Exhibit 10.19
Certain portions of this Exhibit have been omitted pursuant to a request for
"Confidential Treatment" under Rule 24b-2 of the Securities and Exchange
Commission. Such portions have been redacted and bracketed in the request and
appear as [ ] in the text of this Exhibit. The omitted confidential information
has been filed with the Securities and Exchange Commission.
AGREEMENT OF PURCHASE OF EQUIPMENT
CHAPTER I - GENERAL PRINCIPLES
1.1 The following contract is made by Shandong Huaguan Group General Company
(hereinafter as Party A) and the American Pacific Aviation and
Technology Corporation (hereinafter as Party B), based on the principle
of mutual benefits and through negotiation, the purchase by Party A from
Party B the production equipment of contactless smart cards.
1.2 It is agreed that Party B shall provide Party A with a full set, brand
new, and state-of-art production lines for the production of contactless
smart cards and the complete production technology, technical
information and all software, to ensure that strength and durability of
the mechanically tested cards produced by Party A meeting the ISO/Mifare
standards, and of the electrically tested cards meeting the IEC
standards. Party B shall also act as the sole agent of selling the
contactless smart cards for and produced by Party A, the price of which
shall be negotiated every three years. In the first three years,
18,000,000 pieces of cards shall be sold to Party B at US$[ ]/piece.
For this purpose Party A and Party B shall, in addition to this
agreement, sign the "Agreement of Technical Service and Licensing" and
"Agreement for the Purchase of Raw Materials and Sale of Products". Both
Party A and Party B have agreed, for the purpose of promoting the
domestic local market, Party A will sell 10% of the total contactless
smart cards produced in first year, 20% of the second year, and 30% of
the third year. Party B, as the sole sales agent, shall take over any
unsold amount in the following month.
1.3 According to the laws and rules and regulations of the Peoples Republic
of China and based on the principle of mutual benefits, the provisions
of this agreement shall become effective and shall be executed at the
same time with the "Agreement of Technical Services and Licensing" and
the "Agreement for the Purchase of Raw Materials and Sale of Products".
CHAPTER II - PARTIES
2.1 Party A: Shandong Huaguan Group General Company is a registered
corporation in the Peoples Republic of China.
Legal Address: 134 Wen Hua Road South, Lai Wu City, Shandong, People's
Republic of China
Legal Representative: Wang Shi Fan
Title: Chairman
Nationality: Chinese
Telephone: (0634) 621-2901
Fax: (0634) 621-5934
Zip Code: 271100
Bank: Bank of China Lai Wu Branch
Account Number: US Dollars RMB
2.2 Party B: American Pacific Aviation & Technology Corp
Legal Address: One Sansome Street, 19th Street, San Francisco, CA 94104,
USA
Legal Representative: Eric Gravell
Title: Chairman
Nationality: U.S.
Telephone: (415) 951-1078
Fax: (415) 951-1046
Zip Code: 550017
CHAPTER III - NAME, SPECIFICATIONS, QUANTITY, PRICE AND DELIVERY OF EQUIPMENT
3.1 Party B shall provide Party A with a complete brand new production line
in the state-of-art of the late 1990s (see Appendix I - "Details of
Equipment, Moulds and Accessories") and accessories for the production
of contactless smart cards. Said production line shall be able to
produce 750 pieces of smart cards per hour. The total cost of the
equipment and the moulds (including technical services, licensing and
accessories) shall be US$[
] US Dollars), based on the CIF Jinan Airport price.
3.2 Before packaging said production line for shipment, Party A shall send
five technical staff to come to the United States to conduct preliminary
inspection of the equipment. Party B shall pay for the expense of the
two-way air tickets, and provide lodging and transportation in the
United States for the staff of Party A. Staff of Party A will stay in
the United States for two weeks.
CHAPTER IV - PAYMENT
4.1 Within six weeks after the agreement is signed and approved, Party A
shall make a deposit in the amount of US$[ ], or [ ] of the total
contractual amount, to Party B in form of T/T. (AMPAC will issue
stand-by LC for [ ]).
4.2 Two months before equipment is shipped, Party A shall issue a Letter of
Credit representing [ ]% of the total price to Party B.
4.3 After approval of the preliminary inspection and one month before
packaging for shipment, Party B shall issue a Revolving Letter of Credit
to Party A for the purchase of 18,000,000 pieces of contactless smart
cards for a period of three years (starting from the date when Party A
begins production), the price of which shall be FOB Jinan airport
US$[ ]/piece. The total amount of the Letter of Credit shall be
US$[ ].
4.4 Upon receipt and successful test running of the equipment, Party A shall
pay Party B a Letter of Credit in the amount of US$[ ], or [ ] of
the total contractual price.
CHAPTER V - SPECIFICATIONS AND TECHNICAL CONDITIONS OF THE EQUIPMENT
5.1 The production line supplied by Party B must be brand new, complete and
shall correspond to the specifications of Appendix I - "Details of
Equipment, Moulds and Accessories".
5.2 The performance and quality of the equipment shall meet the following
requirements:
5.2.1 Operation Capacity: Shall meet the specifications of the manual of the
equipment
5.2.2 Production Capacity: 6 million pieces/year
5.2.3 Product Specification: Shall meet the ISO/Mifare standards
5.2.4 Product Quality: the strength and durability of the mechanically tested
cards shall meet the ISO standards, and the electrically tested cards
shall meet the IEC standards
5.2.5 Reject rates: under 3% (not including chips)
5.3 The following accessorize shall be accompanied with the equipment
delivered by Party B:
5.3.1 Special operation tools, maintenance and repair tools and testing
tools
5.3.2 Easily damaged parts of equipment (the quantity shall be enough for one
year normal consumption)
5.3.3 Qualified raw materials to b used for the 56-hour test run production
(chips used during the test run period are fake).
5.4 The following documents shall be accompanied with the equipment
delivered by Party B:
5.4.1 The quality approval certificate and the manual of the equipment
5.4.2 The packaging list of the equipment
5.4.3 Manuals of installation, testing, operation and maintenance
5.4.4 The quality assurance certificate and documentation, as specified in
Chapter VII
5.4.5 Drawings of easily damaged parts and the list of accessories.
5.5 After making a deposit by Party A, Party B shall, within forty days,
mail a technical layout drawing and power supply information to Party A
for the purpose of technical design
5.6 Party B shall, two months before the installation and test running of
the equipment, send the following documents via air mail or dispatch
staff to provide on-site guidance for Party A:
5.6.1 The installation diagram and the foundation diagram
5.6.2 The power parameters (including electrical power, compressed air, water
and stream) of the equipment, and the technical information of power
supply and special shop requirements
5.7 The power utilization standards shall correspond to the power standards
of the Peoples Republic of China, that is, 380+-10 volts for the
transformer, and 50+-5% hertz for the frequency.
CHAPTER VI - INSTALLATION, TROUBLE-SHOOTING, TEST RUNNING
AND RECEIPT AND ACCEPTANCE
6.1 Party B shall be responsible for installing and test running the
equipment, as well as training the staff for Party A, to ensure that
successful installation and test running be completed within two weeks
upon the arrival of the equipment in the shop. Party A shall provide
technical staff, workers and other needs to accomplish the job.
6.2 The test run period shall be seven working days, eight hours a day. The
purpose of the test run is to inspect the production equipment, and to
examine if the products produced meet the requirements as specified in
Provision 5.2. After satisfactory inspection and examination, the
equipment shall be received and accepted.
6.3 The process of receipt and acceptance includes, in addition to test run,
inspection of whether documentations accompanied are complete and
whether the quality and quantity of the raw materials accompanied meet
the requirements, and the conditions of the easily damaged parts.
6.4 No breakdown of the equipment shall be allowed during the test run
period. In the event the breakdown rate or the rate of the rejected
products is under 97%, it shall be ruled that the test run fails to pass
the receipt and acceptance process and that a second test run shall be
made to test the equipment for another fourteen working days until the
equipment meeting the receipt and acceptance standards. After receipt
and acceptance, both parties shall sign the "Certificate of Receipt and
Acceptance".
6.5 Large volume of production shall only begin after receipt and acceptance
of the equipment. Both parties agree that after receipt and acceptance,
the production volume of the first month shall meet 50% of the
contractual volume, the second month, 70%, and the third month, 100%.
6.6 Party B shall assume the cost of its staff during their period of
working in the factory. Party A shall provide food in the factory and
transportation within the city.
CHAPTER VII - QUALITY INSPECTION
7.1 Party B shall guarantee that the equipment is made of top materials, in
top craftsmanship. The quality, specification and performance of the
equipment shall meet the requirements specified in this contract.
7.2 Before delivery, Party B shall conduct a thorough and full inspection of
the quality, specification and performance, as well as the
quantity/weight of the equipment, and shall provide a certificate of
inspection, along with the details and results of inspection confirming
that the quality and quantity of the equipment meets the requirements of
this contract. A quality and quantity inspection certificate shall be
provided by Party B when the equipment is delivered to Party A.
7.3 Upon arrival of the equipment at the destination, Party A shall, in
accordance to the laws and rules and regulations of the Peoples Republic
of China, apply to have the equipment inspected by the Import and Export
Inspection Bureau (hereinafter as Inspection Bureau). Parties A and B
shall be both present at said inspection. Party A shall notify Party B
thirty days in advance the inspection date and representative from Party
B shall arrive at the inspection site on said inspection date. In the
event Party B does not show up on time or does not send any
representative to participate in the inspection, the Inspection Bureau
shall continue the inspection as scheduled and Party A shall notify the
result to Party B who shall acknowledge the result accordingly.
7.4 In the event that any quality or quantity error, or any missing part is
found during the inspection that does not meet the requirements of this
agreement, or any damage due to packaging, Party B shall within six
weeks make compensation, or shall make repairs at its own cost. In the
event that any damage is caused by Party A, Party B shall replace the
damaged item as soon as possible, and the cost of replacement shall be
assumed by Party A.
7.5 In the event the inspection finds any serious quality or quantity
problem of the equipment, Party A shall have the right to return the
equipment or request compensation based on the provisions of Chapter IX.
7.6 The warranty period of the equipment shall be 12 months, commencing the
date when the equipment is received and accepted. During the warranty
period Party B shall be responsible to repair or replace the equipment
if the equipment is damaged or broken due its inherent problem.
CHAPTER VIII - PACKAGING AND SHIPMENT
8.1 When packaging, Party B shall use a new and solid wood container with
necessary measures taken to prevent moist, shock, rust and rough loading
and unloading of the equipment to ensure that the package is suitable
for long distance transportation.
8.2 Packaging and Delivery Marks
8.2.1 Party B shall mark with paint at the four sides of the container such
information as the number of the container, the size, weight, net
weight, destination, receipt code, "face up", "handle with care", "no
moist", "hoisting point" and "gravity point".
8.3 Shipment Information
8.3.1 When shipping, Party B shall fax Party A the following information: A.
Date of Shipment, B. Port of Shipment, C. Port of Destination, and D.
Number, Name, Quantity, Weight, Total Weight and Size of the Container.
8.3.2 When shipping, Party B shall send Party A via express mail the
following information: A. Shipment Slip, with specification of the name
and the quantity of the merchandize; B. Packaging Slip (2 copies),
specifying the number, size, weight of the container, and the name,
quantity, net weight of
the merchandize, and the date of shipment; and C. The inspection
certificate provided by the manufacturer, as specified under Chapter
VII.
CHAPTER IX - COMPENSATION AND PENALTY
9.1 In the event Party B fails to execute this contract after Party B
receives the deposit required by this contract, Party B shall return all
deposits to Party A and shall, based on the USD loan interest rate of
China Bank of the date when the deposit is remitted, make a penalty
compensation for the period of delay at a rate twice the said interest
rate.
9.2 When executing this contract, if the specifications, quality and
quantity do not meet the requirements of this contract, Party A shall,
when presenting the inspection certificate of the Inspection Bureau,
have the right to request that Party B make compensation within 30 days
and Party B shall pay all the direct related loss and cost.
9.3 During the warranty period if it is due to the inherent problem of the
equipment itself which causes any production problem, Party A shall have
the right to request that Party B compensate.
9.4 Party A shall assume the cost of overtime for any delay of installation
and test running of the equipment caused by Party A.
9.5 In the event Party B does not respond within 30 days upon compensation
demand made by Party A, it shall be considered that Party B accept said
claim.
9.6 Except for force majeure as specified in Provision 10.1, in the event
the seller fails to deliver the merchandize on time according to the
contract, Party A shall agree that Party B can postpone its delivery
provided that Party B shall pay a penalty of 0.5% of the total cost for
every delayed week but this penalty shall not exceed 5% of the total
cost. In the event the delay of delivery exceeds ten weeks, Party A
shall have the right to terminate the contract and Party B shall still
pay for the penalty for the actual delayed days.
9.7 Without written agreement of Party B, Party A cannot transfer the patent
technology to a third party, nor Party A can duplicate the equipment of
Party B. Party B can request compensation from Party A for any violation
of this provision.
CHAPTER X - FORCE MAJEURE
10.1 During the time of manufacturing or in the process of shipping, in the
event of war, fire, flood, typhoon, earthquake or other force majeure
acknowledged by both parties that causes Party B fail or delay to
execute the provisions of this contract as schedule, Party B shall
assume no liability. In the event of force majeure, Party B shall notify
Party A immediately and shall within two weeks, send a (certificate
issued by the) government agency (to confirm said force
majeure) to Party A via air mail.
CHAPTER XI - ARBITRATION
11.1 In the event of any dispute arises during the execution of this
agreement or over this agreement and when both parties fail to settle
the dispute by friendly negotiation, said dispute shall be brought for
arbitration. The dispute shall be heard by the China International
Economic and Trade Arbitration Committee, regardless who the plaintiff
is, and shall be conducted according to the arbitrary procedures set by
said committee.
11.2 In the event that both parties fail to settle the dispute by friendly
negotiation within 60 days, plaintiff shall have the right to request
arbitration and the arbitration shall be conducted in Chinese.
11.3 The decision of the Arbitration Committee shall be final and shall have
binding effect upon both parties. Neither party can request the court or
other government agencies to change the decision. Arbitration fee shall
be paid by the losing party.
11.4 During the period of arbitration, other non-disputed provisions of the
contract shall remain legally valid.
CHAPTER XII - GOVERNING LAWS AND VALIDATY
12.1 When executing this agreement, both Parties A and B shall comply with
the laws and rules and regulations of the Peoples Republic of China.
12.2 This agreement shall be signed by representative of both parties and
shall apply for official approval by respective government. The date of
approval obtained by either Party A or B, whicever is later, shall be
considered as the effective date of this agreement.
12.3 Both parties shall fax the government approval to the other party and
shall be followed with a letter of confirmation. In the event that after
six months any party fails to obtain the government approval, the other
party shall have the right to terminate the agreement.
12.4 After this agreement becomes effective, both Parties A and B shall, if
needed, negotiate revisions to accommodate the practicalities of
executing this agreement. These revisions shall become effective when
both parties sign the amendment. Neither party can amend the agreement
individually.
CHAPTER XIII - DOCUMENTS
13.1 This agreement shall be written in Chinese.
13.2 This agreement is signed April 1, 2000
13.3 This agreement contains four original copies, with each party holding
two copies.
PARTY A: Shandong Huaguan Group General Company
Company Representative: Wang Shifan
Signature:
PARTY B: The American Pacific Aviation & Technology Corporation
Company Representative: Allen Yue
Signature: