Exhibit 10.32
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.
EQUIPMENT PURCHASE AGREEMENT
Number: TRANCO-PC001
August 2001
CHAPTER I - GENERAL PRINCIPLES
1.1 This contract is made between the Tranco Ltd. (hereinafter referred as
Party A) and the American Pacific Aviation Technology Company (hereinafter
referred as Party B), based on the principle of mutual benefit and through
friendly negotiations, to purchase from Party B by Party A the equipment
for the production of the contactless smart cards.
1.2 It is agreed that Party B shall provide a full set, brand new, and
state-of-art production line and the complete production technology,
technical information and software for the production of contactless smart
cards, which shall ensure that the strength and durability of the
mechanically tested cards produced by Party A meet the standards of
ISO/IEC7810, ISO/IEC10536, and ISO/IEC14443.
1.3 According to the laws and rules and regulations of the People's 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".
CHAPTER II - PARTIES
2.1 Party A: Tranco Limited
Legal Address: Unit B, 9/F Kingpower Commercial Building,
409-413 Jaffe Road, Wanchai, Hong Kong
Telephone: 852-2836-3299
Fax:852-2836-3990
2.2. Party B: American Pacific Aviation & Technology Corp.
Legal Address: Sansome Street, 19th Street
San Francisco, CA 94104, USA
Telephone: (415) 951-1078
Fax: (415) 951-1046
CHAPTER III - NAME, SPECIFICATIONS, QUANTITY, PRICE AND DELIVERY
1
OF EQUIPMENT
3.1 Party B shall provide Party A with a complete brand new and state-of-art
production line (see Appendix I) and parts (see Appendix II) for the
production of contactless smart cards. Said production line shall be able
to produce 750-850 pieces of smart cards per hour. The total cost of the
equipment shall be US$[
] US Dollars), based on the CIF Zhu Hai Jui Zhou Port cost, which
shall include the equipment, moulds, technical service, patent and
licensing, and accessories.
3.2 Before packaging said production line for shipment, Party A shall send
three technical staff to come to the United States to conduct preliminary
inspection of the equipment. Party B shall pay for the expense of the
two-way air tickets, and provide lodging and transportation in the United
States for the visiting staff of Party A. Staff of Party A will stay in
the United States for two weeks.
3.3 Delivery Date of the Equipment: The production line shall be delivered no
later than October 15, 2001.
CHAPTER IV - PAYMENT
4.1 Within 10 working days upon the effect of this agreement, Party B shall
provide a guarantee letter from the bank for [ ] of the total cost of the
equipment in the amount of US$[ ] US
Dollars). Within three days upon receipt of the bank guarantee from Party
B, Party A shall make payment to the bank of Party B through T/T.
4.2 Withn 20 working days upon the effect of this agreement, Party A shall
issue a Letter of Credit at [ ] of the total amount of the agreement to
Party B, which is US$[ ] US
Dollars).
4.3 Upon approval of preliminary inspection made by Party A in the United
States and after Party B ship the equipment, Party B shall, based on the
shipment documents and preliminary inspection report, negotiate with Party
A for portion of the amount of the Letter of Credit specified in 4.2, that
is, [ ] of the total price of the equipment, which is US$[
] US Dollars).
2
4.4 Upon completion of installation, test-run and acceptance, Party A shall
negotiate with Party B the balance of the Letter of Credit specified in
Provision 4.2, that is, [ ] of the total cost of the equipment, which is
US$[ ] US Dollars).
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 - "Equipment
Functions and Technical Specifications".
5.2 The performance and quality of the equipment shall meet the following
requirements:
5.2.1 The operation capacity of the equipment shall meet the
specifications of the manual of the equipment
5.2.2 The production capacity of the equipment: 750-850 pieces/hour
5.2.3 Product Specification: Meeting the ISO standards
5.2.4 Product Quality: the strength and durability of the cards,
when mechanically tested, shall meet the ISO standards, and
when electronically tested, shall meet the IEC standards.
5.3 Party B shall deliver the following supplements along with the equipment:
5.3.1 Special operation tools, maintenance and repair tools and
testing tools (See Appendix IV)
5.3.2 Wearing parts of equipment (enough for one year normal
consumption) (See Appendix II), and special mould for the
production of identification card for the Security Department.
5.3.3 Approved raw materials needed for the 56-hour production test
run (Fake chips will be used for 48 hours and real chips will
be used for 8 hours during the test run period. After the test
run period, said chips shall be returned to Party B)
5.4 Party B shall deliver the following technical documents when packaging and
shipping the equipment (See Appendix III):
3
5.4.1 Quality approval certificate and manual of the equipment
5.4.2 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 wearing parts and the list of accessories.
5.5 Upon effect of the contract, Party B shall, within 40 working days, mail a
technical layout drawing and power supply information to Party A for
technical design purpose. Party B shall, within 30 working days, provide
Party A with the general information of suppliers of materials for
production of contactless smart cards.
5.6 Party B shall, two months before the installation and test running of the
equipment, mail the following documents to Party A via air mail or have
staff delegated to work at Party A's place to provide instructions:
5.6.1 The installation diagram and the foundation diagram
5.6.2 The power parameters (including 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 those of the People's
Republic of China, that is, 380(+ or -)10 volts for the transformer, and
50(+ or -)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 trouble-shooting the
equipment, and training the staff of Party A, ensuring that the
installation and trouble shooting of the equipment be completed within two
weeks after the arrival of the equipment in the shop. Party A shall
provide the necessary technical staff, workers and other necessities to
accommodate the project.
6.2 The test run period shall be seven working days, at eight hours per day.
The purpose of the test run is to inspect the production equipment, and to
examine
4
whether the products produced meet the requirements specified in
Provision 5.2. After approval of test results by Parties A and B, the
receipt and acceptance certificate shall be signed.
6.3 During the test run period, if the acceptance rate of the product falls
under the level of 97%, a second testing shall be made to test the
equipment for another six working days, Party B shall provide the
materials for the test run.
6.4 Large volume of production shall not begin until receipt and acceptance is
completed.
6.5 Party B shall assume the cost of its staff during their period of working
in the factory. Party A shall provide food by the factory and
transportation within the city.
CHAPTER VII - QUALITY INSPECTION
7.1 Party B shall guarantee that the equipment is made by top craftsmanship
and of top materials. 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 the 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 People's Republic
of China, request that the Import and Export Inspection Bureau
(hereinafter as Inspection Bureau) to conduct an inspection. Parties A and
B shall both be present at said inspection. Party A shall notify Party B
thirty days in advance about the inspection date and representative from
Party B shall arrive at the inspection site of A on said inspection date.
In the event Party B fails to show up on time or fails to send any
representative to participate in the inspection, the Inspection Bureau
shall continue inspection as scheduled and the result of which shall be
notified by
5
Party A to Party B and Party B shall acknowledge the result accordingly.
7.4 In the event the inspection finds any quality or quantity error, or any
missing part 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 paid 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 for repairing the equipment if the
damage of the equipment is caused by the defects of the equipment.
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. If the package material is the conifruticeta
type, Party B shall provide proof that the material used has been
fumigated. If the package material is the non-conifruticeta type, Party B
shall provide description of the type of material used which will be used
by Party A to report to Custom.
8.2 Packaging and Delivery Marks
Party B shall mark with non-erasable paint at the four sides of the
container such information as the number of the container, the size, gross
weight, net weight, destination, receipt code, "face up", "handle with
care", "no moist", "hoisting point" and "gravity point". The mark to be
used under this agreement shall be:
ZEP2001-PC001
-------------------
Zhuhai, China
6
8.3 Shipment Information
8.3.1 Within two days after shipping, Party B shall fax Party A the
following information:
A. Date of Shipment, B. Port of Shipment, C. Port of
Destination, D. Number, Name, Quantity, Weight, Total Weight
and Size of the Container.
8.3.2 Within two days after shipping, Party B shall send the
following information to Party A via express mail:
A. Invoice, with specification of the name and the quantity
of the merchandise;
B. Packaging Slip which specifies the number, size, weight
of the container, and the name, quantity, net weight of
the merchandise, and the date of shipment;
C. Original ocean bill of lading, with specifications of
the container number, the size, the weight, name of the
merchandize, net weight, date of shipment, name of the
vessel, mark, and the Letter of Credit number.
D. Inspection certificate provided by the manufacturer, as
specified in Chapter VII.
E. Insurance policy
CHAPTER IX - COMPENSATION AND PENALTY
9.1 In the event Party A, within 10 days upon the arrival of the equipment at
the destination port, finds any disagreement of the specifications,
quality and quantity of the equipment as specified in this contract, Party
A shall, by presenting the inspection certificate of the Inspection
Bureau, request compensation from Party B.
9.2 Party A shall assume the actual cost of overtime for any delay of
installation and testing of the equipment caused by Party A.
9.3 In the event Party B fails to respond within 30 days after Party A makes
its claim for compensation, it shall be considered that Party B accept the
claim. In the event Party B presents a timely written dispute, both
parties shall try to settle the dispute by negotiation. In the event the
negotiation fails to settle the dispute, either party shall have the
right, according to Article XI, request for arbitration.
7
9.4 Except for force majeure as specified in Provision 10.1, in the event the
seller fails to deliver the merchandise on time according to the contract,
Party A shall agree that Party B postpone delivery provided that Party B
shall pay a penalty at 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 of the scheduled date, Party A shall have
the right to terminate the contract and Party B shall still pay for the
penalty for the actual delayed days.
9.5 Without written agreement of Party B, Party A cannot transfer the patent
technology and licensing to any third party, nor Party A can duplicate the
equipment of Party B. In the event Party A allows any third party to use
said technology at its discretion, Party A shall pay Party B an amount of
US$[ ] for violation of the contract. In the event Party A duplicates
the technology of Party B, it shall pay Party B an amount of US$[ ]
for defaulting the contract. Payment of this amount does not waive the
right of Party B to prosecute against any third party or Party A for
violation of rights.
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, via air mail, a government
issued certificate to Party A confirming said force majeure.
10.2 When the force majeure vanishes, both parties shall negotiate whether to
continue executing the contract.
CHAPTER XI - ARBITRATION
11.1 In the event there arises any dispute during the execution of this
agreement or over this agreement and when both sides 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 Foreign Trade Arbitration Committee, in Beijing, according
to the procedures set by said committee.
8
11.2 The decision of the Arbitration Committee shall be final and shall have
binding effect upon both parties. Arbitration fee shall be paid by the
losing party.
11.3 During the period of arbitration, both parties shall continue to execute
other non-disputed terms of the contract.
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 People's Republic of China.
12.2 This agreement shall become effective upon the date signed.
12.3 After this agreement becomes effective, both Parties A and B shall, if
needed, discuss revisions to accommodate the practicalities of executing
this agreement. These revisions shall become effective when signed by both
parties. Neither party can amend the agreement at its own discretion.
CHAPTER XIII - DOCUMENTS
13.1 This agreement shall be written in Chinese.
13.2 This agreement is signed in August 2001.
13.3 This agreement contains four original copies.
PARTY A:
Tranco Limited.
Company Representative: (signature)
August 10, 2001
PARTY B:
The American Pacific Aviation & Technology Corporation
Company Representative: (signature)
August 10, 2001
9
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.
List of Production Line Equipment and Laboratory Instruments Included in This
Set of Production Line
- --------------------------------------------------------------------------------------------
Serial Quantity Name Model Price
No. of Equipment No. (in US$10,000)
- --------------------------------------------------------------------------------------------
Production 1 1 Hole Punch Machine CICC-001 [ ]
Line
-------------------------------------------------------------------------
IC Hole Punch Machine
and Parts, Easily
Wearout parts
-------------------------------------------------------------------------
2 1 Pick & Place With CICC-002 [ ]
Module Testing
-------------------------------------------------------------------------
IC Module Pick and
Place Machine with
parts, easily wear-
out parts, and PETG
film and PVC film,
total 1500 kg, for
test run purpose
-------------------------------------------------------------------------
3 1 Ultrasonic Wire CICC-003 [ ]
Implanting (4)
-------------------------------------------------------------------------
IC Wire Implanting
Machine (4) and parts,
and easily wear-out
parts (including full
set of equipment tools)
-------------------------------------------------------------------------
4 1 Welding With Testing CICC-004 [ ]
Reader
-------------------------------------------------------------------------
IC Module Welding
Machine and parts and
easily wear-out parts
-------------------------------------------------------------------------
5 1 Bonding Re-work CICC-005 [ ]
Station
-------------------------------------------------------------------------
IC Module Re-work
Machine
-------------------------------------------------------------------------
6 1 Tacker CICC-006 [ ]
-------------------------------------------------------------------------
Tacker
-------------------------------------------------------------------------
7 1 Lamination System CICC-007 [ ]
-------------------------------------------------------------------------
IC Smart Card
Laminting System and
parts, easily wear-out
parts
-------------------------------------------------------------------------
8 1 Cooling System CICC-008 [ ]
-------------------------------------------------------------------------
Cooling System and
parts, easily wear-out
parts
-------------------------------------------------------------------------
9
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Laboratory 10 1 Pull Tester MP5/230 [ ]
-------------------------------------------------------------------------
Pull Tester
- --------------------------------------------------------------------------------------------
13
11 1 Frequency Analyzer DEME-30 [ ]
10
-------------------------------------------------------------------------
Frequency Analyzer
-------------------------------------------------------------------------
12 1 Lab Temp Chamber CICC-112 [ ]
(T:-25'C-85 C. M
H:40%-95%)
- --------------------------------------------------------------------------------------------
High and Low
Temperature Test
Chamber
- --------------------------------------------------------------------------------------------
13 1 Card Testing Machine CICC-9 [ ]
- --------------------------------------------------------------------------------------------
Card Testing Machine
- --------------------------------------------------------------------------------------------
Total: US$[ ]
14