SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
ORALABS HOLDING CORP.
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(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] $125.00 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
COMMON STOCK, $0.001 PAR VALUE
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2) Aggregate number of securities to which transaction applies:
21,364,085 SHARES
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): Per share price based upon
average of the final bid and ask price (i.e., $2.66) as of the close of
trading on August 8, 2005
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4) Proposed maximum aggregate value of transaction:
21,364,085 TIMES 2.66 = $56,828,466.10
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5) Total fee paid: $6,688.71 ($56,828,466.10 TIMES 0.00011770)
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement Number:
3) Filing party:
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4) Date filed:
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PROXY STATEMENT
ORALABS HOLDING CORP.
18685 E. Plaza Drive
Parker, Colorado 80134
Telephone (303) 783-9499
Dear Stockholder: ___________________, 2005
You are cordially invited to attend the annual meeting of shareholders
of OraLabs Holding Corp. ("OraLabs" or the "Company") to be held at 18685 E.
Plaza Drive, Parker, Colorado on September 30, 2005 at 10:00 a.m., Mountain
Time.
At the meeting you will be asked to consider and vote upon the matters
described in the accompanying notice and Proxy Statement. Whether or not you
plan to attend the annual meeting, please sign and date the enclosed Proxy card
and return it promptly in the enclosed postage-prepaid envelope.
Sincerely,
Your Board of Directors
The proposed transactions have not been approved or disapproved by the
Securities and Exchange Commission or any state securities regulator nor has the
Commission or any state securities regulator passed upon the fairness or merits
of the proposed transactions or upon the accuracy or adequacy of the information
contained in this document. Any representation to the contrary is unlawful.
This Proxy Statement and Proxy are being mailed to OraLabs' shareholders on
or about _____________________, 2005.
PROXY STATEMENT
ORALABS HOLDING CORP.
18685 E. Plaza Drive
Parker, Colorado 80134
Telephone (303) 783-9499
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
September 30, 2005
At the annual meeting you will be asked to consider and vote upon the
following matters:
1. Approval of the Stock Exchange Agreement ("Exchange Agreement"), dated as
of February 23, 2005 and amended as of June 20, 2005, by and among OraLabs,
NVC Lighting Investment Holdings Limited ("NVC"), and Mr. Chang-Jiang Wu,
Mr. Yong-Hong Hu, and Mr. Gang Du (collectively referred to as the "NVC
Shareholders"), and the share issuances described therein. The transactions
contemplated by the Exchange Agreement include: (i) the issuance by OraLabs
of shares representing approximately 94% of the fully diluted outstanding
common stock of OraLabs (after giving effect to the redemption and stock
issuances described in (ii) and (iii) below) in exchange for the transfer
to OraLabs of all of the ownership interests in NVC, which is held by the
NVC Shareholders; (ii) the redemption of all of the common stock of OraLabs
held by its President, Gary H. Schlatter, individually, in exchange for the
transfer to Mr. Schlatter of all of the common stock held by OraLabs in its
wholly-owned subsidiary, OraLabs, Inc. (the "Redemption Proposal"); and
(iii) the adoption of the 2005 Director Stock Plan (a copy of which is
attached as Annex 4 to the accompanying Proxy Statement) and the issuance
under that Plan to each of the three present non-employee directors of
100,000 shares of common stock. The effect of these transactions will
include that after the Closing, the business previously engaged in by
OraLabs will no longer be conducted by OraLabs, and instead, OraLabs will
only conduct the business of NVC which will become a subsidiary of OraLabs.
2. Election of the individuals designated by NVC as directors of OraLabs.
3. Amendment of the Articles of Incorporation of OraLabs to change its name to
"NVC Lighting Corporation" and to increase the authorized number of shares
of common stock to 200,000,000 shares.
4. Approval of the "2005 Stock Option, SAR and Stock Bonus Plan" (a copy of
which is attached as Schedule 3 to the Stock Exchange Agreement attached
hereto as Annex 1 to the accompanying Proxy Statement) of OraLabs that will
cover 5,000,000 shares of common stock.
5. Ratification of the appointment of Murrell, Hall, McIntosh & Co., PLLP as
our independent registerd public accounting firm for fiscal year 2005.
6. To transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
In light of the actual conflicting interest of Mr. Schlatter in the
transactions, the Board of Directors formed a Special Committee consisting of
Michael I. Friess and Robert C. Gust to evaluate the Exchange Agreement and to
negotiate it on behalf of OraLabs. The Board of Directors, considering among
other things, the recommendation of the Special Committee, has approved the
Exchange Agreement and determined it to be advisable. Approval of the Board was
unanimous except that Mr. Schlatter abstained from the vote. As the two members
of the Special Committee and the other non-employee director are each to receive
shares of OraLabs common stock at the Closing, the Special Committee retained
the services of Capitalink, L.C., the Special Committee's financial advisor, who
provided its written opinion that as of August 10, 2005, based on and subject to
the limitations, assumptions and qualifications stated in its opinion, the
completion of the transactions contemplated by the Exchange Agreement is fair to
OraLabs' nonaffiliated public shareholders from a financial point of view.
The Board of Directors has fixed the close of business on August 30,
2005 as the record date for determining all shareholders entitled to receive
notice of the annual meeting and to vote at such meeting or any adjournment(s)
thereof. A quorum of shareholders is necessary to hold a valid meeting. A quorum
will be present if shares representing a majority of the voting power of the
outstanding shares are represented by shareholders present at the meeting in
person or by proxy. The approval of the Redemption Proposal requires the
affirmative vote of the holders of at least the majority of the shares of our
common stock entitled to vote as of the record date. The approval of the other
proposals require the affirmative vote of the holders of at least a majority of
the shares of our common stock present at the meeting in person or by proxy.
The Board of Directors appreciates and welcomes stockholder
participation in OraLabs' affairs. Whether or not you plan to attend the annual
meeting, please vote by completing, signing and dating the enclosed Proxy and
returning it promptly to OraLabs in the enclosed self-addressed, postage-prepaid
envelope. If you attend the meeting, you may revoke your Proxy and vote your
shares in person.
Shareholders of OraLabs who do not vote in favor of the proposed
transactions will have the right to dissent and to seek appraisal of the fair
value of their shares if the transactions are completed and they comply with the
procedures under Colorado law explained in the accompanying Proxy Statement.
The transactions are described in the accompanying Proxy Statement,
which you are urged to read carefully. A copy of the Stock Exchange Agreement is
attached as Annex 1 to the accompanying Proxy Statement.
By Order of the Board of Directors
Michael I. Friess, Secretary
Parker, Colorado
_____________________, 2005
2
TABLE OF CONTENTS
SUMMARY TERM SHEET................................................................................................1
QUESTIONS AND ANSWERS ABOUT THE PROPOSED TRANSACTIONS.............................................................4
SUMMARY...........................................................................................................6
Reasons for Engaging in the Transaction......................................................................7
Recommendation of the Special Committee and Board of Directors...............................................8
Opinion of Capitalink, L.C...................................................................................8
OraLabs' Position as to the Fairness of the Proposed Transactions............................................8
Interests of our Directors in the Proposed Transactions......................................................9
Election of Directors, Approval of the Name Change and Increase in Authorized Shares.........................9
Approval of the 2005 Stock Option, SAR and Stock Bonus Plan..................................................9
Plans for OraLabs After Closing of the Proposed Transactions.................................................9
Conditions to the Exchange Agreement.........................................................................9
Termination of the Exchange Agreement.......................................................................10
Dissenters' Rights of Appraisal.............................................................................10
NVC BUSINESS.....................................................................................................10
Background..................................................................................................10
General.....................................................................................................11
Products....................................................................................................12
PRC Green Lights Program....................................................................................14
Production..................................................................................................15
Research and Development....................................................................................15
Sales, Marketing and Distribution...........................................................................15
Backlog and Material Customers..............................................................................16
Competition.................................................................................................16
Intellectual Property.......................................................................................17
Employees...................................................................................................17
Properties..................................................................................................17
Legal Proceedings...........................................................................................18
Risk Factors................................................................................................18
NVC Management..............................................................................................23
Executive Compensation......................................................................................25
Summary Compensation Table..................................................................................25
Option Grants...............................................................................................25
SUMMARY HISTORICAL FINANCIAL DATA FOR ORALABS....................................................................25
SUMMARY HISTORICAL FINANCIAL DATA FOR NVC........................................................................26
PRO FORMA COMBINED SUMMARY OF HISTORICAL FINANCIAL DATA..........................................................28
NVC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.................................................29
Significant Accounting Estimates and Policies...............................................................29
Comparison of Three Months Ended March 31, 2005 and 2004....................................................29
Comparison of Years Ended December 31, 2004 and 2003........................................................31
Comparison of Years Ended December 31, 2003 and 2002........................................................32
New Accounting Pronouncements...............................................................................33
INFORMATION CONCERNING THE ANNUAL MEETING........................................................................34
Time, Place and Date........................................................................................34
Purpose of the Annual Meeting...............................................................................35
Record Date; Voting at the Meeting; Quorum..................................................................35
Required Vote...............................................................................................35
Voting and Revocation of Proxies............................................................................35
Action to be Taken at the Annual Meeting....................................................................35
Proxy Solicitation..........................................................................................36
PROPOSAL ONE.....................................................................................................36
SPECIAL FACTORS..................................................................................................36
Background of the Proposed Transactions.....................................................................36
i
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE PROPOSED TRANSACTIONS............39
Special Committee...........................................................................................39
OraLabs Board of Directors..................................................................................40
Benefits and Detriments of the Proposed Transactions to OraLabs' Nonaffiliated Shareholders.................41
Opinion of Financial Advisor to the Special Committee.......................................................41
Interests of Certain Persons in the Proposed Transactions...................................................50
NASDAQ Listing..............................................................................................50
MARKET FOR THE COMMON STOCK......................................................................................51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................52
Change in Control...........................................................................................53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: ORALABS..........................................................54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: NVC..............................................................54
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT................................................................54
EXECUTIVE COMPENSATION...........................................................................................55
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED TRANSACTIONS............................................55
Redemption Treatment for Dissenters.........................................................................55
Constructive Ownership of Stock and Other Issues............................................................56
Section 302 Tests...........................................................................................56
Backup Withholding..........................................................................................57
Fees and Expenses...........................................................................................57
THE EXCHANGE AGREEMENT...........................................................................................58
The Stock Exchange..........................................................................................58
Conditions to the Closing of the Exchange Agreement.........................................................59
Representations and Warranties..............................................................................60
Covenants...................................................................................................60
Indemnification.............................................................................................61
Termination of the Exchange Agreement.......................................................................61
Fees and Expenses...........................................................................................62
Amendment/Waiver............................................................................................62
DISSENTERS' RIGHTS OF APPRAISAL..................................................................................62
Do you have the right to exercise dissenter rights?.........................................................62
How to exercise dissenter rights............................................................................62
Right to Dissent............................................................................................63
Before the Annual Meeting...................................................................................63
Procedure for Exercise of Dissenters' Rights................................................................63
After the Annual Meeting....................................................................................63
Notice from Us..............................................................................................63
Demand for Payment and Delivery of Share Certificate........................................................64
Delivery of Payment.........................................................................................64
How to Dispute Payment Amount...............................................................................65
Judicial Appraisal of Shares................................................................................65
PROPOSAL TWO.....................................................................................................66
PROPOSAL THREE...................................................................................................66
PROPOSAL FOUR....................................................................................................67
PROPOSAL FIVE....................................................................................................68
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS........................................................68
FINANCIAL STATEMENTS.............................................................................................69
WHERE YOU CAN FIND MORE INFORMATION..............................................................................69
STOCKHOLDER MEETINGS AND PROPOSALS...............................................................................69
AVAILABLE INFORMATION............................................................................................70
SOLICITATION AND EXPENSES........................................................................................70
NVC FINANCIAL STATEMENTS...........................................................................................
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS....................................................
ANNEXES............................................................................................................
ii
August 11, 2005
SUMMARY TERM SHEET
The following summarizes the principal terms of the proposed
transactions under which OraLabs Holding Corp., a Colorado corporation
("OraLabs" or the "Company") will acquire the business of NVC Lighting
Investment Holdings Limited ("NVC") as a wholly-owned subsidiary of OraLabs. At
the same Closing, the ownership of OraLabs, Inc., the OraLabs' operating
subsidiary (the "Subsidiary") that conducts the Company's current business, will
be transferred to the current President of the Company in consideration of the
redemption by OraLabs of all of the stock in OraLabs owned by him individually.
This Summary Term Sheet does not contain all of the information that may be
important for you to consider when evaluating the merits of the transactions.
You are encouraged to read this Proxy Statement, including the annexes and the
documents that have been incorporated by reference into this Proxy Statement, in
their entirety before voting. Section references are included below to direct
you to a more complete description of the topics discussed in this Summary Term
Sheet.
o You are being asked to approve the Stock Exchange Agreement dated as
of February 23, 2005 and amended June 20, 2005 (the "Exchange
Agreement"), which provides among other things for (i) the acquisition
by OraLabs of all of the ownership interests in NVC in consideration
for the issuance to the NVC Shareholders of approximately 94% of the
total fully diluted outstanding common stock of OraLabs (assuming the
redemption and stock issuances described below), (ii) the transfer by
OraLabs to its President of all of the common stock owned by OraLabs
in its Subsidiary in consideration for the redemption of all of the
OraLabs common stock owned by the President individually (the
"Redemption Proposal"), and (iii) the approval of the 2005 Director
Stock Plan and the issuance under that plan to each of the three
non-employee directors of OraLabs of 100,000 shares of OraLabs common
stock. Closing under the Exchange Agreement also requires that the
shareholders approve the change in the name of the Company to NVC
Lighting Corporation, the increase in the number of authorized shares
of common stock to 200,000,000, and the approval of the 2005 Stock
Option, SAR and Stock Bonus Plan. You will not receive any securities,
money or any other consideration as part of the Closing of the
transactions, and the interest held by the nonaffiliated OraLabs
shareholders, which is currently about 952,665 shares or 20.30% of the
OraLabs outstanding common stock, will be diminished to represent
approximately 4.2% of the outstanding common stock upon Closing. The
total number of shares outstanding upon closing of the transactions
will be approximately 22,727,500, which could increase by an
approximate 2,191,667 shares if employee options are exercised prior
to closing. See "The Exchange Agreement - The Stock Exchange".
o In order to approve and adopt the proposals, a quorum of shareholders
must be present in person or by proxy at the meeting and the proposals
must be approved by a majority of shares entitled to vote (with
respect to the Redemption Proposal) and by a majority of the shares
present at the meeting with respect to the other proposals. Gary H.
Schlatter, the President of the Company and the owner individually of
approximately 77.34% of the outstanding common stock, intends to vote
in favor of all of the matters to be conducted at the annual meeting.
o Upon Closing our current shareholders will no longer have an interest
in the business currently conducted by us. Instead, the public company
will be engaging only in the business of NVC through its ownership of
NVC as a wholly-owned subsidiary.
o The common stock of OraLabs is presently listed for public trading on
the NASDAQ small cap market. Prior to the Annual Meeting of the
Shareholders, OraLabs intends to submit a new listing application to
NASDAQ for continued listing on NASDAQ which is required because of
the change in the assets and business of OraLabs. One of the
conditions to continued listing will be that the minimum bid price of
the common stock must not be less than $4.00 per share, which cannot
be assured. OraLabs believes that it will meet the other requirements
for listing on NASDAQ, but there is no assurance that will occur. In
the event that OraLabs does not meet NASDAQ listing requirements upon
the closing of the transaction with NVC, the common stock of OraLabs
is expected to be publicly traded on the NASD Electronic Bulletin
Board over-the-counter market (OTC-BB) until it meets the listing
requirements of NASDAQ.
o The proposed transactions involve actual or potential conflicts of
interest because Mr. Schlatter will acquire sole ownership of OraLabs,
Inc. upon Closing and because all of the other directors will receive
100,000 shares each of OraLabs common stock as part of the Closing.
The Board formed a Special Committee, consisting of Michael I. Friess
and Robert C. Gust, for the purposes of considering, negotiating and
making a recommendation regarding the proposed transactions. See
"Certain Relationships and Related Transactions".
o In March 2005, we retained the services of Capitalink, L.C.
("Capitalink") as the financial advisor to the Special Committee, to
give an opinion as to the fairness of the proposed transactions to our
nonaffiliated shareholders. See "Special Factors".
o On August 10, 2005, Capitalink rendered its opinion to the Special
Committee that, as of that date and subject to the assumptions,
qualifications and limitations set forth in its opinion, the
transactions contemplated by the Exchange Agreement were fair, from a
financial point of view, to the holders of OraLabs common stock other
than OraLabs' officers and directors and their affiliates. The
complete Capitalink opinion is attached to this Proxy Statement as
Annex 2. Any summary of Capitalink's opinion in this Proxy Statement ,
is qualified by reference to the full text of the Opinion that is
attached as Annex 2 and which we urge you to read carefully in its
entirety. The Opinion was directed to our Special Committee and does
not constitute a recommendation as to how any holder of our common
stock should vote on the proposed transactions. See "Special Factors -
Opinion of Financial Advisor to the Special Committee".
o The Special Committee determined that the transactions are fair to and
in the best interests of our common shareholders, other than our
officers, directors and their affiliates, and has recommended to our
Board that the transactions should be completed under the terms of the
Exchange Agreement. See "Special Factors - Recommendation of the
Special Committee.
o Acting on the recommendation of the Special Committee, our Board of
Directors (with Mr. Schlatter abstaining) has approved and adopted the
Exchange Agreement and authorized the transactions contemplated in
that document, and recommends that you vote for approval and adoption
of the Exchange Agreement and the transactions contemplated in that
document. See "Special Factors - OraLabs Board of Directors".
o The Exchange Agreement may be terminated at any time before the
completion of the transactions by the mutual written consent of its
parties or by any party in certain instances described in the Exchange
Agreement. See "Termination of the Exchange Agreement".
2
o If you choose not to vote in favor of the Exchange Agreement and the
transactions contemplated by that document, Colorado law entitles you
to a judicial appraisal of the fair value of your shares of common
stock. There are procedural requirements that you will have to follow
if you decide to pursue a judicial appraisal, and merely voting
against the Exchange Agreement will not preserve your right of
appraisal under Colorado law. Unless such expenses are assessed
against us by the court, we will not pay any legal fees or expenses
that you might incur in this regard. See "Dissenters' Rights of
Appraisal".
3
QUESTIONS AND ANSWERS ABOUT THE PROPOSED TRANSACTIONS
Q: What are the proposed transactions?
A: The business of OraLabs will change to that being conducted by NVC. OraLabs
will accomplish this by acquiring from the NVC Shareholders all of the
ownership interests in NVC in exchange for issuing to the NVC Shareholders
the number of shares that will equal approximately 94% of all of the
outstanding common stock of OraLabs upon the conclusion of the Closing. At
the Closing and immediately after OraLabs' acquisition of NVC as a
wholly-owned subsidiary, OraLabs will redeem all of the common stock owned
individually by Gary H. Schlatter in exchange for the conveyance to him of
all of the shares owned by OraLabs in its operating subsidiary, OraLabs,
Inc. As a condition to completion of the Closing, the name of the public
company will change from OraLabs to NVC Lighting Corporation, the number of
shares of authorized common stock of the Company will be increased to
200,000,000, and the proposed 2005 Stock Plan, SAR and Stock Bonus Plan,
2005 Director Stock Plan and issuance under that plan of 100,000 shares of
common stock each to the current non-employee directors of the Company will
be approved. After the transactions close, OraLabs will be controlled by
the former shareholders of NVC.
Q: What happens to my stock ownership in OraLabs after the transactions are
closed?
A: Nonaffiliated shareholders of OraLabs, other than those shareholders who
dissent and seek appraisal of the fair value of their shares, will retain
their current stock that consists in total of approximately 952,665 shares.
Including the 300,000 shares to be issued to the non-employee directors,
there will be a total of 411,000 shares owned by the present directors or
their affiliates upon completion of the Closing. The ownership in OraLabs
of all nonaffiliated shareholders, which is currently about 20.30% of all
of the fully-diluted issued and outstanding stock, will be reduced to about
4.2% upon completion of the Closing. The principals of NVC will be issued
approximately 21,364,085 shares, which will comprise 94% of the total
number of outstanding shares of approximately 22,727,750. These figures do
not include the possible exercise by employees of OraLabs of any of the
131,500 employee options currently outstanding. As a result of these
transactions, the nonaffiliated shareholders who own approximately 20.30%
of the Company that is conducting the current business of OraLabs will
instead own about 4.2% of the Company that will then only conduct the
business presently conducted by NVC. See "The Exchange Agreement - The
Stock Exchange".
Q: Will OraLabs be a public company after Closing of the transactions?
A: Yes. After the Closing, OraLabs will continue to be a public company
registered under Section 12(g) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and will continue to be subject to the
annual, quarterly and other reporting requirements of the Exchange Act, the
other requirements of the Exchange Act and the requirements of the rules
and regulations thereunder.
Q: When do you expect the transactions to close?
A: We are working to complete the transactions as quickly as possible. If the
Exchange Agreement and proposed transactions are approved and the other
conditions to Closing are satisfied, we expect to complete the transactions
on or before September 30, 2005. However, there can be no assurance that
the transactions will close by that time, or at all.
4
Q: What business is conducted by NVC?
A: NVC is a leading designer, manufacturer, assembler and marketer of lighting
fixtures and related products in The People's Republic of China ("PRC").
Its broad product lines are used in residential, commercial and industrial
remodeling and in new construction. Its principal lighting products use a
variety of light sources in line and low voltage and are designed for
reliable and flexible function, energy efficient operation, attractive
appearance, and simple installation and servicing. NVC is also engaged in
the marketing, design and manufacture of other incandescent, fluorescent
and High Intensity Discharge ("HID") lighting products with applications in
the commercial lighting market.
Approximately 91% of the Company's sales in its financial year ended
December 31, 2004, were made in the PRC, with approximately 8% in Europe,
0.2% in the Middle East, and 0.2% in Hong Kong. NVC's sales are made to
electrical distributors and lighting showrooms as well as to certain
wholesale lighting outlets. Such distributors wholesale and/or retail NVC
lighting products for use in remodeling of existing structures and in new
residential, commercial and institutional construction projects.
Q: Are there risks involved in closing the transactions with NVC?
A: Yes. After the transactions close, the Company's success will be totally
dependent upon the success of NVC and its subsidiaries and affiliates. The
success of NVC will depend upon numerous factors, including the continued
demand for high quality lighting fixtures and related products in the PRC
and Europe, expansion of the production facilities of NVC and acquisition
of additional equipment, and the expected growth in marketing into existing
and new foreign markets. There are no assurances that NVC's operations will
be profitable after the Closing of the transactions, notwithstanding its
profitable history during the past three years (see "NVC Business
Risk Factors").
Q: What vote of shareholders is required to approve the transactions?
A: A quorum of shareholders is necessary to hold a valid meeting. A quorum
will be present if shares representing a majority of the voting power of
the outstanding shares of common stock are represented by shareholders
present in person at the meeting or by proxy. Approval of the redemption of
shares and conveyance of ownership of the Company's operating subsidiary,
OraLabs, Inc., to Gary H. Schlatter requires the affirmative vote of at
least the majority of shares of common stock of OraLabs entitled to vote as
of the record date. The remaining transactions that are proposed to be
completed require only the affirmative vote of a majority of the voting
power of the outstanding shares of OraLabs' common stock that are present
in person or by proxy at the meeting. Mr. Schlatter, who individually owns
about 77.34% of the outstanding common stock of OraLabs, intends to vote in
favor of all of the proposed transactions, which vote would be sufficient
to meet the quorum requirements and approve all of the proposed
transactions.
Q: What are the income tax consequences of the transactions to me?
A: The transactions will not be taxable to the public shareholders of OraLabs,
except to the extent that shareholders request an appraisal of the fair
value of their shares. In that event, the payment to those shareholders
will be taxable. To review a brief description of the federal income tax
consequences to those shareholders, see "Material Federal Income Tax
Consequences of the Proposed Transactions".
Q: What conflicts of interest does the Board of Directors have in recommending
approval of the proposed transactions?
A: Mr. Schlatter has an actual conflict of interest in that upon completion of
the proposed transactions, he will become the sole owner of OraLabs, Inc.,
which he intends to continue to operate as a private company. The three
remaining directors, who are not employees of the Company, will each
receive 100,000 shares of OraLabs common stock as part of the Closing. The
Board of Directors formed a Special Committee consisting of Messrs. Friess
and Gust, who negotiated the Exchange Agreement with NVC, hired their own
legal counsel, and obtained a fairness opinion from an independent third
party. To review the factors considered by the Special Committee and the
Board of Directors in approving the Exchange Agreement, see "Special
Factors".
5
Q: How was the fairness opinion obtained?
A: The Special Committee formed by the Board of Directors independently
selected and retained a financial advisor to assist in this process. The
committee received an opinion from its financial advisor, on which the
Special Committee relied, stating that based on and subject to the
limitations, assumptions and qualifications stated in that opinion, as of
August 10, 2005, the completion of the proposed transactions was fair to
the nonaffiliated OraLabs shareholders from a financial point of view.
Q: What rights do I have if I oppose the proposed transactions?
A: Shareholders who oppose the proposed transactions may dissent and seek
judicial appraisal of the fair value of their shares, but only if they
comply with all of the procedures under Colorado law explained in
"Dissenters' Rights of Appraisal" and in Annex 3 to this Proxy Statement.
It is a condition to the obligation of OraLabs to close the transactions
that holders of not more than 100,000 shares of the OraLabs common stock
exercise their dissenters' rights.
SUMMARY
The following summarizes the material aspects of the proposed
transactions and highlights selected information contained elsewhere in this
Proxy Statement. This summary may not contain all of the information that is
important to you, and is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement, including the annexes
to it, and in the documents incorporated by reference. To understand the
proposed transactions fully and for a more complete description of the proposed
transactions, you should carefully read this entire Proxy Statement, including
the annexes to it and the documents incorporated by reference.
The annual meeting of shareholders of OraLabs will be held at 10:00
a.m. Mountain Time on September 30, 2005 at the principal offices of OraLabs,
18685 E. Plaza Drive, Parker, Colorado. Only OraLabs shareholders of record at
the close of business on the record date, August 30, 2005, will be entitled to
notice of, and to vote at, the annual meeting. On the record date, there were
___________ shares of common stock outstanding and entitled to one vote per
share at the annual meeting. Our shares are held by approximately ___________
shareholders of record, although there is an additional number of beneficial
owners of our common stock.
Shareholders will be asked to consider approval of the Stock Exchange
Agreement ("Exchange Agreement"), dated as of February 23, 2005 and amended June
20, 2005, by and among OraLabs, NVC Lighting Investment Holdings Limited
("NVC"), and Mr. Chang-Jiang Wu, Mr. Yong-Hong Hu, and Mr. Gang Du (collectively
referred to as the "NVC Shareholders") (see "Proposal One"). Among other things,
the transactions contemplated by the Exchange Agreement include (i) the issuance
by OraLabs of shares representing approximately 94% of the fully diluted
outstanding common stock of OraLabs (after giving effect to the redemption and
share issuances described below) in exchange for the transfer to OraLabs of all
of the ownership interests in NVC, which is held by the NVC Shareholders, (ii)
the redemption of all of the common stock of OraLabs held by its President, Gary
H. Schlatter, individually, in exchange for the transfer to Mr. Schlatter of all
of the common stock held by OraLabs in its wholly-owned subsidiary, OraLabs,
Inc., and (iii) approval of the 2005 Director Stock Plan and the issuance under
that plan of 100,000 shares of common stock to each of the three non-employee
directors of OraLabs. The effect of these transactions will include that after
the Closing, the business previously engaged in by OraLabs will no longer be
conducted by OraLabs, which instead will conduct only the business of NVC.
6
There are a number of factors that you should consider in connection
with deciding how to vote your shares. They include:
o the background of the transaction;
o the factors considered by the Special Committee and the Board of
Directors;
o the opinion of the financial advisor to the Special Committee;
o the recommendation of the Special Committee to the Board of Directors;
o the purpose and effect of the proposed transactions; and
o the conflict of interests of certain persons in the proposed
transactions.
These factors, in addition to several other factors to be considered in
connection with the proposed transactions, are described in this Proxy
Statement. For a detailed discussion of each of these factors, see "Special
Factors".
Reasons for Engaging in the Transaction (See "Special Factors - Background of
the Proposed Transactions")
The Company's operating subsidiary, OraLabs, Inc. has been in business
since 1990 and became public via a reverse merger in 1997. Prior to becoming
public, the sole owner of the subsidiary was Gary H. Schlatter, who believed
that by taking the Company public, the Company could use public shares to
facilitate its growth and that being public would facilitate providing ownership
interests to employees and others with an interest in the Company's business.
Those goals were not met. Historically, the trading volume of shares of the
public company has been extremely low and the stock price has remained at a
level substantially below that which would attract the interest of investors and
other members of the financial community. In addition, there have been
significant increases in the costs of being a public company arising out of the
Sarbanes-Oxley legislation and related rules of the Securities and Exchange
Commission ("SEC") and the National Association of Securities Dealers ("NASD").
As noted in the discussion below of the factors considered by the Special
Committee (see "Special Factors"), the Special Committee believed that a
reorganization with a company such as NVC that has substantially larger amounts
of revenues and which has historically obtained significant net earnings would
be beneficial to the nonaffiliated shareholders of OraLabs.
7
Recommendation of the Special Committee and Board of Directors (See "Special
Factors - Recommendation of the Special Committee")
The Special Committee of our Board of Directors, consisting of two
non-employee directors, was formed to consider and evaluate the proposed
transactions. The Special Committee approved the Exchange Agreement and
determined that the proposed transactions are in the best interests of OraLabs
and its nonaffiliated shareholders. The Special Committee recommended to our
Board that the Board determine that the proposed transactions are advisable and
in the best interest of OraLabs and our nonaffiliated shareholders and that the
completion of the proposed transactions is fair to our nonaffiliated
shareholders. The Special Committee also recommended that the Board approve the
Exchange Agreement and that the Board determine to submit the proposed
transactions to our shareholders and recommend that our shareholders vote to
adopt the Exchange Agreement. Even though our non-employee directors will be
receiving shares at the Closing, our Board determined that the proposed
transactions are advisable and in the best interests of and fair to OraLabs and
our nonaffiliated shareholders. Accordingly, our Board approved the Exchange
Agreement and recommends that you vote FOR the proposal to adopt the Exchange
Agreement and approve the proposed transactions.
Opinion of Capitalink, L.C. (See "Opinion of Financial Advisor to the Special
Committee" and Annex 2)
In connection with the proposed transactions, the Special Committee
considered the opinion of the Special Committee's financial advisor, Capitalink,
L.C., as to the fairness of the proposed transactions to our nonaffiliated
shareholders from a financial point of view. Capitalink delivered its opinion to
the Special Committee on that, as of August 10, 2005 and based on and subject to
the assumptions, limitations and qualifications stated in the opinion, the
consideration to be received by our nonaffiliated shareholders pursuant to the
Exchange Agreement was fair to those shareholders from a financial point of
view. The opinion was provided for the information of the Special Committee and
does not constitute a recommendation to any stockholder with respect to any
matter relating to the proposed transactions. The full opinion of Capitalink,
L.C. is attached as Annex 2.
OraLabs' Position as to the Fairness of the Proposed Transactions (See "Special
Factors - OraLabs Board of Directors")
We believe the proposed transactions to be fair to our nonaffiliated
shareholders. In reaching this determination we considered a number of factors,
including that:
o the financial performance of OraLabs as measured by its net earnings
(loss) has been negative or flat since the end of fiscal year 2001,
while on the other hand, the revenues and earnings of NVC have
significantly grown since 2003;
o OraLabs' common stock has historically traded at low prices that do
not attract the interest of the investment community and at very low
volumes so that there has been minimal liquidity for OraLabs'
shareholders even though the stock is traded on the NASDAQ SmallCap
Market;
o Capitalink delivered an opinion to the Special Committee to the effect
that as of August 10, 2005, and based on and subject to the
limitations, assumptions and qualifications contained in that opinion,
the proposed transactions were fair to the nonaffiliated shareholders
of OraLabs from a financial point of view; and
o the proposed transactions were approved and recommended by the Special
Committee.
8
Interests of our Directors in the Proposed Transactions (See "Certain
Relationships and Related Transactions - OraLabs")
In considering the recommendation of our Board of Directors with
respect to the Exchange Agreement and the transactions contemplated thereby, you
should be aware that, in addition to the matters discussed above, all of the
directors have interests in the proposed transactions that are in addition to or
different from the interests of our shareholders generally and that such
interests create actual or potential conflicts of interest. Mr. Schlatter will
acquire sole ownership of our operating subsidiary, OraLabs, Inc., in exchange
for the redemption by OraLabs of all of the shares of OraLabs that Mr. Schlatter
owns individually. Mr. Schlatter will retain a beneficial interest in some of
the 100,000 shares that The Schlatter Family Partnership owns in OraLabs. The
remaining three directors, none of whom are employees, will each receive 100,000
shares of the Company as part of the transactions to occur at Closing.
Election of Directors, Approval of the Name Change, and Increase in Authorized
Shares (See "Proposal Two and Proposal Three")
Immediately upon completion of the Closing, all of the members of the
Company's Board of Directors and officers will resign and the three current
owners and a non-executive director of NVC will be elected as the four members
of the Board of Directors, who will appoint such officers as they determine.
Upon approval of the proposed transactions, the name of the Company will change
to "NVC Lighting Corporation" or such similar name as determined by the Board of
Directors. The name change is intended to convey more clearly a sense of the
Company's business after the proposed transactions are closed. In addition, the
shareholders will be asked to approve the increase in the number of shares of
common stock authorized to be issued by the Company from 25,000,000 to
200,000,000. Upon Closing, there will be issued and outstanding approximately
22,727,700 shares of common stock, which may increase by up to an additional
number of approximately 2,192,000 shares to the extent that outstanding employee
options are exercised prior to Closing (which will cause an increase in the
number of shares to be issued to the NVC principals and their designees), and
the remaining authorized shares may be issued as the Board of Directors and/or
officers of the Company determine from time to time.
Approval of the 2005 Stock Option, SAR and Stock Bonus Plan (See "Proposal
Four").
The shareholders will be asked to approve at the annual meeting the
proposed 2005 Stock Option, SAR and Stock Bonus Plan. Adoption of the Plan will
permit the Company to issue securities to employees, consultants and others who
have an interest in the Company.
Plans for OraLabs After Closing of the Proposed Transactions
After the Closing, the business of OraLabs, Inc., the public company's
current subsidiary, will continue to be operated as a private company that will
be wholly owned by Mr. Schlatter. The OraLabs shareholders will have no further
interest in the operations of OraLabs, Inc.
Conditions to the Exchange Agreement (See "The Exchange Agreement - Conditions
to the Closing of the Exchange Agreement")
Certain conditions must be satisfied before the parties are obligated
to close the transactions under the Exchange Agreement, including the following:
o the Exchange Agreement and all of the transactions contemplated
thereby must be approved by the shareholders of OraLabs;
9
o OraLabs must receive letters from NVC's independent auditors and
attorneys that are satisfactory to OraLabs and confirm the status
of certain financial and legal matters relating to NVC's
performance under the Exchange Agreement;
o There must be no legal action that prevents or restrains
completion of the proposed transactions;
o the number of OraLabs shares that are the subject of dissenters'
rights exercised by OraLabs' shareholders cannot exceed 100,000
shares; and
o if continued listing of the public company's shares on the NASDAQ
SmallCap Market is not approved by the NASD for reasons
attributable to OraLabs, NVC may seek to renegotiate the relative
shareholdings to be owned upon completion of the transactions
between the NVC shareholders and the OraLabs shareholders.
In addition, other conditions, including the lack of any material adverse change
in the condition of the parties and compliance with representations, warranties
and covenants, must be satisfied by the parties before the other parties are
obligated to complete the proposed transactions.
Termination of the Exchange Agreement (See "The Exchange Agreement - Termination
of the Exchange Agreement")
Either party may terminate the Exchange Agreement if Closing does not
occur by September 30, 2005, unless such date is extended by the mutual
agreement of the parties, or if there is a legal prohibition or restraint that
occurs or is threatened with respect to the proposed Closing, or if NVC or
OraLabs breaches any of its representations, warranties or agreements under the
Exchange Agreement. The parties may agree at any time (including any time after
the annual meeting but before consummation of the proposed transactions) to
terminate the Exchange Agreement.
Dissenters' Rights of Appraisal (See "Dissenters Rights of Appraisal")
Any stockholder who does not wish to approve the Exchange Agreement has
the right under Colorado law to have his, her or its shares appraised by a
Colorado state district court. This "right of appraisal" is subject to a number
of restrictions and technical requirements. Generally, in order to exercise
appraisal rights, among other things, you must not vote in favor of the Exchange
Agreement or the transactions contemplated thereby and you must make a written
demand for appraisal in compliance with Colorado law before the vote on the
Exchange Agreement. Merely voting against the Exchange Agreement will not
preserve your right of appraisal under Colorado law. Annex 3 to this Proxy
Statement contains the Colorado statutes relating to your right of appraisal.
Failure to follow all of the steps required by the statutes will result in the
loss of your right of appraisal.
NVC BUSINESS
Background
The principal business of NVC is the design, manufacturing and
distribution of an extensive line of lighting fixtures and related lighting
products through its 97% owned subsidiary, NVC Industrial Development Company
Limited ("NVC Industrial"). NVC Industrial has operations in The People's
Republic of China (the "PRC"), Europe, Russia, the Middle East and Hong Kong.
NVC Industrial was registered as a limited liability Sino-foreign joint
investment enterprise on January 28, 2003 in Huizhou, Guangdong Province in the
PRC, with a registered capital of $1,282,051 (HK$10,000,000) and a defined
period of existence of 15 years to January 27, 2018.
10
NVC Lighting Investment Holdings Limited ("NVC") was incorporated in
the Hong Kong Special Administrative Region in the PRC as a private limited
liability company on June 11, 2004. As a result of the reorganization and
restructuring of NVC, NVC Lighting Company Limited ("NVC Lighting"), a
predecessor of NVC Industrial, ceased operations on April 30, 2003 and, on the
same date, certain net assets were distributed totaling $1,767,655 to the
registered equity holders of NVC Lighting, who in turn injected the net assets
and business into NVC Industrial as part of their capital contribution in NVC.
NVC Lighting was originally registered as a limited liability company on
November 13, 1998 in Huizhou, Guangdong Province in the PRC with a defined
period of existence of 6 years and 49 days to December 31, 2004. On May 1, 2003,
the business operations of NVC Lighting were transferred to NVC Industrial. On
June 13, 2004, NVC acquired 97% of the outstanding registered capital of NVC
Industrial which became a subsidiary of NVC and which was registered as a
Sino-foreign joint investment enterprise ("FIE").
These two transactions were treated as a recapitalization of an
existing business in accordance with the requirements of Financial Accounting
Standards Opinion No. 141, BUSINESS COMBINATION, EXHIBIT D. The effect of these
recapitalizations was rolled back to December 31, 2002 for financial reporting
purposes.
NVC and its subsidiary, NVC Industrial, are hereinafter collectively
referred to as NVC.
General
NVC is a leading designer, manufacturer, assembler and marketer of
lighting fixtures and related products in the PRC. Its broad product lines are
used in residential, commercial and industrial remodeling and in new
construction. Its principal lighting products use a variety of light sources in
line and low voltage and are designed for reliable and flexible function, energy
efficient operation, attractive appearance, and simple installation and
servicing. NVC is also engaged in the marketing, design and manufacture of other
incandescent, fluorescent and High Intensity Discharge ("HID") lighting products
with applications in the commercial lighting market.
Approximately 91% of the Company's sales in its financial year ended
December 31, 2004, were made in the PRC, with approximately 8% in Europe, 0.2%
in the Middle East, and 0.2% in Hong Kong. The Company's sales are made to
electrical distributors and lighting showrooms as well as to certain wholesale
lighting outlets. Such distributors wholesale and/or retail NVC lighting
products for use in remodeling of existing structures and in new residential,
commercial and institutional construction projects.
The Company's primary means of distribution is through independent
exclusive distributors of its lighting products located throughout the PRC,
Europe, the Middle East, and Russia. NVC has established itself as a lighting
supplier by providing high quality and well-designed products, excellent
customer service, timely delivery, technical advice and product training. The
exclusive distributors maintain their own inventory of NVC lighting products,
and, in turn, sell to electrical contractors, builders and at the retail level.
Sales to distributors are made through the Company's sales staff and through
manufacturers' agents who may also sell other non-competing electrical products.
NVC also has a national accounts sales force that focuses on department stores,
specialty retail, supermarkets and commercial accounts. NVC works closely with
these national accounts to provide custom solutions to their lighting needs and,
in turn, to have the Company's lighting products specified for their major
renovations or store expansions.
11
Products
NVC produces a wide variety of lighting fixtures and related products
for residential, commercial and industrial applications.
The principal lighting products of NVC are (i) lighting control
products, such as electronic transformers, electronic ballasts, and control gear
for high pressure discharge lamps, and (ii) electrical light sources, such as an
incandescent lamp series, fluorescent lamp series, high pressure discharge lamp
series, and LED series.
The lighting product lines of NVC are also designed for home lighting,
commercial lighting, and outdoor lighting.
The home lighting product lines comprise modern chandelier series,
ceiling light series, dining room light series, wall light series, mirror light
series, floor light series, and cabinet light series.
The commercial lighting product lines of NVC consist of a downlight
series, track lighting series, ceiling spot light and flexible ceiling track
lighting light systems, cable system, multiple spot light series, decorative
fluorescent luminaries series, reflector downlight series, metal hydride light
series, and fluorescent lamp stand series.
The outdoor lighting systems of NVC are comprised of a fiber-optic
series, ground light series, embedded light series, underwater light system,
flood light series, road light series, and work light series.
The following table reflects, in general, the number and type of
products produced by NVC during its fiscal years ended December 31, 2002, 2003,
and 2004:
PRODUCTS (UNITS) 2002 2003 2004
---------------- ---- ---- ----
Electronic transformers 1,543,245 2,670,824 3,604,321
Energy-saving lamps 1,003,704 1,298,946 1,796,134
Energy-saving tubes 444,257 1,037,578 1,486,036
Ceiling lamps 148,524 353,193 5,759,874
Multiple lights 157,462 345,234 673,726
Decorative fluorescent luminaries 219,047 246,570 3,573,192
Metal halide lights 77,470 80,505 171,070
Other items 1,386,823 2,007,646 15,216,966
-------------------------------------------------------
Total 11,408,644 18,710,308 32,281,319
=======================================================
The following products of NVC are currently the most popular with its customers:
1. ELECTRONIC TRANSFORMERS- Electronic transformers are accessories to
lights and light sources in lengthening lighting life, and are
extensively used in household lighting and commercial lighting. They
are simple and safe to use, are small and light, retard rising
temperatures, use low power consumption, and are long lasting.
2. ENERGY-SAVING LAMPS (Also known as "compact fluorescent lamps")-
Compared to incandescent lamps, compact fluorescent lamps transform
electricity into light with cost savings of nearly 80%. They are more
durable, distribute colors more evenly, and are used for indoor and
outdoor lighting such as shopping malls and museums. Small fluorescent
lamps are often used as an alternative to incandescent lighting because
their lamp life is about 10 times longer than incandescent lamps and is
3 to 4 times more efficient.
12
3. CONTROL GEAR SERIES- These high quality products are the top ranked
brand in the PRC in halogen light electronic transformers. NVC offers
the following electronic transformer series products: (a) common type
electronic transformer; (b) full function (with over-voltage, overload,
and short-circuit protection) electronic transformer; (c) dimmable
electronic transformer.
4. MULTIPLE SPOTLIGHTS- Multiple spotlights can be installed in different
ways with adjustable light direction. They are compatible with various
lamps, and have a high color rendering index and narrow beam angle.
5. SPOTLIGHTS- The spotlight series consist primarily of rack spotlights,
ceiling spotlights and flexible track systems. They provide options to
conform to different and varying space requirements due to adjustable
light direction and flexible track designs.
6. REFLECTOR-DOWN LIGHTS- They are fixed to the ceiling, usually fully
recessed, re-distributing light by reflectors to meet different
lighting requirement. Various styled reflectors made of high quality
aluminum prevent oxidization, provide base lighting or point lighting
for indoors use, such as shopping malls, business halls, exhibition
halls, hotels, meeting halls, homes, etc.
7. METAL HALIDE LIGHTS- The main features of a metal hydride light is its
durability, high color renderings, UV-prevention, high efficiency and
energy saving, a wide range of wattages and ease of repair. They
provide highly efficient multi-angled and long-lasting lighting, and
reduce maintenance expenses. These lamps are similar to mercury vapor
lamps but use metal halide additives inside the arc tube along with
mercury and argon. These additives enable lamps to produce more visible
light per watt with improved color rendition. Because of the good color
rendition and high lumen output, these lamps are very good for sports
arenas, stadiums and similar facilities.
8. DECORATIVE FLUORESCENT LUMINAIRES- Decorative fluorescent lights are
used primarily in office ceiling lighting. They improve light
efficiency and control glare through reflecting covers. The high
quality diffuser used in the luminaires is imported from Japan with a
high transmission rate of 75%. Fluorescent lamps are popular because of
their relatively high efficacy, diffuse light distribution
characteristics, and long operating life. A fluorescent lamp consists
of a glass tube filled with argon or argon-krypton gas and a small
amount of mercury, coated on the inside with phosphors and with an
electrode at both ends.
9. CEILING SPOTLIGHTS- They are fixed with an electronic transformer, and
are energy saving, quiet and retard rising temperature. They provide
even, soft and comfortable basic light for household uses or decorative
lighting for commercial purposes.
10. PENDANT LIGHTS- Pendant lights are installed to the ceiling with glass
and other types of shades to provide decorative soft lighting. The
holding cables are placed in lines, chains and frames. Shades are made
of crystal, glass, acrylic and metals with various shapes through
electro-plating and painting. They are usually used in dining halls or
pubs.
13
11. FLOOD LIGHTS- Flood lights are used at sports grounds, harbors,
buildings, and studios. They are resistant to dramatic temperature
changes, are not easy to break, prevent dust and water damage, are
hydromechanical compliant, have wind resistance capabilities, and are
safe and long lasting.
12. ROAD LIGHTS- Road lights are strong and durable with various color
options. They are sealed to prevent dust and water damage. The diffuser
is of high diffusion, durable at high temperature, and resistant to
color changes.
13. ELECTRONIC BALLASTS- NVC supplies the following electronic ballasts:
PRODUCTS USE
a.) One-for-one, one-for-two lit-box Used in outdoor lit-box and advertising board
use electronic ballast
b.) One-for-one, one-for two PLC Used with PLC in reflector down lights and wall lights
use electronic ballast
d.) One-for-one, one-for-two, one-for-three Used in decorative fluorescent luminaries and
fluorescent lamp use electronic ballast fluorescent stands
In nearly every full-size fluorescent lighting application, electronic
ballasts can be used in place of conventional magnetic "core-and-coil" ballasts.
Electronic ballasts improve fluorescent system efficacy by converting the
standard 60 Hz input frequency to a higher frequency, usually 25,000 to 40,000
Hz. Lamps operating at these higher frequencies produce about the same amount of
light, while consuming 12% to 25% less power. Other advantages of electronic
ballasts include less audible noise, less weight, virtually no lamp flicker, and
dimming capabilities (with specific ballast models).
NVC stresses internal quality control and has obtained recognition in
the PRC, having been issued ISO9001:2000 certifications, and has been selected
as a AAA business in the PRC's Quality and Service Reputation System. Its
products comply with 3C, TUV, CE, EMC and other international standards.
NVC owns the "NVC" trademark, and variations thereof, which are
material to the Company's business. NVC considers its other trademarks to be
valuable, but not material to its overall business.
PRC Green Lights Program
NVC is a voluntary participant in the China Green Lights Program (the
"Program") which is sponsored and jointly funded by the United Nations
Development Program and the Global Environment Facility-Enditem. The Program is
similar to the Green Lights Program sponsored by the U.S. Environmental
Protection Agency ("EPA") regarding energy savings and pollution prevention by
encouraging companies and individual residential consumers to install energy
efficient lighting technologies. NVC strives to manufacture cost-effective and
energy efficient lighting to help its customers reduce costs, and to reduce
pollution and radiation and preserve national resources. In the PRC, electricity
is primarily generated by thermal power plants using coal. By reducing the need
for electrical power consumption, the Project has reduced the emission of green
house gases, including the emission of carbon dioxide and nitrogen oxides,
resulting in less smog, acid rain and reduced climate changes.
The China Center for the Certification of Energy Conservation Products
("CECP") is the government agency in the PRC responsible for developing
voluntary standards and labeling programs for consumer products, including
energy-efficient lighting, for sale in the PRC, and has significantly
contributed to the Program.
According to the National Development and Reform Commission ("NDRC"),
the PRC has saved 45 billion kilowatt-hours of electricity since the launch of
the Program in 1996. The Director of the Environmental and Resource Conservation
Department of the NDRC recently stated at an international conference on green
lighting that China will further promote green lighting during the next five
years to relieve the electricity supply crunch in the PRC.
14
Production
NVC designs and assembles a majority of its lighting products in-house.
However, NVC out-sources most of its component manufacturing to a number of
independent manufacturers/suppliers who are located in the PRC and abroad.
Tools, dies and molds are manufactured by outside sources according to designs
and specifications set by NVC. Tooling is consigned to independent tooling
shops, largely near NVC manufacturing facilities, which fabricate and finish the
components of its products. NVC inspects the components and assembles, tests,
packages, stores and ships the finished products.
NVC out sources manufacturing of various components to minimize fixed
costs and capital requirements and allowing it the flexibility to respond to
market needs. NVC believes its utilization of subcontractors with specialized
skills is the most efficient method of manufacturing certain components used in
its lighting products. NVC further believes that alternate tool making
specialists and fabricators are generally and readily available. NVC uses
multiple subcontractors for certain components to facilitate availability and
smooth stable supplies. In addition, NVC purchases raw materials used in the
manufacturing of its components to control the quality of the raw materials used
by the subcontractors and to receive more competitive prices for the raw
materials. Currently, NVC also contracts for the assembly of certain products
with third parties whose facilities are located in the PRC.
The principal manufacturing plant of NVC is located in Xiaojinkou,
Huizhou, Guangdong Province in the PRC. It has approximately 23,871 square
meters, and has 25 automated production lines for the manufacture and assembly
of its lighting products. Phase I of the construction of the new production
facilities at NVC Industrial Park in Ruhu District, Huizhou is scheduled for
completion in September 2005, subject to weather conditions. The new production
facilities at NVC Industrial Park will have approximately 17,280 square meters
and will significantly expand the production capabilities of NVC by adding up to
33 new automated production lines.
Research and Development
NVC spent approximately $29,352, $1,984, and $11,823 on research and
development and testing of new products and development of related tooling in
the years ended December 31, 2004, 2003, and 2002, respectively. These are not a
complete reflection of the actual research and development cost of NVC as
certain research and development costs were booked into other categories of
expenses.
Approximately 70% of the lighting technologies utilized by NVC were
developed within NVC. NVC built and equipped a research and development center
at a cost of approximately $600,000 during 2005.
Sales, Marketing and Distribution
PRC domestic sales revenues of NVC lighting products constituted
approximately 91% of its total sales for the fiscal year ended December 31,
2004, and 88% for the 2003 fiscal year.
Sales revenues generated amounted to $55,898,746 for the year ended
December 31, 2004 compared to $31,051,991 for the year ended 2003 , representing
an increase of $24,846,755 or 80% year-on-year. The principal markets of NVC in
the PRC are in Beijing, Zhejiang, Jiangsu, Shanghai and Guangdong Province.
15
NVC has 238 marketing representatives located at 33 sales offices
located in medium to large size cities throughout the PRC. NVC has more than 400
franchisees that operate approximately 2,500 stores in the PRC, and marketing
and distribution representatives in Britain, Germany, Russia, the Middle East,
and the Asia-Pacific area.
As of December 31, 2004, NVC entered into distribution agreements with
58 distributors who agreed to be exclusive distributors of NVC lighting products
and agreed to generate specified minimum sales volume over a 10 year period. In
accordance with the terms and conditions of the form of Distribution Agreement
(the "Agreement"), NVC paid $120,773 to each exclusive distributor. The costs of
these Agreements are amortized on a straight-line basis over the life of the
Agreements
During the years ended December 31, 2004 and 2003, NVC advertised its
lighting products at a cost of $1,895,600 and $1,167,949, respectively.
During the years ended December 31, 2004, and 2003, NVC incurred
freight distribution costs of $1,184,014 and $524,371, respectively.
Inventories are maintained at production and distribution facilities of
NVC located in the PRC and at distribution facilities near Xiaojingkou District.
Most orders are shipped from stock inventory within 48 hours of receipt. At
December 31, 2004, NVC has inventories of raw materials of $3,533,273, and
finished goods of $3,537,988, totaling $7,071,261.
Backlog and Material Customers
NVC has no material long-term supply contracts. NVC is not dependent on
any single customer or group of customers, and for the years ended December 31,
2004 and 2003, no single customer accounted for sales in an aggregate amount
equal to 10% or more of its consolidated sales revenues.
Competition
NVC is not aware of any published statistics or data that identify the
overall market for its products. Nevertheless, NVC believes that it is one of
the largest privately-held manufacturers of lighting products in the PRC. NVC
estimates that there are more than 1,000 lighting product producers in the PRC.
NVC competes not only with manufacturers in its own fields, but also with
manufacturers of a variety of other lighting products. A number of competitors
are divisions or subsidiaries of much larger multi-national companies, which
have substantially greater resources than NVC.
NVC believes that its most significant competitors in the PRC are
Phillips Electronics China, GE Lighting Engineering Group CE, Foshan Electrical
Lighting Co., Limited, Zhejiang Yangguang Group Stocks Co., Limited, Huizhou TCL
Lightening Co. Limited, Audi and GE Lightings (Guangzhou) Co., Limited,, and
Guangdong Dongsong Sanzioung Electrical Appliance Co., Limited,.
There is wide price variance in competitive products and NVC believes
that its lines of lighting products can be described as moderately priced in
order to be attractive to the high-volume commercial and residential markets.
However, lighting fixtures are often purchased in small quantities and, as a
result, product features may be more important to a purchaser in small
quantities than cost. NVC believes that its growth has been attributable
principally to the quality design and construction of its products, the quality
of its distribution network, sales force and its reputation for prompt delivery
and service.
16
Intellectual Property
As of June 30, 2005, NVC owned a number of PRC patents and had several
patent applications on file. NVC also has corresponding foreign patents and
registered trademarks in thirty other countries worldwide. There is no assurance
that any patents will be issued with respect to pending or future applications.
As NVC develops products for new markets and uses, it normally seeks available
patent protection. NVC believes that its patents are important, but does not
consider itself materially dependent upon any single patent or group of related
patents.
Employees
NVC employed approximately 1,195 employees as of December 31, 2004.
As of December 31, 2004, NVC had 13 senior level management personnel,
48 middle management staff, 163 administrative staff, 638 manufacturing and
assembling personnel, 59 engineering and technical staff, and 274 marketing and
sales representatives.
NVC does not have any unions or other labor organizations. NVC believes
that its relations with its employees are good.
The production facilities of NVC include an employee entertainment
center, a library, dining hall, and dormitories.
NVC provides health benefits and retirement benefits to its employees
as required by PRC labor laws and its social security system. During the years
ended December 31, 2004 and 2003, NVC incurred pension costs of $7,566 and
$13,983, respectively.
NVC provides a variety of training programs for its management and
employee personnel, including production processes, quality control, safety,
product knowledge, and marketing.
Properties
The manufacturing, warehousing and business operations of NVC are
primarily conducted in three short-term leased properties located in Xiaojinkou
Town, Huizhou, and Guangdong Province in the PRC. The expiration dates of the
leases are between September 2005 and September 2006. Leasing costs amounted to
$193,883 and $118,183 for the years ended December 31, 2004 and 2003,
respectively. One leased property is comprised of three buildings for
manufacturing of approximately 8,333 square meters, and one dormitory of
approximately 800 square meters. A second leased property has three
manufacturing facilities of approximately 9,000 square meters, with three
dormitories of approximately 4,000 square meters. The third leased property is
comprised of three buildings of approximately 6,538 square meters.
NVC is presently building new additional production and assembly
facilities at NVC Industrial Park also located in Ruhu District, Huizhou,
Guangdong Province, in the PRC. The new NVC Industrial Park will include four
production plants, three dormitories for staff and employees, and one office
building which is being built on a site area of 189,000 square meters. Phase I
of the construction of the NVC Industrial Park is expected to be completed in
September 2005, subject to weather conditions. Additional production facilities
are planned for Phase II of the NVC Industrial Park. At December 31, 2004, NVC
had paid $1,304,348 for the land use rights to NVC Industrial Park, and
$1,374,015 for the construction costs and for design fees. The estimated unpaid
balance for the completion of the construction of the facilities is $5,663,073,
which will be due during the year ending December 31, 2005 and is included as an
outstanding commitment in NVC's financial statements.
17
NVC built a research and development center during 2005 at a cost of
approximately $600,000, which research facility comprises 600 square meters and
is located in Ruhu District.
There is no private ownership of land in the PRC and all land ownership
is held by the PRC government, its agencies and collectives. Land use rights for
industrial use are obtained from the government for periods ranging from 40 to
50 years, and are typically renewable. Land use rights can be transferred upon
approval by the land administrative authorities of the PRC (State Land
Administration Bureau) upon payment of the required land transfer fees.
Legal Proceedings
Currently, NVC is not a party to any litigation or other legal
proceeding that NVC believes could reasonably be expected to have a material
adverse effect on its business, results of operation or financial condition. NVC
may receive claims of and become subject to consumer protection, employment,
labor, product liability and other commercial litigation related to the conduct
of its business. Such litigation could be costly and time consuming and could
divert the management and key personnel from their business operations. The
uncertainty of litigation increases these risks. In connection with such
litigation, NVC may be subject to significant damages or equitable remedies
relating to the operation of its business and the sale of its products. Any such
litigation may materially harm its business, results of operations and financial
condition.
RISK FACTORS
DILUTION TO EXISTING SHAREHOLDERS. As a result of completing the
transactions contemplated by the Exchange Agreement, the ownership by the
nonaffiliated shareholders of OraLabs will be significantly diluted from 20.3%
before completion of the transactions to 4.2% after completion of the
transactions. Although a third-party advisor rendered its opinion to the Special
Committee of the Board that, as of August 10, 2005 and subject to the
assumptions, qualifications and limitations set forth in its opinion, the
transactions contemplated by the Exchange Agreement were fair, from a financial
point of view, to the nonaffiliated shareholders of OraLabs, there can be no
assurance as to the future performance of NVC or of the common stock of the
Company. See "Special Factors-Opinion of Financial Advisor to the Special
Committee". In addition, if the shareholders approve the proposed amendment to
the Company's Articles of Incorporation to increase the number of authorized
shares to 200,000,000, there will be a substantial number of shares available
for issuance by the Company without the approval of shareholders that could have
the effect of further diluting the interests of the nonaffiliated shareholders.
OraLabs also has the right to issue up to 1,000,000 shares of preferred stock
without shareholder approval.
NO ASSURANCE OF NASDAQ LISTING. The continued listing of the Company's
common stock on NASDAQ is not a condition of closing the transactions
contemplated by the Exchange Agreement. The Company will be obligated to file a
new listing application with NASDAQ and there cannot be assurance that the
Company will meet all of the requirements for listing, including without
limitation the requirement that the minimum bid price of the common stock must
not be less than $4.00 per share. OraLabs believes that it will meet the other
requirements for listing on NASDAQ, but there is no assurance that will occur.
In the event that OraLabs does not meet NASDAQ listing requirements upon the
closing of the transaction with NVC, the common stock of OraLabs is expected to
be publicly traded on the NASD Electronic Bulletin Board over-the-counter market
(OTC-BB) until it meets the listing requirements of NASDAQ, if ever.
18
NEW PROJECTS. The new property development projects that NVC is
financing to expand its manufacturing and assembly facilities at NVC Industrial
Park will be subject to the many risks inherent in the rapid expansion of a high
growth business enterprise, including unanticipated design, construction,
regulatory and operating problems, and significant risks commonly associated
with implementing a marketing strategy in ever changing and expanding markets.
There can be no assurance that any of the projects will become operational
within the estimated time frames and projected budgets at the time NVC enters
into a particular agreement, or at all. In addition, NVC may develop projects as
joint ventures in an effort to reduce its financial commitment to individual
projects. There can be no assurance that the significant expenditures required
to expand its plant will ultimately result in the establishment of increased
profitable operations.
When NVC expansion projects become operational, NVC will be required to
recruit and train personnel, expand its management information systems and
control expenses. If NVC does not successfully address its increased management
needs or if NVC is otherwise unable to manage its growth effectively and
efficiently, its operating results could be materially and adversely affected.
UNCERTAINTY OF MARKET ACCEPTANCE. NVC is currently selling its lighting
products and electrical accessories principally in cities along the coastal
region in China. Achieving market acceptance and penetration of NVC products,
particularly in new markets, will require substantial marketing efforts and
substantial expenditures. There is substantial risk that new markets may not
accept or be as receptive to NVC lighting products. Market acceptance of NVC
current and proposed new lighting products will depend, in large part, upon its
ability to inform potential customers that the distinctive characteristics of
its lighting products make them superior to competitors' products and justify
their pricing. There can be no assurance that NVC's current and proposed new
lighting products will be accepted by consumers or that any of its current or
proposed new lighting products will be able to compete effectively against other
similar high quality products. Lack of market acceptance and market penetration
of NVC lighting products would have a material adverse effect on NVC.
CHANGING CONSUMER PREFERENCES. In common with other companies marketing
lighting products, NVC is also subject to ever changing consumer preferences and
cost concerns. NVC believes that the energy efficiency and green light aspects
of its lighting products make its products reasonably priced.
PRODUCTION CAPACITY. There is no assurance that NVC will be able to
increase its production capacity to a level sufficient to meet anticipated
increased customers' demands for its lighting products commensurate with its
extensive distribution, marketing and promotional efforts. NVC plans to purchase
advanced plant machineries for its new production facilities at NVC Industrial
Park and to upgrade existing plant machineries, which it believes should
increase its production capacity to meet consumers' demands for its lighting
products. There is no assurance, however, that NVC's contemplated improvements
to its plants and machineries will increase production capacity to the level
anticipated or that production can be increased at a rate sufficient to meet
anticipated increased demands for its lighting products. There can also be no
assurance that the lighting products mix which NVC anticipates will be achieved
and which it has used in determining its capital expenditure requirements for
plants and machineries will prove to be accurate, making uncertain the future
capacity of its plants and machineries. Failure to meet possible increased
demands for its lighting products, on a timely basis, could have a material
adverse effect on its business, operations and finances.
SALES FORCE. NVC has hired additional sales personnel and sales
facilitators during 2004 and will continue its recruiting drive to enable NVC to
expand and penetrate into other cities and areas that it currently does not
cover. There is no assurance that recruiting additional sales people and sales
facilitators will result in increased sales revenues and sales volume. NVC
anticipates using additional independent exclusive distributors to sell and
distribute its lighting products in new continuous expansion of its markets. NVC
cannot predict whether it will be able to obtain and maintain satisfactory sales
and distribution arrangements with exclusive distributors and the failure to do
so could have a material adverse effect on its business, operations and
finances.
19
LIMITED DELIVERY CAPACITY; DELAYS IN DELIVERY OF PRODUCTS. If sales
increase at the current growth rate, there is no assurance that NVC will be able
to deliver increased product volumes on a timely, efficient basis or on a
consistent basis, especially with increased product volumes, and a failure to do
so could have a material adverse effect on its business, operations and
finances.
GEOGRAPHIC CONCENTRATION; FLUCTUATIONS IN REGIONAL ECONOMIC CONDITIONS.
Nearly all of NVC local sales are concentrated in the coastal region of China.
Accordingly, NVC is susceptible to fluctuations in its business caused by
adverse economic conditions in the coastal region of China. NVC lighting
products are priced higher than other non-premium quality products. Although NVC
believes that the quality, durability, and efficiency of its lighting products
more than compensate for the price differential, there can be no assurance that
consumers will be willing to pay more for such products in unfavorable economic
conditions, or at all. Difficult economic conditions in other geographic areas
into which NVC may expand may also adversely affect its business, operations and
finances.
LACK OF INSURANCE. NVC may encounter the risk of liability in
connection with the sale of its electrical lighting products should the use of
such products cause injury, illness or death. Such risks may be particularly
great in a company undergoing rapid and significant growth. NVC does not
currently maintain any product liability insurance. There can be no assurance
that any insurance will be sufficient to cover potential claims or that a
satisfactory level of coverage (if such insurance is subsequently desired by
NVC) will be available in the future at a reasonable cost. A partially or
completely uninsured successful claim against NVC could have a material adverse
effect on its business, operations and finances.
LIMITED TRADEMARK PROTECTION. NVC has registered its trademark and the
use of its trade name "NVC" nationally in the PRC. The trademark has been
registered with the Trademark Bureau of the State Administration for Industry
and Commerce with respect to its lighting products. NVC believes its trademark
is important to the establishment of consumer recognition of its lighting
products. However, there can be no assurance as to the breadth or degree of
protection that the trademark may offer NVC, that NVC will have the financial
resources to defend the trademark against any infringement, or that such defense
will be successful. Moreover, any events or conditions that negatively impact
its trademark could have a material adverse effect on its business, operations
and finances.
PROPRIETARY KNOWLEDGE AND ABSENCE OF PATENT PROTECTION. NVC has patents
covering certain series of lighting products and expects to rely on know-how and
the confidentiality of its formulae and production processes for its lighting
products in producing a competitive product line. There is no assurance that any
of these factors can be maintained or that they will afford NVC a meaningful
competitive advantage.
DEPENDENCE ON EXECUTIVES. NVC is highly dependent on the services and
entrepreneurial skills and expertise of Mr. Wu Chang Jiang, Mr. Hu Yong Hong and
Mr. Du Gang, and the loss of any of their vital services would have a material
and adverse impact on the operations of NVC. They have been primarily
responsible for the development of NVC and the development and marketing of its
products. NVC has not applied for key-man life insurance on the lives of these
executives, but intends to do so in due course after the closing of the Exchange
Agreement.
20
EXPANSION RISKS. NVC anticipates that the construction of Phase I of
the new production facilities at NVC Industrial Park will be followed by Phase
II of the new production facilities at NVC Industrial Park resulting in
additional capital expenditures and exerting continued pressure on its cash
flow. NVC's cost estimates and projected completion dates for the construction
of the new production facilities may change or modify significantly as the
projects progressed. Additionally, the projects will entail significant
construction risks, including shortages of materials or skilled labor,
unforeseen environmental or engineering problems, weather interferences and
unanticipated cost increases, any of which, could have a material adverse effect
on the construction project and could delay its scheduled openings. A delay in
scheduled openings will delay and inhibit NVC growth and production capability.
There is no assurance that NVC will be able to sell any or all of its lighting
products that its newly-constructed production facilities could produce, and
there is no assurance that NVC will be able to source sufficient raw materials
and components to allow it to utilize such additional production capacity. The
new projects that NVC will finance, develop, and expand its manufacturing and
assembly facilities at NVC Industrial Park will be subject to the many risks
inherent in the rapid expansion of a high growth business enterprise, including
unanticipated design, construction, regulatory and operating problems, and the
significant risks commonly associated with implementing a marketing strategy in
ever changing and expanding markets. There can be no assurance that any of the
projects will become operational within the estimated time frames and projected
budgets at the time NVC enters into a particular agreement, or at all. In
addition, NVC may develop projects as joint ventures in an effort to reduce its
financial commitment to individual projects. When the Company's future expansion
projects become operational, it will be required to recruit and train new
personnel, expand its management information systems and control expenses. If it
does not successfully address its increased management needs or NVC is otherwise
is unable to manage its growth effectively, its operating results could be
materially and adversely affected.
CUSTOMER CREDITWORTHINESS. The Company's ability to collect payments
from its customers could be impaired if their creditworthiness deteriorates.
PROPERTY INSURANCE. NVC carries a relatively small amount of property
insurance. As a result, any uninsured loss or damage to its properties or other
assets could have a material adverse effect on its personnel, financial
condition and operations.
TERRORIST ATTACKS AND MILITARY CONFLICT. Riots, terrorist attacks and
threats, escalation of military activity in response to such attacks or acts of
war may negatively affect NVC business, financial condition and results of
operations. The Company's business is affected by general economic conditions,
fluctuations in consumer confidence and spending, and market liquidity, which
can decline as a result of numerous factors outside of its control, such as
terrorist attacks and acts of war. Future riots, terrorist attacks, rumors or
threats of war, actual conflicts involving the PRC or its allies, or military or
trade disruptions affecting its customers may materially and adversely affect
its operations.
GOVERNMENT REGULATION. NVC is subject to regulations and laws enacted
by the State Council, and by provincial, county and local authorities in the
jurisdictions in which its lighting products are manufactured or sold, regarding
the manufacturing, storage, and distribution of its lighting products. NVC's
facilities are subject to periodic inspection by national, provincial, county
and local authorities. NVC believes that it is currently in substantial
compliance with all material existing governmental laws and regulations and
maintains all material permits and licenses relating to its operations.
Nevertheless, there can be no assurance that NVC will continue to be in
substantial compliance with current laws and regulations, or whether NVC will be
able to comply with any future laws and regulations. To the extent that new
regulations are adopted, NVC will be required to conform its activities in order
to comply with such regulations. Failure by NVC to comply with applicable laws
and regulations could subject NVC to civil remedies, including fines,
injunctions, recalls or seizures, as well as potential criminal sanctions, which
could have a material and adverse effect on its business, operations and
finances.
21
PRC EXCHANGE RATE. Effective July 21, 2005, the People's Bank of China
announced that the Renminbi ("Rmb") exchange rate regime is reformed by moving
from a fixed rate of exchange based upon the U.S. dollar to a managed floating
exchange rate regime based upon market supply and demand of a basket of
currencies. As of July 26, 2005, the exchange rate against the Rmb was adjusted
to 8.11 Rmb per U.S. dollar which represents an adjustment of approximately two
percent. It is expected that the revaluation of the RMB and the exchange rate of
the RMB will be changed very gradually in the future.
FOREIGN CURRENCY EXCHANGE. The PRC currency, "Renminbi" or "Yuan", is
not a freely convertible currency, which could limit NVC's ability to obtain
sufficient foreign currency to support its business operations in the future.
NVC relies on the PRC government's foreign currency conversion policies, which
may change at any time, in regard to its currency exchange needs. Export for
export sales, NVC receives all of its revenues in Renminbi, which is not freely
convertible into other foreign currencies. In the PRC, the government exercises
strict control over Renminbi reserves through, among other things, direct
regulation of the conversion of Renminbi into other foreign currencies and
restrictions on foreign imports. Although foreign currencies which are required
for "current account" transactions can be bought freely at authorized PRC banks,
the proper procedural requirements prescribed by PRC law must be met. At the
same time, PRC companies are also required to sell their foreign exchange
earnings to authorized PRC banks and the purchase of foreign currencies for
capital account transactions still requires prior approval of the PRC
government. Such regulation by the PRC government on foreign currency exchange
restricts certain of the Company's business operations and a change in any of
these government policies, or any other, could further negatively impact its
operations. Fluctuations in the "unofficial" exchange rate between Renminbi and
the United States dollar in the future could adversely affect NVC's operating
results. The functional currency of NVC in the PRC is "Renminbi" and recently
the PRC altered its policy of tying that currency to the United States Dollar.
Instead, the PRC will be undertaking a managed floating exchange rate regime
based on market supply and demand with reference to a basket of currencies. Any
significant fluctuations in exchange rates may adversely affect NVC payments and
results of its operations as well as the value of its assets and liabilities.
Exchange fluctuations may adversely affect the comparability of year-to-year
results. Although NVC may use hedging techniques in the future (which it
currently does not use), NVC may not be able to completely eliminate the effects
of foreign currencies fluctuations. Thus, exchange rate fluctuations could have
a material adverse impact on its operating results and stock prices.
PRC SAFE REGULATION. The State Administration of Foreign Exchange
("SAFE") in the PRC has issued public notices that require citizens of the PRC
that directly or indirectly establish or control overseas companies to submit an
application to the State Administration of Foreign Exchange Control on Overseas
Investment Procedures for its approval.
Without such approval, a citizen of the PRC may not use his PRC assets
or equity as consideration to acquire the equity of an overseas enterprise or
other property rights. Applications to SAFE for foreign exchange registration
regarding mergers and acquisitions of a PRC enterprise through an overseas
enterprise that is approved, will be subject to supervision and inquiry and
proof of capital verification, and foreign exchange registration for foreign
investment from the receipt of foreign exchange for equity, transfers;
registration of loans to shareholders remittance and reinvestment of the
profits, and assignments of equity.
NVC nor its subsidiaries have filed any applications with SAFE. As a
result, NVC may be subject to enforcement actions by SAFE, and any penalties or
other remedial actions are uncertain because the SAFE notices do not identify
any specific penalties for non-compliance. Remedial action for violation of SAFE
requirements may be to restrict the ability of NVC's subsidiaries to repatriate
and distribute their profits to OraLabs in the United States. However, the
results of non-compliance are uncertain, and there is no assurance that such
penalties and other unknown remedial measures will not have a material adverse
impact upon OraLabs' financial condition and results of operations.
PAYMENT OF DIVIDENDS. In order to pay dividends, a conversion of
Renminbi into US dollars is required. Under current PRC law, the conversion of
Renminbi into foreign currency generally requires government consent. Government
authorities may impose restrictions that could have a negative impact in the
future on the conversion process and upon the ability of NVC to meet its cash
needs, and to pay dividends. However, a subsidiary of NVC is presently
classified as a wholly-owned foreign enterprise ("WFOE") in the PRC that has
verifiable foreign investment in the PRC, funding having been made through an
official PRC banking channel. Because this subsidiary of NVC qualifies for
treatment as a WFOE, the subsidiary can convert Renminbi, declare dividends and
its funds can be repatriated to OraLabs in the United States under current laws
and regulations in the PRC, subject to limitations and restrictions imposed by
PRC laws, such as the SAFE notices issued by the State Administration of Foreign
Exchange. See ___ "PRC SAFE Regulation", above. However, the PRC laws governing
foreign currency exchange are evolving, and changes in such laws may adversely
affect the ability to convert Renminbi, declare dividends and repatriate funds
to the United States
TIMELY INFORMATION. As NVC Industrial is based in the PRC, OraLab's
shareholders may have more difficulty in obtaining information about NVC on a
routine basis than would shareholders of a U.S.-based company. Substantially all
of NVC Industrial's manufacturing and distribution operations will continue to
be conducted in the PRC and shareholders may have difficulty in obtaining
information about NVC from sources other than NVC itself. Information available
from newspapers, trade journals, or local, regional or national regulatory
agencies such as issuance of construction permits and contract awards for
development projects will not be readily available to shareholders. Shareholders
of OraLabs will be dependent upon its management for reports of NVC progress,
development and activities.
22
OTHER REGULATION. NVC Industrial's business will be subject to
regulation and/or licensing by the PRC and by provincial, local and municipal
regulation. . Compliance with such regulations and licensing can be expected to
be a time-consuming, and expensive process. Compliance with foreign country laws
and regulations affecting foreign investment, business operations, currency
exchange, repatriation of profits, and taxation, will increase investment risks.
CONTRACTUAL ARRANGEMENTS. In order to comply with PRC regulatory
requirements, NVC will operate as a Sino-foreign joint investment enterprise
("FIE) in the PRC.
NVC MANAGEMENT
The following persons are directors and officers of NVC who are
expected to become the directors and officers of OraLabs as described below:
NAME AGE PROPOSED POSITIONS
-------------- --- ------------------------------------------
Du Gang 40 Chairman of the Board,
Executive Vice President - Operations
Wu Chang Jiang 40 Chief Executive Officer and
President
Hu Yong Hong 39 Director, Senior Vice President-Marketing,
Secretary
Mu Yu 32 Vice President-Manufacturing
Li Zhao Rong 38 Vice President,
Chief Financial Officer and
Treasurer
Tracy Wan Hung 46 Non-executive director
The following is a brief description of each director and officer of
NVC.
Mr. Du Gang was appointed Chairman of the Board of NVC on June 11,
2004. He has been the Chairman of the Board of NVC Industrial Development Co.,
Limited since January 2003. From October 1998 to March 2003, Mr. Du was the
Chairman of the Board, Party Commissioner and General Manager of Desai Audio and
Visual Technology Co., Limited and prior to that, from July 1988 to October
1998, he was Workshop Director and Vice General Manager of Baihui Electronics
Co., Limited. Mr. Du graduated from South China Science and Engineering
University with a degree in microelectronics, and received a MBA degree from
Asia Macao Public University and the Guangdong Economic Administration Cadre's
Institute.
Mr. Wu Chang Jiang was appointed Chief Executive Officer and Director
of NVC on June 11, 2004. He has been the General Manager of NVC Industrial
Development Co., Limited, a subsidiary of NVC, since January 28, 2003 and was a
director and General Manager from January 1999 to December 2002 of NVC Lighting
Company Limited, the predecessor of NVC Industrial until it ceased operations in
April 2003.
23
From October 1989 to August 1992, Mr. Wu was employed by Shaanxi
Liaoyuan Mechanics Factory in its Foreign Trade Division and from September 1992
to December 1993, he was employed as Quality Controller by Guangzhou Yayao
Electrical Equipment Manufacturer. Mr. Wu was appointed the General Manager of
Dongguan Winsource Industries Co., Limited from August 1995 until December 1996.
Mr. Wu graduated from Northwest Industrial University in 1988 with a major in
Mechanics Engineer, and also graduated with a degree in Industrial Foreign Trade
from Beijing Aerospace University in 1989.
Mr. Hu Yong Hong was appointed Deputy Chairman of NVC on June 11, 2004.
From 1998 to 2000, he was Vice General Manager of NVC Lighting Co., Limited and
has been the Deputy Chairman of NVC Industrial Development Co., Limited since
March 2003. From September 1988 to July 1998, he was the Marketing Manager of
Chengdu Rainbow Electrical Machinery Group. Mr. Hu graduated from Sichuan
University in 1988 majoring in semiconductors.
Mr. Mu Yu has been President - Manufacturing of NVC since June 11,
2004. Mr. Mu began his employment with NVC Lighting Co., Limited in 1999 and was
responsible for product structure design. He was appointed Engineering Manager
in 2001, and was appointed a Director responsible for manufacturing in 2002. Mr.
Mu graduated from Guizhou Engineering University in 1995 with a degree in
manufacturing, and he received a MBA degree in 2003 from Tsinghua University.
Mr. Li Zhao Rong was appointed the Chief Financial Officer of NVC on
June 11, 2004. Mr. Li joined NVC Lighting Co., Limited in 1999 and was
responsible for financial services. He was appointed Financial Manager in
September 2001, and in December 2002 he was appointed as Chief Financial
Officer. Prior to joining NVC Lighting Co., Limited, he was the financial
officer and accountant Chongqing Tongli Engineering Company from February 1994
to February 1999. Mr. Li graduated from Chongqing Administration Institute in
1994 with an accounting degree.
Ms. Wan Hung was appointed a non-executive Director of NVC on June 18,
2004. Ms. Wan Hung graduated from Shanxi Finance University in 1983 and obtained
her Government Financial Auditor's qualification in 1993. She has over ten years
experience in accounting in the PRC and 9 years of public accounting and
investment\corporate finance consulting experience in Hong Kong and China. Prior
to establishing BCG Capital, Inc., ("BCG"), she was a lecturer in Accounting and
Finance at the University of Xinjiang from 1983 to 1990 and from 1991 until 1996
when she emigrated to Hong Kong, she was employed as an Accounts Manager with a
state-owned enterprise in Xiamen. Through her corporate finance works, she has
established numerous extensive professional contacts with academics, private and
state-owned corporations, banks, professional services providers and government
departments in China and overseas. Wan Hung is fluent in Mandarin and Cantonese.
She joined a local firm of Certified Public Accountants in 1998 and in January
2002, she left to establish BCG. She is also one of the founding members of
Belmont Consulting Group, consisting of Belmont Corporate Services Limited and
BCG Capital Inc., a consultant to NVC. She has extensive professional
accounting, taxation and corporate finance experiences in China and Hong Kong
and is therefore well versed in addressing the many accounting and tax issues,
raising capital and bridging the expectation gaps between China and Hong Kong as
well as the United States.
24
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning all compensation
paid (in United States Dollars) to NVC Holdings' executive officers in all
capacities for 2002, 2003 and 2004. None of the executive officers received
total annual salary and bonus payments in excess of $100,000 during these
periods. The Board of Directors will set the executive officers' salaries and
bonus in due course after the closing of the Exchange Agreement with OraLabs.
LONG TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-----------------------------------------------------------------------------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARD OPTIONS/SARs LTIP PAYOUTS COMPENSATION ($)
----------------------------------------------------------------------------------------------------------------------------------
Wu Chang Jiang 2004 $ 43,478 -- -- -- -- -- --
(CEO) 2003 $ 42,657 -- -- -- -- -- --
2002 $ 35,699 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Li Zhao Rong 2004 $ 28,986 -- -- -- -- -- --
(CFO and Director) 2003 $ 11,594 -- -- -- -- -- --
2002 $ 4,348 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Hu Yong Hong (Deputy 2004 $ 43,478 -- -- -- -- -- --
Chairman) 2003 $ 42,377 -- -- -- -- -- --
2002 $ 31,860 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Du Gang 2004 $ 43,478 -- -- -- -- -- --
(Chairman) 2003 $ 36,232 -- -- -- -- -- --
2002 $ 0 -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Tracy Wan Hung 2004 $ 0 -- -- -- -- -- --
(Director) 2003 $ 0 -- -- -- -- -- --
2002 $ 0 -- -- -- -- -- ----
----------------------------------------------------------------------------------------------------------------------------------
OPTION GRANTS
NVC does not presently maintain any equity incentive or stock option
plan. Accordingly, NVC has not granted options to any officers or staff of NVC
to purchase any of its equity interests to any person, and no stock options or
warrants are issued or outstanding.
SUMMARY HISTORICAL FINANCIAL DATA FOR ORALABS
Set forth below are highlights from OraLabs Holding Corp. audited historical
consolidated financial statements and related notes as of and for each of the
years ended December 31, 2002 through 2004 and the unaudited financial
statements for the three months ended March 31, 2005 and 2004. OraLabs Holding
Corp's consolidated financial statements as of, and for the years ended December
31, 2002 through 2004 were audited by Ehrhardt Keefe Steiner & Hottman, PC.
You should read the following information together with OraLabs Holding Corp.
consolidated financial statements, the notes related thereto and the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in OraLabs Holding Corp's annual report on Form
10-KSB for the fiscal year ended December 31, 2004 and quarterly report on form
10-QSB for the quarter ended March 31, 2005, which are enclosed with this proxy
statement and have been filed with the SEC.
25
Three Months Ended
March 31, Years Ended December 31
----------------------------- -----------------------------------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(In Thousands - except per (In Thousands - except
share amounts) per share amounts)
(Unaudited)
Statement of Operations Data:
Revenues $ 3,581 $ 3,780 $ 13,131 $ 14,068 $ 14,149
Expenses $ 3,597 $ 3,823 $ 13,696 $ 14,067 $ 13,717
Net (Loss)/ Profit $ (16) $ (43) $ (565) $ 1 $ 432
Net (Loss)/Profit available to Common $ (16) $ (43) $ (565) $ 1 $ 432
Shareholders
Loss per Common Share $ 0.00 $ (0.01) $ (0.12) $ 0.00 $ 0.05
Balance Sheet Data:
Cash and Cash Equivalents $ 1,186 $ 2,331 $ 866 $ 2,561 $ 2,678
Current Assets $ 6,176 $ 7,398 $ 6,059 $ 7,539 $ 7,051
Total Assets $ 8,045 $ 8,522 $ 7,773 $ 8,405 $ 8,319
Current Liabilities $ 1,647 $ 1,764 $ 1,357 $ 1,611 $ 1,544
Non-current Liabilities $ 11 $ 73 $ 12 $ 66 $ 48
Total Liabilities $ 1,657 $ 1,837 $ 1,369 $ 1,677 $ 1,593
Shareholders' Equity $ 6,388 $ 6,685 $ 6,404 $ 6,728 $ 6,726
SUMMARY HISTORICAL FINANCIAL DATA FOR NVC
The following table sets forth selected consolidated financial data for
NVC and its subsidiaries as of and for each of the two years in the period ended
December 31, 2004, and as of for the three months ended March 31, 2005 and 2004.
The financial information for NVC as of and for each of the two years in the
period ended December 31, 2004 has been derived from the consolidated financial
statements of NVC which have been audited by its independent registered
certified public accountants, Murrell, Hall, McIntosh & Co., PLLP. The financial
information for NVC as of and for the three months ended March 31, 2005 and 2004
has been derived from the unaudited consolidated financial statements of NVC
which, in the opinion of NVCs' management, include all adjustments necessary for
fair presentation of NVC's financial position and results of operations. All
such adjustments are of a normal recurring nature. The results of operations for
the three months ended March, 2005 are not necessarily indicative of the results
that may be achieved for the full year, and cannot be used to indicate financial
performance for the entire year. The following financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition or Plan of Operation" and the "Consolidated Financial Statements of
NVC and the Notes thereto".
26
Three Months Ended March 31 Years Ended December 31
--------------------------- ---------------------------------------
2005 2004 2004 2003 2002
------------ ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS
DATA:
Sales and other revenues $12,391,758 $ 7,210,433 $55,394,520 $30,598,374 $18,097,301
Expense 11,151,231 6,289,408 48,289,493 27,398,561 16,828,087
Net Income 1,240,527 921,025 7,105,027 3,199,813 1,269,214
Net Income Available to
Common Shareholders 1,240,527 921,025 7,105,027 3,199,813 1,269,214
BALANCE SHEET DATA:
Cash and Cash Equivalents 2,260,342 3,381,451 3,769,718 5,661,466 551,726
Current Assets 12,564,513 4,940,648 13,800,623 8,306,920 8,194,020
Total Assets 23,123,400 15,376,008 21,861,667 14,125,391 8,875,936
Current Liabilities 18,247,590 12,784,651 18,264,752 12,372,830 6,212,539
Non-current liabilities 121,943 82,828 83,576 -- 1,812
Total Liabilities 18,369,533 12,867,479 18,348,328 12,372,830 6,214,351
Shareholders' Equity 4,753,867 2,508,529 3,513,339 1,752,561 2,661,585
27
PRO FORMA COMBINED SUMMARY OF HISTORICAL FINANCIAL DATA
The following selected unaudited pro forma condensed consolidated
financial data were prepared as a recapitalization of NVC. Our historical
condensed consolidated statement of operations is combined with NVC Lighting
Investment Holdings Limited and Subsidiaries' historical consolidated statement
of operations data for the three months ended March 31, 2005 and the year ended
December 31, 2004, giving effect to the redemption of 3,629,350 shares of the
Company's common stock in exchange for the transfer to Gary H. Schlatter of all
the Company's stock that it owns in its wholly-owned subsidiary, OraLabs, Inc.,
as if it had occurred on January 1, 2004 and January 1, 2005, respectively. The
condensed combined Balance Sheet at March 31, 2005 assumes that the transactions
occurred on January 1,2005.
The selected unaudited pro forma condensed consolidated financial data
is based on estimates and assumptions that are preliminary. The data are
presented for informational purposes only and is not intended to represent or be
indicative of the consolidated results of operations or financial condition of
OraLabs and NVC that would have been reported had the transactions been
completed as of the dates presented, and should not be taken as representative
of future consolidated results of operations or financial condition of OraLabs
and NVC.
This selected unaudited pro forma condensed consolidated financial data
should be read in conjunction with the summary selected historical consolidated
financial data and the unaudited pro forma condensed consolidated financial
statements and accompanying notes contained elsewhere in this proxy statement
and the separate historical consolidated financial statements and accompanying
notes of OraLabs Holdings, Inc. incorporated by reference into this proxy
statement and the historical consolidated financial statements and accompanying
notes of NVC Lighting Investment Holdings Limited and Subsidiaries contained in
this proxy statement. See the section below entitled "Where You Can Find More
Information".
Three months
ended Year Ended
March 31, 2005 December 31, 2004
------------------ -------------------
STATEMENT OF OPERATING DATA
Sales and other revenues $ 12,391,758 $55,394,520
Expense 11,151,231 48,289,493
Net Income 1,140,527 7,105,027
Net income Available to Common Stockholders 1,140,527 7,105,027
BALANCE SHEET DATA
Cash and Cash Equivalents 2,260,342
Current Assets 12,564,513
Total Assets 23,123,400
Current Liabilities 18,247,590
Non-current liabilities 121,943
Total Liabilities 18,369,533
Shareholders' Equity 4,653,867
28
NVC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Significant Accounting Estimates and Policies
The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates including the
allowance for doubtful accounts, the saleability and recoverability of
inventory, income taxes and contingencies. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form our basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We must make estimates of the collectability of accounts receivable. We
analyze historical write-offs, changes in our internal credit policies and
customer concentrations when evaluating the adequacy of our allowance for
doubtful accounts. Differences may result in the amount and timing of expenses
for any period if we make different judgments or use difference estimates.
As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes. This process involves
estimating our current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities. We
must then assess the likelihood that our deferred tax assets will be recovered
from future taxable income, and, to the extent we believe that recovery is not
likely, we must establish a valuation allowance. To the extent that we establish
a valuation allowance or increase this allowance in a period, we must include a
tax provision or reduce our tax benefit in the statements of operations. We use
our judgment to determine our provision or benefit for income taxes, deferred
tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. We believe, based on a number of factors including
historical operating losses, that we will not realize the future benefits of a
significant portion of our net deferred tax assets and we have accordingly
provided a full valuation allowance against our deferred tax assets. However,
various factors may cause those assumptions to change in the near term.
We cannot predict what future laws and regulations might be passed that
could have a material effect on our results of operations. We assess the impact
of significant changes in laws and regulations on a regular basis and update the
assumptions and estimates used to prepare our financial statements when we deem
it necessary.
Comparison of Three Months Ended March 31, 2005 and 2004
The following table sets forth certain operating information regarding
NVC Lighting Investment Holdings Limited and Subsidiaries.
For the Three For the Three
Months Ended Months Ended
March 31, 2005 March 31, 2004
----------------- ---------------------
(unaudited) (unaudited)
Revenues $ 12,391,758 $ 7,210,433
Cost of goods sold $ 8,466,060 $ 4,743,099
Distribution expenses $ 1,830,962 $ 1,008,529
General and administrative $ 639,710 $ 681,697
Depreciation $ 101,944 $ 35,995
Other Income $ 178,528 $ 191,227
Net Income $ 1,240,527 $ 921,025
29
Net income increased by 35% from $921,025 in 2004 to $1,240,527 for
2005. This increase in net income is attributable primarily to the following
factors: (1) a 72% increase in sales; (2) a 57% increase in gross profit
margins.
Revenues. Sales revenues increased by $5,181,325 or 72% quarter on
quarter to $12,391,758 for the three months ending March 31, 2005 compared to
$7,210,433 for the three months ending March 31, 2004. The increase was
attributable to changes in sales mix with lighting products accounting for 95%
(2004: 94%) and electrical accessories accounting for 5% (2004: 6%).
Cost of Goods Sold. Cost of goods sold increased 78% or $3,722,961 from
$4,743,099 for the three months ending March 31, 2004 to $8,466,060 for the
three months ending March 31, 2005. This increase is due primarily to a 72%
increase in sales volume.
Distribution Expenses. Distribution expenses for the three months
ending March 31, 2005 were $1,830,962, an increase of $822,433 or 82% from the
quarter ending March 31, 2004 distribution expenses of $1,008,529. The principal
reasons for the increase were substantial increases in sales volume.
General and Administrative Expenses. General and administrative
expenses for the three months ending March 31, 2005 were $639,710, a decrease of
$41,987 or (6%) from the three months ending March 31, 2004 general and
administrative expenses of $681,697.
Depreciation Expense. Depreciation expense for the three months ending
March 31, 2005 was $101,944 and $35,995, respectively, for the three months
ending March 31, 2004, an increase of $65,949 from the prior period's
depreciation expense.
Other Income. Other income decreased by $12,699 or (7%) from $191,227
in the three months ending March 31, 2004 to $178,528 in the three months ending
March 31, 2005.
Liquidity and Capital Resources
Operating Activities. Net cash flows provided by operating activities
for the three months ended March 31, 2005 was $1,372,170 compared with net cash
flows provided by operating activities of $1,279,688 for the three months ended
March 31, 2004. This increase in cash flows from operating activities was
attributable primarily to an increase in advances from customers of $649,097.
Working Capital - At March 31, 2005, the Company had a working capital
deficit of $5,683,077. The principal reason for the working capital deficit is
that the on-going construction costs of the new manufacturing plants of NVC are
being temporarily classified as accounts payable, rather than the cost of
properties.
30
As of December 31, 2004, NVC had the following outstanding contractual
obligations by year
Due in Due in 2007 and
Total 2005 2006 Thereafter
------------- ----------- ------------ ------------
Operating lease agreements $ 166,667 $166,667 $141,304 $ -
Commitments on construction of plant $5,688,435 25,362 -
Commitments for advertising $ 21,739 21,739 -
Commitments under software license agreement $ 15,296 15,296 -
Commitments to purchase equipment $ 16,908 16,908 -
Commitments under consultancy agreement $ 135,266 135,266 -
------------- ----------- ------------ ------------
$6,044,311 $381,238 $141,304 $ -
============= =========== ============ ============
Comparison of Years Ended December 31, 2004 and 2003
The following table sets forth certain operating information regarding
NVC Lighting Investment Holdings Limited and Subsidiaries.
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Revenues $55,394,520 $30,598,374
Cost of goods sold $38,539,315 $21,104,524
Distribution expenses $ 6,146,591 $ 4,010,321
General and administrative $ 3,976,993 $ 2,273,943
Depreciation $ 119,008 $ 95,570
Other Income $ 677,398 $ 160,496
Net Income $ 7,105,027 $ 3,199,813
Net income increased by 122% from $3,199,813 in 2003 to $7,105,027 for
2004. This increase in net income is attributable primarily to the following
factors: (1) a 45% increase in sales; (2) a 77% increase in gross profit
margins.
Revenues. Sales revenues increased by $24,796,146 or 81% year-on-year
to $55,394,520 for the year ended December 31, 2004 compared to the same
corresponding period of $30,598,374 in the 2003 were attributable to changes in
sales mix with lighting products accounting for 90% (2003: 100%) and electrical
accessories accounting for 10% (2003: 0%).
Cost of Goods Sold. Cost of goods sold increased 83% or $17,434,791
from $21,104,524 in 2003 to $38,539,315 in 2004. This increase is due primarily
to a 45% increase in sales volume.
31
Distribution Expenses. Distribution expenses for the year ended
December 31, 2004 were $6,146,591, an increase of $2,136,270 or 53% from the
prior year's distribution expenses of $4,010,321. The principal reasons for the
increase were substantial increases in sales volume.
General and Administrative Expenses. General and administrative
expenses for the year ended December 31, 2004 were $3,976,993, a increase of
$1,703,050 or 75% from the prior year's general and administrative expenses of
$2,273,943.
Depreciation Expense. Depreciation expense for the year ended December
31, 2004 was $119,008 and $95,570, respectively, for the year ended December 31,
2003, an increase of $23,438 from the prior years depreciation expense.
Other Income. Other income increased by $516,902 or 322% from $160,496
in 2003 to $677,398 in 2004.
Liquidity and Capital Resources
Operating Activities. Net cash flows provided by operating activities
for the year ended December 31, 2004 was $8,010,536 compared with net cash flows
provided by operating activities of $9,084,864 for the year ended December 31,
2003. This decrease in cash flows from operating activities was attributable
primarily to an increase in inventories of $5,156,081.
Working Capital - At December 31, 2004, the Company had a working
capital deficit of $4,464,129. The principal reason for the working capital
deficit is that the on-going construction costs of the new manufacturing plants
of NVC are being temporarily classified as accounts payable, rather than the
cost of properties.
Comparison of Years Ended December 31, 2003 and 2002
The following table sets forth certain operating information regarding
NVC Lighting Investment Holdings Limited and Subsidiaries.
Year Ended Year Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Revenues $30,598,374 $18,097,301
Cost of goods sold $21,104,524 $12,327,867
Distribution expenses $ 4,010,321 $ 2,588,749
General and administrative $ 2,273,943 $ 1,176,638
Depreciation $ 95,570 $ 59,924
Other Income (expense) $ 160,496 $ (46,746)
Provision for income taxes $ 0 $ (628,163)
Net Income $ 3,199,813 $ 1,269,214
Net income increased by 152% from $1,269,214 in 2002 to $3,199,813 for
2003. This increase in net income is attributable primarily to the following
factors: (1) a 69% increase in sales; (2) a $628,163 reduction in enterprise
income taxes
Revenues. Sales revenues increased by $12,501,073 or 69% year-on-year
to $30,598,374 for the year ended December 31, 2003 compared to the same
corresponding period of $18,097,301 in the 2002 were attributable to increasing
market share due to effect of marketing and distribution efforts.
32
Cost of Goods Sold. Cost of goods sold increased 71% or $8,776,657 from
$12,327,867 in 2002 to $21,104,524 in 2003. This increase is due primarily to a
69% increase in sales volume.
Distribution Expenses. Distribution expenses for the year ended
December 31, 2003 were $4,010,321, an increase of $1,421,572 or 55% from the
prior year's distribution expenses of $2,588,749. The principal reasons for the
increase were substantial increases in sales volume.
General and Administrative Expenses. General and administrative
expenses for the year ended December 31, 2003 were $2,273,943, a increase of
$1,097,305 or 93% from the prior year's general and administrative expenses of
$1,176,638. This increase was due primarily to increasing the administrative
department to handle current and future growth.
Depreciation Expense. Depreciation expense for the years ended December
31, 2003 and 2002 was $95,570 and $59,924, respectively, an increase of $35,646
in 2003. This was due to additions to office furniture and equipment.
Depreciation related to manufacturing equipment is included as a component of
manufacturing overhead and is included in the carrying cost of inventory until
the inventory is sold at which time it is included in cost of goods sold.
Other Income (expense). Other income (expense) increased by $207,242
from an expense of $(46,746) in 2003 to income of $160,496 in 2003.
Liquidity and Capital Resources
Operating Activities. Net cash flows provided by operating activities
for the year ended December 31, 2003 was $9,084,864 compared with net cash flows
(used in) provided by operating activities of $$(98,500) for the year ended
December 31, 2002. This increase in cash flows from operating activities was
attributable primarily to net income in 2003 of $3,199,813 combined with an
increase in accounts payable and accrued expenses of $4,103,971.
Working Capital - At December 31, 2003, the Company had a working
capital deficit of $4,065,910. The principal reason for the working capital
deficit is that the on-going construction costs of the new manufacturing plants
of NVC are being temporarily classified as accounts payable, rather than the
cost of properties.
New Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities (SFAS 149)". SFAS 149
amends and clarifies certain derivative instruments embedded in other contracts,
and for hedging activities under SFAS 133. SFAS 149 is effective for certain
contracts entered into or modified by the Company after June 30, 2003. The
adoption of SFAS 149 had no impact on the Company's financial position, results
of operations, or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Instruments
with Characteristics of Both Debt and Equity" (SFAS 150). Statement 150 requires
liability classification for three types of instruments: 1) Mandatory redeemable
shares that obligate the company to deliver cash or other assets to shareholders
on fixed or determinable dates; 2) Freestanding written put options and forward
purchase contracts on a company's own shares that obligate the company to
deliver cash or other assets, and 3) Contracts that obligate a company to issue
its own shares in amounts that are unrelated to, or inversely related to, the
value of the shares. The adoption of SFAS 150 had no impact on the Company's
financial position, results of operations, or cash flows.
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs - an
amendment of ARB No. 43, Chapter 4". Statement No. 151 requires that certain
abnormal costs associated with the manufacturing, freight, and handling costs
associated with inventory be charged to current operations in the period in
which they are incurred. The adoption of SFAS 151 had no impact on the Company's
financial position, results of operations, or cash flows.
33
In December 2004, the FASB issued a revision of SFAS No. 123
"Share-Based Payment". The statement establishes standards for the accounting
for transactions in which an entity exchanges its equity investments for goods
and services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. The statement does not change the accounting guidance
for share-based payments with parties other than employees.
The statement requires a public entity to measure the cost of employee
service received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exception). That cost will be
recognized over the period during which an employee is required to provide
service in exchange for the award (usually the vesting period). A public entity
will initially measure the cost of employee services received in exchange for an
award of liability instrument based on its current fair value; the fair value of
that award will be remeasured subsequently at each reporting date through the
settlement date. Changes in fair value during the requisite service period will
be recognized as compensation over that period.
The grant-date for fair value of employee share options and similar
instruments will be estimated using option- pricing models adjusted for the
unique characteristics of these instruments.
The statement is effective for the quarter beginning January 1, 2006.
In December 2004, the FASB issued SFAS No. 153 "Exchanges of
Nonmonetary Assets-amendment of APB Opinion No. 29". Statement 153 eliminates
the exception to fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions that do not have
commercial substance, defined as transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. This statement is
effective for exchanges of nonmonetary assets occurring after June 15, 2005.
INFORMATION CONCERNING THE ANNUAL MEETING
Time, Place and Date
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of proxies from OraLabs shareholders for use at the
annual meeting of shareholders to be held at 10:00 a.m., Mountain Time on
September 30, 2005, at OraLab's offices at 18685 E. Plaza Drive, Parker,
Colorado 80134, or at any adjournment or postponement thereof, pursuant to the
enclosed Notice of Annual Meeting of Shareholders.
34
Purpose of the Annual Meeting
At the annual meeting, the shareholders of OraLabs will be asked to
consider and vote upon the approval of the Exchange Agreement and the
transactions contemplated thereby. A copy of the Exchange Agreement is attached
to this Proxy Statement as Annex 1. Based on the factors described below under
"Special Factors--Recommendation of the Special Committee and Board of
Directors" and on the unanimous recommendation of its Special Committee, the
Board of Directors of OraLabs recommends that shareholders vote "FOR" approval
of the Exchange Agreement and the transactions contemplated thereby.
Record Date; Voting at the Meeting; Quorum
The Board has fixed the close of business on August 30, 2005 as the
record date for the annual meeting. Only shareholders of record as of the close
of business on the record date will be entitled to notice of and to vote at the
annual meeting. As of the close of business on the record date, OraLabs had
outstanding ______________ shares of its common stock, held of record by
approximately _________ registered holders, although OraLabs believes it has
other beneficial owners of its common stock. Holders of the common stock are
entitled to one vote per share. The presence in person or by proxy of the
holders of not less than a majority of the voting power of the outstanding
common stock entitled to vote at the annual meeting constitutes a quorum. Broker
non-votes and shares present or represented but as to which a stockholder
abstains from voting will be included in determining whether there is a quorum
at the annual meeting.
Required Vote
Under Colorado law and the Company's governing documents, the
transaction concerning the conveyance to Mr. Schlatter of all of OraLabs' shares
in its wholly-owned subsidiary in exchange for the redemption by OraLabs of all
of the shares of common stock in OraLabs owned by Mr. Schlatter requires the
affirmative vote of the majority of all of the shares entitled to vote on the
matter. The remaining proposed transactions require the affirmative vote of a
majority of the voting power of the outstanding shares of OraLabs' common stock
that are present in person or by proxy at the annual meeting. Gary H. Schlatter
currently owns 3,629,350 shares of common stock of OraLabs in his individual
capacity, representing approximately 77.34% of our outstanding shares of common
stock as of the record date. Mr. Schlatter intends to vote in favor of the
proposed transactions, which would satisfy both the quorum and affirmative vote
requirements. As Mr. Schlatter owns more than fifty percent (50%) of the voting
power, OraLabs is considered a "Controlled Company" for purposes of Rule
4350(c)(5) promulgated by the National Association of Securities Dealers, Inc.
Voting and Revocation of Proxies
The enclosed proxy is solicited on behalf of OraLabs' Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior to its exercise,
either by filing with OraLabs' secretary at OraLabs' principal executive offices
a written revocation or a duly executed proxy bearing a later date or by voting
in person at the annual meeting. Attendance at the annual meeting without
casting a ballot will not, by itself, constitute revocation of a proxy. Any
written notice revoking a proxy should be sent to Corporate Stock Transfer,
Inc., 3200 Cherry Creek So. Drive, Suite 430, Denver, CO 80209.
35
Action to be Taken at the Annual Meeting
All shares of common stock represented at the annual meeting by
properly executed proxies received prior to or at the annual meeting, unless
previously revoked, will be voted at the annual meeting in accordance with the
instructions on the proxies. Unless contrary instructions are indicated, proxies
will be voted FOR the approval of the Exchange Agreement and the transactions
contemplated thereby. As explained below in the section entitled "Dissenters'
Rights of Appraisal," a vote in favor of the Exchange Agreement means that the
stockholder owning those shares will not have the right to dissent and seek
judicial appraisal of the fair value of such stockholder's shares. OraLabs does
not know of any matters, other than as described in the Notice of Annual Meeting
of Shareholders, which are to come before the annual meeting. If any other
matters are properly presented at the annual meeting for action, the persons
named in the enclosed proxy card and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment.
Pursuant to our bylaws, an adjournment of the annual meeting may be made by an
announcement made at the annual meeting prior to adjournment. We do not
anticipate an adjournment of the meeting.
Proxy Solicitation
OraLabs is requesting that banks, brokers and other custodians,
nominees and fiduciaries forward copies of the proxy material to their
principals and request authority for the execution of proxies. OraLabs may
reimburse such persons for their expenses in so doing. No person is authorized
to give any information or make any representation not contained in this proxy
statement, and if given or made, such information or representation should not
be relied upon as having been authorized. OraLabs shareholders should not send
any certificates representing shares of common stock with their proxy card.
PROPOSAL ONE: APPROVAL OF THE STOCK EXCHANGE AGREEMENT AND THE TRANSACTIONS BY
WHICH (A) ORALABS WILL ISSUE SHARES TO THE NVC SHAREHOLDERS IN EXCHANGE FOR ALL
OF THE OWNERSHIP INTEREST IN NVC LIGHTING INVESTMENT HOLDINGS LIMITED,
IMMEDIATELY FOLLOWED BY (B) THE REDEMPTION OF ALL OF THE SHARES OF ORALABS OWNED
BY GARY H. SCHLATTER, INDIVIDUALLY, IN EXCHANGE FOR THE ISSUANCE TO HIM OF ALL
OF THE SHARES OF ORALABS, INC. OWNED BY ORALABS, AND (C) THE APPROVAL OF THE
2005 DIRECTOR STOCK PLAN AND THE ISSUANCE TO THE ORALABS NON-EMPLOYEE DIRECTORS
OF 100,000 SHARES EACH UNDER THAT PLAN.
SPECIAL FACTORS
Background of the Proposed Transactions
OraLabs, Inc., the operating subsidiary ("Subsidiary") of OraLabs,
began its business in 1990. Gary H. Schlatter, President of OraLabs, was the
sole owner of the Subsidiary until 1997. In 1997, Mr. Schlatter made the
decision that it would be beneficial for the Subsidiary to operate as a public
company because of his beliefs that it would facilitate the use of public stock
to finance the growth of OraLabs, that he would have a mechanism such as a stock
option plan to facilitate giving his employees an ownership interest in OraLabs
with the opportunity to profit by a rising stock price, and that he would have
some liquidity with respect to his ownership of the Company. In that year,
OraLabs, Inc. completed a reverse merger under which it became the wholly-owned
operating subsidiary of a public company whose name was changed to OraLabs
Holding Corp.
After several years of being public, Mr. Schlatter determined that
operating the Subsidiary as part of a public company did not achieve the
benefits that he sought. As part of investigating transactions from time to time
for which Mr. Schlatter sought to use public stock as part of the payment
consideration, Mr. Schlatter found that due to his overwhelming percentage of
stock owned, third parties were treating OraLabs as if it were still a private
company without any premium for the fact that it was public. Mr. Schlatter did
not obtain the interest of the investment community in OraLabs and as a result,
the price of its stock drifted lower and the volume of shares traded remained so
low that there was very little liquidity.
36
In early 2001, one of the non-employee directors of OraLabs was
presented with a proposal concerning a company that was interested in becoming
public through a reverse merger. The business of that company was unrelated to
the Subsidiary's business. The non-employee directors of OraLabs considered the
proposal and discussed with Mr. Schlatter whether he would be interested in
pursuing the transaction under which his shares in OraLabs would be exchanged
for OraLabs' shares in the Subsidiary, contingent upon the simultaneous
acquisition by OraLabs of the other company. Mr. Schlatter said that he would be
interested in considering that type of transaction. The non-employee directors
of OraLabs continued discussions with Mr. Schlatter as well as with the other
company, which resulted in the other company's tender to OraLabs of a
non-binding letter of intent concerning the transactions. The Board (with Mr.
Schlatter abstaining) authorized the execution of the letter of intent, but
despite the efforts of the non-employee directors during the next couple of
months to move the transaction toward the preparation of a definitive agreement,
the other company changed its mind about proceeding with the transaction and the
discussions between the parties terminated.
As a result of Mr. Schlatter's consideration of that proposal and
because of the concurrence by the non-employee directors with Mr. Schlatter's
belief that the operations of the Subsidiary as a public company were not
providing material benefits to the OraLabs' shareholders, OraLabs continued to
be receptive to reorganization transactions with third parties that could
enhance the public shareholders' value. The non-employee directors sought such
transactions by directly contacting business associates who could have knowledge
of such opportunities as well as by placing ads from time to time in the Wall
Street Journal.
In May 2001, OraLabs received a letter of intent from another company
that followed some very preliminary discussions with the non-employee directors
of OraLabs. However, the non-employee directors believed that execution of a
letter of intent was premature. Mr. Friess, one of the non-employee directors,
was authorized to continue discussions with the company and determine in his
discretion whether or not to recommend that a letter of intent be executed. Mr.
Friess ultimately concluded that it was not in the interest of OraLabs to
proceed with that transaction, and negotiations terminated.
No material discussions about proposed transactions occurred for some
time after that. In the Spring of 2002, the directors took note of the fact that
the costs of operating as a public company, which were significant in relation
to the size of OraLabs and which included both the legal fees involved in
OraLabs' public reporting and compliance as well as the auditing fees, could be
expected to substantially increase as the result of pending legislation that
ultimately was adopted as the Sarbanes-Oxley Act. At that time the Board
appointed Messrs. Friess and Gust as an independent committee to evaluate any
proposals that may be presented to the Company with respect to a corporate
reorganization.
In the late Spring and Summer of 2002, a proposed transaction was
reviewed by the independent committee. A Memorandum of Understanding and a
Non-disclosure Agreement were executed by Mr. Friess based upon the
recommendation of the independent committee and the authorization of the Board
of Directors. The Memorandum was subject to customary conditions as well as the
agreement that it was nonbinding and that an acceptable agreement was required
to be reached between OraLabs and Mr. Schlatter concerning the transaction.
After the execution of the Memorandum of Understanding, the Special Committee
retained separate counsel to assist it in the negotiation of a definitive
agreement. However, as a result of various issues that arose between OraLabs and
the other company during the course of negotiating the definitive agreement, the
negotiations became protracted to the extent that OraLabs' Board of Directors,
upon the recommendation of the Special Committee, terminated the negotiations in
the early Fall of 2002.
37
In late 2002, Mr. Friess, acting on behalf of the Special Committee,
advised the OraLabs Board of Directors that he had had discussions during the
past several weeks with two separate companies who are interested in pursuing a
reorganization with OraLabs. He presented information about both companies and
their proposed transactions, and the Board of Directors recommended that he
proceed with one of the company's proposal. In early 2003, the Special Committee
and Mr. Schlatter each retained separate legal counsel to assist in the
negotiations of a definitive agreement. Mr. Friess also made preliminary contact
with companies engaged in the business of providing fairness opinions so that
one could be chosen if a definitive agreement were executed. At and about the
same time, negotiations continued concerning a definitive agreement,
specifically including the effect, if any, that OraLabs' loss of its NASDAQ
listing might have upon the transaction. This discussion was prompted by the
price of OraLabs' common stock falling below one dollar and the value of the
public float of the Company's common stock falling below the NASDAQ listing
requirement. (During the period from August 2002 to late 2003, the NASD sent
several notices to OraLabs that its common stock was subject to delisting from
the NASDAQ SmallCap Market, but since the reverse split of the common stock that
occurred in December 2003, the Company believes that it has been in compliance
with the NASDAQ listing requirements.)
During the next several months, issues arose that caused revisions to
be made in the proposed terms of the definitive agreement, mostly relating to
the financial performance of the other company. The Special Committee
recommended to the Board that various terms of the definitive agreement should
be renegotiated to take account of those issues. Finally, in October 2003,
because all conditions to the execution and delivery of a definitive agreement
still were not satisfied, the Board of Directors, upon the recommendation of the
Special Committee, terminated the negotiations between the parties.
Commencing in late 2003 and continuing sporadically throughout 2004, a
representative of various companies located in China presented information to
the non-employee directors about companies that OraLabs might consider for
purposes of a corporate reorganization. As information was presented to OraLabs
from time to time about the companies, the directors requested additional
information when they believed it was appropriate to pursue investigating a
company, but none of these discussions proceeded beyond the preliminary
investigation level. In October 2004, a financial summary and brief description
of NVC was presented to OraLabs. Based on that information, the NVC
representative met with two of the non-employee directors in Colorado to discuss
NVC in more detail. In late October 2004, the representative of NVC submitted a
term sheet for a reorganization effecting NVC and OraLabs. During the next
couple of weeks, the Special Committee requested additional information
concerning NVC. At the same time, Mr. Schlatter was in China on unrelated
business. OraLabs took advantage of Mr. Schlatter's presence in China to arrange
a meeting between him and representatives of NVC, which occurred on November 9,
2004. At that meeting, Mr. Schlatter visited the NVC showroom and manufacturing
facility and met with a director of NVC's auditing firm. He also met with the
General Manager and Board Chairman of NVC's wholly-owned operating subsidiary.
During the November 9 meeting, the NVC representatives gave an oral presentation
of NVC's business and provided Mr. Schlatter with sales catalogues that included
information on NVC's product lines. In addition to viewing the showroom and
manufacturing facility, Mr. Schlatter attended the groundbreaking ceremony for
construction of an additional NVC facility. When Mr. Schlatter returned to
Colorado in mid-November 2004, he presented the results of his meeting with NVC
to the other OraLabs directors. In early December 2004, NVC, through its United
States counsel presented a first draft of a letter of intent that was revised in
certain respects based upon the comments from the OraLabs non-employee
directors.
The OraLabs Board of Directors met on December 9, 2004 to review the
redraft of a letter of intent. At that meeting, the Board reiterated the
appointment of Messrs. Friess and Gust as the Special Committee of the Board of
Directors. At that meeting, the Board determined that the Special Committee
should continue to negotiate the draft letter of intent until it became
satisfied with a version to recommend to the OraLabs Board, and the Special
Committee was authorized to retain separate counsel, to negotiate a Definitive
Agreement and to obtain a fairness opinion with respect to any proposed
transaction. Negotiations continued for a couple of weeks and on December 27,
2004, the Special Committee recommended to the OraLabs Board that it enter into
a letter of intent and authorize the officers of OraLabs, with the assistance of
the Special Committee to negotiate the terms of a Definitive Agreement with NVC
based upon the terms of an executed letter of intent. On February 18, 2005, the
Special Committee recommended to the OraLabs Board that it enter into the Stock
Exchange Agreement in substantially the form that is attached to this Proxy
Statement and that the officers of OraLabs, with the assistance of counsel and
the Special Committee conduct appropriate due diligence in order to proceed with
the Closing of the contemplated transactions. The Special Committee authorized
Michael Friess to proceed with obtaining bids from investment banking firms in
connection with obtaining an opinion that the terms of the contemplated
transactions are fair from a financial point of view to the nonaffiliated
shareholders of OraLabs.
38
As directed by the Special Committee, Michael Friess obtained bids from
two investment banking firms regarding rendering the fairness opinion as to the
terms of the transactions described in the Exchange Agreement. He discussed
those proposals with Mr. Gust, and the Special Committee determined that
Capitalink, LC ("Capitalink") submitted the best terms for rendering the
opinion, along with an impressive list of transactions on which it had rendered
previous fairness opinions. Capitalink is a nationally recognized investment
banking and advisory firm. Capitalink, as part of its investment banking and
financial advisory business, is regularly engaged in the valuation of businesses
and their securities in connection with mergers, acquisitions and private
placements. The engagement letter with Capitalink provided for a fixed fee in
the amount of $60,000, with one-half payable at commencement of the engagement
and the other half payable upon completion of the engagement and closing of the
transactions contemplated by the Exchange Agreement. The fee was payable without
regard to the conclusions reached in the opinion. Under the engagement letter,
the Company also agreed to reimburse Capitalink for its reasonable and customary
out-of-pocket expenses related to the work, and to indemnify Capitalink against
certain losses or claims. Capitalink has consented to the inclusion of the
description of its engagement in this Proxy and has also approved the inclusion
of the opinion as an annex to this Proxy.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF
DIRECTORS; FAIRNESS OF THE PROPOSED TRANSACTIONS
SPECIAL COMMITTEE:
In recommending approval of the Exchange Agreement and the proposed
transactions to the full OraLabs Board of Directors on August 11, 2005, the
Special Committee considered a number of factors. The material factors, both
negative and positive are summarized below.
The material positive factors considered include: the nonaffiliated
shareholders of OraLabs will own an interest in NVC, a much larger company that
has exhibited recent growth that exceeds the financial results of OraLabs; the
larger size of NVC may result in more exposure to the financial marketplace than
is the case with OraLabs, possibly enhancing the liquidity of an investment in
the Company over that which has historically been the case with OraLabs; the
presentation and opinion of Capitalink as to the fairness, from a financial
point of view, of the transaction to the nonaffiliated shareholders; OraLabs has
not generated net income since fiscal year 2002; and OraLabs has not received
material benefits of being a public company, while it has borne the financial
and personnel burden of operating as a public company.
The material potential negative factors considered include: the
ownership of the nonaffiliated shareholders in the public company will be
significantly diluted from their current 20.30% ownership interest to
approximately a 4.2% interest in NVC; all of the directors of OraLabs have an
interest in closing the transactions, in that Mr. Schlatter will acquire sole
ownership of OraLabs, Inc. and the three non-employee directors will each be
issued 100,000 shares of common stock at closing; shareholders of the public
company will have no further interest or opportunity to participate in any
growth of OraLabs, Inc., should it occur after the closing, while Mr. Schlatter
will receive all of such benefits as the sole owner of OraLabs, Inc.; and the
transaction will be taxable to shareholders who exercise their dissenters'
rights.
39
The foregoing discussion of the information and factors considered by
the Special Committee is not meant to be exhaustive, but includes all material
factors, both positive and negative, considered by the Special Committee to
support its decision to recommend the approval of the Exchange Agreement and to
determine that the transactions contemplated thereby are in the best interest of
OraLabs and fair to OraLabs' nonaffiliated shareholders. The Special Committee
did not assign relative weights or other quantifiable values to the above
factors. Rather, the Special Committee viewed its position and recommendations
as being based on the totality of the information presented to and considered by
them, and that on balance, the positive factors discussed above outweighed the
negative factors discussed above. The Special Committee believes that the terms
of the Exchange Agreement are fair, in part, based on the opinion of Capitalink
as to the fairness, from a financial point of view, of the proposed
transactions. The Special Committee also believes the process that followed in
approving the Exchange Agreement was procedurally fair because, even though some
additional compensation will be paid to the members of the Special Committee and
the other non-employee director at Closing, the Special Committee retained
independent legal and financial advisors that assisted it in its evaluation of
the Exchange Agreement.
ORALABS BOARD OF DIRECTORS
The Board formed the Special Committee to act solely on behalf of the
nonaffiliated shareholders of OraLabs for purposes of considering and
negotiating the Exchange Agreement and related matters. The Board appointed
Messrs. Friess and Gust to the Special Committee. Mr. Friess has been a director
of OraLabs since 1997 and Mr. Gust has been a director since 2000. After
formation of the Special Committee, the Special Committee retained Capitalink as
its financial advisor and Capitalink provided its opinion to the Special
Committee as to the fairness from a financial point of view of the proposed
transactions to OraLabs' nonaffiliated shareholders as of August 10, 2005
subject to the limitations, assumptions and qualifications stated therein.
The Board reviewed each of the factors presented by the Special
Committee as described above and considered the Special Committee's process and
actions in arriving at its recommendation to the Board. In reaching its
determination, the Board considered the Special Committee's determinations,
recommendations, approval of the Exchange Agreement, and determination of the
Exchange Agreement's advisability. It also carefully considered the report and
fairness opinion delivered by Capitalink to the Special Committee.
OraLabs is undertaking the transaction with NVC at this time as a
result of the Special Committee's consideration of the factors outlined above
relating to the limitations on OraLabs' growth as a public company, its recent
financial performance, the long-standing concerns of the entire Board (including
the Special Committee) regarding the continuing low price of OraLabs' common
stock, and the weakness in the market for its stock. OraLabs is also undertaking
the transaction at this time because it is straining its financial and personnel
resources to: (1) continue to comply on a timely basis with its periodic
reporting requirements under the Securities Exchange Act of 1934; and (2) comply
with the requirements of the Sarbanes-Oxley Act of 2002. In this regard, OraLabs
estimates that the annual expenses it pays in connection with its public
reporting responsibilities exceeds approximately $200,000.00. These expenses
include fees of an outside accountant, annual audit and quarterly review fees of
its independent auditor, legal fees, and filing costs.
40
The Board believes that sufficient procedural safeguards to ensure
fairness of the transaction and to permit the Special Committee to effectively
represent the interests of the holders of OraLabs' nonaffiliated shareholders
were present. The Board recognized that the members of the Special Committee, as
well as the third non-employee director, will benefit by the issuance to each of
them of 100,000 shares of OraLabs common stock. The Board believes that the
issuances of the stock are reasonable and appropriate under the circumstances
because the directors have routinely been very active in analyzing and pursuing
prospective transactions involving the Company, including the transactions with
NVC, but the Company did not adequately adjust the level of compensation to
reflect that degree of service. Those 300,000 shares will be registered under a
Registration Statement on Form S-8 to be filed by OraLabs prior to Closing. The
Board otherwise believes that the procedural safeguards of the Special Committee
are sufficient because the Special Committee retained independent financial
advisors and legal counsel and the fact that the Special Committee, even though
consisting of directors of OraLabs, is a mechanism well-recognized under
corporate law to provide for fairness in transactions of this type. The Exchange
Agreement was approved by the two members of the Special Committee as well as by
the third non-employee director. Mr. Schlatter abstained from voting upon the
approval of the Exchange Agreement because of his conflict relating to his
acquisition of ownership of OraLabs, Inc. OraLabs does not believe that any
material federal or state regulatory approvals, filings or notices are required
by OraLabs in connection with the proposed transactions, other than such
clearances, approvals, filings or notices required pursuant to federal and state
securities laws.
The Board believes that the proposed transactions are advisable and is
fair to and in the best interests of OraLabs and its nonaffiliated shareholders
and, based upon the analysis and the opinion of the Special Committee's
financial advisor as set forth above (which the Board expressly adopts) and on
the recommendation of the Special Committee, recommends to OraLabs'
nonaffiliated shareholders that they vote FOR approval of the proposed agreement
transactions.
Benefits and Detriments of the Proposed Transactions to OraLabs' Nonaffiliated
Shareholders
OraLabs believes that the primary benefit of the proposed transactions
to its nonaffiliated shareholders is the possibility of a future increase in the
value of their investments in the public company as a result of their ownership
in a company whose business is significantly larger than that of OraLabs and
whose prospects for growth may exceed that which is expected of OraLabs' current
business. In addition, the shareholders may have the opportunity to cash out of
their shareholdings by exercise of dissenter's rights. The primary detriment of
the proposed transactions to OraLabs' nonaffiliated shareholders is that they
will cease to participate in any future earnings of OraLabs, Inc. or to benefit
from any increase in its value. In addition, those shareholders who exercise
dissenters' rights will owe taxes upon the payment that they receive from the
Company for the shares.
Opinion of Financial Advisor to the Special Committee
The Special Committee engaged Capitalink, L.C. ("Capitalink") to
provide financial advisory services to the Special Committee with its
consideration of the transactions contemplated by the Exchange Agreement (the
"Transaction"). Pursuant to its engagement, Capitalink made a presentation to
the Special Committee on August 10, 2005. Capitalink subsequently delivered its
written opinion to the Special Committee, which stated that, as of August 10,
2005, and based upon and subject to the assumptions made, matters considered,
and limitations on its review as set forth in the opinion, the Transaction is
fair, from a financial point of view, to the Company's nonaffiliated
shareholders. The full text of the written opinion of Capitalink is attached as
Annex 2 and is incorporated by reference into this proxy statement.
41
o You are urged to read the Capitalink opinion carefully and in its
entirety for a description of the assumptions made, matters
considered, procedures followed and limitations on the review
undertaken by Capitalink in rendering its opinion.
o The Capitalink opinion is not intended to be, and does not constitute,
a recommendation to you as to how you should proceed with respect to
the Transaction.
o Capitalink was not requested to opine as to, and the opinion does not
in any manner address, the relative merits of the Transaction as
compared to any alternative business strategy that might exist for the
Company, the Company's underlying business decision to proceed with or
effect the Transaction, and other alternatives to the Transaction that
might exist for the Company.
In arriving at its opinion, Capitalink took into account an assessment
of general economic, market and financial conditions, as well as its experience
in connection with similar transactions and securities valuations generally. In
so doing, among other things, Capitalink:
o Reviewed the Exchange Agreement.
o Reviewed publicly available financial information and other data with
respect to OraLabs, including the Annual Report on Form 10-KSB for the
year ended December 31, 2004, the Quarterly Report on Form 10-QSB for
the three months ended March 31, 2005, the Current Reports on Form 8-K
filed December 28, 2004, February 23, 2005 and June 20, 2005.
o Reviewed financial information and other data with respect to NVC,
including the audited financial report for the three years ended
December 31, 2004, and management-prepared financial statements for
the three months ended March 31, 2005.
o Reviewed the Transaction's pro forma impact on the Company's
nonaffiliated shareholders' ownership interest in OraLabs.
o Considered the historical financial results and present financial
condition of OraLabs and NVC.
o Reviewed certain publicly available information concerning the trading
of, and the market for, the common stock of OraLabs, the Comparable
Companies (as hereinafter defined), and a general market index.
o Reviewed and compared the OraLabs nonaffiliated shareholders' (i)
aggregate pre-announcement market value, and (ii) aggregate indicated
value on a pre-Transaction basis to the nonaffiliated shareholders'
aggregate indicated value on a Post-Transaction basis.
o Reviewed and analyzed certain financial characteristics of companies
that were deemed to have characteristics comparable to OraLabs and
NVC.
o Reviewed and analyzed certain financial characteristics of target
companies in transactions where such target company was deemed to have
characteristics comparable to those of OraLabs and NVC.
o Reviewed and analyzed the control premiums paid in certain other
transactions.
o Reviewed and discussed with representatives of OraLabs and NVC certain
financial and operating information furnished by them, including
financial analyses with respect to their respective business and
operations.
42
Capitalink also performed such other analyses and examinations as it
deemed appropriate and held discussions with Company management in relation to
certain financial and operating information furnished to Capitalink, including
financial analyses with respect to its business and operations.
In arriving at its opinion, Capitalink relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
used without assuming any responsibility for any independent verification of any
such information. Further, Capitalink relied upon the assurances of OraLabs and
NVC management that management was not aware of any facts or circumstances that
would make any such information inaccurate or misleading. With respect to the
financial information and projections utilized, Capitalink assumed that such
information has been reasonably prepared on a basis reflecting the best
currently available estimates and judgments, and that such information provides
a reasonable basis upon which it could make an analysis and form an opinion.
Capitalink did not make a physical inspection of the properties and facilities
of OraLabs and NVC and did not make or obtain any evaluations or appraisals of
the assets and liabilities (contingent or otherwise). In addition, Capitalink
did not attempt to confirm whether OraLabs and NVC had good title to its assets.
Capitalink assumed that the Transaction will be consummated in a manner that
complies in all respects with the applicable provisions of the Exchange Act and
all other applicable federal and state statues, rules and regulations. In
addition, Capitalink assumed that the Transaction will comply with all
applicable non-U.S. laws, regulations and statutes. Capitalink assumes that the
Transaction will be consummated substantially in accordance with the terms set
forth in the Exchange Agreement, without any further amendments thereto, and
that any amendments, revisions or waivers thereto will not be detrimental to the
nonaffiliated shareholders of the Company.
Capitalink's opinion is necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, August 10,
2005. Accordingly, although subsequent developments may affect its opinion,
Capitalink has not assumed any obligation to update, review or reaffirm its
opinion.
In connection with rendering its opinion, Capitalink performed certain
financial, comparative and other analyses as summarized below. Each of the
analyses conducted by Capitalink was carried out to provide a different
perspective on the Transaction, and to enhance the total mix of information
available. Capitalink did not form a conclusion as to whether any individual
analysis, considered in isolation, supported or failed to support an opinion as
to the fairness, from a financial point of view, of the Transaction to the
Company's nonaffiliated shareholders. Further, the summary of Capitalink's
analyses described below is not a complete description of the analyses
underlying Capitalink's opinion. The preparation of a fairness opinion is a
complex process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Capitalink made qualitative judgments as to the relevance of each
analysis and factor that it considered. In addition, Capitalink may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
range of valuations resulting from any particular analysis described above
should not be taken to be Capitalink's view of the value of the Company's
assets. The estimates contained in Capitalink's analyses and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. In addition, analyses relating
to the value of businesses or assets neither purports to be appraisals nor do
they necessarily reflect the prices at which businesses or assets may actually
be sold. Accordingly, Capitalink's analyses and estimates are inherently subject
to substantial uncertainty. Capitalink believes that its analyses must be
considered as a whole and that selecting portions of its analyses or the factors
it considered, without considering all analyses and factors collectively, could
create an incomplete and misleading view of the process underlying the analyses
performed by Capitalink in connection with the preparation of its opinion.
43
The analyses performed were prepared solely as part of Capitalink's
analysis of the fairness, from a financial point of view, of the Transaction to
the Company's nonaffiliated shareholders, and were provided to the Special
Committee in connection with the delivery of Capitalink's opinion. The opinion
of Capitalink was just one of the many factors taken into account by the Special
Committee in making its determination to approve the Transaction, including
those described elsewhere in this Statement.
The financial review and analyses include information presented in
tabular format. To fully understand Capitalink's financial review and analyses,
the tables must be read together with the text presented. The tables alone are
not a complete description of the financial review and analyses and considering
the tables alone could create a misleading or incomplete view of Capitalink's
financial review and analyses.
VALUATION OVERVIEW
Based upon a review of the historical and projected financial data and
certain other qualitative data for the OraLabs and NVC, Capitalink utilized
several valuation methodologies and analyses to determine ranges of values for
both companies. Capitalink utilized the comparable company and the comparable
transaction analyses (all of which are discussed in more detail hereafter) for
the valuation of OraLabs and the comparable company analysis for the valuation
of NVC.
Based on the analysis, Capitalink determined an indicated value of
between approximately $6.4 million and $7.6 million for OraLabs and
approximately $65.0 million and $72.0 million for NVC.
Capitalink noted that the ownership of the nonaffiliated shareholders
pre-Transaction is 20.3% and post-Transaction will be 4.2%.
The nonaffiliated shareholders' aggregate pre-Transaction interest in
OraLabs amounts to between approximately $1.3 million and $1.5 million, based on
an ownership of approximately 20.3%. The nonaffiliated shareholders' aggregate
pre-announcement market value is estimated to be approximately $1.5 million
based on a 24-month average share price prior to the announcement of the
Transaction. The nonaffiliated shareholders' aggregate post-Transaction interest
in NVC is valued at between approximately $2.7 million and $3.0 million, based
on an ownership of approximately 4.2%.
ORALABS FINANCIAL PERFORMANCE REVIEW
Capitalink undertook a review of the Company's historical financial
data in order to understand and interpret its operating and financial
performance and strength. Capitalink reviewed OraLabs' historical financial data
for the five years ended December 31, 2004 and the three months ended March 31,
2005 and noted the following:
o OraLabs derives approximately 70%-80% of its revenue from its lip balm
business and believes that it will continue to be the Company's
primary business.
o Revenue was relatively stable over the review period with a low of
approximately $12.9 million in the latest twelve month ("LTM") period
ended March 31, 2005 to a high of $15.4 million in fiscal year ("FY")
2001. Over the review period, the Company experienced declining
revenue with a compound annual growth rate of (1.7%).
44
o The Company's gross profit margin gradually decreased over the review
period from approximately 41.3% in FY2000 to approximately 29.1% in
FY2004. Gross margin increased somewhat to approximately 29.7% for the
LTM period ended March 31, 2005 as a result of the Company's
investment in a highly automated facility in FY2004 that made a
positive impact on labor costs. OraLabs expects continued cost
improvements in operations resulting in incremental improvement in
gross margins.
o Earnings before interest, taxes, depreciation and amortization
("EBITDA") decreased from approximately $2.4 million to approximately
$(0.2) million for the LTM period ended March 31, 2005 reflecting
decreasing economies of scale resulting from decreasing sales over the
review period.
NVC FINANCIAL PERFORMANCE REVIEW
Capitalink undertook a review of NVC's historical financial data in
order to understand and interpret its operating and financial performance and
strength. Capitalink reviewed NVC's historical financial data for the three
fiscal years ended December 31, 2004 and the three months ended March 31, 2005
and noted the following:
o Financial results prior to FY2002 were not available. Furthermore,
financial results for FY2002 and FY2003 are pro-forma for a combined
NVC Lighting and NVC Industrial as NVC did not legally exist prior to
its restructuring and reorganization in FY2004.
o The majority of NVC's revenues and expenses are incurred in the PRC,
hence it is exposed to the fluctuations of the Chinese currency, the
Renminbi. Capitalink noted that the exchange rate remained stable over
the review period at approximately 8.28 Renminbi/USD, hence the USD
figures in NVC's audited financial statements are representative of
its historical Renminbi performance. There is no assurance however,
that the Renminbi will be stable in the future, exposing any
non-Chinese investor to currency risks. The Renminbi has been recently
devalued and stood at a rate of approximately $8.10 Renminbi/USD on
August 9, 2005.
o Revenue increased significantly over the review period from
approximately $18.1 million in FY2002 to approximately $61.1 million
for the LTM period ending March 31, 2005, representing an annual
compound growth rate of approximately 71.7%. Gross margin stayed
relatively stable during the review period at approximately 31%.
o NVC's earnings before interest and taxes ("EBIT") margin increased
slightly from approximately 10.7% in FY2002 to approximately 11.8% for
the LTM period ended March 31, 2005 resulting in a compound annual
growth rate of approximately 79.2%.
o NVC's net income has increased from approximately $1.3 million in
FY2002 to approximately $7.4 million for the LTM period ending March
31, 2005 representing an increase in net margin from approximately
7.0% to approximately 12.2%, or an annual compound rate of
approximately 119.3%. Capitalink noted that the income tax rate for a
joint venture in China is currently 27%, however NVC enjoys
preferential tax rate of half of the official income tax rate from
2004 through 2006.
o As of March 31, 2005, NVC had no debt and had approximately $2.4
million in cash and equivalents. NVC is committed to pay approximately
$5.7 million by the end of FY2005 for the construction of new factory
premises in Huizhou.
45
o A potential cause for concern is NVC's negative working capital of
($5.7 million) as of March 31, 2005, decreasing from approximately
$2.4 million as of December 31, 2002. The primary drivers of the
decreasing working capital during the review period were as follows:
o An increase in accounts payable with a simultaneous decrease in
accounts receivable;
o NVC invested approximately $6.4 million in its new factory premises
and purchases of fixed assets;
o The above mentioned distribution agreements cost NVC in excess of $4
million during the past three years; and
o Distributions to NVC's owners totaled approximately $4 million in
FY2003 and approximately $5.5 million in FY2004.
COUNTRY AND INDUSTRY OVERVIEW
NVC operates, manufactures and sells the majority (over 90%) of its
products in the PRC. Despite the considerable growth potential of the country
and its low cost base, PRC remains a risky environment. Capitalink noted the
following significant risk factors:
o Foreign exchange regulations;
o Political and legal risk;
o Lack of accounting transparency;
o Limitations and restrictions on dividend repatriation;
o Geographic concentration.
ORALABS STOCK PRICE PERFORMANCE REVIEW
Capitalink reviewed the daily closing market price and trading volume
of the Company's common stock since the announcement of the Transaction on
December 28, 2004, over the twenty-four month period prior to the announcement,
and over the twelve-month period prior to the announcement. Capitalink noted the
following:
o The Company's stock had limited liquidity prior to the announcement of
the Transaction with the median number of shares traded at
approximately 400 and 1,320 over the twenty-four month and
twelve-month period, respectively. Since the announcement, the median
number of shares traded was 7,645.
o Over the twelve months prior to the announcement of the Transaction,
the Company's average share price was approximately $1.77 and ranged
from a high of $3.74 to a low of $1.03.
o The Company's common stock outperformed the general market index
(Russell 3000) and underperformed the comparable companies index over
the twelve-month period prior to the announcement.
46
ORALABS COMPARABLE COMPANY ANALYSIS
A selected comparable company analysis reviews the trading multiples of
publicly traded companies that are similar to the Company with respect to
business and revenue model, operating sector, product and service offerings and
target customer base.
Capitalink located five companies that it deemed comparable to the
Company with respect to their industry sector and operating model (the
"Comparable Companies"). All of the Comparable Companies manufacture and
distribute personal care products, with the exception of Natural Health Trends
Corp ("BHIP") that outsources its manufacturing to third parties. They are
classified under SIC codes 5122 (Drugs, Proprietaries, and Sundries), 2844
(Toilet Preparations) and 2833 (Medicinals and Botanicals). All of the
Comparable Companies are substantially larger than OraLabs, with LTM revenue
ranging from approximately $62.9 million to approximately $346.3 million,
compared with approximately $12.9 million for OraLabs. As of August 5, 2005, the
enterprise value for the Comparable Companies ranged from approximately $38.1
million to approximately $284.1 million, compared with approximately $11.4
million for OraLabs.
Capitalink noted that all of the Comparable Companies are more
profitable than OraLabs, with LTM EBITDA margin ranging from approximately 2.1%
to approximately 17.5%, compared with approximately (1.7)% for OraLabs.
All of the Comparable Companies have exhibited greater revenue growth
than OraLabs, with last fiscal year revenue growth ranging from approximately
9.1% to approximately 112.9%, compared with approximately (6.7)% for OraLabs.
Capitalink generated the following multiples worth noting:
o The enterprise value to LTM revenue multiple ranged from 0.47 times to
1.10 times, with a mean of 0.76 times.
o The enterprise value to FY2005 revenue multiple ranged from 0.81 times
to 1.10 times, with a mean of 0.93 times.
Capitalink selected an appropriate multiple range for the Company by
examining the range provided by the Comparable Companies and taking into account
certain company-specific factors. Capitalink expects the Company's valuation
multiples to be below the average of the Comparable Companies due to its lower
EBITDA margins, negative revenue growth and smaller size.
Based on the above factors, Capitalink applied a selected multiple
range and applied it to the Company's LTM and 2005 revenue to determine a range
of indicated enterprise values. Capitalink then added net cash of approximately
$1.2 million to derive a range of equity values to obtain an equity value on a
marketable minority basis of between approximately $6.2 million and
approximately $7.6 million.
An analysis of publicly traded comparable companies is not
mathematical; rather it involves complex consideration and judgments concerning
differences in financial and operating characteristics of the Comparable
Companies and other factors that could affect the public trading of the
Comparable Companies.
47
ORALABS COMPARABLE TRANSACTION ANALYSIS
A comparable transaction analysis is based on a review of merger,
acquisition and asset purchase transactions involving target companies that are
in related industries to the Company. The comparable transaction analysis
generally provides the widest range of value due to the varying importance of an
acquisition to a buyer (i.e., a strategic buyer willing to pay more than a
financial buyer) in addition to the potential differences in the transaction
process (i.e., competitiveness among potential buyers).
Capitalink located five transactions announced since January 2003
involving target companies in related industries to OraLabs (the "Comparable
Transactions") and for which detailed financial information was available.
Target companies were all involved in personal care product manufacturing and
distribution.
Based on the information disclosed with respect to the targets in each
of the Comparable Transactions, Capitalink calculated and compared total
enterprise value as a multiple of LTM revenue and LTM EBITDA.
A review of the analysis indicates mean and median enterprise value
multiples to LTM revenue of 1.26 times and 1.23 times, respectively, and mean
and median enterprise value multiples to LTM EBITDA of 8.2 times and 8.3 times,
respectively.
Capitalink expects the Company to be valued substantially below the
mean of the Comparable Transactions multiples due to its significantly lower
profitability and smaller size.
Based on the above factors, Capitalink applied a selected multiple
range and applied it to the Company's LTM revenue to determine a range of
indicated enterprise values. Capitalink then added net cash of approximately
$1.2 million to obtain an equity value range on a marketable controlling
interest basis of between approximately $8.3 million and approximately $9.6
million.
Capitalink applied a minority discount of 22% in order to obtain an
equity value range for the Company on a marketable minority basis of between
approximately $6.5 million and approximately $7.5 million. The selected minority
discount is based on a premiums paid analysis involving transactions where a
controlling interest was acquired in a public company by a minority shareholder.
None of the target companies in the Comparable Transactions have
characteristics identical to the Company. Accordingly, an analysis of comparable
business combinations is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the target companies in the Comparable Transactions and other
factors that could affect the respective acquisition values.
NVC COMPARABLE COMPANY ANALYSIS
A selected comparable company analysis reviews the trading multiples of
publicly traded companies that are similar to NVC with respect to business and
revenue model, operating sector, product and service offerings and target
customer base.
Capitalink used two tiers of comparable companies for valuing NVC:
o Companies that design, manufacture and/or distribute lighting products
regardless of their geographical location or on which exchange their
common stock is trading ("Tier 1 Comparable Companies" or "Lighting
Companies"); and
48
o Manufacturing companies that are located and doing business in China,
their common stock is traded on a U.S. exchange and they have similar
revenue and margins to NVC ("Tier 2 Comparable Companies" or "US
Traded China Based Companies").
Capitalink located seven Tier 1 Comparable Companies and four Tier 2
Comparable Companies and noted that two of the Tier 2 Comparable Companies were
publicly held shell companies that acquired the business operations of another
company recently.
As of August 5, 2005, almost all of the Tier 1 and Tier 2 Comparable
Companies are larger than NVC, with LTM revenue ranging from approximately $18.6
million to approximately $277.1 million for the Tier 1 Comparable Companies, and
from approximately $52.2 million to approximately $249.2 million for the Tier 2
Comparable Companies, compared with approximately $61.1 million for NVC.
Capitalink noted that NVC is somewhat less profitable on an EBITDA
level than the mean of the Tier 1 Comparable Companies and more profitable than
the mean of the Tier 2 Comparable Companies, with LTM EBITDA margin ranging from
approximately 8.0% to approximately 32.9% for the Tier 1 Comparable Companies,
and from approximately 6.2% to approximately 13.6% for the Tier 2 Comparable
Companies, compared with approximately 13.1% for NVC.
NVC exhibited greater revenue growth than both Tier 1 and Tier 2
Comparable Companies, with last fiscal year revenue growth ranging from
approximately 6.4% to approximately 20.6% for the Tier 1 Comparable Companies,
and from approximately 9.5% to approximately 74.9% for the Tier 2 Comparable
Companies, compared with approximately 80.8% for NVC. Capitalink noted that the
growth rates of the Tier 2 Comparable Companies are generally higher than those
of the Tier 1 Comparable Companies, reflecting the growth of the PRC's economy.
Capitalink generated the following multiples worth noting:
o The enterprise value to LTM revenue multiple ranged from 0.37 times to
1.73 times, with a mean of 1.05 times for the Tier 1 Comparable
Companies, and from 0.69 times to 1.87 times, with a mean of 1.27
times for the Tier 2 Comparable Companies.
o The enterprise value to LTM EBITDA multiple ranged from 3.2 times to
11.5 times, with a mean of 7.0 times for the Tier 1 Comparable
Companies, and from 11.2 times to 17.7 times, with a mean of 13.5
times for the Tier 2 Comparable Companies.
o Capitalink noted that the multiples for the Tier 2 Comparable
Companies were generally higher than those of the Tier 1 Comparable
Companies, reflecting the growth of the PRC's economy.
Capitalink selected an appropriate multiple range for NVC by examining
the range provided by the Comparable Companies and taking into account certain
company and geographic-specific factors. Capitalink expects NVC's valuation
multiples to be above the mean of the Tier 1 Comparable Companies and below the
mean of the Tier 2 Comparable Companies based on the following factors:
o From an operational perspective, NVC is similar to the Tier 1
Comparable Companies and therefore they served as the basis for the
valuation;
o Tier 2 Comparable Companies are different from an operational
perspective, however they are useful in understanding the valuation of
Chinese companies in light of their growth characteristics;
o NVC has similar profitability to both Tier 1 and Tier 2 Comparable
Companies;
o NVC is smaller than most Tier 1 and Tier 2 Comparable Companies;
49
o NVC has exhibited substantially greater growth than the Tier 1
Comparable Companies and somewhat greater growth than the Tier 2
Comparable Companies;
o NVC has the lowest leverage of both Tier 1 and Tier 2 Comparable
Companies, however, except for General Steel Holdings, it is the only
company with a negative working capital in the comparable universe.
Based on the above factors, Capitalink applied a selected multiple
range and applied it to NVC's LTM revenue and LTM EBITDA to determine a range of
indicated enterprise values. Capitalink then added net cash of approximately
$2.2 million to obtain an equity value on a marketable minority basis of between
approximately $65.0 million and approximately $72.0 million.
An analysis of publicly traded comparable companies is not
mathematical; rather it involves complex consideration and judgments concerning
differences in financial and operating characteristics of the Comparable
Companies and other factors that could affect the public trading of the
Comparable Companies.
Based on the information and analyses set forth above, Capitalink
delivered its written opinion to Special Committee, which stated that, as of
August 10, 2005, based upon and subject to the assumptions made, matters
considered, and limitations on its review as set forth in the opinion the
Transaction is fair, from a financial point of view, to the Company's
nonaffiliated shareholders. Capitalink is an investment banking firm that, as
part of its investment banking business, regularly is engaged in the evaluation
of businesses and their securities in connection with mergers, acquisitions,
corporate restructurings, private placements, and for other purposes. The
Company determined to use the services of Capitalink because it is a recognized
investment banking firm that has substantial experience in similar matters.
Capitalink has received a fee in connection with the preparation and issuance of
its opinion. In addition, the Company has agreed to indemnify Capitalink for
certain liabilities that may arise out of the rendering of the opinion.
Capitalink does not beneficially own any interest in the Company and has not
provided any other services.
Interests of Certain Persons in the Proposed Transactions
In considering the recommendation of the Special Committee and the
Board of Directors with respect to the proposed transactions, you should be
aware that all members of the Board have interests that present actual or
potential conflicts of interest in connection with the transactions. The Special
Committee and the Board were aware of these potential or actual conflicts of
interest and considered them with other matters described under "Special
Factors-Recommendation of the Special Committee and Board of Directors". Upon
Closing, Mr. Schlatter will own all of the outstanding stock of OraLabs, Inc.,
the operating subsidiary of the public company, and therefore will participate
in all of its future earnings and any increase in value. Upon Closing, none of
the current directors of OraLabs will be an officer or director of the public
company, but the directors other than Mr. Schlatter will each receive 100,000
shares of common stock of OraLabs at the time of the Closing of the proposed
transactions. An affiliate of Mr. Schlatter, The Schlatter Family Partnership,
owns 100,000 shares of OraLabs common stock, which will not be redeemed by
OraLabs as part of the Closing.
NASDAQ Listing
OraLabs common stock is currently listed for trading on the NASDAQ
SmallCap Market. Continued listing on the SmallCap Market after Closing is
conditional upon OraLabs obtaining approval from the NASD to such listing.
Because the current business of OraLabs will no longer be operated by OraLabs
after Closing, and the business of NVC will then be the only business of OraLabs
continued listing is conditional upon OraLabs compliance with NASD rules that
for all practical purposes are applicable to making a new application to the
NASD for NASDAQ listing. One of those requirements is that the minimum bid price
of the common stock must not be less than $4.00 per share.
50
If the common stock of the Company is delisted from the NASDAQ SmallCap
Market, the Company would remain a public company but trading of the common
stock would be displayed instead on the OTC Bulletin Board until such time as
OraLabs complies with the listing qualifications for the NASDAQ SmallCap Market.
Stocks displayed on the OTC Bulletin Board have less visibility in the
investment community than stocks that are listed on the NASDAQ SmallCap Market.
Because the volume of OraLabs' stock traded each day on the NASDAQ SmallCap
Market has historically been very low, OraLabs cannot predict whether a
delisting of the common stock from NASDAQ and display of trading of the stock on
the OTC Bulletin Board would materially cause the stock price to be reduced or
liquidity for the stock to be more significantly impaired. NVC has advised
OraLabs that it is committed to seeking the listing on the NASDAQ SmallCap
Market as soon as it can, should delisting occur. Under the Exchange Agreement,
NVC has the right to seek to renegotiate prior to Closing the relative
percentages of ownership of OraLabs common stock between the NVC Shareholders
and the then public shareholders if delisting from the NASDAQ SmallCap Market is
attributable to conduct of OraLabs. However, OraLabs and NVC have agreed that
the decline of OraLabs' stock price is not conduct considered attributable to
OraLabs for that purpose.
MARKET FOR THE COMMON STOCK
The common stock of the Company trades on the NASDAQ Small Cap Market
under the symbol OLAB. The following sets forth the range of high and low bid
information for the Company's common stock for fiscal years 2003 and 2004, and
for the first two quarters of fiscal year 2005. The source of such information
is as reported by NASDAQ. All of the following prices and numbers of shares have
been adjusted to give effect to the one-for-two reverse stock split adopted by
the Company on December 16, 2003.
Reported High Bid Reported Low Bid
----------------- ----------------
First quarter, fiscal 2003 $1.76 $1.16
Second quarter, fiscal 2003 $1.56 $1.04
Third quarter, fiscal 2003 $1.98 $1.06
Fourth quarter, fiscal 2003 $1.96 $1.50
First quarter, fiscal 2004 $2.80 $1.50
Second quarter, fiscal 2004 $2.28 $1.47
Third quarter, fiscal 2004 $2.03 $1.36
Fourth quarter, fiscal 2004 $5.20 $1.03
First quarter, fiscal 2005 $3.64 $1.96
Second quarter, fiscal 2005 $2.87 $1.25
The quotations reflect inter-dealer prices, without adjustment for retail
mark-up, markdown or commission and may not necessarily present actual
transactions.
As of July 29, 2005, there were approximately 874 record holders of the common
stock of the Company. The Company has not paid any cash dividends and it is not
intended that any cash dividends will be paid in the foreseeable future.
51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 29, 2005, information regarding the
beneficial ownership of Common Stock (i) by each Director,(ii) by each Executive
Officer listed in the Summary Compensation table below, (iii) by all Directors
and current Executive Officers as a group (five persons), and (iv) by each
person or group known by the Company to own beneficially in excess of five
percent (5%) of the Common Stock:
Name and Address Amount and Nature of
of Beneficial Owner(6) Beneficial Ownership
---------------------- -------------------- Percent of Class
----------------
Gary H. Schlatter 3,729,350 shares (1)
18685 East Plaza Drive 79.47%
Parker, Colorado 80134
Allen R. Goldstone 6,250 shares (2)
5353 Manhattan Circle *
Suite 101
Boulder, Colorado 80303
Michael I. Friess 6,250 shares (3)
5353 Manhattan Circle *
Suite 101
Boulder, Colorado 80303
Robert C. Gust 17,250 shares (4)
7N551 Cloverfield Circle *
St. Charles, IL 60175
Emile Jordan
18685 East Plaza Drive
Parker, CO 80134 38,125 shares (5)
*
All directors and executive 3,797,225 shares (1), (2), (3), (4),(5) 79.94%
officers as a group (five persons)
* Less than one percent
------------------
(1) Includes 100,000 shares held by The Schlatter Family Partnership, of which
Gary H. Schlatter and his spouse are the general partners. Mr. Schlatter's
spouse may be deemed the beneficial owner of some or all of the shares. Does not
include 30,500 shares that Mr. Schlatter's spouse, an employee of the Company,
has the right to acquire on April 4, 2005, or within sixty (60) days thereafter,
pursuant to outstanding options.
(2) Includes 6,250 shares that he has the right to acquire on July 29, 2005, or
within sixty (60) days thereafter, pursuant to outstanding options.
(3) Includes 6,250 shares that he has the right to acquire on July 29, 2005 or
within sixty (60) days thereafter, pursuant to outstanding options.
(4) Includes 6,250 shares that he has the right to acquire on July 29, 2005 or
within sixty (60) days thereafter, pursuant to outstanding options.
(5) Includes 38,125 shares that he has the right to acquire on July 29, 2005 or
within sixty (60) days thereafter, pursuant to outstanding options.
52
(6) Unless otherwise noted, the stockholders identified in this table have sole
voting and investment power. The sole person known to the Company to be the
beneficial owner of more than five percent (5%) of the class of outstanding
stock is Gary H. Schlatter, whose address is c/o OraLabs Holding Corp., 18685
East Plaza Drive, Parker, Colorado 80134.
Change in Control
Upon closing of the transactions contemplated by the Exchange
Agreement, there will be a change in control of the Company. Gary Schlatter will
no longer have any interest in the Company except for the interests described in
Note 1 to the above table. Instead, the Company will be controlled by the
principals of NVC as described in more detail in the following table.
The following table sets forth certain information regarding OraLabs
common stock beneficially owned after giving effect to the closing, for (i) each
stockholder known to be the beneficial owner of 5% or more of OraLabs
outstanding common stock, (ii) each executive officer and director, and (iii)
all executive officers and directors as a group. Unless otherwise indicated,
each person in the table has sole voting and investment power with respect to
the shares shown. The table assumes a total of 22,727,750 shares of OraLabs
common stock outstanding after the closing:
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------------- -------------------------- ----------------------- ---------------------
Wu Chang Jiang
128 Gloucester Road
Wan Chai, Hong Kong
The People's Republic of China Common Stock 6,666,807 29.3
Hu Yong Hong
128 Gloucester Road
Wan Chai, Hong Kong
The People's Republic of China Common Stock 6,666,807 29.3
Du Gang
128 Gloucester Road
Wan Chai, Hong Kong
The People's Republic of China Common Stock 6,666,807 29.3
Li Zhao Rong
128 Gloucester Road
Wan Chai, Hong Kong
The People's Republic of China Common Stock 0 0
Tracy Wan Hung (1)
128 Gloucester Road
Wan Chai, Hong Kong
The People's Republic of China Common Stock 654,559 0.3
All Directors and Officers as a group Common Stock 20,654,980 90.9
(6 persons)
(1) Ms. Hung will hold the shares of common stock of OraLabs in the name of
Belmonth Capital Group Limited, a financial consulting firm owned by Ms.
Hung.
53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: ORALABS
Gary H. Schlatter, through an affiliated entity, is the owner of the
property leased by OraLabs (the Company's subsidiary) that serves as the
Company's headquarters, manufacturing facility and warehouse facility. The lease
expires on September 30, 2006. Prior to the Company's relocation in 2004, Mr.
Schlatter individually and an affiliated entity respectively leased the two
facilities from which the Company conducted its business. Total rent paid by the
Company for rent of those facilities in 2004 was $83,690. Rent paid to Mr.
Schlatter's affiliated entity in 2004 after the relocation was $446,088. The
Company believes that its rental rate is comparable to that which would be paid
to unaffiliated parties, and the Company believes that if the leases were not to
be renewed, the Company could obtain alternative space. Upon closing of the
Exchange Agreement, Gary H. Schlatter will acquire sole ownership of OraLabs,
Inc. the operating subsidiary of the public company, in consideration for the
redemption by the Company of the 3,629,350 shares of the Company owned by Mr.
Schlatter in his individual capacity. In addition, each of the other three
directors, all of whom are non-employee directors, will receive 100,000 shares
of the Company's common stock under the 2005 Director Stock Plan for which
approval by the shareholders is requested at the annual meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: NVC
NVC was incorporated in the Hong Kong Special Administrative Region in
the PRC as a private limited liability company on June 11, 2004. Pursuant to the
reorganization and restructuring of NVC, NVC Lighting Company Limited ("NVC
Lighting") ceased operations on April 30, 2003 and, on the same date, certain
net assets were distributed totaling $1,767,655 to the registered equity
holders, including Messrs. Wu Chang-Jiang, Hu Yong-Hong and Du Gang, who are
directors of NVC. On May 1, 2003, the business operations of NVC Lighting were
transferred to NVC Industrial Development Company Limited ("NVC Industrial"). On
June 13, 2004, NVC acquired 97% of the outstanding registered capital of NVC
Industrial and 100% of the registered capital of NVC Lighting. On November 17,
2004 NVC Lighting was officially wound up.
As of December 31, 2004, and as of March 31, 2005, NVC had the following
balances due to its directors:
NAME AT DECEMBER 31, 2004 AT MARCH 31, 2005 SECURITY HELD
---- -------------------- ----------------- -------------
Wu Chang-Jiang $ 190,228 195,327 none
Hu Yong-Hong $ 190,228 145,564 none
Du Gang $ 190,228 130,199 none
The amounts due to the directors arose from their advances of funds to NVC that
were applied toward the payments due to the independent distributors of the
products of NVC. The amounts due to the directors from NVC are unsecured,
interest free and have no fixed repayment terms.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Commission requires our
directors, executive officers and holders of more than 10% of our common stock
to file with the Securities and Exchange Commission reports regarding their
ownership and changes in ownership of our securities. The Company believes that
during fiscal year 2004, its directors, executive officers and 10% owners
complied with all Section 16(a) filing requirements with the following
exceptions: directors Friess, Goldstone and Gust each filed a late report with
respect to options awarded to each of them in June 2004 under the Company's 1997
Non-employee Directors Option Plan.
54
Our Board of Directors amended its Code of Ethics that was filed as
Exhibit 14.1 to the Company's Form 10-KSB/A for calendar year 2004. The amended
Code of Ethics was filed as an exhibit attached to Form 8-K filed by the Company
on August ___, 2005.
EXECUTIVE COMPENSATION
The Company hereby incorporates by reference, Item 10 (entitled
"Executive Compensation") of the Company's Form 10-KSB/A filed for fiscal year
2004, a copy of which is included with this Proxy Statement.
For a discussion of certain compensation matters relating to directors,
executive officers and certain shareholders of NVC, please see "NVC
Business-Executive Compensation".
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED TRANSACTIONS
The following discussion is a summary of the material federal income tax
consequences expected to result to shareholders who exercise dissenters' rights.
Except for those shareholders there will be no tax consequences to OraLabs
shareholders from completion of the proposed transactions. This summary does not
purport to be a complete analysis of all potential tax effects of the proposed
transactions. For example, the summary does not consider the effect of any
applicable state, local or foreign tax laws. In addition, the summary does not
address all aspects of federal income taxation that may affect particular
shareholders in light of their particular circumstances and is not intended for
shareholders (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, shareholders who hold their common stock as part
of a hedge, straddle or conversion transaction, shareholders who acquired their
common stock pursuant to the exercise of an employee stock option or otherwise
as compensation, and shareholders who are not citizens or residents of the
United States or that are foreign corporations, foreign partnerships or foreign
estates or trusts as to the United States) that may be subject to special
federal income tax rules not discussed below. The following summary also does
not address tax consequences to OraLabs Holding Corp., OraLabs, Inc., NVC or the
NVC Shareholders.
This summary is based on the current provisions of the Code, applicable
Treasury Regulations, judicial authority and administrative rulings and
practice. No ruling from the IRS has been or will be sought nor will an opinion
of counsel be obtained with respect to any aspect of the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the tax consequences expressed in this discussion or that a court would not
sustain this type of challenge. Future legislative, judicial or administrative
changes or interpretations could alter or modify the statements and conclusions
set forth herein, and any such changes or interpretations could be retroactive
and could affect the tax consequences of the proposed transactions to
shareholders. We cannot predict at this time whether any current proposed tax
legislation will be enacted or, if enacted, whether any tax law changes
contained therein would affect the tax consequences of the proposed transactions
to shareholders. It is therefore possible that the federal income tax treatment
may differ from that described below.
State and local tax laws may also impose income or other taxes upon
shareholders who exercise dissenters' rights. State and local income tax laws
vary from state to state and this discussion does not address state or local tax
issues.
Redemption Treatment for Dissenters
For federal income tax purposes, OraLabs will be deemed to be the
source of cash consideration for payments in satisfaction of dissenters' rights.
Therefore, to the extent that cash received by a stockholder is from OraLabs,
the receipt of cash in satisfaction of dissenters' rights will be treated as a
redemption of common stock taxable for federal income tax purposes as determined
under section 302 of the Code. Section 302(d) of the Code provides that if the
receipt of redemption payments has the effect of a distribution of property,
then cash distributed will be treated as a dividend taxable under section 301 of
the Code as ordinary income to a stockholder receiving such cash payments,
generally to the extent of the stockholder's share of undistributed accumulated
earnings and profits of the company. The remainder, if any, will be treated
first as a recovery of basis in a stockholder's common stock, and second as
capital gain arising from the sale or exchange of property. The determination of
whether or not the receipt of cash payments has the effect of a distribution of
a dividend will depend on each stockholder's particular circumstances and is
made by applying the dividend equivalency tests of section 302 of the Code.
55
Under section 302 of the Code, a stockholder receiving a cash payment
as a redemption will not be treated as having received a dividend equivalent
distribution if the transaction: it results in a "complete redemption" of the
stockholder's equity interest in the company; it results in a "substantially
disproportionate" redemption with respect to the stockholder; or it is "not
essentially equivalent to a dividend" with respect to the stockholder. Each of
these section 302 tests is explained more fully below.
Constructive Ownership of Stock and Other Issues
In applying each of the section 302 tests, shareholders must take into
account not only shares that they actually own but also shares they are treated
as owning under the constructive ownership rules of section 318 of the Code.
Pursuant to the constructive ownership rules, a stockholder is treated as owning
any shares that are owned, actually and in some cases constructively, by certain
related individuals and entities as well as shares that the stockholder has the
right to acquire by exercise of an option or by conversion or exchange of a
security. Due to the factual nature of the section 302 tests described below,
shareholders should consult their tax advisors to determine whether the
conversion of their shares and receipt of a payment pursuant to the exercise of
dissenters' rights will be deemed dividend equivalent in their particular
circumstances.
Section 302 Tests
One of the following tests must be satisfied in order for the
distribution not to be treated as the equivalent of a dividend for federal
income tax purposes.
Complete Termination Test. The distribution will result in a "complete
redemption" of the stockholder's equity interest in the company only if all of
the common stock that is actually owned by the stockholder is sold pursuant to
the proposed transactions and the shares that are constructively owned by the
stockholder are sold or, with respect to shares owned by certain related
individuals, the stockholder effectively waives, in accordance with section
302(c) of the Code, attribution of shares which otherwise would be considered as
constructively owned by the stockholder. Certain restrictions apply to the
waiver of attribution of shares. Shareholders wishing to satisfy the "complete
redemption" test through waiver of the constructive ownership rules should
consult their tax advisors.
Substantially Disproportionate Test. The distribution will result in a
"substantially disproportionate" redemption with respect to the stockholder if,
among other things, the stockholder owns actually and constructively less than
50% of the total combined voting power of all classes of stock after the
redemption, and the percentage of the then outstanding voting common stock
actually and constructively owned by the stockholder immediately after the
purchase is less than 80% of the percentage of the previously outstanding voting
common stock actually and constructively owned by the stockholder immediately
before the purchase.
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Not Essentially Equivalent to a Dividend Test. The distribution will be
treated as "not essentially equivalent to a dividend" if the reduction in the
stockholder's proportionate interest actually and constructively owned
constitutes a "meaningful reduction" given the stockholder's particular
circumstances. Whether the receipt of a cash payment will be "not essentially
equivalent to a dividend" will depend upon the stockholder's particular facts
and circumstances. Shareholders should consult their tax advisors as to the
application of this test in their particular circumstances.
If a stockholder receives only cash payments and satisfies any of the
section 302 tests described above, the stockholder will be treated as if it sold
its common stock and will recognize capital gain or loss as described above. If
a stockholder does not satisfy any of the section 302 tests described above, the
purchase of a stockholder's common stock will not be treated as a sale or
exchange under section 302 of the Code. Instead, the amount received by a
stockholder in the redemption will be treated as a dividend distribution under
section 301 of the Code, taxable at ordinary income tax rates, to the extent,
first, of the stockholder's applicable share of OraLabs' current earnings and
profits, as defined for U.S. federal income tax purposes, and, second, of the
U.S. stockholder's applicable share of OraLabs' current earnings and profits, as
defined for U.S. federal income tax purposes. To the extent the amount exceeds
the stockholder's applicable share of current and accumulated earnings and
profits, the excess first will be treated as a tax free return of capital to the
extent of the stockholder's basis in its common stock and any remainder will be
treated as capital gain, which may be long term capital gain as described above.
The determination of whether a corporation has earnings and profits is complex
and the legal standards to be applied are subject to uncertainties and
ambiguities. Additionally, the amount of current earnings and profits can be
determined only at the end of the taxable year. Accordingly, it is unclear
whether OraLabs will have sufficient current and accumulated earnings and
profits to cover the amount of any payment made to shareholders. To the extent
that a redemption is treated as the receipt by the stockholder of a dividend,
the stockholder's tax basis in the redeemed shares will be added to any shares
of common stock retained or sold by the stockholder, and may be lost if the
stockholder does not actually retain any stock ownership in OraLabs.
Backup Withholding
A stockholder who receives payment for his, her or its common stock by
exercise of dissenters' rights may be subject to backup withholding equal to the
fourth lowest tax rate under section 1(c) of the Code with respect to the gross
proceeds received unless such stockholder (1) is a corporation or other exempt
recipient and, when required, establishes this exemption or (2) provides its
correct taxpayer identification number, certifies that it is not currently
subject to backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder who does not provide
OraLabs with its correct taxpayer identification number may be subject to
penalties imposed by the IRS. Any amount withheld under these rules will be
credited against the stockholder's federal income tax liability. OraLabs will
report to shareholders and to the IRS the amount of any reportable payments
arising from exercise of dissenters' rights and any amount withheld. Each
stockholder should consult his, her or its own tax advisor with respect to the
particular tax consequences to it of the transactions described herein,
including the applicability and effect of state, local and foreign tax law.
Fees and Expenses
Whether or not the proposed transactions are consummated, all of the
fees and expenses incurred in connection therewith will be paid by the party
(either OraLabs or NVC) incurring such fees and expenses. Estimated fees and
expenses (rounded to the nearest thousand, except for the SEC filing fee)
incurred or to be paid by OraLabs in connection with the proposed transactions
are as follows:
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DESCRIPTION DOLLAR AMOUNT
--------------------------------------------------------- --------------
Special Committee's Financial Advisor's Fees and Expenses $ 60,000.00
Special Committee's Legal and Accounting Fees and Expenses 20,000.00
OraLabs' Legal and Accounting Fees and Expenses 110,000.00
Printing and Mailing Fees and Expenses 5,000.00
SEC Filing Fees 7,000.00
TOTAL $202,000,00
THE EXCHANGE AGREEMENT
The following is a summary of the material provisions of the Exchange
Agreement, a copy of which is attached as Annex 1 to this Proxy Statement. This
summary is qualified in its entirety by reference to the full text of the
Exchange Agreement.
The Stock Exchange
The Exchange Agreement provides that at its Closing, a series of
transactions will become effective. If the Exchange Agreement is approved at the
annual meeting by the shareholders of OraLabs, and the other conditions to
Closing are satisfied, it is anticipated that we will consummate the
transactions in the fall of this year. However, there can be no assurance as to
the timing of the Closing or that the consummation of the proposed transactions
will occur. Upon the completion of the Closing, the following transactions will
have occurred:
o the 3,629,350 shares of OraLabs common stock owned individually by
Gary H. Schlatter will have been redeemed by OraLabs and all of the
shares owned by OraLabs of its wholly-owned subsidiary, OraLabs, Inc.,
will be owned by Mr. Schlatter;
o OraLabs will be the 100% owner of NVC, and the three NVC Shareholders
(and/or their designees) will be the owners of approximately 94% of
all of the issued and outstanding common stock of OraLabs;
o the authorized number of shares of OraLabs common stock will be
200,000,000;
o the name of the public company will be changed from OraLabs Holding
Corp. to NVC Lighting Corporation;
o the 2005 Stock Option, SAR and Stock Bonus Plan covering 5,000,000
shares of common stock will be approved, the 2005 Director Stock Plan
will be approved and 300,000 shares will have been issued under the
latter Plan to the non-employee directors of OraLabs;
o the current directors of the public company will resign and be
replaced by Mr. Chang-Jiang Wu, Mr. Yong-Hong Hu, Mr. Gang Du and
Tracy Hung Wan;
o the current officers of the public company will resign and be replaced
by officers chosen by the new directors; and
o dissenting shareholders who do not vote to approve the Exchange
Agreement and who otherwise strictly comply with the provisions of the
Colorado Business Corporation Act regarding statutory appraisal rights
will have the right to seek a determination of the fair value of the
shares of common stock and payment in cash therefor in lieu of
remaining as shareholders of the public company (see "Dissenters'
Rights of Appraisal").
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This paragraph explains the approximate number of shares to be
outstanding upon completion of the Closing. The nonaffiliated shareholders of
OraLabs currently own approximately 952,665 shares. Those shares will be
retained by them. Affiliates of OraLabs own 111,000 shares and an additional
300,000 shares will be issued to the non-employee directors, resulting in
affiliate ownership of 411,000 shares. The total of the 411,000 shares plus the
952,665 shares (1,363,665 total shares) will equal 6% of the outstanding shares
upon completion of the Closing. Therefore, the principals of NVC or their
designees will be issued 21,364,085 shares, or 94% of the total number of
22,727,750 shares to be outstanding. These figures do not take into account the
possible exercise of up to 131,500 options that may be exercised prior to
Closing by employees of OraLabs. To the extent that any of those options are
exercised, additional shares would be issued to the principals of NVC or their
designees so that they retain their 94% ownership. If all of the options are
exercised, an additional 2,060,167 shares will be issued to the NVC principals
or their designees.
Conditions to the Closing of the Exchange Agreement
The respective obligations of OraLabs, NVC and the NVC Shareholders to
consummate the transactions under the Exchange Agreement are subject to the
fulfillment or waiver at or prior to Closing of certain conditions including the
following:
o the Exchange Agreement and all of the transactions contemplated
thereby must be approved by the shareholders of OraLabs;
o OraLabs must receive a comfort letter from NVC's independent auditors,
within ten days prior to the proposed Closing date, that is
satisfactory to OraLabs' counsel;
o OraLabs must receive a legal opinion from an attorney authorized to
practice in China as to the legal effect of certain matters, including
that the exchange of the stock owned by the NVC Shareholders for stock
in OraLabs is legally binding upon them;
o there must be no legal action that prevents or restrains completion of
the proposed transactions;
o the number of OraLabs shares that are the subject of dissenters'
rights exercised by OraLabs' shareholders cannot exceed 100,000
shares;
o if continued listing of the public company's shares on the NASDAQ
SmallCap Market is not approved by the NASD for reasons attributable
to OraLabs, NVC may seek to renegotiate the relative shareholdings to
be owned upon completion of the transactions between the NVC
shareholders and the OraLabs shareholders; and
o the absence of any material adverse change in the condition of either
OraLabs or NVC.
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Representations and Warranties
The Exchange Agreement contains representations and warranties by the
parties. These include, among other things, the following:
o their respective organization and qualification to do business;
o their authority to enter into and consummate the Exchange Agreement
and the transactions contemplated thereby;
o the absence of a conflict between the Exchange Agreement and the
transactions contemplated thereby, with laws applicable to, and
material agreements of, the respective parties;
o the consents and filings required with respect to the Exchange
Agreement and the transactions contemplated thereby;
o the accuracy of the information provided by the parties for inclusion
in this Proxy Statement and in filings to be made with the SEC with
respect thereto;
o the absence of undisclosed liabilities and changes in the business of
the parties;
o the status of litigation;
o compliance with respect to taxes, employee plans and environmental
matters;
o title to properties; and
o the lack of brokers retained by the parties.
Covenants
The parties have agreed to operate, and to cause their subsidiaries to
operate, their respective businesses in the ordinary and usual course prior to
Closing of the Exchange Agreement. Specifically, the parties have agreed to:
o conduct their businesses in the ordinary and usual course of business
and consistent with past practice;
o conduct the business of NVC after Closing as it had been conducted
prior to Closing;
o cause the OraLabs common stock to continue to be listed on the NASDAQ
SmallCap Market upon completion of the Closing and/or submit a new
NASDAQ SmallCap Market listing application if necessary (if continued
listing is not approved by the NASD for reasons attributable to
OraLabs, then NVC reserves its right to seek to renegotiate the
relative shareholdings between the NVC Shareholders and OraLabs);
o not make any change in their organizational documents, borrow any
funds outside of the ordinary course of business or pay any material
obligation or liability not otherwise in the ordinary course of
business; and
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o not issue, deliver or agree to issue or deliver any stock, bonds or
other corporate securities.
Indemnification
NVC, the NVC Shareholders, and OraLabs agreed to certain
indemnification obligations under the Exchange Agreement. NVC and the NVC
Shareholders have agreed to indemnify OraLabs and its representatives against
any loss that may be incurred and which arises out of or is based on any
inaccuracy or misrepresentation made by NVC in the Exchange Agreement. OraLabs
agreed to indemnify NVC and its representatives, as well as the NVC
Shareholders, against any loss that they may incur arising out of or based on
any inaccuracy or misrepresentation made by OraLabs under the Exchange
Agreement. OraLabs also agree to cause its subsidiary, OraLabs, Inc., to
indemnify the public company from any loss that may exist immediately prior to
the Closing or that may be asserted after the Closing regarding any claim or
liability arising from the operations of OraLabs or any other matter prior to
the Closing. The obligations of OraLabs, Inc. will be under a form of
indemnification agreement that is attached as Exhibit 1 to the Exchange
Agreement that is attached to this Proxy Statement as Annex 1.
Furthermore, OraLabs, Inc. agreed to reimburse the public company for
the amount, up to $20,000, that the public company may be obligated to pay to
dissenters who are paid the fair value of their shares under Colorado law (see
Dissenters' Rights of Appraisal). The public company will permit OraLabs, Inc.
to actively participate in the process of determining the amount payable to
dissenters and it is agreed that no offer amount or settlement will be made by
it for payments to dissenters without the prior written approval of OraLabs,
Inc., which will not be unreasonably withheld. In the event that OraLabs, Inc.
makes payments to the public company in satisfaction of this obligation, the
public company will issue shares of its common stock to OraLabs, Inc. which,
when multiplied by the average of the closing bid and ask price of the common
stock of OraLabs as of the close of trading on the date that payment is received
by OraLabs, equals the amount paid by OraLabs, Inc. to reimburse the public
company. In that event, the Company agreed to use its diligent, good-faith
efforts to register those shares as soon as possible thereafter, but the cost of
filing fees paid to the SEC or under Blue Sky laws will be the obligation of
OraLabs, Inc.
Termination of the Exchange Agreement
The Exchange Agreement may be terminated and the transactions abandoned
at any time prior to completion of the Closing (notwithstanding any approval of
the Exchange Agreement by the shareholders of OraLabs);
o by written consent of the parties;
o by any party if the Closing does not occur by September 30, 2005,
which may be extended by mutual agreement of the parties for a period
not to exceed 45 days if Closing does not occur or the Proxy Statement
has not been cleared by the SEC by September 30, 2005;
o by either party if the other failed to comply in any material respect
with any of its covenants or agreements contained in the Exchange
Agreement or if any of the representations or warranties shall be
inaccurate in any material respect, or if there shall have been any
change after the date of the latest balance sheets in the assets,
properties, business or financial condition of the party which could
have a materially adverse effect on the value of the party's business;
and
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o by either party if there shall be any actual or threatened action or
proceeding before any court or any governmental body which seeks to
restrain, prohibit or invalidate the transactions contemplated by the
Exchange Agreement and which, in the judgment of the other party, made
in good faith and based on the advice of its legal counsel, makes it
inadvisable to proceed with the transactions contemplated by the
Exchange Agreement; or any of the transactions contemplated by the
Exchange Agreement are disapproved by any regulatory authority whose
approval is required to consummate such transactions or in the
judgment of such Board of Directors, made in good faith and based on
the advice of counsel, there is substantial likelihood that any such
approval will not be obtained or will be obtained only upon a
condition or conditions which would be unduly burdensome, making it
inadvisable to proceed under the Exchange Agreement.
Fees and Expenses
All costs and expenses incurred in connection with the Exchange
Agreement and the transactions contemplated thereby will be paid by the party
incurring such expenses, including without limitation its attorneys fees, and
there are no other payments due from one party to the other in connection with a
termination.
Amendment/Waiver
At any time prior to Closing, the Exchange Agreement may be amended by
a writing signed by all of the parties thereto, with respect to any of the terms
contained in the Exchange Agreement, and any term or condition of the Exchange
Agreement may be waived or the time for performance of any such term or
condition may be extended by a writing signed by the party for whose benefit the
provision is intended.
DISSENTERS' RIGHTS OF APPRAISAL
The following is a summary of dissenters' rights available to OraLabs
shareholders, which summary is not intended to be a complete statement of
applicable Colorado law and is qualified in its entirety by reference to Article
113, Title 7 of the Colorado Business Corporation Act, which is set forth in its
entirety as Annex 3 attached hereto. If you wish to exercise your statutory
right to dissent from the proposed transactions, you should read the detailed
explanation of your dissenter rights and the procedure that must be followed to
exercise those rights set forth below.
Do you have the right to exercise dissenter rights?
To exercise dissenter rights under Colorado law, you must be the
shareholder of record of the shares of common stock as to which the dissenter
rights are to be exercised on the record date established for the annual
meeting, and on the date that the written demand and notice for appraisal
described below is made, and the shareholder must continuously hold those shares
through the effective time of the proposed transactions.
How to exercise dissenter rights.
To exercise dissenter rights, you must:
o cause the Company to receive before the vote is taken at the annual
meeting, a written notice of the shareholder's intention to demand
payment for the shareholder's shares if the proposed transactions are
effectuated; and
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o not vote the shares in favor of the proposed transactions.
If the transactions are approved by the shareholders at the annual
meeting, you will then receive written notice from us giving you detailed
instructions of the procedure to be followed to perfect your demand to receive
payment for your shares.
Right to Dissent.
You are entitled to dissent from the proposed transactions and obtain
payment of the fair value of your shares if and when the proposed transactions
are effectuated. Under Article 113 of the Colorado Business Corporation Act
("CBCA"), a shareholder entitled to dissent and obtain payment for the shares
may not challenge the corporate action creating the right to dissent unless the
action is unlawful or fraudulent with respect to the shareholder or the
corporation.
Under CBCA Section 7-113-103(1), a record shareholder may assert
dissenters' rights as to fewer than all the shares registered in the record
shareholder's name only if the record shareholder dissents with respect to all
shares beneficially owned by any one person and causes the corporation to
receive written notice which states such dissent and the name, address and
federal taxpayer identification number, if any, of each person on whose behalf
the record shareholder asserts dissenters' rights.
CBCA Section 7-113-103(2) provides that a beneficial shareholder may
assert dissenters' rights as to the shares held on the beneficial shareholder's
behalf only if the beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights and the beneficial shareholder
dissents with respect to all shares beneficially owned by the beneficial
shareholder.
We will require that, when a record shareholder dissents with respect
to the shares held by any one or more beneficial shareholders, each such
beneficial shareholder must certify to us that the beneficial shareholder and
the record shareholder or record shareholders of all shares owned beneficially
by the beneficial shareholder have asserted, or will timely assert, dissenters'
rights as to all such shares as to which there is no limitation on the ability
to exercise dissenters' rights.
Before the Annual Meeting
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. If you wish to assert
dissenters' rights you must:
o cause us to receive before the vote is taken on the proposed
transactions at the annual meeting, written notice of the
shareholder's intention to demand payment for the shareholder's shares
if the proposed transactions are effectuated; and
o not vote the shares in favor of the proposed transactions. A
SHAREHOLDER WHO DOES NOT SATISFY THE FOREGOING REQUIREMENTS WILL NOT
BE ENTITLED TO DEMAND PAYMENT FOR HIS OR HER SHARES UNDER CBCA ARTICLE
113.
After the Annual Meeting
NOTICE FROM US. If the proposed transactions are approved at the annual
meeting, we will send written notice to dissenters who are entitled to demand
payment for their shares. The notice required by us will be given no later than
10 days after the effective time of the proposed transactions and will:
63
o state that the proposed transactions were authorized and state the
effective time or proposed effective date of the transactions;
o set forth an address at which we will receive payment demands and the
address of a place where certificates must be deposited;
o inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
o supply a form demanding payment, which form will request a dissenter
to state an address to which payment is to be made;
o set the date by which we must receive the payment demand and
certificates for shares, which date will not be less than 30 days
after the date the notice is given;
o state that if a record shareholder dissents with respect to the shares
held by any one or more beneficial shareholders, each such beneficial
shareholder must certify to us that the beneficial shareholder and the
record shareholder or the record shareholders of all shares owned
beneficially by the beneficial shareholder have asserted, or will
timely assert, dissenters' rights as to all such shares as to which
there is no limitation on the ability to exercise dissenters' rights;
and
o be accompanied by a copy of CBCA Article 113.
DEMAND FOR PAYMENT AND DELIVERY OF SHARE CERTIFICATE. A shareholder who
is given a dissenters' notice and who wishes to assert dissenters' rights must,
in accordance with the terms of the dissenters' notice,
o cause us to receive a payment demand (which may be the payment demand
form supplied by us and duly completed, or other acceptable writing)
and
o deposit the shareholder's stock certificates.
A shareholder who demands payment in accordance with the foregoing
retains all rights of a shareholder, except the right to transfer the shares
until the effective time of the proposed transactions, and has only the right to
receive payment for the shares after the effective time. A demand for payment
and deposit of certificates is irrevocable except that if the effective time
does not occur within 60 days after the date set by us by which we must receive
the payment demand, we will return the deposited certificates and release the
transfer restrictions imposed. If the effective time occurs more than 60 days
after the date set by us by which we must receive the payment demand, then we
shall send a new dissenters' notice. A SHAREHOLDER WHO DOES NOT DEMAND PAYMENT
AND DEPOSIT SUCH SHAREHOLDER'S SHARE CERTIFICATES AS REQUIRED BY THE DATE OR
DATES SET IN THE DISSENTERS' NOTICE WILL NOT BE ENTITLED TO DEMAND PAYMENT FOR
SUCH SHAREHOLDER'S SHARES UNDER CBCA ARTICLE 113.
DELIVERY OF PAYMENT. At the effective time or upon receipt of a payment
demand, whichever is later, we will pay each dissenter who complied with the
notice requirements referenced in the preceding paragraph, our estimate of the
fair value of the dissenter's shares plus accrued interest. Payment shall be
accompanied by an audited balance sheet as of the end our most recent fiscal
year or, if that is not available, our balance sheet as of the end of the fiscal
year not ending more than sixteen months before the date of payment, and an
audited income statement for that year, and an audited statement of changes in
shareholders' equity for that year and an audited statement of cash flow for
that year, as well as the latest available financial statements, if any, for the
interim period, which interim financial statements will be unaudited. Payment
will also be accompanied by a statement of our estimate of the fair value of the
shares and an explanation of how the interest was calculated, along with a
statement of the dissenter's right to demand payment and a copy of CBCA Article
113.
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HOW TO DISPUTE PAYMENT AMOUNT. If a dissenter disagrees with our
payment or offer, such dissenter may give notice to us in writing of the
dissenter's estimate of fair value of the dissenter's shares and of the amount
of interest due and may demand payment of such estimate, less any payment made
prior thereto, or reject our offer and demand payment of the fair value of the
shares and interest due if: (a) the dissenter believes that the amount paid or
offered is less than the fair value of the shares or that the interest due was
incorrectly calculated, (b) we fail to make payment within 60 days after the
date set by us by which we must receive the payment demand, or (c) we do not
return deposited certificates in the event the effective time is 60 days after
the date set by us by which the payment demand must be received by the
shareholder asserting dissenters' rights. A DISSENTER WAIVES THE RIGHT TO DEMAND
PAYMENT UNDER THIS PARAGRAPH UNLESS THE DISSENTER CAUSES US TO RECEIVE THE
NOTICE REFERENCED IN THIS PARAGRAPH WITHIN 30 DAYS AFTER WE MAKE OR OFFER
PAYMENT FOR THE SHARES OF THE DISSENTER.
JUDICIAL APPRAISAL OF SHARES. If a demand for payment made by a
dissenter as set forth above is unresolved, we may, within 60 days after
receiving the payment demand, commence a proceeding and petition a court to
determine the fair value of the shares and accrued interest. If we do not
commence the proceeding within the 60 day period, we must pay to each dissenter
whose demand remains unresolved the amount demanded. We must commence the
proceeding described above in the District Court of the County of Douglas,
Colorado. We must make all dissenters whose demands remain unresolved parties to
the proceeding as in an action against their shares, and all parties must be
served with a copy of the petition. Service on each dissenter shall be by
registered or certified mail, to the address stated in such dissenter's payment
demand, or if no such address is stated in the payment demand, at the address
shown on the corporation's current record of shareholders for the record
shareholder holding the dissenter's shares, or as provided by law. Jurisdiction
in which the proceeding is commenced is plenary and exclusive. One or more
persons may be appointed by the court as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers will have the
powers described in the court order appointing them, or in any amendment to such
order. The parties to the proceeding will be entitled to the same discovery
rights as parties in other civil proceedings. Each dissenter made a party to the
proceeding is entitled to judgment for the amount, if any, by which the court
finds the fair value of the dissenter's shares, plus interest, exceeds the
amount paid by us, or for the fair value, plus interest, of the dissenter's
shares for which we elected to withhold payment.
The court in an appraisal proceeding will determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court will assess the costs against us, except that
the court may assess costs against all or some of the dissenters, in the amount
the court finds equitable, to the extent the court finds that the dissenters
acted arbitrarily, vexatiously, or not in good faith in demanding payment. The
court may also assess the fees and expenses of counsel and experts for the
respective parties, in amounts the court finds equitable: (a) against us and in
favor of any dissenters if the court finds that we did not substantially comply
with the procedures for exercise of dissenters' rights set forth in CBCA Article
113; or (b) against either us or one or more dissenters, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by CBCA Article 113. If the court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should not be assessed
against us, the court may award to such counsel reasonable fees to be paid out
of the amounts awarded to the dissenters who were benefited.
65
It is the intention of the persons named in the accompanying form of
proxy to vote such proxy "For" approval of the Exchange Agreement and the
transactions by which the Company will acquire all of the ownership interests in
NVC in exchange for the issuance of shares to the NVC Shareholders, redeem all
of the shares of OraLabs owned by Mr. Schlatter individually in exchange for the
transfer to him of all of the shares of OraLabs, Inc. owned by the Company, and
issue 100,000 shares of OraLabs common stock to each of the three non-employee
directors under the 2005 Director Stock Plan, unless shareholders specifically
indicate in their proxies that they desire to vote against or abstain from
voting for such transactions. Approval requires an affirmative vote of a
majority of the shares entitled to vote with respect to the first two
transactions and a majority of the shares present in person or by proxy and
entitled to vote at the annual meeting with respect to the third transaction.
Management recommends that the shareholders vote "For" approval of the Exchange
Agreement and those transactions.
PROPOSAL TWO: ELECTION OF DIRECTORS.
OraLabs' Board of Directors consists of Messrs. Schlatter, Friess,
Goldstone and Gust, who will all resign effective upon completion of the Closing
of the proposed transactions. There are four nominees for directors, three of
whom are principals and shareholders of NVC Lighting Investment Holdings
Limited. Each director to be elected will hold office until the next annual
meeting of shareholders and until his successor is elected, or until the
director's death, resignation or removal.
The nominees for the Board of Directors of OraLabs are as follows:
NAME AGE PROPOSED POSITIONS
----- --- -------------------
Du Gang 40 Chairman of the Board
Wu Chang Jiang 40 Director and Chief Executive Officer
Hu Yong Hong 39 Deputy Chairman of the Board
Tracy Wan Hung 46 Director
See "NVC Business-NVC Management" for information about the nominees.
It is the intention of the persons named in the accompanying form of
proxy to vote such proxy "For" the election of the persons listed above, unless
shareholders specifically indicate in their proxies that they desire to vote
against or abstain from voting for the electing of any such director to office.
Each nominee must be approved by receiving the highest number of affirmative
votes of the shares present in person or by proxy and entitled to vote at the
annual meeting. Our management recommends that shareholders vote "For" the
election of the nominees.
PROPOSAL THREE: AMENDMENT OF THE ARTICLES OF INCORPORATION TO CHANGE THE NAME OF
ORALABS FROM ORALABS HOLDING CORP. TO NVC LIGHTING CORPORATION OR SIMILAR AND TO
INCREASE THE NUMBER OF COMMON SHARES AUTHORIZED TO 200,000,000.
Management requests stockholder approval to amend the Articles of
Incorporation to change the name of OraLabs to NVC Lighting Corporation or
similar subject to availability and approval by the Colorado Secretary of State.
This change is recommended to reflect the new business direction of OraLabs upon
completion of the proposed transactions. In the event that Closing does not
occur, the name of OraLabs will not be changed.
66
Management requests stockholder approval to amend the Articles of
Incorporation to increase the number of common shares authorized to 200,000,000.
This increase will be to provide for enough shares to complete the proposed
transactions and will make additional shares available for issuance by OraLabs
as may be desired from time to time.
Our Articles of Incorporation currently authorize 25,000,000 common
shares, $0.001 par value, of which 4,693,015 shares are outstanding as of July
29, 2005. Upon issuance of the shares to the NVC Shareholders or their designees
and 300,000 shares to the non-employee directors, as well as shares that may be
issued upon exercise of employee options, the total number of shares then issued
and outstanding could be as many as approximately 25,000,000. NVC believes that
it should have a total of 200,000,000 shares authorized under the Articles of
Incorporation so that it will have flexibility when it comes to issuing
additional shares of common stock. The issuance of shares to the NVC
Shareholders or their designees and 300,000 shares to the non-employee directors
will substantially dilute the holdings of the nonaffiliated shareholders of
OraLabs. Those shareholders will own only approximately 4.2% of the issued and
outstanding shares of common stock upon completion of the proposed transactions
(without giving effect to the exercise of any employee options), whereas they
own approximately 20.30% of the common shares currently issued and outstanding.
In the event that the proposed transactions are not completed at
Closing, the increase in authorized shares of common stock will not be given
effect. NVC has no current plans, proposals or arrangements for the use of the
increase in authorized common shares other than to complete the proposed
transactions described in this Proxy Statement. The issuance of additional
shares will further dilute the interests of the current nonaffiliated
shareholders. The Articles of Incorporation also authorize a class of preferred
stock, although none have been issued. No changes will be made to that
authority.
It is the intention of the persons named in the accompanying form of
proxy to vote such proxy "For" the amendment changing the name of OraLabs and
increasing the number of authorized shares, unless shareholders specifically
indicate in their proxies that they desire to vote against or abstain from
voting for the amendment. Our management recommends that shareholders vote "For"
the amendment changing the name of OraLabs and increasing the number of
authorized shares. Amending the Articles of Incorporation to change OraLabs'
name and to increase authorized shares must be approved by an affirmative vote
of a majority of the shares present in person or by proxy at the annual meeting.
PROPOSAL FOUR: APPROVAL OF THE 2005 STOCK OPTION, SAR AND STOCK BONUS PLAN.
The shareholders will be asked to approve the proposed 2005 Stock
Option SAR and Stock Bonus Plan (a copy of the plan is attached as Schedule 3 to
the Stock Exchange Agreement attached as Annex 1 to this Proxy Statement).
Adoption of the plan will permit the Company to issue securities to employees,
consultants and others who have an interest in the Company or who the Company
wishes to provide services to the Company, including service as a member of the
Board of Directors.
It is the intention of the persons named in the accompanying form of Proxy to
vote such proxy "For" approval of the plan unless shareholders specifically
indicate in their proxies that they desire to vote against or abstain from
voting for approval of the plan. Our management recommends that shareholders
vote "For" the approval of the plan. Approval of the plan requires an
affirmative vote of a majority of the shares present in person or by proxy and
entitled to vote at the Annual Meeting.
67
PROPOSAL FIVE: ELECTION OF INDEPENDENT AUDITORS.
The Board of Directors has selected Murrell, Hall, McIntosh & Co., PLLP
as the independent auditors to audit the books and accounts of the Company for
the fiscal year ending December 31, 2005. Ehrhardt Keefe Steiner & Hottman, P.C.
has served as the independent auditors since December 29, 1998. A representative
of Murrell, Hall, McIntosh & Co., PLLP is expected to attend the Annual Meeting
and will be available to respond to appropriate questions. The following table
presents fees for professional audit services rendered by Ehrhardt Keefe Steiner
& Hottman P.C. ("EKS&H") for the audit of our annual financial statements for
the years ended December 31, 2004 and December 31, 2003, and the reviews of the
financial statements included in each of our quarterly reports on Form 10-QSB
during the fiscal years ended December 31, 2004 and 2003:
2004 2003
Audit Fees $65,500 $62,000
Audit-Related Fees $0 $0
Tax Fees $0 $0
All Other Fees $0 $0
Audit Fees are fees incurred in connection with the audit of the
Company's consolidated annual financial statements and the review of financial
statements in the Company's quarterly reports on Form 10-QSB. All Other Fees are
incurred for services other than those described above. The Audit Committee will
pre-approve the performance by EKS&H of any services other than those relating
to the audit or review of the Company's financial statements, but no other
services are anticipated at this time.
In the event that the other proposed transactions are not completed at
Closing, it is intended that Ehrhardt Keefe Steiner & Hottman, P.C. will be
retained as OraLabs' independent auditors.
It is the intention of the persons named in the accompanying form of
proxy to vote such proxy "For" the ratification of the selection of the
auditors, unless shareholders specifically indicate in their proxies that they
desire to vote against or abstain from voting for the ratification. Our
management recommends that shareholders vote "For" the ratification of the
appointment of the auditors. Adoption of this ratification must be approved by
an affirmative vote of the majority of the shares present at the annual meeting
in person or by proxy.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains and incorporates by reference certain
forward-looking statements and information relating to OraLabs that are based on
the beliefs of management as well as assumptions made by and information
currently available to OraLabs. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements that are other than statements
of historical facts, including statements regarding the completion of the
proposed transactions to be considered by the OraLabs shareholders at the Annual
Meeting. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," "plan," "intend," "project," "predict," "may," and
"should" and similar expressions are intended to identify forward-looking
statements. Such statements reflect a current view of OraLabs with respect to
future events, including the closing upon the proposed transactions, and are
subject to numerous risks, uncertainties and assumptions. Many factors could
cause the actual results, performance or achievements of OraLabs to be
materially different from any future results, performance or achievements that
may be expressed or implied by such forward-looking statements, including
without limitation the failure for any reason of the proposed transactions to
close, the failure of OraLabs to maintain its NASDAQ listing for its common
stock, competition, problems accompanying the management of manufacturing and
growth, dependence on key personnel, government regulation, dependence upon
significant distributors and retailers, dependence upon third-party suppliers
and no assurances of proprietary protection.
68
Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described in this Proxy Statement as anticipated,
believed, estimated, expected, planned or intended. OraLabs does not intend, or
assume any obligation, to update these forward-looking statements to reflect
actual results, changes in assumptions or changes in the factors affecting such
forward-looking statements.
FINANCIAL STATEMENTS
OraLabs hereby incorporates by reference its Consolidated Financial
Statements and Independent Auditors' Report dated December 31, 2004, in OraLabs'
Form 10-KSB/A filed for the fiscal year ended December 31, 2004, and its
unaudited financial statements in its Form 10-QSB filed for the quarter ended
March 31, 2005. NVC's Consolidated Financial Statements as of December 31, 2004,
including the Report of its Independent Registered Public Accounting Firm, NVC's
Consolidated Financial Statements as of March 31, 2005, and Pro Forma Condensed
Consolidated Financial Statements follow the final text of this Proxy.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows OraLabs to "incorporate by reference" information into
this Proxy Statement, which means that OraLabs can disclose important
information by referring you to another document filed separately with the SEC.
The following documents previously filed by OraLabs with the SEC are included
with this Proxy Statement for your convenient review, and are incorporated by
reference in this Proxy Statement and are deemed a part hereof:
Form 10-KSB/A filed by OraLabs for the fiscal year ended December 31,
2004; Form 10-QSB filed by OraLabs for the quarter ended March 31, 2005.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superceded for all purposes to the extent that
a statement contained in this Proxy Statement modifies or replaces such
statement. The forward-looking statements made in the incorporated documents are
not protected by the safe harbor for forward-looking statements.
STOCKHOLDER MEETINGS AND PROPOSALS
OraLabs postponed its annual meeting of shareholders that regularly
occurs in late May to the newly scheduled date to avoid incurring the expense of
notifying the shareholders for two separate meetings. Regardless of whether or
not the transactions contemplated by the Exchange Agreement are consummated, it
is intended that the next annual meeting of shareholders of OraLabs will be held
in May 2006. Shareholders of OraLabs wishing to include proposals in the proxy
material relating to the Annual Meeting of Shareholders of OraLabs in 2006 must
submit the same in writing so as to be received at the principal executive
office of OraLabs (to the attention of the Secretary) on or before
______________________ for such proposal to be considered for inclusion in the
proxy statement for such meeting. Such proposals must also meet the other
requirements of the rules of the Securities and Exchange Commission relating to
stockholder proposals.
Shareholders who wish to submit any items of business to be addressed
at an annual meeting of shareholders (rather than include the item in the proxy
material) must make the submission in a timely manner as provided in OraLabs'
Amended and Restated Bylaws. The Bylaws provide that only timely submissions of
business items will be considered as proper business at the meeting. To be
timely, a stockholder's written submission must be delivered to or mailed and
received at, the principal business offices of OraLabs at least sixty (60) days
in advance of the date that OraLabs' proxy statement was released to
shareholders in connection with the previous year's annual meeting of
shareholders. As this proxy statement for the 2005 annual meeting is being
released on approximately _____________, 2005, the deadline for submissions of
business items for the 2006 annual meeting will be _________________. The Bylaws
also specify what must be included in the written notice of submission in order
for the submission to be considered timely and to be considered proper business
to be conducted at the annual meeting.
69
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this Proxy Statement, in connection
with the Exchange Agreement or the transactions contemplated thereby, and if
given or made, such information or representations may not be relied upon as
having been authorized by OraLabs or NVC. The delivery of this Proxy Statement
shall not, under any circumstances, create any implication that there has been
no change in the information set forth herein or in the affairs of OraLabs or
NVC since the date hereof.
OraLabs is currently subject to the information requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
periodic reports, proxy statements and other information with the SEC relating
to its business, financial and other matters. Copies of such reports, proxy
statements and other information, and the exhibits thereto, may be copied (at
prescribed rates) at the Public Reference Room maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
(HTTP://WWW.SEC.GOV) that contains reports, proxy and information statements,
and other information filed electronically with the SEC by OraLabs. A copy of
the OraLabs Annual Report for fiscal year 2004 accompanies this Proxy Statement.
COPIES OF ANY EXHIBITS THERETO WILL BE FURNISHED TO ANY STOCKHOLDER OF ORALABS
UPON THE PAYMENT OF A REASONABLE DUPLICATING CHARGE. WRITTEN REQUESTS FOR ANY
EXHIBIT SHOULD BE DIRECTED TO ORALABS HOLDING CORP., 18685 EAST PLAZA DRIVE,
PARKER, COLORADO 80134, ATTENTION: INVESTOR Relations.
SOLICITATION AND EXPENSES
OraLabs will bear the cost of the Annual Meeting and the cost of soliciting
proxies, including the cost of mailing the proxy materials. In addition to
solicitation by mail, Directors, officers and regular employees of OraLabs (who
will not be specifically compensated for such services) may solicit proxies by
telephone or otherwise. Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to forward proxies and proxy material
to their principals and OraLabs will reimb S:\GERI\WPDOCS\5671\37\PROXY TO
BIZWIRE.DOC 65 August 11, 2005 urse them for their expenses.
70
NVC LIGHTING INVESTMENT HOLDINGS LIMITED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2004
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM............................................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet, December 31, 2004...................2
Consolidated Statements of Operations,
For the Years Ended December 31, 2004 and 2003.............3
Consolidated Statements of Members' Equity,
For the Years Ended December 31, 2004 and 2003.............4
Consolidated Statements of Cash Flows,
For the Years Ended December 31, 2004 and 2003.............5
Notes to the Consolidated Financial Statements..................7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND MEMBERS OF
NVC LIGHTING INVESTMENT HOLDINGS LIMITED
(INCORPORATED IN HONG KONG SPECIAL ADMINISTRATIVE REGION WITH LIMITED LIABILITY)
We have audited the accompanying consolidated balance sheet of NVC Lighting
Investment Holdings Limited and subsidiaries (the "Company") as of December 31,
2004 and the related consolidated statements of operations, statements of
members' equity and cash flows for the years ended December 31, 2004 and 2003.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph above present fairly, in all material respects, the financial position
of NVC Lighting Investment Holdings Limited and subsidiaries as of December 31,
2004 and the results of their operations and cash flows for the years ended
December 31, 2004 and 2003, in conformity with accounting principles generally
accepted in the United States of America.
/S/ MURRELL, HALL, MCINTOSH & CO., PLLP
Oklahoma City, Oklahoma
April 9, 2005
1
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
(EXPRESSED IN US DOLLARS)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 3,769,718
Accounts receivable -
Trade, net of allowance for bad debts of $217,970 1,709,861
Other 516,837
Inventories 7,071,261
Advances to suppliers 232,327
Deposit and prepayments 500,619
-----------
Total current assets 13,800,623
-----------
INVESTMENT - LONG TERM BANK DEPOSIT 157,005
-----------
PROPERTY, PLANT AND EQUIPMENT:
Fixed assets, net of accumulated depreciation 1,026,806
Construction-in-progress 2,678,363
-----------
3,705,169
OTHER ASSETS:
Distribution agreements, net of accumulated amortization
of $994,366 4,198,870
-----------
$21,861,667
===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $14,688,301
Advances from customers 847,533
Amounts due to directors 570,686
Other taxes payable 2,158,232
-----------
Total current liabilities 18,264,752
-----------
MINORITY INTEREST 83,576
-----------
MEMBERS' EQUITY:
Registered capital 1,410,256
Capital reserve 725,284
Retained earnings 1,377,799
-----------
3,513,339
-----------
$21,861,667
===========
The accompanying notes are an integral part of these financial statements.
2
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(EXPRESSED IN US DOLLARS)
2004 2003
---- ----
SALES $ 55,394,520 $ 30,598,374
COST OF GOODS SOLD 38,539,315 21,104,524
------------ ------------
GROSS PROFIT 16,855,205 9,493,850
------------ ------------
OPERATING EXPENSES:
Selling expenses 6,146,591 4,010,321
Administrative expenses 3,976,993 2,273,943
Depreciation and amortization expense 119,008 95,570
------------ ------------
Total operating expenses 10,242,592 6,379,834
------------ ------------
INCOME FROM OPERATIONS 6,612,613 3,114,016
------------ ------------
OTHER INCOME (EXPENSE):
Other revenues 677,809 153,521
Interest income (expense) (411) 6,975
------------ ------------
TOTAL OTHER INCOME 677,398 160,496
------------ ------------
INCOME BEFORE INCOME TAXES 7,290,011 3,274,512
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME BEFORE MINORITY INTERESTS 7,290,011 3,274,512
MINORITY INTERESTS IN EARNINGS (184,984) (74,699)
------------ ------------
NET INCOME $ 7,105,027 $ 3,199,813
============ ============
The accompanying notes are an integral part of these financial statements.
3
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(EXPRESSED IN US DOLLARS)
REGISTERED CAPITAL RETAINED MINORITY TOTAL MEMBERS'
CAPITAL RESERVE EARNINGS INTERESTS EQUITY
--------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 $ 1,410,256 $ 230,464 $ 1,020,865 $ 38,462 $ 2,700,047
Net income for the year ended
December 31, 2003 -- -- 3,199,813 74,699 3,274,512
Transfer from/(to) capital reserve -- 460,911 (474,093) 13,182 --
Distribution to members:
Distribution of net assets -- (265,148) (1,502,507) -- (1,767,655)
Dividend paid -- -- (2,328,000) (72,000) (2,400,000)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 1,410,256 426,227 (83,922) 54,343 1,806,904
Net income for the year ended
December 31, 2004 -- -- 7,105,027 184,984 7,290,011
Transfer from/(to) capital reserve -- 299,057 (308,306) 9,249 --
Distribution to members:
Dividend paid -- -- (5,335,000) (165,000) (5,500,000)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 $ 1,410,256 $ 725,284 $ 1,377,799 $ 83,576 $ 3,596,915
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(EXPRESSED IN US DOLLARS)
2004 2003
----- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,105,027 $ 3,199,813
Adjustments to reconcile net income to net cash provided
by provided by operating activities -
Amortization of distribution agreements 504,228 325,081
Depreciation 256,023 200,543
Minority interests in earnings 184,984 74,699
Changes in assets and liabilities:
(Increase) decrease in -
Accounts receivable, trade (647,526) 440,281
Other receivables 348,132 (542,374)
Inventories (5,213,224) 57,143
Advances to suppliers (195,010) 4,895
Prepayments (500,619) --
Amount due from a related company 46,845 (46,845)
Increase in -
Accounts payable and accrued expenses 4,724,169 4,103,971
Advances from customers 293,005 301,823
Tax payable 1,104,502 965,834
----------- -----------
Net cash provided by operating activities 8,010,536 9,084,864
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction-in-progress (2,368,460) (309,903)
Intangible assets (1,811,594) (1,570,048)
Purchases of fixed assets (593,157) (356,850)
----------- -----------
Net cash (used in) investing activities (4,773,211) (2,236,801)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from directors 374,969 671,222
Repayments of long-term debts (4,042) (9,545)
Dividends paid (5,500,000) (2,400,000)
----------- -----------
Net cash (used in) financing activities (5,129,073) (1,738,323)
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,891,748) 5,109,740
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,661,466 551,726
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,769,718 $ 5,661,466
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(EXPRESSED IN US DOLLARS)
2004 2003
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Distribution of net assets $ - $ 1,767,655
============ =============
Interest paid $ 1,938 $ 1,864
============ =============
Income taxes paid $ - $ -
============ =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Pursuant to the reorganization of the Company, NVC Lighting Company Limited
ceased operations on April 30, 2003, and distributed certain net assets totaling
$1,767,655 to its members. On May 1, 2003, the business operations of NVC
Lighting were transferred to NVC Industrial Development Company Limited.
The accompanying notes are an integral part of these financial statements.
6
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
1. DESCRIPTION OF BUSINESS
NATURE OF ORGANIZATION
NVC Lighting Investment Holdings Limited ("NVC Holdings") was incorporated
in the Hong Kong Special Administrative Region in The People's Republic of
China ("PRC"), as a private limited liability company on June 11, 2004 with
an authorized capital of $10,256,410 (HK$80,000,000) divided into
80,000,000 ordinary shares of par value $0.12 (HK$1.00) each.
Pursuant to the reorganization and restructuring of the Company, NVC
Lighting Company Limited ("NVC Lighting") ceased operations on April 30,
2003 and, on the same date, certain net assets were distributed totaling
$1,767,655 to the registered equity holders. On May 1, 2003, the business
operations of NVC Lighting were transferred to NVC Industrial Development
Company Limited ("NVC Industrial").
On June 13, 2004 NVC Holdings acquired 97% of the outstanding registered
capital of NVC Industrial and 100% of the registered capital of NVC
Lighting.
The above two transactions were treated as recapitalization of the existing
business in accordance with the requirements of Financial Accounting
Standards Opinion No. 141, BUSINESS COMBINATION, EXHIBIT D. The effect of
these recapitalizations was rolled back to December 31, 2002 for financial
reporting purposes.
NVC Holdings and its two subsidiaries, NVC Industrial and NVC Lighting are
hereinafter collectively referred to as the "Company" or "NVC Group".
NVC Industrial Development Company Limited was registered as a limited
liability Sino-foreign joint investment enterprise on January 28, 2003 in
Huizhou, Guangdong Province, in the PRC with a registered capital of
$1,282,051 (HK$10,000,000) and a defined period of existence of 15 years to
January 27, 2018
NVC Lighting Company Limited was registered as a limited liability company
on November 13, 1998 in Huizhou, Guangdong Province in the PRC with a
registered capital of $120,773 (Rmb.1,000,000) and a defined period of
existence of 6 years to November 12, 2004. The registered capital was held
by Wu Chang-jiang as to 45% or $54,347 (Rmb.450,000), Hu Yong-hong as to
27.5% or $33,213 (Rmb.275,000) and Du Gang as to 27.5% or $33,213
(Rmb.275,000) in trust for and on behalf of NVC Holdings. On May 1, 2003,
the business operations of NVC Lighting were transferred to NVC Industrial
Development Company Limited ("NVC Industrial").
DESCRIPTION OF BUSINESS
The principal activities of the Company are investment holdings,
manufacturing and distribution of lighting products. The principal
activities of the Company's subsidiaries, NVC Industrial and NVC Lighting,
are manufacturing and distribution of lighting products. NVC Group's has
operations in The People's Republic of China, Europe, the Middle East and
Hong Kong.
7
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
1. DESCRIPTION OF BUSINESS, CONTINUED
As a result of the restructuring and re-organization of the NVC Group,
certain of the NVC Lighting's assets and liabilities together with the
business then in existence as of April 30, 2003, were distributed in kind
to the three registered equity holders on record in proportion to their
relative equity holdings as of that date. Pursuant to the Tax Clearance
Certificate issued by the Huizhou Municipal Government Tax Authority on May
6, 2003, NVC Lighting ceased its operations and all of its tax liabilities
were cleared with the local tax authority.
2. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements include the accounts of NVC
Lighting Investment Holdings Limited, its 97% owned subsidiary, NVC
Industrial Development Company Limited and its 100% owned subsidiary, NVC
Lighting Company Limited, after elimination of all material intercompany
accounts, transactions, and profits. The consolidated financial statements
are prepared in accordance with accounting principles generally accepted in
the United States of America. The consolidated financial statements are
prepared under the historical cost convention. This basis of accounting
differs from that used in the preparation of NVC Holdings' statutory
financial statements which are prepared in accordance with generally
accepted accounting principles and the relevant Hong Kong Companies
Ordinance applicable to enterprises in the Hong Kong Special Administrative
Region, and NVC Industrial and NVC Lighting's statutory financial
statements which are prepared in accordance with generally accepted
accounting principles and the relevant financial regulations applicable to
enterprises in the PRC.
Although the reorganized Company did not legally exist as of the date of
the pro-forma consolidated financial statements, the directors
considered that it is more meaningful and appropriate to present
pro-forma consolidated statements of operations and consolidated
statements of cash flow for the year ended December 31, 2003. The
pro-forma consolidated financial statements have been prepared using the
predecessor's historical costs since the reorganizations were all
related parties. Under this basis, NVC Holdings has been treated as
the holding company of its subsidiaries, NVC Industrial and NVC
Lighting, for the financial years presented rather than from the
respective dates of their acquisitions as a result of the Company's
reorganization and restructuring.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
CONSOLIDATION POLICY - All significant inter-company transactions and
balances within the Company are eliminated on consolidation.
CASH AND EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with maturity period of three months or less to be
cash equivalents. The carrying amounts reported in the accompanying
consolidated balance sheet for cash and cash equivalents approximate their
fair value.
8
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ACCOUNTS RECEIVABLE - Provision is made against accounts receivable to the
extent, which they are considered to be doubtful. Accounts receivable, all
of which are unsecured, are shown in the balance sheet and are stated net
of such provision. As of December 31, 2004, provision for doubtful accounts
amounted to $217,970. Accounts receivable are charged against the allowance
for bad debts at such time as they are determined to uncollectible.
INVENTORIES - Inventories are stated at the lower of cost or market. The
cost of inventories comprises all costs of purchases, costs of conversion
and other costs incurred in bringing the inventories to their present
location and condition. The costs of conversion of inventories include
fixed and variable production overheads, taking into account the stage of
completion. The cost of inventories is determined using the weighted
average method.
Market value represents the estimated selling price in the ordinary course
of business less the estimated costs necessary to complete the sale.
CONSTRUCTION-IN-PROGRESS - All facilities purchased for installation,
self-made or subcontracted are accounted for as construction-in-progress.
Construction-in-progress is recorded at acquisition cost, including cost of
facilities, and installation expenses. Upon completion and readiness for
use of the project, the cost of construction-in-progress is to be
transferred to fixed assets.
LONG-LIVED ASSETS AND DEPRECIATION - The Company recognizes impairment
losses on long-lived assets used in operations when impairment indicators
are present and the undiscounted cash flows estimated to be generated by
these assets are less than their carrying values. As of December 31, 2004,
the Company had no impaired long-lived assets.
The cost of property, plant and equipment less anticipated salvage values
is being depreciated on a straight-line basis over the estimated useful
lives of the related assets. Estimated useful lives used for computing
depreciation are as follows:
Plant and machinery 5 years
Molds 5 years
Furniture and fixtures 5 years
Motor vehicles 5 years
Office equipment 3 years
DISTRIBUTION AGREEMENTS - The Company has entered into a number of
distribution agreements with distributors, whereby the distributor agrees
to be an exclusive distributor of NVC lighting products and has guaranteed
to generate specified sales volumes over a 10 year period. Each of these
distributors was paid $120,773 for entering into this agreement. The cost
of this distribution agreement is being amortized on a straight-line basis
over the life of the agreement. As prescribed by the EMERGING ISSUES TASK
FORCE ISSUE 01-09: ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A
CUSTOMER, the Company has reduced sales by the amortization for 2004 and
2003 totaling $504,228 and $325,081, respectively. The estimated
amortization related to these distribution agreements over the next five
years and thereafter is as follows:
9
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
YEAR ENDED DECEMBER 31, AMORTIZATION
----------------------- ------------
2005
2006 $ 519,324
2007 519,324
2008 519,324
2009 519,324
519,324
Thereafter 1,602,250
----------
Total $4,198,870
==========
ADVANCES FROM CUSTOMERS - Revenue from the sale of goods or services is
recognized when goods are delivered or services are rendered. Receipts in
advance for goods to be delivered or services to be rendered in the
subsequent year are carried forward as advances from customers.
REVENUE RECOGNITION - Revenue from the sale of goods and services is
recognized on the transfer of risks and rewards of ownership, which
generally coincides with the time when the goods are delivered to customers
and the title has passed and services have been rendered and invoiced.
Other income is recognized when it is earned. Sales to all customers are
final. As prescribed by the EMERGING ISSUES TASK FORCE ISSUE 01-09:
ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A CUSTOMER, the Company
has reduced sales by the amortization for 2004 and 2003 totaling $504,228
and $325,081, respectively.
Other income consists primarily of sales of scrap materials.
SELLING EXPENSES - Included in selling expenses are advertising, sales
commissions, outgoing freight, and sales salaries and related expenses.
Advertising costs are charged to expense as they are incurred and totaled
$1,895,600 and $1,167,949 for 2004 and 2003 respectively. Freight out
totaled $1,184,014 and $524,371 for 2004 and 2003, respectively.
FOREIGN CURRENCIES - The financial position and results of operations of
the Company are determined using the local currencies (Hong Kong Renminbi
or PRC "Renminbi" or "Yuan") as the functional currencies. Foreign currency
transactions during the year are converted at the average rate of exchange
during the reporting period. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet dates are translated at the market
rates of exchange ruling at those dates. All exchange differences are dealt
with in the statements of operations. The Company's principal country of
operations is in the PRC.
The registered equity capital and fixed assets denominated in the
functional currency are translated at the historical rate of exchange at
the time of capital contribution and purchases of fixed assets and exchange
differences arising from translating equity capital, reserves and fixed
assets at exchange rate ruling at the balance sheet date are dealt with as
an exchange fluctuation reserve.
RETIREMENT BENEFIT COSTS - According to the PRC regulations on pensions,
the Company contributes to a defined contribution retirement plan organized
by municipal government in the province in which the Company was
registered; all qualified employees are eligible to participate in the
plan. Contributions to the plan are calculated at 18% of the employees'
salaries above a fixed threshold amount and the employees contribute 8%
while the Company contributes the balance contribution of 10%. The Company
has no other material obligation for the payment of retirement benefits
beyond the annual contributions under this plan.
10
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
For the years ended December 31, 2004 and 2003, the Company's pension cost
charged to the statements of operations amounted to $7,566 and $13,983,
respectively.
CAPITAL RESERVE - Capital reserve represents that amount of reserve
appropriated from the net distributable profit after income tax in each
year when a net profit after operations is generated. In accordance with
the provisions of the Company's Memorandum and Articles of Association, the
Company is required to appropriate 5% to 15% of the net distributable
profit after enterprises income tax to capital reserve. Two-third of the
capital reserve is set aside for possible use for general reserve and
one-third is for staff welfare.
Management believes it has accrued sufficient funds to cover all
anticipated staff welfare payments as of December 31, 2004 and 2003 and
that this reserve is not impaired at this date. The Company shall not be
required to appropriate any amount to capital reserve when the balance
standing in capital reserve is equal to or exceeds 50% of the registered
capital.
TAXATION - Taxation on overseas profits has been calculated on the
estimated assessable profits for the year at the rates of taxation
prevailing in the country in which the Company operates.
Provision for the PRC enterprise income tax is calculated at the prevailing
rate based on the estimated assessable profits less available tax relief
for losses brought forward.
ENTERPRISE INCOME TAX
Under the Provisional Regulations of the PRC Concerning Income Tax on
Enterprises promulgated by the State Council and which came into effect on
January 1, 1994, income tax is payable by enterprises at a rate of 33% of
their taxable income. Preferential tax treatment may, however, be granted
pursuant to any law or regulations from time to time promulgated by the
State Council.
No enterprise taxes were accrued for 2004 or 2003 as the Company was
granted a full tax exemption for these years. During the next three years,
the Company has been granted a reduction in the tax rates to 50% of the
applicable statutory enterprise tax rates.
VALUE ADDED TAX
The Provisional Regulations of the People's Republic of China Concerning
Value Added Tax promulgated by the State Council came into effect on
January 1, 1994. Under these regulations and the Implementing Rules of the
Provisional Regulations of the PRC Concerning Value Added Tax, value added
tax is imposed on goods sold in or imported into the PRC and on processing,
repair and replacement services provided within the PRC.
Value added tax payable in the PRC is charged on an aggregated basis at a
rate of 13% or 17% (depending on the type of goods involved) on the full
price collected for the goods sold or, in the case of taxable services
provided, at a rate of 17% on the charges for the taxable services
provided, but excluding, in respect of both goods and services, any amount
paid in respect of value added tax included in the price or charges, and
less any deductible value added tax already paid by the taxpayer on
purchases of goods and services in the same financial year.
11
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of certain
financial instruments, including cash, accounts receivable, other
receivables, accounts payable, accrued expenses, and other payables
approximate their fair values as at December 31, 2004 because of the
relatively short-term maturity of these instruments.
USE OF ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles require management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS - In May 2003, the Financial Accounting
Standards Board issued SFAS No. 150 ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITY AND EQUITY. This
standard establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. As of December 31, 2004, the Company had no financial instruments
with these characteristics.
In April 2003, the Financial Accounting Standards Board issued SFAS No.
149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. This statement amends and clarifies financial accounting and
reporting for derivative instruments and for hedging activities under FASB
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As
of December 31, 2004, the Company had no derivative or hedging activities.
In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS - AN
AMENDMENT OF ARB NO. 43, CHAPTER 4. SFAS No. 151 requires that certain
abnormal costs associated with the manufacturing, freight, and handling
costs associated with inventory be charged to current operations in the
period in which they are incurred. The adoption of SFAS 151 had no impact
on the Company's financial position, results of operations, or cash flows.
In December 2004, the FASB issued a revision of SFAS No. 123, SHARE-BASED
PAYMENT. The statement establishes standards for the accounting for
transactions in which an entity exchanges its equity investments for goods
and services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair
value of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. The statement does not change the
accounting guidance for share-based payments with parties other than
employees.
The statement requires a public entity to measure the cost of employee
service received in exchange for an award of equity instruments based on
the grant-date fair value of the award (with limited exception). That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award (usually the vesting period). A
public entity will initially measure the cost of employee services received
in exchange for an award of liability instrument based on its current fair
value; the fair value of that award will be remeasured subsequently at each
reporting date through the settlement date. Changes in fair value during
the requisite service period will be recognized as compensation over that
period.
12
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
The grant-date for fair value of employee share options and similar
instruments will be estimated using option-pricing models adjusted for the
unique characteristics of these instruments.
The statement is effective for the quarter beginning January 1, 2006.
In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY
ASSETS-AMENDMENT OF APB OPINION NO. 29. SFAS No. 153 eliminates the
exception to fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions that do not
have commercial substance, defined as transactions that are not expected to
result in significant changes in the cash flows of the reporting entity.
This statement is effective for exchanges of nonmonetary assets occurring
after June 15, 2005.
Management believes adoption of these new statements will not have any
significant effect on the Company's financial condition or results of
operations.
4. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Substantially all of the Company's bank accounts are in banks located in
the PRC which are not protected by the FDIC insurance or other insurance.
The Company provides credit in the normal course of business. The Company
performs ongoing credit evaluations of its customers and clients and
maintains allowances for doubtful accounts based on factors surrounding the
credit risk of specific customers and clients, historical trends, and other
information. The Company had no single customer that represented 10% or
more of sales in either 2004 or 2003.
During 2003 the Company had four suppliers representing 12%, 15%, 12% and
10% respectively of materials purchases. During 2004 the Company had no
suppliers representing 10% or more of purchases.
The Company is self insured for all risks and carries no liability or
property insurance coverage of any kind.
5. LONG-TERM BANK DEPOSITS
As of December 31, 2004, the Company had pledged $157,005 in long-term bank
deposits to banks to secure a motor vehicle loan. The long-term deposits
mature in 2008.
6. INVENTORIES
Inventories consist of the following as of December 31, 2004:
Raw materials $3,533,273
Finished goods 3,537,988
----------
$7,071,261
==========
13
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
7. AMOUNTS DUE TO DIRECTORS
As of December 31, 2004, the Company had the following balances due to its
directors:
NAME
WU Chang-jiang $ (190,229)
HU Yong-hong (190,229)
DU Gang (190,228)
--------------
$ (570,686)
==============
The amounts due to the Directors from the Company are unsecured, interest
free and have no fixed repayment terms.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, stated at cost less accumulated
depreciation, consist of the following as of December 31, 2004:
Plant and machinery $ 315,250
Molds 796,046
Furniture and fixtures 50,821
Motor vehicles 280,477
Office equipment 297,082
-------------
1,739,676
Less: Accumulated depreciation (712,870)
-------------
$ 1,026,806
=============
Depreciation taken on property and equipment for 2004 and 2003 totaled
$256,023 and $200,543, respectively, of which $137,015 and $104,973 were
included as a component of cost of goods sold for 2004 and 2003,
respectively.
9. CONSTRUCTION-IN-PROGRESS
Construction-in-progress represents construction cost and design fee of
$2,678,363 (Rmb.22,176,846) in respect of the construction of the new
factory premises in Huizhou. The balance of the outstanding construction
contracts totaling $5,663,073, at December 31, 2004, is anticipated to be
paid during the year ending December 31, 2005.
Construction-in-progress includes the purchase of land use right of
$1,304,348 (Rmb.10,800,000) the land use right certificate applied from
Economic Union at Ru Hu Town, Huizhou during the year.
14
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
10. TAXES PAYABLE
Other taxes payable consist of the following as of December 31, 2004:
Value added tax $ 1,865,748
City construction tax 155,462
Education surcharge 66,626
Others 70,396
-------------
$ 2,158,232
=============
11. MINORITY INTEREST
Minority interest represents the proportionate share (3%) of equity of NVC
Industrial. At December 31, 2004, the Company owned 97% of NVC Industrial's
registered capital stock.
12. INCOME TAX
Enterprise income tax ("EIT") in the PRC is provided on the basis of the
statutory profit for financial reporting purposes, adjusted for income and
expense items, which are not assessable or deductible for income tax
purposes. Enterprise income tax has been provided in NVC Lighting's
financial statements at the rate of 33% on the estimated assessable income
derived during the year.
No provision for EIT has been made in the financial statements of NVC
Industrial for the year ended December 31 2004 as NVC Industrial has been
approved to be recognized as a joint foreign investment enterprise and is
therefore exempted from EIT for two years starting from the first year of
profitable operation followed by a 50% reduction for the next three years.
There have been no substantial differences between financial and tax
reporting of income and expenses, which would give rise to deferred taxes.
Reconciliations between the expected rate and the effective rate for 2004
and 2003 are as follows:
YEAR ENDED DECEMBER 31,
2004 2003
---- ----
Statutory tax rate 33% 33%
Benefit of tax holiday (33%) (33%)
----- -----
Effective tax rate 0% 0%
===== =====
15
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
13. COMMITMENTS
As of December 31, 2004, the Company has future commitments for
construction-in-progress of $5,663,073, to pay supervision of construction
sites of $25,362, and to pay future advertising costs totaling $189,209.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 2004 for each of
the next five years and in the aggregate are:
December 31, 2005 $ 166,667
December 31, 2006 141,304
-------------
$ 307,971
=============
Rent expense for 2004 and 2003 was $193,883 and $118,183 respectively.
16
NVC LIGHTING INVESTMENT HOLDINGS LIMITED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet, March 31, 2005....................1
Consolidated Statements of Operations,
For the Three Months Ended March 31, 2005 and 2004........2
Consolidated Statement of Members' Equity,
For the Three Months Ended March 31, 2005 .................3
Consolidated Statements of Cash Flows,
For the Three Months Ended March 31, 2005 and 2004.........4
Notes to the Consolidated Financial Statements................6
1
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,260,342
Accounts receivable -
Trade, net of allowance for bad debts of $111,509 1,222,913
Employees and other 357,836
Inventories 8,316,264
Advances to suppliers 127,875
Deposit and prepayments 279,283
-------------
Total current assets 12,564,513
-------------
INVESTMENT
Long Term Bank Deposit 104,670
-------------
PROPERTY, PLANT AND EQUIPMENT:
Fixed assets, net of accumulated depreciation 1,029,650
Construction-in-progress 5,058,632
-------------
6,088,282
-------------
OTHER ASSETS:
Distribution agreements, net of accumulated amortization
of $1,109,099 4,084,137
Computer software 281,798
-------------
4,365,935
-------------
$ 23,123,400
=============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 14,941,103
Advances from customers 1,496,630
Amounts due to directors 471,090
Other taxes payable 1,338,767
-------------
Total current liabilities 18,247,590
-------------
MINORITY INTEREST 121,943
-------------
MEMBERS' EQUITY:
Registered capital 1,410,257
Capital reserve 725,284
Retained earnings 2,618,326
-------------
4,753,867
-------------
$ 23,123,400
=============
The accompanying notes are an integral part of these financial statements.
2
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
2005 2004
---- ----
SALES $ 12,391,758 $ 7,210,433
COST OF GOODS SOLD 8,466,060 4,743,099
-------------- ---------------
GROSS PROFIT 3,925,698 2,467,334
-------------- ---------------
OPERATING EXPENSES:
Selling expenses 1,830,962 1,008,529
Administrative expenses 639,710 681,697
Depreciation and amortization expense 101,944 35,995
-------------- ---------------
Total operating expenses 2,572,616 1,726,221
-------------- ---------------
INCOME FROM OPERATIONS 1,353,082 741,113
-------------- ---------------
OTHER INCOME (EXPENSE):
Other revenues 178,744 184,290
Interest income (expense) ( 216) 6,937
-------------- ---------------
TOTAL OTHER INCOME 178,528 191,227
-------------- ---------------
INCOME BEFORE INCOME TAXES 1,531,610 932,340
PROVISION (BENEFIT) FOR INCOME TAXES 252,716 ( 17,170 )
-------------- ---------------
NET INCOME BEFORE MINORITY INTERESTS 1,278,894 949,510
MINORITY INTERESTS IN EARNINGS ( 38,367) ( 28,485)
-------------- ---------------
NET INCOME $ 1,240,527 $ 921,025
============== ===============
The accompanying notes are an integral part of these financial statements.
3
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
TOTAL
REGISTERED CAPITAL RETAINED MINORITY MEMBERS'
CAPITAL RESERVE EARNINGS INTERESTS EQUITY
------- ------- -------- --------- ------
Balance at December 31, 2004 $ 1,410,257 $ 725,284 $ 1,377,799 $ 83,576 $ 3,596,916
Net income for the three months ended
March 31, 2005 - - 1,240,527 38,367 1,278,894
------------- ------------ -------------- ----------- -------------
------------- ------------ -------------- ----------- -------------
Balance at March 31, 2005 $ 1,410,257 $ 725,284 $ 2,618,326 $ 121,943 $ 4,875,810
============= ============ ============== =========== =============
The accompanying notes are an integral part of these financial statements.
4
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,240,527 $ 921,025
Adjustments to reconcile net income to net cash provided
by provided by operating activities -
Amortization of distribution agreements 129,831 114,735
Depreciation 101,944 35,995
Minority interests in earnings 38,367 28,485
Changes in assets and liabilities:
(Increase) decrease in -
Accounts receivable 645,949 276,203
Long Term Bank Deposit 52,335 -
Inventories ( 1,245,003) ( 484,342)
Advances to suppliers 104,452 ( 2,289)
Prepayments 221,336 -
Amount due from a related company - 46,845
Increase (decrease) in -
Accounts payable and accrued expenses 252,800 484,499
Advances from customers 649,097 ( 15,684)
Tax payable ( 819,465) ( 125,784)
-------------- --------------
Net cash provided by operating activities 1,372,170 1,279,688
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction-in-progress ( 2,380,269) ( 1,217,889)
Acquisition of intangible assets ( 296,897) ( 1,811,596)
Purchases of fixed assets ( 104,788) ( 127,071)
-------------- --------------
Net cash (used in) investing activities ( 2,781,954) ( 3,156,556)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of advances from directors ( 99,592) ( 526,282)
Repayments of long-term debts - 123,135
Dividends paid - -
-------------- --------------
Net cash (used in) financing activities ( 99,592) ( 403,147)
-------------- --------------
NET DECREASE IN CASH ( 1,509,376) ( 2,280,015)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,769,718 5,661,466
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,260,342 $ 3,381,451
============== ==============
The accompanying notes are an integral part of these financial statements.
5
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
2005 2004
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 216 $ -
Income taxes paid $ - $ -
The accompanying notes are an integral part of these financial statements.
6
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
1. DESCRIPTION OF BUSINESS
NATURE OF ORGANIZATION
NVC Lighting Investment Holdings Limited ("NVC Holdings") was incorporated
in the Hong Kong Special Administrative Region in The People's Republic of
China ("PRC"), as a private limited liability company on June 11, 2004 with
an authorized capital of $10,256,410 (HK$80,000,000) divided into
80,000,000 ordinary shares of par value $0.12 (HK$1.00) each.
Pursuant to the reorganization and restructuring of the Company, NVC
Lighting Company Limited ("NVC Lighting") ceased operations on April 30,
2003 and, on the same date, certain net assets were distributed totaling
$1,767,655 to the registered equity holders. On May 1, 2003, the business
operations of NVC Lighting were transferred to NVC Industrial Development
Company Limited ("NVC Industrial").
On June 13, 2004 NVC Holdings acquired 97% of the outstanding registered
capital of NVC Industrial and 100% of the registered capital of NVC
Lighting.
The above two transactions were treated as recapitalization of the existing
business in accordance with the requirements of Financial Accounting
Standards Opinion No. 141, BUSINESS COMBINATION, EXHIBIT D. The effect of
these recapitalizations was rolled back to December 31, 2002 for financial
reporting purposes.
NVC Holdings and its two subsidiaries, NVC Industrial and NVC Lighting are
hereinafter collectively referred to as the "Company" or "NVC Group".
NVC Industrial Development Company Limited was registered as a limited
liability Sino-foreign joint investment enterprise on January 28, 2003 in
Huizhou, Guangdong Province, in the PRC with a registered capital of
$1,282,051 (HK$10,000,000) and a defined period of existence of 15 years to
January 27, 2018
NVC Lighting Company Limited was registered as a limited liability company
on November 13, 1998 in Huizhou, Guangdong Province in the PRC with a
registered capital of $120,773 (Rmb.1,000,000) and a defined period of
existence of 6 years. The registered capital was held by Wu Chang-jiang as
to 45% or $54,347 (Rmb.450,000), Hu Yong-hong as to 27.5% or $33,213
(Rmb.275,000) and Du Gang as to 27.5% or $33,213 (Rmb.275,000) in trust for
and on behalf of NVC Holdings.
DESCRIPTION OF BUSINESS
The principal activities of the Company are investment holdings,
manufacturing and distribution of lighting products. The principal
activities of the Company's subsidiaries, NVC Industrial and NVC Lighting,
are manufacturing and distribution of lighting products. NVC Group's has
operations in The People's Republic of China, Europe, the Middle East and
Hong Kong.
7
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
1. DESCRIPTION OF BUSINESS, CONTINUED
As a result of the restructuring and re-organization of the NVC Group,
certain of the NVC Lighting's assets and liabilities together with the
business then in existence as of April 30, 2003, were distributed in kind
to the three registered equity holders on record in proportion to their
relative equity holdings as of that date. Pursuant to the Tax Clearance
Certificate issued by the Huizhou Municipal Government Tax Authority on May
6, 2003, NVC Lighting ceased its operations and all of its tax liabilities
were cleared with the local tax authority.
2. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements include the accounts of NVC
Lighting Investment Holdings Limited, its 97% owned subsidiary, NVC
Industrial Development Company Limited and its 100% owned subsidiary, NVC
Lighting Company Limited, after elimination of all material intercompany
accounts, transactions, and profits.. The consolidated financial statements
are prepared in accordance with accounting principles generally accepted in
the United States of America. The consolidated financial statements are
prepared under the historical cost convention. This basis of accounting
differs from that used in the preparation of NVC Holdings' statutory
financial statements which are prepared in accordance with generally
accepted accounting principles and the relevant Hong Kong Companies
Ordinance applicable to enterprises in the Hong Kong Special Administrative
Region, and NVC Industrial and NVC Lighting's statutory financial
statements which are prepared in accordance with generally accepted
accounting principles and the relevant financial regulations applicable to
enterprises in the PRC.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
CONSOLIDATION POLICY - All significant inter-company transactions and
balances within the Company are eliminated on consolidation.
CASH AND EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with maturity period of three months or less to be
cash equivalents. The carrying amounts reported in the accompanying
consolidated balance sheet for cash and cash equivalents approximate their
fair value.
8
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ACCOUNTS RECEIVABLE - Provision is made against accounts receivable to the
extent, which they are considered to be doubtful. Accounts receivable, all
of which are unsecured, are shown in the balance sheet are stated net of
such provision. As of March 31, 2005, provision for doubtful accounts
amounted to $111,509. Accounts receivable are charged against the allowance
for bad debts at such time as they are determined to be uncollectible.
INVENTORIES - Inventories are stated at the lower of cost or market. The
cost of inventories comprises all costs of purchases, costs of conversion
and other costs incurred in bringing the inventories to their present
location and condition. The costs of conversion of inventories include
fixed and variable production overheads, taking into account the stage of
completion. The cost of inventories is determined using the weighted
average method.
Market value represents the estimated selling price in the ordinary course
of business less the estimated costs necessary to complete the sale.
CONSTRUCTION-IN-PROGRESS - All facilities purchased for installation,
self-made or subcontracted are accounted for as construction-in-progress.
Construction-in-progress is recorded at acquisition cost, including cost of
facilities, and installation expenses. Upon completion and readiness for
use of the project, the cost of construction-in-progress is to be
transferred to fixed assets.
LONG-LIVED ASSETS AND DEPRECIATION - The Company recognizes impairment
losses on long-lived assets used in operations when impairment indicators
are present and the undiscounted cash flows estimated to be generated by
these assets are less than their carrying values. As of March 31, 2005, the
Company had no impaired long-lived assets.
The cost of property, plant and equipment less anticipated salvage values
is being depreciated on a straight-line basis over the estimated useful
lives of the related assets. Estimated useful lives used for computing
depreciation are as follows:
Plant and machinery 5 years
Molds 5 years
Furniture and fixtures 5 years
Motor vehicles 5 years
Office equipment 3 years
DISTRIBUTION AGREEMENTS - The Company has entered into a number of
distribution agreements with distributors, whereby the distributor agrees
to be an exclusive distributor of NVC lighting products and has guaranteed
to generate specified sales volumes over a 10 year period. Each of these
distributors was paid $120,773 for entering into this agreement. The cost
of this distribution agreement is being amortized on a straight-line basis
over the life of the agreement. As prescribed by the EMERGING ISSUES TASK
FORCE ISSUE 01-09: ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A
CUSTOMER, the Company has reduced sales by the amortization for the three
months ended December 31, 2004 and 2003 totaling $129,831 and $114,735,
respectively. The estimated amortization related to these distribution
agreements over the next five years and thereafter are as follows:
9
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
YEAR ENDED DECEMBER 31, AMORTIZATION
----------------------- ------------
2005 $ 519,324
2006 519,324
2007 519,324
2008 519,324
2009 519,324
Thereafter 1,487,517
---------
Total $4,084,137
==========
COMPUTER SOFTWARE The Company is currently in the process of installing new
business software. As of March 31, 2005 the Company had invested $281,798
in software related to this new installation. When it is fully implemented,
the Company will amortize the cost over five years.
ADVANCES FROM CUSTOMERS - Revenue from the sale of goods or services is
recognized when goods are delivered or services are rendered. Receipts in
advance for goods to be delivered or services to be rendered in the
subsequent year are carried forward as advances from customers.
REVENUE RECOGNITION - Revenue from the sale of goods and services is
recognized on the transfer of risks and rewards of ownership, which
generally coincides with the time when the goods are delivered to customers
and the title has passed and services have been rendered and invoiced.
Other income is recognized when it is earned. Sales to all customers are
final. As prescribed by the EMERGING ISSUES TASK FORCE ISSUE 01-09:
ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A CUSTOMER, the Company
has reduced sales by the amortization for the three months ended December
31, 2004 and 2003 totaling $129,831 and $114,735, respectively.
Other income consists primarily of sales of scrap materials.
SELLING EXPENSES - Included in selling expenses are advertising, sales
commissions, outgoing freight, and sales salaries and related expenses.
Advertising costs are charged to expense as they are incurred and totaled
$500,800 and $190,376 for the three months ended March 31, 2005 and 2004
respectively. Freight out totaled $292,095 and $175,752 for the three
months ended March 31, 2005 and 2004 respectively.
FOREIGN CURRENCIES - The financial position and results of operations of
the Company are determined using the local currencies (Hong Kong Renminbi
or PRC "Renminbi" or "Yuan") as the functional currencies. Foreign currency
transactions during the year are converted at the average rate of exchange
during the reporting period. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet dates are translated at the market
rates of exchange ruling at those dates. All exchange differences are dealt
with in the statements of operations. The Company's principal country of
operations is in the PRC.
The registered equity capital and fixed assets denominated in the
functional currency are translated at the historical rate of exchange at
the time of capital contribution and purchases of fixed assets and exchange
differences arising from translating equity capital, reserves and fixed
assets at exchange rate ruling at the balance sheet date are dealt with as
an exchange fluctuation reserve.
10
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
RETIREMENT BENEFIT COSTS - According to the PRC regulations on pensions,
the Company contributes to a defined contribution retirement plan organized
by municipal government in the province in which the Company was
registered; all qualified employees are eligible to participate in the
plan. Contributions to the plan are calculated at 18% of the employees'
salaries above a fixed threshold amount and the employees contribute 8%
while the Company contributes the balance contribution of 10%. The Company
has no other material obligation for the payment of retirement benefits
beyond the annual contributions under this plan.
For the three months ended March 31, 2005 and 2004, the Company's pension
cost charged to the statements of operations under the scheme amounted to
$5,006 and $0, respectively.
CAPITAL RESERVE - Capital reserve represents that amount of reserve
appropriated from the net distributable profit after income tax in each
year when a net profit after operations is generated. In accordance with
the provisions of the Company's Memorandum and Articles of Association, the
Company is required to appropriate 5% to 15% of the net distributable
profit after enterprise income tax to capital reserve. Two-third of the
capital reserve is set aside for possible use for general reserve and
one-third is for staff welfare.
Management believes it has accrued sufficient funds to cover all
anticipated staff welfare payments as of March 31, 2005 and that this
reserve is not impaired at this date. The Company shall not be required to
appropriate any amount to capital reserve when the balance standing in
capital reserve is equal to or exceeds 50% of the registered capital.
TAXATION - Taxation on overseas profits has been calculated on the
estimated assessable profits for the year at the rates of taxation
prevailing in the country in which the Company operates.
Provision for the PRC enterprise income tax is calculated at the prevailing
rate based on the estimated assessable profits less available tax relief
for losses brought forward.
ENTERPRISE INCOME TAX
Under the Provisional Regulations of the PRC Concerning Income Tax on
Enterprises promulgated by the State Council and which came into effect on
January 1, 1994, income tax is payable by enterprises at a rate of 33% of
their taxable income. Preferential tax treatment may, however, be granted
pursuant to any law or regulations from time to time promulgated by the
State Council.
We accrued $252,716 in enterprise taxes for the three months ended March
31, 2005 as the Company's two years of complete tax exemption has passed
and it is now subject to tax at 50% of the normal 33% statutory rate.
11
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
VALUE ADDED TAX
The Provisional Regulations of the People's Republic of China Concerning
Value Added Tax promulgated by the State Council came into effect on
January 1, 1994. Under these regulations and the Implementing Rules of the
Provisional Regulations of the PRC Concerning Value Added Tax, value added
tax is imposed on goods sold in or imported into the PRC and on processing,
repair and replacement services provided within the PRC.
Value added tax payable in the PRC is charged on an aggregated basis at a
rate of 13% or 17% (depending on the type of goods involved) on the full
price collected for the goods sold or, in the case of taxable services
provided, at a rate of 17% on the charges for the taxable services
provided, but excluding, in respect of both goods and services, any amount
paid in respect of value added tax included in the price or charges, and
less any deductible value added tax already paid by the taxpayer on
purchases of goods and services in the same financial year.
12
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of certain
financial instruments, including cash, accounts receivable, other
receivables, accounts payable, accrued expenses, and other payables
approximate their fair values as at March 31, 2005 because of the
relatively short-term maturity of these instruments.
USE OF ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles require management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS - In May 2003, the Financial Accounting
Standards Board issued SFAS No. 150 ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITY AND EQUITY. This
standard establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. As of March 31, 2005, the Company had no financial instruments with
these characteristics.
In April 2003, the Financial Accounting Standards Board issued SFAS No.
149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. This statement amends and clarifies financial accounting and
reporting for derivative instruments and for hedging activities under FASB
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As
of March 31, 2005, the Company had no derivative or hedging activities.
In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS - AN
AMENDMENT OF ARB NO. 43, CHAPTER 4. SFAS No. 151 requires that certain
abnormal costs associated with the manufacturing, freight, and handling
costs associated with inventory be charged to current operations in the
period in which they are incurred. The adoption of SFAS 151 had no impact
on the Company's financial position, results of operations, or cash flows.
In December 2004, the FASB issued a revision of SFAS No. 123, SHARE-BASED
Payment. The statement establishes standards for the accounting for
transactions in which an entity exchanges its equity investments for goods
and services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair
value of the entity's equity instruments or that may be settled by the
issuance of those equity instruments. The statement does not change the
accounting guidance for share-based payments with parties other than
employees.
The statement requires a public entity to measure the cost of employee
service received in exchange for an award of equity instruments based on
the grant-date fair value of the award (with limited exception). That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award (usually the vesting period). A
public entity will initially measure the cost of employee services received
in exchange for an award of liability instrument based on its current fair
value; the fair value of that award will be remeasured subsequently at each
reporting date through the settlement date. Changes in fair value during
the requisite service period will be recognized as compensation over that
period.
13
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
The grant-date for fair value of employee share options and similar
instruments will be estimated using option-pricing models adjusted for the
unique characteristics of these instruments.
The statement is effective for the quarter beginning January 1, 2006.
In December 2004, the FASB issued SFAS No. 153, EXCHANGES OF NONMONETARY
ASSETS-AMENDMENT OF APB OPINION NO. 29. SFAS No. 153 eliminates the
exception to fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions that do not
have commercial substance, defined as transactions that are not expected to
result in significant changes in the cash flows of the reporting entity.
This statement is effective for exchanges of nonmonetary assets occurring
after June 15, 2005.
Management believes adoption of these new statements will not have any
significant effect on the Company's financial condition or results of
operations.
4. CONCENTRATIONS OF BUSINESS AND CREDIT RISK
Substantially all of the Company's bank accounts are in banks located in
the PRC which are not protected by the FDIC insurance or other insurance.
The Company provides credit in the normal course of business. The Company
performs ongoing credit evaluations of its customers and clients and
maintains allowances for doubtful accounts based on factors surrounding the
credit risk of specific customers and clients, historical trends, and other
information. The Company had no single customer that represented 10% or
more of sales in either of the three months ended March 31, 2005 and 2004.
During the three months ended March 31, 2005 the Company had no suppliers
representing 10% or more of purchases.
The Company is self insured for all risks and carries no liability or
property insurance coverage of any kind.
5. LONG-TERM BANK DEPOSITS
As of March 31, 2005, the Company had pledged $104,670 in long-term bank
deposits to banks to secure a motor vehicle loan. The long-term deposits
mature in 2008.
6. INVENTORIES
Inventories consist of the following as of March 31, 2005:
Raw materials $ 3,458,078
Finished goods 4,858,186
--------------
$ 8,316,264
==============
14
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
7. AMOUNTS DUE TO DIRECTORS
As of March 31, 2005, the Company had the following balances due to its
directors:
NAME SECURITY HELD
---- -------------
WU Chang-jiang $ (195,327) none
HU Yong-hong (145,564) none
DU Gang (130,199) none
--------------
$ (471,090)
==============
The amounts due to the Directors from the Company are unsecured, interest
free and have no fixed repayment terms.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, stated at cost less accumulated
depreciation, consist of the following as of March 31, 2005:
Plant and machinery $ 290,380
Molds 833,612
Furniture and fixtures 20,818
Motor vehicles 279,723
Office equipment 322,607
-------------
1,747,140
Less: Accumulated depreciation ( 717,490)
-------------
-------------
$ 1,029,650
=============
Depreciation taken on property and equipment for the three months ended
March 31, 2005 and 2004 totaled $101,944 and $35,995, respectively.
9. CONSTRUCTION-IN-PROGRESS
Construction-in-progress represents construction cost and design fee of
$2,678,363 (Rmb.22,176,846) in respect of the construction of the new
factory premises in Huizhou. The balance of the outstanding construction
contracts totaling $5,058,632, at March 31, 2005, is anticipated to be paid
during the year ending December 31, 2005.
Construction-in-progress includes the purchase of land use right of
$1,304,348 (Rmb.10,800,000) the land use right certificate applied from
Economic Union at Ru Hu Town, Huizhou during the year.
15
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
10. TAXES PAYABLE
Other taxes payable consist of the following as of March 31, 2005:
Value added tax $ 792,255
City construction tax 155,462
Enterprise income tax 252,716
Education surcharge 66,627
Others 71,707
------------
$ 1,338,767
============
11. MINORITY INTEREST
Minority interest represents the proportionate share (3%) of equity of NVC
Industrial. At March 31, 2005, the Company owned 97% of NVC Industrial's
registered capital stock. NVC Industrial Development Company Limited was
registered as a limited liability Sino-foreign joint investment enterprise
on January 28, 2003 in Huizhou, Guangdong Province, in the PRC with a
registered capital of $1,282,051 (HK$10,000,000) and a defined period of
existence of 15 years to January 27, 2018.
12. INCOME TAX
Enterprise income tax ("EIT") in the PRC is provided on the basis of the
statutory profit for financial reporting purposes, adjusted for income and
expense items, which are not assessable or deductible for income tax
purposes. Enterprise income tax has been provided in NVC Lighting's
financial statements at the rate of 33% on the estimated assessable income
derived during the year.
No provision for EIT has been made in the financial statements of NVC
Industrial for the year ended December 31 2004 as NVC Industrial has been
approved to be recognized as a joint foreign investment enterprise and is
therefore exempted from EIT for two years starting from the first year of
profitable operation followed by a 50% reduction for the next three years.
There have been no substantial differences between financial and tax
reporting of income and expenses, which would give rise to deferred taxes.
Reconciliations between the expected rate and the effective rate for 2005
and 2004 are as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2005 2004
---- ----
Statutory tax rate 33% 33%
Benefit of tax holiday (16%) (33%)
------ -----
Effective tax rate 17% 0%
====== =====
16
NVC LIGHTING INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
13. COMMITMENTS
As of March 31, 2005, the Company has future commitments for
construction-in-progress of $3,822,353, to pay supervision of construction
sites of $18,116, and to pay future advertising costs totaling $121,575.
17
OraLabs Holding Corp. and Subsidiaries
Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
On February 23, 2005, as amended on June 20, 2005, OraLabs Holding Corp. (the
"Company") entered into a Stock Exchange Agreement with NVC Lighting Investments
Holdings Limited, ("NVC") a company organized in the Hong Kong Special
Administrative Region in the People's Republic of China. The agreement provides
that subject to the meeting of certain conditions, including the redemption of
3,629,350 shares of the Company's common stock in exchange for the transfer to
Gary H. Schlatter of all of the Company's stock that it owns in its wholly-owned
subsidiary, OraLabs, Inc. In addition, the Company will issue 300,000 share of
the Company's common stock to the three non-employee directors, and will issue
to the NVC principals or their designees approximately 21,364,085 shares of
Common Stock with restrictive legend for all of the registered capital of NVC.
After the closing of the Acquisition, NVC will be a wholly-owned subsidiary of
the Company and the ownership of the Company will be controlled by the former
shareholders of NVC.
For financial reporting purposes, this transaction was treated as a
recapitalization of NVC.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition (pro forma) on the Company's financial position and
results of operations. The condensed consolidated balance sheet as of March 31,
2005 is based on the historical balance sheets of the Company and NVC as of that
date and assumes the acquisition took place on that date. The condensed
consolidated statement of income for the three months ended March 31, 2005 and
the year ended December 31, 2004 are based on the historical statements of
income of the Company and NVC for those periods. The pro forma condensed
consolidated statement of income assumes the acquisition took place on January
1, 2004.
The unaudited pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisition.
The accompanying condensed consolidated pro forma financial statements should be
read in connection with the historical financial statements of the Company and
NVC.
August 11, 2005
ORALABS HOLDING CORP. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
MARCH 31, 2005
EXPRESSED IN US DOLLARS
------------ ------------ -------------- ------------- -------------
ASSETS NVC LIGHTING ORALABS COMBINED PRO FORMA
INVESTMENT HOLDING BALANCE PRO FORMA BALANCE
HOLDING LTD. CORP. & SUBS. SHEET ADJUSTMENTS SHEET
------------ ------------ -------------- ------------- -------------
CURRENT ASSETS:
Cash and equivalents $2,260,342 $1,186,402 $3,446,744 1a&d $(1,286,402) $2,260,342
Accounts receivable
Trade, net of allowance for bad debt 1,222,913 1,524,544 2,747,457 1a (1,524,544) 1,222,913
of $111,509
Other 357,836 - 357,836 - 357,836
Inventories 8,316,264 2,754,660 11,070,924 1a (2,754,660) 8,316,264
Deferred tax asset - current 285,117 285,117 1a (285,117) -
Income Taxes receivable 194,081 194,081 1a (194,081) -
Advances to suppliers 127,875 - 127,875 - 127,875
Deposit and prepayments 279,283 231,087 510,370 1a (231,087) 279,283
------------ ------------ -------------- ------------- -------------
Total current assets 12,669,183 6,175,891 18,845,074 (6,275,891) 12,569,183
------------ ------------ -------------- ------------- -------------
INVESTMENT - LONG TERM BANK DEPOSIT 104,670 - 104,670 - 104,670
------------ ------------ -------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Fixed assets, net of accumulated 1,029,650 1,816,881 2,846,531 1a (1,816,881) 1,029,650
depreciation
Construction-in-progress 5,058,632 - 5,058,632 - 5,058,632
------------ ------------ -------------- ------------- -------------
6,088,282 1,816,881 7,905,163 (1,816,881) 6,088,282
OTHER ASSETS:
Deferred tax asset - long-term 52,702 52,702 1a (52,702) -
Distribution agreements, net of accumulated 4,365,935 - 4,365,935 - 4,365,935
amortization of $1,109,099
------------ ------------ -------------- ------------- -------------
$23,123,400 $8,045,474 $31,168,874 $(8,145,474) $23,023,400
============ ============ ============== ============= =============
LIABILITIES AND MEMBERS'/STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $14,941,103 $1,262,264 $16,203,367 1b $(1,262,264) $14,941,103
Reserve for returns 375,938 375,938 1b (375,938) -
Current portion of long-term debt 8,437 8,437 1b (8,437) -
Advances from customers 1,496,630 - 1,496,630 - 1,496,630
Amounts due to directors 471,090 - 471,090 - 471,090
Other taxes payable 1,338,767 - 1,338,767 - 1,338,767
------------- ------------ -------------- ------------- -------------
Total current liabilities 18,247,590 1,646,639 19,894,229 (1,646,639) 18,247,590
------------- ------------ -------------- ------------- -------------
NON-CURRENT LIABILITIES
Long-term debt, less current portion - 10,500 10,500 1b (10,500) -
Deferred tax liability long-term - - - - -
------------- ------------ -------------- ------------- -------------
Total non current liabilities - 10,500 10,500 (10,500) -
------------- ------------ -------------- ------------- -------------
MINORITY INTEREST 121,943 - 121,943 - 121,943
-
Members'/Stockholders' Equity -
Registered capital 1,410,256 - 1,410,256 1c (1,410,256) -
Capital reserve 725,284 - 725,284 1c (725,284) -
Preferred stock, $.001 par value, 1,000,000 - - - -
authorized; none issued and outstanding
Common stock, $.001 par value; 200,000,000 4,669 4,669 1d 17,652 22,321
shares to be authorized; 4,668,615
outstanding and 22,321,083 pro forma issued
Additional paid-in capital - 1,463,044 1,463,044 1c 650,175 2,113,219
Retained earnings 2,618,326 4,920,622 7,538,949 1c&d (5,020,622) 2,518,327
4,753,867 6,388,335 11,264,145 (6,488,335) 4,775,810
23,123,400 8,045,474 31,168,874 (8,145,474) 23,023,400
=========== ============ ============== ============= =============
Book Value per share $1.37 $0.21
Shares outstanding for purposes of computing book N/A 4,668,615 22,321,083
value per share
1a - OraLabs Holding Corp and Subsidiaries assets are eliminated due to transfer
of stock ownership of subsidiary to OraLabs majority shareholder
1b - OraLabs Holding Corp and Subsidiaries liabilities are eliminated due to
transfer of stock ownership of subsidiary to OraLabs majority shareholder
1c - OraLabs Holding Corp and Subsidiaries equity reflects retirement of
3,629,350 shares in connection with transfer of stock ownership of subsidiary
and the issuance of 300,000 shares to OraLabs directors and 20,981,818 shares to
NVC Lighting Investments Holding shareholders in exchange for 100% of its
registered capital.
1d - To record estimated closing costs of $100,000.
ORALABS HOLDING CORP. AND SUBSIDIARIES
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2004
EXPRESSED IN US DOLLARS
---------------- ------------------ ------------- ----------------- ------------------
NVC LIGHTING ORALABS COMBINED PRO FORMA
INVESTMENT HOLDING INCOME PRO FORMA INCOME
HOLDING LTD. CORP. & SUBS. STATEMENT ADJUSTMENTS STATEMENT
---------------- ------------------ ------------- ----------------- ------------------
SALES $55,394,520 $13,130,579 $68,525,099 1a $(13,130,579) $55,394,520
COST OF GOODS SOLD 38,539,315 9,315,940 47,855,255 1b (9,315,940) 38,539,315
---------------- ------------------ ------------- ----------------- ------------------
GROSS PROFIT 16,855,205 3,814,639 20,669,844 (3,814,639) 16,855,205
---------------- ------------------ ------------- ----------------- ------------------
OPERATING EXPENSES:
Selling & Marketing 6,146,591 1,325,935 7,472,526 1c (1,325,935) 6,146,591
Administrative expenses 3,976,993 3,080,158 7,057,151 1c (3,080,158) 3,976,993
Engineering expenses - 319,828 319,828 1c (319,828) -
Depreciation expense 119,008 - 119,008 - 119,008
---------------- ------------------ ------------ ----------------- ------------------
Total Operating expenses 10,242,592 4,725,921 14,968,513 (4,725,921) 10,242,592
---------------- ------------------ ------------ ----------------- ------------------
INCOME FROM OPERATIONS 6,612,613 (911,282) 5,701,331 911,282 6,612,613
---------------- ------------------ ------------ ----------------- ------------------
OTHER INCOME (EXPENSE):
Other revenues 677,809 110,965 788,774 (110,965) 677,809
Interest income (expense) (411) (35,359) (35,770) 1d 35,359 (411)
---------------- ------------------ ------------ ---------------- -------------------
TOTAL OTHER INCOME 677,398 75,606 753,004 (75,606) 677,398
---------------- ------------------ ------------ ---------------- -------------------
INCOME (LOSS) BEFORE TAXES 7,290,011 (835,676) 6,454,335 835,676 7,290,011
INCOME TAX BENEFIT (EXPENSE):
Current - 194,648 194,648 1e (194,648) -
Deferred - 75,920 75,920 (75,920) -
---------------- ------------------ ------------ ----------------- ------------------
- 270,568 270,568 (270,568) -
---------------- ------------------ ------------ ----------------- ------------------
NET INCOME (LOSS) BEFORE 7,290,011 (565,108) 6,724,903 565,108 7,290,011
MINORITY INTERESTS
MINORITY INTEREST IN EARNINGS (184,984) - (184,984) - (184,984)
---------------- ------------------ ------------ ----------------- ------------------
NET INCOME (LOSS) 7,105,027 (565,108) 6,539,919 565,108 7,105,027
================ ================== ============ ================= ==================
PRO FORMA BASIC EARNINGS PER $ (0.12) $ 0.32
SHARE
PRO FORMA SHARES OUTSTANDING N/A 4,668,615 22,321,083
1a OraLabs Holding Corp. and Subsidiaries sales are eliminated due to
transfer of stock ownership of subsidiary to majority OraLabs shareholder.
1b OraLabs Holding Corp. and Subsidiaries cost of sales are eliminated due to
transfer of stock ownership of subsidiary to majority OraLabs shareholder.
1c OraLabs Holding Corp and Subsidiaries operating expenses are eliminated
due to transfer of stock ownership of subsidiary to majority OraLabs
shareholder.
1d OraLabs Holding Corp and Subsidiaries other income are eliminated due to
transfer of stock ownership of subsidiary to majority OraLabs shareholder.
1e OraLabs Holding Corp. and Subsidiaries tax benefit are eliminated due to
transfer of stock ownership of subsidiary to majority OraLabs shareholder.
ORALABS HOLDING CORP. AND SUBSIDIARIES
PRO FORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDING MARCH 31, 2005
EXPRESSED IN US DOLLARS
-------------- --------------- -------------- -------------- ------------
NVC LIGHTING ORALABS COMBINED PRO FORMA
INVESTMENT HOLDING INCOME PRO FORMA INCOME
HOLDING LTD. CORP. & SUBS. STATEMENT ADJUSTMENTS STATEMENT
-------------- --------------- -------------- -------------- ------------
SALES $12,391,758 $3,580,849 $15,972,607 1a $(3,580,849) $12,391,758
COST OF GOODS SOLD 8,466,060 2,380,514 10,846,574 1b (2,380,514) 8,466,060
-------------- --------------- -------------- -------------- ------------
GROSS PROFIT 3,925,698 1,200,335 5,126,033 (1,200,335) 3,925,698
-------------- --------------- -------------- -------------- ------------
OPERATING EXPENSES:
Selling & Marketing 1,830,962 406,462 2,237,424 1c&F (306,462) 1,930,962
Administrative expenses 639,710 735,368 1,375,078 1c (735,368) 639,710
Engineering expenses 92,872 92,872 1c (92,872) -
Depreciation expense 101,944 101,944 - 101,944
-------------- ---------------
Total Operating expenses 2,572,616 1,234,702 3,807,318 (1,134,702) 2,672,616
-------------- ---------------
INCOME FROM OPERATIONS 1,353,082 (34,367) 1,318,715 (65,633) 1,253,082
-------------- ---------------
OTHER INCOME (EXPENSE):
Other revenues 178,744 - 178,744 - 178,744
Interest income (expense) (216) 11,350 11,134 1d (11,350) (216)
-------------- --------------- -------------- -------------- ------------
TOTAL OTHER INCOME 178,528 11,350 189,878 (11,350) 178,528
-------------- --------------- -------------- -------------- ------------
INCOME (LOSS) BEFORE TAXES 1,531,610 (23,017) 1,508,593 (76,983) 1,431,610
INCOME TAX BENEFIT (EXPENSE):
Current (252,716) 7,365 (245,351) 1e (7,365) (252,716)
Deferred - - - - -
-------------- --------------- -------------- -------------- ------------
(252,716) 7,365 (245,351) (7,365) (252,716)
-------------- --------------- -------------- -------------- ------------
NET INCOME BEFORE MINORITY INTERESTS 1,278,894 (15,652) 1,263,242 (84,348) 1,178,894
MINORITY INTEREST IN EARNINGS (38,367) - (38,367) - (38,367)
-------------- --------------- -------------- -------------- ------------
NET INCOME (LOSS) 1,240,527 (15,652) 1,224,875 (84,348) 1,140,527
============== =============== ============== ============== ============
PRO FORMA BASIC EARNINGS PER SHARE $ - $ 0.05
PRO FORMA SHARES OUTSTANDING N/A 4,668,615 22,321,083
1a-OraLabs Holding Corp and Subsidiaries sales are eliminated due to transfer of
stock ownership of subsidiary to OraLabs majority shareholder.
1b-OraLabs Holding Corp and Subsidiaries cost of sales are eliminated due to
transfer of stock ownership of subsidiary to OraLabs majority shareholder.
1c-OraLabs Holding Corp and Subsidiaries operating expenses are eliminated due
to transfer of stock ownership of subsidiary to OraLabs majority shareholder.
1d-OraLabs Holding Corp and Subsidiaries other income is eliminated due to
transfer of stock ownership of subsidiary to OraLabs majority shareholder.
1e-OraLabs Holding Corp and Subsidiaries tax benefit are eliminated due to
transfer of stock ownership of subsidiary to OraLabs majority shareholder.
1f-To record estimated closing costs of $100,000.
1g-To record effect of issuance of 300,000 shares of stock to directors. This
stock was valued at $2.18 per share based on daily average of two days before
and two days after the finalization of the stock exchange agreement. Total value
of $654,000. This cost would be both recorded and eliminated as a pro forma
entry since it would be a cost to the old OraLabs shareholders which would be
eliminated in consolidation.
ANNEX 1
(Stock Exchange Agreement)
THE SECURITIES TO BE ISSUED BY ORALABS HOLDING CORP. ("ORALABS") UNDER THIS
STOCK EXCHANGE AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), IN RELIANCE UPON REGULATION S AND OTHER
EXEMPTIONS UNDER THE 1933 ACT. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR INADEQUACY OF THIS STOCK EXCHANGE
AGREEMENT AND OTHER RELATED DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL. THE PERSONS ACQUIRING THE COMMON STOCK OF ORALABS MUST REPRESENT THAT
THEY WILL NOT ENGAGE IN ANY HEDGING TRANSACTIONS FOR ONE YEAR UNLESS IN
COMPLIANCE WITH THE 1933 ACT.
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (hereinafter referred to as this
"Agreement"), is entered into as of this 23 day of February, 2005, by and among
OraLabs Holding Corp., a Colorado corporation ("OraLabs"); NVC Lighting
Investment Holdings Limited ("NVC"), a company organized in the Hong Kong
Special Administrative Region in The People's Republic of China, including its
wholly owned subsidiary, NVC Industrial Development Co., Limited ("NVCI"), a
company organized as a Sino-foreign joint investment enterprise in Huizhou,
Guangdong Province in The People's Republic of China ; and Mr. Chang-Jiang Wu,
Mr. Yong-Hong Wu, and Mr. Du Gang listed on Schedule 1(a) to this Agreement,
being the only shareholders and sole registered capital owners of NVC ( the
"Shareholders"), upon the following premises:
RECITALS
A. OraLabs is presently a registered public company with the U.S.
Securities and Exchange Commission under the Securities Exchange Act of 1934
(File No. 000-23039). OraLabs has a subsidiary, OraLabs, Inc., which is its
principal operating company, as well as another subsidiary, O.H. Sub Corp.,
which has never conducted any business. OraLabs.
B. The Shareholders of NVC own all of the issued and outstanding
registered ordinary shares of NVC (the "NVC Stock") which in turn owns the
entire registered capital of NVCI.
C. The Shareholders of NVC have agreed to transfer to OraLabs, and
OraLabs has agreed to acquire, and exchange all of their ownership of the
registered ordinary shares of NVC from the Shareholders in exchange for shares
representing ninety percent (90%) of the total fully diluted outstanding common
stock of OraLabs calculated after this stock exchange and after the completion
of the redemption of shares described in Recital D that will be completed
immediately following the stock exchange described in this Recital C, subject to
and pursuant to the terms and conditions set forth in this Agreement, which
percentage may increase up to ninety four percent (94%) as described in Section
1.1 of this Agreement.
D. Immediately following the stock exchange described in Recital C,
OraLabs will redeem all of the shares of common stock of OraLabs owned by Gary
H. Schlatter in his individual name in exchange for the issuance to Gary
Schlatter of all of the common stock of OraLabs, Inc., 100% of which is owned by
OraLabs, and OraLabs will have no tangible assets or liabilities as of the
closing of the stock exchange with NVC.
E. NVC together with its wholly-owned foreign subsidiary, NVCI, will
become wholly-owned subsidiaries of OraLabs upon closing of the stock exchange.
AGREEMENT
NOW THEREFORE, on the stated premises and for and in consideration of
the mutual covenants and agreements hereinafter set forth and the mutual
benefits to the parties to be derived herefrom, it is hereby agreed as follows:
ARTICLE I
PLAN OF EXCHANGE
1.1 THE EXCHANGE. At the Closing (as defined in Section 1.3 below), the
Shareholders hereby agree to assign, transfer, and deliver to OraLabs, free and
clear of all liens, pledges, encumbrances, charges, restrictions, or claims of
any kind, nature, or description, their shares of NVC Stock duly endorsed for
transfer to OraLabs or accompanied by stock powers executed in blank by the
Shareholders, and OraLabs agrees to acquire such shares on such date by issuing
and delivering in exchange therefor solely shares of OraLabs common voting
stock, par value $.001, which will represent 90% of the fully diluted total
issued and outstanding shares of the Common Stock of OraLabs (the "OraLabs
Stock") after the issuance of shares to non-employee directors pursuant to
Section 4.16 and completion of the redemption of shares owned by Gary H.
Schlatter individually, to be issued to the Shareholders and their designees as
listed on Schedule 1(b), in full satisfaction of any right or interest which the
Shareholders held in the NVC Stock. The OraLabs Stock will be issued to the
Shareholders and their designees with a restrictive legend as set forth in
Section 3.3 hereof. Any fractional shares that will result due to such pro rata
distribution will be rounded up to the next highest whole number. As a result of
the exchange of the NVC Stock in exchange for the OraLabs Stock, NVC will become
a wholly-owned subsidiary of OraLabs and the Shareholders of NVC and its
designees will own ninety percent (90%) of the then fully diluted issued and
outstanding common stock of OraLabs. At the Closing, OraLabs will redeem all of
the shares of Common Stock owned by Gary H. Schlatter in his individual name, in
exchange for the issuance of the OraLabs, Inc. common stock described in Recital
D.
There shall be an adjustment to the number of shares to be issued to
the Shareholders of NVC as described above from 90% to up to 94% in the event
that there is more than $3,380,000 (all references in this Agreement to "$" mean
United States dollars) in NVC net after tax income on a consolidated basis based
upon generally accepted accounting principles in the United States for its
fiscal year ended December 31, 2004, as follows:
(a) if the consolidated net after-tax profits of NVC is $7,000,000
or more for such fiscal year, then the equity Shareholders of
NVC shall be entitled to additional shares of the common stock
of OraLabs such that NVC will own 94% of the total outstanding
shares of the common stock of OraLabs on a fully diluted basis
upon the closing of this Agreement, rather than 90% as
provided above; or
(b) if the consolidated net after-tax profits of NVC is more that
$3,380,000 but less than $7,000,000 then the Shareholders of
NVC shall be entitled to additional shares of the common stock
of OraLabs of up to an additional 3.99% of the total number of
shares to be outstanding on the closing of this Agreement,
determined by the proportionate difference in net profits of
$3,380,000 and $7,000,000; for example, if the net profits of
NVC are $5,190,000 for its fiscal year ended December 31,
2004, then the Shareholders of NVC will be entitled to 92% of
the total outstanding shares of OraLabs on a fully diluted
basis upon the closing of this Agreement, rather than 90% as
provided above.
2
1.2 ANTI-DILUTION. The number of shares of OraLabs Stock shall be
appropriately adjusted to take into account any stock split, stock dividend,
reverse stock split, recapitalization, or similar change in the OraLabs common
stock, par value $.001, which may occur between the date of the execution of
this Agreement and the date of delivery of such shares.
1.3 CLOSING. The closing ("Closing") of the transactions contemplated
by this Agreement shall be thirty (30) days after the mailing date (the "Closing
Date") of the Schedule 14A or 14C Proxy Statement or Information Statement to be
sent to the shareholders of OraLabs after it has been approved by the U.S.
Securities and Exchange Commission ("SEC"), unless extended in writing by the
parties. The order of events at the Closing will be as set forth in the
Recitals.
In the event that the Closing is delayed because the proxy or
information statement remains subject to review by the SEC, the Closing Date
will be extended to accommodate the SEC review process and the time required to
thereafter hold a special meeting of the OraLabs shareholders. Notwithstanding
the foregoing, if this Agreement does not close by June 30, 2005, either party
may terminate this Agreement unless said date is extended under Section 8.1(d).
1.4 CLOSING EVENTS. At the Closing, each of the respective parties
hereto shall execute, acknowledge, and deliver (or shall cause to be executed,
acknowledged, and delivered) any and all stock certificates, officers'
certificates, opinions, financial statements, schedules, agreements,
resolutions, rulings, or other instruments required by this Agreement to be so
delivered at or prior to the Closing, including the documents and stock
certificates provided in paragraphs 5.2 and 5.3 herein, together with such other
items as may be reasonably requested by the parties hereto and their respective
legal counsel in order to effectuate or evidence the transactions contemplated
hereby. If agreed to by the parties, the Closing may take place through the
exchange of documents by efax, fax, email and/or express courier.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF NVC
As an inducement to, and to obtain the reliance of, OraLabs, NVC
represents and warrants as follows, which representations and warranties will
remain accurate at the time of Closing :
2.1 ORGANIZATION. NVC is a company duly organized, validly existing,
and in good standing under the laws of the Hong Kong Special Administrative
Region in The People's Republic of China ("PRC"). NVC has the power and is duly
authorized, qualified, franchised, and licensed under all applicable laws,
regulations, ordinances, and orders of public authorities to own all of its
properties and assets and to carry on its business in all material respects as
it is now being conducted, including qualification to do business as a foreign
corporation in jurisdictions in which the character and location of the assets
owned by it or the nature of the business transacted by it requires
qualification. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement in accordance
with the terms hereof will not, violate any provision of NVC's organizational
documents. NVC has taken all action required by laws, its articles of
organization, certificate of business registration, or otherwise to authorize
the execution and delivery of this Agreement. NVC has full power, authority, and
legal right and has taken all action required by law, and otherwise to
consummate the transactions herein contemplated. NVC owns all of the outstanding
securities of its wholly-owned subsidiary, NVCI, and does not own, beneficially
or of record, any shares of any other corporation. No authorization, approval,
consent, or order of, or registration, declaration, or filing with, any court or
other governmental body is required in connection with the execution and
delivery by NVC of this Agreement and the consummation by NVC of the
transactions contemplated hereby.
3
2.2 CAPITALIZATION. The authorized capitalization of NVC consists
solely of 90,999,998 shares of ordinary stock, par value HK$1, of which
11,000,000 ordinary shares are currently issued and outstanding. All issued and
outstanding shares are legally issued, fully paid, and non-assessable and were
not issued in violation of the pre-emptive or other rights of any person. NVC
has not granted any options, warrants, or other convertible securities.
2.3 FINANCIAL STATEMENTS.
(a) Promptly after mutual execution of this Agreement, NVC and its
subsidiary, NVCI, will provide to OraLabs their consolidated
audited balance sheets at December 31, 2003 and 2002, and the
related audited consolidated statements of operations,
stockholders' equity and cash flows for the years ended
December 31, 2003 and 2002, together with notes to such
statements and the opinion of Murrell, Hall, McIntosh & Co.,
PLLP and Henny Wee & Co., independent certified public
accountants, with respect thereto. All of these consolidated
financial statements will be included in the NVC Schedules.
(b) All such consolidated financial statements will have been
prepared in accordance with generally accepted accounting
principles in the United States. The NVC balance sheets will
present fairly as of their date the consolidated financial
condition of NVC. NVC and its wholly-owned subsidiary, NVCI,
will not have, as of the date of such consolidated balance
sheets, except as and to the extent reflected or reserved
against therein, any liabilities or obligations (absolute or
contingent) which should be reflected in the consolidated
balance sheets or the notes thereto, prepared in accordance
with generally accepted accounting principles in the United
States, and all assets reflected therein will be properly
reported and present fairly the value of the assets of NVC and
its wholly-owned subsidiary, NVCI, in accordance with such
generally accepted accounting principles. The consolidated
statements of income, condensed consolidated stockholders'
equity, and consolidated cash flows will reflect fairly the
information required to be set forth therein by generally
accepted accounting principles in the United States.
(c) NVC will deliver unaudited balance sheets and the related
unaudited statements of income, changes in stockholders'
equity and cash flow for the year ended December 31, 2004
promptly after execution of this Agreement as well as such
statements for each quarter thereafter which shall be
delivered to OraLabs not later than 30 days after the end of
each quarter, including in each case the notes thereto. Such
financial statements and notes will fairly present the
financial condition and the results of operations, changes in
stockholders' equity, and cash flow of NVC as at the
respective dates of and for the periods referred to in such
financial statements, all in accordance with generally
accepted accounting principles, subject in the case of interim
financial statements to normal recurring year-end adjustments
(the effect of which will not, individually or in the
aggregate, be materially adverse). NVC shall provide such
unaudited financial information and pro forma financial
information to OraLabs as may be necessary for the Form 8-K
current reports, Schedule 14C or proxy statement requirements
of the U.S. Securities and Exchange Commission regarding this
Agreement and the Closing. NVC will complete and deliver to
OraLabs its audit of its consolidated financial statements for
its fiscal year ended December 31, 2004, as soon as reasonably
possible, but in any event by no later than March 31, 2005.
4
(d) NVC and its wholly-owned subsidiary, NVCI, have filed all
national, province, and local income tax returns required to
be filed by them from inception to the date hereof and all
taxes have been paid or are being paid when due. None of such
income tax returns have been examined or audited in the PRC.
NVC and the Shareholders acknowledge and agree that they are
relying solely upon their own analysis of the tax consequences
to them and to OraLabs upon completion of the transactions
contemplated by this Agreement and are not relying upon
OraLabs or any of its officers, directors, attorneys or agents
with respect thereto.
(e) NVC and its wholly-owned subsidiary, NVCI, do not owe any
unpaid national, province, county, local, or other taxes
(including any deficiencies, interest, or penalties), except
for taxes accrued but not yet due and payable, for which NVC
and its wholly-owned subsidiary, NVCI, may be liable in their
own right or as a transferee of the assets of, or as a
successor to, any other corporation or entity. Furthermore,
except as accruing in the normal course of business, NVC and
its wholly-owned subsidiary, NVCI, do not owe any past due
accrued and unpaid taxes to the date of this Agreement.
(f) The books and records, financial and otherwise, of NVC and its
subsidiary, NVCI, are in all material respects complete and
correct and have been maintained in accordance with good
business and accounting practices.
(g) NVC and its wholly-owned subsidiary, NVCI, have good and
marketable title to their assets and, except as set forth in
the NVC Schedules or the consolidated financial statements of
NVC or the notes thereto, has no material contingent
liabilities, direct or indirect, matured or unmatured.
(h) The audited consolidated financial statements of NVC for the
year ended December 31, 2004 will show not less than
$3,380,000 in net after-tax income on a consolidated basis in
accordance with generally accepted accounting principles in
the United States.
2.4 INFORMATION. The information concerning NVC set forth in this
Agreement and in the NVC Schedules is complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading. All information
provided by NVC to OraLabs in writing or in any other media form will be in the
English language and will be a complete and accurate translation of the other
language, if any, in which such information was originally prepared.
2.5 OPTIONS OR WARRANTS. There are no existing options, warrants,
calls, or commitments of any character relating to the authorized and unissued
NVC Stock.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in this
Agreement or the NVC Schedules, as of the most recent NVC consolidated balance
sheet, when received:
(a) except in the normal course of business, there will not be (i)
any material adverse change in the business, operations,
properties, assets, or condition of NVC and its wholly-owned
subsidiary, NVCI; or (ii) any damage, destruction, or loss to
NVC and its wholly-owned subsidiary, NVCI (whether or not
covered by insurance) materially and adversely affecting the
business, operations, properties, assets, or condition of NVC
and its wholly-owned subsidiary, NVCI;
5
(b) NVC and its wholly-owned subsidiary, NVCI, will not have (i)
borrowed or agreed to borrow any funds or incurred, or become
subject to, any material obligation or liability (absolute or
contingent) not otherwise in the ordinary course of business,
and except for capital raised by issuance of debt or equity in
a private placement or other capital raising transaction
deemed advisable by NVC; (ii) paid any material obligation or
liability not otherwise in the ordinary course of business
(absolute or contingent) other than current liabilities
reflected in or shown on the most recent NVC consolidated
balance sheet, and current liabilities incurred since that
date in the ordinary course of business; (iii) sold or
transferred, or agreed to sell or transfer, any of its assets,
properties, or rights not otherwise in the ordinary course of
business (except assets, properties, or rights not used or
useful in its business which, in the aggregate have a value of
less than $1,000,000), or canceled, or agreed to cancel, any
debts or claims (except debts or claims which in the aggregate
are of a value of less than $1,000,000); (iv) made or
permitted any amendment or termination of any contract,
agreement, or license to which they are a party not otherwise
in the ordinary course of business if such amendment or
termination is material, considering the business of NVC and
its wholly-owned subsidiary, NVCI; or (v) issued, delivered,
or agreed to issue or deliver any stock, bonds or other
corporate securities including debentures (whether authorized
and unissued or held as treasury stock).
2.7 TITLE AND RELATED MATTERS. NVC and its wholly-owned subsidiary,
NVCI, have good and marketable title to all of their properties, inventory,
interests in properties, and assets, real and personal, which will be reflected
in the most recent NVC consolidated balance sheet or acquired after that date
(except properties, interests in properties, and assets sold or otherwise
disposed of since such date in the ordinary course of business), free and clear
of all liens, pledges, charges, or encumbrances except:
(a) as such assets may be affected by laws of the Hong Kong
Special Administrative Region and The People's Republic of
China;
(b) statutory liens or claims not yet delinquent;
(c) such imperfections of title and easements as do not and will
not materially detract from or interfere with the present or
proposed use of the properties subject thereto or affected
thereby or otherwise materially impair present business
operations on such properties; and
(d) except as set forth in the NVC Schedules, NVC and its
wholly-owned subsidiary, NVCI, own, free and clear of any
liens, claims, encumbrances, royalty interests, or other
restrictions or limitations of any nature whatsoever, any and
all properties it is currently constructing and all
procedures, techniques, marketing plans, business plans,
methods of management, or other information utilized in
connection with NVC and its wholly-owned subsidiary's
business. Except as set forth in the NVC Schedules, no third
party has any right to, and NVC and its wholly-owned
subsidiary, NVCI, have not received any notice of infringement
of or conflict with asserted rights of others with respect to
any product, technology, data, trade secrets, know-how,
proprietary techniques, trademarks, service marks, trade
names, or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling, or finding, would
have a materially adverse affect on the business, operations,
financial condition, income, or business prospects of NVC and
its wholly-owned subsidiary, NVCI, or any material portion of
its properties, assets, or rights.
6
2.8 LITIGATION AND PROCEEDINGS. Except as set forth in the NVC
Schedules, there are no actions, suits, proceedings, or investigations pending
or, to the knowledge of NVC after reasonable investigation, threatened by or
against NVC and its wholly-owned subsidiary, NVCI, or affecting NVC and its
wholly-owned subsidiary, NVCI, or their properties, at law or in equity, before
any court or other governmental agency or instrumentality, domestic or foreign,
or before any arbitrator of any kind. NVC does not have any knowledge of any
default on its part with respect to any judgment, order, writ, injunction,
decree, award, rule, or regulation of any court, arbitrator, or governmental
agency or instrumentality or of any circumstances which, after reasonable
investigation, would result in the discovery of such a default. There is no
claim against NVC or its subsidiary that either is or may be infringing on or
otherwise acting adversely to the rights of any person under or in respect of
any patent, trademark, service mark, trade name, copyright, license, franchise,
permission or other intangible right. Neither NVC nor its subsidiary is
obligated or under any liability to make any payments by way of royalties, fees
or otherwise to any owner or licensor of, or other claimant to, any patent,
trademark, trade name, copyright or other intangible asset with respect to the
use thereof, in connection with the conduct of its business or otherwise.
2.9 CONTRACTS.
(a) NVC has provided, or will provide OraLabs on reasonable
request, copies of all material contracts, agreements,
franchises, license agreements, or other commitments to which
NVC and its wholly-owned subsidiary, NVCI, are parties or by
which they or any of their assets, products, technology, or
properties are bound;
(b) All contracts, agreements, franchises, license agreements, and
other commitments to which NVC and its wholly-owned
subsidiary, NVCI, are parties or by which their properties are
bound and which are material to the operations of NVC and its
wholly-owned subsidiary, NVCI, taken as a whole are valid and
enforceable by NVC and its wholly-owned subsidiary, NVCI, in
all respects, except as limited by bankruptcy and insolvency
laws and by other laws affecting the rights of creditors
generally; and
(c) Except as described in the NVC Schedules, NVC and its
wholly-owned subsidiary, NVCI, are not parties to or bound by,
and the properties of NVC and its wholly-owned subsidiary,
NVCI, are not subject to, any contract, agreement, other
commitment or instrument; any charter or other corporate
restriction; or any judgment, order, writ, injunction, decree,
or award which materially and adversely affects, or in the
future may (as far as NVC or its wholly-owned subsidiary,
NVCI, can now foresee) materially and adversely affect, the
business, operations, properties, assets, or condition of NVC
and its wholly-owned subsidiary, NVCI.
2.10 MATERIAL CONTRACT DEFAULTS. NVC and its wholly-owned subsidiary,
NVCI, are not in default in any material respect under the terms of any
outstanding contract, agreement, lease, or other commitment which is material to
the business, operations, properties, assets, or condition of NVC and its
wholly-owned subsidiary, NVCI, and there is no event of default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which NVC and its wholly-owned subsidiary, NVCI, have not taken
adequate steps to prevent such a default from occurring.
2.11 NO CONFLICT WITH OTHER INSTRUMENTS. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which NVC and its
wholly-owned subsidiary, NVCI, are parties or to which any of their properties
or operations are subject.
7
2.12 COMPLIANCE WITH LAWS AND REGULATIONS. NVC and its wholly-owned
subsidiary, NVCI, have complied with all applicable statutes and regulations of
any national, province, county, or other governmental entity or agency thereof,
except to the extent that noncompliance would not materially and adversely
affect the business, operations, properties, assets, or condition of NVC and its
wholly-owned subsidiary, NVCI, or except to the extent that noncompliance would
not result in the incurrence of any material liability for NVC or its
wholly-owned subsidiary, NVCI. Neither NVC nor NVCI is aware of, or has received
notice of, any conditions which may reasonably be expected to interfere with or
adversely affect their business, their assets or the financial condition of
either, or prevent compliance or continued compliance with any environmental
laws.
2.13 APPROVAL OF AGREEMENT. The members and owners of NVC shown on
Schedule 1(a) have authorized the execution and delivery of this Agreement by
NVC, have or will have approved the transactions contemplated hereby, and
approved the submission of this Agreement and the transactions contemplated
hereby to the members of NVC for their approval with the recommendation that the
reorganization be accepted.
2.14 MATERIAL TRANSACTIONS OR AFFILIATIONS. Set forth in the NVC
Schedules is a brief description or summary of every material contract,
agreement, or arrangement between NVC and its wholly-owned subsidiary, NVCI, and
any predecessor and any person who was at the time of such contract, agreement,
or arrangement an officer, director, or person owning of record, or known by NVC
to own beneficially, 10% or more of the issued and outstanding interests of NVC
and which is to be performed in whole or in part after the date hereof or which
was entered into not more than three years prior to the date hereof. In all of
such transactions, the amount paid or received, whether in cash, in services, or
in kind, is, had been during the full term thereof, and is required to be during
the unexpired portion of the term thereof, no less favorable to NVC and its
wholly-owned subsidiary, NVCI, than terms available from otherwise unrelated
parties in arm's length transactions. Except as disclosed in the NVC Schedules
or otherwise disclosed herein, no officer, director, or 10% shareholder of NVC
has, or has had since inception of NVC, any material interest, direct or
indirect, in any material transaction with NVC or its wholly-owned subsidiary,
NVCI. There are no commitments by NVC and its wholly-owned subsidiary, NVCI,
whether written or oral, to lend any funds to, borrow any money from, or enter
into any other material transaction with, any such affiliated person.
2.15 NVC SCHEDULES. NVC will deliver, as soon as practicable but in any
event within 10 days after the date of this Agreement, the following schedules,
which are collectively referred to as the "NVC Schedules" and which consist of
separate schedules dated as of the date of execution of this Agreement and
instruments and data as of such date, all certified by the chief executive
officer of NVC as complete, true, and correct:
(a) a schedule containing complete and correct copies of the
organizational documents, in the English language, as amended,
of NVC and its wholly-owned subsidiary, NVCI, in effect as of
the date of this Agreement;
(b) a schedule containing the consolidated financial statements of
NVC and its wholly-owned subsidiary, NVCI, identified in
paragraph 2.3(c);
(c) a schedule containing true and correct copies, in the English
language, of all material contracts, agreements, or other
instruments to which NVC or its wholly-owned subsidiary, NVCI,
is a party or by which they or their properties are bound,
specifically including all contracts, agreements, or
arrangements referred to in Section 2.9;
8
(d) a schedule setting forth a description of any material adverse
change in the business, operations, property, inventory,
assets, or condition of NVC or its wholly-owned subsidiary,
NVCI, since the date of the most recent NVC consolidated
balance sheet, required to be provided pursuant to section 2.6
hereof; and
(e) a schedule setting forth any other information, together with
any required copies of documents, required to be disclosed in
the NVC Schedules by sections 2.1 through 2.15. NVC shall
cause the NVC Schedules and the instruments and data delivered
to OraLabs hereunder to be updated after the date hereof up to
and including the Closing Date.
2.16 TRADING. NVC agrees to take all necessary precautions to prevent
any trading in OraLabs securities by its officers, directors, employees,
affiliates, agents or others having knowledge of this Agreement. NVC for itself
and on behalf of all of its shareholders, and the Shareholders of NVC, jointly
and severally, hereby agree that until the earlier to occur of (i) the date that
is three months after the termination of this Agreement, or (ii) the date of the
Closing of this Agreement, they will not, without the prior written consent of
OraLabs:
(a) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or
direct or indirect rights to acquire any voting securities of
OraLabs or any subsidiary thereof, or of any successor to or
person in control of OraLabs, or any assets of OraLabs or any
subsidiary or division thereof or of any such successor or
controlling person;
(b) make or in any way participate, directly or indirectly, in any
"solicitation" or "proxies" to vote (as such terms are used in
the rules of the Securities and Exchange Commission), or seek
to advise or influence any person or entity with respect to
the voting of any voting securities of OraLabs;
(c) make any public announcement with respect to, or submit a
proposal for, or offer of (with or without conditions) any
extraordinary transaction involving OraLabs or its securities
or assets;
(d) form, join or in any way participate in a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1034, as
amended (the "Exchange Act"), in connection with any of the
foregoing; or
(e) otherwise act, alone or in concert with others, to seek to
control the management, board of directors, or policies of
OraLabs.
ARTICLE III
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF
THE SHAREHOLDERS OF NVC
As an inducement to, and to obtain reliance of OraLabs, the
Shareholders of NVC represent and warrant as follows:
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3.1 OWNERSHIP OF NVC SHARES. The NVC Shareholders hereby represent and
warrant with respect to themselves that they are the legal and beneficial owners
of the percentage of NVC registered capital and ordinary stock set forth on
Schedule 1(a) of this Agreement, free and clear of any claims, charges,
equities, liens, security interests, and encumbrances whatsoever, and the
Shareholders have full rights, powers, and authority to transfer, assign,
convey, and deliver their NVC stock; and delivery of such registered capital at
the closing will convey to OraLabs good and marketable title to such stock free
and clear of any claims, charges, equities, liens, security interests, and
encumbrances whatsoever.
3.2 KNOWLEDGE OF REPRESENTATIONS. To the best of their knowledge and
belief, the representations of NVC in Article II, above, are true, accurate and
complete.
3.3 RESTRICTED STOCK. The Shareholders understand that the Shares of
OraLabs to be acquired pursuant to this Agreement have not been registered under
the 1933 Act with the SEC in reliance upon the exemption from the registration
requirements thereof afforded by Regulation S and/or other exemptions under the
1933 Act, or with any state securities commission or agency. The Shareholders
agree and acknowledge that OraLabs will issue stop transfer instructions to its
registrar and transfer agent prohibiting the transfer of the Shares of OraLabs
delivered under this Agreement to any U.S. person for a period of one year after
the date of closing of this Agreement. The Shareholders and their designees
understand that the Shares to be issued to them will have the following
restrictive legend or similar legend affixed thereto:
"These Shares have not been registered under the Securities Act of 1933
(the "Act"), and have been issued pursuant to an exemption pursuant to
Regulation S under the Act. Until one year after the date of purchase, no amount
of the Shares may be offered, sold, or transferred to any U.S. Person and no
hedging transactions involving these securities may be conducted during this
period. Offers, sales, or transfers in the U.S. or to a U.S. person (as defined
in Regulation S promulgated under the Act) or for the account and benefit of a
U.S. person are not permitted, except as provided in said Regulation S, unless
the Shares are registered under the Act or an exemption from such registration
under the Act is applicable."
3.4 CITIZENSHIP AND RESIDENCY. The Shareholders hereby represent and
warrant to OraLabs that they are citizens and residents of The People's Republic
of China, and are not U.S. Persons within the meaning of Rule 902(a) of
Regulation S.
3.5 RESTRICTIONS ON TRANSFER. The Shareholders and any assigns of the
Shares agree that the Shares of OraLabs acquired by the Shareholders and/or by
them pursuant to this Agreement shall not be voluntarily sold, transferred or
otherwise disposed of in the United States or to any U.S. Person for a minimum
period of one year from the Closing Date of this transaction, except by
registration of such Shares under the 1933 Act and any applicable state
securities laws.
3.6 NO HEDGING TRANSACTIONS. The Shareholders and any assigns of the
Shares of OraLabs acquired pursuant to this Agreement agree that hedging
transactions involving these Shares shall not be conducted during a period of
one year, unless in compliance with the 1933 Act.
3.7 TRANSFERS. The Shareholders understand that any disposition of the
Shares of OraLabs in violation of this Agreement shall be null and void. No
transfer of the Shares shall be made by OraLabs' registrar and transfer agent
upon OraLabs' transfer books or records unless there has been compliance with
the terms of this Agreement, including the above provisions. OraLabs will issue
stop transfer instructions to its registrar and transfer agent to the effect
that the Shares of OraLabs may not be transferred for a period of one year after
the Closing Date and may be transferred thereafter only except as provided
herein. The Shareholders agree to indemnify and hold OraLabs and OraLabs, Inc.
harmless from and against liabilities, claims, damages and expenses (including
reasonable attorneys fees) that may result from or arise out of any disposition
thereof in violation of this Agreement.
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3.8 NON-U.S. TRANSACTIONS. In connection with the transaction which is
the subject of this Agreement, the Shareholders acknowledge that offers
respecting the sale of the Shares directed by OraLabs were received outside of
the United States and that the Shareholders have not and are not engaged in or
directed any unsolicited offers to buy the Shares of OraLabs into the United
States or to any U.S. person.
3.9 RESTRICTIVE LEGEND. Any documents received by the Shareholders
included statements to the effect that the Shares have not been registered under
the 1933 Act and that no sale of such Shares may occur during a period
commencing on the Closing Date and ending one year thereafter unless the Shares
are registered under the 1933 Act or are sold pursuant to an exemption from
registration.
3.10 INVESTMENT INTENT. The Shareholders are purchasing the Shares of
OraLabs only for their own account and not on behalf of any U.S. person, and no
sale by the Shareholders has been pre-arranged with any prospective buyer in the
United States.
3.11 AGREE TO REGISTER SALES OF SHARES. The Shareholders agree that all
offers and sales of the Shares of OraLabs prior to the expiration of a period
commencing on the date of the closing of this transaction and ending one year
thereafter shall only be made in compliance with the restrictions of Regulation
S, or pursuant to registration of such securities under the 1933 Act or pursuant
to an exemption thereunder, and the terms hereof.
ARTICLE IV
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF ORALABS
As an inducement to, and to obtain the reliance of NVC and the
Shareholders, OraLabs represents and warrants as follows:
4.1 ORGANIZATION. OraLabs is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado, and has
the corporate power and is duly authorized, qualified, franchised, and licensed
under all applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets and to carry on its business
in all material respects as it is now being conducted, and there is no
jurisdiction in which it is not qualified in which the character and location of
the assets owned by it or the nature of the business transacted by it requires
qualification. Included in the OraLabs filings with the SEC are complete and
correct copies of the Certificate of Incorporation and all amendments thereto
and the bylaws of OraLabs, and all amendments thereto, as in effect on the date
hereof. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, violate any
provision of OraLabs's Certificate of Incorporation or bylaws. OraLabs has taken
all action required by law, its Certificate of Incorporation, its bylaws, or
otherwise to authorize the execution and delivery of this Agreement, and OraLabs
has full power, authority, and legal right and has taken all action required by
law, its Certificate of Incorporation, bylaws, or otherwise to consummate the
transactions herein contemplated, subject to satisfaction of the conditions
described in Article VI below.
4.2 CAPITALIZATION. OraLabs's authorized capitalization includes
100,000,000 shares of common stock, par value $.001, of which no more than
4,580,615 shares (plus shares issued upon exercise of options and the shares to
be issued under Section 4.16 below) will be issued and outstanding immediately
prior to the Closing. All presently issued and outstanding shares are legally
issued, fully paid, and non-assessable and not issued in violation of the
pre-emptive or other rights of any person.
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OraLabs authorized capitalization includes 1,000,000 shares of
preferred stock, $.001 par value, of which no preferred shares are or will be
issued and outstanding at Closing.
4.3 SUBSIDIARIES. OraLabs does not have any subsidiaries and does not
own, beneficially or of record, any shares of any other corporation, except
OraLabs, Inc. and O.H. Sub Corp.
4.4 FINANCIAL STATEMENTS.
(a) Included in the Form 10-KSB filed with the SEC for the year
ended December 31, 2003, are the audited consolidated balance
sheets of OraLabs as of December 31, 2003, and the related
audited statements of operations, stockholders' equity, and
cash flow for the two fiscal years ended December 31, 2003
together with the notes to such statements and the opinion of
Ehrhardt Keefe Steiner & Hottman PC, independent certified
public accountants, with respect thereto. Included in the Form
10-QSB filed with the SEC for the period ended September 30,
2004, are the unaudited consolidated balance sheets of OraLabs
as of September 30, 2004, and the related unaudited statements
of operations, stockholders' equity, and cash flow for the
nine-month period ended September 30, 2004, together with the
notes to such statements.
(b) All such financial statements have been prepared in accordance
with generally accepted accounting principles in the United
States consistently applied throughout the periods involved.
The OraLabs balance sheets present fairly as of their
respective dates the financial condition of OraLabs. OraLabs
did not have as of the date of any such OraLabs balance sheet,
except as and to the extent reflected or reserved against
therein, any liabilities or obligations (absolute or
contingent) which should be reflected in a balance sheet or
the notes thereto prepared in accordance with generally
accepted accounting principles, and all assets reflected
therein are properly reported and present fairly the value of
the assets of OraLabs, in accordance with generally accepted
accounting principles. The statements of operations,
stockholders' equity, and cash flow reflect fairly the
information required to be set forth therein by generally
accepted accounting principles.
(c) OraLabs has no liabilities with respect to the payment of any
federal, state, county, local, or other taxes (including any
deficiencies, interest, or penalties), except for taxes
accrued but not yet due and payable.
(d) OraLabs has filed all federal, state, or local income tax
returns required to be filed by it from inception to the date
hereof. Included in the OraLabs Schedules are true and correct
copies of the federal income tax returns of OraLabs filed
since 2001. None of such federal income tax returns have been
examined by the Internal Revenue Service. Each of such income
tax returns reflects the taxes due for the period covered
thereby, except for amounts which, in the aggregate, are
immaterial. OraLabs, Inc. acknowledges and agrees that it is
relying solely upon its own analysis of the tax consequences
to it upon completion of the transactions contemplated by this
Agreement and is not relying upon the Shareholders or NVC, or
any of its officers, directors, attorneys or agents with
respect thereto.
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(e) The books and records, financial and otherwise, of OraLabs are
in all material respects complete and correct and have been
maintained in accordance with good business and accounting
practices.
(f) OraLabs has good and marketable title to its assets and,
except as set forth in the OraLabs Schedules or the Financial
Statements of OraLabs or the notes thereto, has no material
contingent liabilities, direct or indirect, matured or
unmatured.
4.5 INFORMATION. The information concerning OraLabs set forth in this
Agreement and the OraLabs Schedules are and will be complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact required to make the statements made, in light
of the circumstances under which they were made, not misleading as of the
Closing date. All outstanding stock options and any other convertible
securities, if any, of OraLabs will be exercised, terminated or cancelled as of
the Closing date.
4.6 OPTIONS OR WARRANTS. Except as set forth in Schedule 2, there are
no existing options, warrants, calls, or commitments of any character relating
to authorized and unissued stock of OraLabs. All outstanding stock options and
warrants, and any other convertible securities, if any, will be terminated and
cancelled as of the Closing Date.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as described herein,
in any filings made by OraLabs with the SEC, or in the OraLabs Schedules, since
the date of the most recent OraLabs balance sheet:
(a) there has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of
OraLabs (whether or not covered by insurance) materially and
adversely affecting the business, operations, properties,
assets, or condition of OraLabs;
(b) OraLabs has not (i) recently amended its Certificate of
Incorporation or bylaws; (ii) declared or made, or agreed to
declare or make any payment of dividends or distributions of
any assets of any kind whatsoever to stockholders or purchased
or redeemed, or agreed to purchase or redeem, any of its
capital stock; (iii) waived any rights of value which in the
aggregate are extraordinary or material considering the
business of OraLabs; (iv) made any material change in its
method of management, operation, or accounting; (v) entered
into any other material transactions; (vi) made any accrual or
arrangement for or payment of bonuses or special compensation
of any kind or any severance or termination pay to any present
or former officer or employee; or (vii) made any increase in
any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment,
or arrangement, made to, for, or with its officers, directors,
or employees;
(c) Except as described in Schedule 2, OraLabs has not (i) granted
or agreed to grant any options, warrants, or other rights for
its stocks, bonds, or other corporate securities calling for
the issuance thereof; (ii) borrowed or agreed to borrow any
funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent) except
liabilities incurred in the ordinary course of business; (iii)
paid or agreed to pay any material obligation or liability
(absolute or contingent) other than current liabilities
reflected in or shown on the most recent OraLabs balance sheet
and current liabilities incurred since that date in the
ordinary course of business and professional and other fees
and expenses incurred in connection with the preparation of
this Agreement and the consummation of the transactions
contemplated hereby; (iv) made or permitted any amendment or
termination of any contract, agreement, or license to which it
is a party if such amendment or termination is material,
considering the business of OraLabs; or (v) issued, delivered,
or agreed to issue or deliver any stock, bonds, or other
corporate securities including debentures (whether authorized
and unissued or held as treasury stock), except in connection
with this Agreement;
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(d) It is understood and agreed that OraLabs will have no material
assets, liabilities or accounts payable upon completion of the
Closing; and
(e) to the best knowledge of OraLabs, it has not become subject to
any law or regulation which materially and adversely affects,
or in the future may adversely affect, the business,
operations, properties, assets, or condition of OraLabs.
4.8 TITLE AND RELATED MATTERS. OraLabs has good and marketable title to
all of its properties, interest in properties, and assets, real and personal,
which are reflected in the OraLabs balance sheet or acquired after that date
(except properties, interest in properties, and assets sold or otherwise
disposed of since such date in the ordinary course of business), free and clear
of all liens, pledges, charges, or encumbrances except
(a) statutory liens or claims not yet delinquent;
(b) such imperfections of title and easements as do not and will
not materially detract from or interfere with the present or
proposed use of the properties subject thereto or affected
thereby or otherwise materially impair present business
operations on such properties; and
(c) as described in the OraLabs Schedules.
4.9 LITIGATION AND PROCEEDINGS. Except in the ordinary course of
OraLabs business there are no actions, suits, or proceedings pending or, to the
knowledge of OraLabs, threatened by or against or affecting OraLabs, at law or
in equity, before any court or other governmental agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind. OraLabs does not have
any knowledge of any default on its part with respect to any judgment, order,
writs, injunction, decree, award, rule, or regulation of any court, arbitrator,
or governmental agency or instrumentality.
4.10 CONTRACTS. OraLabs is not a party to any material contract,
agreement, or other commitment, except as described in any filing by OraLabs
with the SEC.
4.11 NO CONFLICT WITH OTHER INSTRUMENTS. The consummation of the
transactions contemplated by this Agreement will not result in the breach of any
term or provision of, or constitute a default under, any indenture, mortgage,
deed of trust, or other material agreement or instrument to which OraLabs is a
party or to which it or any of its assets or operations are subject.
4.12 GOVERNMENTAL AUTHORIZATIONS. OraLabs has all licenses, franchises,
permits, and other government authorizations, that are legally required to
enable it to conduct its business operations in all material respects as
conducted on the date hereof. Except for compliance with federal and state
securities or corporation laws, as hereinafter provided, no authorization,
approval, consent, or order of, or registration, declaration, or filing with,
any court or other governmental body is required in connection with the
execution and delivery by OraLabs of this Agreement and the consummation by
OraLabs of the transactions contemplated hereby.
14
4.13 COMPLIANCE WITH LAWS AND REGULATIONS. To the best of its
knowledge, OraLabs has complied with all applicable statutes and regulations of
any federal, state, or other applicable governmental entity or agency thereof,
except to the extent that noncompliance would not materially and adversely
affect the business, operations, properties, assets, or conditions of OraLabs or
except to the extent that noncompliance would not result in the incurrence of
any material liability. This compliance includes, but is not limited to, the
filing of all reports to date with the SEC and state securities authorities.
4.14 APPROVAL OF AGREEMENT. The board of directors of OraLabs has
authorized the execution and delivery of this Agreement by OraLabs and has
approved this Agreement and the transactions contemplated hereby.
4.15 CONTINUITY OF BUSINESS ENTERPRISES. Except for the transactions
contemplated by this Agreement, OraLabs has no commitment or present intention
to liquidate OraLabs, Inc. or sell or otherwise dispose of a material portion of
its business or assets following the consummation of the transactions
contemplated hereby.
4.16 MATERIAL TRANSACTIONS OF AFFILIATIONS. Except as disclosed herein
and in the OraLabs Schedules, there exists no material contract, agreement, or
arrangement between OraLabs and any person who was at the time of such contract,
agreement, or arrangement an officer, director, or person owning of record or
known by OraLabs to own beneficially, 10% or more of the issued and outstanding
common stock of OraLabs and which is to be performed in whole or in part after
the date hereof or was entered into not more than three years prior to the date
hereof. Neither any officer, director, nor 10% shareholder of OraLabs has, or
has had during the last preceding full fiscal year, any known interest in any
material transaction with OraLabs which was material to the business of OraLabs.
OraLabs has no commitment, whether written or oral, to lend any funds to, borrow
any money from, or enter into any other material transaction with any such
affiliated person. Notwithstanding the foregoing, on or before the date of
Closing, OraLabs intends to issue 100,000 shares to each of the non-employee
directors of OraLabs, which will be issued under a registration statement on
Form S-8.
4.17 TRANSACTIONS. OraLabs agrees to take all necessary precautions to
prevent any improper transactions in OraLabs securities by its officers,
directors, employees, affiliates, agents or others having knowledge of this
Agreement. OraLabs agrees that until the earlier to occur of (i) the date that
is the termination of this Agreement, or (ii) the date of the Closing of this
Agreement, OraLabs will take such precautions to prevent the officers and
directors of OraLabs, as well as their respective affiliates, from:
(a) acquiring directly or indirectly, by purchase or otherwise,
any voting securities or direct or indirect rights to acquire
any voting securities of OraLabs or any subsidiary thereof, or
of any successor to or person in control of OraLabs, or any
assets of OraLabs or any subsidiary or division thereof or of
any such successor or controlling person, except as provided
in this Agreement and under the option plans for employees and
for non-employee directors;
(b) making or in any way participating, directly or indirectly,
except with respect to the proxy and shareholder meeting
contemplated by this Agreement, in any "solicitation" or
"proxies" to vote (as such terms are used in the rules of the
Securities and Exchange Commission);
15
(c) making any public announcement with respect to, or submitting
a proposal for, or offer of (with or without conditions) any
extraordinary transaction involving OraLabs or its securities
or assets, except as contemplated by this Agreement; or
(d) forming, joining or in any way participating in a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of
1034, as amended (the "Exchange Act"), in connection with any
of the foregoing.
4.18 ORALABS SCHEDULES. OraLabs has delivered to NVC, or will deliver
as soon as practicable at NVC's request but in any event within ten (10) days
after the date of this Agreement, the following schedules, which are
collectively referred to as the "OraLabs Schedules," which are dated the date of
this Agreement, all certified by an officer to be complete, true, and accurate:
(a) a schedule containing complete and accurate copies of the
Certificate of Incorporation and bylaws, as amended, of
OraLabs as in effect as of the date of this Agreement; except
to the extent these documents are available to NVC on EDGAR
Online as part of filings made by OraLabs with the SEC;
(b) a schedule containing any filings by OraLabs with the SEC, not
available on EDGAR;
(c) a schedule containing a copy of the federal income tax returns
of OraLabs identified in paragraph 4.4(d);
(d) a schedule setting forth the description of any material
adverse change in the business, operations, property, assets,
or condition of OraLabs since the date of the most recent
OraLabs balance sheet, required to be provided pursuant to
section 4.7 hereof; and
(e) a schedule setting forth any other information, together with
any required copies of documents, required to be disclosed in
the OraLabs Schedules by sections 4.1 through 4.17; except to
the extent these documents are available to NVC on EDGAR
Online as part of filings made by OraLabs with the SEC.
4.19. OraLabs shall cause the OraLabs Schedules and the instruments
and data delivered to NVC hereunder to be updated after the
date hereof up to and including the Closing Date.
ARTICLE V
SPECIAL COVENANTS
5.1 STOCKHOLDERS' MEETING OF ORALABS. As soon as practicable following
the execution of this Agreement, and prior to the Closing, OraLabs shall cause
to have approved the following proposals by the written consent of the holders
of a majority of the outstanding shares of common stock of OraLabs, which
approval shall then be subject to the filing of a Proxy Statement or an
Information Statement with the SEC and the passage of at least 30 days after the
mailing of the Proxy Statement or Information Statement without objecting action
taken by any shareholder.
(a) the election of Mr. Chang-Jiang Wu and Mr. Yong-Hong Wu as
directors of OraLabs effective at the time of the Closing;
(b) the amendment to the Certificate of Incorporation of OraLabs
to change its name to "NVC Lighting Corporation.," or such
other name to be determined by NVC (the "New Name"), and to
increase the authorized number of shares of OraLabs from
100,000,000 to 200,000,000 shares;
16
(c) the approval of the "2005 Stock Option, SAR and Stock Bonus
Plan" of OraLabs covering 5,000,000 shares of common stock,
attached as Schedule 3 hereto;
(d) the approval of this Agreement and the transactions
contemplated herein, including without limitation the
redemption by OraLabs of the common stock owned by Gary
Schlatter as described in Recital D above; and
(e) to take such other actions as the shareholders of OraLabs may
determine are necessary or appropriate.
5.2 ACCESS TO PROPERTIES AND RECORDS. OraLabs and NVC will each afford
to the officers and authorized representatives of the other full access to the
properties, books, and records of OraLabs or NVC and its wholly-owned
subsidiary, NVCI, as the case may be, in order that each may have full
opportunity to make such reasonable investigation as it shall desire to make of
the affairs of the other, and each will furnish the other with such additional
financial and operating data and other information as to the business and
properties of OraLabs or NVC and its wholly-owned subsidiary, NVCI, as the case
may be, as the other shall from time to time reasonably request.
5.3 DELIVERY OF BOOKS AND RECORDS. At the Closing, OraLabs shall
deliver to Stephen A. Zrenda, Jr., Esq., legal counsel of NVC, the originals of
the corporate minute books, books of account, contracts, records, and all other
books or documents of OraLabs now in the possession or control of OraLabs or its
representatives and agents.
5.4 SPECIAL COVENANTS AND REPRESENTATIONS REGARDING THE ORALABS STOCK.
The consummation of this Agreement and the transactions herein contemplated,
including the issuance of the OraLabs Stock to the Shareholders of NVC as
contemplated hereby, constitutes the offer and sale of securities under the
Securities Act of 1933 and any applicable state statutes. Such transactions
shall be consummated in reliance on Regulation S and other exemptions from the
registration requirements of such statutes which depend, inter alia, upon the
circumstances under which the NVC Shareholders acquire such securities. In
connection with reliance upon exemptions from the registration requirements for
such transactions, at the Closing, NVC shall cause to be delivered, and the
Shareholders shall deliver to OraLabs, letters of representation in the form
attached hereto as Schedule 4.
5.5 APPROVAL OF CERTAIN SHAREHOLDERS. OraLabs hereby represents that
holders of in excess of 50% of the issued and outstanding stock of OraLabs have
or will have timely agreed to vote in favor of the matters in Section 5.1,
subject to completion of due diligence and the material accuracy of the
representations and warranties in this Agreement, and subject to fiduciary
obligations, if any. OraLabs will obtain a written agreement from these
shareholders, subject to these conditions within ten (10) days of this
Agreement, not to exceed ten (10) persons.
5.6 THIRD PARTY CONSENTS AND CERTIFICATES. OraLabs and NVC agree to
cooperate with each other in order to obtain any required third party consents
to this Agreement and the transactions herein and therein contemplated.
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5.7 ACTIONS PRIOR TO CLOSING.
(a) From and after the date of this Agreement until the Closing
Date and except as set forth in the OraLabs or NVC Schedules
or as permitted or contemplated by this Agreement, OraLabs and
NVC and its wholly-owned subsidiary, NVCI, respectively, will
each: (i) carry on its business in substantially the same
manner as it has heretofore; (ii) maintain and keep its
properties in states of good repair and condition as at
present, except for depreciation due to ordinary wear and tear
and damage due to casualty; (iii) maintain in full force and
effect insurance comparable in amount and in scope of coverage
to that now maintained by it; (iv) perform in all material
respects all of its obligation under material contracts,
leases, and instruments relating to or affecting its assets,
properties, and business; (v) use its best efforts to maintain
and preserve its business organization intact, to retain its
key employees, and to maintain its relationship with its
material suppliers and customers; and (vi) fully comply with
and perform in all material respects all obligations and
duties imposed on it by all federal and state laws and all
rules, regulations, and orders imposed by federal or state
governmental authorities.
(b) From and after the date of this Agreement until the Closing
Date, neither OraLabs nor NVC and its wholly-owned subsidiary,
NVCI, will: (i) make any change in their organizational
documents, Certificate of Incorporation or bylaws; (ii) take
any action described in section 2.6 in the case of NVC and its
wholly-owned subsidiary, NVCI, or in section 4.7, in the case
of OraLabs (all except as permitted therein or as disclosed in
the applicable party's schedules); or (iii) enter into or
amend any contract, agreement, or other instrument of any of
the types described in such party's schedules, except that a
party may enter into or amend any contract, agreement, or
other instrument in the ordinary course of business involving
the sale of goods or services.
5.8 SALES UNDER RULES 144 OR 145, IF APPLICABLE.
(a) OraLabs will use its best efforts to at all times to comply
with the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), including timely
filing all periodic reports required under the provisions of
the Securities Exchange Act of 1934 (the "Exchange Act") and
the rules and regulations promulgated thereunder.
(b) Upon being informed in writing by any person holding
restricted stock of OraLabs as of the date of this Agreement
that such person intends to sell any shares under Rule 144 or
Rule 145 promulgated under the Securities Act (including any
rule adopted in substitution or replacement thereof), OraLabs
will certify in writing to such person that it has filed all
of the reports required to be filed by it under the Exchange
Act to enable such person to sell such person's restricted
stock under Rule 144 or 145, as may be applicable in the
circumstances, or will inform such person in writing that it
has not filed any such report or reports.
(c) If any certificate representing any such restricted stock is
presented to OraLabs's transfer agent for registration of
transfer in connection with any sale theretofore made under
Rule 144 or 145, provided such certificate is duly endorsed
for transfer by the appropriate person(s) or accompanied by a
separate stock power duly executed by the appropriate
person(s) in each case with reasonable assurances that such
endorsements are genuine and effective, and is accompanied by
an opinion of counsel satisfactory to OraLabs and its counsel
that such transfer has complied with the requirements of Rule
144 or 145, as the cases may be, OraLabs will promptly
instruct its transfer agent to register such transfer and to
issue one or more new certificates representing such shares to
the transferee and, if appropriate under the provisions of
Rule 144 or 145, as the case may be, free of any stop transfer
order or restrictive legend. The provisions of this Section
5.9 shall survive the Closing and the consummation of the
transactions contemplated by this Agreement. The
indemnification provided for in this paragraph and in the
indemnification agreement shall, subject to the provisions of
Section 9.10, survive the Closing and consummation of the
transactions contemplated hereby and termination of this
Agreement.
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(d) After the Closing, OraLabs will take such other actions as may
be necessary to facilitate sales of the shares described in
Section 4.16 above.
5.9 INDEMNIFICATION.
(a) NVC and the Shareholders hereby agree to indemnify OraLabs and
each of the officers, agents and directors of OraLabs as of
the date of execution of this Agreement against any loss,
liability, claim, damage, or expense (including, but not
limited to, any and all expense whatsoever reasonably incurred
in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever),
to which it or they may become subject arising out of or based
on any inaccuracy appearing in or misrepresentation made under
Article II of this Agreement. The indemnification provided for
in this paragraph shall, subject to the provisions of Section
9.10, survive the Closing and consummation of the transactions
contemplated hereby and termination of this Agreement.
(b) OraLabs hereby agrees to indemnify NVC and each of the
officers, agents and directors of NVC as of the date of
execution of this Agreement and the Shareholders against any
loss, liability, claim, damage, or expense (including, but not
limited to, any and all expense whatsoever reasonably incurred
in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever),
to which it or they may become subject arising out of or based
on any inaccuracy appearing in or misrepresentation made under
Article IV of this Agreement. The indemnification provided for
in this paragraph shall, subject to the provisions of Section
9.10, survive the Closing and consummation of the transactions
contemplated hereby and termination of this Agreement.
(c) OraLabs agrees to cause OraLabs, Inc. to enter into an
indemnification agreement (in the form attached hereto as
Exhibit 1) with OraLabs at the Closing to the satisfaction of
NVC and the Shareholders to indemnify OraLabs from any
liabilities of any kind or nature, direct or indirect, known
or unknown, contingent or otherwise, that may exist
immediately prior to the Closing or that may be asserted after
the Closing Date regarding any claim or liability arising from
the operations of OraLabs or any other matter prior to the
Closing.
5.10 FAIRNESS OPINION. OraLabs will seek to obtain a fairness opinion
from an appropriate source that the terms of this Agreement and the transactions
contemplated hereby are fair to the shareholders of OraLabs from a financial
standpoint.
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5.11 STAND-STILL AGREEMENT. From and after the date hereof and up to
and including the Closing of this Agreement, the parties agree not to directly
or through intermediaries solicit, entertain or otherwise discuss with any
person or entity any other similar transaction. The obligations of OraLabs under
this paragraph are subject to all applicable fiduciary obligations.
5.12 DISSENTERS. As used in this paragraph, OraLabs, Inc. will be
referred to as the Subsidiary. After Closing, if there are any dissenting
shares, the Subsidiary will reimburse OraLabs for the total amount, up to
$20,000.00, in cash and within 30 days of receipt of written notification to the
Subsidiary by OraLabs that payment to holders of dissenters shares of up to the
fair value of such shares as determined under applicable Colorado law has been
made. At the option of the Subsidiary, OraLabs will permit the Subsidiary (and
its representatives) to actively participate in the process of determining the
amount payable to dissenters, and no offer amount or settlement will be made by
OraLabs for payments to dissenters without the prior written approval of the
Subsidiary which will not be unreasonably withheld. In consideration for making
those payments, it is agreed that OraLabs will issue to the Subsidiary, on the
next business day following the receipt by OraLabs of each reimbursement
payment, that number of shares which, when multiplied by the average of the
closing bid and ask price of the common stock of OraLabs as of the close of
trading on the date that payment is received by OraLabs , equals the amount paid
by the Subsidiary to reimburse OraLabs . The parties agree that the shares of
OraLabs issuable to the Subsidiary will be restricted securities but that
OraLabs will thereafter use its diligent, good-faith efforts to register those
shares as soon as possible thereafter, and the cost of filing fees paid to the
SEC or under Blue Sky Laws will be paid by the Subsidiary. Applicable Blue Sky
laws will be complied with so as to permit sales and resales of those shares
that are registered under the Registration Statement within the state of
Colorado and any other states chosen by OraLabs.
5.13 DELIVERY OF ADDITIONAL INSTRUMENTS ON REQUEST. Each party agrees
to execute and deliver or cause to be executed and delivered at the Closing and
at such other times and places as shall be reasonably agreed, such additional
instruments as it may reasonably request for the purpose of fully effecting the
transactions contemplated by this Agreement.
5.14 CONTINUED OPERATIONS. After Closing, OraLabs, directly or
indirectly through its subsidiary, NVC, will continue to actively conduct the
business of NVC as it had been conducted prior to Closing.
5.15 NASDAQ LISTING. NVC will use its best efforts to cause the OraLabs
common stock to continue to be listed on the NASDAQ SmallCap Market upon
completion of the Closing and/or to submit a new NASDAQ SmallCap Market listing
application if necessary. If continued listing on NASDAQ SmallCap Market is not
approved by the NASD for reasons attributable to OraLabs, NVC reserves its right
to re-negotiate the relative shareholdings between the Shareholders and members
or OraLabs.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF ORALABS
The obligations of OraLabs under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions, and if
OraLabs shall not consummate the transactions contemplated by this Agreement by
reason of the failure of any of such conditions to be met, OraLabs will have no
liability to NVC or its Shareholders:
6.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
made by NVC and the Shareholders in this Agreement were true when made and shall
be true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement), and NVC and the Shareholders
shall have performed or complied with all covenants and conditions required by
this Agreement to be performed or complied with by NVC and the Shareholders
prior to or at the Closing. OraLabs shall be furnished with a certificate,
signed by a duly authorized officer of NVC and dated the Closing Date, to the
foregoing effect.
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6.2 OFFICER'S CERTIFICATES. OraLabs shall have been furnished with a
certificate dated the Closing Date and signed by a duly authorized officer of
NVC to the effect that no litigation, proceeding, investigation, or inquiry is
pending or, to the best knowledge of NVC threatened, which might result in an
action to enjoin or prevent the consummation of the transactions contemplated by
this Agreement, or, to the extent not disclosed in the NVC Schedules, by or
against NVC which might result in any material adverse change in any of the
assets, properties, business, or operations of NVC and its wholly-owned
subsidiary, NVCI.
6.3 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there shall
not have occurred any material adverse change in the financial condition,
business, or operations of NVC and its wholly-owned subsidiary, NVCI, nor shall
any event have occurred which, with the lapse of time or the giving of notice,
may cause or create any material adverse change in the financial condition,
business, or operations of NVC and its wholly-owned subsidiary, NVCI.
6.4 OFFICER AND DIRECTOR QUESTIONNAIRES. OraLabs shall have received
officer and director questionnaires completed and signed by each executive
officer and director of NVC in form and substance reasonably satisfactory to
OraLabs and its counsel which shall contain information for use by OraLabs in
reporting the transaction contemplated hereby on Form 8-K and in Schedule 14A or
14C to be filed with the Securities and Exchange Commission.
6.5 OTHER ITEMS.
(a) OraLabs shall have received a members' list of NVC containing
the name, address, and number of shares held by each NVC
shareholder as of the date of Closing certified by an
executive officer of NVC as being true, complete, and
accurate.
(b) OraLabs shall have received such further documents,
certificates, or instruments relating to the transactions
contemplated hereby as OraLabs may reasonably request.
6.6 FAIRNESS OPINION. The Board of Directors of OraLabs shall have
received a fairness opinion satisfactory to it that remains in effect as of the
time of Closing.
6.7 PERFORMANCE. Each of the covenants and agreements of NVC and the
Shareholders to be performed or complied with on or before Closing pursuant to
the terms of this Agreement shall have been duly performed and complied with.
6.8 NO GOVERNMENTAL ACTION. No governmental agency or body shall have
taken any action or made any request of OraLabs, NVC or the Shareholders, as a
result of which OraLabs deems it inadvisable to proceed with the transaction,
including without limitation that the SEC has not objected to the use of the
Proxy Statement or Information Statement at the meeting of the shareholders of
OraLabs and has not otherwise objected to the completion of the transactions
contemplated by this Agreement.
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6.9 CONSENTS. All consents to the consummation of the transactions
contemplated by this Agreement that are required in order to prevent a breach of
or a default under the terms of any instrument to which NVC or the Shareholders
is a party or is bound shall have been obtained.
6.10 APPROVAL BY ORALABS SHAREHOLDERS. The transactions contemplated by
this Agreement shall have been approved at a shareholder meeting of OraLabs at
which a quorum of the shareholders is present by person or by proxy, and such
approval shall have been given by a majority of the shares voted at the meeting.
6.11 DUE DILIGENCE. OraLabs must be satisfied in its sole and absolute
discretion with the results of its due diligence investigation of NVC. Failure
to notify NVC within 30 days following mutual execution of this Agreement, that
OraLabs is not satisfied with the results of its due diligence investigation of
NVC, shall constitute a waiver of this paragraph.
6.12 ACCOUNTANT'S LETTER. OraLabs shall have received a "comfort"
letter from NVC's independent auditors, Murrell, Hall, McIntosh & Co., PLLP
covering the period from December 31, 2004 until that day which is no more than
ten days prior to the date of Closing, in a form reasonably satisfactory to
counsel for OraLabs.
6.13. LEGAL OPINION. OraLabs shall have received a legal opinion from
an attorney authorized to practice in the Hong Kong Special Administrative
Region in The People's Republic of China, that (i) NVC is a company duly
organized, validly existing, and in good standing under the laws of the Hong
Kong Special Administrative Region in The People's Republic of China ("PRC");
(ii) NVC has the power and is duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, including
qualification to do business as a foreign corporation in jurisdictions in which
the character and location of the assets owned by it or the nature of the
business transacted by it requires qualification; (iii) the execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof will not,
violate any provision of NVC's organizational documents; (iv) NVC has taken all
action required by laws, its articles of organization, certificate of business
registration, or otherwise to authorize the execution and delivery of this
Agreement; (v) NVC has full power, authority, and legal right and has taken all
action required by law, and otherwise to consummate the transactions herein
contemplated; and (vi) no authorization, approval, consent, or order of, or
registration, declaration, or filing with, any court or other governmental body
is required in connection with the execution and delivery by NVC of this
Agreement and the consummation by NVC of the transactions contemplated hereby,
and specifically that the exchange of the NVC Stock for the OraLabs Stock
requires no such consents and will be legally binding upon NVC.
6.14 NUMBER OF DISSENTERS. The number of shares that shall be the
subject of dissenters' rights exercised by any of the shareholders of OraLabs
shall not exceed 100,000.
Any of the above conditions can be waived by OraLabs in the exercise of
its sole discretion.
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
NVC AND THE SHAREHOLDERS
The obligations of NVC and the Shareholders under this Agreement are
subject to the satisfaction, at or before the Closing Date, of the following
conditions, and if NVC and the Shareholders shall not consummate the
transactions contemplated by this Agreement by reason of the failure of any of
such conditions to be met, they will have no liability to OraLabs:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
made by OraLabs in this Agreement were true when made and shall be true as of
the Closing Date (except for changes therein permitted by this Agreement) with
the same force and effect as if such representations and warranties were made at
and as of the Closing Date, and OraLabs shall have performed and complied with
all covenants and conditions required by this Agreement to be performed or
complied with by OraLabs prior to or at the Closing. NVC shall have been
furnished with a certificate, signed by a duly authorized executive officer of
OraLabs and dated the Closing Date, to the foregoing effect.
7.2 STOCKHOLDER APPROVAL. The stockholders of OraLabs shall have
approved this Agreement, the transactions contemplated hereby, and the other
matters described in Section 5.1.
7.3 OFFICER'S CERTIFICATE. NVC shall have been furnished with a
certificate dated the Closing Date and signed by a duly authorized executive
officer of OraLabs to the effect that no litigation, proceeding, investigation,
or inquiry is pending or, to the best knowledge of OraLabs threatened, which
might result in an action to enjoin or prevent the consummation of the
transactions contemplated by this Agreement.
7.4 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there shall
not have occurred any material adverse change in the financial condition,
business, or operations of OraLabs nor shall any event have occurred which, with
the lapse of time or the giving of notice, may cause or create any material
adverse change in the financial condition, business, or operations of OraLabs.
7.5 GOOD STANDING. OraLabs shall have received a certificate of good
standing from the Secretary of State of the State of Colorado or other
appropriate office, dated as of a date within ten days prior to the Closing Date
certifying that OraLabs is in good standing as a corporation in the State of
Colorado and has filed all tax returns required to have been filed by it to date
and has paid all taxes reported as due thereon.
7.6 OTHER ITEMS.
(a) NVC shall have received a shareholders' list of OraLabs from
its transfer agent, current at least within ten (10) days
prior to Closing, containing the name, address and number of
shares held by each such OraLabs shareholder, certified by a
representative of the transfer agent as being true, complete
and accurate.
(b) NVC shall have received such further documents, certificates,
or instruments relating to the transactions contemplated
hereby as NVC may reasonably request.
7.7 PERFORMANCE. Each of the covenants and agreements of OraLabs to be
performed or complied with on or before Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with.
7.8 NO GOVERNMENTAL ACTION. No governmental agency or body shall have
taken any action or made any request of NVC, the Shareholders or OraLabs, as a
result of which NVC deems it inadvisable to proceed with the transaction,
including without limitation that the SEC has not objected to the use of the
Proxy Statement or Information Statement at the meeting of the shareholders of
OraLabs and has not otherwise objected to the completion of the transactions
contemplated by this Agreement.
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7.9 CONSENTS. All consents to the consummation of the transactions
contemplated by this Agreement that are required in order to prevent a breach of
or a default under the terms of any instrument to which OraLabs is a party or is
bound shall have been obtained.
7.10 APPROVAL BY ORALABS SHAREHOLDERS. The transactions contemplated by
this Agreement shall have been approved at a shareholder meeting of OraLabs at
which a quorum of the shareholders is present by person or by proxy, and such
approval shall have been given by a majority of the shares voted at the meeting.
7.11 DUE DILIGENCE. NVC must be satisfied in its sole and absolute
discretion with the results of its due diligence investigation of OraLabs.
Failure to notify OraLabs within 30 days following mutual execution of this
Agreement, that NVC is not satisfied with the results of its due diligence
investigation of OraLabs, shall constitute a waiver of this paragraph.
Any of the above conditions can be waived by NVC or the Shareholders in
their sole and absolute discretion.
ARTICLE VIII
TERMINATION
8.1 TERMINATION.
(a) This Agreement may be terminated by the board of directors of
OraLabs or by the owners of NVC, shown on Schedule 1A attached
hereto, at any time prior to the Closing Date if: (i) there
shall be any actual or threatened action or proceeding before
any court or any governmental body which shall seek to
restrain, prohibit, or invalidate the transactions
contemplated by this Agreement and which, in the judgment of
such board of directors, made in good faith and based on the
advice of its legal counsel, makes it inadvisable to proceed
with the exchange contemplated by this Agreement; or (ii) any
of the transactions contemplated hereby are disapproved by any
regulatory authority whose approval is required to consummate
such transactions or in the judgment of such board of
directors, made in good faith and based on the advice of
counsel, there is substantial likelihood that any such
approval will not be obtained or will be obtained only on a
condition or conditions which would be unduly burdensome,
making it inadvisable to proceed with the exchange.. In the
event of termination pursuant to this paragraph (a) of section
8.1, no obligation, right, or liability shall arise hereunder,
and each party shall bear all of the expenses incurred by it
in connection with the negotiation, drafting, and execution of
this Agreement and the transactions herein contemplated,
subject to Section 9.4.
(b) This Agreement may be terminated at any time prior to the
Closing by action of the board of directors of OraLabs if NVC
shall fail to comply in any material respect with any of its
covenants or agreements contained in this Agreement or if any
of the representations or warranties of NVC contained herein
shall be inaccurate in any material respect, or if there shall
have been any change after the date of the latest balance
sheets of NVC, in the assets, properties, business, or
financial condition of NVC, which could have a materially
adverse affect on the value of the business of NVC, except any
changes disclosed in the NVC Schedules, dated as of the date
of execution of this Agreement. If this Agreement is
terminated pursuant to this paragraph (b) of section 8.1, this
Agreement shall be of no further force or effect, and no
obligation, right, or liability shall arise hereunder, except
that NVC shall bear its own costs in connection with the
negotiation, preparation, and execution of this Agreement,
subject to Section 9.4.
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(c) This Agreement may be terminated at any time prior to the
Closing by action of the owners of NVC, shown on Schedule 1A
attached hereto, if OraLabs shall fail to comply in any
material respect with any of its covenants or agreements
contained in this Agreement or if any of the representations
or warranties of OraLabs contained herein shall be inaccurate
in any material respect. If this Agreement is terminated
pursuant to this paragraph (c) of section 8.1, this Agreement
shall be of no further force or effect, and no obligation,
right, or liability shall arise hereunder, except that OraLabs
shall bear its own costs incurred in connection with the
negotiation, preparation, and execution of this Agreement,
subject to Section 9.4.
(d) This Agreement may be terminated by either party if the
transactions shall not have been consummated by June 30, 2005,
which date will be extended to July 31, 2005 if the Proxy
Statement or Information Statement has not then been cleared
by the SEC or if such Statement was not cleared by the SEC by
June 30, 2005, in either of which events such date may be
extended at the written election of either party for a period
not to exceed sixty days, or which date may in any case be
extended by mutual agreement of the parties in writing.
Provided, however, that the right to terminate the Agreement
under this paragraph will not be available to a party whose
action or failure to act has contributed to the failure of the
transactions to be consummated on or before such date and such
action or failure to act constitutes a material breach of this
Agreement.
(e) This Agreement may be terminated by either party if within 30
days after mutual execution of this Agreement, such party
gives written notice to the other that it is not satisfied, in
its sole and absolute discretion, with the results of its due
diligence investigation of the other party.
ARTICLE IX
MISCELLANEOUS
9.1 BROKERS. OraLabs and NVC agree that there were no finders or
brokers involved in bringing the parties together or who were instrumental in
the negotiation, execution, or consummation of this Agreement. OraLabs and NVC
each agree to indemnify the other against any claim by any third person for any
commission, brokerage, or finders' fee arising from the transactions
contemplated hereby based on any alleged agreement or understanding between the
indemnifying party and such third person, whether express or implied from the
actions of the indemnifying party.
9.2 GOVERNING LAW. This Agreement shall be governed by, enforced, and
construed under and in accordance with the laws of the United States of America
and, with respect to matters of state law, with the internal laws of the State
of Colorado without giving effect to its choice of law rules. Except as stated
at the end of this paragraph, any dispute, controversy or claim arising under or
in any way related to this Agreement or the breach thereof shall only be
submitted to and settled by binding arbitration before a single arbitrator by
the American Arbitration Association in accordance with the Association's
commercial rules then in effect. The arbitration (or legal proceedings described
at the end of this paragraph) will only be conducted in Denver, Colorado, which
the parties agree is the exclusive venue for the proceedings. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The arbitrator may award reasonable attorneys fees to the
prevailing party, or if the arbitrator believes that more than one party has
prevailed in separate aspects of the arbitration, the arbitrator may award
attorneys fees as it deems appropriate. Notwithstanding the foregoing, either
party may institute litigation in connection with seeking to enforce rights
under Section 9.5 below.
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9.3 NOTICES. Any notices or other communications required or permitted
hereunder shall only be sufficiently given if in writing and hand delivered to
it, sent by overnight delivery by a courier service of United States and
international recognition (such as Federal Express, DHL or UPS) that provides
international delivery, expenses prepaid, or by facsimile addressed as follows:
If to OraLabs, to: OraLabs Holding Corp.
c/o Michael Friess, Authorized Director
5353 Manhattan Circle, Suite 101 Boulder, CO 80303
Telephone: (303) 499-6000 x18
Facsimile: (303) 499-6666
Email: friessco@aol.com
With copies to: Douglas B. Koff, Esq.
Koff, Corn & Berger, P.C.
303 E. 17th Street, Suite 940
Denver, Colorado 80203-1262
Telephone: 303.861.1166
Facsimile: 303.861.0601
Email: dkoff@wckblaw.com
If to NVC, or any one or more
Shareholder, to: NVC Lighting Investment Holdings Limited
c/o Mr. Chang-Jiang Wu and Ms. Tracy Yun Hung
Suite A-C, 20/F Neich Tower
128 Gloucester Road, Wan Chai
Hong Kong, The People's Republic of China
Telephone: 011.852.2517.6226
Facsimile: 011.852.2548.7788
Email: yunhung@hkaudit.com
With copies to: Stephen A. Zrenda, Jr., Esq.
Stephen A. Zrenda, Jr., P.C.
100 N. Broadway Avenue, Suite 2440
Oklahoma City, OK 73102-8608
Telephone: 405.235.2111
Facsimile: 915.975.8003
Email: zrendaesq@aol.com
And
Tracy Wan
Belmont Capital Group Limited
Suite A-C, 20/F Neich Tower
128 Gloucester Road, Wan Chai
Hong Kong, The People's Republic of China
Telephone: 011.852.2517.6226
Facsimile: 011.852.2548.7788
Email: yunhung@hkaudit.com
26
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder. Each notice or other communication shall
only be effective and deemed to have been received (i) if given by facsimile,
one business day after such facsimile is transmitted to the facsimile number
specified above, and confirmation of delivery by the sender's machine is given,
(ii) if given by hand delivery, the date of delivery as evidenced by a written
receipt, or (iii) if given by a courier service, the third business day
following the business day of deposit with such service, with shipping charges
for the most expedited delivery prepaid or prearranged. As used herein, a
"business day" means Mondays through Fridays, excluding days (at the location
where the notice is to be delivered) that are national bank holidays. Notice to
NVC shall be deemed to be notice to all Shareholders for all purposes.
9.4 ATTORNEYS' FEES. In the event that any party institutes any
arbitration proceeding or a litigation proceeding under Section 9.5 to interpret
or enforce this Agreement or to secure relief from any default hereunder or
breach hereof, the breaching party or parties shall reimburse the nonbreaching
party or parties for all costs, including reasonable attorneys' fees, incurred
in connection therewith and in enforcing or collecting any judgment rendered
therein.
9.5 CONFIDENTIALITY. OraLabs on the one hand, and NVC and the
Shareholders on the other hand, agree that for a period of five (5) years from
and after the date of this Agreement (regardless of whether the transactions
contemplated hereby are consummated), each will hold, and will cause its
directors, officers, employees, affiliates, consultants and advisers
(collectively, "Representatives") to hold, in confidence all documents and
information furnished to it (the "Receiving Party") by or on behalf of the other
party (the "Disclosing Party") either before or after such date, in connection
with the transactions contemplated by this Agreement (the "Confidential
Material"). Each party agrees that it will use the Confidential Material solely
for the purpose of the transactions contemplated by this Agreement (including
without limitation descriptions or attachments of Confidential Material in any
press releases and public filings that OraLabs determines are necessary or
advisable to comply with applicable securities laws or as required by law) and
it will not use the Confidential Material in any way detrimental to the other
party. In the event that either party is requested in any proceeding to disclose
any Confidential Material, such party shall give the other party prompt notice
of such request so that the other party may seek an appropriate protective
order. If, in the absence of a protective order, a party is nonetheless
compelled to disclose Confidential Material, such party may disclose such
information without liability hereunder; provided, however, that such party will
give the other party written notice of the information to be disclosed as far in
advance of its disclosure as is practicable and, upon the request of and at the
expense of such other party, such party will use commercially reasonable efforts
to obtain assurances that confidential treatment will be accorded to such
information. The term "Confidential Material" shall not include information that
was or becomes generally available on a non-confidential basis provided that the
source of such information was not bound by a confidentiality agreement. Without
granting any right or license, the Disclosing Party agrees that the foregoing
shall not apply to any information that the Receiving Party can document: (i) is
(through no improper action or inaction by the Receiving Party or any affiliate,
agent, consultant or employee) generally available to the public, or (ii) was in
its possession or known by it prior to receipt from the Disclosing Party, or
(iii) was rightfully disclosed to it by a third party without restriction,
provided the Receiving Party complies with any restrictions imposed by the third
party, or (iv) was independently developed without use of any Confidential
Material of the Disclosing Party by employees of the Receiving Party who have
had no access to such information. The parties agree that because money damages
may not be a sufficient remedy for any breach of the foregoing covenants and
agreements, the Disclosing Party shall be entitled to specific performance and
injunctive and other equitable relief as a remedy for any such breach of this
Agreement in addition to all monetary remedies available at law or in equity.
27
9.6 EXPENSES OF STOCK EXCHANGE. OraLabs and NVC agree that they will
each bear their own costs and expenses in negotiating and closing the
transactions contemplated by this Agreement, including but not limited to,
attorneys' fees, except as otherwise expressly provided in this Agreement.
9.7 SCHEDULES; KNOWLEDGE. Each party is presumed to have full knowledge
of all information set forth in the other party's schedules (or substitutes
therefor as expressly provided in this Agreement) delivered pursuant to this
Agreement.
9.8 THIRD PARTY BENEFICIARIES. This contract is solely between OraLabs,
NVC and the Shareholders and, except as specifically provided, no director,
officer, stockholder, member, employee, agent, independent contractor, or any
other person or entity shall be deemed to be a third party beneficiary of this
Agreement.
9.9 ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties relating to the subject matter hereof, including this
Agreement alone fully and completely expresses the agreement of the parties
relating to the subject matter hereof. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision. Captions appearing in this Agreement are for convenience only and
shall not be deemed to explain, limit or amplify the provisions of this
Agreement.
9.10 SURVIVAL; TERMINATION. All representations, agreements, warranties
and indemnities in this Agreement shall survive only for a period of one year
following the Closing Date or termination of this Agreement (except that the
provisions of Section 9.5 survive for a period of five years after the date of
this Agreement), notwithstanding any investigation by or on behalf of any party,
and will be null and void unless arbitration (or litigation under Section 9.5)
is brought with respect thereto within one month after the expiration of
survival. In addition, all other provisions of this Agreement which by their
terms are to be performed after the Closing Date will survive for a period of
one year following the Closing Date.
9.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
9.12 AMENDMENT OR WAIVER. Every right and remedy provided herein shall
be cumulative with every other right and remedy, whether conferred herein, at
law, or in equity, and may be enforced concurrently herewith, and no waiver by
any party of the performance of any obligation by the other shall be construed
as a waiver of the same or any other default then, theretofore, or thereafter
occurring or existing. At any time prior to the Closing Date, this Agreement may
be amended by a writing signed by all parties hereto, with respect to any of the
terms contained herein, and any term or condition of this Agreement may be
waived or the time for performance hereof may be extended by a writing signed by
the party or parties for whose benefit the provision is intended.
9.13 ASSIGNABILITY. This Agreement shall not be assignable by either
party without the prior written consent of the other party, which may be
withheld in the other party's exercise of its sole discretion. This Agreement
shall inure to the benefit of and be enforceable by the permitted successors and
assigns of the parties.
9.14 DRAFTS. The submittal of drafts and redrafts of this Agreement or
of any other instrument(s) between the parties does not impose any legal
obligation upon any party, which will arise only at such time as the parties
choose in the exercise of their sole discretions to execute this Agreement.
28
IN WITNESS WHEREOF, the corporate parties hereto have caused this
Agreement to be executed by their respective officers, hereunto duly authorized,
as of the date first above-written.
ORALABS HOLDING CORP.
ATTEST: By: Michael I. Friess,
-------------------------------
Michael I. Friess,
authorized director
By:___________________________
Secretary
NVC LIGHTING INVESTMENT
HOLDINGS LIMITED
By: Chang-Jiang Wu
-------------------------------
Chang-Jiang Wu, President
NVC Shareholders:
----------------------------------
Chang-Jiang Wu
----------------------------------
Yong-Hong Wu
----------------------------------
Du Gang
The signature of the undersigned is to evidence its obligation to
comply with the provisions of Sections 5.9(c) and 5.12 applicable to it:
ORALABS, INC.,
a Colorado corporation
----------------------------------
Gary H. Schlatter, President
The signature of the undersigned is solely for the purpose of evidencing his
obligation to comply with the provisions of Recital D and Section 1.1 applicable
to him, and the undersigned makes no other representations, warranties or
indemnities of any kind:
GARY H. SCHLATTER, Individually
----------------------------------
Gary H. Schlatter
29
Schedule 1(a)
to
STOCK EXCHANGE AGREEMENT
Dated February 23, 2005
The following persons are the sole members and owners of the ordinary
shares of NVC, which are all of the outstanding securities of NVC:
NAME PERCENT OF OWNERSHIP
1. Chang-Jiang Wu 33.34%
2. Yong-Hong Hu 33.33%
3. Gang Du 33.33%
Schedule 1(b)
to
STOCK EXCHANGE AGREEMENT
Dated February 23, 2005
The common shares of common stock of OraLabs to be issued under the
terms of the Stock Exchange Agreement shall be issued as follows:
NAME NUMBER OF SHARES
1. Chang-Jiang Wu
Suites A-C, 20th Floor Neich Tower ________________
128 Gloucester Road, Wanchai
Hong Kong, The People's Republic of China
2. Yong-Hong Hu ________________
Suites A-C, 20th Floor Neich Tower
128 Gloucester Road, Wanchai
Hong Kong, The People's Republic of China
3. Gang Du ________________
Suites A-C, 20th Floor Neich Tower
128 Gloucester Road, Wanchai
Hong Kong, The People's Republic
of China
4. Belmont Capital Group Limited ________________
Suite A-C, 20/F Neich Tower
128 Gloucester Road, Wanchai
Hong Kong, The People's Republic of China
5. Tao Niu ________________
Suites A-C, 20th Floor Neich Tower
128 Gloucester Road, Wanchai
Hong Kong, The People's Republic
of China
6. China Venture Partners ________________
RR3 Box 3087
East Stroudbury, PA 18301
USA
Schedule 2
(OraLabs Options and Commitments per Section 4.6)
Options under the incentive stock option plan for employees and under
the Non-Employee Directors' Option Plan as described in OraLabs' Form 10-KSB/A
for the fiscal year ended December 31, 2003.
Schedule 3
(Proposed 2005 Stock Option, SAR and Stock Bonus Plan)
ORALABS HOLDING INC.
2005 STOCK OPTION, SAR AND STOCK BONUS PLAN
ARTICLE 1
GENERAL PROVISIONS
1.1 PURPOSE. The purpose of the OraLabs Holding Inc. 2005 Stock Option, SAR and
Stock Bonus Plan (the "Plan") shall be to attract, retain and motivate
directors, officers, employees and independent consultants (the "Participants")
of OraLabs, Inc. (the "Company") and its subsidiaries, if any, by way of
granting (i) non-qualified stock options ("Stock Options"), (ii) non-qualified
stock options with stock appreciation rights attached ("Stock Option SARs"),
(iii) incentive stock options ("ISO Options"), (iv) ISO Options with stock
appreciation rights attached ("ISO Option SARs"), and (v) stock bonuses. For the
purpose of this Plan, Stock Option SARs and ISO Option SARs are sometimes
collectively herein called "SARs;" and Stock Options and ISO Options are
sometimes collectively herein called "Options." The ISO Options to be granted
under the Plan are intended to be qualified pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"); and the Stock Options to
be granted are intended to be "non-qualified stock options" as described in
Sections 83 and 421 of the Code. Furthermore, under the Plan, the terms "parent"
and "subsidiary" shall have the same meaning as set forth in Subsections (e) and
(f) of Section 425 of the Code unless the context herein clearly indicates to
the contrary.
1.2 GENERAL. The terms and provisions of this Article I shall be applicable to
Stock Options, SARs and ISO Options unless the context herein clearly indicates
to the contrary.
1.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Stock Plan
Committee (the "Committee") appointed by the Board of Directors (the "Board") of
the Company and consisting of at least two (2) members from the Board. The
initial members of the Stock Option Committee shall be
_______________________________ and _________________________. The member(s) of
the Committee shall serve at the pleasure of the Board. The Committee shall have
the power where consistent with the general purpose and intent of the Plan to
(i) modify the requirements of the Plan to conform with the law or to meet
special circumstances not anticipated or covered in the Plan, (ii) suspend or
discontinue the Plan, (iii) establish policies and (iv) adopt rules and
regulations and prescribe forms for carrying out the purposes and provisions of
the Plan including the form of any "stock option agreements" ("Stock Option
Agreements"). Unless otherwise provided in the Plan, the Committee shall have
the authority to interpret and construe the Plan, and determine all questions
arising under the Plan and any agreement made pursuant to the Plan. Any
interpretation, decision or determination made by the Committee shall be final,
binding and conclusive. A majority of the Committee shall constitute a quorum,
and an act of the majority of the members present at any meeting at which a
quorum is present shall be the act of the Committee.
1.4 SHARES SUBJECT TO THE PLAN. Shares of stock ("Stock") covered by Stock
Options, SARs, ISO Options and stock bonuses shall consist of 2,000,000 shares
of the Common Stock, $.001 par value, of the Company. Either authorized and
unissued shares or treasury shares may be delivered pursuant to the Plan. If any
Option for shares of Stock, granted to a Participant lapses, or is otherwise
terminated, the Committee may grant Stock Options, SARs, ISO Options and stock
bonuses for such shares of Stock to other Participants. However, neither Stock
Options, SARs nor ISO Options shall be granted again for shares of Stock which
have been subject to SARs which are surrendered in exchange for cash or shares
of Stock issued pursuant to the exercise of SARs as provided in Article II
hereof.
1.5 PARTICIPATION IN THE PLAN. The Committee shall determine from time to time
those Participants who are to be granted Stock Options, SARs, ISO Options and
stock bonuses and the number of shares of Stock covered thereby. Directors who
are not employees of the Company or of a subsidiary shall not be eligible to
participate in the in ISO Options or ISO in Option SARs. During any period that
the Committee is comprised of less than three Directors each of whom is a
Disinterested Director, the maximum number of shares of Stock for which
employee-Directors may be granted options in any calendar year shall not exceed
10 percent (10%) of the aggregate number of shares of Stock with respect to
which Options may be granted under the Plan.
1.6 DETERMINATION OF FAIR MARKET VALUE. As used in the Plan, "fair market value"
shall mean on any particular day (i) if the Stock is listed or admitted for
trading on any national securities exchange or the National Market System of the
National Association of Securities Dealers, Inc. Automated Quotation System, the
last sale price, or if no sale occurred, the mean between the closing high bid
and low asked quotations, for such day of the Stock on the principal securities
exchange on which shares of Stock are listed, (ii) if Stock is not traded on any
national securities exchange but is quoted on the National Association of
Securities Dealers, Inc., Automated Quotation System, or any similar system of
automated dissemination of quotations or securities prices in common use, the
mean between the closing high bid and low asked quotations for such day of the
Stock on such system, (iii) if neither clause (i) nor (ii) is applicable, the
mean between the high bid and low asked quotations for the Stock as reported by
the National Quotation Bureau, Incorporated if at least two securities dealers
have inserted both bid and asked quotations for shares of the Stock on at least
five (5) of the ten (10) preceding days, (iv) in lieu of the above, if actual
transactions in the shares of Stock are reported on a consolidated transaction
reporting system, the last sale price of the shares of Stock on such system or,
(v) if none of the conditions set forth above is met, the fair market value of
shares of Stock as determined by the Board. Provided, for purposes of
determining "fair market value" of the Common Stock of the Company, such value
shall be determined without regard to any restriction other than a restriction
which will never lapse.
1.7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number of shares
of Stock under Stock Options and ISO Options granted under the Plan, the Option
Price and the ISO Price and the total number of shares of Stock which may be
purchased by a Participant on exercise of a Stock Option and an ISO Option shall
be approximately adjusted by the Committee to reflect any recapitalization,
stock split, merger, consolidation, reorganization, combination, liquidation,
stock dividend or similar transaction involving the Company except that a
dissolution or liquidation of the Company or a merger or consolidation in which
the Company is not the surviving or the resulting corporation, shall cause the
Plan and any Stock Option, SAR or ISO Option granted thereunder, to terminate
upon the effective date of such dissolution, liquidation, merger or
consolidation. Provided, that for the purposes of this Section 1.7, if any
merger, consolidation or combination occurs in which the Company is not the
surviving corporation and is the result of a mere change in the identity, form
or place of organization of the Company accomplished in accordance with Section
368(a)(1)(F) of the Code, then, such event will not cause a termination.
Appropriate adjustment may also be made by the Committee in the terms of a SAR
to reflect any of the foregoing changes.
1.8 AMENDMENT AND TERMINATION OF THE PLAN. The Plan shall terminate at midnight,
February____, 2008, but prior thereto may be altered, changed, modified, amended
or terminated by written amendment approved by the Board. Provided, that no
action of the Board may, without the approval of the shareholders, increase the
aggregate number of shares of Stock which may be purchased under Stock Options,
SARs or ISO Options or stock bonuses granted under the Plan; withdraw the
administration of the Plan from the Committee; amend or alter the Option Price
or ISO Price, as applicable; change the manner of computing the spread upon the
exercise of a SAR or amend the Plan in any manner which would impair the
applicability of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, to the Plan. Except as provided in this Article I, no amendment,
modification or termination of the Plan shall in any manner adversely affect any
Stock Option, SAR or ISO Option theretofore granted under the Plan without the
consent of the affected Participant.
1.9 EFFECTIVE DATE. The Plan shall be effective February ____, 2005, subject to
approval by the holders of a majority of the Common Stock of the Company
entitled to vote at a meeting called for such purpose. The Plan will terminate
at midnight on February ____, 2008.
1.10 SECURITIES LAW REQUIREMENTS. The Company shall have no obligation or
liability to issue any Stock hereunder unless the issuance of such shares would
comply with any applicable federal or state securities laws or any other
applicable law or regulations thereunder, including but not limited to the
effectiveness of a Form S-8 registration statement filed with the U.S.
Securities Exchange Commission.
1.11 SEPARATE CERTIFICATES. Separate certificates representing the Common Stock
of the Company to be delivered to a Participant upon the exercise of any Stock
Option, SAR, or ISO Option will be issued to such Participant.
1.12 PAYMENT FOR STOCK; RECEIPT OF STOCK OR CASH IN LIEU OF PAYMENT.
(A) PAYMENT FOR STOCK. Payment for shares of Stock purchased under this
Plan shall be made in full and in cash or check made payable to the Company.
Provided, payment for shares of Stock purchased under this Plan may also be made
in Common Stock of the Company or a combination of cash and Common Stock of the
Company in the event that the purchase of shares is pursuant to the exercise of
rights under an SAR attached to the Option and which is exercisable on the date
of exercise of the Option. In the event that Common Stock of the Company is
utilized in consideration for the purchase of Stock upon the exercise of a Stock
Option or an ISO Option, then, such Common Stock shall be valued at the "fair
market value" as defined in Section 1.6 of the Plan.
(B) In the alternative, the Committee is authorized to agree to accept
an assignment of the proceeds from the sale of the Common Stock to be issued to
a Participant for the payment of the option price, if daily executed by a
Participant so notarized in sub form deemed necessary and appropriate by The
Company in its sole description and acknowledged by the broker-dealer retained
by the Participant for a resale of The Common Stock of The Company.
(C) RECEIPT OF STOCK OR CASH IN LIEU OF PAYMENT. Furthermore, a
Participant may exercise an Option without payment of the Option Price or ISO
Price in the event that the exercise is pursuant to rights under an SAR attached
to the Option and which is exercisable on the date of exercise of the Option. In
the event an Option with an SAR attached is exercised without payment of the
Option Price or ISO Price, the Participant shall be entitled to receive either
(i) a cash payment from the Company equal to the excess of the total fair market
value of the shares of Stock on such date as determined with respect to which
the Option is being exercised over the total cash Option Price or ISO Price of
such shares of Stock as set forth in the Option or (ii) that number of whole
shares of Stock as is determined by dividing (A) an amount equal to the fair
market value per share of Stock on the date of exercise into (B) an amount equal
to the excess of the total fair market value of the shares of Stock on such date
with respect to which the Option is being exercised over the total cash Option
Price or ISO Price of such shares of Stock as set forth in the Option, and
fractional shares will be rounded to the next lowest number and the Participant
will receive cash in lieu thereof.
1.13 INCURRENCE OF DISABILITY AND RETIREMENT. A Participant shall be deemed to
have terminated employment or consulting and incurred a disability
("Disability") if such Participant suffers a physical or mental condition which,
in the judgment of the Committee, totally and permanently prevents a Participant
from engaging in any substantial gainful employment or consulting with the
Company or a subsidiary. A Participant shall be deemed to have terminated
employment as an employee or a consultant due to retirement ("Retirement") if
such Participant ceases to be an employee or a consultant of the Company or its
subsidiary, without cause, after attaining the age of 65.
1.14 STOCK OPTIONS AND ISO OPTIONS GRANTED SEPARATELY. Since the Committee is
authorized to grant Stock Options, SARs and ISO Options to Participants, the
grant thereof and Stock Option Agreements relating thereto will be made
separately and totally independent of each other. Except as it relates to the
total number of shares of Stock which may be issued under the Plan, the grant or
exercise of a Stock Option or SARs shall in no manner affect the grant and
exercise of any ISO Options. Similarly, the grant and exercise of any ISO Option
shall in no manner affect the grant and exercise of any Stock Option or SARs.
1.15 GRANTS OF OPTIONS AND STOCK OPTION AGREEMENT. Each Stock Option, ISO Option
and/or SAR granted under this Plan shall be evidenced by the minutes of a
meeting of the Committee or by the written consent of the Committee and by a
written Stock Option Agreement effective on the date of grant and executed by
the Company and the Participant. Each Option granted hereunder shall contain
such terms, restrictions and conditions as the Committee may determine, which
terms, restrictions and conditions may or may not be the same in each case.
1.16 USE OF PROCEEDS. The proceeds received by the Company from the sale of
Stock pursuant to the exercise of Options granted under the Plan shall be added
to the Company's general funds and used for general corporate purposes.
1.17 NON-TRANSFERABILITY OF OPTIONS. Except as otherwise herein provided, any
Option or SAR granted shall not be transferable otherwise than by will or the
laws of descent and distribution, and the Option may be exercised, during the
lifetime of the Participant, only by him or her. More particularly (but without
limiting the generality of the foregoing), the Option and/or SAR may not be
assigned, transferred (except as provided above), pledged or hypothecated in any
way, shall not be assignable by operation of law and shall not be subject to
execution, attachment, or similar process. Any attempted assignment, transfer,
pledge, hypothecation, or other disposition of the Option and/or SAR contrary to
the provisions hereof shall be null and void and without effect.
1.18 ADDITIONAL DOCUMENTS ON DEATH OF PARTICIPANT. No transfer of an Option
and/or SAR by the Participant by will or the laws of descent and distribution
shall be effective to bind the Company unless the Company shall have been
furnished with written notice and an unauthenticated copy of the will and/or
such other evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the successor to the Option
and/or SAR of the terms and conditions of such Option and/or SAR.
1.19 CHANGES IN EMPLOYMENT. So long as the Participant shall continue to be an
employee or consultant of the Company or any one of its subsidiaries, any Option
granted to him shall not be affected by any change of duties or position.
Nothing in the Plan or in any Stock Option Agreement which relates to the Plan
shall confer upon any Participant any right to continue in the employ as an
employee or consultant of the Company or of any of its subsidiaries, or
interfere in any way with the right of the Company or any of its subsidiaries to
terminate his employment or consulting arrangement at any time.
1.20 SHAREHOLDER RIGHTS. No Participant shall have a right as a shareholder with
respect to any shares of Stock subject to an Option prior to the purchase of
such shares of Stock by exercise of the Option.
1.21 RIGHT TO EXERCISE UPON COMPANY CEASING TO EXIST. Where dissolution or
liquidation of the Company or any merger consolidation or combination in which
the Company is not the surviving corporation occurs, the Participant shall have
the right immediately prior to such dissolution, liquidation, merger,
consolidation or combination, as the case may be, to exercise, in whole or in
part, his then remaining Options whether or not then exercisable, but limited to
that number of shares that can be acquired without causing the Participant to
have an "excess parachute payment" as determined under Section 280G of the Code
determined by taking into account all of Participant's "parachute payments"
determined under Section 280G of the Code. Provided, the foregoing
notwithstanding, after the Participant has been afforded the opportunity to
exercise his then remaining Options as provided in this Section 1.21, and to the
extent such Options are not timely exercised as provided in this Section 1.21,
then, the terms and provisions of this Plan and any Stock Option Agreement will
thereafter continue in effect, and the Participant will be entitled to exercise
any such remaining and unexercised Options in accordance with the terms and
provisions of this Plan and such Stock Option Agreement as such Options
thereafter become exercisable. Provided further, that for the purposes of this
Section 1.21, if any merger, consolidation or combination occurs in which the
Company is not the surviving corporation and is the result of a mere change in
the identity, form, or place of organization of the Company accomplished in
accordance with Section 368(a)(1)(F) of the Code, then, such event shall not
cause an acceleration of the exercisability of any such Options granted
hereunder.
1.22 ASSUMPTION OF OUTSTANDING OPTIONS AND SARS. To the extent permitted by the
then applicable provisions of the Code, any successor to the Company succeeding
to, or assigned the business of, the Company as the result of or in connection
with a corporate merger, consolidation, combination, reorganization or
liquidation transaction shall assume Options and SARs outstanding under the Plan
or issue new Options and/or SARs in place of outstanding Options and/or SARs
under the Plan.
ARTICLE II
TERMS OF STOCK OPTIONS AND EXERCISE
2.1 GENERAL TERMS.
(A) GRANT AND TERMS FOR STOCK OPTIONS. Stock Options shall be granted
by the Committee on the following terms and conditions: No Stock Option shall be
exercisable within three months from the date of grant (except as specifically
provided in Subsection 2.l(c) hereof, with regard to the death or Disability of
a Participant), nor more than five years after the date of grant. Subject to
such limitation, the Committee shall have the discretion to fix the period (the
"Option Period") during which any Stock Option may be exercised. Stock Options
granted shall not be transferable except by will or by the laws of descent and
distribution, Stock Options shall be exercisable only by the Participant while
actively employed as an employee or a consultant by the Company or a subsidiary,
except that (i) any such Stock Option granted and which is otherwise
exercisable, may be exercised by the personal representative of a deceased
Participant within 12 months after the death of such Participant (but not beyond
the Option Period of such Stock Option), (ii) if a Participant terminates his
employment as an employee or a consultant with the Company or a subsidiary on
account of Retirement, such Participant may exercise any Stock Option which is
otherwise exercisable at any time within three months of such date of
termination and (iii) if a Participant terminates his employment as an employee
or a consultant with the Company or a subsidiary on account of incurring a
Disability, such Participant may exercise any Stock Option which is otherwise
exercisable at any time within 12 months of such date of termination. If a
Participant should die during the applicable three-month or 12-month period
following the date of such Participant's Retirement or termination on account of
Disability, the rights of the personal representative of such deceased
Participant as such relate to any Stock Options granted to such deceased
Participant shall be governed in accordance with Subsection 2.1(a)(i) of this
Article II.
(B) OPTION PRICE. The option price ("Option Price") for shares of Stock
subject to a Stock Option shall be determined by the Committee, but in no event
shall the Option Price of an ISO be less than 100% of the "fair market value" of
the Stock on the date of grant and in no event shall the Option Price of Stock
Options be less than 85% of the "fair market value" of the Stock on the date of
grant.
(C) ACCELERATION OF OTHERWISE UNEXERCISABLE STOCK OPTION ON RETIREMENT,
DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment as an
employee or a consultant due to Retirement, (ii) a Participant who terminates
employment as an employee or a consultant due to a Disability, (iii) the
personal representative of a deceased Participant, or (iv) any other Participant
who terminates employment as an employee or a consultant upon the occurrence of
special circumstances (as determined by the Committee) to exercise and purchase
(within three months of such date of termination of employment or consulting
arrangement, or 12 months in the case of a deceased or disabled Participant; all
or any part of the shares subject to Stock Option on the date of the
Participant's Retirement, Disability, death, or as the Committee otherwise so
determines, notwithstanding that all installments, if any, with respect to such
Stock Option, had not accrued on such date. Provided, such discretionary
authority of the Committee shall not be exercised with respect to any Stock
Option (or portion thereof) if the applicable six-month waiting period for
exercise had not expired except in the event of the death or disability of the
Participant when the personal representative of the deceased Participant or the
disabled Participant may, with the consent of the Committee, exercise such Stock
Option notwithstanding the fact that the applicable six-month waiting period had
not yet expired.
(D) NUMBER OF STOCK OPTIONS GRANTED. Participants may be granted more
than one Stock Option. In making any such determination, the Committee shall
obtain the advice and recommendation of the officers of the Company or a
subsidiary which have supervisory authority over such Participants. The granting
of a Stock Option under the Plan shall not affect any outstanding Stock Option
previously granted to a Participant under the Plan.
(E) NOTICE OF EXERCISE OF STOCK OPTION. Upon exercise of a stock
option, a Participant shall give written notice to the Secretary of the Company,
or other officer designated by the Committee, at the Company's main office in
Spain. No Stock shall be issued to any Participant until the Company receives
full payment for the Stock purchased, if applicable, and any required state and
federal withholding taxes.
ARTICLE III
SARS
3.1 GENERAL TERMS.
(A) GRANT AND TERMS OF SARS. The Committee, when comprised of three or
more Directors all of whom are Disinterested Directors, may grant SARs to
Participants in connection with Stock Options or ISO Options granted under the
Plan. SARs shall not be exercisable (i) at such time that the Committee is
comprised of less than three Disinterested Directors or is not comprised solely
of Disinterested Directors, (ii) earlier than six months from the date of grant
except as specifically provided in Subsection 3.l(b) hereof in the case of the
death or Disability of a Participant, and (iii) shall terminate at such time as
the Committee determines and shall be exercised only upon surrender of the
related Stock Option or ISO Option and only to the extent that the related Stock
Option or ISO Option (or the portion thereof as to which the SAR is exercisable)
is exercised. SARs may be exercised only by the Participant while actively
employed as an employee or a consultant by the Company or a subsidiary except
that (i) any SARs previously granted to a Participant which are otherwise
exercisable may be exercised, with the approval of the Committee, by the
personal representative of a deceased Participant, even if such death should
occur within six months of the date of grant (but not beyond the expiration date
of such SAR), and (ii) if a Participant terminates his employment as an employee
or a consultant with the Company or a subsidiary, as the case may be, on account
of Retirement or incurring a Disability, such Participant may exercise any SARs
which are otherwise exercisable, with the approval of the Committee, anytime
within three months of the date of the termination by Retirement or within 12
months of termination by Disability. If a Participant should die during the
applicable three-month period following the date of such Participant's
Retirement or during the applicable 12 month period following the date of
termination on account of Disability, the rights of the personal representative
of such deceased Participant as such relate to any SARs granted to such deceased
Participant shall be governed in accordance with (i) of the second sentence of
this Subsection 3.l(a) of this Article III. The applicable SAR shall (i)
terminate upon the termination of the underlying Stock Option or ISO Option, as
the case may be, (ii) only be transferable at the same time and under the same
conditions as the underlying Stock Option or ISO Option is transferable, (iii)
only be exercised when the underlying Stock Option or ISO Option is exercised,
and (iv) may be exercised only if there is a positive spread between the Option
Price or ISO Price, as applicable and the "fair market value" of the Stock for
which the SAR is exercised.
(B) ACCELERATION OF OTHERWISE UNEXERCISABLE SARS ON RETIREMENT, DEATH,
DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment as an
employee or a consultant with the Company or a subsidiary due to Retirement,
(ii) a Participant who terminates employment as an employee or a consultant with
the Company or a subsidiary due to a Disability, (iii) the personal
representative of such deceased Participant, or (iv) any other Participant who
terminates employment as an employee or a consultant with the Company or a
subsidiary upon the occurrence of special circumstances (as determined by the
Committee) to exercise (within three months of such date of termination of such
employment or 12 months in the case of a disabled or deceased Participant) all
or any part of any such SARs previously granted to such Participant as of the
date of such Participant's Retirement, Disability, death, or as the Committee
otherwise so determines, notwithstanding that all installments, if any with
respect to such SARs, had not accrued on such date. Provided, such discretionary
authority of the Committee may not be exercised with respect to any SAR (or
portion thereof if the applicable six-month waiting period for exercise had not
expired as of such date, except (i) in the event of the Disability of the
Participant or (ii) the death of the Participant, when such disabled Participant
or the personal representative of such deceased Participant may, with the
consent of the Committee, exercise such SARs notwithstanding the fact that the
applicable six-month waiting period had not yet expired.
(C) FORM OF PAYMENT OF SARS. The Participant may request the method and
combination of payment upon the exercise of a SAR; however, the Committee has
the final authority to determine whether the value of the SAR shall be paid in
cash or shares of Stock or both. Upon exercise of a SAR, the holder is entitled
to receive the excess amount of the "fair market value" of the Stock (as of the
date of exercise) for which the SAR is exercised over the Option Price or ISO
Price, as applicable, under the related Stock Option or ISO Option, as the case
may be. All applicable federal and state withholding taxes will be paid by the
Participant to the Company upon the exercise of a SAR since the excess amount
described above will be required to be included within taxable income in
accordance with Sections 61 and 83 of the Code.
(D) DISINTERESTED DIRECTORS. As used in this Article III,
"Disinterested Directors" shall have the same meaning as the term "disinterested
person" set forth in Rule 16b-3(d) under the Securities Exchange Act of 1934, as
amended, and shall mean a Director who is not at the time he exercises
discretion in administering the Plan eligible, and has not at any time within
one year prior thereto been eligible for selection as a person to whom stock may
be allocated or to whom stock options or stock appreciation rights may be
granted pursuant to the Plan or any other plan of the Company or its affiliates
entitling the participants therein to acquire stock, stock options or stock
appreciation rights of the Company or any of its affiliates; provided, however,
that in the event that the definition of "disinterested person" contained in
Rule 16b-3 is amended, the term "Disinterested Person" as it is defined herein
shall automatically be deemed amended so as to the have the same meaning as the
amended term "disinterested person" under Rule 16b-3.
ARTICLE IV
GRANTING OF ISO OPTIONS
4.1 GENERAL. With respect to ISO Options granted on or after the effective date
of the Plan the following provisions in this Article IV shall apply to the
exclusion of any inconsistent provision in any other Article in this Plan since
the ISO Options to be granted under the Plan are intended to qualify as
"incentive stock options" as defined in Section 422 of the Code.
4.2 GRANT AND TERMS OF ISO OPTIONS. ISO Options may be granted only to employees
of the Company and any of its subsidiaries. No ISO Options shall be granted to
any person who is not eligible to receive "incentive stock options" as provided
in Section 422 of the Code. No ISO Options shall be granted to any management
employee if, immediately before the grant of an ISO Option, such employee owns
more than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries (as determined in accordance with the stock
attribution rules contained in Section 425(d) of the Code). Provided, the
preceding sentence shall not apply if, at the time the ISO Option is granted,
the ISO Price is at least 110% of the "fair market value" of the Stock subject
to the ISO Option, and such ISO Option by its terms is not exercisable after the
expiration of five years from the date such ISO Option is granted.
(A) ISO OPTION PRICE. The option price for shares of Stock subject to
an ISO Option ("ISO Price") shall be determined by the Committee, but in no
event shall such ISO Price be less than the fair market value of the Stock on
the date of grant.
(B) ANNUAL ISO OPTION LIMITATION. The aggregate "fair market value"
(determined as of the time the ISO Option is granted) of the Stock with respect
to which ISO Options are exercisable for the first time by any Participant
during in any calendar year (under all "incentive stock option" plans qualified
under Section 422 of the Code sponsored by the Company and its subsidiary
corporations) shall not exceed $100,000.
(C) TERMS OF ISO OPTIONS. ISO Options shall be granted on the following
terms and conditions: No ISO Option shall be exercisable within six months from
the date of grant (except as specifically provided in Subsection 4.2(d) hereof
with regard to the Disability or death of a Participant), nor more than 10 years
after the date of grant. The Committee shall have the discretion to fix the
period (the "ISO Period") during which any ISO Option may be exercised. ISO
Options granted shall not be transferable except by will or by the laws of
descent and distribution. ISO Options shall be exercisable only by the
Participant while actively employed by the Company or a subsidiary, except that
(i) any such ISO Option granted and which is otherwise exercisable, may be
exercised by the personal representative of a deceased Participant within 12
months after the death of such Participant (but not beyond the expiration date
of such ISO Option), (ii) if a Participant terminates his employment as an
employee with the Company or a subsidiary on account of Retirement, such
Participant may exercise any ISO Option which is otherwise exercisable at any
time within three months of such date of termination and (iii) if a Participant
terminates his employment with the Company or a subsidiary on account of
incurring a Disability, such Participant may exercise any ISO Option which is
otherwise exercisable at any time within 12 months of such date of termination.
If a Participant should die during the applicable three-month or 12 month period
following the date of such Participant's Retirement or Disability, then in such
event, the rights of the personal representative of such deceased Participant as
such relate to any ISO Options granted to such deceased Participant shall be
governed in accordance with Subsection 4.1(c) of this Article IV.
(D) ACCELERATION OF OTHERWISE UNEXERCISABLE ISO OPTION ON RETIREMENT,
DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The Committee, in its sole
discretion, may permit (i) a Participant who terminates employment as an
employee with the Company or a subsidiary due to Retirement, (ii) a Participant
who terminates employment as an employee with the Company or a subsidiary due to
a Disability, (iii) the personal representative of a deceased Participant, or
(iv) any other Participant who terminates employment as an employee with the
Company or a subsidiary upon the occurrence of special circumstances (as
determined by the Committee) to exercise and purchase (within three months of
such date of termination of employment as an employee or 12 months in the case
of a disabled or deceased Participant) all or any part of the shares of Stock
subject to ISO Option on the date of the Participant's Retirement, Disability,
death, or as the Committee otherwise so determines, notwithstanding that all
installments, if any, had not accrued on such date. Provided, such discretionary
authority of the Committee may not be exercised with respect to any ISO Option
(or portion thereof if the applicable six-month waiting period for exercise had
not expired as of such date except in the event of the Disability of the
Participant or death of the Participant, when the disabled Participant or the
personal representative of such deceased Participant, may, with the consent of
the Committee, exercise such ISO Option notwithstanding the fact that the
applicable six-month waiting period had not yet expired.
(E) NUMBER OF ISO OPTIONS GRANTED. Subject to the applicable
limitations contained in the Plan with respect to ISO Options, Participants may
be granted more than one ISO Option. In making any such determination, the
Committee shall obtain the advice and recommendation of the officers of the
Company or a subsidiary which have supervisory authority over such Participants.
The granting of an ISO Option under the Plan shall not affect any outstanding
ISO Option previously granted to a Participant under the Plan.
(F) NOTICE TO EXERCISE ISO OPTION. Upon exercise of an ISO Option, a
Participant shall give written notice to the Secretary of the Company, or other
officer designated by the Committee, at the Company's principal executive
offices.
ARTICLE V
OPTIONS NOT QUALIFYING AS
INCENTIVE STOCK OPTIONS
5.1 NON-QUALIFYING OPTIONS. With respect to all or any portion of any option
granted under the Plan not qualifying as an "incentive stock option" under
Section 422 of the Code, such option shall be considered as a Stock Option
granted under this Plan for all purposes.
OraLabs, Inc.
By:______________________________________
_____________________, President
Date Plan adopted and
approved by the Board of
Directors: February ___,
2005.
Date Plan adopted and
approved by the Stockholders:
February ____, 2005.
Schedule 4
(Letters of Representation per Section 5.4)
EXHIBIT 1
(form of indemnification agreement)
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into this ___ day of February, 2005,
by and between NVC Lighting Investment Holdings Limited ("NVC") and OraLabs,
Inc. (the "Company"), a wholly-owned subsidiary of OraLabs Holding Corp.
("OraLabs").
WHEREAS, NVC and OraLabs have entered into a Stock Exchange Agreement
dated February ____, 2005, in which all of the issued and outstanding stock of
NVC was acquired by OraLabs in exchange for 90% to 94% of the total issued and
outstanding shares of Common Stock of OraLabs on a fully diluted basis (the
"Exchange Agreement").
WHEREAS, Section 5.9(c) and Section 5.12 of the Exchange Agreement
provide for the indemnification of OraLabs by the Company after the closing of
the Exchange Agreement.
NOW, THEREFORE, in consideration of the foregoing, it is hereby agreed
as follows:
1. The Company hereby agrees to indemnify OraLabs from any liabilities
of any kind or nature, direct or indirect, known or unknown, contingent or
otherwise, that exist immediately prior to the closing of the Exchange Agreement
or that may be asserted after the closing date of the Exchange Agreement
regarding any claim or liability arising from the operations of OraLabs or its
subsidiaries or any other matter arising prior to the closing date of the
Exchange Agreement, including attorneys' fees and costs in defending any such
actions.
2. The Company further agrees to indemnify OraLabs consistent with the
terms of Section 5.12 of the Exchange Agreement regarding payments to the
holders of dissenters' shares, such terms being hereby incorporated herein by
reference.
3. Any notices or other communications required or permitted hereunder
shall be sufficiently given if personally delivered to it or sent by registered
mail or certified mail, postage prepaid, or by prepaid telegram addressed as
follows:
If to the Company: OraLabs, Inc.
c/o Mr. Gary H. Schlatter, President
18685 East Plaza Drive
Parker, Colorado 80134
Telephone: 303.783.9499
Facsimile: 303.499.6666
With copies to: Charles H. Jacobs
Lohf Shaiman Jacobs Hyman & Feiger PC
900 Cherry Tower
950 S Cherry Street
Denver, CO 80246-2666
Telephone: 303.753.9000
Facsimile: 303.753.9997
e-mail: cjacobs@lohfshaiman.com
If to OraLabs or NVC: NVC Lighting Investment Holdings Limited
c/o Mr. Chang-Jiang Wu and
Ms. Tracy Yun Hung
Suite A-C, 20/F Neich Tower
128 Gloucester Road, Wan Chai
Hong Kong, The People's Republic of China
Telephone: 011.852.2517.6226
Facsimile: 011.852.2548.7788
Email: yunhung@hkaudit.com
With copies to: Stephen A. Zrenda, Jr., Esq.
Stephen A. Zrenda, Jr., P.C.
100 N. Broadway Avenue, Suite 2440
Oklahoma City, OK 73102-8608
Telephone: 405.235.2111
Facsimile: 915.975.8003
Email: ZRENDAESQ@AOL.COM
-----------------
and Belmont Capital Group Limited
Tracy Yun Hung
Suite A-C, 20th Floor Neich Tower
128 Gloucester Road, Wanchai
Hong Kong, The Peoples Republic of China
Telephone: 011.852.2517.6226
Facsimile: 011.852.2548.7788
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder. Each notice or other communication shall
only be effective and deemed to have been received (i) if given by facsimile,
one business day after such facsimile is transmitted to the facsimile number
specified above, and confirmation of delivery by the sender's machine is given,
(ii) if given by hand delivery, the date of delivery as evidenced by a written
receipt, or (iii) if given by a courier service, the third business day
following the business day of deposit with such service, with shipping charges
for the most expedited delivery prepaid or prearranged. As used herein, a
"business day" means Mondays through Fridays, excluding days (at the location
where the notice is to be delivered) that are national bank holidays.
4. The parties agree that facsimile copies of this Agreement and any
signature thereon shall be as legally binding and enforceable as the original or
copy original of this Agreement or any signatures thereof.
5. The parties agree that this Agreement shall be construed in
accordance with the laws of the State of Colorado and that exclusive
jurisdiction and venue for any controversy, claim or suit arising out of or
connected with this Agreement shall be in the courts located in Denver,
Colorado.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NVC: NVC Lighting Investment Holdings Limited
By:_______________________________
President
The Company: OraLabs, Inc.
By:_______________________________
President
FIRST AMENDMENT TO
STOCK EXCHANGE AGREEMENT
DATED AS OF FEBRUARY 23, 2005
This First Amendment ("Amendment") is dated for referenced purposes
only June 20, 2005, and is by and between ORALABS HOLDING CORP., a Colorado
corporation ("OraLabs"), NVC LIGHTING INVESTMENT HOLDINGS LIMITED ("NVC"), and
Messrs. Chang-Jiang Wu, Yong-Hong Hu and Gang Du (the "Shareholders").
WHEREAS, the parties entered into a Stock Exchange Agreement dated as
of February 23, 2005, as amended by a Letter Agreement dated March 21, 2005
(collectively, the "Original Agreement"); and
WHEREAS, the parties wish to amend the Original Agreement as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties agree as follows:
1. Except as modified by this Amendment, all provisions of the Original
Agreement remain in effect. Capitalized terms used in this Amendment that are
not otherwise defined herein, have the same meanings as set forth in the
Original Agreement. In the event of a conflict between any provision of this
Amendment and any provision of the Original Agreement, the provision of this
Amendment will prevail.
2. NVC has delivered to OraLabs its Consolidated Financial Statements
as of December 31, 2004 ("Financial Statements"), including the Report of
Independent Registered Public Accounting Firm. The Consolidated Statement of
Operations included in the Financial Statements shows Net Income for the year
ended December 31, 2004, in the amount of $7,105,027.00.
3. The parties acknowledge that under Section 1.1 of the Original
Agreement, the percentage of shares of OraLabs to be issued to the Shareholders
at Closing is 94 percent to the extent that there is more than $7,000,000 of net
after tax profits on a consolidated basis for the fiscal year ended December 31,
2004. Accordingly, the parties agree that, unless there is subsequently any
restatement of or other revision or adjustment to the Financial Statements that
reduces to below $7,000,000.00 the amount of consolidated net after tax profits
for the fiscal year ended December 31, 2004, then the number of shares to be
issued to the Shareholders will equal 94 percent of the fully diluted, total
issued and outstanding shares of common stock of OraLabs upon completion of the
Closing. The fully diluted, total issued and outstanding shares of common stock
of OraLabs will include the shares currently outstanding plus shares to be
issued at or before Closing as provided in the Original Agreement or otherwise.
4. As a result of delays in delivery of the audited NVC Financial
Statements and OraLabs has yet not delivered a fairness opinion from an
appropriate source that the terms of this Agreement and the transactions
contemplated hereby are fair to the shareholders of OraLabs from a financial
standpoint, the parties wish to confirm certain time periods in the Original
Agreement to reflect existing circumstances. Accordingly, the following
provisions of the Original Agreement are modified:
o The first sentence of Section 8.1(d) will read as follows: "This
Agreement may be terminated by either party if the transaction shall not have
been consummated or cleared by the SEC on or before September 30, 2005, which
date may be extended for a period not to exceed 45 days if the Proxy Statement
or Information Statement shall has been cleared by the SEC on or before
September 30, 2005, and which date may only be extended by mutual agreement of
the parties in writing."
o The final sentence of Section 1.3 will read as follows:
"Notwithstanding the foregoing, if this Agreement does not close by September
30, 2005, either party may terminate this Agreement unless that date is extended
under Section 8.1(d)."
o The NVC financial statements for the first quarter of 2005, which
were required to be delivered by April 30, 2005 in accordance with the
provisions of Section 2.3(c), must be delivered by June 30, 2005.
o Under the Letter Agreement, OraLabs was given ten business days after
receipt of all requested due diligence information within which to advise NVC of
its satisfaction or dissatisfaction with the results of its due diligence
investigation, and the right to terminate the Agreement if it is not satisfied
with such results. Additional due diligence information was delivered to OraLabs
on May 5, 2005, after the April 11, 2005 deadline in the Letter Agreement.
OraLabs has advised NVC that it will be presenting follow-up questions with
respect to the supplied due diligence materials. Accordingly, the parties agree
that OraLabs will continue to have ten business days after it receives the
responses to its follow-up due diligence requests within which to advise NVC of
its satisfaction or dissatisfaction with the results of the due diligence
information, and the right to terminate the Agreement if it is dissatisfied.
5. This Amendment may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall be but a
single instrument. Facsimile and electronic signatures shall be accepted as
originals.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
ORALABS HOLDING CORP. NVC LIGHTING INVESTMENT HOLDINGS,
LIMITED
By: /s/ Michael L. Friess By: /s/ Chang-Jiang Wu
--------------------- -----------------------
Michael L. Friess, Authorized Director Chang-Jiang Wu, President
/s/ Chang-Jiang Wu
----------------------
Chang-Jiang Wu, Shareholder
/s/ Yong-Hong Hu
-----------------------
Yong-Hong Hu, Shareholder
/s/ Chung Du
-----------------------
Chung Du, Shareholder
2
ANNEX 2
(Opinion of Capitalink)
[GRAPHIC OMITTED]
August 10, 2005
Independent Committee of the Board of Directors
OraLabs Holding Corp.
18685 East Plaza Drive
Parker, CO 80134
Gentlemen:
Pursuant to the Stock Exchange Agreement ("Exchange Agreement"), dated as of
February 23, 2005 and amended as of June 20, 2005, by and among OraLabs Holding
Corp. ("OraLabs" or the "Company"), NVC Lighting Investment Holdings Limited
("NVC"), and Mr. Chang-Jiang Wu, Mr. Yong-Hong Hu, and Mr. Gang Du (collectively
referred to as the "NVC Shareholders"), the following transactions are
contemplated: (i) the issuance by OraLabs of shares representing approximately
94% of the fully diluted outstanding common stock of OraLabs (after giving
effect to the redemption and stock issuances described in (ii) and (iii) below)
in exchange for the transfer to OraLabs of all of the ownership interests in
NVC, which is held by the NVC Shareholders; (ii) the redemption of all of the
common stock of OraLabs held by its President, Gary H. Schlatter, individually,
in exchange for the transfer to Mr. Schlatter of all of the common stock held by
OraLabs in its wholly-owned subsidiary, OraLabs, Inc.; and (iii) the adoption of
the 2005 Director Stock Plan and the issuance under that Plan to each of the
three non-employee directors of 100,000 shares of common stock (the items set
forth in (i), (ii) and (iii) above are hereinafter, the "Transaction"). We have
been retained by the Independent Committee of the Board of Directors to render
an opinion as to whether, on the date of such opinion, the Transaction is fair,
from a financial point of view, to the Company's nonaffiliated shareholders.
We were not asked to consider, and our opinion does not address, the relative
merits of the Transaction as compared to any alternative business strategy that
might exist for the Company. We were not engaged to seek alternatives to the
Transaction that might exist for the Company.
In arriving at our opinion, we took into account an assessment of general
economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuations generally and,
among other things:
o Reviewed the Exchange Agreement.
o Reviewed publicly available financial information and other data with
respect to OraLabs, including the Annual Report on Form 10-KSB for the
year ended December 31, 2004, the Quarterly Report on Form 10-QSB for
the three months ended March 31, 2005, the Current Reports on Form 8-K
filed December 28, 2004, February 23, 2005 and June 20, 2005.
Independent Committee of the Board of Directors
OraLabs Holding Corp.
August 10, 2005
Page 2
o Reviewed financial information and other data with respect to NVC,
including the audited financial report for the three years ended
December 31, 2004, and management-prepared financial statements for
the three months ended March 31, 2005.
o Reviewed the Transaction's pro forma impact on the Company's
nonaffiliated shareholders' ownership interest in OraLabs.
o Considered the historical financial results and present financial
condition of OraLabs and NVC.
o Reviewed certain publicly available information concerning the trading
of, and the market for, the common stock of OraLabs, the Comparable
Companies (as hereinafter defined), and a general market index.
o Reviewed and compared the OraLabs nonaffiliated shareholders' (i)
aggregate pre-announcement market value, and (ii) aggregate indicated
value on a pre-Transaction basis to the nonaffiliated shareholders'
aggregate indicated value on a Post-Transaction basis.
o Reviewed and analyzed certain financial characteristics of companies
that were deemed to have characteristics comparable to OraLabs and
NVC.
o Reviewed and analyzed certain financial characteristics of target
companies in transactions where such target company was deemed to have
characteristics comparable to those of OraLabs and NVC.
o Reviewed and analyzed the control premiums paid in certain other
transactions.
o Reviewed and discussed with representatives of OraLabs and NVC certain
financial and operating information furnished by them, including
financial analyses with respect to their respective business and
operations.
o Performed such other analyses and examinations as were deemed
appropriate.
In arriving at our opinion we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used by us
without assuming any responsibility for any independent verification of any such
information and we further relied upon the assurances of management of the
Company and NVC that they are not aware of any facts or circumstances that would
make any such information inaccurate or misleading. With respect to the
financial information utilized, we assumed that such information has been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments, and that such information provides a reasonable basis upon which
we could make our analyses and form an opinion. We have not made a physical
inspection of the properties and facilities of the Company or NVC and have not
made or obtained any evaluations or appraisals of the assets and liabilities
(contingent or otherwise) of the Company and NVC. We have not attempted to
confirm if the Company and NVC have good title to its respective assets.
We assumed that the Transaction will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statues, rules and regulations. In addition, we
assumed that the Transaction will comply with all applicable non-U.S. laws,
regulations and statutes. Further, based upon discussions with Company
management, it is assumed that the Transaction will not be a taxable event to
the Company's shareholders. We further assumed that the Transaction will be
consummated substantially in accordance with the terms set forth in the
Agreement, without any further amendments thereto, and without waiver by the
Company of any of the conditions to any obligations or in the alternative that
any such amendments, revisions or waivers thereto will not be detrimental to the
Company or the Company's nonaffiliated shareholders.
Independent Committee of the Board of Directors
OraLabs Holding Corp.
August 10, 2005
Page 3
Our opinion is necessarily based upon market, economic and other conditions, as
they exist on, and could be evaluated as of August 10, 2005. Accordingly,
although subsequent developments may affect our opinion, we do not assume any
obligation to update, review or reaffirm our opinion.
Our opinion is for the use and benefit of the Independent Committee of the Board
of Directors in connection with its consideration of the Transaction and is not
intended to be and does not constitute a recommendation to any shareholder of
the Company as to how such shareholder should vote with respect to the
Transaction. Further, we do not express any opinion as to the underlying
valuation or future performance of the Company or NVC or the price at which
either the Company's or NVC's common stock would trade at any time in the
future.
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the Transaction is fair, from a financial point of view, to the
Company's nonaffiliated shareholders.
In connection with our services, we have previously received a retainer and will
receive the balance of our fee upon the rendering of this opinion. Neither
Capitalink nor its principals beneficially own any interest in the Company or
NVC. Capitalink has not provided any services to the Company within the past two
years. In addition, the Company has agreed to indemnify us for certain
liabilities that may arise out of the rendering this opinion.
Our opinion is for the use and benefit of the Independent Committee of the Board
of Directors and is rendered in connection with its consideration of the
Transaction and may not be used by the Company for any other purpose or
reproduced, disseminated, quoted or referred to by the Company at any time, in
any manner or for any purpose, without the prior written consent of Capitalink,
except that this opinion may be reproduced in full in, and references to the
opinion and to Capitalink and its relationship with the Company may be included
in filings made by the Company with the Securities and Exchange Commission if
required by Securities and Exchange Commission rules, and in any proxy statement
or similar disclosure document disseminated to shareholders if required by the
Securities and Exchange Commission rules.
Very truly yours,
/s/ Capitalink, L.C.
Capitalink, L.C.
ANNEX 3
(Colorado Statutes re: Dissenters' Rights of Appraisal)
Article 113. Dissenters' Rights
ss. 7-113-101. Definitions
--------------------------
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring domestic or foreign corporation,
by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 7-113-102 and who exercises that right at the time and in
the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at the legal rate as specified in
section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares that are
registered in the name of a nominee to the extent such owner is recognized by
the corporation as the shareholder as provided in section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial shareholder.
ss. 7-113-102. Right to dissent
-------------------------------
(1) A shareholder, whether or not entitled to vote, is entitled to dissent and
obtain payment of the fair value of the shareholder's shares in the event of any
of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party if:
(I) Approval by the shareholders of that corporation is required for the merger
by section 7-111-103 or 7-111-104 or by the articles of incorporation; or
(II) The corporation is a subsidiary that is merged with its parent corporation
under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of an entity controlled by the corporation if
the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to section 7-112-102(2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended,
[FN1] or on the national market system of the national association of securities
dealers automated quotation system, or were held of record by more than two
thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the shareholders
entitled to receive notice of the shareholders' meeting at which the corporate
action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine shareholders
entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant to
the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of merger
or share exchange;
(b) Shares of any other corporation which at the effective date of the plan of
merger or share exchange either will be listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or will be held of record by more than two thousand
shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2.5) A shareholder, whether or not entitled to vote, is entitled to dissent and
obtain payment of the fair value of the shareholder's shares in the event of a
reverse split that reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so created is
to be acquired for cash or the scrip is to be voided under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair value of
the shareholder's shares in the event of any corporate action to the extent
provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this article may not challenge the corporate action creating such
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
ss. 7-113-103. Dissent by nominees and beneficial owners
--------------------------------------------------------
(1) A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares held
on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares beneficially
owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents with
respect to the shares held by any one or more beneficial shareholders, each such
beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113- 203.
ss. 7-113-201. Notice of dissenters' rights
-------------------------------------------
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting, the notice of the
meeting shall be given to all shareholders, whether or not entitled to vote. The
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202(1).
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104, any written or oral solicitation of a shareholder to execute a
writing consenting to such action contemplated in section 7-107- 104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202(2).
ss. 7-113-202. Notice of intent to demand payment
-------------------------------------------------
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is submitted to a vote at a shareholders' meeting and if notice of
dissenters' rights has been given to such shareholder in connection with the
action pursuant to section 7-113-201(1), a shareholder who wishes to assert
dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken, written notice
of the shareholder's intention to demand payment for the shareholder's shares if
the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104 and if notice of dissenters' rights has been given to such shareholder
in connection with the action pursuant to section 7-113-201(2), a shareholder
who wishes to assert dissenters' rights shall not execute a writing consenting
to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1) or (2)
of this section is not entitled to demand payment for the shareholder's shares
under this article.
ss. 7-113-203. Dissenters' notice
---------------------------------
(1) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized, the corporation shall give a written dissenters' notice
to all shareholders who are entitled to demand payment for their shares under
this article.
(2) The dissenters' notice required by subsection (1) of this section shall be
given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the effective date
or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands and
the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a dissenter to
state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand and
certificates for certificated shares, which date shall not be less than thirty
days after the date the notice required by subsection (1) of this section is
given;
(f) State the requirement contemplated in section 7-113-103(3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
ss. 7-113-204. Procedure to demand payment
------------------------------------------
(1) A shareholder who is given a dissenters' notice pursuant to section 7-
113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be the payment
demand form contemplated in section 7-113-203(2)(d), duly completed, or may be
stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of this
section retains all rights of a shareholder, except the right to transfer the
shares, until the effective date of the proposed corporate action giving rise to
the shareholder's exercise of dissenters' rights and has only the right to
receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand for
payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
ss. 7-113-205. Uncertificated shares
------------------------------------
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
ss. 7-113-206. Payment
----------------------
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7- 113-204,
at the address stated in the payment demand, or if no such address is stated in
the payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent fiscal year
or, if that is not available, the corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date of payment, an
income statement for that year, and, if the corporation customarily provides
such statements to shareholders, a statement of changes in shareholders' equity
for that year and a statement of cash flow for that year, which balance sheet
and statements shall have been audited if the corporation customarily provides
audited financial statements to shareholders, as well as the latest available
financial statements, if any, for the interim or full-year period, which
financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section 7-
113-209; and
(e) A copy of this article.
ss. 7-113-207. Failure to take action
-------------------------------------
(1) If the effective date of the corporate action creating dissenters' rights
under section 7-113-102 does not occur within sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenters' rights
under section 7-113-102 occurs more than sixty days after the date set by the
corporation by which the corporation must receive the payment demand as provided
in section 7-113-203, then the corporation shall send a new dissenters' notice,
as provided in section 7-113-203, and the provisions of sections 7-113-204 to
7-113-209 shall again be applicable.
ss. 7-113-208. Special provisions relating to shares acquired after announcement
--------------------------------------------------------------------------------
of proposed corporate action
----------------------------
(1) The corporation may, in or with the dissenters' notice given pursuant to
section 7-113-203, state the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action creating dissenters'
rights under section 7-113-102 and state that the dissenter shall certify in
writing, in or with the dissenter's payment demand under section 7-113-204,
whether or not the dissenter (or the person on whose behalf dissenters' rights
are asserted) acquired beneficial ownership of the shares before that date. With
respect to any dissenter who does not so certify in writing, in or with the
payment demand, that the dissenter or the person on whose behalf the dissenter
asserts dissenters' rights acquired beneficial ownership of the shares before
such date, the corporation may, in lieu of making the payment provided in
section 7-113-206, offer to make such payment if the dissenter agrees to accept
it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall include
or be accompanied by the information required by section 7-113-206(2).
ss. 7-113-209. Procedure if dissenter is dissatisfied with payment or offer
---------------------------------------------------------------------------
(1) A dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within sixty
days after the date set by the corporation by which the corporation must receive
the payment demand; or
(c) The corporation does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares as required by section
7-113-207(1).
(2) A dissenter waives the right to demand payment under this section unless the
dissenter causes the corporation to receive the notice required by subsection
(1) of this section within thirty days after the corporation made or offered
payment for the dissenter's shares.
ss. 7-113-301. Court action
---------------------------
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand, commence
a proceeding and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection (1) of
this section in the district court for the county in this state in which the
street address of the corporation's principal office is located or, if the
corporation has no principal office in this state, in the district court for the
county in which the street address of its registered agent is located, or, if
the corporation has no registered agent, in the district court for the city and
county of Denver. If the corporation is a foreign corporation without a
registered agent, it shall commence the proceeding in the county in which the
domestic corporation merged into, or whose shares were acquired by, the foreign
corporation would have commenced the action if that corporation were subject to
the first sentence of this subsection (2).
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unresolved parties to the proceeding commenced under
subsection (2) of this section as in an action against their shares, and all
parties shall be served with a copy of the petition. Service on each dissenter
shall be by registered or certified mail, to the address stated in such
dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to such order. The parties to the
proceeding are entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding commenced under subsection (2)
of this section is entitled to judgment for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus interest, exceeds the
amount paid by the corporation, or for the fair value, plus interest, of the
dissenter's shares for which the corporation elected to withhold payment under
section 7-113-208.
ss. 7-113-302. Court costs and counsel fees
-------------------------------------------
(1) The court in an appraisal proceeding commenced under section 7-113-301 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation; except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under section 7-113- 209.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court finds
the corporation did not substantially comply with part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
ANNEX 4
(2005 Director Stock Plan)
ORALABS HOLDING CORP.
2005 DIRECTOR STOCK PLAN
ADOPTED BY THE BOARD OF DIRECTORS AUGUST 1, 2005
1. PURPOSE.
(a) The purpose of the 2005 Director Stock Plan (the "Plan") is to
provide a means by which each director of OraLabs Holding Corp. (the "Company")
may be given bonus compensation in the form of stock of the Company.
(b) The Company, by means of the Plan, seeks to secure and retain the
services of persons capable of serving as directors of the Company and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board shall have the power where consistent with the
general purpose and intent of the Plan to (i) modify the requirements of the
Plan to conform with the law or to meet special circumstances not anticipated or
covered in the Plan, (ii) suspend or discontinue the Plan, (iii) establish
policies and (iv) adopt rules and regulations and prescribe forms for carrying
out the purposes and provisions of the Plan. Unless otherwise provided in the
Plan, the Board shall have the authority to interpret and construe the Plan, and
determine all questions arising under the Plan. Any interpretation, decision or
determination made by the Board shall be final, binding and conclusive. A
majority of the Board shall constitute a quorum, and an act of the majority of
the members present at any meeting at which a quorum is present shall be the act
of the Board.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 8 relating to adjustments
upon changes in stock, the stock that may be granted under the Plan shall not
exceed in the aggregate Five Hundred Thousand (500,000) shares of the Company's
common stock.
(b) The stock subject to the Plan may be any shares that may be
available for issuance by the Company.
4. ELIGIBILITY.
Shares may be issued to any person serving in the capacity of a
director of the Company and may be authorized by the Board for issuance on any
subsequent date.
5. GRANTS.
The Board may grant awards of shares of common stock from time to time
as it considers to be warranted or otherwise justified for the purpose of
compensating directors for services provided to the Company. The Board may
impose restrictions upon the transferability of the shares as it deems advisable
or may issue shares without any restrictions upon transferability.
6. COVENANTS OF THE COMPANY.
The Company may seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required, if
any, to issue and sell shares of stock as may be permitted under the terms of
this Plan.
7. MISCELLANEOUS.
(a) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Director any right to continue in the service of the
Company in any capacity or shall affect any right of the Company, its Board or
stockholders to remove any Director pursuant to the Company's Bylaws and the
provisions of the Colorado Business Corporation Act.
(b) In connection with stock issued pursuant to the Plan, it shall be a
condition precedent to the Company's obligation to issue or transfer shares to a
Director that such Director make arrangements satisfactory to the Company to
insure that the amount of any federal, state or local withholding tax required
to be withheld with respect to such sale or transfer, or such removal or lapse,
is made available to the Company for timely payment of such tax. The withholding
tax obligation may be satisfied by payment of the amount in cash or by such
other method permitted by law.
8. ADJUSTMENTS UPON CHANGES IN STOCK.
Subject to any required action by the stockholders of the Company, the
number of shares of common stock that have been authorized for issuance under
the Plan but which have not then been issued shall be proportionately adjusted
for any increase or decrease in the number of issued shares of common stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the common stock, or any other increase or decrease in
the number of issued shares of common stock effected without receipt of
consideration by Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
9. AMENDMENT OF THE PLAN.
The Board may at any time amend, alter, suspend or discontinue the
Plan. However, to the extent that shareholder approval is necessary for the Plan
to satisfy the requirements of Section 422 of the Code, Rule 16b-3, or any other
applicable law or regulation, including the requirements of the NASD or an
established stock exchange, such amendment shall not be effective until
shareholder approval is obtained. The Board may in its sole discretion submit
any other amendment to the Plan for shareholder approval.
10. TERMINATION OR SUSPENSION OF THE PLAN.
The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on December 31, 2010.
2
ORALABS HOLDING CORP.
18685 E. PLAZA DRIVE
PARKER, COLORADO 80134
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ORALABS HOLDING CORP.
The undersigned stockholder of OraLabs Holding Corp., a Colorado
corporation, (the "Company" or "OraLabs"), hereby appoints Michael I. Friess and
Allen R. Goldstone, and each of them, as proxies, each with the power to appoint
his substitute, and hereby authorizes each of them to represent, and to vote as
designated in this Proxy, all of the shares of common stock of the Company held
of record by the undersigned on ______________, 2005, at the Annual Meeting of
Stockholders of the Company to be held at the Company's offices at 18685 E.
Plaza Drive, Parker, Colorado 80134, at 10:00 a.m., Mountain Time on
______________, 2005, and at all adjournments or postponements thereof upon the
following matters, as set forth in the Notice of Annual Meeting of Shareholders
and Proxy Statement, each dated ______________, 2005, copies of which have been
received by the undersigned, hereby revoking any Proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION, THIS PROXY WILL
BE VOTED FOR THE APPROVAL OF THE PROPOSALS DESCRIBED IN THE PROXY STATEMENT AND
AS LISTED BELOW IN THIS PROXY.
The Board of Directors of the Company recommends a vote "FOR" all of
the matters that are being considered at the meeting.
1. PROPOSAL ONE: Approval of the Stock Exchange Agreement and the transactions
by which (a) OraLabs will issue shares to the NVC shareholders in exchange for
all of the ownership interest in NVC Lighting Investment Holdings Limited,
immediately followed by (b) the redemption of all of the shares of OraLabs owned
by Gary H. Schlatter, individually, in exchange for the issuance to him of all
of the shares of OraLabs, Inc. owned by OraLabs, and (c) the approval of the
2005 Director Stock Plan and the issuance to the OraLabs non-employee directors
of 100,000 shares each under that plan:
/ / FOR / / AGAINST / / ABSTAIN
2. PROPOSAL TWO: Election of Directors:
--------------------------------------------- ---------------------- ------------------------ -----------------------
1. ELECTION OF DIRECTORS [ ] [ ] [ ]
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO FOR ALL FOR ALL WITHHOLD
VOTE FOR AN INDIVIDUAL NOMINEE, STRIKE A EXCEPT AUTHORITY
LINE THROUGH THE NOMINEE'S NAME IN THE FOR ALL
LIST BELOW AND MARK CENTER BOX TO RIGHT.)
--------------------------------------------- ---------------------- ------------------------ -----------------------
NOMINEES: Du Gang, Wu Chang Jiang, Hu Yong Hong, Tracy Wan Hung
3. PROPOSAL THREE: Amendment of the Articles of Incorporation to change the name
of OraLabs from OraLabs Holding Corp. to NVC Lighting Corporation or similar,
and to increase the number of common shares authorized to 200,000,000:
/ /FOR / /AGAINST / /ABSTAIN
4. PROPOSAL FOUR: Approval of the 2005 Stock Option, SAR and Stock Bonus Plan:
/ /FOR / /AGAINST / /ABSTAIN
5. PROPOSAL FIVE: Ratify the selection of Murell, Hall McIntosh & Co., PLLP as
the independent auditors for the fiscal year ended December 31, 2005, but if the
other proposals are not adopted, then this proposal is to ratify the selection
of Ehrhardt Keefe Steiner & Hottman, P.C. as the independent auditors of the
Company for the fiscal year ending December 31, 2005.
/ /FOR / /AGAINST / /ABSTAIN
In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the Annual Meeting of Shareholders and
at any adjournments thereof. The Board of Directors at present know of no other
business to be presented by or on behalf of the Company or the Board of
Directors at the Annual Meeting of Shareholders.
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Signature Signature if Held Jointly
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Name (Please print) Name (Please print)
Date: ______________________________ Date:_______________________________