EXHIBIT 10.22
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DATED THE 2ND DAY OF AUGUST, 1996
(1) CHINA BEARING HOLDINGS LIMITED
AND
(2) ASEAN CAPITAL LIMITED
AND
(3) CHINA INTERNATIONAL BEARING
HOLDINGS LIMITED
AND
(4) SUNBASE ASIA, INC.
AND
(5) SMITH ACQUISITION COMPANY, INC.
AND
(6) GLORY MANSION LIMITED
AND
(7) WARDLEY CHINA INVESTMENT TRUST
AND
(8) MC PRIVATE EQUITY PARTNERS
ASIA LIMITED
AND
(9) CHINE INVESTISSEMENT 2000
_________________________________
SUBSCRIPTION AGREEMENT
IN RESPECT OF CERTAIN
CONVERTIBLE DEBENTURES TO BE ISSUED BY\
CHINA BEARING HOLDINGS LIMITED
_________________________________
CHAO AND CHUNG
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Exhibit 10.22
TABLE OF CONTENTS
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DESCRIPTION PAGE NO.
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1. Purpose and Definition 2
2. Issue and subscription of the Debenture 5
3. Conditions Precedent 6
4. Completion 7
5. Representations and Warranties 9
6. Representations by each of the Investors 10
7. Specific Undertakings by ACL 11
8. Further Covenants 12
9. Specific Undertakings by SAI 18
10. Specific Undertaking by SPC 18
11. Corporate Governance 19
12. Notices 20
13. Costs and Expenses 21
14. Governing Law and Jurisdiction 22
15. Announcements and Confidentiality 24
16. General Provisions 25
17. Counterparts 26
SCHEDULE 1
Part I Corporate Chart 27
Part II Other Corporate details 28
Part III Status and Characteristics of the securities issued by SAI 36
SCHEDULE 2
Form of Certificate 37
Terms and Conditions of the Debentures 38
SCHEDULE 3
Representations and Warranties 61
SCHEDULE 4
Form of Guarantee 68
SCHEDULE 5
Employees / Directors' Options 77
SCHEDULE 6
Certification on Conversion Notice 78
SCHEDULE 7
Undertaking by ACL 79
SIGNATURE PAGE 87
THIS AGREEMENT is made on the 2nd day of August, 1996.
(1) CHINA BEARING HOLDINGS LIMITED, the registered office of which is
at Cedar House, 41 Cedar Avenue Hamilton HM12, Bermuda (the
"COMPANY");
(2) ASEAN CAPITAL LIMITED, the registered office of which is at Omar
Hodge Building, Wickhams Cay I, P.O. Box 362, Road Town, Tortola,
British Virgin Islands ("ACL");
(3) CHINA INTERNATIONAL BEARING HOLDINGS LIMITED, the registered
office of which is at 19th Floor, 51-57 Gloucester Road, Wanchai,
Hong Kong ("CIBHL");
(4) SUNBASE ASIA, INC., the registered office of which is at 1280
Terminal Way, Suite 3, Reno Nevada 89502, United States of
America ("SAI");
(5) SMITH ACQUISITION COMPANY, INC., a California corporation doing
business as Southwest Products Company, the registered office of
which is at 2240 Buena Vista, Irwindale, CA 91706, United States
of America ("SPC");
(6) GLORY MANSION LIMITED, the registered office of which is at
Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British
Virgin Islands ("GML");
(7) WARDLEY CHINA INVESTMENT TRUST, the registered office of which is
at c/o Suite 1610, P.O. Box 1016, 885 West Georgia Street,
Vancouver B.C., V6C 3E8, Canada ("WCIT");
(the parties at (6) and (7) hereinafter collectively referred to us
the "FUNDS" and each a "FUND");
(8) MC PRIVATE EQUITY PARTNERS ASIA LIMITED the registered office of
which is at P.O. Box 309, Ugland House, South Church Street,
Grand Cayman, Cayman Islands, British West Indies ("MC
PARTNERS"); and
(9) CHINE INVESTISSEMENT 2000, a Luxembourg-registered Unit Trust,
the registered office of which is at L1118 Luxembourg, 14 Rue
Aldringen ("CI 2000");
(the parties at (6), (7), (8) and (9) hereinafter collectively
referred to as the "INVESTORS" and each an "INVESTOR")
WHEREAS:-
(A) The Company was incorporated in Bermuda under the Companies Act
1981 Bermuda and presently has such authorised and issued share
capital as set out in Schedule 1 hereof. SAI is the holding
company of the Company and was incorporated under the laws of
Nevada and presently has a share capital as set out in Schedule 1
hereof.
(B) The Company intends to issue certain convertible debentures of an
aggregate principal value of US$11,500,000, and has agreed with
the Investors to issue and each of the Investors has agreed to
subscribe such number of Debentures (as hereafter defined)
convertible into Shares (as hereinafter defined) upon and subject
to such terms and conditions set out in this Agreement.
(C) Each of the Funds is an investment fund (or a wholly- owned
subsidiary of such Fund) managed by HSBC Private Equity
Management Limited ("HPEM").
(D) SAI, CIBHL and SPC has each agreed to guarantee the obligations
of the Company and of each other arising under this Agreement,
the Debentures and the Guarantee.
(E) ACL has agreed to guarantee, inter alia, the payment obligations
of the Company under this Agreement and the Debentures.
NOW IT IS HEREBY AGREED as follows:
1. PURPOSE AND DEFINITION
----------------------
1.1 The Schedules form an integral part of this Agreement and shall
be construed and have the same full force and effect as if
expressly set out in the main body of this Agreement.
1.2 The words and expressions set out below shall have the meanings
attributed to them below unless the context otherwise requires:-
"ACCOUNTS" the latest published audited
consolidated accounts or financial
statements of SAI Group comprising their
consolidated balance sheet as at 31st
December, 1995 and their consolidated
profit and loss account or income
statement in respect of the financial
year ended 31st December, 1995;
2
"ACL PROMISSORY NOTES" promissory notes issued by SAI in favour
of ACL in the aggregate principal amount
of UNITED STATES FIVE MILLION DOLLARS
(US$5,000,000);
"ACL UNDERTAKING" an undertaking or guarantee to be given
by ACL in favour of the Investors in the
form or substantially the same form as
set out in Schedule 7 hereof;
"AGREEMENT" this Subscription Agreement;
"BUSINESS DAY" a day (excluding Saturday) on which
banks in Hong Kong and New York are
generally open for business;
"BOARD" board of directors;
"CERTIFICATE" the certificate to be issued in respect
of the Debenture substantially in the
form set out in Schedule 2 hereof;
"COMPLETION" completion of the subscription
contemplated herein pursuant to Clause
4;
"COMPLETION DATE" (a) the fifteenth (15th) Business Day
following the date hereof or if on
such date the Conditions Precedent
shall not have been fulfilled (or
waived by the Majority Investors)
the seventh (7th) Business Day
following the date on which the
Conditions Precedent are fulfilled
(or waived by the Majority
Investors); or
(b) such other date as may be agreed
between the Majority Investors and
the Company provided that such date
shall not be any later than the
Long Stop Date;
"CONDITIONS" the terms and conditions to be attached
to the Certificate substantially in the
form set out in Schedule 2 hereof;
"CONDITIONS PRECEDENT" the conditions precedent set out in
Clause 3.1 hereof;
"CONVERSION DATE" the date on which the Conversion Rights
are exercised in accordance with the
Conditions;
"CONVERSION RIGHTS" the rights attached to the Debentures to
convert the principal amount or any part
thereof into Shares;
"CONVERSION SHARES" "the Shares to be issued by SAI under
the Debentures upon conversion;
"DEBENTURE" or the convertible debentures issued in
"DEBENTURES" denominations of US$250,000 each by the
Company in the form or substantially in
the form set out in the Schedule 2
hereof;
"DEBENTUREHOLDER" or the person or persons who is or are
"DEBENTUREHOLDERS" for the time being the holder of the
Debentures;
"EVENT OF DEFAULT" an event of default as described in
Condition 11 of the Conditions;
"GUARANTEE" the guarantee to be given by the
Guarantors in the form or substantially
the same form as set out in Schedule 4
hereof;
"GUARANTORS" or "GUARANTOR" SAI, CIBHL and SPC;
"LONG STOP DATE" Forty-five (45) days from the date of
this Agreement;
"MAJORITY INVESTORS" the majority of the Investors in value
holding more than 50% of the total
principal amount of the Debentures
outstanding;
"PAYMENT BUSINESS DAY" a day (excluding Saturday) on which
banks in Hong Kong and New York are
generally open for business;
"SAI GROUP" SAI and those companies appearing in the
corporate chart of SAI as set out in
Part I of Schedule 1 hereof (including
those companies that shall from time to
time become subsidiaries (as defined by
the Companies Ordinance (Cap.
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32 of the Laws of Hong Kong) of SAI
after the date of this Agreement;
"SHARES" the shares in the common stock of SAI
existing at the date of this Agreement
and all other (if any) stock or shares
from time to time and for the time being
to be issued ranking pari passu
therewith and all other (if any) shares
or stock resulting from any sub-
division, consolidation or re-
classification of the Shares;
"SUPER-VOTING RIGHTS" such weighted voting rights of 500,000
votes per Series A Preferred Stock
issued by the Company;
"WARRANTIES" the representations and warranties
contained in Clause 5 and Schedule 3
hereof;
"HK"$ Hong Kong dollars; and
"US"$ United States dollars.
1.3 Except as otherwise expressly provided, expressions defined in
the Companies Ordinance (Cap. 32 of the Laws of Hong Kong) have
the same meaning in this Agreement.
1.4 A reference to a statute or statutory provision includes a
reference:
(a) to that statute or provision as from time to time modified
or re-enacted;
(b) to any repealed statute or statutory provision which it re-
enacts (with or without modification); and
(c) to any orders, regulations, instruments or other subordinate
legislation made under the relevant statute or statutory
provision.
1.5 Unless the context otherwise requires:-
(a) words in the singular include the plural, and vice versa;
(b) words importing any gender include all genders; and
(c) a reference to a person includes a reference to a body
corporate and to an unincorporated body of persons.
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1.6 A reference to a Clause, sub-Clause or Schedule is to a clause,
sub-Clause or schedule (as the case may be) of or to this
Agreement.
1.7 The headings are for convenience only and do not affect
interpretation.
2. ISSUE AND SUBSCRIPTION OF THE DEBENTURE
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2.1 Subject to fulfilment of the Conditions Precedent, at Completion,
each of the Investors shall subscribe for Debentures of such
aggregate principal value as set out against its name hereunder
and shall pay or procure that there shall be paid to the Company
(or any company or person as shall be directed by the Company)
the amount of the subscription moneys for the Debentures:
Aggregate Principal
US$ value of the
Name of Investor Subscription Monies Debenture(s) to be issued
---------------- ------------------- -------------------------
GML 6,000,000 6,000,000
WCIT 2,000,000 2,000,000
MC Partners 2,000,000 2,000,000
CI 2000 1,500,000 1,500,000
------------------- -------------------------
Total: US$11,500,000 US$11,500,000
2.2 Subject to fulfilment of the Conditions Precedent and at
Completion, the Company shall, upon receipt of the subscription
moneys referred to in Clause 2.1, issue the Debenture(s) at its
full principal value to the respective Investors.
2.3 (a) None of the Funds shall be obliged to subscribe for any of
the Debentures if the subscription for the Debentures is not
completed simultaneously by the other two Investors in which
case subscription hereunder shall be at the Funds' absolute
discretion and the Company is obliged to complete the issue
of such Debentures to the Funds pursuant to the terms and
provisions of this Agreement if the Funds so elect
notwithstanding the default by the other Investors but no
default by only one of the Investors (not being a Fund)
shall excuse the Funds from the performance of the Funds'
and the non-defaulting Investor's (not being a Fund)
obligations hereunder and Completion so effected shall, for
the avoidance of doubt, in no way affect the obligations and
the undertakings of the parties contained herein.
(b) MC Partners shall not be obliged to subscribe for such
Debentures as set out against its name in sub-Clause 2.1 if
the subscription by the Funds for the Debentures against the
Funds' names is not completed simultaneously.
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If the Funds shall fail to complete the subscription of the
Debentures pursuant to sub-Clause 2.1, MC Partners shall be
entitled, at its absolute discretion, to subscribe for the
Debentures that would have been subscribed by the Funds
pursuant to sub-Clause 2.1 but for the Funds' default and
the Company shall be obliged to complete the issue of such
Debentures to MC Partners pursuant to the terms and
provisions of this Agreement if MC Partners so elect.
3. CONDITIONS PRECEDENT
--------------------
3.1 The following are conditions precedent to Completion:-
(a) a legal opinion shall have been obtained from the US
lawyers, Messrs. Loeb & Loeb, to the satisfaction of the
Majority Investors confirming (i) that no approvals or
consents need to be applied for from any US authorities,
bodies, governmental agencies or institutions in relation to
the issue of the Debentures; (ii) that each of SAI and SPC
has the power, capacity and authority to issue the
Conversion Shares, to enter into this Agreement and the
Guarantee and that in doing so it shall not have breached
any laws (federal or state), regulations or contractual
obligations; (iii) that (subject to approval being obtained
on the listing of the Conversion Shares) the issue and
allotment of the Conversion Shares will not be in breach of
any regulations, codes or laws (federal or state); (iv) that
save as mentioned there are no other approvals or consents
that need to be applied for or obtained from any US
authorities (federal or state) in connection with the
transactions or matters contemplated hereunder; (v) that the
share structure and other corporate details as contained in
Schedule 1 hereof are accurate and correct and not in any
way misleading; and (vi) that there are nothing the Majority
Investors ought to be aware of or ought to be brought to
their attention in relation thereto in order to effect the
issue of the Conversion Shares or to maintain or effect the
legality, validity and enforceability of this Agreement, the
Debenture and the Guarantee against SAI or SPC;
(b) (if applicable) relevant approval from the Bermuda Monetary
Authority shall have been obtained;
(c) (if applicable) such employment contracts with the key
management of the SAI Group shall have been entered upon
such terms to the satisfaction of the Funds; and
(d) (if applicable) such management agreements or other
agreements as shall be required by the Funds shall have been
entered into or such acts or
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deeds as shall be required by the Funds shall have been
performed to the Funds' satisfaction in order to enable the
subscription hereunder to qualify as a VCOC qualifying
investment;
3.2 If the Conditions Precedent are not fulfilled on or before the
Long Stop Date, this Agreement (save for Clauses 1, 12 to 17 and
this Clause 3) will lapse and become null and void and the
parties will be released from all obligations hereunder (save for
Clauses 1, 12 to 17 and this Clause 3), save for any liabilities
for any antecedent breaches hereof.
4. COMPLETION
----------
Subject to fulfilment of the Conditions Precedent, Completion shall
take place on the Completion Date and each party referred to below
shall perform its respective obligations as follows:-
4.1 The Company shall:
(a) (if required by the Investors) deliver evidence in a form
reasonably satisfactory to the Majority Investors that the
Conditions Precedent referred to in Clause 3 hereof have
been duly satisfied and fully complied with (unless
otherwise waived by the Majority Investors);
(b) deliver to the Investors a certified copy of the Board
resolution of the Company approving and authorising
execution and completion of this Agreement and the issue of
the Debenture and the Certificate upon the terms and subject
to the Conditions contained herein;
(c) deliver to the Investors a certified copy of the Board
resolution of SAI (i) approving and authorising execution
and completion of this Agreement; (ii) the issue of the
Debenture and Certificate by the Company upon the terms and
subject to the conditions; (iii) approving and authorising
the execution of the Guarantee; (iv) approving the issuance
of the Conversion Shares upon conversion of the Debenture;
and (v) resolving to effect and do all that is necessary to
give effect to the Agreement, the Debenture, the Guarantee
and the conversion under the Debentures;
(d) deliver to the Investors a certified copy of Board
resolution from each of CIBHL and SPC in each case approving
and authorising the execution and completion of this
Agreement and the Guarantee and resolving to effect and do
all that is necessary to give effect to the Agreement, the
Debenture, the Guarantee and the conversion under the
Debentures;
8
(e) deliver to the Investors, a certified copy of Board
resolution from ACL approving and authorising the execution
and completion of this Agreement and the ACL Undertaking and
resolving to effect and do all that is necessary to give
effect to the Agreement, the Debenture and the ACL
Undertaking; and
(f) (against reasonable evidence that the monies referred in 4.2
below having been received from the Investors by the
Company) deliver to each of the Investors (or to such
persons at such place as the relevant Investor may direct) a
Certificate or Certificates duly issued for the amount
representing the subscription in favour of the relevant
Investor (or its nominee).
4.2 At Completion, each of the Investors shall:
(a) deliver to the Company evidence in a form reasonably
satisfactory to the Company of its authority for the
execution of this Agreement and the subscription of the
Debentures thereunder; and
(b) pay to the Company or as the Company may direct such amount
of relevant subscription monies.
4.3 SAI and CIBHL shall enter into the Guarantee in the form or
substantially the same form as set out in Schedule 4 hereof.
4.4 ACL shall enter into the ACL Undertaking in the form or
substantially the same form as set out in Schedule 7 hereof.
4.5 All the obligations described herein are inter- conditional and
none of the transactions shall be completed unless all of them
are completed at Completion. Subject to Clause 2.3, none of the
parties shall be obliged to complete this Agreement unless the
other parties complies fully with their obligations hereunder.
Without Prejudice to Clause 2.3, to the extent that the
obligations of any parties hereto are not fully complied with at
Completion, the other parties not in default may defer Completion
to another day or proceed to Completion as far as practicable
(without limiting its rights under this Agreement) or treat this
Agreement as terminated for breach of a condition.
5. REPRESENTATIONS AND WARRANTIES
5.1 Each of the Company, the Guarantors and ACL (collectively the
"WARRANTORS") hereby jointly and severally, represents, warrants
and undertakes to each of the Investors that each of the
Warranties is true and accurate in all material respects and not
misleading as at the date hereof and shall continue to be true
and accurate
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in all material respects and not misleading on each day hereafter
up to and including the Completion Date as if repeated on each
such day.
5.2 Each of the Warranties shall be construed as a separate and
independent warranty and (save where expressly provided to the
contrary) shall not be limited or restricted by reference to or
influence from any other term of this Agreement or any other
warranty.
5.3 If any party hereto fails to perform its obligations hereunder or
if any of the Warranties shall have been breached prior to
Completion then without prejudice to all and any rights or
remedies available to the non-defaulting party, it may by notice
either require the defaulting party to perform any of its
obligation on or prior to Completion or treat the defaulting
party as having repudiated this Agreement and rescind the same.
5.4 Each of the Warrantors represents and warrants that no offer to
sell the Securities (as defined in Clause 6) was made in the
United States nor did any member of the SAI Group or any of their
affiliates or any person acting on its or their behalf engage in
any directed selling efforts (as defined in Regulation S of the
Securities Act (as defined in Clause 6 below)) in the United
States of America with respect to the offer or sale of the
Securities (as defined in Clause 6).
6. REPRESENTATIONS BY EACH OF THE INVESTORS
----------------------------------------
Each of the Investors hereby represents and warrants that:
(a) it has full power and authority to enter into this Agreement.
This Agreement to which the Investor is a party constitutes the
Investor's valid and legally binding obligation, enforceable in
accordance with its terms except as may be limited by (i)
applicable bankruptcy, insolvency, reorganisation or other laws
of general application relating to or affecting the enforcement
of creditors' rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies;
(b) it is not a U.S. person (as defined in Regulation S under the
Securities Act of 1933, as amended (the "SECURITIES ACT")), was
not organised under the laws of any United States jurisdiction
and was not formed for the purpose of investing in securities not
registered under the Securities Act;
(c) at the time of execution of this Agreement, it was outside the
United States and the sale of the Debentures and the Conversion
Shares (collectively the "SECURITIES") has not been prearranged
with a buyer in the United States;
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(d) it is purchasing the Securities for its own account for
investment purposes and not for distribution;
(e) all subsequent offers and sales of the Securities (i) (if to be
made outside the United States) will be made in compliance with
Rule 903 or Rule 904 of Regulation S or (ii) will be made
pursuant to registration of the Securities under the Securities
Act, or (iii) will be made pursuant to an exemption from
registration and that there can be no assurance that it will be
able to rely on any such exemption;
(f) it understands that the Securities are being offered and sold to
it in reliance on specific provisions of federal and state laws
and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgements and
understandings of the Investor set forth herein in order to
determine the applicability of such provisions; and
(g) it acknowledges that the Securities have not been registered
under the Securities Act as at the date of this Agreement and for
a period of 40 days after Completion it will not offer, sell, or
deliver the Securities, directly or indirectly, in the United
States or to, or for the benefit or account of, U.S. persons
except pursuant to registration under the Securities Act or an
exemption from such registration. Terms used herein have the
meanings specified in Regulation S under the Securities Act.
7. SPECIFIC UNDERTAKINGS BY ACL
----------------------------
7.1 ACL hereby irrevocably and unconditionally undertakes that for so
long as any of the Debentures are outstanding, no amounts are to
be repaid in respect of the ACL Promissory Notes unless:
(a) there is sufficient positive operating cash flow for working
capital, debt repayment and capital expenditure for the
ensuing twelve- month period, such sufficiency to be
determined by the Majority Investors on the basis of the
cash flow forecast presented to it by ACL and/or SAI in the
format and substance satisfactory to the Majority Investors;
and
(b) the repayment is made in accordance with the following
schedule:
Payment Period Amount
-------------- ------
1st August, 1996 - 31st July, 1997 up to US$2,000,000 plus
accrued interest
1st August, 1997 - 31st July, 1998 up to US$1,500,000 plus
accrued interest
11
1st August, 1998 - 31st July, 1999up to US$1,500,000 plus
accrued interest
----------------------------------
Total: US$5,000,000 plus accrued interest
In the event of dispute as to the sufficiency of the operating
cash flow in (a) above, an independent merchant bank of repute or
an independent firm of international accountants mutually agreed
between ACL and the Majority Investors shall be appointed to
determine the sufficiency of such operating cash flow whose
decision shall be final and binding on the parties.
7.2 Each of ACL and SAI hereby undertakes that to the extent that any
terms contained in Clause 7.1 above should conflict with any
terms of the ACL Promissory Notes, the terms hereunder shall
prevail and the ACL Promissory Notes shall be deemed to have been
varied or modified to such extent so as to give effect to the
provisions hereunder. ACL and SAI shall do and perform all that
is necessary to give effect to this provision including the
execution of any deeds, document and supplemental agreements.
7.3 ACL hereby irrevocably and unconditionally undertakes to each of
the Investors that for so long as the Debenture is outstanding,
ACL shall not without the prior written approval of the Majority
Investors, exercise any Super-voting Rights attached to the
Series A Preferred Stock to which ACL is entitled.
7.4 ACL hereby unconditionally and irrevocably undertakes to each of
the Investors that for so long as any of the Debentures are
outstanding, ACL shall, directly or indirectly, remain the legal
and beneficial owner of not less than 51% of the Deemed Total
Issued Share Capital of SAI (as defined in sub- Clause 8.5(c))
and retain control over not less than 51% of the voting rights of
SAI (which for this purpose shall exclude Super-voting Rights but
shall include a substitution of 100,000 votes per Series A
Preferred Stock held for the purposes of calculation hereunder).
ACL further undertakes that (subject to sub-Clause 8.5 hereof) it
shall not sell, mortgage, pledge, charge, assign or otherwise
purport to deal with the beneficial interest therein or any right
in relation thereto (including voting rights) or create any lien
or encumbrance over the Shares and/or the voting rights attached
thereto.
8. FURTHER COVENANTS
-----------------
8.1 Representation
--------------
(a) Each of the Company and the Guarantors hereby undertakes to
appoint such person as shall be nominated by GML to each of
its respective Boards as a director.
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(b) SAI shall appoint such person as shall be nominated by GML
as a member of the audit committee of SAI.
(c) Each of the Company, the Guarantors and ACL shall procure
that such appointments referred to in (a) and (b) shall
continue for so long as any of the Debentures which are held
by GML remains outstanding.
8.2 Continuing obligations
----------------------
Each of the Company, the Guarantors and ACL hereby undertakes
that for so long as any of the Debentures remains outstanding:
(a) SAI shall and ACL shall procure that SAI shall convene a
meeting of its Board at least once every 3 months;
(b) SAI shall and ACL shall procure that SAI shall deliver to
each of the Investors a written agenda for each meeting of
the Board, specifying in reasonable detail the matters to be
raised at the meeting (together with a copy of the notice
for convening the meeting) not less than two (2) working
days before the date of the proposed meeting of the Board
and each of the Investors shall be entitled to attend, but
not to vote (unless if it is a director) at such meeting;
(c) the Company shall bear all costs and expenses associated
with or incurred in connection with attendances at such
meetings referred to at (a) above by any of the Investors;
(d) it shall prepare and provide or procure the preparation or
provision of annual audited financial statements of the SAI
Group to each of the Investors as soon as practicable after
the end of the relevant financial year but in any event no
later than 7 days after the filing of such audited financial
statements with the U.S. Securities and Exchange Commission,
such statements to be prepared in accordance with generally
accepted accounting principal and practices and audited by
internationally recognised independent firm of accountants
acceptable to the Majority Investors;
(e) it shall prepare and provide to each of the Investors or
procure such preparation or provision of quarterly
consolidated unaudited management accounts including
variance analysis of key financial data showing the
financial position and affairs of the SAI Group as soon as
practicable after the end of each quarter but in any event
no later than 7 days after the filing of such quarterly
accounts with the U.S. Securities and Exchange Commission or
in the case of the fourth (4th) quarter accounts no later
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than 60 days after the end of such quarter, such management
accounts to be in the same format as a Form 10-Q to be filed
with the U.S. Securities and Exchange Commission;
(f) it shall prepare and provide to each of the Investors or
procure such preparation or provision of monthly
consolidated management information of the SAI Group
including but not limited to critical financial data as soon
as practicable after the end of each month but in any event
no later than 30 days;
(g) it shall prepare and deliver or procure such preparation or
provision of to each of the Investors no later than the day
before the beginning of each financial year a proposed
annual operating business plan and budget in the form and
substance mutually agreed between SAI and the Majority
Investors for the forthcoming financial year;
(h) it shall allow any of the Investors, at the Investor's
expense, to visit and inspect the property and premises of
any member of the SAI Group at such reasonable time as may
be requested by the relevant Investors;
(i) it shall prepare and provide to each of the Investors or
procure such preparation or provision of copies of all
available financial statements, forecast and projection
approved by the Board of SAI and all notices, minutes, proxy
material, consents and other material provided to the Board
of SAI, copies of all filings made with the US Securities
and Exchange Commission and any other information relating
to the business or financial data of SAI and/or the Company
as the Investors may reasonably request;
(j) it shall procure and ensure that the subscription moneys
obtained by the Company from the subscription hereunder
shall only be used as working capital to expand the business
of the SAI Group and to repay existing debts and for no
other purposes;
(k) it shall ensure that all capital expenditure and related
party transactions concerning SAI and/or the Company which
require approvals from the respective Boards must first be
submitted to the Funds for consultation and discussion
before submission to the relevant Board for determination;
(l) it shall ensure that each of the Funds shall enjoy the
following management rights:
(i) the rights to be consulted and to give advice to the
management in respect of any relevant material
development affecting any business
14
of any member of the SAI Group; to discuss the
business operations, property and financial or other
conditions of any member of the SAI Group with its
respective officers, employees and directors; the
rights to be consulted with or to give advice to the
management on significant business issues or meet
regularly with management during each year for such
consultation and advice;
(ii) the rights to inspect the books and records of SAI
and appoint a qualified accountant to inspect SAI's
accounting records at such reasonable time and as
often as the Funds may reasonably request.
(m) it shall notify each of the Investors promptly and without
any delay after the happening of any events or changes that
has a material adverse impact on the business, affairs,
prospects, operations, properties, assets or condition of
any member of the SAI Group or on ACL as the case may be;
(n) it shall maintain the authorisation of the quotation of the
Shares on NASDAQ and ensure that Conversion Shares to be
issued will be authorised for quotation on NASDAQ.
8.3 Undertakings
------------
Each of the Company, the Guarantors and ACL hereby further
undertakes and agrees that it shall procure that no member
of the SAI Group shall at any time and for so long as any of
the Debentures remains outstanding (including the exercise
of all such voting powers and control it has, directly or
indirectly over the members of the SAI Group), save with the
prior written approval from each of the Funds:
(a) make any changes to its capital structure or make any
issues, sell or offer any Securities (as defined below) or
any rights to subscribe for Securities whatsoever (except
options or warrants already issued prior to the date of this
Agreement as set out in Part III of Schedule I and Schedule
5 hereof); or
(b) make any amendment to its memorandum and articles of
association or equivalent constitutive documents; or
(c) effect any merger, reconstruction or amalgamation with any
other entity or undertaking; or
15
(d) effect any consolidation of all or any of its shares into
shares of larger amount or sub-divide all or any of the
shares into smaller amounts; or
(e) vary, modify or abrogate any of the rights attaching to any
of the Shares or redeem, purchase or cancel all or any of
such Shares.
For purpose of this sub-Clause, "SECURITIES" means any shares,
stocks, debentures, loan stocks, funds, bonds or notes (excluding
bank borrowings in the ordinary course of conducting the bearing
business) of or issued by any of member of the SAI Group and
includes (i) all rights, options or interest in or in respect of
the foregoing (ii) certificate of interest or participation in or
temporary or interim certificate for, receipt for, or warrants
(including covered warrants) to subscribe to or purchase any of
the foregoing, and (iii) index-linked instruments, future
contracts or any other instruments commonly known as securities.
8.4 Right of First Refusal
----------------------
(a) Each of the Company, the Guarantors and ACL hereby
agrees that it shall exercise all such voting powers
and control it has, directly or indirectly over the
members of the SAI Group to procure that for so long as
the Funds shall hold in aggregate more than 50% of the
total principal amount of the Debentures outstanding if
any of the Securities were offered with the approval
from the Funds pursuant to Clause 8.3 hereof, such
Securities (as defined in sub- Clause 8.3) shall first
be offered to each of the Funds by the relevant company
in the SAI Group prior to the offer of any of such
Securities to any other persons ("FIRST REFUSAL RIGHT")
and if such offer is proposed for the first time since
the date of this Agreement, in such manner as specified
in sub-Clause 8.4(b) hereof.
(b) The Securities shall first be offered to MC Partners who
shall promptly notify the Funds of the terms of such offer
and the details in relation thereto. MC Partners shall
discuss with the Funds as to the level of their respective
participations, it being understood that each of the Funds
shall be entitled to participate in full or in such
proportions it shall determine by virtue of the First
Refusal Right granted to it under sub-Clause 8.4(a) hereof.
8.5 Negative Pledge
---------------
(a) Without prejudice to sub-Clause 8.3 and Clause 11, for so
long as any Debentures remains outstanding SAI, CIBHL, SPC
and the Company hereby jointly and severally undertakes :-
16
(i) that none of the members of the SAI Group will create
or permit to subsist any Security Interest (as
defined below) for the benefit of the holders of any
Securities (as defined in sub-Clause 8.3) upon the
whole or any part of its property or assets, present
or future, including for the purposes of securing (i)
payment of any sum due (ii) any payment under any
guarantee or (iii) any indemnity or other like
obligation;
(ii) that no other person (and it shall procure that no
other person shall) create or permit to exist any
Security Interest upon the whole or any part of the
property or assets, present or future, of that other
person to secure (i) any Securities (as defined in
sub-Clause 8.3) of any member of the SAI Group or
(ii) any guarantee of or indemnity in respect of any
member of the SAI Group; and
(iii) to procure that no person, other than SAI, CIBHL, SPC
or the Company, gives any guarantee of or indemnity
in respect of the Securities of any member of the SAI
Group.
(b) Without prejudice to sub-Clause 8.3 or of any of the
foregoing, for so long as any of the Debentures remains
outstanding, ACL undertakes that it shall not create or
permit to subsist any Securities Interest (as defined below)
upon the whole or any part of its property or assets,
present or future, including for the purposes of securing
(i) payment of any sum due (ii) any payment under any
guarantee or (iii) any indemnity or other like obligation
unless:
(i) such Securities Interest is created in favour of a
financial institution independent of and not
connected with ACL or any member of the SAI Group on
the one hand and any of the Majority Investors on the
other hand;
(ii) subject always to Clause 7.4 hereof, in relation to
the creation of Securities Interest over any of the
Shares held by ACL directly or indirectly, such
Securities Interest created shall not result in ACL
holding less than 35 per cent. of the Deemed Total
Issued Share Capital of SAI (as defined below) free
from all Securities Interest; and
(iii) ACL shall notify promptly the Majority Investors
thereafter of such creation.
(c) For the purpose of this sub-Clause 8.5, the following words
shall have the following meanings:
17
"SECURITY INTEREST" means any pledge, mortgage, lien,
charge, hypothecation, encumbrance or other security
interest.
"DEEMED TOTAL ISSUED SHARE CAPITAL OF SAI" means the total
Share capital of SAI deemed to be in issue which for this
purpose, shall be the then actual existing total issued
Share capital of SAI and (if any Series A Preferred Stock or
Series B Preferred Stock is left outstanding) that number of
Shares that would have been issued in respect of Series A
Preferred Stock and Series B Preferred Stock had the same
been all converted immediately prior to the relevant date
under consideration as if such Shares form part of the
enlarged issued Share capital of SAI in aggregate.
8.6 Registration
------------
Each of SAI and the Company hereby covenants, undertakes and
agrees with the Investors that each Investor shall, if it is
deemed to be an "AFFILIATE" under the U.S. Securities Act of 1933
of SAI (which interpretation shall be determined by a U.S. law
firm to be agreed between the Funds and SAI or the Securities and
Exchange Commission as the case may be), have the right to
require SAI and/or the Company to file a registration statement
under the Securities Act for a public offering / resale of all or
any number of Conversion Shares held by the Investor upon
conversion of any of the Debentures, such rights to be
exercisable by the delivery of a written notice to SAI and/or the
Company (the "NOTICE") specifying in detail the number of
Conversion Shares required to be made the subject of the
registration, the identity of the Investor and the intended
method of resale of the Conversion Shares and SAI and/or the
Company shall take all reasonable steps to commence the procedure
for such filing within five (5) Business Days of receipt of the
Notice.
8.7 Schedule 13D filing
-------------------
Each of ACL, SAI and the Company hereby jointly and severally
agrees to assist HPEM, GML and (if required) WCIT in filing
Schedule 13D as soon as practicable after Completion and in any
event no later than seven (7) days after the Completion Date.
9. SPECIFIC UNDERTAKINGS BY SAI
----------------------------
9.1 SAI shall issue the Shares upon conversion by the
Debentureholders pursuant to the terms of this Agreement and that
of the Debentures and shall further keep available for issue,
free from pre- emptive rights, out of its authorised but unissued
capital sufficient Shares to satisfy in full the Conversion
Rights and all
18
other rights for the time being outstanding of subscription for
and conversion into Shares.
9.2 SAI shall not in any way modify the rights attached to the Shares
as a class or attach any special restrictions thereto except with
the prior written consent from the Funds.
9.3 SAI shall procure that at no time shall there be an issue of
Shares of differing nominal value except with the prior written
consent from the Funds.
9.4 SAI shall use its best endeavours (i) to maintain the
authorisation of the quotation of all the issued Shares on
NASDAQ; (ii) to obtain and maintain the authorisation of the
quotation on NASDAQ (or a listing on an alternative stock
exchange approved by the Funds) for all the Shares issued on the
exercise of the Conversion Rights attaching to the Debenture.
9.5 SAI shall provide the Debentureholder with a copy of its annual
reports, annual financial statements, interim reports and all
other statements and circulars sent by SAI to its shareholders
within fourteen days after SAI sends the same to its
shareholders.
9.6 SAI shall ensure that all Shares issued upon conversion of the
Debenture will be duly and validly issued, fully paid and non-
assessable and will not be subject to pre-emptive rights.
10. SPECIFIC UNDERTAKING BY SPC
---------------------------
SPC hereby undertakes that it shall and SAI hereby undertakes
that it shall procure SPC shall within 10 Business Days following
the first to occur of (a) the repayment in full of all sums due
and owing to Foothill Capital Corporation under a Security
Agreement dated as 17 March, 1995 between SPC and Foothill
Capital Corporation and (b) 31 December 1996 (or such other date
as shall be determined by the Majority Investors provided that
all the Investors shall first have given their prior written
consent to the alteration of this date), execute and deliver to
the Investors the Guarantee in substantially the form attached
hereto as Schedule 4 (to apply mutatis mutandis). For the
avoidance of doubt failure by SPC to sign the Guarantee pursuant
to this Clause shall constitute an Event of Default.
11. CORPORATE GOVERNANCE
--------------------
Unless the prior written approval from the Funds have been
obtained, each of the Company, the Guarantors and ACL undertakes
that it shall and shall procure that
19
each of them shall exercise all such voting rights and other
powers of control as is or shall be available to them to procure
that no member in the SAI Group shall:-
(a) acquire assets in excess of US$3,000,000;
(b) borrow, lend or give any guarantee of any amount greater
than US$3,000,000;
(c) sell assets having a fair market value in excess of
US$3,000,000;
(d) make dividend payments in excess of twenty percent (20%) of
SAI's Audited Earnings per Share ("EPS") for the relevant
financial year. For this purpose, EPS shall mean audited
earnings for the year minus or add back extraordinary items
as defined under International Accounting Standard IAS8 and
adding back interest expenses on the Debenture divided by
the total weighted average number of Shares outstanding on a
fully diluted basis (including the number of Shares that
would have been issued had all the Debentures then
outstanding been converted);
(e) give any charge, mortgage, pledge or other security interest
in excess of US$3,000,000;
(f) enter into any related party transaction which itself
exceeds or enter into any related party transactions in any
12-month period which when taken together exceeds
US$1,000,000 except where such transaction is a normal
commercial arms length transaction entered into in the
ordinary course of the SAI Group's business of the
manufacturing and sales of bearing products;
(g) allow any of the events referred to in this Clause (a) to
(e) above to occur if such event will involve such an amount
or value (notwithstanding such amount may or may not exceed
the relevant limit specified for that event under this
Clause (a) to (e) hereof) when added to the existing
cumulative total of the value of that event occurring in the
preceding 12 months will take the overall cumulative total
over 15% of the net asset value of SAI as shown in the
latest audited consolidated accounts of SAI.
12. NOTICES
-------
Any notice required or permitted to be given by or under this
Agreement shall be in writing and shall be given by delivering it
to the address or facsimile number of the relevant party
connected shown below:-
20
THE COMPANY : c/o China International Bearing Holdings
Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
SAI : c/o China International Bearing Holdings
Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
SPC : c/o China International Bearing Holdings
Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293 ATTN.:
Mr. Billy Kan / Mr. Roger Li
ACL : c/o China International Bearing Holdings
Limited
19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
CIBHL : 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
GML : c/o HPEM, 10th Floor, Citibank Tower,
3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
WCIT : c/o HPEM, 10th Floor, Citibank Tower,
3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
21
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
MC PARTNERS : c/o MC Capital Asia Pte Limited
Unit No. 1002 C/D 10th Floor,
Tower 1, Admiralty Centre,
10 Harcourt Road, Hong Kong
Tel: (852) 2866 3393
Fax: (852) 2866 2693
ATTN.: MR. YUJI KOMIYA/MR. TATSUYA
KUROYANAGI
CI 2000 : c/o Banque Worms, Hong Kong Branch
39th Floor, Central Plaza
18 Harbour Road, Hong Kong
Tel: (852) 2802 8382
Fax: (852) 2802 8065
ATTN.: MR. FABRICE JACOB/MR. ANTOINE
FOSSORIER
or to such other address or facsimile number at the party
concerned may have been notified to the other party pursuant to
this Clause and may be given by sending it by hand to such
address or by facsimile transmission to such facsimile number, or
to such other address or facsimile number as the party concerned
may have notified to the other party in accordance with this
Clause. Such notice shall be deemed to be served on the day of
delivery or facsimile transmission (or, if the day of delivery or
transmission is not a Business Day or if the delivery or
transmission is made after 5:00 p.m. Hong Kong time, deemed to be
served on the immediately following Business Day), or if sooner
upon acknowledgement of receipt by or on behalf of the party to
which it is addressed.
13. COSTS AND EXPENSES
------------------
The legal costs incurred by the Funds in connection with the
preparation and negotiation of this Agreement shall be borne by
the Company.
14. GOVERNING LAW AND JURISDICTION
------------------------------
14.1 This Agreement shall be governed by and construed in accordance
with the laws of Hong Kong and each party hereby submits to the
non-exclusive jurisdiction of the courts of Hong Kong as regards
any claim or matter arising under this Agreement.
14.2 Each of the parties hereto irrevocably agrees for the benefit of
each of the Investors that the courts of Hong Kong shall have
jurisdiction to hear and
22
determine any suit, action or proceeding, and to settle any
disputes, which may arise out of or in connection with this
Agreement and, for such purposes, irrevocably submits to the
jurisdiction of such courts.
14.3 Each of the parties hereto irrevocably waives any objection it
might now or hereinafter have to the courts referred to in sub-
Clause 14.1 above nominated as the forum to hear and determine
any suit, action or proceeding, and to settle any disputes, which
may arise out of or in connection with this Agreement and agrees
not to claim that any such courts is not a convenient or
appropriate forum.
14.4 Each of the Company, SAI, ACL and SPC hereby irrevocably appoints
CIBHL (details of which are set out below) and CIBHL hereby
accepts such appointment as each of their process agent to
receive and acknowledge on its behalf service of any writ,
summons, order, judgement or other notice of legal process in
Hong Kong. Each of GML, WCIT, MC Partners and CI 2000 also hereby
irrevocably appoints the persons set out against its name below
to be its process agent:-
Company : China International Bearing Holdings Limited
------- 19th Floor, First Pacific Bank Centre,
1-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
SAI : China International Bearing Holdings Limited
--- 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
ACL : China International Bearing Holdings Limited
--- 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
SPC : China International Bearing Holdings Limited
--- 19th Floor, First Pacific Bank Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
ATTN.: MR. BILLY KAN / MR. ROGER LI
23
GML : HPEM, 10th Floor, Citibank Tower,
--- 3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
WCIT : HPEM, 10th Floor, Citibank Tower,
---- 3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
MC Partners : MC Capital Asia Pte Limited
----------- Unit No. 1002 C/D 10th Floor,
Tower 1, Admiralty Centre,
10 Harcourt Road, Hong Kong
Tel: (852) 2866 3393
Fax: (852) 2866 2693
ATTN.: MR. YUJI KOMIYA/MR. TATSUYA KUROYANAGI
CI 2000 : Banque Worms, Hong Kong Branch
------- 39th Floor, Central Plaza
18 Harbour Road, Hong Kong
Tel: (852) 2802 8382
Fax: (852) 2802 8065
ATTN.: MR. FABRICE JACOB/MR. ANTOINE FOSSORIE
14.5 Each of the parties hereby consent generally in respect of any
legal action or proceeding arise out of or in connection with
this Agreement to the giving of any relief or any issue of any
process in connection with such action or proceeding including,
without limitation, the making, enforcement or execution against
any property whatsoever (irrespective of its use or intended use)
of any order or judgement which may be made or given in such
action or proceeding.
15. ANNOUNCEMENTS AND CONFIDENTIALITY
---------------------------------
15.1 Subject to sub-Clause 15.2 below, no announcement or disclosure
concerning the Agreement or any ancillary matter nor concerning
any information of a confidential or proprietary nature of ACL or
any member of the SAI Group shall be made by any parties hereto
without the prior written approval of the other parties, any such
approval not to be unreasonably withheld or delayed.
24
15.2 Either party may disclose information concerning this Agreement
or any ancillary matter which would otherwise be confidential if
and to the extent:
(i) required by the law of any relevant jurisdiction;
(ii) required by existing contractual obligations;
(iii) required by any securities exchange or regulatory or
governmental body to which either party is subject or
submits, wherever situated, whether or not the requirement
for information has the force of law;
(iv) required to vest the full benefit of the Agreement in the
other either parties;
(v) disclosed to the professional advisors, auditors and
bankers of each party;
(vi) the information has come into the public domain through no
fault of that party; or
(vii) the other party has given prior written approval to the
disclosure, such approval not to be unreasonably withheld
or delayed
in which case the party concerned shall take all such steps as
may be reasonable and practicable in the circumstances to agree
the contents of such announcement with the other parties before
making such announcement PROVIDED THAT any such announcement
shall be made only after consultation with or notice to the other
party.
15.3 Subject to sub-Clause 15.2, each party shall treat as strictly
confidential all information received or obtained as a result of
entering into or performing the Agreement which relates to the
provisions of the Agreement, the negotiations relating to the
Agreement, the subject matter of the Agreement or the other
parties.
15.4 Notwithstanding any termination of this Agreement, the
restrictions contained in this Clause shall continue to apply
after such termination for a period of five years thereafter.
16. GENERAL PROVISIONS
------------------
16.1 As regards any date or period time shall be of the essence of
this Agreement.
25
16.2 This Agreement shall be binding on and enure for the benefit of
the successors of each of the parties and shall not be
assignable.
16.3 The exercise of or failure to exercise any right to remedy in
respect of any breach of this Agreement shall not, save as
provided herein, constitute a waiver by such party of any other
right or remedy it may have in respect of that breach.
16.4 Any right or remedy conferred by this Agreement on any party for
breach of this Agreement (including without limitation the breach
of any representations and warranties) shall be in addition and
without prejudice to all other rights and remedies available to
it in respect of that breach.
16.5 This Agreement constitutes the entire agreement between the
parties with respect to its subject matter (neither party having
relied on any representation or warranty made by the other party
which is not contained in this Agreement) and no variation of
this Agreement shall be effective unless made in writing and
signed by all of the parties.
16.6 This Agreement supersedes all and any previous agreements,
arrangement or understanding between the parties relating to the
matters referred to in this Agreement and all such previous
agreements, understanding or arrangements (if any) shall cease
and determine with effect from this date hereof.
16.7 If at any time any provision of this Agreement is or becomes
illegal, void or unenforceable in any respect, the remaining
provisions hereof shall in no way be affected or impaired
thereby.
17. COUNTERPARTS
------------
This Agreement may be executed by the parties hereto in any
number of counterparts and on separate counterparts, each of
which when so executed shall be deemed an original but all of
which shall constitute one and the same instrument and is binding
on all parties.
AS WITNESS whereof this Agreement has been duly executed on the date
first above written.
26
SCHEDULE 1
----------------------------------
PART I
--------------------------------
I. CORPORATE CHART
---------------
[CORPORATE CHART APPEARS HERE]
* Subject to qualification contained in Clause 4.2 of Schedule 3
27
II. OTHER CORPORATE DETAILS
SUNBASE ASIA, INC.
------------------
Date of Incorporation : 21st September, 1994
Place of Incorporation : State of Nevada, United States
Registered Office : 1280 Terminal Way,
Suite 3, Reno,
Nevada 89502,
United States
Registered Number : 14740-94
Authorised Share Capital : COMMON:
-------
50,000,000 shares of US$0.001 each
PREFERRED:
----------
25,000,000 shares of US$0.001 each
Issued Share Capital : COMMON:
-------
12,711,104 shares of US$0.001 each
PREFERRED:
----------
Series A Preferred Stock
------------------------
36 shares
Series B Preferred Stock
------------------------
6,800 shares
Shareholders : Asean Capital Ltd. : 80.69%
Public: 19.31%
Directors : Gunter Gao
Billy Kan
William Mckay
Roger Li Yuen Fai
Linda Yang
Franco Ho Cho Hing
Philip Yuen
Secretary : Davis Lai Kwun Fai
28
CHINA BEARING HOLDINGS LIMITED
------------------------------
Date of Incorporation : 10th January, 1994
Place of Incorporation : Bermuda
Registered Office : Cedar House,
41 Cedar Avenue,
Hamilton HM 12,
Bermuda
Registered Number : N/A
Authorised Share Capital : 1,200,000 shares of US$0.01 each
Issued Share Capital : 1,200,000 shares of US$0.01 each
Shareholders : 100% held by Sunbase Asia
Directors : Gunter Gao
Linda Yang
Peter Bubenzer
Judith Collis
Billy Kan
Roger Li
Secretary : Linda Yang
29
CHINA INTERNATIONAL BEARING (HOLDINGS) LIMITED
----------------------------------------------
Date of Incorporation : 23rd June, 1993
Place of Incorporation : Hong Kong
Registered Office : 19th Floor, First Pacific Bank
Centre 51-57 Gloucester Road
Wanchai, Hong Kong
Registered Number : 429038
Authorised Share Capital : HK$10,000
Issued Share Capital : 2 shares of HK$1.00 each
Shareholders : 100% held by China Bearing
Holdings Limited
Directors : Gunter Gao
Linda Yang
Billy Kan
Roger Li
Secretary : Astrine Limited
30
HARBIN SUNBASE DEVELOPMENT COMPANY LIMITED
------------------------------------------
Date of Incorporation : 28th January, 1993
Place of Incorporation : China
Registered Office : 158 Zhong Shan Road,
Harbin, China
Registered Number : (1993) 539
Authorised Capital : RMB50,000,000
Capital Contribution : RMB50,000,000
Shareholders : China International Bearing
(Holdings) Limited: 99%
Harbin Hazhou Bearing
Distributing Company : 1%
Directors : Gunter Gao
Linda Yang
Roger Li Yuen Fai
Peter Lam Chi Keong
Davis Lai Kwun Fai
Bi Qiu-Yuan
Mok Chei Wai
Secretary : N/A
31
HARBIN XINHENGLI DEVELOPMENT CO. LTD.
-------------------------------------
Date of Incorporation : 18th September, 1993
Place of Incorporation : China
Registered Office : 160 Zhong Shan Road,
Harbin, China
Registered Number : Harbin BR711
Authorised Capital : RMB50,000,000
Capital Contribution : RMB50,000,000
Shareholders : China International Bearing (Holdings)
Limited: 99.9% Harbin Everising
Construction and Development Co. Ltd.:
1%
Directors : Gunter Gao
Linda Yang
Davis Lai Kwun Fai
Liu Guang Zhi
Mok Chei Wai
Secretary : N/A
32
HARBIN BEARING COMPANY LIMITED
--------------------------------------------
Date of Incorporation : 28th December, 1993
Place of Incorporation : China
Registered Office : 14 Hongqi Street,
Harbin, China
Registered Number : 12802473-0
Authorised Capital : RMB300,000,000
Capital Contribution : RMB300,000,000
Shareholders : Harbin Xinhengli Development
Co. Ltd. 41.57%
Harbin Sunbase Development Co. Ltd.
10%
Harbin Bearing Holdings Company:
33.33%
Employees: 15%
Harbin Xin Da Di Electrical Machinery
Equipment Company: 0.1%
Directors : Gunter Gao
Linda Yang
Lai Kwun Fai
Ma Ji Bo
Shun Hong Bin
Zhang Zheng Bin
An Fong Ming
Ye Ruan
Mok Chei Wai
Secretary : N/A
33
SMITH ACQUISITION COMPANY, INC. DBA
-----------------------------------
SOUTHWEST PRODUCTS COMPANY
--------------------------
Date of
Incorporation : 20th March, 1990
Place of
Incorporation : State of California,
United States
Registered
Office : 2240 Buena Vista,
Irwindale, CA 91706,
United States
Registered
Number : 3855488-7
Authorised
Capital : Share Common:
10,000,000 shares of US$0.01 each
Preferred : 4,000,000 shares with no par value
Issued Share
Capital : Common:
US$3,400,000
Shareholders : 100% held by Sunbase Asia
Directors : Billy Kan
Roger Li
William R. Mckay
Dickens Chang
Peter Lam Chi Keong
Secretary : William R. Mckay
34
SHANGHAI SOUTHWEST BEARING COMPANY
----------------------------------
Date of
Incorporation : 2nd August, 1994
Place of
Incorporation : China
Registered
Office : 937 Zhongshan Nan Yi Road
Shanghai, China
Registered
Number : Shanghai BR5202
Authorised
Capital : US$3,600,000
Capital
Contribution : US$3,600,000
Shareholders
Factory: : Shanghai Hongxing Bearing
72.22%
Southwest Products
Company:
27.78%
Directors : Yang Shu Jie
: (others to be appointed later) (Note:
according to Joint Venture agreement, 4
directors are nominated from Shanghai
Hongxing and 2 directors are nominated
from Southwest Products)
Secretary : N/A
35
PART III
--------
STATUS AND CHARACTERISTICS OF THE SECURITIES ISSUED BY SAI
----------------------------------------------------------
1. SERIES A WARRANTS
-----------------
SAI has outstanding an aggregate of 10,392,167 Series A Warrants
(the "WARRANTS") to acquire an aggregate of 148,459.52 shares of
SAI Common Stock. The Warrants expire on June 30, 1998. For each
share of Common Stock to be purchased, the holder is required to
deliver 70 Warrants together with an exercise price per share of
Common Stock of $175.00.
2 SERIES A PREFERRED STOCK
------------------------
The holders of the Series A Preferred Stock have the right to
convert each share of the Series A Preferred Stock into 100,000
shares of Common Stock.
3. SERIES B PREFERRED STOCK
------------------------
To the extent that the holders do not elect to redeem the shares
of Series B Preferred Stock in connection with a public offering
of SAI Common Stock, the Series B Preferred Stock is convertible
into Common Stock on the basis of 100 shares of Common Stock for
each share of Series B Preferred Stock. If, by the date which is
two years after the date on which the shares of Series B
Preferred Stock are distributed to the holders, such holders have
not been able to redeem their shares because SAI has not made a
public offering as specified, the Series B Preferred Stock will
be automatically converted into shares of Common Stock on the
following basis: On the first business day following the
expiration of the two year period, each share is to be
automatically converted into that number of shares of Common
Stock that equals $500.00 divided by the lesser of $5.00 or the
average closing price of SAI Common Stock computed by taking the
then most recent 60 consecutive trading days when SAI Common
Stock is traded at a minimum volume of 2,000 shares per day for
45 of those 60 consecutive trading days.
36
SCHEDULE 2
----------
FORM OF CERTIFICATE
-------------------
[ ] HOLDINGS LIMITED
(INCORPORATED IN BERMUDA WITH LIMITED LIABILITY)
[US$ ] CONVERTIBLE DEBENTURE
Issued pursuant to the Memorandum of Association and Bye-laws of [_]
Holdings Limited and a resolution of its Board of Directors passed on
[_], 199[_].
THIS IS TO CERTIFY that [_] whose registered office is situate at [_]
is the registered holder (the "DEBENTUREHOLDER") of the above-
mentioned Convertible Debenture (the "DEBENTURE"). The Debenture is
issued with the benefit of and subject to the terms and conditions
attached hereto which shall form an integral part of this Certificate.
GIVEN under the Seal of [_] Holdings Limited this day of
_____________, 199[_].
__________________________________________
Director
__________________________________________
Secretary / Director
The Debenture cannot be transferred to bearer on delivery and is only
transferable to the extent permitted by Condition 4 of the terms and
conditions thereof. This Certificate must be delivered to the
secretary of [_] Holdings Limited for cancellation and reissue of an
appropriate certificate in the event of any such transfer.
The Debenture has not been registered under the U.S. Securities Act of
1933, as amended (the "SECURITIES ACT"), and may not be exercised by
or on behalf of U.S. persons unless registered or an exemption from
registration is available.
37
TERMS AND CONDITIONS OF THE DEBENTURES
--------------------------------------
The Debenture shall be held subject to and with the benefit of the
terms and conditions set out below. Expressions defined in the
Subscription Agreement dated [ ], 199[6] (the "SUBSCRIPTION
AGREEMENT") between Asean Capital Limited, China International Bearing
Holdings Limited, Sunbase Asia, Inc., Smith Acquisition Company, Inc.,
Glory Mansion Limited, Wardley China Investment Trust, MC Partners
Asia Limited, Chine Investissement 2000 and China Bearing Holdings
Limited (the "COMPANY") relating to the Debenture shall bear the same
meaning in this Certificate.
1. PERIOD
------
Subject as provided herein, the outstanding principal amount of
the Debentures shall be converted into Shares and/or shall be
repaid subject to and in accordance with the terms of the
Debentures on the third anniversary of the date of issue of the
Debentures (the "MATURITY DATE").
2. STATUS, FORM, DENOMINATION AND TITLE
------------------------------------
(A) STATUS
The obligations of the Company arising under the Debentures
constitute general, unsecured obligations of the Company and
rank, and will rank equally among themselves and pari passu with
all other present and future unsecured and unsubordinated
obligations of the Company except for obligations accorded
preference by mandatory provisions of applicable law. No
application will be made for a listing of the Debentures.
(B) FORM AND DENOMINATION
The Debentures are issued in registered form in the denomination
of US$250,000 each. Debenture certificate(s) (each a
"CERTIFICATE") will be issued to each Debentureholder in respect
of its registered holding(s) of Debenture(s). Each Debenture and
each Certificate will be numbered serially with an identifying
number which will be recorded on the relevant Certificate and in
the register of Debentureholder kept by the Company.
(C) TITLE
Title to the Debentures passes only by registration in the
register of Debentureholders. The holder of any Debenture will
(except as otherwise required by law) be treated as its absolute
owner for all purposes (whether or not it is overdue and
regardless of any notice of ownership, trust or any interest in
it or
38
any writing on, or the theft or loss of, the Certificate issued
in respect of it) and no person will be liable for so treating
the holder.
3. NEGATIVE PLEDGE
---------------
The Company, SAI, CIBHL, SPC and ACL have given in the
Subscription Agreement certain negative pledges over creation of
Securities Interest (as defined in the Subscription Agreement)
for so long as any of the Debentures remains outstanding.
4. TRANSFERS OF DEBENTURES; ISSUE OF CERTIFICATES
----------------------------------------------
(A) TRANSFER
(i) No Debentures may be transferred by any Debentureholders
unless such transfer is in accordance with the provisions
of (A)(ii) below.
(ii) Debentures held by any of the Investors may be transferred
at any time provided that:
(a) such proposed transfer is in respect of half of or
the entire amount of the principal amount of the
Debentures then outstanding and held by that Investor
or in the case of the Investor being a Fund, the
Funds taken together in aggregate. No other transfer
of any other amounts shall be allowed unless with the
approval of the Company;
(b) the Certificate(s) evidencing the Debenture(s) with
the form of transfer duly completed and signed shall
have been lodged with the specified office of the
Company in accordance with the provisions at (iii)
below; and
(c) (in the event of a transfer by any of the Funds only)
if the proposed transfer is to a transferee outside
the HSBC Group (as defined below) such transfer must
specify that the transferee shall not have assigned
to it nor in any way enjoy or benefit from the
various rights relating to management hitherto
enjoyed by and granted to the Funds pursuant to the
Subscription agreement.
(iii) (a) the form of transfer shall be in a form previously
agreed between the Company and the Debentureholders
and shall be executed under the hand of the
transferor and the transferee (or their duly
authorised representatives) or, where either the
transferor or
39
transferee is a corporation, under its common seal
(if any) and under the hand of one of its officers
duly authorised in writing or otherwise executed by a
duly authorised officer thereof. In this Condition
"transferor" shall, where the context permits or
requires, include joint transferors or can be
construed accordingly.
(b) the Certificate of the Debenture must be delivered
for registration to the Company accompanied by (i) a
duly executed form of transfer; (ii) in the case of
the execution of a form of transfer on behalf of a
corporation by its officers, the authority of that
person or those persons to do so; (iii) such other
evidence as the Company may reasonably require if the
form of transfer is executed by some other person on
behalf of the Debentureholder; and (iv) such other
evidence as the Company may reasonably require to
support that the conditions and requirements of this
Condition are satisfied.
(iv) For so long as neither the Debentures nor the Conversion
Shares have been registered under The Securities Act of
1933 or under the securities laws of any other
jurisdiction, the Debentures and the Conversion Shares
must not be sold unless such securities are registered
under the Securities Act of 1933, or an exemption from the
registration requirements of the Securities Act of 1933 is
available. SAI may cause the certificate or certificates
evidencing all or any of the Conversion Shares to bear a
legend to that effect.
(v) For the purposes of this Condition 4(A), "HSBC GROUP"
shall mean any company or entity which is at any time a
member of the Hongkong Bank Group or which (or the holding
company of which) has its operation managed by a member of
the Hongkong Bank Group and "HONGKONG BANK GROUP" means
HSBC Holdings PLC and its subsidiaries.
(B) DELIVERY OF NEW CERTIFICATES
Subject to compliance with applicable securities laws and
regulations, the Company shall, within 7 Business Days of receipt
of such documents from the Debentureholder, cancel the existing
Certificate and issue a new certificate under the seal of the
Company, in favour of the transferee or assignee as applicable.
Where only part of a principal amount (being that of one or more
Debentures) of the Debentures in respect of which a Certificate
is issued is to be transferred, converted or redeemed, a new
Certificate in respect of the Debenture not so transferred,
converted or redeemed will, within three (3) Business Days of
delivery of the original Certificate to the Company be available
for collection by the Debentureholders.
40
(C) FORMALITIES FREE OF CHARGE
Registration of transfer of Debentures will be effected without
charge by or on behalf of the Company, but upon payment (or the
giving of such indemnity as the Company may require) in respect
of any tax or other governmental charges which may be imposed in
relation to such transfer.
(D) For the purpose of this Condition, any change in:
(i) the beneficial ownership of the Debentureholder (whether or
not the registered holder of the Debenture is changed); or
(ii) the ultimate control of the Debentureholder
shall be regarded as a transfer of the Debentures, and the
Debentureholder shall procure that the conditions, requirements
and other provisions regarding transfer under this Condition
shall be followed and complied with by the beneficial owner of
the Debentures and by its ultimate controller and ultimate
beneficial shareholder accordingly.
5. INTEREST
--------
(A) Subject to Condition 5(B) below, the Debentures will bear
interest from the date of issue on the principal amount of the
Debentures outstanding from time to time at the rate of the
higher of (i) 5 per cent. per annum (net of withholding tax, if
applicable) and (ii) such percentage of the dividend yield
calculated by reference to dividing the annual dividend declared
per Share by the Conversion Price. The interest will, subject as
provided herein, be payable by the Company quarterly in arrears
on dates falling three months, six months, nine months, one year,
one year and three months, one year and six months, one year and
nine months and two years, two years and three months, two years
and six months, two years and nine months after the date of issue
of the Debenture.
(B) In the event that the Debentureholder has converted part or whole
of the principal amount of the Debentures into Shares, the
Debentureholder shall be entitled to interest in respect of such
part or whole of the principal amount for the period from the
last preceding interest payment date (or the date of issue of the
Debenture, as the case may be) up to the Conversion Date
concerned.
41
6. PAYMENTS
--------
(A) Payment of the interest and principal (if any) in respect of the
Debentures shall be made on the due dates into such bank account
as the Debentureholder may notify the Company in writing from
time to time. All payments by the Company shall be made in United
States dollars.
(B) If the due date for payment of any amount in respect of the
Debentures is not a Payment Business Day, the Debentureholder
will be entitled to payment on the next following Payment
Business Day in the same manner together with interest accrued in
respect of any such delay.
7. CONVERSION
----------
(A) CONVERSION RIGHT
(a) The Conversion Right: Subject as hereinafter provided, the
Debentureholders have the right to convert the whole or part of
the principal amount of the Debentures into Shares at any time
and from time to time, from the date of issue of the Debenture up
to the close of business on the Maturity Date in amounts of not
less than US$250,000 (and in integral multiples thereof) on each
conversion. The Company shall procure that such Shares be issued
by SAI upon the exercise of such right hereunder.
(b) Number of Shares: The number of Shares to be issued on conversion
of a Debenture will be determined by dividing the principal
amount of the Debenture to be converted by the Conversion Price
in effect at the Conversion Date (both as hereinafter defined).
On conversion the right of the converting Debentureholder to
repayment of the principal amount of the Debentures being
converted shall be extinguished and released, and in
consideration and in exchange therefor SAI shall allot and issue
Shares credited as paid up in full as provided in this Condition.
A Conversion Right may be exercised in respect of one or more
Debentures. If more than one Debenture held by the same holder is
converted at any one time by the same holder, the number of
Shares to be issued upon such conversion will be calculated on
the basis of the aggregate principal amount of the Debentures to
be converted.
(c) Fractions of Shares: Fractions of Shares will not be issued on
conversion. Notwithstanding the foregoing, SAI will upon
conversion of Debenture pay in cash in United States dollars a
sum equal to such portion of the principal amount of the
Debenture or Debentures evidenced by the Certificate deposited in
connection with the exercise of Conversion Rights as corresponds
to any fraction of a Share not issued as a result if such sum
exceeds US$10.
42
(d) Conversion Price: The price at which Shares will be issued upon
conversion (the "CONVERSION PRICE") will initially be US$5.00 per
Share but will be subject to adjustment in the manner provided in
this Condition.
(e) Meaning of "Shares": As used in these Conditions, the expression
"SHARES" means shares of SAI listed and traded on NASDAQ or
shares of any class or classes resulting from any subdivision,
consolidation or re-classification of those shares, which as
between themselves have no preference in respect of dividends or
of amounts payable in the event of any voluntary or involuntary
liquidation or dissolution of SAI.
(f) Conversion Date: The conversion date in respect of a Debenture
must fall at a time when the Conversion Right attaching to the
Debenture is expressed in these Conditions to be exercisable and
will be deemed to be the Business Day immediately following the
date of the surrender of the Certificate in respect of such
Debenture and the delivery of such Conversion Notice (as defined
below).
(g) Status of Conversion Shares: The Shares issued upon conversion of
the Debenture will in all respects rank pari passu with the
Shares in issue on the relevant Registration Date (as defined
below). Save as set out in these Conditions, a holder of Shares
issued on conversion of Debenture shall not be entitled to any
rights the record date for which precedes the relevant
Registration Date.
(B) CONVERSION PROCEDURE
(a) Conversion Notice: To exercise the Conversion Right attaching to
any Debenture, the holder thereof must complete, execute and
deposit during normal business hours at the specified office of
the Company a notice of conversion (a "CONVERSION NOTICE"). The
Conversion Notice must state a certification as contained in
Schedule 6 of the Subscription Agreement.
(b) Registration: As soon as practicable, and in any event not later
than 7 days after the Conversion Date, SAI will, in the case of
Debentures converted on exercise of the Conversion Right and in
respect of which a duly completed Conversion Notice has been
delivered and the relevant Certificate and amounts payable by the
relevant Debentureholder deposited as required, register the
person or persons designated for the purpose in the Conversion
Notice as holder(s) of the relevant number of Shares in its Share
register and will cause its share registrar to mail, such
certificate or certificates to the person and at the place
specified in the Conversion Notice, together with any other
securities, property or cash required to be delivered upon
conversion and such assignments and other documents (if any) as
may be required by law to effect the transfer thereof. The person
or persons will become the holder of record of the number of
Shares issuable upon
43
conversion with effect from the date he is or they are registered
as such in the SAI's register of members (the "REGISTRATION
DATE").
(c) Subsequent Adjustments: Debentures which are converted will be
cancelled by removal of the Debentureholder's name from the
register of Debentureholders on the relevant Registration Date.
If the Conversion Price is adjusted with effect (retroactively or
otherwise) from a date falling on or before the Registration Date
of any Shares issued on conversion of a Debenture the
Debentureholder's entitlement to which was arrived at on the
basis of the unadjusted Conversion Price, SAI will procure that
the provisions of this sub-paragraph shall be applied, mutatis
mutandis, to the number of additional Shares which would have
been required to be issued on conversion of such Debenture if the
relevant adjustment had been given effect to as at the Conversion
Date.
(C) ADJUSTMENTS IN CONVERSION PRICE
The Conversion Price shall from time to time be adjusted in
accordance with the following relevant provisions and if the
event giving rise to any such adjustment shall be such as would
be capable of falling within more than one of the following sub-
paragraphs, it shall fall within the first of the applicable
paragraphs to the exclusion of the remaining paragraphs:
(a) If and whenever the SAI Shares by reason of any
consolidation or sub- division become of a different nominal
amount (par value), the Conversion Price in force
immediately prior thereto shall be adjusted by multiplying
it by the revised nominal amount (par value) and dividing
the result by the former nominal amount(par value). Each
such adjustment shall be effective from the close of
business in Hong Kong on the day immediately preceding the
date on which the consolidation or sub-division becomes
effective.
(b) If and whenever SAI shall issue any SAI Shares (except if
such issue is made as a result of an election to receive
scrip instead of cash dividend provided that if such scrip
is valued at the closing market price of the SAI Share on
the date the dividend is declared) credited as fully paid by
way of capitalisation of profits or reserves (including any
share premium account and capital redemption reserve fund),
the Conversion Price in force immediately prior to such
issue shall be adjusted by multiplying it by the aggregate
nominal amount of the issued and paid up SAI Shares
immediately before such issue and dividing the result by the
sum of such aggregate nominal amount and the aggregate
nominal amount of the SAI Shares issued in such
capitalisation. Each such adjustment shall be effective (if
appropriate retroactively) from the commencement of the day
next following the record date for such issue.
44
(c) If and whenever SAI shall make any Capital Distribution (as
defined below) to holders of SAI Shares (in their capacity
as such) (whether on a reduction of capital or otherwise)
the Conversion Price in force immediately prior to such
distribution shall be adjusted by multiplying it by the
following fraction:-
A - B
-----
A
where:
A = the closing market price (as defined below) per
SAI Share on the dealing date immediately
preceding the date on which the Capital
Distribution is publicly announced or (failing any
such announcement) the day preceding the date of
the Capital Distribution; and
B = the fair market value on the day of such
announcement or if no such announcement was made
(as the case may require) the day before the date
of the Capital Distribution, as determined by an
independent merchant bank or such professional
adviser jointly approved by SAI and the Majority
Investors of that portion of the Capital
Distribution or of such rights which is
attributable to one Share,
such adjustment shall be effective (if appropriate
retroactively) from the commencement of the day next
following the record date for the Capital Distribution.
(d) If and whenever SAI shall offer to holders of SAI Shares new
Shares for subscription by way of rights, or shall grant to
holders of Shares any options or warrants to subscribe for
new SAI Shares, at a price which is less than the lower of
the market price and the Conversion Price at the date of the
announcement of the terms of the offer or grant, the
Conversion Price shall be adjusted by multiplying the
Conversion Price in force immediately before the date of the
announcement of such offer or grant by the following
fraction:-
C + D
-----
C + E
where:
45
C = the number of SAI Shares in issue immediately
before the date of such announcement;
D = the number of SAI Shares which the aggregate of
the two following amounts would purchase at the
lower of such market price and the Conversion
Price:
(a) the total amount (if any) payable for the
rights, options or warrants being offered or
granted; and
(b) the total amount payable for all of the new
SAI Shares being offered for subscription or
comprised in the options or warrants being
granted; and
E = the aggregate number of SAI Shares offered for
subscription or comprised in the options or
warrants being granted.
Such adjustment shall become effective (if appropriate
retroactively) from the commencement of the day next
following the record date for the relevant offer or grant.
(e) (aa) If and whenever SAI shall issue wholly for cash
any securities which by their terms are
convertible into or exchangeable for or carry
rights of subscription for new SAI Shares, and the
total Effective Consideration per SAI Share (as
defined below) initially receivable for such
securities is less than the lower of the market
price and the Conversion Price at the date of the
announcement of the terms of issue of such
securities, the Conversion Price shall be adjusted
by multiplying the Conversion Price in force
immediately prior to the issue by the following
fraction:
F + G
-----
F + H
where:
F = the number of SAI Shares in issue
immediately before the date of the issue;
G = the number of SAI Shares which the total
Effective Consideration receivable for
the securities issued would purchase at
the lower
46
of such market price and the Conversion
Price; and
H = the number of SAI Shares to be issued upon
conversion or exchange of, or the exercise
of the subscription rights conferred by,
such securities at the initial conversion
or exchange rate or subscription price.
Such adjustment shall become effective (if
appropriate retrospectively) from the close of
business in Hong Kong on the Business Day next
preceding whichever is the earlier of the date on
which the issue is announced and the date on which
the issuer determines the conversion or exchange
rate or subscription price.
(bb) If and whenever the rights of conversion or
exchange or subscription attached to any such
securities as are mentioned in section (aa) of
this sub- paragraph (e) are modified so that the
total Effective Consideration per SAI Share
initially receivable for such securities shall be
less than the lower of the market price and the
Conversion Price at the date of announcement of
the proposal to modify such rights of conversion
or exchange or subscription, the Conversion Price
shall be adjusted by multiplying the Conversion
Price in force immediately prior to such
modification the following fraction:
I + J
I + K
where:
I = the number of SAI Shares in issue immediately
before the date of such modification;
J = the number of SAI Shares which the total Effective
Consideration receivable for the securities issued at
the modified conversion or exchange price would
purchase at the lower of such market price and
Conversion Price; and
K = is the number of SAI Shares in issue immediately
before such date of modification plus the number of SAI
Shares to be issued
47
upon conversion or exchange of or the exercise of the
subscription rights conferred by such securities at
the modified conversion or exchange rate or
subscription price.
Such adjustment shall become effective as at the date
upon which such modification shall take effect. A
right of conversion or exchange or subscription shall
not be treated as modified for the foregoing purposes
where it is adjusted to take account of rights or
capitalisation issues and other events nominally
giving rise to adjustment of conversion or exchange
terms.
For the purposes of this sub-paragraph (e), the "TOTAL
EFFECTIVE CONSIDERATION" receivable for the securities
issued shall be deemed to be the consideration
receivable by SAI for any such securities plus the
additional minimum consideration (if any) to be
received by SAI upon (and assuming) the conversion or
exchange thereof or the exercise of such subscription
rights, and the total Effective Consideration per SAI
Share initially receivable for such securities shall
be such aggregate consideration divided by the number
of SAI Shares to be issued upon (and assuming) such
conversion or exchange at the initial conversion or
exchange rate or the exercise of such subscription
rights at the initial subscription price, in each case
without any deduction for any commissions, discounts
or expenses paid, allowed or incurred in connection
with the issue.
(f) If and whenever SAI shall issue wholly for cash any
SAI Shares at a price per SAI Share which is less than
the lower of the market price and the Conversion Price
at the date of the announcement of the terms of such
issue, the Conversion Price shall be adjusted by
multiplying the Conversion Price in force immediately
before the date of such announcement by the following
fraction:-
L + M
-----
L + N
where:
L = the number of SAI Shares in issue immediately
before the date of such announcement;
M = the number of SAI Shares which the aggregate
amount payable for the issue would purchase
at the
48
lower of such market price and the
Conversion Price; and
N = the number of SAI Shares in issue immediately
before the date of such announcement plus the
number of SAI Shares so issued.
Such adjustment shall become effective on the date of
the issue.
(g) If and whenever the cumulative Audited Earnings Per
Share ("EPS") for any two consecutive financial years
commencing with the financial year ending 1996 and
ending with the financial year ending 1998 are less
than the corresponding management's projection of
cumulative EPS for such years as stated below ("MP"),
the Conversion Price shall be adjusted in accordance
with the following formula:-
MP - EPS
Adjusted Conversion Price=US$5.00* [1 ]
MP
*(Subject to adjustment pursuant to this Condition
7(C)(a) to (f) inclusive)
where:
MP : MP\\1\\ + MP\\2\\ OR MP\\2\\ + MP\\3\\
MP\\1\\ : 1996 = US$0.72
MP\\2\\ : 1997 = US$1.07
MP\\3\\ : 1998 = US$1.61
and EPS shall be the EPS for the corresponding financial
years.
Provided Always:
(i) the Company shall present a certificate showing the
calculation and the adjustment to be effected within 7
Business Days from the date the audited accounts of
SAI for the relevant financial year first becomes
available;
(ii) the adjustment occurring in this Condition 7(C)(g)
shall become effective on the 14th Business Day
following the day the audited accounts of SAI for the
relevant financial year first becomes available;
49
(iii) for the avoidance of doubt, if the Conversion Price
has already been adjusted in 1998 in respect of the
two financial years ending 1996 and 1997 (the "FIRST
ADJUSTED PRICE") and the Conversion Price falls to be
further adjusted in 1999 in respect of the two
financial years ending 1997 and 1998 (the "SECOND
ADJUSTED PRICE"), the second adjustment mentioned
hereunder shall also be made on the basis of US$5.00
(as adjusted, if relevant, by any of the Condition
7(C)(a) to (f) inclusive); and
(iv) if two adjustments fall to be made by virtue of the
provisions of this Condition 7(C)(g), the Second
Adjusted Price shall prevail over the First Adjusted
Price whereupon the First Adjusted Price shall lapse
and be of no effect.
(D) DEFINITIONS AND EXCEPTIONS
(a) For the purpose of this Condition:-
"announcement" shall include the release of an announcement
to the press or the delivery or transmission by telephone,
telex or otherwise of an announcement to NASDAQ or the
relevant stock exchange and "date of announcement" shall
mean the date on which the announcement is first so
released, delivered or transmitted;
"Audited Earning per share or EPS" is defined as audited
earnings for the year minus or add back extraordinary items
as defined under International Accounting Standard, IAS8,
and adding back interest expenses on the Debenture divided
by the total weighted average number of Shares outstanding
on a fully diluted basis (including the number of Shares
that would have been issued had all the Debentures then
outstanding been converted);
"Capital Distribution" means non-cash dividend or other
distribution (other than any distribution in winding-up) in
cash or in specie;
"issue" shall include allot;
"market price" means the closing price of one SAI Share as
shown by the official list (or the equivalent thereof) of
NASDAQ for one or more board lots of SAI Shares on the day
on which the market price is to be ascertained;
"SAI Shares" means Shares and includes, for the purposes of
SAI Shares comprised in any issue or, distribution or grant
pursuant to this provision
50
of any such Shares of the Company
as, when fully paid, will be SAI Shares;
"reserves" includes unappropriated profits; and
"rights" includes rights in whatsoever form issued.
(b) (i) Subject to (b)(ii) below, the provisions of
Condition 7(C) shall not apply to an issue of SAI
Shares or other securities of SAI wholly or partly
convertible into, or carrying rights to acquire,
SAI Shares to officers or employees of SAI Group
pursuant to an employee or executive share option
scheme for an aggregate of 2,500,000 SAI Shares as
set out in Schedule 5 of the Subscription
Agreement.
(ii) 2,050,000 SAI Shares out of 2,500,000 SAI Shares
must be issued and allotted to those persons and
upon such terms as set out in Schedule 5 hereof
and the balance of 450,000 SAI Shares must also be
granted by SAI's Compensation Committee and issued
and allotted pursuant to SAI's 1995 Option Plan at
a value not being less than the fair market value
of the SAI Shares on the date the options are
granted.
(iii) The provisions of Condition 7(C) shall also not
apply to the issue of Shares in connection with
the conversion of the Series B Preferred Stock as
described in Part III of Schedule 1 hereof.
(E) ADJUSTMENTS DETERMINATION
(a) On any adjustment if the relevant Conversion Price is not an
integral multiple of one US cent, such shall be rounded down
to the nearest US cent.
(b) No adjustment shall be made to the Conversion Price where
such adjustment (rounded down if applicable) would be less
than one per cent. of the Conversion Price then in effect.
Any adjustment not required to be made, and any amount by
which the Conversion Price has been rounded down, shall be
carried forward and taken into account in any subsequent
adjustments. Notice of any adjustment shall be given to
Debentureholders as soon as practicable after the
determination thereof. The Conversion Price may not be
reduced so that, on conversion of Debentures, Shares would
fall to be issued at a discount to their par value.
(c) Where more than one event which gives or may give rise to an
adjustment to the Conversion Price occurs within such a
short period of time that in
51
the opinion of the Majority Investors the provisions at
Condition 7(C) would need to be operated subject to some
modification in order to give the intended result, such
modification shall be made to the operation of the
provisions at Condition 7(C) as may be advised by the
Majority Investors to be in their opinion appropriate in
order to give such intended result.
(d) No adjustment involving an increase in the Conversion Price
will be made, except in the case of a consolidation of the
Shares as referred to above or in the case of adjustment
under Condition 7(C)(g) above or in the case to correct an
error in a previous calculation of the Conversion Price.
(e) In any circumstances where any of the Debentureholders shall
not agree with the adjustment to the Conversion Price
whether as regards to the basis upon which adjustment has
made or as regards the effective date, the Majority
Investors may appoint an independent merchant bank or such
professional adviser jointly approved by SAI and the
Majority Investors to consider how the adjustment should be
appropriately done to reflect the relative interest of the
persons affected thereby and such determination shall modify
or nullify the adjustment accordingly.
(f) Whenever the Conversion Price falls to be adjusted, the
Company shall prepare such adjustments as soon as
practicable but in any event no later than 7 days after the
occurrence of the relevant adjustment event (except in
relation to an event occurring under Condition 7(C)(g)
hereunder in which case the provisions thereunder shall
apply) and give notice to the Debentureholders that the
Conversion Price has been adjusted and shall at all times
thereafter for so long as the Debentures remains outstanding
make available for inspection at the principal place of
business of the Company a copy of the certificate signed by
an independent director of SAI setting forth details of the
event giving rise to the adjustment.
8. PROCEDURE FOR CONVERSION
The Conversion Rights pursuant to Condition 7(A) may, subject as
provided herein, be exercised on any Business Day prior to
maturity of the Debenture by the Debentureholder delivering to
the principal place of business of the Company in Hong Kong a
written notice stating the intention of the Debentureholder to
convert and the address for the delivery of the share
certificates of the Conversion Shares pursuant to 7(B) together
with the Certificate. The Company shall be responsible for
payment of all taxes and stamp duty, issue and registration
duties (if any) and levies and charges (if any) arising on any
such conversion.
52
9. REDEMPTION
10. UPON MATURITY
Unless previously redeemed or converted or purchased and
cancelled as provided herein, the Company will redeem each
Debenture on the Maturity Date at its principal amount
outstanding together with any accrued but unpaid interest
calculated up to and including the date of payment together with
an amount that would enable the Debentureholder to yield in
aggregate an internal rate of return ("IRR") of 12% per annum on
the costs of its investment. For this purpose, the internal rate
of return shall bear the same meaning as defined in Condition
11(C). Redemption upon maturity is mandatory and automatic
without service of any notice. The Company can not redeem the
Debentures in whole or in part at its option prior to the
Maturity Date.
(A) Upon the occurrence of an Event of Default
Upon the occurrence of an Event of Default, the Company shall
redeem the whole of or part of the Debentures as shall be
required by virtue by the Debentureholders in such manner as
specified in Condition 11 below.
(B) Upon the occurrence of certain event of adjustment
(a) In the event that an adjustment arising by virtue of an
event described in Condition 7(C)(g) occurs and such
adjustment would result in (i) the number of Shares that
would have been issued to the Funds in aggregate had
Conversion immediately taken place or (ii) the number of
Shares that would have been issued to any one of the
Investors had Conversion immediately taken place to exceed
20% of the Deemed Total Issued Share Capital of SAI
(including also for this purpose such number of Shares that
would have been issued upon Conversion of all of the
Debentures), that portion of the Debenture(s) representing
the excess of such Shares over such 20% ("THE EXCESS") (as
defined below) shall, at the option of the relevant
Debentureholder, be redeemed by the Company at its principal
amount outstanding together with any accrued but unpaid
interest calculated up to and including the date of payment
together with an amount that would enable the
Debentureholder to yield in aggregate an IRR (as defined
below) of 19.75% per annum. The Debentureholders shall
exercise this right by service of a notice on the Company
and the Company shall promptly make payment within 45 days
after receipt of such notice.
(b) For the purpose of this Condition, Excess shall be
calculated as follows:
53
Q (PIE) (R(PIE) S)
where:
Q = principal amount of the Debentures outstanding held
by the Funds or the Investor (not being a Fund) as
the case may be
R = Conversion Price, as adjusted by virtue of Condition
7(C)(g)
S = the number of Shares that need to be issued upon
conversion of the Debentures in order to give a
twenty percent (20%) holding by the Funds in
aggregate or the Investor (not being a Fund) as
the case may be of the Deemed Total Issued Share
Capital of SAI (including also for this purpose
such number of Shares that would have been issued
upon Conversion of all of the Debentures)
(D) All Debentures which are redeemed, converted or purchased by the
Company will forthwith be cancelled.
11. Protection of the Debentureholder
The Guarantors and ACL have undertaken certain matters in the
Subscription Agreement for the protection of the Debentureholders
for so long as any of the Debentures remains outstanding.
12. Events of default
(A) If any of the following events ("EVENT OF DEFAULTS") occurs
each of the Debentures shall automatically become
immediately due and payable in full by the Company at its
principal amount outstanding together with any accrued but
unpaid interest calculated up to and including the date of
payment together with an amount that would enable the
Debentureholder to yield in aggregate IRR on its cost of
investment of 19.75% per annum unless the Company shall have
received a notice from any of the Debentureholders to the
effect that such redemption shall only be in respect of part
of the Debentures held by that Debentureholder in which case
the amount payable hereunder shall only be in relation to
that part of the Debentures that Debentureholder wishes to
redeem.
54
(B) An Event of Default occurs when:-
(a) the listing of the Shares (as a class) on NASDAQ:-
(i) ceases;
(ii) is suspended for a continuous period of 90 days on each
of which NASDAQ is generally open for trading, such
suspension having occurred by any reason whatsoever; or
(b) SAI or the Company fails to obtain a listing or
authorisation for quotation of the Conversion Shares on
NASDAQ; or
(c) the Company or any of the Guarantors or ACL defaults in
performance of any of its obligations contained in the terms
and conditions of the Debenture or the Subscription
Agreement or the ACL Undertaking, and such event to the
extent it can be remedied continues to subsist for a
continuous period of 30 days after notice of such event is
given from the Majority Debentureholders to the Company; or
(d) there is default in the payment of principal or the premium
(if any) or interest on any of the Debenture within seven
(7) days in the case of principal or premium of fourteen
(14) days in the case of interest from the due date for
payment; or
(e) any Indebtedness of a material nature for borrowed money of
any member of the SAI Group becomes due and repayable
prematurely by reason of an event of default (however
described) or any member of the SAI Group fails to make any
payment in respect of any Indebtedness for borrowed money of
the due date for payment as extended by any originally
applicable grace period or any security given by any of them
for any Indebtedness for borrowed money becomes enforceable
or if any default is made by any of them in making any
payment due under any guarantee and/or indemnity given by it
in relation to any Indebtedness for borrowed money of any
other person and such occurrence has or will have in the
opinion of the Majority Debentureholders a materially
adverse impact on any member of the SAI Group; or
(f) any legal process is levied or enforced or sued out upon or
against any part of the property, assets or revenues of any
member of the SAI Group which in the opinion of the Majority
Debentureholders has a materially adverse effect upon any of
them, and is not discharged or stayed within 60 days (or
such longer period as the Majority Debentureholders may
consider appropriate in relation to the jurisdiction
concerned) of having
55
been so levied, enforced or sued out unless and for so long as
the Majority Debentureholders is satisfied that it is being
contested in good faith, diligently and with a reasonable
prospect of success by legal action; or
(g) an encumbrancer takes possession or a receiver, manager or
other similar officer is appointed of, or an attachment
order is issued in respect of, the whole or any part of the
undertaking, property, assets or revenues of any member of
the SAI Group or of ACL which in the opinion of the Majority
Debentureholders has a materially adverse effect upon any of
them; or
(h) any member of the SAI Group is unable to pay its debts as
they mature or takes any proceeding under any law for a
readjustment or deferment of its obligations or any part of
them or makes or enters into a general assignment or an
arrangement or composition with or for the benefit of its
creditors which in the opinion of the Majority
Debentureholders has a materially adverse effect upon any of
them; or
(i) an order of a court of competent jurisdiction is made or an
resolution passed for the winding up or
dissolution or administration of any member of the SAI Group
or of ACL, ceases or threatens to cease to carry on all or
substantially all of its business or any of them stops or
threatens to stop payment (within, if applicable, the
meaning of the bankruptcy law of any appropriate
jurisdiction) or applies for or consents to or suffers the
appointment of an administrator, liquidator or receiver over
the whole or any material part of the undertaking, property,
assets or revenues of or any of them; or
(j) proceedings shall have been initiated against ACL or any
member of the SAI Group under any applicable bankruptcy,
insolvency or reorganisation law and such proceedings shall
not have been discharged or stayed within a period of 60
days (or such longer period as the Funds may consider
appropriate in relation to the jurisdiction concerned)
unless and for so long as the Majority Debentureholders is
satisfied that it is being contested in good faith,
diligently and with a reasonable prospect of success by
legal action; or
(k) any event occurs which under the laws of any relevant
jurisdiction and in the opinion of Majority Debentureholders
has an analogous effect to any of the event referred to in
any of the foregoing paragraphs; or
(l) the EPS (as defined in the Condition 7(D)) of SAI for any of
the financial years falling between the financial year ended
31st December, 1995 and the Maturity Date is less than
US$0.55; or
56
(m) if:
(i) at the end of each quarter of a financial year ("QUARTER
DATE"), the trade debts (after provisions) left outstanding
relating to the sales achieved in a period occurring
immediately before the 12- month period preceding the
relevant Quarter Date is or exceeds 10 percent of net sales
achieved by SAI in the 12 months immediately preceding the
relevant Quarter Date; or
(ii) at the end of each Quarter Date, the trade debts (after
provisions) left outstanding relating to the sales
achieved in a 12-month period immediately preceding the
Quarter Date is or exceeds 40 per cent of the net sales
achieved by SAI in the same period of time and such
outstanding debts are not accordingly repaid or
remedied to fall below the 10 per cent or 40 per cent
level as the case may be within 30 days after the
elease of the 10-Q Quarterly Report or the 10-K Annual
Report. The first of the Quarter Dates shall commence
on 31st December, 1996.
(C) For the purpose of this Debenture, IRR is the annual internal
rate of return compounded on a quarterly basis, which is the
discount rate at which the present value of future cash flows,
including proceeds from interest, dividends and transfer / sale
of the Debentures and any repayment of the principal amount of
the Debentures outstanding is equal to the initial subscription
amount of all the Debentures subscribed and is calculated in
accordance with the following formula:-
OI = (D1 + C1) + (D2 + C2) + (D3 + C3) + ... +(Dn + Cn)+
--------- --------- --------- ---------
Pn
--
1 + R (1 + R)/2/ (1 + R)/3/ (1 + R)/n/ (1 + R)/n/
Where:
Pn = the amount to be paid by the Company to the Debentureholder
on the day of payment for redemption, provided always that
Pn shall not be less than zero;
OI = the price of the Debenture paid by the Debentureholder for
the Debenture pursuant to the Subscription Agreement;
Cn = (if applicable) the amount of any capital repayment or
reduction made during the quarter denoted by "n";
57
Dn = the amount or value of any interest or other money paid with
respect to the outstanding Debentures during the quarter
denoted by "n";
n = the number of complete quarters from the issue date of
the Debentures to the date of redemption; and
R = the quarterly internal rate of return in the event of
redemption of the Debentures which shall be 4.61%
(given an annual internal rate of return of 19.75% per
annum) and shall be 2.87% (given an annual internal
rate of return of 12% per annum)
and for the purposes of this calculation only, all cashflows
(denoted by Pn, Dn or Cn) shall be deemed to arise on the last
day of the quarter in which they occur or are paid.
(D) In this Condition 11:
(a) the determination of "materiality", "material" or "materially"
shall be by the Majority Debentureholders and in the event of
disagreement of or any disputes over the applicability or the
interpretation of the occurrence of any such events as described
in Condition 11(B)(e), (f), (g), (h), (i), (j) or (k), an
independent professional adviser (including a merchant bank of
repute, an international firm of accountants or legal adviser)
shall be appointed by the Company from a selection of three (3)
names given by the Majority Debentureholders to the Company who
shall determine the same and whose decision shall be final and
binding;
(b) "Majority Debentureholders" shall mean the majority of the
Debentureholders in value holding more than 50% of the total
principal amount of the Debentures outstanding.
12. VOTING
The Debentureholder will not be entitled to receive notices of,
attend or vote at any meetings of the Company by reason only of
it being the Debentureholder.
13. REGISTER
The Company shall maintain a register in Bermuda or in Hong Kong
of the particulars of the Debenture and the Debentureholder.
58
14. REPLACEMENT NOTE
If any of the Debentures is lost or mutilated the Debentureholder
shall forthwith notify the Company and a replacement Debenture
shall be issued if the Debentureholder provides the Company with:
(1) the mutilated Debenture; (ii) a declaration by the
Debentureholder or its officer that the Debenture had been lost
or mutilated (as the case may be) or other evidence that the
Debenture had been lost or mutilated; and (iii) an appropriate
indemnity in such form and content as the Company may reasonably
require. Any Debenture replaced in accordance with this Condition
shall forthwith be cancelled.
15. NOTICES
Any notice required or permitted to be given shall be given by
delivering it to the party:
(a) in the case of the Debentureholder:
being GML : c/o HPEM
10th Floor, Citibank Tower
Citibank Plaza, 3 Garden Road, Central,
Hong Kong
Tel: (852) 2845 7685
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
being WCIT : c/o HPEM, 10th Floor, Citibank Tower,
3 Garden Road, Hong Kong
Tel: (852) 2845 7688
Fax: (852) 2845 9992
ATTN.: MR. GEORGE RAFFINI / MR. BRIAN LAW
being MC
Partners : c/o MC Capital Asia Pte Limited
Unit No. 1002 C/D 10th Floor,
Tower 1, Admiralty Centre,
10 Harcourt Road, Hong Kong
Tel: (852) 2866 3393
Fax: (852) 2866 2693
ATTN.: MR. YUJI KOMIYA/MR. TATSUYA
KUROYANAGI
59
being CI
2000 : c/o Banque Worms, Hong Kong Branch
39th Floor, Central Plaza
18 Harbour Road, Hong Kong
Tel: (852) 2802 8382
Fax: (852) 2802 8065
ATTN.: MR. FABRICE JACOB/MR. ANTOINE
FOSSORIER
(b) in the case of the Company
c/o China International Bearing
Holdings Limited,
19th Floor, First Pacific Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
Attn.: Mr. Billy Kan / Mr. Roger Li
-----------------------------------
(c) in the case of SAI:-
c/o China International Bearing
Holdings Limited,
19th Floor, First Pacific Centre,
51-57 Gloucester Road, Hong Kong
Tel: (852) 2865 1511
Fax: (852) 2865 4293
Attn.: Mr. Billy Kan / Mr. Roger Li
-----------------------------------
or to such other Hong Kong address as the party concerned may
have notified to the other party pursuant to this Condition and
may be given by sending it by hand to such address or to such
other address as the party concerned may have notified to the
other parties in accordance with this Condition and such notice
shall be deemed to be served on the day of delivery (or on the
immediately following Business Day, if the day of delivery is not
a Business Day), or if sooner upon acknowledgement or receipt by
or on behalf of the party to which it is addressed.
16. ENFORCEMENT
At any time after the Debentures have become due and repayable,
any of the Funds may, at its discretion and not necessarily with
any further notice, take such proceedings against the Company
and/or the Guarantors as it may think fit to enforce repayment of
the Debenture together with accrued interest and to enforce the
provisions of the Subscription Agreement, but it will not be
bound to take any such proceedings unless (a) it shall have been
so requested in writing by the
60
holders of not less than one-third in principal amount of the
Debentures then outstanding or shall have been so directed by
resolution of the Debentureholders and (b) it shall have been
indemnified to its satisfaction. No Debentureholder will be
entitled to proceed directly against the Company or the
Guarantors or ACL unless the Funds, having become bound to do so,
fails to do so within a reasonable period and such failure shall
be continuing.
17. AMENDMENT
The terms and conditions of the Debentures may only be varied,
expanded or amended by agreement in writing between the Company
and all of the Debentureholders.
18. GOVERNING LAW AND JURISDICTION
The Debenture and the terms of the Debenture are governed by and
shall be construed in accordance with Hong Kong law and the
parties agree to submit to the non-exclusive jurisdiction of the
courts of Hong Kong. In relation to any legal actions or
proceedings arising out of or in connection with the Subscription
Agreement and/or the Debentures, each of the Company and the
Guarantors has in the Subscription Agreement irrevocably
submitted to the courts of Hong Kong and has in relation thereto
appointed an agent for service of process in Hong Kong.
61
SCHEDULE 3
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
1. INFORMATION
-----------
1.1 All information relating to the SAI Group and ACL set out herein
is true and accurate in all material respects and nothing has
been omitted which would make any of the information set out
therein misleading.
1.2 No circumstances have occurred and none of the Warrantors is
aware of any circumstances which may or are likely to occur which
in either event would result in any information relating to any
member of the SAI Group or ACL which has been given to the
Majority Investors in the course of the negotiations leading up
to this Agreement to be untrue, inaccurate or misleading in any
material respect.
1.3 There is no fact or circumstance relating to the affairs of any
member of the SAI Group or of ACL which has not been disclosed to
the Investors and which if disclosed will, to the actual
knowledge of the Investors, influence the decision of the
Investors to buy the Debentures on the terms contained in this
Agreement.
1.4 No member of the SAI Group nor has ACL omitted to state a
material fact necessary to make the statements herein contained
or any information made to the Investors not misleading.
1.5 No Warrantor is an "INVESTMENT COMPANY" within the meaning of the
U.S. Investment Company Act 1942, as amended.
2. GROUP STRUCTURE ETC.
--------------------
2.1 SAI will at Completion have sufficient authorised but unissued
share capital free of pre-emptive rights in order to enable it to
perform its obligations under the Debentures upon conversion and
the directors of SAI are authorised to issue the Conversion
Shares upon conversion of the Debentures.
2.2 Except as set forth in Part III of Schedule 1 and Schedule 5,
there are no agreements or commitments, securities or obligations
outstanding which calls for the allotment, issue or transfer of,
or accords to any person the right to call for the allotment or
issue of or conversion into, any common stock or debentures in or
securities of any member of the SAI Group. No person has any
rights of any nature whatsoever on, over or affecting any
unissued shares or loan capital in any member of the SAI Group
and no person has the right to call for the transfer of
62
any issued shares under any option or other agreement or to
convert any shares or securities into share capital or share
capital of a different class.
2.3 SAI does not hold any ownership or other interests (whether by
way of shareholding or otherwise) in any other Company or
undertaking except those otherwise disclosed.
2.4 None of the members in SAI Group nor ACL has taken any action nor
(to the actual knowledge of the Warrantors) has any steps been
taken or legal, legislative, or administrative proceedings been
started or threatened (i) to wind up, dissolve, or eliminate
itself, or (ii) to withdraw, revoke or cancel its business
licence.
3. CAPACITY AND AUTHORITY
----------------------
3.1 Each of the Warrantors is a legal person, duly organised, validly
existing, and in good standing under the laws of the respective
jurisdiction of its incorporation.
3.2 Each of the Warrantors has full power and authority to carry on
its business to own its property and other assets and to enter
into and perform this Agreement and to exercise its rights and
perform its obligations hereunder.
3.3 Each of the Warrantors represents that the execution, delivery
and performance of this Agreement including, but without
limitation, the issuance of the Debenture and the Shares, none of
the Warrantors has been in breach of any applicable laws or any
order or judgement of any court applicable to it or any of its
assets and will not result in any breach of the terms if any
agreement or obligation applicable to it or any of its assets and
that all corporate and other action required to authorise its
execution of this Agreement and its performance of its
obligations hereunder has been duly taken.
4. SHARES AND SUBSIDIARIES
-----------------------
4.1 Save as disclosed in 4.2 below, the particulars relating to the
share capital and corporate structure of the SAI Group referred
to in Recital (A) and Parts I, II and III of Schedule 1 of this
Agreement are correct and accurate.
4.2 The investment by SPC in Shanghai Southwest Bearing Company
("SBB") of an aggregate of US$1 million has not been completed.
As at the date of this Agreement, SAI had only invested
US$150,000 in SBB, representing only 4.167% of the aggregate
issued capital if the whole of the contributions were made to SBB
by the joint venture parties. Upon completion of the contribution
of
63
the balance of US$850,000 by SPC, SPC will have an aggregate of
27.78% interest in SBB.
4.3 No mortgage, pledge, lien or other security interest exists on or
over any of the shares in the SAI Group.
4.4 The execution and delivery of, and the performance by each of the
Company and the Guarantors of its obligations under this
Agreement the Guarantee or the Debenture will not:-
(i) result in a breach of any provision of its memorandum and
articles of association or equivalent constitutional
documents;
(ii) result in a breach or constitute a default under any
instrument to which any of the Company, ACL and the
Guarantors is a party or by which it or any of its assets
is bound; or
(iii) result in a breach of any order, judgement in decree of
any court or governmental agency to which any of the
Company, ACL and the Guarantors is a party or by which it
is bound.
4.5 The entire existing issued shares in the common stock capital of
SAI is authorised for quotation on NASDAQ and none of the
Warrantors is aware of any circumstance whereby such
authorisation will be suspended, cancelled or revoked before
Completion as a result of this Agreement or the transactions
contemplated hereunder.
5. FINANCIAL INFORMATION
---------------------
5.1 The Accounts have been prepared in accordance with the disclosed
accounting policies of and is in accordance with generally
accepted accounting principles and practices in its place of
incorporation. Except as stated such Accounts have not been
affected by any extraordinary or exceptional or non-recurring
item or by any other circumstances rendering the profits or
losses for the period covered by the financial statements
unusually high or low.
5.2 The Accounts (i) show a true and fair view of the assets,
liabilities, capital commitments and the state of affairs of the
SAI Group as at the relevant financial year end date and of the
profits and losses of the SAI Group for the period concerned;
(ii) reserve or provide in full for depreciation and all bad and
doubtful debts and all other liabilities, actual, contingent or
otherwise and for all financial commitments in existence at the
relevant financial year end date; (iii) reserve or provide in
full for all taxation including any contingent or deferred
liability
64
therefor for which the SAI Group was at the relevant financial
year end date liable and whether or not any member of the SAI
Group has or may have any right of reimbursement against any
other person.
5.3 Since the relevant financial year end date the business of the
SAI Group has been carried on in the ordinary course and so as to
maintain the same as a going concern and no member of the SAI
Group has entered into any transaction or circumstances outside
the ordinary course of business or of an unusual or onerous
nature and there has been no reduction in the value of the net
tangible assets of the SAI Group on the basis of the valuation
adopted in the financial statements and there has been no
material adverse change in the financial position or trading
prospects of the SAI Group.
6. CHANGES
-------
Since 31st December, 1995,
(a) the business of each of the members of the SAI Group has
been carried on in the ordinary course so as to maintain the
same as a going concern and none of the members of the SAI
Group has entered into any transaction or circumstances
outside the ordinary course of business or which is of an
unusual or onerous nature;
(b) no material adverse changes have occurred in the conditions,
financial or otherwise or the earnings, business affairs,
position, prospects, assets and liabilities (whether actual
or contingent) of any member of the SAI Group as shown in
the Accounts and there has been no reduction in the value of
the net tangible assets of each of the members of the SAI
Group on the basis of the valuation adopted in the Accounts;
(c) the business of each of the members of the SAI Group has not
been materially adversely affected by the loss of any
important contract or customer or source of supply or by any
other material factor;
(d) no dividends, bonuses or distributions have been declared,
paid or made in the case of any member of the SAI Group
except as provided for in the Accounts; and
(e) none of the member of the SAI Group has to any material
extent acquired, sold, transferred or otherwise disposed of
any assets of whatsoever nature or cancel or waive or
release or discount in whole or in part any debts or claims,
except in each case in the ordinary course of business.
65
7. TAXATION
--------
There is no dispute or disagreement outstanding nor is any
contemplated with any revenue authority regarding liability or
potential liability to any tax or duty (including in each case
penalties or interest) recoverable from any member of the SAI
Group regarding the availability of any relief from tax or duty
to any member of the SAI Group and there are no circumstances
which make it likely that any such dispute or disagreement will
commence.
8. CONTRACTS
---------
8.1 None of the members of the SAI Group is a party to any contract
which may be affected by reason of Completion, nor has it entered
into any material, long-term, onerous or unusual contract or
commitment binding upon it nor has any contract been entered into
otherwise than on an arm's length basis or otherwise than in the
ordinary course of business nor is it under any obligation, nor
is it a party to any contract, which cannot readily be fulfilled
or performed by it on time and without undue or unusual
expenditure of money or effort nor is it aware of any breach of,
or any invalidity, or grounds for determination, rescission,
avoidance or repudiation of, any contract to which any member of
the SAI Group is a party.
8.2 There is no contract or arrangement in respect of which
obligations are still outstanding to which any member of the SAI
Group or ACL is, or was, a party and in which any member of the
SAI Group or ACL, or any director of the SAI Group or of ACL is
beneficially interested or any person connected with indirectly,
which is not of an arm's length nature for this Agreement.
9. APPROVALS AND VALIDITY
----------------------
9.1 Subject to the fulfilment of the Conditions Precedent, all
necessary consents, authorisations and approvals of any
governmental agencies or bodies or any other consents,
authorisation or approvals as shall be required for or in
connection with this Agreement the issuance of the Debenture
hereunder the performance of the obligations thereof have been
obtained or made or will have been obtained or made by
Completion.
9.2 Subject to the fulfilment of the Conditions Precedent, the issue
of the Debenture and the Certificate and the Conversion Shares
upon conversion thereunder will not infringe and will not be
contrary to any applicable laws and will not result in any breach
of the terms of the Memorandum of Association and Bye-laws of the
Company or the respective constitutive documents of each of the
Warrantors nor
66
would it breach the terms of any agreement or obligation
applicable to any of the Warrantors.
9.3 Upon the issue of the Debentures and the execution of the
Certificates by the Company and delivery of the same, the
Debentures and the Certificates will constitute valid and binding
obligations of the Company and of SAI enforceable against the
Company and SAI as the case may be.
10. BUSINESS
--------
All the members of the SAI Group have obtained, maintained in
force and complied with all necessary licences and consents
required for the proper carrying on of its business and to the
actual knowledge of the Warrantors there are no circumstances
which indicate that any such licences or consents shall have
revoked or not renewed.
11. LITIGATION AND UNLAWFUL ACTS
----------------------------
None of the Warrantors is involved in any litigation, arbitration
or administrative proceeding which materially and adversely
affects the business or financial condition of any of them and no
such proceedings is currently taking place or pending or
threatened against any member of the SAI Group or of ACL or its
respective assets.
12. LIABILITIES
-----------
12.1 No member of the SAI Group is nor is ACL in default under any
law, regulation, judgement, order, authorisation, agreement or
obligation applicable to it or its assets or revenues the
consequences of which default could materially and adversely
affect its business or financial condition or the ability of any
of them to perform its obligation under this Agreement or the
Debentures and no Event of Default has occurred.
12.2 None of the members of the SAI Group has nor has ACL entered into
or is bound by any guarantee, indemnity or other agreement to
secure an obligation of a third party other than another member
of the SAI Group, under which any liability or contingent
liability is outstanding.
12.3 None of the members of the SAI Group has nor has ACL committed or
is liable for any criminal, illegal or unlawful action or breach
of any obligation or duty whether imposed by or pursuant to
statute, contract or otherwise.
67
12.4 None of the members of the SAI Group has nor has ACL received
notification that any investigation is being or has been
conducted by any governmental body in respect of the affairs of
any such member and no member is aware of any circumstances which
would give rise to such investigations.
13. WORKING CAPITAL
---------------
Each member of the SAI Group has and ACL has adequate working
capital for its current requirements, taking into account its
current and projected financial commitments and the proceeds of
the Debentures.
14. INSURANCE
---------
14.1 All the assets of the SAI Group and ACL of an insurable nature
have at all material times been and are insured in amounts to the
full replacement value thereof against fire and other risks
normally or prudently insured against by persons carrying on the
same classes of business as those carried on by the SAI Group and
by ACL, and each member of the SAI Group and ACL has at all
material times been and is adequately covered against accident,
third party and other risks normally or prudently covered by
insurance.
14.2 No claim is outstanding or may be made under any insurance
policies taken out and no event has occurred or circumstances
exist which are likely to give rise to any material claim;
nothing has been done or omitted to be done which is likely to
result in an increase in premium; and nothing has been done or
omitted to be done which would make any such policy of insurance
void or voidable.
15. ENVIRONMENTAL
-------------
None of the members in the SAI Group has nor has ACL been in
breach of any laws, regulations, judgements, orders or
agreements, or codes of conducts in respect of or in connection
with any environmental issues and protection.
68
SCHEDULE 4
FORM OF GUARANTEE
69
THIS GUARANTEE dated the day of , 1996 is made between:-
(1) SUNBASE ASIA, INC., of 1280 Terminal Way, Suite 3, Reno Nevada
89502, United States of America ("SAI");
(2) CHINA INTERNATIONAL BEARING HOLDINGS LIMITED, of Cedar House, 41
Cedar Avenue, Hamilton HM12, Bermuda ("CIBHL");
[(3) SMITH ACQUISITION COMPANY, INC. of 2240 Buena Vista, Irwindale,
CA 91706 ("SPC");]
(The parties referred to at (1), (2) [and (3)] hereinafter referred to
as the "GUARANTORS" and each a "GUARANTOR".)
(4) GLORY MANSION LIMITED, of Craigmuir Chambers, P.O. Box 71, Road
Town, Tortola, British Virgin Islands ("GML");
(5) WARDLEY CHINA INVESTMENT TRUST, of c/o Suite 1610, P.O. Box 1016,
885 West Georgia Street, Vancouver B.C., V6C 3E8, Canada
("WCIT");
(6) MC PRIVATE EQUITY PARTNERS ASIA LIMITED of P.O. Box 309, Ugland
House, South Church Street, Grand Cayman, Cayman Islands, British
West Indies ("MC PARTNERS"); and
(7) CHINE INVESTISSEMENT 2000, of L1118 Luxembourg, 14 Rue Aldringen
("CI 2000");
(The parties referred to at [(4), (5), (6) and (7)] hereinafter
collectively referred to as "INVESTORS" and each an "INVESTOR").
WHEREAS:-
(A) By a subscription agreement dated [ ] , 1996 (the "SUBSCRIPTION
AGREEMENT") which expression shall include such Debenture (as
made from time to time the supplemented or amended) and made
between (1) China Bearing Holdings Limited (the "COMPANY"); (2)
Asean Capital Limited ("ACL"); (3) China International Bearing
Holdings Limited ("CIBHL"); (4) Sunbase Asia, Inc. ("SAI"); (5)
Smith Acquisition Company Inc. ("SPC"); (6) GML; (7) WCIT; (8) MC
Partners and (9) CI 2000 under which the Investors have agreed to
subscribe for and the Company to issue Convertible Debentures up
to an aggregate principal value of US$11,500,000 upon such terms
and conditions as described therein.
(B) It is the condition of the Subscription Agreement that the
Guarantors shall execute the Guarantee in respect of the
obligations of the Company and the other parties
70
(not being the Investors) under the Subscription Agreement and
the Debentures. Accordingly, this Guarantee supplements the
Subscription Agreement and the Debentures.
(on SPC's Guarantee)
[(B) SAI and CIBHL ("OTHER GUARANTORS") have already given a Guarantee
dated [ ] in similar form at Completion ("SAME GUARANTEE"). SPC
has given an undertaking in the Subscription Agreement to also
execute the Guarantee in respect of the Company's and the other
parties (not being an Investor) obligations under the
Subscription Agreement and the Debentures. Accordingly, this
Guarantee supplements the Subscription Agreement, the Debentures
and the Same Guarantee.]
(C) Expressions defined in the Subscription Agreement shall, unless
specifically defined or re-defined herein or the context
otherwise requires, bear the same meanings when used herein.
NOW THIS GUARANTEE WITNESSETH AND IT IS HEREBY AGREED as follows:-
1. GUARANTEE
---------
(A) In consideration of the subscription of the Debentures pursuant
to the Subscription Agreement by the Investors, each of the
Guarantors hereby as primary obligor, irrevocably and
unconditionally and together with each of the other Guarantors
(the "OTHER GUARANTORS") jointly and severally, guarantees to
each of the Investors:-
(i) the full due and punctual observance and performance of all
the terms, conditions and covenants on the part of the
Company contained in the Subscription Agreement and the
Debentures including the due and punctual payment of all
sums now or subsequently payable under the Subscription
Agreement or the Debentures and agrees to perform or procure
the performance of such obligations of the Company from time
to time and on demand by any of the Investors pay any and
every sum or sums of money which the Company shall at any
time be liable to pay to the Investors under or pursuant to
the Subscription Agreement or the Debentures as the case may
be;
(ii) the full due and punctual observance and performance of all
the terms, conditions and covenants on the part of each
Other Guarantor to which such Other Guarantor is a party to
the Subscription Agreement and this
71
Guarantee including the due and punctual payment of all sums
now or subsequently payable under the Subscription Agreement
or this Guarantee and agrees to perform or procure the
performance of such obligations of the Other Guarantors from
time to time and on demand by any of the Investors pay any
and every sum or sums of money which the Other Guarantors
shall at any time be liable to pay to the Investors under or
pursuant to the Subscription Agreement or this Guarantee as
the case may be; and
(iii) to indemnify the Investors from time to time on demand by
any of the Investors from and against any loss incurred by
the Investors or any of them as a result of any of the
obligations of the Company under the Subscription Agreement
or the Debenture or of any of the obligations of the Other
Guarantors under or pursuant to the Subscription Agreement
or this Guarantee not being fulfilled or performed or being
or becoming void, voidable, unenforceable or ineffective as
against the Company or any of the Other Guarantors as the
case may be for any reason whatsoever, whether or not known
to the Investors or any of them or any other person.
The Guarantors' obligations hereunder is as if it is a principal
debtor in respect of any amount and liability and obligation and
not merely a surety, and without any requirement for the
Investors first to have recourse against the Company or any of
the Other Guarantors as the case may be and such liability shall
not be impaired or reduced by any undertaking granted.
[(B) SPC has undertaken in the Subscription Agreement to execute
this Guarantee at a later date than the date of this
Guarantee pursuant to Clause 10 of the Subscription
Agreement. For the purpose of this Guarantee, "OTHER
GUARANTORS" shall therefore be construed to include SPC
notwithstanding that SPC is not giving the Guarantee
simultaneously as the Guarantors hereunder.]
2. PRESERVATION OF RIGHTS
----------------------
(A) The obligations of the Guarantors herein contained shall be in
addition to and independent of every other security which the
Investors or any of them may at any time hold in respect of any
of the Company or the Guarantors' obligations hereunder.
(B) The obligations of each of the Guarantors herein contained shall
constitute and be continuing obligations notwithstanding any
settlement of account or other matter or thing whatsoever, and in
particular but without limitation, shall not be considered
satisfied by any intermediate payment or satisfaction of all or
any of
72
the obligations of the Company or any of the Other Guarantors and
shall continue in full force and effect until final payment in
full of all amounts owing by the Company or any of the Other
Guarantors hereunder and total satisfaction of all the Company's
or any of the Other Guarantors actual and contingent obligations
hereunder.
(C) None of the obligations of any of the Guarantors herein contained
nor the rights, powers and remedies conferred upon the Investors
by the Subscription Agreement or the Debenture or this Guarantee
or by law shall be discharged, impaired or otherwise affected
by:-
(i) the winding-up, dissolution, administration or re-
organisation of the Company or any of the Guarantors or any
other person or any change in its status, function, control
or ownership;
(ii) any of the obligations of the Company or any of the
Guarantors or any other person hereunder or under any other
security taken in respect of any of its obligations
hereunder being or becoming illegal, invalid, unenforceable
or ineffective in any respect;
(iii) time or other indulgence being granted or agreed to be
granted to the Company or any of the Guarantors or any
other person in respect of its obligations hereunder or
under any such other security;
(iv) any amendment to, or any variation, waiver or release of,
any obligation of the Company or any of the Guarantors or
any other person hereunder or under any such other
security;
(v) any failure to take, or fully to take, any security
contemplated hereby or otherwise agreed to be taken in
respect of the Company, any of the Guarantor's or any other
person's obligations hereunder;
(vi) any failure to realise or fully to realise the value of, or
any release, discharge, exchange or substitution of, any
security taken in respect of the Company, any of the
Guarantor's or any other person's obligations hereunder; or
(vii) any other act, event or omission which, might operate to
discharge, impair or otherwise affect any of the
obligations of any of the Guarantors herein contained or
any of the rights, powers or remedies conferred upon the
Investors or any of them by the Subscription Agreement or
the Debentures or by law.
73
(D) None of the Investors shall be obliged before exercising any of
the rights, powers or remedies conferred upon each of them
hereunder or by law:-
(i) to make any demand of the Company or any of the Guarantors;
(ii) to take any action or obtain judgement in any court against
the Company or any of the Guarantors;
(iii) to make or file any claim or proof in a winding-up or
dissolution of the Company or any of the Guarantors; or
(iv) to enforce or seek to enforce any other security taken in
respect of any of the obligations of the Company or any of
the Guarantors hereunder.
(E) Each Guarantor agrees that, so long as any amounts are or may be
owed by the Company or the Other Guarantors hereunder or when any
of the Company or the Other Guarantors is under any actual or
contingent obligations hereunder, it shall not exercise any
rights which it may at any time have by reason of performance by
it of its obligations hereunder:-
(i) to be indemnified by the Company or any of the Guarantors;
and/or
(ii) to claim any contribution from the Other Guarantors; and/or
(iii) to take the benefit (in whole or in part and whether by way
of subrogation or otherwise) of any rights of the Investors
hereunder or of any other security taken pursuant to, or in
connection with, the Subscription Agreement or the
Debenture by all or any of the Investors.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Guarantors hereby represents and warrants to each of
the Investors that:-
(a) it is a company validly incorporated, duly organised and
subsisting and of good standing under the law of the
jurisdiction under which it was incorporated;
(b) it has the necessary capacity to give this Guarantee and to
perform and observe the obligations contained herein. The
execution, delivery and performance of this Guarantee have
been duly authorised by all necessary corporation action of
the Guarantor and do not contravene the constitution of the
Guarantor under any applicable laws or regulations. This
74
Guarantee, as executed and delivered constitutes legal
valid and binding obligations of the Guarantor and also
bought in accordance with its terms;
(c) the execution and delivery of, and the performance of the
provisions of, this Guarantee does not and will not during
the continuance of this Guarantee (i) contravene any
existing applicable laws, ordinance, regulation, decree,
instrument, franchise, concession, licence or permit, or any
order, judgement, decree or award, administrative or
governmental authority, department or agency presently in
effect an applicable, or (ii) contravene any contractual
restrictions binding on the Guarantors or any of its assets,
or (iii) cause any limit on any of the borrowing,
guaranteeing, charging or other powers of the Guarantor, or
(iv) create or result in or obliged the Guarantor to create
any lien, charge, security interest or encumbrance on the
whole or any part of the corporate Guarantor's property;
(d) all necessary governmental and other consents, authorities
and approvals to execute this Guarantee has been obtained
and are in full force, validity and effect;
(e) no litigation, attribution, administrative or other
proceedings pending before the court, tribunal, arbitrator
or governmental agency has been threatened against any of
the Guarantor; and
(f) the obligations of each of the Guarantors under this
Guarantee are direct, general, and unconditional obligations
and rank at least pari passu with all such Guarantor's other
present and future unsecured and unsubordinated and other
obligations.
4. FURTHER PRESERVATION OF RIGHTS
------------------------------
Should any purported obligation of the Company or any of the
Guarantors being the subject of this Guarantee be or become
wholly or in part invalid or unenforceable on any grounds
whatsoever, the Guarantor shall nevertheless be liable to the
Investors in respect of such purported obligation or liability as
if the same were wholly valid and enforceable in each of the
Guarantors as the principal debtor in respect thereof. Each of
the Guarantors hereby agrees to keep each of the Investors fully
indemnified against all damages, loss, costs and expenses arising
from any failure of the Company or any of the Guarantors to carry
out any of such purported obligations.
75
5. MISCELLANEOUS
-------------
(A) This Guarantee shall be binding on and each of which for the
benefit of each of the parties' successor and assign and personal
representatives (as the case may be) but no assignment may be
made of any of the rights obligations hereunder of any party
without the prior written consent of the other parties.
(B) This Guarantee may be signed in any number of counterparts, each
of which shall be binding on the party who shall have executed it
in which together shall constitutes but one Agreement.
(C) The Guarantors shall bear the legal and professional fees, costs
and expenses incurred in relation to the negotiation, preparation
and execution of this Guarantee.
(D) Any notice required to be sent must be in writing and shall be
given by delivering it to the address or facsimile number as
shown in Clause 12 of the Subscription Agreement.
(E) This Agreement shall be governed by and construed in accordance
with the laws of Hong Kong and the parties hereby submitted the
non-exclusive jurisdiction of the Supreme Court of Hong Kong. In
relation to any legal action or proceedings arising out of or in
connection with this Guarantee, each of the Guarantors have
irrevocably submitted in the Subscription Agreement to the courts
of Hong Kong and in relation thereto has appointed an agent for
service of process.
IN WITNESS WHEREOF the Guarantors have duly executed this Guarantee
the date and year first above written.
The Common Seal of )
SUNBASE ASIA, INC. )
was hereunto affixed )
in the presence of:- )
The Common Seal of )
SMITH ACQUISITION )
COMPANY INC. )
was hereunto affixed )
in the presence of:-] )
76
The Common Seal of )
CHINA INTERNATIONAL )
BEARING HOLDINGS LIMITED )
was hereunto affixed )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of GLORY MANSION LIMITED )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of WARDLEY CHINA )
INVESTMENT TRUST )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of MC PRIVATE EQUITY PARTNERS )
ASIA LIMITED )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of CHINE INVESTISSEMENT 2000 )
in the presence of:- )
77
SCHEDULE 5
----------
EMPLOYEES / DIRECTORS' OPTIONS
------------------------------
Exercise Price Number of Shares
Option Holder Years of Exercise Per Share per Option Rights
William Mckay one year from 16 Jan, 1996 $6.65 160,000
one year from 16 Jan, 1997 $7.75 160,000
one year from 16 Jan, 1998 $9.25 160,000
one year from 16 Jan, 1999 $10.75 160,000
one year from 16 Jan, 2000 $12.75 160,000
-------------
800,000
-------------
Billy Kan one year from 16 Jan, 1996 $6.375 200,000
one year from 16 Jan, 1997 $6.375 200,000
one year from 16 Jan, 1998 $6.375 200,000
-------------
600,000
-------------
Roger Li one year from 16 Jan, 1996 $6.375 200,000
one year from 16 Jan, 1997 $6.375 200,000
one year from 16 Jan, 1997 $6.375 200,000
-------------
600,000
-------------
Dickens Chang one year from 16 Jan, 1996 $6.375 15,000
one year from 16 Jan, 1997 $6.375 15,000
one year from 16 Jan, 1998 $6.375 20,000
-------------
50,000
-------------
Total 2,050,000
=============
The remaining 450,000 Shares may be granted by SAI's Compensation
Committee under SAI's 1995 Option Plan provided that the exercise price
per Share in relation to the grant of such option over the 450,000
Shares shall not be less than the fair market value of each Share on the
date such options are granted.
78
SCHEDULE 6
----------
CERTIFICATION ON CONVERSION NOTICE
[CERTIFICATION ON CONVERSION -- TO APPEAR ON THE CONVERSION NOTICE]
In connection with our exercise this day of [describe debenture and amount
to be exercised -- provide for defined terms, such as the Company, the
Debenture and the Common Stock], we hereby certify as follows (check one
box):-
[_] We are a non-U.S. person located outside the United States that is
acquiring the Common Stock for the account of a non-U.S. person and not
for distribution.
[_] We are a U.S. institutional investor that is acquiring the Common Stock
for our own account or accounts for which we exercise sole investment
discretion and not with a view to or for sale in connection with any
distribution thereof, and we have received such information concerning
the Company and the Common Stock as we have deemed relevant to our
decision to purchase the Common Stock. We agree that we will not resell
the Common Stock except pursuant to an exemption from the registration
requirements of the U.S. securities laws and any state "blue sky" or
securities laws.
79
SCHEDULE 7
----------
UNDERTAKING BY ACL
------------------
80
THIS UNDERTAKING dated the _______ day of ________________, 1996 is
made between:-
(1) ASEAN CAPITAL LIMITED, of Omar Hodge Building, Wickhams Cay I,
P.O. Box 362, Road Town, Tortola, British Virgin Islands ("ACL");
(2) WARDLEY CHINA INVESTMENT TRUST, of c/o Suite 1610, P.O. Box 1016,
885 West Georgia Street, Vancouver B.C., V6C 3E8, Canada
("WCIT");
(3) GLORY MANSION LIMITED, of Craigmuir Chambers, P.O. Box 71, Road
Town, Tortola, British Virgin Islands ("GML");
(4) MC PRIVATE EQUITY PARTNERS ASIA LIMITED, of P.O. Box 309, Ugland
House, South Church Street, Grand Cayman, Cayman Islands, British
West Indies ("MC PARTNERS"); and
(5) CHINE INVESTISSEMENT 2000, of L1118 Luxembourg, 14 Rue Aldringen
("CI 2000").
(The parties referred to at (2), (3), (4) and (5) hereinafter
collectively referred to as "INVESTORS" and each an "INVESTOR").
WHEREAS:-
(A) By a subscription agreement dated [ ] , 1996 (the "SUBSCRIPTION
AGREEMENT") which expression shall include such Debenture (as
made from time to time the supplemented or amended) and made
between (1) China Bearing Holdings Limited (the "COMPANY"); (2)
ACL; (3) China International Bearing Holdings Limited ("CIBHL");
(4) Sunbase Asia, Inc. ("SAI"); (5) Smith Acquisition Company
Inc. ("SPC"); (6) GML; (7) WCIT; (8) MC Partners and (9) CI 2000
under which, inter alia, the Investors have agreed to subscribe
for and the Company has agreed to issue Convertible Debentures up
to an aggregate principal value of US$11,500,000 upon such terms
and conditions as described therein.
(B) It is the condition of the Subscription Agreement that ACL shall
execute the ACL Undertaking in respect of the payment obligations
of the Company under the Subscription Agreement and the
Debentures and accordingly, this Undertaking supplements the
Subscription Agreement and the Debentures.
(C) Expressions defined in the Subscription Agreement shall, unless
specifically defined or re-defined herein or the context
otherwise requires, bear the same meanings when used herein.
81
NOW THIS UNDERTAKING WITNESSETH AND IT IS HEREBY AGREED as follows:-
1. GUARANTEE
---------
In consideration of the subscription of the Debentures pursuant
to the Subscription Agreement by the Investors, ACL hereby as
primary obligor, irrevocably and unconditionally guarantees and
undertakes to each of the Investors:-
(i) the full due and punctual payment of all sums now or
subsequently payable under the Subscription Agreement or the
Debentures by the Company and agrees to perform or procure
the performance of such payment obligations of the Company
from time to time and on demand by any of the Investors pay
any and every sum or sums of money which the Company shall
at any time be liable to pay to the Investors under or
pursuant to the Subscription Agreement or the Debentures as
the case may be; and
(ii) to indemnify the Investors from time to time on demand by
any of the Investors from and against any losses or costs
incurred by the Investors or any of them as a result of any
of the payment obligations of the Company under the
Subscription Agreement or the Debentures or any payment
obligations thereunder not being fulfilled or performed or
being or becoming void, voidable, unenforceable or
ineffective as against the Company or any of the Guarantors
as the case may be for any reason whatsoever, whether or not
known to the Investors or any of them or any other person.
ACL's obligations hereunder is as if it is a principal debtor in
respect of any amount and liability and obligation and not merely
a surety, and without any requirement for the Investors first to
have recourse against the Company or any of the Guarantors as the
case may be and such liability shall not be impaired or reduced
by any undertaking granted.
2. UNDERTAKING
-----------
ACL hereby further undertakes to use its best endeavours
(including the exercise of any voting rights and control it has)
to ensure that the obligations of SAI, CBHL, CIBHL and SPC under
the Subscription Agreement, the Debentures and the Guarantee
(including but without limitation to the specific undertakings
under Clauses 8, 9 and 10 of the Subscription Agreement) will be
observed, fulfilled and performed and shall do all that is
necessary so as to give effect to, render possible or assist in
the fulfilment or compliance with such provisions.
82
3. PRESERVATION OF RIGHTS
----------------------
(A) The obligations of ACL herein contained shall be in addition to
and independent of every other security which the Investors or
any of them may at any time hold in respect of any of the
Company's or the Guarantors' obligations under the Guarantee.
(B) The obligations of ACL herein contained shall constitute and be
continuing obligations notwithstanding any settlement of account
or other matter or thing whatsoever, and in particular but
without limitation, shall not be considered satisfied by any
intermediate payment or satisfaction of all or any of the
obligations of the Company or any of the Guarantors and shall
continue in full force and effect until final payment in full of
all amounts owing by the Company.
(C) None of the obligations of ACL herein contained nor the rights,
powers and remedies conferred upon the Investors by the
Subscription Agreement or the Debenture or this Undertaking or by
law shall be discharged, impaired or otherwise affected by:-
(i) the winding-up, dissolution, administration or re-
organisation of the Company or any of the Guarantors or any
other person or any change in its status, function, control
or ownership;
(ii) any of the obligations of the Company or any of the
Guarantors or any other person hereunder or under any other
security taken in respect of any of its obligations
hereunder being or becoming illegal, invalid, unenforceable
or ineffective in any respect;
(iii) time or other indulgence being granted or agreed to be
granted to the Company or any of the Guarantors or any
other person in respect of its obligations hereunder or
under any such other security;
(iv) any amendment to, or any variation, waiver or release of,
any obligation of the Company or any of the Guarantors or
any other person hereunder or under any such other
security;
(v) any failure to take, or fully to take, any security
contemplated hereby or otherwise agreed to be taken in
respect of the Company, any of the Guarantor's or any other
person's obligations hereunder;
(vi) any failure to realise or fully to realise the value of, or
any release, discharge, exchange or substitution of, any
security taken in respect of the
83
Company, any of the Guarantor's or any other person's
obligations hereunder; or
(vii) any other act, event or omission which, might operate to
discharge, impair or otherwise affect any of the
obligations of any of the Guarantors contained in the
Guarantee or any of the rights, powers or remedies
conferred upon the Investors or any of them by the
Subscription Agreement or the Debentures or by law.
(D) None of the Investors shall be obliged before exercising any of
the rights, powers or remedies conferred upon each of them
hereunder or by law:-
(i) to make any demand of the Company or any of the Guarantors;
(ii)to take any action or obtain judgement in any court against
the Company or any of the Guarantors;
(iii) to make or file any claim or proof in a winding-up or
dissolution of the Company or any of the Guarantors; or
(iv)to enforce or seek to enforce any other security taken in
respect of any of the obligations of the Company or any of the
Guarantors.
(E) ACL agrees that, so long as any amounts are or may be owed by the
Company or the Guarantors or when any of the Company or the
Guarantors is under any actual or contingent obligations to any
of the Investors, it shall not exercise any rights which it may
at any time have by reason of performance by it of its
obligations hereunder:-
(i) to be indemnified by the Company or the Guarantors; and/or
(ii)to claim any contribution from the Company or the Guarantors;
and/or
(iii) to take the benefit (in whole or in part and whether by way
of subrogation or otherwise) of any rights of the Investors
hereunder or of any other security taken pursuant to, or in
connection with, the Subscription Agreement or the Debenture by
all or any of the Investors.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
ACL hereby represents and warrants to each of the Investors
that:-
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(a) it is a company validly incorporated, duly organised and
subsisting and of good standing under the law of the
jurisdiction under which it was incorporated;
(b) it has the necessary capacity to give this Undertaking and
to perform and observe the obligations contained herein. The
execution, delivery and performance of this Undertaking have
been duly authorised by all necessary corporation action and
do not contravene the constitution of ACL under any
applicable laws or regulations. This Undertaking, as
executed and delivered constitutes legal valid and binding
obligations of ACL and also bought in accordance with its
terms;
(c) the execution and delivery of, and the performance of the
provisions of, this Undertaking does not and will not during
the continuance of this Undertaking (i) contravene any
existing applicable laws, ordinance, regulation, decree,
instrument, franchise, concession, licence or permit, or any
order, judgement, decree or award, administrative or
governmental authority, department or agency presently in
effect an applicable, or (ii) contravene any contractual
restrictions binding on ACL or any of its assets, or (iii)
cause any limit on any of the borrowing, guaranteeing,
charging or other powers of ACL, or (iv) create or result in
or obliged ACL to create any lien, charge, security interest
or encumbrance on the whole or any part of the ACL's
property;
(d) all necessary governmental and other consents, authorities
and approvals to execute this Undertaking has been obtained
and are in full force, validity and effect;
(e) no litigation, attribution, administrative or other
proceedings pending before the court, tribunal, arbitrator
or governmental agency has been threatened against ACL; and
(f) the obligations of ACL under this Undertaking are direct,
general, and unconditional obligations and rank at least
pari passu with all ACL's other present and future unsecured
and unsubordinated and other obligations.
5. FURTHER PRESERVATION OF RIGHTS
------------------------------
Should any purported payment obligation of the Company being the
subject of this Undertaking be or become wholly or in part
invalid or unenforceable on any grounds whatsoever, ACL shall
nevertheless be liable to the Investors in respect of such
purported payment obligation or liability as if the same were
wholly valid and enforceable as the principal debtor in respect
thereof. ACL hereby agrees to
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keep each of the Investors fully indemnified against all damages,
loss, costs and expenses arising from any failure of the Company
to carry out any of such purported payment obligations.
6. MISCELLANEOUS
-------------
(A) This Undertaking shall be binding on and each of which for the
benefit of each of the parties' successor and assign and personal
representatives (as the case may be) but no assignment may be
made of any of the rights obligations hereunder of any party
without the prior written consent of the other parties.
(B) This Undertaking may be signed in any number of counterparts,
each of which shall be binding on the party who shall have
executed it in which together shall constitutes but one
Agreement.
(C) ACL shall bear the legal and professional fees, costs and
expenses incurred in relation to the negotiation, preparation and
execution of this Undertaking.
(D) Notices required to be sent pursuant to this Undertaking must be
sent in writing to the addresses or facsimile number of the
parties contained in Clause 12 of the Subscription Agreement.
(E) This Agreement shall be governed by and construed in accordance
with the laws of Hong Kong and the parties hereby submitted the
non-exclusive jurisdiction of the Supreme Court of Hong Kong. In
relation to any legal action or proceedings arising out of or in
connection with this Undertaking, ACL has irrevocably submitted
in the Subscription Agreement to the courts of Hong Kong and in
relation thereto has appointed an agent for service of process.
IN WITNESS WHEREOF ACL have duly executed this Undertaking the date
and year first above written.
The Common Seal of )
ASEAN CAPITAL LIMITED )
was hereunto affixed )
in the presence of:- )
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SIGNED by )
duly authorised for and on behalf )
of GLORY MANSION LIMITED )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of WARDLEY CHINA )
INVESTMENT TRUST )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of MC PRIVATE EQUITY PARTNERS )
ASIA LIMITED )
in the presence of:- )
SIGNED by )
duly authorised for and on behalf )
of CHINE INVESTISSEMENT 2000 )
in the presence of:- )
SIGNATURE PAGE
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of CHINA BEARING )
HOLDINGS LIMITED )
in the presence of:- )
87
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of ASEAN CAPITAL LIMITED )
in the presence of:- )
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of )
CHINA INTERNATIONAL )
BEARING HOLDINGS LIMITED )
in the presence of:- )
SIGNED by Dr. Gunter Gao )
duly authorised for and on behalf )
of SUNBASE ASIA, INC. )
in the presence of:- )
SIGNED by Mr. Billy Kan )
duly authorised for and on behalf )
of SMITH ACQUISITION )
COMPANY INC. )
in the presence of:- )
SIGNED by Ms. Jessie Fok as attorney )
duly authorised for and on behalf )
of GLORY MANSION LIMITED )
in the presence of:- )
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SIGNED by Mr. George Raffini )
duly authorised for and on behalf )
of WARDLEY CHINA )
INVESTMENT TRUST )
in the presence of:- )
SIGNED by Mr. Yiji Komiya )
duly authorised for and on behalf )
of MC PRIVATE EQUITY PARTNERS )
ASIA LIMITED )
in the presence of:- )
SIGNED by Mr. Fabrice Jacob )
duly authorised for and on behalf )
of CHINE INVESTISSEMENT 2000 )
in the presence of:- )
89