EXHIBIT 10.2
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2002 JOINT VENTURE AGREEMENT
This 2002 Joint Venture Agreement (the "Agreement") is made on this
22nd day of
October 2002, by and between Universal Security Instruments, Inc.
("Universal")
of 7-A Gwynns Mill Court, Owings Mills, Maryland 21117-3586, United
States of
America ("USA"), a corporation organized and existing under the
laws of the
State of Maryland, USA, and Lai Kwan Limited ("Lai Kwan") of B2,
3/F., Fortune
Factory Building, 40 Lee Chung Street, Chai Wan, the Hong Kong
Special
Administrative Region of the People's Republic of China ("Hong
Kong"), a limited
liability company organized and existing under the laws of Hong
Kong.
WHEREAS
A. The
parties hereto (the "Parties") are parties to a Joint Venture
Agreement
dated 23 October 1989 as supplemented by a Supplementary
Agreement
dated 21 August 2001 and a memorandum letter dated 8 October
2001
(collectively referred to as the "1989-2001 Agreements") relating
to
the
business, management and operation of Eyston Company Limited
("Eyston"), a limited liability company organized and existing
under the
laws of
Hong Kong.
B. The
Parties have concluded that certain provisions of the 1989-2001
Agreements
are redundant, obsolete and no longer appropriate.
C. The
Parties are also considering a listing of Eyston or its business
on
The Stock
Exchange of Hong Kong Limited or another stock exchanges of
equivalent
international standing (the "Stock Exchange").
D. In view
of these considerations, the Parties have agreed to enter into
this
Agreement and thereby to terminate the 1989-2001 Agreements.
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, IT IS HEREBY
AGREED AS
FOLLOWS:
ARTICLE ONE
ESTABLISHMENT AND OPERATION OF HOLDCO
1.1
Establishment of Holdco. The Parties shall promptly purchase one
shelf
company
("Holdco"), a private company limited by shares, duly
organized,
validly
existing and properly registered in Hong Kong. The Parties
shall
share
equally all costs with regard to the purchase of the Holdco.
The
initial
capital of Holdco shall be the normal minimums permissible in
Hong
Kong.
1.2 Holdco
Memorandum and Articles of Association. It is recognized that,
upon
the
acquisition of Holdco, there will be inconsistencies between
this
Agreement
and the Memorandum and Articles of Association of Holdco. The
Parties
agree promptly, with the assistance of counsel, to cause the
Memorandum
and Articles of Association of Holdco to be amended so that
they will
be consistent with terms and conditions of this Agreement. In
all cases,
before and after the amendment of the Memorandum and Articles
of
Association, in the event of conflict between the provisions of
this
Agreement
and the Memorandum and Articles of Association of Holdco, the
provisions
of this Agreement shall prevail.
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1.3 Transfer of
Eyston Shares to Holdco. The Parties are the beneficial owners
of fifty
percent (50%) each of the share capital of Eyston. Upon the
formation
of Holdco, each of the Parties shall promptly transfer all of
their
shares in Eyston to Holdco in exchange for fully paid-up shares
of
Holdco.
The transfer of the Eyston shares of the Parties shall be
completed
simultaneously, and each Party (or its nominees) shall receive
fifty
percent (50%) of the share capital of Holdco immediately upon
completion
of the transaction. The Eyston shares transferred shall be free
from all
encumbrances, liens and third party rights. Neither Party shall
be
obligated to carry out the transfer of its interest in Eyston
unless
the other
Party demonstrates that it can fully comply with its
obligations
with
respect to this transfer.
1.4 Stamp Duty.
Any stamp duty or similar excise taxes imposed in Hong Kong as
a result
of the transactions stated in Paragraph 1.3 shall be shared
equally by
the Parties.
1.5 Right of
First Refusal. Each Holdco shareholder shall have a right of
first
refusal for the purchase of any or all shares in Holdco proposed
to
be
transferred by the other shareholder. This right of first refusal
shall
be
exercised within thirty (30) days of notice to the other
shareholder of
the
proposed transfer of shares.
1.6 Transferee
to Accept This Agreement. In addition to the requirements of
Paragraph
1.5, in the event either Holdco shareholder proposes to
transfer
any of its
shares in Holdco to a third party, such transferring Party
shall not
transfer such shares until it has secured the written agreement
of the
proposed transferee to assume all the rights and obligations of
a
Party to
this Agreement.
1.7 No Pledge.
Neither Holdco shareholder may pledge or encumber its shares in
Holdco
without prior written consent of the other Holdco shareholder.
1.8 Holdco
Board. The board of directors of Holdco (the "Holdco Board")
shall
consist of
four (4) members, two (2) to be nominated by Universal and two
(2) to be
nominated by Lai Kwan. The Parties shall vote their shares for
the
nominees. The nominating Party shall have the right to remove
and
replace
its directors. The quorum required for a meeting of the Holdco
Board
shall be two (2) members, provided that at least one director
nominated
by Lai Kwan and at least one director nominated by Universal is
present.
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1.9 Holdco
Chairman. The chairman of the Holdco Board (the "Holdco
Chairman")
shall be
nominated by Lai Kwan. The Holdco Board shall appoint such
Holdco
Board
member nominated by Lai Kwan as the Holdco Chairman. For as long
as
Lai Kwan
provides operations and management services to Holdco, the
Holdco
Chairman
shall have a casting vote on all matters, except for the
matters
specifically set out in Paragraph 1.11, presented to the Holdco
Board.
1.10 Management of
Holdco. Day-to-day operations and management of Holdco,
Eyston and
its subsidiaries, if any, and companies controlled directly or
indirectly
by Holdco shall be under the control of Lai Kwan, save as
specifically set out in Paragraph 1.11 below.
1.11 Holdco Major
Decisions. The following matters shall require approval of
the Holdco
Board: (i) approval of annual financial statements/reports of
Holdco;
(ii) determination on remuneration of Lai Kwan for providing
operations
and management services to Holdco; (iii) declaration of
dividends
of Holdco; (iv) the merger of Holdco with any other entity or
the
acquisition of any other entity by Holdco; (v) the sale, lease
or
disposal
of the whole or a substantial part of the business or assets of
Holdco; (vi) any
capital increase or any request for shareholder
contribution to provide additional funding to Holdco, including
additional
capital or
shareholder loans; (vii) capital investment of Holdco in excess
of One
Million Hong Kong Dollars (HKD1,000,000); (viii) any amendment
to
the
Memorandum and Articles of Association of Holdco; (ix) any mortgage
of
the assets
of Holdco; (x) change of the company auditor; and (xi) any
business
transaction, excluding the sales transactions of the products
of
Holdco
which are the subject of Appendix I and II hereof, between
Holdco
and any
company owned or controlled, directly or indirectly, by one of
the
shareholders of Holdco.
1.12 Lai Kwan's
Management Obligations. Lai Kwan shall not be obligated to
provide
operations and management services to Holdco and its
subsidiaries
specified
in Paragraph 1.10 above, in the event that Lai Kwan ceases to
be
a
shareholder of Holdco or the composition or procedures of the
Holdco
Board as
set forth in this Agreement are changed so as to be less
favorable
to Lai Kwan.
1.13 Fiscal Year.
Holdco shall have a fiscal year ending March 31.
1.14 Financial
Statements. Holdco shall, at its expense, have its financial
statements
audited once a year by an independent auditor. Until otherwise
determined
by the Holdco Board, Ernst and Young shall remain the company
auditor of
Holdco. Holdco shall also produce unaudited monthly financial
statements
to be promptly distributed to the shareholders.
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ARTICLE TWO
PRODUCT DISTRIBUTION AGREEMENTS
Immediately upon the signing of this Agreement, Universal and
Eyston shall enter
into a product distribution agreement with terms and conditions
identical to
Appendix I of this Agreement, and Lai Kwan and Eyston shall enter
into a product
distribution agreement with terms and conditions identical to
Appendix II of
this Agreement.
ARTICLE THREE
LISTING
3.1 Potential
Listing. It is the intention of the Parties that, provided both
Parties
agree the prevailing conditions are suitable and confirm this
agreement
in writing, Eyston will seek the listing of Eyston's shares or,
where
appropriate, a listing of a special purpose vehicle formed to
become
the
holding company of Eyston or its business on the Stock Exchange
(the
"Listing").
3.2 Listco.
Eyston, or a specially formed holding company of Eyston or its
business,
is referred to herein as "Listco." Listco and its subsidiaries
are
collectively referred to herein as the "Group." Listco shall be set
up
as a
subsidiary of Holdco. The rules applicable to the Listing of
Listco
on the
Stock Exchange are herein referred to as the "Listing Rules."
3.3 Listco
Board. Prior to the Listing, Listco shall be structured or its
structure amended so
that the board of directors of Listco (the "Listco
Board")
shall consist of three types of directors: Executive Directors,
Non-Executive Directors, and Independent (Non-Executive) Directors.
Two
(2)
Non-executive Directors and one (1) Independent (Non-Executive)
Director
shall be nominated by Universal. Subject to the ability of the
post-Listing public shareholders to elect one or more directors,
all the
remaining
directors shall be nominated by Lai Kwan so that Lai Kwan shall
be able at
all times to nominate one more director than Universal. The
number of
directors shall be determined by the Parties according to the
need of
operations from time to time, and the agreements set forth in
this
Paragraph
3.3. Holdco shall vote its shares for the nominees determined
in
accordance
with this Paragraph 3.3. The nominating Party shall have the
right to
remove and replace its directors subject to any applicable laws
and
Listing Rules.
3.4 Listco Major
Decisions. Prior to a Listing, no board resolution on the
following
matters shall be passed by the Listco Board unless approved by
at least
one Non-executive Director of the Listco Board nominated by
Universal
and at least one Executive Director of the Listco Board
nominated
by Lai Kwan: (i) approval of annual financial
statements/reports
of Listco;
(ii) determination on remuneration of Lai Kwan for providing
operations
and management services to Listco; (iii) declaration of
dividends
of Listco; (iv) the merger of Listco with any other entity or
the
acquisition of any other entity by Listco; (v) the sale, lease
or
disposal
of the whole or a substantial part of the business or assets of
Listco;
(vi) any capital increase or any request for shareholder
contribution to provide additional funding to Listco, including
additional
capital or
shareholder loans; (vii) capital investment of Listco in excess
of One Million Hong
Kong Dollars (HKD1,000,000); (viii) any amendment to
the
Memorandum and Articles of Association of Listco; (ix) any mortgage
of
the assets
of Listco; (x) appointment or change of the company auditor;
and (xi)
any business transaction, excluding the sales transactions of
the
products
of Listco, which are the subject of Appendix I and II hereof,
between
Listco and any company owned or controlled, directly or
indirectly, by one of the shareholders of Holdco.
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<PAGE>
3.5 Listco
Dividends. Listco shall, to the extent permissible under
applicable
law, pay
quarterly dividends to Holdco with a total amount equal to at
least
fifty percent (50%) of the quarterly after-tax net profit
determined
after the
quarterly review of the unaudited quarterly financial
statements
by the
Listco Board.
3.6 Holdco
Dividends. Holdco shall, to the extent permissible under
applicable
law, pay
as quarterly dividends to its shareholders all of the dividends
received
from Listco less any normal and customary deductions necessary
to
cover the
opera
