<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )*
-----
SUNBASE ASIA, INC.
-----------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK, $0.001 PAR VALUE
-----------------------------------------------------------------------
(Title of class of securities)
867 06 4107
-----------------------------------------------------------------------
(CUSIP number)
MR. GEORGE A. RAFFINI, HPEM, 10TH FLOOR, CITIBANK TOWER, 3 GARDEN ROAD,
HONG KONG, TEL: (852) 2845-7688
-----------------------------------------------------------------------
(Name, address and telephone number of person
authorized to receive notices and communications)
23 AUGUST 1996
-----------------------------------------------------------------------
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1 (b)(3) or (4), check the following box. [_]
Check the following box if a fee is being paid with the statement [X]. (A
fee is not required only if the filing person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7).
Note. Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1 (a) for other parties to whom copies
are to be sent.
(Continued on following pages)
(Page 1 of 7 Pages)
- -----------------
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter the
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 867 06 4107 13D PAGE 2 OF 7 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
PRIVATE EQUITY MANAGEMENT BVI LIMITED (as the general partner of The HSBC
Private Equity Fund, L.P.)
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
5 TO ITEM 2(d) or (e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
BRITISH VIRGIN ISLANDS / CAYMAN ISLANDS
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
1,200,000
OWNED BY (the number of shares issuable upon conversion of the
Debentures is subject to adjustment as provided in the
Debenture documents)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 1,200,000
(the number of shares issuable upon conversion of the
Debentures is subject to adjustment as provided in the
Debenture documents)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,200,000 shares
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
8.6%
(arrived at by assuming that the number of issued and outstanding shares
at the time the Debentures are converted into shares remains the same as
that outstanding at the date of filing this form)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 867 06 4107 13D PAGE 3 OF 7 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
HSBC PRIVATE EQUITY MANAGEMENT LTD.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
5 TO ITEM 2(d) or 2(e)
[_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
HONG KONG
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
1,600,000
OWNED BY (the number of shares issuable upon conversion of the
Debentures is subject to adjustment as provided in
the Debenture documents)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
400,000
(the number of shares issuable upon conversion of the
Debentures is subject to adjustment as provided in
the Debenture documents)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,600,000 shares
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
11.2%
(arrived at by assuming that the number of issued and outstanding shares
at the time the Debentures are converted into shares remains the same as
that outstanding at the date of filing this form)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IA
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
------------
ITEM 1 - SECURITY AND ISSUER
Name of Issuer : Sunbase Asia, Inc.
Address of the principal
office of the Issuer : 19/F, First Pacific Bank Centre
51-57 Gloucester Road
Wanchai, Hong Kong
Equity securities : Common Stock, par value US$0.001
per share
ITEM 2 - IDENTITY AND BACKGROUND
<TABLE>
<CAPTION>
====================================================================================
Private Equity Management HSBC Private
BVI Ltd., (as the general Equity Management
partner of The HSBC Ltd. ("HPEM")
Private Equity Fund, L.P.)
("PEML")
- ------------------------------------------------------------------------------------
<S> <C> <C>
Type Limited Partnership Corporation
Place of incorporation British Virgin Hong Kong
Islands/Cayman Islands
Registered office Craigmuir Chambers 10/F, Citibank
P.O. Box 71, Road Town Tower
Tortola, British Virgin 3 Garden Road
Islands/ c/o Midland Bank Hong Kong
Trust Corporation
(Cayman) Ltd.
P.O. Box 1109,
Grand Cayman, B.W.I.
Principal business Private equity investment Investment
advisory services
Principal business/office c/o Midland Bank Trust 10/F, Citibank
address Corporation (Cayman) Ltd. Tower
P.O. Box 1109, 3 Garden Road
Grand Cayman, B.W.I. Hong Kong
Criminal proceedings in the last None None
five years
Civil proceedings in the last None None
five years
====================================================================================
</TABLE>
4 of 7
<PAGE>
ITEM 3 - SOURCE OF FUNDS
<TABLE>
<CAPTION>
=======================================================================================
PEML HPEM
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cost of investment US$6,000,000 US$8,000,000
Source of funds Funds deposited by third Funds deposited by third
parties for investment parties for investment
purposes purposes
=======================================================================================
</TABLE>
ITEM 4 - PURPOSE OF TRANSACTION
The purpose of the acquisition of securities is for investment purposes.
The Debenture documents provide for the issuance of common stock in Sunbase
Asia, Inc. upon conversion of the Debentures upon certain events as specified
therein.
Under the Subscription Agreement of the Debentures dated 2 August 1996, the
Funds (as defined therein) to whom the Debentures were issued have the right to
appoint one member to the Board of Directors of Sunbase Asia, Inc.
ITEM 5 - INTEREST IN SECURITIES OF THE ISSUER
(a) & Statement of beneficial ownership
---------------------------------
(b)
<TABLE>
<CAPTION>
========================================================================================
No. of Shares
Name No. of % of shares ================================================
Shares outstanding Sole Shared Sole Shared
voting voting dispositive dispositive
power power power power
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PEML 1,200,000 8.6%* 0 1,200,000 1,200,000 0
- ----------------------------------------------------------------------------------------
HPEM 1,600,000 11.2%* 0 1,600,000 0 400,000
========================================================================================
</TABLE>
* arrived at by assuming that the number of issued and outstanding shares at
the time the Debentures are converted into shares remains the same as that
outstanding at the date of filing this form.
(c) Pursuant to that certain Subscription Agreement dated August 2, 1996,
entered into between China Bearing Holdings Ltd. ("CBHL"), Asean Capital
Ltd., China International Bearing Holdings Ltd. ("CIBHL"), Sunbase Asia,
Inc., Smith Acquisition Company, Inc. ("SPC"), Glory Mansion Ltd. ("GML"),
Wardley China Investment Trust ("WCIT"), MC Private Equity Partners Asia
Ltd. and China Investissement 2000, CBHL, a subsidiary of Sunbase Asia,
Inc. incorporated in Bermuda, issued convertible debentures to GML and WCIT
among others. The Debentures issued to GML and WCIT are convertible into
the number of shares of common stock of Sunbase Asia, Inc. indicated below
(subject to adjustment as specified in the Debenture documents):
5 of 7
<PAGE>
<TABLE>
<CAPTION>
===================================================================
NAME OF INVESTOR INVESTMENT (US$) NO. OF COMMON STOCK UPON
CONVERSION OF DEBENTURES*
- -------------------------------------------------------------------
<S> <C> <C>
GML/(1)//(2)/ 6,000,000 1,200,000
WCIT/(3)/ 2,000,000 400,000
- -------------------------------------------------------------------
8,000,000 1,600,000
===================================================================
</TABLE>
* subject to adjustment as provided for in the Debenture documents
/(1)/ PEML, as the general partner of The HSBC Private Equity Fund, L.P.,
is the beneficial owner of the Debentures held by GML, which are
convertible into common stock of Sunbase Asia, Inc., and has the
dispositive power over such shares.
/(2)/ HPEM has certain authority with respect to the voting of the shares
of Sunbase Asia, Inc. to be held of record by GML upon conversion of
the Debentures.
/(3)/ HPEM has certain authority with respect to the voting and
disposition of the shares of Sunbase Asia, Inc. to be held of record
by WCIT upon conversion of the Debentures, and, as such, is the
beneficial owner of such shares.
(d) not applicable
(e) not applicable
ITEM 6 - CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIP WITH RESPECT TO
THE SECURITIES OF THE ISSUER
Subscription Agreement of Debentures
- ------------------------------------
A Subscription Agreement dated 2 August 1996 was made between the parties set
out in item 5(c) above which entitles the Debenture holders to require CBHL to
redeem the Debentures upon the occurrence of certain events as specified
therein.
The Guarantee
- -------------
A Guarantee was made between Sunbase Asia, Inc. and CIBHL (collectively referred
to as the "Guarantors") and the Investors (as defined in the Subscription
Agreement) on August 23, 1996. Under the Guarantee, the Guarantors jointly and
severally guarantee to each of the Investors the obligations of each of Sunbase
Asia, Inc. and its affiliates under the Subscription Agreement. SPC is required
to execute a similar guarantee in favor of the Investors.
ITEM 7 - MATERIAL TO BE FILED
Attached as Exhibit 99.1 is a copy of the Subscription Agreement which includes
as exhibits the form of Debenture and Guarantee.
6 of 7
<PAGE>
After reasonable inquiry and to the best knowledge and belief of each, the
undersigned certify that the information set forth in this Schedule 13D is true,
complete and correct.
Dated: September 3, 1996 Private Equity Management BVI Limited
By: /s/ A. Kareen Watler
-----------------------------------
A. Kareen Watler
Director
HSBC Private Equity Management Ltd.
By: /s/ George A. Raffini
-----------------------------------
George A. Raffini
Deputy Managing Director
7 of 7
<PAGE>
EXHIBIT 99.1
------------
Subscription Agreement
<PAGE>
DATED THE 2ND DAY OF AUGUST, 1996
(1) CHINA BEARING HOLDINGS LIMITED
AND
(2) ASEAN CAPITAL LIMITED
AND
(3) CHINA INTERNATIONAL BEARING
HOLDINGS LIMITED
AND
(4) SUNBASE ASIA, INC.
AND
(5) SMITH ACQUISITION COMPANY, INC.
AND
(6) GLORY MANSION LIMITED
AND
(7) WARDLEY CHINA INVESTMENT TRUST
AND
(8) MC PRIVATE EQUITY PARTNERS
ASIA LIMITED
AND
(9) CHINE INVESTISSEMENT 2000
-----------------------------------------
SUBSCRIPTION AGREEMENT
IN RESPECT OF CERTAIN
CONVERTIBLE DEBENTURES TO BE ISSUED BY\
CHINA BEARING HOLDINGS
LIMITED
------------------------------------------
<PAGE>
CHAO AND CHUNG
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C>
1. Purpose and Definition 2
2. Issue and subscription of the Debenture 5
3. Conditions Precedent 6
4. Completion 7
5. Representations and Warranties 9
6. Representations by each of the Investors 10
7. Specific Undertakings by ACL 11
8. Further Covenants 12
9. Specific Undertakings by SAI 18
10. Specific Undertaking by SPC 18
11. Corporate Governance 19
12. Notices 20
13. Costs and Expenses 21
14. Governing Law and Jurisdiction 22
15. Announcements and Confidentiality 24
16. General Provisions 25
17. Counterparts 26
SCHEDULE 1
Part I Corporate Chart 27
Part II Other Corporate details 28
Part III Status and Characteristics of the securities issued by SAI 36
SCHEDULE 2
Form of Certificate 37
Terms and Conditions of the Debentures 38
SCHEDULE 3
Representations and Warranties 61
SCHEDULE 4
Form of Guarantee 68
SCHEDULE 5
Employees / Directors' Options 77
SCHEDULE 6
Certification on Conversion Notice 78
SCHEDULE 7
Undertaking by ACL 79
SIGNATURE PAGE 87
</TABLE>
<PAGE>
THIS AGREEMENT is made on the 2nd day of August, 1996.
(1) CHINA BEARING HOLDINGS LIMITED, the registered office of which is at Cedar
House, 41 Cedar Avenue Hamilton HM12, Bermuda (the "COMPANY");
(2) ASEAN CAPITAL LIMITED, the registered office of which is at Omar Hodge
Building, Wickhams Cay I, P.O. Box 362, Road Town, Tortola, British Virgin
Islands ("ACL");
(3) CHINA INTERNATIONAL BEARING HOLDINGS LIMITED, the registered office of
which is at 19th Floor, 51-57 Gloucester Road, Wanchai, Hong Kong
("CIBHL");
(4) SUNBASE ASIA, INC., the registered office of which is at 1280 Terminal Way,
Suite 3, Reno Nevada 89502, United States of America ("SAI");
(5) SMITH ACQUISITION COMPANY, INC., a California corporation doing business as
Southwest Products Company, the registered office of which is at 2240 Buena
Vista, Irwindale, CA 91706, United States of America ("SPC");
(6) GLORY MANSION LIMITED, the registered office of which is at Craigmuir
Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands ("GML");
(7) WARDLEY CHINA INVESTMENT TRUST, the registered office of which is at c/o
Suite 1610, P.O. Box 1016, 885 West Georgia Street, Vancouver B.C., V6C
3E8, Canada ("WCIT");
(the parties at (6) and (7) hereinafter collectively referred to us the "FUNDS"
and each a "FUND");
(8) MC PRIVATE EQUITY PARTNERS ASIA LIMITED the registered office of which is
at P.O. Box 309, Ugland House, South Church Street, Grand Cayman, Cayman
Islands, British West Indies ("MC PARTNERS"); and
(9) CHINE INVESTISSEMENT 2000, a Luxembourg-registered Unit Trust, the
registered office of which is at L1118 Luxembourg, 14 Rue Aldringen ("CI
2000");
(the parties at (6), (7), (8) and (9) hereinafter collectively referred to as
the "INVESTORS" and each an "INVESTOR")
WHEREAS:-
(A) The Company was incorporated in Bermuda under the Companies Act 1981
Bermuda and presently has such authorized and issued share capital as set
out in Schedule 1 hereof. SAI is the holding company of the Company and was
<PAGE>
incorporated under the laws of Nevada and presently has a share capital as
set out in Schedule 1 hereof.
(B) The Company intends to issue certain convertible debentures of an aggregate
principal value of US$11,500,000, and has agreed with the Investors to
issue and each of the Investors has agreed to subscribe such number of
Debentures (as hereafter defined) convertible into Shares (as hereinafter
defined) upon and subject to such terms and conditions set out in this
Agreement.
(C) Each of the Funds is an investment fund (or a wholly- owned subsidiary of
such Fund) managed by HSBC Private Equity Management Limited ("HPEM").
(D) SAI, CIBHL and SPC has each agreed to guarantee the obligations of the
Company and of each other arising under this Agreement, the Debentures and
the Guarantee.
(E) ACL has agreed to guarantee, inter alia, the payment obligations of the
Company under this Agreement and the Debentures.
NOW IT IS HEREBY AGREED as follows:
1. PURPOSE AND DEFINITION
----------------------
1.1 The Schedules form an integral part of this Agreement and shall be
construed and have the same full force and effect as if expressly set out
in the main body of this Agreement.
1.2 The words and expressions set out below shall have the meanings attributed
to them below unless the context otherwise requires:-
"ACCOUNTS" the latest published audited consolidated accounts or
financial statements of SAI Group comprising their
consolidated balance sheet as at 31st December, 1995 and
their consolidated profit and loss account or income
statement in respect of the financial year ended 31st
December, 1995;
"ACL PROMISSORY NOTES" promissory notes issued by SAI in favour of ACL in the
aggregate principal amount of UNITED STATES FIVE MILLION
DOLLARS (US$5,000,000);
2
<PAGE>
"ACL UNDERTAKING" an undertaking or guarantee to be given by ACL in favour
of the Investors in the form or substantially the same
form as set out in Schedule 7 hereof;
"AGREEMENT" this Subscription Agreement;
"BUSINESS DAY" a day (excluding Saturday) on which banks in Hong Kong
and New York are generally open for business;
"BOARD" board of directors;
"CERTIFICATE" the certificate to be issued in respect of the Debenture
substantially in the form set out in Schedule 2 hereof;
"COMPLETION" completion of the subscription contemplated herein
pursuant to Clause 4;
"COMPLETION DATE" (a) the fifteenth (15th) Business Day following the date
hereof or if on such date the Conditions Precedent
shall not have been fulfilled (or waived by the
Majority Investors) the seventh (7th) Business Day
following the date on which the Conditions Precedent
are fulfilled (or waived by the Majority Investors);
or
(b) such other date as may be agreed between the
Majority Investors and the Company provided that
such date shall not be any later than the Long Stop
Date;
"CONDITIONS" the terms and conditions to be attached to the
Certificate substantially in the form set out in
Schedule 2 hereof;
"CONDITIONS PRECEDENT" the conditions precedent set out in Clause 3.1 hereof;
"CONVERSION DATE" the date on which the Conversion Rights are exercised in
accordance with the Conditions;
"CONVERSION RIGHTS" the rights attached to the Debentures to convert the
principal amount or any part thereof into Shares;
3
<PAGE>
"CONVERSION SHARES" "the Shares to be issued by SAI under the Debentures
upon conversion;
"DEBENTURE" or the convertible debentures issued in "DEBENTURES"
denominations of US$250,000 each by the Company in the
form or substantially in the form set out in the
Schedule 2 hereof;
"DEBENTUREHOLDER" or the person or persons who is or are for
"DEBENTUREHOLDERS" the time being the holder of the Debentures;
"EVENT OF DEFAULT" an event of default as described in Condition 11 of the
Conditions;
"GUARANTEE" the guarantee to be given by the Guarantors in the form
or substantially the same form as set out in Schedule 4
hereof;
"GUARANTORS" or "GUARANTOR" SAI, CIBHL and SPC;
"LONG STOP DATE" Forty-five (45) days from the date of this Agreement;
"MAJORITY INVESTORS" the majority of the Investors in value holding more than
50% of the total principal amount of the Debentures
outstanding;
"PAYMENT BUSINESS DAY" a day (excluding Saturday) on which banks in Hong Kong
and New York are generally open for business;
"SAI GROUP" SAI and those companies appearing in the corporate chart
of SAI as set out in Part I of Schedule 1 hereof
(including those companies that shall from time to time
become subsidiaries (as defined by the Companies
Ordinance (Cap. 32 of the Laws of Hong Kong) of SAI
after the date of this Agreement;
"SHARES" the shares in the common stock of SAI existing at the
date of this Agreement and all other (if any) stock or
shares from time to time and for the time being to be
issued ranking pari passu therewith and all other (if
any) shares or stock
4
<PAGE>
resulting from any sub-division, consolidation or re-
classification of the Shares;
"SUPER-VOTING RIGHTS" such weighted voting rights of 500,000 votes per Series
A Preferred Stock issued by the Company;
"WARRANTIES" the representations and warranties contained in Clause 5
and Schedule 3 hereof;
"HK$" Hong Kong dollars; and
"US$" United States dollars.
1.3 Except as otherwise expressly provided, expressions defined in the
Companies Ordinance (Cap. 32 of the Laws of Hong Kong) have the same
meaning in this Agreement.
1.4 A reference to a statute or statutory provision includes a reference:
(a) to that statute or provision as from time to time modified or re-
enacted;
(b) to any repealed statute or statutory provision which it re-enacts (with
or without modification); and
(c) to any orders, regulations, instruments or other subordinate
legislation made under the relevant statute or statutory provision.
1.5 Unless the context otherwise requires:-
(a) words in the singular include the plural, and vice versa;
(b) words importing any gender include all genders; and
(c) a reference to a person includes a reference to a body corporate and
to an unincorporated body of persons.
1.6 A reference to a Clause, sub-Clause or Schedule is to a clause, sub-Clause
or schedule (as the case may be) of or to this Agreement.
1.7 The headings are for convenience only and do not affect interpretation.
5
<PAGE>
2. ISSUE AND SUBSCRIPTION OF THE DEBENTURE
---------------------------------------
2.1 Subject to fulfilment of the Conditions Precedent, at Completion, each of
the Investors shall subscribe for Debentures of such aggregate principal
value as set out against its name hereunder and shall pay or procure that
there shall be paid to the Company (or any company or person as shall be
directed by the Company) the amount of the subscription moneys for the
Debentures:
<TABLE>
<CAPTION>
Aggregate Principal
US$ value of the
Name of Investor Subscription Monies Debenture(s) to be issued
---------------- ------------------- -------------------------
<S> <C> <C>
GML 6,000,000 6,000,000
WCIT 2,000,000 2,000,000
MC Partners 2,000,000 2,000,000
CI 2000 1,500,000 1,500,000
------------- -------------
Total: US$11,500,000 US$11,500,000
</TABLE>
2.2 Subject to fulfilment of the Conditions Precedent and at Completion, the
Company shall, upon receipt of the subscription moneys referred to in
Clause 2.1, issue the Debenture(s) at its full principal value to the
respective Investors.
2.3 (a) None of the Funds shall be obliged to subscribe for any of the
Debentures if the subscription for the Debentures is not completed
simultaneously by the other two Investors in which case subscription
hereunder shall be at the Funds' absolute discretion and the Company is
obliged to complete the issue of such Debentures to the Funds pursuant
to the terms and provisions of this Agreement if the Funds so elect
notwithstanding the default by the other Investors but no default by
only one of the Investors (not being a Fund) shall excuse the Funds
from the performance of the Funds' and the non-defaulting Investor's
(not being a Fund) obligations hereunder and Completion so effected
shall, for the avoidance of doubt, in no way affect the obligations and
the undertakings of the parties contained herein.
(b) MC Partners shall not be obliged to subscribe for such Debentures as
set out against its name in sub-Clause 2.1 if the subscription by the
Funds for the Debentures against the Funds' names is not completed
simultaneously. If the Funds shall fail to complete the subscription of
the Debentures pursuant to sub-Clause 2.1, MC Partners shall be
entitled, at its absolute discretion, to subscribe for the Debentures
that would have been subscribed by the Funds pursuant to sub- Clause
2.1 but for the Funds' default and the Company shall be obliged to
complete the issue of such Debentures to MC Partners pursuant to the
terms and provisions of this Agreement if MC Partners so elect.
6
<PAGE>
3. CONDITIONS PRECEDENT
--------------------
3.1 The following are conditions precedent to Completion:-
(a) a legal opinion shall have been obtained from the US lawyers, Messrs.
Loeb & Loeb, to the satisfaction of the Majority Investors confirming
(i) that no approvals or consents need to be applied for from any US
authorities, bodies, governmental agencies or institutions in relation
to the issue of the Debentures; (ii) that each of SAI and SPC has the
power, capacity and authority to issue the Conversion Shares, to enter
into this Agreement and the Guarantee and that in doing so it shall
not have breached any laws (federal or state), regulations or
contractual obligations; (iii) that (subject to approval being
obtained on the listing of the Conversion Shares) the issue and
allotment of the Conversion Shares will not be in breach of any
regulations, codes or laws (federal or state); (iv) that save as
mentioned there are no other approvals or consents that need to be
applied for or obtained from any US authorities (federal or state) in
connection with the transactions or matters contemplated hereunder;
(v) that the share structure and other corporate details as contained
in Schedule 1 hereof are accurate and correct and not in any way
misleading; and (vi) that there are nothing the Majority Investors
ought to be aware of or ought to be brought to their attention in
relation thereto in order to effect the issue of the Conversion Shares
or to maintain or effect the legality, validity and enforceability of
this Agreement, the Debenture and the Guarantee against SAI or SPC;
(b) (if applicable) relevant approval from the Bermuda Monetary Authority
shall have been obtained;
(c) (if applicable) such employment contracts with the key management of
the SAI Group shall have been entered upon such terms to the
satisfaction of the Funds; and
(d) (if applicable) such management agreements or other agreements as
shall be required by the Funds shall have been entered into or such
acts or deeds as shall be required by the Funds shall have been
performed to the Funds' satisfaction in order to enable the
subscription hereunder to qualify as a VCOC qualifying investment;
3.2 If the Conditions Precedent are not fulfilled on or before the Long Stop
Date, this Agreement (save for Clauses 1, 12 to 17 and this Clause 3) will
lapse and become null and void and the parties will be released from all
obligations hereunder (save
7
<PAGE>
for Clauses 1, 12 to 17 and this Clause 3), save for any liabilities for
any antecedent breaches hereof.
4. COMPLETION
----------
Subject to fulfilment of the Conditions Precedent, Completion shall take place
on the Completion Date and each party referred to below shall perform its
respective obligations as follows:-
4.1 The Company shall:
(a) (if required by the Investors) deliver evidence in a form reasonably
satisfactory to the Majority Investors that the Conditions Precedent
referred to in Clause 3 hereof have been duly satisfied and fully
complied with (unless otherwise waived by the Majority Investors);
(b) deliver to the Investors a certified copy of the Board resolution of
the Company approving and authorising execution and completion of this
Agreement and the issue of the Debenture and the Certificate upon the
terms and subject to the Conditions contained herein;
(c) deliver to the Investors a certified copy of the Board resolution of
SAI (i) approving and authorising execution and completion of this
Agreement; (ii) the issue of the Debenture and Certificate by the
Company upon the terms and subject to the conditions; (iii) approving
and authorising the execution of the Guarantee; (iv) approving the
issuance of the Conversion Shares upon conversion of the Debenture;
and (v) resolving to effect and do all that is necessary to give
effect to the Agreement, the Debenture, the Guarantee and the
conversion under the Debentures;
(d) deliver to the Investors a certified copy of Board resolution from
each of CIBHL and SPC in each case approving and authorising the
execution and completion of this Agreement and the Guarantee and
resolving to effect and do all that is necessary to give effect to the
Agreement, the Debenture, the Guarantee and the conversion under the
Debentures;
(e) deliver to the Investors, a certified copy of Board resolution from
ACL approving and authorising the execution and completion of this
Agreement and the ACL Undertaking and resolving to effect and do all
that is necessary to give effect to the Agreement, the Debenture and
the ACL Undertaking; and
8
<PAGE>
(f) (against reasonable evidence that the monies referred in 4.2 below
having been received from the Investors by the Company) deliver to
each of the Investors (or to such persons at such place as the
relevant Investor may direct) a Certificate or Certificates duly
issued for the amount representing the subscription in favour of the
relevant Investor (or its nominee).
4.2 At Completion, each of the Investors shall:
(a) deliver to the Company evidence in a form reasonably satisfactory to
the Company of its authority for the execution of this Agreement and
the subscription of the Debentures thereunder; and
(b) pay to the Company or as the Company may direct such amount of
relevant subscription monies.
4.3 SAI and CIBHL shall enter into the Guarantee in the form or substantially
the same form as set out in Schedule 4 hereof.
4.4 ACL shall enter into the ACL Undertaking in the form or substantially the
same form as set out in Schedule 7 hereof.
4.5 All the obligations described herein are inter- conditional and none of the
transactions shall be completed unless all of them are completed at
Completion. Subject to Clause 2.3, none of the parties shall be obliged to
complete this Agreement unless the other parties complies fully with their
obligations hereunder. Without Prejudice to Clause 2.3, to the extent that
the obligations of any parties hereto are not fully complied with at
Completion, the other parties not in default may defer Completion to
another day or proceed to Completion as far as practicable (without
limiting its rights under this Agreement) or treat this Agreement as
terminated for breach of a condition.
5. REPRESENTATIONS AND WARRANTIES
5.1 Each of the Company, the Guarantors and ACL (collectively the "WARRANTORS")
hereby jointly and severally, represents, warrants and undertakes to each
of the Investors that each of the Warranties is true and accurate in all
material respects and not misleading as at the date hereof and shall
continue to be true and accurate in all material respects and not
misleading on each day hereafter up to and including the Completion Date as
if repeated on each such day.
5.2 Each of the Warranties shall be construed as a separate and independent
warranty and (save where expressly provided to the contrary) shall not be
limited or
9
<PAGE>
restricted by reference to or influence from any other term of this
Agreement or any other warranty.
5.3 If any party hereto fails to perform its obligations hereunder or if any of
the Warranties shall have been breached prior to Completion then without
prejudice to all and any rights or remedies available to the non-defaulting
party, it may by notice either require the defaulting party to perform any
of its obligation on or prior to Completion or treat the defaulting party
as having repudiated this Agreement and rescind the same.
5.4 Each of the Warrantors represents and warrants that no offer to sell the
Securities (as defined in Clause 6) was made in the United States nor did
any member of the SAI Group or any of their affiliates or any person acting
on its or their behalf engage in any directed selling efforts (as defined
in Regulation S of the Securities Act (as defined in Clause 6 below)) in
the United States of America with respect to the offer or sale of the
Securities (as defined in Clause 6).
6. REPRESENTATIONS BY EACH OF THE INVESTORS
----------------------------------------
Each of the Investors hereby represents and warrants that:
(a) it has full power and authority to enter into this Agreement. This
Agreement to which the Investor is a party constitutes the Investor's valid
and legally binding obligation, enforceable in accordance with its terms
except as may be limited by (i) applicable bankruptcy, insolvency,
reorganisation or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the
effect of rules of law governing the availability of equitable remedies;
(b) it is not a U.S. person (as defined in Regulation S under the Securities
Act of 1933, as amended (the "SECURITIES ACT")), was not organised under
the laws of any United States jurisdiction and was not formed for the
purpose of investing in securities not registered under the Securities Act;
(c) at the time of execution of this Agreement, it was outside the United
States and the sale of the Debentures and the Conversion Shares
(collectively the "SECURITIES") has not been prearranged with a buyer in
the United States;
(d) it is purchasing the Securities for its own account for investment purposes
and not for distribution;
(e) all subsequent offers and sales of the Securities (i) (if to be made
outside the United States) will be made in compliance with Rule 903 or Rule
904 of Regulation S or (ii) will be made pursuant to registration of the
Securities under
10
<PAGE>
the Securities Act, or (iii) will be made pursuant to an exemption from
registration and that there can be no assurance that it will be able to
rely on any such exemption;
(f) it understands that the Securities are being offered and sold to it in
reliance on specific provisions of federal and state laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of the Investor
set forth herein in order to determine the applicability of such
provisions; and
(g) it acknowledges that the Securities have not been registered under the
Securities Act as at the date of this Agreement and for a period of 40 days
after Completion it will not offer, sell, or deliver the Securities,
directly or indirectly, in the United States or to, or for the benefit or
account of, U.S. persons except pursuant to registration under the
Securities Act or an exemption from such registration. Terms used herein
have the meanings specified in Regulation S under the Securities Act.
7. SPECIFIC UNDERTAKINGS BY ACL
----------------------------
7.1 ACL hereby irrevocably and unconditionally undertakes that for so long as
any of the Debentures are outstanding, no amounts are to be repaid in
respect of the ACL Promissory Notes unless:
(a) there is sufficient positive operating cash flow for working capital,
debt repayment and capital expenditure for the ensuing twelve- month
period, such sufficiency to be determined by the Majority Investors on
the basis of the cash flow forecast presented to it by ACL and/or SAI
in the format and substance satisfactory to the Majority Investors;
and
(b) the repayment is made in accordance with the following schedule:
<TABLE>
<CAPTION>
Payment Period Amount
-------------- ------
<C> <S>
1st August, 1996 - 31st July, 1997 up to US$2,000,000 plus accrued
interest
1st August, 1997 - 31st July, 1998 up to US$1,500,000 plus accrued
interest
1st August, 1998 - 31st July, 1999 up to US$1,500,000 plus accrued
interest
-------------------------------
Total: US$5,000,000 plus accrued interest
</TABLE>
In the event of dispute as to the sufficiency of the operating cash
flow in (a) above, an independent merchant bank of repute or an
independent firm of international accountants mutually agreed between
ACL and the Majority Investors
11
<PAGE>
shall be appointed to determine the sufficiency of such operating cash
flow whose decision shall be final and binding on the parties.
7.2 Each of ACL and SAI hereby undertakes that to the extent that any terms
contained in Clause 7.1 above should conflict with any terms of the ACL
Promissory Notes, the terms hereunder shall prevail and the ACL Promissory
Notes shall be deemed to have been varied or modified to such extent so as
to give effect to the provisions hereunder. ACL and SAI shall do and
perform all that is necessary to give effect to this provision including
the execution of any deeds, document and supplemental agreements.
7.3 ACL hereby irrevocably and unconditionally undertakes to each of the
Investors that for so long as the Debenture is outstanding, ACL shall not
without the prior written approval of the Majority Investors, exercise any
Super-voting Rights attached to the Series A Preferred Stock to which ACL
is entitled.
7.4 ACL hereby unconditionally and irrevocably undertakes to each of the
Investors that for so long as any of the Debentures are outstanding, ACL
shall, directly or indirectly, remain the legal and beneficial owner of not
less than 51% of the Deemed Total Issued Share Capital of SAI (as defined
in sub- Clause 8.5(c)) and retain control over not less than 51% of the
voting rights of SAI (which for this purpose shall exclude Super-voting
Rights but shall include a substitution of 100,000 votes per Series A
Preferred Stock held for the purposes of calculation hereunder). ACL
further undertakes that (subject to sub-Clause 8.5 hereof) it shall not
sell, mortgage, pledge, charge, assign or otherwise purport to deal with
the beneficial interest therein or any right in relation thereto (including
voting rights) or create any lien or encumbrance over the Shares and/or the
voting rights attached thereto.
8. FURTHER COVENANTS
-----------------
8.1 Representation
--------------
(a) Each of the Company and the Guarantors hereby undertakes to appoint
such person as shall be nominated by GML to each of its respective
Boards as a director.
(b) SAI shall appoint such person as shall be nominated by GML as a member
of the audit committee of SAI.
(c) Each of the Company, the Guarantors and ACL shall procure that such
appointments referred to in (a) and (b) shall continue for so long as
any of the Debentures which are held by GML remains outstanding.
12
<PAGE>
8.2 Continuing obligations
----------------------
Each of the Company, the Guarantors and ACL hereby undertakes that for so
long as any of the Debentures remains outstanding:
(a) SAI shall and ACL shall procure that SAI shall convene a meeting of
its Board at least once every 3 months;
(b) SAI shall and ACL shall procure that SAI shall deliver to each of the
Investors a written agenda for each meeting of the Board, specifying
in reasonable detail the matters to be raised at the meeting (together
with a copy of the notice for convening the meeting) not less than two
(2) working days before the date of the proposed meeting of the Board
and each of the Investors shall be entitled to attend, but not to vote
(unless if it is a director) at such meeting;
(c) the Company shall bear all costs and expenses associated with or
incurred in connection with attendances at such meetings referred to
at (a) above by any of the Investors;
(d) it shall prepare and provide or procure the preparation or provision
of annual audited financial statements of the SAI Group to each of the
Investors as soon as practicable after the end of the relevant
financial year but in any event no later than 7 days after the filing
of such audited financial statements with the U.S. Securities and
Exchange Commission, such statements to be prepared in accordance with
generally accepted accounting principal and practices and audited by
internationally recognised independent firm of accountants acceptable
to the Majority Investors;
(e) it shall prepare and provide to each of the Investors or procure such
preparation or provision of quarterly consolidated unaudited
management accounts including variance analysis of key financial data
showing the financial position and affairs of the SAI Group as soon as
practicable after the end of each quarter but in any event no later
than 7 days after the filing of such quarterly accounts with the U.S.
Securities and Exchange Commission or in the case of the fourth (4th)
quarter accounts no later than 60 days after the end of such quarter,
such management accounts to be in the same format as a Form 10-Q to be
filed with the U.S. Securities and Exchange Commission;
(f) it shall prepare and provide to each of the Investors or procure such
preparation or provision of monthly consolidated management
information of the SAI Group including but not limited to critical
financial data
13
<PAGE>
as soon as practicable after the end of each month but in any event no
later than 30 days;
(g) it shall prepare and deliver or procure such preparation or provision
of to each of the Investors no later than the day before the beginning
of each financial year a proposed annual operating business plan and
budget in the form and substance mutually agreed between SAI and the
Majority Investors for the forthcoming financial year;
(h) it shall allow any of the Investors, at the Investor's expense, to
visit and inspect the property and premises of any member of the SAI
Group at such reasonable time as may be requested by the relevant
Investors;
(i) it shall prepare and provide to each of the Investors or procure such
preparation or provision of copies of all available financial
statements, forecast and projection approved by the Board of SAI and
all notices, minutes, proxy material, consents and other material
provided to the Board of SAI, copies of all filings made with the US
Securities and Exchange Commission and any other information relating
to the business or financial data of SAI and/or the Company as the
Investors may reasonably request;
(j) it shall procure and ensure that the subscription moneys obtained by
the Company from the subscription hereunder shall only be used as
working capital to expand the business of the SAI Group and to repay
existing debts and for no other purposes;
(k) it shall ensure that all capital expenditure and related party
transactions concerning SAI and/or the Company which require approvals
from the respective Boards must first be submitted to the Funds for
consultation and discussion before submission to the relevant Board for
determination;
(l) it shall ensure that each of the Funds shall enjoy the following
management rights:
(i) the rights to be consulted and to give advice to the management in
respect of any relevant material development affecting any
business of any member of the SAI Group; to discuss the business
operations, property and financial or other conditions of any
member of the SAI Group with its respective officers, employees
and directors; the rights to be consulted with or to give advice
to the management on significant business issues or meet regularly
with management during each year for such consultation and advice;
14
<PAGE>
(ii) the rights to inspect the books and records of SAI and appoint a
qualified accountant to inspect SAI's accounting records at such
reasonable time and as often as the Funds may reasonably request.
(m) it shall notify each of the Investors promptly and without any delay
after the happening of any events or changes that has a material
adverse impact on the business, affairs, prospects, operations,
properties, assets or condition of any member of the SAI Group or on
ACL as the case may be;
(n) it shall maintain the authorisation of the quotation of the Shares on
NASDAQ and ensure that Conversion Shares to be issued will be
authorized for quotation on NASDAQ.
8.3 Undertakings
------------
Each of the Company, the Guarantors and ACL hereby further undertakes
and agrees that it shall procure that no member of the SAI Group shall
at any time and for so long as any of the Debentures remains
outstanding (including the exercise of all such voting powers and
control it has, directly or indirectly over the members of the SAI
Group), save with the prior written approval from each of the Funds:
(a) make any changes to its capital structure or make any issues, sell or
offer any Securities (as defined below) or any rights to subscribe for
Securities whatsoever (except options or warrants already issued prior
to the date of this Agreement as set out in Part III of Schedule I and
Schedule 5 hereof); or
(b) make any amendment to its memorandum and articles of association or
equivalent constitutive documents; or
(c) effect any merger, reconstruction or amalgamation with any other
entity or undertaking; or
(d) effect any consolidation of all or any of its shares into shares of
larger amount or sub-divide all or any of the shares into smaller
amounts; or
(e) vary, modify or abrogate any of the rights attaching to any of the
Shares or redeem, purchase or cancel all or any of such Shares.
For purpose of this sub-Clause, "SECURITIES" means any shares, stocks,
debentures, loan stocks, funds, bonds or notes (excluding bank borrowings
in the ordinary course of conducting the bearing business) of or issued by
any of member of the SAI Group and includes (i) all rights, options or
interest in or in respect of the
15
<PAGE>
foregoing (ii) certificate of interest or participation in or temporary or
interim certificate for, receipt for, or warrants (including covered
warrants) to subscribe to or purchase any of the foregoing, and (iii)
index-linked instruments, future contracts or any other instruments
commonly known as securities.
8.4 Right of First Refusal
----------------------
(a) Each of the Company, the Guarantors and ACL hereby agrees that it shall
exercise all such voting powers and control it has, directly or
indirectly over the members of the SAI Group to procure that for so
long as the Funds shall hold in aggregate more than 50% of the total
principal amount of the Debentures outstanding if any of the Securities
were offered with the approval from the Funds pursuant to Clause 8.3
hereof, such Securities (as defined in sub-Clause 8.3) shall first be
offered to each of the Funds by the relevant company in the SAI Group
prior to the offer of any of such Securities to any other persons
("FIRST REFUSAL RIGHT") and if such offer is proposed for the first
time since the date of this Agreement, in such manner as specified in
sub-Clause 8.4(b) hereof.
(b) The Securities shall first be offered to MC Partners who shall promptly
notify the Funds of the terms of such offer and the details in relation
thereto. MC Partners shall discuss with the Funds as to the level of
their respective participations, it being understood that each of the
Funds shall be entitled to participate in full or in such proportions
it shall determine by virtue of the First Refusal Right granted to it
under sub-Clause 8.4(a) hereof.
8.5 Negative Pledge
---------------
(a) Without prejudice to sub-Clause 8.3 and Clause 11, for so long as any
Debentures remains outstanding SAI, CIBHL, SPC and the Company hereby
jointly and severally undertakes:-
(i) that none of the members of the SAI Group will create or permit to
subsist any Security Interest (as defined below) for the benefit
of the holders of any Securities (as defined in sub-Clause 8.3)
upon the whole or any part of its property or assets, present or
future, including for the purposes of securing (i) payment of any
sum due (ii) any payment under any guarantee or (iii) any
indemnity or other like obligation;
16
<PAGE>
(ii) that no other person (and it shall procure that no other person
shall) create or permit to exist any Security Interest upon the
whole or any part of the property or assets, present or future, of
that other person to secure (i) any Securities (as defined in sub-
Clause 8.3) of any member of the SAI Group or (ii) any guarantee
of or indemnity in respect of any member of the SAI Group; and
(iii) to procure that no person, other than SAI, CIBHL, SPC or the
Company, gives any guarantee of or indemnity in respect of the
Securities of any member of the SAI Group.
(b) Without prejudice to sub-Clause 8.3 or of any of the foregoing, for so
long as any of the Debentures remains outstanding, ACL undertakes that
it shall not create or permit to subsist any Securities Interest (as
defined below) upon the whole or any part of its property or assets,
present or future, including for the purposes of securing (i) payment of
any sum due (ii) any payment under any guarantee or (iii) any indemnity
or other like obligation unless:
(i) such Securities Interest is created in favour of a financial
institution independent of and not connected with ACL or any
member of the SAI Group on the one hand and any of the Majority
Investors on the other hand;
(ii) subject always to Clause 7.4 hereof, in relation to the creation
of Securities Interest over any of the Shares held by ACL directly
or indirectly, such Securities Interest created shall not result
in ACL holding less than 35 per cent. of the Deemed Total Issued
Share Capital of SAI (as defined below) free from all Securities
Interest; and
(iii) ACL shall notify promptly the Majority Investors thereafter of
such creation.
(c) For the purpose of this sub-Clause 8.5, the following words shall have
the following meanings:
"SECURITY INTEREST" means any pledge, mortgage, lien, charge,
hypothecation, encumbrance or other security interest.
"DEEMED TOTAL ISSUED SHARE CAPITAL OF SAI" means the total Share capital
of SAI deemed to be in issue which for this purpose, shall be the then
actual existing total issued Share capital of SAI and (if any Series A
Preferred Stock or Series B Preferred Stock is left outstanding) that
17
<PAGE>
number of Shares that would have been issued in respect of Series A
Preferred Stock and Series B Preferred Stock had the same been all
converted immediately prior to the relevant date under consideration as
if such Shares form part of the enlarged issued Share capital of SAI in
aggregate.
8.6 Registration
------------
Each of SAI and the Company hereby covenants, undertakes and agrees with
the Investors that each Investor shall, if it is deemed to be an
"AFFILIATE" under the U.S. Securities Act of 1933 of SAI (which
interpretation shall be determined by a U.S. law firm to be agreed between
the Funds and SAI or the Securities and Exchange Commission as the case may
be), have the right to require SAI and/or the Company to file a
registration statement under the Securities Act for a public offering /
resale of all or any number of Conversion Shares held by the Investor upon
conversion of any of the Debentures, such rights to be exercisable by the
delivery of a written notice to SAI and/or the Company (the "NOTICE")
specifying in detail the number of Conversion Shares required to be made
the subject of the registration, the identity of the Investor and the
intended method of resale of the Conversion Shares and SAI and/or the
Company shall take all reasonable steps to commence the procedure for such
filing within five (5) Business Days of receipt of the Notice.
8.7 Schedule 13D filing
-------------------
Each of ACL, SAI and the Company hereby jointly and severally agrees to
assist HPEM, GML and (if required) WCIT in filing Schedule 13D as soon as
practicable after Completion and in any event no later than seven (7) days
after the Completion Date.
9. SPECIFIC UNDERTAKINGS BY SAI
----------------------------
9.1 SAI shall issue the Shares upon conversion by the Debentureholders pursuant
to the terms of this Agreement and that of the Debentures and shall further
keep available for issue, free from pre- emptive rights, out of its
authorized but unissued capital sufficient Shares to satisfy in full the
Conversion Rights and all other rights for the time being outstanding of
subscription for and conversion into Shares.
9.2 SAI shall not in any way modify the rights attached to the Shares as a
class or attach any special restrictions thereto except with the prior
written consent from the Funds.
18
<PAGE>
9.3 SAI shall procure that at no time shall there be an issue of Shares of
differing nominal value except with the prior written consent from the
Funds.
9.4 SAI shall use its best endeavours (i) to maintain the authorisation of the
quotation of all the issued Shares on NASDAQ; (ii) to obtain and maintain
the authorisation of the quotation on NASDAQ (or a listing on an
alternative stock exchange approved by the Funds) for all the Shares issued
on the exercise of the Conversion Rights attaching to the Debenture.
9.5 SAI shall provide the Debentureholder with a copy of its annual reports,
annual financial statements, interim reports and all other statements and
circulars sent by SAI to its shareholders within fourteen days after SAI
sends the same to its shareholders.
9.6 SAI shall ensure that all Shares issued upon conversion of the Debenture
will be duly and validly issued, fully paid and non-assessable and will not
be subject to pre-emptive rights.
10. SPECIFIC UNDERTAKING BY SPC
---------------------------
SPC hereby undertakes that it shall and SAI hereby undertakes that it shall
procure SPC shall within 10 Business Days following the first to occur of
(a) the repayment in full of all sums due and owing to Foothill Capital
Corporation under a Security Agreement dated as 17 March, 1995 between SPC
and Foothill Capital Corporation and (b) 31 December 1996 (or such other
date as shall be determined by the Majority Investors provided that all the
Investors shall first have given their prior written consent to the
alteration of this date), execute and deliver to the Investors the
Guarantee in substantially the form attached hereto as Schedule 4 (to apply
mutatis mutandis). For the avoidance of doubt failure by SPC to sign the
Guarantee pursuant to this Clause shall constitute an Event of Default.
11. CORPORATE GOVERNANCE
--------------------
Unless the prior written approval from the Funds have been obtained, each
of the Company, the Guarantors and ACL undertakes that it shall and shall
procure that each of them shall exercise all such voting rights and other
powers of control as is or shall be available to them to procure that no
member in the SAI Group shall:-
(a) acquire assets in excess of US$3,000,000;
19
<PAGE>
(b) borrow, lend or give any guarantee of any amount greater than
US$3,000,000;
(c) sell assets having a fair market value in excess of US$3,000,000;
(d) make dividend payments in excess of twenty percent (20%) of SAI's
Audited Earnings per Share ("EPS") for the relevant financial year.
For this purpose, EPS shall mean audited earnings for the year minus
or add back extraordinary items as defined under International
Accounting Standard IAS8 and adding back interest expenses on the
Debenture divided by the total weighted average number of Shares
outstanding on a fully diluted basis (including the number of Shares
that would have been issued had all the Debentures then outstanding
been converted);
(e) give any charge, mortgage, pledge or other security interest in excess
of US$3,000,000;
(f) enter into any related party transaction which itself exceeds or enter
into any related party transactions in any 12-month period which when
taken together exceeds US$1,000,000 except where such transaction is a
normal commercial arms length transaction entered into in the ordinary
course of the SAI Group's business of the manufacturing and sales of
bearing products;
(g) allow any of the events referred to in this Clause (a) to (e) above to
occur if such event will involve such an amount or value
(notwithstanding such amount may or may not exceed the relevant limit
specified for that event under this Clause (a) to (e) hereof) when
added to the existing cumulative total of the value of that event
occurring in the preceding 12 months will take the overall cumulative
total over 15% of the net asset value of SAI as shown in the latest
audited consolidated accounts of SAI.
12. NOTICES
-------
Any notice required or permitted to be given by or under this Agreement
shall be in writing and shall be given by delivering it to the address or
facsimile number of the relevant party connected shown below:-
THE COMPANY : c/o China International Bearing Holdings Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
20
<PAGE>
ATTN.: MR. BILLY KAN / MR. ROGER LI
SAI : c/o China International Bearing Holdings Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
SPC : c/o China International Bearing Holdings Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: Mr. Billy Kan / Mr. Roger Li
ACL : c/o China International Bearing Holdings Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
CIBHL : 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
GML : c/o HPEM, 10th Floor, Citibank Tower,
3 Garden Road, Hong Kong
Tel: (852) 2845 768
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
WCIT : c/o HPEM, 10th Floor, Citibank Tower,
3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
MC PARTNERS : c/o MC Capital Asia Pte Limited
Unit No. 1002 C/D 10th Floor,
Tower 1, Admiralty Centre,
21
<PAGE>
10 Harcourt Road, Hong Kong
Tel: (852) 2866 3393
Fax: (852) 2866 2693
ATTN.: MR. YUJI KOMIYA/MR. TATSUYA KUROYANAGI
CI 2000 : c/o Banque Worms, Hong Kong Branch
39th Floor, Central Plaza
18 Harbour Road, Hong Kong
Tel: (852) 2802 8382
Fax: (852) 2802 8065
ATTN.: MR. FABRICE JACOB/MR. ANTOINE FOSSORIER
or to such other address or facsimile number at the party concerned may have
been notified to the other party pursuant to this Clause and may be given by
sending it by hand to such address or by facsimile transmission to such
facsimile number, or to such other address or facsimile number as the party
concerned may have notified to the other party in accordance with this Clause.
Such notice shall be deemed to be served on the day of delivery or facsimile
transmission (or, if the day of delivery or transmission is not a Business Day
or if the delivery or transmission is made after 5:00 p.m. Hong Kong time,
deemed to be served on the immediately following Business Day), or if sooner
upon acknowledgement of receipt by or on behalf of the party to which it is
addressed.
13. COSTS AND EXPENSES
------------------
The legal costs incurred by the Funds in connection with the preparation
and negotiation of this Agreement shall be borne by the Company.
14. GOVERNING LAW AND JURISDICTION
------------------------------
14.1 This Agreement shall be governed by and construed in accordance with the
laws of Hong Kong and each party hereby submits to the non-exclusive
jurisdiction of the courts of Hong Kong as regards any claim or matter
arising under this Agreement.
14.2 Each of the parties hereto irrevocably agrees for the benefit of each of
the Investors that the courts of Hong Kong shall have jurisdiction to hear
and determine any suit, action or proceeding, and to settle any disputes,
which may arise out of or in connection with this Agreement and, for such
purposes, irrevocably submits to the jurisdiction of such courts.
22
<PAGE>
14.3 Each of the parties hereto irrevocably waives any objection it might now or
hereinafter have to the courts referred to in sub-Clause 14.1 above
nominated as the forum to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise out of or in
connection with this Agreement and agrees not to claim that any such courts
is not a convenient or appropriate forum.
14.4 Each of the Company, SAI, ACL and SPC hereby irrevocably appoints CIBHL
(details of which are set out below) and CIBHL hereby accepts such
appointment as each of their process agent to receive and acknowledge on
its behalf service of any writ, summons, order, judgement or other notice
of legal process in Hong Kong. Each of GML, WCIT, MC Partners and CI 2000
also hereby irrevocably appoints the persons set out against its name below
to be its process agent:-
Company : China International Bearing Holdings Limited
------- 19th Floor, First Pacific Bank Centre,
1-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
SAI : China International Bearing Holdings Limited
--- 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
ACL : China International Bearing Holdings Limited
--- 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
SPC : China International Bearing Holdings Limited
--- 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
GML : HPEM, 10th Floor, Citibank Tower,
--- 3 Garden Road, Hong Kong
Tel: (852) 2845 7688
23
<PAGE>
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
WCIT : HPEM, 10th Floor, Citibank Tower,
---- 3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
MC Partners MC Capital Asia Pte Limited
----------- Unit No. 1002 C/D 10th Floor,
Tower 1, Admiralty Centre,
10 Harcourt Road, Hong Kong
Tel: (852) 2866 3393
Fax: (852) 2866 2693
ATTN.: MR. YUJI KOMIYA/MR. TATSUYA KUROYANAGI
CI 2000 : Banque Worms, Hong Kong Branch
------- 39th Floor, Central Plaza
18 Harbour Road, Hong Kong
Tel: (852) 2802 8382
Fax: (852) 2802 8065
ATTN.: MR. FABRICE JACOB/MR. ANTOINE FOSSORIER
14.5 Each of the parties hereby consent generally in respect of any legal action
or proceeding arise out of or in connection with this Agreement to the
giving of any relief or any issue of any process in connection with such
action or proceeding including, without limitation, the making, enforcement
or execution against any property whatsoever (irrespective of its use or
intended use) of any order or judgement which may be made or given in such
action or proceeding.
15. ANNOUNCEMENTS AND CONFIDENTIALITY
---------------------------------
15.1 Subject to sub-Clause 15.2 below, no announcement or disclosure concerning
the Agreement or any ancillary matter nor concerning any information of a
confidential or proprietary nature of ACL or any member of the SAI Group
shall be made by any parties hereto without the prior written approval of
the other parties, any such approval not to be unreasonably withheld or
delayed.
15.2 Either party may disclose information concerning this Agreement or any
ancillary matter which would otherwise be confidential if and to the
extent:
(i) required by the law of any relevant jurisdiction;
24
<PAGE>
(ii) required by existing contractual obligations;
(iii) required by any securities exchange or regulatory or governmental body
to which either party is subject or submits, wherever situated,
whether or not the requirement for information has the force of law;
(iv) required to vest the full benefit of the Agreement in the other either
parties;
(v) disclosed to the professional advisors, auditors and bankers of each
party;
(vi) the information has come into the public domain through no fault of
that party; or
(vii) the other party has given prior written approval to the disclosure,
such approval not to be unreasonably withheld or delayed
in which case the party concerned shall take all such steps as may be
reasonable and practicable in the circumstances to agree the contents of
such announcement with the other parties before making such announcement
PROVIDED THAT any such announcement shall be made only after consultation
with or notice to the other party.
15.3 Subject to sub-Clause 15.2, each party shall treat as strictly confidential
all information received or obtained as a result of entering into or
performing the Agreement which relates to the provisions of the Agreement,
the negotiations relating to the Agreement, the subject matter of the
Agreement or the other parties.
15.4 Notwithstanding any termination of this Agreement, the restrictions
contained in this Clause shall continue to apply after such termination for
a period of five years thereafter.
16. GENERAL PROVISIONS
------------------
16.1 As regards any date or period time shall be of the essence of this
Agreement.
16.2 This Agreement shall be binding on and enure for the benefit of the
successors of each of the parties and shall not be assignable.
16.3 The exercise of or failure to exercise any right to remedy in respect of
any breach of this Agreement shall not, save as provided herein, constitute
a waiver by such party of any other right or remedy it may have in respect
of that breach.
25
<PAGE>
16.4 Any right or remedy conferred by this Agreement on any party for breach of
this Agreement (including without limitation the breach of any
representations and warranties) shall be in addition and without prejudice
to all other rights and remedies available to it in respect of that breach.
16.5 This Agreement constitutes the entire agreement between the parties with
respect to its subject matter (neither party having relied on any
representation or warranty made by the other party which is not contained
in this Agreement) and no variation of this Agreement shall be effective
unless made in writing and signed by all of the parties.
16.6 This Agreement supersedes all and any previous agreements, arrangement or
understanding between the parties relating to the matters referred to in
this Agreement and all such previous agreements, understanding or
arrangements (if any) shall cease and determine with effect from this date
hereof.
16.7 If at any time any provision of this Agreement is or becomes illegal, void
or unenforceable in any respect, the remaining provisions hereof shall in
no way be affected or impaired thereby.
17. COUNTERPARTS
------------
This Agreement may be executed by the parties hereto in any number of
counterparts and on separate counterparts, each of which when so executed
shall be deemed an original but all of which shall constitute one and the
same instrument and is binding on all parties.
AS WITNESS whereof this Agreement has been duly executed on the date first above
written.
26
<PAGE>
SCHEDULE 1
----------
PART I
------
I. CORPORATE CHART
---------------
[CHART APPEARS HERE]
* Subject to qualification contained in Clause 4.2 of Schedule 3
27
<PAGE>
II. OTHER CORPORATE DETAILS
SUNBASE ASIA, INC.
------------------
Date of Incorporation : 21st September, 1994
Place of Incorporation : State of Nevada, United States
Registered Office : 1280 Terminal Way,
Suite 3, Reno,
Nevada 89502,
United States
Registered Number : 14740-94
Authorized Share Capital : COMMON:
-------
50,000,000 shares of US$0.001 each
PREFERRED:
----------
25,000,000 shares of US$0.001 each
Issued Share Capital : COMMON:
-------
12,711,104 shares of US$0.001 each
PREFERRED:
----------
Series A Preferred Stock
------------------------
36 shares
Series B Preferred Stock
------------------------
6,800 shares
Shareholders : Asean Capital Ltd. : 80.69%
Public: 19.31%
Directors : Gunter Gao
Billy Kan
William Mckay
Roger Li Yuen Fai
Linda Yang
Franco Ho Cho Hing
Philip Yuen
Secretary : Davis Lai Kwun Fai
28
<PAGE>
CHINA BEARING HOLDINGS LIMITED
------------------------------
Date of Incorporation : 10th January, 1994
Place of Incorporation : Bermuda
Registered Office : Cedar House,
41 Cedar Avenue,
Hamilton HM 12,
Bermuda
Registered Number : N/A
Authorized Share Capital : 1,200,000 shares of US$0.01 each
Issued Share Capital : 1,200,000 shares of US$0.01 each
Shareholders : 100% held by Sunbase Asia
Directors : Gunter Gao
Linda Yang
Peter Bubenzer
Judith Collis
Billy Kan
Roger Li
Secretary : Linda Yang
29
<PAGE>
CHINA INTERNATIONAL BEARING (HOLDINGS) LIMITED
----------------------------------------------
Date of Incorporation : 23rd June, 1993
Place of Incorporation : Hong Kong
Registered Office : 19th Floor, First Pacific
Bank Centre
51-57 Gloucester Road
Wanchai, Hong Kong
Registered Number : 429038
Authorized Share Capital : HK$10,000
Issued Share Capital : 2 shares of HK$1.00 each
Shareholders : 100% held by China Bearing
Holdings Limited
Directors : Gunter Gao
Linda Yang
Billy Kan
Roger Li
Secretary : Astrine Limited
30
<PAGE>
HARBIN SUNBASE DEVELOPMENT COMPANY LIMITED
------------------------------------------
Date of Incorporation : 28th January, 1993
Place of Incorporation : China
Registered Office : 158 Zhong Shan Road,
Harbin, China
Registered Number : (1993) 539
Authorized Capital : RMB50,000,000
Capital Contribution : RMB50,000,000
Shareholders : China International Bearing
(Holdings) Limited: 99%
Harbin Hazhou Bearing
Distributing Company : 1%
Directors : Gunter Gao
Linda Yang
Roger Li Yuen Fai
Peter Lam Chi Keong
Davis Lai Kwun Fai
Bi Qiu-Yuan
Mok Chei Wai
Secretary : N/A
31
<PAGE>
HARBIN XINHENGLI DEVELOPMENT CO. LTD.
-------------------------------------
Date of Incorporation : 18th September, 1993
Place of Incorporation : China
Registered Office : 160 Zhong Shan Road,
Harbin, China
Registered Number : Harbin BR711
Authorized Capital : RMB50,000,000
Capital Contribution : RMB50,000,000
Shareholders : China International Bearing (Holdings)
Limited: 99.9%
Harbin Everising Construction and
Development Co. Ltd.: 1%
Directors : Gunter Gao
Linda Yang
Davis Lai Kwun Fai
Liu Guang Zhi
Mok Chei Wai
Secretary : N/A
32
<PAGE>
HARBIN BEARING COMPANY LIMITED
------------------------------
Date of Incorporation : 28th December, 1993
Place of Incorporation : China
Registered Office : 14 Hongqi Street,
Harbin, China
Registered Number : 12802473-0
Authorized Capital : RMB300,000,000
Capital Contribution : RMB300,000,000
Shareholders : Harbin Xinhengli Development
Co. Ltd. 41.57%
Harbin Sunbase Development Co. Ltd. 10%
Harbin Bearing Holdings Company: 33.33%
Employees : 15%
Harbin Xin Da Di Electrical Machinery
Equipment Company: 0.1%
Directors : Gunter Gao
Linda Yang
Lai Kwun Fai
Ma Ji Bo
Shun Hong Bin
Zhang Zheng Bin
An Fong Ming
Ye Ruan
Mok Chei Wai
Secretary : N/A
33
<PAGE>
SMITH ACQUISITION COMPANY, INC. DBA
-----------------------------------
SOUTHWEST PRODUCTS COMPANY
--------------------------
Date of Incorporation : 20th March, 1990
Place of Incorporation : State of California,
United States
Registered Office : 2240 Buena Vista,
Irwindale, CA 91706,
United States
Registered Number : 3855488-7
Authorized Capital : Share Common:
10,000,000 shares of US$0.01 each
Preferred : 4,000,000 shares with no par value
Issued Share Capital : Common:
US$3,400,000
Shareholders : 100% held by Sunbase Asia
Directors : Billy Kan
Roger Li
William R. Mckay
Dickens Chang
Peter Lam Chi Keong
Secretary : William R. Mckay
34
<PAGE>
SHANGHAI SOUTHWEST BEARING COMPANY
----------------------------------
Date of Incorporation : 2nd August, 1994
Place of Incorporation : China
Registered Office : 937 Zhongshan Nan Yi Road
Shanghai, China
Registered Number : Shanghai BR5202
Authorized Capital : US$3,600,000
Capital Contribution : US$3,600,000
Shareholders Factory: : Shanghai Hongxing Bearing
72.22%
Southwest Products Company :
27.78%
Directors : Yang Shu Jie (others to be appointed later)
(Note: according to Joint Venture agreement, 4
directors are nominated from Shanghai Hongxing
and 2 directors are nominated from Southwest
Products)
Secretary : N/A
35
<PAGE>
PART III
--------
STATUS AND CHARACTERISTICS OF THE SECURITIES ISSUED BY SAI
----------------------------------------------------------
1. SERIES A WARRANTS
-----------------
SAI has outstanding an aggregate of 10,392,167 Series A Warrants (the
"WARRANTS") to acquire an aggregate of 148,459.52 shares of SAI Common
Stock. The Warrants expire on June 30, 1998. For each share of Common Stock
to be purchased, the holder is required to deliver 70 Warrants together
with an exercise price per share of Common Stock of $175.00.
2. SERIES A PREFERRED STOCK
------------------------
The holders of the Series A Preferred Stock have the right to convert each
share of the Series A Preferred Stock into 100,000 shares of Common Stock.
3. SERIES B PREFERRED STOCK
------------------------
To the extent that the holders do not elect to redeem the shares of Series
B Preferred Stock in connection with a public offering of SAI Common Stock,
the Series B Preferred Stock is convertible into Common Stock on the basis
of 100 shares of Common Stock for each share of Series B Preferred Stock.
If, by the date which is two years after the date on which the shares of
Series B Preferred Stock are distributed to the holders, such holders have
not been able to redeem their shares because SAI has not made a public
offering as specified, the Series B Preferred Stock will be automatically
converted into shares of Common Stock on the following basis: On the first
business day following the expiration of the two year period, each share is
to be automatically converted into that number of shares of Common Stock
that equals $500.00 divided by the lesser of $5.00 or the average closing
price of SAI Common Stock computed by taking the then most recent 60
consecutive trading days when SAI Common Stock is traded at a minimum
volume of 2,000 shares per day for 45 of those 60 consecutive trading days.
36
<PAGE>
SCHEDULE 2
----------
FORM OF CERTIFICATE
-------------------
[ ] HOLDINGS LIMITED
(INCORPORATED IN BERMUDA WITH LIMITED LIABILITY)
[US$ ] CONVERTIBLE DEBENTURE
Issued pursuant to the Memorandum of Association and Bye-laws of [ ] Holdings
Limited and a resolution of its Board of Directors passed on [ ], 199[ ].
THIS IS TO CERTIFY that [ ] whose registered office is situate at [ ] is the
registered holder (the "DEBENTUREHOLDER") of the above-mentioned Convertible
Debenture (the "DEBENTURE"). The Debenture is issued with the benefit of and
subject to the terms and conditions attached hereto which shall form an integral
part of this Certificate.
GIVEN under the Seal of [ ] Holdings Limited this day of ___________, 199[ ].
__________________________________________
Director
__________________________________________
Secretary / Director
The Debenture cannot be transferred to bearer on delivery and is only
transferable to the extent permitted by Condition 4 of the terms and conditions
thereof. This Certificate must be delivered to the secretary of [ ] Holdings
Limited for cancellation and reissue of an appropriate certificate in the event
of any such transfer.
The Debenture has not been registered under the U.S. Securities Act of 1933, as
amended (the "SECURITIES ACT"), and may not be exercised by or on behalf of U.S.
persons unless registered or an exemption from registration is available.
37
<PAGE>
TERMS AND CONDITIONS OF THE DEBENTURES
--------------------------------------
The Debenture shall be held subject to and with the benefit of the terms and
conditions set out below. Expressions defined in the Subscription Agreement
dated [ ], 199[6] (the "SUBSCRIPTION AGREEMENT") between Asean Capital Limited,
China International Bearing Holdings Limited, Sunbase Asia, Inc., Smith
Acquisition Company, Inc., Glory Mansion Limited, Wardley China Investment
Trust, MC Partners Asia Limited, Chine Investissement 2000 and China Bearing
Holdings Limited (the "COMPANY") relating to the Debenture shall bear the same
meaning in this Certificate.
1. PERIOD
------
Subject as provided herein, the outstanding principal amount of the
Debentures shall be converted into Shares and/or shall be repaid subject to
and in accordance with the terms of the Debentures on the third anniversary
of the date of issue of the Debentures (the "MATURITY DATE").
2. STATUS, FORM, DENOMINATION AND TITLE
------------------------------------
(A) STATUS
The obligations of the Company arising under the Debentures constitute
general, unsecured obligations of the Company and rank, and will rank
equally among themselves and pari passu with all other present and future
unsecured and unsubordinated obligations of the Company except for
obligations accorded preference by mandatory provisions of applicable law.
No application will be made for a listing of the Debentures.
(B) FORM AND DENOMINATION
The Debentures are issued in registered form in the denomination of
US$250,000 each. Debenture certificate(s) (each a "CERTIFICATE") will be
issued to each Debentureholder in respect of its registered holding(s) of
Debenture(s). Each Debenture and each Certificate will be numbered serially
with an identifying number which will be recorded on the relevant
Certificate and in the register of Debentureholder kept by the Company.
(C) TITLE
Title to the Debentures passes only by registration in the register of
Debentureholders. The holder of any Debenture will (except as otherwise
required by law) be treated as its absolute owner for all purposes (whether
or not it is overdue and regardless of any notice of ownership, trust or
any interest in it or
38
<PAGE>
any writing on, or the theft or loss of, the Certificate issued in respect
of it) and no person will be liable for so treating the holder.
3. NEGATIVE PLEDGE
---------------
The Company, SAI, CIBHL, SPC and ACL have given in the Subscription
Agreement certain negative pledges over creation of Securities Interest (as
defined in the Subscription Agreement) for so long as any of the Debentures
remains outstanding.
4. TRANSFERS OF DEBENTURES; ISSUE OF CERTIFICATES
----------------------------------------------
(A) TRANSFER
(i) No Debentures may be transferred by any Debentureholders unless such
transfer is in accordance with the provisions of (A)(ii) below.
(ii) Debentures held by any of the Investors may be transferred at any
time provided that:
(a) such proposed transfer is in respect of half of or the entire
amount of the principal amount of the Debentures then
outstanding and held by that Investor or in the case of the
Investor being a Fund, the Funds taken together in aggregate. No
other transfer of any other amounts shall be allowed unless with
the approval of the Company;
(b) the Certificate(s) evidencing the Debenture(s) with the form of
transfer duly completed and signed shall have been lodged with
the specified office of the Company in accordance with the
provisions at (iii) below; and
(c) (in the event of a transfer by any of the Funds only) if the
proposed transfer is to a transferee outside the HSBC Group (as
defined below) such transfer must specify that the transferee
shall not have assigned to it nor in any way enjoy or benefit
from the various rights relating to management hitherto enjoyed
by and granted to the Funds pursuant to the Subscription
agreement.
(iii) (a) the form of transfer shall be in a form previously agreed
between the Company and the Debentureholders and shall be
executed under the hand of the transferor and the transferee (or
their duly authorized representatives) or, where either the
transferor or
39
<PAGE>
transferee is a corporation, under its common seal (if any) and
under the hand of one of its officers duly authorized in writing
or otherwise executed by a duly authorized officer thereof. In
this Condition "transferor" shall, where the context permits or
requires, include joint transferors or can be construed
accordingly.
(b) the Certificate of the Debenture must be delivered for
registration to the Company accompanied by (i) a duly executed
form of transfer; (ii) in the case of the execution of a form of
transfer on behalf of a corporation by its officers, the
authority of that person or those persons to do so; (iii) such
other evidence as the Company may reasonably require if the form
of transfer is executed by some other person on behalf of the
Debentureholder; and (iv) such other evidence as the Company may
reasonably require to support that the conditions and
requirements of this Condition are satisfied.
(iv) For so long as neither the Debentures nor the Conversion Shares have
been registered under The Securities Act of 1933 or under the
securities laws of any other jurisdiction, the Debentures and the
Conversion Shares must not be sold unless such securities are
registered under the Securities Act of 1933, or an exemption from the
registration requirements of the Securities Act of 1933 is available.
SAI may cause the certificate or certificates evidencing all or any
of the Conversion Shares to bear a legend to that effect.
(v) For the purposes of this Condition 4(A), "HSBC GROUP" shall mean any
company or entity which is at any time a member of the Hongkong Bank
Group or which (or the holding company of which) has its operation
managed by a member of the Hongkong Bank Group and "HONGKONG BANK
GROUP" means HSBC Holdings PLC and its subsidiaries.
(B) DELIVERY OF NEW CERTIFICATES
Subject to compliance with applicable securities laws and regulations, the
Company shall, within 7 Business Days of receipt of such documents from the
Debentureholder, cancel the existing Certificate and issue a new
certificate under the seal of the Company, in favour of the transferee or
assignee as applicable. Where only part of a principal amount (being that
of one or more Debentures) of the Debentures in respect of which a
Certificate is issued is to be transferred, converted or redeemed, a new
Certificate in respect of the Debenture not so transferred, converted or
redeemed will, within three (3) Business Days of delivery of the original
Certificate to the Company be available for collection by the
Debentureholders.
40
<PAGE>
(C) FORMALITIES FREE OF CHARGE
Registration of transfer of Debentures will be effected without charge by
or on behalf of the Company, but upon payment (or the giving of such
indemnity as the Company may require) in respect of any tax or other
governmental charges which may be imposed in relation to such transfer.
(D) For the purpose of this Condition, any change in:
(i) the beneficial ownership of the Debentureholder (whether or not the
registered holder of the Debenture is changed); or
(ii) the ultimate control of the Debentureholder
shall be regarded as a transfer of the Debentures, and the Debentureholder
shall procure that the conditions, requirements and other provisions
regarding transfer under this Condition shall be followed and complied with
by the beneficial owner of the Debentures and by its ultimate controller
and ultimate beneficial shareholder accordingly.
5. INTEREST
--------
(A) Subject to Condition 5(B) below, the Debentures will bear interest from the
date of issue on the principal amount of the Debentures outstanding from
time to time at the rate of the higher of (i) 5 per cent. per annum (net of
withholding tax, if applicable) and (ii) such percentage of the dividend
yield calculated by reference to dividing the annual dividend declared per
Share by the Conversion Price. The interest will, subject as provided
herein, be payable by the Company quarterly in arrears on dates falling
three months, six months, nine months, one year, one year and three months,
one year and six months, one year and nine months and two years, two years
and three months, two years and six months, two years and nine months after
the date of issue of the Debenture.
(B) In the event that the Debentureholder has converted part or whole of the
principal amount of the Debentures into Shares, the Debentureholder shall
be entitled to interest in respect of such part or whole of the principal
amount for the period from the last preceding interest payment date (or the
date of issue of the Debenture, as the case may be) up to the Conversion
Date concerned.
6. PAYMENTS
--------
41
<PAGE>
(A) Payment of the interest and principal (if any) in respect of the Debentures
shall be made on the due dates into such bank account as the
Debentureholder may notify the Company in writing from time to time. All
payments by the Company shall be made in United States dollars.
(B) If the due date for payment of any amount in respect of the Debentures is
not a Payment Business Day, the Debentureholder will be entitled to payment
on the next following Payment Business Day in the same manner together with
interest accrued in respect of any such delay.
7. CONVERSION
----------
(A) CONVERSION RIGHT
(a) The Conversion Right: Subject as hereinafter provided, the Debentureholders
have the right to convert the whole or part of the principal amount of the
Debentures into Shares at any time and from time to time, from the date of
issue of the Debenture up to the close of business on the Maturity Date in
amounts of not less than US$250,000 (and in integral multiples thereof) on
each conversion. The Company shall procure that such Shares be issued by
SAI upon the exercise of such right hereunder.
(b) Number of Shares: The number of Shares to be issued on conversion of a
Debenture will be determined by dividing the principal amount of the
Debenture to be converted by the Conversion Price in effect at the
Conversion Date (both as hereinafter defined). On conversion the right of
the converting Debentureholder to repayment of the principal amount of the
Debentures being converted shall be extinguished and released, and in
consideration and in exchange therefor SAI shall allot and issue Shares
credited as paid up in full as provided in this Condition. A Conversion
Right may be exercised in respect of one or more Debentures. If more than
one Debenture held by the same holder is converted at any one time by the
same holder, the number of Shares to be issued upon such conversion will be
calculated on the basis of the aggregate principal amount of the Debentures
to be converted.
(c) Fractions of Shares: Fractions of Shares will not be issued on conversion.
Notwithstanding the foregoing, SAI will upon conversion of Debenture pay in
cash in United States dollars a sum equal to such portion of the principal
amount of the Debenture or Debentures evidenced by the Certificate
deposited in connection with the exercise of Conversion Rights as
corresponds to any fraction of a Share not issued as a result if such sum
exceeds US$10.
42
<PAGE>
(d) Conversion Price: The price at which Shares will be issued upon conversion
(the "CONVERSION PRICE") will initially be US$5.00 per Share but will be
subject to adjustment in the manner provided in this Condition.
(e) Meaning of "Shares": As used in these Conditions, the expression "SHARES"
means shares of SAI listed and traded on NASDAQ or shares of any class or
classes resulting from any subdivision, consolidation or re-classification
of those shares, which as between themselves have no preference in respect
of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation or dissolution of SAI.
(f) Conversion Date: The conversion date in respect of a Debenture must fall at
a time when the Conversion Right attaching to the Debenture is expressed in
these Conditions to be exercisable and will be deemed to be the Business
Day immediately following the date of the surrender of the Certificate in
respect of such Debenture and the delivery of such Conversion Notice (as
defined below).
(g) Status of Conversion Shares: The Shares issued upon conversion of the
Debenture will in all respects rank pari passu with the Shares in issue on
the relevant Registration Date (as defined below). Save as set out in these
Conditions, a holder of Shares issued on conversion of Debenture shall not
be entitled to any rights the record date for which precedes the relevant
Registration Date.
(B) CONVERSION PROCEDURE
(a) Conversion Notice: To exercise the Conversion Right attaching to any
Debenture, the holder thereof must complete, execute and deposit during
normal business hours at the specified office of the Company a notice of
conversion (a "CONVERSION NOTICE"). The Conversion Notice must state a
certification as contained in Schedule 6 of the Subscription Agreement.
(b) Registration: As soon as practicable, and in any event not later than 7
days after the Conversion Date, SAI will, in the case of Debentures
converted on exercise of the Conversion Right and in respect of which a
duly completed Conversion Notice has been delivered and the relevant
Certificate and amounts payable by the relevant Debentureholder deposited
as required, register the person or persons designated for the purpose in
the Conversion Notice as holder(s) of the relevant number of Shares in its
Share register and will cause its share registrar to mail, such certificate
or certificates to the person and at the place specified in the Conversion
Notice, together with any other securities, property or cash required to be
delivered upon conversion and such assignments and other documents (if any)
as may be required by law to effect the transfer thereof. The person or
persons will become the holder of record of the number of Shares issuable
upon
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conversion with effect from the date he is or they are registered as such
in the SAI's register of members (the "REGISTRATION DATE").
(c) Subsequent Adjustments: Debentures which are converted will be cancelled by
removal of the Debentureholder's name from the register of Debentureholders
on the relevant Registration Date. If the Conversion Price is adjusted with
effect (retroactively or otherwise) from a date falling on or before the
Registration Date of any Shares issued on conversion of a Debenture the
Debentureholder's entitlement to which was arrived at on the basis of the
unadjusted Conversion Price, SAI will procure that the provisions of this
sub-paragraph shall be applied, mutatis mutandis, to the number of
additional Shares which would have been required to be issued on conversion
of such Debenture if the relevant adjustment had been given effect to as at
the Conversion Date.
(C) ADJUSTMENTS IN CONVERSION PRICE
The Conversion Price shall from time to time be adjusted in accordance with
the following relevant provisions and if the event giving rise to any such
adjustment shall be such as would be capable of falling within more than
one of the following sub-paragraphs, it shall fall within the first of the
applicable paragraphs to the exclusion of the remaining paragraphs:
(a) If and whenever the SAI Shares by reason of any consolidation or sub-
division become of a different nominal amount (par value), the
Conversion Price in force immediately prior thereto shall be adjusted
by multiplying it by the revised nominal amount (par value) and
dividing the result by the former nominal amount(par value). Each
such adjustment shall be effective from the close of business in Hong
Kong on the day immediately preceding the date on which the
consolidation or sub-division becomes effective.
(b) If and whenever SAI shall issue any SAI Shares (except if such issue
is made as a result of an election to receive scrip instead of cash
dividend provided that if such scrip is valued at the closing market
price of the SAI Share on the date the dividend is declared) credited
as fully paid by way of capitalisation of profits or reserves
(including any share premium account and capital redemption reserve
fund), the Conversion Price in force immediately prior to such issue
shall be adjusted by multiplying it by the aggregate nominal amount
of the issued and paid up SAI Shares immediately before such issue
and dividing the result by the sum of such aggregate nominal amount
and the aggregate nominal amount of the SAI Shares issued in such
capitalisation. Each such adjustment shall be effective (if
appropriate retroactively) from the commencement of the day next
following the record date for such issue.
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<PAGE>
(c) If and whenever SAI shall make any Capital Distribution (as defined
below) to holders of SAI Shares (in their capacity as such) (whether
on a reduction of capital or otherwise) the Conversion Price in force
immediately prior to such distribution shall be adjusted by
multiplying it by the following fraction:-
A - B
-----
A
where:
A = the closing market price (as defined below) per SAI Share
on the dealing date immediately preceding the date on which
the Capital Distribution is publicly announced or (failing
any such announcement) the day preceding the date of the
Capital Distribution; and
B = the fair market value on the day of such announcement or if
no such announcement was made (as the case may require) the
day before the date of the Capital Distribution, as
determined by an independent merchant bank or such
professional adviser jointly approved by SAI and the
Majority Investors of that portion of the Capital
Distribution or of such rights which is attributable to one
Share,
such adjustment shall be effective (if appropriate retroactively)
from the commencement of the day next following the record date for
the Capital Distribution.
(d) If and whenever SAI shall offer to holders of SAI Shares new Shares
for subscription by way of rights, or shall grant to holders of
Shares any options or warrants to subscribe for new SAI Shares, at a
price which is less than the lower of the market price and the
Conversion Price at the date of the announcement of the terms of the
offer or grant, the Conversion Price shall be adjusted by multiplying
the Conversion Price in force immediately before the date of the
announcement of such offer or grant by the following fraction:-
C + D
-----
C + E
where:
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C = the number of SAI Shares in issue immediately before the
date of such announcement;
D = the number of SAI Shares which the aggregate of the two
following amounts would purchase at the lower of such
market price and the Conversion Price:
(a) the total amount (if any) payable for the rights,
options or warrants being offered or granted; and
(b) the total amount payable for all of the new SAI Shares
being offered for subscription or comprised in the
options or warrants being granted; and
E = the aggregate number of SAI Shares offered for subscription
or comprised in the options or warrants being granted.
Such adjustment shall become effective (if appropriate retroactively)
from the commencement of the day next following the record date for
the relevant offer or grant.
(e) (aa) If and whenever SAI shall issue wholly for cash any
securities which by their terms are convertible into or
exchangeable for or carry rights of subscription for new
SAI Shares, and the total Effective Consideration per SAI
Share (as defined below) initially receivable for such
securities is less than the lower of the market price and
the Conversion Price at the date of the announcement of the
terms of issue of such securities, the Conversion Price
shall be adjusted by multiplying the Conversion Price in
force immediately prior to the issue by the following
fraction:
F + G
-----
F + H
where:
F = the number of SAI Shares in issue immediately
before the date of the issue;
G = the number of SAI Shares which the total Effective
Consideration receivable for the securities issued
would purchase at the lower
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<PAGE>
of such market price and the Conversion Price; and
H = the number of SAI Shares to be issued upon
conversion or exchange of, or the exercise of the
subscription rights conferred by, such securities
at the initial conversion or exchange rate or
subscription price.
Such adjustment shall become effective (if appropriate
retrospectively) from the close of business in Hong Kong on
the Business Day next preceding whichever is the earlier of
the date on which the issue is announced and the date on
which the issuer determines the conversion or exchange rate
or subscription price.
(bb) If and whenever the rights of conversion or exchange or
subscription attached to any such securities as are
mentioned in section (aa) of this sub- paragraph (e) are
modified so that the total Effective Consideration per SAI
Share initially receivable for such securities shall be
less than the lower of the market price and the Conversion
Price at the date of announcement of the proposal to modify
such rights of conversion or exchange or subscription, the
Conversion Price shall be adjusted by multiplying the
Conversion Price in force immediately prior to such
modification the following fraction:
I + J
I + K
where:
I = the number of SAI Shares in issue immediately before the date
of such modification;
J = the number of SAI Shares which the total Effective
Consideration receivable for the securities issued at the
modified conversion or exchange price would purchase at the lower
of such market price and Conversion Price; and
K = is the number of SAI Shares in issue immediately before such
date of modification plus the number of SAI Shares to be issued
47
<PAGE>
upon conversion or exchange of or the exercise of the
subscription rights conferred by such securities at the modified
conversion or exchange rate or subscription price.
Such adjustment shall become effective as at the date upon which
such modification shall take effect. A right of conversion or
exchange or subscription shall not be treated as modified for the
foregoing purposes where it is adjusted to take account of rights
or capitalisation issues and other events nominally giving rise
to adjustment of conversion or exchange terms.
For the purposes of this sub-paragraph (e), the "TOTAL EFFECTIVE
CONSIDERATION" receivable for the securities issued shall be
deemed to be the consideration receivable by SAI for any such
securities plus the additional minimum consideration (if any) to
be received by SAI upon (and assuming) the conversion or exchange
thereof or the exercise of such subscription rights, and the
total Effective Consideration per SAI Share initially receivable
for such securities shall be such aggregate consideration divided
by the number of SAI Shares to be issued upon (and assuming) such
conversion or exchange at the initial conversion or exchange rate
or the exercise of such subscription rights at the initial
subscription price, in each case without any deduction for any
commissions, discounts or expenses paid, allowed or incurred in
connection with the issue.
(f) If and whenever SAI shall issue wholly for cash any SAI Shares at
a price per SAI Share which is less than the lower of the market
price and the Conversion Price at the date of the announcement of
the terms of such issue, the Conversion Price shall be adjusted
by multiplying the Conversion Price in force immediately before
the date of such announcement by the following fraction:-
L + M
-----
L + N
where:
L = the number of SAI Shares in issue immediately
before the date of such announcement;
M = amount payable for the issue would purchase at the
lower of such market price and the Conversion the
number of SAI Shares which the aggregate Price; and
48
<PAGE>
N = the number of SAI Shares in issue immediately before
the date of such announcement plus the number of SAI
Shares so issued.
Such adjustment shall become effective on the date of the issue.
(g) If and whenever the cumulative Audited Earnings Per Share ("EPS")
for any two consecutive financial years commencing with the
financial year ending 1996 and ending with the financial year
ending 1998 are less than the corresponding management's
projection of cumulative EPS for such years as stated below
("MP"), the Conversion Price shall be adjusted in accordance with
the following formula:-
MP - EPS
Adjusted Conversion Price=US$5.00* [1 ]
MP
*(Subject to adjustment pursuant to this Condition 7(C)(a) to (f)
inclusive)
where:
MP : MP\1\ + MP\2\ OR MP\2\ + MP\3\
MP\1\ : 1996 = US$0.72
MP\2\ : 1997 = US$1.07
MP\3\ : 1998 = US$1.61
and EPS shall be the EPS for the corresponding financial years.
Provided Always:
(i) the Company shall present a certificate showing the calculation
and the adjustment to be effected within 7 Business Days from
the date the audited accounts of SAI for the relevant financial
year first becomes available;
(ii) the adjustment occurring in this Condition 7(C)(g) shall become
effective on the 14th Business Day following the day the audited
accounts of SAI for the relevant financial year first becomes
available;
(iii) for the avoidance of doubt, if the Conversion Price has already
been adjusted in 1998 in respect of the two financial years
ending 1996 and 1997 (the "FIRST ADJUSTED PRICE") and the
Conversion Price falls to be further adjusted in 1999 in respect
of the two
49
<PAGE>
financial years ending 1997 and 1998 (the "SECOND ADJUSTED
PRICE"), the second adjustment mentioned hereunder shall also be
made on the basis of US$5.00 (as adjusted, if relevant, by any
of the Condition 7(C)(a) to (f) inclusive); and
(iv) if two adjustments fall to be made by virtue of the provisions
of this Condition 7(C)(g), the Second Adjusted Price shall
prevail over the First Adjusted Price whereupon the First
Adjusted Price shall lapse and be of no effect.
(D) DEFINITIONS AND EXCEPTIONS
(a) For the purpose of this Condition:-
"announcement" shall include the release of an announcement to the
press or the delivery or transmission by telephone, telex or otherwise
of an announcement to NASDAQ or the relevant stock exchange and "date
of announcement" shall mean the date on which the announcement is
first so released, delivered or transmitted;
"Audited Earning per share or EPS" is defined as audited earnings for
the year minus or add back extraordinary items as defined under
International Accounting Standard, IAS8, and adding back interest
expenses on the Debenture divided by the total weighted average number
of Shares outstanding on a fully diluted basis (including the number
of Shares that would have been issued had all the Debentures then
outstanding been converted);
"Capital Distribution" means non-cash dividend or other distribution
(other than any distribution in winding-up) in cash or in specie;
"issue" shall include allot;
"market price" means the closing price of one SAI Share as shown by
the official list (or the equivalent thereof) of NASDAQ for one or
more board lots of SAI Shares on the day on which the market price is
to be ascertained;
"SAI Shares" means Shares and includes, for the purposes of SAI Shares
comprised in any issue or, distribution or grant pursuant to this
provision of any such Shares of the Company as, when fully paid, will
be SAI Shares;
"reserves" includes unappropriated profits; and
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<PAGE>
"rights" includes rights in whatsoever form issued.
(b) (i) Subject to (b)(ii) below, the provisions of Condition 7(C) shall
not apply to an issue of SAI Shares or other securities of SAI
wholly or partly convertible into, or carrying rights to
acquire, SAI Shares to officers or employees of SAI Group
pursuant to an employee or executive share option scheme for an
aggregate of 2,500,000 SAI Shares as set out in Schedule 5 of
the Subscription Agreement.
(ii) 2,050,000 SAI Shares out of 2,500,000 SAI Shares must be issued
and allotted to those persons and upon such terms as set out in
Schedule 5 hereof and the balance of 450,000 SAI Shares must
also be granted by SAI's Compensation Committee and issued and
allotted pursuant to SAI's 1995 Option Plan at a value not being
less than the fair market value of the SAI Shares on the date
the options are granted.
(iii) The provisions of Condition 7(C) shall also not apply to the
issue of Shares in connection with the conversion of the Series
B Preferred Stock as described in Part III of Schedule 1 hereof.
(E) ADJUSTMENTS DETERMINATION
(a) On any adjustment if the relevant Conversion Price is not an integral
multiple of one US cent, such shall be rounded down to the nearest US
cent.
(b) No adjustment shall be made to the Conversion Price where such
adjustment (rounded down if applicable) would be less than one per
cent. of the Conversion Price then in effect. Any adjustment not
required to be made, and any amount by which the Conversion Price has
been rounded down, shall be carried forward and taken into account in
any subsequent adjustments. Notice of any adjustment shall be given to
Debentureholders as soon as practicable after the determination
thereof. The Conversion Price may not be reduced so that, on
conversion of Debentures, Shares would fall to be issued at a discount
to their par value.
(c) Where more than one event which gives or may give rise to an
adjustment to the Conversion Price occurs within such a short period
of time that in the opinion of the Majority Investors the provisions
at Condition 7(C) would need to be operated subject to some
modification in order to give the intended result, such modification
shall be made to the operation of the provisions at Condition 7(C) as
may be advised by the Majority Investors to be in their opinion
appropriate in order to give such intended result.
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<PAGE>
(d) No adjustment involving an increase in the Conversion Price will be made,
except in the case of a consolidation of the Shares as referred to above or
in the case of adjustment under Condition 7(C)(g) above or in the case to
correct an error in a previous calculation of the Conversion Price.
(e) In any circumstances where any of the Debentureholders shall not agree with
the adjustment to the Conversion Price whether as regards to the basis upon
which adjustment has made or as regards the effective date, the Majority
Investors may appoint an independent merchant bank or such professional
adviser jointly approved by SAI and the Majority Investors to consider how
the adjustment should be appropriately done to reflect the relative
interest of the persons affected thereby and such determination shall
modify or nullify the adjustment accordingly.
(f) Whenever the Conversion Price falls to be adjusted, the Company shall
prepare such adjustments as soon as practicable but in any event no later
than 7 days after the occurrence of the relevant adjustment event (except
in relation to an event occurring under Condition 7(C)(g) hereunder in
which case the provisions thereunder shall apply) and give notice to the
Debentureholders that the Conversion Price has been adjusted and shall at
all times thereafter for so long as the Debentures remains outstanding make
available for inspection at the principal place of business of the Company
a copy of the certificate signed by an independent director of SAI setting
forth details of the event giving rise to the adjustment.
8. PROCEDURE FOR CONVERSION
The Conversion Rights pursuant to Condition 7(A) may, subject as provided
herein, be exercised on any Business Day prior to maturity of the Debenture by
the Debentureholder delivering to the principal place of business of the Company
in Hong Kong a written notice stating the intention of the Debentureholder to
convert and the address for the delivery of the share certificates of the
Conversion Shares pursuant to 7(B) together with the Certificate. The Company
shall be responsible for payment of all taxes and stamp duty, issue and
registration duties (if any) and levies and charges (if any) arising on any such
conversion.
9. REDEMPTION
10. UPON MATURITY
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Unless previously redeemed or converted or purchased and cancelled as provided
herein, the Company will redeem each Debenture on the Maturity Date at its
principal amount outstanding together with any accrued but unpaid interest
calculated up to and including the date of payment together with an amount that
would enable the Debentureholder to yield in aggregate an internal rate of
return ("IRR") of 12% per annum on the costs of its investment. For this
purpose, the internal rate of return shall bear the same meaning as defined in
Condition 11(C). Redemption upon maturity is mandatory and automatic without
service of any notice. The Company can not redeem the Debentures in whole or in
part at its option prior to the Maturity Date.
(A) Upon the occurrence of an Event of Default
Upon the occurrence of an Event of Default, the Company shall redeem the whole
of or part of the Debentures as shall be required by virtue by the
Debentureholders in such manner as specified in Condition 11 below.
(B) Upon the occurrence of certain event of adjustment
(a) In the event that an adjustment arising by virtue of an event described in
Condition 7(C)(g) occurs and such adjustment would result in (i) the number
of Shares that would have been issued to the Funds in aggregate had
Conversion immediately taken place or (ii) the number of Shares that would
have been issued to any one of the Investors had Conversion immediately
taken place to exceed 20% of the Deemed Total Issued Share Capital of SAI
(including also for this purpose such number of Shares that would have been
issued upon Conversion of all of the Debentures), that portion of the
Debenture(s) representing the excess of such Shares over such 20% ("THE
EXCESS") (as defined below) shall, at the option of the relevant
Debentureholder, be redeemed by the Company at its principal amount
outstanding together with any accrued but unpaid interest calculated up to
and including the date of payment together with an amount that would enable
the Debentureholder to yield in aggregate an IRR (as defined below) of
19.75% per annum. The Debentureholders shall exercise this right by service
of a notice on the Company and the Company shall promptly make payment
within 45 days after receipt of such notice.
(b) For the purpose of this Condition, Excess shall be calculated as follows:
Q = (R/S)
where:
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<PAGE>
Q = principal amount of the Debentures outstanding held by the Funds or
the Investor (not being a Fund) as the case may be
R = Conversion Price, as adjusted by virtue of Condition 7(C)(g)
S = the number of Shares that need to be issued upon conversion of the
Debentures in order to give a twenty percent (20%) holding by the
Funds in aggregate or the Investor (not being a Fund) as the case
may be of the Deemed Total Issued Share Capital of SAI (including
also for this purpose such number of Shares that would have been
issued upon Conversion of all of the Debentures)
(D) All Debentures which are redeemed, converted or purchased by the Company
will forthwith be cancelled.
11. Protection of the Debentureholder
The Guarantors and ACL have undertaken certain matters in the Subscription
Agreement for the protection of the Debentureholders for so long as any of the
Debentures remains outstanding.
12. Events of default
(A) If any of the following events ("EVENT OF DEFAULTS") occurs each of the
Debentures shall automatically become immediately due and payable in full
by the Company at its principal amount outstanding together with any
accrued but unpaid interest calculated up to and including the date of
payment together with an amount that would enable the Debentureholder to
yield in aggregate IRR on its cost of investment of 19.75% per annum unless
the Company shall have received a notice from any of the Debentureholders
to the effect that such redemption shall only be in respect of part of the
Debentures held by that Debentureholder in which case the amount payable
hereunder shall only be in relation to that part of the Debentures that
Debentureholder wishes to redeem.
(B) An Event of Default occurs when:-
(a) the listing of the Shares (as a class) on NASDAQ:-
(i) ceases;
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<PAGE>
(ii) is suspended for a continuous period of 90 days on each of which
NASDAQ is generally open for trading, such suspension having occurred
by any reason whatsoever; or
(b) SAI or the Company fails to obtain a listing or authorisation for quotation
of the Conversion Shares on NASDAQ; or
(c) the Company or any of the Guarantors or ACL defaults in performance of any
of its obligations contained in the terms and conditions of the Debenture
or the Subscription Agreement or the ACL Undertaking, and such event to the
extent it can be remedied continues to subsist for a continuous period of
30 days after notice of such event is given from the Majority
Debentureholders to the Company; or
(d) there is default in the payment of principal or the premium (if any) or
interest on any of the Debenture within seven (7) days in the case of
principal or premium of fourteen (14) days in the case of interest from the
due date for payment; or
(e) any Indebtedness of a material nature for borrowed money of any member of
the SAI Group becomes due and repayable prematurely by reason of an event
of default (however described) or any member of the SAI Group fails to make
any payment in respect of any Indebtedness for borrowed money of the due
date for payment as extended by any originally applicable grace period or
any security given by any of them for any Indebtedness for borrowed money
becomes enforceable or if any default is made by any of them in making any
payment due under any guarantee and/or indemnity given by it in relation to
any Indebtedness for borrowed money of any other person and such occurrence
has or will have in the opinion of the Majority Debentureholders a
materially adverse impact on any member of the SAI Group; or
(f) any legal process is levied or enforced or sued out upon or against any
part of the property, assets or revenues of any member of the SAI Group
which in the opinion of the Majority Debentureholders has a materially
adverse effect upon any of them, and is not discharged or stayed within 60
days (or such longer period as the Majority Debentureholders may consider
appropriate in relation to the jurisdiction concerned) of having
been so levied, enforced or sued out unless and for so long as the Majority
Debentureholders is satisfied that it is being contested in good faith,
diligently and with a reasonable prospect of success by legal action; or
(g) an encumbrancer takes possession or a receiver, manager or other similar
officer is appointed of, or an attachment order is issued in respect of,
the
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<PAGE>
whole or any part of the undertaking, property, assets or revenues of
any member of the SAI Group or of ACL which in the opinion of the Majority
Debentureholders has a materially adverse effect upon any of them; or
(h) any member of the SAI Group is unable to pay its debts as they mature or
takes any proceeding under any law for a readjustment or deferment of its
obligations or any part of them or makes or enters into a general
assignment or an arrangement or composition with or for the benefit of its
creditors which in the opinion of the Majority Debentureholders has a
materially adverse effect upon any of them; or
(i) an order of a court of competent jurisdiction is made or an effective
resolution passed for the winding up or dissolution or administration of
any member of the SAI Group or of ACL, ceases or threatens to cease to
carry on all or substantially all of its business or any of them stops or
threatens to stop payment (within, if applicable, the meaning of the
bankruptcy law of any appropriate jurisdiction) or applies for or consents
to or suffers the appointment of an administrator, liquidator or receiver
over the whole or any material part of the undertaking, property, assets or
revenues of or any of them; or
(j) proceedings shall have been initiated against ACL or any member of the SAI
Group under any applicable bankruptcy, insolvency or reorganisation law and
such proceedings shall not have been discharged or stayed within a period
of 60 days (or such longer period as the Funds may consider appropriate in
relation to the jurisdiction concerned) unless and for so long as the
Majority Debentureholders is satisfied that it is being contested in good
faith, diligently and with a reasonable prospect of success by legal
action; or
(k) any event occurs which under the laws of any relevant jurisdiction and in
the opinion of Majority Debentureholders has an analogous effect to any of
the event referred to in any of the foregoing paragraphs; or
(l) the EPS (as defined in the Condition 7(D)) of SAI for any of the financial
years falling between the financial year ended 31st December, 1995 and the
Maturity Date is less than US$0.55; or
(m) if:
(i) at the end of each quarter of a financial year ("QUARTER DATE"), the
trade debts (after provisions) left outstanding relating to the sales
achieved in a period occurring immediately before the 12-month period
preceding the relevant Quarter Date is or exceeds 10 percent
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of net sales achieved by SAI in the 12 months immediately preceding
the relevant Quarter Date; or
(ii) at the end of each Quarter Date, the trade debts (after provisions)
left outstanding relating to the sales achieved in a 12-month period
immediately preceding the Quarter Date is or exceeds 40 per cent of
the net sales achieved by SAI in the same period of time and such
outstanding debts are not accordingly repaid or remedied to fall below
the 10 per cent or 40 per cent level as the case may be within 30 days
after the release of the 10-Q Quarterly Report or the 10-K Annual
Report. The first of the Quarter Dates shall commence on 31st
December, 1996.
(C) For the purpose of this Debenture, IRR is the annual internal rate of
return compounded on a quarterly basis, which is the discount rate at which
the present value of future cash flows, including proceeds from interest,
dividends and transfer / sale of the Debentures and any repayment of the
principal amount of the Debentures outstanding is equal to the initial
subscription amount of all the Debentures subscribed and is calculated in
accordance with the following formula:-
OI = (D1 + C1) + (D2 + C2) + (D3 + C3) +... +(Dn + Cn)+ Pn
--------- --------- --------- --------- --
1 + R (1 + R)/2/ (1 + R)/3/ (1 + R)/n/ (1 + R)/n/
Where:
Pn = the amount to be paid by the Company to the Debentureholder on the
day of payment for redemption, provided always that Pn shall not be
less than zero;
OI = the price of the Debenture paid by the Debentureholder for the
Debenture pursuant to the Subscription Agreement;
Cn = (if applicable) the amount of any capital repayment or reduction
made during the quarter denoted by "n";
Dn = the amount or value of any interest or other money paid with respect
to the outstanding Debentures during the quarter denoted by "n";
n = the number of complete quarters from the issue date of the
Debentures to the date of redemption; and
R = the quarterly internal rate of return in the event of redemption of
the Debentures which shall be 4.61% (given an annual internal rate
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of return of 19.75% per annum) and shall be 2.87% (given an annual
internal rate of return of 12% per annum)
and for the purposes of this calculation only, all cashflows (denoted by Pn, Dn
or Cn) shall be deemed to arise on the last day of the quarter in which they
occur or are paid.
(D) In this Condition 11:
(a) the determination of "materiality", "material" or "materially" shall be by
the Majority Debentureholders and in the event of disagreement of or any
disputes over the applicability or the interpretation of the occurrence of
any such events as described in Condition 11(B)(e), (f), (g), (h), (i), (j)
or (k), an independent professional adviser (including a merchant bank of
repute, an international firm of accountants or legal adviser) shall be
appointed by the Company from a selection of three (3) names given by the
Majority Debentureholders to the Company who shall determine the same and
whose decision shall be final and binding;
(b) "Majority Debentureholders" shall mean the majority of the Debentureholders
in value holding more than 50% of the total principal amount of the
Debentures outstanding.
12. VOTING
The Debentureholder will not be entitled to receive notices of, attend or vote
at any meetings of the Company by reason only of it being the Debentureholder.
13. REGISTER
The Company shall maintain a register in Bermuda or in Hong Kong of the
particulars of the Debenture and the Debentureholder.
14. REPLACEMENT NOTE
If any of the Debentures is lost or mutilated the Debentureholder shall
forthwith notify the Company and a replacement Debenture shall be issued if the
Debentureholder provides the Company with: (1) the mutilated Debenture; (ii) a
declaration by the Debentureholder or its officer that the Debenture had been
lost or mutilated (as the case may be) or other evidence that the Debenture had
been lost or mutilated; and (iii) an appropriate indemnity in such form and
content as
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the Company may reasonably require. Any Debenture replaced in accordance with
this Condition shall forthwith be cancelled.
15. NOTICES
Any notice required or permitted to be given shall be given by delivering it to
the party:
(a) in the case of the Debentureholder:
being GML: c/o HPEM
10th Floor, Citibank Tower
Citibank Plaza, 3 Garden Road, Central,
Hong Kong
Tel: (852) 2845 7685
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
being WCIT: c/o HPEM, 10th Floor, Citibank Tower,
3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
being MC Partners: c/o MC Capital Asia Pte Limited
Unit No. 1002 C/D 10th Floor,
Tower 1, Admiralty Centre,
10 Harcourt Road, Hong Kong
Tel: (852) 2866 3393
Fax: (852) 2866 2693
ATTN.: MR. YUJI KOMIYA/MR. TATSUYA KUROYANAGI
being CI 2000 : c/o Banque Worms, Hong Kong Branch
39th Floor, Central Plaza
18 Harbour Road, Hong Kong
Tel: (852) 2802 8382
Fax: (852) 2802 8065
ATTN.: MR. FABRICE JACOB/MR. ANTOINE FOSSORIER
(b) in the case of the Company
c/o China International Bearing
Holdings Limited,
19th Floor, First Pacific Centre,
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51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
Attn.: Mr. Billy Kan / Mr. Roger Li
-----------------------------------
(c) in the case of SAI:-
c/o China International Bearing
Holdings Limited,
19th Floor, First Pacific Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
Attn.: Mr. Billy Kan / Mr. Roger Li
-----------------------------------
or to such other Hong Kong address as the party concerned may have notified to
the other party pursuant to this Condition and may be given by sending it by
hand to such address or to such other address as the party concerned may have
notified to the other parties in accordance with this Condition and such notice
shall be deemed to be served on the day of delivery (or on the immediately
following Business Day, if the day of delivery is not a Business Day), or if
sooner upon acknowledgement or receipt by or on behalf of the party to which it
is addressed.
16. ENFORCEMENT
At any time after the Debentures have become due and repayable, any of the Funds
may, at its discretion and not necessarily with any further notice, take such
proceedings against the Company and/or the Guarantors as it may think fit to
enforce repayment of the Debenture together with accrued interest and to enforce
the provisions of the Subscription Agreement, but it will not be bound to take
any such proceedings unless (a) it shall have been so requested in writing by
the holders of not less than one-third in principal amount of the Debentures
then outstanding or shall have been so directed by resolution of the
Debentureholders and (b) it shall have been indemnified to its satisfaction. No
Debentureholder will be entitled to proceed directly against the Company or the
Guarantors or ACL unless the Funds, having become bound to do so, fails to do so
within a reasonable period and such failure shall be continuing.
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17. AMENDMENT
The terms and conditions of the Debentures may only be varied, expanded or
amended by agreement in writing between the Company and all of the
Debentureholders.
18. GOVERNING LAW AND JURISDICTION
The Debenture and the terms of the Debenture are governed by and shall be
construed in accordance with Hong Kong law and the parties agree to submit to
the non-exclusive jurisdiction of the courts of Hong Kong. In relation to any
legal actions or proceedings arising out of or in connection with the
Subscription Agreement and/or the Debentures, each of the Company and the
Guarantors has in the Subscription Agreement irrevocably submitted to the courts
of Hong Kong and has in relation thereto appointed an agent for service of
process in Hong Kong.
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SCHEDULE 3
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
1. INFORMATION
-----------
1.1 All information relating to the SAI Group and ACL set out herein is true
and accurate in all material respects and nothing has been omitted which
would make any of the information set out therein misleading.
1.2 No circumstances have occurred and none of the Warrantors is aware of any
circumstances which may or are likely to occur which in either event would
result in any information relating to any member of the SAI Group or ACL
which has been given to the Majority Investors in the course of the
negotiations leading up to this Agreement to be untrue, inaccurate or
misleading in any material respect.
1.3 There is no fact or circumstance relating to the affairs of any member of
the SAI Group or of ACL which has not been disclosed to the Investors and
which if disclosed will, to the actual knowledge of the Investors,
influence the decision of the Investors to buy the Debentures on the terms
contained in this Agreement.
1.4 No member of the SAI Group nor has ACL omitted to state a material fact
necessary to make the statements herein contained or any information made
to the Investors not misleading.
1.5 No Warrantor is an "INVESTMENT COMPANY" within the meaning of the U.S.
Investment Company Act 1942, as amended.
2. GROUP STRUCTURE ETC.
--------------------
2.1 SAI will at Completion have sufficient authorised but unissued share
capital free of pre-emptive rights in order to enable it to perform its
obligations under the Debentures upon conversion and the directors of SAI
are authorised to issue the Conversion Shares upon conversion of the
Debentures.
2.2 Except as set forth in Part III of Schedule 1 and Schedule 5, there are no
agreements or commitments, securities or obligations outstanding which
calls for the allotment, issue or transfer of, or accords to any person the
right to call for the allotment or issue of or conversion into, any common
stock or debentures in or securities of any member of the SAI Group. No
person has any rights of any nature whatsoever on, over or affecting any
unissued shares or loan capital in any member of the SAI Group and no
person has the right to call for the transfer of
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any issued shares under any option or other agreement or to convert any
shares or securities into share capital or share capital of a different
class.
2.3 SAI does not hold any ownership or other interests (whether by way of
shareholding or otherwise) in any other Company or undertaking except those
otherwise disclosed.
2.4 None of the members in SAI Group nor ACL has taken any action nor (to the
actual knowledge of the Warrantors) has any steps been taken or legal,
legislative, or administrative proceedings been started or threatened (i)
to wind up, dissolve, or eliminate itself, or (ii) to withdraw, revoke or
cancel its business licence.
3. CAPACITY AND AUTHORITY
----------------------
3.1 Each of the Warrantors is a legal person, duly organised, validly existing,
and in good standing under the laws of the respective jurisdiction of its
incorporation.
3.2 Each of the Warrantors has full power and authority to carry on its
business to own its property and other assets and to enter into and perform
this Agreement and to exercise its rights and perform its obligations
hereunder.
3.3 Each of the Warrantors represents that the execution, delivery and
performance of this Agreement including, but without limitation, the
issuance of the Debenture and the Shares, none of the Warrantors has been
in breach of any applicable laws or any order or judgement of any court
applicable to it or any of its assets and will not result in any breach of
the terms if any agreement or obligation applicable to it or any of its
assets and that all corporate and other action required to authorise its
execution of this Agreement and its performance of its obligations
hereunder has been duly taken.
4. SHARES AND SUBSIDIARIES
-----------------------
4.1 Save as disclosed in 4.2 below, the particulars relating to the share
capital and corporate structure of the SAI Group referred to in Recital (A)
and Parts I, II and III of Schedule 1 of this Agreement are correct and
accurate.
4.2 The investment by SPC in Shanghai Southwest Bearing Company ("SBB") of an
aggregate of US$1 million has not been completed. As at the date of this
Agreement, SAI had only invested US$150,000 in SBB, representing only
4.167% of the aggregate issued capital if the whole of the contributions
were made to SBB by the joint venture parties. Upon completion of the
contribution of the balance of US$850,000 by SPC, SPC will have an
aggregate of 27.78% interest in SBB.
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4.3 No mortgage, pledge, lien or other security interest exists on or over any
of the shares in the SAI Group.
4.4 The execution and delivery of, and the performance by each of the Company
and the Guarantors of its obligations under this Agreement the Guarantee or
the Debenture will not:-
(i) result in a breach of any provision of its memorandum and articles
of association or equivalent constitutional documents;
(ii) result in a breach or constitute a default under any instrument to
which any of the Company, ACL and the Guarantors is a party or by
which it or any of its assets is bound; or
(iii) result in a breach of any order, judgement in decree of any court or
governmental agency to which any of the Company, ACL and the
Guarantors is a party or by which it is bound.
4.5 The entire existing issued shares in the common stock capital of SAI is
authorised for quotation on NASDAQ and none of the Warrantors is aware of
any circumstance whereby such authorisation will be suspended, cancelled or
revoked before Completion as a result of this Agreement or the transactions
contemplated hereunder.
5. FINANCIAL INFORMATION
---------------------
5.1 The Accounts have been prepared in accordance with the disclosed accounting
policies of and is in accordance with generally accepted accounting
principles and practices in its place of incorporation. Except as stated
such Accounts have not been affected by any extraordinary or exceptional or
non-recurring item or by any other circumstances rendering the profits or
losses for the period covered by the financial statements unusually high or
low.
5.2 The Accounts (i) show a true and fair view of the assets, liabilities,
capital commitments and the state of affairs of the SAI Group as at the
relevant financial year end date and of the profits and losses of the SAI
Group for the period concerned; (ii) reserve or provide in full for
depreciation and all bad and doubtful debts and all other liabilities,
actual, contingent or otherwise and for all financial commitments in
existence at the relevant financial year end date; (iii) reserve or provide
in full for all taxation including any contingent or deferred liability
therefor for which the SAI Group was at the relevant financial year end
date liable and whether or not any member of the SAI Group has or may have
any right of reimbursement against any other person.
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5.3 Since the relevant financial year end date the business of the SAI Group
has been carried on in the ordinary course and so as to maintain the same
as a going concern and no member of the SAI Group has entered into any
transaction or circumstances outside the ordinary course of business or of
an unusual or onerous nature and there has been no reduction in the value
of the net tangible assets of the SAI Group on the basis of the valuation
adopted in the financial statements and there has been no material adverse
change in the financial position or trading prospects of the SAI Group.
6. CHANGES
-------
Since 31st December, 1995,
(a) the business of each of the members of the SAI Group has been carried
on in the ordinary course so as to maintain the same as a going
concern and none of the members of the SAI Group has entered into any
transaction or circumstances outside the ordinary course of business
or which is of an unusual or onerous nature;
(b) no material adverse changes have occurred in the conditions, financial
or otherwise or the earnings, business affairs, position, prospects,
assets and liabilities (whether actual or contingent) of any member of
the SAI Group as shown in the Accounts and there has been no reduction
in the value of the net tangible assets of each of the members of the
SAI Group on the basis of the valuation adopted in the Accounts;
(c) the business of each of the members of the SAI Group has not been
materially adversely affected by the loss of any important contract or
customer or source of supply or by any other material factor;
(d) no dividends, bonuses or distributions have been declared, paid or
made in the case of any member of the SAI Group except as provided for
in the Accounts; and
(e) none of the member of the SAI Group has to any material extent
acquired, sold, transferred or otherwise disposed of any assets of
whatsoever nature or cancel or waive or release or discount in whole
or in part any debts or claims, except in each case in the ordinary
course of business.
7. TAXATION
--------
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<PAGE>
There is no dispute or disagreement outstanding nor is any contemplated
with any revenue authority regarding liability or potential liability to
any tax or duty (including in each case penalties or interest) recoverable
from any member of the SAI Group regarding the availability of any relief
from tax or duty to any member of the SAI Group and there are no
circumstances which make it likely that any such dispute or disagreement
will commence.
8. CONTRACTS
---------
8.1 None of the members of the SAI Group is a party to any contract which may
be affected by reason of Completion, nor has it entered into any material,
long-term, onerous or unusual contract or commitment binding upon it nor
has any contract been entered into otherwise than on an arm's length basis
or otherwise than in the ordinary course of business nor is it under any
obligation, nor is it a party to any contract, which cannot readily be
fulfilled or performed by it on time and without undue or unusual
expenditure of money or effort nor is it aware of any breach of, or any
invalidity, or grounds for determination, rescission, avoidance or
repudiation of, any contract to which any member of the SAI Group is a
party.
8.2 There is no contract or arrangement in respect of which obligations are
still outstanding to which any member of the SAI Group or ACL is, or was, a
party and in which any member of the SAI Group or ACL, or any director of
the SAI Group or of ACL is beneficially interested or any person connected
with indirectly, which is not of an arm's length nature for this Agreement.
9. APPROVALS AND VALIDITY
----------------------
9.1 Subject to the fulfilment of the Conditions Precedent, all necessary
consents, authorisations and approvals of any governmental agencies or
bodies or any other consents, authorisation or approvals as shall be
required for or in connection with this Agreement the issuance of the
Debenture hereunder the performance of the obligations thereof have been
obtained or made or will have been obtained or made by Completion.
9.2 Subject to the fulfilment of the Conditions Precedent, the issue of the
Debenture and the Certificate and the Conversion Shares upon conversion
thereunder will not infringe and will not be contrary to any applicable
laws and will not result in any breach of the terms of the Memorandum of
Association and Bye-laws of the Company or the respective constitutive
documents of each of the Warrantors nor would it breach the terms of any
agreement or obligation applicable to any of the Warrantors.
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9.3 Upon the issue of the Debentures and the execution of the Certificates by
the Company and delivery of the same, the Debentures and the Certificates
will constitute valid and binding obligations of the Company and of SAI
enforceable against the Company and SAI as the case may be.
10. BUSINESS
--------
All the members of the SAI Group have obtained, maintained in force and
complied with all necessary licences and consents required for the proper
carrying on of its business and to the actual knowledge of the Warrantors
there are no circumstances which indicate that any such licences or
consents shall have revoked or not renewed.
11. LITIGATION AND UNLAWFUL ACTS
----------------------------
None of the Warrantors is involved in any litigation, arbitration or
administrative proceeding which materially and adversely affects the
business or financial condition of any of them and no such proceedings is
currently taking place or pending or threatened against any member of the
SAI Group or of ACL or its respective assets.
12. LIABILITIES
-----------
12.1 No member of the SAI Group is nor is ACL in default under any law,
regulation, judgement, order, authorisation, agreement or obligation
applicable to it or its assets or revenues the consequences of which
default could materially and adversely affect its business or financial
condition or the ability of any of them to perform its obligation under
this Agreement or the Debentures and no Event of Default has occurred.
12.2 None of the members of the SAI Group has nor has ACL entered into or is
bound by any guarantee, indemnity or other agreement to secure an
obligation of a third party other than another member of the SAI Group,
under which any liability or contingent liability is outstanding.
12.3 None of the members of the SAI Group has nor has ACL committed or is liable
for any criminal, illegal or unlawful action or breach of any obligation or
duty whether imposed by or pursuant to statute, contract or otherwise.
12.4 None of the members of the SAI Group has nor has ACL received notification
that any investigation is being or has been conducted by any governmental
body
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in respect of the affairs of any such member and no member is aware of any
circumstances which would give rise to such investigations.
13. WORKING CAPITAL
---------------
Each member of the SAI Group has and ACL has adequate working capital for
its current requirements, taking into account its current and projected
financial commitments and the proceeds of the Debentures.
14. INSURANCE
---------
14.1 All the assets of the SAI Group and ACL of an insurable nature have at all
material times been and are insured in amounts to the full replacement
value thereof against fire and other risks normally or prudently insured
against by persons carrying on the same classes of business as those
carried on by the SAI Group and by ACL, and each member of the SAI Group
and ACL has at all material times been and is adequately covered against
accident, third party and other risks normally or prudently covered by
insurance.
14.2 No claim is outstanding or may be made under any insurance policies taken
out and no event has occurred or circumstances exist which are likely to
give rise to any material claim; nothing has been done or omitted to be
done which is likely to result in an increase in premium; and nothing has
been done or omitted to be done which would make any such policy of
insurance void or voidable.
15. ENVIRONMENTAL
-------------
None of the members in the SAI Group has nor has ACL been in breach of any
laws, regulations, judgements, orders or agreements, or codes of conducts
in respect of or in connection with any environmental issues and
protection.
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SCHEDULE 4
FORM OF GUARANTEE
69
<PAGE>
THIS GUARANTEE dated the day of , 1996 is made between:-
(1) SUNBASE ASIA, INC., of 1280 Terminal Way, Suite 3, Reno, Nevada 89502,
United States of America ("SAI");
(2) CHINA INTERNATIONAL BEARING HOLDINGS LIMITED, of Cedar House, 41 Cedar
Avenue, Hamilton HM12, Bermuda ("CIBHL");
[(3) SMITH ACQUISITION COMPANY, INC. of 2240 Buena Vista, Irwindale, CA 91706
("SPC");]
(The parties referred to at (1), (2) [and (3)] hereinafter referred to as the
"GUARANTORS" and each a "GUARANTOR".)
(4) GLORY MANSION LIMITED, of Craigmuir Chambers, P.O. Box 71, Road Town,
Tortola, British Virgin Islands ("GML");
(5) WARDLEY CHINA INVESTMENT TRUST, of c/o Suite 1610, P.O. Box 1016, 885 West
Georgia Street, Vancouver B.C., V6C 3E8, Canada ("WCIT");
(6) MC PRIVATE EQUITY PARTNERS ASIA LIMITED of P.O. Box 309, Ugland House,
South Church Street, Grand Cayman, Cayman Islands, British West Indies ("MC
PARTNERS"); and
(7) CHINE INVESTISSEMENT 2000, of L1118 Luxembourg, 14 Rue Aldringen ("CI
2000");
(The parties referred to at [(4), (5), (6) and (7)] hereinafter collectively
referred to as "INVESTORS" and each an "INVESTOR").
WHEREAS:-
(A) By a subscription agreement dated [ ] , 1996 (the "SUBSCRIPTION
AGREEMENT") which expression shall include such Debenture (as made from
time to time the supplemented or amended) and made between (1) China
Bearing Holdings Limited (the "COMPANY"); (2) Asean Capital Limited
("ACL"); (3) China International Bearing Holdings Limited ("CIBHL"); (4)
Sunbase Asia, Inc. ("SAI"); (5) Smith Acquisition Company Inc. ("SPC"); (6)
GML; (7) WCIT; (8) MC Partners and (9) CI 2000 under which the Investors
have agreed to subscribe for and the Company to issue Convertible
Debentures up to an aggregate principal value of US$11,500,000 upon such
terms and conditions as described therein.
(B) It is the condition of the Subscription Agreement that the Guarantors shall
execute the Guarantee in respect of the obligations of the Company and the
other parties
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<PAGE>
(not being the Investors) under the Subscription Agreement and the
Debentures. Accordingly, this Guarantee supplements the Subscription
Agreement and the Debentures.
(on SPC's Guarantee)
[(B) SAI and CIBHL ("OTHER GUARANTORS") have already given a Guarantee dated [ ]
in similar form at Completion ("SAME GUARANTEE"). SPC has given an
undertaking in the Subscription Agreement to also execute the Guarantee in
respect of the Company's and the other parties (not being an Investor)
obligations under the Subscription Agreement and the Debentures.
Accordingly, this Guarantee supplements the Subscription Agreement, the
Debentures and the Same Guarantee.]
(C) Expressions defined in the Subscription Agreement shall, unless
specifically defined or re-defined herein or the context otherwise
requires, bear the same meanings when used herein.
NOW THIS GUARANTEE WITNESSETH AND IT IS HEREBY AGREED as follows:-
1. GUARANTEE
---------
(A) In consideration of the subscription of the Debentures pursuant to the
Subscription Agreement by the Investors, each of the Guarantors hereby as
primary obligor, irrevocably and unconditionally and together with each of
the other Guarantors (the "OTHER GUARANTORS") jointly and severally,
guarantees to each of the Investors:-
(i) the full due and punctual observance and performance of all the
terms, conditions and covenants on the part of the Company contained
in the Subscription Agreement and the Debentures including the due
and punctual payment of all sums now or subsequently payable under
the Subscription Agreement or the Debentures and agrees to perform
or procure the performance of such obligations of the Company from
time to time and on demand by any of the Investors pay any and every
sum or sums of money which the Company shall at any time be liable
to pay to the Investors under or pursuant to the Subscription
Agreement or the Debentures as the case may be;
(ii) the full due and punctual observance and performance of all the
terms, conditions and covenants on the part of each Other Guarantor
to which such Other Guarantor is a party to the Subscription
Agreement and this
71
<PAGE>
Guarantee including the due and punctual payment of all sums now or
subsequently payable under the Subscription Agreement or this
Guarantee and agrees to perform or procure the performance of such
obligations of the Other Guarantors from time to time and on demand
by any of the Investors pay any and every sum or sums of money which
the Other Guarantors shall at any time be liable to pay to the
Investors under or pursuant to the Subscription Agreement or this
Guarantee as the case may be; and
(iii) to indemnify the Investors from time to time on demand by any of the
Investors from and against any loss incurred by the Investors or any
of them as a result of any of the obligations of the Company under
the Subscription Agreement or the Debenture or of any of the
obligations of the Other Guarantors under or pursuant to the
Subscription Agreement or this Guarantee not being fulfilled or
performed or being or becoming void, voidable, unenforceable or
ineffective as against the Company or any of the Other Guarantors as
the case may be for any reason whatsoever, whether or not known to
the Investors or any of them or any other person.
The Guarantors' obligations hereunder is as if it is a principal debtor in
respect of any amount and liability and obligation and not merely a surety,
and without any requirement for the Investors first to have recourse
against the Company or any of the Other Guarantors as the case may be and
such liability shall not be impaired or reduced by any undertaking granted.
[(B) SPC has undertaken in the Subscription Agreement to execute this
Guarantee at a later date than the date of this Guarantee pursuant
to Clause 10 of the Subscription Agreement. For the purpose of this
Guarantee, "OTHER GUARANTORS" shall therefore be construed to
include SPC notwithstanding that SPC is not giving the Guarantee
simultaneously as the Guarantors hereunder.]
2. PRESERVATION OF RIGHTS
----------------------
(A) The obligations of the Guarantors herein contained shall be in addition to
and independent of every other security which the Investors or any of them
may at any time hold in respect of any of the Company or the Guarantors'
obligations hereunder.
(B) The obligations of each of the Guarantors herein contained shall constitute
and be continuing obligations notwithstanding any settlement of account or
other matter or thing whatsoever, and in particular but without limitation,
shall not be considered satisfied by any intermediate payment or
satisfaction of all or any of
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<PAGE>
the obligations of the Company or any of the Other Guarantors and shall
continue in full force and effect until final payment in full of all
amounts owing by the Company or any of the Other Guarantors hereunder and
total satisfaction of all the Company's or any of the Other Guarantors
actual and contingent obligations hereunder.
(C) None of the obligations of any of the Guarantors herein contained nor the
rights, powers and remedies conferred upon the Investors by the
Subscription Agreement or the Debenture or this Guarantee or by law shall
be discharged, impaired or otherwise affected by:-
(i) the winding-up, dissolution, administration or re-organisation of
the Company or any of the Guarantors or any other person or any
change in its status, function, control or ownership;
(ii) any of the obligations of the Company or any of the Guarantors or
any other person hereunder or under any other security taken in
respect of any of its obligations hereunder being or becoming
illegal, invalid, unenforceable or ineffective in any respect;
(iii) time or other indulgence being granted or agreed to be granted to
the Company or any of the Guarantors or any other person in respect
of its obligations hereunder or under any such other security;
(iv) any amendment to, or any variation, waiver or release of, any
obligation of the Company or any of the Guarantors or any other
person hereunder or under any such other security;
(v) any failure to take, or fully to take, any security contemplated
hereby or otherwise agreed to be taken in respect of the Company,
any of the Guarantor's or any other person's obligations hereunder;
(vi) any failure to realise or fully to realise the value of, or any
release, discharge, exchange or substitution of, any security taken
in respect of the Company, any of the Guarantor's or any other
person's obligations hereunder; or
(vii) any other act, event or omission which, might operate to discharge,
impair or otherwise affect any of the obligations of any of the
Guarantors herein contained or any of the rights, powers or remedies
conferred upon the Investors or any of them by the Subscription
Agreement or the Debentures or by law.
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<PAGE>
(D) None of the Investors shall be obliged before exercising any of the rights,
powers or remedies conferred upon each of them hereunder or by law:-
(i) to make any demand of the Company or any of the Guarantors;
(ii) to take any action or obtain judgement in any court against the
Company or any of the Guarantors;
(iii) to make or file any claim or proof in a winding-up or dissolution of
the Company or any of the Guarantors; or
(iv) to enforce or seek to enforce any other security taken in respect of
any of the obligations of the Company or any of the Guarantors
hereunder.
(E) Each Guarantor agrees that, so long as any amounts are or may be owed by
the Company or the Other Guarantors hereunder or when any of the Company or
the Other Guarantors is under any actual or contingent obligations
hereunder, it shall not exercise any rights which it may at any time have
by reason of performance by it of its obligations hereunder:-
(i) to be indemnified by the Company or any of the Guarantors; and/or
(ii) to claim any contribution from the Other Guarantors; and/or
(iii) to take the benefit (in whole or in part and whether by way of
subrogation or otherwise) of any rights of the Investors hereunder
or of any other security taken pursuant to, or in connection with,
the Subscription Agreement or the Debenture by all or any of the
Investors.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Guarantors hereby represents and warrants to each of the
Investors that:-
(a) it is a company validly incorporated, duly organised and subsisting
and of good standing under the law of the jurisdiction under which
it was incorporated;
(b) it has the necessary capacity to give this Guarantee and to perform
and observe the obligations contained herein. The execution,
delivery and performance of this Guarantee have been duly authorised
by all necessary corporation action of the Guarantor and do not
contravene the constitution of the Guarantor under any applicable
laws or regulations. This Guarantee,
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<PAGE>
as executed and delivered constitutes legal valid and binding
obligations of the Guarantor and also bought in accordance with its
terms;
(c) the execution and delivery of, and the performance of the provisions
of, this Guarantee does not and will not during the continuance of
this Guarantee (i) contravene any existing applicable laws,
ordinance, regulation, decree, instrument, franchise, concession,
licence or permit, or any order, judgement, decree or award,
administrative or governmental authority, department or agency
presently in effect an applicable, or (ii) contravene any
contractual restrictions binding on the Guarantors or any of its
assets, or (iii) cause any limit on any of the borrowing,
guaranteeing, charging or other powers of the Guarantor, or (iv)
create or result in or obliged the Guarantor to create any lien,
charge, security interest or encumbrance on the whole or any part of
the corporate Guarantor's property;
(d) all necessary governmental and other consents, authorities and
approvals to execute this Guarantee has been obtained and are in
full force, validity and effect;
(e) no litigation, attribution, administrative or other proceedings
pending before the court, tribunal, arbitrator or governmental
agency has been threatened against any of the Guarantor; and
(f) the obligations of each of the Guarantors under this Guarantee are
direct, general, and unconditional obligations and rank at least
pari passu with all such Guarantor's other present and future
unsecured and unsubordinated and other obligations.
4. FURTHER PRESERVATION OF RIGHTS
------------------------------
Should any purported obligation of the Company or any of the Guarantors
being the subject of this Guarantee be or become wholly or in part invalid
or unenforceable on any grounds whatsoever, the Guarantor shall
nevertheless be liable to the Investors in respect of such purported
obligation or liability as if the same were wholly valid and enforceable in
each of the Guarantors as the principal debtor in respect thereof. Each of
the Guarantors hereby agrees to keep each of the Investors fully
indemnified against all damages, loss, costs and expenses arising from any
failure of the Company or any of the Guarantors to carry out any of such
purported obligations.
5. MISCELLANEOUS
-------------
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<PAGE>
(A) This Guarantee shall be binding on and each of which for the benefit of
each of the parties' successor and assign and personal representatives (as
the case may be) but no assignment may be made of any of the rights
obligations hereunder of any party without the prior written consent of the
other parties.
(B) This Guarantee may be signed in any number of counterparts, each of which
shall be binding on the party who shall have executed it in which together
shall constitutes but one Agreement.
(C) The Guarantors shall bear the legal and professional fees, costs and
expenses incurred in relation to the negotiation, preparation and execution
of this Guarantee.
(D) Any notice required to be sent must be in writing and shall be given by
delivering it to the address or facsimile number as shown in Clause 12 of
the Subscription Agreement.
(E) This Agreement shall be governed by and construed in accordance with the
laws of Hong Kong and the parties hereby submitted the non-exclusive
jurisdiction of the Supreme Court of Hong Kong. In relation to any legal
action or proceedings arising out of or in connection with this Guarantee,
each of the Guarantors have irrevocably submitted in the Subscription
Agreement to the courts of Hong Kong and in relation thereto has appointed
an agent for service of process.
IN WITNESS WHEREOF the Guarantors have duly executed this Guarantee the date and
year first above written.
The Common Seal of )
SUNBASE ASIA, INC. )
was hereunto affixed )
in the presence of:- )
The Common Seal of )
SMITH ACQUISITION )
COMPANY INC. )
was hereunto affixed )
in the presence of:-] )
76
<PAGE>
The Common Seal of )
CHINA INTERNATIONAL )
BEARING HOLDINGS LIMITED )
was hereunto affixed )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of GLORY MANSION LIMITED )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of WARDLEY CHINA )
INVESTMENT TRUST )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of MC PRIVATE EQUITY PARTNERS )
ASIA LIMITED )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of CHINE INVESTISSEMENT 2000 )
in the presence of:- )
77
<PAGE>
SCHEDULE 5
----------
EMPLOYEES / DIRECTORS' OPTIONS
------------------------------
<TABLE>
<CAPTION>
Exercise Price Number of Shares
Option Holder Years of Exercise Per Share per Option Rights
<S> <C> <C> <C>
William Mckay one year from 16 Jan, 1996 $ 6.65 160,000
one year from 16 Jan, 1997 $ 7.75 160,000
one year from 16 Jan, 1998 $ 9.25 160,000
one year from 16 Jan, 1999 $10.75 160,000
one year from 16 Jan, 2000 $12.75 160,000
---------
800,000
---------
Billy Kan one year from 16 Jan, 1996 $6.375 200,000
one year from 16 Jan, 1997 $6.375 200,000
one year from 16 Jan, 1998 $6.375 200,000
---------
600,000
---------
Roger Li one year from 16 Jan, 1996 $6.375 200,000
one year from 16 Jan, 1997 $6.375 200,000
one year from 16 Jan, 1997 $6.375 200,000
---------
600,000
---------
Dickens Chang one year from 16 Jan, 1996 $6.375 15,000
one year from 16 Jan, 1997 $6.375 15,000
one year from 16 Jan, 1998 $6.375 20,000
---------
50,000
---------
Total 2,050,000
=========
</TABLE>
The remaining 450,000 Shares may be granted by SAI's Compensation Committee
under SAI's 1995 Option Plan provided that the exercise price per Share in
relation to the grant of such option over the 450,000 Shares shall not be less
than the fair market value of each Share on the date such options are granted.
78
<PAGE>
SCHEDULE 6
----------
CERTIFICATION ON CONVERSION NOTICE
[CERTIFICATION ON CONVERSION -- TO APPEAR ON THE CONVERSION NOTICE]
In connection with our exercise this day of [describe debenture and amount to be
exercised -- provide for defined terms, such as the Company, the Debenture and
the Common Stock], we hereby certify as follows (check one box):-
[_] We are a non-U.S. person located outside the United States that is
acquiring the Common Stock for the account of a non-U.S. person and not for
distribution.
[_] We are a U.S. institutional investor that is acquiring the Common Stock for
our own account or accounts for which we exercise sole investment
discretion and not with a view to or for sale in connection with any
distribution thereof, and we have received such information concerning the
Company and the Common Stock as we have deemed relevant to our decision to
purchase the Common Stock. We agree that we will not resell the Common
Stock except pursuant to an exemption from the registration requirements of
the U.S. securities laws and any state "blue sky" or securities laws.
79
<PAGE>
SCHEDULE 7
----------
UNDERTAKING BY ACL
------------------
80
<PAGE>
THIS UNDERTAKING dated the _______ day of ________________, 1996 is made
between:-
(1) ASEAN CAPITAL LIMITED, of Omar Hodge Building, Wickhams Cay I, P.O. Box
362, Road Town, Tortola, British Virgin Islands ("ACL");
(2) WARDLEY CHINA INVESTMENT TRUST, of c/o Suite 1610, P.O. Box 1016, 885 West
Georgia Street, Vancouver B.C., V6C 3E8, Canada ("WCIT");
(3) GLORY MANSION LIMITED, of Craigmuir Chambers, P.O. Box 71, Road Town,
Tortola, British Virgin Islands ("GML");
(4) MC PRIVATE EQUITY PARTNERS ASIA LIMITED, of P.O. Box 309, Ugland House,
South Church Street, Grand Cayman, Cayman Islands, British West Indies ("MC
PARTNERS"); and
(5) CHINE INVESTISSEMENT 2000, of L1118 Luxembourg, 14 Rue Aldringen ("CI
2000").
(The parties referred to at (2), (3), (4) and (5) hereinafter collectively
referred to as "INVESTORS" and each an "INVESTOR").
WHEREAS:-
(A) By a subscription agreement dated [ ] , 1996 (the "SUBSCRIPTION AGREEMENT")
which expression shall include such Debenture (as made from time to time
the supplemented or amended) and made between (1) China Bearing Holdings
Limited (the "COMPANY"); (2) ACL; (3) China International Bearing Holdings
Limited ("CIBHL"); (4) Sunbase Asia, Inc. ("SAI"); (5) Smith Acquisition
Company Inc. ("SPC"); (6) GML; (7) WCIT; (8) MC Partners and (9) CI 2000
under which, inter alia, the Investors have agreed to subscribe for and the
Company has agreed to issue Convertible Debentures up to an aggregate
principal value of US$11,500,000 upon such terms and conditions as
described therein.
(B) It is the condition of the Subscription Agreement that ACL shall execute
the ACL Undertaking in respect of the payment obligations of the Company
under the Subscription Agreement and the Debentures and accordingly, this
Undertaking supplements the Subscription Agreement and the Debentures.
(C) Expressions defined in the Subscription Agreement shall, unless
specifically defined or re-defined herein or the context otherwise
requires, bear the same meanings when used herein.
81
<PAGE>
NOW THIS UNDERTAKING WITNESSETH AND IT IS HEREBY AGREED as follows:-
1. GUARANTEE
---------
In consideration of the subscription of the Debentures pursuant to the
Subscription Agreement by the Investors, ACL hereby as primary obligor,
irrevocably and unconditionally guarantees and undertakes to each of the
Investors:-
(i) the full due and punctual payment of all sums now or subsequently
payable under the Subscription Agreement or the Debentures by the
Company and agrees to perform or procure the performance of such
payment obligations of the Company from time to time and on demand by
any of the Investors pay any and every sum or sums of money which the
Company shall at any time be liable to pay to the Investors under or
pursuant to the Subscription Agreement or the Debentures as the case
may be; and
(ii) to indemnify the Investors from time to time on demand by any of the
Investors from and against any losses or costs incurred by the
Investors or any of them as a result of any of the payment obligations
of the Company under the Subscription Agreement or the Debentures or
any payment obligations thereunder not being fulfilled or performed or
being or becoming void, voidable, unenforceable or ineffective as
against the Company or any of the Guarantors as the case may be for
any reason whatsoever, whether or not known to the Investors or any of
them or any other person.
ACL's obligations hereunder is as if it is a principal debtor in respect of
any amount and liability and obligation and not merely a surety, and
without any requirement for the Investors first to have recourse against
the Company or any of the Guarantors as the case may be and such liability
shall not be impaired or reduced by any undertaking granted.
2. UNDERTAKING
-----------
ACL hereby further undertakes to use its best endeavours (including the
exercise of any voting rights and control it has) to ensure that the
obligations of SAI, CBHL, CIBHL and SPC under the Subscription Agreement,
the Debentures and the Guarantee (including but without limitation to the
specific undertakings under Clauses 8, 9 and 10 of the Subscription
Agreement) will be observed, fulfilled and performed and shall do all that
is necessary so as to give effect to, render possible or assist in the
fulfilment or compliance with such provisions.
82
<PAGE>
3. PRESERVATION OF RIGHTS
----------------------
(A) The obligations of ACL herein contained shall be in addition to and
independent of every other security which the Investors or any of them may
at any time hold in respect of any of the Company's or the Guarantors'
obligations under the Guarantee.
(B) The obligations of ACL herein contained shall constitute and be continuing
obligations notwithstanding any settlement of account or other matter or
thing whatsoever, and in particular but without limitation, shall not be
considered satisfied by any intermediate payment or satisfaction of all or
any of the obligations of the Company or any of the Guarantors and shall
continue in full force and effect until final payment in full of all
amounts owing by the Company.
(C) None of the obligations of ACL herein contained nor the rights, powers and
remedies conferred upon the Investors by the Subscription Agreement or the
Debenture or this Undertaking or by law shall be discharged, impaired or
otherwise affected by:-
(i) the winding-up, dissolution, administration or re-organisation of
the Company or any of the Guarantors or any other person or any
change in its status, function, control or ownership;
(ii) any of the obligations of the Company or any of the Guarantors or
any other person hereunder or under any other security taken in
respect of any of its obligations hereunder being or becoming
illegal, invalid, unenforceable or ineffective in any respect;
(iii) time or other indulgence being granted or agreed to be granted to
the Company or any of the Guarantors or any other person in respect
of its obligations hereunder or under any such other security;
(iv) any amendment to, or any variation, waiver or release of, any
obligation of the Company or any of the Guarantors or any other
person hereunder or under any such other security;
(v) any failure to take, or fully to take, any security contemplated
hereby or otherwise agreed to be taken in respect of the Company,
any of the Guarantor's or any other person's obligations hereunder;
(vi) any failure to realise or fully to realise the value of, or any
release, discharge, exchange or substitution of, any security taken
in respect of the Company, any of the Guarantor's or any other
person's obligations hereunder; or
83
<PAGE>
(vii) any other act, event or omission which, might operate to discharge,
impair or otherwise affect any of the obligations of any of the
Guarantors contained in the Guarantee or any of the rights, powers
or remedies conferred upon the Investors or any of them by the
Subscription Agreement or the Debentures or by law.
(D) None of the Investors shall be obliged before exercising any of the rights,
powers or remedies conferred upon each of them hereunder or by law:-
(i) to make any demand of the Company or any of the Guarantors;
(ii) to take any action or obtain judgement in any court against the
Company or any of the Guarantors;
(iii) to make or file any claim or proof in a winding-up or dissolution of
the Company or any of the Guarantors; or
(iv) to enforce or seek to enforce any other security taken in respect of
any of the obligations of the Company or any of the Guarantors.
(E) ACL agrees that, so long as any amounts are or may be owed by the Company
or the Guarantors or when any of the Company or the Guarantors is under any
actual or contingent obligations to any of the Investors, it shall not
exercise any rights which it may at any time have by reason of performance
by it of its obligations hereunder:-
(i) to be indemnified by the Company or the Guarantors; and/or
(ii) to claim any contribution from the Company or the Guarantors; and/or
(iii) to take the benefit (in whole or in part and whether by way of
subrogation or otherwise) of any rights of the Investors hereunder
or of any other security taken pursuant to, or in connection with,
the Subscription Agreement or the Debenture by all or any of the
Investors.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
ACL hereby represents and warrants to each of the Investors that:-
(a) it is a company validly incorporated, duly organised and subsisting
and of good standing under the law of the jurisdiction under which it
was incorporated;
84
<PAGE>
(b) it has the necessary capacity to give this Undertaking and to perform
and observe the obligations contained herein. The execution, delivery
and performance of this Undertaking have been duly authorised by all
necessary corporation action and do not contravene the constitution of
ACL under any applicable laws or regulations. This Undertaking, as
executed and delivered constitutes legal valid and binding obligations
of ACL and also bought in accordance with its terms;
(c) the execution and delivery of, and the performance of the provisions
of, this Undertaking does not and will not during the continuance of
this Undertaking (i) contravene any existing applicable laws,
ordinance, regulation, decree, instrument, franchise, concession,
licence or permit, or any order, judgement, decree or award,
administrative or governmental authority, department or agency
presently in effect an applicable, or (ii) contravene any contractual
restrictions binding on ACL or any of its assets, or (iii) cause any
limit on any of the borrowing, guaranteeing, charging or other powers
of ACL, or (iv) create or result in or obliged ACL to create any lien,
charge, security interest or encumbrance on the whole or any part of
the ACL's property;
(d) all necessary governmental and other consents, authorities and
approvals to execute this Undertaking has been obtained and are in
full force, validity and effect;
(e) no litigation, attribution, administrative or other proceedings
pending before the court, tribunal, arbitrator or governmental agency
has been threatened against ACL; and
(f) the obligations of ACL under this Undertaking are direct, general, and
unconditional obligations and rank at least pari passu with all ACL's
other present and future unsecured and unsubordinated and other
obligations.
5. FURTHER PRESERVATION OF RIGHTS
------------------------------
Should any purported payment obligation of the Company being the subject of
this Undertaking be or become wholly or in part invalid or unenforceable on
any grounds whatsoever, ACL shall nevertheless be liable to the Investors
in respect of such purported payment obligation or liability as if the same
were wholly valid and enforceable as the principal debtor in respect
thereof. ACL hereby agrees to keep each of the Investors fully indemnified
against all damages, loss, costs and expenses arising from any failure of
the Company to carry out any of such purported payment obligations.
85
<PAGE>
6. MISCELLANEOUS
-------------
(A) This Undertaking shall be binding on and each of which for the benefit of
each of the parties' successor and assign and personal representatives (as
the case may be) but no assignment may be made of any of the rights
obligations hereunder of any party without the prior written consent of the
other parties.
(B) This Undertaking may be signed in any number of counterparts, each of which
shall be binding on the party who shall have executed it in which together
shall constitutes but one Agreement.
(C) ACL shall bear the legal and professional fees, costs and expenses incurred
in relation to the negotiation, preparation and execution of this
Undertaking.
(D) Notices required to be sent pursuant to this Undertaking must be sent in
writing to the addresses or facsimile number of the parties contained in
Clause 12 of the Subscription Agreement.
(E) This Agreement shall be governed by and construed in accordance with the
laws of Hong Kong and the parties hereby submitted the non-exclusive
jurisdiction of the Supreme Court of Hong Kong. In relation to any legal
action or proceedings arising out of or in connection with this
Undertaking, ACL has irrevocably submitted in the Subscription Agreement to
the courts of Hong Kong and in relation thereto has appointed an agent for
service of process.
IN WITNESS WHEREOF ACL have duly executed this Undertaking the date and year
first above written.
The Common Seal of )
ASEAN CAPITAL LIMITED )
was hereunto affixed )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of GLORY MANSION LIMITED )
in the presence of:- )
86
<PAGE>
SIGNED by )
duly authorised for and on behalf )
of WARDLEY CHINA )
INVESTMENT TRUST )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of MC PRIVATE EQUITY PARTNERS )
ASIA LIMITED )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of CHINE INVESTISSEMENT 2000 )
in the presence of:- )
SIGNATURE PAGE
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of CHINA BEARING )
HOLDINGS LIMITED )
in the presence of:- )
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of ASEAN CAPITAL LIMITED )
in the presence of:- )
87
<PAGE>
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of )
CHINA INTERNATIONAL )
BEARING HOLDINGS LIMITED )
in the presence of:- )
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of SUNBASE ASIA, INC. )
in the presence of:- )
SIGNED by Mr. Billy Kan )
duly authorised for and on behalf )
of SMITH ACQUISITION )
COMPANY INC. )
in the presence of:- )
SIGNED by Ms. Jessie Fok as attorney )
duly authorised for and on behalf )
of GLORY MANSION LIMITED )
in the presence of:- )
SIGNED by Mr. George Raffini )
duly authorised for and on behalf )
of WARDLEY CHINA )
INVESTMENT TRUST )
in the presence of:- )
88
<PAGE>
SIGNED by Mr. Yiji Komiya )
duly authorised for and on behalf )
of MC PRIVATE EQUITY PARTNERS )
ASIA LIMITED )
in the presence of:- )
SIGNED by Mr. Fabrice Jacob )
duly authorised for and on behalf )
of CHINE INVESTISSEMENT 2000 )
in the presence of:- )
89
