Exhibit 10.24
[LETTER HEAD OF O'MELVENY & MYERS LLP APPEARS HERE]
December 16, 1998
Contains Sensitive And Proprietary Information
Ms. Gay Sills Hoar
Director
Office of International Investment
United States Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Re: Case 98-52: Sunbase International/Southwest Product Company
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Dear Ms. Hoar:
Pursuant to 31 C.F.R. (S) 800.505, I am writing on behalf of
Sunbase Asia Inc. ("Sunbase Asia") to request that Sunbase Asia be permitted to
withdraw its voluntary notice to the Committee on Foreign Investment in the
United States ("CFIUS"), submitted on September 24, 1998. As we have previously
informed you, Sunbase Asia has decided to sell Smith Acquisition Company, Inc.
d/b/a Southwest Products Company ("Southwest Products") for a number of reasons,
including its desire to resolve CFIUS' concerns in a satisfactory manner that
will protect United States national security and the interests of Sunbase Asia's
shareholders. To facilitate that process, and address CFIUS concerns about
foreign ownership of Southwest Products, Sunbase Asia proposes to place its
ownership interest in Southwest Products into an irrevocable trust and to
appoint an independent trustee who is a U.S. citizen, pending the sale of
Southwest Products. Sunbase Asia, as a publicly traded company, will notify the
Securities and Exchange Commission of this decision immediately upon appointment
of the trustee.
The trustee will be someone acceptable to the Department of Defense
who has no prior or current contractual, financial or employment relationship
with Sunbase Asia, nor with any individual or entity that directly or indirectly
through one or more intermediaries,
Page 2
controls, is controlled by, or is under common control with Sunbase Asia or
Southwest Products, and will be charged with using "best efforts," as that term
is defined in Article 2.4(a) of the attached Voting Trust Agreement
("Agreement"), to sell Southwest Products. The trustee will be someone, who to
the best of his knowledge, has no current or prior contractual, material
financial or employment relationship with the Government of the Peoples Republic
of China, or any entity thereof, or any PRC political party. In addition, during
his appointment as trustee, the trustee will not enter into any of the
aforementioned relationships. As the attached document shows, Sunbase Asia has
affirmed its commitment to sell Southwest Products through a resolution of the
Board of Directors, which was originally delivered to CFIUS on December 11,
1998. Sunbase Asia intends for its compensation arrangement with the trustee to
provided for an incentive payment for the prompt sale of Southwest Products.
As an integral part of Sunbase Asia's proposal, Sunbase Asia's
foreign management, Mr. Roger Li and Mr. Peter Lam, upon the appointment of the
trustee, will immediately resign from the Board of Directors of Southwest
Products. Any new board members appointed by the trustee will be United States
citizens and acceptable to the Department of Defense. This will leave the
oversight and management of Southwest Products entirely in the control of United
States citizens, alleviating concerns about foreign influence in, or control
over, Southwest Products. Sunbase Asia will have no direct or indirect
involvement in the management or finances of Southwest Products, other than in
connection with its efforts to work with the trustee to sell Southwest Products.
Further, to maintain the independence of Southwest Products from Sunbase Asia,
Mr. William McKay, no later than 60 days after the appointment of the trustee,
will resign any positions he may hold with Sunbase Asia, or any entity (other
than Southwest Products) that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Sunbase Asia, and will not reestablish any contractual, material financial or
employment relationship with any such entity during the existence of the trust
as long as he is an officer or director of Southwest Products, other than with
respect to the stock or stock options which he currently holds or to which he is
or will be entitled under existing agreements, and other than as a purchaser of
Southwest Products.
The trustee once appointed will work to develop his plan for the sale
of Southwest Products and will provide CFIUS with a written sales plan shortly
after his appointment. In the interim, Sunbase Asia has contacted a number of
companies with which it does business to see if they are aware of any U.S.
companies that might be interested in purchasing Southwest Products. Sunbase
Asia is also working with its counsel to see if they can develope any contacts
with potential buyers. The trust agreement will require the trustee to inform
Sunbase Asia promptly of all bona fide offers for the purchase of Southwest
Products.
O'MELVENY & MYERS LLP
Gay Sills Hoar, December 16, 1998 - Page 3
The trustee will be instructed in the trust agreement to provide CFIUS
monthly written status reports on the trustee's efforts to sell Southwest
Products. These reports to CFIUS, which are also to be provided to Sunbase Asia,
will be supplemented by Sunbase Asia in a separate report, as needed, to keep
CFIUS informed of Sunbase Asia's efforts to sell Southwest Products. In
addition, the trustee will provide CFIUS with monthly reports on the status of
Southwest Products efforts to resolve the outstanding ITAR compliance issues.
The trustee and/or Southwest Products also will be obligated to provide Sunbase
Asia any information needed to fulfill Sunbase Asia's obligations under U.S.
law, including its obligations as a public company, such as auditing reports and
reports of events requiring public disclosure, and information needed to allow
for the sale of Southwest Products. The trustee will also provide CFIUS with any
such additional information as CFIUS may request from time to time.
In addition to the trustee's mandate to sell Southwest, the trustee,
as the 100 percent owner of the stock of Southwest Products, will become
Chairman of the Board of Southwest and a company director. As such, the trustee
will have oversight responsibilities for the management of Southwest Products,
including ensuring Southwest Products' compliance with all applicable U.S. laws,
such as export control laws and regulations. This includes diligent efforts to
resolve any outstanding ITAR issues in cooperation with the Department of State.
The trustee will ensure that Southwest Products submits an export license
application to the Department of State before exporting any product or service.
However, in the case of those exports where Southwest Products believes a
Munition License may not be required, the trustee will ensure that Southwest
Products submits a commodity jurisdiction request. If Southwest Products obtains
a commodity jurisdiction decision from the Department of State indicating that a
particular product or service is not controlled by the Department of State,
Southwest Products is, of course, not required to submit a license application
to the Department of State before exporting that commodity. The trustee's duties
and obligations are contained in the attached voting trust agreement. Neither
Sunbase Asia nor any entity that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Sunbase Asia, will have any rights or responsibilities with regard to the
management or operations of Southwest Products other than as explicitly provided
for in the trust agreement.
Sunbase Asia provided CFIUS with the name of a trustee candidate on
December 14, 1998 and provided CFIUS with a draft Voting Trust Agreement on
December 11, 1998. Sunbase Asia will promptly conclude negotiations with the
trustee. Sunbase Asia expects to have a trustee appointed to Southwest Products
no later than December 31, 1998. Until the time the trustee is appointed,
Southwest Products will provide CFIUS biweekly written reports on the status of
the matters mentioned above.
In light of Sunbase Asia's proposal to appoint a trustee pending the
sale of Southwest Products, and its willingness to terminate all foreign
involvement in the oversight
O'MELVENY & MYERS LLP
Gay Sills Hoar, December 16, 1998 - Page 4
and management of Southwest Products, Sunbase Asia seeks permission to withdraw
its notification pursuant to 31 CFR (S) 800.505(a). Sunbase Asia believes CFIUS
should use its discretion to grant such a withdrawal since: (a) there would no
longer be any foreign involvement in the oversight or management of Southwest
Products; (b) U.S. citizens would have sole responsibility for ensuring
Southwest Products' compliance with U.S. laws, (c) the trustee would have
principal responsibility for the sale of Southwest Products, and (d) Sunbase
Asia has taken a series of steps including submitting voluntarily a proposal for
a trustee to the U.S. Government, and passing a board resolution authorizing the
sale of Southwest Products.
By accepting a withdrawal of Sunbase Asia's filing, CFIUS will
preserve maximum flexibility to reopen its investigation if it believes
conditions warrant such action. While Sunbase Asia does not believe CFIUS would
be precluded from reopening its investigation in light of the representations
made herein, it expressly waives all such objections, if any, it might have to
the reinstitution of a CFIUS review.
Sunbase Asia appreciates the time the CFIUS members have taken to
consider its proposal for a trustee. It shares the U.S. Government's interest in
a swift resolution of this matter through the sale of Southwest Products.
Sincerely,
/s/ Stephen J. Harburg
Stephen J. Harburg
of O'Melveny & Myers LLP
Attorneys for Sunbase Asia, Inc.
RESOLUTION OF THE
BOARD OF DIRECTORS OF
SUNBASE ASIA INC.
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WHEREAS, the Company is the sole shareholder of Southwest Products
Company, a California corporation ("Southwest"); and
WHEREAS, the Committee of Foreign Investments in the United States
("CFIUS") is currently investigating the Company's acquisition of Southwest in
1996; and
WHEREAS, CFIUS' investigation could lead to an order requiring the
Company to divest Southwest; and
WHEREAS, the Company's Board of Directors (the "Board") has determined
that it is the best interest of the Company and its shareholders to sell
Southwest;
NOW THEREFORE BE IT RESOLVED, that the Company shall sell Southwest;
/s/ Gunter Gao /s/ Philip Yuen
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Gunter GAO Philip YUEN
/s/ William R. McKay /s/ Roger Li
- --------------------------------- -----------------------------------
William R. MCKAY Roger LI
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
December 17, 1998
Stephen J. Harburg, Esq.
O'Melveny & Myers LLP
555 13/th/ Street, N.W.
Washington, D.C. 20004-1109
Re: CFIUS Case 98-52: Sunbase International (Holdings) Ltd. (Hong
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Kong)/Southwest Products Company
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Dear Mr. Harburg:
In his letter of September 24, 1998, Mr. Billy Kan, Vice Chairman of Sunbase
Asia, Inc., notified the Committee on Foreign Investment in the United States
("CFIUS") of the acquisition of Southwest Products Company ("Southwest
Products") by Sunbase Asia, Inc. ("Sunbase Asia"), an indirect subsidiary of
Sunbase International (Holdings), Ltd. ("Sunbase International"). Mr. Kan
provided this notification pursuant to section 721 of the Defense Production Act
of 1950 ("Section 721"), codified at 50 U.S.C. App. sec. 2170. On October 2,
1998, CFIUS accepted this notice pursuant to 31 CFR part 800.404(a), and began a
30-day review.
Sunbase Asia had previously notified this transaction to CFIUS on November 21,
1997. On December 19, 1997, I informed prior counsel for Sunbase Asia that CFIUS
had approved a request for a withdrawal of the notification from Mr. Kan in
order to provide Sunbase Asia and Southwest Products an opportunity to address
issues raised by CFIUS with regard to Southwest Products' compliance with the
International Traffic in Arms Regulations ("ITAR"), which are issued under the
Arms Export Control Act.
In a letter dated November 2, 1998, I wrote to advise Gunter Gao and Linda Yang,
the owners of Sunbase International, that CFIUS had decided to undertake an
investigation of the proposed transaction pursuant to section 721. This
investigation began on November 3, 1998. The statute requires that this
investigation be completed no later than Thursday, December 17, 1998.
In a letter to CFIUS dated December 16, 1998, to which a draft Voting Trust
Agreement was attached, you informed CFIUS of Sunbase Asia's intention to sell
Southwest Products, and requested a withdrawal of the notification pursuant to
31 C.F.R. 800.505(a). The following are among the representations you have made
in your letter on behalf of Sunbase Asia, Sunbase International, and Southwest
Products:
. The Board of Directors of Sunbase Asia has passed and signed a
resolution (a copy of which was provided to CFIUS on December 11)
approving the decision to sell Southwest Products, and will make a
public announcement and disclosure of the sale to the Securities and
Exchange Commission immediately upon appointment of the trustee, which
Sunbase Asia expects to occur by December 31, 1998.
2
. Sunbase Asia will place its ownership interest in Southwest Products
into an irrevocable trust and appoint an independent trustee
acceptable to the Department of Defense who is a resident U.S. citizen
with no prior or current contractual, employment, or material
financial relationship with Southwest Products, Sunbase Asia, or
Sunbase International, or any affiliate thereof, the People's Republic
of China or any entity thereof, or any PRC political party. In
addition, during his appointment as trustee, the trustee will not
enter into any of the aforementioned relationships.
. The trustee will be charged with using best efforts to sell Southwest
Products, and the trustee's compensation package will include
incentives to encourage the prompt sale of Southwest Products. Shortly
after being appointed, the trustee will provide CFIUS a written
statement of his or her plan for selling Southwest.
. The foreign members of Sunbase Asia's Board of Directors, Mr. Roger Li
and Mr. Peter Lam, will resign immediately upon the appointment of the
trustee. The trustee will become Chairman of the Board of Southwest
Products and a company director. Any new board members appointed by
the trustee will be U.S. citizens acceptable to the Department of
Defense.
. The trustee will be responsible for ensuring Southwest Products'
compliance with U.S. laws and regulations, including U.S. export
control laws and regulations, and will work diligently to resolve all
outstanding ITAR matters.
. The trustee will ensure that Southwest Products submits an export
license application to the Department of State before exporting any
product or service. However, in the case of those exports where
Southwest Products believes a Munition License may not be required,
the trustee will ensure that Southwest Products submits a commodity
jurisdiction request. If Southwest Products obtains a commodity
jurisdiction decision from the Department of State indicating that a
particular product or service is not controlled by the Department of
State, Southwest Products is, of course, not required to submit a
license application to the Department of State before exporting that
commodity.
. The trustee will provide CFIUS monthly written status reports on
efforts made to sell Southwest Products and on activities related to
the operations of Southwest Products of particular concern to CFIUS,
including compliance with U.S. export control laws and regulations,
which Sunbase Asia will supplement with information pertaining to any
efforts it has undertaken to sell Sunbase. In the interim, until the
trustee is appointed, Sunbase Asia will provide CFIUS biweekly written
progress reports on these matters. The trustee will also provide CFIUS
with any additional information as CFIUS may request from time to
time.
3
In light of these representations and the others in your letter, and commitments
set forth in the draft Voting Trust Agreement, I am writing, on behalf of CFIUS,
to inform you that the Committee grants your request to withdraw the
notification of September 24, 1998. As we have stated on a number of occasions
since you first informed CFIUS of Sunbase Asia's decision to sell Southwest
Products, we expect that serious and concerted efforts will be made to complete
the sale in as short a time as possible. CFIUS reserves the right to initiate a
review under Section 721 at any time. If a foreign person (as defined in 31 CFR
Section 800.213) is identified as a potential acquirer of Southwest Products,
CFIUS would expect that notice be provided under section 721 well before the
sale is consummated.
It is our understanding that the trustee and the Board of Southwest Products
have committed to institute an effective export control compliance program
within Southwest Products. Southwest Products' obligation to obtain State
Department export licenses or to submit commodity jurisdiction requests before
exporting any product or service, as described in your withdrawal request and in
the Voting Trust agreement, is intended as a temporary measure until Southwest
Products has instituted such an effective export control compliance program. In
this regard, it is our hope that the trustee and Southwest Products will seek to
expedite the establishment of such a program. In so far as CFIUS's oversight of
these obligations will cease with the sale of Southwest Products and the
termination of the Voting Trust Agreement, it is our understanding that the
obligation to submit licenses and commodity jurisdiction requests to the State
Department described in the Voting Trust Agreement will also cease with the
termination of the Voting Trust Agreement. However, this will not in any way
limit obligations of Southwest Products to comply with U.S. export control laws
or with any similar or other requirements that might be levied on Southwest
Products by any U.S. export control agency under U.S. law and regulation.
Finally, nothing in this grant of your request serves to bind, constrain, or
limit any action by the United States with respect to any party or to absolve
any party from liability for any violation of U.S. law.
If you have any questions, please call me (202-622-9066) or Jack Dempsey of the
staff of the Office of International Investment (202-622-0411).
Sincerely,
/s/ Gay Sills Hoar
Gay Sills Hoar
Director, Office of International Investment