-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ALwyey1bodUos4R/MwbKkZctAw4ix5znoo4QYHXfU8QU+eP9o8k/kowZdeQtsPiq Z+9AjF0S203YdBSxIGvlsQ== 0000950123-96-006714.txt : 19961120 0000950123-96-006714.hdr.sgml : 19961120 ACCESSION NUMBER: 0000950123-96-006714 CONFORMED SUBMISSION TYPE: F-1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19961118 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EURO TECH HOLDINGS CO LTD CENTRAL INDEX KEY: 0001026662 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: D8 FILING VALUES: FORM TYPE: F-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-16277 FILM NUMBER: 96668199 BUSINESS ADDRESS: STREET 1: BRITISH VIRGIN ISLANDS LTD STREET 2: TRUSTNET CHAMBERS PO BOX 3444 CITY: ROAD TOWN TORROLA STATE: D8 ZIP: 00000 BUSINESS PHONE: 8094945296 MAIL ADDRESS: STREET 1: BRITISH VIRGIN ISLANDS LTD STREET 2: TRUSTNET CHAMBERS PO BOX 3444 CITY: ROAD TOWN TORROLA BR STATE: D8 ZIP: 00000 F-1 1 FORM F-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ EURO TECH HOLDINGS COMPANY LIMITED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH) BRITISH VIRGIN ISLANDS 5090 NA (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION INDUSTRIAL IDENTIFICATION NO.) OF INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER)
18F Gee Chang Hong Centre 65 Wong Chuk Hang Road, Hong Kong 011-852-2814-0311 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ T.C. LEUNG CHIEF EXECUTIVE OFFICER c/o EURO TECH (FAR EAST) LIMITED 18F Gee Chang Hong Centre 65 Wong Chuk Hang Road, Hong Kong 011-852-2814-0311 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: ROBERT PEREZ, ESQ. JAY M. KAPLOWITZ, ESQ. GUSRAE, KAPLAN & BRUNO GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP 120 Wall Street 575 Lexington Avenue New York, New York 10005 New York, New York 10022 Tel No. (212) 269-1400 Tel No. (212) 752-9700 Fax No. (212) 809-5449 Fax No. (212) 752-9713
Approximate date of commencement of proposed sale to the public: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ 2 CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OFFERING AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE - -------------------------------------------------------------------------------------------------- Common Stock, $.01 par value.......... 690,000(2) $5.00 $3,450,000 $1,189.66 - -------------------------------------------------------------------------------------------------- Redeemable Common Stock Purchase Warrants............................ 690,000(3) $ .15 $ 103,500 $ 35.69 - -------------------------------------------------------------------------------------------------- Common Stock, $.01 par value(4)....... 690,000 $5.50 $3,795,000 $1,308.62 - ------------------------------------------------------------------------------------------------- Underwriter's Stock Warrants(5)....... 60,000 $ -- $ 5 $ -- - ------------------------------------------------------------------------------------------------- Common Stock, $.01 par value(6)....... 60,000 $6.00 $ 360,000 $ 124.14 - -------------------------------------------------------------------------------------------------- Underwriter's Warrants(7)............. 60,000 $ -- $ 5 $ -- - -------------------------------------------------------------------------------------------------- Common Stock Purchase Warrants(8)..... 60,000 $ .18 $ 10,800 $ 3.72 - -------------------------------------------------------------------------------------------------- Common Stock, $.01 par value(9)....... 60,000 $6.00 $ 360,000 $ 124.13 - -------------------------------------------------------------------------------------------------- Redeemable Common Stock Purchase Warrants to be sold by Selling Securityholders..................... 1,000,000 $ .15(10) $ 150,000 $ 51.72 - ------------------------------------------------------------------------------------------------- Common Stock, $.01 par value to be sold by Selling Securityholders..... 1,000,000 $5.50(10) $5,500,000 $1,896.55 - ------------------------------------------------------------------------------------------------- TOTAL.......................... $4,734.24 ========= - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
- --------------- (1) Except as set forth in Note (10), estimated solely for purposes of calculating the registration fee. (2) Includes 90,000 shares of Common Stock subject to the underwriter's overallotment option and assumes the overallotment option is exercised in full. (3) Includes 90,000 Redeemable Common Stock Purchase Warrants subject to the underwriter's overallotment option and assumes the overallotment option is exercised in full. (4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants referred to in the prior note. (5) To be issued to the Underwriter, entitling the Underwriter to purchase up to 60,000 shares of Common Stock. (6) Issuable upon the exercise of the Underwriter's Stock Warrants. (7) To be issued to the Underwriter, entitling the Underwriter to purchase up to 60,000 Common Stock Purchase Warrants. (8) Issuable upon the exercise of the Underwriter's Warrants. (9) Issuable upon the exercise of the Common Stock Purchase Warrants identified in the prior note. (10) Price is based upon actual sale price paid by Selling Securityholders to Registrant. (11) Issuable upon the exercise of the Redeemable Common Stock Purchase Warrants which are to be sold by the Selling Securityholders. PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL BUT INDETERMINATE NUMBER OF SHARES AS MAY BECOME ISSUABLE PURSUANT TO ANTI-DILUTION PROVISIONS OF THE REDEEMABLE COMMON STOCK PURCHASE WARRANTS AND THE UNDERWRITER'S STOCK WARRANTS AND UNDERWRITER'S WARRANTS. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 EURO TECH HOLDINGS COMPANY LIMITED CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K
ITEM OF FORM F-1 LOCATION IN PROSPECTUS - ------------------------------------------------------------- ------------------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus................................ Front Cover Page of Registration Statement; Cross Reference Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus.............................................. Inside Front Cover Page of Prospectus; Additional Information; Outside Back Cover Page of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................................ Prospectus Summary; Risk Factors 4. Use of Proceeds......................................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price......................... Outside Front Cover Page of Prospectus; Underwriting 6. Dilution................................................ Dilution; Risk Factors 7. Selling Securityholders................................. Concurrent Registration for Selling Securityholders 8. Plan of Distribution.................................... Outside Front Cover Page of Prospectus; Underwriting 9. Description of Securities to be Registered.............. Outside Front Cover Page of Prospectus; Prospectus Summary; Description of Securities 10. Interests of Named Experts and Counsel.................. Legal Matters; Experts 11. Information with Respect to the Registrant.............. Outside Front Cover Page of Prospectus; Prospectus Summary; Risk Factors; Capitalization; Unaudited Pro Forma Condensed Consolidated Financial Statements; Selected Financial Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Shareholders; Description of Securities; Dividend Policy; Shares Eligible for Future Sale; Appendix -- The People's Republic of China; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. *
- --------------- * Item is inapplicable, or the answer thereto is in the negative, and is omitted. 4 EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: one to be used in connection with an offering by the Company of shares of Common Stock and Redeemable Common Stock Purchase Warrants (the "Prospectus") and one to be used in connection with the sale of Redeemable Common Stock Purchase Warrants and shares of the Company's Common Stock underlying such Warrants by certain selling securityholders (the "Selling Securityholder Prospectus"). The Prospectus and the Selling Securityholder Prospectus will be identical in all respects except for the alternate pages for the Selling Securityholder Prospectus included herein which are labeled "Alternate Page(s) for Selling Securityholder Prospectus." 5 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1996 EURO TECH HOLDINGS COMPANY LIMITED 600,000 SHARES OF COMMON STOCK AND 600,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS Euro Tech Holdings Company Limited, a British Virgin Island Company (the "Company") hereby offers 600,000 shares of common stock, $.01 par value (the "Common Stock") of the Company and 600,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). The Common Stock and the Warrants offered hereby (sometimes hereinafter collectively referred to as the "Securities") will be separately tradeable immediately upon issuance and may be purchased separately. Investors will not be required to purchase shares of Common Stock and Warrants together or in any particular ratio. Each Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $5.50 (the "Exercise Price"), subject to adjustment, commencing one year after the date of this Prospectus (the "Effective Date") until the close of business on the sixth year after the Effective Date, provided however that prior to the second year after the Effective Date, the Warrants will be exercisable only if May Davis Group, Inc. (the "Underwriter") has consented in writing to all of the Warrants being exercisable. The Warrants are redeemable, in whole or in part, by the Company at a price of $.10 per Warrant, at any time that they are exercisable, and prior to their expiration, provided that (i) prior written notice of not less than thirty days is given to the Warrant holders, (ii) the average closing bid price of the Company's Common Stock for the twenty consecutive trading days immediately prior to the date on which the notice of redemption is given, shall have exceeded $8.50 per share, and (iii) Warrantholders shall have exercise rights until the close of business the day preceding the date fixed for redemption if the Warrants are then exercisable. Prior to this offering (the "Offering" or the "Public Offering"), there has been no public market for the Company's Common Stock and Warrants, and there can be no assurance that such a public market will develop or be sustained after the completion of the Offering. The Offering price of the Common Stock and the exercise price and other terms of the Warrants were established by negotiations between the Company and the Underwriter and do not bear any direct relationship to the Company's assets, book value, results of operations or any other criteria of value. The Company has applied for the listing of the Common Stock and Warrants on the NASDAQ SmallCap Market ("NASDAQ") under the symbols " " and " ", respectively, and on the Boston Stock Exchange under the symbols " " and " ", respectively. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 7 AND "DILUTION." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES" COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - ------------------------------------------------------------------------------------------------ Per Share........................ $5.00 $.50 $4.50 - ------------------------------------------------------------------------------------------------ Per Warrant...................... $.15 $.015 $.135 - ------------------------------------------------------------------------------------------------ Total(3)......................... $3,090,000.00 $309,000.00 $2,781,000.00 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
(1) Does not include additional compensation to the Underwriter consisting of (i) a non-accountable expense allowance equal to 3% of the aggregate purchase price of the Securities, or $92,700 ($106,605 if the Underwriter's overallotment option is exercised in full); (ii) warrants to purchase 60,000 shares of Common Stock at $6.00 per share and/or 60,000 Common Stock Purchase Warrants at $.18 per Warrant; and (iii) a three year consulting agreement providing for fees totalling $108,000, which is payable to the Underwriter in full on the closing of this Offering. For additional information concerning further agreements between the Company and the Underwriter, including an agreement to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) After deducting Underwriting discounts and commissions, but before the payment of the Underwriter's non-accountable expense allowance in the amount of $92,700 ($106,605 if the Underwriter's overallotment option is exercised in full) and other expenses of the Offering payable by the Company (estimated at $449,550). (3) The Company has granted the Underwriter an option to purchase up to 90,000 additional shares of Common Stock and 90,000 additional Warrants, upon the same terms and conditions set forth above, solely to cover overallotments, if any (the "Overallotment Option"). If the Overallotment Option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be increased to $3,553,500, $355,350 and $3,198,150, respectively. The Common Stock and Warrants are being offered on a "firm commitment" basis, subject to prior sale, when, as, and if delivered to and accepted by the Underwriter, and subject to certain other conditions and legal matters. The Underwriter reserves the right to withdraw, cancel or modify the Offering and to reject orders in whole or in part. It is expected that delivery of the certificates representing the shares of Common Stock and Warrants will be made at the offices of the Underwriter, in New York City, on or about , 1996. ------------------------------------------- MAY DAVIS GROUP, INC. ------------------------------------------- The date of this Prospectus is , 1996. 6 Upon consummation of this Offering, the Company will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will file periodic reports and other information with the Commission. However, as a "foreign private issuer," the Company will be exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations and the Company's officers, directors and principal shareholders will be exempt from the reporting and "short-swing" profit recovery provisions contained in Section 16 of the Exchange Act and the rules thereunder, with respect to their purchases and sales of shares of Common Stock and Warrants. In addition, the Company will not be required under the Exchange Act to file periodic reports and financial statements with the Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, the Company intends to furnish its shareholders with annual reports containing financial statements which will be examined and reported on, with an opinion expressed by, an independent public accounting firm (prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The Company prepares its consolidated financial statements in accordance with U.S. GAAP. The Company publishes its financial statements in United States dollars as the Company is incorporated in the British Virgin Islands, where the currency is the United States dollar, and upon completion of this Offering the functional currency of the Company's only operating subsidiary is in Hong Kong Dollars. All dollar amounts ("$") set forth in this Prospectus are in United States dollars, the references to HK$ refer to Hong Kong Dollars and RMB to Chinese Renminbi Yuan. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ------------------------ The Company intends to distribute to its shareholders annual reports containing financial statements audited and reported upon by its independent public accountants after the close of each fiscal year, and will make such other periodic reports as the Company may determine to be appropriate or as may be required by law. The Company's fiscal year ends December 31st of each year. 2 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including financial statements and notes thereto appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. Except as otherwise indicated herein, the information contained in this Prospectus gives no effect to the exercise of (i) the Overallotment Option, (ii) the Underwriter's Warrants, (iii) Warrants offered hereby or issued to private investors, or (iv) options granted under the Company's stock option plan and other options which may be granted by the Company. THE COMPANY Euro Tech Holdings Company Limited, a British Virgin Islands company, will acquire upon the closing of this Offering all of the issued and outstanding capital stock of Euro Tech (Far East) Ltd. ("Far East"), a Hong Kong corporation (the "Acquisition") and Far East will become a wholly owned subsidiary of the Company. Unless the context otherwise requires, or it is otherwise stated, all references to the "Company" include Far East, giving effect to the Acquisition. The Company believes it is one of the leading distributors of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems in Hong Kong and the People's Republic of China (the "PRC" or China). The Company distributes products to approximately 400 regular customers including sub-distributors located in Hong Kong, the PRC and Macau including the Hong Kong Environmental Protection Department, the Beijing Hydrology station, China Light & Power Co., Ltd., Hong Kong Electric Co., Ltd., and the Kowloon-Canton Railway Corporation. The Company believes that because of the increased expansion of industry and general business growth in the PRC during the last five years there is a strong and increasing demand for the products distributed by it in the PRC. The Company further believes that in years to come the need for the products distributed by it will grow as a result of governmental regulations of environmental pollution and based upon demands of the PRC's population for a healthy and safer environment including cleaner water. The Company distributes products manufactured by a substantial number of American, European and Japanese corporations, including Wallace & Tiernan, Pacific Pty. Ltd. ("Wallace"), Hach Company ("Hach"), Hioki E.E. Corporation ("Hioki") and Finnigan Corporation ("Finnigan"), which are the Company's largest suppliers, with purchases from them accounting for approximately 11%, 7%, 7% and 4%, respectively, of the Company's sales during its fiscal year ended December 31, 1995 ("Fiscal 1995") and 9%, 10%, 10% and 23%, respectively, of the Company's sales during the first six months of the Company's fiscal year to end December 31, 1996 ("Six Months 1996"). The Company distributes products through its headquarters located in Hong Kong and its regional sales offices located in Beijing, Shanghai and Guangzhou and through independent distributors. During Fiscal 1995 and Six Months 1996, no single customer accounted for more than 5% of the Company's sales. The Company intends to use a substantial portion of the net proceeds of the Public Offering to establish an operation to assemble products of the kind now distributed by the Company pursuant to an agreement with a PRC based entity and to expand its marketing efforts by, among other things, opening additional regional sales offices in the PRC. The Company believes that by assembling products that it distributes, gross profits margins, revenues and net income will increase. Similarly, the Company believes that by expanding its regional sales efforts in the PRC, revenues and net income will be enhanced. The Company has recently reached a preliminary agreement with the Shanghai Thermometric Instrument Plant ("STIP") pursuant to which STIP will provide space and technical expertise to assemble in the PRC certain of the products of the kind that the Company currently distributes, including certain water related testing, monitoring and treatment equipment. It is presently contemplated that the Company will import components, assemble the components into finished product and then distribute the products through the Company's distribution network. There can be no assurance that the Company will successfully complete an agreement with STIP or any other similar entity or that the Company's expansion efforts will be successful. 3 8 During the Company's Fiscal 1995 and Six Months 1996, the Company had sales of approximately $13,667,000 and $6,973,000, respectively, and net income of approximately $79,000 and $232,000, respectively. There can be no assurance that the recent levels of the Company's revenues or net income will continue to be achieved in the future. The Company maintains an executive office at 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong, and its telephone number at that address is 011-852-2814-0311. The Company's registered office in the British Virgin Islands is located at TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands, and its telephone number is (809) 494-5296. THE OFFERING SECURITIES OFFERED(1)...... 600,000 shares of Common Stock and 600,000 Warrants. Each Warrant entitles the holder to purchase one share of Common Stock at a price of $5.50 during a five year period commencing one year after the date of this Prospectus, provided, however, that prior to the second year after the date of this Prospectus, the Warrants will be exercisable only if the Underwriter has consented in writing to all of the Warrants being exercisable. The exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment in certain circumstances. See "Description of Securities." COMMON STOCK OUTSTANDING BEFORE OFFERING(1)....... 1,550,000 Shares. COMMON STOCK OUTSTANDING AFTER OFFERING(1)(2)..... 2,150,000 Shares. WARRANTS OUTSTANDING BEFORE OFFERING................. 1,000,000. WARRANTS OUTSTANDING AFTER OFFERING(2).............. 1,600,000 Warrants. EXPIRATION DATE............ , 2002 (six years after the Effective Date). REDEMPTION................. Redeemable by the Company, in whole or in part at a price of $.10 per Warrant, at any time that they are exercisable upon not less than 30 days prior written notice to the holders of such Warrants, provided that the average closing bid price of the Company's Common Stock for the twenty consecutive trading days immediately prior to the date on which the notice of redemption is given, shall have exceeded $8.50 per share. USE OF PROCEEDS............ Expenses of establishing assembly operations in the PRC (including start-up costs, leasehold improvements and equipment), expansion of regional sales offices, capital expenditures for office equipment and working capital. See "Use of Proceeds." RISK FACTORS............... Investment in the securities offered hereby involves a high degree of risk and immediate substantial dilution. See "Risk Factors" and "Dilution." PROPOSED NASDAQ SYMBOLS:(3) COMMON STOCK.......... WARRANTS.............. 4 9 PROPOSED BOSTON STOCK EXCHANGE SYMBOLS:(3) COMMON STOCK.......... WARRANTS.............. - --------------- (1) Includes 1,400,000 shares of the Company's Common Stock to be issued in connection with the Acquisition. The owners of the shares to be issued in connection with the Acquisition have agreed to return to the Company for cancellation and as a contribution to capital an aggregate of 200,000 shares in the event Far East fails to achieve after-tax net income of at least $450,000 for the fiscal year to end December 31, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions." (2) Does not include (i) 90,000 shares of Common Stock and 90,000 Warrants, subject to the Underwriter's Overallotment Option; (ii) 1,600,000 shares of Common Stock issuable upon the exercise of the outstanding Warrants, (iii) 120,000 shares of Common Stock issuable upon the exercise of the Underwriter's Warrants including the shares of Common Stock underlying the Warrants included within the Underwriter's Warrants; (iv) 1,400,000 shares of Common Stock reserved for issuance upon options that may be granted to the Company's management (the "Management Options"); or (v) 150,000 shares of Common Stock reserved for issuance pursuant to the Company's incentive stock option plan. See "Management," "Underwriting" and "Description of Securities." (3) The proposed trading symbols do not imply that a liquid and active market will be developed or sustained for the securities upon completion of this Offering. See "Risk Factors -- Possible Suspension of the Company's Securities from NASDAQ and the Boston Stock Exchange Even if Listing is Obtained." 5 10 SUMMARY FINANCIAL DATA (AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND UNLESS OTHERWISE STATED) The following table presents summary financial data of Euro Tech (Far East) Limited. For a description of the Financial Statements from which the following financial data have been derived, see the introduction to "Selected Financial Information." The summary financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus.
AS OF OCTOBER 31,(1) AS OF DECEMBER 31, AS OF JUNE 30, ----------------- --------------------------------------- ----------------- 1991 1992 1993 1994 1995 1995 1996 1996 ------ ------ ------ ------ ------ ------ ------ ------ HK$ HK$ HK$ HK$ HK$ US$(2) HK$ US$(2) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents.............. 1,340 4,934 3,735 3,408 4,626 597 3,008 389 Working capital(3)..................... 6,152 8,855 9,261 7,253 4,896 631 6,115 790 Total assets........................... 25,845 33,615 45,838 52,492 59,740 7,717 57,303 7,404 Short-term debt(4)..................... 1,086 3,629 6,235 7,791 6,434 831 6,232 805 Long-term bank loans................... -- -- 3,538 3,330 7,006 905 6,471 836 Stockholders' equity................... 8,955 11,308 17,140 17,607 17,721 2,289 20,983 2,711
FOR THE YEAR ENDED FOR THE SIX OCTOBER 31,(1) FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED JUNE 30, --------------------- -------------------------------------------- --------------------------------- 1991 1992 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- --------- -------- --------- --------- --------- --------- HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ US$(2) (UNAUDITED) INCOME STATEMENT DATA: Sales.................. 68,263 83,813 105,374 103,512 105,782 13,667 51,959 53,969 6,973 --------- --------- --------- --------- --------- --------- --------- --------- --------- Cost of goods sold..... (50,686) (62,833) (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397) Selling and administrative expenses............. (15,607) (19,683) (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273) Interest expenses, net.................. (249) (135) (221) (492) (877) (113) (420) (631) (82) Gain on disposal of a real estate property............. -- -- -- 2,300 -- -- -- -- -- Other income, net...... 535 2,739 675 590 1,186 153 118 488 63 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total costs and expenses............. (66,007) (79,912) (98,232) (98,754) (103,455) (13,366) (51,539) (51,780) (6,689) --------- --------- --------- --------- --------- --------- --------- --------- --------- Income from continuing operations before profits tax.......... 2,256 3,901 7,142 4,758 2,327 301 420 2,189 284 Provision for profits tax current.......... (373) (827) (1,106) (425) (68) (9) (77) (406) (52) --------- --------- --------- --------- --------- --------- --------- --------- --------- Income from continuing operations........... 1,883 3,074 6,036 4,333 2,259 292 343 1,783 232 Discontinued operations Income (loss) of subsidiary companies sold in 1996......... 169 947 12 (1,466) (1,645) (213) (369) -- -- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss)...... 2,052 4,021 6,048 2,867 614 79 (26) 1,783 232 ========= ========= ========= ========= ========= ========= ========= ========= ========= Income (loss) from discontinued operations per common share................ 0.11 0.61 0.01 (0.95) (1.06) (0.14) (0.24) -- -- Net income (loss) per common share......... 1.32 2.59 3.90 1.85 0.40 0.05 (0.02) 1.15 0.15 Weighted average number of common shares outstanding.......... 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000
- --------------- (1) In 1993, Euro Tech (Far East) Limited changed its financial year end date from October 31 to December 31. Accordingly, income statement data for the period from November 1, 1992 to December 31, 1992 are not presented. (2) Translation solely for convenience of the readers at the prevailing exchange rate of $7.74 = US$1 on June 30, 1996. (3) Current assets minus current liabilities. (4) Short-term debt include short-term borrowings and current portion of long-term bank loans. 6 11 RISK FACTORS This Prospectus, including the documents incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act. Also, documents subsequently filed by the Company with the Commission will contain forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below and the matters set forth or incorporated in the Prospectus generally. The Company cautions the reader, however, that this list of factors may not be exhaustive, particularly with respect to future filings. Before making a decision to purchase any of the securities described in this Prospectus, prospective investors should carefully consider the following risk factors in connection with an investment in the Company, certain of which are not typically associated with investing in equity securities of companies from the United States. For more information concerning the PRC and certain related matters discussed below, see "Appendix -- The People's Republic of China." HONG KONG; TRANSFER OF SOVEREIGNTY. The Company's executive and principal offices are located in Hong Kong. As a result, the Company's results of operations and financial condition may be influenced by the political situation in Hong Kong and by the general state of the Hong Kong economy. On July 1, 1997, sovereignty over Hong Kong will be transferred from the United Kingdom to China, and Hong Kong will become a Special Administrative Region of China (an "SAR"). As provided in the Sino-British Joint Declaration on the Question of Hong Kong (the "Joint Declaration") and the Basic Law of the Hong Kong SAR of China (the "Basic Law"), the Hong Kong SAR will have a high degree of autonomy except in foreign and defense affairs. Under the Basic Law, the Hong Kong SAR is to have its own legislature, legal and judicial system and full economic autonomy for 50 years. Based on the current political conditions and the Company's understanding of the Basic Law, the Company does not believe that the transfer of sovereignty over Hong Kong will have an adverse impact on its financial and operating environment. There can be no assurance, however, that changes in political or other conditions will not result in such an adverse impact. RISKS RELATING TO CHINA. A substantial portion of the Company's revenues are derived from activities located in China. Additionally, the Company has reached a preliminary agreement to produce water related testing, monitoring and treatment equipment in China. As a consequence, the Company's results of operations and financial condition may be influenced by the economic, political, legal and social conditions in China. See "Appendix - The People's Republic of China." Economic, Political and Other Risks. China is in the process of implementing a "socialist market economy" in which market forces are expected to have a significant role, subject to policies and macro-economic regulations established by the Chinese government. Although implementation of the socialist market economy has resulted in significant economic growth in China, such growth has been uneven among various sectors of the economy and among geographic regions. Many of the economic reform measures which have been implemented are unprecedented or experimental and may be subject to change or repeal. As a result, there can be no assurance that general economic conditions in China will continue to improve. In addition, the success of the Company's activities in China depend on the Company's continued ability to overcome circumstances specifically affecting the industrial sector, including the relatively poor infrastructure and road transportation network and an uncertain legal and regulatory environment. During the past decade and a half, the Chinese government under its current leadership has been reforming, and is expected to continue to reform, China's economic and political systems. Such reforms have resulted in significant social progress. Many of the reforms are unprecedented and are expected to be refined. Other political, economic and social factors can also lead to further readjustment of the reform measures. This refinement and readjustment process may not always have a positive effect on the Company in China. The Company's results at times may also be adversely affected by changes in policies of China's government such as changes in laws and regulations (or the interpretation thereof), the introduction of additional measures to control inflation, changes in the rate or method of taxation and imposition of additional restrictions on currency conversion and remittances abroad. Although historically there have been periods of political instability, such as during the "Cultural Revolution", and certain of the reform measures have from time to time been readjusted, because of the broad support for the reform process and because the economic system in China has already undergone extensive changes as a result of the success of such reforms, the Company 7 12 believes that the basic principles underlying the reforms will continue to provide an acceptable framework for China's political and economic systems. China recently has been experiencing substantial rates of inflation. For example, according to public reports, consumer prices reportedly were 10.1% greater in 1995 than in 1994. The Chinese government has implemented various measures from time to time to control inflation and to regulate economic expansion with a view to preventing overheating of the economy including credit restrictions and reduction in growth of the money supply. The Chinese government's measures to restrain inflation have had a significant impact on the Company in the past and more measures in this regard or other actions by the Chinese government could materially and adversely affect the Company, its business and results of operations. Legal Considerations. The legislative trend in China over the past decade has been to enhance the protection afforded to foreign investment and allow for more active control by foreign parties of foreign invested enterprises. There can be no assurance, however, that legislation directed towards promoting foreign investment and experimentation will continue. In addition, as the Chinese business legal system continues to develop, changes to existing laws, the creation of new laws and the preemption of local regulations by national laws may adversely affect the Company's activities in China or the ability of the Company to enter into a Sino-foreign agreements. For example, China's State Economic and Trade Commission is reportedly considering regulations that may restrict the ability of foreigners to enter certain industries. Although since January 1, 1994, the Chinese government has introduced new laws and regulations to modernize its systems, China does not yet possess a comprehensive body of business law. As a result, the enforcement, interpretation and implementation of regulations may prove to be inconsistent and it may be difficult to enforce contracts. Government Approvals. Consummation by the Company of any agreement with a Chinese entity will be subject to certain Chinese government approvals. The approval process typically requires submission of applications, asset appraisals and feasibility studies to municipal, provincial and/or central government agencies and the Company estimates that obtaining necessary approvals may take at least 3 to 5 months after execution of final documentation for any such agreement. There can be no assurance that the Company will be able to obtain such approvals or that it will find a suitable entity to enter into an agreement with. Foreign Exchange and Exchange Rate Risks. The present practice of the Company when entering into contracts for deliveries in China is to have the contract sums denominated and payable in Hong Kong dollars, U.S. dollars or the pound sterling. In some instances, the Company may allow clients to pay certain low value contracts in Renminbi ("Rmb"), the currency of China, as the Company needs to pay some of its costs in Rmb such as its day to day overhead expenses for its offices situated in China. With this method, the currency risks have been reduced to a minimum and the Company does not consider any hedging activities for the purpose of minimizing its exposure to currency fluctuation risk to be necessary. The Chinese government controls its foreign currency reserves through restrictions on imports and the conversion of Renminbi into foreign currency. All foreign exchange transactions involving Renminbi must take place either through the Bank of China or other institutions authorized to buy and sell foreign exchange, or at an approved foreign exchange adjustment center (known as "swap center"). The exchange rates used for transactions through the Bank of China and other authorized institutions are set by the government from time to time. The exchange rates available at swap centers are determined with reference to supply and demand based on foreign currency requirements of Chinese enterprises. The Company may conduct currency conversions of Rmb and foreign currency at the swap centers at prevailing rates because of its proposed product assembly activities. The Chinese government has recently imposed and then revoked certain limitations on the Rmb/foreign currency exchange rates at the swap centers, causing significant fluctuations in the value of the Rmb against foreign currencies, and resulting in the intervention of Chinese banking authorities to support the Rmb. There can be no assurance that the Chinese government or other authorities will not seek to place limitations on the exchange of Rmb or take other action that will result in significant fluctuations in the value of the Rmb against other currencies or reduce the availability of foreign exchange in China in the future. During the last five years, the value of the Rmb generally has experienced a gradual but significant devaluation against most major currencies. For example, the official Rmb to U.S. dollar exchange rate declined from Rmb3.73 to US$1.00 at the beginning of 1989 to Rmb5.81 to US$1.00 at the end of 1993. In 8 13 1993, there was significant volatility in the swap rate of Rmb to U.S. dollars, and there was a significant devaluation in the exchange rate on January 1, 1994, to Rmb8.70 to US$1.00, in connection with the abolition of the official exchange rate and implementation of the new managed floating rate foreign exchange system. Although the Rmb to U.S. dollar exchange rate has been stable since January 1, 1994 and the Chinese government has stated its intention to intervene in the future to support the value of the Rmb, there can be no assurance that exchange rates will not again become volatile or that the Rmb will not devalue further against the U.S. dollar or Hong Kong dollar. Exchange rate fluctuations may adversely affect the Company because of foreign currency denominated liabilities, and may materially adversely affect the value, translated into U.S. dollars, of the Company's net fixed assets situated and to be situated in China, earnings and dividends. POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company intends to use approximately 39% of the net proceeds of this Offering to expand its business operations by assembling products of the kind that it distributes. Although it is anticipated that STIP will provide the facilities and the technical expertise to assemble the products, the Company will be required to pay for leasehold improvements and the equipment to assemble the products. The Company will also be required to employ mid-level management to oversee the assembly of products. The Company's estimated costs for leasehold improvements and equipment may prove to be inaccurate or the costs may increase as a result of conditions in the PRC or other factors. Additionally, although it believes that there are mid-level managerial personnel available to the Company at a salary rate acceptable to the Company, future events may alter this circumstance. There is no assurance the Company's estimates will prove to be accurate or that unforeseen expenses will not occur. In the event the Company's cost estimates prove to be inaccurate and additional expenditures are required, the Company may not be able to implement its strategy to assemble products and/or may be required to reallocate net proceeds from other allocations to this purpose. See "-- Establishment of a New Business," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." ESTABLISHMENT OF A NEW BUSINESS. The Company has not previously engaged in the assembly of products and, as such, the Company's planned product assembly operations should be viewed by investors as a new business venture that will be subject to all the risks inherent in establishment of any new business enterprise including, but not limited to, the possible need for additional financing, complications and delays in the initiation of assembly operations, incurring initial losses in the start-up of operations, the uncertainty of market acceptance of the products to be assembled by the Company and competition from manufacturers of finished products which the Company plans to assemble as well as their distributors. Accordingly, there can be no assurance that the Company's proposed product assembly operations will be successful. See "-- Possible Need For Additional Financing," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." NEW MARKET PENETRATION. The Company intends to establish three additional regional sales offices in the PRC with a portion of the net proceeds of this Offering. The opening of additional offices will require the hiring and training of personnel, paying their salaries and related benefits, and the payment of leasehold, equipment and other expenses until the offices are sustained by their own revenues, of which there can be no assurance. Therefore, losses may be possible until the additional regional sales offices are established and have generated significant revenues. In addition to the foregoing, future events, including problems, delays, expenses and complications frequently encountered by companies seeking to penetrate new markets, as well as changes in governmental policies, economic or other conditions may occur that could also cause the Company to sustain losses as a result of these expansion efforts. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." RECENTLY DISPOSED OF SUBSIDIARIES; INVESTMENTS IN REALTY. The Company recently disposed of several unsuccessful subsidiaries which had sustained losses. One of such subsidiaries had been established to distribute telecommunications products but encountered intense competition from the manufacturers of telecommunications products who engaged in direct distribution to end users. Such subsidiary failed to develop the expertise necessary to distribute telecommunications products. Another subsidiary, established to distribute industrial computers, lost its principal vendor when the vendor sold this product line. Additionally, the Company has from time to time invested in real estate and currently holds realty in Hong Kong which it intends to sell. In the future, the Company may establish subsidiaries or divisions to distribute products that 9 14 are unrelated to its current product lines and it may make future investments in real estate. In the event that the Company establishes such subsidiaries or divisions in the future, there can be no assurance that they will not sustain losses. Although the Company has derived profits from its investment in real estate, there can be no assurance that the Company will derive a profit from its current realty investment, which it is seeking to sell, or any future investments that it may make in realty. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." DEPENDENCE UPON MANAGEMENT. The Company will be dependent upon the services of its executive officers, in particular Mr. T.C. Leung, the Chairman of the Company's Board of Directors and its Chief Executive Officer. The business of the Company could be adversely effected by the loss of services of, or a material reduction in the amount of time devoted to the Company by its executive officers. Although the Company intends to apply for and be the beneficiary of a "Key Person" life insurance policy in the amount of $1,000,000 on the life of Mr. Leung, there can be no assurance that the Company will successfully obtain this insurance coverage, that it will maintain the policy in effect or that the coverage to be applied for, if obtained, will be sufficient to compensate the Company for the loss of the services of Mr. Leung. See "Management." COMPETITION. The Company faces competition from other distributors of substantially similar products and manufacturers themselves, both foreign and Chinese. The Company faces its principal competition from foreign manufacturers and other distributors of their products situated in Hong Kong and the PRC. In 1994, the PRC tightened its credit nationwide and, as a result, the Company believes that purchasers of the products distributed by the Company sought reduced prices. The products distributed by the Company were foreign manufactured and higher priced than Chinese manufactured products. As a result, the Company reduced its sales prices and, therefore, its profit margins to remain competitive. The Company believes that it competes with PRC manufacturers on the basis of quality and technology, with the Company offering products of foreign manufacturers which are of higher quality and use more advanced technology. The Company believes that it competes with the foreign manufacturers and the distributors of their products on the basis of the Company's more extensive distribution network and an established reputation. However, the Company recently disposed of one of its subsidiaries as a result of direct competition from a manufacturer which established its own distribution network in the PRC to distribute the type of products distributed by the subsidiary. There can be no assurance that the Company will be able to compete effectively with its competitors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." COMPETITION WITH VENDORS. As the Company plans to assemble products of the kind that it presently distributes, the Company may directly compete with certain of its vendors. Any such direct competition may adversely affect its relationships with its vendors. See "Business." VENDORS; LACK OF LONG TERM AGREEMENTS. The Company distributes supplies manufactured by a number of vendors, including Wallace, Hach, Hioki and Finnigan, which are the Company's largest suppliers, with purchases from them accounting for approximately 11%, 7%, 7% and 4%, respectively, of the Company's sales during Fiscal 1995 and 9%, 10%, 10%, and 23%, respectively, of the Company's sales during Six Months 1996. The Company has only a letter from Hioki appointing the Company as Hioki's sales representative in the PRC, Hong Kong and Macau, its agreement with Wallace is terminable by either party on thirty days notice prior to its annual renewal date, its agreement with Finnigan is terminable on ninety days notice by either party and the agreement with Hach expires in March 1997, unless a renewal is obtained. Although alternative sources of supply exist, there can be no assurance that the termination of the Company's relationship with any of the above or other vendors would not have a short-term adverse effect on the Company's operations. See "Business." BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 31% of the estimated net proceeds received by the Company from this Offering have been allocated to working capital and the Company will have broad discretion as to the application of such funds. See "Use of Proceeds." CONTROL BY T.C. LEUNG. After the successful completion of this Offering, T.C. Leung, the Company's Chairman of the Board and Chief Executive Officer will beneficially own approximately 65% of the Company's issued and outstanding shares of Common Stock which as a practical matter will enable him to nominate and cause the election of all the members of the Company's Board of Directors, control the 10 15 appointment of its officers and the day-to-day affairs and management of the Company. See "Principal Shareholders." CERTAIN LEGAL CONSEQUENCES OF INCORPORATION IN THE BRITISH VIRGIN ISLANDS. The Company's corporate affairs are governed by its Memorandum of Association, Articles of Association and the corporate law of the British Virgin Islands ("BVI"). Principles of law relating to such matters as the validity of Company procedures, the fiduciary duties of management and the rights of the Company's shareholders may differ from those that would apply if the Company were incorporated in a jurisdiction within the United States. The rights of shareholders under BVI law are not as extensive as the rights of shareholders under legislation or judicial precedent in many United States jurisdictions. Thus, the shareholders of the Company may have more difficulty in protecting their interests in the face of actions by the Company's Board of Directors than they might have as shareholders of a company incorporated in many United States jurisdictions. In addition, there is uncertainty whether the courts of BVI would enforce judgments of the courts of the United States and of other foreign jurisdictions. There is also uncertainty whether the courts of the BVI would enforce actions brought in the BVI which are based upon the securities laws of the United States. DILUTION. As a result of the sale of the Securities offered in this Offering and the consummation of the Acquisition, there will be immediate and substantial dilution to public investors in that the pro forma net tangible book value per share of the Company's Common Stock after this Offering and consummation of the Acquisition will be approximately $2.25 per share, or approximately $2.75 (55%) less than the $5.00 offering price per share. See "Dilution." NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to this Offering, there has been no market for any of the Company's securities. The initial public offering price of the Securities and the exercise price and other terms of the Warrants have been arbitrarily determined by negotiations between the Company and the Underwriter and such prices and terms are not necessarily related to the Company's asset value, net worth or other established criteria of value. In addition, there can be no assurance that a trading market will develop after this Offering for any of the Company's Securities or that, if developed, it will be sustained. See "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE. In general, under Rule 144, a person which has satisfied a two-year holding period may, under certain circumstances, sell within any three-month period a number of shares of common stock that does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume in such shares during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity or other limitation by a person which is not an affiliate of an issuer and which has satisfied a three-year holding period. The holders of all shares of the Company's Common Stock have agreed not to sell shares of the Company's Common Stock owned by them on the date hereof for a period of twenty-four months from the date of this Prospectus without the prior written consent of the Underwriter. The Company has 1,550,000 shares of Common Stock outstanding that are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The Company also has outstanding Warrants to purchase 1,000,000 shares of Common Stock which Warrants and shares of Common Stock underlying the Warrants are being registered under the Registration Statement of which this Prospectus forms a part for sale by said persons. Investors should be aware that sales of the Company's securities may have a depressive effect on the price of the Company's securities in any market which may develop for such securities. See "-- Effect of Options, Warrants and Registration Rights", " -- Impact of Concurrent Offering," "Shares Eligible for Future Sale" and "Concurrent Registration of Securities." EFFECT OF OPTIONS, WARRANTS AND REGISTRATION RIGHTS. For the respective terms of the Underwriter's Warrants and Warrants sold as part of this Offering and registered hereby and any options that may be granted by the Company under the Company's stock option plan or other options which may be issued by the Company, the holders thereof are given an opportunity to profit from a rise in the market price of the Common Stock, with a resulting dilution in the interests of the other stockholders. Further, the terms on which the Company may obtain additional financing during the exercise periods of said warrants and options may be adversely effected by the existence of such warrants, options and plan. The holders of options or warrants to 11 16 purchase Common Stock may exercise such options or warrants at a time when the Company might be able to obtain additional capital through offerings of securities on terms more favorable than those provided by such options or warrants. In addition, the holders of the Underwriter's Warrants have demand and "piggyback" registration rights with respect to their securities. Exercise of such registration rights may involve substantial expense to the Company. See "Management," "Description of Securities," "Underwriting" and "Concurrent Registration of Securities." NO CASH DIVIDENDS. The Company has not paid any dividends to date. The Company's Board of Directors does not presently intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's business operations. See "Description of Securities." LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in August 1993, was registered as a broker in June 1995, and became a member firm of the National Association of Securities Dealers, Inc. (the "NASD") in June 1995. The Underwriter is principally engaged in retail brokerage and market making activities and various corporate finance projects. The Underwriter has acted as a placement agent in private offerings and has participated as a member of the underwriting syndicate or as a selected dealer in one public offering and it has acted solely one time as the lead manager in only one public offering of securities. While certain of the officers of the Underwriter have significant experience in corporate finance and the underwriting of securities, no assurance can be given that the Underwriter's lack of experience as a lead managing underwriter of public offerings will not adversely affect this Offering and the subsequent development of a liquid public trading market in the Company's securities. See "Underwriting." POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. At any time during their exercise period, the Warrants may be redeemed by the Company at a redemption price of $.10 per Warrant upon 30 days prior written notice if the average closing bid price of the Common Stock for 20 consecutive trading days ending within 10 days of the notice exceeds $8.50. Redemption of the Warrants could force the holders to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the Warrants at the current market price for the Warrants when they might otherwise wish to hold the Warrants, or to accept the redemption price, which may be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities." CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS. Holders of the Warrants will have the right to exercise the Warrants for the purchase of shares of Common Stock only if a current prospectus relating to such shares is then in effect and only if the shares are qualified for sale under the securities laws of the states in which the warrantholders reside. Although the Company intends to maintain such a current prospectus and to seek to qualify the shares of Common Stock underlying the Warrants for sale in those states where the Common Stock and Warrants are to be offered, there is no assurance that it will be able to do so. The Warrants may be deprived of any value if the current prospectus encompassing the shares underlying the Warrants is not kept effective or if such underlying shares are not or cannot be registered in the states in which warrantholders reside. See "Description of Securities." POSSIBLE SUSPENSION OF COMPANY'S SECURITIES FROM NASDAQ AND THE BOSTON STOCK EXCHANGE EVEN IF LISTING OBTAINED. The Company has applied for the listing of the Securities offered hereby on the NASDAQ System and the Boston Stock Exchange. However, there can be no assurance that the Company's application will be granted or that, if granted, the Company will meet the criteria for continued quotation of its securities on the NASDAQ System and the Boston Stock Exchange. Minimum continued quotation criteria on the NASDAQ System include, among other things, $2,000,000 in total assets, $1,000,000 in capital and surplus, $200,000 in aggregate market value, and a minimum bid price of $1.00 per share of Common Stock. If an issuer does not meet the $1.00 minimum bid requirement, it may, however, remain on the NASDAQ System if it has $2,000,000 of capital and surplus and $1,000,000 in aggregate market value. Minimum continued quotation criteria for the Boston Stock Exchange include, among other things, $1,000,000 in total assets, $500,000 in stockholders' equity, a public float of 150,000 shares worth at least $500,000 and 250 beneficial stockholders. If the Company becomes unable to meet the continued quotation criteria of the NASDAQ System and the Boston Stock Exchange and is suspended therefrom, trading, if any, in the Company's securities would thereafter be conducted in the over-the-counter market in the so-called "pink 12 17 sheets" of if then available, the OTC Bulletin Board. In such event, an investor would likely find it more difficult to dispose of, or to obtain accurate quotations as to the value of, the Company's securities. RISKS OF LOW-PRICED SECURITIES. If the Securities were to be suspended or delisted from the NASDAQ System and the Boston Stock Exchange, the Securities would be subject to rules under the Exchange Act, which impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established clients and "accredited investors" (for example, individuals with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with their spouses). For transactions covered by such rules, a broker-dealer must make a special suitability determination of the purchaser and have received the purchaser's written consent to the transaction prior to the sale. Consequently, such rules may affect the ability of broker-dealers to sell the Company's Securities and the ability of purchasers in this Offering to sell any of the Company's Securities acquired in this Offering in any secondary market that may develop for such Securities. The Commission has enacted rules that define a "penny stock" to be any equity security that has a price (as therein defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions, including securities listed on the NASDAQ System or on designated exchanges, For any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to any transaction in a penny stock, of a disclosure statement prepared by the Commission relating to the penny stock market. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. In the event the Company's securities are no longer listed on the NASDAQ System and the Boston Stock Exchange or are not otherwise exempt from the provisions of the Commission's "penny stock" rules, such rules may also affect the ability of broker-dealers to sell the Company's Securities and the ability of purchasers in this Offering to sell any of the Securities acquired hereby in any secondary market that may develop. IMPACT OF CONCURRENT OFFERING. Concurrently with this Offering, the Company is registering, on behalf of the Selling Securityholders, Warrants to purchase 1,000,000 shares of Common Stock and 1,000,000 shares of Common Stock underlying said Warrants. The Selling Securityholders have agreed not to sell any of the Company's securities owned by them for a period of two years from the closing of this Offering without the prior written consent of the Underwriter. Sales of substantial amounts of the Company's securities by the Selling Securityholders or even the potential for such sales, could have an adverse affect on the market price of the Securities and could impair the Company's ability to raise capital through the sale of its securities. See "Concurrent Registration of Securities." 13 18 DILUTION The net tangible book value of the Company as of June 30, 1996 was approximately HK$20,983,000 (US$2,711,000) or HK$13.54 (US$1.75) per Common Share. Net tangible book value per Common Share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of outstanding Common Shares at that date, assuming the share exchange between the Company and Far East as described in the "Certain Transactions" section had taken place prior to June 30, 1996 and that 100% of the outstanding shares of Far East had been transferred to the Company. After giving effect to the sale by the Company of the 600,000 Common Shares and 600,000 Warrants offered hereby (after deduction of estimated underwriting discounts and commissions, and offering expenses), the Company's net tangible book value at June 30, 1996 would have been approximately HK$37,475,000 (US$4,842,000) or HK$17.43 (US$2.25) per Common Share. This represents an immediate increase in net tangible book value to existing shareholders of HK$3.89 (US$0.50) per Common Share and an immediate dilution to new investors of HK$21.32 (US$2.75) per Common Share. The following table illustrates the per Common Share dilution: Assumed initial public offering price per Common Share................... US$ 5.00 Net tangible book value per Common Share as of June 30, 1996........... US$ 1.75 Increase in net tangible book value per Common Share attributable to new investors....................................................... 0.50 -------- Net tangible book value per Common Share after this Offering........... 2.25 -------- Dilution per Common Share to new investors.......................... US$ 2.75 ========
The following table sets forth on a pro forma basis as of June 30, 1996, assuming the above mentioned share exchange had taken place prior to such date, the difference between the number of Common Shares purchased from the Company, the total consideration paid, and the average price per Common Share paid by the existing shareholders and by the new investors (at an assumed initial public offering price of US$5.00 per Common Share before deduction of estimated underwriting discounts and commissions, and other expenses):
SHARES PURCHASED TOTAL CONSIDERATION -------------------- ----------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER COMMON SHARE --------- ------ ------------ ------ ---------------- Existing shareholders....... 1,550,000 72.1% US$2,711,000 47.5% US$ 1.75 New investors............... 600,000 27.9% 3,000,000 52.5% 5.00 --------- ------ ------------ ------ ---------------- Total..................... 2,150,000 100.0% US$5,711,000 100.0% US$ 2.66 ======== ====== ============ ====== =================
The information presented above, with respect to existing shareholders, assumes no exercise of the Underwriter's Overallotment Option. In addition, 1,600,000 Common Shares have been reserved for issuance upon exercise of the Warrants and 120,000 Common Shares have been reserved for issuance upon exercise of the Underwriter's Warrants including the shares of Common Stock underlying the Warrants included within the Underwriter's Warrants, 1,400,000 Common Shares have been reserved for future issuance pursuant to the Management Options, 150,000 Common Shares have been reserved for future issuance upon exercise of options granted pursuant to the Company's incentive stock option plan. See "Management," "Underwriting" and "Description of Securities." 14 19 USE OF PROCEEDS The net proceeds to the Company from the sale of 600,000 shares of Common Stock and 600,000 Warrants offered hereby are estimated to be approximately $2,130,750 ($2,533,995 if the Underwriter's Overallotment Option is exercised in full) after deducting underwriting commissions and discounts and other expenses of this Offering. The Company expects to use the net proceeds over the next twelve months approximately as follows:
APPROXIMATE APPROXIMATE DOLLAR AMOUNT PERCENTAGE OF APPLICATION OF NET PROCEEDS OF NET PROCEEDS NET PROCEEDS - -------------------------------------------------------------- --------------- ------------- Product Assembly Operations(1)................................ $ 825,000 39% Expand the Number of Sales Offices(2)......................... $ 300,000 14% Office Equipment Purchases(3)................................. $ 350,000 16% Working Capital............................................... $ 655,750 31% ---------- --- Total....................................................... $ 2,130,750 100%
- --------------- (1) Represents the approximate amount that may be used to fund the initial start-up costs, approximately $150,000, and the establishment of production facilities (including leasehold improvements and equipment and inventory purchases, lease payments and employee salaries), approximately $675,000, for the Company's proposed product assembly operations. See "Business." (2) Represents the approximate amount that may be used to expand the number of the Company's regional sales offices in the PRC which is subject to change from time to time. The Company estimates that the foregoing allocation will be sufficient to enable it to establish approximately three new regional sales offices and will be used for leasehold improvements and office equipment. See "Business." (3) To be used to purchase and update the Company's principal offices, including purchases of computer hardware and software and general office equipment. The Company currently estimates that the net proceeds of this Offering will be sufficient to fund its planned operations, including the funding of its obligations under the proposed agreement with STIP, and expansion efforts for approximately twelve months from the date of this Prospectus. The net proceeds may be sufficient for a greater or lesser period of time depending on the extent of the Company's expansion efforts and the rapidity of the completion of the negotiations for the Company's proposed agreement with STIP. In addition, the Company may require additional financing prior to or following such period if it is unable to complete the negotiation for the proposed agreement with STIP and another suitable facility is obtained requiring the Company to expend greater sums of money for initial start-up costs and/or production facilities or if a final agreement is reached with STIP but the estimated initial start-up costs and establishment of production facilities is greater than estimated. The Company has no commitments or arrangements for any such additional financing and there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company or at all. In the event additional financing is unavailable to the Company, the Company may be materially adversely affected. The foregoing represents the Company's best estimate of its allocation of the net proceeds of this Offering. Future events, as well as changes in economic, regulatory or competitive conditions or the Company's business and the results of its activities may make shifts in the allocation of funds within the described categories or to other purposes necessary or desirable. In the event the Company is unable to fund its proposed product assembly operations with the net proceeds allocated above or suffers losses, the Company may draw upon the net proceeds of this Offering allocated to expand the number of sales offices, purchase equipment and/or working capital. The Company estimates that the net proceeds of this Offering allocated to expand the number of its sales offices will be sufficient to establish approximately three new sales offices at an average cost of approximately $100,000 for each new sales office. In the event the per sales office costs are greater than estimated, the Company may establish fewer sales offices or draw upon the net proceeds of this Offering allocated to working capital. In the event the per sales office costs are less than estimated, a portion of the net proceeds of this Offering allocated for such purposes will be reallocated to working capital. Prior to expenditure, proceeds will be invested principally in high grade, short-term, interest-bearing investments. Any proceeds received upon exercise of the Overallotment Option or any of the Warrants will be used for working capital purposes. There can be no assurance that the Overallotment Option or any of the Warrants will be exercised. 15 20 CAPITALIZATION The following table sets forth the pro forma consolidated capitalization of the Company at June 30, 1996, (i) on an actual basis assuming the share exchange between the Company and Far East as described in the "Certain Transactions" section had taken place prior to June 30, 1996 and that 100% of the outstanding shares of Far East had been transferred to the Company; and (ii) on a pro forma basis giving effect to the issuance of 1,000,000 Warrants to certain private investors before the Public Offering and the issuance of 600,000 Common Shares and 600,000 Warrants and the receipt of the estimated net proceeds of the Public Offering. This table should be read in conjunction with the financial statements of Far East and the notes thereto included elsewhere in this Prospectus.
JUNE 30, 1996 ------------------------------- ACTUAL PRO FORMA PRO FORMA ------- --------- --------- HK$000 HK$ 000 US$ 000 Short-term borrowings.............................. 5,171 5,171 668 Current portion of long-term bank loans............ 1,061 1,061 137 Payable to a director.............................. 38 38 5 ------- --------- --------- Total current portion of debt...................... 6,270 6,270 810 ------- --------- --------- Long-term bank loans, net of current portion....... 6,471 6,471 836 ------- --------- --------- Shareholders' equity: Share capital................................. 108 108 14 Additional paid-in capital.................... -- 16,494 2,131 Capital surplus............................... 20,875 20,875 2,697 Warrants...................................... -- 1,010 131 ------- --------- --------- Total shareholders' equity.................... 20,983 38,487 4,973 ------- --------- --------- Total capitalization..................... 33,724 51,228 6,619 ======== ========= =========
16 21 SELECTED FINANCIAL INFORMATION (AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND UNLESS OTHERWISE STATED) The selected income statement data for the six months ended June 30, 1996, and the selected balance sheet data as of June 30, 1996 set forth below are derived from unaudited financial statements of Euro Tech (Far East) Limited which are included elsewhere in this Prospectus and should be read in conjunction with, and are qualified in their entirety by reference to such financial statements. The selected income statement data for the years ended December 31, 1993, 1994 and 1995 and the selected balance sheet data as of December 31, 1994 and 1995 set forth below are derived from audited financial statements of Euro Tech (Far East) Limited which are included elsewhere in this Prospectus and should be read in conjunction with, and are qualified in their entirety by reference to such financial statements, including the notes thereto. The selected income statement data for the years ended October 31, 1991 and 1992 and the selected balance sheet data as of October 31, 1991 and 1992, and December 31, 1993 set forth below are derived from audited financial statements of Euro Tech (Far East) Limited which are not included herein. All of the above financial statements have been prepared and presented in accordance with accounting principles generally accepted in the United States of America.
AS OF OCTOBER 31,(1) AS OF DECEMBER, AS OF JUNE 30, ---------------- -------------------------------------- ----------------- 1991 1992 1993 1994 1995 1995 1996 1996 ------ ------ ------ ------ ------ ------ ------ ------ HK$ HK$ HK$ HK$ HK$ US$(2) HK$ US$(2) (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents............ 1,340 4,934 3,735 3,408 4,626 597 3,008 389 Working capital(3)................... 6,152 8,855 9,261 7,253 4,896 631 6,115 790 Total assets......................... 25,845 33,615 45,838 52,492 59,740 7,717 57,303 7,404 Short-term debt(4)................... 1,086 3,629 6,235 7,791 6,434 831 6,232 805 Long-term bank loans................. -- -- 3,538 3,330 7,006 905 6,471 836 Stockholders' equity................. 8,955 11,308 17,140 17,607 17,721 2,289 20,983 2,711
17 22
FOR THE YEAR ENDED FOR THE SIX MONTHS OCTOBER 31,(1) FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30, --------------------- --------------------------------------------- --------------------------------- 1991 1992 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- --------- --------- --------- --------- --------- --------- HK$ HK$ HK$ HK$ HK$ US$(2) HK$ HK$ US$(2) (UNAUDITED) INCOME STATEMENT DATA: Sales................. 68,263 83,813 105,374 103,512 105,782 13,667 51,959 53,969 6,973 --------- --------- --------- --------- --------- --------- --------- --------- --------- Cost of goods sold.... (50,686) (62,833) (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397) Selling and administrative expenses............ (15,607) (19,683) (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273) Interest expenses, net................. (249) (135) (221) (492) (877) (113) (420) (631) (82) Gain on disposal of a real estate property............ -- -- -- 2,300 -- -- -- -- -- Other income, net..... 535 2,739 675 590 1,186 153 118 488 63 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total costs and expenses........ (66,007) (79,912) (98,232) (98,754) (103,455) (13,366) (51,539) (51,780) (6,689) --------- --------- --------- --------- --------- --------- --------- --------- --------- Income from continuing operations before profits tax......... 2,256 3,901 7,142 4,758 2,327 301 420 2,189 284 Provision for profits tax -- current.......... (373) (827) (1,106) (425) (68) (9) (77) (406) (52) --------- --------- --------- --------- --------- --------- --------- --------- --------- Income from continuing operations.......... 1,883 3,074 6,036 4,333 2,259 292 343 1,783 232 Discontinued operations Income (loss) of subsidiary companies sold in 1996................ 169 947 12 (1,466) (1,645) (213) (369) -- -- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss)..... 2,052 4,021 6,048 2,867 614 79 (26) 1,783 232 ======== ======== ======== ======== ======== ======== ======== ======== ======== Income (loss) from discontinued operations per common share........ 0.11 0.61 0.01 (0.95) (1.06) (0.14) (0.24) -- -- Net income (loss) per common.............. 1.32 2.59 3.90 1.85 0.40 0.05 (0.02) 1.15 0.15 Weighted average number of common shares outstanding......... 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000
- --------------- (1) In 1993, Euro Tech (Far East) Limited changed its financial year end date from October 31 to December 31. Accordingly, income statement data for the period from November 1, 1992 to December 31, 1992 are not presented. (2) Translation solely for convenience of the readers at the prevailing exchange rate of $7.74 = US$1 on June 30, 1996. (3) Current assets minus current liabilities. (4) Short-term debt includes short-term borrowings and current portion of long-term bank loans. 18 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Statements and notes thereto appearing elsewhere in this Prospectus. INTRODUCTION The Company was recently organized under the laws of the British Virgin Islands to raise capital and acquire Far East. Upon the closing of this Offering, Far East will become a wholly-owned subsidiary of the Company. Far East was established in 1971, under the name of Eurotherm (Far East) Ltd., as a subsidiary of a United Kingdom publicly traded company (Eurotherm Ltd.) to market and distribute its parent's industrial control equipment in Hong Kong and Southeast Asia and expanded its activities into the PRC in 1973. In the early 1980's, Far East began the distribution of high-tech equipment manufactured in the United States, Europe and Japan into the PRC, in addition to its distribution activities on behalf of its parent. In 1988, the activities of the parent and Far East were separated into Eurotherm International and Far East. By in or about 1994, all the capital stock of Far East was purchased by its management, principally Mr. T.C. Leung, the Company's Chairman of the Board of Directors and Chief Executive Officer and Far East changed its name from Eurotherm (Far East) Ltd. to its current name. See "Principal Shareholders" and "Certain Transactions." During Fiscal 1995 approximately 59% and 40% of the Company's sales were made to customers located in the PRC and Hong Kong, respectively. For Six Months 1996 approximately 66% and 34% of the Company's sales were made to customers located in the PRC and Hong Kong, respectively. Sales to customers situated in Macau and elsewhere were nominal. The Company has funded itself since inception by initial borrowings from Far East and selling 1,000,000 Warrants in a private placement of such securities pursuant to which the Company derived aggregate gross proceeds of $150,000. FAR EAST GENERALLY During Far East's fiscal years ended October 31, 1991 ("Fiscal 1991"), October 31, 1992 ("Fiscal 1992"), and December 31, 1993 ("Fiscal 1993"), Far East experienced a gradual increase in sales revenues. During its fiscal years ended December 31, 1994 ("Fiscal 1994") and Fiscal 1995, Far East's sales revenues remained substantially unchanged. Management of the Company believes that Far East's lack of sales growth during Fiscal 1994 and Fiscal 1995 resulted from the PRC's economic austerity measures undertaken to dampen the rate of inflation in the PRC, which was approximately 27% in 1994 in comparison to 1993. These economic austerity measures included the tightening of credit, when coupled with a devaluation of the RMB in 1993 and the imposition of a value tax imposed by the PRC on imports into the PRC, caused products manufactured in the PRC to become more competitive with the United States, European and Japanese manufactured products distributed by Far East even though the products distributed by Far East were of better quality. Cost became an overriding issue with many of PRC's customers and, in response, Far East reduced its sales prices and, therefore, its profit margins to remain competitive with PRC manufacturers. During Six Months 1996, Far East also began streamlining its operations and focusing its efforts on its current product lines by disposing of three of its subsidiaries, Euro Electron (Far East) Ltd. ("Euro Electron"), Action Instruments (China) Ltd. ("Action") and Armtison Ltd. ("Armtison"). Euro Electron had been established to distribute telecommunication products. However, manufacturers of these products distribute their products directly to end users, without intermediary distributors such as Far East. Technical expertise in this product line was also found to be a necessity. As a result, Euro Electron's activities never developed. Action distributed industrial computers. During Fiscal 1994, Action lost its principal source of this product line when Action's principal supplier sold its industrial computer production line to another supplier. Additionally, another major manufacturer of industrial computers established its own distribution office in 19 24 Hong Kong to distribute its products in Hong Kong and the PRC. Armtison was principally a holding company for Euro Electron and Action. The rate of inflation in the PRC has declined. In 1995, the rate of inflation was approximately 10% in comparison to 1994. The Company believes, although no assurance can be given as to the correctness of the Company's belief, that credit restrictions will be gradually lifted allowing Far East to increase its sales prices and profit margins. The Company's management also believes that by Far East entering into an agreement with an entity situated in the PRC to assemble certain products of the kind currently distributed by Far East, Far East will also be able to increase its profit margins. BASIS OF PRESENTATION All financial data referred to in the following discussion has been prepared in accordance with US GAAP. RESULTS OF OPERATION OF FAR EAST The following table presents selected statement of operations data expressed as a percentage of net sales for Far East's Fiscal 1993, Fiscal 1994 and Fiscal 1995 and the Six Months ended June 30, 1995 and 1996.
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31, ----------------- ---------------------------- 1995 1996 1993 1994 1995 ------ ------ ------ ------ ------ Net Sales................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold.......................... 78.2% 77.4% 75.3% 78.2% 77.8% Gross profit................................ 21.8% 22.6% 24.7% 21.8% 22.2% Selling and administrative expenses......... 20.4% 18.3% 18.3% 19.5% 20.3% Operating income............................ .8% 4.1% 6.8% 4.6% 2.2% Income tax provision........................ .1% .8% 1.0% .4% .1% Net income.................................. (.1%) 3.3% 5.7% 2.8% .6% ====== ====== ====== ====== ======
RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 Sales; Gross Profit and Cost of Goods Sold. Sales increased by approximately HK$2,010,000 or 3.9% to approximately HK$53,969,000 in the Six Months 1996 from approximately HK$51,959,000 in the Six Months 1995. The Company believes that this increase in sales is primarily due to the PRC government relaxing economic austerity measures in early 1996. Gross profit increased by approximately HK$857,000 or 7.6% to approximately HK$12,193,000 for the Six Months 1996 compared to approximately HK$11,336,000 for the Six Months 1995 which was attributable to the increase in sales (including those products with high gross profit margins) and the increase in gross profit margins from 21.8% for the Six Months 1995 to 22.6% for the Six Months 1996. For the Six Months 1996, Far East's cost of goods sold were approximately HK$41,776,000 or 77.4% of sales representing a decrease of approximately HK$1,153,000 from the comparable period in the prior year or approximately HK$40,623,000 or 78.2% of sales. The decrease in cost of goods sold is primarily due to increases in demand for products with higher gross profit margins. Selling and Administrative Expenses. Selling and administrative expenses were approximately HK$9,861,000 for the Six Months 1996 a decrease of approximately HK$753,000 or 7.1% from approximately HK$10,614,000 for the Six Months 1995. This decrease is primarily due to improved operating efficiencies resulting in the reduction of operating expenses in Far East's PRC sales offices, lower advertising costs incurred in promotion and exhibitions and other selling expenses, and decrease in rental expenses for Far East's sales offices as Far East moved to self-owned properties in Shanghai and Beijing. Interest Expense. Net interest expense increased by approximately HK$211,000 or 50.2% to approximately HK$631,000 for the Six Months 1996 from approximately HK$420,000 for the Six Months 1995. The increase is principally the result of mortgage loan interest payments of approximately HK$217,000 due upon Far East's long term bank borrowings incurred in September and October 1995 used to finance the purchase of premises situated in Shanghai and Hong Kong respectively. 20 25 Other Income. The main components of other income are rental income, income from provision of engineering service, gain (loss) on disposal of fixed assets, and exchange gain (loss). Other income increased by approximately HK$370,000 from approximately HK$118,000 for the Six Months 1995 to approximately HK$488,000 for the Six Months 1996 and results from greater income generated from providing engineering service to other companies and exchange rate differences arising from settlement of sales and purchase transactions. Income from Continuing Operations. Income from continuing operations increased by approximately HK$1,440,000 or 419.8% to approximately HK$1,783,000 for the Six Months 1996 compared to approximately HK$343,000 for the Six Months 1995. In addition to a small increase in sales and gross profit margin percentages, the principal factor contributing to the increase in net income was a significant reduction in sales and administrative expenses. The decrease in sales and administrative expenses was principally a reduction in selling expenses, (business travel, advertising and exhibition costs) as Far East efforts in prior years have created what the Company believes to be a solid network of distributors, a recognized name, an established reputation and a stable PRC sales force. Discontinued Operations. Far East's shareholders decided to separate the main operating company (Far East) from its subsidiaries in early 1996 to focus on its current product lines and shed immaterial activities. Far East disposed of the following subsidiaries; Euro-Electron, Action and Armtison. See " -- Introduction." Far East's investment in the foregoing three subsidiaries was transferred back to Far East's shareholders directly at a price equal to book value (HK$10,000). As a result, there is no income (loss) of those subsidiaries reported for the Six Months 1996. FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1994 Sales; Gross Profit and Cost of Goods Sold. Sales increased by approximately HK$2,270,000 or 2.2% to approximately HK$105,782,000 in Fiscal 1995 from approximately HK$103,512,000 in Fiscal 1994. Far East was able to achieve a growth in sales even under the PRC's economic austerity measures primarily as a result of Far East's established sales and distribution networks. Gross profit increased by approximately HK$923,000 or 4.1% to approximately HK$23,482,000 for Fiscal 1995 compared to approximately HK$22,559,000 for Fiscal 1994 which increase is attributable to increased sales and a gross profit margin increase from 21.8% in Fiscal 1994 to 22.2% in Fiscal 1995. During Fiscal 1995, Far East's cost of goods sold were HK$82,300,000 or 77.8% of sales remaining relatively constant when compared to Fiscal 1994, when cost of goods sold were approximately HK$80,953,000 or 78.2% of sales as Far East faced intense competition in the PRC market place resulting from the economic austerity measures adopted in early 1994. Selling and Administrative Expenses. Selling and administrative expenses were approximately HK$21,464,000 in Fiscal 1995, an increase of approximately HK$1,265,000 or 6.3% from approximately HK$20,199,000 in Fiscal 1994. This increase is primarily due to the increase in the selling and administrative expenses of Far East's PRC sales offices, especially Far East being obligated to pay taxes for its sales offices in the PRC commencing in 1995. Interest Expense. Net interest expense increased by approximately HK$385,000 or 78.3% to approximately HK$877,000 in Fiscal 1995 from approximately HK$492,000 for Fiscal 1994. This interest expense increase is the result of increased levels of borrowing, particularly Far East entering into a mortgage loan for the purchase of its Beijing's office in November 1994 with mortgage loan interest expense increasing by approximately HK$202,000. Increased interest for other short term bank borrowings (i.e. bank overdraft and import/export loans) is principally due to the gradual increase in interest rates from the Hong Kong prime of 6.5% in January 1994 up to the highest rate of 9.0% during 1995. Other Income. Other income increased by approximately HK$596,000 or 101% to approximately HK$1,186,000 in Fiscal 1995 from approximately HK$590,000 in Fiscal 1994. The increase in other income results from greater income generated from providing engineering services to other companies and exchange rate differences arising from settlement of sales and purchase transactions. Provision for Profit Tax. Provisions for taxes declined by approximately HK$357,000 to approximately HK$68,000 in Fiscal 1995 from approximately HK$425,000 in Fiscal 1994. This decline was due primarily to 21 26 an adjustment of profits tax on prior years of approximately HK$345,000 made in Fiscal 1995 resulting from a tax review by Hong Kong's Commissioner of Inland Revenue. Income from Continuing Operations. Income from continuing operations was approximately HK$2,259,000 in Fiscal 1995, an increase of approximately HK$226,000 or 11% from approximately HK$2,033,000 (total income of approximately HK$4,333,000 less non-recurring profit of approximately HK$2,300,000 from sales of property) in Fiscal 1994. The increase in operating profit was primarily due to the increase in sales and gross margin percentages and Far East's self-imposed budgetary restraints on selling and administrative expenses, which only increased by 6.3% in comparison to the then double digit PRC inflation rate. Discontinued Operations -- Losses of subsidiary companies. Losses of Far East subsidiaries increased by approximately HK$179,000 to approximately HK$1,645,000 for Fiscal 1995, from approximately HK$1,466,000 in Fiscal 1994. During Fiscal 1995 one of Action's major suppliers established its own office in Hong Kong to directly distribute its products. As a result of a reduction in products resulting from the loss of another supplier and this direct manufacturer competition, Action sustained a loss. Another Far East subsidiary, Euro Electron, was unable to secure major orders from the telecommunication market and also sustained a loss for Fiscal 1995. FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1993 Sales; Gross Profit and Cost of Goods Sold. Sales decreased by approximately HK$1,862,000 or 1.8% to approximately HK$103,512,000 in Fiscal 1994 from approximately HK$105,374,000 in Fiscal 1993. This decrease was primarily the result of exceptionally high sales in Fiscal 1993 flowing from the inclusion in Fiscal 1993 sales of approximately HK$19,600,000 of equipment to the largest steel complex in the PRC. Excluding this exceptional order, the net sales for Fiscal 1993 were approximately HK$85,774,000 and Fiscal 1994 sales had an increase of approximately HK$17,738,000, or 20.7%. In 1994, the PRC government implemented economic austerity measures to curb its high inflation rates. However, Far East was able to increase its sales during Fiscal 1994 even when confronted by the PRC's economic austerity measures as a result of prior years efforts in exploring PRC markets, including but not limited to prior appointments of distributors and the establishment of its Guangzhou sales office in Fiscal 1993. Gross profit decreased by approximately HK$3,431,000 or 13.2% to approximately HK$22,559,000 for Fiscal 1994 in comparison to approximately HK$25,990,000 in Fiscal 1993, which decrease was attributable to the inclusion of the exceptional order mentioned above in Fiscal 1993 sales and a 2.9% decrease in gross profit margins from 24.7% for Fiscal 1993 to 21.8% for Fiscal 1994. For Fiscal 1994, Far East's cost of goods sold were approximately HK$80,953,000 or 78.2% of sales in comparison to HK$79,384,000 or 75.3% of sales for Fiscal 1993. Cost of goods sold expressed as a percentage of sales increased by 2.9% in Fiscal 1994 as compared with Fiscal 1993. The gross profit margin reduction and the percentage increase in costs of goods sold were principally the result of intensified competition in the PRC market resulting from the economic austerity measures adopted by the PRC government in early 1994, the imposition of a value added tax on goods imported in the PRC and the devaluation of RMB in early 1994 significantly reduced the purchasing power of Far East's PRC customers. As a result, they sought discounts on the products distributed by Far East. Selling and Administrative Expenses. Selling and administrative expenses were approximately HK$20,199,000 in Fiscal 1994, representing an increase of approximately HK$897,000 or 4.7% from approximately HK$19,302,000 in Fiscal 1993. This increase was primarily due to general increases in expenses as a result of the high inflation rate in the PRC which Far East was able to offset by self-imposed budgetary restraints on selling expenses (sales commissions, business travel, advertising, exhibitions, entertainment etc.) Interest Expense. Net interest expense increased by approximately HK$271,000 or 123% to approximately HK$492,000 for Fiscal 1994 from approximately HK$221,000 for Fiscal 1993. The increase in interest expense was due to an increased level of borrowings, resulting from the purchase of investment property in September 1993 (with mortgage interest increasing by HK$170,000) and payment of dividends of approximately HK$3,500,000 in Fiscal 1994 to Far East's shareholders. Other Income. Other income declined by approximately HK$85,000 or 12.6% to approximately HK$590,000 in Fiscal 1994 from approximately HK$675,000 in Fiscal 1993. This decrease in other income 22 27 was due primarily to a decrease in income generated from providing engineering services to other companies in Fiscal 1994. Gain on Disposal of a Real Estate Property. The gain of approximately HK $2,300,000 resulted from the disposition of the premises which were previously leased out. Income from Continuing Operations. Income from continuing operations was approximately HK$4,333,000 in Fiscal 1994, a decrease of approximately HK$1,703,000 or 28.2% from approximately HK$6,036,000 in Fiscal 1993. This decrease in operating profit was primarily due to the economic austerity measures adopted by the PRC government in early 1994 and the exceptional sale in Fiscal 1993 resulting from the inclusion of the above mentioned exceptional order in the approximate amount of HK$19,600,000. Discontinued Operations -- Income (Loss) of subsidiary companies. In Fiscal 1993, the operations of Far East's subsidiaries derived a profit of approximately HK$12,000 but their operations resulted in a loss of approximately HK$(1,466,000) in Fiscal 1994. This loss was primarily due to one of the major suppliers of Action disposing of its industrial computer product line in Fiscal 1994. The industrial computer product line had been one of Action's major product lines in prior years. Euro Electron was established in the later part of Fiscal 1993. During Fiscal 1994, Euro Electron was in its development stage, incurring expenses for planned operations, seeking product sources and formulating its marketing efforts while deriving no revenues. LIQUIDITY AND CAPITAL RESOURCES Far East's primary uses of cash have been to fund accounts receivable, inventories, capital expenditures related to the additions to property and equipment, and to pay dividends to its shareholders. Far East has historically met its cash requirements from cash flow from operations, short-term borrowings under bank lines of credit, and long-term mortgage bank loans. Working capital at the end of Fiscal 1995 and Six Months 1996 was approximately HK$4,896,000 and approximately HK$6,115,000, respectively. Inventory decreased from approximately HK$5,106,000 at the end of Fiscal 1995 to approximately HK$3,258,000 at the end of Six Months 1996. Far East seeks to maintain a low level of inventory comprised mostly of low tech products to fill regular customer's orders and parts and accessories for warranty purposes, with Far East principally ordering products upon receiving a customer's order. The higher inventory level at the end of Fiscal 1995 was principally due to goods received near year end but not delivered to customers for several reasons, including but not limited to, a multicomponent order awaiting shipment of a component while another had arrived and a customer's Letter of Credit or payment not having been received. During Fiscal 1995 and Six Months 1996, Far East experienced cash flow from operations of approximately HK$7,611,000 and (HK$319,000), respectively. Cash from operations in Fiscal 1995 having been positively impacted by shipments made in late Fiscal 1994 with payment being received in Fiscal 1995. At the end of Fiscal 1995, Far East's accounts receivable stood at approximately HK$22,040,000 while at the end of Six Months 1996, Far East's accounts receivable were approximately HK$18,978,000. At the end of Six Months 1996, Far East had advanced approximately HK$3,800,000 to Regent (of which approximately HK$2,200,000 was repaid subsequent to the end of Six Months 1996). Also accounts receivable declined by approximately HK$3,062,000 from approximately HK$22,040,000 at the end of Fiscal 1995 to approximately HK$18,978,000 at the end of Six Months 1996, which was partially offset by an increase in receivables from related companies of approximately HK$1,115,000 from approximately HK$275,000 at the end of Fiscal 1995 to approximately HK$1,390,000 at the end of Six Months 1996. For Fiscal 1995 and Six Months 1996, Far East had income from continuing operations of approximately HK$2,259,000 and HK$1,783,000 respectively. This income rate increase followed from Far East's self-imposed budgetary restraints, the loosening of the PRC's economic austerity measures and a reduced rate of inflation in the PRC. Cash used in investing activities were mainly used to purchase properties in the PRC and Hong Kong. Far East has various banking facilities for overdraft, import and export credits and foreign exchange contracts amounting to approximately HK$40,900,000 from various banks. Approximately HK$24,500,000 of the credit facilities that are available were obtained on the conditions that, among other things, Far East mortgage its properties as security for the credit facilities, Far East not to create a charge or lien on its other 23 28 assets in favor of other parties without the bank's consent, and Far East maintaining a certain level of net worth. Far East also has various bank loans to finance the purchase of its properties with outstanding indebtedness at June 30, 1996 of approximately HK$7,500,000. As of June 30, 1996, properties with net book value of approximately HK$20,200,000 were pledged to secure certain banking facilities of Far East. Cash declined from approximately HK$4,626,000 at the end of Fiscal 1995 to approximately HK$3,008,000 at the end of Six Months 1996 principally as a result of Far East electing to use cash on hand to repay short-term borrowings (i.e. bank overdraft and import/export loans) and make advances to Regent to finance a significant government project that had been undertaken by Regent's subsidiary and is nearing completion. Regent is charged interest at the rate of 18% per year for this advance. At June 30, 1996, Regent had an outstanding balance of approximately HK$3,800,000 due to Far East. The Company plans to use the net proceeds of this Offering to establish product assembly operations and additional sales offices in the PRC and purchase office equipment including computer hardware and software. The balance of the proceeds of this Offering will be used for general working capital purposes. The Company believes that the net proceeds of this Offering, together with available trade credit, bank credit and internally generated funds, will be sufficient to satisfy its anticipated working capital needs for at least the twelve month period following the completion of this Offering. 24 29 BUSINESS INTRODUCTION The Company believes that it is one of the leading distributors of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems in Hong Kong and the People's Republic of China (the "PRC" or China). The Company distributes products to approximately 400 regular customers including sub-distributors located in Hong Kong, the PRC and Macau including the Hong Kong Environmental Protection Department, the Beijing Hydrology station, China Light & Power Co., Ltd., Hong Kong Electric Co., Ltd., and the Kowloon-Canton Railway Corporation. The Company believes that because of the increased expansion of industry and general business growth in the PRC during the last five years there is a strong and increasing demand for the products distributed by it in the PRC. The Company further believes that in years to come the need for the products distributed by it will grow as a result of governmental regulations of environmental pollution and based upon demands of the PRC's population for a healthy and safer environment including cleaner water. The Company distributes products manufactured by a substantial number of major American, European and Japanese corporations, including Wallace, Hach, Hioki and Finnigan which are the Company's largest suppliers, with purchases from them accounting for approximately 11%, 7%, 7% and 4%, respectively, of the Company's sales during Fiscal 1995 and 9%, 10%, 10% and 23%, respectively, of the Company's sales during Six Months 1996. The Company distributes products through its headquarters located in Hong Kong and its regional sales offices located in Beijing, Shanghai and Guangzhou and through independent distributors. During Fiscal 1995 and Six Months 1996, no single customer accounted for more than 5% of the Company's sales. The Company intends to use a substantial portion of the net proceeds of the Public Offering to establish an operation to assemble products of the kind now distributed by the Company pursuant to an agreement with a PRC based entity and to expand its marketing efforts by, among other things, opening additional regional sales offices in the PRC. The Company believes that by assembling products that it distributes, gross profits margins, revenues and net income will increase. Similarly, the Company believes that by expanding its regional sales efforts in the PRC, revenues and net income will be enhanced. The Company has recently reached a preliminary agreement with STIP pursuant to which STIP will provide space and technical expertise to assemble in the PRC certain of the products of the kind that the Company currently distributes, including certain water related testing, monitoring and treatment equipment. It is presently contemplated that the Company will import components, assemble the components into finished product and then distribute the products through the Company's distribution network. In the event, the Company is unable to complete a definitive agreement with STIP, it will continue to seek other PRC based entities to assemble products. During the Company's Fiscal 1995 and Six Months 1996, the Company had sales of approximately $13,667,000 and $6,973,000, respectively, and net income of approximately $79,000 and $232,000, respectively. BACKGROUND Far East was established in 1971, under the name of Eurotherm (Far East) Ltd., as a subsidiary of a United Kingdom publicly traded company (Eurotherm Ltd.) to market and distribute its parent's industrial control equipment in Hong Kong and Southeast Asia and expanded its activities into China in 1973. In the early 1980's, Far East began the distribution of high-tech equipment manufactured in the United States, Europe and Japan into China, in addition to its distribution activities on behalf of its parent. In 1988, the activities of the parent and Far East were separated into Eurotherm International and Far East. By 1994, all of the capital stock of Far East had been purchased by its management and Far East changed its name from Eurotherm (Far East) Ltd. to its current name. See "Certain Transactions." 25 30 BUSINESS GENERALLY The Company believes that it is a significant distributor in China of a wide range of advanced water treatment equipment (including chlorination equipment), laboratory instruments, analyzers, test kits and supplies and acts as an exclusive and non-exclusive distributor for well known manufacturers of such equipment. Laboratory instruments, analyzers and test kits are used to analyze the chemical content and other properties of water and, in conjunction with these products, the Company distributes analytical re-agents and chemicals to support testing systems of laboratory and portable instruments, process analyzers and portable test kits. Laboratory and portable instruments consist of analytical instruments including but not limited to the following: spectrophometers, colorimeters, turbidimeters, ion selective electrodes, chemical oxygen demand apparatus, digestion apparatus, and precision re-agent dispensing devices which are used to test and monitor impurities in water systems. The Company also distributes continuous-reading process analyzers, process turbidimeters, PH controllers and analyzer accessories. These products are used to monitor and control drinking water quality to ensure that waste water treatment procedures comply with regulatory standards. The Company offers a wide variety of test kits to test water quality. The Company believes that these portable test kits are easy to use and preadapted for rugged field use. These test kits are used to monitor drinking water distribution systems. PRODUCTS, SERVICES AND CLIENTELE SCIENTIFIC INSTRUMENTS. The Company distributes analytical instruments, environmental monitoring instruments and general purpose laboratory instruments. Analytical instruments include but are not limited to mass spectrometers, flow injector analyzers and atomic spectrometers. Environmental monitoring instruments include both air and water quality monitoring instruments. Air quality monitoring instruments are divided into two categories, one monitors ambient air, and the second monitors pollution sources. Additionally, a variety of water quality monitoring and analysis equipment are offered including continuous reading process analyzers, process turbidimeters, PH controllers, test kits for monitoring chemical content in water (i.e. chlorine, fluorides, etc.) Customers for the analytical instruments include government departments, institutions and major laboratories. The Company also distributes products to beverage producers and restaurants supplying; water quality test kits to approximately twelve bottling plants, of a well known United States softdrink producer, located in the PRC; field use water quality test kits to the People's Liberation Army, water quality monitoring instruments to a well known United States fast food franchisor's restaurants located in Hong Kong and China, and to a well known United States beer producer's bottling plants located in the PRC's city of Wuhan. Each of said soda producer, restaurants and beer producer account for less than one percent of the Company's sales and the People's Liberation Army accounts for approximately one percent of the Company's sales. Customers for air and water quality monitoring instruments also include government agencies such as; the Hong Kong Environmental Protection Department which uses a Company distributed water quality monitoring system to monitor the water quality of Hong Kong's Victoria Harbor, approximately ten water treatment plants located in the PRC (including Beijing, Tianjin, Guangzhou and Wuhan), and the Beijing Environmental Monitoring Centre. The Company is also one of two distributors supplying continuous water monitoring systems to Beijing's Hydrology Station. PROCESS CONTROL AND ENGINEERING PRODUCTS. The Company provides controls systems specifically designed for the industrial needs of clients including sensors, temperature gauges, pressure gauges, flow meters, valves, temperature and pressure transmitters and control devices, temperature and pressure calibrators, moisture, power, energy and harmonics analyzers. Chlorination disinfection systems are also distributed by Far East in conjunction with water treatment, sewage discharge and swimming pool water treatment. Customers for the foregoing distributed products are government water supply bureaus, water treatment 26 31 projects, power and electric companies, petrochemical plants and instrument manufacturers. For example, the Company distributes chlorination disinfection systems to Hong Kong's new Chek Lap Kok airport and its environs. OTHER PRODUCTS. The Company distributes general testing and telecommunications testing equipment to industries, utilities, educational institutions and telecommunications companies, and bio-medical instruments such as cardiac catheterization systems and defibrillators to hospitals. The Company distributes indoor pay telephones, multi-channel digital and analogue recorders and similar products. Customers for telecommunications products include government departments, and telephone companies and customers for bio-medical instruments are hospitals such as Queen Mary Hospital in Hong Kong and the Logistic Bureau of China People's Liberation Army Hospital in China. SPECIAL PROJECTS AND TECHNICAL SUPPORT. In conjunction with the distribution of computer hardware and software. The Company provides computer programming to government agencies, industrial plants and beverage producers. The Company's technical support staff provides customers with maintenance and installation assistance and assist sales personnel in giving technical advice to and performing product demonstrations for customers. At the end of Fiscal 1995 and Six Months 1996, the Company had approximately 400 regular customers, including sub-distributors, located in Hong Kong, PRC and Macau. OTHER ACTIVITIES. The Company in the past has established subsidiaries to distribute products not directly related to its principal product lines discussed above. During Six Months 1996, the Company streamlined its operations and focused its efforts on its current product lines by disposing of three of its subsidiaries, Euro Electron, Action and Armtison. Euro Electron had been established to distribute telecommunication products. However, manufacturers of these products distribute their products directly to end users, without intermediary distributors, and technical expertise in this product line was also found to be a necessity. As a result, Euro Electron's activities never past a start-up stage. Action distributed industrial computers. During Fiscal 1994, Action lost its principal source of this product line when Action's principal supplier sold its industrial computer production line to another supplier. Additionally, another major manufacturer of industrial computers established its own distribution office in Hong Kong to distribute its products in Hong Kong and the PRC. Armtison was principally a holding company for Euro Electron and Action. Additionally, the Company has from time to time invested in real estate and currently holds realty in Hong Kong which it intends to sell. In the future, the Company may establish subsidiaries or divisions to distribute products that are unrelated to its current product lines and it may make future investments in real estate. EXPANSION Management also intends to pursue expansion of the Company's operations by adding new regional sales offices in the PRC with the proceeds of the Public Offering and by internal growth. The Company has allocated approximately $300,000 from the net proceeds of the Public Offering to establish three new additional regional sales offices in the PRC which are intended to be located in the PRC's cities of Chongqing, Xian and Shenyang which are intended to be opened within twelve months following the completion of the Public Offering. The Company presently anticipates that the additional regional sales offices will be leased from third parties not affiliated with the Company. REGULATORY ENVIRONMENT Environmental concerns have become increasingly important, at all levels of PRC government paralleling PRC's economic growth. Environmental protection laws and strict regulations have been enacted buttressed by increased budget allocations for environmental purposes. PRC's system of environmental protection is led by the National Environmental Protection Agency (NEPA) and consists of Environment Protection Bureaus in each city and county. Under bureau management, there are two environment monitoring systems: one system consists of over 2,000 monitoring stations to collect and analyze the environmental data of each city and county; another system consists of over 1,000 stations to monitor specific industrial districts or factories 27 32 which have been identified as major pollution sources for their noncompliance with environmental regulations. NEPA has recently identified 3,000 enterprises as new major pollution sources. The number of monitoring stations for industrial firms is anticipated to increase to 9,000 in the next five years, according to the governmental plans. The Company has supplied water and air quality monitoring and analytic instruments to these monitoring stations for several years. COMPETITION The Company faces competition from other distributors of substantially similar products and manufacturers themselves, both foreign and Chinese. The Company faces its principal competition from foreign manufacturers and other distributors of their products situated in Hong Kong and the PRC. In 1994, the PRC tightened its credit nationwide and, as a result, the Company believes that purchasers of the products distributed by the Company sought reduced prices. The products distributed by the Company were foreign manufactured and higher priced than Chinese manufactured products. As a result the Company reduced its profits margins to remain competitive. The Company believes that it competes with the PRC manufacturers on the basis of quality and technology, with the Company offering products of foreign manufacturers which are of higher quality and use more advanced technology. The Company believes that it competes with the foreign manufacturers and the distributors of their products on the basis of the Company's more extensive distribution network and an established reputation. The Company recently disposed of one of its subsidiaries as a result of direct competition from a manufacturer which established its own distribution network in the PRC to distribute the type of products distributed by the subsidiary. As the Company plans to assemble products of the kind that it presently distributes, the Company may directly compete with certain of its vendors. PROPOSED PRODUCT ASSEMBLY OPERATIONS The Company has recently reached a preliminary agreement with STIP pursuant to which STIP will provide space and technical expertise to enable the Company to assemble in the PRC certain products of the kind that the Company currently distributes, including certain of the water related testing, monitoring and treatment equipment. It is contemplated that the Company will import components, assemble the components into finished product and then distribute the products through the Company's distribution network. The Company believes that by establishing product assembly operations in the PRC and expanding the number of its regional sales offices in the PRC, it will not only increase revenues by expanding its customer base and increasing distribution capabilities, but also will increase net income by assembling certain of the products that it distributes rather than purchasing the finished product from suppliers which the Company believes will result in higher profit margins on such products. STIP has a twenty year history of manufacturing temperature sensor and measuring instruments and controllers, has over 150 employees and has a 16,000 square meter facility of which the Company intends to lease a portion of. It is anticipated that STIP will provide the Company with leased space for the Company to assemble, warehouse and distribute its products from and provide the Company with technical and non-technical employees. It is anticipated that the Company's sole obligation to STIP will be to make lease payments for the portion of the facility it uses and pay the salaries of the STIP employees it uses. The preliminary agreement with STIP is subject to negotiation of a definitive agreement, of which no assurance can be given, and the Company securing adequate financing. Any such financing will be used for, among other purposes, leasehold improvements to conform the existing facility to the Company's specifications, equipment purchases, lease payments, purchases of inventory and salaries. See "Use of Proceeds." SOURCES OF SUPPLY The Company distributes products manufactured by a number of vendors, including Wallace, Hach, Hioki and Finnigan which are the Company's largest suppliers, with purchases from them accounting for approximately 11%, 7%, 7% and 4%, respectively, of the Company's sales during Fiscal 1995 and 9%, 10%, 10%, and 23%, respectively, of the Company's sales during Six Months 1996. The Company has exclusivity agreements with many of its suppliers for certain products for specified geographic areas, including the two of the four previously mentioned suppliers (Wallace and Finnigan). Those agreements do not encompass all products distributed by the Company and all of the market areas serviced by the Company. The Company's 28 33 agreement with Wallace for most products does not include the PRC and similarly, the Company's agreement with Finnigan is limited to Hong Kong. The Company has written confirmation from Hach that the Company is Hach's sole representative in the PRC, Hong Kong and Macau authorized to supply, install and commission Hach's products and accessories. The Company has only a letter from Hioki appointing the Company as Hioki's sales representative in the PRC, Hong Kong and Macau. The Company's agreement with Wallace is terminable by either party on thirty days notice prior to its annual renewal date. The Company's agreement with Finnigan is terminable on ninety days notice by either party. The Company's agreement with Hach expires in March 1997, unless renewed. Although alternative sources of supply exist, there can be no assurance that the termination of the Company's relationship with any of the above or other vendors would not have a short-term adverse effect on operations. SALES AND MARKETING The Company distributes products through its principal office located in Hong Kong and its regional PRC offices located in Beijing, Shanghai and Guangzhou by using its 26 person marketing and sales force which are paid a salary plus a sales commission. The Company's offices also coordinate the sales efforts of approximately nine other companies located in the PRC which are paid a commission on sales effected by them. FACILITIES The Company maintains an executive office at 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong occupying approximately 12,800 square feet of office and warehouse storage space under a lease expiring in October 1997 requiring monthly rental payments of approximately $16,200. The warehouse storage space is used to hold products for distribution to its customers via common carriers. In August 1995, the Company purchased a building, 1502 AT Tower, 180 Electric Road, North Point, Hong Kong, having approximately 1,200 square feet, by a bank mortgage in the principal sum of approximately HK$3,688,000 at June 30, 1996, bearing interest at Hong Kong's prime rate plus 1.75%, repayable in eighty four monthly installments commencing in November 1995. The Company intends to relocate part of its executive and headquarters office to this newly purchased site. The Company also maintains regional sales offices within the PRC in the cities of Beijing, Shanghai and Guangzhou. The Beijing and Shanghai sales offices are owned by the Company. The Company's Beijing sales office is situated on premises purchased in November 1994, with an outstanding principal amount due upon a bank mortgage of approximately HK$1,104,000 at June 30, 1996, bearing interest at the United States prime rate plus 2.5% repayable in eighty four monthly installments which commenced in December 1994. The Company's Shanghai sales office is situated on premises purchased in August 1995, with an outstanding principal amount due upon a bank mortgage of approximately HK$768,000 at June 30, 1996 bearing interest at thirteen percent, subject to fluctuation, repayable in one hundred twenty monthly installments which commenced in October 1995. The Guangzhou sales office is a leased facility pursuant to a lease expiring in April 1997 requiring monthly rental payments of approximately $1,870. Additionally, in August 1993, the Company purchased premises also situated in Hong Kong for investment purposes. The Company intends to sell this property and it is held subject to a bank mortgage having an outstanding principal amount due of approximately HK$1,972,000 at June 30, 1996, payable in approximately ninety four monthly installments which commenced in December 1993. The Company's registered office in the British Virgin Islands is located at TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands and its telephone number is (809) 494-5296. EMPLOYEES The Company has approximately 52 full-time employees, including 26 marketing and sales persons, 16 administrative persons and 10 technical support persons. The Company's management consists of its officers and directors. The Company is not subject to any collective bargaining agreement and believes that its relationship with its employees are good. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. 29 34 MANAGEMENT The directors and executive officers of Euro Tech Holdings Company Limited are as follows:
NAME AGE POSITIONS - ------------------------------------ --- --------------------------------------------------------- T.C. Leung.......................... 53 Chairman of the Board of Directors and Chief Executive Officer Jerry Wong.......................... 37 Director and Chief Financial Officer Nancy Wong.......................... 47 Director C.P. Kwan........................... 37 Director Alex Sham........................... 33 Director
Set forth below is a brief background of the executive officers and directors based upon information supplied by them: T.C. Leung has been Chief Executive Officer and Chairman of the Board of Directors of Far East and the Company since their inception. Before establishing Far East, Mr. Leung was an engineer for English Electric in England, from 1965 to 1968, and Lockheed Aircraft, from 1968 to 1970 in Hong Kong. Mr. Leung also served as managing director of Eurotherm (Far East) Ltd. between 1971 and 1992. Since 1992, Mr. Leung has also served as managing director of Eurotherm Hong Kong. Mr. Leung received a Master's degree in Business Administration from the University of East Asia, Macau in 1986 and is a Chartered Engineer, i.e. a member of the Council of Engineering Institutions in the United Kingdom. Jerry Wong has served as Director and Chief Financial Officer of Far East since 1994 having joined Far East in 1987. Mr. Wong has been the Chief Financial Officer and a Director of the Company since its inception. From 1985 until 1987, Mr. Wong worked for MUA Agencies Ltd., a subsidiary of a Hong Kong publicly listed company engaged in the insurance business as deputy manager of its secretarial, legal and accounting department. From 1981 until 1985, Mr. Wong served as a senior accountant in Price Waterhouse-Hong Kong. He is a Fellow of the Chartered Association of Certified Accountants in the United Kingdom and a Certified Public Accountant in Hong Kong. Nancy Wong joined Far East in 1971 becoming a Director and its Personnel Manager in 1994. Ms. Wong is also Far East's Chief Representative in China. Ms. Wong has been a Director of the Company since its inception. During the last several years, Ms. Wong has played a pivotal role in Far East's business expansion in China. Ms. Wong received a Bachelor's degree in Business Administration from the University of East Asia, Macau in 1989. C.P. Kwan joined Far East in 1984 and has served as a Director and Manager of its Process Equipment Department since 1991. Mr. Kwan has been a Director of the Company since its inception. Before joining Far East, he was employed by Haven Automation (H.K.) Ltd., a company involved in the water treatment and process control business. Alex Sham joined Far East in 1988 and has been its Sales Manager since 1991 and became a Director of Far East in 1996. Mr. Sham has been a Director of the Company since its inception. Mr. Sham received a degree in Applied Chemistry from Hong Kong Baptist University in 1990. Prior to joining Far East, Mr. Sham was employed by the Environmental Protection Department of the Hong Kong Government from 1986 until 1988. Directors of the Company serve until the next annual meeting of shareholders of the Company and until their successors are elected and duly qualified. Officers of the Company will be elected annually by the Board of Directors and serve at the discretion of the Board of Directors. EXECUTIVE COMPENSATION The following table sets forth certain summary information with respect to the compensation paid by Far East for services rendered in all capacities to Far East during Fiscal 1995 and Fiscal 1994 by Far East's 30 35 Chairman of the Board and Chief Executive Officer. Neither the Company nor Far East having any executive officer whose total annual salary and bonus exceeded $100,000 for either of said fiscal years: SUMMARY COMPENSATION TABLE
FISCAL YEAR NAME AND ENDED PRINCIPAL POSITION DECEMBER SALARY($) BONUS($) ------------------------------------ ----------- --------- -------- T.C Leung, Chairman of the Board of Directors and Chief Executive Officer............................. 1995 $15,584 15,605 1994 $15,584 41,162
EMPLOYMENT AGREEMENT The Company and Far East have entered into a five year personal services agreement, with Shereman Enterprises Ltd., a management company, pursuant to which Mr. Leung will continue to serve as the Chairman of the Board of Directors and Chief Executive Officer of Far East and the Company. The agreement requires that Mr. Leung devote substantially all of his business time to the affairs of the Company and Far East. The agreement provides for the payment of $100,000 and six percent of the Company's consolidated pre-tax income to the management company in exchange for Mr. Leung's services during the first year of the agreement's term with compensation past the first year to be renegotiated annually. The agreement contains a confidentiality provision and a covenant not to compete with the Company or Far East for a period of one year following termination of the agreement under certain circumstances. COMPENSATION OF DIRECTORS Directors of the Company do not receive compensation for their services as directors; however, the Board of Directors may authorize the payment of compensation to directors for their attendance at regular and special meetings of the Board and for attendance at meetings of committees of the Board as is customary for similar companies. Directors will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with their duties to the Company. STOCK OPTION PLAN In October 1996, the Board of Directors adopted and the stockholders approved the Company's 1996 Stock Option Plan (the "1996 Stock Option Plan"). The 1996 Stock Option Plan provides for the grant of (i) options that are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422A of the Internal Revenue Code, as amended (the "Code"), to certain employees, directors and consultants and (ii) options not intended to so qualify ("Non-Qualified Stock Options") to employees (including directors and officers who are employees of the Company), directors and consultants. The total number of shares of Common Stock for which options may be granted under the 1996 Stock Option Plan is 150,000 shares. The 1996 Stock Option Plan is to be administered by the Board of Directors or a committee of the Board of Directors which will determine the terms of options granted, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. No option granted under the 1996 Stock Option Plan is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable during the lifetime of the optionee only by such optionee. The exercise price of all stock options granted under the 1996 Stock Option Plan must be at least $5.50. With respect to any participant who owns stock possessing more than 10% of the voting rights of all classes of the Company's outstanding capital stock, the exercise price of any Incentive Stock Option must be not less than 110% of the fair market value on the date of grant. The term of each option granted pursuant to the 1996 Stock Option Plan may be established by the Board of Directors or a committee of the Board of Directors, in its sole discretion; provided, however, that the maximum term of each Incentive Stock Option granted pursuant to the 1996 Stock Option Plan is six years. With respect to any Incentive Stock Option granted to a 31 36 participant who owns stock possessing more than 10% of the voting rights of all classes of the Company's outstanding capital stock, the maximum term is five years. Options shall become exercisable at such times and in such installments as the Board of Directors or a committee of the Board of Directors shall provide in the terms of each individual option, provided, however, that as to 50,000 and 100,000 stock options, by their terms automatically terminate unless the Company achieves net income levels of not less than $990,000 and $1,800,000, respectively, during the Company's fiscal years to end December 31, 1997 and 1998. MANAGEMENT OPTIONS The Company has authorized the issuance of options to purchase up to an aggregate of 1,400,000 shares of Common Stock (the "Management Options") to its officers and directors in such numbers and to such persons as the Company's Chairman of the Board and Chief Executive Officer may direct. Any such Management Options will not be exercisable until one year after the Effective Date and may have a term of up to ten years. The exercise price of the Management Options will be $2.50 per share for 400,000 of such options and $5.50 per share for the remaining 1,000,000 options. The exercise price and the number of shares of Common Stock purchasable upon exercise of any Management Options are subject to adjustment upon the occurrence of certain events, including stock dividends, reclassification, reorganizations, consolidations, mergers, and certain issuances and redemptions of Common Stock and securities convertible into or exchangeable for Common Stock excluding certain issuances of shares of the Company's Common Stock. No adjustments in the exercise price will be required to be made with respect to the Management Options until cumulative adjustments amount to $.05. In the event of any capital reorganization, certain reclassifications of the Common Stock, any consolidation or merger involving the Company (other than (i) a consolidation or merger which does not result in any reclassification or change in the outstanding shares of Common Stock or (ii) the acquisition of Far East or any other business), or sale of the properties and assets of the Company, as, or substantially as, an entirety to any other corporation, Management Options will thereupon become exercisable only for the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares of Common Stock of the Company purchasable (at the time of such reorganization, reclassification, consolidation, merger, or sale) upon exercise of such Management Options would have been entitled upon such reorganization, reclassification, consolidation, merger, or sale. Members of the Company's management, in particular Mr. T.C. Leung, the Company's Chairman of the Board of Directors and Chief Executive Officer will be beneficial owners of a substantial portion of the Company's Common Stock after completion of the Public Offering. The record owners of the 1,400,000 shares of the Company's Common Stock to be exchanged in connection with the Acquisition have agreed to return to the Company for cancellation and as a contribution to capital, an aggregate of 200,000 shares of the Company's Common Stock in the event Far East fails to achieve after-tax net income of at least $450,000 for its fiscal year to end December 31, 1996. See "Principal Shareholders" and "Certain Transactions." PENSION PLAN The Company has a defined contribution pension plan for all of its employees. Under this plan, all employees are entitled to a pension benefit equal to 50% to 100% of their individual fund account balances at their dates of resignation or retirement which depends on their years of services. The Company is required to make specific contributions at approximately 10% of the basic salaries of the employees to an independent fund management company. The Company has no future obligations for the pension payment or any post-retirement benefits beyond the annual contributions made. The independent fund management company is responsible for the ultimate pension liabilities to those resigned or retired employees. During the years ended December 31, 1993, 1994 and 1995, and for Six Months 1995 and 1996, the Company made total pension contributions of approximately HK$587,000, HK$621,000, HK$864,000, HK$455,000 (Unaudited) and HK$261,000 (Unaudited) respectively. 32 37 PRINCIPAL SHAREHOLDERS The following table set forth, as of the date of this Prospectus, after giving effect to the Acquisition as if it had occurred on that date, certain information concerning beneficial ownership of shares of Common Stock with respect to (i) each person known to the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each executive officer, director and director nominee of the Company, and (iii) all officers, directors and director nominees of the Company as a group:
APPROXIMATE PERCENTAGE OF COMMON APPROXIMATE AMOUNT AND STOCK OWNED PERCENTAGE OF NATURE OF BEFORE COMMON STOCK OWNED BENEFICIAL PUBLIC AFTER PUBLIC OWNERSHIP OFFERING OFFERING(4) ---------- ------------ ------------------ T.C Leung (1)(2)...................................... 1,400,000 90% 65% Jerry Wong (1)(3)..................................... 0 * * Nancy Wong (1)(3)..................................... 0 * * C.P. Kwan (1)(3)...................................... 0 * * Alex Sham (1)(3)...................................... 0 * * Pearl Venture Ltd. (1)(2)............................. 1,400,000 90% 65% Regent Earning Ltd. (1)............................... 1,027,600 66% 48% Celestial Dreams Corp., N.V. (5)...................... 100,000 7% 5%(6) Richgrove, N.V. (5)................................... 100,000 7% 5%(6) Waveland Corp., N.V. (5).............................. 100,000 7% 5%(6) Eaglehurst, N.V. (5).................................. 100,000 7% 5%(6) Totado International, N.V. (5)........................ 70,000 5% 3%(6) Signal Hill, N.V. (5)................................. 92,000 6% 4%(6) Sidford International Ltd. (7)........................ 100,000 7% 5% All Executive Officers and Directors of the Company as a group (5 persons) (2)(3).......................... 1,400,000 90% 65%
- --------------- * Denotes less than 1%. (1) The address for each of Ms. Wong and Messrs. Leung, Wong, Kwan and Sham is c/o Euro Tech (Far East) Ltd., 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong. The address for Pearl Venture Ltd. ("Pearl") is Columbus Centre Building, Wichhams Cay, Road Town, Tortola, British Virgin Islands. The address for Regent Earning Ltd. ("Regent") is Chong Kin Commercial Building, 596 Nathan Road, Room 902, Mong Kok, Kowloon, Hong Kong. (2) Includes shares of the Company's Common Stock owned of record by Pearl, which is a trust established for the benefit of Mr. Leung. Also includes those shares of the Company's Common Stock owned of record by Regent of which Pearl is the majority shareholder. See "Certain Transactions." (3) Does not include such person's proportionate interest in shares of the Company's Common Stock held of record by Regent and/or Broadskill Investments, Inc. ("Broadskill"). See "Certain Transactions." (4) Does not include options which may be granted under the Company's 1996 Stock Option Plan and the Management Options. See "Management." (5) Represents shares of the Company's Common Stock issuable upon the exercise of Warrants held such entities which are selling securityholders. See "Concurrent Registration of Securities." The address for Signal Hill, N.V., Celestial Dreams Corp., N.V., Richgrove, N.V., Waveland Corp., N.V., and Eaglehurst, N.V. is Landhuis Joonchi, Kaya Richard J. Beaujon Z/A, P.O. Box 837, Curacao, Netherland Antilles. The address for Totado International, N.V. is P.O. Box 245, Philipsburg, Sint Maartin, Netherland Antilles. (6) Assumes no sale by such selling securityholders of their Warrants and/or the shares of the Company's Common Stock underlying such Warrants. See "Concurrent Registration of Securities." (7) The address for Sidford International Ltd. ("Sidford") is 21st Floor, Regent Centre, 88 Queen's Road Central, Hong Kong. Sidford is a business consultant to Far East. See "Certain Transactions." 33 38 CERTAIN TRANSACTIONS The Company was incorporated under the laws of the British Virgin Islands on September 30, 1996 and shortly thereafter sold 50,000 shares to Gusrae, Kaplan & Bruno, Esqs. and 100,000 shares to Sidford for an aggregate consideration of $1,500 or $.01 per share. Gusrae, Kaplan & Bruno is United States counsel to the Company. Sidford has been and is a business consultant to Far East. Pearl is a British Virgin Islands company which is a trust for the benefit of T.C. Leung, the Company's Chairman of the Board and Chief Executive Officer. Regent is a Hong Kong corporation. Simultaneously with the closing of this Offering, the Company will consummate the Acquisition by exchanging 1,400,000 shares of the Company's Common Stock for the 1,000,000 issued and outstanding shares of the Common Stock of Far East at a ratio of 1.4 (one and four-tenths) shares of the Company's Common Stock for each issued and outstanding share of Far East's Common Stock. In the event Far East fails to achieve after-tax net income of at least $450,000 for its fiscal year to end December 31, 1996, Pearl and Regent have agreed to return to the Company for cancellation and as a contribution to capital, an aggregate of 200,000 shares of the Company's Common Stock issued as part of the exchange for the capital stock of Far East. All discussions in this Prospectus relating to the number of issued and outstanding shares of Common Stock give effect to the Acquisition. Pearl was one of the founding shareholders of Far East and during the years 1992 through 1994, Pearl and Regent accumulated 100% of the issued and outstanding common stock of Far East (1,000,000 shares) for an aggregate consideration of approximately HK$11,130,000, with Pearl and Regent being the record owners of 266,000 and 734,000 shares of Far East's Common Stock, respectively. Broadskill is a Hong Kong corporation which owns an approximate 44% equity interest in Regent which if converted into shares of the Company's Common Stock would represent approximately 27% of the Company's Common Stock. No executive officer or director of the Company is an officer or director of Pearl, Regent or Broadskill. In addition to its direct record ownership of 372,400 shares of the Company's Common Stock, Pearl is also the beneficial owner of approximately 527,069 shares of the Company's Common Stock through its equity interest in Regent. Mr. Kwan, and each of Messrs. Wong, Sham and Ms. Wong, Executive Officers and Directors of the Company and Far East have equity interests in Regent and/or Broadskill which if converted into shares of the Company's Common Stock would represent approximately 4%, less than 1%, less than 1% and less than 1% of the Company's Common Stock, respectively. See "Management" and "Principal Shareholders." During Fiscal 1996, the Company transferred its equity interests in three former subsidiaries, Armtison Limited (a wholly owned subsidiary), Action Instruments (China) Ltd., (a 51% owned subsidiary) and Euro Electron (Far East) Ltd. (a 80% owned subsidiary) to Regent and Pearl at book value (HK$10,000) invested in these three subsidiaries. In November, 1996 the Company sold an aggregate of 1,000,000 Warrants (the "Private Placement Warrants") to private investors for aggregate gross proceeds of $150,000. The Underwriter acted as the Company's placement agent in connection with the foregoing private placement of the Company's Private Placement Warrants and received an aggregate of $19,500 in commissions and non-accountable expenses. The terms and conditions of the Private Placement Warrants are identical to the Warrants offered hereby. See "Description of Securities" and "Concurrent Registration of Securities." At the end of Six Months 1996, Far East had advanced approximately HK$3,800,000 to Regent to finance a significant government project that had been undertaken by Regent's subsidiary and is nearing completion. Regent is charged eighteen percent interest per year on this advance. Regent has repaid approximately HK$2,200,000 to Far East subsequent to June 30, 1996. Mr. Leung may be deemed to be a "promoter" of the Company as such term is defined under the federal securities laws. 34 39 DESCRIPTION OF SECURITIES COMMON STOCK The authorized capital of the Company is $200,000 comprised of 20,000,000 shares of Common Stock, $.01 par value per share, of which 2,150,000 shares will be outstanding upon completion of the Public Offering (2,240,000 shares if the Underwriter's Overallotment Option is exercised in full). Holders of Common Stock are entitled to one vote for each whole share on all matters to be voted upon by shareholders, including the election of directors. Holders of Common Stock do not have cumulative voting rights in the election of directors. All shares of Common Stock are equal to each other with respect to liquidation and dividend rights. Holders of Common Stock are entitled to receive dividends if and when declared by the Company's Board of Directors out of funds legally available under British Virgin Islands law. In the event of the liquidation of the Company, all assets available for distribution to the holders of Common Stock are distributable among them according to their respective share holdings. Holders of Common Stock have no preemptive rights to purchase any additional, unissued shares of Common Stock. All of the outstanding shares of Common Stock of the Company are, and the shares of Common Stock offered hereby will be when issued against the consideration set forth in this Prospectus, duly authorized, validly issued, fully paid and nonassessable. Pursuant to the Company's Memorandum and Articles of Association and pursuant to the laws of the British Virgin Islands, the Company's Memorandum and Articles of Association may be amended by a resolution of the Board of Directors without shareholder approval. This includes amendments to increase or reduce the authorized capital stock of the Company or to increase or reduce the par value of its shares. The ability of the Company to amend its Memorandum and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in control of the Company without any further action by the shareholders including but not limited to, a tender offer to purchase the Common Stock at a premium over then current market prices. Under United States law, majority and controlling shareholders generally have certain "fiduciary" responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders which are obviously unreasonable may be declared null and void. The British Virgin Islands law protecting the interests of the minority shareholders is not as protective in all circumstances as the law protecting minority shareholders in United States jurisdictions. While British Virgin Islands law does not permit a shareholder of a British Virgin Islands company to sue its directors derivatively, i.e., in the name of and for the benefit of the Company, and to sue the Company and its directors for his benefit and the benefit of others similarly situated, the circumstances in which any such action may be brought that may be available in respect of any such action may result in the rights of shareholders of a British Virgin Island company being more limited than those rights of shareholders in a United States company. WARRANTS Each Warrant is issued pursuant to a Warrant Agreement between the Company and American Stock Transfer & Trust Company, as warrant agent. The following description is subject to the detailed provisions of and are qualified in their entity by reference to the Warrant Agreement, which is included as an exhibit to the Registration Statement of which this Prospectus is a part. Each Warrant entitles the holder to purchase for one share of Common Stock at a price of $5.50, for a period of five years commencing one year after the Effective Date, provided however, that prior to the second year after the Effective Date, the Warrants will be exercisable only if the Underwriter has consented in writing to all of the Warrants being exercisable. EXERCISE Each holder of a Warrant may exercise such Warrant, in whole or in part, by surrendering the certificate evidencing such Warrant, with the form of election to purchase attached to such certificate properly 35 40 completed and executed, together with payment of the exercise price and any required transfer taxes, to the Company. No Warrants may be exercised unless at the time of exercise there is a current prospectus covering the shares of Common Stock issuable upon the exercise of such Warrants under an effective registration statement. The Company will endeavor to maintain an effective registration statement, including such current prospectus, so long as any of the exercisable Warrants remain outstanding. While it is the Company's intention to comply with this intention, there can be no assurance that it will be able to do so. The exercise price and any required transfer taxes will be payable in cash or by certified or official bank check payable to the Company. If fewer than all of the Warrants evidenced by a warrant certificate are exercised, a new certificate will be issued for the remaining number of Warrants. Certificates evidencing the Warrants may be exchanged for new certificates of different denominations by presenting the Warrant certificate at the offices of the Company. ADJUSTMENTS The exercise price and the number of shares of Common Stock purchasable upon exercise of any Warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, reverse stock splits, reclassification, reorganizations, consolidations, mergers, and certain issuances and redemptions of Common Stock and securities convertible into or exchangeable for Common Stock excluding issuances of shares of the Company's Common Stock prior to the commencement of the Public Offering, the acquisition of Far East, any issuances of the Company's securities in connection with the Public Offering and Company stock option plans. No adjustments in the exercise price will be required to be made with respect to the Warrants until cumulative adjustments amount to $.05. In the event of any capital reorganization, certain reclassifications of the Common Stock, any consolidation or merger involving the Company (other than (i) a consolidation or merger which does not result in any reclassification or change in the outstanding shares of Common Stock or (ii) the acquisition of Far East or any other business), or sale of the properties and assets of the Company, as, or substantially as, an entirety to any other corporation, Warrants will thereupon become exercisable only for the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares of Common Stock of the Company purchasable (at the time of such reorganization, reclassification, consolidation, merger, or sale) upon exercise of such Warrants would have been entitled upon such reorganization, reclassification, consolidation, merger, or sale. OTHER RIGHTS In the event of an adjustment in the number of shares of Common Stock issuable upon exercise of the Warrants, the Company will not be required to issue fractional shares of Common Stock upon exercise of the Warrants. In lieu of fractional shares of Common Stock, there will be paid to the holders of the Warrants, at the time of such exercise, an amount in cash equal to the same fraction of the current market price of a share of Common Stock of the Company. Warrant holders do not have voting or any other rights of stockholders of the Company and are not entitled to dividends, if any. REDEMPTION OF WARRANTS During any time the Warrants are exercisable, if the average closing bid price of the Common Stock for 20 consecutive trading days shall exceed $8.50 the Company may redeem the Warrants by paying holders $.10 per Warrant, provided that notice of such redemption is mailed not later than 10 days after the end of such period and prescribes a redemption date at least 30 days thereafter. Warrant holders will be entitled to exercise Warrants at any time up to the business day next preceding the redemption date. Additionally, the Warrants may not be redeemed unless at the time of redemption there is a current prospectus covering the shares of Common Stock issuable upon exercise of such Warrants under an effective registration statement. 36 41 PRIVATE PLACEMENT WARRANTS Upon the completion of the Public Offering, the Private Placement Warrants will be automatically exchangeable for the Warrants offered hereby. See "Concurrent Registration of Securities." TRANSFER AGENT AND WARRANT AGENT The Company has appointed American Stock Transfer & Trust Company as transfer agent and registrar for the Common Stock and as Warrant Agent for the Warrants. The Company's Warrant Agreement with the Warrant Agent contains provisions permitting the Company and the Warrant Agent, without the consent of the Warrant holders, to supplement or amend the Warrant Agreement in order to cure any ambiguity or defect, or to make any other provisions in regard to matters or questions arising thereunder that the Company and the Warrant Agent may deem necessary or desirable and that does not adversely affect the interests of the Warrant holders. DIVIDEND POLICY The Company has not paid dividends to date. The payment of dividends, if any, in the future is within the discretion of the Board of Directors. The payment of dividends, if any, in the future will depend upon the Company's earnings, capital requirements and financial conditions and other relevant factors. The Company's Board of Directors does not presently intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company and Far East's business operations. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SHAREHOLDERS There are no exchange control restrictions on payment of dividends on the Company's Common Stock or on the conduct of the Company's operations either in Hong Kong, where the Company's principal executive offices are located, or the British Virgin Islands, where the Company is incorporated. Other jurisdictions in which the Company conducts operations may have various exchange controls. There are no material British Virgin Islands laws which impose foreign exchange controls on the Company or that affect the payment of dividends, interest, or other payments to nonresident holders of the Company's securities. British Virgin Islands law and the Company's Memorandum and Articles of Association impose no limitations on the right of nonresident or foreign owners to hold the Company's securities or vote the Company's Common Stock. SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Public Offering, the Company will have 2,150,000 shares of Common Stock and 1,600,000 Warrants outstanding (2,240,000 shares and 1,690,000 Warrants, respectively, if the Underwriter's overallotment option is exercised in full). All of the shares of Common Stock sold in the Public Offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except for any shares purchased by an "affiliate" of the Company which will be subject to certain limitations of Rule 144 adopted under the Securities Act. All outstanding shares of Common Stock and 1,000,000 Warrants are restricted securities and will be subject to the resale limitations provided for in Rule 144. Under Rule 144, as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of a Company, who has owned restricted securities beneficially for at least two years, is entitled to sell, within any three month period, a number of the securities that does not exceed the greater of 1% of the total number of outstanding securities of the same class or, if the security is quoted on an exchange, the average weekly trading volume during the four calendar weeks preceding the sale. A nonaffiliate who has not been an affiliate of the Company for at least the three months immediately preceding the sale and who has beneficially owned the Company's securities for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. In meeting the two and three year holding periods described above, a holder who has purchased shares can include the holding periods of a prior owner who was not an affiliate of the Company. 37 42 All of the Company's securityholders, on the date hereof, have agreed not to publicly sell, for a period of twenty-four months from the date of this Prospectus, any securities of the Company owned by them without the prior written consent of the Underwriter. Prior to the Public Offering, there has been no market for any securities of the Company. The effect, if any, of public sales of the restricted shares of Common Stock or the availability of such shares for future sale at prevailing market prices cannot be predicted. Nevertheless, the possibility that substantial amounts of restricted shares may be resold in the public market may adversely affect prevailing market prices for the Common Stock and the Warrants, if any such market should develop. 38 43 UNDERWRITING Subject to the terms and conditions contained in the underwriting agreement between the Company and the Underwriter (a copy of which agreement is filed as an exhibit to the Registration Statement of which this Prospectus forms a part), the Company has agreed to sell to the Underwriter 600,000 shares of Common Stock and 600,000 Warrants. All 600,000 shares and 600,000 Warrants offered must be purchased by the Underwriter if any are purchased. The shares and Warrants are being offered by the Underwriter subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter has advised the Company that it proposes to offer the shares of Common Stock and the Warrants to the public at the offering prices set forth on the cover page of this Prospectus and that the Underwriter may allow to certain dealers who are members in good standing with the National Association of Securities Dealers, Inc. ("NASD") concessions, not in excess of $ per share of Common Stock and $ per Warrant. After the initial public offering, the public offering price and concessions may be changed by the Underwriter. While certain of the officers of the Underwriter have significant experience in corporate finance and the underwriting of securities, the Underwriter has previously underwritten only one public offering. No assurance can be given that the Underwriter's limited public offering experience will not affect the Company's Offering of the Common Stock and Warrants and subsequent development of a trading market, if any. The Company has granted the Underwriter an option, exercisable for 45 days from the date of this Prospectus, to purchase up to 90,000 Shares and 90,000 Warrants from it, at the public offering price less the underwriting discounts set forth on the cover page of this Prospectus. The Underwriters may exercise this option solely to cover overallotments in the sale of the shares of Common Stock and Warrants offered hereby. The Company has agreed to pay the Underwriter a non-accountable expense allowance of 3% of the gross proceeds of the shares of Common Stock and Warrants sold in this Offering. The underwriting agreement provides for reciprocal indemnification between the Company and the Underwriter against certain civil liabilities, including liabilities under the Securities Act. The Company has agreed to sell to the Underwriter or its designees, at a price of $10, the Underwriter's Warrants, which entitle the Underwriter to purchase up to 60,000 shares of Common Stock of the Company and 60,000 Warrants to purchase up to an additional 60,000 shares of Common Stock of the Company, respectively. The Underwriter's Warrants will be exercisable at a price of $6.00 per share and $.18 per Warrant, respectively, for a period of four years commencing one year from the date of this Prospectus, and they will not be transferable except to the underwriter and selected dealers and officers and partners thereof. Any profit realized upon any resale of the Underwriter's Warrants or upon any sale of the shares of Common Stock or Warrants underlying same may be deemed to be additional underwriter's compensation. The Company has registered (or file a post-effective amendment with respect to any registration statement registering), for a period of five years from the effective date of this Offering, the Underwriter's Warrants and the underlying securities under the Securities Act at its expense on one occasion, and at the expense of the holders thereof on another occasion, upon the request of a majority of the holders thereof. The Company has also agreed to certain "piggy-back" registration rights for the holders of the Underwriter's Warrants and the underlying securities. Such piggy-back registration rights will expire seven years from the Effective Date. The Company has agreed that for a period of not less than three years, the Underwriter will have the right to designate a person to be a non-voting advisor to the Company's Board of Directors who will receive the same compensation as a member of the Board of Directors and who will be indemnified by the Company against any claims arising out of his participation at meetings of the Board of Directors. Alternatively, the Underwriter has the right, during such three year period, to designate one person to be elected to the Company's Board of Directors. The Company has agreed to use its best effort to obtain the election of the Underwriter's designee and, if so elected, such person shall be entitled to receive the same compensation, expense reimbursement and other benefits as any other non-employee Director of the Company, if any. The 39 44 identity of such person has not been determined as of the date hereof, and it is not expected that such right will be exercised in the immediate future. The Underwriter has informed the Company that it does not expect sales to be made to discretionary accounts to exceed 1% of the shares of Common Stock and Warrants offered hereby. The Offering is subject to the agreement by all present stockholders of the Company that they will not sell any shares of Common Stock to the public for a period of twenty-four months. The Company has agreed to enter into an agreement with the Underwriter retaining it as a financial consultant for a period of three years from the date hereof, pursuant to which it will receive fees aggregating $108,000 which fees will be payable in full at closing. The Underwriting Agreement also provides that the Company, its current or future subsidiaries, if any, and its principal stockholders, or their respective affiliates, will for a period of five years from the Effective Date provide the Underwriter with a right of first refusal with respect to any public or private offering of securities to raise capital. The Underwriter must agree to undertake any such financing on the same or better terms as any other financing proposal. CONCURRENT REGISTRATION OF SECURITIES Concurrently with this Offering, 1,000,000 Warrants and 1,000,000 shares of the Company's Common Stock underlying said Warrants have been registered under the Securities Act for immediate resale. None of the holders of such securities or their affiliates has ever held any position or office with the Company or had any other material relationship with the Company. The holders of such securities have agreed not to sell any of the registerable securities for a period of twenty-four months from the Effective Date without the prior written consent of the Underwriter. LEGAL MATTERS The validity of the securities being offered hereby and certain legal matters in connection with this Offering with respect to British Virgin Islands law will be passed upon for the Company by Smith-Hughes, Raworth & McKenzie, British Virgin Islands counsel to the Company. Certain legal matters in connection with this Offering with respect to United States law will be passed upon for the Company by Gusrae, Kaplan & Bruno, New York, New York, as United States counsel to the Company. Gusrae, Kaplan & Bruno owns 50,000 shares of the Company's Common Stock. Hastings & Co. has advised the Company on certain legal matters in connection with this Offering with respect to the laws of Hong Kong. Jingtian Associates has advised the Company on certain legal matters with respect to the laws of the PRC. Certain legal matters in connection with this Offering will be passed upon for the Representative by Gersten, Savage, Kaplowitz & Curtin LLP, New York, New York. EXPERTS The Financial Statements of the Company, included in this Prospectus have been audited by Arthur, Anderson & Co., Hong Kong, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as expert in giving said reports. 40 45 ENFORCEMENT OF CIVIL LIABILITIES The Company is a British Virgin Islands holding corporation. The Company has appointed as its agent upon whom process may be served in any action brought against it under the securities laws of the United States. However, it may be difficult for investors to enforce outside the United States judgements against the Company obtained in the United States in any such actions, including actions predicated upon the civil liability provisions of the United States federal securities laws. In addition, all of the Company's officers and directors reside outside the United States and all of the assets of these persons and of the Company are or may be located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such persons. Additionally, Hong Kong courts will not directly enforce against the Company or such persons judgments obtained in United States courts. There is substantial doubt as to the enforceability against the Company or any of its officers and directors located outside the United States in original actions for enforcement of judgements of United States courts. The Company has been advised by Hastings & Co., its Hong Kong counsel, and Smith-Hughes, Raworth & McKenzie, its British Virgin Islands counsel, that no treaty exists between Hong Kong or the British Virgin Islands and the United States providing for the reciprocal enforcement of foreign judgements. However, the courts of Hong Kong and the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgement as evidence of a debt due if: (i) the judgement is for a liquidated amount in a civil matter; (ii) the judgment is final and conclusive and has not been stayed or satisfied in full; (iii) the judgment is not directly or indirectly for the payment of foreign taxes, penalties, fines or changes of a like nature (in this regard, a Hong Kong or British Virgin Islands court is unlikely to accept a judgement for an amount obtained by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favor the judgement was given); (iv) the judgment was not obtained by actual or constructive fraud or duress; (v) the foreign court has taken jurisdiction on grounds that are recognized by the common law rules as to conflict of laws in Hong Kong or the British Virgin Islands; (vi) the proceedings in which the judgment was obtained were not contrary to natural justice (i.e., the concept of fair adjudication); (vii) the proceedings in which the judgment was obtained, the judgment itself and the enforcement of the judgment are not contrary to the public policy of Hong Kong or the British Virgin Islands; (viii) the person against whom the judgment is given is subject to the jurisdiction of the Hong Kong or the British Virgin Islands court; and (ix) the judgment is not on a claim for contribution in respect of damages awarded by a judgement which does not satisfy the foregoing. Enforcement of a foreign judgment which has been registered in a Hong Kong court or a judgment obtained in Hong Kong can be enforced by one or more of the following manners: (i) a Hong Kong court's bailiffs being sent to seize valuable chattels from the judgment debtor's premises and thereafter auction the same in satisfaction of the judgment debt; (ii) by a charge being registered against any real property belonging to the judgment debtor which charge must necessarily be redeemed upon sale or upon the judgment creditor exercising a right of sale attached thereto; (iii) oral examination of the judgment debtor or its director(s), to reveal in open court, assets belonging to him/her or the Company; (iv) by debtors of the judgment debtor being required to pay over debts due to the judgment debtor; and (v) bankruptcy or "winding-up" proceedings. Enforcement of a foreign judgement in Hong Kong or the British Virgin Islands may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or similar laws relating to or affecting creditors' rights generally and will be subject to a statutory limitation of time within which proceedings may be brought. A substantial portion of the Company's assets will be situated in the PRC. As the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts within the United States, actions brought by regulatory authorities, such as the Commission, and other actions, which result in foreign court judgments, could (assuming such actions are not required by PRC law to be arbitrated) only be enforced in the PRC if such judgments or rulings do not violate the basic principles of the law of the PRC or the sovereignty, security and public interest of the society of the PRC, as determined by a people's court of the PRC which has jurisdiction for recognition and enforcement of judgments. The Company has been advised by its PRC counsel, Jingtian Associates, that there is substantial doubt as to the enforceability in the PRC of any 41 46 actions to enforce judgments of United States' courts arising out of or based on the ownership of the Securities offered hereby, including judgments arising out of or based on the civil liability provisions of United States federal or state securities laws or otherwise. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form F-1 (the "Registration Statement") under the Securities Act with respect to the shares of Common Stock and Warrants offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in the exhibits and schedules thereto as permitted by the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. 42 47 INDEX TO FINANCIAL INFORMATION
PAGE ----- FINANCIAL STATEMENTS OF EURO TECH (FAR EAST) LIMITED Report of Independent Public Accountants........................... F-2 Statements of Income for the years ended December 31, 1993, 1994 and 1995 (Audited), and for the six months ended June 30, 1995 and 1996 (Unaudited).................................................. F-3 Balance Sheets as of December 31, 1994 and 1995 (Audited), and June 30, 1996 (Unaudited).............................................. F-4 Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 (Audited), and for the six months ended June 30, 1995 and 1996 (Unaudited)......................................... F-5 Statements of Changes in Equity for the years ended December 31, 1993, 1994 and 1995 (Audited), and for the six months ended June 30, 1996 (Unaudited).............................................. F-7 Notes to the Financial Statements.................................. F-8 BALANCE SHEET OF EURO TECH HOLDINGS COMPANY LIMITED Report of Independent Public Accountants........................... F-21 Balance Sheet as of October 31, 1996............................... F-22 Notes to the Balance Sheet......................................... F-23
F-1 48 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To: Euro Tech (Far East) Limited We have audited the accompanying balance sheets of Euro Tech (Far East) Limited (the "Company"), incorporated in Hong Kong, as of December 31, 1994 and 1995, and the related statements of income, cash flows and changes in shareholders' equity for the years ended December 31, 1993, 1994 and 1995, expressed in Hong Kong dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1994 and 1995, and the results of its operations and cash flows for the years ended December 31, 1993, 1994 and 1995 in conformity with generally accepted accounting principles in the United States of America. /s/ ARTHUR ANDERSEN & CO. Certified Public Accountants Hong Kong Hong Kong, November 13, 1996. F-2 49 EURO TECH (FAR EAST) LIMITED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (AUDITED), AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------------------------- ----------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ----------- ----------- ----------- HK$ HK$ HK$ US$ HK$ HK$ US$ (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) Sales.......................... 105,374 103,512 105,782 13,667 51,959 53,969 6,973 --------- --------- --------- --------- --------- --------- --------- Cost of goods sold............. (79,384) (80,953) (82,300) (10,633) (40,623) (41,776) (5,397) Selling and administrative expenses..................... (19,302) (20,199) (21,464) (2,773) (10,614) (9,861) (1,273) Interest expenses, net......... (221) (492) (877) (113) (420) (631) (82) Gain on disposal of a real estate property.............. -- 2,300 -- -- -- -- -- Other income, net.............. 675 590 1,186 153 118 488 63 --------- --------- --------- --------- --------- --------- --------- Total costs and expenses....... (98,232) (98,754) (103,455) (13,366) (51,539) (51,780) (6,689) --------- --------- --------- --------- --------- --------- --------- Income from continuing operations before profits tax.......................... 7,142 4,758 2,327 301 420 2,189 284 Provision for profits tax -- current................... (1,106) (425) (68) (9) (77) (406) (52) --------- --------- --------- --------- --------- --------- --------- Income from continuing operations................... 6,036 4,333 2,259 292 343 1,783 232 Discontinued operations Income (loss) of subsidiary companies sold in 1996..... 12 (1,466) (1,645) (213) (369) -- -- --------- --------- --------- --------- --------- --------- --------- Net income (loss).............. 6,048 2,867 614 79 (26) 1,783 232 ========= ========= ========= ========= ========= ========= ========= Income (loss) from discontinued operations per common share........................ 0.01 (0.95) (1.06) (0.14) (0.24) -- -- ========= ========= ========= ========= ========= ========= ========= Net income (loss) per common share........................ 3.90 1.85 0.40 0.05 (0.02) 1.15 0.15 ========= ========= ========= ========= ========= ========= ========= Weighted average number of common shares outstanding.... 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 ========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-3 50 EURO TECH (FAR EAST) LIMITED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 (AUDITED), AND JUNE 30, 1996 (UNAUDITED) (AMOUNTS IN THOUSANDS)
DECEMBER 31, JUNE 30, --------------------------------- ------------------------ 1994 1995 1995 1996 1996 --------- --------- ----------- ----------- ----------- HK$ HK$ US$ HK$ US$ (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) ASSETS Current assets: Cash and cash equivalents..................... 3,408 4,626 597 3,008 389 Accounts receivable, net...................... 26,649 22,040 2,847 18,978 2,452 Bills receivable.............................. -- 2,963 383 2,700 349 Receivable from subsidiary companies.......... 39 1,564 202 -- -- Receivable from related companies............. 226 275 36 1,390 180 Receivable from shareholders.................. -- -- -- 5,258 679 Inventories, net.............................. 6,354 5,106 660 3,258 421 Prepayments and other current assets.......... 1,782 1,366 175 1,372 177 ------ ------ ----- ------ ----- Total current assets.................. 38,458 37,940 4,900 35,964 4,647 Property, plant and equipment, net.............. 14,034 21,800 2,817 21,339 2,757 ------ ------ ----- ------ ----- Total assets.......................... 52,492 59,740 7,717 57,303 7,404 ====== ====== ===== ====== ===== LIABILITIES Current liabilities: Short-term borrowings......................... 7,276 5,426 701 5,171 668 Long-term bank loans, current portion......... 515 1,008 130 1,061 137 Accounts payable.............................. 16,992 19,411 2,508 18,216 2,354 Payable to subsidiary companies............... 54 -- -- -- -- Payable to a director......................... -- 25 3 38 5 Accrued expenses and other liabilities........ 5,599 6,837 883 4,966 642 Taxation payable.............................. 769 337 44 397 51 ------ ------ ----- ------ ----- Total current liabilities............. 31,205 33,044 4,269 29,849 3,857 Long-term bank loans............................ 3,330 7,006 905 6,471 836 Share of accumulated loss of subsidiary companies..................................... 324 1,969 254 -- -- Other non-current liabilities................... 26 -- -- -- -- ------ ------ ----- ------ ----- Total liabilities..................... 34,885 42,019 5,428 36,320 4,693 ------ ------ ----- ------ ----- SHAREHOLDERS' EQUITY Share capital................................. 1,000 1,000 129 1,000 129 Retained earnings............................. 16,607 16,721 2,160 19,983 2,582 ------ ------ ----- ------ ----- Total shareholders' equity............ 17,607 17,721 2,289 20,983 2,711 ------ ------ ----- ------ ----- Total liabilities and shareholders' equity.............................. 52,492 59,740 7,717 57,303 7,404 ====== ====== ===== ====== =====
The accompanying notes are an integral part of these financial statements. F-4 51 EURO TECH (FAR EAST) LIMITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (AUDITED), AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) (AMOUNTS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------- --------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ----------- ----------- ----------- HK$ HK$ HK$ US$ HK$ HK$ US$ (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) Cash flows from continuing operating activities: Income from continuing operations..... 6,036 4,333 2,259 292 343 1,783 232 Adjustments to reconcile income to net cash provided by operating activities: Depreciation of property, plant and equipment......................... 400 460 469 60 209 534 69 Gain on disposals of property, plant and equipment..................... (35) (2,335) (49) (6) (49) (1) -- (Increase) decrease in assets: Accounts receivable................. (8,499) (2,869) 4,609 595 3,415 3,062 395 Bills receivable.................... -- -- (2,963) (383) -- 263 34 Receivable from subsidiary companies......................... -- (39) (1,525) (197) (478) 1,564 202 Receivable from related companies... -- (226) (49) (6) (125) (1,115) (144) Receivable from a director.......... 26 -- -- -- -- -- -- Receivable from shareholders........ -- -- -- -- -- (5,258) (679) Inventories......................... (293) (311) 1,248 161 (1,247) 1,848 239 Prepayments and other current assets............................ 1,199 15 416 54 (500) (6) (2) Increase (decrease) in liabilities: Accounts payable.................... (2,610) 6,554 2,419 313 4,080 (1,195) (154) Payable to subsidiary companies..... 58 (64) (54) (7) (54) -- -- Payable to associated companies..... 5 (5) -- -- -- -- -- Payable to related companies........ 1,067 (1,067) -- -- -- -- -- Payable to a director............... -- -- 25 3 13 13 2 Accrued expenses and other liabilities....................... 3,305 (760) 1,238 160 30 (1,871) (241) Taxation payable.................... (168) (1,103) (432) (56) 76 60 7 ------ ------ ------ ------ ------ ------ ---- Net cash provided by (used in) continuing operating activities...................... 491 2,583 7,611 983 5,713 (319) (40) ------ ------ ------ ------ ------ ------ ---- Cash flows from investing activities: Additions to property, plant and equipment........................... (8,447) (6,055) (8,240) (1,065) (5) (73) (9) Proceeds from disposals of property, plant and equipment................. 35 4,338 54 7 54 1 Proceeds from disposals of subsidiary companies........................... -- -- -- -- -- 10 1 ------ ------ ------ ------ ------ ------ ---- Net cash (used in) provided by investing activities............ (8,412) (1,717) (8,186) (1,058) 49 (62) (8) ------ ------ ------ ------ ------ ------ ----
The accompanying notes are an integral part of these financial statements. F-5 52 EURO TECH (FAR EAST) LIMITED STATEMENTS OF CASH FLOWS (CONT'D) FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (AUDITED), AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) (AMOUNTS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------- -------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ----------- ----------- ----------- HK$ HK$ HK$ US$ HK$ HK$ US$ (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) Cash flows from financing activities: Net proceeds from (repayment of) short-term borrowings............... 3,325 1,419 (1,850) (239) (3,765) (255) (33) Net proceeds from (repayment of) long- term bank loans..................... 2,916 929 4,169 539 (253) (482) (62) Net proceeds from (repayment of) other non-current liabilities............. 67 (41) (26) (3) (26) -- -- Dividends paid........................ (1,200) (3,500) (500) (65) (500) (500) (65) ------ ------ ------ ---- ------ ------ ---- Net cash provided by (used in) financing activities............ 5,108 (1,193) 1,793 232 (4,544) (1,237) (160) ------ ------ ------ ---- ------ ------ ---- Net (decrease) increase in cash and cash equivalents.................... (2,813) (327) 1,218 157 1,218 (1,618) (208) Cash and cash equivalents, beginning of year............................. 6,548 3,735 3,408 440 3,408 4,626 597 ------ ------ ------ ---- ------ ------ ---- Cash and cash equivalents, end of year................................ 3,735 3,408 4,626 597 4,626 3,008 389 ====== ====== ====== ==== ====== ====== ==== Supplemental Information Interest received..................... 75 60 149 20 78 37 4 Interest paid......................... 296 552 1,026 133 498 668 86 Profits tax paid...................... 1,274 1,528 500 65 -- 346 45
The accompanying notes are an integral part of these financial statements. F-6 53 EURO TECH (FAR EAST) LIMITED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 (AUDITED), AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) (AMOUNTS IN THOUSANDS)
SHARE RETAINED CAPITAL EARNINGS TOTAL TOTAL ----- -------- ------ ---------- HK$ HK$ HK$ US$ (NOTE 2 J.) Balance as of January 1, 1993......................... 1,000 12,392 13,392 1,730 Net income............................................ -- 6,048 6,048 781 Dividends............................................. -- (1,200) (1,200) (154) ----- ------ ------ ----- Balance as of December 31, 1993....................... 1,000 17,240 18,240 2,357 Net income............................................ -- 2,867 2,867 370 Dividends............................................. -- (3,500) (3,500) (452) ----- ------ ------ ----- Balance as of December 31, 1994....................... 1,000 16,607 17,607 2,275 Net income............................................ -- 614 614 79 Dividends............................................. -- (500) (500) (65) ----- ------ ------ ----- Balance as of December 31, 1995....................... 1,000 16,721 17,721 2,289 Net income (Unaudited)................................ -- 1,783 1,783 232 Net liabilities of subsidiary companies transferred to the Company's shareholders (Unaudited).............. -- 1,979 1,979 255 Dividends (Unaudited)................................. -- (500) (500) (65) ----- ------ ------ ----- Balance as of June 30, 1996 (Unaudited)............... 1,000 19,983 20,983 2,711 ===== ====== ====== =====
The accompanying notes are an integral part of these financial statements. F-7 54 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS (AMOUNTS EXPRESSED IN HONG KONG DOLLARS UNLESS OTHERWISE STATED) (DATA WITH RESPECT TO JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 ARE UNAUDITED) 1. ORGANIZATION AND PRINCIPAL ACTIVITIES Euro Tech (Far East) Limited (the "Company") was incorporated in Hong Kong on June 15, 1971 and is owned by Regent Earning Limited (73.4%), a company incorporated in Hong Kong, and Pearl Venture Limited (26.6%), a company incorporated in the British Virgin Islands. The Company is principally engaged in the marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation system in Hong Kong and in the People's Republic of China (the "PRC"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Sales Sales represent the invoiced value of goods supplied to customers. Sales are recognized upon delivery of goods and passage of title to customers. b. Taxation The Company provides for Hong Kong profits tax on the basis of its income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for profits tax purposes. The Company provides deferred profits tax using the liability method. Under the liability method, deferred profits tax is recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. The tax consequences of those differences are classified as an asset or a liability. c. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and demand deposits with banks, and liquid investments with an original maturity of three months or less. d. Inventories Inventories are stated at the lower of cost, on a specific identification basis, or net realizable value. Costs include purchase and related costs incurred in bringing each product to its present location and condition. Net realizable value is calculated based on the estimated normal selling price, less further costs expected to be incurred to disposal. Provision is made for obsolete, slow moving or defective items, where appropriate. F-8 55 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is computed using the straight-line method over the assets' estimated useful lives. The estimated useful lives are as follows: Land................................................... Terms of the leases Buildings.............................................. 15 - 51 years Leasehold improvements................................. Terms of the leases Furniture, fixtures and office equipment............... 5 years Motor vehicles......................................... 5 years Testing equipment...................................... 10 years
f. Operating Leases Leases where substantially all the risks and rewards of ownership of the leased assets remain with the leasing company are accounted for as operating leases. Rental payments under operating leases are charged to expense on the straight-line basis over the period of the relevant leases. g. Foreign Currency Translation The Company maintains its books and records in Hong Kong dollars. Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rates prevailing at the balance sheet date. Exchange differences are included in the accompanying statements of income. h. Net Income per Common Share Net income per common share is computed by dividing net income (loss) for each year or period by 1,550,000, the weighted average number of common shares outstanding during the year or period, as the case may be, on the basis that the share exchange with Euro Tech Holdings Company Limited had been consummated and that 150,000 common shares of Euro Tech Holdings Company Limited had been issued to its existing shareholders prior to January 1, 1993 (see Note 16). i. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. j. Translation into United States Dollars The financial statements expressed in Hong Kong dollars as of December 31, 1995 and June 30, 1996, and for the year ended December 31, 1995 and for the six months ended June 30, 1996 were translated into United States dollars, solely for the convenience of the reader, at the prevailing exchange rate of $7.74 = US$1 on June 30, 1996. F-9 56 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 3. PROVISION FOR PROFITS TAX Hong Kong profits tax was provided at the rate of 16.5% on the estimated assessable income which was earned in or derived from Hong Kong. The reconciliations of profits tax amounts based on the statutory profits tax rate in Hong Kong to the profits tax amounts as stated in the statements of income are as follows:
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------- --------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ----------- ----------- ----------- HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) Tax based on pre-tax accounting income at statutory rate (16.5%)..... 1,178 785 384 50 69 361 46 Tax effect of permanent differences................ (148) (486) (28) (4) (83) (491) (63) Tax effect of US GAAP adjustments................ 6 25 50 6 20 45 6 Adjustments of profits tax of prior years resulting from Inland Revenue Department review..................... -- -- (345) (44) -- -- -- Other........................ 70 101 7 1 71 491 63 ----- ---- ---- --- --- ---- --- Provision for profits tax.... 1,106 425 68 9 77 406 52 ===== ==== ==== === === ==== ===
4. ACCOUNTS RECEIVABLE Accounts receivable comprised:
DECEMBER 31, JUNE 30, ------------------------------------- -------------------------- 1994 1995 1995 1996 1996 --------- --------- ----------- ----------- ----------- HK$'000 HK$'000 US$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) Trade and other receivables..... 26,649 22,153 2,862 19,134 2,472 Less: Allowance for doubtful debts......................... -- (113) (15) (156) (20) ------ ------ ----- ------ ----- Accounts receivable, net........ 26,649 22,040 2,847 18,978 2,452 ====== ====== ===== ====== =====
5. INVENTORIES Inventories comprised:
DECEMBER 31, JUNE 30, ------------------------------------- -------------------------- 1994 1995 1995 1996 1996 --------- --------- ----------- ----------- ----------- HK$'000 HK$'000 US$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) Trading equipment............... 7,064 5,885 761 4,221 545 Less: Provision for inventory obsolescence.................. (710) (779) (101) (963) (124) ----- ----- ---- ----- ---- Inventories, net................ 6,354 5,106 660 3,258 421 ===== ===== ==== ===== ====
F-10 57 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment comprised:
DECEMBER 31, JUNE 30, ------------------------------------- -------------------------- 1994 1995 1995 1996 1996 --------- --------- ----------- ----------- ----------- HK$'000 HK$'000 US$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) Land and buildings.............. 13,941 22,148 2,861 22,148 2,861 Leasehold improvements.......... 190 190 25 190 25 Furniture, fixtures and office equipment..................... 1,259 1,293 167 1,358 175 Motor vehicles.................. 1,021 1,021 132 866 112 Testing equipment............... 1,251 1,204 156 1,212 157 ------ ------ ----- ------ ----- 17,662 25,856 3,341 25,774 3,330 Less: Accumulated depreciation.................. (3,628) (4,056) (524) (4,435) (573) ------ ------ ----- ------ ----- Net book value.................. 14,034 21,800 2,817 21,339 2,757 ====== ====== ===== ====== =====
As of December 31, 1995 and June 30, 1996, all land and buildings with net book values of $20,476,000 and $20,164,000 (Unaudited) respectively were pledged to secure certain banking facilities of the Company (see Note 8). 7. SHORT-TERM BORROWINGS Short-term borrowings represented import and export bank loans, bearing interest at 6.75%-9.00% per annum as of December 31, 1995 and June 30, 1996. Unused credit lines for short-term borrowings amounted to approximately $27,861,000 as of December 31, 1995 and $32,063,000 (Unaudited) as of June 30, 1996. F-11 58 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 7. SHORT-TERM BORROWINGS (CONTINUED) Other information pertaining to the short-term borrowings is as follows:
MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT AVERAGE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE INTEREST RATE DURING THE DURING THE AT THE END DURING THE BALANCE PERIOD PERIOD OF THE PERIOD PERIOD ------- ----------- ----------- ------------- ------------- AMOUNTS IN THOUSANDS OF HONG KONG DOLLARS - ------------------------------------------- December 31, 1994 (Audited) Denominated Non HK$.................................. $ 4,095 $ 6,845 $ 4,350 8.00% 8.00% HK$...................................... 3,181 4,261 2,847 8.50% 7.21% ------ $ 7,276 ------ December 31, 1995 (Audited) Denominated Non HK$.................................. $ 3,367 $ 6,113 $ 4,428 8.00% 8.00% HK$...................................... 2,059 3,910 3,141 9.00% 8.96% ------ $ 5,426 ------ June 30, 1996 (Unaudited) Denominated Non HK$.................................. $ 1,698 $ 5,676 $ 4,191 6.75% 7.04% HK$...................................... 3,473 3,869 2,098 8.50% 8.67% ------ $ 5,171 ------ AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS (NOTE 2 J.) - ------------------------------------------- December 31, 1995 (Audited) Denominated Non HK$.................................. $ 435 $ 790 $ 572 8.00% 8.00% HK$...................................... 266 505 406 9.00% 8.96% ------ $ 701 ------ June 30, 1996 (Unaudited) Denominated Non HK$.................................. $ 219 $ 733 $ 541 6.75% 7.04% HK$...................................... 449 500 271 8.50% 8.67% ------ $ 668 ------
F-12 59 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 8. LONG-TERM BANK LOANS Long-term bank loans comprised:
DECEMBER 31, JUNE 30, -------------------------------------- -------------------------- 1995 1995 1996 1996 ---------- ------------ ----------- ------------ HK$'000 US$'000 HK$'000 US$'000 1994 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) ---------- HK$'000 (AUDITED) DENOMINATED IN HONG KONG DOLLARS Mortgage bank loan on land and building -- repayable in 84 equal monthly installments starting from November 30, 1995, interest at 10.75% in 1995 and 10.25% in 1996.................. -- 3,889 503 3,688 476 Mortgage bank loan on land and building -- repayable in 94 monthly installments starting from December 7, 1993, interest at Hong Kong prime rate plus 1.25% in 1994, 1995 and 1996.... 2,538 2,160 279 1,972 255 Mortgage bank loan on land and building -- repayable in 118 equal monthly installments starting from October 18, 1995, interest at 13% in 1995 and 12.5% in 1996................... -- 790 102 768 99 ----- ------ ----- ------ ---- Sub-total......................... 2,538 6,839 884 6,428 830 DENOMINATED IN UNITED STATES DOLLARS Mortgage bank loan on land and building -- repayable in 84 equal monthly installments starting from December 4, 1994, interest at U.S. prime rate plus 2.5% in 1994, 1995 and 1996..... 1,307 1,175 151 1,104 143 ----- ------ ----- ------ ---- Sub-total......................... 3,845 8,014 1,035 7,532 973 Portion due within one year....... (515) (1,008) (130) (1,061) (137) ----- ------ ----- ------ ---- 3,330 7,006 905 6,471 836 ===== ====== ===== ====== ====
Future maturities of long-term bank loans were as follows:
DECEMBER 31, JUNE 30, --------------------------------------- --------------------------- 1994 1995 1995 1996 1996 --------- --------- ----------- ----------- ----------- HK$'000 HK$'000 US$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) Within one year............ 515 1,008 130 1,061 137 During the second year..... 528 1,044 135 1,090 141 During the third year...... 545 1,127 146 1,167 151 During the fourth year..... 570 1,200 155 1,249 161 During the fifth year...... 579 1,296 167 1,343 174 Over five years but not exceeding nine years..... 1,108 2,339 302 1,622 209 ----- ----- ----- ----- ---- 3,845 8,014 1,035 7,532 973 ===== ===== ===== ===== ====
F-13 60 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 9. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities comprised:
DECEMBER 31, JUNE 30, --------------------------------------- --------------------------- 1994 1995 1995 1996 1996 --------- --------- ----------- ----------- ----------- HK$'000 HK$'000 US$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) Commission payable to sales agents................... 3,092 3,805 491 3,327 430 Accrued expenses........... 631 755 98 438 57 Deposits from customers.... 917 1,036 134 604 78 Other payables............. 959 1,241 160 597 77 ----- ----- --- ----- --- Total...................... 5,599 6,837 883 4,966 642 ===== ===== === ===== ===
10. SHARE OF ACCUMULATED LOSS OF SUBSIDIARY COMPANIES Movements of share of accumulated loss of subsidiary companies were as follows:
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------------- ------------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ----------- ----------- ----------- HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) Balance, beginning of period............. 1,130 1,142 (324) (41) (324) (1,969) (254) Income (loss) from equity investment......... 12 (1,466) (1,645) (213) (369) -- -- Transfer of interest in subsidiary companies to the Company's shareholders....... -- -- -- -- -- 1,969 254 ---- ----- ---- ---- ------ ---- ---- Balance, end of period............. 1,142 (324) (1,969) (254) (693) -- -- ==== ===== ==== ==== ====== ==== ====
Other information pertaining to the subsidiary companies is as follows:
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------------- ------------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ----------- ----------- ----------- HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) Sales........ 569 6,987 8,860 1,145 4,781 -- --
Details of the subsidiary companies were as follows:
NAME OF SUBSIDIARY PERCENTAGE COUNTRY OF COMPANIES OF INTEREST HELD INCORPORATION PRINCIPAL ACTIVITIES ------------------- ----------------------- ------------- ------------------------------ DIRECTLY INDIRECTLY Armtison Limited... 100% -- Hong Kong Marketing and trading of electronic equipment Euro Tech (China) Limited.......... 100% -- Hong Kong Inactive Action Instruments (China) Limited ("Action")....... -- 51% Hong Kong Marketing and trading of electronic equipment Euro Electron (Far East) Limited.... -- 80% Hong Kong Marketing and trading of telecommunication equipment
F-14 61 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 10. SHARE OF ACCUMULATED LOSS OF SUBSIDIARY COMPANIES (CONTINUED) During January to June 1996, the Company transferred its entire interests in the subsidiary companies to the shareholders of the Company. Accordingly, these subsidiary companies have been accounted for as discontinued operations in the accompanying financial statements. 11. RELATED PARTY TRANSACTIONS The transactions with related parties are summarized as follows:
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------- --------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ---------- ----------- ----------- HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) Sales to subsidiary companies................. 5 13 59 8 59 -- -- Sales to related companies................ 367 383 1,088 141 530 945 122 Purchases from subsidiary companies................ 1,278 942 2,443 316 2,044 -- -- Purchase from related companies................ 7,516 1,562 764 99 250 265 34 Service income received from subsidiary companies................ 58 50 213 28 14 -- -- Service income received from related companies... -- -- -- -- -- 128 17 Management fees paid to a subsidiary company....... 448 384 -- -- -- -- -- Interest income received from a subsidiary company.................. -- -- 166 21 -- -- -- Interest income received from a related company... -- -- -- -- -- 258 33 Transfer of investment in subsidiary companies to the Company's shareholders............. -- -- -- -- -- 10 1
The outstanding balances due from subsidiary companies and shareholders included a loan to Action of $500,000 as of December 31, 1995 and a loan to Regent Earning Limited of approximately $3,868,000 (Unaudited) as of June 30, 1996, which were unsecured, bore interest at 18% per annum and are payable in early 1997. All other outstanding balances with related companies, shareholders and a director were unsecured, non-interest bearing and are payable in early 1997. 12. PENSION PLAN The Company has a defined contribution pension plan for all of its employees. Under this plan, all employees are entitled to a pension benefit equals to 50% to 100% of their individual fund account balances at their dates of resignation or retirement which depends on their years of services with the Company. The Company is required to make specific contributions at approximately 10% of the basic salaries of the employees to an independent fund management company. The Company has no future obligations for the pension payment or any post-retirement benefits beyond the annual contributions made. The independent fund management company is responsible for the ultimate pension liabilities to those resigned or retired employees. During the years ended December 31, 1993, 1994 and 1995, and for the six months ended June 30, 1995 and 1996, the Company made total pension contributions of approximately $587,000, $621,000, $864,000, $455,000 (Unaudited) and $261,000 (Unaudited) respectively. F-15 62 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 13. COMMITMENTS a. Lease commitments The Company leases office and industrial premises under various lease agreements extending to October 1997. Rental expenses for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 were approximately $1,116,000, $1,013,000, $1,020,000, $504,000 (Unaudited) and $557,000 (Unaudited) respectively. Future minimum rental payments as of December 31, 1995 and June 30, 1996, under agreements classified as operating leases with noncancelable terms in excess of one year, were as follows:
DECEMBER 31, JUNE 30, ----------------------- ------------------------- 1995 1995 1996 1996 --------- ----------- ----------- ----------- HK$'000 US$'000 HK$'000 US$'000 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) Payable during the following period: Within one year......................... 1,666 215 1,638 212 Over one year but not exceeding two years................................ 1,305 169 500 65 ----- --- ----- --- 2,971 384 2,138 277 ===== === ===== ===
b. Capital commitments As of December 31, 1995 and June 30, 1996, the Company had outstanding contractual commitments for purchase of land and buildings in the PRC of both approximately $1,701,000. 14. EXPLANATION ADDED FOR THESE FINANCIAL STATEMENTS FOR READERS IN THE UNITED STATES The accompanying financial statements have been prepared in accordance with US GAAP. The Company maintains its accounts on the basis of accounting principles generally accepted in Hong Kong ("HK GAAP"), but which differ in the following respects from US GAAP: a. Before June 30, 1996, HK GAAP did not require provision for depreciation of land which has a leasehold period of over fifty years. Effective July 1996, depreciation of land should be provided over its estimated useful life. b. HK GAAP does not require provision for depreciation of properties which are held for their investment potential and for the long-term. c. Under HK GAAP, investment in subsidiary companies should be stated at cost less provision for any permanent diminution in value instead of using the equity method of accounting. F-16 63 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 14. EXPLANATION ADDED FOR THESE FINANCIAL STATEMENTS FOR READERS IN THE UNITED STATES (CONTINUED) Reconciliations of certain financial information under HK GAAP and US GAAP are as follows: a. Net Income
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------------------------- ----------------------------------------- 1994 1995 1995 1995 1996 1996 ---------- ---------- ----------- ------------ ------------ ----------- HK$'000 HK$'000 US'$000 HK$'000 HK$'000 US$'000 1993 (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) ---------- HK$'000 (AUDITED) Net income under HK GAAP............... 6,070 4,486 2,563 330 464 2,056 266 Adjustments for: - Depreciation of leased land...... (15) (62) (107) (13) (41) (103) (12) - Depreciation of an investment property......... (19) (91) (197) (25) (80) (170) (22) - Share of income (loss) of subsidiary companies........ 12 (1,466) (1,645) (213) (369) -- -- ---------- ---------- ---------- ----- ----- ------ --- Net Income (loss) under US GAAP...... 6,048 2,867 614 79 (26) 1,783 232 ========== ========== ========== ========== ============ ============ ==========
b. Property, plant and equipment
DECEMBER 31, JUNE 30, ------------------------------------- -------------------------- 1995 1995 1996 1996 ---------- ----------- ------------ ----------- HK$'000 US'$000 HK$'000 US$'000 1994 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) ---------- HK$'000 (AUDITED) Property, plant and equipment under HK GAAP...................................... 14,220 22,290 2,880 22,102 2,856 Adjustments for: - Depreciation of leased land............. (76) (183) (24) (286) (37) - Depreciation of an investment property................................ (110) (307) (39) (477) (62) ---------- ---------- ----------- ------------ ----------- Property, plant and equipment under US GAAP...................................... 14,034 21,800 2,817 21,339 2,757 ========== ========== ========== ============ ==========
c. Shares of accumulated loss of subsidiary companies
DECEMBER 31, JUNE 30, ------------------------------------- -------------------------- 1995 1995 1996 1996 ---------- ----------- ------------ ----------- HK$'000 US$'000 HK$'000 US$'000 1994 (AUDITED) (NOTE 2 J.) (UNAUDITED) (NOTE 2 J.) ---------- HK$'000 (AUDITED) Investment in subsidiary companies under HK GAAP...................................... (10) (10) (1) -- -- Adjustments for share of accumulated loss of subsidiary companies...................... 334 1,979 255 -- -- -- -- --- ---------- --- Share of accumulated loss of subsidiary companies under US GAAP................... 324 1,969 254 -- -- ========== ========== ========== ============ ==========
15. SEGMENT INFORMATION a. The Company is only engaged in the marketing and trading of electronic equipment and has no other major business operations. F-17 64 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 15. SEGMENT INFORMATION (CONTINUED) b. Analysis of sales
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------------------------- ----------------------------------------- 1993 1994 1995 1995 1995 1996 1996 --------- --------- --------- ----------- ----------- ----------- ----------- HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000 US$'000 (AUDITED) (AUDITED) (AUDITED) (NOTE 2 J.) (UNAUDITED) (UNAUDITED) (NOTE 2 J.) China.............. 71,571 61,216 62,566 8,083 32,218 35,330 4,565 Hong Kong.......... 30,429 40,824 41,605 5,375 19,131 18,268 2,360 Macau.............. 3,194 1,193 753 97 576 253 33 Others............. 180 279 858 111 34 118 15 ------- ------- ------- ------ ------ ------ ----- 105,374 103,512 105,782 13,666 51,959 53,969 6,973 ======= ======= ======= ====== ====== ====== =====
c. Major customers A substantial portion of the Company's sales was made to a large number of customers on credit and generally no collateral was required. There was no individual customer accounting for more than 10% of the Company's sales for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996. 16. CONTEMPLATED TRANSACTIONS Subsequent to December 31, 1995, the following events are being planned: a. Upon completion of the initial public offering as described in note b below, the shareholders of the Company will exchange all of the issued and outstanding ordinary shares of the Company for 1,400,000 common shares of Euro Tech Holdings Company Limited in a transaction accounted for as a reorganization of companies under common control in a manner similar to a pooling of interests. Upon the consummation of the share exchange transaction, the Company will become a wholly owned subsidiary of Euro Tech Holdings Company Limited. Euro Tech Holdings Company Limited is owned by Sidford International Limited (66.7%) and Gusrae, Kaplan & Bruno, Esqs (33.3%). Sidford International Limited is a business consultant of the Company and Gusrae, Kaplan & Bruno, Esqs. is the United States Counsel of Euro Tech Holdings Company Limited. Euro Tech Holdings Company Limited was incorporated in the British Virgin Islands on September 30, 1996 and shortly thereafter issued 100,000 and 50,000 common shares at par value of US$0.01 per share to Sidford International Limited and Gusrae, Kaplan & Bruno, Esqs respectively for a total consideration of US$1,500. These shares will be recorded at fair market value. Assuming the above share exchange transaction occurred as of December 31, 1995, or June 30, 1996, as the case may be, consolidated shareholders' equity of Euro Tech Holdings Company Limited and subsidiary would have been as follows:
DECEMBER 31, 1995 JUNE 30, 1996 ---------------------- ---------------------- HK$'000 US$'000 HK$'000 US$'000 (NOTE 2 J.) (NOTE 2 J.) Share capital -- 1,400,000 common shares outstanding..... 108 14 108 14 Capital surplus.............................. 17,613 2,275 20,875 2,697 ------ ----- ------ ----- 17,721 2,289 20,983 2,711 ====== ===== ====== =====
F-18 65 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 16. CONTEMPLATED TRANSACTIONS (CONTINUED) b. Euro Tech Holdings Company Limited is planning for an initial public offering of 600,000 common shares and 600,000 redeemable common share purchase warrants. The net proceeds from this offering, after underwriters' discounts and commission, and other estimated expenses, are expected to be US$2,130,750 based on an assumed initial public offering of US$5 per share and US$0.15 per warrant. The following unaudited pro forma consolidated statements of income of Euro Tech Holdings Company Limited for the year ended December 31, 1995 and for the six months ended June 30, 1996, have been prepared to give effect to the transactions as described in Note a. above as if such transactions had occurred on January 1, 1995. The pro forma consolidated statements of income are unaudited and have been prepared using the historical financial statements of the Company, and are qualified entirely by reference to, and should be read in conjunction with, such historical financial statements. The pro forma consolidated statements of income are provided for informational and comparative purposes only. The pro forma adjustments are based on available financial information and certain estimates and assumptions. The pro forma consolidated statements of income do not purport to be indicative of the results of operations of Euro Tech Holdings Company Limited that would have occurred had such transactions in fact happened on January 1, 1995, or during the periods presented or during any future periods. a. Unaudited pro forma consolidated statement of income of Euro Tech Holdings Company Limited for the year ended December 31, 1995:
PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA PRO FORMA --------- ----------- --------- --------- HK$'000 HK$'000 HK$'000 US$'000 (NOTE 2J.) Sales................................... 105,782 105,782 13,667 --------- --------- --------- Cost of goods sold...................... (82,300) (82,300) (10,633) Selling and administrative expenses..... (21,464) (641)(1) (22,105) (2,856) Interest expenses, net.................. (877) (877) (113) Other income, net....................... 1,186 1,186 153 --------- --------- --------- Total costs and expenses................ (103,455) (104,096) (13,449) --------- --------- --------- Income from continuing operations before profits tax........................... 2,327 1,686 218 Provision for profits tax............... (68) (68) (9) --------- --------- --------- Income from continuing operations....... 2,259 1,618 209 Discontinued operations Loss of subsidiary companies sold in 1996............................... (1,645) 1,645(2) -- -- --------- --------- --------- Net income.............................. 614 1,618 209 ========= ========= ========= Net income per common share............. 0.0004 0.0010 0.0001 ========= ========= ========= Weighted average number of common shares outstanding........................... 1,550,000 1,550,000 1,550,000 ========= ========= =========
F-19 66 EURO TECH (FAR EAST) LIMITED NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 16. CONTEMPLATED TRANSACTIONS (CONTINUED) b. Unaudited pro forma consolidated statement of income of Euro Tech Holdings Company Limited for the six months ended June 30, 1996:
PRO FORMA ADJUSTMENTS PRO FORMA ACTUAL ----------- --------- PRO FORMA --------- HK$'000 HK$'000 --------- HK$'000 US$'000 (NOTE 2 J.) Sales................................... 53,969 53,969 6,973 --------- --------- --------- Cost of goods sold...................... (41,776) (41,776) (5,397) Selling and administrative expenses..... (9,861) (439)(1) (10,300) (1,330) Interest expenses, net.................. (631) (631) (82) Other income, net....................... 488 488 63 --------- --------- --------- Total costs and expenses................ (51,780) (52,219) (6,746) --------- --------- --------- Income before profits tax............... 2,189 1,750 227 Provision for profits tax............... (406) (406) (52) --------- --------- --------- Net income.............................. 1,783 1,344 175 ========= ========= ========= Net income per common share............. 0.0012 0.0009 0.0001 ========= ========= ========= Weighted average number of common shares outstanding........................... 1,550,000 1,550,000 1,550,000 ========= ========= =========
- --------------- Notes to unaudited pro forma consolidated statements of income: (1) Upon consummation of the initial public offering, the Chairman will be compensated based on a new employment contract. Had this contract been effective as of January 1, 1995, selling and administrative expenses would have been higher as indicated. (2) Represents elimination of the share of the loss of subsidiary companies for the year ended December 31, 1995. F-20 67 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To: Euro Tech Holdings Company Limited We have audited the accompanying balance sheet of Euro Tech Holdings Company Limited (the "Company"), incorporated in the British Virgin Islands, as of October 31, 1996, expressed in United States dollars. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 1996 in conformity with generally accepted accounting principles in the United States of America. /s/ ARTHUR ANDERSEN & CO. Certified Public Accountants Hong Kong Hong Kong, November 13, 1996. F-21 68 EURO TECH HOLDINGS COMPANY LIMITED BALANCE SHEET AS OF OCTOBER 31, 1996
US$ ------- ASSETS Current asset: Cash............................................................................. 168.01 ------- Organization costs................................................................. 8,257.00 ------- Total assets............................................................. 8,425.01 ======= LIABILITIES Current liabilities: Accruals and other payables...................................................... 8,425.00 ------- SHAREHOLDERS' EQUITY Share capital.................................................................... 0.01 ------- Total liabilities and shareholders' equity............................... 8,425.01 =======
The accompanying notes are an integral part of this financial statement. F-22 69 EURO TECH HOLDINGS COMPANY LIMITED NOTES TO THE BALANCE SHEET (AMOUNTS EXPRESSED IN UNITED STATES DOLLARS) 1. ORGANIZATION Euro Tech Holdings Company Limited (the "Company") was incorporated in the British Virgin Islands on September 30, 1996 and is owned by Sidford International Limited (66.7%) and Gusrae, Kaplan & Bruno, Esqs (33.3%). Sidford International Limited is a business consultant of Euro Tech (Far East) Limited ("Far East"), a company incorporated in Hong Kong, and Gusrae, Kaplan & Bruno, Esqs is the United States counsel of the Company. In November 1996, the Company issued 100,000 and 50,000 common shares at par value of US$0.01 per share to Sidford International Limited and Gusrae, Kaplan & Bruno, Esqs respectively for a total consideration of $1,500. These shares will be recorded at fair market value. In addition, the Company issued 1,000,000 redeemable common share purchase warrants to certain private investors for aggregate gross proceeds of $150,000. Each warrant entitles the holder to purchase one common share exercisable at $5.50 per share (subject to adjustment) for a period of five years commencing one year after the date of the Prospectus. 2. INITIAL PUBLIC OFFERING The Company is planning for an initial public offering (the "Offering") of 600,000 common shares, par value $0.01 per share, of the Company and 600,000 redeemable common share purchase warrants. Upon completion of the Offering, the Company will acquire all of the issued and outstanding ordinary shares of Far East by issuance of 1,027,600 and 372,400 common shares of the Company to Regent Earning Limited and Pearl Venture Limited respectively. Regent Earning Limited and Pearl Venture Limited are both Hong Kong companies and in aggregate hold 100% of the outstanding shares of Far East. This transaction will be accounted for as a reorganization of companies under common control in a manner similar to a pooling of interests. Far East is principally engaged in the marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems in Hong Kong and in the People's Republic of China. Upon the consummation of the above transaction, Far East will become a wholly owned subsidiary of the Company. 3. SIGNIFICANT ACCOUNTING POLICY ORGANIZATION COSTS Organization costs represent costs incurred in the establishment of the Company and are amortized using the straight-line method over a period of five years. F-23 70 APPENDIX THE PEOPLE'S REPUBLIC OF CHINA AREA AND POPULATION The PRC is the third largest country in the world in terms of land area. It has a territory of approximately 9.6 million square kilometers (3.71 million square miles). The PRC is also the most populous country in the world with a population at the end of 1993 of over 1.19 billion, representing about one-fifth of the world's population. The population is unevenly distributed, being very dense in the east, particularly in the nine eastern coastal provinces and municipalities which make up 31.7% of the total population. The eastern population resides in 9% of the total land area with a density of 400 people per square kilometer. The western part of the PRC is sparsely populated. Xinjiang, Tibet, Inner Mongolia and Ningxia autonomous regions and Qinghai and Gangsu provinces make up to about one half of the total land area of the PRC but contain only 6.2% of the population with an average of less than 16 people per square kilometer. The PRC is becoming increasingly urbanized. In 1949, the PRC urban population accounted for only 11% of the total population. At the end of 1992, about 27.6% of the population (that is, more than 300 million people), lived in the cities. Chongqing and Shanghai, with population of approximately 15 and 13 million, respectively, are the largest cities in the PRC. POLITICAL OVERVIEW The structure of the PRC political system is organized on the basis of the PRC Constitution. The structure consists of the National People's Congress ("NPC"), which is the highest organ and law-making body under the PRC Constitution, and the State Council, which is the highest executive organ of the laws and decisions made by the NPC. All state organs derive official authority from the PRC Constitutions and other laws. The principal powers of the NPC include amending and enacting the PRC Constitution, promulgating and reviewing China's national laws and other regulations, appointing and removing the Premier and other members of the State Council, the Chairman of the Central Military Commission, the President of the Supreme People's Court, the Procurator General of the Supreme People's Procurate, and the President and Vice-President of the PRC and approving national, social and economic plans. The NPC represents the highest level of state power. Delegates to the NPC come from the various provinces, regions, municipalities and armed force units and hold five year terms. The NPC meets annually with the Standing Committee of the NPC exercising state power when the NPC is not in session. While the NPC is the highest policy and law-making body, the State Council is the highest executive organ of the state. The Premier of the State Council is appointed by the NPC. The State Council is responsible for the supervision and co-ordination of all ministries and commissions at the state level, as well as, all administrative agencies at the local level. It prepares and supervises the implementation of the State Plan and budget. There are 38 ministries and commissions together with the People's Bank of China and the State Auditing Administration which are currently under the authority of the State Council. The Chinese Communist Party ("CCP") plays a leading role in formulating policy and selecting and providing personnel at all levels of the State structure. Administratively, the PRC is divided into 23 provinces (which includes Taiwan), three municipalities (Beijing, Shanghai and Tianjin) and five autonomous regions. At the local level, administrative entities derive their authority from, and are accountable to, the People's Congresses at the provincial and municipal levels. ECONOMIC OVERVIEW ECONOMIC STRUCTURE The PRC's economy currently comprises four major sectors: state-owned enterprises, collectively-owned enterprises, individually-owned enterprises and other enterprises including enterprises with foreign capital. Although the proportion of industrial output attributable to state-owned enterprises has been decreasing, state- A-1 71 owned enterprises still play a leading role in the economy. In 1993, state-owned enterprises accounted for approximately 43% of the PRC's output while enterprises owned by collectives and individuals accounted for 38.4% and 8.4%, respectively. The fastest growing sector of the economy is other types of enterprises, including enterprises with foreign capital, which accounted for 10.2% of the total industrial output in 1993, representing an increase of approximately 43.7% over 1992 figures. The PRC Government relies predominantly on state-owned enterprises for its revenues. These enterprises dominate major industrial sectors such as energy and raw materials, heavy industries, transport and communications. Because of their inefficiency and the large drain on the state budget from subsidies to them, there have been demands for stateowned enterprises to be placed under greater financial discipline. One of the goals of recent management and other reforms is to reduce state subsidies to loss-making state-owned enterprises so that they will assume greater responsibility for their own profits and losses. One of the important recent reforms has been the conversion of selected state-owned enterprises into limited liability shareholding companies, and the issue of shares to public and private investors (including employees). A significant number of these state-owned enterprises have, after being converted into limited liability shareholding companies, been granted approval to list on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, the two emerging stock markets in the PRC. Collectively-owned enterprises are mostly located in rural areas and concentrated in industries with lower demands for capital and technology or with greater consumer orientation. Collectively-owned enterprises are not subject to strict control, but are only under the guidance of the State Plan. This allows them more operational flexibility than state-owned enterprises, but entitles them to fewer state subsidies. In 1992, collectively-owned enterprises accounted for approximately 38% of total industrial Production Value in the PRC. Individually-owned enterprises are typically family-run small businesses. Individually-owned and other enterprises generally engage in service industries or retail businesses and are not covered by the State Plan. ECONOMIC PLANS AND DEVELOPMENT The development of the PRC's economy has been characterized by the adoption, since 1953, of Five Year Plans. Implementation of the plans is carried out under the supervision of the State Planning Commission, which reports directly to the State Council. The eighth Five Year Plan for national, economic and social development for 1991-1995, along with a ten-year program which extends to 2000, was adopted on March 28, 1991, by the Standing Committee of the NPC. One common objective for both of these plans is for the PRC to quadruple its gross national output from RMB710 billion in 1980 to RMB2,800 billion by the end of this century. This objective requires the country's output to grow at a compound annual rate of growth of about 6% in the 1990s. From 1980 to 1990, the PRC had an average annual GNP growth rate of approximately 9%, which substantially exceeded both of the annual targeted rates of 4.0% and 7.5% of the sixth Five Year Plan (1981-1985) and the seventh Five Year Plan (1986-1990), respectively. The plans also call for the establishment of an economic structure consistent with a socialist planned economy based on public ownership and market regulation. In addition, emphasis is placed on the further opening of the PRC to the outside world by expanding economic and technological exchanges with other countries. The plans also seek to relieve supply bottle-necks which have arisen from rapid growth during the 1980s and to allocate resources to the priority areas of agriculture, energy, transportation, telecommunications and basic materials industries. The PRC's target of 9% annual GNP growth rate in the current eighth Five Year Plan is somewhat higher than the average 7.78% per annum achieved in the previous Five Year Plan from 1986 to 1990. GNP grew at a rate of 7.7% in 1991, 12.8% in 1992 and 13.2% in 1993. ECONOMIC REFORMS In 1978, the PRC began implementing an economic reform program in an effort to revitalize the economy and improve the standard of living. Since that time, the PRC Government's economic policies have allowed for an increasing degree of liberalization from a centrally-planned economy to a more market-oriented A-2 72 economy. At the fourteenth Party Congress held in October 1992, the Congress called for a "socialist market economy" in which full rein should be given to market forces with the government limiting its role to setting and implementing broad macro-economic policies. This was later endorsed by the eighth session of the NPC amending the Constitution. As part of the economic reforms, managers of enterprises have been granted more decision-making powers and responsibilities in relation to matters such as production, marketing, use of funds, and employment and disciplining of staff. The PRC Government is also gradually relaxing many of its controls over product prices. Although some products are still controlled and distributed by the PRC Government at planned prices, the range of products subject to planned prices has been substantially reduced, particularly in 1992 and the first half of 1993. Products which are not subject to the State Plan are generally sold at prices determined by market conditions. In addition, a state-owned enterprise which has fulfilled its production obligations under the State Plan may obtain additional raw materials and sell products which it has produced in excess of the State Plan at market prices in both the international and domestic markets. The following table sets out major economic indicators of the PRC from 1988 to 1992:
1988 1989 1990 1991 1992 ----- ----- ----- ----- ----- Gross national product.................. % change (i) 11.3 4.4 4.1 8.2 13.0 Agricultural output..................... % change (i) 3.9 3.1 7.6 3.7 6.4 Industrial output....................... % change (i) 20.8 8.5 7.8 14.7 20.8 Light industries...................... 22.1 8.2 9.2 14.5 20.9 Heavy industries...................... 19.4 8.9 6.2 13.8 20.7 Per capita GNP.......................... % change (i) 9.5 2.8 2.5 6.3 11.5 Gross domestic investment............... % of GNP (iii) 29.8 37.6 35.1 36.5 n/a Gross domestic savings.................. % of GNP (iii) 37.9 36.0 37.3 38.9 n/a Inflation rate.......................... % change in Retail Price Index (i) 18.5 17.8 2.1 2.9 5.4 Gross industrial output value........... % change (i) 20.8 8.5 7.8 14.8 27.5 Merchandise exports..................... US$billion (i) 47.5 52.5 62.1 71.8 85.0 % change (i) 20.5 10.6 18.2 15.8 18.2 Merchandise imports..................... US$billion (i) 55.3 59.1 53.3 63.8 80.6 % change 27.9 7.0 --9.8 19.7 26.3 Trade balance........................... US$billion (i) --7.8 --6.6 8.8 8.1 4.4 Current account balance................. US$billion (ii) --3.8 --4.3 12.0 13.3 n/a % of GNP (ii) --1.0 --1.0 3.2 3.6 n/a External debt........................... US$billion (iv) 37.2 44.8 52.6 60.8 69.3 Foreign currency reserve................ US$billion (ii) 17.5 17.0 28.6 42.7 n/a Debt service ratio...................... % (iv) 9.7 11.4 11.6 12.0 n/a Official Exchange Rate (end of year).... RMB per US$(ii) 3.722 4.722 5.222 5.434 5.752
- --------------- Source: (i) State Statistical Bureau of the PRC China Statistical Yearbook 1993; (ii) International Monetary Fund, International Financial Statistics (Washington, D.C., January 1991); (iii) Asian Development Outlook 1990 & 1992; (iv) World Bank, World Debt Tables 1992-1993. As indicated in the table above, industrial output in the PRC has grown rapidly since 1988. The last decade of economic reform has resulted in a great change in the PRC's industrial pattern. In the first three decades after 1949, the PRC placed great emphasis on heavy industry rather than light industry and as a result the growth rate of heavy industry consistently out-performed that of light industry. In recent years growth in the industrial output has become relatively balanced between light industry and heavy industry. A-3 73 The PRC's economic reform has not been without problems. Overheating of the economy, inflation and stagnation in its basic infrastructure development prompted the government to implement policies to curb inflation from time to time during the 1980s. An austerity policy in 1988, in particular, led to two years of stagnant markets and an economic downswing. Starting in early 1992, boosted by Deng Xiaoping's calls for faster economic development during his visit to southern China, the pace of the PRC's economic reform has accelerated. At present, the PRC is in another period of very fast economic development. However, economic problems are being encountered mainly due to over-investment in fixed assets, rapid growth in the monetary supply, serious bottle-neck problems in transport infrastructure, excessive increases in the prices of some consumer goods and the costs of production. Commencing in the second half of 1993, the PRC implemented macro-economic and fiscal policies in an effort to control its overheated economy. The plan included raising interest rates, calling in speculative loans, cutting government expenditure and suspending some price reform measures. The challenge facing the PRC's economic planners is to ensure that the economy continues to grow, but that this growth takes place in a stable and non-inflationary environment. FOREIGN TRADE The PRC's foreign trade has grown rapidly since 1978 in both quantity and range. Trading partners now include about 170 countries and regions. From 1978 to 1993, the value of total trade grew from US$20.6 billion to US$195.7 billion. In 1992, the PRC's foreign trade yielded a trade surplus of US$4.4 billion. Exports reached US$85.0 billion, representing an increase of 18.2% over that of 1991, and imports reached US$80.6 billion, representing an increase of 26.4% over that of 1991. However, in 1993, the PRC's foreign trade yielded a trade deficit of US$12.2 billion. Exports reached US$91.8 billion, representing an increase of 8% over those of 1992, and imports reached US$103.95 billion, representing an increase of 29%. The PRC currently enjoys Most Favored Nation ("MFN") trading status with the United States which is subject to renewal on an annual basis. The PRC's MFN status means that the PRC maintains those trading privileges enjoyed by all normal trading partners of the United States. The PRC has retained MFN privileges since 1980. Rescission of MFN status would subject the PRC exports to the United States to significantly higher tariffs. FOREIGN INVESTMENT Since 1978, the number of enterprises with foreign investment has increased rapidly in the PRC. By the end of 1993, about 167,507 foreign investment enterprises with an aggregate amount of contracted investment of about US$382 billion has been established. In 1990, foreign investment enterprises constituted approximately 4.3% of the PRC's total industrial production value. Since 1978, the PRC Government has afforded even greater flexibility to foreign parties in relation to the industries in which investments may be made, access to domestic markets, and management of foreign investment enterprises, including greater latitude in the hiring and dismissal of employees, in setting levels of wages, bonuses and allowances, and in purchasing raw materials and marketing products. FOREIGN INVESTMENT IN THE PRC FROM 1979 TO 1993 (excluding joint stock limited companies)
1979-84 1985-89 1990 1991 1992 1993 ------- ------- ----- ------ ------ ------ Number of contracts............................. 3,248 18,530 7,273 12,978 48,764 83,437 Contractual value (in US$billions).............. 10.41 26.46 6.60 11.98 58.1 111.4
- --------------- Source: State Statistical Bureau of the PRC. A-4 74 LEGAL SYSTEM China's legal system is based on written statutes. Decided cases generally do not constituted binding precedents, although such cases are sometimes referred to for guidance. Although China is still in the process of developing a comprehensive system of laws, a significant number of laws and regulations dealing with general economic matters, foreign investment, protection of intellectual property, taxation, technology transfer and trade have been promulgated since the start of China's economic reform program in 1978. In 1982, China adopted a new Constitution which, among other things, authorizes foreign investment and guarantees the "lawful rights and interests" of foreign investors in China and was amended in 1988 and 1993 to provide for a "socialist market economy." National laws in China are promulgated by the NPC or its Standing Committee. The State Council formulates and promulgates administrative regulations, orders and directives in accordance with the Constitution and existing laws. The ministries and commissions under the State Council are vested with the power to issue orders, directives and regulations within the scope of their respective authorities. The local People's Congress and the local government are authorized to issue local decrees and administrative regulations to their own jurisdiction. These administrative regulations, orders and directives as well as local decrees and administrative regulations can not be in conflict with the Constitution and existing laws. The principal statute governing the judicial system is The Law of the People's Republic of China Concerning the Organization of the Judicial System, which took effect in July 1979 and which was amended in September 1983. The principal statute governing civil relations, including business transactions is the General Principles of the Civil Code (the "Civil Code"), enacted in April 1986. The Civil Code can be divided into seven broad categories: general principles, civil law, contract property, civil liability, remedies and special provisions governing foreign economic relations. The main statute governing civil procedure is The Law of the People's Republic of China on Civil Procedure (the "Civil Procedure Law") which took effect in April 1991. All foreign individuals, enterprises and other entities have the same rights and obligations as Chinese individuals, enterprises and other entities in instituting or defending proceedings in Chinese courts. However, if the rights and obligations of Chinese individuals, enterprises or other entities to institute or defend legal proceedings are subject to restrictions in particular foreign jurisdictions, then reciprocal restrictions may be imposed by Chinese courts on the rights and obligations of individuals, enterprises and other entities of such jurisdictions to institute or defend legal proceedings in China. All civil cases are decided by Chinese courts on the basis of a majority vote of the judges sitting on a case and are subject to a two-tier procedure whereby cases are heard by a court of first instance and are then subject to review by appellate courts. Courts are divided into four levels; the Supreme People's Court, the Higher People's Court, the Intermediate People's Court and the Elementary People's Court, with each level usually containing a criminal division, a civil division, an economic division, an administrative division, an intellectual property rights division and an enforcement division. The Supreme People's Court is the highest judicial organ in China and is responsible for supervising all other Courts. If a Chinese court is asked to recognize or enforce a judgment or ruling given by a foreign court, such judgment or ruling will be recognized and enforced only where there exists an applicable international treaty or other arrangement or basis for reciprocal enforcement of judgments between China and the country of the foreign court and where such enforcement would not violate the public security, state sovereignty or basic principles of the law of China , or contradict the "public interest." Foreign arbitral awards may be enforced in China pursuant to international treaties to which China is party, including the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), to which China acceded in 1987. As of January 1, 1992, 86 countries were members of the New York Convention, including the United States and Hong Kong (to which Great Britain extended application of the Convention pursuant to its own accession). Applications for enforcement in China are handled in accordance with the Civil Procedure Law, which provides that an application for enforcement shall be submitted to the Intermediate People's Court of the place where the party subject to enforcement is domiciled or where such party's property is located. A-5 75 The Arbitration Law of PRC was promulgated by the Standing Committee of the NPC on August 31, 1994 and came into effect on September 1, 1995. It is applicable to, among other matters, trade disputes involving foreign parties where the parties have entered into a written agreement to refer the matter to arbitration before an arbitration committee constituted in accordance with the Arbitration Law. Under the Arbitration Law, China Chamber of International Commerce is authorized to formulate foreign-related arbitration rules in accordance with the Arbitration Law and the PRC Civil Procedure Law. Where the parties have by an agreement provided arbitration as a method for dispute resolution, the parties are not permitted to institute legal proceeding in a People's Court. The China International Economic and Trade Arbitration Commission ("CIETAC"), established in Beijing under the auspices of the China Council for the Promotion of International Trade (China Chamber of International Commerce) is one of two domestic arbitration organizations in China charged with arbitrating foreign-related disputes. CIETAC's arbitration rules provide that CIETAC has jurisdiction over any dispute arising from "international economic and trade transactions" with respect to which an arbitration agreement selecting CIETAC arbitration is in effect. The second Chinese arbitration organization exclusively arbitrates foreign related maritime disputes. The CIETAC rules provide that an award rendered by a CIETAC tribunal shall be final and binding on the parties. The Civil Procedure Law also provides that a Chinese court may only refuse to enforce a CIETAC final award in the event of certain procedural errors relating to the jurisdiction of CIETAC over a given dispute or the failure by an arbitration tribunal to abide by CIETAC rules, or in the event that it determines that doing so would be against the "public interest." A consistent record of enforcement in China of foreign arbitral awards has yet to develop. EXCHANGE CONTROL On December 28, 1993, the People's Bank of China, authorized by the State Council of the PRC, announced that the dual exchange rate system for Renminbi against foreign currencies would be replaced by a unified exchange rate system, with effect from January 1, 1994. The PRC's foreign exchange control system has been in a state of flux since that time. Numerous rules and regulations and implementation measures have been issued. To the extent that existing provisions stipulated in previous regulations do not contradict new regulations as mentioned above, the existing regulations should remain valid. Set out below is a summary of those regulations which remain valid and effective: (1) Foreign exchange dealings are centralized and administered by the State Administration for Exchange Control and its branches ("SAEC"). Foreign exchange transactions are to be carried out under the approval of SAEC in the PRC through authorized banks and other financial institutions, including certain designated foreign banks. (2) PRC residents and foreigners residing in the PRC with foreign exchange incomes may deposit the foreign exchange in banks or sell the foreign exchange to banks. (3) Foreign parties to Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures, foreign investors in wholly foreign-owned enterprises and other foreign enterprises in China are permitted to remit their profits out of the PRC, subject to the availability of foreign exchange. Since March 1, 1993, each PRC or non-PRC resident has been permitted to bring in or take out of the PRC RMB6,000 in cash. The People's Bank of China, with authority from the State Council, on December 28, 1993 issued the Notice on the Further Reform of the Foreign Exchange Control Structure with effect from January 1, 1994. The Notice unifies the official Renminbi exchange rate and the market rate for Renminbi established at the foreign exchange swap centers throughout the PRC. Under the Notice, all foreign exchange income of PRC enterprises must be sold to designated banks authorized to deal in foreign exchange. However, enterprises with foreign equity interests and enterprises allowed to have foreign exchange bank accounts are allowed to retain their foreign exchange earnings. Control on the purchase of foreign exchange is also relaxed. Enterprises which require foreign exchange for their ordinary trading activities may purchase foreign exchange from designated foreign exchange banks if A-6 76 the application is supported by proper import contracts and payment notices. For import activities which require quotas, import licenses and registration, foreign exchange may be purchased if the applications are supported by import contracts and the relevant required documents. For non-trading activities, any application for purchase of foreign exchange needs to be supported by payment contracts or payment notices from relevant overseas organizations. According to Article 14 of the Provisional Regulation on the Sale, Purchase and Payment of Foreign Exchange, the payment of dividends to foreign shareholders is one of the activities permitting the purchase of foreign exchange through the banking system. A unified foreign exchange inter-bank market among designated foreign exchange banks is to be established, to be supervised and administered by the People's Bank of China through the SAEC. A single exchange rate system has been set up to replace the official rate and the swap center rate. Based on market conditions and supply and demand, and based on the PRC interbank foreign exchange market rate on the previous day, with reference to current exchange rates in the world financial markets, the People's Bank of China announces each day an exchange rate which is to be followed by all designated foreign exchange banks within the permitted range. Furthermore, foreign investment enterprises may distribute profit to their foreign investors with funds in their foreign exchange bank accounts kept with designated foreign exchange banks. Should such foreign exchange be insufficient, enterprises may apply to the relevant department of the state for permission to purchase foreign exchange from designated foreign exchange banks. The foreign exchange quota system is being phased out and outstanding holdings of foreign exchange quota and other entitlements may still be used to obtain foreign currencies through swap centers which shall continue to operate for an interim period. See "Exchange Rate Information."
1988 1989 1990 1991 1992 ----- ----- ----- ----- ----- Gross national product.......................................... % change (i) 11.3 4.4 4.1 8.2 13.0 Agricultural output............................................. % change (i) 3.9 3.1 7.6 3.7 6.4 Industrial output............................................... % change (i) 20.8 8.5 7.8 14.7 20.8 Light industries.............................................. 22.1 8.2 9.2 14.5 20.9 Heavy industries.............................................. 19.4 8.9 6.2 13.8 20.7 Per capita GNP.................................................. % change (i) 9.5 2.8 2.5 6.3 11.5 Gross domestic investment....................................... % of GNP (iii) 29.8 37.6 35.1 36.5 n/a Gross domestic savings.......................................... % of GNP (iii) 37.9 36.0 37.3 38.9 n/a Inflation rate.................................................. % change in Retail Price Index (i) 18.5 17.8 2.1 2.9 5.4 Gross industrial output value................................... % change (i) 20.8 8.5 7.8 14.8 27.5 Merchandise exports............................................. US$ billion (i) 47.5 52.5 62.1 71.8 85.0 % change (i) 20.5 10.6 18.2 15.8 18.2 Merchandise imports............................................. US$ billion (i) 55.3 59.1 53.3 63.8 80.6 % change 27.9 7.0 --9.8 19.7 26.3 Trade balance................................................... US$ billion (i) --7.8 --6.6 8.8 8.1 4.4 Current account balance......................................... US$ billion (ii) --3.8 --4.3 12.0 13.3 n/a % of GNP (ii) --1.0 --1.0 3.2 3.6 n/a External debt................................................... US$ billion (iv) 37.2 44.8 52.6 60.8 69.3 Foreign currency reserve........................................ US$ billion (ii) 17.5 17.0 28.6 42.7 n/a Debt service ratio.............................................. %(iv) 9.7 11.4 11.6 12.0 n/a Official Exchange Rate (end of year)............................ RMB per US$(ii) 3.722 4.722 5.222 5.434 5.752
- --------------- Source: (i) State Statistical Bureau of the PRC China Statistical Yearbook 1993; (ii) International Monetary Fund, International Financial Statistics (Washington, D.C., January 1991); (iii) Asian Development Outlook 1990 & 1992; (iv) World Bank, World Debt Tables 1992-1993. A-7 77 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF. TABLE OF CONTENTS
PAGE ------ Prospectus Summary..................... 3 Risk Factors........................... 7 Dilution............................... 14 Use of Proceeds........................ 15 Capitalization......................... 16 Selected Financial Information......... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 19 Business............................... 25 Management............................. 30 Principal Shareholders................. 33 Certain Transactions................... 34 Description of Securities.............. 35 Shares Eligible for Future Sale........ 37 Underwriting........................... 39 Concurrent Registration of Securities........................... 40 Legal Matters.......................... 40 Experts................................ 40 Enforcement of Civil Liabilities....... 41 Additional Information................. 42 Index to Financial Statements and Unaudited Pro Forma Financial Statements........................... F-1 Appendix -- The People's Republic of China................................ A-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ EURO TECH HOLDINGS COMPANY LIMITED 600,000 SHARES OF COMMON STOCK AND 600,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS -------------------- PROSPECTUS -------------------- MAY DAVIS GROUP, INC. , 1996 ------------------------------------------------------ ------------------------------------------------------ 78 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] SUBJECT TO COMPLETION, DATED NOVEMBER 18, 1996 EURO TECH HOLDINGS COMPANY LIMITED 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS AND 1,000,000 SHARES OF COMMON STOCK This Prospectus relates to the sale by certain selling securityholders (the "Selling Securityholders") of 1,000,000 Shares of common stock, par value $.01 per share (the "Common Stock") and 1,000,000 common stock purchase warrants (the "Warrants") of Euro Tech Holdings Company Limited, a British Virgin Islands Company (the "Company"). None of the proceeds from the sale of the Common Stock and Warrants by the Selling Securityholders will be received by the Company. The Company will bear all expenses (other than selling commissions and fees and expenses of counsel or other advisors to the Selling Securityholders) in connection with the registration and sale of the Common Stock and Warrants being offered by the Selling Securityholders. The Common Stock and the Warrants are sometimes collectively referred to as the "Securities." The Common Stock and Warrants will be offered by the Selling Securityholders in transactions in the over-the-counter market, in negotiated transactions or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Common Stock and Warrants to or through broker/dealers, and such broker/dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Common Stock and Warrants for whom such broker/dealers may act as agent or to whom they sell as principal, or both. The Selling Securityholders may be deemed to be "underwriters" as defined in the Securities Act of 1933, as amended (the "Securities Act"). If any broker/dealers are used by the Selling Securityholders, any commission paid to broker/dealers and, if broker/dealers purchase any Common Stock or Warrants as principals, any profits received by such broker/dealers on the resales of the Securities may be deemed to be underwriting discounts or commissions under the Securities Act. In addition, any profits realized by the Selling Securityholders may be deemed to be underwriter commissions. All costs, expenses and fees in connection with the registration of the Common Stock and Warrants offered by Selling Securityholders will be borne by the Company. Brokerage commissions, if any, attributable to the sale of the Common Stock and Warrants will be borne by the Selling Securityholders. See "Selling Securityholders" and "Plan of Distribution." The Company has applied for listing of the Common Stock and Warrants on the NASDAQ SmallCap Market ("NASDAQ") under the symbols " " and " ", respectively. And on the Boston Stock Exchange under the symbols " " and " ", respectively. Concurrently with the commencement of this offering, the Company offered by separate Prospectus 600,000 shares of Common Stock and 600,000 Warrants (the "Public Securities"). The Company's offering (the "Public Offering") is being made through May Davis Group, Inc. (the "Underwriter"). ------------------------ THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 7 AND "DILUTION." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1996 79 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] Upon consummation of the Public Offering, the Company will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, will file periodic reports and other information with the Commission. However, as a "foreign private issuer," the Company will be exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations and the Company's officers, directors and principal shareholders will be exempt from the reporting and "short-swing" profit recovery provisions contained in Section 16 of the Exchange Act and the rules thereunder, with respect to their purchases and sales of shares of Common Stock and Warrants. In addition, the Company will not be required under the Exchange Act to file periodic reports and financial statements with the Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, the Company intends to furnish its shareholders with annual reports containing financial statements which will be examined and reported on, with an opinion expressed by, an independent public accounting firm (prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The Company prepares its consolidated financial statements in accordance with U.S. GAAP. The Company publishes its financial statements in United States dollars as the Company is incorporated in the British Virgin Islands, where the currency is the United States dollar, and upon completion of the Public Offering the functional currency of the Company's only operating subsidiary is in Hong Kong Dollars. All dollar amounts ("$") set forth in this Prospectus are in United States dollars, the references to HK$ refer to Hong Kong Dollars and RMB to Chinese Renminbi Yuan. The Company intends to distribute to its shareholders annual reports containing financial statements audited and reported upon by its independent public accountants after the close of each fiscal year, and will make such other periodic reports as the Company may determine to be appropriate or as may be required by law. The Company's fiscal year ends December 31st of each year. 80 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] During the Company's Fiscal 1995 and Six Months 1996, the Company had sales of approximately $13,667,000 and $6,973,000, respectively, and net income of approximately $79,000 and $232,000, respectively. There can be no assurance that the recent levels of the Company's revenues or net income will continue to be achieved in the future. The Company maintains an executive office at 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong, and its telephone number at that address is 011-852-2814-0311. The Company's registered office in the British Virgin Islands is located at TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands, and its telephone number is (809) 494-5296. THE OFFERING SECURITIES OFFERED(1)...... 1,000,000 shares of Common Stock and 1,000,000 Warrants. See "Description of Securities." COMMON STOCK OUTSTANDING BEFORE PUBLIC OFFERING(1).............. 1,550,000 shares. COMMON STOCK OUTSTANDING AFTER PUBLIC OFFERING(1)(2)........... 2,150,000 shares. WARRANTS TO BE ISSUED IN THE PUBLIC OFFERING........ 600,000 Warrants. EXERCISE TERMS............. Each Warrant entitles the holder thereof to purchase one share of Common Stock for $5.50, during the five year period commencing one year after the date of this Prospectus, provided, however, that prior to the second year after the date of this Prospectus, the Warrants will be exercisable only if the Underwriter has consented in writing to all of the Warrants being exercisable. The exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment in certain circumstances. See "Description of Securities." EXPIRATION DATE............ , 2002 (six years after the Effective Date). REDEMPTION................. Redeemable by the Company, in whole or in part, at a price of $.10 per Warrant, at any time that the Warrants are exercisable upon not less than 30 days prior written notice to the holders of such Warrants, provided that the closing bid price of the Company's Common Stock for the twenty consecutive trading days immediately prior to the date on which the notice of redemption is given, shall have exceeded $8.50 per share. USE OF PROCEEDS............ The Company will receive none of the proceeds from this offering. See "Use of Proceeds." RISK FACTORS............... Investment in the securities offered hereby involves a high degree of risk and immediate substantial dilution. See "Risk Factors" and "Dilution." PROPOSED NASDAQ SYMBOLS:(3) COMMON STOCK.......... WARRANTS.............. PROPOSED BOSTON STOCK EXCHANGE SYMBOLS:(3) COMMON STOCK.......... WARRANTS.............. - ------------------ (1) Includes 1,400,000 shares of the Company's Common Stock to be issued in connection with the Acquisition. The owners of the shares to be issued in connection with the Acquisition have agreed to return to the Company for cancellation and as a contribution to capital an aggregate of 200,000 shares in the event Far East fails to achieve after-tax net income of at least $450,000 for the fiscal year to end December 31, 1996. See "Management Discussion and Analysis of Financial Condition and Results Operations," "Business" and "Certain Transaction." 4 81 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] (2) Does not include (i) 90,000 shares of Common Stock and 90,000 Warrants, subject to the Underwriter's Overallotment Option; (ii) 1,600,000 shares of Common Stock issuable upon the exercise of the outstanding Warrants, (iii) 120,000 shares of Common Stock issuable upon the exercise of the Underwriter's Warrants including the shares of Common Stock underlying the Warrants included within the Underwriter's Warrants; (iv) 1,400,000 shares of Common Stock reserved for issuance upon options that may be granted to the Company's management (the "Management Options"); or (v) 150,000 shares of Common Stock reserved for issuance pursuant to the Company's incentive stock option plan. See "Concurrent Public Offering of Securities," "Management" and "Description of Securities." (3) The proposed trading symbols do not imply that a liquid and active market will be developed or sustained for the Securities upon completion of the Public Offering. See "Risk Factors-Possible Suspension of the Company's Securities from NASDAQ and the Boston Stock Exchange Even if Listing is Obtained. 5 82 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] are unrelated to its current product lines and it may make future investments in real estate. In the event that the Company establishes such subsidiaries or divisions in the future, there can be no assurance that they will not sustain losses. Although the Company has derived profits from its investment in real estate, there can be no assurance that the Company will derive a profit from its current realty investment, which it is seeking to sell, or any future investments that it may make in realty. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." DEPENDENCE UPON MANAGEMENT. The Company will be dependent upon the services of its executive officers, in particular Mr. T.C. Leung, the Chairman of the Company's Board of Directors and its Chief Executive Officer. The business of the Company could be adversely effected by the loss of services of, or a material reduction in the amount of time devoted to the Company by its executive officers. Although the Company intends to apply for and be the beneficiary of a "Key Person" life insurance policy in the amount of $1,000,000 on the life of Mr. Leung, there can be no assurance that the Company will successfully obtain this insurance coverage, that it will maintain the policy in effect or that the coverage to be applied for, if obtained, will be sufficient to compensate the Company for the loss of the services of Mr. Leung. See "Management." COMPETITION. The Company faces competition from other distributors of substantially similar products and manufacturers themselves, both foreign and Chinese. The Company faces its principal competition from foreign manufacturers and other distributors of their products situated in Hong Kong and the PRC. In 1994, the PRC tightened its credit nationwide and, as a result, the Company believes that purchasers of the products distributed by the Company sought reduced prices. The products distributed by the Company were foreign manufactured and higher priced than Chinese manufactured products. As a result, the Company reduced its sales prices and, therefore, its profit margins to remain competitive. The Company believes that it competes with PRC manufacturers on the basis of quality and technology, with the Company offering products of foreign manufacturers which are of higher quality and use more advanced technology. The Company believes that it competes with the foreign manufacturers and the distributors of their products on the basis of the Company's more extensive distribution network and an established reputation. However, the Company recently disposed of one of its subsidiaries as a result of direct competition from a manufacturer which established its own distribution network in the PRC to distribute the type of products distributed by the subsidiary. There can be no assurance that the Company will be able to compete effectively with its competitors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." COMPETITION WITH VENDORS. As the Company plans to assemble products of the kind that it presently distributes, the Company may directly compete with certain of its vendors. Any such direct competition may adversely affect its relationships with its vendors. See "Business." VENDORS; LACK OF LONG TERM AGREEMENTS. The Company distributes supplies manufactured by a number of vendors, including Wallace, Hach, Hioki and Finnigan, which are the Company's largest suppliers, with purchases from them accounting for approximately 11%, 7%, 7% and 4%, respectively, of the Company's sales during Fiscal 1995 and 9%, 10%, 10%, and 23%, respectively, of the Company's sales during Six Months 1996. The Company has only a letter from Hioki appointing the Company as Hioki's sales representative in the PRC, Hong Kong and Macau, its agreement with Wallace is terminable by either party on thirty days notice prior to its annual renewal date, its agreement with Finnigan is terminable on ninety days notice by either party and the agreement with Hach expires in March 1997, unless a renewal is obtained. Although alternative sources of supply exist, there can be no assurance that the termination of the Company's relationship with any of the above or other vendors would not have a short-term adverse effect on the Company's operations. See "Business." 10 83 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 31% of the net proceeds received by the Company from the Public Offering have been allocated to working capital and the Company will have broad discretion as to the application of such funds. See "Use of Proceeds." CONTROL BY T.C. LEUNG. After the successful completion of the Public Offering, T.C. Leung, the Company's Chairman of the Board and Chief Executive Officer will beneficially own approximately 65% of the Company's issued and outstanding shares of Common Stock which as a practical matter will enable him to nominate and cause the election of all the members of the Company's Board of Directors, control the appointment of its officers and the day-to-day affairs and management of the Company. See "Principal Stockholders." CERTAIN LEGAL CONSEQUENCES OF INCORPORATION IN THE BRITISH VIRGIN ISLANDS. The Company's corporate affairs are governed by its Memorandum of Association, Articles of Association and the corporate law of the British Virgin Islands ("BVI"). Principles of law relating to such matters as the validity of Company procedures, the fiduciary duties of management and the rights of the Company's shareholders may differ from those that would apply if the Company were incorporated in a jurisdiction within the United States. The rights of shareholders under BVI law are not as extensive as the rights of shareholders under legislation or judicial precedent in many United States jurisdictions. Thus, the shareholders of the Company may have more difficulty in protecting their interests in the face of actions by the Company's Board of Directors than they might have as shareholders of a company incorporated in many United States jurisdictions. In addition, there is uncertainty whether the courts of BVI would enforce judgments of the courts of the United States and of other foreign jurisdictions. There is also uncertainty whether the courts of the BVI would enforce actions brought in the BVI which are based upon the securities laws of the United States. DILUTION. As a result of the sale of the Securities offered in the Public Offering and the consummation of the Acquisition, there will be immediate and substantial dilution to public investors in that the pro forma net tangible book value per share of the Company's Common Stock after the Public Offering and consummation of the Acquisition will be approximately $2.25 per share, or approximately $2.75 (55%) less than the $5.00 Public Offering price per share. See "Dilution." NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to the Public Offering, there has been no market for any of the Company's securities. The initial public offering price of the Securities and the exercise price and other terms of the Warrants have been arbitrarily determined by negotiations between the Company and the Underwriter and such prices and terms are not necessarily related to the Company's asset value, net worth or other established criteria of value. In addition, there can be no assurance that a trading market will develop after the Public Offering for any of the Company's Securities or that, if developed, it will be sustained. See "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE. In general, under Rule 144, a person which has satisfied a two-year holding period may, under certain circumstances, sell within any three-month period a number of shares of common stock that does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume in such shares during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity or other limitation by a person which is not an affiliate of an issuer and which has satisfied a three-year holding period. The holders of all shares of the Company's Common Stock, have agreed not to sell shares of the Company's Common Stock owned by them on the date hereof for a period of twenty-four months from the date of this Prospectus without the prior written consent of the Underwriter. The Company has 1,550,000 shares of Common Stock outstanding that are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The Company also has outstanding Warrants to purchase 1,000,000 shares of Common Stock which Warrants and shares of Common Stock underlying the Warrants are being registered under the Registration Statement of which this Prospectus forms a part for sale by said persons. Investors should be aware that sales of the Company's securities may have a depressive effect on the price of the Company's securities in any 11 84 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] market which may develop for such securities. See "-- Effect of Options, Warrants and Registration Rights," "Shares Eligible for Future Sale" and "Concurrent Registration of Securities." EFFECT OF OPTIONS, WARRANTS AND REGISTRATION RIGHTS. For the respective terms of the Underwriter's Warrants and Warrants sold as part of this Offering and the Public Offering and registered hereby and any options that may be granted by the Company under the Company's stock option plan or other options which may be issued by the Company, the holders thereof are given an opportunity to profit from a rise in the market price of the Common Stock, with a resulting dilution in the interests of the other stockholders. Further, the terms on which the Company may obtain additional financing during the exercise periods of said warrants and options may be adversely effected by the existence of such warrants, options and plan. The holders of options or warrants to purchase Common Stock may exercise such options or warrants at a time when the Company might be able to obtain additional capital through offerings of securities on terms more favorable than those provided by such options or warrants. In addition, the holders of the Underwriter's Warrants have demand and "piggyback" registration rights with respect to their securities. Exercise of such registration rights may involve substantial expense to the Company. See "Management," "Description of Securities," "Underwriting" and "Concurrent Public Offering of Securities." NO CASH DIVIDENDS. The Company has not paid any dividends to date. The Company's Board of Directors does not presently intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's business operations. See "Description of Securities." LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in August 1993, was registered as a broker in June 1995, and became a member firm of the National Association of Securities Dealers, Inc. in June 1995. The Underwriter is principally engaged in retail brokerage and market making activities and various corporate finance projects. The Underwriter has acted as a placement agent in private offerings and has participated as a member of the underwriting syndicate or as a selected dealer in one public offering and it has acted solely one time as the lead manager in only one public offering of securities. While certain of the officers of the Underwriter have significant experience in corporate finance and the underwriting of securities, no assurance can be given that the Underwriter's lack of experience as a lead managing underwriter of public offerings will not adversely affect the Public Offering and the subsequent development of a liquid public trading market in the Company's securities. POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. At any time during their exercise period, the Warrants may be redeemed by the Company at a redemption price of $.10 per Warrant upon 30 days prior written notice if the average closing bid price of the Common Stock for 20 consecutive trading days ending within 10 days of the notice exceeds $8.50. Redemption of the Warrants could force the holders to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the Warrants at the current market price for the Warrants when they might otherwise wish to hold the Warrants, or to accept the redemption price, which may be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities." CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS. Holders of the Warrants will have the right to exercise the Warrants for the purchase of shares of Common Stock only if a current prospectus relating to such shares is then in effect and only if the shares are qualified for sale under the securities laws of the states in which the warrant holders reside. Although the Company intends to maintain such a current prospectus and to seek to qualify the shares of Common Stock underlying the Warrants for sale in those states where the Common Stock and Warrants are to be offered, there is no assurance that it will be able to do so. The Warrants may be deprived of any value if the current prospectus encompassing the shares underlying the Warrants is not kept effective or if such underlying shares are not or cannot be registered in the states in which warrant holders reside. See "Description of Securities." POSSIBLE SUSPENSION OF COMPANY'S SECURITIES FROM NASDAQ AND THE BOSTON STOCK EXCHANGE EVEN IF LISTING OBTAINED. In connection with the Public Offering, the Company has applied for the listing of the Securities offered hereby on the NASDAQ System and the Boston Stock Exchange. However, there can be 12 85 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] no assurance that the Company's application will be granted or that, if granted, the Company will meet the criteria for continued quotation of its securities on the NASDAQ System and the Boston Stock Exchange. Minimum continued quotation criteria on the NASDAQ System include, among other things, $2,000,000 in total assets, $1,000,000 in capital and surplus, $200,000 in aggregate market value, and a minimum bid price of $1.00 per share of Common Stock. If an issuer does not meet the $1.00 minimum bid requirement, it may, however, remain on the NASDAQ System and the Boston Stock Exchange if it has $2,000,000 of capital and surplus and $1,000,000 in aggregate market value. Minimum continued quotation criteria for the Boston Stock Exchange include, among other things, $1,000,000 in total assets, $500,000 in stockholders' equity, a public float of 150,000 shares worth at least $500,000 and 250 beneficial stockholders. If the Company becomes unable to meet the continued quotation criteria of the NASDAQ System and is suspended therefrom, trading, if any, in the Company's securities would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" if then available, the OTC Bulletin Board. In such event, an investor would likely find it more difficult to dispose of, or to obtain accurate quotations as to the value of, the Company's securities. RISKS OF LOW-PRICED SECURITIES. If the Securities were to be suspended or delisted from the NASDAQ System and the Boston Stock Exchange, the Securities would be subject to rules under the Exchange Act, which impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established clients and "accredited investors" (for example, individuals with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with their spouses). For transactions covered by such rules, a broker-dealer must make a special suitability determination of the purchaser and have received the purchaser's written consent to the transaction prior to the sale. Consequently, such rules may affect the ability of broker-dealers to sell the Company's Securities and the ability of purchasers in this Offering to sell any of the Company's Securities acquired in this Offering in any secondary market that may develop for such Securities. The Commission has enacted rules that define a "penny stock" to be any equity security that has a price (as therein defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions, including securities listed on the NASDAQ System or on designated exchanges, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to any transaction in a penny stock, of a disclosure statement prepared by the Commission relating to the penny stock market. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. In the event the Company's securities are no longer listed on the NASDAQ System and the Boston Stock Exchange or are not otherwise exempt from the provisions of the Commission's "penny stock" rules, such rules may also affect the ability of broker-dealers to sell the Company's Securities and the ability of purchasers in this Offering to sell any of the Securities acquired hereby in any secondary market that may develop. DILUTION The net tangible book value of the Company as of June 30, 1996 was approximately HK$20,983,000 (US$2,711,000) or HK$13.54 (US$1.75) per Common Share. Net tangible book value per Common Share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of outstanding Common Shares at that date, assuming the share exchange between the Company and Far East as described in the "Certain Transactions" section had taken place prior to June 30, 1996 and that 100% of the outstanding shares of Far East had been transferred to the Company. After giving effect to the sale by the Company of the 600,000 Common Shares and 600,000 Warrants offered hereby (after deduction of estimated underwriting discounts and commissions, and offering expenses), the Company's net tangible book value at June 30, 1996 would have been approximately HK$37,475,000 (US$4,842,000) or HK$17.43 (US$2.25) per Common Share. This represents an immediate increase in net tangible book value 13 86 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] to existing shareholders of HK$3.89 (US$0.50) per Common Share and an immediate dilution to new investors of HK$21.32 (US$2.75) per Common Share. The following table illustrates the per Common Share dilution: Assumed initial public offering price per Common Share................. US$ 5.00 Net tangible book value per Common Share as of June 30, 1996......... US$ 1.75 Increase in net tangible book value per Common Share attributable to new investors..................................................... 0.50 -------- Net tangible book value per Common Share after the Public Offering... 2.25 -------- Dilution per Common Share to new investors........................... US$ 2.75 ========
The following table sets forth on a pro forma basis as of June 30, 1996, assuming the above mentioned share exchange had taken place prior to such date, the difference between the number of Common Shares purchased from the Company, the total consideration paid, and the average price per Common Share paid by the existing shareholders and by the new investors (at an assumed initial public offering price of US$5.00 per Common Share before deduction of estimated underwriting discounts and commissions, and other expenses):
SHARES PURCHASED TOTAL CONSIDERATION ------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER COMMON SHARE --------- ------ ------------ ------ ---------------- Existing shareholders...... 1,550,000 72.1% US$2,711,000 47.5% US$ 1.75 New investors.............. 600,000 27.9% 3,000,000 52.5% 5.00 --------- ------ ------------ ------ ---------------- Total................. 2,150,000 100.0% US$5,711,000 100.0% US$ 2.66 ======== ====== ============ ====== =================
The information presented above, with respect to existing shareholders, assumes no exercise of the Underwriter's Overallotment Option. In addition, 1,600,000 Common Shares have been reserved for issuance upon exercise of the Warrants and 120,000 Common Shares have been reserved for issuance upon exercise of the Underwriter's Warrants including the shares of Common Stock underlying the Warrants included within the Underwriter's Warrants, 1,400,000 Common Shares have been reserved for future issuance pursuant to the Management Options, and 150,000 Common Shares have been reserved for future issuance upon exercise of options granted pursuant to the Company's incentive stock option plan. See "Management" and "Description of Securities." CONCURRENT PUBLIC OFFERING OF SECURITIES Concurrently with this Offering, the Company is offering 600,000 shares of its Common Stock and 600,000 in the Public Offering through the Underwriter. USE OF PROCEEDS The Company will not received any proceeds from this Offering, but it will receive proceeds upon the exercise of the Warrants. The net proceeds to the Company from the sale of 600,000 shares of Common Stock and 600,000 Warrants offered in the Public Offering are estimated to be approximately $2,130,750 (approximately $2,533,995 if the Underwriter's Overallotment Option is exercised in full) after deducting 14 87 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] underwriting commissions and discounts and other expenses of the Public Offering. The Company expects to use the net proceeds of the Public Offering over the next twelve months approximately as follows:
APPROXIMATE APPROXIMATE DOLLAR PERCENTAGE AMOUNT OF OF NET NET APPLICATION OF NET PROCEEDS PROCEEDS PROCEEDS - ------------------------------------------------------------------ ---------- ----------- Product Assembly Operations(1).................................... $ 825,000 39% Expand the Number of Sales Offices(2)............................. $ 300,000 14% Office Equipment Purchases(3)..................................... $ 350,000 16% Working Capital................................................... $ 655,750 31% ---------- ---- Total................................................... $2,130,750 100%
- --------------- (1) Represents the approximate amount that may be used to fund the initial start-up costs, approximately $150,000, and the establishment of production facilities (including leasehold improvements, equipment and inventory purchases, lease payments and employee salaries), approximately $675,000, for the Company's proposed product assembly operations. See "Business." (2) Represents the approximate amount that may be used to expand the number of the Company's regional sales offices in the PRC which is subject to change from time to time. The Company estimates that the foregoing allocation will be sufficient to enable it to establish approximately three new regional sales offices and will be used for leasehold improvements and office equipment. See "Business." (3) To be used to purchase and update the Company's principal offices, including purchases of computer hardware and software and general office equipment. The Company currently estimates that the net proceeds of the Public Offering will be sufficient to fund its planned operations, including the funding of its obligations under the proposed agreement with STIP, and expansion efforts for approximately twelve months from the date of this Prospectus. The net proceeds may be sufficient for a greater or lesser period of time depending on the extent of the Company's expansion efforts and the rapidity of the completion of the negotiations for the Company's proposed agreement with STIP. In addition, the Company may require additional financing prior to or following such period if it is unable to complete the negotiation for the proposed agreement with STIP and another suitable facility is obtained requiring the Company to expend greater sums of money for initial start-up costs and/or production facilities or if a final agreement is reached with STIP but the estimated initial start-up costs and establishment of production facilities is greater than estimated. The Company has no commitments or arrangements for any such additional financing and there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company or at all. In the event additional financing is unavailable to the Company, the Company may be materially adversely affected. The foregoing represents the Company's best estimate of its allocation of the net proceeds of the Public Offering. Future events, as well as changes in economic, regulatory or competitive conditions or the Company's business and the results of the its activities may make shifts in the allocation of funds within the described categories or to other purposes necessary or desirable. In the event the Company is unable to fund its proposed product assembly operations with the net proceeds allocated above or suffers losses, the Company may draw upon the net proceeds of the Public Offering allocated to expand the number of its sales offices, purchase equipment and/or working capital. The Company estimates that the net proceeds of the Public Offering allocated to expand the number of its sales offices will be sufficient to establish approximately three new sales office at an average cost of approximately $100,000 for each new sales office. In the event the per sales office costs are greater than estimated, the Company may establish fewer sales offices or draw upon the net proceeds of the Public Offering allocated to working capital. In the event the per sales office costs are less than estimated, a portion of the net proceeds of the Public Offering allocated for such purposes will be reallocated to working capital. Prior to expenditure, proceeds will be invested principally in high grade, short-term, interest-bearing investments. Any proceeds received upon exercise of the Overallotment Option or any of the Warrants will be used for working capital purposes. There can be no assurance that the Overallotment Option or any of the Warrants will be exercised. 15 88 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] was due primarily to a decrease in income generated from providing engineering services to other companies in Fiscal 1994. Gain on Disposal of a Real Estate Property. The gain of approximately HK $2,300,000 resulted from the disposition of the premises which were previously leased out. Income from Continuing Operations. Income from continuing operations was approximately HK$4,333,000 in Fiscal 1994, a decrease of approximately HK$1,703,000 or 28.2% from approximately HK$6,036,000 in Fiscal 1993. This decrease in operating profit was primarily due to the economic austerity measures adopted by the PRC government in early 1994 and the exceptional sale in Fiscal 1993 resulting from the inclusion of the above mentioned exceptional order in the approximate amount of HK$19,600,000. Discontinued Operations - Income (Loss) of subsidiary companies. In Fiscal 1993, the operations of Far East's subsidiaries derived a profit of approximately HK$12,000 but their operations resulted in a loss of approximately (HK$1,466,000) in Fiscal 1994. This loss was primarily due to one of the major suppliers of Action disposing of its industrial computer product line in Fiscal 1994. The industrial computer product line had been one of Action's major product lines in prior years. Euro Electron was established in the later part of Fiscal 1993. During Fiscal 1994, Euro Electron was in its development stage, incurring expenses for planned operations, seeking product sources and formulating its marketing efforts while deriving no revenues. LIQUIDITY AND CAPITAL RESOURCES Far East's primary uses of cash have been to fund accounts receivable, inventories, capital expenditures related to the additions to property and equipment, and to pay dividends to its shareholders. Far East has historically met its cash requirements from cash flow from operations, short-term borrowings under bank lines of credit, and long-term mortgage bank loans. Working capital at the end of Fiscal 1995 and Six Months 1996 was approximately HK$4,896,000 and approximately HK$6,115,000, respectively. Inventory decreased from approximately HK$5,106,000 at the end of Fiscal 1995 to approximately HK$3,258,000 at the end of Six Months 1996. Far East seeks to maintain a low level of inventory comprised mostly of low tech products to fill regular customer's orders and parts and accessories for warranty purposes, with Far East principally ordering products upon receiving a customer's order. The higher inventory level at the end of Fiscal 1995 was principally due to goods received near year end but not delivered to customers for several reasons, including but not limited to, a multicomponent order awaiting shipment of a component while another had arrived and a customer's Letter of Credit or payment not having been received. During Fiscal 1995 and Six Months 1996, Far East experienced cash flow from operations of approximately HK$7,611,000 and (HK$319,000), respectively. Cash from operations in Fiscal 1995 having been positively impacted by shipments made in late Fiscal 1994 with payment being received in Fiscal 1995. At the end of Fiscal 1995, Far East's accounts receivable stood at approximately HK$22,040,000 while at the end of Six Months 1996, Far East's accounts receivable were approximately HK$18,978,000. At the end of Six Months 1996, Far East had advanced approximately HK$3,800,000 to Regent (of which approximately HK$2,200,000 was repaid subsequent to the end of Six Months 1996). Also accounts receivable declined by approximately HK$3,062,000 from approximately HK$22,040,000 at the end of Fiscal 1995 to approximately HK$18,978,000 at the end of Six Months 1996, which was partially offset by an increase in receivables from related companies of approximately HK$1,115,000 from approximately HK$275,000 at the end of Fiscal 1995 to approximately HK$1,390,000 at the end of Six Months 1996. 23 89 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] For Fiscal 1995 and Six Months 1996, Far East had income from continuing operations of approximately HK$2,259,000 and HK$1,783,000 respectively. This income rate increase followed from Far East's self-imposed budgetary restraints, the loosening of the PRC's economic austerity measures and a reduced rate of inflation in the PRC. Cash used in investing activities were mainly used to purchase properties in the PRC and Hong Kong. Far East has various banking facilities for overdraft, import and export credits and foreign exchange contracts amounting to approximately HK$40,900,000 from various banks. Approximately HK$24,500,000 of the credit facilities that are available were obtained on the conditions that, among other things, Far East mortgage its properties as security for the credit facilities, Far East not to create a charge or lien on its other assets in favor of other parties without the bank's consent, and Far East maintaining a certain level of net worth. Far East also has various bank loans to finance the purchase of its properties with outstanding indebtedness at June 30, 1996 of approximately HK$7,500,000. As of June 30, 1996, properties with net book value of approximately HK$20,200,000 were pledged to secure certain banking facilities of Far East. Cash declined from approximately HK$4,626,000 at the end of Fiscal 1995 to approximately HK$3,008,000 at the end of Six Months 1996 principally as a result of Far East electing to use cash on hand to repay short-term borrowings (i.e. bank overdraft and import/export loans) and make advances to Regent to finance a significant government project that had been undertaken by Regent's subsidiary and is nearing completion. Regent is charged interest at the rate of 18% per year for this advance. At June 30, 1996, Regent had an outstanding balance of approximately HK$3,800,000 due to Far East. The Company plans to use the net proceeds of the Public Offering to establish product assembly operations in the PRC and additional sales offices in the PRC and purchase office equipment including computer hardware and software. The balance of the proceeds of the Public Offering will be used for general working capital purposes. The Company believes that the net proceeds of the Public Offering, together with available trade credit, bank credit and internally generated funds, will be sufficient to satisfy its anticipated working capital needs for at least the twelve month period following the completion of the Public Offering. 24 90 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] PRINCIPAL SHAREHOLDERS The following table set forth, as of the date of this Prospectus, after giving effect to the Acquisition as if it had occurred on that date, certain information concerning beneficial ownership of shares of Common Stock with respect to (i) each person known to the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each executive officer, director and director nominee of the Company, and (iii) all officers, directors and director nominees of the Company as a group:
APPROXIMATE AMOUNT APPROXIMATE PERCENTAGE OF AND PERCENTAGE OF COMMON STOCK NATURE OF COMMON STOCK OWNED AFTER BENEFICIAL OWNED BEFORE PUBLIC OWNERSHIP PUBLIC OFFERING OFFERING(4) --------- --------------- --------------- T.C Leung (1)(2).............................. 1,400,000 90% 65% Jerry Wong (1)(3)............................. 0 * * Nancy Wong (1)(3)............................. 0 * * C.P. Kwan (1)(3).............................. 0 * * Alex Sham (1)(3).............................. 0 * * Pearl Venture Ltd. (1)(2)..................... 1,400,000 90% 65% Regent Earning Ltd. (1)....................... 1,027,600 66% 48% Celestial Dreams Corp., N.V. (5).............. 100,000 7% 5%(6) Richgrove, N.V. (5)........................... 100,000 7% 5%(6) Waveland Corp., N.V. (5)...................... 100,000 7% 5%(6) Eaglehurst, N.V. (5).......................... 100,000 7% 5%(6) Totado International, N.V. (5)................ 70,000 5% 3%(6) Signal Hill, N.V. (5)......................... 92,000 6% 4%(6) Sidford International Ltd. (7)................ 100,000 7% 5% All Executive Officers and Directors of the Company as a group (5 persons) (2)(3)....... 1,400,000 90% 65%
- --------------- * Denotes less than 1%. (1) The address for each of Ms. Wong and Messrs. Leung, Wong, Kwan and Sham is c/o Euro Tech (Far East) Ltd., 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong. The address for Pearl Venture Ltd. ("Pearl") is Columbus Centre Building, Wichhams Cay, Road Town, Tortola, British Virgin Islands. The address for Regent Earning Ltd. ("Regent") is Chong Kin Commercial Building, 596 Nathan Road, Room 902, Mong Kok, Kowloon, Hong Kong. (2) Includes shares of the Company's Common Stock owned of record by Pearl, which is a trust established for the benefit of Mr. Leung. Also includes those shares of the Company's Common Stock owned of record by Regent, of which Pearl is the majority shareholder. See "Certain Transactions." (3) Does not include such person's proportionate beneficial interest in shares of the Company's Common Stock held of record by Regent and/or Broadskill Investments, Inc. ("Broadskill"). See "Certain Transactions." (4) Does not include options which may be granted under the Company's 1996 Stock Option Plan and the Management Options. See "Management." (5) Represents shares of the Company's Common Stock issuable upon the exercise of Warrants held such entities which are selling securityholders. See "Selling Securityholders." The address for Signal Hill, N.V., Celestial Dreams Corp., N.V., Richgrove, N.V., Waveland Corp., N.V., and Eaglehurst, N.V. is Landhuis Joonchi, Kaya Richard J. Beaujon Z/A, P.O. Box 837, Curacao, Netherland Antilles. The address for Totado International, N.V. is P.O. Box 245, Philipsburg, Sint Maartin, Netherland Antilles. (6) Assumes no sale by such selling securityholders of their Warrants and/or the shares of the Company's Common Stock underlying such Warrants. See "Selling Securityholders." (7) The address for Sidford International Ltd. ("Sidford") is 21st Floor, Regent Centre, 88 Queens Road Central, Hong Kong. Sidford is a business consultant to Far East. See "Certain Transactions." CERTAIN TRANSACTIONS The Company was incorporated under the laws of the British Virgin Islands on September 30, 1996 and shortly thereafter sold 50,000 shares to Gusrae, Kaplan & Bruno, and 100,000 shares to Sidford for an aggregate consideration of $1,500 or $.01 per share. Gusrae, Kaplan & Bruno is United States counsel to the Company. Sidford has been and is a business consultant to Far East. 33 91 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] Pearl is a British Virgin Islands company which is a trust for the benefit of T.C. Leung, the Company's Chairman of the Board and Chief Executive Officer. Regent is a Hong Kong corporation. Simultaneously with the closing of the Public Offering, the Company will consummate the Acquisition by exchanging 1,400,000 shares of its Common Stock for the 1,000,000 issued and outstanding shares of the Common Stock of Far East at a ratio of 1.4 (one and four-tenths) shares of the Company's Common Stock for each issued and outstanding share of Far East's Common Stock. In the event Far East fails to achieve an after-tax net income of at least $450,000 for its fiscal year to end December 31, 1996, Pearl and Regent have agreed to return to the Company for cancellation and as a contribution to capital, an aggregate of 200,000 shares of the Company's common stock issued as part of the exchange for the capital stock of Far East. All discussions in this Prospectus relating to the number of issued and outstanding shares of Common Stock give effect to the Acquisition. Pearl was one of the founding shareholders of Far East and during the years 1992 through 1994, Pearl and Regent accumulated 100% of the issued and outstanding common stock of Far East (1,000,000 shares) for an aggregate consideration of approximately HK$11,130,000, with Pearl and Regent being the record owners of 266,000 and 734,000 shares of Far East's Common Stock, respectively. Broadskill is a Hong Kong corporation which owns an approximate 44% equity interest in Regent which if converted into shares of the Company's Common Stock would represent approximately 27% of the Company's Common Stock. No executive officer or director of the Company is an officer or director of Pearl, Regent or Broadskill. In addition to its direct record ownership of 372,400 shares of the Company's Common Stock, Pearl is also the beneficial owner of approximately 527,069 shares of the Company's Common Stock through its equity interest in Regent. Mr. Kwan, and each of Messrs. Wong and Sham and Ms. Wong, Executive Officers and Directors of the Company and Far East have equity interests in Regent and/or Broadskill which if were converted into shares of the Company's Common Stock would represent approximately 4%, less than 1%, less than 1% and less than 1% of the Company's Common Stock, respectively. See "Management" and "Principal Shareholders." During Fiscal 1996, the Company transferred its equity interests in three former subsidiaries, Armtison Limited (a wholly owned subsidiary), Action Instruments (China) Ltd., (a 51% owned subsidiary) and Euro Electron (Far East) Ltd. (a 80% owned subsidiary) to Regent and Pearl at book value (HK$10,000) invested in these three subsidiaries. In November, 1996 the Company sold an aggregate of 1,000,000 Warrants (the "Private Placement Warrants") to private investors for aggregate gross proceeds of $150,000. The Underwriter acted as the Company's placement agent in connection with the foregoing private placement of the Company's Private Placement Warrants and received an aggregate of $19,500 in commissions and non-accountable expenses. Said Private Placement Warrants and the shares of the Company's Common Stock underlying said Warrants are being offered hereby. See "Concurrent Public Offering of Securities," "Description of Securities" and "Plan of Distribution." At the end of Six Months 1996, Far East had advanced approximately HK$3,800,000 to Regent to finance a significant government project that had been undertaken by Regent's subsidiary and is nearing completion. Regent is charged eighteen percent interest per year on this advance. Regent has repaid approximately HK$2,200,000 subsequent to June 30, 1996. Mr. Leung may be deemed to be a "promoter" of the Company as such term is defined under the federal securities laws. 34 92 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] SELLING SECURITYHOLDERS The Registration Statement of which this Prospectus forms a part covers the offering of 1,000,000 Warrants and 1,000,000 shares of Common Stock underlying said Warrants owned by the Selling Securityholders. The resale of such securities by the Selling Securityholders is subject to prospectus delivery and other requirements of the Securities Act. The Company's securities are being offered by the following Selling Securityholders in the amounts set forth below.
(1) (2) (3) NUMBER OF SHARES NUMBER OF SHARES NUMBER OF OF COMMON STOCK OF COMMON STOCK WARRANTS BENEFICIALLY REGISTERED REGISTERED SELLING SECURITYHOLDER OWNED (*) HEREIN (*) HEREIN - ------------------------------------- ---------------- ---------------- ---------- Celestial Dreams Corp., NV........... 100,000 100,000 100,000 Richgrove, NV........................ 100,000 100,000 100,000 Waveland Corp., NV................... 100,000 100,000 100,000 Eaglehurst, NV....................... 100,000 100,000 100,000 Signal Hill, NV...................... 92,000 92,000 92,000 Totado International, NV............. 70,000 70,000 70,000 Imagine Holdings Corp................ 50,000 50,000 50,000 Lillian Goldman...................... 50,000 50,000 50,000 Jennifer L. King..................... 50,000 50,000 50,000 Maureen Hilson....................... 50,000 50,000 50,000 Ningling Jing........................ 30,000 30,000 30,000 Pamela Gailliard..................... 25,000 25,000 25,000 Edward Boginsky...................... 25,000 25,000 25,000 K. Percy............................. 25,000 25,000 25,000 Robert B. Sauter..................... 10,000 10,000 10,000 Lovella Fiedtkou..................... 10,000 10,000 10,000 Philip Settles....................... 10,000 10,000 10,000 Dr. David Mehler..................... 10,000 10,000 10,000 David H. Meyrowitz................... 10,000 10,000 10,000 Farid K. Farida...................... 10,000 10,000 10,000 Edwin S. Osias....................... 10,000 10,000 10,000 Lon Rubackin......................... 10,000 10,000 10,000 Gale L. Sayers Proby................. 10,000 10,000 10,000 Charles A. Conner, Jr................ 10,000 10,000 10,000 Ulysses Fleming...................... 10,000 10,000 10,000 Georgia M. Rogers.................... 5,000 5,000 5,000 Jane Troyer.......................... 5,000 5,000 5,000 Clifford Feldstein................... 5,000 5,000 5,000 Jon A. Maresca and C. Elizabeth Maresca................. 5,000 5,000 5,000 John Andrew Roe...................... 3,000 3,000 3,000
- --------------- (*) The Number of Shares of Common Stock Beneficially Owned and the Number of Shares of Common Stock Registered Herein as set forth above includes shares of Common Stock issuable on the exercise of the Warrants. 39 93 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] After the completion of the sale by the respective Selling Securityholders of the number of shares of Common Stock and Warrants set forth opposite their names in Columns (2) and (3) above, none of the Selling Securityholders will own any of such shares of Common Stock or Warrants. The foregoing persons and entities have agreed not to sell, for a period of twenty four months from the date of this Prospectus, an aggregate of 1,000,000 Warrants and 1,000,000 shares of Common Stock underlying said Warrants without the prior written consent of the Underwriters. PLAN OF DISTRIBUTION The Warrants and/or the shares of the Company's Common Stock underlying such Warrants may be sold from time to time directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time offer such securities through underwriters, dealers or agents. The distribution of securities by the Selling Securityholders may be effected in one or more transactions that may take place on the over-the-counter market, including ordinary broker's transactions, privately-negotiated transactions or through sales to one or more broker-dealers for resale of such shares as principals, at market prices prevailing at the time of sale. Commissions may be paid by the Selling Securityholders in connection with such sales. The Selling Securityholders and intermediaries through whom such securities are sold may be deemed "underwriters" within the meaning of the Securities Act with respect to the securities offered, and any profits realized or commissions received may be deemed underwriting compensation. The Company will derive proceeds from exercises of the Warrants but will not derive any proceeds from the sale of the Company's securities by the Selling Securityholders. There can be no assurance that any of the Warrants will be exercised. At a time an offer of securities is made by or on behalf of a Selling Securityholder, it is the Company's intent that a prospectus be distributed setting forth, based upon information provided by the Selling Securityholder, the number of securities being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, if any, the purchase price paid by any underwriter for securities purchased from the Selling Securityholder and any discounts, commissions or concessions allowed or re- allowed or paid to dealers, and the proposed selling price to the public. Sales of securities by the Selling Securityholders could have an adverse effect on the market prices of the securities offered pursuant to the Public Offering. LEGAL MATTERS The validity of the securities being offered hereby and certain legal matters in connection with this Offering with respect to British Virgin Islands law will be passed upon for the Company by Smith-Hughes, Raworth & McKenzie, British Virgin Islands counsel to the Company. Certain legal matters in connection with this Offering with respect to United States law will be passed upon for the Company by Gusrae, Kaplan & Bruno, New York, New York, as United States counsel to the Company. Gusrae, Kaplan & Bruno owns 50,000 shares of the Company's Common Stock. Hastings & Co. has advised the Company on certain legal matters in connection with this Offering with respect to the laws of Hong Kong. Jingtian Associates has advised the Company on certain legal matters with respect to the laws of the PRC. EXPERTS The Financial Statements of the Company included in this Prospectus have been audited by Arthur, Anderson & Co., Hong Kong, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as expert in giving said reports. 40 94 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] ENFORCEMENT OF CIVIL LIABILITIES The Company is a British Virgin Islands holding corporation. The Company has appointed as its agent upon whom process may be served in any action brought against it under the securities laws of the United States. However, it may be difficult for investors to enforce outside the United States judgements against the Company obtained in the United States in any such actions, including actions predicated upon the civil liability provisions of the United States federal securities laws. In addition, all of the Company's officers and directors reside outside the United States and all of the assets of these persons and of the Company are or may be located outside of the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such persons. Additionally, Hong Kong courts will not directly enforce against the Company or such persons judgments obtained in United States courts. There is substantial doubt as to the enforceability against the Company or any of its officers and directors located outside the United States in original actions for enforcement of judgements of United States courts. The Company has been advised by Hastings & Co., its Hong Kong counsel, and Smith-Hughes, Raworth & McKenzie, its British Virgin Islands counsel, that no treaty exists between Hong Kong or the British Virgin Islands and the United States providing for the reciprocal enforcement of foreign judgements. However, the courts of Hong Kong and the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgement as evidence of a debt due if: (i) the judgement is for a liquidated amount in a civil matter; (ii) the judgment is final and conclusive and has not been stayed or satisfied in full; (iii) the judgment is not directly or indirectly for the payment of foreign taxes, penalties, fines or changes of a like nature (in this regard, a Hong Kong or British Virgin Islands court is unlikely to accept a judgement for an amount obtained by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favor the judgement was given); (iv) the judgment was not obtained by actual or constructive fraud or duress; (v) the foreign court has taken jurisdiction on grounds that are recognized by the common law rules as to conflict of laws in Hong Kong or the British Virgin Islands; (vi) the proceedings in which the judgment was obtained were not contrary to natural justice (i.e., the concept of fair adjudication); (vii) the proceedings in which the judgment was obtained, the judgment itself and the enforcement of the judgment are not contrary to the public policy of Hong Kong or the British Virgin Islands; (viii) the person against whom the judgment is given is subject to the jurisdiction of the Hong Kong or the British Virgin Islands court; and (ix) the judgment is not on a claim for contribution in respect of damages awarded by a judgement which does not satisfy the foregoing. Enforcement of a foreign judgment which has been registered in a Hong Kong court or a judgment obtained in Hong Kong can be enforced by one or more of the following manners: (i) a Hong Kong court's bailiffs being sent to seize valuable chattels from the judgment debtor's premises and thereafter auction the same in satisfaction of the judgment debt; (ii) by a charge being registered against any real property belonging to the judgment debtor which charge must necessarily be redeemed upon sale or upon the judgment creditor exercising a right of sale attached thereto; (iii) oral examination of the judgment debtor or its director(s) to reveal in open court assets belonging to him/her or the Company; (iv) by debtors of the judgment debtor being required to pay over debts due to the judgment debtor; and (v) bankruptcy or "winding up" proceedings. Enforcement of a foreign judgement in Hong Kong or the British Virgin Islands may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or similar laws relating to or affecting creditors' rights generally and will be subject to a statutory limitation of time within which proceedings may be brought. A substantial portion of the Company's assets will be situated in the PRC. As the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts within the United States, actions brought by regulatory authorities, such as the Commission, and other actions, which result in foreign court judgments, could (assuming such actions are not required by PRC law to be arbitrated) only be enforced in the PRC if such judgments or rulings do not violate the basic principles of the law of the PRC or the sovereignty, security and public interest of the society of the PRC, as determined by a people's court of the 41 95 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] PRC which has jurisdiction for recognition and enforcement of judgments. The Company has been advised by its PRC counsel, Jingtian Associates, that there is substantial doubt as to the enforceability in the PRC of any actions to enforce judgments of United States' courts arising out of or based on the ownership of the Securities offered hereby, including judgments arising out of or based on the civil liability provisions of United States federal or state securities laws or otherwise. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form F-1 (the "Registration Statement") under the Securities Act with respect to the shares of Common Stock and Warrants offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in the exhibits and schedules thereto as permitted by the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. 42 96 [ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS] - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF. TABLE OF CONTENTS
PAGE ----- Prospectus Summary..................... 3 Risk Factors........................... 7 Dilution............................... 13 Concurrent Public Offering of Securities........................... 14 Use of Proceeds........................ 14 Capitalization......................... 16 Selected Financial Information......... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 19 Business............................... 25 Management............................. 30 Principal Shareholders................. 33 Certain Transactions................... 33 Description of Securities.............. 35 Shares Eligible for Future Sale........ 37 Selling Securityholders................ 39 Plan of Distribution................... 40 Legal Matters.......................... 40 Experts................................ 40 Enforcement of Civil Liabilities....... 41 Additional Information................. 42 Index to Financial Statements and Unaudited Pro Forma Financial Statements........................... F-1 Appendix -- The People's Republic of China................................ A-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ EURO TECH HOLDINGS COMPANY LIMITED 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS AND 1,000,000 SHARES OF COMMON STOCK -------------------- PROSPECTUS -------------------- , 1996 ------------------------------------------------------ ------------------------------------------------------ 97 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses of this offering, all of which are to be paid by the Registrant, in connection with the issuance and distribution of the Securities being registered, are as follows: SEC Registration Fee............................................................ $ 4,734.24 NASD Filing Fee................................................................. 1,872.93 NASDAQ Listing and Filing Fees.................................................. 15,000.00* Boston Stock Exchange Listing and Filing Fees................................... 15,000.00* Printing and Engraving Expenses................................................. 50,000.00* Accounting Fees and Expenses.................................................... 100,000.00* Legal Fees and Expenses......................................................... 200,000.00* Blue Sky Fees and Expenses...................................................... 50,000.00* Transfer and Warrant Agent Fees and Expenses.................................... 10,000.00* Consulting Agreement with Underwriter........................................... 108,000.00 Underwriter's non-accountable expense allowance (assuming no exercise of the overallotment option)......................................................... 92,700.00 Miscellaneous Expenses.......................................................... 2,942.83* Total........................................................................... $650,250.00* ===========
- --------------- * Estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 57 of the British Virgin Islands International Business Companies Ordinance provides as follows: (1) Subject to subsection (2) and any limitations in its memorandum or articles, a company incorporated under this Ordinance may indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who: (a) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or a liquidator of the company; or (b) is or was, at the request of the company, serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise. (2) Subsection (1) only applies to a person referred to in that subsection if the person acted honestly and in good faith with a view to the best interests of the company and, in the case of criminal proceedings, the person has no reasonable cause to believe that his conduct was unlawful. (3) The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is in the absence of fraud, sufficient for the purposes of this section, unless a question of law is involved. (4) The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the company or that the person had reasonable cause to believe that his conduct was unlawful. II-1 98 (5) If the person referred to in subsection (1) has been successful in defense of any proceedings referred to in subsection (1), the person is entitled to be indemnified against all expenses, including legal fees, and against all judgements, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings. In addition, Section 58 of the British Virgin Islands International Business Ordinance provides as follows: A company incorporated under this Ordinance may purchase and maintain insurance in relation to any person who is or was a director, an officer or a liquidator of the company, or who at the request of the company is or was serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the company has or would have had the power to indemnify the person against the liability under subsection (1) of section 57. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The Registrant has sold the following securities within the past three years: A In November 1996, the Registrant sold an aggregate of 150,000 shares of its Common Stock to the entities identified as follows, at a price of $.01 per share, Gusrae, Kaplan & Bruno (50,000 shares); Sidford International Ltd. (100,000 shares); and B In November 1996, the Registrant sold, to the persons and entities identified below, the securities of the Registrant for the consideration indicated opposite their names:
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION - ------------------------------- ----------------------------------------------------- ---------- Signal Hill, N.V............... Ninety Two Hundredths of a Unit (s)of the Company's $13,800.00 Securities* Celestial Dreams Corp., N.V.... One Unit of the Company's Securities* $15,000.00 Richgrove, N.V................. One Unit of the Company's Securities* $15,000.00 Waveland Corp, N.V............. One Unit of the Company's Securities* $15,000.00 Eaglehurst, N.V................ One Unit of the Company's Securities* $15,000.00 Totado International, N.V...... 7/10ths of a Unit of the Company's Securities* $10,500.00 Lillian Goldman................ One Half of a Unit of the Company's Securities* $ 7,500.00 Jennifer L. King............... One Half of a Unit of the Company's Securities* $ 7,500.00 Maureen Hilson................. One Half of a Unit of the Company's Securities* $ 7,500.00 Imagine Holdings Corp.......... One Half of a Unit of the Company's Securities* $ 7,500.00 Ningling Jing.................. 3/10ths of a Unit of the Company's Securities* $ 4,500.00 Edward Boginsky................ One Quarter of a Unit of the Company's Securities* $ 3,750.00 K. Percy....................... One Quarter of a Unit of the Company's Securities* $ 3,750.00 Pamela Gailliard............... One Quarter of a Unit of the Company's Securities* $ 3,750.00 Robert B. Sauter............... One Tenth of a Unit of the Company's Securities* $ 1,500.00 Louella Fiedtkou............... One Tenth of a Unit of the Company's Securities* $ 1,500.00 Philip Settles................. One Tenth of a Unit of the Company's Securities* $ 1,500.00 Dr. David Mehler............... One Tenth of a Unit of the Company's Securities* $ 1,500.00 David H. Meyrowitz............. One Tenth of a Unit of the Company's Securities* $ 1,500.00 Farid K. Farida................ One Tenth of a Unit of the Company's Securities* $ 1,500.00 Edwin S. Osias................. One Tenth of a Unit of the Company's Securities $ 1,500.00
II-2 99
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION Lon Rubackin................... One Tenth of a Unit of the Company's Securities* $ 1,500.00 Gale L. Sayer Proby............ One Tenth of a Unit of the Company's Securities* $ 1,500.00 Charles A. Conner, Jr.......... One Tenth of a Unit of the Company's Securities* $ 1,500.00 Georgia M. Rogers.............. One Twentieth of a Unit of the Company's Securities $ 750.00 Jon A. & C. Elizabeth One Twentieth of a Unit of the Company's Securities* $ 750.00 Maresca...................... Jane Troyer.................... One Twentieth of a Unit of the Company's Securities* $ 750.00 Clifford Feldstein............. One Twentieth of a Unit of the Company's Securities* $ 750.00 Ulysses Fleming................ One Tenth of a Unit of the Company's Securities* $ 1,500.00 John Andrew Roe................ Three One-hundredths of a Unit of the Company's $ 450.00 Securities* TOTAL $150,000.00
- ------------------ * Each Unit consisting of 100,000 Redeemable Common Stock Purchase Warrants. These transactions were exempt from registration under the Securities Act of 1933, as amended (the "Act"), under Section 4(2) of that Act as not involving a public offering, and as to those sales set forth under subsection B above, reliance is placed upon Rule 506 of Regulation D and Section 4(6) of the Act. No underwriter was engaged by the Registrant in connection with the issuances described above in A. May Davis Group, Inc acted as placement agent for the Registrant in connection with the issuances described in B above and received a commission and non-accountable expense equal to 10% and 3% of the aggregate amount of such securities. The recipients of all of the foregoing securities represented that such securities were being acquired for investment and not with a view to the distribution thereof. In addition, the certificates evidencing such securities bear restrictive legends. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS 1.1 Forms of Underwriting Agreement and Selected Dealers Agreement (2) 3.1 Registrant's Restated Memorandum and Articles of Association (1) 4.1 Form of Underwriter's Warrant Certificate (2) 4.2 Form of Financial Consulting Agreement to be entered into by and between the Registrant and the Underwriter (2) 4.3 Form of Common Stock Certificate (2) 4.4 Form of Redeemable Common Stock Purchase Warrants (2) 4.5 Form of Warrant Agreement between Registrant and American Stock Transfer & Trust Company (2) 5.1 Opinion of Gusrae, Kaplan & Bruno (2) 10.1 Form of Stock Exchange Agreement (2) 10.2 Preliminary Agreement between the Shanghai Thermometric Instrument Plant and Euro Tech (Far East) Ltd. (1) 10.3 Lease For Euro Tech (Far East) Ltd.'s Hong Kong Office (1) 10.4 Lease For Euro Tech (Far East) Ltd.'s Guangzhou Office (1) 10.5 Purchase Agreement between Beijing China International Industry and Commerce Co. Ltd. and Euro Tech (Far East) Ltd. (Beijing sales office) (1) 10.6 Purchase Agreement between Shanghai Xing Tai Real Estate Development Incorp. and Euro Tech (Far East) Ltd. (Shanghai sales office) (1) 10.7 International Sales Representative and Distribution Agreement between Wallace & Tiernan and Euro Tech (Far East) Ltd. (1) 10.8 Sales Representative Agreement between the Finnigan Corporation and Euro Tech (Far East) Ltd. (1)
II-3 100 10.9 Distributorship Agreement between Hach Company and Euro Tech (Far East) Limited (1) 10.10 Hong Kong Bank Mortgage Commitment Letter with Euro Tech (Far East) Ltd. (regarding Beijing sales office) (1) 10.11 The Bank of East Asia Limited Mortgage Commitment Letter with Euro Tech (Far East) Limited (regarding Shanghai sales office) (1) 10.12 Standard Chartered Bank Mortgage with Euro Tech (Far East) Limited (regarding new office) (1) 10.13 Hong Kong Bank Mortgage with Euro Tech (Far East) Limited (regarding investment property) (1) 10.14 Form of Agreement among Registrant, Euro Tech (Far East) Limited and Shereman Enterprises Ltd. (for the services of T.C. Leung) (2) 10.15 Registrant's Stock Option Plan (2) 23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1) (2) 23.2 Consents of Arthur Anderson & Co., Hong Kong (1) 23.3 Consent of Smith-Hughes, Raworth & McKenzie (2) 23.4 Consent of Hastings & Co. (2) 23.5 Consent of Jingtian Associates (2) 24.1 Power of Attorney (Included on Page II-6).
- --------------- (1) Filed herewith. (2) To be Filed by Amendment. (b) Financial Statement Schedule(s) NONE REQUIRED. ITEM 17. UNDERTAKINGS The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; (4) To file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a) (3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a) (4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. II-4 101 (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (6) The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-5 102 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that is has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in Hong Kong, on the 15th day of November, 1996. EURO TECH HOLDINGS COMPANY LIMITED By: /s/ T.C. Leung T.C. Leung, Chairman of the Board of Directors POWER OF ATTORNEY Know all men by these presents, that each individual whose signature appears below constitutes and appoints T.C. Leung and Jerry Wong and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ---------------------------------------- --------------------------------- ------------------ /s/ T.C. Leung Chairman of the Board of November 15, 1996 - ---------------------------------------- Directors, Chief Executive T.C. Leung Officer and Director (Principal Executive Officer) /s/ Jerry Wong Chief Financial Officer and November 15, 1996 - ---------------------------------------- Director (Principal Accounting Jerry Wong and Financial Officer) /s/ Nancy Wong Director November 15, 1996 - ---------------------------------------- Nancy Wong /s/ C.P. Kwan Director November 15, 1996 - ---------------------------------------- Nancy Wong /s/ Alex Sham Director November 15, 1996 - ---------------------------------------- Alex Sham
II-6 EX-3.1 2 RESTATED MEMO AND ARTICLES OF ASSOCIATION 1 Exhibit 3.1 TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (CAP. 291) MEMORANDUM OF ASSOCIATION OF EURO TECH HOLDINGS COMPANY LIMITED NAME 1. The name of the Company is EURO TECH HOLDINGS COMPANY LIMITED. REGISTERED OFFICE 2. The Registered Office of the Company will be the offices of TRUSTNET (BRITISH VIRGIN ISLANDS) LIMITED, TRUSTNET CHAMBERS, P.O. BOX 3444, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS. REGISTERED AGENT 3. The Registered Agent of the Company will be TRUSTNET (BRITISH VIRGIN ISLANDS) LIMITED OF TRUSTNET CHAMBERS, P.O. BOX 3444, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS. GENERAL OBJECTS AND POWERS 4. (1) The object of the Company is to engage in any act or activity that is not prohibited under any law for the time being in force in the British Virgin Islands; (2) The Company may not (a) carry on business with persons resident in the British Virgin Islands; (b) own an interest in real property situate in the British Virgin Islands, other than a lease referred to in paragraph (e) of subclause (3); (c) carry on banking or trust business, unless it is licensed to do so under the Banks and Trust Companies Act, 1990; (d) carry on business as an insurance or reinsurance company, insurance agent or insurance broker, unless it is licensed under an enactment authorising it to carry on that business; (e) carry on business of company management, unless it is licensed under the Company Management Act, 1990; or (f) carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands. 1 2 (3) For the purposes of paragraph 4.2 (a), the Company shall not be treated as carrying on business with persons resident in the British Virgin Islands if (a) it makes or maintains deposits with a person carrying on banking business within the British Virgin Islands; (b) it makes or maintains professional contact with solicitors, barristers, accountants, bookkeepers, trust companies, administration companies, investment advisers or other similar persons carrying on business within the British Virgin Islands; (c) it prepares or maintains books and records within the British Virgin Islands; (d) it holds, within the British Virgin Islands, meetings of its directors or members; (e) it holds a lease of property for use as an office from which to communicate with members or where books and records of the Company are prepared or maintained; (f) it holds shares, debt obligations or other securities in a company incorporated under the International Business Companies Act or under the Companies Act; or (g) shares, debt obligations or other securities in the Company are owned by any person resident in the British Virgin Islands or by any company incorporated under the International Business Companies Act or under the Companies Act. (4) The Company shall have all such powers as are permitted by law for the time being in force in the British Virgin Islands, irrespective of corporate benefit, to perform all acts and engage in all activities necessary or conducive to the conduct, promotion or attainment of the object of the Company. CURRENCY 5. Shares in the Company shall be issued in the currency of the United States of America. AUTHORIZED CAPITAL 6. The authorized capital of the Company is $200,000.00 CLASSES, NUMBER AND PAR VALUE OF SHARES 7. The authorized capital is made up of one class and one series of shares divided into 20,000,000 shares of $0.01 par value. DESIGNATIONS, POWERS PREFERENCES, ETC. OF SHARES 8. The powers, preferences and rights, and the qualifications, limitations and restrictions of the Company's shares are as follows: The holders of shares shall: (i) have one vote for each share held of record; (ii) be entitled to receive dividends as and when declared and to participate ratably in the assets of the Company upon liquidation; and (iii) not to be entitled to redeem them, or be entitled to any pre-emptive or similar rights. 2 3 9. If at any time the authorized capital is divided into different classes or series of shares, the rights attached to any class or series (unless otherwise provided by the terms of issue of the shares of that class or series) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of not less than a majority of the issued shares of that class or series and of the holders of not less than a majority of the issued shares of any other class or series of shares which may be affected by such variation. RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU 10. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. REGISTERED SHARES AND BEARER SHARES 11. Shares may be issued as registered shares or to bearer as may be determined by a resolution of directors. EXCHANGE OF REGISTERED SHARES AND BEARER SHARES 12. Registered shares may be exchanged for bearer shares and bearer shares may be exchanged for registered shares. TRANSFER OF REGISTERED SHARES 13. Subject to the provisions of the Articles of Association annexed hereto (the "Articles of Association") registered shares in the Company may be transferred subject to the prior or subsequent approval of the Company as evidenced by a resolution of directors or by a resolution of members. SERVICE OF NOTICE ON HOLDERS OF BEARER SHARES 14. Where shares are issued to bearer, the bearer, identified for this purpose by the number of the share certificate, shall be requested to provide the Company with the name and address of an agent for service of any notice, information or written statement required to be given to members, and service upon such agent shall constitute service upon the bearer of such shares until such time as a new name and address for service is provided to the Company. In the absence of such name and address being provided it shall be sufficient for the purposes of service for the Company to publish the notice, information or written statement or a summary thereof in one or more newspapers published or circulated in the British Virgin Islands and in such other place, if any, as the Company shall from time to time by a resolution of directors or a resolution of members determine. The directors of the Company must give sufficient notice of meetings to members holding shares issued to bearer to allow a reasonable opportunity for them to secure or exercise the right or privilege, other than the right or privilege to vote, as to which the period of notice shall be governed by the Articles of Association. What amounts to sufficient notice is a matter of fact to be determined after having regard to all the circumstances. 3 4 AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION 15. The Company may amend its Memorandum of Association and Articles of Association by a resolution of members or by a resolution of directors. DEFINITIONS 16. The meanings of words in this Memorandum of Association are as defined in the Articles of Association. We, TrustNet (British Virgin Islands) Limited of TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to this Memorandum of Association the 30th day of September, 1996. in the presence of: Witness Subscriber (Sgd. Jaime Flanders) (Sgd. Harriett Anthony) --------------------------- ----------------------------------------- TrustNet Chambers TrustNet (British Virgin Islands) Limited P.O. Box 3444 Road Town, Tortola 4 5 TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (CAP. 291) ARTICLES OF ASSOCIATION OF EURO TECH HOLDINGS COMPANY LIMITED PRELIMINARY 1. In these Articles, if not inconsistent with the subject or context, the words and expressions standing in the first column of the following table shall bear the meanings set opposite them respectively in the second column thereof. Words Meaning capital The sum of the aggregate par value of all outstanding shares with par value of the Company and shares with par value held by the Company as treasury shares plus (a) the aggregate of the amounts designated as capital of all outstanding shares without par value of the Company and shares without par value held by the Company as treasury shares, and (b) the amounts as are from time to time transferred from surplus to capital by a resolution of directors. member A person who holds shares in the Company. person An individual, a corporation, a trust, the estate of a deceased individual, a partnership or an unincorporated association of persons. resolution of (a) A resolution approved at a duly director convened and constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a simple majority of the directors present at the meeting who voted and did not abstain; or (b) a resolution consented to in writing by all directors or of all members of the committee, as the case may be; 1 6 except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority. resolution of (a) A resolution approved at a duly members convened and constituted meeting of the members of the Company by the affirmative vote of (i) a simple majority of the votes of the shares entitled to vote thereon which were present at the meeting and were voted and not abstained, or (ii) a simple majority of the votes of each class or series of shares which were present at the meeting and entitled to vote thereon as a class or series and were voted and not abstained and of a simple majority of the votes of the remaining shares entitled to vote thereon which were present at the meeting and were voted and not abstained; or (b) a resolution consented to in writing by (i) an absolute majority of the votes of shares entitled to vote thereon, or (ii) an absolute majority of the votes of each class or series of shares entitled to vote thereon as a class or series and of an absolute majority of the votes of the remaining shares entitled to vote thereon; securities Shares and debt obligations of every kind, and options, warrants and rights to acquire shares, or debt obligations. surplus The excess, if any, at the time of the determination of the total assets of the Company over the aggregate of its total liabilities, as shown in its books of account, plus the Company's capital. the Act The International Business Companies Act (CAP. 291) including any modification, extension, re-enactment or renewal thereof and any regulations made thereunder. the Memorandum The Memorandum of Association of the Company as originally framed or as from time to time amended. the Seal Any Seal which has been duly adopted as the Seal of the Company. 2 7 these Articles These Articles of Association as originally framed or as from time to time amended. treasury shares Shares in the Company that were previously issued but were repurchased, redeemed or otherwise acquired by the Company and not cancelled. 2. "Written" or any term of like import includes words typewritten, printed, painted, engraved, lithographed, photographed or represented or reproduced by any mode of reproducing words in a visible form, including telex, facsimile, telegram, cable or other form of writing produced by electronic communication. 3. Save as aforesaid any words or expressions defined in the Act shall bear the same meaning in these Articles. 4. Whenever the singular or plural number, or the masculine, feminine or neuter gender is used in these Articles, it shall equally, where the context admits, include the others. 5. A reference in these Articles to voting in relation to shares shall be construed as a reference to voting by members holding the shares except that it is the votes allocated to the shares that shall be counted and not the number of members who actually voted and a reference to shares being present at a meeting shall be given a corresponding construction. 6. A reference to money in these Articles is, unless otherwise stated, a reference to the currency in which shares in the Company shall be issued according to the provisions of the Memorandum. REGISTERED SHARES 7. Every member holding registered shares in the Company shall be entitled to a certificate signed by a director or officer of the Company and under the Seal specifying the share or shares held by him and the signature of the director or officer and the Seal may be facsimiles. 8. Any member receiving a share certificate for registered shares shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a share certificate for registered shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by a resolution of directors. 9. If several persons are registered as joint holders of any shares, any one of such persons may give an effectual receipt for any dividend payable in respect of such shares. BEARER SHARES 10. Subject to a request for the issue of bearer shares and to the payment of the appropriate consideration for the shares to be issued, the Company may, to the extent authorized by the Memorandum, issue bearer shares to, and at the expense of, such person as shall be specified in the request. Bearer shares may not be issued for debt obligations, promissory notes or other obligations to contribute money or property and registered shares issued for debt obligations, promissory notes or other obligations to contribute money or 3 8 property shall not be exchanged for bearer shares unless such debt obligations, promissory notes or other obligations to contribute money or property have been satisfied. The Company may also upon receiving a request in writing accompanied by the share certificate for the shares in question, exchange registered shares for bearer shares or may exchange bearer shares for registered shares. Such request served on the Company by the holder of bearer shares shall specify the name and address of the person to be registered and unless the request is delivered in person by the bearer shall be authenticated as hereinafter provided. Such request served on the Company by the holder of bearer shares shall also be accompanied by any coupons or talons which at the date of such delivery have not become due for payment of dividends or any other distribution by the Company to the holders of such shares. Following such exchange the share certificate relating to the exchanged shares shall be delivered as directed by the member requesting the exchange. 11. Bearer share certificates shall be under the Seal and shall state that the bearer is entitled to the shares therein specified, and may provide by coupons, talons or otherwise for the payment of dividends or other moneys on the shares included therein. 12. Subject to the provisions of the Act and of these Articles, the bearer of a bearer share certificate shall be deemed to be a member of the Company and shall be entitled to the same rights and privileges as he would have had if his name had been included in the share register of the Company as the holder of the shares. 13. Subject to any specific provisions in these Articles, in order to exercise his rights as a member of the Company, the bearer of a bearer share certificate shall produce the bearer share certificate as evidence of his membership of the Company. Without prejudice to the generality of the foregoing, the following rights may be exercised in the following manner: (a) for the purpose of exercising his voting rights at a meeting, the bearer of a bearer share certificate shall produce such certificate to the chairman of the meeting; (b) for the purpose of exercising his vote on a resolution in writing, the bearer of a bearer share certificate shall cause his signature to any such resolution to be authenticated as hereinafter set forth; (c) for the purpose of requisitioning a meeting of members, the bearer of a bearer share certificate shall address his requisition to the directors and his signature thereon shall be duly authenticated as hereinafter provided; and (d) for the purpose of receiving dividends, the bearer of a bearer share certificate shall present at such places as may be designated by the directors any coupons or talons issued for such purpose, or shall present the bearer share certificate to any paying agent authorized to pay dividends. 14. The signature of the bearer of a bearer share certificate shall be deemed to be duly authenticated if the bearer of the bearer share certificate shall produce such certificate to a notary public or a bank manager or a director or officer of the Company (herein referred to as an "authorized person") and the authorized person endorses the document bearing such signature with a statement: (a) identifying the bearer share certificate produced to him by number and date and specifying the number of shares and the class of shares (if appropriate) comprised therein; (b) confirming that the signature of the bearer of the bearer share certificate was subscribed in his presence and that if the bearer is representing a body corporate he has so acknowledged and has 4 9 produced satisfactory evidence thereof; and (c) specifying the capacity in which he is qualified as an authorized person and, if a notary public, affixing his seal thereto or, if a bank manager, attaching an identifying stamp of the bank of which he is a manager. 15. Notwithstanding any other provisions of these Articles, at any time, the bearer of a bearer share certificate may deliver the certificate for such shares into the custody of the Company at its registered office, whereupon the Company shall issue a receipt therefor under the Seal signed by a director or officer identifying by name and address the person delivering such certificate and specifying the date and number of the bearer share certificate so deposited and the number of shares comprised therein. Any such receipt may be used by the person named therein for the purpose of exercising the rights vested in the shares represented by the bearer share certificate so deposited including the right to appoint a proxy. Any bearer share certificate so deposited shall be returned to the person named in the receipt or his personal representative if such person be dead and thereupon the receipt issued therefor shall be of no further effect whatsoever and shall be returned to the Company for cancellation or, if it has been lost or mislaid, such indemnity as may be required by resolution of directors shall be given to the Company. 16. The bearer of a bearer share certificate shall for all purposes be deemed to be the owner of the shares comprised in such certificate and in no circumstances shall the Company or the chairman of any meeting of members or the Company's registrars or any director or officer of the Company or any authorized person be obliged to inquire into the circumstances whereby a bearer share certificate came into the hands of the bearer thereof, or to question the validity or authenticity of any action taken by the bearer of a bearer share certificate whose signature has been authenticated as provided herein. 17. If the bearer of a bearer share certificate shall be a corporation, then all the rights exercisable by virtue of such shareholding may be exercised by an individual duly authorized to represent the corporation but unless such individual shall acknowledge that he is representing a corporation and shall produce upon request satisfactory evidence that he is duly authorized to represent the corporation, the individual shall for all purposes hereof be regarded as the holder of the shares in any bearer share certificate held by him. 18. The directors may provide for payment of dividends to the holders of bearer shares by coupons or talons and in such event the coupons or talons shall be in such form and payable at such time and in such place or places as the directors shall resolve. The Company shall be entitled to recognize the absolute right of the bearer of any coupon or talon issued as aforesaid to payment of the dividend to which it relates and delivery of the coupon or talon to the Company or its agents shall constitute in all respects a good discharge of the Company in respect of such dividend. 19. If any bearer share certificate, coupon or talon be worn out or defaced, the directors may, upon the surrender thereof for cancellation, issue a new one in its stead, and if any bearer share certificate, coupon or talon be lost or destroyed, the directors may upon the loss or destruction being established to their satisfaction, and upon such indemnity being given to the Company as it shall by resolution of directors determine, issue a new bearer share certificate in its stead, and in either case on payment of such sum as the Company may from time to time by resolution of directors require. In case of loss or destruction the person to whom such new bearer share certificate, coupon or talon is issued shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such loss or destruction and to such indemnity. 5 10 SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS 20. Subject to the provisions of these Articles and any resolution of members, the unissued shares of the Company shall be at the disposal of the directors who may, without limiting or affecting any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of shares to such persons, at such times and upon such terms and conditions as the Company may by resolution of directors determine. 21. No share in the Company may be issued until the consideration in respect thereof is fully paid, and when issued the share is for all purposes fully paid and non- assessable save that a share issued for a promissory note or other written obligation for payment of a debt may be issued subject to forfeiture in the manner prescribed in these Articles. 22. Shares in the Company shall be issued for money, services rendered, personal property, an estate in real property, a promissory note or other binding obligation to contribute money or property or any combination of the foregoing as shall be determined by a resolution of directors. 23. Shares in the Company may be issued for such amount of consideration as the directors may from time to time by resolution of directors determine, except that in the case of shares with par value, the amount shall not be less than the par value, and in the absence of fraud the decision of the directors as to the value of the consideration received by the Company in respect of the issue is conclusive unless a question of law is involved. The consideration in respect of the shares constitutes capital to the extent of the par value and the excess constitutes surplus. 24. A share issued by the Company upon conversion of, or in exchange for, another share or a debt obligation or other security in the Company, shall be treated for all purposes as having been issued for money equal to the consideration received or deemed to have been received by the Company in respect of the other share, debt obligation or security. 25. Treasury shares may be disposed of by the Company on such terms and conditions (not otherwise inconsistent with these Articles) as the Company may by resolution of directors determine. 26. The Company may issue fractions of a share and a fractional share shall have the same corresponding fractional liabilities, limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of the same class or series of shares. 27. Upon the issue by the Company of a share without par value, if an amount is stated in the Memorandum to be authorized capital represented by such shares then each share shall be issued for no less than the appropriate proportion of such amount which shall constitute capital, otherwise the consideration in respect of the share constitutes capital to the extent designated by the directors and the excess constitutes surplus, except that the directors must designate as capital an amount of the consideration that is at least equal to the amount that the share is entitled to as a preference, if any, in the assets of the Company upon liquidation of the Company. 28. The Company may purchase, redeem or otherwise acquire and hold its own shares but only out of surplus or in exchange for newly issued shares of equal value. 29. Subject to provisions to the contrary in (a) the Memorandum or these Articles; (b) the designations, powers, preferences, rights, qualifications, limitations and restrictions with which the shares were issued; or 6 11 (c) the subscription agreement for the issue of the shares, the Company may not purchase, redeem or otherwise acquire its own shares without the consent of members whose shares are to be purchased, redeemed or otherwise acquired. 30. No purchase, redemption or other acquisition of shares shall be made unless the directors determine that immediately after the purchase, redemption or other acquisition the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and the realizable value of the assets of the Company will not be less than the sum of its total liabilities, other than deferred taxes, as shown in the books of account, and its capital and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. 31. A determination by the directors under the preceding Article is not required where shares are purchased, redeemed or otherwise acquired (a) pursuant to a right of a member to have his shares redeemed or to have his shares exchanged for money or other property of the Company; (b) by virtue of a transfer of capital pursuant to these Articles; (c) by virtue of the provisions of Section 83 of the Act; or (d) pursuant to an order of the Court. 32. Shares that the Company purchases, redeems or otherwise acquires pursuant to the preceding Article may be cancelled or held as treasury shares except to the extent that such shares are in excess of 80 percent of the issued shares of the Company in which case they shall be cancelled but they shall be available for reissue. 33. Where shares in the Company are held by the Company as treasury shares or are held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the votes in the election of directors of the other company, such shares of the Company are not entitled to vote or to have dividends paid thereon and shall not be treated as outstanding for any purpose except for purposes of determining the capital of the Company. 34. The Company may purchase, redeem or otherwise acquire its shares at a price lower than the fair value if permitted by, and then only in accordance with, the terms of (a) the Memorandum or these Articles; or (b) a written agreement for the subscription for the shares to be purchased, redeemed or otherwise acquired. 35. The Company may by a resolution of directors include in the computation of surplus for any purpose the unrealized appreciation of the assets of the Company, and, in the absence of fraud, the decision of the directors as to the value of the assets is conclusive, unless a question of law is involved. MORTGAGES AND CHARGES OF REGISTERED SHARES 36. Members may mortgage or charge their registered shares in the Company and upon satisfactory evidence thereof the Company shall give effect to the terms of any valid mortgage or charge except insofar as it may conflict with any requirements herein contained for consent to the transfer of shares. 37. In the case of the mortgage or charge of registered shares there may be entered in the share register of the Company at the request of the registered holder of such shares 7 12 (a) a statement that the shares are mortgaged or charged; (b) the name of the mortgagee or chargee; and (c) the date on which the aforesaid particulars are entered in the share register. 38. Where particulars of a mortgage or charge are registered, such particulars shall be cancelled (a) with the consent of the named mortgagee or chargee or anyone authorized to act on his behalf; or (b) upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable. 39. Whilst particulars of a mortgage or charge are registered, no transfer of any share comprised therein shall be effected without the written consent of the named mortgagee or chargee or anyone authorized to act on his behalf. FORFEITURE 40. When shares issued for a promissory note or other written obligation for payment of a debt have been issued subject to forfeiture, the following provisions shall apply. 41. Written notice specifying a date for payment to be made and the shares in respect of which payment is to be made shall be served on the member who defaults in making payment pursuant to a promissory note or other written obligations to pay a debt. 42. The written notice specifying a date for payment shall (a) name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which payment required by the notice is to be made; and (b) contain a statement that in the event of non-payment at or before the time named in the notice the shares, or any of them, in respect of which payment is not made will be liable to be forfeited. 43. Where a written notice has been issued and the requirements have not been complied with within the prescribed time, the directors may at any time before tender of payment forfeit and cancel the shares to which the notice relates. 44. The Company is under no obligation to refund any moneys to the member whose shares have been forfeited and cancelled pursuant to these provisions. Upon forfeiture and cancellation of the shares the member is discharged from any further obligation to the Company with respect to the shares forfeited and cancelled. LIEN 45. The Company shall have a first and paramount lien on every share issued for a promissory note or for any other binding obligation to contribute money or property or any combination thereof to the Company, and the Company shall also have a first and paramount lien on every share standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same 8 13 are joint debts or liabilities of such member or his estate and any other person, whether a member of the Company or not. The Company's lien on a share shall extend to all dividends payable thereon. The directors may at any time either generally, or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Article. 46. In the absence of express provisions regarding sale in the promissory note or other binding obligation to contribute money or property, the Company may sell, in such manner as the directors may by resolution of directors determine, any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of twenty-one days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share. 47. The net proceeds of the sale by the Company of any shares on which it has a lien shall be applied in or towards payment of discharge of the promissory note or other binding obligation to contribute money or property or any combination thereof in respect of which the lien exists so far as the same is presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the directors may authorize some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the sale. TRANSFER OF SHARES 48. Subject to any limitations in the Memorandum, registered shares in the Company may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, but in the absence of such written instrument of transfer the directors may accept such evidence of a transfer of shares as they consider appropriate. 49. The Company shall not be required to treat a transferee of a registered share in the Company as a member until the transferee's name has been entered in the share register. 50. Subject to any limitations in the Memorandum, the Company must on the application of the transferor or transferee of a registered share in the Company enter in the share register the name of the transferee of the share save that the registration of transfers may be suspended and the share register closed at such times and for such periods as the Company may from time to time by resolution of directors determine provided always that such registration shall not be suspended and the share register closed for more than 60 days in any period of 12 months. TRANSMISSION OF SHARES 51. The executor or administrator of a deceased member, the guardian of an incompetent member or the trustee of a bankrupt member shall be the only person recognized by the Company as having any title to his share but they shall not be entitled to exercise any rights as a member of the Company until they have proceeded as set forth in the next following three Articles. 52. The production to the Company of any document which is evidence of probate of the will, or letters of administration of the estate, or confirmation as executor, of a deceased member or of the appointment of a guardian of an incompetent member or the trustee of a bankrupt member shall be accepted by the Company even if the deceased, incompetent or bankrupt member is domiciled outside the British Virgin 9 14 Islands if the document evidencing the grant of probate or letters of administration, confirmation as executor, appointment as guardian or trustee in bankruptcy is issued by a foreign court which had competent jurisdiction in the matter. For the purpose of establishing whether or not a foreign court had competent jurisdiction in such a matter the directors may obtain appropriate legal advice. The directors may also require an indemnity to be given by the executor, administrator, guardian or trustee in bankruptcy. 53. Any person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy of any member may be registered as a member upon such evidence being produced as may reasonably be required by the directors. An application by any such person to be registered as a member shall for all purposes be deemed to be a transfer of shares of the deceased, incompetent or bankrupt member and the directors shall treat it as such. 54. Any person who has become entitled to a share or shares in consequence of the death, incompetence or bankruptcy of any member may, instead of being registered himself, request in writing that some person to be named by him be registered as the transferee of such share or shares and such request shall likewise be treated as if it were a transfer. 55. What amounts to incompetence on the part of a person is a matter to be determined by the court having regard to all the relevant evidence and the circumstances of the case. REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL 56. The Company may by a resolution of directors amend the Memorandum to increase or reduce its authorized capital and in connection therewith the Company may in respect of any unissued shares increase or reduce the number of such shares, increase or reduce the par value of any such shares or effect any combination of the foregoing. 57. The Company may amend the Memorandum to (a) divide the shares, including issued shares, of a class or series into a larger number of shares of the same class or series; or (b) combine the shares, including issued shares, of a class or series into a smaller number of shares of the same class or series, provided, however, that where shares are divided or combined under (a) or (b) of this Article, the aggregate par value of the new shares must be equal to the aggregate par value of the original shares. 58. The capital of the Company may by a resolution of directors be increased by transferring an amount of the surplus of the Company to capital. 59. Subject to the provisions of the two next succeeding Articles, the capital of the Company may by resolution of directors be reduced by transferring an amount of the capital of the Company to surplus. 60. No reduction of capital shall be effected that reduces the capital of the Company to an amount that immediately after the reduction is less than the aggregate par value of all outstanding shares with par value and all shares with par value held by the Company as treasury shares and the aggregate of the amounts designated as capital of all outstanding shares without par value and all shares without par value held by the Company as treasury shares that are entitled to a preference, if any, in the assets of the Company upon liquidation of the Company. 10 15 61. No reduction of capital shall be effected unless the directors determine that immediately after the reduction the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and that the realizable assets of the Company will not be less than its total liabilities, other than deferred taxes, as shown in the books of the Company and its remaining capital, and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. MEETINGS AND CONSENTS OF MEMBERS 62. The directors of the Company may convene meetings of the members of the Company at such times and in such manner and places within or outside the British Virgin Islands as the directors consider necessary or desirable. 63. Upon the written request of members holding 10 percent or more of the outstanding voting shares in the Company the directors shall convene a meeting of members. 64. The directors shall give not less than 7 days notice of meetings of members to those persons whose names on the date the notice is given appear as members in the share register of the Company and are entitled to vote at the meeting. 65. The directors may fix the date notice is given of a meeting of members as the record date for determining those shares that are entitled to vote at the meeting. 66. A meeting of members may be called on short notice: (a) if members holding not less than 90 percent of the total number of shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of shares where members are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or (b) if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver. 67. The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting. 68. A member may be represented at a meeting of members by a proxy who may speak and vote on behalf of the member. 69. The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. 70. An instrument appointing a proxy shall be in substantially the following form or such other form as the Chairman of the meeting shall accept as properly evidencing the wishes of the member appointing the proxy. (Name of Company) I/We being a member of the above Company with shares HEREBY APPOINT of or failing him of to be my/our proxy to vote for me/us at the meeting of members to be held on the day of and at any adjournment thereof. 11 16 (Any restrictions on voting to be inserted here.) Signed this day of ---------------------------------- Member 71. The following shall apply in respect of joint ownership of shares: (a) if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member; (b) if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners, and (c) if two or more of the joint owners are present in person or by proxy they must vote as one. 72. A member shall be deemed to be present at a meeting of members if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other. 73. A meeting of members is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting. If a quorum be present, notwithstanding the fact that such quorum may be represented by only one person then such person may resolve any matter and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy form shall constitute a valid resolution of members. 74. If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. 75. At every meeting of members, the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting, the members present shall choose some one of their number to be the chairman. If the members are unable to choose a chairman for any reason, then the person representing the greatest number of voting shares present in person or by prescribed form of proxy at the meeting shall preside as chairman failing which the oldest individual member or representative of a member present shall take the chair. 76. The chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. 77. At any meeting of the members the chairman shall be responsible for deciding in such manner as he shall consider appropriate whether any resolution has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes thereof. If the chairman shall have any doubt as to 12 17 the outcome of any resolution put to the vote, he shall cause a poll to be taken of all votes cast upon such resolution, but if the chairman shall fail to take a poll then any member present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall thereupon cause a poll to be taken. If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting by the chairman. 78. Any person other than an individual shall be regarded as one member and subject to the specific provisions hereinafter contained for the appointment of representatives of such persons the right of any individual to speak for or represent such member shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any member. 79. Any person other than an individual which is a member of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the person which he represents as that person could exercise if it were an individual member of the Company. 80. The chairman of any meeting at which a vote is cast by proxy or on behalf of any person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such person shall be disregarded. 81. Directors of the Company may attend and speak at any meeting of members of the Company and at any separate meeting of the holders of any class or series of shares in the Company. 82. An action that may be taken by the members at a meeting may also be taken by a resolution of members consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, but if any resolution of members is adopted otherwise than by the unanimous written consent of all members, a copy of such resolution shall forthwith be sent to all members not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more members. DIRECTORS 83. The first directors of the Company shall be appointed by the subscribers to the Memorandum; and thereafter, the directors shall be elected by the members for such term as the members determine. 84. The minimum number of directors shall be one and the maximum number shall be 7. 85. Each director shall hold office for the term, if any, fixed by resolution of members or until his earlier death, resignation or removal. 86. A director may be removed from office, with or without cause, by a resolution of members or, with cause, by a resolution of directors. 87. A director may resign his office by giving written notice of his resignation to the Company and the resignation shall have effect from the date the notice is received by the Company or from such later date as may be specified in the notice. 88. The directors may at any time appoint any person to be a director either to fill a vacancy or as an addition 13 18 to the existing directors. A vacancy occurs through the death, resignation or removal of a director, but a vacancy or vacancies shall not be deemed to exist where one or more directors shall resign after having appointed his or their successor or successors. 89. The Company may determine by resolution of directors to keep a register of directors containing (a) the names and addresses of the persons who are directors of the Company; (b) the date on which each person whose name is entered in the register was appointed as a director of the Company; and (c) the date on which each person named as a director ceased to be a director of the Company. 90. If the directors determine to maintain a register of directors, a copy thereof shall be kept at the registered office of the Company and the Company may determine by resolution of directors to register a copy of the register with the Registrar of Companies. 91. With the prior or subsequent approval by a resolution of members, the directors may, by a resolution of directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company. 92. A director shall not require a share qualification and may be an individual or a company. POWERS OF DIRECTORS 93. The business and affairs of the Company shall be managed by the directors who may pay all expenses incurred preliminary to and in connection with the formation and registration of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be authorized by these Articles and to such requirements as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with these Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made. Notwithstanding anything in Section 80 of the Act the directors shall have the power to sell, transfer, lease, exchange or otherwise dispose of more than fifty percent of the assets of the Company without submitting a proposal to or obtaining the consent of the members of the Company. 94. The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an officer or agent of the Company. The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company. 95. Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the resolution of directors appointing the officer or agent, except that no officer or agent has any power or authority with respect to the matters requiring a resolution of directors under the Act. 96. Any director which is a body corporate may appoint any person its duly authorized representative for the purpose of representing it at meetings of the Board of Directors or with respect to unanimous written consents. 97. The continuing directors may act notwithstanding any vacancy in their body, save that if their number is reduced to their knowledge below the number fixed by or pursuant to these Articles as the necessary quorum for a meeting of directors, the continuing directors or director may act only for the purpose of appointing directors to fill any vacancy that has arisen or for summoning a meeting of members. 98. The directors may by resolution of directors exercise all the powers of the Company to borrow money and 14 19 to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. 99. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of directors. 100. The Company may determine by resolution of directors to maintain at its registered office a register of mortgages, charges and other encumbrances in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance: (a) the sum secured; (b) the assets secured; (c) the name and address of the mortgagee, chargee or other encumbrancer; (d) the date of creation of the mortgage, charge or other encumbrance; and (e) the date on which the particulars specified above in respect of the mortgage, charge or other encumbrance are entered in the register. 101. The Company may further determine by a resolution of directors to register a copy of the register of mortgages, charges or other encumbrances with the Registrar of Companies. PROCEEDINGS OF DIRECTORS 102. The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable. 103. A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other. 104. A director shall be given not less than 3 days notice of meetings of directors, but a meeting of directors held without 3 days notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend, waive notice of the meeting and for this purpose, the presence of a director at a meeting shall constitute waiver on his part. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting. 105. A director may by a written instrument appoint an alternate who need not be a director and an alternate is entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director. 106. A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one half of the total number of directors, unless there are only 2 directors in which case the quorum shall be 2. 107. If the Company shall have only one director the provisions herein contained for meetings of the directors shall not apply but such sole director shall have full power to represent and act for the Company in all matters as are not by the Act or the Memorandum or these Articles required to be exercised by the members of the Company and in lieu of minutes of a meeting shall record in writing and sign a note or 15 20 memorandum of all matters requiring a resolution of directors. Such a note or memorandum shall constitute sufficient evidence of such resolution for all purposes. 108. At every meeting of the directors the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting the Vice Chairman of the Board of Directors shall preside. If there is no Vice Chairman of the Board of Directors or if the Vice Chairman of the Board of Directors is not present at the meeting the directors present shall choose some one of their number to be chairman of the meeting. 109. An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a resolution of directors or a committee of directors consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication by all directors or all members of the committee as the case may be, without the need for any notice. The consent may be in the form of counterparts, each counterpart being signed by one or more directors. 110. The directors shall cause the following corporate records to be kept: (a) minutes of all meetings of directors, members, committees of directors, committees of officers and committees of members; (b) copies of all resolutions consented to by directors, members, committees of directors, committees of officers and committees of members; and (c) such other accounts and records as the directors by resolution of directors consider necessary or desirable in order to reflect the financial position of the Company. 111. The books, records and minutes shall be kept at the registered office of the Company, its principal place of business or at such other place as the directors determine. 112. The directors may, by resolution of directors, designate one or more committees, each consisting of one or more directors. 113. Each committee of directors has such powers and authorities of the directors, including the power and authority to affix the Seal, as are set forth in the resolution of directors establishing the committee, except that no committee has any power or authority to amend the Memorandum or these Articles, to appoint directors or fix their emoluments, or to appoint officers or agents of the Company. 114. The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the resolution establishing the committee. OFFICERS 115. The Company may by resolution of directors appoint officers of the Company at such times as shall be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President and one or more Vice Presidents, Secretaries and Treasurers and such other officers as may from time to time be deemed desirable. Any number of offices may be held by the same person. 116. The officers shall perform such duties as shall be prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by resolution of directors or resolution of members, but in the absence of any specific allocation of duties it shall be the responsibility of the Chairman of the Board of Directors to preside at meetings of directors and members, the Vice Chairman 16 21 to act in the absence of the Chairman, the President to manage the day to day affairs of the Company, the Vice Presidents to act in order of seniority in the absence of the President but otherwise to perform such duties as may be delegated to them by the President, the Secretaries to maintain the share register, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Treasurer to be responsible for the financial affairs of the Company. 117. The emoluments of all officers shall be fixed by resolution of directors. 118. The officers of the Company shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors. Any vacancy occurring in any office of the Company may be filled by resolution of directors. CONFLICT OF INTERESTS 119. No agreement or transaction between the Company and one or more of its directors or any person in which any director has a financial interest or to whom any director is related, including as a director of that other person, is void or voidable for this reason only or by reason only that the director is present at the meeting of directors or at the meeting of the committee of directors that approves the agreement or transaction or that the vote or consent of the director is counted for that purpose if the material facts of the interest of each director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith or are known by the other directors. 120. A director who has an interest in any particular business to be considered at a meeting of directors or members may be counted for purposes of determining whether the meeting is duly constituted. INDEMNIFICATION 121. Subject to the limitations hereinafter provided the Company may indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who (a) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or a liquidator of the Company; or (b) is or was, at the request of the Company, serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise. 122. The Company may only indemnify a person if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful. 123. The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of these Articles, unless a question of law is involved. 124. The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good 17 22 faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful. 125. If a person to be indemnified has been successful in defence of any proceedings referred to above the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings. 126. The Company may purchase and maintain insurance in relation to any person who is or was a director, an officer or a liquidator of the Company, or who at the request of the Company is or was serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in these Articles. SEAL 127. The Company may have more than one Seal and references herein to the Seal shall be references to every Seal which shall have been duly adopted by resolution of directors. The directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the Registered Office. Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of a director or any other person so authorized from time to time by resolution of directors. Such authorization may be before or after the Seal is affixed, may be general or specific and may refer to any number of sealings. The Directors may provide for a facsimile of the Seal and of the signature of any director or authorized person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been signed as hereinbefore described. DIVIDENDS 128. The Company may by a resolution of directors declare and pay dividends in money, shares, or other property, but dividends shall only be declared and paid out of surplus. In the event that dividends are paid in specie the directors shall have responsibility for establishing and recording in the resolution of directors authorizing the dividends, a fair and proper value for the assets to be so distributed. 129. The directors may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the Company. 130. The directors may, before declaring any dividend, set aside out of the profits of the Company such sum as they think proper as a reserve fund, and may invest the sum so set aside as a reserve fund upon such securities as they may select. 131. No dividend shall be declared and paid unless the directors determine that immediately after the payment of the dividend the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and the realizable value of the assets of the Company will not be less than the sum of its total liabilities, other than deferred taxes, as shown in its books of account, and its capital. In the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. 132. Notice of any dividend that may have been declared shall be given to each member in manner hereinafter mentioned and all dividends unclaimed for 3 years after having been declared may be forfeited by resolution of directors for the benefit of the Company. 18 23 133. No dividend shall bear interest as against the Company and no dividend shall be paid on treasury shares or shares held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the vote in electing directors. 134. A share issued as a dividend by the Company shall be treated for all purposes as having been issued for money equal to the surplus that is transferred to capital upon the issue of the share. 135. In the case of a dividend of authorized but unissued shares with par value, an amount equal to the aggregate par value of the shares shall be transferred from surplus to capital at the time of the distribution. 136. In the case of a dividend of authorized but unissued shares without par value, the amount designated by the directors shall be transferred from surplus to capital at the time of the distribution, except that the directors must designate as capital an amount that is at least equal to the amount that the shares are entitled to as a preference, if any, in the assets of the Company upon liquidation of the Company. 137. A division of the issued and outstanding shares of a class or series of shares into a larger number of shares of the same class or series having a proportionately smaller par value does not constitute a dividend of shares. ACCOUNTS AND AUDIT 138. The Company may by resolution of members call for the directors to prepare periodically a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for the financial period and a true and fair view of the state of affairs of the Company as at the end of the financial period. 139. The Company may by resolution of members call for the accounts to be examined by auditors. 140. The first auditors shall be appointed by resolution of directors; subsequent auditors shall be appointed by a resolution of members. 141. The auditors may be members of the Company but no director or other officer shall be eligible to be an auditor of the Company during his continuance in office. 142. The remuneration of the auditors of the Company (a) in the case of auditors appointed by the directors, may be fixed by resolution of directors; and (b) subject to the foregoing, shall be fixed by resolution of members or in such manner as the Company may by resolution of members determine. 143. The auditors shall examine each profit and loss account and balance sheet required to be served on every member of the Company or laid before a meeting of the members of the Company and shall state in a written report whether or not (a) in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the state of affairs of the Company at the end of that period; and (b) all the information and explanations required by the auditors have been obtained. 144. The report of the auditors shall be annexed to the accounts and shall be read at the meeting of members at which the accounts are laid before the Company or shall be served on the members. 19 24 145. Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors. 146. The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of members of the Company at which the Company's profit and loss account and balance sheet are to be presented. NOTICES 147. Any notice, information or written statement to be given by the Company to members may be served in the case of members holding registered shares in any way by which it can reasonably be expected to reach each member or by mail addressed to each member at the address shown in the share register and in the case of members holding shares issued to bearer, in the manner provided in the Memorandum. 148. Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company. 149. Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid. PENSION AND SUPERANNUATION FUNDS 150. The directors may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of the Company or any company which is a subsidiary of the Company or is allied to or associated with the Company or with any such subsidiary, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid or who hold or held any salaried employment or office in the Company or such other company, or any persons in whose welfare the Company or any such other company as aforesaid is or has been at any time interested, and to the wives, widows, families and dependents of any such person, and may make payments for or towards the insurance of any such persons as aforesaid, and may do any of the matters aforesaid either alone or in conjunction with any such other company as aforesaid. Subject always to the proposal being approved by resolution of members, a director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension allowance or emolument. VOLUNTARY WINDING UP AND DISSOLUTION 151. The Company may voluntarily commence to wind up and dissolve by a resolution of members but if the Company has never issued shares it may voluntarily commence to wind up and dissolve by resolution of directors. 20 25 CONTINUATION 152. The Company may by resolution of members or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws. ARBITRATION 153. Whenever any difference arises between the Company on the one hand and any of the members or their executors, administrators or assigns on the other hand, touching the true intent and construction or the incidence or consequences of these Articles or of the Act, touching anything done or executed, omitted or suffered in pursuance of the Act or touching any breach or alleged breach or otherwise relating to the premises or to these Articles, or to any Act or Ordinance affecting the Company or to any of the affairs of the Company such difference shall, unless the parties agree to refer the same to a single arbitrator, be referred to 2 arbitrators one to be chosen by each of the parties to the difference and the arbitrators shall before entering on the reference appoint an umpire. 154. If either party to the reference makes default in appointing an arbitrator either originally or by way of substitution (in the event that an appointed arbitrator shall die, be incapable of acting or refuse to act) for 10 days after the other party has given him notice to appoint the same, such other party may appoint an arbitrator to act in the place of the arbitrator of the defaulting party. We, TrustNet (British Virgin Islands) Limited of TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to these Articles of Association the 30th day of September, 1996. in the presence of: Witness Subscriber (Sgd. Jaime Flanders) (Sgd. Harriett Anthony) --------------------- ----------------------------------------- TrustNet Chambers TrustNet (British Virgin Islands) Limited P.O. Box 3444 Road Town, Tortola 21 EX-10.2 3 PRELIMINARY AGREEMENT - SHANGHAI THERMOMETRIC 1 Exhibit 10.2 MEMORANDUM This Preliminary Agreement is made between Shanghai Thermometric Instrument Plant and Euro Tech (Far East) Ltd for cooperation and development of businesses on the 5th of Jul l996. 1) Both Parties have the intention to establish a Joint Venture. 2) The major products to be assembled and manufactured by the Joint Venture will be recorders, turbidity meter and other water related test instruments distributed by Euro Tech. 3) Euro Tech is the holding company of the Joint Venture. Shanghai Thermometric Instrument Plant will not take part in the Management team. Shanghai Thermometric Instrument Plant will receive rents as investment return from the Joint Venture. 4) To mininise the investment risk for both parties, Euro tech will rent 100 square meter production space , fixture and equipment from Shanghai Thermometric Instrument Plant at the beginning stage. 5) Under the same condition, the staff of the Shanghai Thermometric Instrument Plant should have the priority of being recruited by the Joint Venture. Shanghai Thermometric Instrument should have the responsible of offering the high quality staff to the Joint Venture. 6) For the seek of starting operation for the Joint Venture earlier, The Shanghai Thermmometric Instrument Plant should proceed for the preparation while the Joint Venture is awaiting for approval, in order to complete the preparation for the Joint Venture by end of this year. SHANGHAI THERMOMETRIC INSTRUMENT PLANT EURO TECH (FAR EAST) LTD 5 Jul l996 EX-10.3 4 LEASE FOR EURO TECH LTD.'S HONG KONG OFFICE 1 Dated the 18th day of November 1995 Exhibit 10.3 GEE CHANG PROPERTY MANAGEMENT LIMITED and EURO TECH (FAR EAST) LIMITED &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& TENANCY AGREEMENT of All Those Factories A, B, C & D on the 18th Floor - of Gee Chang Hong Centre, No.65 Wor Chuk Hang Road, Aberdeen, Hong Kong &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& Term: 2 years Commencement on: 01/11/95 Termination on: 31/10/97 Rent: HK$ 125,000.00 Service charges: HK$ 14,000.00 Monthly payment on: 1st day of each month Rent deposit: HK$ 375,000.00 ============================== CHAN EVANS CHUNG & TO, SOLICITORS, 21st Floor Ka Wah Bank Centre, No.232 Des Voeux Road Central, HONG KONG. ============================== REF: PT/13755/CON/cc/ic 2 THIS AGREEMENT is made the 18th day of November One thousand nine hundred and ninety-five BETWEEN GEE CHANG PROPERTY MANAGEMENT LIMITED whose registered office is situate at 7th Floor, Tung Hip Commercial Building, No.244 Des Voeux Road Central, Hong Kong as agent for the registered owner, ASSOCIATED DEVELOPMENT COMPANY LIMITED, (hereinafter called "the Landlord") of the one part and EURO TECH (FAR EAST) LIMITED (FOREIGN LANGUAGE CHARACTERS) whose registered office is situate at 18th Floor of Gee Chang Hong Centre, No.65 Wong Chuk Hang Road, Aberdeen, Hong Kong ---------------------------------(hereinafter called "the Tenant") of the other part NOW IT IS AGREED as follows:- 1. The Landlord shall let and the Tenant shall take ALL THOSE FACTORIES A, B, C and D on the EIGHTEENTH FLOOR ------------------------------------------ (hereinafter referred to as "the said premises") of the building known as GEE CHANG HONG CENTRE, No.65 Wong Chuk Hang Road, Aberdeen, Hong Kong which said Building is erected on ALL THAT piece or parcel of ground registered in the Land Registry as ABERDEEN INLAND LOT NO.390 and is hereinafter referred to as "the said building" TOGETHER with a right of way for the Tenant his servants and agents (in common with the Landlord and all others having the like right) from time to time to pass and repass over and along the staircases and landings erected in the said building and the right (in common with the Landlord and all others having the like right) to use the lifts installed in the said building during such time as the same are in operation for the purpose of access to and egress from the said premises FOR THE TERM of TWO (2) YEARS ------------------ from the 1st day of November 1995 to the 31st day of October 1997 YIELDING AND PAYING therefor during the said term monthly and every calendar month the rent of DOLLARS ONE HUNDRED AND TWENTY FIVE THOUSAND ($125,000.00) ONLY ----------- inclusive of rates and monthly service charges in the sum of $14,000.00 ----- both payable in Hong Kong Currency in advance on the 1st day of each and every calendar month. 2. The Tenant agrees with the Landlord as follows:- (1) To pay the said rent at the times and in manner aforesaid. (2) To pay the Landlord or the person or the corporation for the time being appointed in writing by the Landlord to undertake the general management of the said building on the 1st day of each and every calendar month during the continuance of this tenancy the said sum of HK$ 14,000.00 ------- per month (hereinafter called "the service charges") as contribution towards the expenses of the management of and provision of general services to the said premises as set out in subclauses 3(4) to (8) 1 3 (inclusive) hereof. The management and general services to be undertaken or to be performed by the Landlord do not include the disposal of industrial waste or refuse or rubbish of the Tenant. (3) To pay the electricity gas and water charges in respect of the said premises and to make all necessary deposits and increase in deposits for the supply of electricity gas and water to the said premises. (4) To constantly maintain and keep the whole of the interior of the said premises and every part thereof in proper and tenantable repair and condition including all fixtures and fittings therein and to meet and comply with all requirements and notices that may be issued by the Urban Services Department, the Fire Services Department or any other Government Departments and to constantly maintain and keep all windows and window panes in good repair and condition. (5) To permit the Landlord and all persons authorised by it at all reasonable times to enter into the said premises to view the condition thereof and to give or leave notice in writing upon the said premises for the Tenant of all defects or want of repair there found and the Tenant shall within one month after the date of every such notice well and sufficiently repair and make good such defects and/or want of repair whereof such notice shall have been so given or left and the Landlord shall in no way be responsible for any inconvenience or damage caused by the person or persons so authorised. (6) Not to make any alterations in or additions to the said premises without the previous consent in writing of the Landlord. In the event of any permitted alterations or additions being made by the Tenant to the said premises during the said term the Tenant shall if required by the Landlord reinstate the said premises at his own cost and expense prior to delivering up possession thereof to the Landlord. (7) Not to assign underlet sublet or otherwise part with the possession of the said premises or any part thereof or let or to sublet lend share or by any other means whereby any person or persons not a party to this Agreement obtain the use or possession of the said premises or any part thereof irrespective of whether any rental or other consideration is given for such use or possession. The tenancy shall be personal to the Tenant specifically named in this Agreement and without in any way limiting the generality of the foregoing, the following acts and events shall, unless previously approved in writing by the Landlord (which approval the Landlord may give or withhold at its sole discretion without assigning any reason therefor) be deemed to be breaches of this subclause - (i) in the case of a Tenant which is a partnership, the taking in of one or more new partners whether on the death or retirement of an existing partner or otherwise; (ii) In the case of a Tenant who is an individual (including a sole surviving 2 4 partner of a partnership tenant) the death, insanity or other disability of that individual to the intent that no right to use, possess, occupy or enjoy the said premises or any part thereof shall vest in the executors, administrators, personal representatives, next-of-kin, trustee or committee of any such individual; (iii) in the case of a Tenant which is a corporation any take-over, reconstruction, amalgamation, merger, voluntary liquidation or change in the person or persons who owns or own a majority of voting shares of such corporation or who otherwise has or have effective control thereof; (iv) the giving by the Tenant of a Power of Attorney or similar authority whereby the donee of the Power or authority obtains the right to use, possess, occupy or enjoy the said premises or any part thereof or does in fact use, possess, occupy or enjoy the same; (v) The change of the Tenant's business name without the previous written consent of the Landlord. (8) Not to do or cause or permit or suffer to be done anything in or upon the said premises or any part thereof which may at any time be or become a nuisance or annoyance to the Landlord or the tenants or occupiers of the other portions of the said building or of the neighbouring premises or which may produce an offensive odour and to take all such precautions as the Landlord shall reasonably from time to time require to prevent or minimise damage to the said premises from the Tenant's operations. (9) Not to store or cause or permit or suffer to be stored any unlawful or dangerous or hazardous goods or any explosive or combustible substance on or in any part of the said premises. (10) Not to use the said premises or any part thereof for any illegal or immoral purpose. (11) Not to prepare or permit or cause or suffer to be prepared any food in the said premises. (12) Not to do or cause or permit or suffer to be done anything whereby the policy or policies of insurance of the said premises or of the said building against fire may be rendered void or voidable or whereby the premium for such insurance may be liable to be increased and the Tenant shall indemnify the Landlord against such increased or additional premium as shall have been brought about or caused by any act or default of the Tenant or his servants or licensees. (13) To use the said premises for industrial purposes only and not to carry on any trade or business thereon which is now or may hereafter be declared to be an offensive trade under the Public Health and Municipal Services Ordinances or any enactment amending the same or substituted therefor. (14) To cushion all the machineries placed or affixed to the said premises and to restrict 3 5 the number of workers working or staying in the said premises in accordance with all Government regulations for the time being in force in Hong Kong. (15) Not to store or place or cause or permit or suffer to be stored or placed any goods or machinery or other things on or in any part of the said premises which impose a loading exceeding 733 kilograms per square metre (150 lbs. per square foot). (16) Not to overload or cause or permit or suffer to be overloaded any of the lifts in the said building in excess of their maximum capacity and to be responsible for any damage caused thereby. (17) Not to install any furnace, boiler or other plant or equipment in any part of the said premises or use any fuel that might in any circumstance produce smoke without the previous consent in writing of the Commissioner for Labour and the Landlord first had and obtained. (18) Not to install or use on the said premises or any part thereof any machinery, furnace, boiler or other plant or equipment or use any fuel or method or process of manufacture or treatment which might in any circumstances result in the discharge or emission, whether aerial or otherwise, on or from the said building or any part thereof of any noxious, harmful or corrosive matter, whether it be in the form of gas, smoke, liquid or solids or otherwise, or which shall in the opinion of the Commissioner for Labour be excessive in or unnecessary for the proper use and enjoyment of the said building for the purpose for which the Land is granted. (19) Not to place or store or cause or permit or suffer to be placed or stored any goods or chattels or any things on the parking or loading area or the driveway or in the common entrance-hall, staircases, landings, passages or any other common parts of and in the said building and to indemnify the Landlord against all actions, suits, costs, expenses, losses and claims which may be incurred or sustained by the Landlord by reason of or relating to the non-compliance of this sub-clause by the Tenant its servants or agents. (20) Not to hang any flags or display any posters or things of a similar nature on any part of the exterior walls of the said premises or the said building such as notices for employment of workers or any kind of advertisements or by any other cause whatsoever. (21) Not to paint affix erect or display any sign board, neon sign or advertisement on any part of the exterior walls or on any of the windows of the said building but the Tenant shall be at liberty to exhibit his firm name as contained in this Agreement in the spaces provided by the Landlord at the main entrances of the said building and in such size as the Landlord shall designate and approve. (22) Not to carry on or cause or permit or suffer to be carried on any trade or business in the nature of an oil refinery, paint spraying, dyeing or bleaching, metal ware bearing, electrical plating, rubber shoes manufacturing, paper carton making, paper storage, 4 6 printing or laundry or furniture or rattan factory, foam rubber manufacturing, weaving or knitting factory, electroplating factory or plastic factory or any other similar kind of trade or business. (23) Not to install any support or erect any iron bracket on any part of the exterior walls of the said building for the installation of air-conditioners or ventilators without the prior written consent of the Landlord. If the Tenant wishes to install any air-conditioners or ventilators he shall ensure that such air-conditioners or ventilators are safely installed through the windows of the said premises without damaging and without protruding beyond any part of the exterior walls of the said building. (24) Not to paint the window glass panes with paints and to constantly keep such glass panes in a clean and tidy condition and to undertake to replace any broken panes that may occur. (25) Not to injure or interfere with or allow or permit or suffer anyone to injure or interfere with or alter or test or reset or repair or replace the "Fire Alarm" or "Sprinkler System" as the case may be or any of the fire fighting equipments installed in the said premises and building without the prior written approval of the Landlord first had and obtained. (26) Not to fix or erect or cause or permit or suffer to be fixed or erected any chimneys or venetian blinds or sun blinds or canopies, pipes or wires of any description to or on any part of the exterior walls of the said building and not to fix or erect any chimneys in any part of the said premises. (27) Not to make any openings or damage any part of the exterior walls of the said building. (28) Not to erect or cause or permit or suffer to be erected any shelters or coverings on any part of the canopy or the flat-roof or roof of the said building. (29) Not to remove or alter the position of any of the Smoke Lobby doors or to make any alterations in or additions to any of such doors whatsoever. (30) Not to allow or cause any aerial wiring or rods to protrude outside the exterior walls of the said building. (31) Not to break any part of the exterior walls of the said building for the conveyance of goods, machineries or any other things or for any other purpose whatsoever. (32) Not to use or allow or permit the use of any of the common electricity supply for his own purpose whether temporary or otherwise and not to interfere with any of the common electricity wirings as installed in the said building. (33) To observe and perform all regulations and conditions imposed and notices and orders served by any Government Department or competent authority in relation to or in respect of the carrying on of a factory or the trade or business of the Tenant on the said premises and to observe and perform all the terms and conditions contained in the relevant Conditions of Sale under which the said Lot is held and the House 5 7 Rules relating to the upkeep and maintenance of the said building (if any) and that the Tenant shall indemnify the Landlord against all liability claims loss or damages costs and expenses as a result of the non-observance or non-performance thereof. (34) At the expiration or sooner determination of this Agreement to deliver up to the Landlord vacant possession of the said premises in such good repair and condition as aforesaid together with any additional erections alterations or improvements which the Tenant may with the consent of the Landlord as aforesaid have made upon or in the said premises without payment of any compensation for such additional erections alterations or improvements. 3. The Landlord agrees with the Tenant as follows:- (1) That the Tenant paying the rent hereby reserved and performing and observing the terms and conditions hereinbefore contained and on the part of the Tenant to be performed or observed may peaceably hold and enjoy the said premises during the said term without any interruption by the Landlord or any person lawfully claiming through or under it. (2) To pay the Crown rent rates (except any increase in rates) and property tax which are now or may hereafter during the said term be imposed by Government upon the said premises throughout the said term. (3) To maintain and keep the main structure and roof of the said building and every part of such main structure and roof in proper and tenantable repair and condition. (4) To engage and pay one or more caretakers for the said building. (5) To keep the said lifts in reasonably good repair and in working condition in accordance with the maintenance terms and conditions of the lift contractors. (6) To maintain the electric pumps (if any) for supplying flushing water to the said building in good condition and to provide salt water for flushing purposes whenever the same is made available by the Government. (7) To keep the staircases and landings and other common portions of the said building in a clean and sanitary condition. (8) To pay all charges in respect of electricity consumed by the said lifts, the electric pumps and lighting in the staircases and landings and other common portions of the said building. Provided always that the Landlord shall not in any circumstances be responsible for failure of the said lifts, the electric pumps and/or lighting for any reason whatsoever including negligent or wrongful acts or omissions by independent contractors for any damage whatsoever caused thereby. 4. PROVIDED ALWAYS AND IT IS MUTUALLY AGREED as follows:- (1) That if and whenever any part of the rent hereby reserved shall be in arrear for three (3) days (whether the same shall have been lawfully demanded or not) or if the Tenant shall fail to pay the monthly service charges within three (3) days of due date or if and whenever there shall be a breach by the Tenant of any of the terms or 6 8 conditions hereinbefore contained and to be performed or observed by the Tenant or if the Tenant shall become bankrupt or in the case of a limited company shall be wound up whether voluntarily or compulsorily or shall enter into composition or arrangement with the Tenant's creditors or shall suffer execution to be levied upon any of the Tenant's goods or effects the Landlord shall upon the happening of any such event be entitled to re-enter upon the said premises or any part thereof in the name of the whole and thereupon this Agreement shall absolutely determine but without prejudice to any rights which may have accrued to the Landlord by reason of any antecedent breach of any of the obligations on the part of the Tenant hereinbefore contained. (2) The lifts as installed in the said building shall be permitted for use by the Tenant under instructions imposed by the Landlord at all reasonable times only. Should the Tenant fail to observe the instructions as imposed by the Landlord, he shall not be allowed to use any of the said lifts. The Tenant shall indemnify the Landlord for all damage done to any of the said lifts due to the mis-use of the said lifts by the Tenant, his servants, agents, visitors or customers. (3) All fire fighting equipments as installed in the said premises and the said building shall be and remain the property of the Landlord and the Tenant shall take due care thereof and in particular the Tenant shall not allow or cause any of such equipments to be interfered with or moved to any other position. The Tenant shall further pay the annual recharge fees for all the fire-extinguishers as installed in the said premises. (4) In the event of the said premises at any time during the said term being damaged or destroyed by fire or by any other cause (not attributable to the act default or negligence of the Tenant) so as to be completely unfit for use this Agreement shall automatically terminate whereupon the Tenant shall forthwith deliver up vacant possession of the entire premises to the Landlord and neither party shall have any claim against the other except for antecedent breaches, if any. (5) If for any reason whatsoever the rateable value of the said premises is increased to a figure in excess of the rateable value as at the date hereof or if the Rates payable in respect of the said premises shall be increased then and in any such case the Tenant shall during the continuance of the term of this Agreement bear such increase in Rates. (6) If for any reason whatsoever the Rates of the said premises are increased to a figure in excess of the Rates at the date hereof by reason of any decoration alteration or other works or improvements carried out by the Tenant on the said premises then and in any such case the Tenant shall during the continuance of the term of this Agreement bear the increase in Rates and the amount of such increase or increases shall form part of the rent and be paid by and be recoverable from the Tenant accordingly. 7 9 (7) The Landlord shall not be under any liability whatsoever to the Tenant or to any other person whomsoever in respect of any loss or damage to person or property sustained by the Tenant or to any other person caused by or through or in any way owing to the overflow of water, bursting or leakage of any water pipes, waste water pipes, drains of any description, overflow of water-closet cistern or leakage of water-taps or sprinklers or the escape of fumes smoke fire or any other substance or thing from anywhere within the said building or breakage or want of repair of any part of the fixtures or other plant or equipment including "fire alarm" or "sprinkler" or other fire service installations and the Tenant shall fully and effectually indemnify the Landlord from and against all claims and demands actions and legal proceedings whatsoever made upon the Landlord by any person in respect of any loss, damage or injury caused by or through or in any way owing to the overflow of water or the escape of fumes smoke fire or any other substance or thing from the said premises owing to the neglect or default of the Tenant, his servants, visitors, agents or licensees or to the defective or damaged condition of the interior of the said premises for which the Tenant is responsible hereunder and against all costs and expenses incurred by the Landlord in respect of any such claim or demand. (8) The Landlord shall not be in any way responsible to the Tenant for any damage to the said premises or the contents thereof or to the Tenant's business including structural defects of the said building or damage caused directly or indirectly by the malfunction or failure of any of the lifts or the water pumps or of the electrical equipment wiring or apparatus or by water seepage from the upper floors or windows of the said building or by floods from the hills, landslide, typhoon, storms, lightning or rain or by any other unforeseen calamities. (9) The Tenant hereby expressly declares that he waives any claim for or entitlement to any compensation or awards, under the provisions of the Demolished Buildings (Redevelopment of Sites) Ordinance or any amending or substituting legislations in respect thereof and that the Tenant shall indemnify the Landlord for any claims actions demands arising from the non-observance or non-compliance of the terms contained in this sub-clause. (10) The Tenant hereby expressly declares that he has paid no premium, construction fee, key money or other sums of money of a similar nature for securing the tenancy and that at the expiration or sooner determination of this Agreement the Tenant will not invoke or seek to avail himself of any protection which may or shall hereafter be afforded by any ordinance or regulation of Hong Kong protecting tenants or lessees from eviction but will promptly and punctually quit and deliver up vacant possession of the entirety of the said premises at the expiration of this Agreement or sooner determination as aforesaid. (11) To secure the due performance and observance of the stipulations or conditions 8 10 herein contained the Tenant shall on the signing of this Agreement pay to the Landlord by way of deposit the sum of $375,000.00 the receipt whereof the Landlord hereby acknowledges. At the expiration or sooner determination of this Agreement and provided that the said rent and other sums of money hereby stipulated shall have been duly paid on due dates and all other terms and conditions hereinbefore contained duly performed and observed by the Tenant then within the period of seven days after the Tenant shall have duly delivered up vacant possession of the entire said premises to the Landlord, the Landlord shall return to the Tenant the said deposit money but without any interest. The said deposit money shall be absolutely forfeited to the Landlord if the Tenant shall fail to perform or observe any of the terms or conditions herein contained, without prejudice to the Landlord's right to claim for damages or breach of contract. (12) Any notice under this Agreement shall be in writing and any notice to the Tenant shall be sufficiently served if left addressed to him at the said premises or any part thereof or sent to him by registered post or left at his last known address in Hong Kong and any notice to the Landlord shall be sufficiently served if sent to it by registered post or left at its last known address in Hong Kong. (13) For the purpose of these presents any act default or omission of the agents, licensees, workmen, servants, visitors or customers of the Tenant shall be deemed to be the act default or omission of the Tenant. (14) For the purpose of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 and for the purpose of these presents the rent in respect of the said premises shall be deemed to be in arrear if not paid in advance as stipulated by Clause 1 hereof. 5. It is hereby further declared and acknowledged by the parties hereto that Associated Development Co. Ltd. (hereinafter called "the said Company") is the registered owner of the premises and that Geo Chang Property Management Limited is the lawful attorney and agent of the said Company; the term "Landlord" wherever appears in this Agreement shall include the said Company. 6. All costs and expenses of and incidental to the preparation completion stamping and registration (if any) of this Agreement shall be borne and paid by the Tenant absolutely. Where the tenancy is one to which Part V of the Landlord & Tenant (Consolidation) Ordinance applies, the Tenant shall also bear the costs of Messrs. Chan, Evans, Chung & To in the posting of notices in compliance with the said Ordinance. 7. It is hereby declared that in these presents if the context permits or requires words importing the singular number shall include the plural number and words importing the masculine gender shall include the feminine gender and the neuter gender. 8. The Tenant shall be at liberty to terminate this Agreement after the expiration of ONE YEAR from the date of commencement of the tenancy created herein by giving to the Landlord at least one calendar month's previous notice in writing of its intention so to do (such notice only to expire on the last of any calendar month). 9 11 AS WITNESS the respective hands of the parties hereto the day and year first above written. SIGNED by YEUNG KWOK YUI Director ) FOR AND ON BEHALF OF for and on behalf of the Landlord whose ) GEE CHANG PROPERTY MANAGEMENT LIMITED signature is verified by:- ) /s/ PATRICK P.W TO Solicitor, Hong Kong SIGNED by Wong Mo Kee ----- ) (illegible) - ------ for and on behalf of ) the Tenant in the presence of:-) /s/ PATRICK P.W TO Solicitor, Hong Kong INTERPRETED by: /s/ Cheng Chau Lina Clerk to Messrs. Chan, Evans, Chung & To, Solicitors, Hong Kong RECEIVED on the day and year first above written of) and from the Tenant the above-mentioned deposit of ) DOLLARS THREE HUNDRED SEVENTY FIVE ) HK$375,000.00 THOUSAND ONLY Hong Kong Currency. ) ============= WITNESS:- FOR AND ON BEHALF OF /s/ PATRICK P.W TO GEE CHANG PROPERTY MANAGEMENT LIMITED Solicitor, Hong Kong 10 EX-10.4 5 LEASE FOR EURO TECH LTD.'S GUANGZHOU OFFICE 1 Exhibit 10.4 TENANCY AGREEMENT THE LANDLORD: WARMATE INDUSTRIAL LTD RM 1501 KAM FAI HONG, 53-59 MO WU ST, HUNGHOM KOWLOON TEL: 2764 9487 BUSINESS REGISTRATION NO: 12288690 THE TENANT: EURO TECH (CHINA) LTD 18/F GEE CHANG HONG CENTRE 65 WONG CHUK HANG RD HONG KONG TEL: 2814 031 BUSINESS REGISTRATION NO: 17921699 1) The Landlord lets and the Tenant takes Rm 2606 South Tower, Guangzhou World Trade Center, 371-375 Huan She East Rd, Guangzhou, P.R. China as Office Use. The Tenancy period is for a fixed term of 1 year starting from 15 Apr 1995 and the option of another year till 14 Apr 1997. 2) The monthly rent is HK$13,800.- payable in cash to the Hong Kong bank account of the Landlord. The Landlord's bank account number is: 01469400017139 (Yien Yip Bank, Hunghom Branch), Account name is: Warmate Industrial Ltd. Deposit receipt must be faxed to the Landlord as proof. 3) Method of rent payment and date: The tenant shall pay the difference of the 2 month deposit i.e. HK$5,600.- to the landlord on the date of signing this Tenancy Agreement. The landlord have also to pay HK$1,000.- as The tenant shall pay the monthly rent on or before 15th of the current month and a receipt must be given by the Landlord. Upon completion of the Tenancy Agreement, the tenant have settled all outstanding rent and other expenses (if any), the landlord shall refund the deposit to the tenant, however if the tenant have breach the Tenancy Agreement and have caused damages to the landlord, the landlord have the right to deduct such damages from the deposit. 4) If the Landlord refused to receive the rent which is paid by the tenant according to this Tenancy Agreement. The Tenant can go to the Guangzhou Public Notary for proof of "Refuse to receive the rent", and the Tenant shall not be responsible for Late payment of the rent. 2 5) Both the Tenant and the landlord are not allowed to find excuses of terminating this Tenancy Agreement during the Tenancy Period. However, if the Landlord really in need of the Property for own use, they need to send a written notice to the tenant 2 months ahead or pay to the tenant the compensation of 2 month rental fee in lieu of notice. 6) During the tenancy period, the repair & maintenance of the property, property tax and the expenses incurred for the use of the land and other expenses which belong to the landlord will be borne by the landlord. The tenant shall pay for the monthly maintenance fee, telephone fee, clearing fee, electricity and water fee & other indoor maintenance fee. Upon completion or termination of the Tenancy Agreement, and the tenant's proof of all above fees have been settled, the landlord shall return to the tenant the deposit (without interest) of the management fee, electricity fee & etc. The landlord have the right to deduct any outstanding fee or unpaid amount from the deposit. 7) During the tenancy period, the tenant will be responsible for the maintenance, restoration or compensation to the landlord should there be any damages to the premises that is caused by the tenant. 8) The tenant shall not allowed to change the structure and the use of the premises; the storage of prohibited, explosive & combustible substances. The tenant shall obey the laws of The People Republic Of China and Guangzhou City, obey the the ethics of the socialism. The tenant shall not make or permit to make any alterations or additions to the said premises without the consent of the landlord. Such alternation shall be restored upon request of the landlord on completion of the Tenancy Agreement. 9) The tenancy agreement will be terminated automatically should there be irresistible natural disasters which cause damages to the premises. Neither the tenant nor the landlord shall be responsible for the consequences. In the case of great damages in the premises and the landlord refuse to repair, the tenant can terminate the tenancy agreement or have the damages be repaired and the repair cost will be treated as rental fee. 3 10) During the tenancy period, the landlord shall inform the tenant by registered mail if the tenant failed to hand in the rental fee on time. If the tenant did not pay the rent for one month or over, or the management, electricity fee for two months or over will be treated as breach of contract, and the tenancy agreement will be terminated automatically. The landlord have the right to take back the premises without the consent of the tenant. 11) Due to the breach of the contract of the tenant, the landlord have the right to take back the premises and duly inform the management office of the building. If the tenant did not hand over the door key to the landlord, the landlord have the right to enter the premises together with the building's management office staff. The landlord have the right to have the substances left in the premises to auction and the revenue received from the auction shall be treated as payment for the outstanding rent and the related expenses. The surplus, if any, shall return to the tenant. The tenant shall accept the above arrangement and no objection shall be entertained should he failed to fulfil the Tenancy Agreement. 12) If the amount of the revenue come from the auction cannot cover the cost of the outstanding rent, the management fee and the related expenses, the landlord have the right to claim the tenant until all expenses incurred are settled. 13) Upon completion/termination of the Tenancy Agreement, the tenant shall remove all furnitures/substances out of the premises promptly. The substances shall be treated as abandon if they are still kept in the premises 5 days after the removal. The landlord have the right to dispose the said substances with the witness of the management office staff. 14) Upon completion of the Tenancy Agreement, the tenant have the priority to rent the premises from the landlord and the rental fee will be negotiated. 15) Should argument occured, the tenant and the landlord shall adopt a friendly way to resolve the problem or to approach the Guangzhou Notary / Middle People Court for juridical action. 4 16) This Tenancy Agreement is printed and signed. It shall be effect from the date of signing. 17) This Tenancy Agreement contains 1 set in two pages, two copies. Each of the tenant and the landlord keep one and both copies are valid. WARMATE INDUSTRIAL LTD EURO TECH (CHINA) LTD SIGNED SIGNED DATED : 17 MAR 1996 EX-10.5 6 PURCHASE AGREEMENT 1 Exhibit 10.5 THE P.R.CHINA PUBLIC NOTARY 2 BEIJING CHINA INTERNATIONAL INDUSTRY AND COMMERCE CO LTD STATE GUEST GARDEN, BEIJING PROPERTY SALES CONTRACT - -------------------------------------------------------- SELLER:Beijing China International Industry And Commerce Co. Ltd Registered Address: No. 13 Fang Toi Bei Dai Ji, Beijing Correspondence Address: 3/F South Tower, Yuet Sau Hotel 24 Shu Wu Dong Da Ji, Shu Wu Chu, Beijing, P.R.China. Tel: (010) 3038950, 3038952 Fax: (010) 3038953 Postal Code: 100051 BUYER: Euro Tech (Far East) Ltd Registered Address: l8/F Gee Chang Hong Centre, 65 Wong Chuk Hang Rd Hong Kong. In accordance with the fact that the Seller have the legal right to develop the commercial property - State Guest Garden which is situated in Fu Shing Mun Wei Da Ji, Beijing, and according to the "Usage of land by the P.R.China (93) No. 00008. The Seller have now possessed the use of the land of "State Guest Garden" starting from 27 Oct l993 for a usage period of 50 years (commercial ) and 70 years (domestic). In accordance with the Beijing Municipal Property Regulation No. 0l7 ( Beijing Commercial Property for Foreign Sales Permit ), the Seller have got the right for the development, the pre-sales and sales of the property to overseas. In accordance with the fact the Buyer agree to purchase the property according to the rules and regulations of Sales & Purchase of Property of the Beijing Municipal and laws of the P.R.China. The Buyer have already paid a deposit amount of US$8,000.- to the Seller. Both the Seller & Buyer agree to sign this Property Sales Contract for the Sales & Purchases Transaction. 3 CLAUSE 1) The Seller agree to sell the unit of No. l0 7/F of Guo Yee Bldg, State Guest Garden (hereafter called the Property) (Gross area is 142.5 sq. meter) to the Buyer (Details of the Floor plan refer to Attachment 1). The acceptable area difference of the Unit for both parties is +/- 2% or compensation have to be paid to either parties for the difference over or under +/- 2%. CLAUSE 2) Both the Seller and the Buyer agree to purchase the Property at US$366,408.83. Method of payment please refer to Attachment (3). CLAUSE 3) The completion date of the Property shall be on 31 Dec 1995 and the Seller shall hand over the Property to the Seller on that date. The Seller shall guarantee that the Property shall successfully pass the examination required from the Building Quality Inspection Dept. The Seller shall guarantee maintenance for the Property for one year starting from the Property completion date. However the followings are excluded: i) Interior electricity, On/Off switch, consumable parts for Water sewage equipment. ii) Damages due to alternations without the written consent of the Seller. iii) Any damages caused by natural disaster. iv) Other damages caused by misuse, unproper maintenance by the Buyer. The right for using the common area of the Property shall pass to the Buyer upon the handover of the Property. The coverage period of the usage is starting from the handover date till 26 Oct 2043 (inclusive) and the area for the usage is based on the actual measuring result from the Beijing Municipal Property Management Measurment Dept. 4 CLAUSE 4) Upon receipt of the Handover Advice from the Seller, the Buyer shall complete the formality required for the handover within 14 working days. The Buyer shall pay the outstanding amount of the Property, the Managment deposit and the management fee. Upon completion of the handover and within a specific time, the Seller and the Buyer shall go to the Beijing Property Management Office with this contract and the other required documents for applying the Transfer of ownership of the Property from the Seller to the Buyer. Authorised personnel from both parties is allowed. Disputes over the ownership of the Property is responsible by the Seller. The expenses / taxes incurred from the transaction shall be allocated (according to the rules and regulation of the relevent government dept) to the Seller and the Buyer respectively. Settlement for the expenses/taxes shall be paid by the Seller and Buyer (or their authorized representatives). Expenses/taxes that do not explicity expressed to be paid by the Seller or the Buyer, shall be paid by the Buyer. Changes, if any, shall be subject to the rules and regulation of the relevant Beijing Municipal government office. CLAUSE 5) Any changes, addition or deletion on names after the Buyer's possession of the Ownership Certificate of the Property, written consent must be obtained from the Seller for such changes and 0.5% of the total purchase price shall be paid by the Buyer to the Seller. All expenses/ taxes incurred for such changes shall be paid by the Buyer. If the Buyer transferred, sold, leased, mortaged the Property to the third party, the buyer shall guarantee the third party shall abide the terms that previously signed by the Buyer. The Buyer shall not change the construction, exterior and the usage of the Property without the written consent of the Seller's assigned management office. The buyer shall abide by the related laws of the P.R.China , the social ethic and the obligation of maintaining the public facilities and benefits. 5 CLAUSE 6) The Buyer shall pay the property price and other expenses of the Property on time. The Seller shall have the right to ask for interest for delay in payment, the interest counts from the due day to the day that payment has made, Daily interest is 0.3% based on the total outstanding amount. 30 days overdue amount plus interest must be settled by the Buyer within 7 working days. The Seller shall have the right to sue the Buyer for breach of contract, to cancel the Property Sales Contract and claim for damages. 30% of the Unit sales price shall be forfeited as damages. The forfeited amount shall be deducted from the Buyer's payment on the Property. The Seller shall have the right to ask the Buyer compensation for the deficit (if any) or refund the surplus to the Buyer. The Seller shall have the right for disposal of the Property. The Seller shall handover the Property to the Buyer within the specific date stated above. For delay in handover over 30 days and caused not due to Clause 7), the Seller shall pay a monthly interest to the Buyer starting from the 31th day. Interest rate for loan amount according to US$ mortage interest rate and for non-loan amount according to the US$ saving interest rate of the Bank Of China. Interests shall be counted from the due date till the handover day of the Property. If delay in handover of the Property over 180 days the the cause is not due to Clause 7), the Buyer shall have the right to inform the Seller for cancellation of the Property Sales Contract and collect back the amount and interest paid for the Property. If the Buyer did not inform the Seller for the intention of cancellation within the specific time, then the Buyer shall be treated as agreement to the validity of the Property Sales Contract. 6 CLAUSE 7) The responsibilities of the Seller shall be waived for delay due to the following reasons: i) Natural disasters that are irresistable. ii) Construction terminated due to stormy weather, other extremely difficulties and technical problems that can not be promptly resolved. iii) Execution of the Property Sales Contract becomes impossible due to the laws of the Government that affect the construction of the property. iv) Other unpredictable events that beyond the control of the Seller. The Buyer shall have the right to inform the Seller the cancellation of the Property Sales Contract for delay over 180 days for above reasons. The Seller upon receipt of the Buyer's advice for cancellation,shall pay back the amount to the Buyer. The Seller shall not pay for the interest or compensation. After paying back to the Buyer, the validity of the Property Sales Contract will be terminated and the Seller shall have the right for disposal of the property. CLAUSE 8) All expenses incurred (include but not limited to solicitor fee, public notary fee) for signing of the Property Sales Contract shall be paid by the Buyer. CLAUSE 9) The signing, execution and termination of This Property Sales Contract is in accordance with the laws, rules and regulations of the Beijing municipal government and the P.R.China. Any disputes shall be resolved in private by the Seller and the Buyer or, by the Beijing Municipal Property Management Dept or People Court of P.R.China. 7 CLAUSE 10) Other terms that are not covered by the Property Sales Contract shall be resolved by the Seller and the Buyer. Supplement or alternation made hereafter shall be jointly signed by the Seller and the Buyer and inform the Beijing Property Management Dept accordinly. Such terms, supplement or alternation shall be valid as part of the terms in the Property Sales contract. CLAUSE 11) The signed Sales Contract shall be valid upon completion of registration in the Beijing Municipal Property Sales & Purchase Management Dept and the Public Notary. CLAUSE 12) The Property Sales Contract is type-written in Chinese, translation in other language is for reference only and in case of disputes, Chinese language shall be governed. Alternation made in print or hand writing need signatures from both the Seller and Buyer and bear the same validity. CLAUSE 13) Correspondence addresses : i) Both the Buyer and the Seller shall inform the other party in writing within 14 working day for changes of address, telephone; ii) Advice to the other party (except in Beijing city) shall be made by courier service and date counted is from the 2nd date after despatching. CLAUSE 14) The Property Sales Contract contains 1 set in 6 copies, the Seller, Buyer, Public Notary shall have one copy , Beijing Municipal Property Management Dept shall have two copies. All copies shall have the same legal right. SELLER (SIGNED) BUYER ( SIGNED) 8 [FLOOR PLAN OF GUO YEE MANSION STATE GUEST GARDEN, BEIJING RM 710] 9 ATTACHMENT 2 FIXTURES OF THE STATE GUEST GARDEN, BEIJING (COMMERCIAL COMPLEX, APARTMENT) 1) Exterior wall : Superior tilt, partial imported plain blue reflective glass. 2) Interior wall: Apartment, Commercial complex - colour painted 3) Floor: Apartment, Commercial complex - fully carpeted 4) Door/Window: Apartment, Commercial complex - wooden door, aluminium alloy window, glass push/pull door. 5) Ceiling: Light stainless steel fire prevention, noise absorption facilities. 6) Washroom: Floor - Non slippery tilt Wall - tilt from bottom to top Washing basin: imported 7) Kitchen : Housing utensil set in stainless steel Floor - colour tilt 8) Lobby in apartment: Floor, wall - polished marbles 9) Lifts : Apartment, commercial complex - 22 sets of imported elegant lifts 10)Telephone: Apartment - One IDD plug Commercial complex - sufficient plugs reserved 11) Airconditioner: Apartment, Commercial complex - centralised system 10 12) Car park: Apartment - guarantee sufficient rented car parks Commercial complex - " , floor car park 13) Public Antenna: Apartment , Commercial complex - Close circuit TV, Satellite TV receiving system. 14) Security : Apartment - Temperature / Smoke sensor fire system Commercial complex - Fire alarm, Automatic Sprinkle, Surveillance Monitoring system. 15) Management: From top management team 16) Electricity: Double way electricity supply system NOTE: Other not listed itemsor alternations subject to government rules & regulations. 11 ATTACHMENT 3 STATE GUEST GARDEN, 1ST PHASE (VALIDITY TILL 30 APR 1994) PAYMENT METHOD (A) : One time payment or immediate installment (12% discount) 1) Payment of deposit US$8,000.- upon signing of the temporiarly Property Sales contract. 2) Payment of l0% (deducting the deposit paid) within 7 working days and signing of the formal Property Sales contract. 3) Payment of 90% 30 days after signing of the formal Property Sales contract. PAYMENT METHOD (B): 6 month installment during the construction period. 1) Payment of deposit US$8,000.- upon signing of the temporiarly Property Sales contract. 2) Payment of l0% (deducting the deposit paid) within 7 working days and signing of the formal Property Sales Contract. 3) Payment of l0% 30 days after signing of the formal Property Property Sales contract. 4) Payment of l0% 3 months after signing of the formal Property Sales contract. 5) Payment of l0% 6 months after signing of the formal Property Sales contract. PAYMENT METHOD (C): 12 month installment during the construction period. 1) Payment of deposit US$8,000.- upon signing of the temporiarly Property Sales contract. 2) Payment of l0% (deducting the deposit paid) within 7 working days and signing of the formal Property Sales Contract. 3) Payment of l0% 30 days after signing of the formal Property Sales contract. 4) Payment of l0% 6 months after signing of the formal Property Sales contract. 5) Payment of 70% 12 months after signing of the formal Property Sales contract. Whichever method the Buyer chooses, the developer can arrange 60% installment provided tht the Buyer have paid 40% of the total amount of the property. 12 PUBLIC NOTARY CERTIFICATE (94) NO: 0270 This is to certify that the Mr Wu Wei, legal representative of Beijing China International Industry And Commerce Co Ltd signed the Property Sales Contract of the State Guest Garden, in Beijing on 23 Mar 1994 before me. Mr Kwan Chin-Ping, legal representative of Euro Tech (Far East) Ltd signed the Property Sales Contract of The State Guest Garden, in Hong Kong before the authorized public notary - Ng, Lie, Lai & Chan Solicitors & Notaries on 1 mar 1994. After investigation, signatures and contents of the Sales Contract are in accordance with the laws and regulations of the P.R.China The signatures and stamps from both parties is true and correct. Public Notary Office (signed) P.R.China Public Notary Office 25 Mar 1994 EX-10.6 7 PURCHASE AGREEMENT/SHANGHAI XING TAI REAL ESTATE 1 ENGLISH TRANSLATION OF SHANGHAI EAST OCEAN CENTRE PROPERTY SALES CONTRACT - ------------------------------------------------------------------------- TOTAL PAGES: 7 (inclusive of this one) PUBLIC NOTARY CERTIFICATE - ------------------------- Exhibit 10.6 SHANGHAI PUBLIC NOTARY OFFICE P.R.CHINA -1- 2 SHANGHAI EAST OCEAN CENTRE - --------------------------- CONTRACT FOR FOREIGN SALES PROPERTY - ----------------------------------- SELLER: SHANGHAI XING TAI REAL ESTATE DEVELOPMENT INCORP. 19/F FLAT A KAI WAH BLDG 1375 WAI HOI CHUNG RD SHANGHAI P.R.CHINA TEL/FAX: (021) 6471 3739 BUYER: EURO TECH (FAR EAST) LTD 18/F GEE CHANG HONG CENTRE 65 WONG CHUK HANG RD HONGKONG BUSINESS INCORPORATION NO: 24182 TEL: (852) 2814 0311 1) According to "The rules on Sales, Transfer and Usage of land, P.R.China" & "The regulation of transfer and usage of land of Shanghai Municipal". The Seller and The Shanghai Property Management have signed "Transfer On Usage Of Land (Contract No. (Shanghai (92) Transfer Contract No: 11), and thus have secured a piece of land situated on Wang Pao Area, total area is 2611 sq meter for commercial usage from 5 Aug 1992 to 4 Aug 2042). It is approved that the property built on this land is called "Shanghai East Ocean Centre" and for foreign sales under Approval Permit No: Shanghai (93) 128. 2) The Buyer shall purchase the 21/F Flat D Gross Area 115.97 sq. meter, hereafter called the Property (Please see attached floor plan of the flat). 3) The Seller agrees to sell and the Buyer agrees to buy the above Property at a price of HK$2,751,200.- 4) The ownership of the Property shall pass to the Buyer upon full settlement of the Property price. -2- 3 5) The Seller have the right to sue for interest incrued if the Buyer do not pay promptly. If delay is over 30 days, the Seller shall have the right to terminate the contract and inform the Buyer in writing about the termination. All payment shall be forfeited and the ownership of the Property belongs to the Seller. 6) The Seller shall hand over the Property to the Buyer on or before 31 Mar 1995. With the exception that followings occur and The Seller & Buyer shall have to terminate the contract: - Irresistable natural disaster. - Great technical problems cannot be solved during construction period. - Other events that beyond the control of the Seller. 7) The Seller shall compensate the Buyer by paying interest (according to the fixed loan interest rate from Bank Of China for not hand over the Property to the Buyer within the stated time. If the delay is over 30 days, the Buyer have the right to terminate the contract and the Seller shall pay back the amount already paid by the Buyer and interest incurred. 8) The Seller shall guarantee quality of the contruction work and the property shall pass the testing and examination carried out by the Supervision on Construction project Shanghai Municipal. 9) The Buyer shall have the right to terminate the contract if the Property does not pass the testing and examination by the Supervision on Construction project Shanghai Municipal. The Seller shall have to pay back the Buyer ; double amount of the deposit, other amount paid and interest incurred 10) The Buyer shall have to pay the oustanding property amount upon receiving the property. 11) The Seller shall be resonsible for the construction of the property and maintenance of the essential fixtures for a period of one year after the hand over. Danages caused by irresistable reasons shall not be entertained. -3- 4 12) The property is for commcerical use. The Buyer cannot alter the construction and usage of the property. The Buyer shall obey the rules and regulation of the P.R.China and management office of the Shanghai East Ocean Centre. 13) The Buyer shall have to pay tax on usage of land to the Property Management Shanghai Municipal. 14) Attachments of this contract shall be valid as the contract. 15) The signed contract shall be registered on the Shanghai Public Notary Office. 16) Within the validity of this contract, agreement shall be obtained from the Seller if the Buyer wants to transfer the contract to a third party. A new contract shall have to signed between the Seller and the third party upon termination of the contract between the Seller and the Buyer but within 20 days. 17) Arugment (if any) shall be resolved by the Buyer and the Seller in private or approach the People court for juridical action. 18) This contract contains 1 set in 5 copies, The Seller, Buyer, Shanghai Public Notary , Shanghai Property Management and Shanghai Property Registration office shall have one. They are all valid copies. THE SELLER: SHANGHAI XING TAI REAL ESTATE DEVELOPMENT INCORP. (SIGNED) THE BUYER: EURO TECH (FAR EAST) LTD (SIGNED) THE WITNESS: CHINA PUBLIC NOTARY AGENT SIGNED : 28 JUN 1993 IN HONGKONG -4- 5 ATTACHMENT - ---------- PAYMENT BY INSTALLMENT - ---------------------- 1) The Buyer shall have to pay part of the Property Amount i.e HK$550,240.- on the date upon signing this Contract. 2) The Buyer shall have to pay part of the Property Amount i.e. HK$412,680.- on or before 1 Nov 1993. 3) The Buyer shall have to pay part of the Property Amount i.e. HK$412,680.- onor before 1 May l994. 4) The Buyer shall have to pay the balance of the Property Amount i.e. HK$1,375,600.- within 14 days after receiving the Occupancy Notice from the Seller. -5- 6 [FLOOR PLANT OF 21/F FLAT D SHANGHAI EAST OCEAN CENTRE] -6- 7 PUBLIC NOTARY CERTIFICATE (93) SHANGHAI NO: 2359 This is to certify that the Mr Kam Sau-Nan, legal representative of Shanghai Xing Tai Real Estate Development Incorp, Shanghai & Madam Wong Mo Kee, legal representative of Euro Tech (Far East) Ltd (Registration No: 24182) signed the Property Foreign Sales Contract of The Shanghai East Ocean Centre on 28 Jun 1993 in Hong Kong. After investigation, signatures and contents of the Foreign Sales Contract are in accordance with the laws and regulations of the P.R.China The signatures and stamps from both parties are true and correct. Public Notary Office (signed) P.R.China Public Notary Office 21 SEPT 1993 -7- EX-10.7 8 AGREEMENT/WALLACE & TIERNAN 1 WALLACE & TIERNAN 61 2 4384881 No. 0327 P. 2/14 [LOGO] WALLACE & TIERNAN Exhibit 10.7 INTERNATIONAL SALES REPRESENTATIVE AND DISTRIBUTION AGREEMENT AGREEMENT effective January 1, 1991 by and between Wallace & Tiernan Pacific Pty Ltd a New South Wales, Australia incorporated company with offices at 89-93 Reserve Road, Artarmon, 2064 (hereinafter called W&T) and Eurotherm (Far East) Ltd, 18/F Gee Chang Hong Kong Centre, 65 Wong Chuk Hang Road, Hong Kong (hereinafter called "REPRESENTATIVE"). 1. Appointment Subject to the terms and conditions of this Agreement, W&T hereby appoints REPRESENTATIVE as its exclusive representative and distributor for the Products identified below, within the Territory defined below, and REPRESENTATIVE accepts such appointment. Exclusive REPRESENTATIVE is able to select proper equipment, prepare its own proposals and offer servicing and after-sale support to customers. 2. Products The Products subject to this Agreement, are those included in Appendix "C" attached hereto and made a part hereof ("Products"). W&T has the exclusive right to add or delete items to or from Appendix "C" from time to time at its sole discretion. 3. Territory for Representation of Products The geographic area of primary responsibility (hereinafter referred to at "Territory") is set forth in Appendix "B" attached hereto and made part hereof. W&T makes no representation that other distributors or representatives appointed by W&T, or W&T itself, will not sell Products within the Territory. In determining whether to continue REPRESENTATIVE's appointment in effect, W&T will consider only the extent to which REPRESENTATIVE has adequately served the needs of existing and potential Municipal and Industrial Water & Wastewater customers for Products in the Territory. 4. Prices 4.01 With respect to transactions in which REPRESENTATIVE acts as a distributor (taking title to the Products for resale), the Prices to be paid by REPRESENTATIVE for the Products shall be W&T's list prices, F.O.B. Country of Supply, standard commercial (domestic) packing, with discounts as specified in the attached Appendix "C". Any of said list prices may be changed from time to time by W&T without prior written notice to REPRESENTATIVE. In such cases however, W&T may accept, for a period of thirty (30) days following the effective date of the price increase, previous pricing, providing that REPRESENTATIVE can produce documentation, as W&T may reasonably require, to substantiate the said order resulted from a bona 2 [WALLACE & TIERNAN LOGO] fide quotation, tendered by REPRESENTATIVE, prior to the price increase effective date. REPRESENTATIVE shall make payments for the Products in accordance with the following: an irrevocable letter of credit in favour of Wallace & Tiernan Pacific Pty Ltd, confirmed by the Australian correspondent of the opener's bank, payable at sight for 100% invoice value versus shipping documents with all charges for the account of buyer (or REPRESENTATIVE). Other mutually agreeable payment terms may be negotiated from time to time with REPRESENTATIVE. Freight costs; taxes, if any; and import or export duties or similar charges; insurance; and any other fees will be the responsibility of an for the account of buyer (or REPRESENTATIVE). 4.02 For transactions in which REPRESENTATIVE acts as a REPRESENTATIVE only (REPRESENTATIVE solicits orders only, without taking title to the Products), REPRESENTATIVE will quote W&T's exact figures for Products without additions unless to cover some definite service REPRESENTATIVE is to perform, and pricing on products not of W&T's manufacture but which may be convenient to supply. Prices quoted to REPRESENTATIVE will be in the net amount. Copies of prepared proposals by REPRESENTATIVE are to be sent to W&T for review. REPRESENTATIVE shall be entitled to a commission on the sale of Products as specified in Appendix "C" under the following limitations: a. No commission will be paid on orders place with W&T by government in W&T manufacturing areas, unless REPRESENTATIVE has been identified with the initiating sales promotional work in which case one-half the commission rate shown under Appendix "C" will apply. b. No commission will be paid on orders placed with W&T by firms carrying the classification OEM (other equipment manufacturer) and to whom W&T has been obliged to extend a discount, unless REPRESENTATIVE has been previously identified with initiating sales promotional work. In which case, one-half the commission rate shown under Appendix "C" will apply. c. Commissions at rates specified under Appendix "C", will be paid on Product sales invoiced by W&T to customers in the Territory except that any discounts W&T is required to allow, shall be deducted from the commission otherwise payable to REPRESENTATIVE. d. No commission shall be payable on contracts placed directly with W&T by engineering and business houses, companies, contractors, and the like, with head or procurement offices outside the Territory, unless REPRESENTATIVE has been identified with the initiating sales promotional work. In which case, one-half the commission rate shown under Appendix "C" 3 [WALLACE & TIERNAN LOGO] will apply. e. No commission will be paid to REPRESENTATIVE on parts orders received directly from customers which has a total net value of A$250.00 or less. f. Commissions due hereunder shall be paid in Australian dollars within thirty (30) days after W&T has received full payment for the products upon which the commission is based. If W&T shall be required to refund any amount upon which a commission has previously been paid to REPRESENTATIVE, the amount of the commission attributable to the refunded amount shall, at the option of W&T, be returned to W&T upon demand or offset against any and all commissions due REPRESENTATIVE. 5. Duties of REPRESENTATIVE 5.01 REPRESENTATIVE will use its best efforts to develop and maintain the market for the Products in the Territory and will maintain a sales force with a satisfactory level of understanding and competence in the operation, use, and application of the Products; and will refrain from representing (as distributor, sales representative, or otherwise) any manufacturer, importer, or distributor of any products similar to or competitive with the Products. REPRESENTATIVE is also responsible for promoting and developing business for new construction, plant expansion and modernisation projects. 5.02 REPRESENTATIVE will be responsible to cover and develop engineering consultant accounts for the expressed purpose of promoting the sale of W&T Water and Wastewater Equipment within engineering specifications of request for bid. REPRESENTATIVE should maintain available stock within the Territory and at all times carry in inventory a sufficient quantity and assortment of Products to enable it to meet the requirements of customers in the Territory. 5.03 REPRESENTATIVE will keep W&T advised of material developments in the market for the Products in the Territory. It will promptly forward to W&T all information which it may hereafter receive concerning (A) any claim or lawsuit involving alleged infringement by the Products of any patents of any third party and (B) any known or suspected infringement of any W&T patents by the products of any third party. 5.04 REPRESENTATIVE will be responsible, at its expense, for handling and processing warranty claims by REPRESENTATIVE's customers (and customers of the latter) relating to the Products, and for any customer service relating to the products within the Territory. W&T's Product Guarantee and Warranty is set forth in the Instruction Book that accompanies each Product. REPRESENTATIVE agrees not to offer its customers (or customers of the latter) any warranty or guarantee that 4 [WALLACE & TIERNAN LOGO] would impose upon W&T greater obligations than those imposed by W&T's Product Guarantee and Warranty. REPRESENTATIVE is not authorised to make representations or warranties for or on behalf of W&T, and has not authority to bind W&T in any way. The discounts granted pursuant to the Agreement and the commissions payable have been set with a view to all these requirements. Accordingly, REPRESENTATIVE agrees to indemnify and hold W&T harmless from and against any loss, damage, cost or expense arising out of customer service or warranty claims against W&T by REPRESENTATIVE, its customers, or customers of the latter that exceed the scope of W&T's Product Guarantee and Warranty, except where liability to third parties is demonstrated to be solely caused by fault of W&T. 5.05 REPRESENTATIVE will not export Products in contravention of any applicable laws or regulations of the United States, including without limitation, the Trading with the Enemy Act and the United States Export Regulations. 5.06 When requested, REPRESENTATIVE will supply a forecast of anticipated sales volume for the Territory in such form as W&T may specify. Following consultation with REPRESENTATIVE, W&T will establish an annual sales volume target for REPRESENTATIVE's Territory. Any substantial failure by REPRESENTATIVE to meet such a sales volume target shall be cause for termination of the Agreement pursuant to Paragraph 14 hereof, or may result in non-renewal of the Agreement upon expiration of its initial term or any renewal during which the target was not met. 6. Duties of W&T. W&T shall assist REPRESENTATIVE in developing sales, formulating quotations, and supplying technical literature that may be required for projects under consideration. Requests for prices and literature which W&T receives from prospective customers in the Territory will be referred to REPRESENTATIVE. 7. Shipment from W&T. When requested by REPRESENTATIVE, W&T will ship Products directly to REPRESENTATIVE's customer as long as the requirements of the attached Appendix "C" are met. 8. Terms and Conditions of Sale. The terms and conditions of each sale by W&T to REPRESENTATIVE will be governed by W&T's standard terms and conditions of sale, as the same may be modified by W&T from time to time hereafter. The terms and conditions of sale with respect to transactions in which REP acts solely as a sales representative, shall be within the exclusive discretion of W&T, and REP has no power of authority to bind W&T in any respect, REPRESENTATIVE's sole authority, with respect to such transactions, being to solicit orders for W&T to accept or reject. The terms and conditions of sale effective as of the date of this Agreement are as shown on Appendix "D" attached hereto and made part hereof. W&T makes no warranties, expressed or implied, except as set forth in such standard terms 5 and conditions of sale and in the Agreement. No claims of any kind shall be greater in amount than the purchase price of the Products in respect of which such claims are made. 9. Catalogues W&T will furnish free of charge reasonable quantities of any bulletins, catalogues and other printed advertising matter which it publishes concerning the Products. 10. Incidental Expenses Each part will bear its own expenses (including without limitation training of personnel, postage, cablegrams, travel and lodging) inc connection with the business herein contemplated. 11. Independent Contractor REPRESENTATIVE shall be an independent contractor and nothing contained herein shall create the relationship of joint venture, principal and agent, or master and servant between W&T and REPRESENTATIVE. Neither REPRESENTATIVE nor any of its employees shall be or represent themselves as authorized to bind W&T in any manner whatsoever. REPRESENTATIVE will conduct its business in accordance with all applicable laws, ordinances, rules and regulations of any applicable government authority. REPRESENTATIVE shall pay and discharge at its own cost and expense any and all expenses, charges, fees and taxes that may be levied or imposed upon by or by reason of the carrying on of the business of the REPRESENTATIVE as contemplated herein. 12. Assignment This Agreement may not be assigned by REPRESENTATIVE without the prior written consent of W&T. This Agreement may not be assigned by W&T without prior written consent of REPRESENTATIVE except to any successor of substantially all the assets and business of W&T related to the Products, or to an affiliate of W&T. 13. Confidentiality REPRESENTATIVE recognizes W&T's proprietary interest in and title to all confidential information comprising data, drawings, designs, trade secrets, know-how, processes or information ("Confidential Information") which W&T may furnish to REPRESENTATIVE pursuant to this Agreement. During the term of this Agreement and after termination, REPRESENTATIVE shall keep such data strictly confidential and shall so instruct its employees, agents and representatives, and shall use Confidential Information solely for the purposes of this Agreement. REPRESENTATIVE and its employees, agents and representatives will not communicate Confidential Information to others except to the extent necessary for the proper sale of the Products. Specifically excluded from this restriction is material which: (a) can be demonstrated to have been in the public domain prior to the date hereof; (b) becomes a part of the public domain by public use, publication or otherwise not due to any unauthorized act or omission on the part of REPRESENTATIVE; or 6 [WALLACE & TIERNAN LETTERHEAD] (c) is disclosed pursuant to governmental or judicial order. 14. Termination 14.01 Either party may terminate this Agreement immediately by giving written notice at any time if: (a) Payments are not made when due hereunder; or (b) either party becomes party to bankruptcy or insolvency proceedings, or to proceedings involving a composition amount creditors, or makes an assignment for the benefit of creditors; or (c) Either part fails to cure a default (other than failure to pay hereunder) within thirty (30) days after receipt of written notice thereof; In addition: (d) W&T may terminate this Agreement immediately by giving written notice if control of all of substantially all of the assets of REPRESENTATIVE is or are transferred (directly or indirectly) to a competitor of W&T or a competitor of an affiliate of W&T; and (e) W&T may terminate this Agreement upon thirty (30) days prior written notice following any annual period with respect to which REPRESENTATIVE has failed to meet a sales volume target established pursuant to Paragraph 5.06 hereof. If this Agreement is not terminated pursuant to any of the prior provisions of this Paragraph, it will remain in effect for an initial term of one year following the effective date set forth in the opening Paragraph, and shall thereafter continue in effect for successive renewal terms of one year each unless either party gives written notice of non-renewal at least thirty (30) days prior to the end of the initial term or any subsequent renewal term. 14.02 Within thirty (30) days after termination or non-renewal of this Agreement for any reason, W&T may, at its sole option, repurchase from REPRESENTATIVE any part or all of REPRESENTATIVE's inventory of the Products then in its possession at REPRESENTATIVE's net cost for the Products. Any inventory not so repurchased by W&T may be sold by REPRESENTATIVE after this agreement has terminated. 14.03 Termination of this Agreement shall not affect the right of either party to collect any sum which may be due it hereunder at the time of 7 [WALLACE & TIERNAN] such termination, nor shall it affect the obligations of REPRESENTATIVE set forth in Paragraph 5.04 or 13. 14.04 Upon termination hereof, REPRESENTATIVE shall immediately cease holding itself out to be an authorised REPRESENTATIVE of W&T and shall remove all signs, posters, or the like bearing any name or mark belonging to W&T. REPRESENTATIVE shall also immediately return to W&T all price books, part books, sales and service manuals, and other documents furnished to REPRESENTATIVE by W&T during the term of this Agreement. 15. FORCE MAJEURE No liability shall result from delay in performance or non-performance in whole or in part if performance as agreed has been made impracticable by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid, or by the occurrence of a contingency the non-occurrence of which was a basic assumption of which this contract was made, including, but not limited to, acts of God, fire, flood, accident, riot, war, sabotage, strike, labour trouble or shortages, embargo, or W&T's inability to obtain at prices and on terms deemed by it to be practicable any required raw material, energy source, equipment, labour, or transportation. If any such circumstances affects only a part of W&T's capacity to perform, W&T shall have the right to allocate production and deliveries among all of its customers and its own requirements in a fair and reasonable manner. Quantities affected by this paragraph may, at the option of either party, be eliminated from the contract without liability, but the contract shall remain otherwise unaffected. 16. PRIOR AGREEMENT: MODIFICATIONS This Agreement cancels and supersedes all prior agreements between the parties or their subsidiaries or affiliates relating to the sale or distribution of the Products herein referred to. This is the entire contract between the parties relating to the subject matter hereof. All modifications of the contract must be in writing and signed by both parties, except to the extent otherwise provided for herein. 17. NO WAIVER The failure of either party at any time to require performance by the other of any provision of this Agreement shall in no way affect the full right to require such performance at any time thereafter. Nor shall the waiver by either party of a breach of any provision hereof be construed as a waiver of any succeeding breach of that provision or of the provision itself. 18. NOTICES, GOVERNING LAW This Agreement shall be governed and construed by the laws of the State of New South Wales, Australia. All notices shall be in writing and shall be deemed given on the fifth day after they are sent, postpaid registered air mail to the respective addresses as set out above (or to such other address as either party may by notice provide); If to W&T, Wallace & Tiernan Pacific Pty Ltd, 89-93 Reserve Road, Artarmon, NSW, 2064. Attention: Sales Director. 8 [WALLACE & TIERNAN LOGO] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed effective the date first above written. This Agreement has been executed in two counterparts, one for each party. Each counterpart shall be deemed an original. This Agreement shall not be binding unless and until countersigned by W&T Pacific at Artarmon, New South Wales. Wallace & Tiernan Pacific Pty Ltd REPRESENTATIVE Signature: /s/ William H. Lofts Signature: /s/ T. C. Eunn ---------------------------- ------------------------ Name: WILLIAM H. LOFTS Name: T. C. EUNN Title: SALES DIRECTOR Title: mn Date: 20/12/90 Date: 24/12/90 Countersigned at Artarmon, New South Wales Signature: /s/ William H. Lofts ---------------------------- Name: WILLIAM H. LOFTS Title: Sales Director Date: 14/1/91 9 [WALLACE & TIERNAN LOGO] APPENDIX B AREA OF PRIMARY RESPONSIBILITY Pursuant to Paragraph 3 of the attached International Sales Agency and Distributor Agreement, the following area of primary responsibility is hereby assigned for the sale of Products by REPRESENTATIVE: HONG KONG 10 [WALLACE & TIERNAN LOGO] INTERNATIONAL SALES REPRESENTATIVE AND DISTRIBUTION AGREEMENT APPENDIX C DISCOUNTS OR COMMISSIONS I. DISCOUNTS OR COMMISSIONS The discounts/commissions stated herein are applicable to the list price of the Equipment and Accessories listed below. "List Prices" are understood to be the prices in the most current price list published by Wallace & Tiernan Pacific Pty Ltd for each respective Equipment, Accessory or Parts item. II. DEFINITIONS OF STANDARD EQUIPMENT DISCOUNT OR COMMISSION 1. W&T equipment and accessories for feeding, 20% indicating, recording or controlling chlorine gas, ammonia, sulphur dioxide, carbon dioxide or chlorine dioxide in the treatment of water or waste water. EXCLUDED from this definition are the following: Series 50-200 Evaporator and associated W&T 15% accessories. Automatic V500 arrangement consisting of control 30% unit, vacuum regulator and injector. EXCLUDED also from this definition are the Distributor products listed in Table A. 2. 32-050 and 32-055 Volumetric Feeders & associated 20% W&T accessories. 3. 32-300 Industries Volumetric Feeders. 0% 4. Gravimetric Feeders, Belt Volumetric Feeders, and 20% associated W&T accessories. 5. 35-100 and 35-150 Solution Tank Systems (excluding 15% Feeders), 85-800 Housed Chlorination Systems, 35-300 Polyelectrolyte Feeding Systems (excluding Pumps), and associated W&T accessories. 6. Lime Slaking systems and associated W&T 20% accessories. 11 [WALLACE & TIERNAN LOGO] 7. Metering Pumps and associated accessories. A. 43 Series CHEMTUBE, ENVIROTUBE, and P/D 15% Hydraulically Actuated Diaphragm Pumps and associated W&T accessories. B. 44 Series Diaphragm Pumps, Tank Feed Systems, See Table A 4-way valves and associated W&T accessories. C. 48-100 Polymer Blending Systems. (Maxi-Yield)/ 25% scaler board. Excluded from this definition are the Distributor products listed in Table A. 8. Varea-Meters and associated W&T accessories. 20% 9. Precision Pressure Instruments and associated 15% W&T accessories. 10. 65-120 and 65-165 Portable Calibrators. 20% 11. Preventive Maintenance Kits. See Table A 12. Parts for all W&T Equipment. 15% 13. Equipment & Accessories Not of our Manufacture. 0% 12 [LOGO] WALLACE & TIERNAN TABLE A III. DISTRIBUTOR EQUIPMENT The following Distributor equipment discount/commission schedule is dependent on per order quantity. The schedule is further based on only one (1) declared shipping destination per order. Orders specifying partial shipments or more than one (1) shipping destination will be discounted on the basis of units per shipment, not total order quantity.
EQUIPMENT DESCRIPTION QUANTITY PER ORDER --------------------- ------------------ - --------------------------------------------------------------------------- CHLORINATION EQUIPMENT 1-4 5-9 10-19 20 & OVER - --------------------------------------------------------------------------- V100A, A2 or D Control Units* 20% 40% 45% 50% - --------------------------------------------------------------------------- 200B, C or 500B, C Regulating Vales* 20% 40% 45% 50% - --------------------------------------------------------------------------- V100, V75 Auto Control Retrofit Pkgs. 20% 20% 20% 20% - --------------------------------------------------------------------------- V75VA2, VA5, VASP Control Units* 20% 40% 45% 50% - --------------------------------------------------------------------------- 50-345, 50-350 Scales* 20% 30% 35% 40% - --------------------------------------------------------------------------- 20-057A Control Unit 20% 25% 30% 32% - --------------------------------------------------------------------------- 20-057B, C Regulating Valves* 20% 25% 30% 32% - --------------------------------------------------------------------------- 50-125A, B C or 50-135 C12 Detectors* 20% 25% 30% 32% - --------------------------------------------------------------------------- 50-165 or 50-175 GPR Valves* 20% 25% 30% 32% - --------------------------------------------------------------------------- 50-280 Test Kit 20% 25% 30% 32% - --------------------------------------------------------------------------- Depolox 3TM Basic Electronic Package 20% 25% 25% 25% - --------------------------------------------------------------------------- Depolox 3TM Measurement Pkg. 20% 25% 25% 25% - --------------------------------------------------------------------------- (Chlorine, pH or Fluoride)* - ---------------------------------------------------------------------------
* Mixed or same arrangement. 13 [WALLACE & TIERNAN LOGO] TABLE A (continued)
EQUIPMENT DESCRIPTION QUANTITY PER ORDER - ------------------------------------------------------------------------------ METERING PUMP EQUIPMENT 1-4 5-9 10-19 20 & OVER - ------------------------------------------------------------------------------ 44 Pumps* 20% 25% 30% 30% 44 Pump Tank Feed Systems 20% 25% 30% 30% Multi-function 4-way Valve 20% 40% 45% 45% 45 Pumps* 20% 40% 45% 50% 45 Series Converter/Scaler Board 35% 40% 45% 50% 94 Pumps* 20% 40% 45% 50% 45 or 94 Pump Tank Feed System 20% 25% 30% 30% Stands, or Control Centre* 30 Gal. Tank w/wo cover*** 20% 25% 30% 30% 50 Gal. Tank w/wo cover*** 20% 25% 30% 30% Liquid Level Switch for Pump 20% 25% 30% 30% Handle or Tank Cover Mtg. Mixer 1/20HP 20% 25% 30% 30% Tank Cover ONLY, Chemical Dissolving 20% 25% 30% 30% Bag, Dust Cover or Acid Drum* 47-050 Saturators 20% 25% 30% 30% Assorted W&T accessories when purchased 20% with associated equipment for above+++ Preventive Maintenance Kits* 20% 25% 30% 30% - -------------------------------------------------------------------------------
* Mixed or same arrangement. *** Discounts for tanks are based on shipping the tanks nested. If tanks are to be shipped in individual cartons, they will be discounted as individual shipments. Unless otherwise specified, tanks will be shipped nested in packages of up to five to reduce shipping charges. Even when nested, the volume-to-weight ratio is high and freight charges for five tanks nested should be figured by multiplying class rates by 1.5 (30 gal) or 2.5 (50 gas). For individual tanks multiply first class rates by 3.0. For covers, multiply first class by 1.5. +++ W&T accessories purchased separately (apart from equipment) are considered "PARTS" for discount purposes, and must be priced from Parts Price Book. Orders are accepted on the basis that they will be immediately scheduled for shipment on standard shipping schedules. 14 [WALLACE & TIERNAN LOGO] WALLACE & TIERNAN PACIFIC PTY. LTD. 89-93 Reserve Road, Artarmon NSW 2064 ACN 000.130.414 Australia Tel: (02)4360375 Fax:(02)4384881 FACSIMILE TRANSMISSION W & T REF NO. 1074 ---- SENT TO: W.S.D. & G.S.D. HONG KONG COPY TO: EUROTECH FROM: VOLUN PIROM DATE: 6 APRIL, 1995 SUBJECT: EUROTECH (FAR EAST) LTD NUMBER OF PAGES (TO FOLLOW) 0 -- _________________________________ Dear Sir, Eurotech (Far East) Ltd is the local agent in Hong Kong for Wallace & Tiernan. We strongly recommend that all your inquiries and orders be directed through to Eurotech who has our complete support especially in technical matters. Yours faithfully, /s/ Volun Pirom - ---------------------------- Volun Pirom For and on behalf of Wallace & Tiernan Pacific Pty Ltd - ------------------------------------------------------ EX-10.8 9 AGREEMENT/FINNIGAN CORPORATION 1 Exhibit 10.8 SALES REPRESENTATIVE AGREEMENT THIS SALES REPRESENTATIVE AGREEMENT (this "Agreement") is entered into as of the 4 day of March, 1994, by and between FINNIGAN CORPORATION, a subsidiary of Thermo Instruments, (hereinafter referred to as the "Company") with its principal office located at 355 River Oaks Parkway, San Jose, California 95134 and EURO TECH (FAR EAST) LTD, (hereinafter referred to as the "Representative") with its principal office located at 18/F Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong. In consideration of the mutual covenants and agreements hereinafter set forth, the Company and the Representative hereby agree as follows: 1. REPRESENTATION AND TERRITORIES. The Company hereby appoints and authorizes the Representative, and the Representative agrees to act, as exclusive selling representative to sell the Company's products ("Products") and territories ("Territory") set forth in Exhibit(s) attached hereto and incorporated by this reference herein (or in such thereof, or additional territories, as set forth by the Company in a written and signed amendment to this Agreement). The Company retains the right to sell to Original Equipment Manufacturers ("OEMs") in the Territory without payment of a commission to the Representative. In addition, products may be sold in the Territory through the normal distribution channels of an OEM without payment of a commission to the Representative; provided that the OEM is a party to an agreement with the Company for the supply of products. The Company may, at its sole discretion, continue to deal directly with an end user or with representation other than through the Representative. In such event, the Company will consult with the Representative, advise him of all activity, and compensate him according to services rendered, in an amount determined by the Company at its sole discretion. 2. COMMISSION (a) As consideration for such representation, the Company shall pay the Representative for all sales of the Company's products in the foregoing territory or territories, except as prohibited by law or as otherwise altered by prior mutual agreement, a commission based upon the type of product sold, the classification of the Representative and the net sale price, f.o.b. Factory, as set forth in Exhibit(s), attached hereto and incorporated by this reference herein. The Commission is subject to change by the Company with ninety (90) days notice to the Representative. All sales are bound by the Company's conditions of sales in effect at the time of sale, which presently are as stated in Exhibit(s), attached hereto and incorporated by this reference herein. 1 2 (b) No commission will be paid for repairs, replacement parts, instruction manuals or other written documentation. (c) It is recognized that orders are sometimes placed on the basis of price as the sole factor. In such cases, it is agreed that a lesser commission rate may be accepted by a Representative if it appears to be in the best interest of both parties hereto and if the amount of such lesser commission is mutually agreed upon or before the date of quotation. 3. PAYMENT TERMS. For Class A products, 50% of the commission is payable on or before the thirtieth (30th) day after, and only to the extent the Company receives the sales proceeds. The additional 50% of commission is payable upon receipt of evidence of complete acceptance by the customer. Commissions on Class B and C Products sold directly to the end user shall be payable on or before the thirtieth (30th) day after, and only to the extent the Company receives the sales proceeds. Commission on Products sold directly to the Sales Representative will be in the form of a discount as specified in Exhibit(s). A statement, showing the invoice number for each relevant sale, the total payment on which commissions are due for such sale and the amount of commission paid, will accompany the commission check. Commissions paid by the Company on items subsequently returned by the customer for credit shall be repaid to the Company by the Representative and, if not then repaid, may be deducted from the next commission payment due to the Representative. 4. SALES DEMONSTRATORS AND MATERIALS. The Company shall provide the Representative with such demonstrators, sales literature, technical data and other sales aids as the Company may deem desirable for the promotion and sales of the Products. All such items shall remain the property of the Company and shall be returned to the Company upon demand. 5. MATTERS RESPECTING SALES AND PRODUCTS. The Company shall establish and have exclusive control over all prices, discounts, specifications, terms of sale changes thereto, and shall be solely responsible for the design, development, supply, production and performance of its products. The Company grants the representative the authority to establish local prices which can be up to but not exceed 120% of the Company's published list prices. This Agreement shall extend to and include any new products or improvements added to the Company's line during the term hereof with any new product or improvement being classified by the Company in accordance with Exhibit(s) herein. 2 3 All orders shall be subject to the Company's acceptance orders, or make any price quotations, delivery or performance promises, or product warranties or representations, without the Company's prior written approval. The Representative shall not incur any other obligations or expenses relative to the sale of the Company's products for which the Company will be responsible without the Company's prior written approval. Unless otherwise agreed to in writing by the Company, the Company shall not be responsible for delays, failures to deliver, failure in shipment or other casualties occasioned by strikes, labor troubles, natural disasters, wars, acts of governments or other causes beyond its control. 6. PROPRIETARY INTEREST. It is understood that the Company has and shall retain sole and exclusive rights to all inventions, patents, improvements, trademarks, trade names, trade secrets, and other matters if a proprietary nature relating to its products and business. The Company agrees to hold the Representative harmless from all liability for infringement of any patent rights or other rights of third parties which may result from the Representative's sale and distribution of the Company's product. Notwithstanding any of the foregoing, however, the Representative is not authorized to disclose to the Company, or otherwise use in the course of representation of the Company, any proprietary rights, including trade secrets and customer lists, belonging to any third parties, and the Representative shall hold the Company harmless for any liability relating thereto. The Company's customer list and pricing structure shall at all times remain the exclusive property of the Company. 7. RESPONSIBILITIES OF ALL REPRESENTATIVES. (a) The Representative shall establish and maintain a sales organization enabling him at any time to carry out the tasks and obligations he incurs under this Agreement. (b) The Representative shall work diligently to promote and sell the Products to the best of its ability through its sales and service staff and shall ensure that its staff is given the necessary training to provide competent sales assistance to the customers. Such promotion and sales will also be supplemented by: (i) personal visits to, and correspondence with, potential purchasers of the Products. (ii) advertising, trade exhibitions, technical seminars, and by the distribution of printed matter, all of its own expense unless otherwise agreed to in writing by the Company. 3 4 (c) The Representative shall, within one month from the date of signing this Agreement, establish a sales forecast for the current calendar year. Subsequently, the Representative shall, at the request of the Company, provide a monthly sales forecast submitted to the Company during the 3rd week of each month. (d) The Representative shall advise prospective customers in the selection of Products, and shall furnish them, whenever possible and necessary, with the information desired and shall at all times have ready and available the sales literature required. (e) The Representative shall advise the Company of the progress of sales cases. The Representative will consult with the Company as required on all sales inquiries, and in all technical matters required to support the sales situations. (f) The Representative will keep detailed records showing clearly all inquiries and sales of the Products and will allow the authorized officers of the Company to have access to these records. (g) The Representative, in conjunction with the Company, shall organize periodic meetings of the users of the Products. (h) The Representative shall periodically contact each user to determine the user's satisfaction with the Products it has purchased. The Representative shall immediately notify the Company in the event of problems requiring technical advice or assistance. (i) The Representative shall at all times give consideration to the anticipated customers orders and shall establish and maintain an inventory of instrument and spare parts appropriate to the needs of users in the Territory. (j) The Representative shall only agree upon binding terms of delivery with the customers if it has the Products concerned in its inventory or if it has already made a firm agreement with the Company for shorter terms of delivery. (k) The Representative shall, at its expense, promptly, and in any case quarterly, advise the company of the market potential, trends, and competitive activity in the Territory. (l) The Representative shall provide the Company with a list of all companies for which he is a representative as of the date hereof, and will notify the Company of all changes. The Representative shall not engage in any activity constituting direct competition with the Company, through its staff or otherwise. (m) The Representative shall be responsible for all local customs, importation, and local transport fees and taxes for the Products. 4 5 (n) The Representative shall immediately advise the Company of any changes affecting the Representative's ability to perform, including, but not limited to , change in its qualified personnel or ownership or control of the Representative. 8. ADDITIONAL RESPONSIBILITIES FOR CLASS A PRODUCTS. (a) The Representative shall provide full sales, installation, warranty, and other customer services for the applicable Class A Products with essentially no support from the Company. (b) The Representative shall maintain trained sales staff such that only minimal assistance from the Company is required. Such training will be at the Representative's expense, except that the Company will provide tuition for approved training courses at the Finnigan Institute or other Company facilities. The Company shall be the sole judge of the Representative's qualifications. (c) The Representative shall undertake at its own expense to send qualified members of its staff for special training by the Company in order to install and service the applicable instruments. The Company will provide tuition for such qualified personnel at approved courses conducted at the Finnigan Institute or other Company facilities. The Company shall be the sole judge of the ability of the Representative's staff to carry out installation and service obligations. (d) The Representative shall conduct preinstallation surveys of the customer's facility to ensure that the facility meets the applicable requirements. (e) The Representative shall be responsible for all spare parts, including those supplied by the Company under warranty. (f) The Representative shall be responsible for installation of the Product, including demonstration of its specification and receipt of customer acceptance. (g) The Representative shall respond in a timely manner to all customer requests for warranty service, and provide such parts and service at no additional charge to the customer throughout the warranty period. (h) The Representative shall maintain a stock of spare and consumable parts sufficient to meet the anticipated needs of the Products in the Territory. (i) The Representative shall compensate the Company at is standard billable rates, for installation or warranty service which is the responsibility of the Representative but which must be performed, at the sole discretion of the Company, 5 6 by the Company due to inability of the Representative to perform such service in a timely manner. 9. RESPONSIBILITIES OF THE COMPANY IN SUPPORT OF CLASS A PRODUCTS. (a) The Company shall recommend appropriate training for qualified sales and service staff of the Representative, and provide such training fee of tuition charges. Schedules for such training are at the Company's sole discretion. (b) The Company shall provide technical information required to support the Representative's service personnel. (c) The Company shall provide parts for warranty service at no charge to the Representative for a period of ninety (90) days from system shipment. The Company will replace, at no charge, those parts used from the Representative's stock during this period, upon receipt of a service report. 10. ADDITIONAL RESPONSIBILITIES FOR CLASS B PRODUCTS. (a) The Representative shall provide sales, marketing, and minor service support for the applicable Products. (b) The Representative shall provide qualified sales staff for training at its own expense. The Company will provide tuition for approved courses at the Finnigan Institute or other Company facilities. The Representative shall maintain such trained personnel on its staff at all times. The Company will be the sole judge of the qualifications of the proposed staff personnel. (c) The Representative shall actively market and sell the Products with support from the Company as appropriate based on mutual review of the specific sales situation. (d) The Representative shall conduct preinstallation surveys of the customer's facility to ensure that the facility meets the applicable requirements. (e) The Representative shall provide a qualified engineer to assist the Company's engineer with the Product installation. This assistance is intended to provide the Representative's engineer with the ability to perform minor service support. (f) The Representative shall facilitate and assist the Company's service engineer in matters of travel arrangements, technical preparation for service visits, and local procurement of parts and services. 6 7 (g) The Representative shall forward, on a monthly basis, a report on the operating status of each Product, including any outstanding service requirements. (h) The Representative shall maintain a stock of spare and consumable parts sufficient to meet the anticipated needs of the Products in his Territory. (i) The Representative shall provide technical service advice to the customer, to the best of his ability. (j) In the event that the Representative, as the local contact, is required by the customer to provide installation and warranty for a specified Product, this service will be sub-contracted from the Company. 11. RESPONSIBILITIES OF THE COMPANY IN SUPPORT OF CLASS B PRODUCTS. (a) The Company shall recommend appropriate training for qualified sales staff of the Representatives, and provide such training free of tuition charge at the Finnigan Institute or other Company facility. Schedules for such training are at the Company's sole discretion. The Company may establish qualification requirements for Representative participants. (b) The Company shall install the Product and obtain customer acceptance. (c) The Company shall be responsible for warranty parts and labor. (d) The Company may, at its sole discretion purchase services from the Representative in order to discharge its installation or warranty obligations at the Representative's prevailing billable service rate. 12. ADDITIONAL RESPONSIBILITIES FOR CLASS C PRODUCTS. (a) The Representative shall provide sales and local logistics support, but has no service responsibilities. (b) The Representative shall provide qualified sales staff for training at its own expense. The Company will provide tuition for approved courses at the Finnigan Institute or other Company facility. The Representative shall maintain such trained personnel on its staff at all times. The Company will be the sole judge of the qualifications of the proposed staff personnel. Schedules for such training are at the Company's sole discretion. The Company may establish qualification requirements for Representative participants. 7 8 (c) The representative shall actively market and sell the Products, with support from the Company as appropriate based on annual review of the specific sales situation. (d) The Representative shall be responsible for all local customs, importation, and transport of the product to the customer's site. (e) The Representative shall facilitate and assist the Company's service engineer in matters of travel arrangements, technical preparation for service visits, and local procurement of parts and services. (f) The Representative shall forward, on a monthly basis, a report on the operating status of each Product, including any outstanding service requirements. (g) In the event that the Representative, as the local contact, is required by the customer to provide installation and warranty for a specified Product, this service will be subcontracted from the Company. 13. RESPONSIBILITIES OF THE COMPANY IN SUPPORT OF CLASS C PRODUCTS. (a) The Company shall recommend appropriate training for the qualified sales staff of the Representative, and provide such training free of tuition charge at the Finnigan Institute or other Company facility. Schedules for such training are at the Company's sole discretion. The Company may establish qualification requirements for Representative's participants. (b) The Company shall install the product and obtain customer acceptance. (c) The Company shall be responsible for warranty parts and labor. (d) The Company may, at its sole discretion, purchase services from the Representative in order to discharge its installation or warranty obligations at the Representative's prevailing billable service rate. 14. TERM AND TERMINATION. The term of this Agreement shall be for a period from the date above written until terminated. (a) by either party upon ninety (90) days written notice given to the other party at the principal office of such other party; or 8 9 (b) Immediately upon written notice given by the Company to the Representative, at Representative's principal office upon (i) the breach of the Representative's obligation hereunder in a manner to discredit the Company's products or business; or (ii) the Representative's insolvency, bankruptcy, illegal activities, inability to function, proven moral turpitude or similar actions. 15. OBLIGATIONS ON TERMINATION. (a) The Representative shall promptly return all data, information, literature, and materials provided by the Company. (b) The Company will reimburse any inventory of products sold to the Representative by the Company which are in good working condition and of merchantable quality and not obsolete, for the net price of the original invoice, less depreciation valuation, but without duties or taxes. (c) The Company shall assume the obligation remaining in all unexpired warranties only to the extent that it may be covered by the standard Company warranty terms. The Representative shall compensate the Company for accepting any and all warranty obligations. The compensation shall be prorated and based on a rate of 5% of applicable F.O.B. product price for the 12 month warranty. (d) The Representative shall promptly complete any or all outstanding installations and shall obtain customer acceptance within sixty (60) days from the date that termination notice is given. (e) In the event the Representative is unable to complete installations and obtain customer acceptance with sixty (60) days, the Company shall assume the responsibility to complete any or all installations and obtain customer acceptance. The Representative shall compensate the Company for accepting any or all installation responsibilities on a prorate basis at 5% F.O.B. product price for complete installation. The Company will be the sole judge of the extent of incompletion of the installation. 16. COMMISSION UPON TERMINATION. Upon the effective date of termination as provided in Section 14 above, the Representative shall receive commissions, as otherwise set forth in Section 3 herein in the full amount thereof, as provided in Section 4 herein, for all commissionable orders on the books which have been accepted by the Company as of the effective date of termination. 9 10 17. RELATIONSHIP OF PARTIES. Company shall exercise no control over the activities and operations of the Representative except as herein provided; and the Representative shall be free to conduct business as may seem fit, calling on whatever customers within the Representative's territory or territories as may be desired except as stated herein, and covering such parts of said territory or territories and at such frequency as may be chosen, but at no time will the Representative act contrary to the Company's interests. The Representative shall, in correspondence, quotations, and other dealings, clearly indicate that he is acting as principal, and sign with its own firm name. The name and logo of the Company shall not appear on stationary used by the Representative except as a marginal note approved by the Company showing in the appropriate local language "Commission Representative of Finnigan MAT." The Representative shall have no power or authority to act for, bind, or commit the Company, nor shall the Representative have authority to make contacts or incur liability on behalf of the Company. The Representative will establish and maintain a suitable place of business to handle the sales of the Company's products and will use all due diligence in promoting the sale of the Company's products. The Company will place no restrictions on the number of other accounts handled by the Representative but the Representative shall not sell any items directly competitive with the Company's except as approved in writing by the Company. The Representative may employ suitable and desirable personnel in its territory or territories but it is understood that any such are at the Representative's own risk, expense and supervision, and as such shall have no claim against the Company for salaries, commissions or other items of cost, and the Representative warrants that any such personnel shall be subordinate to the Representative and subject to all obligations applying to the Representative. Each part to this Agreement is recognized as an independent contractor and nothing herein contained shall be deemed to constitute one party as an agent, employee or partner of the other. 18. ASSIGNABILITY BY REPRESENTATIVE. The franchise, rights and duties conferred or imposed upon the Representative herein are personal in nature and are not subject to voluntary or involuntary assignment, delegation or encumbrance, or to assignment or delegation by operation of law. 19. CHANGE OF PRINCIPAL OFFICE. The location of the principal office of either party herein may be changed for purposes hereof by an appropriate written notice given to the other party. 10 11 20. GOVERNMENT CONTRACTS. It is specifically understood that all of the terms and conditions herein are subject to, and will be superseded by, the provisions of any contracts of sale which may be entered into between the Company and any governmental bodies or agencies. 21. GOVERNMENT RESTRICTIONS. (a) All requests by the Representative for delivery of the Products are conditioned upon receipt by the Company of valid export licenses. (b) The Representative shall be responsible for imposing any resale restrictions on the customer that are required by the official regulations of any countries in which the Products are manufactured or purchased, or of regulations in the Territory of the representation. To the best of its ability, the Company will advise the Representative of the current regulations. (c) The Representative will assist the Company in obtaining the necessary signatures for all applicable licensing forms. 22. FOREIGN CORRUPT PRACTICES ACT OF 1977. In compliance with this law, Representatives covenants that it, and any person acting on its behalf, including without limitation, any local agent appointed by Representative pursuant to Representative's authority, will not violate, directly or indirectly, the provisions of the Foreign Corrupt Practices Act of 1977, and, in particular, will not offer, pay, promise to pay, or authorize the payment of any money, or offer, give, promise to give, or authorize the giving of anything of value to (a) any foreign officials for purposes of (i) influencing any act or decision of such foreign official in his official capacity, including a decision to fail to perform his official functions; or (ii) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality; in order to assist in obtaining or retaining business for or with, or directing business to, any person; 11 12 (b) any foreign political party or official thereof or any candidate for foreign political office for purposes of (i) influencing any act or decision of such party, official, or candidate in its or his official capacity, including a decision to fail to perform its or his official functions; or (ii) inducing such party, official, or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist in obtaining or retaining business for or with, or directing business to, any person; (c) any person, while knowing or having reason to know that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party of official thereof, or to any candidate for foreign political office, for purposes of (i) influencing any act or decision of such foreign official, political party, party official, or candidate in his or its official capacity, including a decision to fail to perform his or its official functions; or (ii) inducing such foreign official, political party, party official, or candidate to use his or its influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist in obtaining or retaining business for or with, or directing business to, any person. Representative recognizes that Principal will inform the U.S. Department of Justice if Principal determines that either Representative or any of its agents have violated the Foreign Corrupt Practices Act of 1977, the prohibitions of which are set forth in this section. 23. FORCE MAJEURE. Neither party hereto shall be liable for failures to perform due to contingencies beyond its reasonable control, including, but not limited to, strike, riot, war, fire, act of God, accident, or any action by any governmental body, 12 13 24. SUCCESSORS AND CONSTRUCTION. This Agreement and all of the terms and conditions herein: (a) shall be binding upon and inure to the benefit of the permitted successors, assigns, receivers, personal representatives and heirs of the parties hereto; (b) contain the whole understanding of the parties superseding any prior agreements, written or oral, and may be modified only by mutual written agreement, if any, as the parties hereto may execute; and (c) are to be construed and enforced in accordance with the laws of the State of California. 25. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in San Francisco, California, or at such other place as the parties hereto mutually agree upon, in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator, or arbitrators, may be entered in any court having jurisdiction thereof. 26. CAPTIONS. The captions and titles used in connection with the paragraphs herein are inserted for convenience only and are not intended for use in the construction or interpretation of the terms hereof. 27. NOTICES. Any notice given hereunder shall be sent by pre-paid letter addressed to the last known address of the party to whom the notice is given and shall be deemed to have been given seven (7) days after it has been placed in first class mail, return receipt requested. 28. SEVERABILITY. In the event that any provisions of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, provided that no such severability shall be effective if it materially changes the economic benefit of the Agreement to any party. 29. MODIFICATION OF EXHIBITS. The Company reserves the right from time to time to modify the terms of Exhibit(s) attached hereto by giving not less than thirty (30) days written notice of such modification to the Representative. No such modification shall become effective prior to the expiration of such thirty (30) day period unless otherwise agreed in a writing signed by the Representative. 13 14 IN WITNESS WHEREOF, the Company and the Representative have duly executed this Agreement as of the day and year first above written. FINNIGAN CORPORATION ("Company") REPRESENTATIVE By ____ILLEGIBLE__________________ By ____ILLEGIBLE__________________ General Manager Managing Director Title ___________________________ Title ___________________________ 14 15 EXHIBIT 1A SAN JOSE PRODUCTS THIS EXHIBIT is part of the Sales Representative Agreement entered into on the ____ day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the "Representative") and FINNIGAN CORPORATION (the "Company"). PRODUCTS: The following products supplied by the Company are included: Magnum, Tracker, Witness, ITMS, Incos XL, SSQ710C, SSQ7000, TSQ7000. GEOGRAPHIC TERRITORY: The Representative is assigned the following geographic territory: Hong Kong and Macao COMMISSION/DISCOUNTS: CLASS A PRODUCTS: Magnum, Tracker, Witness, Incos XL; These products will yield a commission of 25% based upon published International List Price. CLASS B PRODUCTS: SSQ710C, SSQ7000, TSQ7000, ITMS: These products will yield a commission of 10% based upon published International List Price. 15 16 SPARE PARTS: Spare Parts purchased by the Representative will receive a 25% discount based upon the published International List Price. Spare Parts purchased by the Customer in the Representative's assigned territory will receive a 25% commission based upon the published International List Price. PAYMENT TERMS: System sales directly from the end user or from the Representative for resale: Irrevocable and Confirmed Letter of Credit payable to Finnigan Corporation upon presentation of shipping documents. Sale of Parts directly to the end users: Irrevocable and Confirmed Letter of Credit payable to Finnigan Corporation upon presentation of shipping documents. Sale of Parts for the Representative's account: Payable (45) days following shipment. Delinquent accounts are subject to interest of 2% per month from the date of shipment. SUPPORT CONTACTS: The Company has assigned the following individuals as the official contacts: Sales: Nancy Kuo, Don Remling, Ying Chow Service: Adi Loo EXHIBIT APPROVAL: FINNIGAN CORPORATION ("Company") REPRESENTATIVE By_______ILLEGIBLE______________ By_____ILLEGIBLE_______________ Vice President/General Manager Date____7 MARCH 1994____________ Date___4 (ILLEGIBLE)/94________ 16 17 EXHIBIT 1B SAN JOSE PRODUCTS THIS EXHIBIT is part of the Sales Representative Agreement entered into on the ____ day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the "Representative") and FINNIGAN CORPORATION (the "Company"). PRODUCTS: The following products supplied by the Company are included: Magnum, Tracker, Witness, Incos XL GEOGRAPHIC TERRITORY: The Representative is assigned the following geographic territory (excluding the forensic market in all provinces listed): 1) Shanghai 2) Guang Dong, Hainan, Hunan The Representative is assigned the following geographic territory for the environmental market only: 1) Hei Long Jiang, Jilin, Liaoning COMMISSIONS/DISCOUNTS: CLASS A PRODUCTS: None CLASS B PRODUCTS: Magnum, Tracker, Witness, Incos XL: This product will yield a commission of 10% based upon published International List Price. 17 18 PAYMENT TERMS: System sales directly from the end user or from the Representative for resale: Irrevocable and Confirmed Letter of Credit payable to Finnigan Corporation upon presentation of shipping documents. SUPPORT CONTACTS: The Company has assigned the following individuals as the official contacts: Sales: Nancy Kuo, Don Remling, Ying Chow Service: Adi Loo EXHIBIT APPROVAL: FINNIGAN CORPORATION ("Company") REPRESENTATIVE By______ILLEGIBLE_______________ By_____ILLEGIBLE______________ Vice President/General Manager Date____7 MARCH 1994____________ Date___4 (ILLEGIBLE)/94_______ 18 19 EXHIBIT 2 EUROPEAN PRODUCTS THIS EXHIBIT is part of the Sales Representative Agreement entered into on the 4 day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the "Representative") and FINNIGAN CORPORATION (the "Company"). PRODUCTS: The following products supplied by the Company are included: MAT 95, MAT 95Q, MAT 900, Vision 2000, Vision 2000 L, MAT 252, MAT 262, Tracermat, Delta S, Delta C, THQ, MAT 271, MAT 281, Element GEOGRAPHIC TERRITORY: The Representative is assigned the following geographic territory: Hong Kong and Macao COMMISSIONS/DISCOUNTS: CLASS A PRODUCTS: None CLASS B PRODUCTS: MAT 95, MAT 95Q, MAT 900, Vision 2000, Vision 2000 L, MAT 252, MAT 262, Tracermat, Delta S, Delta C, THQ, MAT 271, MAT 281, Element: These products will yield a commission of 10% based upon published International List Price. 19 20 SPARE PARTS: Spare Parts purchased by the Representative will receive a 20% discount based upon the published International List Price. Spare Parts purchased by the Customer in the Representative's assigned territory will receive a 20% commission based upon the published International List Price. PAYMENT TERMS: System sales directly from the end user or from the Representative for resale: Irrevocable and Confirmed Letter of Credit payable to Finnigan Corporation upon presentation of shipping documents. Sale of Parts directly to the end users: Irrevocable and Confirmed Letter of Credit payable to Finnigan Corporation upon presentation of shipping documents. Sale of Parts for the Representative's account: Payable (45) days following shipment. Delinquent accounts are subject to interest of 2% per month from the date of shipment. SUPPORT CONTACTS: The Company has assigned the following individuals as the official contacts: Sales: Ying Chow, Jerome Johemko, Don Remling, Nancy Kuo Service: Adi Loo EXHIBIT APPROVAL: FINNIGAN CORPORATION ("Company") REPRESENTATIVE By______ILLEGIBLE_______________ By_____ILLEGIBLE______________ Vice President/General Manager Date____22 APRIL 1994___________ Date___18/4/94________________ 20 21 EXHIBIT 3 HEMEL PRODUCTS THIS EXHIBIT is part of the Sales Representative Agreement entered into on the 4 day of March, 1994 by and between EURO TECH (FAR EAST) LTD (the "Representative") and FINNIGAN CORPORATION (the "Company"). PRODUCTS: The following products supplied by the Company are included: Lasermat, SOLA GEOGRAPHIC TERRITORY: The Representative is assigned the following geographic territory: Hong Kong and Macao COMMISSIONS/DISCOUNTS: CLASS A PRODUCTS: None CLASS B PRODUCTS: Lasermat, SOLA These products will yield a commission of 10% based upon published International List Price. SPARE PARTS: Spare Parts purchased by the Representative will receive a 25% discount based upon the published International List Price. Spare Parts purchased by the Customer in the Representative's assigned territory will receive a 25% commission based upon the published International List Price. 21 22 PAYMENT TERMS: System sales directly from the end user or from the Representative for resale: Irrevocable and Confirmed Letter of Credit payable to Finnigan MAT Ltd. L/C to be confirmed by Barclays Bank PLC, Luton International Services Branch, 28, George Street, Luton, LU1 2HW, United Kingdom upon presentation of shipping documents. Sale of Parts directly to the end users: Irrevocable and Confirmed Letter of Credit payable to Finnigan MAT Ltd. L/C to be confirmed by Barclays Bank PLC, Luton International Services Branch, 28, George Street, Luton, LU1 2HW, United Kingdom upon presentation of shipping documents. Sale Parts for the Representative's account: Payable (45) days following shipment. Delinquent accounts are subject to interest of 2% per month from the date of shipment. SUPPORT CONTACTS: The Company has assigned the following individuals as the official contacts: Sales: Ying Chow, Jerome Johemko, Don Remling, Nancy Kuo Service: Adi Loo EXHIBIT APPROVAL: FINNIGAN CORPORATION ("Company") REPRESENTATIVE By______ILLEGIBLE_______________ By______ILLEGIBLE_____________ Vice President/General Manager Date____22 APRIL 1994___________ Date____18/4/94_______________ 22 EX-10.9 10 AGREEMENT/HACH COMPANY 1 Exhibit 10.9 ( L O G O ) DISTRIBUTORSHIP AGREEMENT BETWEEN HACH COMPANY AND EURO TECH (FAR EAST) LTD. This agreement made and entered into between Hach Company, Inc., a corporation organized and existing under the laws of the State of Delaware, U.S.A., having its principal offices at 57th Street and Lindbergh Parkway (P.O. Box 389), Loveland Colorado 80537, United States of America ("Hach") and EURO TECH (FAR EAST) LTD. 18/F GEOCLUNG HONG CENTRES 65 WONG CHUK RD. HONG KONG ("DISTRIBUTOR") Whereas Hach is one of the leading manufacturers of laboratory testing apparatus, process analyzers and chemicals particularly intended for analysis of water and other substances the ("Products"); and Whereas Distributor has the commercial and technical experience and capability as well as technically trained personnel to promote, sell and service the Products; Now, therefore, the parties hereto agree as follows: 1.0 DEFINITIONS 1.1 The "Territory" shall mean the geographic area described on Exibit A. Territory, attached hereto. 1.2 The "Products" shall mean the items of the Product lines designated on Exhibit B, Products, attached hereto. The parties may add to or otherwise modify and list by mutual written agreement. 1.3 "Private Label Products" shall mean those products which Hach supplies to its customers which bear the customer's label, or those products purchased from Hach under a special agreement, or those products which are otherwise denominated by Hach as Private Label Products. 1.4 "Contract Date" is the date shown beneath the signature of Hach Company at the end of this Agreement. 2.0 APPOINTMENT OF DISTRIBUTOR 2.1 Hach hereby appoints EURO TECH (FAR EAST) LTD. Distributor of Products in the Territory, and Distributor accepts said appointment, subject to all items and conditions hereof. 2.2 Hach may appoint other person(s) or company(s) to distribute or represent the Products in the Territory during the term of the Agreement or any extension hereof. 2.3 Hach does not guarantee the Products will not at times be sold to customers in the Territory by Distributors of representatives established outside the Territory. 2.4 Hach may sell Products directly to customers in the Territory where requested by a customer or where, in Hach's sole discretion, Distributor's coverage of this Territory is not adequate. 3.0 PURCHASE, SHIPMENT 3.1 Distributor may sell only those Products described in Exhibit B, Products in the Territory. 3.2 Absent a separate, written agreement, Distributor may not sell Private Label Product, and no commission is due or shall be extended for such sales. 3.3 Subject to availability, Distributor shall place firm orders for and Hach shall send to Distributor, Products in quantities sufficient to meet Distributor's demand for the Products in the Territory. 3.4 Hach shall sell Products to Distributor, Ex Works (Factory, Ames, Iowa U.S.A.) and all risk of damage or loss shall pass to Distributor at this point. Hach retains title to the Products until courier delivers Product(s) at first foreign (non U.S.) port of entry. 3.5 Products shall be sold to Distributor at Hach's Distributor List Prices in effect at the time the order is accepted by Hach. All sales shall be made under Hach's standard terms and conditions of sale, as modified and subject only to the terms of this Agreement which shall prevail in the event of any inconsistency between this Agreement and those terms and conditions of sale. Hach shall furnish to Distributor from time to time a Distributor Price List and a recommended price list covering the Products. Hach may from time to time and without prior notice to Distributor change either of these price lists. 3.6 Each order placed by Distributor shall be subject to acceptance by Hach in the U.S. Hach shall not be obligated to accept any order. Hach shall not be liable to any party for its failure or refusal to accept any order. 3.7 Hach shall not be liable for loss, change, detention, delay or failure to deliver all or any part of the Products resulting from causes beyond its control, including but not limited to fires, strike, insurrection, riots, 1 2 [LOGO] embargoes, car shortages, delays in transportation, inability to obtain supplies and raw materials, requirements or regulations of the United States Government or any other civil or military authority. Hach shall not be liable for any loss or damage arising from such delay. 3.8 Quoted delivery dates are merely approximate. Delay in delivery shall not entitle Distributor to cancel an order. Distributor's acceptance of delivery of the Product shall constitute a waiver of all claims for loss or damage due to delay. 3.9 Hach shall have the right to discontinue the availability of any Product, or to make design changes or improvements in the Products, at any time without notification to Distributor, without incurring any liability to Distributor or to Distributor's dealers or customers and without any obligation to apply any such changes or improvements to Products previously purchased by Distributor or in use in the Territory. 4.0 TERMS OF PAYMENTS 4.1 Payment for Products shall be made by Distributor in U.S. dollars in accordance with Hach's standard credit practices for International sales. Ability to complete payments to Hach to the currency of the United States of America as stipulated herein is of the essence of this Agreement. If by virtue of any regulation or order of any government authority in the Territory Distributor is unable to make payments in accordance with this agreement. Hach may elect to terminate this Agreement. 4.2 Notwithstanding Section 4.1, payment may be made in U.S. dollars or in any alternate currency upon which the parties hereto mutually agree in writing prior to payment in that alternate currency. 4.3 All overdue invoices shall accrue interest at the rate of one and one-half (1.5%) percent per thirty (30)-day period, with each fraction of a period counting as a full period. 5.0 DUTIES OF DISTRIBUTOR 5.1 Distributor agrees to maintain a suitable place or places of business with adequate facilities for the sale and servicing of the Products. Such facilities shall be staffed by qualified personnel and shall remain open to customers during business hours customary in the trade and in the Territory. Distributor shall allow Hach's representatives at any reasonable time to examine Distributor's place of business and inventories and to lost Distributor's equipment and facilities so as to verify Distributor's compliance with this agreement. 5.2 Distributor agrees to exert its best efforts to promote and sell the Products in the Territory and to provide competent post-sales servicing for all Products located in the Territory regardless of whether or not sold by Distributor. 5.3 Neither Distributor nor any related or affiliated person of Distributor shall, during the term of this Agreement, sell or represent any goods which conflict or compete with the Products. 5.4 Distributors agrees to inform Hach in writing of all or companies other than Hach, which or from whom Distributor purchases for resale or otherwise represents during the term of this Agreement. 5.5 Distributor agrees to keep at all times during the term of this Agreement an adequate inventory of Product as reasonably required to meet the Sales Forecast for the Territory. Distributor shall execute such Sales Forecast promptly upon signing this Agreement or at the start of Hach's fiscal year as mutually agreed upon. In the event said Sales Forecast is not executed before the first day of the third month following the Contract Date of this Agreement, Hach may terminate this Agreement with thirty (30) days written notice to Distributor. 5.5.1 An Annual Sales Forecast(s) will be provided by Distributor to Hach by June 30 of each contract year. 5.6 Distributor shall furnish an Annual Sales and Operations Report ("Report") to Hach. This Report is due on February 1 of each year and Hach must receive the Report no later than February 28. The Report shall contain accurate information as to sales, customer demand, customer reactions, activities of competitors, information on political and economic developments that could affect in any way the financial condition of the Distributor and/or the ability of Distributor to promote and sell the Products in the Territory and such other information as Hach may reasonably request, including information on the financial condition of Distributor. 5.7 Distributor shall maintain records of all sales and keep them on file for (3) years. Distributor shall allow Hach's employees or agents to examine such records at any reasonable time. Distributor agrees that all customers or potential customers for the Products have been developed and created solely for the benefit of Hach, and any list of customers or potential customers for the Products shall be deemed to be the property of Hach. 2 3 [LOGO] 5.8 Distributor shall assist Hach in obtaining information regarding the financial stability and credit history of any customer or prospective customer with respect to which Distributor forwards an order directly to Hach for acceptance in return for a sales commissions, as provided herein. 5.9 If Distributor services Hach equipment it shall do so according to Hach's "International Instrument Service Policy and Procedure of Hach Company and of Hach Europe, S.A." 6.0 RESALE OF PRODUCTS BY DISTRIBUTOR 6.1 Distributor shall actively solicit orders from prospective and actual customers, either by calling on same with its own personnel through its dealers or by mailing adequate printed material and brochures. 6.2 Hach may visit customers and prospective customers in the Territory and may, but shall not be required to, afford Distributor an opportunity to accompany the Hach representative on any such visit. Any order placed by a customer during a joint visit by Hach and Distributor shall be for the account of Distributor. 6.3 Distributor shall establish a Customer Price List which shall be made available to Hach upon request. In doing so, Distributor agrees to give due consideration to Hach's recommended customer list prices and prices of Hach Product and competitive products in the U.S.A. and locally. Said Price List shall be established to afford sales potential for the Products and at the same time to secure due compensation to Distributor for the sale and service efforts in the Territory. 6.4 Distributor shall not solicit or advertise in jurisdictions outside the Territory, unless this restriction on solicitation or advertisement is prohibited by law. Distributor shall not maintain branches, places of business or warehouses outside the Territory for the Products without the prior written consent of Hach. 6.5 Distributor shall not, without the prior written consent of Hach, alter the Products in any manner including, without limitation, removal or alteration of labels, tradenames, trademarks, notices, serial numbers or other identifying marks, symbols or legends affixed to any of the Products or their containers or packages. 7.0 SALES LITERATURE 7.1 Hach shall finish to Distributor reasonable quantities of sales literature and brochures in the English language and using United States standard measures and weights. Distributor shall be responsible for carrying out, at its own cost and expense, any translations or adaptations of such material required by local law, provided that no such translations or adaptations shall be disseminated by Distributor without the prior written consent of Hach. Nonetheless, Distributor agrees to indemnify Hach and hold it harmless from any liability, damages, costs and expenses incurred by Hach with respect to any improper or incorrect translation or adaptation of the above mentioned materials. 7.2 Upon termination of this Agreement Distributor shall promptly deliver to Hach all such material and any translations and/or adaptations thereof which may be in Distributor's possession or control, in accordance with instructions from Hach. 7.3 Hach shall have the right to distribute literature and brochures directly to the customers and prospective customers in the Territory based on mailing lists that Hach may develop. Where Hach and Distributor together develop such lists, Distributor may be requested by Hach to pay up to one-half of the cost of any such distribution. 8.0 APPOINTMENT OF DEALERS Distributor shall not appoint any representatives, agents, sub-Distributors or dealers ("Appointees") to assist in the promotion and/or role of the Products in the Territory without the prior written consent of Hach. In the event that Hach shall consent to any such appointments. It is understood that any such Appointee shall not be considered a representative, agent, distributor, dealer or employee of Hach, and shall derive no rights vis-a-vis Hach by virtue of such appointment. Accordingly, Distributor agrees to indemnify Hach and hold it harmless from any liability, damages, costs or expenses (including reasonable attorney's fees) incurred by Hach as a result of acts of the Appointees. Further Distributor shall indemnify and hold Hach harmless from any liability, damages, costs or expenses (including reasonable attorney's fees) incurred by Hach with respect to the termination and/or appointment of any such Appointees. 9.0 GOVERNMENT REGULATIONS 9.1 Distributor agrees to obtain at its own expense any import license, foreign exchange permit, or other permit or approval it may need for the performance of its obligations under this Agreement and to comply at its own expense with all applicable laws, regulations and orders of the government(s) of the Territory any instrumentality thereof. 3 4 [LOGO] 10.0 WARRANTY 10.1 Hach warrants that the Products are free from defects in material and workmanship for a period of one (1) year from the date of shipment unless otherwise specified by Hach. 10.2 The sole obligation of Hach is to repair or replace, in its option, and without charge, any Product or part of its manufacture which it agrees is defective. 10.3 This warranty does not cover limited-life electrical components which deteriorate with age such as but not limited to: vacuum tubes, batteries, lamps, photo cells, electrodes. In the case of equipment and accessories not manufactured by Hach, but which are furnished with equipment of Hach's manufacture. If liability is extended by the manufacturers thereof and transferable to Distributor, Hach transfers such liability. 10.4 This warranty does not cover parts or Products which in Hach's or Distributor's opinion have become worn from normal use or have been damaged by misuse, negligence or accident, or which disassembly and/or repairs have been attempted causing solo defect. 10.5 UNLESS EXPRESSLY SET FORTH IN THIS AGREEMENT, HACH ALIKES NO WARRANTY OF ANY KIND WHATSOEVER WITH RESPECT TO ANY PRODUCTS FURNISHED HEREUNDER. HACH EXPRESSLY DISCLAIMS WARRANTIES IMPLIED BY LAW, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL HACH BE LIABLE FOR DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 10.6 Distributor, acting only on its behalf, shall in the sale contract between it and its retail customer, provide a warranty similar to the one given to Distributor by Hach herein. Distributor shall promptly perform and fulfill any and all of the terms and conditions of each such warranty extended. Distributor agrees not to extend to its customers any Product warranty that is different from Hach's limited warranty set forth in this Section 10. 11.0 INDUSTRIAL PROPERTY Distributor recognizes that Hach is the owner, assignee or licensee of various industrial property rights in the United States and throughout the world, including patents, trademarks, trade names, designs, insignia and confidential information, and Distributor expressly acknowledges and agrees that it will not have or acquire any rights in or to any such industrial property rights used or adopted by Hach anywhere in the world, or used or adopted by any company related to or affiliated with Hach, whether or not such industrial property rights are registered in the Territory. Recognizing the importance of such rights to Hach's business and good will, Distributors agrees as follows: 11.1 Should Distributor become aware of trade practices or actions posed or threatened by third parties that may injure the business that Distributor conducts pursuant to this Agreement or Hach's business and good will or the above-mentioned property rights, full details of the same shall be promptly supplied to Hach, and Hach or any person authorized by it shall have the right to take or direct such action as Hach may deem proper against such third parties. Distributor shall in no event take any action in protection of Hach's rights or in furtherance of Hach's interest without Hach's written authorization. 11.2 During the continuance of this Agreement and thereafter, Distributor shall not take or cooperate in any action or threatened action which might in any way impair such industrial property rights, or question Hach's paramount ownership or interest in the same or in any way injure Hach's business and good will. 11.3 Distributor shall not, without Hach's consent or direction, make any threat against or cooperate in any action against third parties which in any way involves the above-mentioned industrial property or which constitutes unfair trade practices or violation of any law in the state or in the advertising of Hach Products. 11.4 Distributor shall not alter, deface, remove, cover up or mutilate in any manner whatever any trademark, serial or model numbers, brand or name which is attached to Hach Products. If any such modifications or changes come to Distributor's attention it shall report them to Hach. 11.5 During the continuance of this Agreement and thereafter Distributor shall not use or register or attempt to register any name, or insignia which infringes or is in conflict with or is confused similar to Hach's industrial property rights, and Distributor shall not at any time assert any ownership or interest in any such name, mark or insignia. The foregoing shall include use on products, in business titles and in advertising literature. 11.6 During the continuance and solely for the purpose of this Agreement, Distributor is granted the non-exclusive right to use Hach's trade names and trademark in connection with the sale or offering for sale and trademark or trade name or change the manner in which any such mark or name is displayed or used when requested to do so by Hach. Such marks or names may be used as part of the name under which Distributor's 4 5 [LOGO] business is concluded only with the express approval of Hach. Distributor is not authorized to use outside the Territory, directly or indirectly, in whole or in part, as a part of Distributor's corporate name or in signs, advertising, or any other similar selling offer. Any of Hach's trademarks or tradenames that are now or may hereafter be owned by Hach. 11.7 During the continuance of this Agreement and thereafter neither Distributor nor its officers or employees will divulge to others, without Hach's written consent, confidential information supplied directly or indirectly to Distributor including customer lists and purchase orders, engineering or technical data including plans, specifications, drawings, designs, layouts, processes and formulae, whether or not reduced to writing. Distributor shall disclose confidential information only to those of its officers or employees whose duties require them to know the same, and then only if such persons have given to Distributor an enforceable undertaking not to disclose the confidential information to any unauthorized third person, and Distributor shall take any such other steps which may be necessary to cause compliance with the provisions of this Section 11.7 by its officers and employees. 11.8 Distributor shall reimburse Hach for all costs and expenses including legal fees incurred by Hach in connection with any legal action taken to enforce compliance with this Section 11. 12.0 PRINCIPAL-TO-PRINCIPAL RELATIONSHIP It is understood and agreed that this Agreement creates a principal-to- principal relationship between the parties hereto, that Distributor is not an agent, and that Distributor may not lawfully bind Hach in any manner whatsoever. Distributor shall not make quotations or write letters in the name of Hach, but in every instance shall sign with its own name. The name of Hach shall not appear on the stationery used by Distributor except as a marginal note to indicate that Distributor is authorized by Hach to distribute Products in the Territory. In no event shall Hach be liable for any expense incurred by Distributor, the liability for which is not specifically assumed in writing by Hach. 13.0 DURATION AND TERMINATION 13.1 This Agreement shall become effective upon the Contract Date. Unless sooner terminated as hereinafter provided, this Agreement shall terminate one year from the Contract Date. This Agreement may be extended beyond its original term only by the mutual consent of the parties expressed in a written instrument that refers to this Agreement and specifies the extended term. 13.2 The following events constitute just cause for termination of this Agreement: 13.2.1 Default by Distributor in the payment of any obligations owing to Hach; or 13.2.2 The filing by or against Distributor of any insolvency or bankruptcy proceedings or proceedings for reorganization receivership or dissolution, of the inability by Distributor to meet its debts as become due; or 13.2.3 Any material, adverse change in Distributor's financial condition, or 13.2.4 If Distributor is a corporation, more than fifty percent (50%) of the stock of Distributor is transferred to another person who does not own or contract at least twenty-five percent (25%) of Distributor's equity at the time of execution of this Agreement; or 13.2.5 If Distributor is a partnership, any change in the membership of Distributor's firm by death or otherwise; or 13.2.6 If Distributor is an individual, his death; or 13.2.7 A competitor of Hach acquires, directly or indirectly, control of at least twenty-five percent (25%) equity interest in Distributor, or 13.2.8 Any dispute, disagreement or controversy arises between or among any of Distributor's principals, partners, managers, officers or stockholders which, in Hach's opinion, may adversely affect Distributor's operation, management, reputation or business or Hach's interest or the reputation of the Products; or 13.2.9 Any dispute, disagreement or controversy arises between Distributor and a customer, which in Hach's opinion may adversely affect Hach's interests or the reputation of Hach's Products; or 13.2.10 Without Hach's written consent, Distributor's place of business remains closed during regular business hours for more than five (5) consecutive days, except when the closing is caused by strikes or acts of God or when the closing coincides with religious or other holidays normally recognized in the city where Distributor's principal sales and service are located, or 5 6 [LOGO] 13.2.11 The assignment or attempted assignment of this Agreement, or of any interest herein or of any right hereunder, by Distributor without Hach's written consent; or 13.2.12 Distributor's failure to obtain or maintain any license, permit or authorization from any government within or without the Territory necessary for the importation, sale or servicing of the Products thereunder, or necessary to enable Distributor to make payments for the Products in the United States of America dollars as provided in Section 2 hereof, or otherwise necessary for the performance of Distributor's obligations hereunder; or 13.2.13 The Failure or refusal of Distributor for a period of thirty (30) days after notice to perform any of its obligations under this Agreement; or 13.2.14 The enactment of law by any governmental unit within the Territory which would restrict Hach's right to terminate and/or elect not to renew this Agreement as herein provided, by making Hach liable to Distributor for compensation and damages upon termination and/or failure to renew this Agreement 13.2.15 The failure of Distributor to approximate the sales levels agreed to in the Sales Forecast. 13.3 Upon the occurrence of any event specified in subparagraphs 13.2.2, 13.2.4 and 13.2.14 above, this Agreement shall automatically and immediately terminate. Upon the occurrence of any of the other above specified events, in addition to the other rights or remedies which Hach may have in law or equity, it may, as its option, terminate this Agreement by written notice thereof. Such termination shall become effective as of the date set forth in said notice but in no event earlier than ninety (90) days after such notice is given. Any waiver of the right to terminate for any of these events shall not constitute a waiver of the right to claim damages and/or to terminate this Agreement for any similar events which may occur in the future. 14.0 RIGHTS AND OBLIGATIONS UPON TERMINATION Upon termination of this Agreement as provided in Section 13 or otherwise provided for herein; 14.1 The acceptance of orders from Distributor or the continuance of sale of Products to Distributor or any other act of Hach after notice of termination of this Agreement shall not be construed as a renewal or a revival of this Agreement for any further term or as a waiver of the termination. 14.2 Hach shall have the obligation of cancelling any of Distributor's outstanding orders for Products. 14.3 Hach shall not be liable to Distributor for compensation or damages of any kind whether on account of loss by Distributor of present or prospective profits, or anticipated orders, or an account of expenditures, investments or commitments made in connection with this Agreement, or on account of any other thing or cause whatsoever. 14.4 Distributor shall remove all signs bearing any of Hach's trademarks or tradenames, obliterate said trademarks or trade names from letterheads, stationery, service orders and other forms, and discontinue the use of any identification or advertising that might convey the impression that Distributor is still an authorized Hach distributor. Distributor shall immediately return to Hach all price lists and catalogs, technical specifications, brochures, advertising matter of any kind and all originals and copies of confidential information which Hach has supplied to Distributor in accordance with instructions from Hach. 14.5 Hach shall have the option of repurchasing from Distributor any new Products hold by Distributor in inventory which Hach in its sole discretion determines to be marketable. Such Products shall be repurchased at the Ex Works (Factory, Ames, Iowa U.S.A.) price as invoiced by Hach to Distributor for such Products if Distributor can prove such invoice price; otherwise, such Products shall be repurchased at seventy-five percent (75%) of Hach's current Ex Works (Factory, Ames, Iowa U.S.A.) price for such Products. Distributor shall furnish to Hach a bill of sale, or other document of the satisfactory to Hach, covering all property repurchased under this Section 14.5. 14.6 Termination of this Agreement shall in no way affect Distributor's obligation to make payments for the Products delivered prior thereto. The parties may pursue any rights or obligations accrued or existing at the date of termination. 14.7 Distributor shall if necessary, take all steps to transfer any governmental or regulatory approvals for each Product to Hach or Hach's nominee, or if such transfer is not permitted, to cooperate in the cancellation of Distributor's governmental approvals and the reissuance thereof to Hutch or Hach's nominee at Hach's expense. 6 7 ( L O G O ) 15.0 INDEMNIFICATION 15.1 Distributor shall indemnify and hold Hach harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorney's fees) imposed upon, incurred by or asserted against Hach that result from: 15.1.1 Acts of negligence or misrepresentations by Distributor, its employees or agents; Distributor's breach of any provision of this Agreement including without limitation, Sections 6, 7, 9 and 10); or Distributor's failure to meet its obligations or to perform any acts required under its agreements with any third party; and 15.1.2 The relationship between Distributor and any of its employees, agents, and servants, whether under industrial accident laws, worker's compensation laws or any other laws applicable to employers and employees. 15.2 The provisions of this Section 15 shall survive the termination of this Agreement. 16.0 ASSIGNMENT This Agreement shall be binding upon and inure to the benefit of Hach's successors and assigns, but it is personal to Distributor and may not be assigned or transferred by it without Hach's written consent which Hach may withhold at its sole discretion whether such discretion is reasonable or unreasonable. 17.0 ENTIRE AGREEMENT AND MISCELLANEOUS PROVISIONS 17.1 This Agreement, entered into by Distributor and Hach of their free will, records the entire agreement between the parties and merges all discussions and replaces any understanding or prior agreement which may heretofore have existed between Hach and Distributor with regard to Distributor's appointment in the Territory. 17.2 Any agreements to this Agreement shall be in the form of a written document signed by all parties to this Agreement. Oral agreements and representations shall be not be binding. 17.3 No party to this Agreement shall be responsible for noncompliance with the terms and conditions of this Agreement where the reasons for such noncompliance are beyond the control of the party. 17.4 Hach's failure to enforce at any time any provision, right or option of this Agreement, shall in no way be considered a waiver of such provision, right or option or in any way affect the validity of this Agreement. The exercise by Hach of its rights or options hereunder shall not preclude it from or prejudice it in exercising the same or any other rights or options it may have under this Agreement. All notices provided for herein shall be given in writing by registered return-receipt air mail, by telegraph or cable confirmed in writing, by facsimile or other electronic transmission or by courier, addressed to: Distributor: EURO TECH (FAR EAST) LTD. Hach: Hach Company PO Box 389 57th Street and Lindbergh Parkway Loveland, Colorado 80537 USA Attn: Vice President of Sales and Marketing with a copy to: Hach Company PO Box 389 57th Street and Lindbergh Parkway Loveland, Colorado 80537 USA Attn: Office of Chief Counsel of Operations. 17.5 Notices sent by facsimile, cable, telegraph or other electronic means shall be seemed to be given on the day following the transmission. Notices sent by registered return-receipt air mail shall be deemed to be given seven (7) days after the date of mailing. Notices sent by courier shall be deemed to have been given five (5) days after tender and acceptance of the notice by the courier for purposes of delivery. 7 8 [LOGO] 18.0 SEPARABILITY 18.1 Any provision of this Agreement which in any way contravenes the law of any country or political subdivision in which this Agreement is effective shall, in such country or political subdivision and to the extent of such contravention of law, be deemed separable and shall not affect the validity of any other provision of this Agreement. 18.2 This Agreement shall be governed by and interpreted in accordance with the laws of the State of Colorado, U.S.A., without giving effect to its conflict of law principles. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. 18.3 Any dispute arising between the parties out of or in connection with this Agreement shall be finally received by arbitration in Denver, Colorado pursuant to the International Arbitration Rules of the American Arbitration Association. The arbitration panel shall consist of three arbitrators, one appointed by each party and a third neutral arbitrator appointed by the other two arbitrators. The arbitration shall be conducted in English which is the governing language of this Agreement. 18.4 Nothing in this Article shall prevent Hach from seeking injunctive relief against Distributor from any judicial or administrative authority pending the resolution of a controversy or claim by arbitration. Hach also reserves the right to sue in any court of competent jurisdiction to collect from Distributor funds due and owing Hach for Products sold and delivered to Distributor under this Agreement and Distributor agrees that, in the event of any such suit for collection by Hach, Distributor shall not be entitled to raise as a defence thereto any set-off or counterclaim alleged by Distributor, rather, any set-off or counterclaim alleged by Distributor shall be subject to the arbitration provision above. 19.0 COMMISSIONED SALES 19.1 Distributor may be entitled to a Sales Commission for sale of Hach Product when such Product is sold by Hach or Distributor directly to a customer in the Territory. Payment and allocation of Commission is specifically set forth in Exhibit C, Commission Schedule, Hach recognizes that extraordinary circumstances may warrant allocation of a particular sales commission on a basis differing from that described in the Commission Schedule with approval from Hach prior to the transaction. In all events, Hach's decision as to the allocation of any commission shall be final and binding on all parties. 19.2 Commission payment shall be made by Hach in accordance with Distributor's express, written instructions. At Hach's discretion, such payment may be made in U.S. dollars or in the currency of the Territory. In no event shall Hach be liable to Distributor for any commission, a claim for which is reported to Hach more than six (6) months after the transaction. 19.3 Distributor shall assist Hach in assuring the timely and complete payment of any invoice with respect to which a commission is owing to Distributor, and Distributor shall advise all customers that on sales made directly to customers by Hach, overdue payments shall accrue interest at the rate of one-and-one half (1 1/2) percent per thirty (30)-days period, with each fraction of a period counting as a full period. 19.4 Hach shall debit Distributor's account for any commission which is paid to Distributor with respect to Products which are returned by the customer for credit or refund and a prorata amount of any commission which is paid with respect to orders for which Hach, for whatever reason, does not receive payment in full. No commission shall be owing to Distributor with respect to any sale for which Hach receives less than sixty percent (60%) of the full invoice price. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year hereinafter written, to become effective when signed by both parties. DISTRIBUTOR FOR HACH COMPANY NAME:__T C LEUNG_______________ NAME:___JOHN PRIVETTE___________ TITLE:_MANAGING DIRECTOR_______ TITLE:__VP MARKETING SALES______ DATE:__1 MAR 96________________ CONTRACT DATE:_11-MAR-96________ Exhibits: Exhibit A Territory Exhibit B Products Exhibit C Commission Schedule 8 9 [LOGO] EXHIBIT A TERRITORY _______________________________________________________________________________ Hong Kong Macao Peoples Republic of China 9 10 [LOGO] EXHIBIT B PRODUCTS IN THE TERRITORY 1.1 Distributor may only Distribute Products which are covered under this Agreement. Products covered under this Agreement are denominated as such with a check mark in the YES Column under 3.2 below. Product denominated with a check mark in the NO Column below are not covered under this Agreement and Distributor is not eligible to distribute those products. 2.3 PRODUCT CLASS COVERED UNDER THIS AGREEMENT ------------- ---------------------------- CHEMICALS YES X NO ___ EXCEPTED(1)___ (Process Reagents) - CHEMICALS YES X NO ___ EXCEPTED ___ (COD Reagents; Lab/Kh - Reagents manufactured by Hach) TEST KITS YES X NO ___ EXCEPTED ___ (Test Kits; Test Kit Replacement Parts) - MICROBIOLOGY YES X NO ___ EXCEPTED ___ (Microbiological Chemicals/Media; - Kits and Apparatus manufactured by Hach) CHEMISTRY RESALE YES X NO ___ EXCEPTED ___ (Resale Apparatus, Resale Lab Instruments) - OTHER CHEMICALS YES X NO ___ EXCEPTED ___ (Other Chemicals manufactured by Hach) - COLORIMETERS/SPECTROPHOTOMETERS YES X NO ___ EXCEPTED ___ (Pocket Colorimeters; DR-Series - Colorimeters, DR-Series Spectrophotometers; DR-EL Series Portable Field Laboratories; Special Field Laboratories) LABORATORY INSTRUMENTS YES X NO ___ EXCEPTED ___ (Amperemetric Titralor, TitraStir(R); - BOD Apparatus; IncuTral(R); COD Repeler; Conductivity Meters; Digital Titralors; Dissolved Oxygen Meters; Electrodes; pH Meters; TenSeflo(R) Pipeties; Digestion Instruments & Accessories; Hach Miscellaneous Laboratory Instruments and Accessories) TURBIDIMETERS YES X NO ___ EXCEPTED ___ (Laboratory and Portable Turbidimeters) - TURBIDIMETERS YES X NO ___ EXCEPTED ___ (Process Turbidimeters) - PROCESS INSTRUMENTS YES X NO ___ EXCEPTED ___ - SERVICE PARTS YES X NO ___ EXCEPTED ___ - EXCEPTIONAL CONDITIONS (Describe) - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ---------- (1) Products annotated as "Excepted" are distributed under this Agreement but are limited to the distribution arrangement described under the Exceptional Conditions statement in this Exhibit E. 10 11 [LOGO] EXHIBIT C COMMISSION SCHEDULE - -------------------------------------------------------------------------------- 1.0 Distributor may, at Hach's discretion and with prior approval on each transaction, be allowed a percentage commission for certain sales. 1.1 Sales for which Distributor may be allowed a commission are indent sales made at Hach's International market Price for the Territory. Distributor orders for Distributor's own account at Distributor's cost are not commissionable orders under this Agreement. 2.0 Commission is computed according to the following schedule. 2.0.1 Full Commission is 20% of the International Market Price for the Territory. Ex. Works (Factory, Ames, Iowa). 2.0.2 Full Commission may be achieved according to the following participation Schedule: 2.0.2.1 Credit for Specifying Hach Products' Up to fifty percent (50%) of full commission may be credited to the account of the Distributor who participates in securing a written specification or preference for Hach Product(s) in the Territory. Where more than one Distributor has secured such specification or preference this fifty percent of full commission may be allocated among the participants at Hach's discretion. 2.0.2.2 Credit for Origination of Order: Up to twenty-five percent (25%) of Full Commission may be credited to the account of the Distributor from whose Territory the order issued. Distributors must substantiate that he or his agent(s) were materially instrumental in inducing the customer to place the order for which commission is sought with Hach Company. The following are examples of the types of Inducement which will be considered instrumental and therefore commissionable: pre-notifying Hach Company of the existence of and order, specification of the Distributor's name on the customer's purchase order, or other documentary proof of Distributor Inducement. Nothing in this Section 2.0.2.2 would preclude Distributor from offering other evidence of its instrumentality in the transaction. Hach may, at its sole discretion choose to accept or reject such other forms of proof. 2.0.2.3 Credit for Destination of Product: Up to twenty-five percent (25%) of Full Commission may be credited to the account of the Distributor into whose Territory Hach Product(s) is shipped for installation or use. No Commission shall be paid unless Distributor has and will, in Hach's opinion, provide reasonable assistance to the customer in the Territory before, during or after the transaction. Such assistance may include but is not limited to on-site inspection of the Product and a commitment to continued service and support. 2.0.2.4 Upon receipt of commission payment for Destination Credit, Distributor must, within 60 days of the date of the commission check, prepare and submit to Hach a complete description of any and all Distributor's post-transaction activity may result in limitation of Distributor's rights to receive future Destination Credit. 11 12 [LOGO] 2.0.3 All claims for Specification Participation, Order Origination or Destination Participation must be adequately supported by written documentation or a report acceptable to Hach which indicates the materiality of Distributor involvement in the transaction. 2.0.4 Nothing herein precludes Hach Company and Distributor from agreeing upon a Commission schedules or program different from that described in the Exhibit B, so long as such schedule or program is agreed upon in writing and in advance of any commissionable event. 12 EX-10.10 11 HONG KONG BANK MORTGAGE COMMITMENT LETTER 1 Exhibit 10.10 HonkongBank The Hongkong and Shanghai Banking Corporation Limited Main Office: G/F, The Astor Hotel, 199 Jio Fang Lu, Tianjin, The People's Republic of China (Postal Code: 300040) PRIVATE AND CONFIDENTIAL Euro Tech (Far East) Ltd 18/F Gee Chang Hong Centre 65 Wong Chuk Hang Road Hong Kong 27 July 1994 Attention: Mr Jerry Wong Tel: 814 0311 Dear Sirs PROPERTY INSTALMENT LOAN ACCOUNT NUMBER 05-903323-30 We refer to your application for a seven year Property Installment Loan, and are pleased to advise that your request has been approved on the following terms and conditions: Borrower : Euro Tech (Far East) Ltd Loan Amount : USD170,000.00 Purpose : To finance part of the purchase cost of the property at Unit 7, 5/F, Jin Cheng Zhong Xin, 4th District, Fang Qun Garden, Fang Zhuang, Beijing, China. Security : An "all monies" mortgage of the Agreement for Sale and Purchase ("Agreement for Mortgage") over the following Property: Unit 7, 5/F, Jin Cheng Zhong Xin, 4th District, Fang Qun Garden, Fang Zhuang, Beijing, China. with Euro Tech (Far East) Ltd as the Mortgagor (the "Mortgagor"), that is to say a mortgage to secure "all monies" in respect of general credit facilities owing from time to time including future advances, with an unlimited covenant to pay on the part of the Mortgagor. ...../2 2 Euro Tech (Far East) Ltd 27 July 1994 -2- ________________________________________________________________________________ Interest : At 2.5% p.a. over USD prime rate, currently 7.25% per annum, but subject to fluctuation without notice. Handling Fee: 1% flat on the mortgage loan amount, minimum USD1,300, is payable by the mortgagor to HongkongBank China Services Limited. Instalment : The loan will be repaid by 84 instalments of USD2,800.29 (but subject to variation) each at one month interval commencing one month after drawdown. Payment shall be made on such day or days of each month after the loan is drawdown (if any such day shall fall on a bank holiday payment shall be made on the next succeeding Banking day, except that in the event that the next succeeding Business Day falls within the next calendar month, then such payment shall be made on the immediately preceding Business Day) to the debit of your account with the Bank. Prepayment : Early repayment in full or in part at a minimum 10% of the original loan amount is allowed but subject to a penalty as follows: -- A 3-month interest on the amount prepaid, minimum USD2,600 if prepayment is made within 6 months after drawdown. -- A 2-month interest on the amount prepaid, minimum USD1,300 -- if prepayment is made over 6 months after drawdown. Insurance : After the issuance of Occupation Permit, insurance cover is to be arranged by Gibbs Insurance Consultant Limited which is our broking and consultancy subsidiary. Insurance premium will be for your account. Expenses : All legal and out-of-pocket expenses including stamp duty in connection with this loan will be for your account. Taxation : All payments of principal, interest, fees and other expenses shall be made by you clear and free of taxes, levies, imposts, duties, charges, withholdings of any nature or other deduction whatsoever. Other Terms : The loan will be subject to the terms and conditions as contained in the Mortgage and to our customary overriding right of repayment on demand. 3 Euro Tech (Far East) Ltd 27 July 1994 -3- - ----------------------------------------------------------------------------- Acceptance : This offer will lapse if it is not accepted within a period of 14 days from the date of this letter. We shall be grateful if you will sign and return to us the attached duplicate copy of this letter thereby signifying your understanding and acceptance of the foregoing. This offer is subject to the completion of the Agreement for Mortgage and our security requirements. If the loan is not drawn down within one month from the date of this letter, our commitment to advance the loan will cease unless a further extension has been agreed by us in writing. Upon receipt of your acceptance our solicitors Siao, Wen and Leung, Solicitors & Notaries will contact you by telephone regarding our security requirement. Please quote your above loan account number in your future communication and enquiry regarding your loan to this office. We are pleased to be of assistance. Yours faithfully For and on behalf of The Hongkong and Shanghai Banking Corporation Limited Rose W M Lee (Ms) Managing Director HongkongBank China Services Limited Enc AW JL/cb/SN 4 BEIJING MUNICIPAL PROPERTY MANAGEMENT OFFICE REGISTERED EVIDENCE FOR THE RIGHT AND MORTGAGE OF PROPERTY POSSESSION AND USAGE OF STATE OWNED LAND PROPERTY ADDRESS: NO. 22, 4 DISTRICT FANG QUN YUAN, FANG ZHUAN, FANG TAI, BEIJING, P.R.CHINA PROPERTY OWNERSHIP CERTIFICATE NO: SZE FANG FOREIGN ENTERPRISES CERTIFICATE NO 01013. PROPERTY USAGE CERTIFICATE NO: SZE FANG FOREIGN ENTERPRISES (95) NO: 01013. KINDS OF RIGHT: RIGHT OF PROPERTY POSSESSION AND MORTGAGE LAND USAGE. MORTGAGEE: HONGKONG & SHANGHAI BANKING CORP, TIANJIN BRANCH P.R.CHINA MORTGAGOR: EURO TECH (FAR EAST) LTD MORTGAGED PROPERTY: RM 507 7/F JINCHENG CENTRE, 4 DISTRICT FANG QUN YUAN, FANG ZHUANG, BEIJING P.R.CHINA PROPERTY GROSS AREA: 145.16 SQ METER MORTGAGED PROPERTY AREA: 23.12 SQ METER MORTGAGED PROPERTY VALUE: HONG KONG DOLLARS TWENTY-TWO HUNDRED THOUSAND & FORTY-THREE THOUSAND ONLY MORTGAGE AMOUNT: US$170,000.00 MORTGAGED PERIOD: FROM 4 NOV 1994 TO 3 NOV 2001. SIGNED BY: BEIJING MUNICIPAL PROPERTY MANAGEMENT OFFICE DATED: 31 MAY 1995 EX-10.11 12 THE BANK OF EAST ASIA LIMITED COMMITMENT LETTER 1 Exhibit 10.11 INFORMATION ON MORTGAGOR MORTGAGOR: EURO TECH (FAR EAST) LTD ESTABLISHED ON: 15 JUN 1971 INCORPORATION CERTIFICATE NO: 24192 REGISTERED ADDRESS: 18/F QEE CHANG HONG CENTRE 65 WONG CHUK HANG RD HONG KONG TEL: (852) 2814 0311 DETAILS ON THE MORTGAGED PROPERTY PROPERTY ADDRESS: 21/F FLAT D SHANGHAI EAST OCEAN CENTRE 588 YAN AN LU LU (E) SHANGHAI 200001 P.R.CHINA USAGE PERIOD OF LAND : FROM 5 AUG 1992 TO 4 AUG 2042 GROSS AREA : 115.97 SQUARE METER USAGE : FOR COMMERCIAL USE PURCHASE PRICE : HK$2,751,200.00 2 DETAILS OF INSTALLMENT - ---------------------- LOAN AMOUNT: HK$800,000.00 INSTALLMENT PERIOD: 10 YEARS, 120 INSTALLMENTS LOAN INTEREST: 13% PER ANNUM THE FIRST INSTALLMENT PAYMENT DATE: ON THE SAME DAY AS THE GUARANTOR RECEIVES THE LOAN SUM OF EACH MONTH. (DUE AMOUNT SHALL BE PAID ON THE SAME DAY OF EACH MONTH, IF PAY DAY IS NOT BUSINESS DAY, THE INSTALLMENT SHALL BE PAID ON THE NEXT BUSINESS DAY. MONTHLY INSTALLMENT: HK$11,944.70 (INCLUSIVE OF PRINCIPAL & INTEREST) 3 THIS IS TO CONFIRM THAT WE HAVE READ IN DETAIL THE CONTENT OF THIS CONTRACT AND AGREED TO COMPLY WITH THE TERMS STATED. BELOW ARE OUR SIGNATURES WITH AUTHORIZED STAMPS: THE MORTGAGOR: EURO TECH (FAR EAST) LTD SIGNED BY RICKY LAU THE MORTGAGEE: THE BANK OF EAST ASIA LTD. SIGNED BY WAN KAM-WAH & TANG SING-YU THE GUARANTOR: SHANGHAI XING TAI REAL ESTATE DEV. INC. SIGNED BY WONG SHEK WITNESSED: AUTHORIZED PUBLIC NOTARY, PRC SIGNED BY PHILIP K.H. WONG EX-10.12 13 STANDARD CHARTERED BANK MORTGAGE RE: NEW OFFICE 1 EXHIBIT 10.12 [LOGO] THE COMPANIES ORDINANCE ---------- CERTIFICATE OF REGISTRATION OF CHARGE ---------- I hereby certify that a Mortgage dated the 31st day of October, 1995 and created by EURO TECH (FAR EAST) LIMITED in favour of THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED for securing all moneys in respect of general banking facilities were this day registered pursuant to Section 80. GIVEN under my hand this 21st day of November, 1995. Miss H. Y. MA for Registrar of Companies Hong Kong 2 [REGISTRAR SEAL] THIS MORTGAGE is made this 31st day of October, One thousand nine hundred and ninety five BETWEEN EURO TECH (FAR EAST) LIMITED [ILLEGIBLE] whose registered office is situate at 18th Floor, Gee Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong (hereinafter called "the Borrower") of the one part, and THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED whose registered office is situate at No. 1 Queen's Road Central, Hong Kong and having a branch office at 15th Floor, Hennessy Centre, No. 500 Hennessy Road, Hong Kong (hereinafter called "the Lender") of the other part. WHEREAS: The Borrower has applied to the Lender to grant to the Borrower general banking facilities and the Lender has agreed to grant the same to such extent and upon and subject to such terms and conditions as shall from time to time be mutually agreed or be stipulated by the Lender ("the general banking facilities") upon the Borrower entering into the covenants and obligations hereinafter contained and charging the Property (as hereinafter defined) as security for the due payment of all moneys payable or which may at any time hereafter or from time to time become payable by the Borrower to the Lender or which may be or become payable by the Borrower under any of the agreements, covenants and conditions contained in this Charge and interest thereon as hereinafter provided. NOW THIS DEED WITNESSETH as follows: 1. DEFINITIONS AND INTERPRETATION 1.01 In this Charge if the context so permits or requires and where not inapplicable the following terms shall have the following meanings: (a) "Borrower" whenever used shall include (if the context permits) the company specifically named and its successors and 3 - 2 - (c) "Crown Grant" means and includes the Crown Lease more particularly described in the Schedule hereto and any variation or modification thereof under which the Property is held from the Crown at the date hereof by the Borrower; (d) "Deed of Covenant" means and includes the Deed of Mutual Covenant and Management Agreement more particularly described in the said Schedule and any variation or modification thereof; (e) "Lender" wherever used shall include, (if the context permits) the Bank specifically named and its successors and assigns; (f) "Property" means all or any part of the property registered or to be registered in the name of the Borrower and the Borrower's interest therein and more particularly described in the said Schedule; and (g) "Secured Indebtedness" means all sums from time to time advanced by the Lender to the Borrower and outstanding in respect of the general banking facilities and the interest thereon and all other moneys and obligations in respect of moneys which the Borrower covenants to pay to the Lender under the provisions of Clause 2 hereof or otherwise under the terms of this Charge. 1.02 Words importing the singular number shall include the plural number and vice versa, and words importing the masculine, feminine or neuter gender shall include the others of them. 1.03 The Clause headings herein are inserted for convenience only and for reference, and in no way define, limit or describe the scope of this document or the intent of any provision thereof. 2. COVENANT FOR REPAYMENT OF SECURED INDEBTEDNESS 2.01 In consideration of the Lender agreeing to grant to the Borrower the general banking facilities applied for the Borrower HEREBY COVENANTS with the Lender that, subject as hereinafter provided, the Borrower will ON DEMAND by notice in writing of the Lender made to the Borrower PAY make good and discharge to the Lender: 4 - 3 - (i) all sums of money which at the date of such demand may be outstanding and according to the books of the Lender, payable by the Borrower to the Lender in respect of any account whatsoever between the Borrower and the Lender; and (ii) all sums of money for the time being owing to the Lender in respect of: (a) all bills of exchange or drafts (whether clean or documentary) ("bills or drafts") drawn on the Borrower by any person, firm or company in any place and which may have been then purchased, discounted or otherwise acquired by the Lender or may be in the hands of the Lender for collection only; (b) all bills or drafts drawn by the Borrower on any person, firm or company in other places and which may be purchased, discounted or otherwise negotiated or acquired by the Lender; (c) all promissory notes or other forms of negotiable instruments which may be signed by the Borrower in favour of the Lender or in favour of any other party and the interest in which may have been purchased or otherwise acquired by the Lender; (d) all advances made by the Lender to or on account of the Borrower or to others at the request of the Borrower in respect of credits opened at the request of the Borrower in favour of any person, firm or company in any place; (e) all advances to be made from time to time to the Borrower or to constituents, customers or agents of the Borrower against documents of title representing goods and merchandise consigned to the Borrower or to order or belonging to or stored by the Borrower or belonging to or stored by constituents, customers or agents of the Borrower; and 5 - 4 - hereinafter delivering to the Borrower, or to others at the request of the Borrower, any bills of Lading or other documents of title relating to goods and merchandise and thereby enabling the Borrower or such other persons as aforesaid to obtain possession of the goods and merchandise referred to in such documents of title prior to the payment of any bills or drafts held by the Lender, and for the due payment of which the goods and merchandise referred to in such documents of title as well as such documents of title are held by the Lender as security; and (iv) the amount of all advances and all moneys which may from time to time become due to the Lender on all contracts and engagements, including the payment of all bills or drafts and promissory notes, the due and punctual payment of which may from time to time be guaranteed by the Borrower to the Lender or may be inferred to be so guaranteed; and (v) all principal and interest and all costs, charges and expenses which may be incurred under or in connection with any guarantee issued by the Lender in respect of any obligations of the Borrower or any constituents, customers or agents of the Borrower; and (vi) the total amount of all re-exchange commission and other usual bankers charges upon such bills or drafts and all landing charges, insurance and storage charges incurred or to be incurred by the Lender upon all goods and merchandise as are pledged or hypothecated to the Lender as security for the payment of such bills or drafts; and (vii) all such sums of money as may from time to time become payable to the Lender by the Borrower in respect of moneys advanced, paid or payable in respect of bills or drafts, promissory notes and/or goods of any description together with all other usual or lawful charges; and (viii) all principal, interest and any other moneys which are now or 6 - 5 - the Borrower relating to such loan facility, as amended from time to time; and (ix) all principal and interest or any other moneys outstanding and payable by the Borrower under any term loan account maintained with the Lender in the name of the Borrower; and (x) all costs, charges and expenses which may be incurred under or in connection with any other matter arising under or in consequence of this Charge or in connection with the Property; and (xi) all moneys for the time being owing to the Lender in respect of any liability whatsoever of the Borrower to the Lender which may be incurred or arise in any manner howsoever, whether the actual conditions under which such liability may be incurred or arise have or have not been specifically mentioned and provided for by the agreements, covenants and conditions in this Charge and whether such liability shall be a liability incurred or arising;- (a) under circumstances or conditions incidental to any form of contractual relationship between the Borrower and the Lender which comes properly and strictly within the meaning of the term "general banking facilities"; or (b) under circumstances or conditions incidental to any other form of contractual relationship whatsoever; or (c) through the tort or fraud of the Borrower or of any of the Borrower's constituents, agents or correspondents and whether such tort or fraud shall be connected with or dependent upon, or unconnected with and independent of, any contractual relationship between the Borrower, or of any of the Borrower's constituents, agents or correspondents, and the Lender PROVIDED HOWEVER that:- (A) where the Lender shall hold any bill draft or other document against which the Lender may have discounted or purchased, or against which the Lender 7 - 6 - may have made any advances, and which reserves a rate of interest higher than the applicable rate as hereinafter provided, nothing in this Charge shall affect the right of the Lender to recover the higher rate of interest reserved or, as the case may be, the difference between the higher rate reserved and the applicable rate as hereinafter provided; and (B) the Lender shall not be requested by the Borrower to, nor shall be bound to make, advances or payments or to incur liabilities in respect of the general banking facilities to be granted to the Borrower or to such person, firm or company as aforesaid under or by virtue of this Charge beyond such sum as the Lender shall in the absolute discretion of the Lender consider to be safe; and (C) the Lender shall be entitled at any time after the execution and completion of this Charge to open credits in favour of such person, firm or company as the Borrower may desire for such length of time and at such places as the lender shall think fit and the Borrower shall not be at liberty to determine this Charge or the security hereby affected or require any such credits to be closed save upon six (6) calendar months' previous notice in writing to be served upon the Lender in Hong Kong; and (xii) interest on all sums advanced and all other moneys payable hereunder at such rate(s) per annum as is/are applicable under the terms relating to any facility(ies) granted to the Borrower as is determined by the Lender which determination shall be conclusive and binding on the Borrower. Such interest shall accrue from day to day and shall be computed on the basis of a year of three hundred and sixty five (365) days and for the actual number of days elapsed and shall be paid monthly in arrears on such date in each succeeding calendar month as the Lender shall stipulate. 8 - 7 - 3. CHARGE OF PROPERTY 3.01 In consideration of the premises and with the object and intent of affording to the Lender a security for the Secured Indebtedness and the due fulfilment by the Borrower of the agreements, covenants and conditions contained in this Charge: - (a) the Borrower as Beneficial Owner HEREBY CHARGES the Property to the Lender SUBJECT as is more particularly specified in the Schedule hereto and to and with the benefit of all leases, tenancies, rights, licenses, covenants, conditions and other incidents of tenure affecting the Property; and (b) the Borrower HEREBY ASSIGNS or agrees to assign unto the Lender the full benefit and all rights of all the terms and conditions more particularly specified in the said Schedule and of any payment, covenant, agreement, undertaking or indemnity contained in any sale and purchase agreement, lease, or other document, agreement or undertaking whatsoever in respect of or relating to the Property now subsisting or to be created hereafter TO HOLD the same unto the LENDER absolutely SUBJECT nevertheless to the proviso for redemption hereinafter contained. 3.02 The charge herein contained shall be a legal charge in so far as the Property is a legal estate. 4. PROVISO FOR REDEMPTION 4.01 If the Borrower shall on demand as aforesaid or otherwise pay to the Lender the Secured Indebtedness and shall have duly performed and observed all the terms, covenants and agreements herein provided THEN THE LENDER SHALL at the request cost and charge of the Borrower execute a receipt or otherwise discharge the security hereby constituted. 5. EVENTS OF DEFAULT 9 - 8 - (i) the Borrower makes default in the payment of the Secured Indebtedness or any part thereof following demand duly made; or (ii) the Borrower makes default in the payment on the due date and in accordance with the terms and conditions relating thereto of any principal or interest or other moneys outstanding and payable by the Borrower under any term loan account (whether demanded or not); or (iii) there shall be any breach of or omission to observe any of the agreements covenants or obligations under this Charge; or (iv) the Borrower becomes bound to repay prematurely any other loan or similar obligation for borrowed money, after any applicable grace period, by reason of a default by the Borrower in the Borrower's obligations in respect of the same or fails to make any payment in respect thereof on the date, after any applicable grace period, such payment becomes due unless contested in good faith; or (v) (if applicable) a petition is presented or an order is made or an effective resolution is passed or analogous proceedings are taken for the winding up of the Borrower save for the purposes of an amalgamation, merger or reconstruction the terms whereof have previously been approved by the Lender; or (vi) the Borrower convenes a meeting for the purpose of making, or proposes and/or enters into, any arrangement or composition for the benefit of the Borrower's creditors; or (vii) (if applicable) the Borrower shall become bankrupt or otherwise become insolvent or make any arrangement or composition with the Borrower's creditors; or (viii) an encumbrancer takes possession or a receiver or other similar officer is appointed of the whole or any part of the assets, or the undertaking (if applicable) of the Borrower or 10 - 9 - (ix) the Borrower shall without the consent in writing of the Lender stop payment to creditors generally or (if applicable) the Borrower shall (otherwise than for the purpose of such an amalgamation, merger or reconstruction as is referred to in paragraph (v) of this sub-clause) cease or threaten to cease to carry on the Borrower's business or any substantial part thereof or (if applicable) shall be deemed, for the purposes of Section 178 of the Companies Ordinance or any statutory modification or re-enactment thereof for the time being in force, to be unable to pay its debts or disposes or threatens to dispose of the whole or a substantial part of its undertaking or assets; or (x) the Crown or any competent authority shall re-enter or threaten to re-enter upon and take back possession of the Property provided that the provision of this Sub-clause (x) shall apply, mutatis mutandis, to any competent authority that extends or agrees to extend the terms of the Crown grant or grants, regrants or agrees to grant or regrant to the Borrower the Property then and in any such case the Borrower will notify the Lender forthwith in writing of the occurrence of such event and regardless of whether notice of such event has or has not been given by the Borrower to the Lender as required above, an Event of Default shall have occurred. 5.02 Notwithstanding anything to the contrary, express or implied, contained in any facility letter, instrument, or other agreement or document to which the Borrower and/or the Lender is a party, the Lender shall be under no liability at any time after the occurrence of an Event of Default to honour any further obligations hereunder and the Secured Indebtedness, and all term loans and other moneys, obligations and liabilities hereby secured not otherwise so repayable, shall become repayable immediately on demand, together with interest accrued thereon to the date of repayment in full, and cash cover shall be provided on demand for all contingent liabilities ??????????????? 11 - 10 - 6. LENDER'S POWERS 6.01 If any Event of Default shall have occurred then it shall be lawful for the Lender at any time thereafter without any consent on the part of the Borrower or of any person to:- (i) enter into and upon and take possession of the Property and for that purpose to take any legal proceedings and thenceforth to hold, possess and enjoy the Property and to receive the rents and profits thereof without any lawful interruption or disturbance by the Borrower or any other person; (ii) (subject to any lease or tenancy lawfully granted by the Borrower) lot or lease the Property at such rent, for such period and upon such terms and conditions as the Lender shall think fit and appoint any person at such reasonable and proper remuneration as the Lender shall determine to collect the rents and profits of the Property on behalf of the Lender and surrender and accept the surrender of tenancies or leases of the Property; (ii) (whether or not the Lender shall have made such entry or taken possession as aforesaid) sell, assign, call in, collect and convert into money the Property or any interest therein free from this Charge and any other estates interests and rights to which this Charge has priority with full power to sell the Property either together or in parcels and either by public auction or tender or private contract and partly by one of such methods and partly by the other one or more of such methods of sale with power upon any such sale to make any stipulations as to title or evidence of commencement of title or otherwise in such manner and subject to such lawful conditions as the Lender shall think expedient and either for a lump sum or for a sum to be paid by installments or for a sum on account and subject to a charge or other security for the balance and with full power to give any option to purchase the same or to buy in or rescind or vary any contract of sale of the same and to re-sell the same without being responsible for any loss which may be occasioned thereby with power for the Lender to enter into a Deed of Mutual Covenant or sub-deed of Mutual Covenant or supplemental Deed of Mutual Covenant and/or Management Agreement and/or any other documents of a similar 12 - 11 - nature or grant any rights easements or privileges as the Lender shall in its absolute discretion think fit and with full power to compromise and effect compositions, and for the purposes aforesaid or any of them to execute and do all such assurances and things as the Lender shall think fit. PROVIDED HOWEVER that where the Event of Default relates to the payment of any moneys payable hereunder no such sale, calling-in, collection or conversion into money shall be put into effect until the Lender shall have previously served on the Borrower or one of several borrowers a notice requiring payment of the Secured Indebtedness and default has been made in payment thereof for a period of one calendar month after such service; (iv) exercise any powers or rights incidental to the ownership of the Property; (v) settle, adjust, refer to arbitration, compromise and arrange any claim, demand or dispute relating to the Property; (vi) bring, prosecute, enforce, defend, compromise and abandon any claim, action, distress, suit or proceedings in relation to the Property; (vii) do all things necessary or desirable to preserve, maintain and manage the Property; and (viii) do all things necessary or desirable for realizing the Property or any part thereof. 6.02 Upon any letting, leasing or sale purporting to be made in pursuance of the aforesaid powers in that behalf and upon the exercise by the Lender of any of the aforesaid powers, a tenant or purchaser or any other person dealing with the Lender in connection therewith, shall not be bound to see or enquire whether any default has been made in payment of the Secured Indebtedness at the time hereinbefore appointed for payment thereof or whether any money remains owing on the security of this Charge, or whether due ????????? 13 - 12 - 6.03 Notwithstanding any impropriety or irregularity whatsoever in the exercise of such powers the same shall, as far as regards the safety and protection of any such tenant or purchaser or any other person dealing with the Lender, be deemed to be within the aforesaid powers in that behalf and shall be valid and effectual accordingly. 6.04 The remedy of the Borrower in respect of any breach of the clauses or provisions hereinbefore contained or any legal obligations imposed by law upon the Lender from time to time with respect to the exercise of any such powers shall be in damages only. 6.05 The aforesaid powers may be exercised by any person who for the time being shall be entitled to receive and give a discharge for the moneys owing on the security of this Charge. 6.06 Subject as aforesaid the Lender shall not be answerable for any involuntary losses which may happen in the exercise of the aforesaid powers and trusts or any of them. 6.07 The provisions of this Clause 6 shall continue to apply mutatis mutandis after the expiry of the term granted under the Crown Grant in so far as an extension of the term under the Crown Grant or a grant or regrant of the Property has been made to the Borrower by any competent authority and subject to such terms and conditions as may be imposed by such competent authority. 7. BORROWER'S FURTHER COVENANTS AND AGREEMENTS 7.01 The Borrower HEREBY FURTHER COVENANTS AND AGREES with the Lender as follows, namely that:- (i) The Crown Grant and the Deed of Covenant are now good, valid and subsisting and in nowise void or voidable and that the moneys due under any covenant relating to the Property have been paid and any other covenants, terms, conditions and obligations relating to the Property to be performed and observed by the Borrower have been duly paid performed and observed up to the date hereof; 14 - 13 - (iii) the Borrower will at all times keep and maintain the Property in good and tenantable repair and condition to the satisfaction of the Lender and the relevant government authorities and will allow the Lender and his servants or agents to enter and view the state of repair of the Property at all reasonable times without the Lender by so doing only being deemed to have taken possession of the Property; (iv) the Borrower will effect and maintain insurance of the Property against loss or damage by fire and such other risks as the Lender shall think fit in its full replacement value in some local insurance company or such other insurance company or office as the Lender shall first approve of in writing and if so required by the Lender in the joint names of the Lender and the Borrower and will punctually pay all premiums or sums of money necessary for effecting and keeping up such insurance immediately upon the same becoming due and will at any time on demand made for that purpose on the Borrower as hereinafter provided endorse over to, produce to or leave with the Lender such policy of such insurance and the receipt for every such payment and the Lender shall have a lien on the same and on all moneys thereby assured; PROVIDED ALWAYS that if the Borrower shall fail to insure the Property in accordance with the provisions contained in this Charge the Lender may insure the Property upon such terms and conditions as the Lender shall in its absolute discretion think fit and any money paid for such insurance shall be a charge on the Property in addition to the Secured Indebtedness with the same priority and with interest at the same rate; (v) in the event of the Property being destroyed by fire the Borrower shall, unless otherwise agreed in writing by the Lender, lay out the insurance money received and at the Borrower's own expense make up any deficiency so as fully and completely to rebuild or reinstate the same to its original state and condition in accordance with the plans and specifications as shall be approved by the Lender and the relevant government departments; (vi) the Borrower shall make payment of (a) the rents, management and maintenance charges, instalments of premiums (if any) and other monies or proportions thereof payable in respect of the 15 - 14 - Property under the Crown Grant and the Deed of Covenant (b) the charges for power, lighting, water and all rates and taxes assessed on the Property and (a) expenses for all repairs of the Property as may be necessary under the Crown Grant or the Deed of Covenant and shall produce to the Lender receipts or other evidence of such payments; (vii) the Borrower shall fully and completely perform and observe the terms, covenants, conditions and obligations contained in the Crown Grant and the Deed of Covenant; (viii) if default shall be made by the Borrower in any of the obligations specified herein it shall be lawful for the Lender to pay or perform the same; (ix) the Borrower will at all times keep the Lender indemnified against all actions, suits, claims, costs and expenses which may be incurred, or sustained on account of the non-payment of the premium or other moneys (if any) or crown rent, property tax, rates, charges, outgoings and impositions or any part thereof or the breach or non-performance of the covenants, obligations and agreements herein contained; (x) the Borrower will not, without the prior written consent of the Lender and then only in conformity with any conditions whatsoever the Lender may reasonably impose, part with the use, occupation or possession of the Property in any way whatsoever whether by way of letting, sub-letting, sub-dividing, lending, sharing, assigning or other means whereby any person other than the Borrower obtains the use, occupation or possession of the Property, irrespective of whether any rental or other consideration is given for such use, occupation or possession; (xi) if at any time the power of sale herein contained shall become exercisable by the Lender the Borrower will upon being given notice so to do by the Lender forthwith quit and deliver up vacant possession of the Property to the Lender or to whomsoever the Lender may nominate or direct; (xii) during the continuance of this security the Borrower will not assign, mortgage, charge, sub-divide, let, underlet, lease or 16 - 15 - otherwise dispose, part with possession or make any arrangement for the sharing of the Property or any interest therein or accept surrender of any lease or tenancy thereof or cause or permit any second or further Charge to be effected of the Property or in any way encumber the equity of redemption therein or diminish, jeopardise or prejudice the security hereby afforded to the Lender or permit the same to be done without the prior written consent of the lender: (xiii) (if applicable) the Borrower will not create or agree to create or permit to arise any mortgage, charge, debenture or pledge creating any floating charge over or in respect of the Borrower's present or future undertaking, properties, assets, rights or revenues, or any part thereof, including its uncalled capital (if any) for the time being unless the Property and all rights and interests of the Borrower in respect of the Property are expressly excluded therefrom; (xiv) (if applicable) the Borrower will whenever requested so to do in writing by the Lender apply to the Land Registrar for apportionment of the Crown Rent and/or premium in respect of the Property pursuant to the provisions of the Crown Rent and Premium (Apportionment) Ordinance 1970; (xv) (if applicable) the Borrower will if required (if necessary in conjunction with the owners for the time being of the other undivided shares of and in the Lot or lots more particularly described in the said Schedule (hereinafter called "the said Lot")) execute and take up the Crown Lease relating to the said Lot when called upon so to do by the Land Registrar and pay the due proportion of the costs and expenses in connection therewith, and the Borrower shall execute a new charge of the new lot, or the share owned by the Borrower of and in the new lot, when such Crown Lease has been taken up in favour of the Lender in substitution for this Charge; (xvi) (if applicable) the Borrower will, not later than six months before the expiration of the term agreed to be granted by the Crown Grant, exercise any right of renewal [illegible] 17 - 16 - documents as shall be required to effectuate such renewal and pay such fees as shall be demanded by the Registrar General (Land Registrar) or other competent authority and will execute a new charge to the Lender of the said Lot or any substituted lot or the shares owned by the Borrower of and in the said Lot or any substituted lot for such renewed term in substitution for this Charge; (xvii) in the event of the Borrower being or becoming entitled to, and/or entitled to apply to any competent authority for, an extension of the term agreed to be granted by the Crown Grant or the Borrower being or becoming entitled to, and/or entitled to apply to any competent authority for, a re-grant or new grant of an interest in the whole or any part of the said Lot or of such new or substituted lot as referred to in sub-clauses (xv) and (xvi) hereof, the Borrower shall forthwith comply with any terms and conditions affecting such entitlement (including the payment of such fees as shall be demanded by the competent authority) and/or shall forthwith make application to the competent authority for such re-grant or new grant, and thereafter shall do and perform all acts (including the payment of such fees as aforesaid) and execute such deeds and documents as may be necessary to secure an extension or new grant or re-grant as aforesaid, and shall thereafter execute a new charge (or such other security interest as the Lender shall require) to the Lender of or in respect of the subject matter of such extension, re-grant or new grant, as security for the Secured Indebtedness; (xviii) if on the expiry of the term granted or agreed to be granted under the Crown Grant the Borrower does not become or is not entitled to an extension of the term granted by the Crown Grant, and/or does not become or is not entitled to a re-grant or new grant of an interest in the whole or any part of this said Lot or of such new or substituted lot as referred to in sub-clauses (xv) and (xvi) hereof, the Borrower shall forthwith furnish such alternative security to the Lender as the Lender shall require; 18 - 17 - for the Lender to act on behalf of the Borrower, and for such purposes the Borrower hereby irrevocably appoints the Lender's authorised officer by way of security to be the attorney of the Borrower to do such acts as may be necessary to ensure performance by the Borrower of such obligations, and to execute and sign, seal and, as the Borrower's act and deed, deliver such deeds and to sign such documents and instruments as the Lender shall consider necessary or desirable for such purpose and to pay such fees on behalf of the Borrower as shall be demanded by the Registrar General (Land Registrar) or by the competent authority (which fees, if paid by the Lender on the Borrower's behalf, shall be added to the Secured Indebtedness and shall form part thereof) and to execute and to sign, seal and, as the Borrower's act and deed, deliver a new charge in such form and substance as the Lender shall require (or other security interest or alternative security as aforesaid) to the Lender as hereinbefore provided and to sign such documents and writing and to do all such other matters and things the Lender shall consider to be necessary or desirable for such purpose, and the Borrower shall ratify and confirm all that the said attorney shall lawfully do or cause to be done by virtue of the provisions herein contained; (xx) the Borrower shall provide the lender with copies of all notices to or from all relevant government departments or otherwise relating to the Property within seven (7) days of the service of such notices by or on the Borrower or such other shorter period as is reasonable in the circumstances and shall comply with all governmental or other legal requirements and notices whether statutory or otherwise in respect of the Property. 8. APPOINTMENT OF RECEIVER 8.01 If default in payment of the Secured Indebtedness or any other Event of Default shall have occurred (and no delay or waiver of the right to exercise the powers conferred hereby shall prejudice the future exercise of such powers) the Lender may without further notice appoint in writing under the hand of the [illegible] 19 - 18 - another or others in his place, and the following provisions shall have effect:- (i) such appointment may be made either before or after the Lender shall have entered into or taken possession of the Property; (ii) such Receiver may be vested by the Lender with such powers and discretions, including powers of management, as the Lender may think expedient; (iii) without prejudice to the generality of the foregoing, such Receiver shall have power to complete any building (if any) under construction on the Property and to generally complete the development thereof and to demand and recover all the income of the Property of which he is appointed receiver by action, distress or otherwise in the name either of the Borrower or the Lender to the full extent of the estate or interest which the Borrower could dispose of and to give effectual receipts accordingly for the same; (iv) unless otherwise directed by the Lender, such Receiver may exercise all the powers and authorities vested in the Lender hereunder; (v) such Receiver shall in the exercise of his powers, authorities and discretions conform to any regulations and directions from time to time made and given by the Lender; (vi) the Lender may from time to time fix the remuneration of such Receiver and the Receiver shall be entitled to retain out of any money received by him that remuneration and all costs charges and expenses properly incurred by him as Receiver; (vii) the Lender may from time to time and at any time require any such Receiver to give security for the due performance of his duties as such Receiver and may fix the nature and amount of the security to be so given, but the Lender shall not be bound in any case to require any such security; 20 - 19 - (viii) declared of and concerning moneys which arise from any sale, calling in, collection or conversion; (ix) the Lender may pay over to such Receiver any moneys constituting part of the Property or the income thereof to the intent that the same may be applied for the purposes hereof by such Receiver, and the Lender may from time to time determine what funds the Receiver shall be at library to keep in hand with a view to the performance of his duties as such Receiver; (x) subject as hereinafter provided, any such Receiver may, for the purpose of defraying any costs, charges, losses or expenses (including his remuneration) which shall be incurred by him in the exercise of the powers, authorities and discretion vested in him and for all other purposes hereof or any of them, raise and borrow money on the security of the Property or any interest therein either in priority to the moneys hereby secured and the security hereby constituted or otherwise and at such rate of interest and generally on such terms and conditions as he may think fit and no person lending any such money shall be concerned to enquire as to the propriety or purpose of the exercise of this power or to see to the application of any moneys so raised or borrowed provided however that a Receiver shall not exercise this present power without first obtaining the prior written consent of the Lender; (xi) every such Receiver shall be the agent of the Borrower for all purposes and the Borrower alone shall be responsible for his acts and defaults, loss or misconduct and for his remuneration and the Lender shall not incur any liability therefor by reason of the Lender making his appointment as such Receiver; (xii) any Receiver may act in his own name or in the name of the Borrower; (xiii) every Receiver, attorney, manager, agent or other person appointed by the Lender hereunder shall be entitled to be indemnified out of the Property and the income thereof in respect of all liabilities and expenses incurred by him in the execution or purported execution of the terms and conditions of this Charge and against all actions, proceedings, claims 21 - 20 - and demands in respect of any matter or thing done or omitted in anywise relating to the Property and the Lender may retain and pay out of any money in the Lender's hands arising from the terms and conditions of this Charge all sums necessary to affect such indemnity and all such sums shall be a charge on the Property; (xiv) where more than one Receiver is appointed in accordance with the provisions herein contained any reference in this Charge to a Receiver shall apply to both or all of the Receivers so appointed, and the appointment of the Receivers shall be deemed to be a joint and several appointment to the intent that the rights, powers, duties and discretions vested in the Receivers may be exercised jointly by the Receivers so appointed or severally by each of them. 9. NON-LIABILITY OF RECEIVER OR LENDER 9.01 Neither the Lender nor any Receiver shall be liable, by reason of any entry into possession of the Property to account as mortgages in possession or for anything except actual receipts or be liable for any loss on realisation or for any default or omission for which a mortgagee in possession might be liable. 10. THIRD PARTY ENQUIRIES 10.01 No person dealing with the Lender or any Receiver appointed by the Lender or with its or his attorneys or agents shall be concerned to enquire whether any event has occurred to authorise the Receiver to act or the security hereby constituted has become enforceable or whether the power exercised or purported to be exercised has become exercisable or whether any moneys remain due upon the security of this Charge or as to the necessity or expediency of the stipulations and conditions subject to which any sale shall be made, or otherwise as to the propriety or regularity of any sale, calling in, collection or conversion or power exercised or to see to the application of any money paid to the Lender or to any Receiver or its or his attorneys or agents, and in the absence of fraud on the part of such person such dealing shall be deemed so far as regards the safety and protection of such person to be within the powers hereby conferred and to be valid and effectual accordingly and the remedy of the Borrower in respect of any irregularity or impropriety whatsoever in the exercise of such powers shall be in damages only. 22 - 21 - 11. LENDER'S OR RECEIVER'S RECEIPT 11.01 Upon any such letting, leasing, sale, calling in, collection or conversion as aforesaid and upon any other dealing or transaction under the provisions herein contained the receipt of the Lender or any Receiver for the rent or proceeds thereof and for any other moneys paid to it or him shall effectually discharge the tenant, lessee, purchaser or person paying the same therefrom and from being concerned to see to the application or being answerable for the loss or misapplication thereof. 12. PROCEEDS OR SECURITY REALIZATION 12.01 The Lender or any Receiver so appointed shall hold the moneys arising from any such letting, leasing, sale, calling in, collection or conversion or dealing under the powers conferred upon the Lender or upon any Receiver after the security hereby created has become enforceable upon trust:- Firstly: in discharge of all rent, taxes, rates and other outgoings due and affecting the Property; then Secondly: unless the Property is sold subject to a prior incumbrance in discharge of that prior incumbrance; Thirdly: in payment of the Receiver's lawful remuneration, costs, charges and expenses and all lawful costs and expenses properly incurred in the sale or other dealing; Fourthly: in payment of the Secured Indebtedness, and any residue shall be paid to the person who immediately before any sale or other dealing was entitled to the Property or authorized to give a receipt for the proceeds of sale of the Property. 13. FURTHER ASSURANCES AND ATTORNEY 13.01 The Borrower shall from time to time and at any time, whether before or after the security hereby constituted shall have become enforceable, execute and do all such transfers, assignments, assurances, acts and things as the Lender may reasonably require for ?????? 23 - 22 - security intended to be hereby constituted and for any part thereof and the exercise by it of all the powers, authorities and discretions hereby conferred on the Lender or any Receiver appointed by it, and the Borrower shall also give all notices, orders and directions which the Lender may think expedient. For the purposes of this Clause a certificate in writing signed by or on behalf of the Lender to the effect that any particular transfer, assignment, assurance, act or thing required by the Lender is reasonably required shall be conclusive evidence of the fact. 13.02 The Borrower hereby irrevocably and by way of security appoints the Lender and any Receiver jointly and each of them severally to be the Borrower's attorney (with full power of substitution) and in the Borrower's name and on the Borrower's behalf to execute, sign and do all deeds, instruments, acts and things whatsoever which it shall in the opinion of the Lender (whose opinion shall be conclusive and binding upon the Borrower) be necessary or expedient that the Borrower should execute, sign or do for the purpose of carrying out any trust or obligation hereby declared or imposed upon the Borrower or for giving to the Lender on the Borrower's behalf the full benefit of any of the provisions hereof and generally to use the Borrower's name in the exercise of all or any of the powers hereby conferred on the Lender or any Receiver appointed by the Lender hereunder. The Borrower covenants that the Borrower will ratify and confirm all that the attorney shall lawfully do or cause to be done by virtue of these presents. 14. NOTICES DEMANDS AND SERVICE OF PROCEEDINGS 14.01 Any demand for payment or notice by the Lender hereunder shall, without prejudice to any other effective mode of giving or making the same, be deemed to have been sufficiently given or made hereunder on the Borrower if left or sent by prepaid post addressed to the Borrower at the Property or the registered office or last known business or residential address of the Borrower for the time being in Hong Kong, and shall be assumed to have reached the Borrower within 48 hours of posting, and in proving such service it shall be sufficient to prove that the notice or demand was properly addressed and posted or properly left as the case may be. 14.02 Any legal process including any writ or originating summons and any other summons or notice in connection with this Charge to be served on the Borrower by the Lender in any legal proceedings or action 24 - 23 - commenced in any court or tribunal shall be deemed to have been duly and sufficiently served on the Borrower forty-eight (48) hours after the same having been left or sent by ordinary prepaid post to the Borrower at the Borrower's registered office or usual place of business or abode or at the address of the Property and in proving such service it shall be sufficient to prove that the legal process or summons or notice was properly addressed and posted or properly left as the case may be irrespective of whether the same is returned to the Lender through the post undelivered to the Borrower. 15. SUCCESSORS AND ASSIGNS 15.01 The terms of this Charge shall be binding upon and enure to the benefit of the respective successors-in-title and assigns of the parties hereto provided however that the Borrower may not assign any of the Borrower's rights or obligations hereunder without the express prior written consent and approval of the Lender. 16. WAIVERS 16.01 No failure to exercise and no delay in exercising on the part of the Lender any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 17. FEES, COSTS AND EXPENSES 17.01 The Borrower shall (with the object and intention of affording to the Lender a full indemnity for all amounts actually disbursed or incurred by the Lender pursuant to the terms hereof) pay or reimburse to the Lender or (as the case may be) to any Receiver, on demand:- (i) all costs, charges and expenses incurred and all payments made by the Lender or any Receiver in the lawful exercise of the powers hereby conferred upon it or him (together with all remuneration payable to the Lender or to any such Receiver); and (ii) all reasonable expenses (including Legal expenses on solicitors own client basis) incurred by the Lender in 25 - 24 - connection with the preparation and thereafter the administration of this Charge and any other documents executed pursuant to the terms hereof and incurred by the Lender in suing for or recovering any sum due from the Borrower to the Lender hereunder or in connection with the protection or enforcement of this Security; and (iii) all stamp and other duties and taxes (if any) to which this Charge, any document of title relating to the Property and any other document executed pursuant to the terms hereof, may be subject; and the same shall carry interest at the applicable rate as hereinbefore provided from the date of the same being incurred or disbursed until payment and all such costs, charges, expenses and remuneration and all interest thereon shall be a charge on the Property and shall form part of the Secured Indebtedness. 18. CONTINUING SECURITY 18.01 The security created herein shall be a continuing security and shall be available to secure whatever may be the balance at any time or from time to time due by the Borrower to the Lender pursuant to this Charge, and such continuing security shall not be discharged by the release of any security or additional security whatsoever which the Lender may for the time being hold or which may hereafter be held by the Lender as security for the Secured Indebtedness, and further the Lender has only agreed to grant the general banking facilities hereunder up to such amount as it may in its absolute discretion deem safe. 19. APPLICABLE LAW 19.01 This Charge shall be governed by and construed in accordance with Hong Kong law and the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the Hong Kong Courts. IN WITNESS whereof the Borrower has caused its Common Seal to be hereunto affixed the day and year first above written. 26 - 25 - THE SCHEDULE ABOVE REFERRED TO ALL THOSE 635 equal undivided 40,800th parts or shares of and in ALL THOSE pieces or parcels of ground registered in the Land Registry as SUBSECTION 11 OF SECTION A OF INLAND LOT NO. 1367, THE REMAINING PORTION OF SECTION A OF INLAND LOT NO. 1367, SUBSECTION 10 OF SECTION A OF INLAND LOT NO. 1367, SUBSECTION 8 OF SECTION A OF INLAND LOT NO. 1367, THE REMAINING PORTION OF SUBSECTION 9 OF SECTION A OF INLAND LOT NO. 1367 and SECTION A OF SUBSECTION 9 OF SECTION A OF INLAND LOT NO. 1367 And of and in the measuages erections and buildings thereon now known as AT TOWER (illegible - Chinese characters) ("the Building") No. 180 Electric Road (formerly known as Nos. 176, 178, 180, 182, 184 and 186 Electric Road), Hong Kong TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT OFFICE 2 on the FIFTEENTH FLOOR of the Building AND TOGETHER with the benefit of a Deed of Mutual Covenant and Management Agreement registered in the Land Registry by Memorial No. 6448422 AND TOGETHER with all subsisting rights and rights of way HELD from the Crown for the residue of the term of 999 years commencing from the 24th day of February 1896 created therein by a Crown Lease in respect of the whole of Inland Lot No. 1367 dated the 20th day of May 1897 and made between Her late Majesty Queen Victoria of the one part and Dirk Cordes, Geldolph Adriaan de Lange and Abraham Capadose of the other part SUBJECT to the payment of the due proportion of the Crown rent and to the observance and performance of the covenants and conditions reserved by and contained in the said Crown Lease AND SUBJECT to the said Deed of Mutual Covenant and Management Agreement AND SUBJECT to all subsisting rights and rights of way. 27 - 26 - SEALED with the Common Seal ) of the Borrower and SIGNED ) by Wong Siu Pang and ) Vong Lai Si, its Directors ) [SIG] [SEAL] in the presence of: ) [SIG] [SIG] - --------------------------------- Irene Y. S. Lau Solicitor Hong Kong EX-10.13 14 HONG KONG BANK MORTGAGE RE: INVESTMENT PROPERTY 1 EXHIBIT 10.13 DATED: 7th September 1993 EURO TECH (FAR EAST) LIMITED to STANDARD CHARTERED BANK ----------------------------------------------- MORTGAGE of Unit No. 04 on 17th Floor of Citicorp Centre, No. 18 Whitfield Road, Hong Kong. ----------------------------------------------- Produced to and registered by me this 9th day of September 1993. [SIG] ------------------------------ p. Registrer of Companies Hong Kong D E A C O N S in association with GRAHAM & JAMES and SLY & WEIGALL [ILLEGIBLE COPY] Alexandra House 3rd-6th Floors Hong Kong LC:HCFL S93/489212 E:\CFL\93090005 2 I N D E X
Content Page No. ------- -------- Parties 1 1. Interpretation 1 2. Covenant to Discharge Obligations 3 3. Charging Clause 3 4. Release 4 5. Representations and Warranties 4 6. Covenants 4 7. Events of Default 8 8. Appointment and Powers of Receiver 9 9. Provisions affecting Receiver 11 10. Lender's Powers 12 11. Lender's Entry into Possession 13 12. Power of Attorney 13 13. Third parties 13 14. Proceeds of Security Realisation 14 15. Security Additional 14 16. Suspense Account 14 17. Set-off 15 18. Indulgence 15 19. Settlement 16 20. Distribution of Payments 16 21. Expenses And Stamp Duty 16 22. Evidence 17 23. Assignment 17 24. Remedies, Waivers, Amendments and Consents 17 25. Communications 18 26. Partial Invalidity 18 27. Continuing Security 18 28. Counterparts 18 29. Governing Law 18 Schedule I 19
3 [ILLEGIBLE COPY] MORTGAGE [ILLEGIBLE COPY] PARTIES: (1) EURO TECH (FAR EAST) LIMITED [illegible Chinese characters] whose registered office is situate at 49-51 Wong Chuk Hang Road, Flats A & E, 19th Floor, Derrick Industrial Building, Aberdeen, Hong Kong (the "Mortgagor"). (2) STANDARD CHARTERED BANK a body corporate incorporated by Royal Charter whose Head Office is at 1 Aldermanbury Square, London EC2V 7SB, England having a branch office and carrying on business at No. 4-4A Des Voeux Road Central, Hong Kong (the "Lender"). RECITALS: (A) This Mortgage is supplemental to the Facility Letter pursuant to which the Lender has agreed to make the Facilities available to the Mortgagor. (B) It is a condition of the Facility Letter that the Mortgagor enter into this Mortgage. THIS MORTGAGE WITNESSES as follows:- 1. Interpretation 1.1 In this Mortgage, including the Recitals, the following expressions shall have the meaning assigned to them;- "Crown Lease" the Crown Lease referred to in Schedule I; "Deed of Mutual Covenant" the Deed of Mutual Covenant and Management Agreement (if any) referred to in Schedule I; "Dispose" and "Disposal" any sale, assignment, exchange, transfer, concession, loan, lease, surrender of lease, tenancy, licence, direct or indirect reservation, waiver, compromise, release, dealing with or in or granting of any option, right of first refusal or other right or interest whatsoever or any agreement for any of the same; "Encumbrance" any mortgage, charge, pledge, lien (otherwise than arising by statute or operation of law), hypothecation or other encumbrance, priority or security interest, whatsoever over or in the Property; 4 "Event of Default" any event set out in Clause 7.1; "Facilities" the banking facilities to be made available to the Mortgagor by the Lender pursuant to the Facility Letter; "Facility Letter" the letter or letters from the Lender to the Mortgagor which from time to time govern the Facilities, as amended or varied from time to time; "Fixtures" all fixed plant, fixed machinery and fixtures (including trade fixtures), fittings, goods and materials (other than those being personal chattels within the Bills of Sales Ordinance (Cap.20)) from time to time on or in the Property; "Interest" interest at such rate(s) per annum as is/are applicable under the terms relating to the Facilities or as determined by the Lender (which determination shall be conclusive and binding on the Mortgagor); "Mortgage" this Mortgage as from time to time amended or modified; "Obligations" all principal, interest and other amounts from time to time owing by the Mortgagor to the Lender on any current and/or other account and all other liabilities whatsoever of the Mortgagor to the Lender whether present, future, actual and/or contingent; "Property" the property described in Schedule I and any part thereof and Fixtures; "Receiver" a receiver or a receiver and manager for the time being appointed by the Lender hereunder and includes any permitted delegate or sub-delegate of the same; "Regulations" all planning, building, fire and other laws, regulations and directives affecting the Property; "Security Documents" this Mortgage, the Facility Letter and all other documents supplemental to, collateral with or derived from them. 1.2 References in this Mortgage to: - (a) the Lender includes its successors and assigns; - 2 - 5 (b) the Mortgagor includes its executors, administrators, successors or assigns; (c) clauses and the Schedules are references to clauses hereof and the Schedule hereto; (d) sub-clauses and paragraphs are, unless otherwise stated, references to sub-clauses and paragraphs of the clause and sub-clause in which the reference appears; and (e) words denoting the singular shall include the plural and vice versa and words denoting one gender shall include all genders. 1.3 Where the Mortgagor comprises two or more persons obligations expressly or impliedly made by them shall be deemed to be made by such persons jointly and severally. 1.4 Headings are for ease of reference only and shall be disregarded in construing this Mortgage. 2. Covenant to Discharge Obligations In consideration of the Lender agreeing to make available to the Mortgagor the Facilities upon the terms and subject to the conditions contained in the Facility Letter, the Mortgagor covenants to pay on demand all Obligations to the Lender. 3. Charging Clause The Mortgagor as beneficial owner and as continuing security for the discharge of the Obligations and the observance and performance by the Mortgagor of the agreements covenants and conditions contained in this Mortgage:- (a) charges the Property to the Lender by way of first fixed mortgage Provided that insofar as the Property comprises a legal estate in land this mortgage shall be a legal charge over the Property; (b) (i) assigns to the Lender all the interest of the Mortgagor in and the benefit to the Mortgagor arising out of all insurances relating to the Property or any part thereof and the right to receive any sums payable to the Mortgagor in respect thereof; (ii) agrees to assign legally to the Lender by a document in a form and substance required by the Lender all insurances relating to the Property of which the Mortgagor is entitled to the benefit forthwith upon notice by the Lender; (c) assigns to the Lender, (and agrees to assign to the Lender and will, if so required, execute a separate assignment or separate assignments in such form and substance as the Lender may require of), the sale proceeds, the rents and other sums of money and deposits now or to become payable by virtue of each sale agreement, lease, tenancy agreement or other Disposal now or hereafter - 3 - 6 concluded in respect of the Property or any part thereof together with power for the Lender to sue for recovery and give effectual discharges for the same in the name of the Mortgagor. 4. Release If the Mortgagor shall repay to the Lender the Obligations hereby secured in accordance in all respects with the covenants in that behalf herein contained and observe and perform the covenants terms and conditions herein contained and on the part of the Mortgagor to be observed and performed then the Lender shall at the request and cost of the Mortgagor (including the expense of making a certified true copy of any Power of Attorney under which the Lender shall have executed or signed any deed or instrument) sign or execute a receipt for the Obligations hereby secured or otherwise discharge or release the security constituted by the Security Documents to the Mortgagor or as the Mortgagor shall direct. 5. Representations and Warranties The Mortgagor represents and warrants to the Lender that:- (a) the Mortgagor is the beneficial owner of, has a good and marketable title to, and has exclusive possession of the whole of the Property; (b) the Crown Lease is valid and subsisting and not voidable and has not been amended or modified in any way; (c) none of the Property has been Disposed of and, subject as disclosed to the Lender in writing prior to the date hereof, the Property is free from all Encumbrances; (d) in respect of existing tenancies of the Property as disclosed to the Lender in writing prior to the date hereof, no option to renew or purchase has been granted to the tenants or any of them and no advance payment of rent has been or will be demanded, accepted or paid other than the monthly rent as and when it falls due each calendar month; (e) the covenants terms and conditions contained in the Crown Lease and the Deed of Mutual Covenant so far as they relate to the Property have been observed and performed up to the date hereof; and (f) each of the above representations and warranties and any implied by law will be correct and complied with in all respects so long as the Obligations remain payable under the Security Documents. 6. Covenants 6.1 The Mortgagor covenants with the Lender that the Mortgagor will:- - 4 - 7 (a) not make any Disposal or create or permit to subsist any Encumbrance over the whole or any part or parts of the Property except with the prior consent in writing of the Lender; (b) observe and comply with: (i) the covenants and conditions reserved and contained in the Crown Lease and the Deed of Mutual Covenant; and (ii) all Regulations; (c) not agree to any modification or waiver of the Crown Lease or Deed of Mutual Covenant or of any lease or tenancy agreement affecting the Property without the prior written approval of the Lender; (d) take all necessary action to preserve the Property against forfeiture, re-entry and re-possession by the Government of Hong Kong; (e) take out, maintain and comply with the terms of insurance in respect of the Property which insurance shall: (i) be in the joint names of the Mortgagor and the Lender; (ii) be with such reputable insurance company carrying on business in Hong Kong or with Lloyd's Underwriters as the Lender may previously approve in writing; (iii) be against loss or damage by fire, lightning, explosion, storm, tempest, flood, typhoon, impact, landslip, subsidence, aircraft (other than hostile aircraft) and other aerial devices or articles dropped therefrom, earthquake, riot and strikes, malicious damage, third party risks and such other risks and contingencies as are normally covered by a comprehensive policy maintained by a prudent company owning similar property and carrying on similar business in Hong Kong and as the Lender may from time to time reasonably require; (iv) be to a minimum of the full reinstatement value of the Property (including architect's and surveyor's fees and demolition costs and the costs of shoring up), provided that if the full reinstatement value referred to above cannot be agreed between the Mortgagor and the Lender, it shall be determined by a leading international firm of surveyors and valuers or other appropriate expert approved by the Lender at the expense of the Mortgagor; and (v) have clauses in a form satisfactory to the Lender to the effect that: (01) payment will be made to the Lender in full, without any deductions, of all moneys and ex gratis payments in respect thereof; - 5 - 8 (02) in the event that the Mortgagor becomes insolvent or goes into liquidation or ceases to carry on business, the insurer will, regardless of such insolvency or liquidation or cessation of business, assume liability on the same terms and conditions and for the remaining period that it would have assumed such liability in the absence of such insolvency or liquidation or ceasing to carry on business; (03) the insurer undertakes to advise the Lender of: (I) any alteration in, cancellation of, termination of, or expiry of the insurance at least 14 days before such alteration, cancellation, termination or expiry is due to take effect; and; (II) any default in the payment of any premium or failure to renew the insurance at least 14 days prior to the date of renewal thereof; (04) with respect to the Lender, it shall be and remain enforceable in respect of any claim arising as a result of any act or thing occurring less than 14 days prior to notice to the Lender of any invalidity, avoidance or unenforceability in whole or in part of the insurance; and (05) the Lender is not liable for the payment of premiums; (f) pay or cause to be paid the premiums and all other moneys payable in connection with effecting or maintaining insurance taken out pursuant to Clause 6.1(e) and on demand to endorse over and deliver to the Lender the policy or policies of insurance together with the latest premium receipt; (g) keep or cause to be kept the Property in a good and substantial state of repair and condition and allow the Lender and any person nominated by the Lender to enter and to view the state of repair of the same at all reasonable times (without thereby becoming liable as a mortgagee in possession); (h) promptly pay all rates, taxes, assessments and other outgoings whatsoever assessed, imposed or charged on or in respect of the Property; (i) not without the prior written consent of the Lender carry out any operation on or institute or continue any use of the Property or any part or parts thereof for which the permission of any Governmental body or other competent authority is required or make any structural alterations or additions to the Property; (j) not commit any waste upon or injure or in any manner or by any means lessen the value of the Property; (k) forthwith deposit with the Lender all the deeds and documents of title relating to any of the Property; and - 6 - 9 (I) promptly inform the Lender of any event or of the receipt of any notice which may affect the title of the Mortgagor to the Property or its rights or interest therein or any Fixtures or fulfilment by the Mortgagor of any of the Mortgagor's covenants or obligations hereunder, or which may affect the security created by the Security Documents. 6.2 The Mortgagor further covenants with the Lender that: (a) if the Mortgagor shall default in the performance of the covenants and conditions contained in the Crown Lease or in complying with its obligations under this Mortgage including but not limited to its obligations in respect of insurance or in keeping the Property in a good and substantial condition and state of repair, or in duly complying with all Regulations then and in any such case and so often as the same shall happen the Lender shall be at liberty to perform the covenants in respect of which such default shall be made, to effect such insurances and to comply with all such Regulations and the Mortgagor will forthwith repay on demand all moneys expended by the Lender therefor and until such repayment the same shall form part of the Obligations, shall have the benefit of the security contained in Clause 3 and shall bear interest with effect from the date of demand for payment until repayment in full (both before and after judgment); (b) upon the Lender being entitled so to do under the terms of this Mortgage, the Property may be taken possession of, and during the residue of the term of the Crown Lease (and any renewal thereof) held and enjoyed by the Lender without any lawful interruption or disturbance by the Mortgagor any person charging by his direction or any person rightfully claiming through under or in trust for the Mortgagor (other than in respect of an estate or interest subject to which this Mortgage is expressly made); (c) the Mortgagor shall execute and do all such assurances, acts, deeds and things as the Lender may require, and procure other interested parties so to do, for protecting or perfecting the security created by this Mortgage and to facilitate the exercise of all powers, authorities and discretions vested in the Lender or in any Receiver of the Property and shall in particular execute all transfers, conveyances, assignments, assurances and registrations, whether to the Lender or to its nominees or purchasers, or sub-purchasers and give all notices, orders and discretions which the Lender may think expedient and, for the purposes of this Clause, a certificate in writing by the Lender to the effect that any assurance or thing required by it is reasonably required shall be conclusive evidence of such fact; (d) in the event of the Hong Kong Government offering a renewal or extension of the Crown Lease the Mortgagor shall: (i) forthwith accept the offer; (ii) fully observe and perform the conditions of the offer and pay any premium or other consideration demanded; - 7 - 10 [MISSING COPY (iii)...] Crown Lease execute a mortgage or the renewed or extended Crown Lease to the Lender in the same form as this Mortgage with such consequential amendments as the circumstances require; and (iv) pending execution of the mortgage pursuant to sub-clause 6.2(d)(iii) hold its interest in the Crown Lease as renewed or extended in trust for the Lender. 7. Events of Default 7.1 The Lender shall be entitled to declare all or any part of this security immediately enforceable at any time if:- (a) the Mortgagor shall have failed to comply with a demand for repayment of the Obligations or any part thereof; or (b) the Mortgagor makes default in the payment on the due date and in accordance with the terms and conditions relating thereto of any principal or interest or other moneys outstanding and payable by the Mortgagor under any term loan account (whether demanded or not); or (c) any representation, warranty or statement by the Mortgagor is not complied with or proves to have been or to be incorrect; or (d) the Mortgagor does not comply with any of the Mortgagor's agreements, covenants or obligations under the Security Documents; or (e) the Mortgagor becomes bound to repay prematurely any other loan or similar obligation for borrowed money by reason of a default in its obligations in respect of the same or fails to make any payment in respect thereof on the due date; or (f) (if applicable) a petition is presented or an order is made or an effective resolution is passed or analogous proceedings are taken for the winding up of the Mortgagor save for the purposes of an amalgamation, merger or reconstruction the terms whereof have previously been approved by the Lender; or (g) the Mortgagor convenes a meeting for the purpose of making, or proposes and/or enters into, any arrangement or composition for the benefit of its creditors; or (h) an incumbrancer takes possession or a receiver or other similar officer is appointed of the whole or any part of the assets, or the undertaking (if applicable) of the Mortgagor or a distress or execution is levied or enforced upon or sued out against any of the chattels or property of the Mortgagor and is not discharged within thirty days of being levied; or - 8 - 11 (i) the Mortgager shall without the consent in writing of the Lender stop payment to creditors generally or (if applicable) the Mortgagor shall (otherwise than for the purpose of such an amalgamation, merger or reconstruction as is referred to in sub-clause 7.1(f) cease or threaten to cease to carry on its business or any substantial part thereof or (if applicable) shall be deemed, for the purposes of Section 178 of the Companies Ordinance or any statutory modification or re-enactment thereof for the time being in force, to be unable to pay its debts or disposes or threatens to dispose of the whole or a substantial part of its undertaking or assets; or (j) the Mortgagor shall commit any act of bankruptcy or become insolvent or make any composition or arrangement with the Mortgagor's creditors; or (k) the Mortgagor shall have any judgment or order of Court made or any execution levied against the Mortgagor's goods chattels or property; or (l) in the opinion of the Lender it has reasonable grounds to consider all or any part of the Property to be in danger or being seized or sold under any form of distress or execution levied or threatened or otherwise to be in jeopardy; or (m) there occurs a material adverse change in the Mortgagor's financial condition which would, in the opinion of the Lender, prevent it from performing in any material respect its obligations under the Security Documents. 7.2 The Mortgagor covenants that it will notify the Lender forthwith in writing of the occurrence of any Event of Default. 7.3 Notwithstanding anything to the contrary contained in any facility letter, instrument, or other agreement or document to which the Mortgagor and the Lender is a party, the Lender shall be under no liability at any time after the occurrence of an Event of Default to honour any further obligations to provide or to continue to make available banking facilities under any arrangements relating to them and all term loans and other moneys, obligations and liabilities hereby secured not otherwise so repayable, shall become repayable immediately on demand, together with interest accrued thereon to the date of repayment in full, and cash cover shall be provided on demand for all contingent liabilities notwithstanding that the maturity thereon shall not have arrived or that the Mortgagor shall not have been called upon to pay thereunder. 8. Appointment and Powers of Receiver 8.1 Upon or at any time after this security has become enforceable, or if so requested by the Mortgagor, the Lender may under seal or by writing under the hand of any director, officer or manager of the Lender appoint any person or persons to be a Receiver of the Property and may similarly remove any Receiver or appoint another in his place. 8.2 Any Receiver so appointed shall in addition to all other powers and rights implied by law have power either in his own name or in the name of the Mortgagor:- - 9 - 12 (b) to Dispose of the Property or any part or parts thereof on such terms and conditions as he may think fit and so that (without prejudice to the generality of the foregoing) he may Dispose for a consideration consisting of cash, debentures or other obligations, shares, securities or other valuable consideration and any such consideration may be payable in a lump sum or by instalments spread over such period as he may think fit. Fixtures may be severed and sold separately from the property containing them without the consent of the Mortgagor; (c) to enter into a deed of mutual covenant relating to the Property and/or any other documents of a similar nature or grant or except any rights, easements or privileges over or in respect of the Property as the Lender shall in its absolute discretion think fit; (d) for the purpose of exercising any of the powers, authorities and discretions conferred on him by or pursuant to the Security Documents and/or of defraying any costs, charges, losses or expenses (including his remuneration) which shall be incurred by him in the exercise thereof or for any other purpose, to raise and borrow money either unsecured or on the security of the Property either in priority to the security constituted by the Security Documents or otherwise and generally on such terms and conditions as he may think fit Provided that:- (i) no Receiver shall exercise such power without first obtaining the written consent of the Lender and the Lender shall incur no responsibility to the Mortgagor or any other person by reason of its giving or refusing such consent whether absolutely or subject to any limitation or condition; and (ii) no person lending such money shall be concerned to enquire as to the existence of such consent or the terms thereof or as to the propriety or purpose of the exercise of such power or to see to the application of any money so raised or borrowed; (e) to exercise or permit the Mortgagor or any nominees of the Mortgagor to exercise any powers or rights incidental to the ownership of the Property in such manner as he may think fit; (f) to make and effect all such repairs, alterations, improvements and developments to and insurances of the Property as he may consider fit; (g) to commence, carry out and complete any building works, repairs, reconstruction, furnishing or equipment of the Property at the cost of the Mortgagor; - 10 - 13 (h) to enter into, perform or vary any contract or agreement for or relating to the Property and to discontinue, repudiate or rescind any such contract or agreement as aforesaid; (i) to appoint, hire and employ contractors, builders, workmen, managers, agents, officers, servants, solicitors, architects, surveyors, quantity surveyors, estate agents and others for any purpose on such terms and generally in such manner as he may consider fit and to discharge any such persons and any such persons appointed, hired or employed by the Mortgagor and/or the Receiver; (j) to purchase or acquire all materials for use in connection with the exercise of his powers hereunder upon such terms and conditions as he may in any case think fit; (k) to require the Mortgagor, his agents, servants, solicitors, architects, surveyors, quantity surveyors, estate agents and others to deliver to the Lender all agreements, deeds, documents, plans, drawings, specifications, papers and information whatsoever in their possession which the Receiver may in his absolute discretion require in connection with the Property and generally to give instructions to any of the same; (l) to obtain all consents as he shall in his absolute discretion think fit; (m) to settle, adjust, refer to arbitration, compromise and arrange any claims, accounts, disputes, questions and demands with or by any person who is or claims to be a creditor of the Mortgagor or relating in any way to the Property; (n) to bring, prosecute, enforce, defend, compromise and abandon all claims, actions, suits and proceedings in relation to the Property as may seem to him to be expedient; and (o) to do all such other acts and things he may consider necessary desirable in connection with the Property or for realising the Property or incidental or conducive to any of the matters, powers or authorities conferred on a Receiver under or by virtue of this Mortgage and generally to exercise in relation to the Property all such powers, authorities and things as he would be capable of exercising and doing if he were the absolute beneficial owner of the same. 9. Provisions affecting Receiver The following provisions shall apply with regard to any Receiver so appointed:- (a) any such appointment may be made before or after the Lender shall have entered into or taken possession of the Property; (b) any Receiver may (at the absolute discretion of the Lender) be appointed either Receiver of all of the Property or Receiver of such part or parts thereof as may be specified in the appointment and in such latter event the powers - 11 - 14 hereinbefore conferred on a Receiver shall have effect as though every reference therein to the Property were limited to the part or parts of the Property so specified; (c) any Receiver shall in the exercise of his powers, authorities and discretions conform to any regulations and directions from time to time made and given by the Lender Provided that no person dealing with the Lender or any Receiver shall be concerned to enquire whether the Receiver has so conformed to any such regulations and directions; (d) any Receiver shall be the agent of the Mortgagor for all purposes and the Mortgagor alone shall be responsible for his contracts, engagements, acts, omissions, defaults, losses and misconduct and for liabilities incurred by him and for his remuneration and the Lender shall not incur any liability therefor (either to the Mortgagor or to any other persons whatsoever) by reason of its appointing such Receiver or of its having made or given any requisition or direction pursuant to the foregoing sub-paragraph or for any other reason whatsoever; (e) if two or more persons are appointed Receiver the Lender may provide that their rights, powers and remedies vest in them jointly or jointly and severally; (f) the Lender may from time to time fix the remuneration of any Receiver and direct payment of such remuneration out of moneys accruing to him in the exercise of his powers as such Receiver but the Mortgagor alone shall be liable for the payment of such remuneration; (g) the Lender may from time to time and at any time require any Receiver to give security for the due performance of his duties as Receiver and may fix the nature and amount of the security to be so given but the Lender shall not be bound in any case to require any such security; and (h) every Receiver, attorney, manager, agent or other person appointed by the Lender hereunder shall be entitled to be indemnified out of the Property and the income thereof in respect of all liabilities and expenses incurred by him in the execution or purported execution of his powers and against all actions, proceedings, claims and demands in respect of any matter or thing done or omitted in anywise relating to the Property and the Lender may retain and pay out of any money in the Lender's hands arising from the Property or out of its own resources all sums necessary to effect such indemnity and all such sums shall be a charge on the Property. 10. Lender's Powers All or any of the powers, authorities and discretions which are conferred either expressly or impliedly upon a Receiver of the whole or any part or parts of the Property by law and this Mortgage may be exercised by the Lender in relation to the whole or any part or parts of the Property without first appointing a Receiver of the Property or norwithstanding the appointment of a Receiver of the Property, - 12 - 15 11. Lender's Entry into Possession 11.1 If the Lender or any Receiver enters into possession of the Property, it or he may from time to time go out of such possession. 11.2 The Lender shall not in any circumstances by reason of its taking possession of the Property or for any other reason whatsoever, and whether as mortgagee in possession or on any other basis whatsoever, be liable to account to the Mortgagor for anything except its own actual receipts or be liable to the Mortgagor for any loss or damage arising from any realisation of the Property or from any act, default or omission in relation to the Property or from any exercise or non-exercise by it of any power, authority or discretion conferred upon it in relation to the Property unless such loss or damage shall be caused by its own fraud. 11.3 All the provisions of sub-clause 11.2 shall apply in relation to the liability of any Receiver of the Property in all respects as though every reference in sub-clause 11.2 to the Lender were instead a reference to such Receiver. 12. Power of Attorney 12.1 The Mortgagor by way of security irrevocably appoints the Lender, each of the officers for the time being of the Lender and every Receiver of the Property, each with full power of substitution and each with full power to act alone, to be the Mortgagor's attorney and in the Mortgagor's name or in the name of the attorney and on the Mortgagor's behalf to execute and as the Mortgagor's act and deed or otherwise to do all such assurances, acts or things which the Mortgagor ought to do under the covenants and provisions contained in the Security Documents and generally in the Mortgagor's name and on the Mortgagor's behalf to exercise all or any of the powers, authorities and discretions conferred on the Lender or any such Receiver and (without prejudice to the generality of the foregoing) to execute, seal and deliver and otherwise perfect any deed, assignment, transfer, assurance, agreement, instrument or act which may in the opinion of such attorney be required or deemed proper, necessary or desirable in or for any of the purposes of the Security Documents. 12.2 The Mortgagor ratifies and confirms and agrees to ratify and confirm whatever any such attorney as is mentioned in sub-clause 12.1 shall do or purport to do in the exercise or purported exercise of all or any of the powers, authorities and discretions referred to therein. 13. Third parties 13.1 No person dealing with the Lender or with any Receiver shall be concerned to enquire whether any Event of Default has happened upon which any of the powers, authorities, and discretions conferred by or pursuant to the Security Documents in relation to the Property are or may be exercisable by the Lender or by any such Receiver or otherwise as to the propriety or regularity of acts purporting or intended to be in exercise of any such powers and as regards any such person dealing with the Lender or any such Receiver, notwithstanding that the requisite power, authority or discretion has not become exercisable or any impropriety or irregularity whatsoever, such powers, authorities and discretions shall be deemed to be duly and validly - 13 - 16 exercised and that the remedy (if any) of the Mortgagor in respect of any breach of the provisions hereinbefore contained shall be in damages only. 13.2 Upon any Disposal by the Lender and/or the Receiver the receipt of the Lender and/or the Receiver for the proceeds thereof shall effectually discharge the person paying the same therefrom and from being concerned to see to the application or being answerable for the loss or misapplication thereof. 14. Proceeds of Security Realization The Lender or any Receiver so appointed shall apply the moneys arising from any Disposal under the powers conferred upon the Lender or upon any Receiver after the security hereby created has become enforceable:- First : in discharge of all rent, taxes, rates and other outgoings due and affecting the Property; Secondly : unless the Property is sold subject to a prior incumbrance, in discharge of that prior incumbrance; Thirdly : in payment of the Receiver's lawful remuneration, the Receiver's and the Lender's costs, charges and expenses and all lawful costs and expenses properly incurred in the Disposal; Fourthly : in payment of the Obligations, and any residue shall be paid to the person who immediately before any Disposal was entitled to the Property or authorized to give a receipt for the proceeds of any Disposal of the Property. 15. Security Additional The security conferred by this Mortgage is in addition to and shall not affect or be affected by any other remedy lien security or guarantee which the Lender may now or at any time hold or take from the Mortgagor or from any other person in respect of the Obligations. 16. Suspense Account The Lender may at any time place and keep for such time as it may think prudent any moneys received, recovered or realised under the Security Documents to and in a separate or suspense account to the credit of the Mortgagor or of such other person or persons or transaction, if any, as it shall think fit without any intermediate obligation on its part to apply the same or any part thereof in or towards the discharge of the Obligations. - 14 - 17 Set-Off The Mortgagor authorises the Lender to:- (a) apply (without prior notice) any credit balance (whether or not then due) to which the Mortgagor is at any time beneficially entitled on any account at any office of the Lender in Hong Kong and elsewhere; and (b) set-off any liabilities of the Lender to the Mortgagor which are due or to become due; in or towards satisfaction of all or any of the Obligations. For that purpose, the Lender is hereby authorised by the Mortgagor to use all or any part of any such credit balance or liability to buy such other currencies as may be necessary to effect such application or set-off. 18. Indulgence This security and the rights of the lender under it shall not be discharged or in any way affected by:- (a) any time, indulgence, waiver or consent at any time given to the Mortgagor or any other person; (b) any amendment to any of the Security Documents or to any other security, guarantee or indemnity; (c) the making or the absence of any demand on the Mortgagor or any other person for payment; (d) the enforcement or absence of enforcement of or release of the Security Documents or of any other security, guarantee or indemnity; (e) the dissolution, amalgamation, reconstruction, reorganisation or change in the persons carrying on business in the name of the Mortgagor or, as the case may be, death or incapacity of the Mortgagor; (f) the illegality, invalidity or unenforceability of or any defect in any provision of the Security Documents or any of the Mortgagor's obligations under them; or (g) any party to any of the Security Documents not being bound by any of the same by reason of failure to execute the same or otherwise. - 15 - 18 19. Settlement Any settlement, assignment, payment or discharge between the Lender and the Mortgagor shall be conditional upon no security or payment to the Lender in respect of the Obligations being avoided or reduced by virtue of any provisions or enactments relating to bankruptcy, insolvency or liquidation for the time being in force and in that event the Lender shall be entitled to recover the value or amount of any such security or payment from the Mortgagor. 20. Distribution of Payments 20.1 Payments by the Mortgagor shall be treated for the purposes of the Security Documents as if money received thereunder were applied to amounts owing thereunder or with respect thereto in such manner as the Lender may from time to time notify, notwithstanding that such moneys may in fact be applied or directed by the payer to be applied in some other manner. 20.2 If the security becomes enforceable all moneys received by the Lender in respect of the Obligations after the date conclusively determined by the Lender to be the earliest date on which the Lender was entitled to call for the immediate repayment of any principal not otherwise payable on demand or on which there was an Event of Default shall be credited to a suspense account or suspense accounts or treated as if so credited pending application thereof at the discretion of the Lender. 21. Expenses And Stamp Duty The Mortgagor shall be liable for and shall pay on demand:- (a) all costs and expenses (including legal fees) incurred by the Lender in connection with the preparation, printing, negotiation, entry into of the Security Documents and/or any amendment of or waiver in respect of the Security Documents; (b) all costs and expenses (including legal fees) incurred by the Lender in the administration of, or in preserving, exercising, protecting or enforcing any rights under the Security Documents or in relation to the Property; and (c) any stamp, documentary, registration or similar duty or fee payable in connection with the entry into, registration, performance, enforcement or admissibility in evidence of the Security Documents and shall indemnify the Lender against any liability with respect to or resulting from any delay in paying or omission to pay any such duty or fee; to the intent that the Lender shall be afforded a full and unlimited indemnity in respect thereof and until so repaid such costs, charges, expenses and other sums and interest shall form part of the Obligations and shall have the benefit of the security contained in Clause 3 (but without prejudice to any other remedy, lien or security available to the Lender). - 16 - 19 22. Evidence 22.1 The entries made in the accounts maintained by the Lender in accordance with its usual practice shall be conclusive evidence of the existence and amounts of the Obligations of the Mortgagor therein recorded save for manifest error. 22.2 A certificate by the Lender as to any sum payable to it under the Security Documents and any other certificate, determination, notification or opinion of the Lender provided for in the Security Documents, shall be conclusive, save for manifest error. 23. Assignment 23.1 The Security Documents shall benefit and be binding on the parties, their respective successors and any permitted assignee or transferee of some or all of a party's rights or obligations thereunder. Any reference in the Security Documents to any party shall be construed accordingly. 23.2 The Mortgagor may not Dispose of all or part of the Mortgagor's rights or obligations under the Security Documents. 23.3 (a) The Lender may at any time Dispose to any one or more banks or other financial institutions all or any part of its rights and benefits under the Security Documents and in that event the disposee shall have the same rights against the Mortgagor as it would have had if it had been a party hereto. (b) Any such disposee shall be and be treated as the Lender for all purposes of the Security Documents and shall be entitled to the full benefit of the Security Documents to the same extent as if it were an original party in respect of the rights or obligations Disposed of to it. 23.4 The Lender may disclose to a potential disposee or any other person proposing to enter into contractual arrangements with the Lender in relation to the Security Documents such information about the Mortgagor as it may think fit. 24. Remedies, Waivers, Amendments and Consents 24.1 Time shall be of the essence of the Security Documents but no failure on the part of the Lender to exercise, and no delay on its part in exercising, any right or remedy under the Security Documents will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in the Security Documents are cumulative and not exclusive of any rights or remedies provided by law. 24.2 Any provision of the Security Documents may be amended only if the Mortgagor, and the Lender so agree in writing and any Event of Default may be waived before or after it occurs only if the Lender agrees in writing. Any waiver or consent shall be effective only in the instance and the purpose for which it is given. - 17 - 20 25. Communications 25.1 Each communication to be made under the Security Documents shall be made in writing but, unless otherwise stated, may be made by telex, facsimile or letter but, if by telex by the Mortgagor, shall promptly be confirmed by letter. 25.2 Any communication or document to be made or delivered by one party to another pursuant to the Security Documents shall be made or delivered to that other party to the address specified herein or (if appropriate) its registered office or in the case of the Mortgagor to the Property. 25.3 Any communication from the Mortgagor shall be irrevocable, and shall not be effective until actually received by the Lender. Any communication to the Mortgagor shall be deemed to be received by the Mortgagor (if sent by telex or facsimile) on the next working day in the place to which it is sent or (in any other case) when left at an address required by sub-clause 25.2 or 3 days after being put in the post (by airmail if to another country), postage prepaid, and addressed to it at that address. 26. Partial Invalidity The illegality, invalidity or unenforceability of any provision of the Security Documents under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 27. Continuing Security The security created herein shall be a continuing security and shall be available to secure whatever may be the balance at any time or from time to time due by the Mortgagor to the Lender pursuant to this Mortgage. 28. Counterparts This Mortgage may be signed in any number of counterparts, all of which taken together respectively and when delivered to the Lender shall constitute one and the same respective instrument. Any party may enter into this Mortgage by signing any such counterpart. 29. Governing Law This Mortgage shall be governed by and construed in accordance with the laws of Hong Kong and the parties hereby agree to submit to the non-exclusive jurisdiction of the Hong Kong Courts. This Mortgage has been executed by or on behalf of the Mortgagor. - 18 - 21 SCHEDULE I 1. The Property:- (a) Lot number, section, undivided shares, description, address and etc.;- ALL THOSE 1270 equal undivided 14,074th parts or shares of and in ALL THOSE 260 equal undivided 10,080th parts or shares of and in ALL THOSE pieces or parcels of ground respectively registered in the Land Registry as THE REMAINING PORTION OF INLAND LOT NO.1936 and THE REMAINING PORTION OF INLAND LOT NO.2227 And of and in the measuages erections and buildings thereon now known as "CITICORP CENTRE" No.18 Whitfield Road ("the Building") TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT UNIT NO.04 on the SEVENTEENTH FLOOR of the Building which said Unit is more particularly shown coloured Pink on the 17th Floor Plan annexed to an Assignment of even date in favour of the Mortgagor ("the Assignment"). (b) Exception and reservations, etc.:- (i) Except and reserved as in the Crown Lease hereinafter mentioned is excepted and reserved. (ii) Subject to such exceptions and reservations as are set out in the Assignment registered in the Land Registry by Memorial No.4280160 and the Deed of Mutual Covenant registered in the Land Registry by Memorial No.2462844 and a Supplemental Deed of Mutual Covenant registered in the Land Registry by Memorial No.2476944 and a Sub-Deed of Mutual Covenant registered in the Land Registry by Memorial No.5677616. (c) Easements and other appurtenant rights the benefit of which is assigned with the Property:- All rights rights of way (if any) and all other rights privileges easements and appurtenances thereto belonging or appertaining or therewith at any time used held occupied or enjoyed AND all the estate right title interest property claim and demand whatsoever of the vendor therein and thereto. (d) Easements and other rights to which the Property is subject:- All subsisting easements rights and rights of way (if any) affecting the Property. - 19 - 22 2. The Crown Leases:- (A) A new Crown Lease of Inland Lot No. 1936 was deemed to have been granted under and by virtue of the Crown Lease Ordinance (Cap.40) for the further term of 75 years commencing immediately after the expiration of the original term of 75 years created under the old Crown Lease, particulars of which are set out as follows:- (a) Date : 14th June 1917. (b) Parties : His late Majesty King George V of the one part and Kwong Sang Hong Limited of the other part. (c) Term : 75 years from the 21st day of March 1904 with a right of renewal for a further term of 75 years. (d) Lot : Inland Lot No. 1936. As varied or modified by a Deed of Variation dated the 21st day of May 1982 and registered in the Land Registry by Memorial No. 2260925. (B) A new Crown Lease of Inland Lot No. 2227 was deemed to have been granted under and by virtue of the Crown Lease Ordinance (Cap.40) for the further term of 75 years commencing immediately after the expiration of the original term of 75 years created under the old Crown Lease, particulars of which are set out as follows:- (a) Date : 14th June 1917. (b) Parties : His late Majesty King George V of the one part and Kwong Sang Hong Limited of the other part. (c) Term : 75 years from the 21st day of March 1904 with a right of renewal for a further term of 75 years. (d) Lot : Inland Lot No. 2227. As varied or modified by a Deed of Variation dated the 21st day of May 1982 and registered in the Land Registry by Memorial No. 2260926. - 20 - 23 SEALED with the Common Seal ) of the Mortgagor and SIGNED ) by [SIG] ) [SIG] [SEAL] ) in the presence of: ) [SIG] HANDA C. F. LAM Solicitor, Hong Kong - 21 - EX-23.2 15 CONSENTS OF ARTHUR ANDERSON & CO., HONG KONG 1 EXHIBIT 23.2 [ARTHUR ANDERSEN LOGO AND LETTERHEAD] November 15, 1996 The Directors Euro Tech (Far East) Limited 18/F Goo Chang Hong Centre 65 Wong Chuk Hang Road Hong Kong Dear Sirs, As independent public accountants, we hereby consent to the incorporation of our reports dated November 13, 1996 included in Euro Tech Holdings Company Limited's Form F-1 dated November 18, 1996 and to references to our Firm included in this registration statement. Very truly yours, /s/ Arthur Andersen & Co. - --------------------------------------------------------- 2 Exhibit 23.2 ARTHUR ANDERSEN LETTERHEAD November 15, 1996 The Directors Euro Tech Holdings Company Limited 18/F., Gee Chang Hong Centre 65 Wong Chuk Hang Road Hong Kong Dear Sirs, As independent public accountants, we hereby consent to the incorporation of our report dated November 13, 1996 included in Euro Tech Holdings Company Limited's Form F-1 dated November 18, 1996 and to all the references to our Firm included in this registration statement. Very truly yours, /s/ Arthur Andersen & Co. - --------------------------------------------------------- Arthur Andersen & Co. -----END PRIVACY-ENHANCED MESSAGE-----