
1994 US$3,246 US$308
1993 US$2,439 US$215
Dong Xiaojun
Deputy General
Manager 1995 US$4,970 US$410
1994 US$3,283 US$308
1993 US$2,439 US$215
Wang Gongqing
Deputy General
Manager 1995 US$4,959 US$410
1994 US$3,326 US$309
1993 US$2,472 US$220
Wu Zhenyu
Chief Economist
1995 US$4,979 US$410
1994 US$3,326 US$309
1993 US$2,471 US$220
The directors of TY Container receive no compensation for
their services as such.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following companies were the joint venture participants of
record on January 1, 1995: Jiangsu Tongyun Group Company (then known as
Jiangyang Automobile Company) (5%), Jiangyang Automobile (H.K.) Limited (40%),
Bexi Iron and Steel Company (20%), China Everbest Motors Company Limited (15%),
Wide Shine Development Limited (10%), China Automobile Import and Export Company
(5%), and China Auto (USA) Corporation (5%). Pursuant to certain agreements
dated November 29, 1994, which were approved by the relevant PRC authorities on
March 3, 1995, the following share transfers (the "Reorganization") were
effected: (a)(i) Bexi Iron and Steel Company transferred half of its 20%
interests in TY Container to Keep Benefit Limited; and (ii) each of Jiangyang
Automobile (H.K.), Keep Benefit Limited, China Everbest Motors Company Limited,
Wide Shine Development Limited and China Auto (USA) Corporation acquired a newly
incorporated company (each a "New Company" and, collectively, the "New
Companies") registered in the British Virgin Islands, and each transferred into
its New Company its respective interests in TY Container, in exchange for 100%
of the shares of such New Company; (b) each of the aforenamed companies then
transferred its interests in its New Company into Sinocity Group Limited, a
newly formed British Virgin Islands company ("Sinocity"), in exchange for shares
of Sinocity; (c) Sinocity then transferred its interests in the New Companies
into the newly formed CCHL-BVI in exchange for 95% of the shares of CCHL-BVI,
with the remaining 5% of CCHL-BVI being issued to Bonnaire International
Limited, a British Virgin Islands company wholly-owned by Broadsino Investment
Company Limited ("Broadsino"), in return for services provided by Broadsino in
connection with the Reorganization. The joint venture participants of record
upon the organization of Tongsheng in December 1995 were Jiangsu Tongyun Group
Company (5%), Bexi Iron and Steel Company (10%), China Automobile Import and
Export Company (5%) and the New Companies (80%), exactly the same ownership
structure as TY Container at that time. In April 1996, the Company began the
process of liquidating the New Companies, which resulted in the distribution of
their interests in TY Container and Tongsheng to CCHL-BVI (the "Liquidation").
Since the completion of the Liquidation, which occurred in June 1996, CCHL-BVI
directly holds 80% of each of TY Container and Tongsheng.
Jiangsu Tongyun Group Company
Jiangsu Tongyun Group Company ("TYG"), a Yangzhou City owned
holding company with equity interests in thirteen enterprises in Jiangsu
Province, has a 5% direct interest in TY Container and also owns a 100% interest
in Jiangyang Automobile (H.K.), which had owned 40% of TY Container directly and
currently owns 50% of Sinocity which owns 80.275% of Holdings, which
-40-
<PAGE>
indirectly owns 80% of TY Container. Jiangsu Tongyun Group Trading Company ("TYG
Trading Co.") and Jiangyang Automobile Company ("JAC") are wholly owned
subsidiaries of TYG. In 1995, TYG owned 45% of Yangzhou Tonghua Semi-Trailer
Company Ltd. ("Semi-Trailer"). Mr. Cheung Sau Yung, Chairman of the Board of
Directors, President and Chief Executive Officer of Holdings, Chairman and a
director of CCHL-BVI, and Chairman, a director and General Manager of TY
Container, is also Chairman and a director of Semi-Trailer. Mr. Li Haixing, a
director of TY Container, is also the General Manager of TYG Trading Co.
In 1995, TY Container purchased from Semi-Trailer certain land
use rights, a factory building, plant and machinery, to be used for Tongsheng's
production facilities (see Item 1. BUSINESS - Subsidiaries - "Description of
Yangzhou Tongsheng Container Co. Ltd."), for an aggregate purchase price of
US$2,816,000.
In 1995, TY Container executed an agreement with TYG Trading
Co. (the "Service Agreement") under which TYG Trading Co. agreed to provide
certain services for TY Container which TY Container had previously performed
itself (see Item 1. "BUSINESS - Subsidiaries - Description of TY Container
Company Markets"). These services include the purchase of raw materials, the
design of containers to be made to customer specifications, and certain sales
support services, such as scheduling deliveries and arranging the lease of
containers to be delivered on a "Free Used" basis. In connection with the
Service Agreement, TY Container made a US$421,000 loan to TYG Trading Co., which
was unsecured and interest free. The proceeds of this loan were used to expand
the operations of TYG Trading Co. in order to enable it to meet its obligations
under the Service Agreement, and for working capital purposes. The total amount
payable by TY Container to TYG Trading Co. under the Service Agreement in 1995
was US$8,500, all of which was paid. During the six-month period ending on June
30, 1996, the total amount payable by TY Container to TYG Trading Co. under the
Service Agreement was US$759,500, all of which was paid, including the
satisfaction of the US$421,000 loan in full.
In 1995, TY Container agreed to purchase certain land use
rights, plant and machinery from JAC for US$3,005,000. A US$1,202,000 deposit
was paid in 1995, with the balance paid at closing in January, 1996.
In 1993 and 1994, TY Container paid to TYG US$133,000 and
US$191,000 respectively, as payment for providing meals to TY Container's
production workers. Such services were not provided by TYG in 1995.
In 1994, TY Container loaned US$1,504,000 to TYG on an
unsecured and interest free basis. The loan was repaid in full in 1995.
-41-
<PAGE>
In 1995, TYG guaranteed TY Container's obligations under its
US$18 million working capital loan agreement with the Bank of China.
Ocean Asia International Ltd.
Ocean Asia is a 100% beneficially owned subsidiary of TYG. Mr.
Cheung Sau Yung, Chairman of the Board of Directors, President and Chief
Executive Officer of Holdings, a director of CCHL-BVI, and a director and
General Manager of TY Container, is also Chairman of the Board of Directors of
Ocean Asia. In addition, Mr. Cheung holds 95% of the shares of Ocean Asia in his
name for the benefit of TYG, pursuant to a declaration of trust.
TY Container purchased components used in the manufacture of
containers from Yangzhou Tongda Forging Ltd. ("Tongda") and Wuxi Tongfa Economic
& Technical Development Company Ltd. ("Wuxi") for the three preceding fiscal
years in the amounts set forth below:
(all amounts in thousands)
Company 1993 1994 1995
- ---------------------------------------------
Tongda US$167 US$420 US$670
Wuxi US$0 US$86 US$147
Ocean Asia owns 25% of Tongda and 70% of Wuxi. TY Container owns 35.57% of
Tongda and 10% of Wuxi, and Mr. Cheung is also a director of each of Tongda and
Wuxi.
In 1994, Ocean Asia acted as TY Container's sales agent with
respect to certain customers in Hong Kong. Sales of containers generated by
Ocean Asia resulted in the payment of sales commissions by TY Container
amounting to US$287,689 in 1994. Ocean Asia did not act as TY Container's sales
agent in 1995.
In 1994, TY Container purchased certain raw materials,
including plywood, paint and steel, from Ocean Asia for an aggregate purchase
price of US$4,700,000. Included in that amount was a deposit of US$2,000,000 for
the purchase of steel. The steel was not delivered on schedule and TY Container
canceled the contract. In 1995, Ocean Asia agreed to repay the deposit in four
equal monthly installments, beginning in February 1996. The deposit has been
repaid in full.
In 1995, TY Container purchased from Ocean Asia a 25% interest
in Yangzhou Universal Commercial Building Shareholdings Co., Ltd. ("Universal")
in exchange for US$900,000 which was offset in full by the satisfaction of an
obligation for Ocean Asia to refund another deposit for the purchase of steel
which arose in November 1995, again because of late delivery. In 1995, Universal
had a net profit of RMB 1,289,000 (US$154,000).
-42-
<PAGE>
In 1993, TY Container made a US$900,000 loan to Ocean Asia,
which was unsecured and bore interest at floating market rates. The principal
balance of such loan has been repaid in full.
Wide Shine Development Limited
Wide Shine Development Limited, a Hong Kong company ("Wide
Shine"), is a wholly-owned subsidiary of China National Foreign Trade
Transportation Corporation which was organized in 1988. Wide Shine is engaged in
container cargo transportation and container leasing and handling, and operates
a shipping agency for container liner services. Prior to the Reorganization,
Wide Shine directly owned 10% of the shares of TY Container. Following the
Reorganization, Wide Shine became a 12.5% shareholder in Sinocity, which
currently owns 80.275% of the shares of Holdings, which indirectly owns 80% of
the shares of TY Container. Mr. Liu, a director of Holdings and of TY Container,
is also a director and General Manager of Wide Shine.
During 1993, 1994 and 1995, Wide Shine purchased containers
from TY Container at market prices and subject to normal trade credit terms.
These purchases amounted to US$2,629,000, US$1,440,000 and US$959,000 in 1993,
1994 and 1995, respectively. In addition, in 1993 Wide Shine purchased certain
containers from TY Container at market prices, payable in 60 equal monthly
installments at an effective annual interest rate of 4.75%. The current
principal balance of such payments is US$856,000.
Wide Shine owns 25% of Yangzhou Tongjiang Container Fittings
Company Ltd. ("Tongjiang"). TY Container also owns 10% of Tongjiang. During
1993, 1994 and 1995, TY Container purchased components used in the manufacture
of containers from Tongjiang at below market prices and subject to normal trade
credit terms. These purchases amounted to US$1,000,000, US$1,300,000 and
US$1,000,000 in 1993, 1994 and 1995, respectively. The favorable prices received
by TY Container are primarily the result of the large volume of such components
purchased from Tongjiang, accounting for approximately 31% of Tongjiang's
production.
In 1993 and 1994, Wide Shine acted as TY Container's sales
agent with respect to certain customers in Hong Kong. Sales of containers
generated by Wide Shine resulted in the payment of sales commissions by TY
Container amounting to US$187,000 and US$281,000 in 1993 and 1994, respectively.
Wide Shine did not act as TY Container's sales agent in 1995.
In 1995, Wide Shine purchased 50 refrigerated containers from
Reefer, in which TY Container had a 50% interest, at below market prices, in
exchange for Wide Shine's promotion of Reefer's products internationally.
-43-
<PAGE>
Other
Ms. Sung Hiu Ngan, a director of Holdings, is also the
Chairman and General Manager of Broadsino Investment Company Limited, a Hong
Kong investment company which performed services for TY Container in 1995 in
connection with the Reorganization.
ITEM 8. LEGAL PROCEEDINGS
Neither Holdings nor any of its subsidiaries, nor any of their
respective property, is subject to any material pending legal proceedings, nor
are any such proceedings known by the Company to be contemplated by any
governmental authority.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
On May 10, 1995, the common stock of Holdings was listed for
quotation on the OTC Bulletin Board of the National Association of Securities
Dealers, Inc. (the "Bulletin Board"). Prior to that date there was no
established public trading market for Holdings's securities or for the
securities of any of its subsidiaries. The following table sets forth the high
and low bid for the common stock of Holdings, as quoted on the Bulletin Board,
for each full quarterly period since May 10, 1995.1
1995 1996
------------ --------
3rd Q 4th Q 1st Q 2nd Q
High 3.625 5.750 4.250 5.000
Low 0.125 2.125 1.750 2.375
As of April 19, 1996, there were approximately 522 holders of
Holdings's common stock, including individual participants in the security
position listing provided by the Depository Trust Company.
The sole funds available to Holdings for the payment of
dividends on its common stock will be the result of dividends, if any, declared
and paid on the common stock of CCHL-BVI, and the sole funds available to
CCHL-BVI for the payment of dividends will be the result of dividends, if any,
- --------
1 Such bids represent quotations between dealers, do not include retail mark-up,
mark-down or commission and may not represent actual transactions. The Company
has obtained this information from sources it believes to be reliable, but no
assurance can be given as to its accuracy.
-44-
<PAGE>
received from TY Container or Tongsheng. It is the present policy of Holdings
and CCHL-BVI to declare dividends on their common stock, to the extent funds are
legally available therefor after the payment of any tax or other liabilities.
There is no assurance that this policy will not change. Neither Holdings nor any
of its direct or indirect subsidiaries declared a dividend in 1995. In 1993 and
1994, TY Container declared dividends of US$3,074,000 and US$3,515,000,
respectively, which were paid to its shareholders in the immediately following
fiscal years. In 1995, it was decided that it was in the Company's best
interests to use the funds which would otherwise have been available for
dividends to finance the Company's expansion. The Company expects TY Container
and Tongsheng to declare annual dividends in future years, to the extent funds
are legally available therefor, and to the extent their respective boards of
directors, exercising their discretion, conclude that it is in the best
interests of such companies to do so. Pursuant to the relevant PRC laws and
regulations for Sino-foreign joint venture companies, the earnings of TY
Container and Tongsheng are determined in accordance with the relevant PRC
accounting rules and regulations and are available for distribution to their
shareholders after they (a) satisfy all tax liabilities, (b) provide for losses
in previous years, and (c) make appropriations to various reserve funds in an
amount equal, in the aggregate, to 15% of their respective after-tax profits.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On May 10, 1995, pursuant to a stock purchase agreement and
certain supplemental agreements, Holdings issued 21,875,000 shares of its common
stock to the former shareholders of CCHL-BVI, and their designees, in exchange
for 100% of the issued and outstanding shares of CCHL-BVI (the "Stock Swap").
Immediately preceding such issuance, Holdings, relying on the exemption from
registration provided under Rule 504 of Regulation D of the Securities Act of
1933, issued 979,606 shares of its common stock, which were valued at
US$137,145, to 12 entities and individuals in consideration for services
rendered in connection with the Stock Swap. Holdings believes that it was
entitled to the exemption from registration provided under Rule 504 because (A)
it was not (i) subject to the reporting requirements of section 13 or 15(d) of
the Exchange Act, (ii) an investment company, or (iii) a "blank check" company,
(B) the price for the shares issued was less than US$1,000,000, and (C) the
offers and sales of such shares satisfied the applicable terms and conditions of
Rules 501 and 502 of Regulation D.
-45-
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The securities to be registered are shares of Holdings's
common stock, par value US$0.001 per share (the "Common Stock"). The authorized
capital stock of Holdings consists of 100,000,000 shares of Common Stock and
5,000,000 shares of preferred stock, par value US$0.01 per share (the "Preferred
Stock").
The holders of Common Stock (i) have ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of Holdings, (ii) are entitled to share ratably in all of the
assets of Holdings available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of Holdings, (iii) do not
have preemptive, subscription or conversion rights and there are no redemption
or sinking fund provisions applicable thereto, and (iv) are entitled to one
non-cumulative vote per share, on all matters which stockholders may vote on at
all meetings of shareholders of Holdings. All shares of Common Stock now
outstanding are fully paid and non-assessable.
There are 25,000,273 shares of Common Stock currently issued
and outstanding. The Preferred Stock may be issued in one or more series at the
discretion of the Board of Directors of Holdings. No shares of Preferred Stock
have been issued by Holdings.
ITEM 12. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Neither the By-Laws nor the Articles of Incorporation of
Holdings provide for indemnification of officers or directors. Section 78.751 of
the Nevada General Corporation Law contains provisions entitling officers and
directors of Holdings to indemnification, under certain circumstances, from
judgements, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees, resulting from an action or proceeding in which they may be
involved by reason of being or having been an officer or director of Holdings,
provided said officers or directors acted in good faith.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Regulation S-X appear on
pages F-1 through F-27 of this Registration Statement. Schedules to financial
statements have been omitted because of the absence of conditions under which
they would be required.
-46-
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The firm of Ernst & Young has acted as the principal
independent accountant to CCHL-BVI and its subsidiaries, including TY Container,
since March 1995. Prior to March 1995, CCHL-BVI did not exist and TY Container
engaged only independent PRC accountants, which it continues to engage to audit
its financial statements for purposes of determining its PRC tax liability, as
required by PRC law. Subsequent to the Stock Swap, Ernst & Young has also acted
as the principal accountant to Holdings. The accountant to Holdings, Deutch
Marin & Company retained to audit the former business of Dial-A-Brand, Inc.
(Holdings's prior name), to the knowledge of Holdings, continues to act as
auditors for that business in the hands of its new owners but has performed no
services for Holdings subsequent to the Stock Swap, and has not been relied upon
by Ernst & Young in its report on the Consolidated Financial Statements of the
Company for the three years ended December 31, 1993, 1994 and 1995 which appears
in Item 13 of this Registration Statement.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
a. A list of the financial statements filed herewith is
set forth in the Index to Financial Statements attached hereto
and incorporated herein by reference.
b. The Exhibits filed herewith are identified in the
Exhibit Index attached hereto, which Exhibits are incorporated
herein by reference.
-47-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA CONTAINER HOLDINGS LIMITED
By:-------------------------------
Ma Tieyi
Secretary and Treasurer
Dated: November 7, 1996
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Report of Independent Auditor F-1
Consolidated statements of income for each of the
years ended December 31, 1993, 1994 and 1995 F-2
Consolidated statements of changes in shareholders'
equity for each of the years ended December 31,
1993, 1994 and 1995 F-3
Consolidated balance sheets as at December 31, 1994
and 1995 F-4
Consolidated statements of cash flows for each of the
years ended December 31, 1993, 1994 and 1995 F-6
Notes to consolidated financial statements F-8
-49-
<PAGE>
Consolidated Financial Statements
(Expressed in US$)
CHINA CONTAINER HOLDINGS LIMITED
(Formerly Dial-A-Brand, Inc.)
December 31, 1993, 1994 and 1995
ERNST & YOUNG
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of independent auditors........................................ F-1
Consolidated statements of income for each of the years
ended December 31, 1993, 1994 and 1995.............................. F-2
Consolidated statements of changes in shareholders'
equity for each of the years ended December 31,
1993, 1994 and 1995................................................. F-3
Consolidated balance sheets as at December 31, 1994
and 1995............................................................ F-4
Consolidated statements of cash flows for each of
the years ended December 31, 1993, 1994 and 1995.................... F-6
Notes to consolidated financial statements............................ F-8
-i-
<PAGE>
[ERNST & YOUNG LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
The Shareholders
China Container Holdings Limited
(Formerly Dial-A-Brand, Inc.)
We have audited the accompanying consolidated balance sheets of China Container
Holdings Limited (the "Company") and its subsidiaries (the "Group") as of
December 31, 1994 and 1995 and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the years ended
December 31, 1993, 1994 and 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Group as at December 31, 1994 and 1995, and the results of its operations and
its cash flows for each of the years ended December 31, 1993, 1994 and 1995, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Ernst & Young
- -------------------
Hong Kong
6 February 1996
F-1
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 and 1995
(Amounts in thousands, except for share data)
<TABLE>
<CAPTION>
Year ended December 31
----------------------
Notes 1993 1994 1995
US$ US$ US$
<S> <C> <C> <C>
NET SALES 60,960 79,771 89,265
COST OF SALES ( 46,320) ( 68,645) ( 75,243)
SELLING AND ADMINISTRATIVE EXPENSES ( 2,803) ( 3,789) ( 4,238)
--------- --------- ---------
11,837 7,337 9,784
FINANCIAL EXPENSES, NET 4 ( 5,962) ( 1,213) ( 2,082)
OTHER INCOME/(EXPENSES), NET 5 ( 30) 640 ( 212)
REORGANIZATION EXPENSES 6 - - ( 1,382)
---------- ---------- ---------
INCOME BEFORE INCOME TAXES 5,845 6,764 6,108
INCOME TAXES 7 ( 657) ( 742) ( 992)
---------- ---------- ----------
5,188 6,022 5,116
SHARE OF NET LOSSES OF ASSOCIATED ( 25) ( 90) ( 1,308)
---------- ---------- ---------
COMPANIES
INCOME BEFORE MINORITY INTERESTS 5,163 5,932 3,808
MINORITY INTERESTS ( 1,033) ( 1,187) ( 1,038)
--------- --------- ---------
NET INCOME 4,130 4,745 2,770
======== ======== ========
NET INCOME PER SHARE 3(k) 0.17 0.19 0.11
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
CHINA CONTAINER HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
(Amounts in thousands, except for share data)
Additional Currency
Paid-up paid-in Retained translation
Capital capital Reserves earnings adjustments
Notes US$ US$ US$ US$ US$
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 25 2,301 487 1,794 -
Net income - - - 4,130 -
Transfer to reserves 23 - - 324 ( 324) -
Capitalization of TYC's retained 15 - 1,581 - (1,581) -
earnings as capital
Currency translation adjustments - - - - ( 523)
Dividends (US$0.08 per share) 3(l) - - - (1,993) -
-------- --------- --------- -------- ---------
Balance at December 31, 1993 25 3,882 811 2,026 ( 523)
Net income - - - 4,745 -
Transfer to reserves 23 - - 2,157 (2,157) -
Currency translation adjustments - - - - 276
Dividends (US$0.13 per share) 3(l) - - - (3,292) -
-------- --------- --------- -------- ---------
Balance at December 31, 1994 25 3,882 2,968 1,322 ( 247)
Net income - - - 2,770 -
Transfer to reserves 23 - - 2,911 (2,911) -
Currency translation adjustments - - - - 137
Reorganization expenses 6 - 801 - - -
-------- -------- --------- --------- ---------
Balance at December 31, 1995 25 4,683 5,879 1,181 ( 110)
======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-3
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1995
(Amounts in thousands, except for share data)
December 31
---------------------
Notes 1994 1995
US$ US$
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,578 7,431
Accounts receivable 1,424 7,642
Deposits and other receivables 2,063 9,996
Inventories 8 20,934 21,605
Deferred income taxes 84 84
Amount due from associated
companies 9 299 1,234
Amount due from related companies 9 3,126 3,757
-------- --------
TOTAL CURRENT ASSETS 29,508 51,749
INTANGIBLE ASSETS 10 551 499
FIXED ASSETS 11 6,374 6,335
CONSTRUCTION IN PROGRESS 12 - 5,325
INTERESTS IN ASSOCIATED COMPANIES 13 5,887 5,826
AMOUNTS DUE FROM RELATED COMPANIES 9 1,263 670
OTHER 305 901
-------- --------
TOTAL ASSETS 43,888 71,305
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1995
(Amounts in thousands, except for share data)
December 31
---------------------
Notes 1994 1995
US$ US$
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Bank loans and overdrafts 14 25,147 48,175
Accounts payable 1,855 3,705
Accrued liabilities and other payables 2,681 1,803
Income taxes payable 624 274
Amount due to an associated company 9 129 -
Amount due to a related company 9 - 2,630
Dividends payable 2,692 -
-------- ------
TOTAL CURRENT LIABILITIES 33,128 56,587
MINORITY INTERESTS 2,810 3,060
-------- --------
35,938 59,647
-------- --------
COMMITMENTS AND CONTINGENCIES 17
SHAREHOLDERS' EQUITY
Share capital - shares of
100,000,000 common stock of
US$0.001 each and
5,000,000 preferred stock
of US$0.01 each authorized;
shares 25,000,273
common stock of US$0.001 each
outstanding 15 25 25
Additional paid-in capital 15 3,882 4,683
Reserves 23 2,968 5,879
Retained earnings 23 1,322 1,181
Currency translation adjustments ( 247) ( 110)
--------- ---------
7,950 11,658
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 43,888 71,305
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CHINA CONTAINER HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Amounts in thousands, except per share data)
Year ended December 31
----------------------
1993 1994 1995
US$ US$ US$
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 4,130 4,745 2,770
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Minority interests 1,033 1,187 1,038
Reorganization expenses - - 801
Amortization 71 71 61
Depreciation 569 714 805
Loss on disposal of fixed assets 8 5 7
Share of net losses of associated companies 25 90 1,308
Deferred income taxes 105 ( 312) -
Foreign exchange losses/(gain) 3,358 ( 594) ( 486)
Decrease/(increase) in assets:
Accounts receivable ( 325) ( 657) ( 6,172)
Deposits and other receivables 20 645 ( 7,872)
Inventories (10,046) 3,280 ( 343)
Amounts due from associated companies - ( 294) ( 926)
Amounts due from related companies ( 2,644) ( 767) 29
Increase/(decrease) in liabilities:
Accounts payable 2,237 ( 1,530) 1,814
Accrued liabilities and other payables 1,004 132 ( 917)
Income taxes payable 322 287 ( 358)
Amount due to an associated company - 126 ( 130)
Amount due to a related company - - 2,620
------- -------- --------
Net cash provided by/(used in) operating activities ( 133) 7,128 ( 5,951)
-------- -------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
CHINA CONTAINER HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Amounts in thousands, except for share data)
Year ended December 31
------------------------------------
1993 1994 1995
US$ US$ US$
<S> <C> <C> <C>
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of fixed assets ( 624) ( 803) ( 711)
Increase in construction in progress - - ( 5,306)
Increase in investments in associated companies ( 1,020) ( 4,900) ( 1,161)
Proceeds from the sale of fixed assets 8 - 37
Increase in other ( 268) ( 37) ( 589)
Advances to a related company ( 898) 122 -
--------- --------- ---------
Net cash used in investing activities ( 2,802) ( 5,618) ( 7,730)
CASH FLOWS PROVIDED BY/(USED IN)
FINANCING ACTIVITIES
Dividends paid ( 2,444) ( 2,474) ( 2,692)
Dividends paid to minority interests ( 611) ( 618) ( 673)
Repayments of bank loans and overdrafts ( 39,288) ( 31,250) ( 14,045)
Proceeds from bank loans and overdrafts 48,001 32,382 36,599
Exchange differences on bank loans denominated in ( 3,044) 594 486
--------- -------- --------
foreign currencies
Net cash provided by/(used in) financing activities 2,614 ( 1,366) 19,675
-------- --------- ------
Exchange differences on cash and cash equivalents ( 573) 75 ( 141)
--------- -------- ---------
NET INCREASE/(DECREASE) IN CASH AND ( 894) 219 5,853
CASH EQUIVALENTS
Cash and cash equivalents, at beginning of year 2,253 1,359 1,578
----- ----- -----
Cash and cash equivalents, at end of year 1,359 1,578 7,431
===== ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-7
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
China Container Holdings Limited ("China Container") was formerly known
as Dial-A-Brand, Inc. ("DAB") which was incorporated in the State of
Nevada, the United States of America.
China Container Holdings Limited ("CCHL(BVI)") was incorporated in the
British Virgin Islands on November 16, 1994 and became a wholly-owned
subsidiary of China Container on May 10, 1995.
Yangzhou Tongyun Container Company Limited ("TYC") was established as a
Sino-foreign joint venture company in the People's Republic of China
(the "PRC") on March 27, 1989 with a tenure of 15 years. The tenure can
be extended by agreement with the joint venture partners after
obtaining the necessary approval from the relevant government agencies.
TYC's principal activity is the manufacturing of international standard
commercial freight containers in the PRC.
Pursuant to certain restructuring agreements (the "Reorganization"),
each of the 5 of the 8 original shareholders, holding an 80% interest
in TYC in the aggregate (the "Foreign TYC Shareholders"), transferred
their interests in TYC into their respective newly incorporated
subsidiaries (the "New Companies") and transferred into Sinocity Group
Limited, a newly incorporated company ("Sinocity") their respective
holdings in the New Companies in exchange for a pro rata share of the
shares of Sinocity. Sinocity then transferred its interests in the New
Companies to the newly formed CCHL(BVI) in exchange for 95% of the
shares of CCHL(BVI). The remaining 5% interest in CCHL(BVI) was issued
to a wholly-owned subsidiary of Broadsino Investment Company Limited
("Broadsino") in return for services provided by Broadsino in
connection with the Reorganization. Subsequent to the balance sheet
date, management decided to have the New Companies liquidated and their
interests in TYC be distributed to CCHL(BVI) (the "Proposed
Liquidation"). The process of the Proposed Liquidation is yet to be
completed at the date of preparing these financial statements.
As a result of the Reorganization and pending the completion of the
Proposed Liquidation, CCHL(BVI) directly holds 80% of the paid-up
capital of TYC.
Prior to the Reverse Acquisition (defined hereinafter), DAB had
4,474,658 shares of common stock, par value US$0.001 per share, issued
and outstanding. In connection with the Reverse Acquisition and
immediately prior thereto, the following transactions occurred:
F-8
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
(i) retirement of 797,500 shares of common stock previously held
by DAB as treasury stock;
(ii) DAB sold the then existing business of DAB including all of
its assets and liabilities as at May 10, 1995, to
Dial-A-Brand, Inc, a newly formed Delaware corporation
("DAB-Delaware"), in exchange for all of the issued and
outstanding shares of common stock of DAB-Delaware;
(iii) the former majority shareholder of DAB agreed to acquire from
DAB all of the issued and outstanding common stock of
DAB-Delaware in exchange for 1,784,400 shares of DAB's common
stock and an indemnity from such shareholder with respect to
any contingent liabilities relating to the former business of
DAB. The 1,784,400 shares of common stock received were then
cancelled by DAB;
(iv) a reverse stock split of 7 to 1 of DAB's then existing issued
and outstanding common stock into 270,667 shares of DAB's
common stock of US$0.001 each, which, because of the practice
of rounding up for each existing stock certificate, resulting
in 273 additional shares; and
(v) the issuance of 979,606 shares of DAB's common stock, par
value US$0.001 per share, to certain parties in return for
services provided in relation to the Reverse Acquisition.
As of May 10, 1995, pursuant to a stock purchase agreement (as amended
by a supplementary agreement, the "Agreement") among Sinocity,
Broadsino, CCHL(BVI) and DAB, DAB acquired the entire issued and
outstanding share capital of CCHL(BVI). In exchange, DAB issued
21,875,000 shares of its common stock to the former shareholders of
CCHL(BVI) (and their designee) on a pro rata basis, and 1,875,000
shares of its common stock to Gordon Capital Limited for services
rendered in connection with the Reverse Acquisition, representing a
87.5% and 7.5% holding, respectively, in China Container's shares of
common stock outstanding after the Reverse Acquisition.
On May 10, 1995, DAB changed its name to China Container Holdings
Limited.
The above transactions have been treated as a recapitalization of
CCHL(BVI) with CCHL(BVI) as the acquirer (the "Reverse Acquisition").
Accordingly, the historical
F-9
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
financial statements of China Container for the period prior to May 10,
1995 are those of CCHL(BVI) or TYC (prior to the Reorganization) except
for paid-in capital which represent that of DAB immediately after the
Reverse Acquisition.
Subsequent to the Reverse Acquisition, China Container's principal
activity is the management of the business of its indirectly held
operating subsidiaries.
In the opinion of the directors of China Container, the above
Reorganization and Reverse Acquisition constitute a reorganization
under common control and subsequent to which, the ultimate control of
TYC remains substantially the same as before the Reorganization and the
Reverse Acquisition.
Yangzhou Tongsheng Container Company Limited ("Yangzhou Tongsheng") was
established by the New Companies (collectively 80%) and by the existing
PRC holders of TYC (20%) as a Sino-foreign joint venture company in the
PRC on December 21, 1995 with a tenure of 15 years with a total
registered capital US$4,800. The tenure can be extended by agreement
with the joint venture partners after obtaining the necessary approval
from the relevant government agencies. Yangzhou Tongsheng's principal
activity is the manufacturing of international standard commercial
freight containers in the PRC. As at January 31, 1996, the New
Companies injected capital of US$4,800 into Yangzhou Tongsheng in the
same proportion, and in exchange for the same shareholdings, as in TYC.
Yingkou Tongyun Container Company Limited ("Yingkou") was established
as a Sino-foreign joint venture company in the PRC on June 29, 1995
with a tenure of 50 years with a total registered capital of US$10,000.
Yingkou's principal activity is the manufacturing of international
standard commercial freight containers in the PRC. CCHL(BVI) holds a
80% interest in Yingkou. The remaining 20% interest of Yingkou is held
by China Everbest Motors Company Limited (10%) and Wide Shine
Development Limited (10%). No capital is yet paid by the shareholders.
2. BASIS OF PRESENTATION
The consolidated financial statements of the Group have been prepared
based on TYC's historical financial statements for the years ended
December 31, 1993 and 1994 and to give effect to the Reorganization and
the Reverse Acquisition as set out
F-10
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
in note 1 to these consolidated financial statements as if they have
been completed prior to January 1, 1993.
The consolidated financial statements of the Group are prepared in
accordance with accounting principles generally accepted in the United
States of America ("US GAAP"). This basis of accounting differs from
that used in the statutory financial statements of TYC which are
prepared in accordance with the accounting principles and the relevant
financial regulations applicable to Sino-foreign joint venture
companies in the PRC.
The principal adjustment made to conform the statutory financial
statements of TYC to US GAAP is the reclassification of the staff bonus
and welfare reserve appropriation from reserves to a charge to income,
the timing of recognizing sales revenue, the restatement of monetary
assets and liabilities denominated in foreign currencies to reflect the
exchange rate quoted by foreign exchange adjustment centers (the "Swap
Center Rate") at December 31, 1993 (see note 18) and the restatement of
foreign currency transactions to reflect the Swap Center Rates
prevailing at the date of transactions for the period prior to December
31, 1993.
3. PRINCIPAL ACCOUNTING POLICIES
(a) Cash and cash equivalents
The Group considers cash and cash equivalents to include cash
on hand and deposits with banks with an original maturity of
three months or less.
(b) Inventories
Inventories are stated at the lower of cost and market value.
Cost is determined on the weighted-average basis and in the
case of finished goods, comprises direct materials, direct
labor and an appropriate proportion of overheads.
(c) Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation.
Depreciation of fixed assets is calculated on the
straight-line basis to write off the cost less estimated
residual value of each asset over its estimated useful life.
The principal annual rates used for this purpose are as
follows:
F-11
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
3. PRINCIPAL ACCOUNTING POLICIES (continued)
Buildings 7%
Plant, machinery and equipment 10%
Motor vehicles 20%
Office equipment 20%
No depreciation is provided on construction in progress until
the asset is completed and put into productive use.
(d) Construction in progress
Construction in progress represents plant and machinery and
other fixed assets under construction or installation and is
stated at cost. Cost comprises direct costs of construction
and installation as well as interest charges on related
borrowed funds. Capitalization of interest charges ceases when
an asset is ready for its intended use. Construction in
progress is transferred to fixed assets upon commissioning
when it is capable of producing saleable output on a
commercial basis.
(e) Intangible assets
Intangible assets mainly represent land use rights which are
amortized on the straight-line basis over the remaining tenure
of the joint venture.
(f) Associated companies
An associated company is a company, not being a subsidiary, in
which the Group exerts significant influence.
The Group's share of the associated companies'
post-acquisition results is included in the consolidated
statements of income under the equity method of accounting.
The Group's investments in associated companies are stated at
cost plus the Group's share of the associated companies'
post-acquisition results and capital transactions.
(g) Revenue recognition
Sales represent the invoiced value of goods sold, net of
returns. Revenue is recognized upon delivery to customers or
in the case of bill and hold transactions, revenue is
recognized when risks and legal title of the goods are passed
to customers according to the contract terms.
F-12
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(h) Foreign currency translation
The Group's financial records are maintained in Renminbi
("RMB"), the national currency of the PRC, which is the
functional currency of the Group.
Foreign currency transactions are translated into RMB using
the applicable rates of exchange quoted by the Bank of China
(the "Exchange Rates"). Monetary assets and liabilities
denominated in foreign currencies are translated into RMB at
the applicable Exchange Rates at the respective balance sheet
dates. The resulting exchange gains or losses are credited or
charged to the Group's consolidated statements of income.
The market risks associated with changes in exchange rates and
the restrictions over the convertibility of RMB into foreign
currencies are discussed in note 18 to the consolidated
financial statements.
These financial statements have been translated into U.S.
dollars in accordance with FASB Statement No. 52, Foreign
Currency Translation. Assets and liabilities have been
translated using the exchange rates in effect at the balance
sheet date. Income statement amounts have been translated
using the average exchange rate for the year. The gains and
losses resulting from the changes in exchange rates from year
to year have been reported separately as a component of
shareholders' equity.
(i) Income taxes
A deferred tax liability is recognized for all significant
taxable temporary differences and a deferred tax asset is
recognized for all significant deductible temporary
differences carryforwards. A valuation allowance is recognized
if it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
(j) Retirement benefits
Retirement benefits are charged to the statements of income
based on the contributions to an insurance company (see note
19).
(k) Net income per share
The calculation of net income per share is based on an
aggregate of 25,000,273 shares of common stocks outstanding as
if the Reverse Acquisition had been completed as at January 1,
1993 (note 15).
F-13
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
(l) Dividends per share
Dividends are the amount paid/payable to the then shareholders
of TYC prior to the Reorganization.
Dividends per share is based on an aggregate of 25,000,273
shares of common stock outstanding, as if the Reverse
Acquisition had been completed at January 1, 1993 (note 15).
(m) Use of estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates.
4. FINANCIAL EXPENSES, NET
Financial expenses, net represent:
Year ended December 31
------------------------------------
1993 1994 1995
US$ US$ US$
Bank loan interest ( 970) ( 1,863) ( 3,173)
Less: Bank loan interest capitalized
in construction in progress - - 258
------ ------ ------
construction in progress
( 970) ( 1,863) ( 2,915)
Interest income 87 238 375
Foreign exchange gains/(losses), net ( 5,079) 412 458
-------- ------ ------
( 5,962) ( 1,213) ( 2,082)
======== ======== ========
F-14
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
5. OTHER INCOME/(EXPENSES), NET
Other income/(expenses), net represent:
Year ended December 31
------------------------------------
1993 1994 1995
US$ US$ US$
Professional fee received in respect of
technical assistance provided to an
associated company - 589 -
Other ( 30) 51 ( 212)
------- ------ -------
( 30) 640 ( 212)
======= ===== =======
6. REORGANIZATION EXPENSES
Concurrent with the Reorganization and the Reverse Acquisition set out
in note 1 to the financial statements, reorganization expenses were
incurred which reduced net income by US$1,382. The reorganization
expenses included (i) US$581 of related audit and consultancy fees
incurred, and (ii) US$801 which represented the fair value of (a) the
5% of the issued and outstanding shares of CCHL-BVI received by a
wholly-owned subsidiary of Broadsino in connection with the
Reorganization, and (b) the 12.5% of the issued and outstanding shares
of the common stock of China Container held by the shareholders of DAB
prior to the Reverse Acquisition and by certain other parties who
received restricted shares of common stock in exchange for services
rendered in connection with the Reverse Acquisition. The amount of the
expenses in (a) and (b) above were determined based on the fair value
of CCHL-BVI's net assets as determined by an appraisal performed by an
independent PRC appraiser, adjusted for factors affecting the
transferability of the shares.
F-15
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
7. INCOME TAXES
Income taxes represent:
Year ended December 31
------------------------------------
1993 1994 1995
US$ US$ US$
Current 552 1,054 992
Deferred 105 ( 312) -
------ ------- ------
657 742 992
====== ====== ======
It is management's intention to reinvest all the income attributable to
China Container earned by its operations outside the United States as
at December 31, 1995. Accordingly, no United States corporate income
taxes have been provided in these financial statements.
Under the current British Virgin Islands' law, dividends that the Group
will distribute in future, and capital gains arising from the Group's
investments are not subject to income taxes in the British Virgin
Islands.
TYC is a Sino-foreign equity joint venture company governed by the
Income Tax Law of the People's Republic of China concerning Foreign
Investment Enterprises and various local income tax laws (the "Income
Tax Laws").
In the Yangzhou District, where TYC is located, the basic rate of
income tax applicable to TYC exclusive of the local income tax is 24%.
TYC's local income tax liability of 3% is exempted by the local tax
authorities. Pursuant to the Income Tax Laws, TYC was further exempted
from income taxes for a period of two years commencing from the first
profitable year (1990) and was entitled to a 50% tax exemption for the
following three years. Thereafter, pursuant to tax concessions under
the Income Tax Laws granted to companies engaged in export sales
activities, TYC is further entitled to a 50% tax exemption for each of
the years in which its export sales exceed 70% of its total sales.
Giving effect to the above tax concessions, the actual tax rate for the
three years ended December 31, 1993, 1994 and 1995 was 12%, as TYC was
in its third year of the three-year 50% tax exemption period in 1995.
F-16
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
TYC's associated companies are Sino-foreign equity joint venture
companies and enjoy similar tax exemptions as TYC. No provision for PRC
income taxes has been made for the associated companies as they
incurred a loss or were in their tax holiday period during the relevant
years.
The tax benefit to TYC as a result of the tax holiday for the year
ended December 31, 1993, 1994 and 1995 amounted to US$701, US$812 and
US$733 (China Container: US$561, US$650 and US$586), respectively. The
effective tax benefit per share for China Container for each of the
years ended December 31, 1993, 1994 and 1995 amounted to US$0.02,
US$0.03 and US$0.02, respectively.
A reconciliation of the effective income tax rates (excluding the
reorganization expenses) with the statutory income tax rate in the PRC
is as follows:
Year ended December 31
------------------------------------
1993 1994 1995
Statutory tax rate 24.0% 24.0% 24.0%
Tax holiday (12.0%) (12.0%) (12.0%)
Other items ( 0.8%) ( 1.0%) 1.0%
------- ------- -------
11.2% 11.0% 13.0%
====== ====== ======
Deferred income tax relates primarily to temporary differences on
revaluation of foreign currency denominated monetary assets and
liabilities, and the timing of recording income receivable and the
accrual of expenses, in each case between TYC's PRC financial
statements for tax purpose and its US GAAP financial statements.
Undistributed earnings of China Container's foreign subsidiaries
amounted to US$2,563 at December 31, 1995. Because those earnings are
considered to be indefinitely invested, no provision for United States
corporate income taxes on those earnings has been provided. Upon
distribution of those earnings in the form of dividends or otherwise,
China Container would be subject to United States corporate income
taxes. Amounts of unrecognized deferred United States corporate income
taxes in respect of those undistributed earnings as at December 31,
1995 were US$871.
F-17
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
8. INVENTORIES
Inventories comprise:
Year ended December 31
----------------------
1994 1995
US$ US$
Raw materials 11,735 16,828
Finished goods 9,199 4,777
------- -------
20,934 21,605
====== ======
9. RELATED PARTY BALANCES AND TRANSACTIONS
(i) The amounts due from related companies, Jiangsu Tongyun Group
Company (formerly known as Jiangyang Automobile Company,
"TYG"), Ocean Asia International Limited ("Ocean Asia"),
Jiangsu Tongyun Trading Company ("Jiangsu Tongyun") and Wide
Shine Development Limited ("WSD") comprise:
Year ended December 31
-----------------------
1994 1995
US$ US$
Loan receivable from Ocean Asia 898 2,566
Trade receivable/(payable) to Ocean Asia ( 98) 157
-------- ------
800 2,723
Loan receivable from Jiangsu Tongyun - 429
Trade receivable from WSD 2,085 1,275
Loan receivable from TYG 1,504 -
----- -------
4,389 4,427
===== =====
Due within one year 3,126 3,757
Due after more than one year 1,263 670
----- ------
4,389 4,427
===== =====
TYG is a direct 5% owner of TYC and a 50% shareholder of
Sinocity, the majority shareholder of China Container. Jiangsu
F-18
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
9. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
Tongyun is a wholly-owned subsidiary of TYG. Ocean Asia is a
wholly beneficially owned subsidiary of TYG in which Mr.
Cheung Sau Yung, a director of China Container, is Chairman of
the Board of Directors. In addition, Mr. Cheung holds 95% of
the shares of Ocean Asia in his name for the benefit of TYG
pursuant to a declaration of trust. WSD is a 12.5% shareholder
of Sinocity.
The loan receivable from Ocean Asia is unsecured and bears
interest at market rates (weighted average of 7.1% and 8.49%
as at December 31, 1994 and 1995). Interest income on the
above loan receivable from Ocean Asia amounted to US$40, US$74
and US$271 for the years ended December 31, 1993, 1994 and
1995, respectively.
Apart from an amount of US$992 (1994: US$1,396) receivable
from WSD which is unsecured and bears interest at 4.75% per
annum, the trade receivable from Ocean Asia and WSD and the
loans receivable from Jiangsu Tongyun and TYG are unsecured
and interest-free. Interest income received from WSD amounted
to US$34, US$79 and US$82 for the years ended December 31,
1993, 1994 and 1995, respectively.
(ii) The amount due from a related company, TYG, at December 31,
1994 (1995: Nil) was unsecured and interest-free.
(iii) The amounts due from/to associated companies are unsecured and
bear interest at market rates (weighted average of 7.1% and
8.49% as at December 31, 1994 and 1995 per annum,
respectively) and are repayable on demand.
(iv) TYC sold containers to WSD, which is subject to normal trade
credit terms. Sales of containers to WSD amounted to US$2,629,
US$1,439 and US$959 for each of the years ended December 31,
1993, 1994 and 1995, respectively.
(v) Pursuant to a sales and purchase agreement dated April 30,
1995, TYC purchased for a period of 15 years up to 2010 from
Yangzhou Tonghua Semi-Trailer Co Ltd ("Tonghua") a right to
use a site, a factory building and plant and machinery at an
aggregate consideration of US$2,816. Tonghua is
owned/controlled by TYG.
(vi) Pursuant to a sales and purchase agreement dated November 25,
1995, TYC purchased a right to use a site and plant and
F-19
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
machinery from TYG for a period of 10 years up to 2005 at a
consideration of US$3,005. As at December 31, 1995, US$1,203
has been paid as a deposit for the purchase with the remainder
being paid in January, 1996.
(vii) Pursuant to an agreement dated November 10, 1995, Ocean Asia
sold its 25% interest in the capital of Yangzhou Universal
Commercial Building Shareholdings Co Ltd to TYC at a
consideration of US$900.
(viii) Other transactions with related companies are summarized as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1993 1994 1995
US$ US$ US$
<S> <C> <C> <C>
Purchases of raw materials from Yanzhou Tongda 167 412 667
Purchases of raw materials from Ocean Asia - 4,700 -
Sales commissions paid to Ocean Asia - 288 -
Sales commissions paid to WSD 187 281 -
Service charge paid to TYG for the provision of 133 191 -
====== ====== ======
staff messing services
</TABLE>
10. INTANGIBLE ASSETS
Intangible assets mainly comprise TYC's land use rights in the amount
of US$406 and US$376 as at December 31, 1994 and 1995, respectively,
which were obtained during 1989 to 1992 and are in respect of its
factory premises situated in Yangzhou, Jiangsu Province. TYC is
required to pay a premium upon obtaining official certificates for the
above land use rights. Further details are set out in note 17(i) to the
audited consolidated financial statements.
F-20
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
11. FIXED ASSETS
Fixed assets comprise:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1994 1995
US$ US$
<S> <C> <C>
Cost:
Buildings 1,811 1,839
Plant, machinery and equipment 5,501 6,194
Motor vehicles 1,050 1,140
Office equipment 235 198
------ ------
8,597 9,371
----- -----
Accumulated depreciation:
Buildings 376 538
Plant, machinery and equipment 1,487 1,942
Motor vehicles 272 456
Office equipment 88 100
------- ------
2,223 3,036
----- -----
Net book value 6,374 6,335
===== =====
</TABLE>
12. CONSTRUCTION IN PROGRESS
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1994 1995
US$ US$
<S> <C> <C>
Rights to use sites - 3,544
Plant and machinery - 1,375
Interest capitalization - 259
Others - 147
------ ------
- 5,325
====== =====
</TABLE>
Rights to use sites represent deposits paid for two land use rights
purchased from Tonghua and TYG, and are in respect of its factory
premises situated in Yangzhou, Jiangsu Province. Further details are
set out in note 17(ii) to the audited consolidated financial
statements.
F-21
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
13. INTERESTS IN ASSOCIATED COMPANIES
Interests in associated companies comprise:
Year ended December 31
----------------------
1994 1995
US$ US$
Unlisted shares, at cost 6,002 7,249
Share of post-acquisition profits less losses,
net ( 115) ( 1,423)
-------- --------
5,887 5,826
===== =====
Particulars of the associated companies, all of which are registered in
the People's Republic of China, are summarized as follows:
<TABLE>
<CAPTION>
Equity holding
held by the
Registered Company Tenure Commencement
Name of Company capital 1994 1995 years date
<S> <C> <C> <C> <C> <C>
Yangzhou Tongda Forging Co. Ltd. US$1,050 20% 35.57% 15 March 11, 1993
("Yangzhou Tongda")
Yangzhou Tongyang Machinery Co. US$2,000 44% 44% 15 April 8, 1993
Ltd.
Yangzhou Tonglee Reefer US$8,000 50% 50% 20 December 8, 1993
Containers Co. Ltd.
Beihai Tonghai Containers Co. Ltd. US$4,500 20% 25% 15 February 19, 1994
Yangzhou Universal Commercial RMB30,000 - 25% # May 29, 1993
Building Shareholdings Co Ltd
("Yangzhou Universal")
# Yangzhou Universal is a company limited by shares with indefinite tenure.
</TABLE>
Other than Yangzhou Universal, the tenure of each of the other
associated companies can be extended by agreement with the joint
venture partners after obtaining the necessary approval from the
relevant government agencies.
F-22
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
13. INTERESTS IN ASSOCIATED COMPANIES (continued)
On December 1, 1994, TYC entered into an agreement (the "Sale
Agreement") with Metchem Company Limited ("Metchem") providing for the
sale of its 44% interest in Yangzhou Tongyang Machinery Co. Ltd
("Yangzhou Tongyang") to Metchem for a cash consideration of US$880.
Mr. Cheung Sau Yung, a director of China Container and TYC, is also a
director of Metchem. On January 27, 1995, the Sale Agreement was duly
approved by the PRC government authorities. However, due to the change
in the investment plans of Metchem, Metchem decided to delay its
investment in Yangzhou Tongyang and the sale of TYC's interest in
Yangzhou Tongyang has, therefore, not yet been completed. Management is
still in the process of negotiating with Metchem regarding the
consummation of the sale.
Subsequent to the balance sheet date, TYC increased its shareholding in
Yangzhou Tonglee Reefer Containers Co. Ltd ("Yangzhou Tonglee") from
50% to 51% for a consideration of US$80.
F-23
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
Yangzhou Tonglee's financial information is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1994 1995
US$ US$
<S> <C> <C>
Balance sheet as at December 31:
Current assets 4,516 8,530
Long term assets 5,659 10,496
------- ------
Total assets 10,175 19,026
====== ======
Current liabilities 2,531 12,311
Long term liabilities - 481
Equity 7,644 6,234
------- -------
Total liabilities and equity 10,175 19,026
====== ======
Statement of income for the year ended December 31:
Net sales 1,098
Cost of sales - ( 2,090)
-------- ---------
Gross loss - ( 992)
Selling, general administrative and - ( 1,136)
financial expenses
Other income - 5
-------- --------
Net loss for the year - ( 2,123)
======== =========
</TABLE>
F-24
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
14. BANK LOANS AND OVERDRAFTS
The Company's bank loans and overdrafts comprise:
Weighted Year ended December 31
average -----------------------
interest rates 1994 1995
US$ US$
Short term bank loans and
overdrafts:
Denominated in US$ Floating - 25,147 46,990
(note (i))
Denominated in RMB Floating - - 1,185
notes (ii)) -------- -------
25,147 48,175
======= ======
Notes:
(i) 8.375% and 8.49% at December 31, 1994 and 1995,
respectively.
(ii) 13.18% at December 31, 1995.
A bank has granted to TYC a US$44,000 and a RMB10,000 (US$1,202) short
term bank loan and overdraft facility which are renewable in 1996. In
this facility, the bank has guaranteed the renewal of short term
borrowings for a period of five years expiring in 2000 for an amount
not less than US$26,000. TYC has also negotiated as required with the
same bank for certain short term overdraft facilities to accommodate
its additional financing requirements in excess of the foregoing
facilities.
The bank loans to the extent of US$26,000 (1994: US$25,147) are
collateralized by a floating charge over all of TYC's inventories and
fixed assets and to the extent of US$19,202 (1994: Nil) are guaranteed
by TYG.
15. SHARE CAPITAL AND ADDITIONAL PAID-IN CAPITAL
As of May 10, 1995, after giving effect to the Reverse Acquisition set
out in note 1 to the consolidated financial statements, there were an
aggregate of 25,000,273 shares of China Container's common stock, par
value US$0.001 per share, issued and outstanding.
F-25
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
These consolidated financial statements were prepared as if China
Container had been in existence throughout the years. Accordingly,
paid-up share capital of 25,000,273 shares of China Container's common
stock, par value US$0.001 per share, is reflected in the consolidated
balance sheet as at the respective year ends.
On May 10, 1995, the Board of Directors of China Container approved an
Action by Written Consent to amend the Company's Article of
Incorporation to authorize 5,000,000 shares of preferred stock, of par
value US$0.01 per share. The shares of preferred stock may be issued in
one or more series at the discretion of the Board of Directors. In
establishing a series the Board of Directors shall give to it a
distinctive designation so as to distinguish it from the shares of all
others series and classes, shall fix the number of shares in such
series, and the preferences, rights and restrictions thereof.
Additional paid-in capital represents a transfer of US$1,581 from
retained earnings in the year 1993, and the notional difference between
the paid-up share capital of China Container over 80% of TYC's paid-in
capital and capital reserves, and the nominal value of the Company's
shares exchanged under the Reverse Acquisition and Reorganization set
out in note 1 to the consolidated financial statements.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Year ended December 31
-----------------------
1993 1994 1995
US$ US$ US$
Cash paid during the year for:
Interest paid 686 2,305 3,076
Income tax 230 767 1,350
====== ======= =====
17. COMMITMENTS AND CONTINGENCIES
As at December 31, 1995, the Group had the following capital
commitments and contingencies:
(i) According to the laws of the PRC, title to all land is
retained by the PRC. TYC's premises, which were either
contributed by its joint-venture parties in exchange for an
F-26
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
interest in TYC or purchased by TYC during the period from
1989 to 1995, are situated in Yangzhou, Jiangsu Province.
Management is in negotiation with the Provincial Land
Administration Bureau of Jiangsu Province (the "Land Bureau")
for the issuance of land use rights certificates for the above
sites to TYC. Management is of the opinion that upon obtaining
a formal land use rights certificate for such sites, a land
use rights premium may be levied on TYC. Management is,
however, unable to quantify the amount of the premium which
may be levied on TYC in the absence of similar statistics in
the area.
It is the Group's policy to capitalize the aforesaid land use
rights premiums on the balance sheet of the Group as
intangible assets and to amortize them over the terms of the
remaining joint venture tenure of TYC.
(ii) The Group had capital commitments for the acquisition of a
right to use a site, plant and machinery of US$4,544.
(iii) As of December 31, 1995, TYC has given guarantees to the
extent of US$8,281 (1994 : Nil) in favor of banks in
connection with specific bank loans granted to one of its
associated companies, Yangzhou Tonglee Reefer Containers Co.
Ltd.
18. FOREIGN CURRENCY EXCHANGE
The Renminbi ("RMB") is not freely convertible into foreign currencies.
Prior to January 1, 1994, all foreign exchange transactions involving
RMB were required to take place either through the Bank of China or
other banks authorized to buy and sell foreign currencies, or at
approved Foreign Exchange Adjustment Centers ("Swap Centers"). The Swap
Centers are institutions which belong to the State Administration of
Exchange Control and its branches. The exchange rates used for
transactions through the Bank of China and other authorized banks
("Official Rates") are set by the State Administration for Exchange
Control whereas the exchange rates available at a Swap Center ("Swap
Center Rates") were determined largely by supply and demand based on
foreign currency and RMB requirements of enterprises operating in or
doing business in the PRC. Foreign currency payments were subject to
the availability of foreign currency which was provided by export sales
F-27
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
or allocated to TYC by the State or was arranged through one of the
Swap Centers with government approval.
On January 1, 1994, the PRC government abolished the dual rate system
and introduced a single rate of exchange as quoted daily by the
People's Bank of China (the "Unified Exchange Rate"). The Unified
Exchange Rate is quoted at levels similar to those quoted by the Swap
Centers. However, the unification of the exchange rates does not imply
convertibility of RMB into United States dollars or other foreign
currencies. All foreign exchange transactions continue to take place
either through the Bank of China or other banks authorized to buy and
sell foreign currencies at the exchange rates quoted by the Bank of
China. Approval of foreign currency payments by the Bank of China or
other institutions requires submitting a payment application form
together with suppliers' invoices, shipping documents and signed
contracts.
The Official Rates and Swap Center Rates quoted by the Swap Center in
Shanghai as of December 31, 1993 and the Unified Exchange Rate at
December 31, 1994 and 1995 were as follows:
Year ended December 31
-------------------------------
1993 1994 1995
RMB RMB RMB
RMB equivalent of US$1.00:
Official Rates 5.80 N/A N/A
Swap Center Rates 8.70 N/A N/A
Unified Exchange Rate N/A 8.45 8.32
=== ==== ====
19. RETIREMENT PLAN
As stipulated by the regulations of the PRC government, TYC is required
to make an annual contribution equivalent to 23% of the annual base
salaries of its PRC employees to an insurance company, which is
responsible for providing pension benefits to TYC's PRC employees. All
staff are entitled to an annual pension equal to the twelve-month
average base salary immediately prior to their retirement date.
F-28
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
The pension costs charged to the consolidated statements of income
amounted to US$258, US$369 and US$564 for each of the years ended
December 31, 1993, 1994 and 1995, respectively.
20. CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject the Group to a
concentration of credit risk principally consist of cash deposits and
accounts receivable.
The group places its cash deposits with various PRC state-owned banks.
Accounts receivable comprise primarily TYC's trade receivables with
customers who are mainly reputable international shipping and leasing
companies. TYC periodically performs credit analysis and monitors the
financial condition of its customers and generally collateral is not
required.
As of December 31, 1995, accounts receivable from customers totalled
US$7,641 (1994: US$1,424), and are generally due within 30 days to 45
days. No allowance for doubtful account was considered necessary.
21. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Group's operating assets and primary source of income and cash flow
are its interests in its subsidiaries in the PRC. The value of the
Group's interests in these subsidiaries may be adversely affected by
significant political, economic and social uncertainties in the PRC.
Although the PRC government has been pursuing economic reform policies
for the past 17 years, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies
may not be significantly altered, especially in the event of a change
in leadership, social or political disruption or unforeseen
circumstances affecting the PRC's political, economic and social
conditions. There is also no guarantee that the PRC government's
pursuit of economic reforms will be consistent or effective.
Currently, a large proportion of the group's revenue come from the
sales of containers manufactured in the PRC, which is vulnerable to an
F-29
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
increase in the level of competition or a change in the supply and
demand relationship in the container industry in the PRC and
internationally.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Group's cash and cash equivalents
approximate their fair value because of the short maturity of those
instruments.
The carrying amounts of bank loans and overdrafts approximate their
fair value based on the borrowing rates currently available for bank
loans and overdrafts with similar terms and average maturity.
23. DISTRIBUTION OF PROFIT
Pursuant to the relevant laws and regulations for Sino-foreign joint
venture companies, earnings of TYC are determined in accordance with
the relevant PRC accounting rules and regulations and are available for
distribution to each of their joint venture partners after TYC (1)
satisfies all tax liabilities; (2) provides for losses in previous
years; and (3) makes appropriations to reserve accounts, in aggregate,
at 15% of profit after taxation. These reserve accounts comprise
general reserve, enterprise expansion reserve and staff bonus and
welfare reserve and the amount of the allocation to the respective
reserve accounts is determined at the sole discretion of the board of
directors.
The appropriations to general reserve and enterprise expansion reserve
attributable to China Container totalling US$5,879 are reflected as
reserves in the consolidated balance sheet as at December 31, 1995.
Such amounts are non-distributable except for an amount of US$3,389
included in the 1995 balance, being voluntarily appropriated into the
enterprise expansion reserve during 1994 and 1995 which is in addition
to the statutorily required appropriation. This amount is distributable
upon approval by the board of directors of TYC.
Staff bonus and welfare benefits are amounts set aside for the
provision of bonus and welfare benefits to the employees of TYC. In
accordance with US GAAP, the amounts designated for payments of staff
F-30
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share data)
bonus and welfare benefits to employees have been charged to income
before arriving at net consolidated income and the remaining balance is
reflected as current liabilities in the consolidated balance sheet.
The retained earnings balances in these financial statements reflect
China Container's share of TYC's retained earnings, including interests
in associated companies, prepared under US GAAP. In addition to the
distributable reserve of US$3,389 as at December 31, 1995, the amount
of distributable retained earnings under the PRC regulations as at
December 31, 1994 and 1995 are US$1,263 and US$1,422, respectively.
24. SEGMENT FINANCIAL INFORMATION
The Group is principally engaged in the manufacture and export of
international standard commercial freight containers. An analysis of
sales by geographic region of the destination of sales and by major
customers for the respective years is as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1993 1994 1995
US$ US$ US$
<S> <C> <C> <C>
By geographic region of destination of sales:
United States of America 42,573 57,597 65,933
Denmark 8,535 7,719 2,339
United Kingdom 2,822 7,310 -
Hong Kong 2,651 1,877 20,178
Others 4,379 5,268 815
------- ------- -------
60,960 79,771 89,265
====== ====== ======
By major customer:
A P Moller 8,535 7,719 2,339
Interpool Limited 5,603 12,255 12,407
Orient Overseas Container Line Ltd - - 19,684
P & O 2,822 7,310 -
Textainer Capital Corporation 17,752 12,832 14,480
Transamerica Leasing Inc 9,857 19,805 17,655
Triton Container International Limited 9,360 12,704 19,463
Others 7,031 7,146 3,237
------- ------- -------
60,960 79,771 89,265
====== ====== ======
</TABLE>
F-31
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
EXHIBIT INDEX
Exhibit No. Description Page No.
2* Stock Purchase Agreement, dated May
10, 1995, among Dial-A-Brand, Inc.,
China Container Holdings Limited
and all of the Shareholders of
China Container Holdings Limited.
3(1)* Articles of Incorporation of
Registrant, filed August 8, 1985.
3(2)* Articles of Amendment to the Articles of
Incorporation of Registrant, filed April 16, 1986
(changed name to Dial-A-Brand).
3(3)* Articles of Amendment to the Articles of
Incorporation of Registrant, filed May 15, 1995
(changed name to China Container Holdings Limited and
authorized issuance of preferred stock).
3(4)* By-Laws of Registrant.
3(5)+ Joint Venture Contract of Yangzhou
Tongyun Container Company Ltd., as
amended.
3(6)+ Articles of Association of Yangzhou
Tongyun Container Company Ltd., as
amended.
3(7)+ Joint Venture Contract of Yangzhou
Tongsheng Container Co. Ltd.
3(8)+ Articles of Association of Yangzhou
Tongsheng Container Co. Ltd., as
amended.
3(9)+* Joint Venture Contract of Yangzhou
Tonglee Reefer Container Company
Ltd., as amended.
3(10)+* Articles of Association of Yangzhou
Tonglee Reefer Container Company
Ltd.
<PAGE>
10(1)* Sales Agreement, dated March
27,1996, between Yangzhou Tongyun
Container Company Ltd. and
Container Trade and Service, Ltd.
10(2)+* Employment Agreement, dated January
1, 1996, between Yangzhou Tongyun
Container Company Ltd. and Mr.
Cheung Sau Yung.
10(3)+ Service Agreement, dated April
1995, between Yangzhou Tongyun
Container Company Ltd. and Jiangsu
Tongyun Group Trading Company.
10(4)+ Service Agreement, dated June 1996,
between Yangzhou Tongsheng
Container Co. Ltd. and Jiangsu
Tongyun Group Trading Company.
21* Subsidiaries of Registrant.
* Previously filed.
+ English translation of Chinese language document.
<PAGE>
Exhibit 3(5)
Sino-foreign Joint Venture
Yangzhou Tongyun Container Company Ltd.
Contract
Chapter 1 General Provisions
In accordance with the "Law of the People's Republic of China on
Sino-foreign Equity Joint Venture Enterprises" and other relevant Chinese laws
and regulations, based on the principle of equality and mutual benefit and
through friendly negotiation, Jiangsu Tongyun Group Company, China Automobile
Import and Export Company, Benxi Iron and Steel Company and China Container
Holdings Ltd. have agreed to jointly invest to set up a Sino-foreign joint
venture enterprise in Yangzhou City, Jiangsu Province of the People's Republic
of China, and hereby entered into the following contract (the "Contract")
Chapter 2 Parties of the Joint Venture
Article 1.
Parties of this contract as follows:
Jiangsu Tongyun Group Company (the " Party A"), registered in Yangzhou
City, Jiangsu Province, the People's Republic of China (the "PRC"), with its
legal address at 105 Tongyang Road, Yangzhou City, Jiangsu Province, PRC. Its
legal representative is Zhang Shouyong, General Manager, a citizen of PRC.
China Auto Industry Import & Export Company (the "Party B"), registered
in Beijing, PRC, with its legal address at 5 West Sihuan Road, Beijing, PRC. Its
legal representative is Zhang Cundao, General Manager, a citizen of PRC.
Benxi Steel & Iron Company (the " Party C"), registered in Benxi City,
Liaoning Province, PRC, with its legal address at 2 Renmin Road, Pingshang
District, Benxi City, Liaoning Province, PRC. Its legal representative is Zhang
Wenda, General Manager, a citizen of PRC.
China Container Holdings Ltd. (the "Party D"), registered in British
Virgin Islands, with its legal address at British Virgin Islands. Its legal
representative is Zhang Shouyong, General Manager, a citizen of PRC.
<PAGE>
Chapter 3 Establishment of the Joint Venture Company
Article 2
The Parties have agreed to set up a joint venture container company
with limited liabilities (the "Joint Venture Company") in China in accordance
with the "Law of the People's Republic of China on Sino-foreign Equity Joint
Venture Enterprises" and other relevant Chinese laws and regulations.
Article 3
The name of the Joint Venture Company is Yangzhou Tongyun Container Co.
Ltd. (the "TYC") and its legal address is 61 East Garden Road, Yangzhou, Jiangsu
Province, PRC.
Article 4
All activities of the Joint Venture Company shall be governed by the
laws, decrees, pertinent rules and other relevant regulations of the People's
Republic of China.
Article 5
The organization form of the Joint Venture Company is a limited
liability company. All Parties to the joint venture are liable to the Joint
Venture Company within the limit of their respectively subscribed contribution
to the registered capital. The profits, risks and losses of the Joint Venture
Company shall be shared by the Parties in proportion to their contribution to
the registered capital.
Chapter 4 The Purposes, Scope and Scale of Production
Article 6
The purposes of the joint venture are to enhance the economic
cooperation and technology exchanges, to import and adopt advanced equipment and
scientific management methods, to improve the quality of products and to develop
new products, as well as to increase the company's capacity of competition in
the world market in respect of price and quality, so as to raise economic
efficiency and to ensure satisfactory benefit for all Parties.
Article 7
The Joint Venture Company's operation includes manufacturing and
marketing 20', 40' and 45' international standard sea-freight container,
non-standard special containers and container accessories, and providing
container maintenance services.
-2-
<PAGE>
Article 8
The Joint Venture Company's production capacity after obtaining the
business operation license is outlined as follows:
Second year 20,000 containers
Third year 20,000 containers
Fourth year 20,000 containers
Thereafter each year normally 20,000-30,000
Chapter 5 Total Amount of Investment and Registered Capital
Article 9
The total amount of investment in the Joint Venture Company shall be
US$22.3 million.
Article 10
Investment contributed by four Parties shall be US$11.15 million, which
will be the Joint Venture Company's registered capital and is 50% of the total
investment.
Party A shall contribute US$557,500, i.e., 5% of the registered
capital.
Party B shall contribute US$557,500, i.e., 5% of the registered
capital.
Party C shall contribute US$1,115,000, i.e., 10% of the registered
capital.
Party D shall contribute US$8,920,000, i.e. 80% of the registered
capital.
Article 11
The Parties shall make their respective capital contribution as
follows:
Party A: Cash US$557,500
Party B: Cash US$557,500
Party C: Cash US$1,115,000
Party D: Cash US$8,920,000
Article 12
The Joint Venture Company's registered capital shall be paid in by the
Parties in proportion to their respective investments within thirty days after
receiving the business license.
-3-
<PAGE>
Article 13
Any Party should not transfer all or part of its investment to a third
party without obtaining consent from all the other Parties of the joint venture
and the approval from the original approving authority. If any party assigns all
or part of its interests in the Joint Venture Company, the other Parties shall
have the preemptive right under the same terms and conditions. Each Party will
be responsible for its own credit and liabilities.
Chapter 6 The Responsibilities of the Parties to the Joint
Venture
Article 14
The Parties shall be responsible respectively for the following
matters:
I. Party A:
1. to make cash contribution and provide machines and equipment
and factory buildings according to Article 11 and Article 12
of the Contract;
2. to assist in handling all matters during the preparatory and
establishment period of the Joint Venture Company;
3. to apply for the land use right certificate to the relevant
local authorities where the company's premises locate, upon
authorization of the Joint Venture Company;
4. to cooperate with other relevant Parties to negotiate and
investigate for import of equipment, to be responsible for
installation of the imported equipment and purchase and
installation of equipment made domestically;
5. to organize the design and construction of the premises and
other engineering facilities of the Joint Venture Company;
6. to apply to relevant authorities for the registration of
Joint Venture Company and to receive business license, etc.;
7. to assist the Joint Venture Company in processing import
customs declaration for the imported equipment;
8. to assist the Joint Venture Company in dealing with relevant
departments to ensure the availability of the fundamental
facilities such as water, electricity, transportation, etc.;
9. to assist the Joint Venture Company's foreign workers and
staff in applying for the entry visa, work permission and
processing their traveling matters;
-4-
<PAGE>
10. to assist the Joint Venture Company in recruiting Chinese
management personnel, technical personnel, workers and other
staff needed;
11. to assist the Joint Venture Company in applying for loans to
the relevant banks;
12. to handle other matters entrusted by the Joint Venture
Company.
II. Party B
1. to make cash contribution to the Joint Venture Company
according to the Article 11 and Article 12 of the Contract.
2. to be responsible for importing equipment as entrusted by
the Joint Venture Company;
3. to handle products export as entrusted by the Joint Venture
Company;
4. to handle import of major materials necessary to production
of the Joint Venture Company which are not available in
China, such as steel;
5. to be responsible for other matters entrusted by the Joint
Venture Company.
III. Party C
1. to make cash contribution to the Joint Venture Company
according to the Article 11 and Article 12 of the Contract;
2. to participate in discussion and investigation for import of
equipment and to handle import of equipment, materials and
parts and components upon authorization of the Joint Venture
Company;
3. to develop overseas market for the Joint Venture Company's
products and to handle sales of products and other matters
entrusted by the Joint Venture Company.
4. to be responsible for supply of steel plate and other parts
and components which are manufactured by Party C and
satisfying the needs of the Joint Venture Company;
IV. Party D
1. to make cash contribution to the Joint Venture Company
according to the Article 11 and Article 12 of the Contract.
2. to provide advanced and reliable equipment and technology
for container production and parts and components needed for
maintenance of such equipment in accordance with the
-5-
<PAGE>
contract signed between Party D and the Joint Venture
Company;
3. to be responsible for improving the Joint Venture Company's
production, operation and management, and to handle the
product marketing, purchasing of raw material and other
related matters.
Chapter 7 Selling of Products
Article 15
All products of the Joint Venture Company will be sold abroad.
Article 16
Products may be sold on overseas markets through the following
channels:
1. arranging sales according to the principle of selling more
products at favorable prices when sale is at the same time,
on the same market and related to the same product;
2. entrusting in priority Jiangsu Tongyun Group Trading Co. to
handle the selling to the overseas market under the same
conditions according to Article 16.1;
3. the Joint Venture Company and the Parties have the right and
obligations to do their best to sell products on the conditions
referred to in the above two clauses in order that the Joint Venture
Company will make more profits.
Article 17
The Joint Venture Company may set up branches for sale and maintenance
service both in China and abroad in order to provide after-sale maintenance
service upon the approval of the relative Chinese authorities.
Article 18.
The trademark of the Joint Venture Company shall be processed according
to the "Trademark Law of the People's Republic of China".
-6-
<PAGE>
Chapter 8 The Board of Directors
Article 19
The date of registration of the Joint Venture Company shall be the date
of the establishment of the board of directors (the "Board") of the Joint
Venture Company.
Article 20
The Board is composed of eleven(11) directors, of which one(1) shall be
appointed by Party A, two(2) by Party C, eight(8) by Party D, among which one
Director appointed by Party D shall have two(2) votes, one of which shall be on
behalf of Party B. The Board shall have one(1) chairman (the "Chairman") to be
appointed by Party D and four(4) vice-chairmen of which one(1) by Party A,
one(1) by Party C and two(2) by Party D. The term of office for the Chairman,
vice-chairmen and directors shall be four(4) years and may be renewed if
re-appointed by the original appointing party.
Article 21
The highest authority of the Joint Venture Company shall be the Board.
The Board shall decide all major issues concerning the Joint Venture Company.
Unanimous approval shall be required if any decisions are to be made concerning
the major issues. As for other matters, approval by more than two-thirds of
directors shall be required.
Article 22
The Chairman shall be the legal representative of the Joint Venture
Company. If the Chairman is unable to perform his/her powers and duties for
reasons, he/she shall authorize a vice-chairman or any other director to
represent the Joint Venture Company provisionally.
Article 23
The Board meeting shall be convened at least once a year. The meeting
shall be called and presided over by the Chairman. The Chairman may convene an
interim meeting based on a proposal made by more than one-third of the
directors. Minutes of the meetings shall be placed on file. In case of emergency
and the Chairman deems it necessary, a Board decision can be made without a
Board meeting by acquiring unanimous written agreements from all directors.
-7-
<PAGE>
Chapter 9 Business Management Office
Article 24
The Joint Venture Company shall establish a management office and
several production and business management departments which shall be
responsible for daily business management. The management office shall have a
general manager to appointed by the Board; three deputy general managers to be
recommended by the general manager (or recommended by the Parties to the general
manager) and appointed by the Board. Several department managers may be
appointed by the general manager.
Article 25
The term of office of the general manager and the deputy managers is
four years. The responsibility of the general manager is to carry out the
decisions of the Board meeting and the Contract and Articles of Association, to
organize and handle the daily management of the Joint Venture Company. The
deputy managers shall assist the general manager in his work. The department
managers shall be responsible for the works in various departments and carry out
the instruction from the general manager and the deputy managers.
Article 26
In case of graft or serious dereliction of duty on the part of the
general manager and deputy general managers, the Board shall have the power to
dismiss them at any time.
Chapter 10 Purchasing
Article 27
The Joint Venture Company shall give first priority to purchase in
China where conditions are the same in purchasing of necessary raw materials,
fuel, parts, means of transportation and articles for office use, etc.
Article 28
Parties B, C and D shall have first priority to be entrusted by the
Joint Venture Company to handle the foreign purchasing.
Chapter 11 Labor Regulation
Article 29
A labor contract covering the recruitment, employment, dismissal and
resignation, wages, labor insurance, welfare, rewards, penalty and other
relevant matters shall be prepared by the Board according to the "Provisions of
the People's Republic of China on Labor Regulation in Joint Ventures Using
Chinese and
-8-
<PAGE>
Foreign Investment" and its Implementation Rules and signed between the Joint
Venture Company and the Trade Union of the Joint Venture Company collectively or
the employees individually. After execution, the labor contracts shall be filed
with the local labor regulatory department.
Article 30
1. Salaries, social insurance and welfare of the general
manager and the deputy managers shall be decided by the meeting
of the Board.
2. Administrative management personnel in the Joint
Venture Company shall not exceed 5% to 10% of the company's total
employees.
Chapter 12 Taxes, Finance and Audit
Article 31
The Joint Venture Company shall pay taxes according to the stipulations
of Chinese laws and other relative regulations.
Article 32
Foreign and Chinese staff members and workers of the Joint Venture
Company shall pay individual income tax according to the Individual Income Tax
Law of the People's Republic of China.
Article 33
Allocations for reserve funds, enterprise expansion funds and welfare
and bonus funds for staff and workers shall be set aside in accordance with the
stipulations in the "Law of the People's Republic of China on Joint Ventures
Using Chinese and Foreign Investment". The annual proportion of allocations
shall be decided by the Board according to the business situations of the Joint
Venture Company.
Article 34
The fiscal year of the Joint Venture Company shall be from January 1 to
December 31 of each year. All vouchers, receipts, statistical statements and
reports, account books shall be written in Chinese.
Article 35
Financial auditing of the Joint Venture Company shall be conducted by
an accountant registered in China and reports on the results shall be submitted
to the Board and the general manager.
In case any of the Parties considers it is necessary to
invite a foreign or domestic auditor to conduct the annual financial auditing,
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all other Parties shall give their consent and such inviting Party shall be
responsible for all expenses involved.
Article 36
In the first four months of each fiscal year, the general manager shall
prepare the previous year's balance sheet, profits and losses statement and
profit distribution plan and submit them to the Board for examination and
approval.
Chapter 13 Duration of the Joint Venture
Article 37
The duration of the Joint Venture Company is 15 years. The date of
establishment of the Joint Venture Company shall be the date on which the
business license of the Joint Venture Company is issued.
Upon proposal by any of the Parties and unanimous approval by the
Board, an application for the duration extension shall be submitted to the
original approving authority six months prior to the expiration of the joint
venture.
Chapter 14 Disposal of Assets after the Expiration of
the Duration
Article 38
The Joint Venture Company shall be liable for its debts with all of its
assets. Upon expiration or termination before the expiration of the joint
venture, liquidation shall be carried out by the Joint Venture Company according
to the relevant law. The remaining assets and debts after liquidation shall be
distributed to or borne by the Parties in accordance with the proportion of
their respective investment.
Chapter 15 Insurance
Article 39
Insurance policies of the Joint Venture Company on various kinds of
risks shall be purchased with the People's Insurance Company of China, Yangzhou
division. The insurance types, value and duration shall be decided by the Board
in accordance with the stipulations of the People's Insurance Company of China.
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Chapter 16 Amendment, Alteration and Discharge of the
Contract
Article 40
The amendment of the Contract or appendices hereto shall come into
effect only after a written agreement thereof has been signed by Parties A, B, C
and D and approved by the original approving authority.
Article 41
In case of inability to fulfill the contract as a result of force
majeure or inability to continue operation due to heavy losses of the joint
Venture Company in successive years, the Joint Venture Company and the Contact
may be terminated prior to their expiry upon the unanimous agreement of the
Board and the original approving authority.
Article 42
Should the Joint Venture Company be unable to continue its operations
or achieve the business purpose stipulated in the Contract due to the fact that
one or several parties fails to fulfill its or their obligations under the
Contract and Articles of Association, or seriously violate the stipulations of
the Contract and Articles of Association, such defaulting parties shall be
deemed as unilaterally terminating the contract. The non-defaulting parties
shall have the right to terminate the Contract in accordance with the provisions
of the Contract after approved by the original approving authority, as well as
to claim against such defaulting parties for damages. In case all the Parties
agree to continue the joint venture, the defaulting parties shall be liable to
compensate the economic losses thus caused to the Joint Venture Company.
Chapter 17 Liabilities for Breach of Contract
Article 43
Should any of the Parties fail to make on schedule its capital
contribution in accordance with the provisions in Chapter 5 of the Contract, the
breaching party shall pay the non-breaching parties an penalty equivalent to 1%
of its overdue contribution monthly from the first month after such contribution
is due. Should the breaching party fail to make its contribution in three months
after due, the non-defaulting parties shall have the right to terminate the
contract and to claim against the breaching party for damages in accordance with
the stipulations in Article 42 of the Contract, in addition to the accrued
penalty equivalent to 3% of the overdue contribution in three months.
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Article 44
Should all or part of the Contract and its appendices be unable to be
fulfilled due to the fault of one or more parties, the breaching parties shall
be responsible for breach of contract. The Board shall make decision on the
breaching of contract; in case of any dispute arising, it shall be settled
according to Article 47 of the Contract.
Chapter 18 Force Majeure
Article 45
Should any of the Parties to the contract be prevented from performing
the contract by force majeure, such as earthquake, typhoon, flood, fire and war
and other unforeseeable events which happening and consequences are
unpredictable and unavoidable, the prevented party shall notify other parties by
cable without any delay and, within 15 days thereafter, provide details of the
events and a valid document of evidence issued by the relevant public notary
organization for explaining the reason of its inability or delay to perform all
or part of the Contract. All Parties shall consult together and decide whether
to terminate the Contract or to partially exempt obligations of implementation
of the contract or whether to delay the performance the contract according to
the effects of the events on performance of the contract.
Chapter 19 Applicable law
Article 46
Formation, validity, interpretation and execution of the Contract and
the related dispute settlement shall be governed by the law of the People's
Republic of China.
Chapter 20 Settlement of Disputes
Article 47
Any disputes arising from the execution of or in connection with the
Contract shall be settled through friendly consultations among all Parties. In
case no settlement can be reached through consultations, the disputes shall be
submitted to the Foreign Economic and Trade Arbitration Commission of the China
Council for the Promotion of International Trade for arbitration in accordance
with its rules of procedure. The arbitral award is final and binding upon all
Parties.
Chapter 21 Language
Article 48
The Contract shall be written in Chinese.
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Article 49
The contract and its appendices shall come into force from the date of
approval by the Ministry of Foreign Economic Relations and Trade of the People's
Republic of China (or its authorized approving authority).
Article 50
Should any notice in connection with any party's rights and obligations
is to be sent by telegram or telex, it shall be required be followed by a
written notice of the same by mail.
Article 51
The Contract is a revised version based on the version signed in
Yangzhou City, Jiangsu province, PRC on Oct. 5, 1988 to meet the latest needs of
the container project construction and has been formally signed in Yangzhou
City, Jiangsu Province, PRC on April 1, 1996. In the event of any discrepancy
between the Contract and other documents of agreements and contracts signed
prior to the date hereof, the Contract shall prevail.
Signatures of the Parties:
Representative of Party A: Zhang Shouyong
Representative of Party B: Zou Qiyuan
Representative of Party C: Wang Xihe
Representative of Party D: Zhang Shouyong
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Exhibit 3(6)
Sino-foreign Joint Venture
Yangzhou Tongyun Container Co. Ltd.
(TYC)
Articles of Association
Chapter 1 General Provisions
Article 1
Jiangsu Tongyun Group Co. Ltd. ("Party A"), China Auto Industry Import
& Export Company ("Party B"), Benxi Steel and Iron Company ("Party C") and China
Container Holdings Ltd. ("Party D") entered into the Contract of Joint Venture
Yangzhou Tongyun Container Co. Ltd. (the "Contract") in Yangzhou City, Jiangsu
Province, People's Republic of China on April 1, 1996. In order to have the
joint venture company run successfully, the parties to the joint venture (the
"Parties") hereby formulate this Articles of Association.
Article 2
The name of the joint venture company is:
Yangzhou Tongyun Jizhuangxiang Youxian Gongsi.
Its English name is:
Yangzhou Tongyun Container Co. Ltd. (TYC) (the "Company")
Article 3
The legal addresses of the Parties to the Company are as follows:
Party A: 105 Tongyang Road, Yangzhou City, Jiangsu Province;
Party B: 5 West Sihuan Road, Beijing, China;
Party C: 2 People Road, Pingshan District, Benxi, Liaoning;
Party D: British Virgin Islands.
Article 4
The Company is a limited liability company.
<PAGE>
Article 5
The Company has a status of the Chinese legal person and is subject to
the jurisdiction and protection of the Chinese law. All its activities shall be
in Compliance with the Chinese laws, decrees and other pertinent rules and
regulations.
Chapter 2 Purpose and Scope of Business
Article 6
The purpose of the Company is to utilize foreign funds, to catch up
with and exceed the international advanced standards, to earn more foreign
exchange profits for China and to obtain satisfactory economic results for the
parties to the Company.
Article 7
The business scope of the Company is to manufacture and sell 20 feet,
40 feet and 45 feet standard containers for international sea transportation,
non-standard customized containers and parts and components thereof, and to
provide container maintenance and repairs and related services.
Article 8
The scale of production of the Company is as follows:
20,000 of 20 feet international standard dry van containers for sea
transportation within the second year after receiving the Company's industrial
and commercial business license;
The third year: 20,000 containers;
The fourth year: 20,000 containers;
And in each year thereafter normally: 20,000 to 30,000
containers.
Article 9
The Company shall sell all of its products on the international market.
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Chapter 3 The Total Investment and the Registered Capital
Article 10
The total amount of investment of the Company is US$22.30 million. Its
registered capital is US$11.15 million, equivalent to 50% of the total
investment.
Article 11
The investment contributed by each party is as follows:
Party A: Investment subscribed is US$555,500, equivalent
to 5% of the registered capital;
Party B: Investment subscribed is US$557,500, equivalent
to 5% of the registered capital;
Party C: Investment subscribed is US$1,115,000, equivalent
to 10% of the registered capital;
Party D: Investment subscribed is US$8,920,000, equivalent
to 80% of the registered capital;
Article 12
The Parties to the Company shall make their respective subscribed
capital contributions in accordance with the time limit provided for in the
Contract. After the capital contributions have been made by the Parties, a
Chinese registered accountant shall be invited by the Company to verify such
capital contributions and provide a certificate of verification, upon which the
Company shall issue each party an investment certificate indicating the
following items: name of the Company; date of the establishment of the Company;
names of the party and the investment contributed; date of the contribution of
the investment, and the date of issuance of the investment certificate.
Article 13
Within the term of the joint venture, the Company shall not reduce its
registered capital.
Article 14
Any increase of the Company's registered capital shall be agreed
unanimously by all Parties to the Company and submitted to and approved by the
original approving authority.
Article 15
Should one party assign all or part of its investment subscribed,
consent shall be obtained from all of other parties of the joint venture. When
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one party assigns its investment, the other parties shall have the right of
first refusal.
Article 16
Any increase or assignment of the registered capital of the Company
shall be approved unanimously by the board of directors and submitted to and
approved by the original examination and approval authority. The registration
procedures for such changes shall be effectuated at the relevant department
authorized by the State Administration of Industry and Commerce.
Chapter 4 The Board of Directors
Article 17
The Company shall establish the board of directors (the "Board") which
is the highest authority of the Company.
Article 18
The Board shall decide all major issues concerning the Company. Its
duties and powers are as follows:
____ deciding and approving the important reports submitted by the general
manager (such as production plan, annual business report, funds, loans,
etc);
____ approving annual financial reports, budget of receipts and
expenditures, annual profit distribution plan;
____ adopting major rules and regulations of the company;
____ deciding to set up branches;
____ amending the articles of association of the Company;
____ discussing and deciding the termination of production, the
termination of the company or the merger with another
economic organization;
____ deciding the engagement of high-rank officials such as general manager,
chief engineer, chief accountant, auditor etc.
____ being in charge of liquidation in case of termination of the
Company and the expiration of the Company;
____ other major issues which shall be decided by the Board.
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Article 19
The Board shall consist of 11 directors and the number of directors
that each of the Parties may appoint shall be in proportion to their respective
capital contributions, that is, one director shall be appointed by Party A, two
directors by Party C and eight directors by Party D, among which one Director
appointed by Party D shall have two(2) votes, one of which shall be on behalf of
Party B. The term of office for the directors is four years and may be renewed
upon the appointment by the original appointing party.
Article 20
Chairman of the board shall be appointed by the party who is the
largest shareholder.
Article 21
If any party is to appoint or replace a director, a written notice
shall be submitted to the board.
Article 22
The Board shall convene a Board meeting annually. If necessary, an
interim meeting of the Board may be held upon a proposal made by at least
one-third of the total directors.
Article 23
The Board meeting will be held in principle on the location of the
Company, or elsewhere if agreed by all of directors.
Article 24
The Board meeting shall be called and presided by the Chairman. Should
the Chairman be absent, the Chairman shall authorize a vice chairman to call and
preside the board meeting.
Article 25
The Chairman shall give each director a written notice 30 days before
the date of the Board meeting. The notice shall cover the agenda, time and place
of the meeting.
Article 26
Should a director be unable to attend the Board meeting, he may
authorize in writing a proxy to attend the Board meeting. In case the director
neither attends nor authorizes other to attend the meeting, it shall be regarded
as a waiver.
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Article 27
The Board meeting requires a quorum of two-thirds of the total number
of directors. When the quorum is not satisfied, the decisions adopted by the
Board meeting are invalid.
Article 28
Detailed written minutes shall be made for each Board meeting and
signed by all of the attended directors and the attended proxy. The minutes
shall be made in Chinese and shall be filed with the company.
Article 29
The following issues shall be unanimously agreed upon by the Board:
1. amendment of the Contract and Articles of Association
of the Company;
2. cooperation, coalition and merger with other economic
organizations;
3. increase of registered capital, adjustment of
investment proportions, transfer or mortgage of
capital;
4. termination or dissolution of the Company.
Article 30
The following issues shall be passed by over two thirds of the total
number of directors or by over half of the total number:
1. decision on the annual production plans, sales plans,
and development plans;
2. approval of the annual financial budget, settlement,
estimation and financial statement;
3. decision on the maximum limit of floating capital and
borrowing loan for the portion exceeding the limit;
4. decision on the annual profit distribution plan;
5. review and approval of the annual business report
submitted by general manager;
6. approval the Company's labor contracts and important
rules and regulations;
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7. appointment or dismissal of general manager, deputy
general manager, chief engineer, chief accountant and
other high rank staff recommended by general manager
and engaged by the board, and decision on invitation of
auditor;
8. decision on salaries and benefit of general manager and
deputy general manager, and decision on plans of wages
and welfare of the Company's employees in accordance
with the stipulation of the labor administrative
department of China;
9. decision on the department organizations of the
Company;
10. other major matters to be decided by the board.
Chapter 5 Business Management Organization
Article 31
The Company shall establish a management system that the general
manager is authorized with full power and assumes full responsibility to be in
charge of the Company's business management under the supervision of the board
or directors.
The Company shall have one(1) general manager to be engaged upon
approval of the Board; three(3) deputy general manager to be recommended by the
general manager (or recommended by the Parties to the general manager) and
engaged upon the approval of the Board.
Article 32
The general manager is directly responsible to the Board. He shall
carry out the Contract, the Articles of Association and decisions of the Board,
organize and conduct the daily production, technology and operation and
management of the Company. The deputy general managers shall assist the general
manager in his work and act as the agent of the general manager upon the general
manager's authorization during his absence and exercise the duties of the
general manager.
Article 33
Decision on the major issues concerning the daily work of the Company
shall come into effective upon signature jointly by the general manager and
deputy general managers. Issues which need cosignatories shall be specified by
the Board.
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Article 34
The term of office for the general manager and deputy general managers
shall be 4 years, and may be renewed at the invitation of the Board.
Article 35
At the invitation of the Board, the chairman, vice-chairman or
directors of the board may concurrently assume the position of the general
manager, deputy general manager or other high-ranking personnel of the Company.
Article 36
The general manager or deputy general managers shall not hold posts
concurrently as general manager or deputy general managers of other economic
organizations or participate in such other organization's commercial competition
with the Company.
Article 37
The Company shall engage one treasurer, one chief engineer, one chief
accountant and one auditor upon approval of the Board.
Article 38
General engineer, chief accountant and auditor shall be under the
leadership of the general manager.
The treasurer shall be in charge of the Company's transactions,
production and financial management, and carry out economic responsibility
system.
The chief engineer shall be in charge of the Company's productive and
technical matters and the development of new products.
The chief accountant shall be in charge of the Company's financial and
accounting affairs, organize to carry out overall economic result calculation
within the Company, work out financial analysis and regularly report to the
general manager on the financial condition of the Company..
The auditor shall be in charge of the auditing work of the Company,
check and verify the financial receipts and expenditure and the accounts, and
submit written reports to the general manager and the Board.
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Article 39
The general manager, deputy general manager, chief engineer, chief
accountant, auditor and other high-ranking personnel who ask for resignation
shall submit a written application to the Board three months in advance and the
Board shall make a decision on it.
In case any of the above mentioned persons provides poor performance of
his work and is not able to achieve the business target set up by the board or
conducts graft or serious dereliction of duty, such person may be dismissed at
any time upon the decision of the Board.
Chapter 6 Finance and Accounting
Article 40
The finance and accounting of the Company shall be handled in
accordance with the "Regulations of the People's Republic of China on the
Finance and Accounting System of the Sino-foreign Equity Joint Ventures".
Article 41
The fiscal year of the Company shall coincide with the calendar year,
i.e., from January 1 to December 31 of the Gregorian calendar year.
Article 42
All vouchers, account books, statistic statements and reports of the
Company shall be written in Chinese.
Article 43
The Company adopts RMB as its accounts keeping unit. The conversion of
RMB into other currency shall be in accordance with the exchange rate published
on the converting day by the State Administration of Exchange Control of the
People's republic of China. In addition to RMB, the Company's accounting items
in respect of cash, bank deposits, income and payment, debts, expenses, earnings
in currencies other than RMB shall also be recorded in to the account books with
other currencies actually used in payment and receipt.
Article 44
The Company shall open accounts in RMB and foreign currency with the
Bank of China or other banks agreed by the State Administration of Exchange
Control.
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Article 45
The Company shall adopt the internationally accepted accrual basis and
debit and credit accounting system in its accounting work.
Article 46
Following items shall be included in the financial and account books:
1. the amount of total cash receipts and expense of the
Company;
2. all material purchases and sales of the Company;
3. the registered capital and debts of the Company;
4. the time of payment, increase and assignment of the
registered capital of the Company.
Article 47
The Company's accounting office shall, under the supervision of the
general manager, work out the balance sheet and the profit and loss statement of
the past year in the first four months of each fiscal year which shall be
submitted to the general manager and the Board meeting for approval after
examined and signed by the auditor and the accountant registered in China.
Article 48
Each party to the joint venture shall have the right to invite an
auditor to review and examine the account book of the Company at its own
expense. The Company shall provide convenience for the checking and examination.
Article 49
The depreciation period for the fixed assets of the Company shall be
decided by the Board in accordance with the "Rules for the Implementation of the
Income Tax Law of the People's Republic of China Concerning Joint Ventures with
Chinese and Foreign Investment".
Article 50
All matters concerning foreign exchange shall be handled in accordance
with the "Provisional Regulations for Exchange Control of the People's Republic
of China" and other pertaining regulations as well as the Contract.
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Chapter 7 Profits Sharing
Article 51
The Company shall allocate from after-tax profit the reserve funds, the
enterprise development funds and the employee bonus and welfare funds. The
proportion of allocation shall be decided by the Board.
Article 52
After paying taxes and allocating the above mentioned funds in
accordance with law, the remaining profits of the Company shall be distributed
to the Parties according to the proportion of each party's investment in the
registered capital.
Article 53
The Company shall distribute its profits once a year. The profit
distribution plan and the amount of profit distributed to each party shall be
published within the four months after the end of each fiscal year.
Article 54
The Company shall not distribute profits unless the losses of previous
fiscal year have been made up. Remaining profit from previous fiscal year can be
distributed together with that of the current year.
Chapter 8 Staff and Workers
Article 55
The employment, recruitment, dismissal and resignation of the staff and
workers of the Company and their salary, welfare benefits, labor insurance,
labor protection, labor discipline and other matters shall be handled according
to the "Regulations of the People's Republic of China on Labor Management in
Joint Ventures Using Chinese and Foreign Investment" and the implementation
rules thereof.
Article 56
The required staff and workers will be recruited by the Company in
public and priority shall be given to employees of Party A. Examination which
full marks are 100 marks will be adopted in all recruit without any exception
and anyone who obtains higher marks will be employed in order. Any person of the
recruiting department who is recommended by the Board, the general manager
office and all related department and workshop shall be recruited in priority if
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his/her marks obtained in such examination are 5 to 20 marks lower than those of
others. All recruited employees shall sign employment contract.
Article 57
The Company has the right to take disciplinary actions, record a
demerit and reduce salary against those staff and workers who violate the
Company's rules and regulations, labor contract and labor disciplines. Those
involved in serious cases may be dismissed. Dismissal of workers shall be filed
with the labor administrative department.
Article 58
The salaries of the staff and workers shall be set by the Board
according to the actual situation of the Company and with reference to
pertaining stipulations of China, and shall be specified in the labor contract.
The salaries of the staff and workers shall be appropriately increased
along with the development of business and production, the improvement of
economic results and the enhancement of the work ability and technical ability
of the staff and workers.
Article 59
Matters concerning the welfare, bonuses, labor protection, labor
insurance and the Housing funds, etc. shall be stipulated respectively in
various rules and regulations by the Company in accordance with the State's
relevant policies, so as to ensure that the staff and workers work under normal
conditions.
Chapter 9 The Trade Union Organization
Article 60
The staff and workers of the Company have the right to establish trade
union organization and carry out trade union activities in accordance with the
stipulations of the "Trade Union Law of the People's Republic of China".
Article 61
The trade union in the Company is representative of the interests of
the staff and workers. The tasks of the trade union are: to protect the
democratic rights and material interests of the staff and workers pursuant to
the law; to assist the Company to arrange and make rational use of welfare and
bonus funds; to organize staff and workers to participate in political,
professional, scientific and technical studies and literary, art and sports
activities; and to educate staff and workers to observe labor discipline and
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rules and regulations so as to complete production tasks of the Company and
achieve higher economic results.
Article 62
The trade union of the Company may sign labor contracts with the
Company on behalf of the staff and workers, and supervise the implementation of
the contracts.
Article 63
Person(s) in charge of the trade union of the Company shall have the
right to attend, as nonvoting members, meetings of the Board scheduled to
discuss issues such as development plans, production and operational activities,
and interests of staff and workers of the Company, and to report the opinions
and demands of staff and workers at meetings of the Board.
Article 64
The trade union shall have the right and duty to take part in the
mediation of disputes arising between the staff and workers and the Company.
Article 65
The Company shall allot an amount of money totalling 2% of all the
salaries of the staff and workers of the Company as trade union's funds, which
shall be used by the trade union in accordance with the "Managerial Rules for
the Trade Union Funds" formulated by the All China Federation of Trade Unions.
Chapter 10 Duration, Termination and Liquidation
Article 66
The duration of the Company shall be 15 years, beginning from the date
when business license is issued.
Article 67
Upon agreement and decision by all Parties, an application for the
extension of duration may be submitted to the original examination and approval
authority six months prior to the expiry date of the joint venture. Only upon
the approval shall the duration be extended, and the Company shall effectuate
registration alteration at the department authorized by the State Administration
of Industry and Commerce of P.R. China.
Article 68
The Contract may be terminated before its expiration in case the
Parties to the joint venture agree unanimously that the termination of the
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joint venture is for the best interests of the Parties.
A decision to terminate the joint venture before expiry of the term
shall be made by the Board through a plenary meeting, and such decision shall be
submitted to the original examination and approval authority for approval.
Article 69
Upon the expiration of the joint venture or termination of the Contract
prior to its expiry, the Board shall work out procedures and principles for the
liquidation, nominate candidates for the liquidation committee, and set up the
liquidation committee to liquidate the Company's assets.
Article 70
The tasks of the liquidation committee are: (1) to conduct thorough
check of the financial affairs and credits of the Company, (2) to work out the
balance sheet and the property inventory, and (3) to formulate a liquidation
plan. All these shall be carried out upon the approval of the Board.
Article 71
During the process of liquidation, the liquidation committee shall
represent the Company to sue and be sued.
Article 72
The liquidation expenses and the compensation of the members of the
liquidation committee shall be paid in priority from the existing assets of the
Company.
Article 73
After the full clearance of debts of the Company, the remaining
property and credits shall be distributed among the Parties to the joint venture
in accordance with their respective proportions of investment in the registered
capital.
Article 74
Upon completion of the liquidation, the Company shall submit a
liquidation report to the original examination and approval authority,
effectuate cancellation of registration with the administrative department of
industry and commerce, hand in its business license and, at the same time, make
an announcement to the public.
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Article 75
After winding up of the Company, its account books shall be left in the
care of Party A.
Chapter 11 Rules and Regulations
Article 76
The following are the rules and regulations formulated by the Board of
the Company.
1. Management regulations, including the powers and
functions of the managerial branches and their
respective working procedures;
2. Rules for the staff and workers;
3. System of labor and salary;
4. System of work attendance record, promotion and awards
and penalty for the staff and workers;
5. Rules of staff and worker's welfare;
6. Financial system;
7. Liquidation procedures upon the dissolution of the
Company;
8. Other necessary rules and regulations.
Chapter 12 Supplementary Articles
Article 77
The amendments to the Articles of Association shall be unanimously
agreed and decided by the Board and submitted to the original examination and
approval authority for approval.
Article 78
The Articles of Association is written in Chinese language.
Article 79
The Articles of Association shall come into effect upon the approval by
the examination and approval department authorized by the Ministry of Foreign
Trade and Economic Cooperation of the People's Republic of China.
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Article 80
These Articles of Association are the revised version based on the
original version of the Articles of Association formally signed in Yangzhou,
Jiangsu, China on October 5, 1988 so as to meet the latest needs of the
construction of container project and have been hereby formally executed in
Yangzhou, Jiangsu, China on April 1, 1996. Should any other agreements,
contracts and articles of association, etc. signed by and between Parties prior
to the date hereof conflict with these Articles of Association, these Articles
of Association shall prevail.
Party A Party B
by: Zhang Shouyong by: Zou Qiyuan
(Signature) (Signature)
Party C Party D
by: Wang Xihe by: Zhang Shouyong
(Signature) (Signature)
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Exhibit 3(7)
Sino-foreign Joint Venture
Yangzhou Tongsheng Container Company Ltd. (TSC)
Contract
Chapter 1 General Provisions
In accordance with the "Law of the People's Republic of China on
Sino-foreign Equity Joint Venture Enterprises" and other relevant Chinese laws
and regulations, based on the principle of equality and mutual benefit and
through friendly negotiation, Jiangsu Tongyun Group Company, China Automobile
Import and Export Company, Benxi Iron and Steel Company and China Container
Holdings Ltd. have agreed to jointly invest to set up a Sino-foreign joint
venture enterprise in Yangzhou City, Jiangsu Province of the People's Republic
of China, and hereby entered into the following contract (the "Contract")
Chapter 2 Parties of the Joint Venture
Article 1.
Parties of this contract as follows:
Jiangsu Tongyun Group Company (the " Party A"), registered in Yangzhou
City, Jiangsu Province, the People's Republic of China (the "PRC"), with its
legal address at Qionghua Building 16th Floor Site A, Xuningmen Road, Yangzhou
City, Jiangsu Province, PRC. Its legal representative is Zhang Shouyong,
General Manager, a citizen of PRC.
China Auto Industry Import & Export Company (the "Party B"), registered
in Beijing, PRC, with its legal address at 5 West Sihuan Road, Beijing, PRC. Its
legal representative is Zhang Cundao, General Manager, a citizen of PRC.
Benxi Steel & Iron Company (the " Party C"), registered in Benxi City,
Liaoning Province, PRC, with its legal address at 2 Renmin Road, Pingshang
District, Benxi City, Liaoning Province, PRC. Its legal representative is Zhang
Wenda, General Manager, a citizen of PRC.
China Container Holdings Ltd. (the "Party D"), registered in British
Virgin Islands, with its legal address at British Virgin Islands. Its legal
representative is Zhang Shouyong, General Manager, a citizen of PRC.
<PAGE>
Chapter 3 Establishment of the Joint Venture Company
Article 2
The Parties have agreed to set up a joint venture container company
with limited liabilities (the "Joint Venture Company") in China in accordance
with the "Law of the People's Republic of China on Sino-foreign Equity Joint
Venture Enterprises" and other relevant Chinese laws and regulations.
Article 3
The name of the Joint Venture Company is Yangzhou Tongsheng Container
Co. Ltd. (TSC) and its legal address is 61 East Garden Road, Yangzhou, Jiangsu
Province, PRC.
Article 4
All activities of the Joint Venture Company shall be governed by the
laws, decrees, pertinent rules and other relevant regulations of the People's
Republic of China.
Article 5
The organization form of the Joint Venture Company is a limited
liability company. All Parties to the joint venture are liable to the Joint
Venture Company within the limit of their respectively subscribed contribution
to the registered capital. The profits, risks and losses of the Joint Venture
Company shall be shared by the Parties in proportion to their contribution to
the registered capital.
Chapter 4 The Purposes, Scope and Scale of Production
Article 6
The purposes of the joint venture are to enhance the economic
cooperation and technology exchanges, to import and adopt advanced equipment and
scientific management methods, to improve the quality of products and to develop
new products, as well as to increase the company's capacity of competition in
the world market in respect of price and quality, so as to raise economic
efficiency and to ensure satisfactory benefit for all Parties.
Article 7
The Joint Venture Company's operation includes manufacturing and
marketing 20', 40' and 45' international standard sea-freight container,
non-standard special containers and container accessories, and providing
container maintenance services.
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Article 8
The Joint Venture Company's production capacity after obtaining the
business operation license is outlined as follows:
Second year 20,000 containers
Third year 20,000 containers
Fourth year 20,000 containers
Thereafter each year normally 20,000-30,000
Chapter 5 Total Amount of Investment and Registered Capital
Article 9
The total amount of investment in the Joint Venture Company shall be
US$9.6 million.
Article 10
Investment contributed by four Parties shall be US$4.8 million, which
will be the Joint Venture Company's registered capital and is 50% of the total
investment.
Party A shall contribute US$240,000, i.e., 5% of the registered
capital.
Party B shall contribute US$240,000, i.e., 5% of the registered
capital.
Party C shall contribute US$480,000, i.e., 10% of the registered
capital.
Party D shall contribute US$3,840,000, i.e. 80% of the
registered capital.
Article 11
The Parties shall make their respective capital contribution as
follows:
Party A: Cash US$240,000
Party B: Cash US$240,000
Party C: Cash US$480,000
Party D: Cash US$3,840,000
Article 12
The Joint Venture Company's registered capital shall be paid in by the
Parties in proportion to their respective investments within thirty days after
receiving the business license.
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Article 13
Any Party should not transfer all or part of its investment to a third
party without obtaining consent from all the other Parties of the joint venture
and the approval from the original approving authority. If any party assigns all
or part of its interests in the Joint Venture Company, the other Parties shall
have the preemptive right under the same terms and conditions. Each Party will
be responsible for its own credit and liabilities.
Chapter 6 The Responsibilities of the Parties to the Joint
Venture
Article 14
The Parties shall be responsible respectively for the following
matters:
I. Party A:
1. to make cash contribution and provide machines and equipment
and factory buildings according to Article 11 and Article 12
of the Contract;
2. to assist in handling all matters during the preparatory and
establishment period of the Joint Venture Company;
3. to apply for the land use right certificate to the relevant
local authorities where the company's premises locate, upon
authorization of the Joint Venture Company;
4. to cooperate with other relevant Parties to negotiate and
investigate for import of equipment, to be responsible for
installation of the imported equipment and purchase and
installation of equipment made domestically;
5. to organize the design and construction of the premises and
other engineering facilities of the Joint Venture Company;
6. to apply to relevant authorities for the registration of
Joint Venture Company and to receive business license, etc.;
7. to assist the Joint Venture Company in processing import
customs declaration for the imported equipment;
8. to assist the Joint Venture Company in dealing with relevant
departments to ensure the availability of the fundamental
facilities such as water, electricity, transportation, etc.;
9. to assist the Joint Venture Company's foreign workers and
staff in applying for the entry visa, work permission and
processing their traveling matters;
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10. to assist the Joint Venture Company in recruiting Chinese
management personnel, technical personnel, workers and other
staff needed;
11. to assist the Joint Venture Company in applying for loans to
the relevant banks;
12. to handle other matters entrusted by the Joint Venture
Company.
II. Party B
1. to make cash contribution to the Joint Venture Company
according to the Article 11 and Article 12 of the Contract.
2. to be responsible for importing equipment as entrusted by
the Joint Venture Company;
3. to handle products export as entrusted by the Joint Venture
Company;
4. to handle import of major materials necessary to production
of the Joint Venture Company which are not available in
China, such as steel;
5. to be responsible for other matters entrusted by the Joint
Venture Company.
III. Party C
1. to make cash contribution to the Joint Venture Company
according to the Article 11 and Article 12 of the Contract;
2. to participate in discussion and investigation for import of
equipment and to handle import of equipment, materials and
parts and components upon authorization of the Joint Venture
Company;
3. to develop overseas market for the Joint Venture Company's
products and to handle sales of products and other matters
entrusted by the Joint Venture Company.
4. to be responsible for supply of steel plate and other parts
and components which are manufactured by Party C and
satisfying the needs of the Joint Venture Company;
IV. Party D
1. to make cash contribution to the Joint Venture Company
according to the Article 11 and Article 12 of the Contract.
2. to provide advanced and reliable equipment and technology
for container production and parts and components needed for
maintenance of such equipment in accordance with the
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contract signed between Party D and the Joint Venture
Company;
3. to be responsible for improving the Joint Venture Company's
production, operation and management, and to handle the
product marketing, purchasing of raw material and other
related matters.
Chapter 7 Selling of Products
Article 15
All products of the Joint Venture Company will be sold abroad.
Article 16
Products may be sold on overseas markets through the following
channels:
1. arranging sales according to the principle of selling more
products at favorable prices when sale is at the same time,
on the same market and related to the same product;
2. entrusting in priority Jiangsu Tongyun Group Trading Co. to
handle the selling to the overseas market under the same
conditions according to Article 16.1;
3. the Joint Venture Company and the Parties have the right and
obligations to do their best to sell products on the conditions
referred to in the above two clauses in order that the Joint Venture
Company will make more profits.
Article 17
The Joint Venture Company may set up branches for sale and maintenance
service both in China and abroad in order to provide after-sale maintenance
service upon the approval of the relative Chinese authorities.
Article 18.
The trademark of the Joint Venture Company shall be processed according
to the "Trademark Law of the People's Republic of China".
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Chapter 8 The Board of Directors
Article 19
The date of registration of the Joint Venture Company shall be the date
of the establishment of the board of directors (the "Board") of the Joint
Venture Company.
Article 20
The Board is composed of eleven(11) directors, of which one(1) shall be
appointed by Party A, two(2) by Party C, eight(8) by Party D, among which one
Director appointed by Party D shall have two(2) votes, one of which shall be on
behalf of Party B. The Board shall have one(1) chairman (the "Chairman") to be
appointed by Party D and four(4) vice-chairmen of which one(1) shall be
appointed by Party A, one(1) by Party C and two(2) by Party D. The term of
office for the Chairman, vice-chairmen and directors shall be four(4) years and
may be renewed if reappointed by the original appointing party.
Article 21
The highest authority of the Joint Venture Company shall be the Board.
The Board shall decide all major issues concerning the Joint Venture Company.
Unanimous approval shall be required if any decisions are to be made concerning
the major issues. As for other matters, approval by more than two-thirds of
directors shall be required.
[Article 22
The Chairman shall be the legal representative of the Joint Venture
Company. If the Chairman is unable to perform his/her powers and duties for
reasons, he/she shall authorized a vice-chairman or any other director to
represent the Joint Venture Company provisionally.
Article 23
The Board meeting shall be convened at least once a year. The meeting
shall be called and presided over by the Chairman. The Chairman may convene an
interim meeting based on a proposal made by more than one-third of the
directors. Minutes of the meetings shall be placed on file. In case of emergency
and the Chairman deems it necessary, a Board decision can be made without a
Board meeting by acquiring unanimous written agreements from all directors.
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Chapter 9 Business Management Office
Article 24
The Joint Venture Company shall establish a management office and
several production and business management departments which shall be
responsible for daily business management. The management office shall have a
general manager to appointed by the Board; three deputy general managers to be
recommended by the general manager (or recommended by the Parties to the general
manager) and appointed by the Board. Several department managers may be
appointed by the general manager.
Article 25
The term of office of the general manager and the deputy managers is
four years. The responsibility of the general manager is to carry out the
decisions of the Board meeting and the Contract and Articles of Association, to
organize and handle the daily management of the Joint Venture Company. The
deputy managers shall assist the general manager in his work. The department
managers shall be responsible for the works in various departments and carry out
the instruction from the general manager and the deputy managers.
Article 26
In case of graft or serious dereliction of duty on the part of the
general manager and deputy general managers, the Board shall have the power to
dismiss them at any time.
Chapter 10 Purchasing
Article 27
The Joint Venture Company shall give first priority to purchase in
China where conditions are the same in purchasing of necessary raw materials,
fuel, parts, means of transportation and articles for office use, etc.
Article 28
Parties B, C and D shall have first priority to be entrusted by the
Joint Venture Company to handle the foreign purchasing.
Chapter 11 Labor Regulation
Article 29
A labor contract covering the recruitment, employment, dismissal and
resignation, wages, labor insurance, welfare, rewards, penalty and other
relevant matters shall be prepared by the Board according to the "Provisions of
the People's Republic of China on Labor Regulation in Joint Ventures Using
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Chinese and Foreign Investment" and its Implementation Rules and signed between
the Joint Venture Company and the Trade Union of the Joint Venture Company
collectively or the employees individually. After execution, the labor contracts
shall be filed with the local labor regulatory department.
Article 30
1. Salaries, social insurance and welfare of the general
manager and the deputy managers shall be decided by the meeting
of the Board.
2. Administrative management personnel in the Joint
Venture Company shall not exceed 5% to 10% of the company's total
employees.
Chapter 12 Taxes, Finance and Audit
Article 31
The Joint Venture Company shall pay taxes according to the stipulations
of Chinese laws and other relative regulations.
Article 32
Foreign and Chinese staff members and workers of the Joint Venture
Company shall pay individual income tax according to the Individual Income Tax
Law of the People's Republic of China.
Article 33
Allocations for reserve funds, enterprise expansion funds and welfare
and bonus funds for staff and workers shall be set aside in accordance with the
stipulations in the "Law of the People's Republic of China on Joint Ventures
Using Chinese and Foreign Investment". The annual proportion of allocations
shall be decided by the Board according to the business situations of the Joint
Venture Company.
Article 34
The fiscal year of the Joint Venture Company shall be from January 1 to
December 31 of each year. All vouchers, receipts, statistical statements and
reports, account books shall be written in Chinese.
Article 35
Financial auditing of the Joint Venture Company shall be conducted by
an accountant registered in China and reports on the results shall be submitted
to the Board and the general manager.
In case any of the Parties considers it is necessary to invite a
foreign or domestic auditor to conduct the annual financial auditing, all
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other Parties shall give their consent and such inviting Party shall be
responsible for all expenses involved.
Article 36
In the first four months of each fiscal year, the general manager shall
prepare the previous year's balance sheet, profits and losses statement and
profit distribution plan and submit them to the Board for examination and
approval.
Chapter 13 Duration of the Joint Venture
Article 37
The duration of the Joint Venture Company is 15 years. The date of
establishment of the Joint Venture Company shall be the date on which the
business license of the Joint Venture Company is issued.
Upon proposal by any of the Parties and unanimous approval by the
Board, an application for the duration extension shall be submitted to the
original approving authority six months prior to the expiration of the joint
venture.
Chapter 14 Disposal of Assets after the Expiration of
the Duration
Article 38
The Joint Venture Company shall be liable for its debts with all of its
assets. Upon expiration or termination before the expiration of the joint
venture, liquidation shall be carried out by the Joint Venture Company according
to the relevant law. The remaining assets and debts after liquidation shall be
distributed to or borne by the Parties in accordance with the proportion of
their respective investment.
Chapter 15 Insurance
Article 39
Insurance policies of the Joint Venture Company on various kinds of
risks shall be purchased with the People's Insurance Company of China, Yangzhou
division. The insurance types, value and duration shall be decided by the Board
in accordance with the stipulations of the People's Insurance Company of China.
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Chapter 16 Amendment, Alteration and Discharge of the
Contract
Article 40
The amendment of the Contract or appendices hereto shall come into
effect only after a written agreement thereof has been signed by Parties A, B, C
and D and approved by the original approving authority.
Article 41
In case of inability to fulfill the contract as a result of force
majeure or inability to continue operation due to heavy losses of the joint
Venture Company in successive years, the Joint Venture Company and the Contact
may be terminated prior to their expiry upon the unanimous agreement of the
Board and the original approving authority.
Article 42
Should the Joint Venture Company be unable to continue its operations
or achieve the business purpose stipulated in the Contract due to the fact that
one or several parties fails to fulfill its or their obligations under the
Contract and Articles of Association, or seriously violate the stipulations of
the Contract and Articles of Association, such defaulting parties shall be
deemed as unilaterally terminating the contract. The non-defaulting parties
shall have the right to terminate the Contract in accordance with the provisions
of the Contract after approved by the original approving authority, as well as
to claim against such defaulting parties for damages. In case all the Parties
agree to continue the joint venture, the defaulting parties shall be liable to
compensate the economic losses thus caused to the Joint Venture Company.
Chapter 17 Liabilities for Breach of Contract
Article 43
Should any of the Parties fail to make on schedule its capital
contribution in accordance with the provisions in Chapter 5 of the Contract, the
breaching party shall pay the non-breaching parties an penalty equivalent to 1%
of its overdue contribution monthly from the first month after such contribution
is due. Should the breaching party fail to make its contribution in three months
after due, the non-defaulting parties shall have the right to terminate the
contract and to claim against the breaching party for damages in accordance with
the stipulations in Article 42 of the Contract, in addition to the accrued
penalty equivalent to 3% of the overdue contribution in three months.
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Article 44
Should all or part of the Contract and its appendices be unable to be
fulfilled due to the fault of one or more parties, the breaching parties shall
be responsible for breach of contract. The Board shall make decision on the
breaching of contract; in case of any dispute arising, it shall be settled
according to Article 47 of the Contract.
Chapter 18 Force Majeure
Article 45
Should any of the Parties to the contract be prevented from performing
the contract by force majeure, such as earthquake, typhoon, flood, fire and war
and other unforeseeable events which happening and consequences are
unpredictable and unavoidable, the prevented party shall notify other parties by
cable without any delay and, within 15 days thereafter, provide details of the
events and a valid document of evidence issued by the relevant public notary
organization for explaining the reason of its inability or delay to perform all
or part of the Contract. All Parties shall consult together and decide whether
to terminate the Contract or to partially exempt obligations of implementation
of the contract or whether to delay the performance the contract according to
the effects of the events on performance of the contract.
Chapter 19 Applicable law
Article 46
Formation, validity, interpretation and execution of the Contract and
the related dispute settlement shall be governed by the law of the People's
Republic of China.
Chapter 20 Settlement of Disputes
Article 47
Any disputes arising from the execution of or in connection with the
Contract shall be settled through friendly consultations among all Parties. In
case no settlement can be reached through consultations, the disputes shall be
submitted to the Foreign Economic and Trade Arbitration Commission of the China
Council for the Promotion of International Trade for arbitration in accordance
with its rules of procedure. The arbitral award is final and binding upon all
Parties.
Chapter 21 Language
Article 48
The Contract shall be written in Chinese.
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Article 49
The contract and its appendices shall come into force from the date of
approval by the Ministry of Foreign Economic Relations and Trade of the People's
Republic of China (or its authorized approving authority).
Article 50
Should any notice in connection with any party's rights and obligations
is to be sent by telegram or telex, it shall be required be followed by a
written notice of the same by mail.
Article 51
The Contract is a revised version based on the version formally signed
in Yangzhou City, Jiangsu province, PRC on July. 5, 1995 to meet the latest
needs of the container project construction and has been formally signed in
Yangzhou City, Jiangsu Province, PRC on April 1, 1996. In the event of any
discrepancy between the Contract and other documents such as agreements and
contracts signed among the Parties prior to the date hereof, the Contract shall
prevail.
Signatures of the Parties:
Representative of Party A: Zhang Shouyong
Representative of Party B: Zou Qiyuan
Representative of Party C: Wang Xihe
Representative of Party D: Zhang Shouyong
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Exhibit 3(8)
Sino-foreign Joint Venture
Yangzhou Tongsheng Container Co. Ltd.
(TSC)
Articles of Association
Chapter 1 General Provisions
Article 1
Jiangsu Tongyun Group Co. Ltd. ("Party A"), China Auto Industry Import
& Export Company ("Party B"), Benxi Steel and Iron Company ("Party C") and China
Container Holdings Ltd. ("Party D") entered into the Contract of Joint Venture
Yangzhou Tongsheng Container Co. Ltd. (the "Contract") in Yangzhou City, Jiangsu
Province, People's Republic of China on April 1, 1996. In order to have the
joint venture company run successfully, the parties to the joint venture (the
"Parties") hereby formulate this Articles of Association.
Article 2
The name of the joint venture company is:
Yangzhou Tongsheng Jizhuangxiang Youxian Gongsi.
Its English name is:
Yangzhou Tongsheng Container Co. Ltd. (TSC) (the "Company")
Article 3
The legal addresses of the Parties to the Company are as follows:
Party A: Qionghua Building Floor 16th Site A, Xuningmen
Road, Yangzhou City, Jiangsu Province, China;
Party B: 5 West Sihuan Road, Beijing, China;
Party C: 2 People Road, Pingshan District, Benxi, Liaoning
Province, China;
Party D: British Virgin Islands.
Article 4
<PAGE>
The Company is a limited liability company.
Article 5
The Company has a status of the Chinese legal person and is subject to
the jurisdiction and protection of the Chinese law. All its activities shall be
in Compliance with the Chinese laws, decrees and other pertinent rules and
regulations.
Chapter 2 Purpose and Scope of Business
Article 6
The purpose of the Company is to utilize foreign funds, to catch up
with and exceed the international advanced standards, to earn more foreign
exchange profits for China and to obtain satisfactory economic results for the
parties to the Company.
Article 7
The business scope of the Company is to manufacture and sell 20 feet,
40 feet and 45 feet standard containers for international sea transportation,
non-standard customized containers and parts and components thereof, and to
provide container maintenance and repairs and related services.
Article 8
The scale of production of the Company is as follows:
20,000 of 20 feet international standard dry van containers for sea
transportation within the second year after receiving the Company's industrial
and commercial business license;
The third year: 20,000 containers;
The fourth year: 20,000 containers;
And in each year thereafter normally: 20,000 to 30,000
containers.
Article 9
The Company shall sell all of its products on the international market.
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Chapter 3 The Total Investment and the Registered Capital
Article 10
The total amount of investment of the Company is US$9.6 million. Its
registered capital is US$4.8 million, equivalent to 50% of the total investment.
Article 11
The investment contributed by each party is as follows:
Party A: Investment subscribed is US$240,000, equivalent
to 5% of the registered capital;
Party B: Investment subscribed is US$240,000, equivalent
to 5% of the registered capital;
Party C: Investment subscribed is US$480,000, equivalent
to 10% of the registered capital;
Party D: Investment subscribed is US$3,840,000, equivalent
to 80% of the registered capital;
Article 12
The Parties to the Company shall make their respective subscribed
capital contributions in accordance with the time limit provided for in the
Contract. After the capital contributions have been made by the Parties, a
Chinese registered accountant shall be invited by the Company to verify such
capital contributions and provide a certificate of verification, upon which the
Company shall issue each party an investment certificate indicating the
following items: name of the Company; date of the establishment of the Company;
names of the party and the investment contributed; date of the contribution of
the investment, and the date of issuance of the investment certificate.
Article 13
Within the term of the joint venture, the Company shall not reduce its
registered capital.
Article 14
Any increase of the Company's registered capital shall be agreed
unanimously by all Parties to the Company and submitted to and approved by the
original approving authority.
Article 15
Should one party assign all or part of its investment subscribed,
consent shall be obtained from all of other parties of the joint venture. When
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one party assigns its investment, the other parties shall have the right of
first refusal.
Article 16
Any increase or assignment of the registered capital of the Company
shall be approved unanimously by the board of directors and submitted to and
approved by the original examination and approval authority. The registration
procedures for such changes shall be effectuated at the relevant department
authorized by the State Administration of Industry and Commerce.
Chapter 4 The Board of Directors
Article 17
The Company shall establish the board of directors (the "Board") which
is the highest authority of the Company.
Article 18
The Board shall decide all major issues concerning the Company. Its
duties and powers are as follows:
____ deciding and approving the important reports submitted by the general
manager (such as production plan, annual business report, funds, loans,
etc);
____ approving annual financial reports, budget of receipts and
expenditures, annual profit distribution plan;
____ adopting major rules and regulations of the company;
____ deciding to set up branches;
____ amending the articles of association of the Company;
____ discussing and deciding the termination of production, the
termination of the company or the merger with another
economic organization;
____ deciding the engagement of high-rank officials such as general manager,
chief engineer, chief accountant, auditor etc.
____ being in charge of liquidation in case of termination of the
Company and the expiration of the Company;
____ other major issues which shall be decided by the Board.
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Article 19
The Board shall consist of 11 directors and the number of directors
that each of the Parties may appoint shall be in proportion to their respective
capital contributions, that is, one director shall be appointed by Party A, two
directors by Party C and eight directors by Party D, among which one Director
appointed by Party D shall have two(2) votes, one of which shall be on behalf of
Party B. The term of office for the directors is four years and may be renewed
upon the appointment by the original appointing party.
Article 20
Chairman of the board shall be appointed by the party who is the
largest shareholder.
Article 21
If any party is to appoint or replace a director, a written notice
shall be submitted to the board.
Article 22
The Board shall convene a Board meeting annually. If necessary, an
interim meeting of the Board may be held upon a proposal made by at least
one-third of the total directors.
Article 23
The Board meeting will be held in principle on the location of the
Company, or elsewhere if agreed by all of directors.
Article 24
The Board meeting shall be called and presided by the Chairman. Should
the Chairman be absent, the Chairman shall authorize a vice chairman to call and
preside the board meeting.
Article 25
The Chairman shall give each director a written notice 30 days before
the date of the Board meeting. The notice shall cover the agenda, time and place
of the meeting.
Article 26
Should a director be unable to attend the Board meeting, he may
authorize in writing a proxy to attend the Board meeting. In case the director
neither attends nor authorizes other to attend the meeting, it shall be regarded
as a waiver.
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Article 27
The Board meeting requires a quorum of two-thirds of the total number
of directors. When the quorum is not satisfied, the decisions adopted by the
Board meeting are invalid.
Article 28
Detailed written minutes shall be made for each Board meeting and
signed by all of the attended directors and the attended proxy. The minutes
shall be made in Chinese and shall be filed with the company.
Article 29
The following issues shall be unanimously agreed upon by the Board:
1. amendment of the Contract and Articles of Association
of the Company;
2. cooperation, coalition and merger with other economic
organizations;
3. increase of registered capital, adjustment of
investment proportions, transfer or mortgage of
capital;
4. termination or dissolution of the Company.
Article 30
The following issues shall be passed by over two thirds of the total
number of directors or by over half of the total number:
1. decision on the annual production plans, sales plans,
and development plans;
2. approval of the annual financial budget, settlement,
estimation and financial statement;
3. decision on the maximum limit of floating capital and
borrowing loan for the portion exceeding the limit;
4. decision on the annual profit distribution plan;
5. review and approval of the annual business report
submitted by general manager;
6. approval the Company's labor contracts and important
rules and regulations;
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7. appointment or dismissal of general manager, deputy
general manager, chief engineer, chief accountant and
other high rank staff recommended by general manager
and engaged by the board, and decision on invitation of
auditor;
8. decision on salaries and benefit of general manager and
deputy general manager, and decision on plans of wages
and welfare of the Company's employees in accordance
with the stipulation of the labor administrative
department of China;
9. decision on the department organizations of the
Company;
10. other major matters to be decided by the board.
Chapter 5 Business Management Organization
Article 31
The Company shall establish a management system that the general
manager is authorized with full power and assumes full responsibility to be in
charge of the Company's business management under the supervision of the board
or directors.
The Company shall have one(1) general manager to be engaged upon
approval of the Board; three(3) deputy general manager to be recommended by the
general manager (or recommended by the Parties to the general manager) and
engaged upon the approval of the Board.
Article 32
The general manager is directly responsible to the Board. He shall
carry out the Contract, the Articles of Association and decisions of the Board,
organize and conduct the daily production, technology and operation and
management of the Company. The deputy general managers shall assist the general
manager in his work and act as the agent of the general manager upon the general
manager's authorization during his absence and exercise the duties of the
general manager.
Article 33
Decision on the major issues concerning the daily work of the Company
shall come into effective upon signature jointly by the general manager and
deputy general managers. Issues which need cosignatories shall be specified by
the Board.
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Article 34
The term of office for the general manager and deputy general managers
shall be 4 years, and may be renewed at the invitation of the Board.
Article 35
At the invitation of the Board, the chairman, vice-chairman or
directors of the board may concurrently assume the position of the general
manager, deputy general manager or other high-ranking personnel of the Company.
Article 36
The general manager or deputy general managers shall not hold posts
concurrently as general manager or deputy general managers of other economic
organizations or participate in such other organization's commercial competition
with the Company.
Article 37
The Company shall engage one treasurer, one chief engineer, one chief
accountant and one auditor upon approval of the Board.
Article 38
General engineer, chief accountant and auditor shall be under the
leadership of the general manager.
The treasurer shall be in charge of the Company's transactions,
production and financial management, and carry out economic responsibility
system.
The chief engineer shall be in charge of the Company's productive and
technical matters and the development of new products.
The chief accountant shall be in charge of the Company's financial and
accounting affairs, organize to carry out overall economic result calculation
within the Company, work out financial analysis and regularly report to the
general manager on the financial condition of the Company..
The auditor shall be in charge of the auditing work of the Company,
check and verify the financial receipts and expenditure and the accounts, and
submit written reports to the general manager and the Board.
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Article 39
The general manager, deputy general manager, chief engineer, chief
accountant, auditor and other high-ranking personnel who ask for resignation
shall submit a written application to the Board three months in advance and the
Board shall make a decision on it.
In case any of the above mentioned persons provides poor performance of
his work and is not able to achieve the business target set up by the board or
conducts graft or serious dereliction of duty, such person may be dismissed at
any time upon the decision of the Board.
Chapter 6 Finance and Accounting
Article 40
The finance and accounting of the Company shall be handled in
accordance with the "Regulations of the People's Republic of China on the
Finance and Accounting System of the Sino-foreign Equity Joint Ventures".
Article 41
The fiscal year of the Company shall coincide with the calendar year,
i.e., from January 1 to December 31 of the Gregorian calendar year.
Article 42
All vouchers, account books, statistic statements and reports of the
Company shall be written in Chinese.
Article 43
The Company adopts RMB as its accounts keeping unit. The conversion of
RMB into other currency shall be in accordance with the exchange rate published
on the converting day by the State Administration of Exchange Control of the
People's republic of China. In addition to RMB, the Company's accounting items
in respect of cash, bank deposits, income and payment, debts, expenses, earnings
in currencies other than RMB shall also be recorded in to the account books with
other currencies actually used in payment and receipt.
Article 44
The Company shall open accounts in RMB and foreign currency with the
Bank of China or other banks agreed by the State Administration of Exchange
Control.
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Article 45
The Company shall adopt the internationally accepted accrual basis and
debit and credit accounting system in its accounting work.
Article 46
Following items shall be included in the financial and account books:
1. the amount of total cash receipts and expense of the
Company;
2. all material purchases and sales of the Company;
3. the registered capital and debts of the Company;
4. the time of payment, increase and assignment of the
registered capital of the Company.
Article 47
The Company's accounting office shall, under the supervision of the
general manager, work out the balance sheet and the profit and loss statement of
the past year in the first four months of each fiscal year which shall be
submitted to the general manager and the Board meeting for approval after
examined and signed by the auditor and the accountant registered in China.
Article 48
Each party to the joint venture shall have the right to invite an
auditor to review and examine the account book of the Company at its own
expense. The Company shall provide convenience for the checking and examination.
Article 49
The depreciation period for the fixed assets of the Company shall be
decided by the Board in accordance with the "Rules for the Implementation of the
Income Tax Law of the People's Republic of China Concerning Joint Ventures with
Chinese and Foreign Investment".
Article 50
All matters concerning foreign exchange shall be handled in accordance
with the "Provisional Regulations for Exchange Control of the People's Republic
of China" and other pertaining regulations as well as the Contract.
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Chapter 7 Profits Sharing
Article 51
The Company shall allocate from after-tax profit the reserve funds, the
enterprise development funds and the employee bonus and welfare funds. The
proportion of allocation shall be decided by the Board.
Article 52
After paying taxes and allocating the above mentioned funds in
accordance with law, the remaining profits of the Company shall be distributed
to the Parties according to the proportion of each party's investment in the
registered capital.
Article 53
The Company shall distribute its profits once a year. The profit
distribution plan and the amount of profit distributed to each party shall be
published within the four months after the end of each fiscal year.
Article 54
The Company shall not distribute profits unless the losses of previous
fiscal year have been made up. Remaining profit from previous fiscal year can be
distributed together with that of the current year.
Chapter 8 Staff and Workers
Article 55
The employment, recruitment, dismissal and resignation of the staff and
workers of the Company and their salary, welfare benefits, labor insurance,
labor protection, labor discipline and other matters shall be handled according
to the "Regulations of the People's Republic of China on Labor Management in
Joint Ventures Using Chinese and Foreign Investment" and the implementation
rules thereof.
Article 56
The required staff and workers will be recruited by the Company in
public and priority shall be given to employees of Party A. Examination which
full marks are 100 marks will be adopted in all recruit without any exception
and anyone who obtains higher marks will be employed in order. Any person of the
recruiting department who is recommended by the Board, the general manager
office and all related department and workshop shall be recruited in priority if
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his/her marks obtained in such examination are 5 to 20 marks lower than those of
others. All recruited employees shall sign employment contract.
Article 57
The Company has the right to take disciplinary actions, record a
demerit and reduce salary against those staff and workers who violate the
Company's rules and regulations, labor contract and labor disciplines. Those
involved in serious cases may be dismissed. Dismissal of workers shall be filed
with the labor administrative department.
Article 58
The salaries of the staff and workers shall be set by the Board
according to the actual situation of the Company and with reference to
pertaining stipulations of China, and shall be specified in the labor contract.
The salaries of the staff and workers shall be appropriately increased
along with the development of business and production, the improvement of
economic results and the enhancement of the work ability and technical ability
of the staff and workers.
Article 59
Matters concerning the welfare, bonuses, labor protection, labor
insurance and the Housing funds, etc. shall be stipulated respectively in
various rules and regulations by the Company in accordance with the State's
relevant policies, so as to ensure that the staff and workers work under normal
conditions.
Chapter 9 The Trade Union Organization
Article 60
The staff and workers of the Company have the right to establish trade
union organization and carry out trade union activities in accordance with the
stipulations of the "Trade Union Law of the People's Republic of China".
Article 61
The trade union in the Company is representative of the interests of
the staff and workers. The tasks of the trade union are: to protect the
democratic rights and material interests of the staff and workers pursuant to
the law; to assist the Company to arrange and make rational use of welfare and
bonus funds; to organize staff and workers to participate in political,
professional, scientific and technical studies and literary, art and sports
activities; and to educate staff and workers to observe labor discipline and
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rules and regulations so as to complete production tasks of the Company and
achieve higher economic results.
Article 62
The trade union of the Company may sign labor contracts with the
Company on behalf of the staff and workers, and supervise the implementation of
the contracts.
Article 63
Person(s) in charge of the trade union of the Company shall have the
right to attend, as nonvoting members, meetings of the Board scheduled to
discuss issues such as development plans, production and operational activities,
and interests of staff and workers of the Company, and to report the opinions
and demands of staff and workers at meetings of the Board.
Article 64
The trade union shall have the right and duty to take part in the
mediation of disputes arising between the staff and workers and the Company.
Article 65
The Company shall allot an amount of money totalling 2% of all the
salaries of the staff and workers of the Company as trade union's funds, which
shall be used by the trade union in accordance with the "Managerial Rules for
the Trade Union Funds" formulated by the All China Federation of Trade Unions.
Chapter 10 Duration, Termination and Liquidation
Article 66
The duration of the Company shall be 15 years, beginning from the date
when business license is issued.
Article 67
Upon agreement and decision by all Parties, an application for the
extension of duration may be submitted to the original examination and approval
authority six months prior to the expiry date of the joint venture. Only upon
the approval shall the duration be extended, and the Company shall effectuate
registration alteration at the department authorized by the State Administration
of Industry and Commerce of P.R. China.
Article 68
The Contract may be terminated before its expiration in case the
Parties to the joint venture agree unanimously that the termination of the
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joint venture is for the best interests of the Parties.
A decision to terminate the joint venture before expiry of the term
shall be made by the Board through a plenary meeting, and such decision shall be
submitted to the original examination and approval authority for approval.
Article 69
Upon the expiration of the joint venture or termination of the Contract
prior to its expiry, the Board shall work out procedures and principles for the
liquidation, nominate candidates for the liquidation committee, and set up the
liquidation committee to liquidate the Company's assets.
Article 70
The tasks of the liquidation committee are: (1) to conduct thorough
check of the financial affairs and credits of the Company, (2) to work out the
balance sheet and the property inventory, and (3) to formulate a liquidation
plan. All these shall be carried out upon the approval of the Board.
Article 71
During the process of liquidation, the liquidation committee shall
represent the Company to sue and be sued.
Article 72
The liquidation expenses and the compensation of the members of the
liquidation committee shall be paid in priority from the existing assets of the
Company.
Article 73
After the full clearance of debts of the Company, the remaining
property and credits shall be distributed among the Parties to the joint venture
in accordance with their respective proportions of investment in the registered
capital.
Article 74
Upon completion of the liquidation, the Company shall submit a
liquidation report to the original examination and approval authority,
effectuate cancellation of registration with the administrative department of
industry and commerce, hand in its business license and, at the same time, make
an announcement to the public.
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Article 75
After winding up of the Company, its account books shall be left in the
care of Party A.
Chapter 11 Rules and Regulations
Article 76
The following are the rules and regulations formulated by the Board of
the Company.
1. Management regulations, including the powers and
functions of the managerial branches and their
respective working procedures;
2. Rules for the staff and workers;
3. System of labor and salary;
4. System of work attendance record, promotion and awards
and penalty for the staff and workers;
5. Rules of staff and worker's welfare;
6. Financial system;
7. Liquidation procedures upon the dissolution of the
Company;
8. Other necessary rules and regulations.
Chapter 12 Supplementary Articles
Article 77
The amendments to the Articles of Association shall be unanimously
agreed and decided by the Board and submitted to the original examination and
approval authority for approval.
Article 78
The Articles of Association is written in Chinese language.
Article 79
The Articles of Association shall come into effect upon the approval by
the examination and approval department authorized by the Ministry of Foreign
Trade and Economic Cooperation of the People's Republic of China.
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Article 80
These Articles of Association are the revised version based on the
original version of the Articles of Association formally signed in Yangzhou,
Jiangsu, China on July 5, 1995 in order to meet the latest needs of the
construction of container project and have been hereby formally executed in
Yangzhou, Jiangsu, China on April 1, 1996. Should any other agreements,
contracts and articles of association, etc. signed by and between Parties prior
to the date hereof conflict with these Articles of Association, these Articles
of Association shall prevail.
Party A Party B
by: Zhang Shouyong by: Zou Qiyuan
(Signature) (Signature)
Party C Party D
by: Wang Xihe by: Zhang Shouyong
(Signature) (Signature)
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Exhibit 10(3)
AGENCY AGREEMENT
1. Yangzhou Tongyun Container Company Ltd. ("Party A") hereby authorizes Jiangsu
Tongyun Group Trading Company ("Party B") to, exclusively and with full power,
manage the sale and design of Party A's products, and the supply of its raw
materials.
2. Party A shall remit to Party B an agency fee in an amount equal to Party B's
anticipated expenses to be incurred in its performance of the services described
in Section 1. Prior to the beginning of each calendar quarter, Party A and Party
B shall agree on the amount of the agency fee for such quarter, expressed as a
percentage of Party A's total sales. The agency fee shall be paid to Party B
within 30 days following receipt by Party A of the purchase price for its
products.
3. This Agreement shall be effective on the date of signing, and may be
terminated by either Party upon 90 days notice.
4. Any amendment to this Agreement shall not be effective unless agreed to in
writing by both Parties.
Party A: Party B:
Yangzhou Tongyun Container Jiangsu Tongyun Group
Company Ltd. Trading Company
By______________________ By_____________________
Name: Dong Xiaojun Name: Li Haixing
Title: General Manager Title: General Manager
April 10, 1996 April 10, 1996
<PAGE>
Exhibit 10(4)
AGENCY AGREEMENT
1. Yangzhou Tongsheng Container Co. Ltd. ("Party A") hereby authorizes Jiangsu
Tongyun Group Trading Company ("Party B") to, exclusively and with full power,
manage the sale and design of Party A's products, and the supply of its raw
materials.
2. Party A shall remit to Party B an agency fee in an amount equal to Party B's
anticipated expenses to be incurred in its performance of the services described
in Section 1. Prior to the beginning of each calendar quarter, Party A and Party
B shall agree on the amount of the agency fee for such quarter, expressed as a
percentage of Party A's total sales. The agency fee shall be paid to Party B
within 30 days following receipt by Party A of the purchase price for its
products.
3. This Agreement shall be effective on the date of signing, and may be
terminated by either Party upon 90 days notice.
4. Any amendment to this Agreement shall not be effective unless agreed to in
writing by both Parties.
Party A: Party B:
Yangzhou Tongsheng Jiangsu Tongyun Group
Container Co. Ltd. Trading Company
By______________________ By_____________________
Name: Dong Xiaojun Name: Li Haixing
Title: General Manager Title: General Manager
June 10, 1996 June 10, 1996
<PAGE>
